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2021 brokerage revenue: $6.97B
Percent increase: 14.8%
Arthur J. Gallagher & Co.’s largest-ever acquisition transformed its reinsurance brokerage operations last year, while strong organic growth also played a big role in its double-digit revenue rise.
Gallagher completed its $3.25 billion acquisition of Willis Re late last year — which could rise to $4 billion — creating a reinsurance brokerage with around $1 billion in annualized revenue. The deal, which comprised Willis Towers Watson PLC’s treaty reinsurance business, made Gallagher Re the world’s third-largest reinsurance brokerage.
While the reinsurance deal grabbed attention, Gallagher also grew its core primary brokerage business. “We had about 11% organic in ’21, which was probably our best year in 25 years,” said J. Patrick Gallagher Jr., chairman, president and CEO of Gallagher. “I see continued opportunity to maintain something close to that.”
The organic growth was driven by insurance rate increases, which have not subsided, Mr. Gallagher said.
Gallagher’s 2021 gross revenue of $8.21 billion was a 17.2% increase from the previous year. Brokerage revenue climbed 14.8% to $6.97 billion. Gallagher retained its No. 4 spot in Business Insurance’s ranking of the world’s largest brokerages.
In the first quarter of this year, the brokerage reported $2.38 billion in total revenue, a 31.6% increase over the same period in 2021.
Gallagher’s 2021 performance was impressive, said C. Gregory Peters, managing director — equity research at Raymond James & Associates Inc. in St. Petersburg, Fla. “Their margins didn’t expand as much as their peers; however their margins in previous years were substantial,” he said. “The fact that they held onto margins and expanded them in ’21 was a phenomenal result.”
Gallagher’s organic growth will continue, but at a more moderate pace, Mr. Peters said.
The Willis Re acquisition “puts them in a very different position than they were in before,” said J. Paul Newsome Jr., managing director with Piper Sandler & Co. in Minneapolis.
The reinsurance brokerage business has traditionally been faster growing and with higher margins than property/casualty business, Mr. Newsome said. “It’s an important strategic change for them,” he said.
Prior to the acquisition, Gallagher was the fifth-largest reinsurance brokerage, with $100 million in annual revenue. With the completion of the Willis Re purchase, it became the third-largest reinsurance broker.
The acquisition will benefit Gallagher’s retail operation, according to Mr. Gallagher. Additional data and expertise from the reinsurance brokerage business help with retail placements, he said.
“Our property, and catastrophe-exposed property in particular, is having a very difficult time on retail placements,” Mr. Gallagher said. “The reinsurance team is trying to help mitigate that” by sharing their knowledge of market issues, he said. “It’s given our people on the retail side better data, and at the same time it’s given them insights that they are sharing with clients, which is making us more important to clients as they do their planning.”
“The reinsurance brokerage folks typically have better data on an aggregate basis,” Mr. Newsome said, and Gallagher Re may benefit from additional information on pricing, markets for particular coverage and other insights. “It can help the brokerage folks give better advice and send the business to the appropriate carrier.”
The Willis Re deal isn’t likely to be the last reinsurance acquisition, Mr. Gallagher said. “We have an appetite to continue growing our reinsurance platform and there are acquisition opportunities there,” he said.
Integration of the Willis Re operation has gone well, Mr. Gallagher said. “We’ve been successful in adding people across the network. I’m pleased with that and I’m pleased with the fact that attrition is low,” he said.
Gallagher completed 38 acquisitions, an increase from the 27 it completed in 2020. Last year’s acquisitions represented $1 billion in annualized revenue.
The brokerage continues to look for deals that are a good fit, Mr. Gallagher said. “We’ve got tremendous opportunities to do tuck-ins in the $500,000 to $5 million range,” he added, “and I do think you’ll see some sizeable ones as well.”
In the first quarter of this year, Gallagher completed five acquisitions with estimated annual revenues totaling $32.2 million.
“They’re going to keep buying deals like they have forever,” Mr. Newsome said. “It’s a core part of what they do.”
2021 brokerage revenue: $19.86B
Percent increase: 15%