Q3 2024 Summary
Published Jan 28, 2025, 9:22 PM UTC- AJG has a robust M&A pipeline with significant capacity for acquisitions, expecting continued great opportunities and indicating potential for significant growth through M&A.
- Strong international growth is driving overall performance, with international operations up 10% this quarter, led by Australia and New Zealand.
- Positive pricing environment in casualty lines is boosting brokerage revenue, with umbrella coverage rates rising about 10%, and casualty lines up a full point in the third quarter versus the second quarter.
- Increased workforce and lease termination charges due to offshoring and workforce optimization could lead to higher restructuring costs and potential operational disruptions.
- Competitors are making large acquisitions to improve their middle market capabilities, which may increase competition and pressure on AJG's market share in this key segment.
- A general slowdown in M&A activity, possibly influenced by the upcoming presidential election, could hinder AJG's growth strategy that relies heavily on acquisitions to drive revenue expansion.
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Brokerage Segment Organic Growth | Q3 2024 (vs Q3 2023) | 7% to 9% | 2,396.4Vs 2,122.1→ ~12.9% YoY growth | Beat |
Risk Management Segment Organic Growth | Q3 2024 (vs Q3 2023) | ~9% for full year, with ~7% in the next two quarters | 410.0Vs 369.4→ ~11% YoY growth | Beat |
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2025 Brokerage Organic Growth Guidance
Q: What are components of 2025 brokerage organic growth?
A: The company expects brokerage organic growth of 6% to 8% in 2025, with half coming from new business exceeding lost business, and the rest split between exposure and rate increases. The benefits business is assumed to grow around 5%, and reinsurance around 9%. -
M&A Activity and Pipeline
Q: How is M&A pipeline and impact of election year?
A: The M&A pipeline is strong, with 60 term sheets prepared representing $700 million in revenue. Despite a general slowdown, the company expects a return to a more robust market post-election. Historically, they close a significant portion of such deals. -
Margins and 2025 Outlook
Q: Any early margin thoughts for 2025?
A: With expected 6% to 8% organic growth in 2025, there is an opportunity for margin expansion. The company plans to leverage scale advantages, technologies, and offshore centers of excellence to improve margins despite wage inflation and other expenses. -
Contingent Commissions and Storm Impact
Q: Will storms affect contingent commissions?
A: The company anticipates minimal impact from recent storms, estimating a potential decrease of only a couple of million dollars, which wouldn't significantly affect organic growth or contingents. -
Reinsurance Growth and Demand
Q: What's driving robust reinsurance growth despite flat pricing?
A: Strong demand for reinsurance and consulting capabilities is fueling growth. The company is seeing 8% to 9% organic growth in reinsurance, driven by increased utilization and clients' need for expertise in capacity management. -
Casualty Pricing Trends
Q: Are casualty prices increasing?
A: There is definite concern on casualty pricing across the board. Umbrella rates are rising at about 10%, and U.S. casualty lines are up a full point in Q3 versus Q2. This may lead to some price hardening on the casualty side. -
International Growth vs. U.S.
Q: How is international retail performing compared to U.S.?
A: International operations grew 10% this quarter, led by Australia and New Zealand, which "killed it." The U.S. retail was slightly lower, but overall growth remains strong with no areas of concern internationally. -
Life Insurance Sales Impact
Q: What's the impact of lumpy life insurance sales?
A: Life insurance sales added about 1 point to organic growth. Delays affected Q2 and Q3, but half of that has already been recouped in October. The life insurance business is about $125 million, explaining its impact on organic growth. -
Wholesale and E&S Market Trends
Q: What's the trend in wholesale and E&S lines?
A: There is continued strong submission flow into the wholesale operation RPS, with no slowdown. The E&S market is growing and maintaining accounts, with open brokerage and reinsurance organic growth at 8% to 9%. -
Customer Budgets and Rates
Q: How are customer insurance budgets changing?
A: Budgets are increasing due to growth in exposure units amid a robust economy. Clients are expanding, leading to higher budgets. The company cautions that rates are up (property 4%, general liability 6%), and works with clients on coverage and risk retention strategies. -
Valuations and Acquisition Multiples
Q: Why did acquisition multiples decrease this quarter?
A: One acquisition was priced below market due to opportunities for improvement, lowering the average multiple. The company emphasizes pricing discipline, aiming for fair prices that balance value and integrating great people. -
Brokerage Organic Growth Decrease
Q: Why did brokerage organic growth decrease sequentially?
A: Despite a slight decrease, underlying organic growth is steady around 7.5% each quarter when adjusting for seasonality in reinsurance and life insurance sales. Rate differentials are not significant between quarters.