2017 brokerage revenue: $4.54 billion

Percent increase (decrease): 8.4%

Arthur J. Gallagher & Co.’s tried and true strategy of growth through acquisition continued to pay off in 2017.

Gallagher made 36 brokerage acquisitions last year, accounting for about $159 million in additional revenue, said J. Patrick Gallagher Jr., the brokerage’s chairman, president and CEO. But whereas Gallagher went through a period earlier in the decade of acquiring some large operations, often international, this year’s acquisitions tended to be smaller, said Mr.

Gallagher, with a typical brokerage averaging $5 million to $7 million in additional revenue. During the first quarter of 2018, Gallagher closed seven acquisitions that represented about $30 million in additional revenue, he said.

“The pipeline is as robust as it has ever been,” he said. “Our secret sauce is we select people who are going to sell their firm and stay. These are the folks that bring us the fresh ideas to help us continue to bring client solutions that we hadn’t done in the past.”

“2017 was another record year for us,” said Mr. Gallagher. “We’re making great progress. The thing that made it an outstanding year was that every division contributed. Fourth quarter was really a very strong quarter.”

Analysts agreed with Mr. Gallagher’s assessment.

“In general, they’ve done pretty well,” said J. Paul Newsome, managing director at Sandler O’Neill & Partners L.P. in Chicago. “They went through a long period of time where they had to digest a number of large international acquisitions. What we’ve seen since then is a lot of stability in their business. Organic growth has been reasonably strong, given the environment, and profit margins have continued to improve.”

“On the whole, Gallagher had a pretty good year,” said Mark Dwelle, director of insurance equity research at RBC Capital Markets L.L.C. in Richmond, Virginia. “They saw steady improvement in their brokerage margin and accelerating organic growth throughout the year. They remain committed to the acquisition strategy, and clearly that’s translating into good organic growth.”

Gallagher’s 2017 brokerage revenue of $4.54 billion — an increase of 8.4% year over year — put the brokerage in the No. 4 spot of Business Insurance’s 2018 ranking of the world’s largest brokerages, the same place it held in 2017.

Mr. Gallagher stressed the importance of technology in the brokerage’s strategy.

“We’re always working on new things,” he said. “We have 16 products that are digital applications. We’re seeing a lot activity around digitalization, robotics and (artificial intelligence).”

An example of the brokerage’s investment in technology is the expansion of technology used in a cyber liability policy for small- to medium-sized accounts that binds 100 quotes a day without human involvement. The new digital applications of the technology include builders risk, umbrella, incidental professional indemnity, and errors and omissions, among others, he said.

“We’re always trying to innovate, particularly in the practice/ niche areas we have,” adding that “80% of our new business will fall into those 32 practices or niches.” He said the company’s Gallagher Bassett Services Inc. operation has had strong organic growth across the board.

He added that the brokerage remains deeply involved in succession planning.

“We’ve essentially moved a new generation into leadership,” he said. “The succession planning has been going on for 15 years.”

Early in 2017, Gallagher announced that William F. Ziebell, who had served as a regional leader in the brokerage’s benefits division, would become president of the division. That followed announcements in 2016 that Joel D. Cavaness, president of Gallagher’s Risk Placement Services Inc., would join the Gallagher executive management committee, and that Michael R. Pesch, previously leader of Gallagher’s retail property/casualty brokerage operations in the Midwest, had been promoted to the newly created role of president of U.S. retail property/casualty brokerage operations.

Mr. Gallagher said the brokerage is also looking for the talent of the future through offering internships.

“I’m extremely pleased we have over 400 people on our internships,” he said, adding that the company has offered internships since 1965. “It’s clearly a war for talent.”

The baby boomer generation is aging, said Mr. Gallagher.

“They’ve been able to keep their accounts through relationships,” but now the drive is to have more information — and customers don’t care if their fathers played golf with their brokers, he said. “A lot of these relationships will get fragmented.”