Highlights from the AJG earnings release and analyst call
Arthur J. Gallagher & Co. (AJG) reported a strong fourth quarter with total brokerage and risk management revenue up over 3% to $1.5 billion on a reported basis. For the year, revenue in these segments was up over 4% to approximately $6.0 billion.
Highlights from the quarter and year include:
- Revenue within AJG’s Brokerage segment grew 3.6% in the fourth quarter to $1.2 billion, most of which was driven by organic growth of 3.1%. In the U.S., the property & casualty (P&C) retail business experienced organic revenue growth of 4.5%. New business and client retention levels remained in-line with the same period last year, while mid-term policy modifications, including cancellations, were slightly better. Within the Employee Benefits (EB) segment, fourth quarter organic revenue growth declined 2%.
- Globally, P&C rates continued to increase, up 8% in the fourth quarter, including more than 8% growth in the U.S. Lines of Business experiencing significant increases included property and professional liability. With almost every line of business firm or firming, management believes market conditions will remain similar into 2021.
- During the fourth quarter, AJG’s P&C brokerage operations experienced customer retention at pre-pandemic levels and new business generation above pre-pandemic levels (partially offset by non-recurring business that was below pre-pandemic levels). Renewal exposure units declined in the fourth quarter but increased premium rates across most geographies and lines of coverage offset the impact of lower exposure units.
- Within its EB segment, AJG reported that organic growth from its traditional health and welfare business was slightly positive despite the level of covered lives on renewal business remaining below pre-pandemic levels. Revenue from consulting and special project work also decreased in the fourth quarter but has shown some improvement thus far in the first quarter. Management indicated that it believes revenue softness within this segment could persist over the next few quarters, or deteriorate further, if the economy is slow to recover.
- In the fourth quarter, AJG closed ten brokerage acquisitions, representing an estimated $100.2 million in annualized revenue. AJG finished the year with 27 total acquisitions, down from 46 brokerage acquisitions in 2019. On a revenue basis, total acquisitions in 2020 represent an estimated $251.4 million in annualized revenue. So far in 2021, AJG has announced transactions, which collectively represent an additional $85 million in revenue.
- AJG expects the merger & acquisition market to continue to be active in 2021. The company has 30 term sheets in process and indicated that it has plenty of capacity to continue to make acquisitions throughout the year.
- Looking forward, although the timing around economic recovery from the COVID-19 pandemic remains uncertain, AJG management expects first quarter organic revenue growth to remain in the 3%-4% range.
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