Arthur J. Gallagher & Co. · NYSE:AJG
Arthur J. Gallagher & — Gallagher Arthur J & — Bank of America Merrill Lynch Insurance Conference 2013
56 slides from Arthur J. Gallagher &'s conference presentation, Feb 13, 2013
Slide 1: Arthur J. Gallagher & Co. – BofA Merrill Lynch Insurance Conference
Exhibit 99.1 ARTHUR J. GALLAGHER & CO.Presented by:J. Patrick Gallagher, Jr. Chairman, President and CEO Douglas K. Howell CFO Bank of America Merrill Lynch Insurance Conference February 13, 2013
Slide 2: Information Regarding Forward-Looking Statements
Information Regarding Forward-Looking Statements This presentation contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this presentation, the words “anticipates,” “believes,” “contemplates,” “see,” “should,” “could,” “estimat
Slide 3: Non-GAAP Measures Disclosure
This presentation includes references Adjusted EBITDAC, Adjusted EBITDAC margin, Adjusted Revenues, Adjusted Operating Expense Ratio, Organic Growth and Adjusted Cash Generation, which are measures not in accordance with, or an alternative to, the GAAP information provided herein. Earnings Measures—
Slide 4: Snapshot of Gallagher
Snapshot of Gallagher 3/4 of revenue We sell insurance and consult on insurance programs P&C and benefits Retail and wholesale 1/4 of revenue We adjust claims and help companies reduce their losses Workers compensation, liability, managed care, property and auto Modest amount of storm/quake claims
Slide 5: Brokerage Revenue Mix
Retail-P/C 51% ‘Wholesale 24% Retail-Benefits Domestic 80% ~ International
Slide 6: Risk Management Revenues
] heer ager Co. Risk Management Revenues Workers Compensation Domestic 79% SF liability Property 27% International 21% 5%
Slide 7: Brokerage Segment – 2012 Adjusted Revenues
Brokerage Segment – 2012 Adjusted Revenues Organic Growth in base commission & fees Adjusted EDITDAC Margin Adjusted EBITDAC See important disclosures regarding Non-GAAP measures on Page 3.
Slide 8: Risk Management Segment – 2012 Adjusted Revenues
Risk Management Segment – 2012 Adjusted Revenues Organic Growth in base fees Adjusted EBITDAC Adjusted EDITDAC Margin (in $M) Adjusted EDITDAC Margin
Slide 9: Brokerage & Risk Mgmt Combined – 2012 Adjusted Revenues
Brokerage & Risk Mgmt Combined – 2012 Adjusted Revenues Organic Growth in base commissions & fees Adjusted EBITDAC Adjusted EDITDAC Margin (in $M) See important disclosures regarding Non-GAAP measures on Page 3.
Slide 10: Net Earnings from Clean Energy Investments
Net Earnings from Clean Energy Investments (in $M)
Slide 11: Cash and Dividends
Cash and Dividends Dividends Declared as % of Adjusted Cash Generation Adjusted Cash Generation See important disclosures regarding Non-GAAP measures on Page 3.
Slide 12: Dividends Per Share
Dividends Per Share *Indicated – On January 24, 2013, Gallagher’s Board of Directors declared a $.35 per share first quarter 2013 quarterly dividend.
Slide 13: Maintaining a Prudent Balance Sheet
Maintaining a Prudent Balance Sheet Net Debt Stockholders’ Equity Net Debt to Total Capital Net Debt to Adjusted EBITDAC $‘s in millions. Using Gallagher’s TTM combined Brokerage and Risk Management EBITDAC as of 12/31/12. Net Debt as of 12/31/12 for Gallagher reflects $725m in term notes and $129m
Slide 14: Environment, Economy, Carrier Position, Rates
Environment Economy Carrier Position Rates
Slide 15: Cautiously Improving Economy
Cautiously Improving Economy Source for data: Bureau of Economic Analysis Total Nonfarm Employees (in thousands) seasonally adjusted. Source for data: Bureau of Labor Statistics. Average Annual Effective Fed Funds Rates. Source for data: Bloomberg Purchasing Managers Index. Source for data: Institut
Slide 16: Firming Indicators for Carriers – Yet Ample Capacity Remains
Firming Indicators for Carriers – Yet Ample Capacity Remains Combined Ratios Premium/Statutory Surplus Source for calendar year combined ratio data: AM Best. Excludes certain large mortgage insurance and personal lines companies to better Source for data : Total US P/C Industry from Best’s Statement
Slide 17: A Combined Ratio Isn't What It Once Was
So, A 100 Combined Ratio Isn’t What It Once Was Extrapolating from this analysis, a combined ratio in the low 90’s is required to generate risk appropriate ROEs in the current environment * 2010 figures are a return on average surplus and exclude mortgage and financial guaranty insurers. Source: Rob
Slide 18: Carrier Response – Rate Change
Carrier Response – Rate Change CIAB—Change in Average Commercial Rates
Slide 19: Commercial P&C Pricing
Commercial P&C Pricing Commercial Rate Index reflects the cost of P&C premiums relative to the year 2000. Constructed using Counsel of Insurance Agents and Brokers (CIAB) data. CPI index uses data from the Bureau of Labor Statistics.
Slide 20: Firming Market Versus Classic Hard Market
Firming Market Versus Classic Hard Market Average Commercial Premium Rate Changes by Account Size Source: The Council of Insurance Agents and Brokers (CIAB). Chart prepared by Barclays Research. Captions in the above chart were overlaid by Gallagher and do not necessarily reflect the opinions of the
Slide 21: Firming Market Versus Classic Hard Market
Firming Market Versus Classic Hard Market Classic Hard Market Firming Market oderate price increases for an Short-lived radical price increases extended period of time Clients can’t get coverage Clients can still get coverage Business forced chaotically into Business moves more orderly into surplus
Slide 22: Current Environment
G muse Current Environment Better for Clients Better for Carriers Better for Brokers
Slide 23: Plan For Growth — Organic
Plan For Growth — Organic a MERGERS AND. > Se ~ PRODUCTIVITY AND QUALITY
Slide 24: Hire Experienced Teams
] heer ager Co. Hire Experienced Teams
Slide 25: Hire Experienced Teams, Training
] heer ager Co. Hire Training Experienced Teams
Slide 26: Hire Experienced Teams
] heer ager Co. Hire Experienced
Slide 27: Simplified Organic Illustration
Simplified Organic Illustration All figures on this slide are used only for illustration purposes and are not estimates of Gallagher’s future performance.
Slide 28: Organic Illustration – Other Revenue Drivers
Organic Illustration – Other Revenue Drivers 1. Client opt in 2. Client M&A 3. Expand share of wallet 4. Cross selling in AJG Client opt out Client M&A Client out-of-business Client moves to self insurance model
Slide 29: Sales Culture Performs Throughout the Entire Cycle
Gallagher’s Sales Culture Performs Throughout the Entire Cycle Gallagher’s Brokerage Segment Organic Growth including Supplemental Commissions. See important disclosures regarding non-GAAP measures on Page 3. *Average change in Commercial Rates
Slide 30: Plan For Growth — M&A
Plan For Growth — M&A ORGANIC G ROWTH S popucmuny. AND QUALITY MERGERS AND AQUISITIONS qm =i 2
Slide 31: M&A Looking Forward – Opportunities Continue
M&A Looking Forward – Opportunities Continue
Slide 32: Current Gallagher U.S. Locations
Current Gallagher U.S. Locations
Slide 33: Larger Cities With Expansion Potential
Larger Cities With Expansion Potential
Slide 34: International Correspondent Brokers
International Correspondent Brokers Client Capabilities in More Than 140 Countries
Slide 35: Strong Acquisition Momentum
Strong Acquisition Momentum Annualized revenues acquired (in $Ms).
Slide 36: International Acquisition Deal Flow Continues
International Acquisition Deal Flow Continues
Slide 37: Gallagher Heath Update
Gallagher Heath Update Heath Lambert Acquired May 2011 • Additional distribution network in 15 U.K. locations outside London • Added new retail capabilities to existing London wholesale operation • Executing: •Bolt-on acquisition strategy – Getting access to deals not previously available •Hiring St
Slide 38: Productivity and Quality
Productivity and Quality MERGERS AND AQUISITIONS > | S ea a @ ~ <4 PRODUCTIVITY AND QUALITY
Slide 39: Optimizing Productivity & Quality
Optimizing Productivity & Quality
Slide 40: Reasons for Offshore Centers of Excellence
Reasons for Offshore Centers of Excellence
Slide 41: Back Office Infrastructure – 2004
Back Office Infrastructure – 2004
Slide 42: GENERAL LEDGER,
GENERAL LEDGER, CORPORATE INTRANET Corporate Systems i eucrmuane ONG Docu nace
Slide 43: Current Front Office Activity
Current Front Office Activity
Slide 44: Quality Metrics
Quality Metrics Efficiency Improvements Drive Quality Reduced policy delivery from Achieved 98% quality rate 30 to 10 days Reduced certificate of insurance delivery Improved quality rate to 99% expense by 20% Implemented claims adjusters Realized 20% improvement on adjuster enhanced quality audit pr
Slide 45: Reducing Adjusted Operating Expense Ratio
Reducing Adjusted Operating Expense Ratio See important disclosures regarding Non-GAAP measures on Page 3.
Slide 46: 2012 Awards and Client Satisfaction Recognition
AJG – 2012 #1 Overall Client Satisfaction for Large Corporations – Greenwich Associates AJG Intl – 2012 Ins Broking Company of the Year – Reactions Magazine AJG Intl – 2012 Best Broker M&A Deal of the Year – Reactions Magazine Gallagher Singapore – 2012 Best Trade Credit Insurance Broker – Asia/Paci
Slide 47: Culture
Culture MERGERS AND | _ AQUISITIONS qm) | MAINTAIN - UNIQUE SRODUCTITY, (~~ CULTURE AND QUALITY "FF
Slide 48: Maintain Unique Culture
Maintain Unique Culture apace ca se marstnnatencoe Congr ene Care Performance-Based Culture
Slide 49: One of the World's Most Ethical Companies
One of the World’s Most Ethical Companies as Recognized by Ethisphere ethics and dedication to integrity • Chosen for: n Promoting ethical business standards and practices n Exceeding legal compliance standards n Innovating to benefit the public n Demonstrating that corporate citizenship is tied to
Slide 50: A Top Ten Best Company for Leadership Development
A Top Ten Best Company for Leadership Development As Recognized by Chief Executive Magazine – 2013 • Recognized for: n High percentage of senior and mid-manager positions filled internally n Formal leadership process n Commitment to leadership development program
Slide 51: Employee Engagement Survey Results
Employee Engagement Survey Results When a customer is dissatisfied, I can usually correct the problem to his or her satisfaction. How would you rate your Unit as a place to work compared to other companies? I can see myself working here 12 months from now.
Slide 52: Momentum Into 2013
Momentum Into 2013 Closed 60 acquisitions with $231m of acquired revenue Incremental roll-in revenues of $134m Completed 9 deals outside of the US Continuing our global expansion Heath Lambert integration efforts Will achieve anticipated profits Favored cash in 4th quarter to fund M&A Will favor cas
Slide 53: Momentum Into 2013
Momentum Into 2013 2012 Actions 2013 Impact Rolled out our first Private Health Exchange Provide a critical capability for clients Consolidating agency management systems Enables increased productivity and in our US P&C operations higher quality Reduced 400 positions to reap the benefits Generates a
Slide 54: Why Invest?
Why Invest? Source for data: Bloomberg. Total returns from 1/1/2000 – 1/31/2013 include reinvesting all dividends at the ex-dividend date.
Slide 55: Questions & Answers
Questions & Answers For Additional Information Marsha Akin Director – Investor Relations Marsha_Akin@ajg.com Phone: 630?285?3501
Slide 56: Appendix: Adjusted Cash Generation for 2008 to 2012
APPENDIX Adjusted Cash Generation for 2008 to 2012 (Unaudited—in $ millions ) 2008 2009 2010 2011 2012 Earnings from continuing operations – Brokerage & Risk Management Segments Combined $132.4 $154.4 $166.8 $173.5 $198.3 Provision for income taxes 85.1 96.5 108.0 107.7 128.9 Depreciation 29.8 30.5
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