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Organic growth aids Arthur J. Gallagher's 4.1% rise in quarterly revenue

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Despite a challenging quarter for its risk management segment, Arthur J. Gallagher & Co. said Friday that organic, merger-related and productivity growth helped boost its second-quarter revenue 4.1% to $1.43 billion.

Quarterly net earnings totaled $155.7 million, up 5.5% from a year earlier.

Higher commissions and fees pushed Gallagher's quarterly brokerage revenue up 6% to $939.1 million.

The risk management segment’s revenue declined 6.8% from a year ago to $176.5 million.

During a conference call with analysts, Gallagher Chairman, President and CEO J. Patrick Gallagher said the company excelled in “organic growth, merger growth, improving our quality and productivity, and maintaining our unique culture.”

Mr. Gallagher said brokerage organic growth was 2.2%, but excluding the loss of a large account, “we would’ve been closer to 2.5%.”

“I’m extremely pleased every single division posted positive organic growth in the quarter,” he said.

The broker’s domestic employee consulting business also posted about 3% organic growth “and is seeing a tremendous amount of new business opportunities,” he said.

Despite a more challenging quarter for its risk management segment, Mr. Gallagher said he was pleased with the unit’s efforts to proactively manage expenses.

“Second-quarter organic (growth) was challenged for three reasons,” Mr. Gallagher said. “We are seeing a bit of a lull in new business inception dates, second we experienced fewer new claims in the final two months of the quarter within the U.S. We recently learned that we’re not likely to earn a large performance bonus award from our participation in an Australian work cover program where we are one of five providers.”

For the first half of the year, Gallagher reported $2.73 billion in revenue, a 4.8% rise from the first half of last year. Net earnings surged 18.7% to $213.6 million. First-half brokerage revenue increased 7.8% while risk management revenue fell 3.0%.

Mr. Gallagher also said the broker will continue its focus of the past two years of making smaller, “tuck-in” mergers. Year to date, he said, there have been 21 acquisitions, “which should add about $70 million in annualized revenue. And we see a stronger half of the year for acquisitions. Our pipeline is outstanding.”

Mr. Gallagher also expressed little concern about Britain’s vote to leave the European Union, saying Gallagher has little business in mainland Europe.

“”Insurance has been flowing in and out of London for 300 years, long before E.U. was formed. So other than a possible recession hitting the U.K. and the other E.U. countries — and your guess about that is as good as mine — I don’t see it as worrisome event for us in the near term. Longer term, I think we in the industry will successfully navigate any changes to the European insurance landscape.”