Arthur J. Gallagher & Co. · NYSE:AJG
Arthur J. Gallagher & — Gallagher Arthur J & — Investor Presentation (September 2012)
51 slides from Arthur J. Gallagher &'s investor presentation, Sep 5, 2012
Slide 1: Arthur J. Gallagher & Co. Investment Presentation August 2012
ARTHUR J. GALLAGHER & CO. Presented by: J. Patrick Gallagher, Jr. Chairman, President and CEO Douglas K. Howell CFO Investment Presentation August, 2012
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,” “expects,” “believes,” “contemplates,” “should,” “could,” “est
Slide 3: Information Regarding Non-GAAP Measures
Information Regarding Non-GAAP Measures This presentation includes references to Adjusted Revenues, Adjusted Operating Expense Ratio, Organic Growth, EBITDAC, Adjusted EBITDAC, Adjusted EBITDAC Margin, Adjusted EBITDAC Margin Excluding Heath Lambert and Cash Generation, which are measures not in acc
Slide 4: Snapshot of Gallagher
Snapshot of Gallagher Brokerage Segment 3/4 of revenue We sell insurance and consult on insurance programs P&C and benefits Retail and wholesale Risk Management Segment 1/4 of revenue We adjust claims and help companies reduce their losses Workers compensation, liability, managed care, property and
Slide 5: Brokerage Segment Revenues
Brokerage Segment Revenues Retail-P/C 53% Domestic 79% Wholesale 22% Retail-Benefits 25% International 21%
Slide 6: Risk Management Revenues
Risk Management Revenues Workers Compensation 67% Domestic 78% Property 7% Liability 26% International 22%
Slide 7: Brokerage Segment – 1st Half 2012
Brokerage Segment – 1st Half 2012 Adjusted Revenues $1,000 20% $858 $750 $718 $500 1H 2011 1H 2012 Organic Growth 5.0% 4.2% 4.0% 3.0% 1.9% 2.0% 1.0% 0.0% 1H 2011 1H 2012 Adjusted EBITDAC 23% $200 188 $180 $160 $153 $140 $120 $100 1H 2011 1H 2012 Adjusted EDITDAC Margin 24.0% Excluding Heath Lambert
Slide 8: Risk Management Segment – 1st Half 2012
Risk Management Segment – 1st Half 2012 Adjusted Revenues 8% $300 $275 $264 $250 $225 1H 2011 1H 2012 Organic Growth 9.0% 8.0% .7% 7.0% 5.9% 6.0% 5.0% 4.0% 1H 2011 1H 2012 Adjusted EBITDAC 13% $60 $50 $40 $41 $30 $20 1H 2011 1H 2012 Adjusted EDITDAC Margin 17.0% 1% 16.0% 15.4% 15.0% 14.0% 1H 2011 1H
Slide 9: Brokerage & Risk Mgmt Combined – 1st Half 2012
Brokerage & Risk Mgmt Combined – 1st Half 2012 Adjusted Revenues 16% $1,250 1,143 $982 $1,000 $750 1H 2011 1H 2012 Organic Growth 6.0% .2% 5.0% 4.0% 3.0% 3.0% 2.0% 1.0% 1H 2011 1H Adjusted EBITDAC 21% $250 234 $225 $200 $193 $175 1H 2011 1H 2012 Adjusted EDITDAC Margin Excluding Heath Lambert 21.0%
Slide 10: Maintaining a Prudent Balance Sheet
Maintaining a Prudent Balance Sheet Gallagher S&P 1000 Total Debt $723.0 Stockholders’ Equity $1472.9 Net Debt to Total Capital 28% 27% Net Debt to Adjusted EBITDAC 1.2x 1.8x $’s in millions. Using Gallagher’s TTM combined Brokerage and Risk Management EBITDAC as of 06/30/12. Net Debt for Gallagher
Slide 11: Dividends
Dividends Per Share $1.36* $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 1984 2012 *Indicated – On July 26, 2012, Gallagher’s Board of Directors declared a $.34 per share third quarter 2012 dividend.
Slide 12: Environment
Environment Economy Carrier Position Rates
Slide 13: Cautiously Improving Economy?
Cautiously Improving Economy? Real GDP Growth 4% 3% 2% 1% 0% -1% -2% -3% -4% Real GDP in billons of chained 2005 dollars. Source for data: Bureau of Economic Analysis. 2012 based on the third estimate of a 1.9% annual growth rate for 1Q 2012. Jobs 140,000 135,000 130,000 125,000 120,000 115,000 Tota
Slide 14: Firming Indicators for Carriers - Yet Ample Capacity Remains
Firming Indicators for Carriers -Yet Ample Capacity Remains Combined Ratios 120 118.3 115 110 107.4 105 100 93.8 95 90 Source for calendar year combined ratio data: AM Best. Excludes certain large mortgage insurance and personal lines companies to better depict Gallagher’s primary markets. Catastrop
Slide 15: So, A Combined Ratio Isn't What It Once Was
So, A 100 Combined Ratio Isn’t What It Once Was 110.0 ROE 15.9% 105.0 100.0 95.0 ROE 7.6% 90.0 85.0 Combined Combined 80.0 Ratio Ratio 1979 2010 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
Slide 16: Carrier Response – Rate Change
Carrier Response – Rate Change CIAB—Change in Average Commercial Rates Constructed using Counsel of Insurance Agents and Brokers (CIAB) data.
Slide 17: Commercial P&C Pricing Thru 1st Half 2012
Commercial P&C Pricing Thru 1st Half 2012 140 CPI Rates 100 93 90 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 18: Firming Market Versus Classic Hard Market
Firming Market Versus Classic Hard Market Classic Hard Market Firming Market 1999 2005 2012 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
Slide 19: Firming Market Versus Classic Hard Market
Firming Market Versus Classic Hard Market Classic Hard Market Firming Market Moderate 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 20: Current Environment
Current Environment Better for Clients Better for Carriers Better for Brokers
Slide 21: Plan For Growth — Organic
ee Plan For Growth — Organic
Slide 22: Gallagher's Sales Culture Overcomes
Gallagher’s Sales Culture Overcomes 15.0% 10.0% 10.0% AJG 8.1% 5.0% 3.1% 5.0% 2.0% 2.0% 2.0% -0.8% 0.0% -1.7% -2.4% 0.2% CIAB -5.0% -4.1% -5.2% -5.4% -5.6% -10.0% -8.0% -11.0% -12.1% -15.0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 Gallagher’s Brokerage Segment Organic Growth including Supplement
Slide 23: Driving Organic Growth
Driving Organic Growth Grow Our Provide Own Focus Sales Mgmt. Cross Into Tools Selling Hire Niches and Organic Experienced Training Teams Growth Enhance Carrier Compensation Global Expansion
Slide 24: Driving Organic Growth
Driving Organic Growth Grow Our Provide Own Focus Sales Mgmt. Cross Into Tools Selling Hire Niches and Organic Experienced Training Teams Growth Enhance Carrier Compensation Global Expansion
Slide 25: Driving Organic Growth
Driving Organic Growth Grow Our Provide Own Focus Sales Mgmt. Cross Into Tools Selling Hire Niches and Organic Experienced Training Teams Growth Enhance Carrier Compensation Global Expansion
Slide 26: Simplified Organic Illustration
Simplified Organic Illustration +10% +2% (-5%) +2% Subject $1.0m SEE to net NEXT impact of PAGE Other Revenue PAGE Drivers Renewal New Lost Impact of Impact of Other Current Base Business Business Rate on Exposure Revenue Year Prior Year Renewals on Drivers Revenue Renewals All figures on this slide
Slide 27: 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 1. Client opt out 2. Client M&A 3. Client out-of-business 4. Client moves to self insurance model
Slide 28: Plan For Growth - M&A
Plan For Growth - M&A MERGERS AND = AQUISITIONS
Slide 29: M&A Looking Forward – Opportunities Continue
M&A Looking Forward – Opportunities Continue Numerous mited Gallagher’s Vast Pipeline Core Specialties olidators Competency Domestic and International Retail P&C Markets Highly Fragmented Wholesale Culture 18,000 agents/brokers Benefits in the U.S. Gallagher Proven History of International Doing the
Slide 30: Current Gallagher U.S. Locations
Current Gallagher U.S. Locations
Slide 31: Larger Cities With Expansion Potential
Larger Cities With Expansion Potential Cities with population of 100,000+ where Gallagher has no presence.
Slide 32: International Correspondent Brokers
International Correspondent Brokers Client Capabilities in More Than 110 Countries
Slide 33: Strong Acquisition Momentum
Strong Acquisition Momentum Domestic Brokerage Intl Brokerage (Ex: HL) Heath Lambert Risk Management $300 $250 $200 $150 $100 $50 $0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 YTD July 2012 Annualized revenues acquired (in $Ms).
Slide 34: International Acquisition Deal Flow Continues
International Acquisition Deal Flow Continues Increased Ownership Specialised Contego to 100% Broking Underwriting Associates FirstCity UK Australia Partnership UK Oxygen Benefits Risk & Insurance Woodbrook Reward Underwriting UK Managers UK UK Insurance ITI Dialogue Solutions AJG Specialised Limite
Slide 35: Gallagher Heath Update
Gallagher Heath Update Heath Lambert Acquired May 2011 • Positions Gallagher in top 10 U.K. brokers • 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 acces
Slide 36: Productivity and Quality
ee Productivity and Quality <a Za “PRODUCTIVITY AND QUALITY
Slide 37: Optimizing Productivity & Quality
Optimizing Productivity Established & Quality Offshore Controlling Utilizing Leveraging Sourcing to Sales Force Manage Management Expenses Tools Improving Productivity and Quality ng Investing in ivity Business DMS Intelligence kflow Standardizing Real Estate Processes and Footprint Systems
Slide 38: Reasons for Offshore Centers of Excellence
Reasons for Offshore Centers of Excellence Reduce Costs Foster Innovation Increase Speed to Market Focus on Core Improve Quality
Slide 39: Back Office Infrastructure – 2004
Back Office Infrastructure – 2004 EMAIL Global Corporate Systems
Slide 40: Back Office—Today
Back Office—Today GENERAL LEDGER CORPORATE INTRANET DATA WAREHOUSE EMAIL Global HR/PAYROLL Corporate Systems REAL ESTATE LEASING DOCUMENT MANAGEMENT T&E PLANNING
Slide 41: Current Front Office Activity
Current Front Office Activity CRM – CUSTOMER RELATIONSHIP EXTERNAL CLIENT DATA PROSPECTING TOOLS Divisional Sales Systems CLIENT CENTRALIZED COMMUNICATION AGENCY SYSTEM TOOLS INTERNAL BROKER SOCIAL MEDIA
Slide 42: Efficiency Improvements Drive Quality
Quality Metrics Efficiency Improvements Drive Quality Reduced policy delivery from Achieved 98% quality rate 30 to 10 days Reduced certificate of insurance Improved quality rate to 99% delivery expense by 20% Implemented claims adjusters Realized 20% improvement on enhanced quality audit programs ad
Slide 43: Reducing Adjusted Operating Expense Ratio
Reducing Adjusted Operating Expense Ratio Brokerage 21.0% 20.3% 20.0% 19.0% 18.0% 17.4% 17.1% 17.0% 16.0% 1H 2008 1H 2011 1H 2012 Risk Management 26.0% 25.2% 25.0% 24.1% 24.0% 23.0% 1H 2008 1H 2011 1H 2012 See important disclosures regarding Non-GAAP measures on Page 3.
Slide 44: AJG—2012 #1 Overall Client Satisfaction for Large Corporations
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/Pacific S
Slide 45: Maintain Unique Culture
MAINTAIN UNIQUE
Slide 46: Maintain Unique Culture
Maintain Unique Culture Performance-Based Culture
Slide 47: Gallagher Recognized by Ethisphere as One of the World's Most Ethical Companies
Gallagher Recognized by Ethisphere as One of the World’s Most Ethical Companies in • Industry-leading commitment to 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 Demons
Slide 48: Employee Engagement Survey Results
Employee Engagement Survey Results When a customer is dissatisfied, I can usually correct the problem to his/her satisfaction. Benchmark Gallagher Average Top Quartile Total Producers How would you rate your Unit as a place to work compared to other companies? Benchmark Gallagher Average Top Quartil
Slide 49: Why Invest?
Why Invest? Source for data: Bloomberg. Total returns include reinvesting all dividends at the ex-dividend date.
Slide 50: Questions & Answers
QUESTIONS & ANSWERS For Additional Information Marsha Akin Director – Investor Relations Marsha_Akin@ajg.com Phone: 630-285-3501
Slide 51: Appendix: Adjusted Cash Generation 2008 to 2011
APPENDIX Adjusted Cash Generation for 2008 to 2011 (Unaudited -in $ millions ) 2008 2009 2010 2011 Earnings from continuing operations–Brokerage & Risk Management Segments Combined $132.4 $154.4 $166.8 $173.5 Provision for income taxes 85.1 96.5 108.0 107.7 Depreciation 29.8 30.5 31.9 35.4 Amortizat
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