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Gallagher’s Q1 brokerage revenue rises; claims business flat

J. Patrick Gallagher Jr.

Arthur J. Gallagher & Co. reported first-quarter adjusted revenue of $2.13 billion, a 13.6% increase, as the company’s insurance brokerage unit benefitted from higher rates and acquisitions, but lower workers compensation claims held back growth at its third-party administration unit.

Executives at the brokerage declined to comment on speculation that it might purchase assets likely to be divested to secure regulatory approval of Aon PLC’s purchase of rival Willis Towers Watson PLC, but noted Gallagher has significant funds available for “tuck-in” acquisitions.

Insurance rates continue to rise and Gallagher’s core brokerage business benefited from the “tailwind” of rising prices, said J. Patrick Gallagher Jr., chairman, president and CEO of Gallagher on a conference call with analysts late Thursday.

“We’ve been a couple years now into some hardening numbers so I do think that over time that will moderate, but we’re not seeing any lack of discipline in the market at this point and underwriters are continuing to ask for increases,” he said.

The company’s insurance brokerage business reported $1.6 billion in revenue, a 12.2% increase over the prior-year period and up 6% on an organic basis.

Organic revenue from U.S. retail brokerage business increased 5%, wholesale program organic revenue increased 6%, open brokerage wholesale was up 15% and managing general agent business was up 4%.

Employee benefit brokerage revenue was up only slightly during the quarter.

Gallagher’s claims management business, which is handled through its Gallagher Bassett Services Inc. unit, reported 0.6% organic growth.

Workers comp claim activity is increasing following a decrease during the COVID-19 pandemic, Mr. Gallagher said.

“Traditional workers comp claims are returning and we are seeing fewer and fewer COVID-related claims,” he said.

Gallagher reported net profit of $393.7 million for the quarter, up 10.7%.

Gallagher closed five brokerage acquisitions in the first quarter, which represented about $89.7 million in combined revenue.

Gallagher has been cited by analysts and others as a potential buyer of assets expected to be divested to secure regulatory approval for the Aon-Willis deal. Gallagher bought Jardine Lloyd Thompson PLC’s aerospace business in 2019 after regulators required the unit’s sale prior to Marsh & McLennan Cos. Inc.’s purchase of JLT.

Douglas K. Howell, chief financial officer, declined to comment on speculation surrounding the Aon-Willis merger but noted that Gallagher has extensive funds available for mergers and acquisitions.

“We’ve got $2.5 billion and we like our tuck-in merger strategy,” he said.

More insurance, risk management and workers compensation news on the coronavirus crisis here.