2022 brokerage revenue: $8.38B
Percent increase: 20.3%

Arthur J. Gallagher & Co.’s revenue soared in 2022 as it absorbed the treaty reinsurance operations of Willis Towers Watson PLC, and the trend is set to continue this year as it completed another major acquisition.

The $660 million April acquisition of BCHR Holdings L.P., which does business as Buck, will significantly expand Gallagher’s benefits consulting business and its overall capabilities, the company’s top executive said. 

The acquisitions will likely also help Gallagher, which is primarily known as a middle-market broker, grow its business with larger policyholders, analysts say.

The Willis Re deal has significantly grown Gallagher’s reinsurance brokerage business but has also improved its retail broking capabilities, said J. Patrick Gallagher Jr., chairman, president and CEO of the brokerage.

For example, the reinsurance teams have enhanced the analytics and reinsurance purchasing for Gallagher’s public sector pools business, he said. 

“Probably 50% of our risk sharing pools around the United States have benefited either in structure, form, product, carrier utilization from the reinsurance people looking at them and saying, ‘Hey, have you thought of this?’” Mr. Gallagher said.

In addition, deeper relationships with reinsurers provide retail brokers with better market information, he said.

Gallagher’s reinsurance brokerage revenue leapt from $193.2 million in 2021 to $1.01 billion in 2022. The brokerage also made management changes at Gallagher Re, with James Kent, who had previously led Willis Re, transitioning to a wider role at Gallagher in March before leaving the company last month. He was succeeded as CEO of Gallagher Re by Tom Wakefield.

The Buck deal will also help the brokerage’s retail business, Mr. Gallagher said.

In addition to greatly expanding Gallagher’s benefits business, Buck brings relationships with some large clients that Gallagher hadn’t served, he said.

Gallagher appears to be expanding its prospects to include larger companies, said J. Paul Newsome Jr., managing director with Piper Sandler & Co. in Minneapolis.

“In terms of size of clients, they’re changing their stripes a little bit,” he said. “They’re increasingly international, they’re increasingly large, and I think they’ll continue to develop their capabilities.”

Gallagher reported $8.38 billion in brokerage revenue in 2022, a 20.3% increase over the prior year, and remains the fourth largest broker in Business Insurance’s ranking of the world’s largest brokers.

In addition to the Buck and Willis Re deals, Gallagher continues its decades-long strategy of buying numerous smaller brokerages. Last year, it acquired 36 brokerages, including Top 100 brokerage M&T Insurance Agency Inc., the same number as in 2021. In the first quarter of this year, the brokerage reported 10 acquisitions, and it announced several more in the second quarter.

While the wider market for brokerage acquisitions has slowed as interest rates have risen over the past year, Gallagher is continuing its pace of deals this year, Mr. Gallagher said. Unlike private equity acquirers, which often use a highly leveraged model, a publicly traded broker like Gallagher can use equity as well as debt to finance deals, he said.

In addition, Gallagher will look to expand its international acquisitions from its established operations in the United Kingdom, Ireland, Australia, New Zealand, Latin America and in Asia, Mr. Gallagher said. 

“India will be a big story for us,” he said. “That economy is just a rocket ship. We have a brokerage business there, and we are looking for more acquisitions there.”

Among other international developments, Gallagher is one of several companies that have been subpoenaed in the U.S. Department of Justice’s investigation of alleged corruption at state-owned enterprises in Ecuador. In a filing with the Securities and Exchange Commission last November, Gallagher said it is fully cooperating with the investigation. 

In 2022, Gallagher saw exceptional expansion of its profit margins as it capitalized on some expense savings from the COVID-19 pandemic, such as reduced real estate and fewer professional consulting services, said Meyer Shields, Baltimore-based managing director at Keefe, Bruyette & Woods Inc.

“They nailed down in a permanent fashion temporary savings that they’d identified over the course of COVID,” he said. 

In addition, to growth through acquisitions, Gallagher’s brokerage business reported 9.7% organic growth last year and repeated that growth rate in the first quarter of this year.