2024
ANNUAL REPORT
Shared values at Arthur J. Gallagher & Co. are the rock foundation of the company and our culture.
What is a shared value? These are concepts that the vast majority of the movers and shakers in the
company passionately adhere to. What are some of Arthur J. Gallagher & Co.’s shared values?
When accepted shared values are changed or challenged, the emotional impact and negative
feelings can damage the company.
Robert E. Gallagher, May 1984
We are a sales and marketing company
dedicated to providing excellence in risk
management services to our clients.
We support one another. We believe
in one another. We acknowledge and
respect the ability of one another.
We push for professional excellence.
We can all improve and learn from
one another.
There are no second-class
citizens — everyone is important and
everyone’s job is important.
We’re an open society.
Empathy for the other person is not
a weakness.
Suspicion breeds more suspicion.
To trust and be trusted is vital.
Leaders need followers. How leaders
treat followers has a direct impact on
the effectiveness of the leader.
Interpersonal business relationships
should be built.
We all need one another. We are all
cogs in a wheel.
No department or person is an island.
Professional courtesy is expected.
Never ask someone to do something
you wouldn’t do yourself.
I consider myself support for our sales and
marketing. We can’t make things happen
without each other. We are a team.
Loyalty and respect are
earned — not dictated.
Fear is a turnoff.
People skills are very important at
Arthur J. Gallagher & Co.
We’re a very competitive and
aggressive company.
We run to problems — not away
from them.
We adhere to the highest standards
of moral and ethical behavior.
People work harder and are more effective
when they’re turned on — not turned off.
We are a warm, close company. This is
a strength — not a weakness.
We must continue building a professional
company — together — as a team.
Shared values can be altered with
circumstances — but carefully and
with tact and consideration for one
another’s needs.
THE GALLAGHER WAY
The Gallagher Way — which spells out the key tenets of Gallagher’s culture — is a one-page
document written in 1984 by our late Chairman and CEO Robert E. Gallagher.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2024
☐Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
Commission file number 1-09761
ARTHUR J. GALLAGHER & CO.
(Exact name of registrant as specified in its charter)
DELAWARE
36-2151613
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
2850 Golf Road
Rolling Meadows, Illinois
60008-4050
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code (630) 773-3800
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol(s)
Name of each exchange on which registered
Common Stock, par value $1.00 per share
AJG
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes ☒ No ☐.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 726(b)) by the registered public
accounting firm that prepared or issued its audit report Yes ☒ No ☐.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based
compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒.
The aggregate market value of the voting common equity held by non-affiliates of the registrant, computed by reference to the last reported
price at which the registrant’s common equity was sold on June 30, 2024 (the last day of the registrant’s most recently completed second
quarter) was $49,339.2 million.
The number of outstanding shares of the registrant’s Common Stock, $1.00 par value, as of January 31, 2025 was 254.7 million.
Documents incorporated by reference: Portions of Arthur J. Gallagher & Co.’s definitive 2025 Proxy Statement are incorporated by
reference into this Form 10-K in response to Part III to the extent described herein.
1
Information Concerning Forward-Looking Statements
This report contains certain statements related to future results, or states our intentions, beliefs and expectations or predictions for the
future of Arthur J. Gallagher & Co. and its subsidiaries, collectively referred to herein as we, our, us, Gallagher or the Company,
which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995.
Forward-looking statements relate to expectations or forecasts of future events. Such statements use words such as “anticipate,”
“believe,” “estimate,” “expect,” “contemplate,” “forecast,” “project,” “intend,” “plan,” “potential,” and other similar terms, and future
or conditional tense verbs like “could,” “may,” “might,” “see,” “should,” “will” and “would.” You can also identify forward-looking
statements by the fact that they do not relate strictly to historical or current facts. For example, we may use forward-looking
statements when addressing topics such as: the impact of general economic conditions, including inflation, interest rates and market
uncertainty; the effects of geopolitical volatility, including repercussions from the armed conflicts in Ukraine and the Middle East;
market and industry conditions, including competitive and pricing trends and the impact of large natural events; acquisition strategy
including the expected size of our acquisition program; the expected impact of acquisitions and dispositions and integrating recent
acquisitions, including comments regarding the expected benefits of our acquisition of BCHR Holdings, L.P., and its subsidiaries, dba
Buck (which we refer to as Buck), Cadence Insurance, Inc. (which we refer to as Cadence Insurance), Eastern Insurance Group, LLC
(which we refer to as Eastern Insurance), My Plan Manager Group Pty Ltd (which we refer to as My Plan Manager), and the
acquisition of all the issued and outstanding stock of Dolphin TopCo, Inc., the holding company of AssuredPartners, Inc. (which we
refer to as AssuredPartners, and such acquisition, which we refer to as the Transaction), and other acquisitions larger than our typical
tuck-in acquisitions and the expected duration and costs of integrating such large acquisitions; the development and performance of
our services and products; changes in the composition or level of our revenues or earnings; our cost structure and the size and outcome
of cost-saving or restructuring initiatives; future capital expenditures; future debt levels and anticipated actions to be taken in
connection with maturing debt; future debt to earnings ratios; the outcome of contingencies; dividend policy; pension obligations; cash
flow and liquidity; capital structure and financial losses; future actions by regulators; the outcome of existing regulatory actions,
audits, reviews or litigation; the impact of changes in accounting rules; financial markets; interest rates; foreign exchange rates;
matters relating to our operations; income taxes; expectations regarding our investments; human capital management, including
diversity and inclusion initiatives, and sustainability, including climate-resilience and climate-advisory products and services and our
carbon emissions. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to
differ materially from either historical or anticipated results depending on a variety of factors.
Potential factors from the acquisition of AssuredPartners that could impact results include impact results include:
•
Our ability to complete the Transaction on a timely basis or at all, which may be negatively impacted by issues with
regulatory approvals in the United States (U.S.), the United Kingdom (U.K.) and Ireland;
•
The Transaction will not be accretive to earnings per share because our assumptions about our business, AssuredPartners
and preliminary estimates are materially inaccurate causing dilution to our earnings per share; decreasing or delaying the
expected accretive effect of the Transaction or causing a decrease in the market price of our common stock;
•
Risks related to the integration of AssuredPartners into the Company, including achieving the expected cost savings or
revenue synergies from such integration, that AssuredPartners will perform as expected or that we will incur unforeseen
obligations or liabilities; and
•
Diversion of management’s attention from ongoing business operations and opportunities.
Potential factors that could impact results include:
•
Global economic and geopolitical events, such as fluctuations in interest and inflation rates; geo-economic fragmentation
and protectionism such as tariffs, trade wars or similar governmental actions affecting the flows of goods, services or
currency; a recession or economic downturn; a potential U.S. government shutdown or gridlock over increasing the U.S.
debt ceiling; political violence, and instability, including as a result of the armed conflicts in Ukraine and the Middle East;
•
Economic conditions that result in financial difficulties for underwriting enterprises or lead to reduced risk-taking capital
capacity, for example, as a result of large payouts related to extreme weather events, or to the failure of such enterprises,
including the increased risk of errors and omissions (which we refer to as E&O) claims against us;
•
Risks that could negatively affect the success of our acquisition strategy, including the impact of economic uncertainty on
our ability to source, review and price acquisitions, continuing consolidation in our industry and interest in acquiring
insurance brokers on the part of private equity firms and newly public insurance brokers, which makes it more difficult to
identify targets and in some cases makes them more expensive, inaccurate assumptions and failure to realize expected
benefits; the risk that we may not receive timely regulatory approval of pending transactions, closing risks; execution
risks, integration risks, poor cultural fit, the risk of post-acquisition deterioration leading to intangible asset impairment
2
charges, and the risk we could incur or assume unanticipated liabilities such as cybersecurity issues or violations of
anti-corruption and sanctions laws;
•
Risks related to Buck, Cadence Insurance, Eastern Insurance, My Plan Manager, the pending acquisition of
AssuredPartners and other acquisitions larger than our usual tuck-in acquisitions, including risks related to our ability to
successfully integrate operations, the possibility that our assumptions may be inaccurate resulting in unforeseen
obligations or liabilities and failure to realize the expected benefits of these acquisitions;
•
Damage to our reputation, including as a result of failing to uphold our culture and the potential for the Internet and social
media to magnify the effects of such reputational issues;
•
Failure to meet our sustainability aspirations, goals and initiatives or to comply with increasingly complex climate-related
and other sustainability regulations, including heightened scrutiny, including a growing backlash against sustainability
initiatives, and increased risks related to “greenwashing” and “greenhushing;”
•
Failure to apply technology, data analytics and artificial intelligence (which we refer to as AI) effectively in driving value
for our clients through technology-based solutions, or failure to gain internal efficiencies and effective internal controls
through the application of technology and related tools;
•
Risks associated with the use of AI in our business operations, including regulatory, data privacy, cybersecurity, E&O,
intellectual property and competition risks;
•
Failure to attract and retain experienced and qualified talent, including our senior management team, or adequately plan
and execute for the succession of such leaders; increased costs resulting from increased compensation and benefits
packages as a result of a tighter labor market, and negative effects from restrictions on non-compete agreements at the
state level;
•
A disaster or other significant disruption to business continuity for our own operations or those of third-parties on which
we rely, including cybersecurity incidents; natural disasters; political violence and unrest in the U.S. or elsewhere around
the world; for example, our substantial operations in India could be negatively impacted as a result of the dispute between
India and Pakistan involving the Kashmir region, rising tensions between India and China, or incidents of terrorism in
India, civil unrest or other reasons;
•
Sustained increases in the cost of employee benefits and compensation expense;
•
Risks arising from our international operations and changes in international conditions, including the risks posed by
political and economic uncertainty in certain countries (including repercussions from the armed conflicts in Ukraine and
the Middle East), maintaining regulatory and legal compliance across multiple jurisdictions (such as those relating to
violations of anti-corruption, sanctions, and privacy laws, increasingly complex regulatory requirements related to climate
change and sustainability issues); increased protectionism, tariffs, and trade wars, climate change and other long-term
sustainability matters, increased scrutiny of the use of off-shore centers of excellence such as those we operate and global
health risks;
•
Risks related to changes in U.S. or foreign tax laws, including a U.S. or foreign tax rate change, potential changes in
guidance related to the U.S. Inflation Reduction Act, the Organisation for Economic Co-operation and Development’s
(OECD) global minimum corporate tax regime, and other local policy changes;
•
Competitive pressures, including as a result of innovation, in each of our businesses;
•
Volatility or declines in premiums or other adverse trends in the insurance industry;
•
The higher level of variability inherent in contingent and supplemental revenues versus standard commission revenues;
•
Risks particular to our benefit consulting operations, including risks related to the acquisition of Buck and Redington Ltd.
(which we refer to as Redington), an FCA-regulated investment consulting firm;
•
Risks particular to our third-party claims administrations operations, including risks related to the availability of
RISX-FACS®, our proprietary risk management information system, wage inflation, staffing shortages, any slowing of
the trend toward outsourcing claims administration, and the concentration of large amounts of revenue with certain
clients;
•
Climate risks, including the risk of a systemic economic crisis and disruptions to our business caused by the transition to a
low-carbon economy;
•
Cyber-attacks or other cybersecurity incidents and the heightened risk of such attacks as a result of the armed conflicts in
Ukraine and the Middle East, improper disclosure of confidential, personal or proprietary data and changes to laws and
regulations governing cybersecurity and data privacy;
3
•
Unfavorable determinations related to contingencies and legal proceedings, including; violations or alleged violations of
the U.S. Foreign Corrupt Practices Act (which we refer to as FCPA), the U.K. Bribery Act 2010 or other anti-corruption
laws and the Foreign Account Tax Compliance provisions of the Hiring Incentives to Restore Employment Act, and the
outcome of any existing or future investigation, review, regulatory action or litigation;
•
Failure to comply with regulatory requirements, including those related to governance and control requirements in
particular jurisdictions, international sanctions, including new sanctions laws as a result of the armed conflicts in Ukraine
and the Middle East; laws relating to the disclosure of sustainability matters; laws relating to the use of AI, or a change in
regulations or enforcement policies that adversely affects our operations (for example, relating to insurance broker
compensation methods or restrictions on non-compete agreements);
•
Changes to our financial presentation from new accounting estimates and assumptions;
•
Intellectual property risks;
•
Risks related to our legacy clean energy investments, including intellectual property claims, environmental and product
liability claims, environmental compliance costs and the risk of disallowance by the Internal Revenue Service of
previously claimed tax credits;
•
The risk that our outstanding debt adversely affects our financial flexibility and restrictions and limitations in the
agreements and instruments governing our debt;
•
The risk of credit rating downgrades;
•
The risk that we may not be able to receive dividends or other distributions from our subsidiaries, including the effects of
significant changes in foreign exchange rates;
•
The risk of share ownership dilution when we issue common stock; and
•
Volatility of the price of our common stock.
Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions, including
the risk factors referred to above. Our future performance and actual results or outcomes may differ materially from those expressed
in forward-looking statements. Accordingly, you should not place undue reliance on forward-looking statements, which speak only as
of, and are based on information available to us on, the date of the applicable document. Many of the factors that will determine these
results are beyond our ability to control or predict. All subsequent written and oral forward-looking statements attributable to us or
any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this
section. Forward-looking statements speak only as of the date that they are made, and we do not undertake any obligation to update
any such statements or release publicly any revisions to these forward-looking statements to reflect events or circumstances after the
date of this report or to reflect new information, future or unexpected events or otherwise, except as required by applicable law or
regulation. In addition, historical, current and forward-looking sustainability-related statements may be based on standards for
measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject
to change in the future.
A detailed discussion of the factors that could cause actual results to differ materially from our published expectations is contained
under the heading “Risk Factors” in our filings with the Securities and Exchange Commission (SEC), including this report and any
other reports we file with the SEC in the future.
4
Arthur J. Gallagher & Co.
Annual Report on Form 10-K
For the Fiscal Year Ended December 31, 2024
Index
Page No.
Part I.
Item 1.
Business
5-10
Item 1A.Risk Factors
11-31
Item 1B. Unresolved Staff Comments
31
Item 1C. Cybersecurity
31
Item 2.
Properties
32
Item 3.
Legal Proceedings
32
Item 4.
Mine Safety Disclosures.
32
Information About Our Executive Officers
32
Part II.
Item 5.
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
34-35
Item 6.
[Reserved]
35
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
35-67
Item 7A.Quantitative and Qualitative Disclosure about Market Risk
67-69
Item 8.
Financial Statements and Supplementary Data
70-126
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
123
Item 9A.Controls and Procedures
123
Item 9B. Other Information
123
Item 9C. Disclosures Regarding Foreign Jurisdictions that Prevent Inspections
123
Part III.
Item 10. Directors, Executive Officers and Corporate Governance
124
Item 11. Executive Compensation
124
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
124
Item 13. Certain Relationships and Related Transactions, and Director Independence
124
Item 14. Principal Accountant Fees and Services
124
Part IV.
Item 15. Exhibits and Financial Statement Schedules
124-126
Item 16. Form 10-K Summary
126
Signatures
127
Schedule II - Valuation and Qualifying Accounts
128
5
Part I
Item 1. Business.
Overview
Arthur J. Gallagher & Co. and its subsidiaries, collectively referred to herein as we, our, us or Gallagher, are engaged in
providing insurance brokerage, reinsurance brokerage, consulting, and third-party property/casualty claims settlement and
administration services to entities and individuals around the world. We believe that our major strength is our ability to deliver
comprehensively structured insurance, reinsurance and risk management solutions, superior claim outcomes and comprehensive
consulting services to our clients.
Our brokerage segment operations provide brokerage and consulting services to entities of all types, including commercial,
nonprofit, public sector entities, insurance companies and insurance capital providers, and to a lesser extent, individuals, in the
areas of insurance and reinsurance placements, risk of loss management, and management of employer sponsored benefit
programs. Our risk management segment operations provide contract claim settlement, claim administration, loss control
services and risk management consulting for commercial, nonprofit, captive and public sector entities, and various other
organizations that choose to self-insure property/casualty coverages or choose to use a third-party claims management
organization rather than the claim services provided by an underwriting enterprise.
We do not assume underwriting risk on a net basis, other than with respect to de minimis amounts necessary to provide minimum
or regulatory capital to organize captives, pools, specialized underwriters or risk-retention groups. Rather, capital necessary for
covering events of loss is provided by “underwriting enterprises,” which we define as insurance companies, reinsurance
companies and various other risk-taking entities, including intermediaries of underwriting enterprises, that we do not own or
control.
Since our founding in 1927, we have grown from a one-person insurance agency to the world’s third largest insurance
broker/risk manager based on revenues according to Business Insurance magazine’s July/August 2024 edition, and one of the
world’s largest property/casualty third party claims administrators, according to Business Insurance magazine’s May 2024
edition.
We report our results in three segments: brokerage, risk management and corporate. The brokerage and risk management
segments contributed approximately 86% and 14%, respectively, to 2024 revenues. We generate approximately 64% of our
revenues from the combined brokerage and risk management segments in the U.S., with the remaining 36% generated
internationally, primarily in Australia, Canada, New Zealand and the U.K. The corporate segment did not generate any
significant revenues in 2024.
Shares of our common stock are traded on the New York Stock Exchange under the symbol “AJG”, and we had a market
capitalization at December 31, 2024 of approximately $71 billion. Information in this report is as of December 31, 2024 unless
otherwise noted. We were reincorporated as a Delaware corporation in 1972. Our executive offices are located at 2850 Golf
Road, Rolling Meadows, Illinois 60008-4050, and our telephone number is (630) 773-3800.
Operating Segments
We report our results in three segments: brokerage, risk management and corporate. The major sources of our operating
revenues are commissions, fees, supplemental and contingent revenues and interest income, premium finance and other income
from our brokerage operation, and fees, including performance-based fees, from our risk management operations. The corporate
segment does not generate any significant revenues.
Our business, particularly our brokerage business, is subject to seasonal fluctuations. Commissions, fees, supplemental revenues
and contingent revenues, and our costs to obtain and fulfill the service obligations to our clients, can vary from quarter to quarter
as a result of the timing of contract-effective dates. On the other hand, salaries and employee benefits, rent, depreciation and
amortization expenses generally tend to be more uniform throughout the year. The timing of acquisitions, recognition of books
of business gains and losses also impact the trends in our quarterly operating results.
Brokerage Segment
The brokerage segment accounted for 86% of our revenues in 2024. Our brokerage segment operates through a network of more
than 580 sales and service offices located throughout the U.S. and approximately 350 sales and service offices in approximately
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60 countries, most of which are in the Australia, Canada, New Zealand and the U.K. Most of these offices are fully staffed with
sales and service personnel. We offer client service capabilities in approximately 130 countries around the world through our
direct operations as well as through a network of correspondent brokers and consultants.
Domestic Retail Insurance Brokerage Operations
Our retail insurance brokerage operations accounted for 73% of our brokerage segment revenues in 2024. Our retail brokerage
operations place nearly all lines of commercial property/casualty and health and welfare insurance coverage. Significant lines of
insurance coverage and consultant capabilities are as follows:
Aviation
Disability
General Liability
Products Liability
Casualty
Earthquake
Health & Welfare
Professional Liability
Claims Advocacy
Errors & Omissions
Healthcare Analytics
Property
Commercial Auto
Exchange Solutions
Human Resources
Retirement
Compensation
Executive Benefits
Institutional Investment
Surety Bond
Cyber Liability
Fiduciary Services
Loss Control
Voluntary Benefits
Dental
Fine Arts
Marine
Wind
Directors & Officers Liability
Fire
Medical
Workers’ Compensation
Our retail brokerage operations are organized and operate within certain key niche/practice groups, which account for
approximately 79% of our retail brokerage revenues. These specialized teams target areas of business and/or industries in which
we have developed a depth of expertise and a large client base. Significant niche/practice groups we serve are as follows:
Affinity
Equity Advisors
Life Sciences
Real Estate/Hospitality
Automotive
Financial Institutions
Manufacturing
Religious
Aviation
Food/Agribusiness
Marine
Restaurant
Construction
Global Risks
Nonprofit
Retail and Services
Energy
Healthcare
Personal
Technology & Communications
Entertainment
Higher/K12 Education
Private Client
Trade Credit/Political Risk
Environmental
Law Firms
Public Sector
Transportation
Our specialized focus on these niche/practice groups allows for highly-focused marketing efforts and facilitates the development
of value-added products and services specific to those industries. We believe that our detailed understanding and broad client
contacts within these niche/practice groups provide us with a competitive advantage.
We anticipate that our retail brokerage operations’ greatest revenue growth over the next several years will continue to come
from:
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Our niche/practice groups and middle-market accounts;
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Cross-selling other brokerage products to existing clients;
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Mergers and acquisitions; and
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Developing and managing alternative market mechanisms such as captives, rent-a-captives and deductible
plans/self-insurance.
International and Other Brokerage Related Operations
We operate as a retail commercial property and casualty broker throughout 45 locations in Australia, 42 locations in Canada and
37 locations in New Zealand. In the U.K., we operate as a retail broker from approximately 100 locations. We also have
specialty, wholesale, underwriting and reinsurance intermediary operations in London for clients to access Lloyd’s of London
and other international underwriting enterprises, and a program operation offering customized risk management products and
services to U.K. public entities. See the discussion below regarding our “Global Reinsurance Brokerage Operations.”
In Bermuda, we act principally as a wholesale broker for clients looking to access Bermuda-based underwriting enterprises and
we also provide management and administrative services for captive insurance entities.
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We also have strategic brokerage alliances with a variety of independent brokers in countries where we do not have a local office
presence. Between our direct operations and this global network of correspondent insurance brokers and consultants, we are able
to serve our clients’ coverage and service needs in approximately 130 countries around the world.
Global Reinsurance Brokerage Operations
Our reinsurance brokerage operations (which we refer to as Gallagher Re) accounted for 13% of our brokerage segment revenues
in 2024. Gallagher Re operates from more than 60 offices across 26 countries, with specialist expertise, underpinned by a
portfolio of analytics capabilities including catastrophe modeling, dynamic financial analysis, rating agency analysis and capital
modeling. Our reinsurance brokers assist underwriting enterprises, such as insurance companies and managing general
underwriters, to secure protection or reinsurance from another insurance company for a specific risk or class of risks, including
negotiating rates and terms and while sourcing the best-suited contracts available on the market. Additionally, through Gallagher
Securities, Gallagher Re provides capital markets services, including acting as underwriter, with respect to insurance-linked
securities, weather derivatives, capital raising and selected merger and acquisition advisory activities. We anticipate growing
Gallagher Re by increasing the number of underwriting enterprise clients, deepening our relationships with current underwriting
enterprise clients, developing new products, further building out our facultative capabilities, and through mergers and
acquisitions.
Wholesale Insurance Brokerage Operations
Our wholesale insurance brokerage operations accounted for 14% of our brokerage segment revenues in 2024. Our wholesale
brokers assist our retail brokers and other non-affiliated brokers in the placement of specialized and hard-to-place insurance.
These brokers operate through approximately 162 offices primarily located across the U.S., Bermuda and through our approved
Lloyd’s of London brokerage operation. More than 75% of our wholesale brokerage revenues comes from non-affiliated
brokerage clients.
In certain cases we act as a brokerage wholesaler, and in other cases we act as a managing general agent or managing general
underwriter, distributing specialized insurance coverages for underwriting enterprises. Managing general agents and managing
general underwriters are agents authorized by an underwriting enterprise to manage all or a part of its business in a specific
geographic territory. Activities they perform on behalf of the underwriting enterprise may include marketing, underwriting
(although we do not assume any underwriting risk), issuing policies, collecting premiums, appointing and supervising other
agents, paying claims and negotiating reinsurance.
We believe our growth prospects for our wholesale brokerage operations depend on increasing the number of broker-clients,
developing new managing general agency and underwriter programs, and through mergers and acquisitions.
Captive Underwriting Enterprises
We have ownership interests in several underwriting enterprises based in the U.S., Bermuda, Gibraltar, Guernsey and Isle of
Man that primarily operate segregated account “rent-a-captive” facilities. These “rent-a-captive” facilities enable our clients to
receive the benefits of participating in a captive underwriting enterprise without incurring certain disadvantages of ownership. In
Malta and Ireland, we act as managers of underwriting enterprises.
We also have a wholly owned underwriting enterprise subsidiary based in the U.S. that cedes all of its insurance risk of loss to
reinsurers or captives under facultative and quota-share treaty reinsurance agreements.
Risk Management Segment
Our risk management segment accounted for 14% of our revenues in 2024. Approximately 61% of our risk management
segment’s revenues are from workers’ compensation-related claims, 34% are from general and commercial auto liability-related
claims and 5% are from property-related claims in 2024.
Risk management services are primarily marketed on an independent basis from our brokerage operations, to Fortune 1000
companies, larger middle-market companies, nonprofit organizations, public sector entities, and underwriting enterprises, such as
insurance carriers and captives. We manage our third party claims adjusting operations through a network of more than
40 offices located throughout Australia, Canada, New Zealand, the U.K. and the U.S. Most of these offices are fully staffed with
claims adjusters and other service personnel. Our adjusters and service personnel act solely on behalf and under the instruction
of our clients.
While this segment complements our brokerage offerings, approximately 94% of our risk management segment’s revenues come
from clients not affiliated with our brokerage operations, such as underwriting enterprises and clients of other insurance brokers.
8
We expect that the risk management segment’s most significant growth prospects through the next several years will come from:
•
Program business and the outsourcing of portions of underwriting enterprise claims departments;
•
Increased levels of business with Fortune 1000 companies;
•
Larger middle-market companies and captives; and
•
Mergers and acquisitions.
Corporate Segment
The corporate segment reports the financial information related to our debt, external acquisition-related expenses, other corporate
costs and the impact of foreign currency remeasurement. As a result, the timing of acquisitions impact the trends in our quarterly
operating results.
Competition
Brokerage Segment
The insurance and reinsurance brokerage and consulting businesses are highly competitive and there are many organizations and
individuals throughout the world who actively compete with us in every area of our business. Additionally, we also face
competition from insurance and reinsurance carriers that market, distribute and service a portion of their products directly, and in
some cases from banks, consulting and accounting firms, and technology companies that can provide alternative risk
management products or services.
We believe that the primary factors determining our competitive advantage are the quality of the services we render, the
personalized attention we provide, the individual and corporate expertise providing the actual service to the client, the data
analytics and technology capabilities we have built and the overall cost efficiencies we create for our clients. We provide
sophisticated data analysis and other data and benchmarking insights through a product offering we refer to as Gallagher Drive to
help our clients make insurance decisions. Through our SmartMarket platform, we also provide insurance carriers with
individualized preference setting and risk identification capabilities, as well as performance data and metrics. We believe these
capabilities provide a growing competitive advantage with respect to many of the smaller organizations with which we compete.
Risk Management Segment
Our risk management business competes with a number of companies varying in size and scope, including global independent
third party claims administrators, regional third party claims administrators, insurance owned claims administrators and legal
firms in certain jurisdictions. We believe that the primary factors determining our competitive position are our ability to deliver
better outcomes, reputation for outstanding service, cost-efficient service, our data analytics capabilities and financial strength.
Business Combinations
We completed approximately 750 acquisitions from January 1, 2002 through December 31, 2024. The majority of these
acquisitions have been smaller regional or local brokerages, agencies, or employee benefit consulting operations with a middle or
small client focus and/or significant expertise in one of our niche/practice groups. The total purchase price for individual
acquisitions has typically ranged from $1.0 million to $100.0 million. During 2024, we also completed several acquisitions that
were larger than our usual tuck-in acquisitions, namely the acquisitions of RIBV Holdings, LLC and Redington, within our
brokerage segment.
Through these acquisitions, we seek to expand our talent pool, enhance our geographic presence and service capabilities, or
further diversify our business mix. We also focus on identifying:
•
A corporate culture that matches our sales-oriented and ethics-based culture;
•
A profitable, growing business whose ability to compete would be enhanced by gaining access to our greater
resources; and
•
Clearly defined financial criteria.
See Note 3 to our 2024 consolidated financial statements for a summary of our 2024 acquisitions, the amount and form of the
consideration paid and the dates of acquisitions.
9
Clients
Our client base is highly diversified and includes commercial, industrial, public sector, religious and nonprofit entities, as well as
underwriting enterprises in our reinsurance operations and risk management segment. In 2024, our largest single client
represented approximately 1% and our ten largest clients together represented approximately 3%, respectively, of our combined
brokerage and risk management segment revenues.
Human Capital
As of December 31, 2024, we had approximately 56,000 employees, with approximately 43% in the U.S. and 57% outside of the
U.S. Approximately 75% of our employees work in our brokerage segment and 18% in our risk management segment. Our
remaining employees work in our corporate segment, primarily at our headquarters and at Gallagher Centers of Excellence in
India. In 2024, our total compensation expense was $5,501.4 million for the brokerage segment and $882.4 million for the risk
management segment, representing 55% and 61%, respectively, of brokerage and risk management segment revenues.
Additional information regarding compensation expense, both on a reported and an adjusted basis can be found elsewhere in this
report under Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Talent Development and Retention
While many of our new employees come to us through mergers and acquisitions and traditional hiring, “growing our own” has
long been a key part of our human capital strategy. The Gallagher North American Sales Internship Program has been a key
part of our talent development strategy for nearly 60 years. During that time, our program has grown globally and we
employed approximately 500 interns in the summer of 2024. We provide our interns with professional development and
on-the-job sales training that gives them the opportunity to cultivate expertise and accelerate their full-time sales career growth.
We invest in our employees and aim to offer competitive compensation and benefits packages. We acknowledge the changing
work landscape and promote hybrid work arrangements, aiming to provide our employees with flexibility and work-life
balance. Further, we conduct periodic global engagement surveys that have had increasingly strong participation and positive
results.
Employee Learning and Development
We have programs around the world that offer learning and development opportunities to our employees. For example, the
Achieve and Gallagher Career Associate Programs are career development programs available in North America that combine
formal training, with experiential learning to provide participants the knowledge needed to be successful as client service and
sales professionals, respectively. Similarly, we offer development programs outside the U.S., for example in Australia,
Canada, India, New Zealand and the U.K. In addition, we provide on-demand access to over 35,000 globally accessible
business skills training modules across 18 languages.
Inclusion and Diversity
We aim to foster an environment that values and leverages the diverse talents, perspectives and ideas of all employees so they
can reach their fullest potential. As of December 31, 2024, approximately 58% of our employees were women, including 48%
of managers and 40% of producers. In the U.S., approximately 27% of our employees were racially/ethnically diverse,
including 18% of managers and 21% of producers.
Regulation
Many of our activities throughout the world, such as our insurance brokerage, securities broker-dealer and investment advisory
services, are subject to supervision and regulations promulgated by regulatory or self-regulatory bodies such as the SEC, the
NYSE, the U.S. Department of Justice (DOJ), the IRS, the Federal Trade Commission (FTC) the Financial Industry Regulatory
Authority (FINRA) and the Financial Crimes Enforcement Network in the U.S., the Financial Conduct Authority in the U.K., the
Australian Securities and Investments Commission in Australia and insurance regulators in nearly every jurisdiction in which we
operate. Our retirement-related consulting and investment advisory services are subject to pension law and financial regulation
in many countries. Our activities are also subject to a variety of other laws, rules and regulations addressing, among others,
licensing, cybersecurity, data privacy, AI, wage-and-hour standards, employment and labor relations, competition, anti-
corruption, currency, the conduct of business, reserves and the amount of local investment with respect to our operations in
certain countries. As we continue to implement new technology and AI initiatives across our business we also expect to be
subject to additional regulations related to the use of such new technologies.
The global nature of our operations increases the complexity and cost of compliance with laws and regulations, including
increased staffing needs, the development of new policies, procedures and internal controls and providing training to employees
in multiple locations, adding to our cost of doing business. Many of these laws and regulations may have differing or conflicting
legal standards across jurisdictions, increasing further the complexity and cost of compliance. In emerging markets and other
10
jurisdictions with less developed legal systems, local laws and regulations may not be established with sufficiently clear and
reliable guidance to provide us with adequate assurance that we are aware of all necessary licenses to operate our business, that
we are operating our business in a compliant manner, or that our rights are otherwise protected. In addition, major political and
legal developments in jurisdictions in which we do business may lead to new regulatory costs and challenges. For example,
China adopted a “blocking” statute similar to that of the European Union (EU) requiring compliance with certain Chinese laws if
they conflict with U.S. laws. Rising global tensions and protectionism may also lead other countries to adopt similar blocking
statutes, which could make it more difficult and costly for us to expand our operations globally.
In addition, as regulators and investors continue to focus on climate change and other sustainability issues, we are exposed to the
risk of frameworks and regulations being adopted that require significant effort to comply with and which are ill-adapted to our
operations, particularly with respect to our larger-than usual acquisitions that may have their own sustainability programs and
may have complied with sustainability regulations in the past in a way that may differ substantially from our sustainability
program and strategy. For example, in 2023, pursuant to the Corporate Sustainability Reporting Directive (CSRD, which we
expect will result in disclosure obligations in future years for us and some of our EU subsidiaries, the first set of EU
sustainability reporting standards (which we refer to as ESRS) was developed by the European Financial Reporting Advisory
Group (which we refer to as EFRAG) and adopted by the EU. EFRAG will continue to issue sector-specific and non-EU
applicable ESRS in the coming years, with such standards to be tailored to EU policy positions which may be different or
contradictory with those applicable in other jurisdictions such as the International Sustainability Standards Board standards
(which we refer to as ISSB) and the Task Force on Climate-Related Financial Disclosures (which we refer to as TCFD)
framework. In the U.K., our business is subject to a number of disclosure obligations under different sustainability frameworks,
such as the TCFD. Australia enacted mandatory disclosures based on the ISSB standards in 2024, and other jurisdictions, such
as Canada and New Zealand, have announced that they plan to implement ISSB-based disclosures. There is further uncertainty
in this space as the SEC’s new climate change disclosure requirements enacted in 2024 are currently being challenged in legal
proceedings and are expected to be struck down, while, the State of California has enacted disclosure rules, which we expect will
require us, among other things, to publish our consolidated carbon emissions. Compliance with such differing and uncertain
rules and frameworks requires, significant effort and could divert management’s attention and resources.
Regulations promulgated by the U.S. Treasury Department pursuant to the Foreign Account Tax Compliance Act (which we
refer to as FATCA) require us to take various measures relating to non-U.S. funds, transactions and accounts.
Available Information
Our executive offices are located at 2850 Golf Road, Rolling Meadows, Illinois 60008-4050, and our telephone number is
(630) 773-3800. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, are available free of
charge on our website at http://investor.ajg.com/sec-filings as soon as reasonably practicable after electronically filing or
furnishing such material to the SEC. The SEC also maintains a website (www.sec.gov) that includes our reports, proxy
statements and other information. Unless expressly noted, the information on our website, including our investor relations
website, or any other website is not incorporated by reference in this Form 10-K and should not be considered part of this Form
10-K or any other filing we make with the SEC.
11
Item 1A. Risk Factors.
Risk Factor Summary
Risks Relating to the Acquisition of AssuredPartners
•
There can be no assurance that the Transaction will be completed or that we will realize the expected benefits of the
Transaction.
•
We may encounter integration challenges and AssuredPartners may not perform as expected.
•
We have made certain assumptions relating to the Transaction and AssuredPartners which may prove to be
materially inaccurate.
Risks Relating to our Business Generally
•
Global economic and geopolitical events, such as fluctuations in interest and inflation rates; geo-economic
fragmentation and protectionism; a recession or economic downturn; a potential U.S. government shutdown or
gridlock over increasing the debt ceiling and political violence, and instability, including as a result of armed
conflicts in Ukraine and the Middle East, could adversely affect our results of operations and financial condition.
•
Economic conditions that result in financial difficulties for underwriting enterprises or lead to reduced risk-taking
capital capacity could adversely affect our results of operations and financial condition.
•
We have historically acquired large numbers of insurance brokers, benefit consulting firms and, to a lesser extent,
third party claims administration and risk management firms. We may not be able to continue such an acquisition
strategy in the future and there are risks associated with such acquisitions, which could adversely affect our growth
and results of operations.
•
We face additional risks relating to acquisitions that are larger than our usual tuck-in acquisitions, including that
these acquisitions will not perform as expected and that we cannot successfully integrate complex operations.
•
Damage to our reputation and culture could have a material adverse effect on our business.
•
Our sustainability aspirations, goals and initiatives, and our public statements and disclosures regarding them,
expose us to numerous risks.
•
If we are unable to apply technology, data analytics and AI effectively in driving value for our clients through
technology-based solutions or gain internal efficiencies and effective internal controls through the application of
technology and related tools, our operating results, client relationships, organic and inorganic growth and
compliance programs could be adversely affected.
•
We are subject to risks associated with AI.
•
Our success depends, in part, on our ability to attract and retain qualified talent, including our senior management
team.
•
Business disruptions could have a material adverse effect on our operations, damage our reputation and impact client
relationships.
•
Sustained increases in compensation expense and the cost of employee benefits could reduce our profitability.
•
Our substantial operations outside the U.S. expose us to risks different than those we face in the U.S.
•
Changes in tax laws could adversely affect us.
•
We face significant competitive pressures in each of our businesses.
•
Volatility or declines in premiums or other adverse trends in the insurance industry may seriously undermine our
profitability.
•
Contingent and supplemental revenues we receive from underwriting enterprises are less predictable than standard
commission revenues, and any decrease in the amount of these forms of revenue could adversely affect our results of
operations.
•
We face a variety of risks in our benefit consulting operations distinct from those we face in our insurance brokerage
operations.
12
•
We face a variety of risks in our third-party claims administration operations that are distinct from those we face in
our brokerage and benefit consulting operations.
•
Climate risks, including the risk of an economic crisis, risks associated with the physical effects of climate change
and disruptions caused by the transition to a low-carbon economy, could adversely affect our business, results of
operations and financial condition.
Regulatory, Legal and Accounting Risks
•
Improper disclosure of confidential, personal or proprietary information and cybersecurity attacks or other security
breach of our information systems, or those of third-party vendors we rely on, could result in regulatory scrutiny,
legal liability or reputational harm, and could adversely affect our business, financial condition and reputation.
•
We are subject to a number of contingencies and legal proceedings which, if determined unfavorably to us, would
adversely affect our financial results.
•
Changes in data privacy and protection laws and regulations, or any failure to comply with such laws and
regulations, could adversely affect our business and financial results.
•
We could be adversely affected by violations or alleged violations of laws that impose requirements for the conduct
of our overseas operations, including the FCPA, the U.K. Bribery Act or other anti-corruption laws, sanctions laws,
and FATCA.
•
We are subject to regulation worldwide. If we fail to comply with regulatory requirements or if regulations change
in a way that adversely affects our operations, we may not be able to conduct our business, or we may be less
profitable.
•
Changes in our accounting estimates and assumptions could negatively affect our financial position and operating
results.
•
Limited protection of our intellectual property could harm our business and our ability to compete effectively, and
we face the risk that our services or products may infringe upon the intellectual property rights of others.
Risks Relating to our Investments, Debt and Common Stock
•
Our clean energy investments are subject to various risks and uncertainties.
•
The IRC Section 45 operations in which we have invested and the by-products from such operations may result in
environmental and product liability claims and environmental compliance costs.
•
We have debt outstanding that could adversely affect our financial flexibility and subjects us to restrictions and
limitations that could significantly impact our ability to operate our business.
•
Credit rating downgrades would increase our financing costs and could subject us to operational risk.
•
We are a holding company and, therefore, may not be able to receive dividends or other distributions in needed
amounts from our subsidiaries.
•
Future sales or other dilution of our equity could adversely affect the market price of our common stock.
Risks Relating to the Acquisition of AssuredPartners
There can be no assurance that the Transaction will be completed or that we will realize the expected benefits of the
Transaction.
As discussed elsewhere in this Annual Report on Form 10-K, on December 7, 2024, we signed a definitive agreement to acquire
AssuredPartners. Our ability to complete the Transaction may be negatively impacted by general market conditions, issues with
regulatory approval in the U.S., the U.K. and Ireland and the other risks described herein. Although we currently anticipate that
the Transaction, should it occur, will be accretive to earnings per share from and after its closing, this expectation is based on
assumptions about our business, the operations to be acquired and preliminary estimates, which may change materially. As a
result, should the Transaction occur, certain other amounts to be paid in connection with the Transaction may cause dilution to
our earnings per share or decrease or delay the expected accretive effect of the Transaction and cause a decrease in the market
13
price of our common stock. In addition, a change in one or more of these assumptions may result in a change in future earnings,
which could be material.
We may encounter integration challenges and AssuredPartners may not perform as expected.
We can provide no assurance that we will be able to successfully integrate AssuredPartners or achieve the expected cost savings
or revenue synergies from such integration, that AssuredPartners will perform as expected or that we will not incur unforeseen
obligations or liabilities. It is possible that our experience in running AssuredPartners will require us to adjust our expectations
regarding the impact of the acquisition on our operating results. In addition, integration efforts are anticipated to be complex and
may divert management attention and resources, which could adversely affect our operating results.
We have made certain assumptions relating to the Transaction and AssuredPartners which may prove to be materially
inaccurate.
We have made certain assumptions relating to the Transaction and AssuredPartners, which assumptions involve significant
judgment and may not reflect the full range of uncertainties and unpredictable outcomes inherent in the Transaction and may be
materially inaccurate. These assumptions relate to numerous matters, including:
•
our ability to realize the expected benefits of the Transaction;
•
projections of future revenue, EBITDAC and our earnings per share;
•
our ability to maintain, develop and deepen relationships with employees, including key brokers, and customers
associated with AssuredPartners;
•
projections of future expenses and expense allocation relating to the Transaction and AssuredPartners;
•
unknown or contingent liabilities associated with the Transaction or AssuredPartners;
•
the amount of goodwill and intangibles that will result from the Transaction;
•
other purchase accounting adjustments that we may record in our financial statements in connection with the
Transaction;
•
acquisition and integration costs, including restructuring charges and transaction costs; and
•
other financial and strategic risks of the Transaction.
Risks Relating to our Business Generally
Global economic conditions and geopolitical events may impact the countries, regions or industries in which we operate
and adversely affect our business results of operations and financial condition.
Global economic and geopolitical events, including fluctuations in interest, inflation and exchange rates, geo-economic
fragmentation and protectionism resulting in greater restrictions on international trade and market uncertainty, tariffs, trade wars
and other governmental actions affecting the flow of goods, services or currency, the armed conflicts in Ukraine and the Middle
East, political crises like potential U.S. governmental shutdowns or gridlock over increasing the U.S. debt ceiling, and political
violence and instability worldwide could also weigh negatively on the economy.
A recession or decline in economic activity, for these and any other reasons, could adversely impact us in future periods. For
example, our clients might reduce the amount of insurance coverage, reinsurance coverage, consulting services or claims
administration services they purchase due to reductions in headcount, payroll, or replacement and asset values, among other
factors. Whether these reductions are caused by an overall economic downturn or declines in certain countries, regions and
industries in which we operate, our commission and fee revenues, consulting revenues, or revenues from managing third-party
insurance claims could be adversely impacted. Some of our clients may also experience liquidity problems or other financial
difficulties due to tightening credit markets or lower levels of economic activity. If our clients file for bankruptcy, liquidate their
operations, consolidate or are generally unable to meet their obligations, our revenues, ability to collect receivables and liquidity
could be adversely impacted, which could have an adverse effect on our results of operations and financial condition.
While lower interest rates benefit us by reducing our cost of borrowing, they also reduce investment earnings on our cash,
revenue from our premium financing operations and short-term investments of fiduciary and operating funds. In addition, lower
levels of inflation may reduce our revenue growth by slowing the increase in insurable asset values.
Uncertain economic conditions have created volatility in the U.S. and other markets where we operate. A rise in the cost of labor
or cost of capital, among other things, could negatively impact our operating and general and administrative expenses. We have
no or limited control over such developments. If our costs grow significantly, our margins and results of operations may be
14
materially and adversely impacted and we may not be able to achieve our strategic and financial objectives. Further, a tightening
of credit or capital markets could negatively impact our business, financial condition and liquidity, including our ability to
continue to access preferred sources of liquidity when needed and under similar terms, which may increase our capital costs. We
could also experience losses on holdings of cash and investments due to failures of financial institutions and other counterparties.
Thus, a deterioration in macroeconomic conditions could adversely affect our business, results of operations or financial
condition.
Economic conditions that result in financial difficulties for underwriting enterprises or lead to reduced risk-taking
capital capacity could adversely affect our results of operations and financial condition.
We have a significant amount of receivables from certain of the underwriting enterprises with which we place insurance and
reinsurance. If those companies experience liquidity problems or other financial difficulties, we could encounter delays or
defaults in payments owed to us, which could have a significant adverse impact on our consolidated financial condition and
results of operations. The failure of an underwriting enterprise with which we place business could result in E&O claims against
us by our clients. Further, the failure of E&O underwriting enterprises could make the E&O insurance we rely upon cost
prohibitive or unavailable. Underwriting enterprises are also clients of our reinsurance and third-party claims administration
operations and, as such, any of the negative developments for underwriting enterprises referred to above could also reduce our
commission and fee revenues from such clients. Any of these developments could adversely affect our results of operations and
financial condition. In addition, if underwriting enterprises merge, fail, or withdraw from offering certain lines of coverage, for
example, because of large payouts related to climate or weather events or other emerging risk areas, overall risk-taking capital
capacity could be negatively affected, which could reduce our ability to place certain lines of coverage, reduce demand from the
insurance company clients of our reinsurance and third-party claims administration operations and, as a result, reduce our
revenues and profitability.
We have historically acquired large numbers of insurance brokers, benefit consulting firms and, to a lesser extent, third
party claims administration and risk management firms. We may not be able to continue such acquisition strategy in the
future and there are risks associated with such acquisitions, which could adversely affect our growth and results of
operations.
Our ordinary-course acquisition program has been an important part of our historical growth, particularly in our brokerage
segment, and we believe that similar acquisition activity will be important to maintaining comparable growth in the future.
Failure to successfully identify and complete acquisitions would likely result in slower growth. Continuing consolidation in our
industry and a high level of interest in acquiring insurance brokers on the part of private equity firms, private equity-backed
consolidators and newly public insurance brokers has, in some cases, made, and could in the future make, appropriate acquisition
targets more difficult to identify and more expensive. Even if we are able to identify appropriate acquisition targets, we may not
have sufficient capital to fund acquisitions, be able to execute transactions on favorable terms or integrate targets in a manner
that allows us to realize the benefits we have historically experienced from acquisitions. When regulatory approval of
acquisitions is required, our ability to complete acquisitions may be limited by an ongoing regulatory review or other issues with
the relevant regulator. Our ability to finance and integrate acquisitions may also decrease if we complete a greater number of
larger acquisitions than we have historically. See the risk factor below regarding larger acquisitions. See also Note 3 to our
2024 consolidated financial statements for information regarding the size of transactions in the reporting period.
Post-acquisition risks apply both to our normal-course and larger acquisitions described in the risk factor below and include poor
cultural fit and risks relating to retention of personnel, retention of clients, entry into unfamiliar or complex markets or lines of
business, contingencies or liabilities not covered by or in excess of escrowed or indemnified amounts (such as those arising from
violations of sanctions laws or anti-corruption laws including the FCPA and U.K. Bribery Act) risks relating to ensuring
compliance with licensing and regulatory requirements, tax and accounting issues, the risk that an acquisition distracts
management and personnel from our existing business, and integration difficulties relating to accounting, information technology
(which we refer to as IT), pay equity, or human resources, some or all of which could have an adverse effect on our results of
operations and growth. The failure of acquisition targets to achieve anticipated revenue and earnings levels could result in
goodwill impairment charges. Additionally, through our acquisitions, we may enter new lines of business or offer new services
within existing lines of business. For example, our acquisition of Redington and My Plan Manager added U.K.-regulated
investment consulting services and Australia-regulated disability plan management services to our operations. These new
businesses may pose additional risks or increased regulatory burden.
We face additional risks relating to acquisitions that are larger than our usual tuck-in acquisitions described above.
We can provide no assurance that we will be able to successfully integrate the operations of acquisitions that are larger than our
usual tuck-in acquisitions, such as AssuredPartners, Buck, Eastern Insurance, Cadence Insurance and My Plan Manager, that
they will perform as expected, or that we will not incur unforeseen obligations or liabilities. Integration efforts relating to larger
acquisitions are more complex, including with respect to technology systems, which may divert management’s attention and
resources and could adversely affect our operating results. In addition, we have made certain assumptions relating to these
15
acquisitions that may be inaccurate, including as a result of the failure to realize expected benefits, higher than expected
integration costs and unknown liabilities as well as general economic and business conditions. These assumptions relate to
various matters, including projections of future revenues, non-GAAP measures, expenses and expense allocation; our ability to
maintain, develop and deepen relationships with employees, including key brokers, and clients; the amount of goodwill and
intangibles; and other unforeseen compliance, financial and strategic risks. See also “We may encounter integration challenges
and AssuredPartners may not perform as expected.”
Damage to our reputation or culture could have a material adverse effect on our business.
Our reputation is one of our key assets. We advise our clients on and provide services related to a wide range of subjects and our
ability to attract acquisition partners and attract and retain clients and employees is highly dependent upon perceptions of our
expertise, level of service, ability to protect client information, trustworthiness, business practices, financial condition and other
subjective qualities such as ethics, culture and values. We believe that our culture has been a critical component of our growth
and success since our founding nearly 100 years ago and the failure to uphold our culture as we grow could negatively impact
our reputation. Negative perceptions or publicity, including our association with clients or business partners with damaged
reputations, as a result of actions taken by companies we acquire before the acquisition, as a result of marketing partnerships (for
example, with a sports team or league), or from actual or alleged conduct by us or our employees, including corruption or bribery
allegations or cybersecurity incidents, could damage our reputation. Negative publicity may be posted on social media or other
Internet forums, whether or not true, and the speed and pervasiveness with which information can be disseminated through these
channels, in particular social media, may magnify the risks noted above. Our success is also dependent on maintaining a good
reputation with investors, regulators and the communities in which we operate. As we enter new jurisdictions and markets
globally, negative reputational events (whether arising from regulatory matters or otherwise) may have a disproportionate impact
in locations or markets where our employee and client presence is limited. Any negative publicity could potentially hinder our
growth prospects in such locations or markets. Any of these matters could have a material adverse effect on our business,
financial condition and results of operations. See below for additional risk factors regarding sustainability initiatives and
disclosures.
Our sustainability-related aspirations, goals and initiatives, and our statements and disclosures regarding sustainability
expose us to numerous risks.
The increased focus on sustainability has made compliance with regulations, frameworks and stakeholder expectations
increasingly complex. Our business faces increased scrutiny from the investment community, clients, employees, potential
acquisition targets, regulators and other stakeholders related to sustainability. This includes scrutiny regarding our goal to reach
operational net zero carbon emissions (Scope 1 and Scope 2) by 2050 and our interim goal of a 50% reduction in such emissions,
on a per employee basis, by 2030. We anticipate the same level of scrutiny with respect to any other goals, targets and objectives
we may announce in the future, and our methodologies and timelines for pursuing them. We may also face scrutiny, including
private litigation or government enforcement actions, relating to our long-standing inclusion and diversity initiatives.
Heightened scrutiny, including a growing backlash against sustainability initiatives, has increased the risk that we could be
perceived as, or accused of, making inaccurate or misleading statements, commonly referred to as “greenwashing” and
“greenhushing,” and could harm our reputation. Similarly, our failure or perceived failure to pursue or fulfill our goals, targets
and objectives, to comply with ethical, social environmental or other standards, regulations or expectations, which are
continuously evolving, or to satisfy various reporting standards with respect to these matters, could have the same negative
impacts, as well as expose us to government enforcement actions and private litigation. Any resulting erosion of trust and
confidence or the perception among some stakeholders that we are overly focused on sustainability could make it difficult for us
to attract acquisition targets or attract and retain clients, employees or investors; result in lower sustainability ratings, exclusion
of our stock from sustainability-oriented indices, and reduced demand for our stock from sustainability-focused or anti-ESG
investment funds; increase our cost of borrowing; or harm our relationships with regulators and the communities in which we
operate. See also “We are subject to regulation worldwide. If we fail to comply with regulatory requirements or if regulations
change in a way that adversely affects our operations, we may not be able to conduct our business, or we may be less profitable.”
If we are unable to apply technology and data analytics effectively in driving value for our clients through technology-
based solutions or gain internal efficiencies and effective internal controls through the application of technology and
related tools, our operating results, client relationships, ability to attract acquisition targets, growth and compliance
programs could be adversely affected.
Our future success depends, in part, on our ability to collect and leverage data relating to our business and otherwise anticipate
and respond effectively to the risks and opportunities presented by digital disruption, “big data” and data analytics, AI and other
developments in technology. These may include new applications or insurance-related services based on AI (e.g., generative AI,
machine learning), robotics, blockchain, or new approaches to data mining that impact the nature of how we generate revenue.
We may be exposed to competitive risks related to the adoption and application of new technologies by established market
participants (for example, through disintermediation) or new entrants such as technology companies, “Insurtech” start-up
companies, and others. These new entrants are focused on using technology and innovation in an attempt to simplify and
16
improve the client experience, increase efficiencies, alter business models and effect other potentially disruptive changes in the
industries in which we operate. We must also develop and implement technology solutions and technical expertise among our
employees that anticipate and keep pace with rapid and continuing changes in technology, industry standards, client preferences
and internal control standards. We may not be successful in anticipating or responding to these developments on a timely and
cost-effective basis and our ideas may not be accepted in the marketplace. Additionally, the effort to gain technological
expertise, make use of data analytics, and develop new technologies in our business requires us to incur significant expenses.
Investments in technology systems and data analytics capabilities may not deliver the benefits or perform as expected, or may be
replaced or become obsolete more quickly than expected, which could result in operational difficulties or additional costs. If we
cannot offer new technologies or data analytics solutions as quickly as our competitors, or if our competitors develop more cost-
effective technologies, data analytics solutions or other product offerings, we could experience a material adverse effect on our
operating results, client relationships, ability to attract acquisition targets, growth, and compliance programs.
In some cases, we depend on key third-party vendors and partners to provide technology and other support for our strategic
initiatives. If these third parties fail to perform their obligations or cease to work with us, our ability to execute on our strategic
initiatives could be adversely affected. See also “We are subject to risks associated with AI.”
We are subject to risks associated with AI.
We use AI in our business, including with respect to services provided to our clients. We have internal policies and controls
governing the development, procurement, deployment and use of AI by our employees designed to align with globally
recognized AI principles, maintain trust with clients and protect the company from cybersecurity threats, breaches of data
privacy and intellectual property, E&O liability and regulatory enforcement risk; however, our employees could violate these
policies and they or external threat actors could circumvent our controls and expose us to such risks. Furthermore, our exposure
to these risks may increase if our vendors, suppliers, or other third-party providers employ AI in relation to the products or
services they provide to us, as we have limited control over such use in third-party products or services. These risks include,
among others, the input of confidential information, including material non-public information, in contravention of our policies
or contractual restrictions to which any of the foregoing are subject, or in violation of applicable laws or regulations, including
those relating to data protection and AI. This could result in such information becoming part of a dataset that is accessible by
other third-party AI applications and users.
Additionally, AI heavily relies on the collection and analysis of extensive data sets. Due to the impracticality of incorporating all
relevant data into the models used by AI, it is inevitable that data sets within these models will contain inaccuracies and errors,
and potential biases. This could potentially render such models inadequate or flawed, negatively impacting the effectiveness of
the technology or our services. We are exposed to the risks associated with these inaccuracies, errors and biases, along with the
adverse impacts that such flawed models could have on our business and operations. Furthermore, governance and ethical issues
relating to the use of AI may also result in reputational harm and liability.
AI and its applications are developing rapidly. The use of this technology by clients or underwriting enterprises may impact the
way our business operates, and its use by our competitors and new market entrants with competing services derived from their
AI capabilities may give them a competitive advantage. We cannot predict the effect of these changes at this time, for example,
they may decrease the demand for our services or negatively affect our assumptions regarding the competitive landscape of our
business. Further, the rapid development of these technologies may require significant efforts to upskill or reskill existing
employees. Consequently, it is difficult to predict all risks associated with this new technology, which may eventually impact
our business, results of operations, or financial condition. See also “Changes in data privacy and protection laws and regulations,
or any failure to comply with such laws and regulations, could adversely affect our business and financial results.”
Our success depends, in part, on our ability to attract and retain qualified talent, including our senior management team.
We depend upon members of our senior management team, who possess extensive knowledge and a deep understanding of our
business and strategy. We could be adversely affected if we fail to successfully execute our succession plans for these leaders,
including our chief executive officer, and if our succession plans are not well-received by our employees, trading partners,
investors and other stakeholders. We could also be adversely affected if we fail to attract and retain talent and foster a diverse
and inclusive workplace throughout our organization. Competition for talent is intense in many areas of our business,
particularly in our claims management business, IT and in rapidly developing fields such as AI and data engineering.
Furthermore, the increased availability of remote working arrangements has expanded the pool of companies that compete with
us for talent. As competition for skilled professionals remains intense, employers are implementing new offerings to attract
talent, including but not limited to increasing compensation, enhancing health and wellness solutions, and providing remote work
options. We may have to devote significant resources to attract and retain talent, which could negatively affect our business,
operating results and financial condition.
In addition, our industry has experienced competition for brokers and in the past we have lost key brokers and groups of brokers,
along with their clients, business relationships and intellectual property directly to our competition. We enter into agreements
with many of our brokers and significant client-facing employees and all of our executive officers, which prohibit them from
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disclosing confidential information and/or soliciting our clients, prospects and employees upon their termination of employment.
The confidentiality and non-solicitation provisions of such agreements terminate in the event of a hostile change in control, as
defined in the agreements. Although we pursue legal actions for alleged breaches of such agreements, theft of trade secrets,
breaches of fiduciary duties, intellectual property infringement and related causes of action, such legal actions may not be
effective in preventing such breaches, theft or infringement. In certain cases, our competitors have solicited employees in
violation of their employment agreements as a matter of standard business practice, apparently determining that the cost of
defending litigation is outweighed by the benefits of acquiring our employees in this manner. Certain states like Minnesota,
North Dakota and Oklahoma have implemented rules that would prevent employers from entering into non-competes with
employees, while California has broadened the scope of its longstanding restrictions on non-competes and the Federal Trade
Commission (FTC) has continued defending its non-compete ban in federal courts. Even though the FTC ban is unlikely to take
effect, if more states adopt similar rules or if we fail to adequately address any of the issues referred to above, we could
experience a material adverse effect on our business, operating results and financial condition.
Business disruptions could have a material adverse effect on our operations, damage our reputation and impact client
relationships.
Our ability to conduct business may be adversely affected by a disruption in the infrastructure that supports our business. This
includes infrastructure controlled by third-party vendors and suppliers. Such disruptions could be caused by various factors,
such as cybersecurity incidents, security breaches, human error, capacity constraints, hardware failures or defects, natural
disasters, climate and weather events, pandemics, fires, power outages, telecommunication failures, break-ins, sabotage,
intentional acts of vandalism, acts of terrorism, civil disruption, political violence and unrest, military actions or war. While we
have disaster recovery procedures in place, they may not be effective. Additionally, insurance covering such disruptions may not
continue to be available at reasonable prices and may not address all potential losses or compensate us for the possible loss of
clients or increase in claims and lawsuits directed against us. Further, because we do not control infrastructure owned by third
parties, we cannot guarantee that such parties have effective recovery procedures, or sufficient funds or insurance to recover any
damages, losses or other liabilities that we may incur due to business interruptions caused by disruptions to their infrastructure.
The risk of business disruption is more pronounced in certain geographic areas where a significant portion of our business is
concentrated. For example, we have substantial operations in India that provide important client support and other services for
our global organization. To date, the dispute between India and Pakistan involving the Kashmir region, rising tensions between
India and China, incidents of terrorism in India, the potential for civil unrest and general geopolitical uncertainties have not
adversely affected our operations in India. However, such factors could potentially affect our operations there in the future. If
our access to these services is disrupted, our client relationships could be harmed, our liability for E&O could increase, and our
reputation could be damaged, causing our business, operating results and financial condition to be adversely affected.
Sustained increases in compensation expense and the cost of employee benefits could reduce our profitability.
Compensation expense and the cost of employees’ medical and other benefits, substantially affects our profitability. In the past,
we have occasionally experienced significant increases in these costs as a result of macro-economic factors beyond our control,
including wage inflation and increases in health care costs. Our compensation expense ratio in 2024 as a percent of total revenue
remained the same as in 2023 at 56.4%. Although we have actively sought to control increases in compensation expense and the
cost of employee benefits, we can make no assurance that we will succeed in limiting future cost increases, and continued
upward pressure in these costs could reduce our profitability.
Our substantial operations outside the U.S. expose us to risks different than those we face in the U.S.
In 2024, we generated approximately 36% of our combined brokerage and risk management revenues outside the U.S. Our
business outside the U.S. presents operational, regulatory, economic and other risks that are different from, or greater than, the
risks we face doing comparable business in the U.S. These include, among others, risks relating to:
•
Maintaining awareness of and complying with a wide variety of labor practices and foreign laws, including those
relating to labor and employment, data privacy requirements, AI regulations, prohibitions on corrupt payments to
government officials, export and import duties, environmental policies, sustainability disclosures, as well as laws and
regulations applicable to U.S. business operations abroad;
•
Our employees, our agents, or our affiliated entities, or their respective officers, directors, employees and agents,
may take actions in violation of any local laws, regulations or policies, for which we might be held responsible.
Actual or alleged violations could result in substantial fines, sanctions, civil or criminal penalties, debarment from
government contracts, curtailment of operations in certain jurisdictions, competitive or reputational harm, litigation
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or regulatory action and other consequences that might adversely affect our results of operations, financial condition
or strategic objectives;
•
We expect relations with work councils and trade unions in these countries will continue to be satisfactory, however,
work stoppages could occur and we may not be successful in negotiating new collective bargaining agreements. In
addition, collective bargaining negotiations may (1) result in significant increases in the cost of labor, (2) divert
management’s attention away from operating the business or (3) break down and result in the disruption of
operations. See also “Regulatory, Legal and Accounting Risks”;
•
We own interests in firms where we do not exercise management control (such as Casanueva Perez S.A.P.I. de C.V.
in Mexico and Renomia, A.S. in the Czech Republic) and are therefore unable to direct or manage the business to
realize the anticipated benefits, including mitigation of risks, that could be achieved through full ownership;
•
The potential costs, difficulties and risks associated with local regulations across the globe, including the risk of
personal liability for directors and officers (for example, in the U.K.) and “piercing the corporate veil” risks under
the corporate law regimes of certain countries;
•
Difficulties in staffing and managing foreign operations. For example, we are growing our Latin America operations
through acquisitions of local family-owned insurance brokerage firms. If we lose a local key employee, hiring and
retaining talent locally or finding an internal candidate qualified to transfer to such location could be difficult;
•
Less flexible employee relationships, which in certain circumstances have limited our ability to prohibit employees
from competing with us after they are no longer employed with us or recover damages, and made it more difficult
and expensive to terminate their employment;
•
Certain of our non-U.S. subsidiaries receive revenues or incur obligations in currencies that differ from their
functional currencies. We must also translate the financial results of our non-U.S. subsidiaries into U.S. dollars.
Although we have used foreign currency hedging strategies in the past and currently have some in place, such risks
cannot be eliminated entirely, and significant changes in exchange rates may adversely affect our results of
operations;
•
Conflicting regulations in the countries in which we do business;
•
Political and economic instability (including risks relating to undeveloped or evolving legal systems, unstable
governments, acts of terrorism, military actions and armed conflicts, including between Russia and Ukraine and in
the Middle East). See also “Global economic conditions and geopolitical events may impact the countries, regions
or industries in which we operate and adversely affect our business, results of operations and financial condition”;
•
Coordinating our communications, policies and logistics across geographic distances, multiple time zones and in
different languages, including during times of crisis management;
•
Risks relating to our post-Brexit plan to address the loss of passporting rights between the U.K. and the European
Economic Area (which we refer to as EEA) with respect to insurance brokerage services. The plan we implemented
in 2020 involved transferring the EEA clients of our U.K.-based regulated entities to a Swedish subsidiary
authorized in the EEA, and providing some services through a U.K. branch of such subsidiary. Although this
“reverse branch” model is typical of other brokers of a similar size, EEA regulators continue to assess their approach
to this model, including as a result of, among other developments, the supervisory statement issued by the European
Insurance and Occupational Pensions Authority (EIOPA) in February 2023. While we are continuously assessing
the impact of these developments, it is difficult to predict such impact on our current plan;
•
Unfavorable audits and exposure to additional liabilities relating to various non-income taxes (such as payroll, sales,
use, value-added, net worth, property and goods and services taxes) in non-U.S. jurisdictions. In addition, our future
effective tax rates could be unfavorably affected by changes in tax rates, discriminatory or confiscatory taxation,
changes in the valuation of our deferred tax assets or liabilities, changes in tax laws or their interpretation and the
financial results of our non-U.S. subsidiaries. See also “Changes in tax laws could adversely affect us”;
•
Legal or political constraints on our ability to maintain or increase prices;
•
Cash balances held in foreign banks and institutions where governments have not specifically enacted formal
guarantee programs;
•
Epidemics or pandemics at a regional or global level;
•
Lost business or other financial harm due to protectionism in the U.S. and in countries around the world, including
adverse trade policies, tariffs, trade wars and other governmental actions affecting the flow of goods, services or
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currency, and governmental restrictions on the transfer of funds to us from our operations outside the U.S.; for
example, the practice of using off-shore labor has come under increased scrutiny in the U.S. and governmental
authorities or insurance carriers could seek to impose financial costs or restrictions on the use of off-shore centers of
excellence such as the ones we operate in India and other international jurisdictions (see also “Business disruptions
could have a material adverse effect on our operations, damage our reputation and impact client relationships”); and
•
Increased tensions between countries such as the U.S., China and Russia and related trade and military policies of
the U.S. government that may cause retaliation or countermeasures from other countries or regions, could further
develop in ways that exacerbate the risks described above, or introduce new risks for our non-U.S. operations, such
as increasing the potential that sanctions, tariffs, global mobility restrictions or other related measures may impact
our business.
If any of these risks materialize, our results of operations and financial condition could be adversely affected.
Changes in tax laws could adversely affect us.
We operate in various jurisdictions and are subject to changes in applicable tax laws, treaties, or regulations in those
jurisdictions. A material change in the tax laws, treaties, or regulations, or their interpretation, of any jurisdiction with which we
do business, or in which we have significant operations, could adversely affect us. For example, the OECD continues to issue
reports and recommendations as part of its Base Erosion and Profit Shifting project (which we refer to as BEPS) and in 2021, it
announced that 136 countries and tax jurisdictions agreed to implement a new Pillar 2 approach to international taxation. Pillar 1
exempts regulated financial institutions and we believe we qualify for such exemption. Pillar 2 will establish a global minimum
tax rate of 15%, such that multinational enterprises with an effective tax rate in a jurisdiction below this minimum rate will need
to pay additional tax, which could be collected by the parent company’s tax authorities if that parent country adopts Pillar 2 or by
those in other countries, depending on whether and how each country implements the OECD’s approach in its tax treaties and
domestic tax legislation. The first detailed draft rules under that approach were published in December 2021. The new approach
came into effect in 2023 in certain jurisdictions, and different countries have implemented the necessary rules in different ways,
through their individual agreement to tax treaty changes and through changes to their own domestic tax laws. Many countries in
which we do business have adopted, or are expected to adopt, these rules which will change various aspects of the existing
framework under which our tax obligations are determined. For example, the U.K., the majority of the EU, Canada, Australia
and New Zealand have now adopted nearly all aspects of these rules with limited variation from the OECD model rules. Other
jurisdictions in which we do business are also reacting to these efforts; for example, Bermuda enacted a corporate tax regime for
the first time in 2023, which has become effective starting 2025. We anticipate further significant developments across several
jurisdictions in which we operate in 2025 and 2026. Depending on how the jurisdictions in which we operate, and those in
which we and our subsidiaries are based, choose to implement the OECD’s approach in their tax treaties and domestic tax laws,
particularly if the U.S. does not adopt Pillar 2, we could be adversely affected due to our income being taxed at higher effective
rates, once these new rules come into force.
We face significant competitive pressures in each of our businesses.
The insurance brokerage, reinsurance brokerage and employee benefit consulting businesses are highly competitive and many
insurance brokerage, reinsurance brokerage and employee benefit consulting organizations actively compete with us in one or
more areas of our business around the world. Two of the firms we compete with in the global brokerage and risk management
markets have larger revenues than ours. In addition, many other smaller firms that operate nationally or that are strong in a
particular country, region or locality may have, in that country, region or locality, an office with revenues as large as or larger
than those of our corresponding local office. Our third party claims administration operation also faces significant competition
from stand-alone firms as well as divisions of larger firms. Over the past decade or more, private equity sponsors have invested
heavily in the insurance brokerage and third party claims administration industries, creating new competitors and strengthening
existing ones. Across all of our operations, Insurtech and technology-based start-ups are entering the business. In most cases,
these businesses complement or enhance our offerings, but in some cases, they compete with us.
We believe that the primary factors determining our competitive position with other organizations in our industry are the quality
of the services we render, our data analytics capabilities, the personalized attention we provide, the individual and corporate
expertise of the brokers and consultants providing the actual service to the client, and our ability to help our clients manage their
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overall risk exposure and insurance or reinsurance costs. Losing business to competitors offering similar services or products at
a lower cost or having other competitive advantages would adversely affect our business.
Consolidation among our existing competitors could create additional competitive pressure on us as such firms grow their market
share, take advantage of strategic and operational synergies and develop lower cost structures. In addition, any increase in
competition due to new legislative or industry developments could adversely affect us.
These developments include:
•
Increased capital-raising by underwriting enterprises, which could result in new risk-taking capital in the industry,
which in turn may lead to lower insurance premiums and commissions;
•
Underwriting enterprises selling insurance directly to insureds without the involvement of a broker or other
intermediary;
•
Changes in our business compensation model as a result of regulatory developments;
•
Federal and state governments establishing programs to provide health insurance (such as a single-payer system) or,
in certain cases, property insurance in catastrophe-prone areas or other alternative market types of coverage, that
compete with, or completely replace, insurance products currently offered by underwriting enterprises;
•
Sustainability regulations in the U.S. and around the world, particularly those promoting the transition to a low-
carbon economy, which could create new competitive pressures around climate resilience consulting services and
innovative insurance solutions;
•
Continued consolidation in the financial services industry, leading to large financial services institutions offering a
wider variety of services including insurance brokerage and risk management services;
•
Increased competition from new market participants such as banks, accounting firms, consulting firms and Internet
or other technology firms offering risk management or insurance brokerage services, or new distribution channels for
insurance such as payroll firms and professional employer organizations; and
•
Third party capital providers entering the insurance and reinsurance risk transfer market offering products and
capital directly to our clients. Their presence in the market has increased the competitive pressures that we face.
New competition as a result of these or other legislative or industry developments could cause the demand for our products and
services to decrease, which could in turn adversely affect our results of operations and financial condition.
Volatility or declines in premiums or other adverse trends in the insurance industry may seriously undermine our
profitability.
We derive much of our revenue from commissions and fees for our brokerage services. We do not determine the premiums on
which our commissions are generally based. Moreover, premiums are cyclical in nature and may vary widely based on market
conditions. Because of market cycles for insurance and reinsurance product pricing, which we cannot predict or control, our
brokerage revenues and profitability can be volatile or remain depressed for significant periods of time.
Underwriting enterprises may seek to minimize their expenses by reducing the commission rates payable to agents or brokers
such as us. The reduction of these commission rates, along with general volatility and/or declines in premiums, may
significantly affect our profitability. Because we do not determine the timing or extent of premium pricing changes, it is difficult
to forecast our commission revenues precisely, including whether they will significantly decline. As a result, we may have to
adjust our budgets for future acquisitions, capital expenditures, dividend payments, debt repayments and other expenditures to
account for unexpected changes in revenues, and any decreases in premium rates may adversely affect the results of our
operations.
In addition, there have been and may continue to be various trends in the insurance and reinsurance markets toward alternative
insurance markets including, among other things, greater levels of self-insurance, captives, rent-a-captives, risk retention groups
and non-insurance capital markets-based solutions to traditional insurance. While historically we have been able to participate in
certain of these activities on behalf of our clients and obtain fee revenue for such services, there can be no assurance that we will
realize revenues and profitability as favorable as those realized from our traditional brokerage activities. Our ability to generate
premium based commission revenue may also be challenged by the growing desire of some clients to compensate brokers based
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upon flat fees rather than a percentage of premium. This could negatively impact us because fees are generally not indexed for
inflation and might not increase with premiums as commissions do or with the level of service provided.
Contingent and supplemental revenues we receive from underwriting enterprises are less predictable than standard
commission revenues, and any decrease in the amount of these forms of revenue could adversely affect our results of
operations.
A meaningful portion of our revenues consists of contingent and supplemental revenues from underwriting enterprises.
Contingent revenues are paid after the insurance contract period, generally in the first or second quarter, based on the growth
and/or profitability of business we placed with an underwriting enterprise during the prior year. On the other hand, supplemental
revenues are paid up front, on an annual or quarterly basis, generally based on our historical premium volumes with the
underwriting enterprise and additional capabilities or services we bring to the engagement. While underwriting enterprises
generally maintain supplemental revenues in the current year at a pre-determined rate, that rate can change in future years as
described above. If, due to the current economic environment or for any other reason, we are unable to meet an underwriting
enterprise’s particular profitability, volume or growth thresholds, as the case may be, or such companies increase their estimate
of loss reserves (over which we have no control), actual contingent revenues or supplemental revenues could be less than
anticipated, which could adversely affect our results of operations. In the case of contingent revenues, under revenue recognition
accounting standards, this could lead to the reversal of revenues in future periods that were recognized in prior periods.
We face a variety of risks in our benefit consulting operations distinct from those we face in our insurance brokerage
operations.
Our benefit consulting operations face a variety of risks distinct from those faced by our brokerage operations. The portion of
our revenue derived from consulting engagements and special project work is more vulnerable to reduction, postponement,
cancellation or non-renewal during an economic downturn than traditional insurance brokerage commissions. For instance, we
experienced a decline in such revenue during the economic downturn triggered by the COVID-19 pandemic. In the event of a
future recession or economic downturn, we could again experience deterioration in these sources of revenue. A portion of our
benefit consulting operation revenue is tied to assets invested by our clients, and when investment returns are adversely affected
that portion of our revenue is negatively impacted. Certain areas within our retirement consulting practice may attract a higher
level of regulatory scrutiny due to regulators’ historical interest in such matters, including pension-related products and
investment advisory and broker-dealer services. In addition, we have made significant investments in product and knowledge
development to assist clients as they navigate the complex regulatory requirements relating to employer-sponsored healthcare.
New laws or regulations reducing employer-sponsored health insurance, by limiting or eliminating tax-advantaged employer-
sponsored benefits or otherwise, could impact clients’ demand for our services. If we are unable to adapt our services to changes
in the legal and regulatory landscape around employer-sponsored benefits, our results of operations could be adversely impacted.
We closed the acquisition of Buck in second quarter 2023 and Redington in fourth quarter 2024. Buck is the largest acquisition
in the history of our benefit consulting operations and represents a material portion of its revenue. As such, the integration of
Buck into our existing operations requires a more significant effort and involves additional risks compared to our typical
acquisitions. Redington is an FCA-regulated investment consulting firm focused on pension funds, wealth managers and
institutional investors with a large footprint in the U.K., which may expose us to greater liability than our typical acquisitions.
See also “We face additional risks relating to acquisitions that are larger than our usual tuck-in acquisitions” described above.
We face a variety of risks in our third-party claims administration operations that are distinct from those we face in our
brokerage and benefit consulting operations.
Our third party claims administration operations face a variety of risks distinct from those faced by the rest of our business,
including the risks that:
•
Epidemics and pandemics that reduce in-person business activity have a greater negative impact because they result
in a reduction in the number of claims processed, as experienced during the years 2020, 2021, and the beginning of
2022. If a new epidemic or pandemic were to emerge, these operations could face similar negative impacts in the
future;
•
RISX-FACS®, our proprietary risk management information system, on which our ability to provide clients with
insurance claim settlement and administration services is highly dependent, becomes inoperable for some reason. In
addition, we are increasing our use of cloud storage and cloud computing application services supported, upgraded
and maintained by third-party vendors. A disruption affecting RISX-FACS®, third-party cloud services or any other
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infrastructure supporting our business, including key client relationship management software, could have a material
adverse effect on our operations, cause reputational harm and damage our employee and client relationships;
•
The favorable trend among both underwriting enterprises and self-insured entities toward outsourcing various types
of claims administration and risk management services will reverse or slow causing our revenues or revenue growth
to decline;
•
Concentration of large amounts of revenue with certain clients results in greater exposure to the potential negative
effects of lost business due to changes in management at such clients or changes in state government policies, in the
case of our government-entity clients, or for other reasons;
•
Contracting terms will become less favorable or the margins on our services will decrease due to increased
competition, regulatory constraints or other developments;
•
We do not satisfy regulatory requirements related to third party administrators or that regulatory developments
impose additional burdens, costs or business restrictions that make our business less profitable; for example,
regulations relating to security, cybersecurity, AI and data privacy as we manage a large amount of highly sensitive
and confidential information including personally identifiable information, protected health information and
financial information;
•
Volatility in our case volumes, which are dependent upon a number of factors and difficult to forecast accurately,
could impact our revenues;
•
Wage inflation, difficulty attracting and retaining talent, and rising technology costs, may impact our ability to
remain competitive in the marketplace and profitably fulfill our existing contracts (other than those that provide cost-
plus or other margin protection);
•
We may be unable to develop further efficiencies in our claims-handling business and may be unable to obtain or
retain certain clients if we fail to make adequate improvements in technology or operations; and
•
Underwriting enterprises or certain large self-insured entities may create in-house servicing capabilities, including as
a result of the adoption of AI, that compete with our third party administration and other administration, servicing
and risk management products, and we could face additional competition from potential new entrants into the global
claims management services market. See also “We are subject to risks associated with AI.”
If any of these risks materialize, our results of operations and financial condition could be adversely affected.
Climate risks, including the risk of an economic crisis, risks associated with the physical effects of climate change and
disruptions caused by the transition to a low-carbon economy, could adversely affect our business, results of operations
and financial condition.
Climate change has been widely identified by investors and regulators as a systemic risk to the global economy. The U.S.
Federal Reserve has warned that a gradual change in investor sentiment regarding climate risk introduces the possibility of
abrupt tipping points or significant swings in sentiment, which could create unpredictable follow-on effects in financial markets.
If this occurred, not only would our business be negatively impacted by the general economic decline, but a drop in the stock
market affecting our stock price could negatively impact our ability to grow through mergers and acquisitions financed using our
common stock.
The transition to a low-carbon economy could harm specific industries or sectors central to the traditional energy economy in
ways that could impact our business. Our clients in such industries could go out of business or have reduced needs for
insurance-related or consulting services, which could adversely impact our commission revenues, consulting revenues or
revenues from managing third-party insurance claims. Negative publicity arising from our association with clients in disfavored
businesses or industries, or the perception that we are not sufficiently focused on climate risks or on reducing our own carbon
emissions, as well as resulting from the potential conflict with anti-ESG initiatives from the U.S. federal or state governments
and other stakeholders, could damage our reputation with investors, clients, employees and regulators. In addition, the transition
to a low-carbon economy is giving rise to the need for innovative insurance, reinsurance and risk management solutions for
entirely new industries and companies, as well as advice and services to bolster climate resilience for existing companies. If we
fail to innovate and provide valuable services to our clients in response to these changes, we could lose market share to our
competitors or new market entrants that do.
We do not generally assume net underwriting risk, other than with respect to de minimis amounts necessary to provide minimum
or regulatory capital, and briefly, in connection with our catastrophe bond business, and thus do not generally experience direct
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material financial implications related to extreme weather events. In addition, we are a professional services firm with people as
our most important asset and limited physical operations. However, in cases where underwriting enterprises fail or face
significant payouts related to extreme natural, climate or weather events leading them to withdraw from offering certain lines of
coverage, as observed in places such as California, Louisiana, and Florida, such withdrawal negatively impacts the overall
capacity for risk-taking capital. If this reduction is substantial, it could limit our ability to secure certain lines of coverage for our
clients, ultimately reducing our revenues and profitability. Underwriting enterprises are also clients of Gallagher Re, so any of
the negative developments for underwriting enterprises referred to above could also reduce our commission revenues from such
clients.
Regulatory, Legal and Accounting Risks
Improper disclosure of confidential, personal or proprietary information and cybersecurity attacks or other security
breach of our information systems, or those of third-party vendors we rely on, could result in regulatory scrutiny, legal
liability or reputational harm, and could adversely affect our business, financial condition and reputation.
We collect, use, store, transmit and otherwise process, confidential, personal and proprietary information relating to our
Company, acquisition targets, our employees and our clients. This information includes personally identifiable information,
protected health information, financial information, mergers and acquisitions information and intellectual property.
We maintain policies, procedures and technical safeguards designed to protect the security and privacy of confidential, personal
and proprietary information. Nonetheless, we cannot eliminate the risk of human error, malfeasance or highly sophisticated
cyber-attacks, which are heightened as a result of the armed conflicts in Ukraine and in the Middle East or other cybersecurity
incidents. In addition, our increased reliance on technologies that support remote and hybrid work and our employees’ more
frequent use of personal devices and non-standard business processing as well as the increasing prevalence of sophisticated
cyber-attacks using AI, such as “deep fakes,” may increase the risk of cybersecurity or data breaches from circumvention of
security systems, denial-of-service attacks or other cyber-attacks, hacking, “phishing” attacks (including digital or telephonic
impersonation), computer viruses, ransomware, malware, malicious or destructive code, employee or insider error, malfeasance,
social engineering, physical breaches or other actions. It is possible that our preventive, detective, containment or remedial
security controls, employee training and other aspects of our cybersecurity safeguards are not effective.
We have and continue to invest in technology security initiatives, policies, resources and employee training. The cost and
operational consequences of implementing, maintaining and enhancing appropriate technical measures is high. Given the
continuously evolving cyber threat landscape, it will become increasingly difficult to detect, defend against and remediate
cybersecurity incidents and data breaches. If we are unable to effectively maintain and enhance our system safeguards in line
with evolving cyber threats, including in connection with the integration of acquisitions, we may incur unexpected costs,
including litigation costs, regulatory enforcement action, loss of clients, reputational damage, and certain of our systems may
become more vulnerable to unauthorized access.
We rely on IT and third party vendors some of which have direct access to our systems, to support our business activities,
including our secure processing of personal, confidential, sensitive, proprietary and other types of information. Despite ongoing
efforts to improve our and our vendors’ ability to protect and defend against cyber-attacks, we may not be able to protect all of
our data. From time to time, cybersecurity incidents and data breaches of certain systems on which we rely have occurred, such
as computer viruses, unauthorized parties gaining access to our information technology systems, and privacy incidents, such as
loss or inadvertent transmission of data, although to date we have not been materially impacted by such events. In the future,
breaches of any third-party or internal systems may result from circumvention of security systems, denial-of-service, hacking,
“phishing”, computer viruses, ransomware, malware, or other cyber-attacks, employee or insider error, malfeasance, social
engineering, physical breaches or other actions. Furthermore, the risk from threat actors has increased due to the rapid
development of AI capabilities.
We are an acquisitive organization. The process of integrating information systems of businesses we acquire is complex and
exposes us to additional risk as we might not adequately identify weaknesses in the targets’ information systems or information
handling, privacy and security policies and protocols, which could expose us to unexpected liabilities or make our own systems
and data more vulnerable to employee or insider error, malfeasance or cybersecurity incidents. These risks may be exacerbated
in connection with the integration of AssuredPartners. Any future, material cybersecurity or data incident, may cause us to
experience unauthorized access, exfiltration, manipulation, corruption, loss or disclosure of our proprietary, client, employee, or
other data, reputational harm, the inability to render services due to system outages or other business disruptions, loss of clients
and revenue, regulatory action and scrutiny, sanctions or other statutory penalties, litigation, liability for failure to safeguard
clients’ information, increases in cybersecurity costs or financial losses. Any of the foregoing may be exacerbated by a delay or
failure to detect a cybersecurity incident or the full extent of such incident. In addition, disclosure or media reports of actual or
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perceived security vulnerabilities to our systems or those of our third-party service providers, even if no breach has been
attempted or occurred, could lead to reputational harm, loss of customers and revenue, or increased regulatory actions oversight
and scrutiny.
Such incidents could result in confidential, personal or proprietary information being lost or stolen, used to perpetuate fraud,
maliciously made public, surreptitiously modified, or rendered inaccessible for a period of time. We cannot ensure that any
limitations of liability provisions in our agreements with clients, vendors and other third parties with which we do business
would be enforceable or adequate or would otherwise protect us from any liability with respect to claims arising from a
cybersecurity, data or similar incident.
During a cybersecurity incident, we might have to take our systems offline, which could interfere with services to our clients or
damage our reputation. While we endeavor to design and implement technologies, policies and procedures to identify such
incidents as quickly as possible, any response would take substantial time, and there may be extensive delays before we obtain
full and reliable information. During such time we would not necessarily know the extent of the harm or how best to remediate
it, and certain errors or actions could be repeated or compounded before they are discovered and remediated, all of which may
further increase the costs and consequences of such incident. Any of these losses may not be insured against or be fully covered
by insurance we maintain. Further, we cannot ensure that our and our third-party vendors’ existing insurance coverage will
continue to be available on acceptable terms or at all. Certain regulations and contractual obligations require us to inform
regulators or affected persons in the event of a breach of confidential, personal or proprietary information on our or our third-
party vendors’ systems, which we may need to deliver before we fully understand the impact of such breach resulting in damage
to our reputation and our relationship with regulators and clients.
In addition, the competition for talent is high in the cybersecurity and privacy space, and we may not be able to hire, develop or
retain suitable talent that we need to be capable of minimizing, identifying, mitigating or remediating these risks.
With respect to our commercial arrangements with third party vendors, we have processes designed to require third party IT
outsourcing, offsite storage and other vendors to agree to maintain certain standards with respect to their storage, protection and
transfer of confidential, personal and proprietary information. However, we have limited control over their security, privacy and
data governance practices so there can be no assurance that we can prevent, mitigate, or remediate a potential failure of those
standards and we remain at risk of a cyber or data incident due to the intentional or unintentional non-compliance by a vendor’s
employee or agent, the breakdown of a vendor’s processes, or a cybersecurity incident involving vendor’s information systems.
We cannot ensure that any provisions in our agreements with these vendors would be enforceable or adequate or would
otherwise protect us from any liability in connection with these incidents.
Any of the foregoing may have a material adverse effect on our business, financial condition and reputation.
We are subject to a number of contingencies and legal proceedings which, if determined unfavorably to us, would
adversely affect our financial results.
We are or have been subject to numerous claims, tax assessments, lawsuits and proceedings that arise in the ordinary course of
business. Such claims, lawsuits and other proceedings include claims for damages based on allegations that our employees or
sub-agents improperly failed to procure coverage, report claims on behalf of clients, provide underwriting enterprises with
complete and accurate information relating to the risks being insured, or provide clients with appropriate consulting, advisory,
pension and claims handling services. There is the risk that our employees or sub-agents may fail to appropriately apply funds
that we hold for our clients on a fiduciary basis. Certain of our benefits and retirement consultants provide investment advisory
or decision-making services to clients. Additionally, Gallagher Re operates a securities business. If our clients experience
investment losses, our reputation could be damaged and our financial results could be negatively affected as a result of claims
asserted against us and lost business. Where appropriate, we have established provisions against these matters that we believe
are adequate in light of current information and legal advice, and we adjust such provisions from time to time based on current
material developments. The damages claimed in such matters are or may be substantial, including, in many instances, claims for
punitive, treble or other extraordinary damages. It is possible that, if the outcomes of these contingencies and legal proceedings
were not favorable to us, it could materially adversely affect our future financial results. In addition, our results of operations,
financial condition or liquidity may be adversely affected if, in the future, our insurance coverage proves to be inadequate or
unavailable or we experience an increase in liabilities for which we self-insure. We have purchased E&O insurance and other
insurance to provide protection against losses that arise in such matters. Accruals for these items, net of insurance receivables,
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when applicable, have been provided to the extent that losses are deemed probable and are reasonably estimable. These accruals
and receivables are adjusted from time to time as current developments warrant.
As more fully described in Note 15 to our 2024 consolidated financial statements, we are a defendant in various legal actions
incidental to our business, including but not limited to matters related to employment practices, alleged breaches of non-compete
or other restrictive covenants, theft of trade secrets, breaches of fiduciary duties, and related causes of action. We are also
periodically the subject of inquiries and investigations by regulatory and taxing authorities into various matters related to our
business. For example, our micro-captive advisory services business has been under investigation by the IRS since 2013. We
currently believe that the ultimate outcome of these proceedings, individually and in the aggregate, will not materially harm our
financial position, results of operations or cash flows. However, legal proceedings and government investigations are subject to
inherent uncertainties, and unfavorable rulings or other adverse events could occur, including the payment of substantial
monetary damages or an injunction or other order prohibiting us from selling one or more products at all or in particular ways,
precluding particular business practices or requiring other remedies, which may result in a material adverse impact on our
business, results of operations or financial position. In addition, regardless of any unfavorable ruling, any such matter could
expose us to negative publicity, reputational damage, harm to our client or employee relationships, or diversion of personnel and
management resources, which could adversely affect our ability to recruit quality brokers and other significant employees to our
business, and otherwise adversely affect our results of operations.
Changes in data privacy and protection laws and regulations, or any failure to comply with such laws and regulations,
could adversely affect our business and financial results.
We are subject to a variety of continuously evolving and developing laws and regulations globally regarding privacy, data
protection, and data security, including those related to the collection, storage, handling, use, disclosure, cross-border transfer,
destruction, and security of personal data. These laws apply to transfers of personal information among our affiliates, as well as
to transactions we enter into with third party vendors and clients. Significant uncertainty exists as privacy and data protection
laws evolve. Such laws are complex and may be interpreted and applied differently from country to country and state to state,
and may create inconsistent or conflicting requirements. Some of these laws provide rights to individuals to access, correct, and
delete their personal information and to obtain copies at the expense of the business entities that process their data. Some of
these laws carry heavy penalties for violations, e.g., fines of up to 4% of worldwide revenue under the U.K. Data Protection Act
and the EU General Data Protection Regulation (GDPR) and up to $7,500 per intentional violation under the California
Consumer Privacy Act (CCPA). In the U.S., there is pending federal legislation and a number of states have proposed and some
have implemented their own comprehensive data privacy bills similar to the GDPR and CCPA, with some of those laws already
in effect, and others coming into effect through 2026. Despite recent privacy frameworks developed between the U.S., the U.K.
and the EU, there remains a high level of uncertainty concerning the flow of personal information between these jurisdictions,
which may impair our ability to offer existing and new services and increase our costs and compliance burden.
India and other countries where we have operations outside the U.S. have proposed or have enacted sweeping data protection
laws, and in some cases we are subject to sector and personal data localization laws that may require that data or personal data
stay within their borders, such as India's IRDIA (Maintenance of Insurance Records) Regulation, 2015.
In addition, in the U.S., legislators are continuing to enact comprehensive cybersecurity laws. For example, we are subject to the
New York State Department of Financial Services Cybersecurity Regulation for Financial Services Companies, which were
substantively amended in 2023. We also expect to be subject to a variety of laws and regulations governing AI, such as the EU
AI Act that was enacted in 2024 and will gradually enter into force during the next three years. These laws and regulations are
still evolving, and while we are assessing how regulators may apply existing consumer protection, data protection and other
similar laws to AI, there is uncertainty regarding the scope of new laws and how existing laws will apply. Due to this
uncertainty, we may face challenges complying with existing and new laws, and our policies and governance frameworks may
not be successful in mitigating these risks. See also “We are subject to risks associated with AI.”
Adhering to the increased obligations imposed by various new and emerging laws as well as the terms of our privacy notices and
contractual obligations to third parties causes us to incur substantial expense in connection with developing, implementing, and
securing our systems and effectively implementing data privacy governance policies for the lawful processing of personal data.
Such increased obligations also result in the allocation of additional resources towards new privacy compliance processes and
enhanced technologies, further contributing to our IT and compliance costs. We have implemented privacy policies detailing
how we collect, use, disclose, transfer across borders, retain, and otherwise process personal information but our employees,
third-party vendors or other third parties we work with may not fully adhere to such policies. Such non-compliance could lead to
enforcement actions or investigations if our practices are deemed deceptive, unfair, or misrepresentative of our actual practices.
In addition, enforcement actions and investigations by regulatory authorities related to data security incidents and privacy
violations generally continue to increase. The enactment of more restrictive laws, rules, regulations, or future enforcement
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actions or investigations could impact us through increased costs or restrictions on our business and could result in regulatory
penalties and significant legal liability.
We could be adversely affected by violations or alleged violations of laws that impose requirements for the conduct of our
overseas operations, including the FCPA, the U.K. Bribery Act or other anti-corruption laws, sanctions laws and
FATCA.
In countries outside the U.S., a risk exists that our employees or third parties acting on our behalf, including correspondent
brokers, consultants, introducers, partners or agents, could engage in business practices prohibited by applicable laws and
regulations, including anti-bribery and anti-corruption laws, and sanctions laws such as those administered by the U.S.
Department of the Treasury’s Office of Foreign Assets Control, the UK HM Treasury or promulgated by the European
Commission. Anti-bribery and anti-corruption laws, such as the FCPA and the U.K. Bribery Act, generally prohibit companies
from making improper payments to foreign officials and require companies to keep accurate books and records and maintain
appropriate internal controls. Trade and financial sanctions laws generally restrict the ability to engage in trade with, or provide
goods or services, to designated governments or other parties, or may require freezing of such parties’ assets. We operate in
some parts of the world that have experienced governmental corruption. In such parts of the world, in certain circumstances,
local customs and practice might not be consistent with the requirements of anti-bribery and anti-corruption laws. Similarly,
some of these countries do not implement sanctions laws and may not restrict trade with parties designated as sanctions targets
under U.S., U.K. or EU laws.
Our policies mandate strict compliance with such laws and we devote substantial resources to programs designed to ensure
compliance, including investigating business practices and taking steps to address the risk that our employees, third party
representatives, partners or agents will engage in business practices that are prohibited by our policies and/or such laws and
regulations.
We offer client service capabilities in many countries around the world through a network of third-party representatives acting on
our behalf such as correspondent brokers and consultants. In certain limited instances, we also work with third-party introducers
that provide services for certain clients. There is a risk that our third party representatives engage in business practices that are
prohibited by our internal policies or violate applicable laws and regulations, such as the FCPA and the U.K. Anti-Bribery Act.
Violations by us or our third party representatives could result in significant internal investigation costs and legal fees, civil and
criminal penalties, including prohibitions on the conduct of our business, and reputational damage if we violate sanctions laws of
the U.S., the EU, the U.K. or other jurisdictions in which we operate. In addition, FATCA requires certain of our subsidiaries,
affiliates and other entities to obtain valid FATCA documentation from payees prior to remitting certain payments to such payees
and our failure to do so properly could result in penalties.
We are subject to regulation worldwide. If we fail to comply with regulatory requirements or if regulations change in a
way that adversely affects our operations, we may not be able to conduct our business, or we may be less profitable.
Many of our activities throughout the world, especially regulated businesses such as our insurance brokerage, securities broker-
dealer and investment advisory services, are subject to supervision and regulations promulgated by regulatory or self-regulatory
bodies such as the SEC, the NYSE, the DOJ, the IRS, the Financial Crimes Enforcement Network, the FTC and FINRA in the
U.S., the Financial Conduct Authority in the U.K., the Australian Securities and Investments Commission in Australia and
insurance regulators in nearly every jurisdiction in which we operate. Our retirement-related consulting and investment advisory
services are subject to pension law and financial regulation in many countries. Our activities are also subject to a variety of other
laws, rules and regulations addressing licensing, cybersecurity, data privacy, AI, wage-and-hour standards, employment and
labor relations, competition, anti-corruption, currency, the conduct of business, reserves and the amount of local investment with
respect to our operations in certain countries. For example, the DOJ revised its Corporate Criminal Enforcement Policies and
Practices to include a section on the use of personal devices and third-party messaging applications, indicating that their use
poses significant risk to companies and suggesting that it intends to investigate seriously whether companies have ensured that
data from these sources is preserved for investigations. The DOJ also updated its guidance on corporate compliance programs to
include AI risk management. These and other forms of regulatory action could reduce our profitability or growth by increasing
the costs of compliance, increasing the risk of costly enforcement actions, restricting the products or services we sell, the markets
we enter, the methods by which we sell our products and services, or the prices we can charge for our services and the form of
compensation we can accept from our clients, underwriting enterprises and third parties. As our operations grow around the
world, it is increasingly difficult to monitor and enforce regulatory compliance across the organization. A compliance failure by
even one of our smallest branches could lead to a loss of reputation in the local market, and litigation and/or disciplinary actions
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that may include compensating clients for loss, the imposition of penalties, and/or the loss of our authorization to operate. In all
such cases, we would also likely incur significant internal investigation costs and legal fees.
The global nature of our operations increases the complexity and cost of compliance with laws and regulations, including
increased staffing needs, the development of new policies, procedures and internal controls and providing training to employees
in multiple locations, adding to our cost of doing business. Many of these laws and regulations may have differing or conflicting
legal standards across jurisdictions, increasing further the complexity and cost of compliance. In emerging markets and other
jurisdictions with less developed legal systems, local laws and regulations may not be established with sufficiently clear and
reliable guidance to provide us with adequate assurance that we are aware of all necessary licenses to operate our business, that
we are operating our business in a compliant manner, or that our rights are otherwise protected. In addition, major political and
legal developments in jurisdictions in which we do business may lead to new regulatory costs and challenges. For example,
China adopted a “blocking” statute similar to that of the EU requiring compliance with certain Chinese laws if they conflict with
U.S. laws. Rising global tensions and protectionism may also lead other countries to adopt similar blocking statutes, which
could make it more difficult and costly for us to expand our operations globally.
Changes in legislation or regulations and actions by regulators, including changes in administration and enforcement policies, or
the failure of state and local governments to follow through on agreed-upon state and local tax credits or other tax related
incentives, could adversely affect our results of operations or require operational changes that could result in lost revenues or
higher costs or hinder our ability to operate our business.
For example, the method by which insurance brokers are compensated has received substantial scrutiny in the past because of the
potential for conflicts of interest. The potential for conflicts of interest arises when a broker is compensated by two parties in
connection with the same or similar transactions. The vast majority of the compensation we receive for our work as insurance
and reinsurance brokers is in the form of retail commissions and fees. We receive additional revenue from underwriting
enterprises, separate from retail commissions and fees, including, among other things, contingent and supplemental revenues and
payments for consulting and analytics services we provide them. Future changes in the regulatory environment may impact our
ability to collect these revenues. Adverse regulatory, legal or other developments regarding these revenues could have a material
adverse effect on our business, results of operations or financial condition, expose us to negative publicity and reputational
damage and harm our relationships with clients, underwriting enterprises or other business partners.
In addition, as regulators and investors increasingly focus on climate change and other sustainability issues, we are exposed to
the risk of frameworks and regulations being adopted that require significant effort to comply with, and re ill-adapted to our
operations, particularly with respect to our larger-than usual acquisitions that may have their own sustainability programs and
may have complied with sustainability regulations in the past in a way that may differ substantially from our sustainability
program and strategy. For example, in 2023, pursuant to the CSRD, which we expect will result in disclosure obligations in
future years for us and some of our EU subsidiaries, the first set of ESRS was developed by the EFRAG and adopted by the EU.
EFRAG will continue to issue sector-specific and non-EU applicable ESRS in the coming years, with such standards to be
tailored to EU policy positions which may be different or contradictory with those applicable in other jurisdictions such as the
ISSB) and the TCFD framework. In the U.K., our business is subject to a number of disclosure obligations under different
sustainability frameworks, such as the TCFD. Australia enacted mandatory disclosures based on the ISSB standards in 2024,
and other jurisdictions, such as Canada and New Zealand, have announced that they plan to implement ISSB-based disclosures.
There is further uncertainty in this space as the SEC’s new climate change disclosure requirements enacted in 2024 are currently
being challenged in legal proceedings and are expected to be struck down, while the state of California has enacted disclosure
rules, which we expect will require us, among other things, to publish our consolidated carbon emissions. Compliance with such
differing and uncertain rules and frameworks requires significant effort and could divert management’s attention and resources,
which could adversely affect our operating results.
Changes in our accounting estimates and assumptions could negatively affect our financial position and operating results.
We prepare our financial statements in accordance with U.S. generally accepted accounting principles (which we refer to as
GAAP). These accounting principles require us to make estimates and assumptions that affect the reported amounts of assets
and liabilities, and the disclosure of contingent assets and liabilities at the date of our consolidated financial statements. We are
also required to make certain judgments and estimates that affect the disclosed and recorded amounts of revenues and expenses
related to revenue recognition and deferred costs - see Note 4 to our 2024 consolidated financial statements. We periodically
evaluate our estimates and assumptions, including those relating to the valuation of goodwill and other intangible assets,
investments, income taxes, revenue recognition, deferred costs, stock-based compensation, claims handling obligations,
retirement plans, litigation and contingencies. We base our estimates on historical experience and various assumptions that we
believe to be reasonable based on specific circumstances. Such estimates and assumptions could change in the future as more
information becomes known, which could impact the amounts reported and disclosed in our consolidated financial statements.
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Further, in 2022, the U.S. enacted the Inflation Reduction Act (which we refer to as the IRA) which, among other things,
implements a corporate book minimum tax and an excise tax on stock buy backs. While guidance is still being issued and the
new administration may enact significant amendments to the IRA, our current understanding of the IRA suggests that we will not
face significant impacts. As additional guidance relating to the IRA and upcoming amendments are released, our estimates
related to the IRA may change. Additionally, changes in accounting standards (see Note 2 to our 2024 consolidated financial
statements) could increase costs to the organization and could have an adverse impact on our future financial position and results
of operations.
Limited protection of our intellectual property could harm our business and our ability to compete effectively, and we
face the risk that our services or products may infringe upon the intellectual property rights of others.
We cannot guarantee that trade secret, trademark and copyright law protections, or our internal policies and procedures regarding
our management of intellectual property, are adequate to deter misappropriation of our intellectual property. Existing laws of
some countries in which we provide services or products may offer only limited protection of our intellectual property rights.
Also, we may be unable to detect the unauthorized use of our intellectual property and take the necessary steps to enforce our
rights, which may have a material adverse impact on our business, financial condition or results of operations. We cannot be
sure that our services and products, or the products of others that we offer to our clients, do not infringe on the intellectual
property rights of third parties, and we may have infringement claims asserted against us or our clients. These claims may harm
our reputation, result in financial liability, consume financial resources to pursue or defend, and prevent us from offering some
services or products. In addition, these claims, whether with or without merit, could be expensive, take significant time and
divert management’s focus and resources from business operations. Successful challenges against us could require us to modify
or discontinue our use of technology or business processes where such use is found to infringe or violate the rights of others, or
require us to purchase licenses from third parties, any of which could adversely affect our business, financial condition and
operating results.
Risks Relating to our Investments, Debt and Common Stock
Our clean energy investments are subject to various risks and uncertainties.
We generated tax credits under IRC Section 45 from 2009 to 2021. As of December 31, 2024, we had generated a total of
$1,706.1 million in IRC Section 45 tax credits, of which approximately $1,003.9 million have been used to offset U.S. federal
tax liabilities and $702.2 million remain unused and available to offset future U.S. federal tax liabilities.
Our ability to use tax credits under IRC Section 45 depends upon the operations in which we invested having satisfied the
conditions set forth in IRC Section 45. These include, among others, the “placed-in-service” condition and requirements relating
to qualified emissions reductions, coal sales to unrelated parties and at least one of the operations’ owners qualifying as a
“producer” of refined coal. While we have received some degree of confirmation from the IRS relating to our ability to claim
these tax credits, the IRS could ultimately determine that the operations did not satisfy the conditions set forth in IRC Section 45.
The IRS audited a number of these operations. Such audits were either closed with no adjustments or, in one instance, the
relevant partnership defended its position in court and prevailed. The ongoing implementation of Pillar 2 in the U.S. and around
the world could also negatively impact our ability to use these tax credits in the timeframe and manner that would be beneficial
to us. Similarly, the law permitting us to claim IRC Section 29 tax credits (related to our prior synthetic coal operations) expired
on December 31, 2007. At December 31, 2024, we had exposure with respect to $108.0 million of previously earned tax credits
under IRC Section 29. We believe our claim for IRC Section 29 tax credits in 2007 and prior years was in accordance with IRC
Section 29 and four private letter rulings previously obtained by IRC Section 29 related limited liability companies in which we
had an interest. We understand these private letter rulings were consistent with those issued to other taxpayers and we have
received no indication from the IRS that it will seek to revoke or modify them. In addition, the IRS audited certain of the IRC
Section 29 facilities without requiring any changes.
There is a risk that foreign laws will not protect the intellectual property associated with The Chem-Mod™ Solution to the same
extent as U.S. laws, leaving us vulnerable to companies outside the U.S. who may attempt to copy such intellectual property. In
addition, other companies may make claims of intellectual property infringement with respect to The Chem-Mod™ Solution.
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Litigation is inherently uncertain and it is not possible for us to predict the ultimate outcome of any future claims against us by
other parties.
The IRC Section 45 operations in which we have invested and the by-products from such operations may result in
environmental and product liability claims and environmental compliance costs.
The construction and operation of the IRC Section 45 operations were subject to federal, state and local laws, regulations and
potential liabilities arising under or relating to the protection or preservation of the environment, natural resources and human
health and safety. Some environmental laws, without regard to fault or the legality of a party’s conduct, impose liability on
certain entities that are considered to have contributed to, or are otherwise responsible for, the release or threatened release of
hazardous substances into the environment. One party may, under certain circumstances, be required to bear more than its share
or the entire share of investigation and cleanup costs at a site if payments or participation cannot be obtained from other
responsible parties. By having used The Chem-Mod™ Solution at locations owned and operated by others, we and our partners
may be exposed to the risk of being held liable for environmental damage from releases of hazardous substances we may have
had little, if any, involvement in creating. Such risk remains even after production ceases at an operation to the extent the
environmental damage can be traced to the types of chemicals or compounds used or operations conducted in connection with
The Chem-Mod™ Solution. Increasing attention to global climate change has resulted in an increased possibility of regulatory
attention and private litigation. For example, claims have been made against certain energy companies alleging that greenhouse
gas emissions constitute a public nuisance. In addition to the possibility of being named in such actions, we and our partners
could face the risk of environmental and product liability claims related to concrete incorporating fly ash produced using The
Chem-Mod™ Solution. No assurances can be given that contractual arrangements and precautions taken to provide for
assumption of these risks by facility owners or operators, or other end users, will result in that facility owner or operator, or other
end user, accepting full responsibility for any environmental or product liability claim. Nor can we or our partners be certain that
facility owners or operators, or other end users, fully complied with all applicable laws and regulations, and this could result in
environmental or product liability claims. It is also common for private claims by third parties alleging contamination to also
include claims for personal injury, property damage, nuisance, diminution of property value, or similar claims. Furthermore,
many environmental, health and safety laws authorize citizen suits, permitting third parties to make claims for violations of laws
or permits. Our insurance may not cover all environmental risk and costs or may not provide sufficient coverage in the event of
an environmental or product liability claim, and defense of such claims can be costly, even when such defense prevails. If
significant uninsured losses arise from environmental or product liability claims, or if the costs of environmental compliance
increase for any reason, our results of operations and financial condition could be adversely affected.
We have debt outstanding that could adversely affect our financial flexibility and subjects us to restrictions and
limitations that could significantly impact our ability to operate our business.
As of December 31, 2024, we had total consolidated debt outstanding of approximately $13.3 billion. The level of debt
outstanding each period could adversely affect our financial flexibility. We also bear risk at the time our debt matures. Our
ability to make interest and principal payments, to refinance our debt obligations and to fund our acquisition program and
planned capital expenditures will depend on our ability to generate cash from operations. This, to a certain extent, is subject to
general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control, such as an
environment of rising interest rates. Interest payments under our senior revolving credit facility are based on a floating rate
which exposes us to the risk of a changing or unknown rate environment. Our indebtedness will also reduce the ability to use
that cash for other purposes, including working capital, dividends to stockholders, acquisitions, capital expenditures, share
repurchases, and general corporate purposes. If we cannot service our indebtedness, we may have to take actions such as selling
assets, issuing additional equity or reducing or delaying capital expenditures, strategic acquisitions, and investments, any of
which could impede the implementation of our business strategy or prevent us from entering into transactions that would
otherwise benefit our business. Additionally, we may not be able to effect such actions, if necessary, or refinance any of our
indebtedness on commercially reasonable terms, or at all.
The agreements governing our debt include covenants that, among other things, restrict our ability to dispose of assets, incur
additional debt, engage in certain asset sales, mergers, acquisitions or similar transactions, create liens on assets, engage in
certain transactions with affiliates, change our business or make investments, and require us to comply with certain financial and
legal covenants. The restrictions in the agreements governing our debt may prevent us from taking actions that we believe would
be in the best interest of our business and our stockholders and may make it difficult for us to execute our business strategy
successfully or effectively compete with companies that are not similarly restricted. We may also incur future debt obligations
that might subject us to additional or more restrictive covenants that could affect our financial and operational flexibility,
including our ability to pay dividends. We cannot make any assurances that we will be able to refinance our debt or obtain
additional financing on terms acceptable to us, or at all. A failure to comply with the restrictions under the agreements
governing our debt could result in a default under the financing obligations or could require us to obtain waivers from our
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lenders for failure to comply with these restrictions. The occurrence of a default that remains uncured or the inability to secure a
necessary consent or waiver could cause our obligations with respect to our debt to be accelerated and have a material adverse
effect on our financial condition and results of operations.
Our reinsurance securities business serves from time to time as the underwriter and initial purchaser of securities (such as
catastrophe bonds) issued by our reinsurance company clients. This involves us, acting as an intermediary, to use our capital on
hand and short-term borrowings to cover the purchase price of the securities. We place the securities with investors and use the
funds we receive from them to repay our obligations. Risks specific to these short-term borrowings include counterparty risk
(which is the risk that arises due to uncertainty about a counterparty’s ability to meet its obligations) with respect to the investors.
Non-performance by any of our counterparties in these transactions for financial or other reasons could potentially expose us to
material losses.
Credit rating downgrades would increase our financing costs and could subject us to operational risk.
If we need to raise capital in the future (for example, in order to maintain adequate liquidity, fund maturing debt obligations or
finance acquisitions or other initiatives), credit rating downgrades would increase our financing costs, and could limit our access
to financing sources. We would also face the risk of a credit rating downgrade if we do not retire or refinance the debt to levels
acceptable to the credit rating agencies in a timely manner. Further, a downgrade to a rating below investment-grade could result
in greater operational risks through increased operating costs and increased competitive pressures.
We are a holding company and, therefore, may not be able to receive dividends or other distributions in needed amounts
from our subsidiaries.
We are organized as a holding company, a legal entity separate and distinct from our operating subsidiaries. As a holding
company without significant operations of our own, we are dependent upon dividends and other payments from our operating
subsidiaries to meet our obligations for paying principal and interest on outstanding debt obligations, for paying dividends to
stockholders, repurchasing our common stock and for corporate expenses. In the event our operating subsidiaries are unable to
pay sufficient dividends and other payments to us, we may not be able to service our debt, pay our obligations, pay dividends on
or repurchase our common stock.
Further, we derive a meaningful portion of our revenue and operating profit from operating subsidiaries located outside the U.S.
Since the majority of financing obligations as well as dividends to stockholders are paid from the U.S., it is important to be able
to access the cash generated by our operating subsidiaries located outside the U.S. in the event we are unable to meet these U.S.
based cash requirements.
Funds from our operating subsidiaries outside the U.S. may be repatriated to the U.S. via stockholder distributions and
intercompany financings, where necessary. A number of factors may arise that could limit our ability to repatriate funds or make
repatriation cost prohibitive, including, but not limited to the imposition of currency controls and other government restrictions
on repatriation in the jurisdictions in which our subsidiaries operate, fluctuations in foreign exchange rates, the imposition of
withholding and other taxes on such payments and our ability to repatriate earnings in a tax-efficient manner.
In the event we are unable to generate or repatriate cash from our operating subsidiaries for any of the reasons discussed above,
our overall liquidity could deteriorate and our ability to finance our obligations, including to pay dividends on or repurchase our
common stock, could be adversely affected.
Future sales or other dilution of our equity could adversely affect the market price of our common stock.
An important way we grow our business is through acquisitions. One method of acquiring companies or otherwise funding our
corporate activities is through the issuance of additional equity securities. The issuance of any additional shares of common or
of preferred stock or convertible securities could be substantially dilutive to holders of our common stock. Moreover, to the
extent that we issue restricted stock units, performance stock units, options or warrants to purchase shares of our common stock
in the future and those options or warrants are exercised or as the restricted stock units or performance stock units vest, our
stockholders will experience further dilution. In March 2024, we established an "at the market" equity offering program (which
we refer to as an ATM program) pursuant to which we may offer and sell up to 3,000,000 shares of our common stock. We have
refreshed our ATM program in the past and expect to refresh our ATM program periodically. Sales under our ATM program
will result in additional dilution for our stockholders. Holders of our common stock have no preemptive rights that entitle
holders to purchase their pro rata share of any offering of shares of any class or series and, therefore, such sales or offerings
31
could result in increased dilution to our stockholders. The market price of our common stock could decline as a result of sales of
shares of our common stock or the perception that such sales could occur.
Item 1B. Unresolved Staff Comments.
Not applicable.
Item 1C. Cybersecurity.
We have implemented a cybersecurity program to assess, identify, and manage risks from cybersecurity threats that could
adversely and materially affect the confidentiality, integrity, and availability of our information and information systems. We
maintain administrative, technical, and physical safeguards designed to protect the security and privacy of confidential, personal
and proprietary information. Our cybersecurity program is aligned with notable control frameworks such as the NIST CSF
(National Institute of Standards and Technology Cybersecurity Framework) and ISO (International Organization for
Standardization) 27001.
Our cybersecurity program leverages people, processes, and technology to identify and respond to cybersecurity threats. We
have a global incident response capability supported by our Security Operations Center (which we refer to as SOC) team, a
managed security service provider (MSSP) and our global Cybersecurity Incident Response Team (which we refer to as CSIRT),
which provides threat detection and incident response.
We maintain a global cybersecurity incident response plan and related playbooks, for execution by the SOC team and CSIRT, in
coordination with internal and external stakeholders, as applicable. Significant incidents are escalated to a cross-departmental
team to assess materiality based on qualitative and quantitative factors. This team consists of executives representing core
business functions, including, among others, information technology, legal, finance, accounting, data protection and business
divisions, in consultation with third-party advisors, as applicable. We undertake periodic leadership tabletop exercises and
periodic adversarial (“red team”) exercises simulating incident response under common risk scenarios. As an acquisitive
organization, we have also established a program to increase our visibility into the cybersecurity environment of acquisition
targets prior to closing.
We have established a dedicated vendor assessment team, which employs systems and processes designed to oversee, identify,
and reduce the potential impact of a security incident at a third-party vendor, service provider or customer or that otherwise
implicates the third-party technology and systems we use. We also require cybersecurity insurance coverage for vendors whose
services or products may present a cybersecurity risk.
We continuously test and assess our cybersecurity posture, including through annual third-party risk assessments performed by
reputable assessors, consultants and auditors. A global FAIR (Factor Analysis of Information Risk) assessment is conducted at
least annually to update our cybersecurity risks and corresponding mitigations.
Our employees complete training on data security and our policies when they join us and annually thereafter. We review the
content of our mandatory training annually, and provide access to a comprehensive set of supplemental training.
Our Chief Information Security Officer (CISO), working together with our Chief Information Officer (CIO), oversees a team of
employees dedicated to cybersecurity. Our CISO receives ongoing updates from the cybersecurity team regarding the
prevention, detection, mitigation, and remediation of cybersecurity incidents and regularly reports to the CIO. Our CISO is an
active member of our management-level enterprise risk management committee, which has broad oversight of the company’s
enterprise risks, including cybersecurity risks. In addition, our CIO and CISO both attend regular meetings of the executive
officer team, including our Chief Executive Officer, Chief Financial Officer, General Counsel and other senior executive
officers, dedicated to compliance and risk, and report on cybersecurity matters as appropriate. Our Board of Directors has
delegated primary responsibility for the oversight of cybersecurity matters to its Risk and Compliance Committee; however, the
full board reviews significant cybersecurity matters as appropriate. Our CIO and CISO report on cybersecurity and information
security at each quarterly meeting of the Risk and Compliance Committee.
Our CIO has more than 30 years of experience, including from his prior business and technology leadership roles at Aegon N.V.,
Citigroup, Inc. and JP Morgan Chase & Company. Our CISO has more than 20 years of cybersecurity experience. Prior to
joining us, he was Senior Vice President, Chief Information Security Officer at Brighthouse Financial. Before then, he served as
Technology Vice President & Chief Information Security Officer for GE Healthcare. He started his career at Allstate Insurance
Company. He also holds security, privacy and risk certifications, including Certified Information Systems Auditor, Certified
Information Security Manager and Certified Information Systems Security Professional.
We, including our third-party vendors, have experienced cybersecurity incidents and threats and may continue to experience
them in the future. Based on the information available as of the date of this Annual Report on Form 10-K, we believe that during
the last three fiscal years risks from cybersecurity threats, including as a result of previous cybersecurity incidents, have not
materially affected us, including our business strategy, results of operations or financial condition, and as of the date of this
32
Annual Report on Form 10-K, the Company is not aware of any material risks from cybersecurity threats that are reasonably
likely to do so. However, we cannot eliminate all risks from cybersecurity threats or provide assurances that the Company will
not be materially affected by such risks in the future. Due to evolving cybersecurity threats, we may not be able to protect all
information systems and, as an acquisitive organization, integrating information systems as we acquire new businesses may
expose us to unexpected liabilities or increase our vulnerability. There can be no guarantee that our policies, programs and
controls, and those of our third-party vendors, including those described in this section, will be sufficient to protect our
information, information systems or other property. Additional information on cybersecurity risks we face is discussed in Item
1A of Part I, “Risk Factors,” which should be read in conjunction with the foregoing information.
Item 2. Properties.
The executive offices of our corporate segment and certain subsidiary and branch facilities of our brokerage and risk
management segments are located at 2850 Golf Road, Rolling Meadows, Illinois, where we own approximately 360,000 square
feet of space, and can accommodate 2,000 employees at peak capacity.
Elsewhere, we generally operate in leased premises related to the facilities of our brokerage and risk management operations.
We prefer to lease office space rather than own real estate related to the branch facilities of our brokerage and risk management
segments. Certain of our office space leases have options permitting renewals for additional periods. In addition to minimum
fixed rentals, a number of our leases contain annual escalation clauses generally related to increases in an inflation index. See
Notes 13 and 15 to our 2024 consolidated financial statements for information with respect to our lease commitments as of
December 31, 2024.
Item 3. Legal Proceedings.
Please see the information set forth in Note 15 to our consolidated financial statements, included herein, under “Litigation,
Regulatory and Taxation Matters.”
Item 4. Mine Safety Disclosures.
Not applicable.
Information About Our Executive Officers
Set forth below are the names, ages, positions and business backgrounds of our executive officers as of the date hereof:
Name
Age
Position and Year First Elected
J. Patrick Gallagher, Jr.
72
Chairman since 2006, Chief Executive Officer since 1995, President 1990 - 2024
Thomas J. Gallagher
66
President since 2024, President of our Global Property/Casualty Brokerage Operations 2017 -
2024, Chairman of our International Brokerage Operation 2010 - 2016
Patrick M. Gallagher
45
Executive Vice President, Chief Operating Officer since 2024, Corporate Vice President and
President of Property/Casualty Brokerage Operation in the Americas 2021 - 2024, Chairman,
Canada and Caribbean and CEO of Latin America 2019 - 2021, President, Midwest Region of
Property/Casualty Brokerage Operation 2016 - 2019
Walter D. Bay
62
Corporate Vice President, General Counsel, Secretary since 2007
Mark H. Bloom
60
Corporate Vice President and Global Chief Information Officer since 2022. Global Chief
Information Officer at Aegon N.V., 2016 - 2021
Douglas K. Howell
63
Corporate Vice President, Chief Financial Officer since 2003
Scott R. Hudson
63
Corporate Vice President and President of our Risk Management Operations since 2010
Vishal Jain
63
Corporate Vice President since 2016, Chief Service Officer since 2014
Christopher E. Mead
57
Corporate Vice President, Chief Marketing Officer since 2017
Michael R. Pesch
53
Corporate Vice President, Chief Executive Officer, Global Brokerage – Americas since 2024,
Chief Executive Officer – U.S. Retail Brokerage 2016 - 2024
Susan E. Pietrucha
58
Corporate Vice President, Chief Human Resource Officer since 2007
William F. Ziebell
62
President of our Employee Benefit and Consulting Brokerage Operations since 2017,
Corporate Vice President since 2011, regional leader in our Employee Benefit and Consulting
Brokerage Operations 2004 - 2016
33
With the exception of Mr. Bloom, we have employed each such person principally in management capacities for more than the
past five years. All executive officers are appointed annually and serve at the discretion of our board of directors.
34
Part II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Our common stock is listed on the New York Stock Exchange, trading under the symbol “AJG.”
As of January 31, 2025, there were approximately 2,000 holders of record of our common stock.
(c)
Issuer Purchases of Equity Securities
The following table shows the purchases of our common stock made by or on behalf of us or any “affiliated purchaser” (as such
term is defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended) of us for each fiscal month in the
three-month period ended December 31, 2024:
Period
Total Number
of Shares
Purchased (1)
Average
Price Paid
per Share (2)
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs (3)
Maximum Dollar
Value of Shares
that May
Yet be Purchased
Under the Plans
or Programs (3) (4)
October 1 through October 31, 2024
3,964
$
286.33
—
$
1,500
November 1 through November 30, 2024
19,965
290.37
—
1,500
December 1 through December 31, 2024
36,335
283.71
—
1,500
Total
60,264
286.09
—
(1)
Amounts in this column include shares of our common stock purchased by the trustees of trusts established under our
Deferred Equity Participation Plan (which we refer to as the DEPP), our Deferred Cash Participation Plan (which we refer
to as the DCPP) and our Supplemental Savings and Thrift Plan (which we refer to as the Supplemental Plan), respectively.
These plans are considered to be unfunded for purposes of federal tax law since the assets of these trusts are available to
our creditors in the event of our financial insolvency. The DEPP is an unfunded, non-qualified deferred compensation plan
that generally provides for awards to certain of our key executives that do not vest and/or distribute until participants reach
age 62 (or the one-year anniversary of the date of grant for participants over the age of 61). Under sub-plans of the DEPP
for certain production staff, the plan generally provides for vesting and/or distributions no sooner than five years from the
date of awards, although certain awards vest and/or distribute after the earlier of fifteen years or the participant reaching
age 65. See Note 10 to our 2024 consolidated financial statements for more information regarding the DEPP. The DCPP
is an unfunded, non-qualified deferred compensation plan for certain key employees, other than executive officers, that
generally provides for vesting and/or distributions no sooner than five years from the date of awards. Under the terms of
the DEPP and the DCPP, we may contribute cash to the trust and instruct the trustee to acquire a specified number of
shares of our common stock on the open market or in privately negotiated transactions. For the fourth quarter of 2024, we
instructed the trustee for the DEPP and the DCPP to reinvest dividends on shares of our common stock held by these trusts
and to purchase our common stock using cash that we contributed to the DCPP related to 2024 awards under the DCPP.
The Supplemental Plan is an unfunded, non-qualified deferred compensation plan that allows certain highly compensated
employees to defer compensation, including match amounts by the Company, on a before-tax basis or after-tax basis.
Under the terms of the Supplemental Plan, all amounts credited to an employee’s account may be deemed invested, at the
employee’s election, in a number of investment options that include various mutual funds, an annuity product and a fund
representing our common stock. When an employee elects to have some or all of the amounts credited to the employee’s
account under the Supplemental Plan deemed to be invested in the fund representing our common stock, the trustee of the
trust for the Supplemental Plan purchases shares of our common stock in a number sufficient to ensure that the trust holds
a number of shares of our common stock with a value equal to the amounts deemed invested in the fund representing our
common stock. This is to ensure that at the time when an employee becomes entitled to a distribution under the terms of
the Supplemental Plan, any amounts deemed to be invested in the fund representing our common stock are distributed in
the form of shares of our common stock held by the trust. We established the trusts for the DEPP, the DCPP and the
Supplemental Plan to assist us in discharging our deferred compensation obligations under these plans. All assets of these
trusts, including any shares of our common stock purchased by the trustees, remain, at all times, assets of the Company,
subject to the claims of our creditors in the event of our financial insolvency. The terms of the DEPP, the DCPP and the
Supplemental Plan do not provide for a specified limit on the number of shares of common stock that may be purchased by
the respective trustees of the trusts.
(2)
The average price paid per share is calculated on a settlement basis and does not include commissions.
35
(3)
Effective July 28, 2021, the board of directors approved a common stock repurchase plan of up to $1.5 billion of common
stock. Repurchases of common stock may be effected from time to time through open market purchases, trading plans
established in accordance with the U.S. Securities and Exchange Commission’s rules, accelerated stock repurchases,
private transactions or other means, depending on satisfactory market conditions, applicable legal requirements and other
factors. The repurchase plan has no expiration date and we are under no commitment or obligation to repurchase any
particular amount of our common stock under the plan. At our discretion, we may suspend the repurchase plan at any
time.
(4)
Dollar values stated in millions.
Item 6. [Reserved].
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Introduction
The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related
notes included in Item 8 of this annual report. In addition, please see “Information Regarding Non-GAAP Measures and Other”
beginning on page 40 for a reconciliation of the non-GAAP measures for adjusted total revenues, organic commission, fee and
supplemental revenues and adjusted EBITDAC to the comparable GAAP measures, as well as other important information
regarding these measures.
We are engaged in providing insurance brokerage, reinsurance brokerage, consulting services, and third-party property/casualty
claims settlement and administration services to entities and individuals around the world. We believe that one of our major
strengths is our ability to deliver comprehensively structured insurance and risk management services to our clients. Our
brokers, agents and administrators act as intermediaries between underwriting enterprises and our clients and we do not assume
net underwriting risks. We are headquartered in Rolling Meadows, Illinois, and provide brokerage, risk management and
consulting services in approximately 130 countries around the world through our owned operations and a network of
correspondent brokers and consultants and third-party property/casualty claims settlement and administration services through a
network of offices located throughout Australia, Canada, New Zealand, the U.K. and the U.S. In 2024, we expanded, and expect
to continue to expand, our international operations through both acquisitions and organic growth. We generate approximately
64% of our revenues for the combined brokerage and risk management segments domestically, with the remaining 36%
generated internationally, primarily in Australia, Canada, New Zealand and the U.K. (based on 2024 revenues). We have three
reportable segments: brokerage, risk management and corporate. Brokerage and risk management contributed approximately
86% and 14%, respectively, to 2024 revenues. Our major sources of operating revenues are commissions, fees and supplemental
and contingent revenues from brokerage operations and fees from risk management operations. Interest income, premium
finance revenues and other income is generated from invested cash and fiduciary funds and revenue from premium financing.
Prior Year Discussion of Results and Comparisons
For information on fiscal 2023 results and similar comparisons, see "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" of our Form 10-K for the fiscal year ended December 31, 2023.
36
Summary of Financial Results - Year Ended December 31,
See the reconciliations of non-GAAP measures on page 38.
Year 2024
Year 2023
Change
Reported
GAAP
Adjusted
Non-GAAP
Reported
GAAP
Adjusted
Non-GAAP
Reported
GAAP
Adjusted
Non-GAAP
(In millions, except per share data)
Brokerage Segment
Revenues
$
9,933.8
$
9,883.6
$
8,637.2
$
8,631.1
15%
15%
Organic revenues
$
8,860.6
$
8,244.7
7.5%
Net earnings
$
1,685.7
$
1,169.4
44%
Net earnings margin
17.0%
13.5%
+343 bpts
Adjusted EBITDAC
$
3,475.1
$
2,952.8
18%
Adjusted EBITDAC margin
35.2%
34.2%
+95 bpts
Diluted net earnings per share
$
7.46
$
10.84
$
5.30
$
9.33
41%
16%
Risk Management Segment
Revenues before reimbursements
$
1,450.5
$
1,450.4
$
1,287.6
$
1,286.2
13%
13%
Organic revenues
$
1,355.8
$
1,254.2
8.1%
Net earnings
$
174.5
$
154.0
13%
Net earnings margin
(before reimbursements)
12.0%
12.0%
+7 bpts
Adjusted EBITDAC
$
299.7
$
257.4
16%
Adjusted EBITDAC margin
(before reimbursements)
20.7%
20.0%
+65 bpts
Diluted net earnings per share
$
0.78
$
0.86
$
0.70
$
0.74
11%
16%
Corporate Segment
Diluted net loss per share
$
(1.74)
$
(1.61)
$
(1.58)
$
(1.37)
Total Company
Diluted net earnings per share
$
6.50
$
10.09
$
4.42
$
8.70
47%
16%
Total Brokerage and Risk
Management Segment
Diluted net earnings per share
$
8.24
$
11.70
$
6.00
$
10.07
37%
16%
In our corporate segment, net after-tax (loss) earnings from our clean energy investments was $(4.4) million and $(11.5) million
in 2024 and 2023, respectively. At this time, we anticipate our clean energy investments will produce after-tax losses in 2025.
37
The following provides information that management believes is helpful when comparing revenues before reimbursements, net
earnings, EBITDAC and diluted net earnings per share for 2024 and 2023. In addition, these tables provide reconciliations to the
most comparable GAAP measures for adjusted revenues, adjusted EBITDAC and adjusted diluted net earnings per share.
Reconciliations of EBITDAC for the brokerage and risk management segments are provided on pages 44 and 50 of this filing.
Year Ended December 31 Reported GAAP to Adjusted Non-GAAP Reconciliation:
(In millions, except per share data)
Revenues Before
Reimbursements
Net Earnings
(Loss)
EBITDAC
Diluted Net Earnings (Loss)
Per Share
Segment
2024
2023
2024
2023
2024
2023
2024
2023
Chg
Brokerage, as reported
$
9,933.8
$ 8,637.2
$ 1,685.7
$ 1,169.4
$ 3,069.0
$ 2,595.8
$
7.46
$
5.30
41 %
Net (gains) on divestitures
(24.2 )
(9.6 )
(18.0 )
(7.2 )
(24.2 )
(9.6 )
(0.08 )
(0.03 )
Acquisition integration
—
—
141.9
184.5
190.2
243.7
0.63
0.84
Workforce and lease termination
—
—
88.6
48.0
118.9
63.4
0.39
0.22
Acquisition related adjustments
(26.0 )
—
63.9
278.8
121.2
69.3
0.28
1.27
Amortization of intangible assets
—
—
485.8
392.3
—
—
2.16
1.79
Effective income tax rate impact
—
—
—
(4.9 )
—
—
—
(0.02 )
Levelized foreign currency
translation
—
3.5
—
(8.3 )
—
(9.8 )
—
(0.04 )
Brokerage, as adjusted *
9,883.6
8,631.1
2,447.9
2,052.6
3,475.1
2,952.8
10.84
9.33
16 %
Risk Management, as reported
1,450.5
1,287.6
174.5
154.0
289.4
253.4
$
0.78
$
0.70
11 %
Net (gains) on divestures
(0.1 )
(0.4 )
(0.1 )
(0.3 )
(0.1 )
(0.4 )
—
—
Acquisition integration
—
—
2.1
0.7
2.9
1.0
0.01
—
Workforce and lease termination
—
—
5.9
2.5
7.2
3.4
0.03
0.01
Acquisition related adjustments
—
—
0.2
0.4
0.3
0.5
—
—
Amortization of intangibles assets
—
—
9.9
5.6
—
—
0.04
0.03
Levelized foreign currency
translation
—
(1.0 )
—
(0.2 )
—
(0.5 )
—
—
Risk Management, as adjusted *
1,450.4
1,286.2
192.5
162.7
299.7
257.4
0.86
0.74
16 %
Corporate, as reported
16.3
1.7
(389.8 )
(357.4 )
(234.0 )
(293.6 )
$
(1.74 )
$
(1.58 )
Transaction-related costs
—
—
26.3
17.7
32.2
22.6
0.12
0.08
Legal & tax related
—
—
3.5
26.2
—
48.0
0.02
0.12
Clean energy-related
(5.3 )
—
(1.7 )
10.9
(2.3 )
12.0
(0.01 )
0.01
Corporate, as adjusted *
11.0
1.7
(361.7 )
(302.6 )
(204.1 )
(211.0 )
(1.61 )
(1.37 )
Total Company, as reported
$ 11,400.6
$ 9,926.5
$ 1,470.4
$
966.0
$ 3,124.4
$ 2,555.6
$
6.50
$
4.42
47 %
Total Company, as adjusted *
$ 11,345.0
$ 9,919.0
$ 2,278.7
$ 1,912.7
$ 3,570.7
$ 2,999.2
$
10.09
$
8.70
16 %
Total Brokerage and Risk
Management, as reported
$ 11,384.3
$ 9,924.8
$ 1,860.2
$ 1,323.4
$ 3,358.4
$ 2,849.2
$
8.24
$
6.00
37 %
Total Brokerage and Risk
Management, as adjusted *
$ 11,334.0
$ 9,917.3
$ 2,640.4
$ 2,215.3
$ 3,774.8
$ 3,210.2
$
11.70
$
10.07
16 %
* For the year ended December 31, 2024, the pretax impact of the brokerage segment adjustments totals $1,021.4 million, mostly
due to non-cash period expenses related to intangible amortization and acquisition earnout payable adjustments, with a
corresponding adjustment to the provision for income taxes of $259.2 million relating to these items. For the year ended
December 31, 2024, the pretax impact of the risk management segment adjustments totals $25.0 million, with a corresponding
adjustment to the provision for income taxes of $7.0 million relating to these items. For the year ended December 31, 2024, the
pretax impact of the corporate segment adjustments totals $29.9 million, with a corresponding adjustment to the benefit for
income taxes of $1.8 million relating to these items and other tax items noted on page 56. For the corporate segment, the clean
energy related adjustments are described on page 56.
38
Reconciliation of Non-GAAP Measures - Pre-tax Earnings and Diluted Net Earnings per Share
(In millions except share and per share
data)
Earnings
(Loss)
Before
Income
Taxes
Provision
(Benefit)
for
Income
Taxes
Net
Earnings
(Loss)
Net Earnings
(Loss)
Attributable to
Noncontrolling
Interests
Net Earnings
(Loss)
Attributable to
Controlling
Interests
Diluted Net
Earnings
(Loss) per
Share
Year Ended Dec 31, 2024
Brokerage, as reported
$
2,259.3
$
573.6
$
1,685.7
$
7.7
$
1,678.0
$
7.46
Net (gains) on divestitures
(24.2)
(6.2)
(18.0)
—
(18.0)
(0.08)
Acquisition integration
190.2
48.3
141.9
—
141.9
0.63
Workforce and lease termination
118.9
30.3
88.6
—
88.6
0.39
Acquisition related adjustments
85.5
21.6
63.9
(3.0)
66.9
0.28
Amortization of intangible assets
651.0
165.2
485.8
—
485.8
2.16
Brokerage, as adjusted
$
3,280.7
$
832.8
$
2,447.9
$
4.7
$
2,443.2
$
10.84
Risk Management, as reported
$
237.6
$
63.1
$
174.5
$
—
$
174.5
$
0.78
Net (gains) on divestitures
(0.1)
—
(0.1)
—
(0.1)
—
Acquisition integration
2.9
0.8
2.1
—
2.1
0.01
Workforce and lease termination
8.1
2.2
5.9
—
5.9
0.03
Acquisition related adjustments
0.3
0.1
0.2
—
0.2
—
Amortization of intangible assets
13.8
3.9
9.9
—
9.9
0.04
Risk Management, as adjusted
$
262.6
$
70.1
$
192.5
$
—
$
192.5
$
0.86
Corporate, as reported
$
(622.1) $
(232.3) $
(389.8) $
—
$
(389.8) $
(1.74)
Transaction-related costs
32.2
5.9
26.3
—
26.3
0.12
Legal and tax related
—
(3.5)
3.5
—
3.5
0.02
Clean energy related
(2.3)
(0.6)
(1.7)
—
(1.7)
(0.01)
Corporate, as adjusted
$
(592.2) $
(230.5) $
(361.7) $
—
$
(361.7) $
(1.61)
Year Ended Dec 31, 2023
Brokerage, as reported
$
1,571.0
$
401.6
$
1,169.4
$
6.3
$
1,163.1
$
5.30
Net (gains) on divestitures
(9.6)
(2.4)
(7.2)
—
(7.2)
(0.03)
Acquisition integration
243.7
59.2
184.5
—
184.5
0.84
Workforce and lease termination
63.8
15.8
48.0
—
48.0
0.22
Acquisition related adjustments
370.5
91.7
278.8
—
278.8
1.27
Amortization of intangible assets
523.6
131.3
392.3
—
392.3
1.79
Effective income tax rate impact
—
4.9
(4.9)
—
(4.9)
(0.02)
Levelized foreign currency
translation
(10.9)
(2.6)
(8.3)
—
(8.3)
(0.04)
Brokerage, as adjusted
$
2,752.1
$
699.5
$
2,052.6
$
6.3
$
2,046.3
$
9.33
Risk Management, as reported
$
209.3
$
55.3
$
154.0
$
—
$
154.0
$
0.70
Net (gains) on divestitures
(0.4)
(0.1)
(0.3)
—
(0.3)
—
Acquisition integration
1.0
0.3
0.7
—
0.7
—
Workforce and lease termination
3.4
0.9
2.5
—
2.5
0.01
Acquisition related adjustments
0.5
0.1
0.4
—
0.4
—
Amortization of intangible assets
7.7
2.1
5.6
—
5.6
0.03
Levelized foreign currency
translation
(0.3)
(0.1)
(0.2)
—
(0.2)
—
Risk Management, as adjusted
$
221.2
$
58.5
$
162.7
$
—
$
162.7
$
0.74
Corporate, as reported
$
(595.2) $
(237.8) $
(357.4) $
(9.8) $
(347.6) $
(1.58)
Transaction-related costs
22.6
4.9
17.7
—
17.7
0.08
Legal and tax related
48.0
21.8
26.2
—
26.2
0.12
Clean energy related
12.0
1.1
10.9
7.6
3.3
0.01
Corporate, as adjusted
$
(512.6) $
(210.0) $
(302.6) $
(2.2) $
(300.4) $
(1.37)
39
Acquisition of AssuredPartners
On December 7, 2024, we signed a definitive agreement to acquire all of the issued and outstanding stock of Dolphin Topco,
Inc., the holding company of AssuredPartners, Inc., a Delaware corporation (together with its subsidiaries, “AssuredPartners”)
for gross consideration of $13.45 billion. The transaction is subject to customary regulatory approval, standard closing
conditions and is expected to close during first quarter 2025. AssuredPartners is a leading U.S. insurance broker with client
capabilities across commercial property/casualty, specialty, employee benefits and personal lines with operations in the U.K. and
Ireland. We expect to fund the transaction using $8.5 billion of cash raised in our December 11, 2024 follow-on common stock
offering and $5.0 billion of cash borrowed in our December 19, 2024 senior notes issuance (which we refer to, together with the
follow-on common stock offering, as the AssuredPartners Financing). On January 7, 2025, we received an additional
$1.28 billion of cash due to the exercise by the underwriters of the overallotment provision related to the follow-on common
stock offering.
Insurance Market Overview
Fluctuations in premiums charged by property/casualty underwriting enterprises have a direct and potentially material impact on
the insurance brokerage industry. Commission revenues are generally based on a percentage of the premiums paid by insureds
and normally follow premium levels. Insurance premiums are cyclical in nature and may vary widely based on market
conditions. Various factors, including competition for market share among underwriting enterprises, increased underwriting
capacity and improved economies of scale following consolidations, can result in flat or reduced property/casualty premium rates
(a “soft” market). A soft market tends to put downward pressure on commission revenues. Various countervailing factors, such
as greater than anticipated loss experience, unexpected loss exposure and capital shortages, can result in increasing
property/casualty premium rates (a “hard” market). A hard market tends to favorably impact commission revenues. Hard and
soft markets may be broad-based or more narrowly focused across individual product lines or geographic areas. As markets
harden, buyers of insurance (such as our brokerage clients), have historically tried to mitigate premium increases and the higher
commissions these premiums generate, including by raising their deductibles and/or reducing the overall amount of insurance
coverage they purchase. As the market softens, or costs decrease, these trends have historically reversed. During a hard market,
buyers may switch to negotiated fee in lieu of commission arrangements to compensate us for placing their risks, or may
consider the alternative insurance market, which includes self-insurance, captives, rent-a-captives, risk retention groups and
capital market solutions to transfer risk. Our brokerage units are very active in these markets as well. While increased use by
insureds of these alternative markets historically has reduced commission revenue to us, such trends generally have been
accompanied by new sales and renewal increases in the areas of risk management, claims management, captive insurance and
self-insurance services and related growth in fee revenue. Inflation tends to increase the levels of insured values and risk
exposures, resulting in higher overall premiums and higher commissions. However, the impact of hard and soft market
fluctuations has historically had a greater impact on changes in premium rates, and therefore on our revenues, than inflationary
pressures.
We use the Council of Insurance Agents & Brokers (which we refer to as the CIAB) insurance pricing quarterly survey as an
indicator of the insurance rate environment. The CIAB represents the leading domestic and international insurance brokers, who
write approximately 85% of the commercial property/casualty premiums in the U.S. The fourth quarter 2024 survey had not
been published as of the filing date of this report. The first three 2024 quarterly surveys indicated that U.S. commercial
property/casualty rates increased by 7.7%, 5.2%, and 5.1% on average, for the first, second and third quarters of 2024,
respectively. We expect a similar trend to be noted when the CIAB fourth quarter 2024 survey report is issued, which would
indicate overall continued price firming and hardening in most lines of business.
We believe increases in property/casualty rates will continue throughout 2025 due to rising loss costs, increased frequency of
natural catastrophe and weather related losses, prior year reserve volatility and social inflation. We estimate global insured
natural catastrophe losses were approximately $150 billion during 2024, and first quarter 2025 insured losses are likely to be
elevated due to the California wildfires and, may cause insurance and/or reinsurance carriers to increase property pricing upon
renewal. Additionally, if loss trends deteriorate over the coming quarters, or if profitability concerns on casualty lines increase,
it could lead to a more difficult rate and conditions environment in certain lines. The combination of increasing insurable values
(due to inflation, including wage inflation), a tight labor market and low unemployment is likely contributing to increases in
client insured exposures. Additionally, we expect that our history of strong new business generation, solid retentions and
enhanced value-added services for our carrier partners should all result in further organic growth opportunities around the world.
Overall, we believe that in a positive rate environment with increasing exposures, our professionals can demonstrate their
expertise and high-quality, value-added capabilities by strengthening our clients’ insurance portfolios and delivering insurance
and risk management solutions within our clients’ budget. Based on our experience, insurance and reinsurance carriers appear to
be making rational pricing decisions and are providing adequate capacity in the market for nearly all lines of coverage.
40
Business Combinations and Dispositions
See Note 3 to our 2024 consolidated financial statements for a discussion of our 2024 business combinations.
Results of Operations
Information Regarding Non-GAAP Measures and Other
In the discussion and analysis of our results of operations that follows, in addition to reporting financial results in accordance
with GAAP, we provide information regarding EBITDAC, EBITDAC margin, adjusted EBITDAC, adjusted EBITDAC margin,
diluted net earnings per share, as adjusted (adjusted EPS), adjusted revenue, adjusted compensation and operating expenses,
adjusted compensation expense ratio, adjusted operating expense ratio and organic revenue. These measures are not in
accordance with, or an alternative to, the GAAP information provided in this report. We believe that these presentations provide
useful information to management, analysts and investors regarding financial and business trends relating to our results of
operations and financial condition or because they provide investors with measures that our chief operating decision maker uses
when reviewing the Company’s performance. See further below for definitions and additional reasons each of these measures is
useful to investors. Our industry peers may provide similar supplemental non-GAAP information with respect to one or more of
these measures, although they may not use the same or comparable terminology and may not make identical adjustments. For
example, our organic revenue is calculated differently than some of our industry peers. The non-GAAP information we provide
should be used in addition to, but not as a substitute for, the GAAP information provided. We make determinations regarding
certain elements of executive officer incentive compensation, performance share awards and annual cash incentive awards, partly
on the basis of measures related to adjusted EBITDAC.
Adjusted Non-GAAP presentation - We believe that the adjusted non-GAAP presentation of our 2024 and 2023 information,
presented on the following pages, provides stockholders and other interested persons with useful information regarding certain
financial metrics that may assist such persons in analyzing our operating results as they develop a future earnings outlook for us.
The after-tax amounts related to the adjustments were computed using the normalized effective tax rate for each respective
period.
•
Adjusted measures - We define these measures as revenues (for the brokerage segment), revenues before
reimbursements (for the risk management segment), net earnings, compensation expense and operating expense,
respectively, each adjusted to exclude the following, as applicable:
o
Net gains (losses) on divestitures, which are primarily net proceeds received related to sales of books of
business and other divestiture transactions, such as the disposal of a business through sale or closure.
o
Acquisition integration costs, which include costs related to certain large acquisitions (including the
acquisitions of the Willis Towers Watson plc treaty reinsurance brokerage operations (which we refer to as
Willis Re), Buck, Cadence Insurance, Eastern Insurance and My Plan Manager), outside the scope of our usual
tuck-in strategy, not expected to occur on an ongoing basis in the future once we fully assimilate the applicable
acquisition. These costs are typically associated with redundant workforce, compensation expense related to
amortization of certain retention bonus arrangements, extra lease space, duplicate services and external costs
incurred to assimilate the acquisition into our IT related systems.
o
Transaction-related costs, which are associated with completed, future and terminated acquisitions. Costs
primarily relate to the acquisitions of Willis Re, Buck, Cadence Insurance, Eastern Insurance and My Plan
Manager and the pending acquisition of AssuredPartners. These include costs related to regulatory filings,
legal and accounting services, insurance and incentive compensation.
o
Workforce related charges, which primarily include severance costs (either accrued or paid) related to
employee terminations and other costs associated with redundant workforce.
o
Lease termination related charges, which primarily include costs related to terminations of real estate leases
and abandonment of leased space.
o
Acquisition related adjustments principally relate to changes in estimated acquisition earnout payables
adjustments and acquisition related compensation charges. In addition, from time to time may include changes
in balance sheet estimates arising from conforming accounting principles, purchase-related true-ups and other
balance sheet adjustments made after the closing date; the net impact on the results for first quarter 2024 was
approximately $26 million of revenues and approximately $28 million of compensation expense.
o
Amortization of intangible assets which reflects the amortization of customer/expiration lists, non-compete
agreements, trade names and other intangible assets acquired through our merger and acquisition strategy, the
41
impact to amortization expense of acquisition valuation adjustments to these assets as well as non-cash
impairment charges.
o
The impact of foreign currency translation, as applicable. The amounts excluded with respect to foreign
currency translation are calculated by applying current year foreign exchange rates to the same period in the
prior year.
o
Effective income tax rate impact, which levelizes the prior year for the change in current year tax rates.
o
Legal and tax related, which represents the impact of (a) adjustments in 2024 and 2023 related to costs
associated with legal and tax matters as well as costs associated with the impact of tax items associated with
2022 tax returns filed in October 2023, (b) adjustments in 2023 related to additional U.K. income tax expense
related to the non-deductibility of acquisition-related adjustments made in the quarter and costs associated with
legal and tax matters.
•
Adjusted ratios - Adjusted compensation expense and adjusted operating expense, respectively, each divided by
adjusted revenues.
Non-GAAP Earnings Measures
We believe that the presentation of EBITDAC, EBITDAC margin, adjusted EBITDAC, adjusted EBITDAC margin, adjusted
EPS and adjusted net earnings for the brokerage and risk management segment, each as defined below, provides a meaningful
representation of our operating performance. Adjusted EPS is a performance measure and should not be used as a measure of
our liquidity. We also consider EBITDAC and EBITDAC margin as ways to measure financial performance on an ongoing
basis. In addition, adjusted EBITDAC, adjusted EBITDAC margin and adjusted EPS for the brokerage and risk management
segments are presented to improve the comparability of our results between periods by eliminating the impact of the items that
have a high degree of variability.
•
EBITDAC and EBITDAC Margin - EBITDAC is net earnings before interest, income taxes, depreciation,
amortization and the change in estimated acquisition earnout payables and EBITDAC margin is EBITDAC divided
by total revenues (for the brokerage segment) and revenues before reimbursements (for the risk management
segment). These measures for the brokerage and risk management segments provide a meaningful representation of
our operating performance for the overall business and provide a meaningful way to measure our financial
performance on an ongoing basis.
•
Adjusted EBITDAC and Adjusted EBITDAC Margin - Adjusted EBITDAC is EBITDAC adjusted to exclude
net gains on divestitures, acquisition integration costs, workforce related charges, lease termination related charges,
acquisition related adjustments, transaction related costs, legal and tax related costs, and the period-over-period
impact of foreign currency translation, as applicable and Adjusted EBITDAC margin is Adjusted EBITDAC divided
by total adjusted revenues (defined above). These measures for the brokerage and risk management segments
provide a meaningful representation of our operating performance, and are also presented to improve the
comparability of our results between periods by eliminating the impact of the items that have a high degree of
variability.
•
Adjusted EPS and Adjusted Net Earnings - Adjusted net earnings have been adjusted to exclude the after-tax
impact of net gains on divestitures, acquisition integration costs, the impact of foreign currency translation,
workforce related charges, lease termination related charges, acquisition related adjustments, transaction related
costs, amortization of intangible assets, legal and tax related costs and effective income tax rate impact, as
applicable. Adjusted EPS is Adjusted Net Earnings divided by diluted weighted average shares outstanding. This
measure provides a meaningful representation of our operating performance (and as such should not be used as a
measure of our liquidity), and for the overall business is also presented to improve the comparability of our results
between periods by eliminating the impact of the items that have a high degree of variability.
Organic Revenues (a non-GAAP measure) - For the brokerage segment, organic change in base commission and fee revenues,
supplemental revenues and contingent revenues excludes the first twelve months of such revenues generated from acquisitions
and such revenues related to divested operations which include disposals of a business through sale or closure, run-off of a
business and the restructuring and/or repricing of programs and products in each year presented. These revenues are excluded
from organic revenues in order to help interested persons analyze the revenue growth associated with the operations that were a
part of our business in both the current and prior year. In addition, organic change in base commission and fee revenues,
supplemental revenues and contingent revenues exclude the period-over-period impact of foreign currency translation to improve
the comparability of our results between periods. For the risk management segment, organic change in fee revenues excludes the
first twelve months of such revenues generated from acquisitions and such revenues related to divested operations in each year
42
presented. In addition, change in organic growth in fee revenues excludes the period-over-period impact of foreign currency
translation to improve the comparability of our results between periods.
These revenue items are excluded from organic revenues in order to determine a comparable, but non-GAAP, measurement of
revenue growth that is associated with the revenue sources that are expected to continue in the current year and beyond as well as
eliminating the impact of the items that have a high degree of variability. We have historically viewed organic revenue growth
as an important indicator when assessing and evaluating the performance of our brokerage and risk management segments. We
also believe that using this non-GAAP measure allows readers of our financial statements to measure, analyze and compare the
growth from our brokerage and risk management segments in a meaningful and consistent manner.
Reconciliation of Non-GAAP Information Presented to GAAP Measures - This report includes tabular reconciliations to the
most comparable GAAP measures, as follows: for EBITDAC (on pages 44 and 50), for adjusted revenues, adjusted EBITDAC
and adjusted diluted net earnings per share (on page 37), for organic revenue measures (on pages 45 and 50), respectively, for the
brokerage and risk management segments, for adjusted compensation and operating expenses and adjusted EBITDAC margin
(on page 46), respectively, for the brokerage segment and (on page 51) for the risk management segment.
Brokerage
The brokerage segment accounted for 86% of our revenue in 2024. Our brokerage segment is primarily comprised of retail,
wholesale and reinsurance brokerage operations. Our brokerage segment generates revenues by:
(i)
Identifying, negotiating and placing all forms of insurance coverage, as well as providing data analytics, risk-
shifting, risk-sharing and risk-mitigation consulting services, principally related to property/casualty, life, health,
welfare and disability insurance. We also provide these services through, or in conjunction with, other unrelated
agents and brokers, consultants and management advisors;
(ii)
Identifying, negotiating and placing all forms of reinsurance coverage, as well as providing capital markets services,
including acting as underwriter, with respect to insurance linked securities, weather derivatives, capital raising and
selected merger and acquisition advisory activities;
(iii)
Acting as an agent or broker for multiple underwriting enterprises by providing services such as sales, marketing,
selecting, negotiating, underwriting, servicing and placing insurance coverage on their behalf;
(iv)
Providing consulting services related to health and welfare benefits, voluntary benefits, executive benefits,
compensation, retirement planning, institutional investment and fiduciary, actuarial, compliance, private insurance
exchange, human resources technology, communications and benefits administration; and
(v)
Providing management and administrative services to captives, pools, risk-retention groups, healthcare exchanges,
small underwriting enterprises, such as accounting, claims and loss processing assistance, feasibility studies,
actuarial studies, data analytics and other administrative services.
The primary source of revenues for our brokerage services is commissions from underwriting enterprises, based on a percentage
of premiums paid by our clients, or fees received from clients based on an agreed level of service usually in lieu of commissions.
Commissions are fixed at the contract effective date and generally are based on a percentage of premiums for insurance coverage
or employee headcount for employer sponsored benefit plans. Commissions depend upon a large number of factors, including
the type of risk being placed, the particular underwriting enterprise’s demand, the expected loss experience of the particular risk
of coverage, and historical benchmarks surrounding the level of effort necessary for us to place and service the insurance
contract. Rather than being tied to the amount of premiums, fees are most often based on an expected level of effort to provide
our services. In addition, under certain circumstances, both retail brokerage and wholesale brokerage services receive
supplemental and contingent revenues. Supplemental revenue is revenue paid by an underwriting enterprise that is above the
base commission paid, is determined by the underwriting enterprise and is established annually in advance of the contractual
period based on historical performance criteria. Contingent revenue is revenue paid by an underwriting enterprise based on the
overall profit and/or volume of the business placed with that underwriting enterprise during a particular calendar year and is
determined after the contractual period.
43
Financial information relating to our brokerage segment results for 2024 and 2023 (in millions, except per share, percentages and
workforce data):
Statement of Earnings
2024
2023
Change
Commissions
$
6,693.8
$
5,865.0
$
828.8
Fees
2,192.6
1,885.0
307.6
Supplemental revenues
359.4
314.2
45.2
Contingent revenues
267.6
235.3
32.3
Interest income, premium finance revenues and other income
420.4
337.7
82.7
Total revenues
9,933.8
8,637.2
1,296.6
Compensation
5,501.4
4,769.1
732.3
Operating
1,363.4
1,272.3
91.1
Depreciation
133.1
124.4
8.7
Amortization
651.0
523.6
127.4
Change in estimated acquisition earnout
payables
25.6
376.8
(351.2)
Total expenses
7,674.5
7,066.2
608.3
Earnings before income taxes
2,259.3
1,571.0
688.3
Provision for income taxes
573.6
401.6
172.0
Net earnings
1,685.7
1,169.4
516.3
Net earnings attributable to noncontrolling
interests
7.7
6.3
1.4
Net earnings attributable to controlling interests
$
1,678.0
$
1,163.1
$
514.9
Diluted net earnings per share
$
7.46
$
5.30
$
2.16
Other Information
Change in diluted net earnings per share
41%
(5)%
Growth in revenues
15%
18%
Organic change in commissions and fees
7%
9%
Compensation expense ratio
55%
55%
Operating expense ratio
14%
15%
Effective income tax rate
25%
26%
Workforce at end of period (includes
acquisitions)
42,091
39,337
Identifiable assets at December 31
$
46,439.2
$
47,446.1
44
The following provides information that management believes is helpful when comparing EBITDAC and adjusted EBITDAC for
2024 and 2023 (in millions):
2024
2023
Change
Net earnings, as reported
$
1,685.7
$
1,169.4
44.2%
Provision for income taxes
573.6
401.6
Depreciation
133.1
124.4
Amortization
651.0
523.6
Change in estimated acquisition earnout
payables
25.6
376.8
EBITDAC
3,069.0
2,595.8
18.2%
Net (gains) on divestitures
(24.2)
(9.6)
Acquisition integration
190.2
243.7
Workforce and lease termination related charges
118.9
63.4
Acquisition related adjustments
121.2
69.3
Levelized foreign currency translation
—
(9.8)
EBITDAC, as adjusted
$
3,475.1
$
2,952.8
17.7%
Net earnings margin, as reported
*
17.0%
13.5%
+343 bpts
EBITDAC margin, as adjusted
*
35.2%
34.2%
+95 bpts
Reported revenues
$
9,933.8
$
8,637.2
Adjusted revenues - see page 37
$
9,883.6
$
8,631.1
* 2024 adjusted EBITDAC margin would be 35.0% excluding approximately $20.0 million of interest income revenues earned
on the proceeds received in December 2024 related to the AssuredPartners Financing.
Commissions and fees - The aggregate increase in base commissions and fees for 2024 was due to revenues associated with
acquisitions that were made during 2024 and 2023 ($618.2 million) and organic revenue growth. Commission revenues
increased 14% and fee revenues increased 16% in 2024 compared to 2023. The organic change in base commission and fee
revenues was 7% in 2024 and 9% in 2023.
In our property/casualty brokerage operations, during the twelve-month period ended December 31, 2024, we saw continued
strong customer retention, higher new business generation and increasing renewal premiums (premium rates and exposures). We
believe these favorable trends should continue in 2025; however, if economic conditions worsen or premium rate increases slow,
we could see our revenue growth moderate.
45
Items excluded from organic revenue computations yet impacting revenue comparisons for 2024 and 2023 include the following
(in millions):
Year Ended December 31,
2024
2023
Change
Base Commissions and Fees
Commission and fees, as reported
$
8,886.4
$
7,750.0
14.7%
Less commission and fee revenues from acquisitions
(618.2)
—
Less divested operations
—
(57.9)
Levelized foreign currency translation
—
5.2
Organic base commission and fees
$
8,268.2
$
7,697.3
7.4%
Supplemental revenues
Supplemental revenues, as reported
$
359.4
$
314.2
14.4%
Less supplemental revenues from acquisitions
(9.4)
—
Levelized foreign currency translation
—
1.1
Organic supplemental revenues
$
350.0
$
315.3
11.0%
Contingent revenues
Contingent revenues, as reported
$
267.6
$
235.3
13.7%
Less contingent revenues from acquisitions
(25.2)
—
Less divested operations
—
(3.0)
Levelized foreign currency translation
—
(0.2)
Organic contingent revenues
$
242.4
$
232.1
4.4%
Total reported commissions, fees, supplemental
revenues and contingent revenues
$
9,513.4
$
8,299.5
14.6%
Less commissions, fees, supplemental revenues
and contingent revenues from acquisitions
(652.8)
—
Less divested operations
—
(60.9)
Levelized foreign currency translation
—
6.1
Total organic commissions, fees supplemental
revenues and contingent revenues
$
8,860.6
$
8,244.7
7.5%
Acquisition Activity
2024
2023
Number of acquisitions closed
46
50
Estimated annualized revenues acquired (in millions)
$
362.6
$
826.0
For 2024 and 2023, we issued 512,000 and 1,612,000, shares, respectively, of our common stock at the request of sellers and/or
in connection with tax-free exchange acquisitions.
On December 19, 2024, we closed and funded an offering of $5,000.0 million of unsecured senior notes in five tranches. The
$750.0 million aggregate principal amount of 4.60% Senior Notes is due in 2027, $750.0 million aggregate principal amount of
4.85% Senior Notes is due in 2029, $500.0 million aggregate principal amount of 5.00% Senior Notes is due in 2032,
$1,500.0 million aggregate principal amount of 5.15% Senior Notes is due in 2035, $1,500.0 million aggregate principal amount
5.55% Senior Notes is due in 2055. The weighted average interest rate is 5.25% per annum after giving effect to underwriting
costs and a net hedge gain. During 2024, we entered into a pre-issuance interest rate hedging transaction related to these notes.
We realized a net cash gain of approximately $4.1 million on the hedging transactions that will be recognized on a pro rata basis
as a decrease to our reported interest expense over ten years. We expect to use the net proceeds of this offering to fund a portion
of the cash consideration payable in connection with the AssuredPartners transaction and, to the extent that any proceeds remain
thereafter, or if the AssuredPartners transaction is not completed, for general corporate purposes, including other acquisitions.
On February 12, 2024, we closed and funded an offering of $1,000.0 million of unsecured senior notes in two tranches. The
$500.0 million aggregate principal amount of 5.45% Senior Notes is due in 2034 and $500.0 million aggregate principal amount
of 5.75% Senior Notes is due in 2054. The weighted average interest rate is 5.71% per annum after giving effect to underwriting
costs and a net hedge loss. During 2023, we entered into a pre-issuance interest rate hedging transaction related to these notes.
We realized a net cash loss of approximately $1.4 million on the hedging transactions that will be recognized on a pro rata basis
as an increase to our reported interest expense over ten years. We used the proceeds of these offerings to fund acquisitions,
earnout payments related to acquisitions and general corporate purposes.
46
Supplemental and contingent revenues - Reported supplemental and contingent revenues recognized in 2024 and 2023 by
quarter are as follows (in millions):
Q1
Q2
Q3
Q4
Full Year
2024
Reported supplemental revenues
$
93.9
$
88.7
$
79.1
$
97.7
$
359.4
Reported contingent revenues
86.0
59.8
69.3
52.5
267.6
Reported supplemental and contingent revenues
$
179.9
$
148.5
$
148.4
$
150.2
$
627.0
2023
Reported supplemental revenues
$
81.6
$
71.2
$
70.8
$
90.6
$
314.2
Reported contingent revenues
71.8
54.2
53.9
55.4
235.3
Reported supplemental and contingent revenues
$
153.4
$
125.4
$
124.7
$
146.0
$
549.5
Interest income, premium finance revenues and other income - This primarily represents interest income earned on cash,
cash equivalents and fiduciary cash and revenues from premium financing, income from equity investments and net gains related
to divestitures and sales of books of business.
Interest income, premium finance revenues and other income in 2024 increased compared to 2023 primarily due to increases in
interest income earned on our own and fiduciary funds, including the $20.0 million interest income earned in December 2024
related to the proceeds from the AssuredPartners Financing.
The following table provides a reconciliation of brokerage segment interest income, premium finance revenues and other
income, as reported in our consolidated financial statements to interest income earned on cash, cash equivalents and fiduciary
cash (in millions):
2024
2023
Interest income, premium finance revenues and other income
$
420.4
$
337.7
Less:
Net (gains) on divestitures
(24.2)
(9.6)
Premium financing revenues and net earnings from equity interests
(108.6)
(106.5)
Interest income from cash, cash equivalents and fiduciary cash
$
287.6
$
221.6
Compensation expense - The following provides non-GAAP information that management believes is helpful when comparing
2024 and 2023 compensation expense (in millions):
2024
2023
Compensation expense, as reported
$
5,501.4
$
4,769.1
Acquisition integration
(106.4)
(146.6)
Workforce related charges
(108.1)
(56.0)
Acquisition related adjustments
(147.2)
(69.3)
Levelized foreign currency translation
—
11.9
Compensation expense, as adjusted
$
5,139.7
$
4,509.1
Reported compensation expense ratios
55.4%
55.2%
Adjusted compensation expense ratios
52.0%
52.2%
Reported revenues
$
9,933.8
$
8,637.2
Adjusted revenues - see page 37
$
9,883.6
$
8,631.1
The $732.3 million increase in compensation expense in 2024 compared to 2023 was primarily due to compensation associated
with the acquisitions completed in the twelve month period ended December 31, 2024 - $350.8 million, increases in base
compensation related to the hiring of producers and other roles to service and support organic growth and higher benefit costs -
$291.7 million in the aggregate, increases in acquisition earnout related adjustments - $77.9 million and workforce related
charges - $52.1 million, partially offset by reduced acquisition integration costs - $40.2 million.
47
Operating expense - The following provides non-GAAP information that management believes is helpful when comparing 2024
and 2023 operating expense (in millions):
2024
2023
Operating expense, as reported
$
1,363.4
$
1,272.3
Acquisition integration
(83.8)
(97.1)
Workforce and lease termination related charges
(10.8)
(7.4)
Levelized foreign currency translation
—
1.4
Operating expense, as adjusted
$
1,268.8
$
1,169.2
Reported operating expense ratios
13.7%
14.7%
Adjusted operating expense ratios
12.8%
13.6%
Reported revenues
$
9,933.8
$
8,637.2
Adjusted revenues - see page 37
$
9,883.6
$
8,631.1
The $91.1 million increase in operating expense in 2024 compared to 2023, was primarily due to expenses associated with the
acquisitions completed in the twelve-month period ended December 31, 2024 - $78.9 million, underlying inflation of travel and
entertainment costs and additional investments in technology - $22.1 million, increases in workforce related charges -
$3.4 million, partially offset by reduced acquisition integration costs - $13.3 million.
Depreciation - The increase in depreciation expense in 2024 compared to 2023 was due primarily to the impact of purchases of
furniture, equipment and leasehold improvements related to office consolidations and moves, and expenditures related to
upgrading computer systems. Also contributing to the increases in depreciation expense in 2024 was the depreciation expense
associated with acquisitions completed in 2024 and the latter part of 2023.
Amortization - The increase in amortization in 2024 compared to 2023 was primarily due to the impact of amortization expense
of intangible assets associated with acquisitions completed in 2024 and 2023, partially offset by the impact of acquisition
valuation true-ups recorded in 2024 relating to acquisitions made in 2023. Expiration lists, non-compete agreements and trade
names are amortized using the straight-line method over their estimated useful lives (two to fifteen years for expiration lists, two
to six years for non-compete agreements and two to fifteen years for trade names). Based on the results of impairment reviews
performed on amortizable intangible assets in 2024 and 2023, we wrote off $19.4 million and $3.5 million, respectively, of
amortizable intangible assets related to the brokerage segment. We review all of our intangible assets for impairment
periodically (at least annually for goodwill) and whenever events or changes in business circumstances indicate that the carrying
value of the assets may not be recoverable. We perform such impairment reviews at the division (i.e., reporting unit) level with
respect to goodwill and at the business unit level for amortizable intangible assets. In reviewing intangible assets, if the
undiscounted future cash flows were less than the carrying amount of the respective (or underlying) asset, an indicator of
impairment would exist and further analysis would be required to determine whether or not a loss would need to be charged
against current period earnings as a component of amortization expense. In October 2024, we performed a qualitative
impairment review on carrying value of our goodwill for all of our reporting units and no indicators of impairment were noted as
of December 31, 2024.
Change in estimated acquisition earnout payables - The change in the expense from the change in estimated acquisition
earnout payables in 2024 compared to 2023 was due primarily to adjustments made to the estimated fair value of earnout
obligations related to revised assumptions due to rising interest rates and increased market volatility and projections of future
performance. During 2024 and 2023, we recognized $61.3 million and $76.1 million, respectively, of expense related to the
accretion of the discount recorded for earnout obligations in connection with our acquisitions made from 2021 to 2024. During
2024 and 2023, we recognized $35.7 million of income and $300.7 million of expense, respectively, related to net adjustments in
the estimated fair market values of earnout obligations in connection with revised projections of future performance for 91 and
80 acquisitions, respectively. The net adjustments in 2024 include changes made to the estimated fair value of the Willis Re
acquisition earnout and reflect updated assumptions as of December 31, 2024 and are based on actual 2024 recognized revenues.
The net adjustments in 2023, primarily included changes made to the estimated fair value of the Willis Re acquisition earnout
and reflected updated assumptions as of December 31, 2023, including forecasted 2024 revenue projections based on January 1,
2024 reinsurance renewals.
The amounts initially recorded as earnout payables for our 2021 to 2024 acquisitions were measured at fair value as of the
acquisition date and are primarily based upon the estimated future operating results of the acquired entities over a two- to
three-year period subsequent to the acquisition date. The fair value of these earnout obligations is based on the present value of
48
the expected future payments to be made to the sellers of the acquired entities in accordance with the provisions outlined in the
respective purchase agreements. In determining fair value, we estimate the acquired entity’s future performance using financial
projections developed by management for the acquired entity and market participant assumptions that were derived for revenue
growth and/or profitability. We estimate future earnout payments using the earnout formula and performance targets specified in
each purchase agreement and these financial projections. Subsequent changes in the underlying financial projections or
assumptions will cause the estimated earnout obligations to change and such adjustments are recorded in our consolidated
statement of earnings when incurred. Increases in the earnout payable obligations will result in the recognition of expense and
decreases in the earnout payable obligations will result in the recognition of income.
Provision for income taxes - The brokerage segment’s effective tax rate in 2024 and 2023 was 25.4% and 25.6%, respectively.
As of April 1, 2023, a U.K. corporate tax rate of 25% went into effect making the 2023 full year effective rate in the U.K. 23.5%.
We anticipate reporting an effective tax rate of approximately 24.5% to 26.5% in our brokerage segment based on known
changes in tax rates in future periods.
Net earnings attributable to noncontrolling interests - The amounts reported in this line for 2024 and 2023 include
noncontrolling interest earnings of $7.7 million and $6.3 million, respectively.
Litigation, Regulatory and Taxation Matters - We routinely are involved in legal proceedings, claims, disputes, regulatory
matters and governmental inspections or investigations arising in the ordinary course of or incidental to our business, including
relating to E&O claims and those noted below in this section. We record accruals in the consolidated financial statements for
pending litigation when we determine that an unfavorable outcome is probable and the amount of the loss can be reasonably
estimated. For the matters we disclose that do not include an estimate of the amount of loss or range of losses, such an estimate
is not possible or is immaterial, and we may be unable to estimate the possible loss or range of losses that could potentially result
from the application of non-monetary remedies, unless disclosed below. We currently believe that the ultimate outcome of these
proceedings, individually and in the aggregate, will not materially harm our financial position, results of operations or cash
flows. However, legal proceedings and government investigations are subject to inherent uncertainties, and unfavorable rulings
or other events could occur, including the payment of substantial monetary damages or an injunction or other order prohibiting
us from selling one or more products at all or in particular ways, precluding particular business practices or requiring other
remedies, which may result in a material adverse impact on our business, results of operations or financial position.
As previously disclosed, our IRC 831(b) (or “micro-captive”) advisory services business has been under a promoter investigation
by the IRS since 2013. Among other matters, the IRS is investigating whether we have been acting as a tax shelter promoter in
connection with these operations. Additionally, the IRS is conducting a criminal investigation related to IRC 831(b) micro-
captive underwriting enterprises. We have been advised that we are not a target of the criminal investigation. We are fully
cooperating with both matters.
Risk Management
The risk management segment accounted for 14% of our revenue in 2024. Our risk management segment operations provide
contract claim settlement, claim administration, loss control services and risk management consulting for commercial, nonprofit,
captive and public sector entities, and various other organizations that choose to self-insure property/casualty coverages or
choose to use a third-party claims management organization rather than the claim services provided by underwriting enterprises.
Revenues for our risk management segment are comprised of fees generally negotiated (i) on a per-claim or per-service basis, (ii)
on a cost-plus basis, or (iii) as performance-based fees. We also provide risk management consulting services that are
recognized as the services are delivered.
49
Financial information relating to our risk management segment results for 2024 and 2023 (in millions, except per share,
percentages and workforce data):
Statement of Earnings
2024
2023
Change
Fees
$
1,414.0
$
1,259.7
$
154.3
Interest income and other income
36.5
27.9
8.6
Revenues before reimbursements
1,450.5
1,287.6
162.9
Reimbursements
154.3
145.4
8.9
Total revenues
1,604.8
1,433.0
171.8
Compensation
882.4
776.8
105.6
Operating
278.7
257.4
21.3
Reimbursements
154.3
145.4
8.9
Depreciation
37.6
35.9
1.7
Amortization
13.8
7.7
6.1
Change in estimated acquisition earnout payables
0.4
0.5
(0.1)
Total expenses
1,367.2
1,223.7
143.5
Earnings before income taxes
237.6
209.3
28.3
Provision for income taxes
63.1
55.3
7.8
Net earnings
174.5
154.0
20.5
Net earnings attributable to noncontrolling
interests
—
—
—
Net earnings attributable to
controlling interests
$
174.5
$
154.0
$
20.5
Diluted earnings per share
$
0.78
$
0.70
$
0.08
Other information
Change in diluted earnings per share
11%
30%
Growth in revenues (before reimbursements)
13%
18%
Organic change in fees (before reimbursements)
8%
16%
Compensation expense ratio
(before reimbursements)
61%
60%
Operating expense ratio (before reimbursements)
19%
20%
Effective income tax rate
27%
26%
Workforce at end of period
(includes acquisitions)
10,339
9,747
Identifiable assets at December 31
$
1,661.7
$
1,649.3
50
The following provides non-GAAP information that management believes is helpful when comparing 2024 and 2023 EBITDAC
and adjusted EBITDAC (in millions):
2024
2023
Change
Net earnings, as reported
$
174.5
$
154.0
13.3%
Provision for income taxes
63.1
55.3
Depreciation
37.6
35.9
Amortization
13.8
7.7
Change in estimated acquisition earnout
payables
0.4
0.5
Total EBITDAC
289.4
253.4
14.2%
Net (gains) on divestitures
(0.1)
(0.4)
Acquisition integration
2.9
1.0
Workforce and lease termination related
charges
7.2
3.4
Acquisition related adjustments
0.3
0.5
Levelized foreign currency translation
—
(0.5)
EBITDAC, as adjusted
$
299.7
$
257.4
16.4%
Net earnings margin, before reimbursements,
as reported
12.0%
12.0%
+7 bpts
EBITDAC margin, before reimbursements,
as adjusted
20.7%
20.0%
+65 bpts
Reported revenues before
reimbursements
$
1,450.5
$
1,287.6
Adjusted revenues - before reimbursements
- see page 37
$
1,450.4
$
1,286.2
Fees - In 2024, our risk management operations, new core workers’ compensation and general liability claims arising improved
from new clients coming on board in 2024 and 2023. We believe these favorable trends should continue for 2025, however,
worsening economic conditions or a reversal in the number of workers employed, could cause fewer new liability and core
workers’ compensation claims to arise in future quarters. Organic change in fee revenues was 8% in 2024 and 16% in 2023.
Items excluded from organic fee computations yet impacting revenue comparisons in 2024 and 2023 include the following (in
millions):
Year Ended December 31,
2024
2023
Change
Fees
$
1,405.6
$
1,246.1
12.8%
International performance bonus fees
8.4
13.6
Fees as reported
1,414.0
1,259.7
12.2%
Less fees from acquisitions
(58.2)
—
Less divested operations
—
(4.5)
Levelized foreign currency translation
—
(1.0)
Organic fees
$
1,355.8
$
1,254.2
8.1%
Acquisition Activity
2024
2023
Number of acquisitions closed
2
1
Estimated annualized revenues acquired (in millions)
$
23.9
$
59.1
Reimbursements - Reimbursements represent amounts received from clients reimbursing us for certain third-party costs
associated with providing our claims management services. In certain service partner relationships, we are considered a
principal because we direct the third party, control the specified service and combine the services provided into an integrated
solution. Given this principal relationship, we are required to recognize revenue on a gross basis and service partner vendor fees
in the operating expense line in our consolidated statement of earnings. The increase in reimbursements in 2024 compared to
2023 was primarily due to a change in business mix that is processed internally versus using outside service partners.
51
Interest income and other income - Interest income and other income primarily represents interest income earned on cash, cash
equivalents and fiduciary cash. Interest income and other income in 2024 increased compared to 2023 primarily due to increases
in interest income from increases in interest rates earned on fiduciary cash and increased levels of fiduciary cash.
Compensation expense - The following provides non-GAAP information that management believes is helpful when comparing
2024 and 2023 compensation expense compensation expense (in millions):
2024
2023
Compensation expense, as reported
$
882.4
$
776.8
Acquisition integration
(1.6)
(1.0)
Workforce and lease termination related charges
(4.4)
(2.0)
Acquisition related adjustments
(0.3)
(0.5)
Levelized foreign currency translation
—
(0.4)
Compensation expense, as adjusted
$
876.1
$
772.9
Reported compensation expense ratios
(before reimbursements)
60.8%
60.3%
Adjusted compensation expense ratios
(before reimbursements)
60.4%
60.1%
Reported revenues (before reimbursements)
$
1,450.5
$
1,287.6
Adjusted revenues (before reimbursements) - see page 37
$
1,450.4
$
1,286.2
The $105.6 million increase in compensation expense in 2024 compared to 2023 was primarily due to increases in base
compensation to service and support organic growth and higher benefit costs - $73.2 million in the aggregate, compensation
associated with the acquisitions completed in the twelve month period ended December 31, 2024 - $29.6 million, increases in
workforce related charges - $2.4 million and acquisition integration related costs - $0.6 million, partially offset by reduced
acquisition earnout related adjustments - $0.2 million.
Operating expense - The following provides non-GAAP information that management believes is helpful when comparing 2024
and 2023 operating expense operating expense (in millions):
2024
2023
Operating expense, as reported
$
278.7
$
257.4
Acquisition integration
(1.3)
—
Workforce and lease termination related charges
(2.8)
(1.4)
Levelized foreign currency translation
—
(0.1)
Operating expense, as adjusted
$
274.6
$
255.9
Reported operating expense ratios
(before reimbursements)
19.2%
20.0%
Adjusted operating expense ratios
(before reimbursements)
18.9%
19.9%
Reported revenues (before reimbursements)
$
1,450.5
$
1,287.6
Adjusted revenues - (before reimbursements) see page 37
$
1,450.4
$
1,286.2
The $21.3 million increase in operating expense in 2024 compared to 2023 was primarily due to expenses associated with the
acquisitions completed in the twelve month period ended December 31, 2024 - $10.3 million, additional investments in
technology and business insurance - $8.3 million, increases in workforce related charges - $1.4 million and acquisition
integration costs - $1.3 million.
Depreciation - Depreciation expense increased in 2024 compared to 2023, which reflects the impact of expenditures related to
upgrading computer systems. partially offset by office consolidations that occurred as leases expired in 2024 (less depreciation
associated with furniture, equipment and leasehold improvements). Also contributing to the increase in depreciation expense in
2024 was the depreciation expense associated with the acquisitions completed in 2024 and the latter part of 2023.
52
Amortization - Amortization expense increased in 2024 compared to 2023. The increase in amortization in 2024 compared to
2023 was primarily due to the impact of amortization expense of intangible assets associated with the acquisitions completed in
2024 and the later part of 2023 (My Plan Manager was completed in December 2023). Based on the results of impairment
reviews performed on amortizable intangible assets during 2024 and 2023, there were no impairments of amortizable assets
related to the risk management segment.
Change in estimated acquisition earnout payables - The change in estimated acquisition earnout payables in 2024 and 2023,
primarily relates to accretion of discount in 2024 and 2023 relates to the estimated fair value of the earnout obligations. During
2024 and 2023, we recognized $0.4 million and $0.5 million, respectively, of expense related to the accretion of the discount
recorded for earnout obligations in connection with our 2021 to 2024 acquisitions, respectively. During 2024 and 2023, there
were no net adjustments in the estimated fair value of earnout obligations related to projections of future performance for
acquisitions.
Provision for income taxes - We allocate the provision for income taxes to the risk management segment using local statutory
rates. As of April 1, 2023, a U.K. corporate tax rate of 25% went into effect, making the 2023 full year effective rate 23.5%.
The risk management segment’s effective tax rate in 2024 and 2023 was 26.6% and 26.4%, respectively. We anticipate
reporting an effective tax rate on adjusted results of approximately 25% to 27% in our risk management segment based on
known changes in tax rates in future periods.
53
Corporate
The corporate segment reports the financial information related to our debt, external acquisition-related expenses, other corporate
costs and the impact of foreign currency remeasurement. See Note 7 to our 2024 consolidated financial statements for a
summary of our debt at December 31, 2024 and 2023.
Financial information relating to our corporate segment results for 2024 and 2023 (in millions, except per share and
percentages):
Statement of Earnings
2024
2023
Change
Other income
$
16.3
$
1.7
$
14.6
Total revenues
16.3
1.7
14.6
Compensation
138.5
135.3
3.2
Operating
111.8
160.0
(48.2)
Interest
381.3
296.7
84.6
Depreciation
6.8
4.9
1.9
Total expenses
638.4
596.9
41.5
Loss before income taxes
(622.1)
(595.2)
(26.9)
Benefit for income taxes
(232.3)
(237.8)
5.5
Net loss
(389.8)
(357.4)
(32.4)
Net loss attributable to
noncontrolling interests
—
(9.8)
9.8
Net loss attributable to
controlling interests
$
(389.8)
$
(347.6)
$
(42.2)
Diluted net loss per share
$
(1.74)
$
(1.58)
$
(0.16)
Identifiable assets at December 31
$
16,154.3
$
2,520.4
EBITDAC
Net loss
$
(389.8)
$
(357.4)
$
(32.4)
Benefit for income taxes
(232.3)
(237.8)
5.5
Interest
381.3
296.7
84.6
Depreciation
6.8
4.9
1.9
EBITDAC
$
(234.0)
$
(293.6)
$
59.6
Revenues - Revenues in the corporate segment consist of other income related to the run-off of clean energy and legacy
investments, and in 2024, some interest income related to the proceeds from the AssuredPartners financing.
Compensation expense - Compensation expense for 2024 and 2023 includes salary, incentive compensation, and associated
benefit expenses of $138.5 million and $135.3 million, respectively. The change in 2024 compensation expense compared to
2023 was primarily due to increased incentive compensation, which includes transaction-related costs as described on page 56 in
note (2) and increased costs associated with stock-based compensation, partially offset by savings in base compensation.
Operating expense - Operating expense for 2024 includes banking and related fees of $3.1 million, external professional fees
and other due diligence costs related to 2024 acquisitions of $38.5 million, which includes $22.8 million of transaction-related
costs as described on page 56 in note (2), other corporate and clean energy related expenses, including litigation matters,
technology and other professional fees of $70.1 million in aggregate, and a net unrealized foreign exchange remeasurement loss
of $0.1 million.
Operating expense for 2023 includes banking and related fees of $3.1 million, external professional fees and other due diligence
costs related to 2023 acquisitions of $33.8 million, which includes $17.6 million of transaction-related costs as described on
page 56 in note (2), other corporate and clean energy related expenses, including litigation matters, technology and other
professional fees of $113.3 million in aggregate, and a net unrealized foreign exchange remeasurement loss of $9.8 million.
54
Interest expense - The increase in interest expense in 2024 compared to 2023 was due to the following (in millions):
Change in interest expense related to:
2024 / 2023
Interest on borrowings from our Credit Agreement
$
(8.1)
Interest on the maturity of the Series H notes
(12.4)
Interest on the maturity of the Series E notes
(0.3)
Interest on the maturity of the Series N notes
(4.1)
Interest on the maturity of the Series CC notes
(1.6)
Interest on the maturity of the Series HH notes
(4.1)
Interest on the $950.0 million senior notes funded
on March 2, 2023
9.2
Interest on the $1,000.0 million senior notes funded
on November 2, 2023
56.4
Interest on the $1,000.0 million senior notes funded
on February 15, 2024
49.8
Interest on the $5,000.0 million senior notes funded
on December 19, 2024
9.2
Amortization of hedge gains
(9.4)
Net change in interest expense
$
84.6
Depreciation - Depreciation expense in 2024 increased compared to 2023, due to capital improvements made at our corporate
headquarters and Gallagher Centers of Excellence in 2024 and 2023 and to the acquisition of other corporate related fixed assets
in 2024.
Net losses attributable to noncontrolling interests - The amounts reported in this line for 2024 and 2023 primarily include
noncontrolling interest of zero and ($9.8) million, respectively, related to our investment in Chem-Mod LLC. As of
December 31, 2024 and 2023, we held a 46.5% controlling interest in Chem-Mod LLC, which ceased operations in 2023.
Benefit for income taxes - We allocate the provision for income taxes to the brokerage and risk management segments using
local statutory rates. Our consolidated effective tax rate was 21.6% and 18.5%, for 2024 and 2023, respectively. The tax rate for
2024 was lower than the statutory rate primarily due to the income tax benefit of stock-based awards. The tax rate for 2023 was
lower than the statutory rate primarily due to the income tax benefit of stock-based awards, revaluation of deferred tax assets in
Bermuda to the new 15% corporate tax rate as well as updates to the U.S. tax attributes associated with the U.K. loss deferral
reported on the 2022 tax return. As of April 1, 2023, a U.K. corporate tax rate of 25% went into effect, making the 2023 full
year effective rate in the U.K. 23.5%. There were no IRC Section 45 tax credits generated in 2024 and 2023. In 2023, we
recognized an unfavorable U.K. tax impact related to earnout liability adjustments. The income tax benefit of stock based
awards that vested or were settled in the years ended December 31, 2024 and 2023 was $89.4 million and $76.1 million,
respectively.
Significant Future Income Tax Law Changes - Although no new significant tax legislation was enacted in 2024, several
previous law and administrative changes, particularly the scheduled sunset of numerous provisions of the Tax Cuts and Jobs Act
(TCJA), P.L. 115-97, at the end of this year are being reviewed. In addition, the implications of the November 2024 U.S.
elections on the tax environment are still being evaluated, with possible new or renewed initiatives going forward,
On December 27, 2023, Bermuda introduced a new corporate income tax that applies to Bermuda businesses that are part of
multinational enterprise groups with annual revenues of €750.0 million and greater, taking effect in January 2025. We have
adjusted our Bermuda tax deferred items to account for this rate increase. In 2022, the U.S. enacted the IRA and the Creating
Helpful Incentives to Produce Semiconductors (which we refer to as CHIPS) and Science Act of 2022. We do not anticipate any
significant impacts from either law change. See more discussions of those provisions below.
The OECD’s Pillar 2 framework became effective for tax years beginning January 1, 2024, and calls for implementing a
minimum 15% effective corporate tax rate for multinational companies with global consolidated revenues of €750 million or
more, regardless of the local tax rate. The OECD’s Pillar 2 corporate tax has been implemented in many jurisdictions worldwide
in some form, including in countries where we have significant operations, including the U.K, Canada, Australia and New
Zealand. Different countries have implemented the necessary rules in different ways, through their individual agreement to tax
treaty changes and through changes to their own domestic tax laws.
55
Depending on how the jurisdictions in which we and our subsidiaries are based, choose to implement the OECD’s approach in
their tax treaties and domestic tax laws, we could be adversely affected due to our income being taxed at higher effective rates,
once these new rules come into force. However, there are several transitional safe harbors available to entities subject to Pillar 2
taxes that may reduce any exposure and filing requirements. As of December 31, 2024, the U.S., which generates the majority of
our revenue and profit, has not enacted or proposed draft or final legislation, nor indicated any intention to implement Pillar 2
into tax law, either now or in the future.
U.S. Federal Income Tax Law Changes Items Impacting the Company Going Forward
Alternative Minimum Tax Credit - The IRA enacted a book-based Corporate Alternative Minimum Tax (which we refer to as
CAMT) for years beginning after 2022. The CAMT imposes a minimum 15% cash tax on adjusted book income before general
business credits. As such, we do not currently anticipate being subject to the CAMT and even if we were to find ourselves
subject to it in a particular year, we do not believe there would be an impact on our earnings.
Excise Tax On Stock Buybacks - The IRA adds a 1% surtax to corporate stock repurchases effective January 2023. Our board
approved a common stock repurchase program in 2021. If we were to effectuate stock repurchases under this program, the
excise tax would not have a material impact on our results of operations or cash flows.
New Tax Credits for Renewable Energy - The IRA introduced new tax credits for certain renewable energy projects and
onshoring certain manufacturing activities associated with those projects. While we continue to explore additional renewable
energy investments, we do not currently anticipate significant benefits from these new incentive programs.
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The following provides non-GAAP information that we believe is helpful when comparing 2024 and 2023 operating results for
the corporate segment (in millions):
2024
2023
Net Earnings
Net Earnings
(Loss)
(Loss)
Income
Attributable
to
Income
Attributable
to
Pretax
Tax
Controlling
Pretax
Tax
Controlling
Loss
Benefit
Interests
Loss
Benefit
Interests
Components of Corporate
Segment, as reported
Interest and banking costs
$
(375.5) $
97.7
$
(277.8) $
(299.8) $
78.0
$
(221.8)
Clean energy related (1)
(5.7)
1.3
(4.4)
(15.5)
4.0
(11.5)
Acquisition costs (2)
(52.0)
9.7
(42.3)
(42.1)
6.4
(35.7)
Corporate (3) (4)
(188.9)
123.6
(65.3)
(228.0)
149.4
(78.6)
Reported Year Ended
(622.1)
232.3
(389.8)
(585.4)
237.8
(347.6)
Adjustments
Clean energy related (1)
(2.3)
0.6
(1.7)
4.4
(1.1)
3.3
Transaction-related costs (2)
32.2
(5.9)
26.3
22.6
(4.9)
17.7
Legal and tax related (3)
—
3.5
3.5
48.0
(21.8)
26.2
Components of Corporate
Segment, as adjusted
Interest and banking costs
(375.5)
97.7
(277.8)
(299.8)
78.0
(221.8)
Clean energy related (1)
(8.0)
1.9
(6.1)
(11.1)
2.9
(8.2)
Acquisition costs
(19.8)
3.8
(16.0)
(19.5)
1.5
(18.0)
Corporate (4)
(188.9)
127.1
(61.8)
(180.0)
127.6
(52.4)
Adjusted Year Ended
$
(592.2) $
230.5
$
(361.7) $
(510.4) $
210.0
$
(300.4)
(1)
Pretax losses for the years ended December 31, 2024 and 2023 are presented net of amounts attributable to noncontrolling
interests of zero and $(9.8) million, respectively. Adjustments in 2024 and 2023 include items related to the resolution of
various partnership matters related to our clean energy investments.
(2)
We incurred transaction-related costs, which include legal, consulting, employee compensation and other professional fees
associated with completed, future and terminated acquisitions. Adjustments primarily relate to our acquisition of Willis
Re, which closed in fourth quarter 2021, Buck, which closed in second quarter 2023, the acquisitions of Cadence
Insurance, Eastern Insurance and My Plan Manager, all of which closed in fourth quarter 2023, and the pending acquisition
of AssuredPartners.
(3)
Adjustments in 2024 and 2023 include costs associated with legal and tax matters as well as the impact of tax planning
items associated with 2022 tax returns filed in 2023. Adjustments in 2023 include additional U.K. income tax expense
related to the non-deductibility of acquisition-related adjustments made during the year and costs associated with legal and
tax matters.
(4)
Corporate pretax loss includes a net unrealized foreign exchange remeasurement loss of $(0.1) million in the year ended
December 31, 2024 and a net unrealized foreign exchange remeasurement loss of $(9.8) million in the year ended
December 31, 2023.
Interest and banking costs and debt - Interest and banking costs includes expenses related to our debt.
Clean energy related - For 2024, this consists of operating results related to our investments in new clean energy projects.
Acquisition costs - Consists mostly of external professional fees and other due diligence costs related to acquisitions. On
occasion, we enter into forward currency hedges for the purchase price of committed, but not yet funded, acquisitions with
funding requirements in currencies other than the U.S. dollar. The gains or losses, if any, associated with these hedge
transactions are also included.
Corporate - Consists of overhead allocations mostly related to corporate staff compensation, other corporate level activities, and
net unrealized foreign exchange remeasurement. In addition, corporate includes the tax expense related to partial taxation of
foreign earnings, nondeductible executive compensation and entertainment expenses, the tax benefit from vesting of employee
57
equity awards, as well as other permanent or discrete tax items not reflected in the provision for income taxes in the brokerage
and risk management segments. The income tax benefit of stock based awards that vested or were settled in the years ended
December 31, 2024 and 2023 was $89.4 million and $76.1 million, respectively, and is included in the table above in the
Corporate line.
Liquidity and Capital Resources
Liquidity describes the ability of a company to generate sufficient cash flows to meet the cash requirements of its business
operations. The insurance brokerage and risk management industries are not capital intensive. Historically, our capital
requirements have primarily included dividend payments on our common stock, repurchases of our common stock, funding of
our investments, acquisitions of brokerage and risk management operations and capital expenditures, including investments
being made in IT and software development projects.
On December 7, 2024, we signed a definitive agreement to acquire AssuredPartners for gross consideration of $13.45 billion.
The Transaction is subject to customary regulatory approval, standard closing conditions and is expected to close during first
quarter 2025. AssuredPartners is a leading U.S. insurance broker with client capabilities across commercial property/casualty,
specialty, employee benefits, and personal lines and with operations in the U.K. and Ireland. We expect to fund the Transaction
using $8.5 billion of cash raised in our December 11, 2024 follow-on common stock offering and $5.0 billion of cash borrowed
in our December 19, 2024 senior notes. On January 7, 2025, we received an additional $1.28 billion of cash due to the exercise
by the underwriters of the overallotment provision related to the follow-on common stock offering.
On December 6, 2023, we acquired all of the issued and outstanding shares of My Plan Manager for an initial gross
consideration of $301.6 million. We funded the transaction using free cash flow and funds received from an unsecured senior
notes offering. The acquired My Plan Manager is the leading provider of plan management services to participants in Australia’s
National Disability Insurance Scheme.
On November 30, 2023, we acquired all the issued and outstanding shares of Cadence Insurance for an initial gross consideration
of $886.0 million. We funded the transaction using free cash flow and funds received from an unsecured senior notes offering.
The acquired Cadence Insurance business offers a full suite of commercial property/casualty, employee benefits and personal
lines products to clients from 34 offices spanning nine states across the Southeast, including Texas.
On October 31, 2023, we acquired the net assets of Eastern Insurance for an initial gross consideration of $515.1 million. We
funded the transaction using free cash flow and funds received from an unsecured senior notes offering. The acquired Eastern
Insurance business offers comprehensive commercial property/casualty and personal lines products as well as employee benefits
consulting to clients throughout the Northeastern U.S.
On April 3, 2023, we acquired the partnership interests of Buck for an initial gross consideration of $620.8 million. We funded
the transaction using free cash flow and funds received from an unsecured senior notes offering. The acquired Buck business is a
leading provider of retirement, human resources and employee benefits consulting and administration services.
Operating Cash Flows
Historically, we have depended on our ability to generate positive cash flow from operations to meet a substantial portion of our
cash requirements. We believe that our cash flows from operations and borrowings under our Credit Agreement (as defined
below) will provide us with adequate resources to meet our liquidity needs in the foreseeable future. To fund acquisitions made
during 2024 and 2023, we relied on a combination of net cash flows from operations, proceeds from borrowings under our Credit
Agreement, proceeds from issuances of senior unsecured notes and issuance of our common stock.
Cash provided by operating activities was $2,582.9 million and $2,031.7 million for 2024 and 2023, respectively. The increase
in cash provided by operating activities during 2024 compared to the same period in 2023 was primarily due to growth in our
core broking and risk management operations and timing differences between periods with cash receipts and disbursements
related to accounts receivables and accrued compensation and other current liabilities compared to 2023.
Total cash and cash equivalents, restricted cash and fiduciary cash at December 31, 2024 and December 31, 2023, include
$15,371.6 million and $1,744.9 million, respectively, of income earning money market accounts. The increase in cash invested
in money market accounts between years is primarily due to the proceeds received in December 2024 from the stock issuance
($8.5 billion) and senior notes ($5.0 billion). The dividend income on money market accounts was recorded in interest income,
premium finance and other income in our consolidated statement of earnings, which increased $105.9 million during 2024
($29.0 million of which related to the proceeds from the AssuredPartners financing) to $473.2 million for the year ended
December 31, 2024 compared to $367.3 million for the year ended December 31, 2023.
During 2024 and 2023, employee matching contributions to the 401(k) plan of $86.0 million and $73.8 million, respectively,
relating to 2023 and 2022 were funded using common stock.
Our cash flows from operating activities are primarily derived from our earnings from operations, as adjusted, for our non-cash
expenses, which include depreciation, amortization, change in estimated acquisition earnout payables, deferred compensation,
58
restricted stock, and stock-based and other non-cash compensation expenses. Historically, cash provided by operating activities
was unfavorably impacted if the amount of IRC Section 45 tax credits generated (which is the amount we recognized for
financial reporting purposes) was greater than the amount of tax credits utilized to reduce our tax cash obligations. Excess tax
credits produced in 2021 and 2020 resulted in an increase to our deferred tax assets, which was a net use of cash related to
operating activities. In 2023, IRC Section 45 credits were no longer generated due to the IRC Section 45 program expiring as of
December 31, 2021, and therefore the IRC Section 45 credit utilization against our cash tax obligation resulted in favorable cash
flow in 2023.
When assessing our overall liquidity, we believe that the focus should be on net earnings as reported in our consolidated
statement of earnings, adjusted for non-cash items (i.e., EBITDAC), and cash provided by operating activities in our
consolidated statement of cash flows. Consolidated EBITDAC was $3,124.4 million and $2,555.6 million for 2024 and 2023,
respectively. Net earnings attributable to controlling interests were $1,462.7 million and $969.5 million for 2024 and 2023,
respectively. We believe that EBITDAC items are indicators of trends in liquidity.
Defined Benefit Pension Plan
Our policy for funding our defined benefit pension plan is to contribute amounts at least sufficient to meet the minimum funding
requirements under the IRC. The Employee Retirement Security Act of 1974, as amended (which we refer to as ERISA), could
impose a minimum funding requirement for our plan. We were not required to make any minimum contributions to the plan for
the 2024 and 2023 plan years. Funding requirements are based on the plan being frozen and the aggregate amount of our
historical funding. The plan’s actuaries determine contribution rates based on our funding practices and requirements. Funding
amounts may be influenced by future asset performance, the level of discount rates and other variables impacting the assets
and/or liabilities of the plan. In addition, amounts funded in the future, to the extent not due under regulatory requirements, may
be affected by alternative uses of our cash flows, including dividends, acquisitions and common stock repurchases. During 2024
and 2023 we did not make discretionary contributions to the legacy Company defined benefit plan.
See Note 12 to our 2024 consolidated financial statements for additional information required to be disclosed relating to our
defined benefit pension plan. We are required to recognize a prepaid pension asset for our overfunded defined benefit pension
plan (which we refer to together as the Plan). The offsetting adjustment to the asset required to be recognized for the Plan is
recorded in “Accumulated Other Comprehensive Loss,” net of tax, in our consolidated balance sheet. We will recognize
subsequent changes in the funded status of the Plan through the income statement and as a component of comprehensive
earnings, as appropriate, in the year in which they occur. Numerous items may lead to a change in funded status of the Plan,
including actual results differing from prior estimates and assumptions, as well as changes in assumptions to reflect information
available at the respective measurement dates.
The net change in the funded status of the Plan in 2024 resulted in an increase in noncurrent assets in 2024 of $3.6 million. In
2024, the funded status of the Plan was favorably impacted by an increase in the discount rates used in the measurement of the
pension liabilities at December 31, 2024 and other assumption changes, the net impact of which was approximately $3.7 million.
In addition, the funded status was unfavorably impacted by returns on the plan’s assets being lower in 2024 than anticipated by
approximately $(0.1) million. The net change in the funded status of the Plan in 2023 resulted in an increase in noncurrent assets
in 2023 of $12.3 million. In 2023, the funded status of the Plan was unfavorably impacted by a decrease in the discount rates
used in the measurement of the pension liabilities at December 31, 2023 and other assumption changes, the net impact of which
was approximately $8.6 million. In addition, the funded status was favorably impacted by returns on the plan’s assets being
significantly higher in 2023 than anticipated by approximately $20.9 million.
Through the acquisition of Buck, we acquired the assets and assumed the liabilities associated with three frozen defined benefit
pension plans that provide postretirement benefits to their participants located in the U.S., U.K. and Canada (which we refer to as
the Buck Pension Plans). The Buck Pension Plans were amended to freeze benefit plan accruals for all participants (closed to
new entrants and existing participants do not accrue any additional benefits) effective December 31, 2014. Effective
December 31, 2024, the U.S. Buck Pension Plan was merged into our defined benefit pension plan. In January 2025, we notified
plan participants that we will fully terminate such plan. In first quarter 2025, we will initiate the wind down of the plan and we
expect to complete such wind down by settling all future obligations under the plan through a combination of lump sum
payments to eligible, electing participants and transferring the remaining liability through the purchase of a group annuity
contract to a highly-rated third-party insurance company. We expect that the wind down will be completed in fourth quarter
2025. Based on estimates as of December 31, 2024, we anticipate recognizing a non-cash, pre-tax loss of approximately
$34.2 million in fourth quarter 2025 to compensation expense in the consolidated statement of earnings that may be offset by an
approximately $12.8 million adjustment to consolidated statement of comprehensive earnings, a $16.5 million write-down of a
prepaid pension asset and a $4.6 million reversal of a deferred tax asset.
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Investing Cash Flows
Capital Expenditures - Capital expenditures were $141.9 million and $193.6 million for 2024 and 2023, respectively. In 2024
and 2023 capital expenditures include amounts incurred related to office moves, investments made in IT and software
development projects. Relating to the development of our corporate headquarters, we received property tax related credits under
a tax-increment financing note from Rolling Meadows, Illinois and an Illinois state EDGE tax credit. Incentives from these two
programs could total between $50.0 million and $80.0 million over a fifteen-year period. In 2025, we expect total expenditures
for capital improvements to be approximately $150.0 million, (includes impact of acquisitions closed through December 31,
2024) part of which is related to expenditures on office moves and investments being made in IT and software development
projects. The increase in the expected capital expenditures in 2025 compared to 2024 is primarily due to such projects.
Acquisitions - Cash paid for acquisitions, net of cash and restricted cash acquired, was $1,462.3 million and $3,041.9 million in
2024 and 2023, respectively. The decreased use of cash for acquisitions in 2024 compared to 2023 was primarily due to our
acquisition of Buck, Eastern Insurance, Cadence Insurance and My Plan Manager in 2023. In addition, during 2024 and 2023 we
issued 0.6 million shares ($140.8 million) and 2.5 million shares ($525.8 million), respectively, of our common stock as payment
for a portion of the total consideration paid for acquisitions and earnout payments. We completed 48 and 51 acquisitions in 2024
and 2023, respectively. Annualized revenues of businesses acquired in 2024 and 2023 totaled approximately $386.5 million and
$885.1 million, respectively. In 2025, we expect to use new debt, our Credit Agreement (as defined below), cash from
operations and our common stock, or a combination thereof to fund all of the acquisitions we complete.
In order to maintain leverage ratios and investment grade credit ratings or if liquidity concerns arise, we may be more likely to
use common stock to fund acquisitions.
Dispositions - During 2024 and 2023, we sold several books of business and recognized one-time gains of $24.3 million and
$10.0 million, respectively. We received cash proceeds of $19.7 million and $9.9 million for 2024 and 2023, respectively,
related to these transactions.
Financing Cash Flows
At December 31, 2024, we had $9,550.0 million of Senior Notes, $3,523.0 million of corporate-related borrowings outstanding
under separate note purchase agreements entered into during the period from 2014 to 2021, there were no borrowings
outstanding under our Credit Agreement, $225.2 million outstanding under our Premium Financing Debt Facility and a cash and
cash equivalent balance of $14,987.3 million. See Note 7 to our 2024 consolidated financial statements for a discussion of the
terms of the Senior Notes, Note purchase agreements, the Credit Agreement (as defined below) and the Premium Financing Debt
Facility.
Consistent with past practice, as of December 31, 2024 we had no pre-issuance hedges open for 2024. During the three months
ended December 31, 2024, we settled approximately $4.1 million of interest rate contracts hedges with a notional value of
$200.0 million that will be amortized into interest expense in future periods.
The Senior Notes, Note Purchase Agreements, the Credit Agreement and the Premium Financing Debt Facility contain various
financial covenants that require us to maintain specified financial ratios. We were in compliance with these covenants as of
December 31, 2024.
Senior Notes - On December 19, 2024, we closed and funded an offering of $5,000.0 million of unsecured senior notes in five
tranches. The $750.0 million aggregate principal amount of 4.60% Senior Notes is due in 2027, $750.0 million aggregate
principal amount of 4.85% Senior Notes is due in 2029, $500.0 million aggregate principal amount of 5.00% Senior Notes is due
in 2032, $1,500.0 million aggregate principal amount of 5.15% Senior Notes is due in 2035, $1,500.0 million aggregate principal
amount 5.55% Senior Notes is due in 2055. The weighted average interest rate is 5.25% per annum after giving effect to
underwriting costs and a net hedge gain. During 2024, we entered into a pre-issuance interest rate hedging transaction related to
these notes. We realized a net cash gain of approximately $4.1 million on the hedging transactions that will be recognized on a
pro rata basis as a decrease to our reported interest expense over ten years. We expect to use the net proceeds of this offering to
fund a portion of the cash consideration payable in connection with the AssuredPartners transaction and, to the extent that any
proceeds remain thereafter, or if the AssuredPartners transaction is not completed, for general corporate purposes including other
acquisitions.
On February 12, 2024, we closed and funded an offering of $1,000.0 million of unsecured senior notes in two tranches. The
$500.0 million aggregate principal amount of 5.45% Senior Notes is due in 2034 and $500.0 million aggregate principal amount
of 5.75% Senior Notes is due in 2054. The weighted average interest rate is 5.71% per annum after giving effect to underwriting
60
costs and a net hedge loss. During 2023, we entered into a pre-issuance interest rate hedging transaction related to these notes.
We realized a net cash loss of approximately $1.4 million on the hedging transactions that will be recognized on a pro rata basis
as an increase to our reported interest expense over ten years. We used the proceeds of these offerings to fund acquisitions,
earnout payments related to acquisitions and general corporate purposes.
On November 2, 2023, we closed and funded an offering of $1,000.0 million of unsecured senior notes in two tranches. The
$400.0 million aggregate principal amount of 6.50% Senior Notes are due 2034 and $600.0 million aggregate principal amount
of 6.75% Senior Notes are due 2054. The weighted average interest rate is 5.97% per annum after giving effect to underwriting
costs and a net hedge gain. During 2021 through 2023, we entered into a pre-issuance interest rate hedging transaction related to
these notes. We realized a net cash gain of approximately $128.0 million on the hedging transactions that will be recognized on
a pro rata basis as a decrease to our reported interest expense over ten years. We used the proceeds of these offerings to fund
acquisitions, earnout payments related to acquisitions and general corporate purposes.
On March 2, 2023, we closed and funded an offering of $950.0 million of unsecured senior notes in two tranches. The
$350.0 million aggregate principal amount of 5.50% Senior Notes are due 2033 and $600.0 million aggregate principal amount
of 5.75% Senior Notes are due 2053. The weighted average interest rate is 5.05% per annum after giving effect to underwriting
costs and a net hedge gain. During 2019 through 2022, we entered into a pre-issuance interest rate hedging transaction related to
these notes. We realized a net cash gain of approximately $112.7 million on the hedging transactions that will be recognized on
a pro rata basis as a decrease to our reported interest expense over ten years. We used the proceeds of these offerings to fund
acquisitions, earnout payments related to acquisitions and general corporate purposes.
Note Purchase Agreement - During February 2024, we used operating cash to fund the $100.0 million Series HH note maturity
that had a fixed rate of 4.72% that was due February 13, 2024 and the $325.0 million Series H note maturity that had a fixed rate
of 4.58% that was due February 27, 2024.
During June 2023, we used operating cash to fund the $200.0 million Series N note maturity that had a fixed rate of 4.13% that
was due June 24, 2023 and the prepayment of the $50.0 million Series CC note floating rate of 90 day LIBOR plus 1.40%,
balloon that was originally due June 13, 2024.
During February 2023, we used operating cash to fund the $50.0 million Series E note maturity that had a fixed rate of 5.49%
that was due February 10, 2023.
Credit Agreement - On June 22, 2023, we entered into the new Credit Agreement (which we refer to as the Credit Agreement)
with an administrative agent and a group of other lenders. The Credit Agreement provides for a five-year unsecured revolving
credit facility in the amount of $1,200.0 million (including a $75.0 million letter of credit sub-facility), which is also available in
Pounds Sterling, Canadian Dollars, Australian Dollars, New Zealand Dollars, Euros, Japanese Yen and any other currencies
agreed by the lenders. On November 7, 2023, we entered into the First Amendment to the Credit Agreement, pursuant to which
we increased the commitments under the Credit Agreement to $1,700.0 million. The Credit Agreement permits us to designate
wholly-owned subsidiaries located in certain jurisdictions as additional borrowers, the obligations of which under the Credit
Agreement will be guaranteed by the Company, subject to the terms and conditions set forth in the Credit Agreement. Any
subsidiary that guarantees any notes under the Company’s existing note purchase agreements is required to guarantee the
obligations under the Credit Agreement. There are currently no subsidiary borrowers or guarantors under the Credit Agreement.
Loans borrowed under the Credit Agreement bear interest at a variable annual rate based on a customary benchmark rate for each
available currency including Secured Overnight Financing Rate (which we refer to as SOFR) for loans in U.S. Dollars, or at our
election solely for loans in U.S. Dollars, the base rate, plus in each case an applicable margin. Interest rates on base rate loans
and outstanding drawings on letters of credit under the Credit Agreement will be based on the Base Rate, as defined in the Credit
Agreement, plus a margin of 0.00% to 0.375%, depending on the rating of our long-term senior unsecured debt. Interest rates for
SOFR loans and loans in currencies other than U.S. dollars under the Credit Agreement will be based on, as applicable, a SOFR
Daily Floating Rate, Term SOFR, Alternative Currency Daily Rate or Alternative Currency Term Rate, as defined in the Credit
Agreement, plus a margin of 0.775% to 1.375%, depending on the rating of our long-term senior unsecured debt. The annual
facility fee related to the Credit Agreement is between 0.100% and 0.250% of the revolving credit commitment, depending on
the rating of our long-term senior unsecured debt. Subject to certain conditions stated in the Credit Agreement, we may borrow,
prepay and reborrow amounts under the Credit Agreement at any time during the term of the Credit Agreement. Funds borrowed
under the Credit Agreement may be used for general corporate and working capital purposes of the Company and its
subsidiaries.
The Credit Agreement also contains customary representations and warranties and affirmative and negative covenants, including
financial covenants, as well as customary events of default, with corresponding grace periods, including, without limitation,
61
payment defaults, cross-defaults to other agreements evidencing indebtedness and bankruptcy-related defaults. We were in
compliance with these covenants as of December 31, 2024.
Concurrently, on June 22, 2023, we paid off and terminated all of our obligations under the Second Amended and Restated
Multicurrency Credit Agreement, dated as of June 7, 2019.
There were no borrowings outstanding under the Credit Agreement at December 31, 2024. Due to the outstanding borrowing
and letters of credit, $1,689.1 million remained available for potential borrowings under the Credit Agreement at December 31,
2024.
We use the Credit Agreement to post letters of credit and to borrow funds to supplement our operating cash flows from time to
time. During 2024, we borrowed an aggregate of $1,663.2 million and repaid $1,906.9 million under our Credit Agreement.
During 2023, we borrowed an aggregate of $3,795.0 million and repaid $3,610.0 million under our Credit Agreement and under
the Second Amended and Restated Multicurrency Credit Agreement. Principal uses of the 2024 and 2023 borrowings under the
Credit Agreement were to fund acquisitions, earnout payments related to acquisitions and general corporate purposes.
Premium Financing Debt Facility - On October 30, 2024, we entered into an amendment to our revolving loan facility (which
we refer to as the Premium Financing Debt Facility) that provides funding for the three Australian (AU) and New Zealand (NZ)
premium finance subsidiaries. The Premium Financing Debt Facility is comprised of: (i) Facility B is separated into
AU$410.0 million and NZ$25.0 million tranches (the AU$ tranche has been decreased as of February 1, 2025 to
AU$390.0 million and the NZ$ tranche will be decreased as of May 1, 2025 to NZ$10.0 million), (ii) Facility C, an
AU$60.0 million equivalent multi-currency overdraft tranche and (iii) Facility D, a NZ$15.0 million equivalent multi-currency
overdraft tranche.
The interest rates on Facility B are Interbank rates, which vary by tranche, duration and currency, plus a margin of 1.400% and
1.850% for the AU$ and NZ$ tranches, respectively. The interest rates on Facilities C and D are 30 day Interbank rates, plus a
margin of 0.830% and 0.990% for the AU$ and NZ$ tranches, respectively. The annual fee for Facility B is 0.56% and 0.8325%
for the undrawn commitments for the AU$ and NZ$ tranches, respectively. The annual fee for Facility C is 0.77% and for
Facility D is 0.90% of the total commitments of the facilities.
The terms of our Premium Financing Debt Facility include various financial covenants, including covenants that require us to
maintain specified financial ratios. We were in compliance with these covenants as of December 31, 2024. The Premium
Financing Debt Facility also includes customary provisions for transactions of this type, including events of default, with
corresponding grace periods and cross-defaults to other agreements evidencing our indebtedness. Facilities B, C and D are
secured by the premium finance receivables of the Australian and New Zealand premium finance subsidiaries.
At December 31, 2024, AU$350.0 million and NZ$0.0 million of borrowings were outstanding under Facility B, AU$0.0 million
of borrowings outstanding under Facility C and NZ$12.5 million of borrowings were outstanding under Facility D, which in
aggregate amount to US$225.2 million of borrowings outstanding under the Premium Financing Debt Facility. Accordingly, as
of December 31, 2024, AU$60.0 million and NZ$25.0 million remained available for potential borrowing under Facility B, and
AU$60.0 million and NZ$2.5 million under Facilities C and D, respectively.
Dividends - Our board of directors determines our dividend policy. Our board of directors determines dividends on our common
stock on a quarterly basis after considering our available cash from earnings, our anticipated cash needs and current conditions in
the economy and financial markets.
In 2024, we declared $529.9 million in cash dividends on our common stock, or $2.40 per common share. On December 20,
2024, we paid a fourth quarter dividend of $0.60 per common share to shareholders of record as of December 1, 2024. On
January 29, 2025, we announced a quarterly dividend for first quarter 2025 of $0.65 per common share. If the dividend is
maintained at $0.65 per common share throughout 2025, this dividend level would result in an annualized net cash used by
financing activities in 2025 of approximately $571.0 million (based on the outstanding shares as of December 31, 2024), or an
anticipated increase in cash used of approximately $45.6 million compared to 2024. We can make no assurances regarding the
amount of any future dividend payments.
Shelf Registration Statement - On February 12, 2024, we filed a shelf registration statement on Form S-3 with the SEC,
registering the offer and sale from time to time, of an indeterminate amount of debt securities, guarantees, common stock,
preferred stock, warrants, depositary shares, purchase contracts, or units. The availability of the potential liquidity under this
shelf registration statement depends on investor demand, market conditions and other factors. We make no assurances regarding
when, or if, we will issue any securities under this registration statement. On November 15, 2022, we filed a second shelf
registration statement on Form S-4 with the SEC, registering 7.0 million shares of our common stock that we may offer and issue
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from time to time in connection with future acquisitions of other businesses, assets or securities. At December 31, 2024,
5.6 million shares remained available for issuance under this registration statement.
Common Stock Repurchases - We have in place a common stock repurchase plan approved by our board of directors in July
2021 that authorizes the repurchase of up to $1.5 billion of common stock. During the years ended December 31, 2024 and
2023, we did not repurchase shares of our common stock. The plan authorizes the repurchase of our common stock at such times
and prices, as we may deem advantageous, in transactions on the open market or in privately negotiated transactions. We are
under no commitment or obligation to repurchase any particular number of shares, and the plan may be suspended at any time at
our discretion. Management may consider repurchasing common stock during 2025 to the extent that our available cash exceeds
acquisition opportunities. Funding for share repurchases may come from a variety of sources, including cash from operations,
short-term or long-term borrowings under our Credit Agreement or other sources.
Public Offering of Common Stock - On December 9, 2024, we entered into an Underwriting Agreement with Morgan Stanley
& Co. LLC and BofA Securities, Inc., as representatives of the several underwriters listed thereto, pursuant to which we agreed
to sell 30.4 million shares of our common stock for a public per share offering price of $280.00, for an aggregate price purchase
price of $8.5 billion. The offering closed on December 11, 2024 and 30.4 million shares of our common stock were issued for
net proceeds, after underwriting discounts, of $8,347.0 million. We also granted the underwriters a 30-day option to purchase up
to an additional 4.6 million shares of our common stock at the same price, which was exercised in full by the underwriters on
January 6, 2025. The option closed on January 7, 2025 and 4.6 million shares of our common stock were issued for net
proceeds, after underwriting discounts, of $1.252.0 million of cash. We expect to use the proceeds of this offering to fund a
portion of the cash consideration payable in connection with the AssuredPartners transaction and, to the extent that any proceeds
remain thereafter, or if the AssuredPartners transaction is not completed, for general corporate purposes including other
acquisitions.
At-the-Market Equity Program - On March 14, 2024, we entered into an Equity Distribution Agreement with Morgan Stanley
& Co. LLC, pursuant to which we may offer and sell, from time to time, up to 3,000,000 shares of our common stock through
Morgan Stanley as sales agent. We intend to use the net proceeds of sales under this program to fund future acquisitions from
time to time or for general corporate purposes. Pursuant to the agreement, shares may be sold by means of ordinary brokers’
transactions, including on the New York Stock Exchange, at market prices prevailing at the time of sale, at prices related to the
prevailing market prices, or at negotiated prices, in block transactions, or as otherwise agreed upon by us and Morgan Stanley.
During the quarter ended December 31, 2024, we did not sell shares of our common stock under the program.
Common Stock Issuances - Another source of liquidity to us is the issuance of our common stock pursuant to our stock option
and employee stock purchase plans. Proceeds from the issuance of common stock under these plans were $162.5 million and
$120.2 million in 2024 and 2023, respectively. On May 10, 2022, our stockholders approved the 2022 Long-Term Incentive
Plan (which we refer to as the LTIP), which replaced our previous stockholder-approved 2017 Long-Term Incentive Plan. All of
our officers, employees and non-employee directors are eligible to receive awards under the LTIP. Awards which may be
granted under the LTIP include non-qualified and incentive stock options, stock appreciation rights, restricted stock units and
performance units, any or all of which may be made contingent upon the achievement of performance criteria. Stock options
with respect to 11.1 million shares (less any shares of restricted stock issued under the LTIP - 2.5 million shares of our common
stock were available for this purpose as of December 31, 2024) were available for grant under the LTIP at December 31, 2024.
Our employee stock purchase plan allows our employees to purchase our common stock at 95% of its fair market value.
Proceeds from the issuance of our common stock related to these plans have contributed favorably to net cash provided by
financing activities in the years ended December 31, 2024 and 2023, and we believe this favorable trend will continue in the
foreseeable future.
We have a qualified contributory savings and thrift 401(k) plan covering the majority of our domestic employees. For eligible
employees who have met the plan’s age and service requirements to receive matching contributions, we historically have
matched 100% of pre-tax and Roth elective deferrals up to a maximum of 5.0% of eligible compensation, subject to federal
limits on plan contributions and not in excess of the maximum amount deductible for federal income tax purposes. Beginning
with the match paid in 2021, the amount matched by the Company will be discretionary and annually determined by
management. Employees must be employed and eligible for the plan on the last day of the plan year to receive a matching
contribution, subject to certain exceptions enumerated in the plan document. Matching contributions are subject to a five-year
graduated vesting schedule and can be funded in cash or common stock of the Company. We expensed (net of plan forfeitures)
$105.4 million and $86.0 million related to the plan in 2024 and 2023, respectively. During 2023, management determined the
5.0% employer matching contributions on eligible compensation to the 401(k) plan for the 2023 plan year to be funded with our
common stock, which was funded in February 2024. During 2024, management determined the 5.0% employer matching
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contributions on eligible compensation to the 401(k) plan for the 2024 plan year to be funded with our common stock, which is
expected to be funded in February 2025.
Other Liquidity Matters
Letters of Credit and Other Guarantees
We have entered into a number of arrangements whereby our performance on certain obligations is guaranteed by a third party
through the issuance of a letter of credit. We had total letters of credit outstanding of $23.0 million as of December 31, 2024 and
$21.2 million at December 31, 2023. These letters of credit secure our self-insurance deductibles on our own insurance
programs, allow certain of our captive operations to meet minimum statutory surplus requirements, lease security deposits and
collateral related to premium and claim funds held in a fiduciary capacity. See Note 15 to our 2024 consolidated financial
statements for additional discussion of these obligations and commitments.
Earnout Obligations
Substantially all of the purchase agreements related to the acquisitions we do contain provisions for potential earnout obligations.
For all of our acquisitions made in the period from 2021 to 2024 that contain potential earnout obligations, such obligations are
measured at fair value as of the acquisition date and are included on that basis in the recorded purchase price consideration for
the respective acquisition. The amounts recorded as earnout payables are primarily based upon estimated future potential
operating results of the acquired entities over a two- to three-year period subsequent to the acquisition date. The aggregate
amount of the maximum earnout obligations related to these acquisitions was $1,998.2 million, of which $1,302.0 million was
recorded in our consolidated balance sheet as of December 31, 2024 based on the estimated fair value of the expected future
payments to be made, of which approximately $511.9 million can be settled in cash or common stock of the Company at our
option and $790.1 million must be settled in cash.
Apart from commitments, guarantees, and contingencies, as disclosed herein and in Note 15 to our 2024 consolidated financial
statements, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material
effect on our financial condition, results of operations or liquidity. Our cash flows from operations, borrowing availability and
overall liquidity are subject to risks and uncertainties. See “Information Concerning Forward-Looking Statements” at the
beginning of this report.
Contractual Obligations
Our contractual obligations and commitments as of December 31, 2024 are comprised of principal payments on debt, interest
payments on debt, operating leases, pension benefit plan and purchase obligations.
Operating leases are primarily comprised of leased office space throughout the world. As leases expire, we do not anticipate
difficulty in negotiating renewals or finding other satisfactory space if the premise becomes unavailable. In certain
circumstances, we may have unused space and may seek to sublet such space to third parties, depending upon the demands for
office space in the locations involved. See Note 13 to our 2024 consolidated financial statements for additional discussion of
these operating lease obligations.
Defined benefit pension plan obligations include estimates of our minimum funding requirements pursuant to the Employee
Retirement Income Security Act and other regulations. We may make additional discretionary contributions. See Note 12 to our
2024 consolidated financial statements for additional information required to be disclosed relating to our defined benefit pension
plan.
Purchase obligations are defined as agreements to purchase goods and services that are enforceable and legally binding on us,
and that specifies all significant terms, including the goods to be purchased or services to be rendered, the price at which the
goods or services are to be rendered, and the timing of the transactions. Most of our purchase obligations are related to
purchases of information technology services, marketing arrangements or other service contracts. We had no other cash
requirements from known contractual obligations and commitments that have, or are reasonably likely to have, a current or
future material effect on the Company’s financial condition, results of operations, or liquidity. See Note 15 to our 2024
consolidated financial statements for additional discussion of these contractual obligations.
Outlook - We believe that we have sufficient capital and access to additional capital to meet our short- and long-term cash flow
needs.
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Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with U.S. GAAP, which require management to make
estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes.
These accounting principles require us to make estimates and assumptions that affect the reported amounts of assets and
liabilities and revenues and expenses, and the disclosure of contingent assets and liabilities at the date of our consolidated
financial statements. We periodically evaluate our estimates and assumptions, including those relating to the valuation of
goodwill and other intangible assets, right-of-use assets, investments, income taxes, revenue recognition, deferred costs, stock-
based compensation, claims handling obligations, retirement plans, litigation and contingencies. We base our estimates on
historical experience and various assumptions that we believe to be reasonable based on specific circumstances. Such estimates
and assumptions could change in the future as more information becomes known, which could impact the amounts reported and
disclosed herein. We believe the following significant accounting estimates may involve a higher degree of judgment and
complexity. See Note 1 to our 2024 consolidated financial statements for other significant accounting policies. See Note 2 to
our 2024 consolidated financial statements for a discussion of recently issued accounting pronouncements and their impact or
potential future impact on our financial results, if determinable.
Revenue Recognition
Description
The primary source of revenues for our brokerage services is commissions from underwriting enterprises, based on a percentage
of premiums paid by our clients, or fees received from clients based on an agreed level of service usually in lieu of commissions.
These commissions and fees revenues are substantially recognized at a point in time on the effective date of the associated
policies when control of the policy transfers to the client, as well as deferring certain revenues to reflect delivery of services over
the contract period. Whether we are paid a commission or a fee, the vast majority of our services are associated with the
placement of an insurance (or insurance-like) contract. Accordingly, we recognize approximately 85% of our commission and
fee revenues on the effective date of the underlying insurance contract. The amount of revenue we recognize is based on our
costs to provide our services up and through that effective date, including an appropriate estimate of our profit margin on a
portfolio basis. Based on the proportion of additional services we provide in each period after the effective date of the insurance
contract, including an appropriate estimate of our profit margin, we recognize approximately 10% of our commission and fee
revenues in the first three months, and the remaining 5% thereafter.
For supplemental revenues certain underwriting enterprises may pay us additional revenues for the volume of premium placed
with them and for insights into our sales pipeline, our sales capabilities or our risk selection knowledge. These amounts are in
excess of the commission and fee revenues discussed above, and not all business we place with underwriting enterprises is
eligible for supplemental revenues. Unlike contingent revenues, discussed below, these revenues are primarily a fixed amount or
fixed percentage of premium of the underlying eligible insurance contracts. For supplemental revenue contracts based on a fixed
percentage of premium, our obligation to the underwriting enterprise is substantially completed upon the effective date of the
underlying insurance contract and revenue is fully earned at that time. For supplemental revenue contracts based on a fixed
amount, revenue is recognized ratably over the contract period consistent with the performance of our obligations, almost always
over an annual term.
For contingent revenues certain underwriting enterprises may pay us additional revenues for our sales capabilities, our risk
selection knowledge, or our administrative efficiencies. These amounts are in excess of the commission or fee revenues
discussed above, and not all business we place with participating underwriting enterprises is eligible for contingent revenues.
Unlike supplemental revenues, also discussed above, these revenues are variable, generally based on growth, the loss experience
of the underlying insurance contracts, and/or our efficiency in processing the business. We generally operate under calendar year
contracts, but we do not receive these revenues from the underwriting enterprises until the following calendar year, generally in
the first and second quarters, after verification of the performance indicators outlined in the contracts. Accordingly, during each
reporting period, we must make our best estimate of amounts we have earned using historical averages and other factors to
project such revenues.
See Revenue Recognition and Contracts with Customers in Notes 1 and 4 to our 2024 consolidated financial statements.
Judgments and Uncertainties
For commissions and fees, these periods may be different than the underlying premium payment patterns of the insurance
contracts, but the vast majority of our services are fully provided within one year of the insurance contract effective date. For
supplemental and contingent commissions, we base our estimates each period on a contract-by-contract basis where available. In
certain cases, it is impractical to assess a very large number of smaller contingent revenue contracts, so we use a historical
portfolio estimate in aggregate. Because our expectation of the ultimate contingent revenue amounts to be earned can vary from
period to period, especially in contracts sensitive to loss ratios, our estimates might change significantly from quarter to quarter.
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For example, in circumstances where our revenues are dependent on a full calendar year loss ratio, adverse loss experience in the
fourth quarter could not only negate revenue earnings in the fourth quarter, but also trigger the need to reverse revenues
previously recognized during the prior quarters. Variable consideration is recognized when we conclude, based on all the facts
and information available at the reporting date, that it is probable that a significant revenue reversal will not occur in future
periods.
Effect if Actual Results Differ From Assumptions
We do not believe there is a reasonable likelihood there will be a material change in the estimates or assumptions used to
recognize revenue. As noted above, estimates are made based on historical experience and other factors. The vast majority of
our brokerage contracts and service understandings are for a period of one year or less, and historically, the difference between
actual experience compared to estimated performance has not been significant to the quarterly or annual financial statements.
We have not made any material changes in the accounting methodology used to recognize revenue during the past three fiscal
years.
Income Taxes
Description
We estimate total income tax expense based on statutory tax rates and tax planning opportunities available to us in various
jurisdictions in which we earn income. Income tax includes an estimate for withholding taxes on earnings of foreign subsidiaries
expected to be remitted to the U.S. but does not include an estimate for taxes on earnings considered to be indefinitely invested
in the foreign subsidiary. Deferred income taxes are recognized for the future tax effects of temporary differences between
financial and income tax reporting using tax rates in effect for the years in which the differences are expected to reverse.
Valuation allowances are recorded when it is likely a tax benefit will not be realized for a deferred tax asset. We record
unrecognized tax benefit liabilities for known or anticipated tax issues based on our analysis of whether, and the extent to which,
additional taxes will be due. See Income Taxes in Notes 1 and 16 to our 2024 consolidated financial statements.
Judgments and Uncertainties
Changes in projected future earnings could affect the recorded valuation allowances in the future. Our calculations related to
income taxes contain uncertainties due to judgment used to calculate tax liabilities in the application of complex tax regulations
across the tax jurisdictions where we operate. Our analysis of unrecognized tax benefits contains uncertainties based on
judgment used to apply the more likely than not recognition and measurement thresholds.
Effect if Actual Results Differ From Assumptions
Changes in tax laws and rates could affect recorded deferred tax assets and liabilities in the future. Other than those potential
impacts, we do not believe there is a reasonable likelihood there will be a material change in the tax related balances or valuation
allowances. However, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that
is materially different from the current estimate of the tax liabilities. To the extent we prevail in matters for which unrecognized
tax benefit liabilities have been established, or are required to pay amounts in excess of our recorded unrecognized tax benefit
liabilities, our effective tax rate in a given financial statement period could be materially affected. An unfavorable tax settlement
would require use of our cash and generally result in an increase in our effective tax rate in the period of resolution. A favorable
tax settlement would generally be recognized as a reduction in our effective tax rate in the period of resolution.
Impairment of Goodwill
Description
Goodwill is evaluated for impairment by first performing a qualitative assessment to determine whether a quantitative goodwill
test is necessary. If it is determined, based on qualitative factors, the fair value of the reporting unit may be more likely than not
less than its carrying amount or if significant changes to macro-economic factors related to the reporting unit have occurred that
could materially impact fair value, a quantitative goodwill impairment test would be required. The quantitative test compares the
fair value of a reporting unit with its carrying amount. Additionally, we can elect to forgo the qualitative assessment and
perform the quantitative test. Upon performing the quantitative test, if the carrying value of the reporting unit exceeds its fair
value, an impairment loss is recognized in an amount equal to that excess, not to exceed the carrying amount of goodwill. We
have elected to make the first day of the fourth quarter the annual impairment assessment date for goodwill. However, we could
be required to evaluate the recoverability of goodwill outside of the required annual assessment if, among other things, we
experience disruptions to the business, unexpected significant declines in operating results, divestiture of a significant component
of the business or a sustained decline in market capitalization.
Judgments and Uncertainties
We estimate the fair value of our reporting units considering the use of various valuation techniques, with the primary technique
being an income approach (discounted cash flow method) and another technique being a market approach (guideline public
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company method), which use significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy. We
include assumptions about revenue growth, operating margins, discount rates and valuation multiples which consider our
budgets, business plans, economic projections and marketplace data, and are believed to reflect market participant views which
would exist in an exit transaction. Assumptions are also made for varying perpetual growth rates for periods beyond the long-
term business plan period. Generally, we utilize operating margin assumptions based on future expectations, operating margins
historically realized in the reporting units’ industries and industry marketplace valuation multiples. See Intangible Assets in
Notes 1 and 6 to our 2024 consolidated financial statements.
Our impairment analysis contains uncertainties due to uncontrollable events that could positively or negatively impact the
anticipated future economic and operating conditions.
Effect if Actual Results Differ From Assumptions
We have not made material changes in the accounting methodology used to evaluate impairment of goodwill during the last three
years. During fiscal 2024, 2023 and 2022, all of our material reporting units passed the impairment analysis.
Some of the inherent estimates and assumptions used in determining fair value of the reporting units and indefinite life intangible
assets are outside the control of management, including interest rates, cost of capital, tax rates, market EBITDAC comparables
and credit ratings. While we believe we have made reasonable estimates and assumptions to calculate the fair value of the
reporting units and indefinite life intangibles, it is possible a material change could occur. If our actual results are not consistent
with our estimates and assumptions used to calculate fair value, it could result in material impairments of our goodwill.
Impairment of Amortizable Intangible Assets
Description
Amortizable intangible assets are evaluated for impairment whenever events or changes in circumstances indicate the carrying
value may not be recoverable. Examples include a significant adverse change in the extent or manner in which we use the asset,
a change in its physical condition, or an unexpected change in financial performance.
When evaluating amortizable intangible assets for impairment, we compare the carrying value of the asset to the asset’s
estimated undiscounted future cash flows. An impairment is indicated if the estimated future cash flows are less than the
carrying value of the asset. The impairment is the excess of the carrying value over the fair value of the asset.
We recorded impairment charges related to amortizable intangible assets of $19.4 million, $3.5 million and $2.0 million in 2024,
2023 and 2022, respectively. See Intangible Assets in Notes 1 and 6 to our 2024 consolidated financial statements.
Judgments and Uncertainties
Our impairment analysis contains uncertainties due to judgment in assumptions, including useful lives and intended use of assets,
observable market valuations, forecasted revenue growth, operating margins and discount rates based on budgets, business plans,
economic projections, anticipated future cash flows and marketplace data that reflects the risk inherent in future cash flows to
determine fair value.
Effect if Actual Results Differ From Assumptions
We have not made any material changes in the accounting methodology used to evaluate the impairment of amortizable
intangible assets during the last three fiscal years. We do not believe there is a reasonable likelihood there will be a material
change in the estimates or assumptions used to calculate impairments or useful lives of amortizable intangible assets. However,
if actual results are not consistent with our estimates and assumptions used to calculate estimated future cash flows, we may be
exposed to impairment losses that could be material.
Earnout Obligations
Description
Substantially all of the purchase agreements related to the acquisitions we do contain provisions for potential earnout obligations.
The amounts recorded as earnout payables, which are primarily based upon the terms of the purchase agreements and the
estimated future operating results of the acquired entities over a two- to three-year period subsequent to the acquisition date, are
measured at fair value as of the acquisition date and are included on that basis in the recorded purchase price consideration. We
will record subsequent changes in these estimated earnout obligations, including the accretion of discount, in our consolidated
statement of earnings when incurred.
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Judgments and Uncertainties
The fair value of these earnout obligations is based on the present value of the expected future payments to be made to the sellers
of the acquired entities in accordance with the provisions outlined in the respective purchase agreements, which is a Level 3 fair
value measurement. In determining fair value, we estimate the acquired entity’s future performance using financial projections
developed by management for the acquired entity and market participant assumptions that were derived for revenue growth
and/or profitability. Revenue growth rates generally ranged from 3.0% to 19.0% for our 2024 acquisitions. We estimated future
payments using the earnout formula and performance targets specified in each purchase agreement and the financial projections
just described. We then discounted these payments to present value using a risk-adjusted rate that takes into consideration
market based rates of return that reflect the ability of the acquired entity to achieve the targets. The discount rates generally
ranged from 7.1% to 9.0% for our 2024 acquisitions.
Effect if Actual Results Differ From Assumptions
While management believes those expectations and assumptions are reasonable, they are inherently uncertain. Changes in
financial projections, market participant assumptions for revenue growth and/or profitability, or the risk-adjusted discount rate,
would result in a change in the fair value of recorded earnout obligations. See Note 3 to our 2024 consolidated financial
statements for additional discussion on our 2024 business combinations.
Business Combinations
Description
We account for acquired businesses using the acquisition method of accounting, which requires that once control of a business is
obtained, 100% of the assets acquired and liabilities assumed, including amounts attributed to noncontrolling interests, be
recorded at the date of acquisition at their respective fair values. Any excess of the purchase price over the estimated fair values
of the net assets acquired is recorded as goodwill.
We use various models to determine the value of assets acquired and liabilities assumed such as discounted cash flow to value
amortizable intangible assets.
For significant acquisitions we may use independent third-party valuation specialists to assist us in determining the fair value of
assets acquired and liabilities assumed. See Note 3 to our 2024 consolidated financial statements for additional discussion on our
2024 business combinations.
Judgments and Uncertainties
Significant judgment is often required in estimating the fair value of assets acquired and liabilities assumed, particularly
intangible assets. We make estimates and assumptions about projected future cash flows including sales growth, operating
margins, attrition rates, and discount rates based on historical results, business plans, expected synergies, perceived risk and
marketplace data considering the perspective of marketplace participants.
Determining the useful life of an intangible asset also requires judgment as different types of intangible assets will have different
useful lives.
Effect if Actual Results Differ From Assumptions
While management believes those expectations and assumptions are reasonable, they are inherently uncertain. Unanticipated
market or macroeconomic events and circumstances may occur, which could affect the accuracy or validity of the estimates and
assumptions, which could result in subsequent impairments.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
We are exposed to various market risks in our day to day operations. Market risk is the potential loss arising from adverse
changes in market rates and prices, such as interest and foreign currency exchange rates and equity prices. The following
analyses present the hypothetical loss in fair value of the financial instruments held by us at December 31, 2024 that are sensitive
to changes in interest rates. The range of changes in interest rates used in the analyses reflects our view of changes that are
reasonably possible over a one-year period. This discussion of market risks related to our consolidated balance sheet includes
estimates of future economic environments caused by changes in market risks. The effect of actual changes in these market risk
factors may differ materially from our estimates. In the ordinary course of business, we also face risks that are either
nonfinancial or unquantifiable, including credit risk and legal risk. These risks are not included in the following analyses.
Our invested assets are primarily held as cash and cash equivalents, which are subject to various market risk exposures such as
interest rate risk. The fair value of our portfolio of cash and cash equivalents as of December 31, 2024 approximated its carrying
value due to its short-term duration. We estimated market risk as the potential decrease in fair value resulting from a
hypothetical one-percentage point increase in interest rates for the instruments contained in the cash and cash equivalents
investment portfolio. The resulting fair values were not materially different from their carrying values at December 31, 2024.
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As of December 31, 2024, we had $13,073.0 million of borrowings outstanding under our various senior notes and note purchase
agreements. The aggregate estimated fair value of these borrowings at December 31, 2024 was $12,072.7 million due to the
long-term duration and fixed interest rates associated with these debt obligations. No active or observable market exists for our
private placement long-term debt. Therefore, the estimated fair value of this debt is based on the income valuation approach,
which is a valuation technique that converts future amounts (for example, cash flows or income and expenses) to a single current
(that is, discounted) amount. The fair value measurement is determined on the basis of the value indicated by current market
expectations about those future amounts. Because our debt issuances generate a measurable income stream for each lender, the
income approach was deemed to be an appropriate methodology for valuing the private placement long-term debt. The
methodology used calculated the original deal spread at the time of each debt issuance, which was equal to the difference
between the yield of each issuance (the coupon rate) and the equivalent benchmark treasury yield at that time. The market
spread as of the valuation date was calculated, which is equal to the difference between an index for investment grade insurers
and the equivalent benchmark treasury yield today. An implied premium or discount to the par value of each debt issuance based
on the difference between the origination deal spread and market as of the valuation date was then calculated. The index we
relied on to represent investment graded insurers was the Bloomberg Valuation Services (BVAL) U.S. Insurers BBB index. This
index is comprised primarily of insurance brokerage firms and was representative of the industry in which we operate. For the
purpose of our analysis, the average BBB rate was assumed to be the appropriate borrowing rate for us.
We estimated market risk as the potential impact on the value of the debt recorded in our consolidated balance sheet based on a
hypothetical one-percentage point change in our weighted average borrowing rate as of December 31, 2024. A one-percentage
point decrease would result in an estimated fair value of $13,118.6 million, or $45.6 million more than their current carrying
value. A one-percentage point increase would result in an estimated fair value of $11,169.7 million, or $1,903.3 million less than
their current carrying value.
As of December 31, 2024, there were no borrowings outstanding under our Credit Agreement and $225.2 million of borrowings
outstanding under our Premium Financing Debt Facility. The fair value of these borrowings approximate their carrying value
due to their short-term duration and variable interest rates associated with these debt obligations. Market risk is estimated as the
potential increase in fair value resulting from a hypothetical one-percentage point decrease in our weighted average short-term
borrowing rate at December 31, 2024 and the resulting fair values are not materially different from their carrying value.
We are subject to foreign currency exchange rate risk primarily from one of our larger U.K. based brokerage subsidiaries that
incurs expenses denominated primarily in British pounds while receiving a substantial portion of its revenues in U.S. dollars. In
addition, we are subject to foreign currency exchange rate risk from our Australian, Canadian, Indian, Jamaican, New Zealand,
Norwegian, Singaporean and various Caribbean and Latin American operations because we transact business in their local
denominated currencies. Foreign currency gains (losses) related to this market risk are recorded in earnings before income taxes
as transactions occur. Assuming a hypothetical adverse change of 10% in the average foreign currency exchange rate for 2024
(a weakening of the U.S. dollar), earnings before income taxes would have increased by approximately $64.8 million. Assuming
a hypothetical favorable change of 10% in the average foreign currency exchange rate for 2024 (a strengthening of the U.S.
dollar), earnings before income taxes would have decreased by approximately $55.5 million. We are also subject to foreign
currency exchange rate risk associated with the translation of local currencies of our foreign subsidiaries into U.S. dollars. We
manage the balance sheets of our foreign subsidiaries, where practical, such that foreign liabilities are matched with equal
foreign assets, maintaining a “balanced book” which minimizes the effects of currency fluctuations. However, our consolidated
financial position is exposed to foreign currency exchange risk related to intra-entity loans between our U.S. based subsidiaries
and our non-U.S. based subsidiaries that are denominated in the respective local foreign currency. A transaction that is in a
foreign currency is first remeasured at the entity’s functional (local) currency, where applicable, (which is an adjustment to
consolidated earnings) and then translated to the reporting (U.S. dollar) currency (which is an adjustment to consolidated
stockholders’ equity) for consolidated reporting purposes. If the transaction is already denominated in the foreign entity’s
functional currency, only the translation to U.S. dollar reporting is necessary. The remeasurement process required by U.S.
GAAP for such foreign currency loan transactions will give rise to a consolidated unrealized foreign exchange gain or loss,
which could be material, that is recorded in accumulated other comprehensive loss.
Historically, we have not entered into derivatives or other similar financial instruments for trading or speculative purposes.
However, with respect to managing foreign currency exchange rate risk in India, Norway and the U.K., we have periodically
purchased financial instruments to minimize our exposure to this risk. During 2024, 2023 and 2022, we had several monthly
put/call options in place with an external financial institution that were designed to hedge a significant portion of our future
Norway and the U.K. currency revenues through various future payment dates. In addition, during 2024, 2023 and 2022, we had
several monthly put/call options in place with an external financial institution that were designed to hedge a significant portion of
our Indian currency disbursements through various future payment dates. Although these hedging strategies were designed to
protect us against significant India, Norway and the U.K. currency exchange rate movements, we are still exposed to some
foreign currency exchange rate risk for the portion of the payments and currency exchange rate that are unhedged. All of these
hedges are accounted for in accordance with ASC Topic 815, “Derivatives and Hedging”, and periodically are tested for
effectiveness in accordance with such guidance. In the scenario where such hedge does not pass the effectiveness test, the hedge
69
will be re-measured at the stated point and the appropriate loss, if applicable, would be recognized. For the year ended
December 31, 2024 there has been no such effect on our consolidated financial presentation. The impact of these hedging
strategies was not material to our consolidated financial statements for 2024, 2023 and 2022. See Note 18 to our 2024
consolidated financial statements for the changes in fair value of these derivative instruments reflected in comprehensive
earnings in 2024, 2023 and 2022.
70
Item 8. Financial Statements and Supplementary Data.
Arthur J. Gallagher & Co.
Consolidated Statement of Earnings
(In millions, except per share data)
Year Ended December 31,
2024
2023
2022
Commissions
$
6,693.8
$
5,865.0
$
5,187.4
Fees
3,606.6
3,144.7
2,567.7
Supplemental revenues
359.4
314.2
284.7
Contingent revenues
267.6
235.3
207.3
Interest income, premium finance revenues and other income
473.2
367.3
150.0
Revenues from clean coal activities
—
—
23.0
Revenues before reimbursements
11,400.6
9,926.5
8,420.1
Reimbursements
154.3
145.4
130.5
Total revenues
11,554.9
10,071.9
8,550.6
Compensation
6,522.3
5,681.2
4,799.8
Operating
1,753.9
1,689.7
1,330.9
Reimbursements
154.3
145.4
130.5
Cost of revenues from clean coal activities
—
—
22.9
Interest
381.3
296.7
256.9
Depreciation
177.5
165.2
144.7
Amortization
664.8
531.3
454.9
Change in estimated acquisition earnout payables
26.0
377.3
83.0
Total expenses
9,680.1
8,886.8
7,223.6
Earnings before income taxes
1,874.8
1,185.1
1,327.0
Provision for income taxes
404.4
219.1
211.0
Net earnings
1,470.4
966.0
1,116.0
Net earnings (loss) attributable to noncontrolling interests
7.7
(3.5)
1.8
Net earnings attributable to controlling interests
$
1,462.7
$
969.5
$
1,114.2
Basic net earnings per share
$
6.63
$
4.51
$
5.30
Diluted net earnings per share
6.50
4.42
5.19
Dividends declared per common share
2.40
2.20
2.04
See notes to consolidated financial statements.
71
Arthur J. Gallagher & Co.
Consolidated Statement of Comprehensive Earnings
(In millions)
Year Ended December 31,
2024
2023
2022
Net earnings
$
1,470.4
$
966.0
$
1,116.0
Change in pension liability, net of taxes
13.9
12.3
(12.3)
Foreign currency translation, net of taxes
(365.4)
257.8
(511.8)
Change in fair value of derivative instruments, net of taxes
(7.5)
78.2
109.8
Comprehensive earnings
1,111.4
1,314.3
701.7
Comprehensive earnings (loss) attributable to noncontrolling interests
7.8
(2.5)
1.6
Comprehensive earnings attributable to controlling interests
$
1,103.6
$
1,316.8
$
700.1
See notes to consolidated financial statements.
72
Arthur J. Gallagher & Co.
Consolidated Balance Sheet
(In millions)
December 31,
2024
2023
Cash and cash equivalents
$
14,987.3
$
971.5
Fiduciary assets (includes fiduciary cash of $5,481.3 in 2024 and $5,571.8 in
2023)
24,712.1
26,907.9
Accounts receivable, net
3,895.9
3,786.6
Other current assets
518.0
450.1
Total current assets
44,113.3
32,116.1
Fixed assets - net
650.3
726.4
Deferred income taxes (includes tax credit carryforwards of $771.8 in 2024 and
$867.4 in 2023)
959.1
1,132.3
Other noncurrent assets
1,354.4
1,131.8
Right-of-use assets
377.8
400.3
Goodwill - net
12,270.2
11,475.6
Amortizable intangible assets - net
4,530.1
4,633.3
Total assets
$
64,255.2
$
51,615.8
Fiduciary liabilities
$
24,712.1
$
26,907.9
Accrued compensation and other current liabilities
3,586.3
2,553.1
Deferred revenue - current
537.2
644.7
Premium financing debt
225.2
289.0
Corporate related borrowings - current
200.0
670.0
Total current liabilities
29,260.8
31,064.7
Corporate related borrowings - noncurrent
12,731.9
7,006.0
Deferred revenue - noncurrent
67.1
61.5
Lease liabilities - noncurrent
328.1
352.2
Other noncurrent liabilities
1,687.7
2,316.1
Total liabilities
44,075.6
40,800.5
Stockholders' equity:
Common stock - authorized 400.0 shares; issued and outstanding 250.0
shares in 2024 and 216.7 shares in 2023
250.0
216.7
Capital in excess of par value
16,068.9
7,297.8
Retained earnings
4,985.7
4,052.9
Accumulated other comprehensive loss
(1,151.1)
(792.1)
Stockholders' equity attributable to controlling interests
20,153.5
10,775.3
Stockholders' equity attributable to noncontrolling interests
26.1
40.0
Total stockholders' equity
20,179.6
10,815.3
Total liabilities and stockholders' equity
$
64,255.2
$
51,615.8
See notes to consolidated financial statements.
73
Arthur J. Gallagher & Co.
Consolidated Statement of Cash Flows
(In millions)
Year Ended December 31,
2024
2023
2022
Cash flows from operating activities:
Net earnings
$
1,470.4
$
966.0
$
1,116.0
Adjustments to reconcile net earnings to net cash provided by
operating
activities:
Net gain on investments and other
(22.7)
(8.4)
(11.0)
Depreciation and amortization
842.3
696.5
599.6
Change in estimated acquisition earnout payables
26.0
377.3
83.0
Amortization of deferred compensation and restricted stock
117.5
105.1
85.4
Stock-based and other noncash compensation expense
41.9
31.4
24.4
Payments on acquisition earnouts in excess of original estimates
(42.4)
(68.4)
(81.7)
Provision for deferred income taxes
108.6
43.1
(209.0)
Effect of changes in foreign exchange rates
0.4
10.3
(34.0)
Net change in accounts receivable, net
(65.0)
(503.5)
(319.6)
Net change in deferred revenue
(116.1)
49.0
29.3
Net change in other current assets
(114.3)
(107.3)
(71.7)
Net change in accrued compensation and other accrued liabilities
363.3
462.9
119.0
Net change in income taxes payable
(41.8)
(77.7)
49.9
Net change in other noncurrent assets and liabilities
14.8
55.4
10.4
Net cash provided by operating activities
2,582.9
2,031.7
1,390.0
Cash flows from investing activities:
Capital expenditures
(141.9)
(193.6)
(182.7)
Cash paid for acquisitions, net of cash and restricted cash acquired
(1,462.3)
(3,041.9)
(764.9)
Net proceeds from sales of operations/books of business
19.7
9.9
11.0
Net funding of investment transactions
6.0
5.5
1.0
Net funding of premium finance loans
(8.9)
(72.9)
(69.2)
Net cash used by investing activities
(1,587.4)
(3,293.0)
(1,004.8)
Cash flows from financing activities:
Payments on acquisition earnouts
(142.8)
(97.8)
(106.5)
Proceeds from issuance of common stock
8,506.8
120.2
123.1
Payments to noncontrolling interests
(3.7)
(2.4)
(3.6)
Dividends paid
(525.4)
(473.6)
(429.5)
Net change in fiduciary assets and liabilities
(1.4)
1,296.5
735.4
Net borrowings on premium financing debt facility
(40.9)
41.7
25.3
Borrowings on line of credit facility
1,663.2
3,795.0
2,570.0
Repayments on line of credit facility
(1,906.9)
(3,610.0)
(2,555.0)
Net borrowings of corporate related long-term debt
5,552.6
1,634.0
(201.5)
Debt acquisition costs
(51.6)
(17.7)
2.2
Settlements on terminated interest rate swaps
2.8
188.0
52.7
Net cash provided by financing activities
13,052.7
2,873.9
212.6
Effect of changes in foreign exchange rates on cash, cash
equivalents, restricted cash and fiduciary cash
(122.9)
(33.5)
(99.9)
Net increase in cash, cash equivalents, restricted cash and fiduciary cash
13,925.3
1,579.1
497.9
Cash, cash equivalents, restricted cash and fiduciary cash at
beginning of year
6,543.3
4,964.2
4,466.3
Cash, cash equivalents, restricted cash and fiduciary cash at end of year
$
20,468.6
$
6,543.3
$
4,964.2
See notes to consolidated financial statements.
74
Arthur J. Gallagher & Co.
Consolidated Statement of Stockholders’ Equity
(In millions)
Capital in
Accumulated Other
Common Stock
Excess of
Retained
Comprehensive
Noncontrolling
Shares
Amount
Par Value
Earnings
Loss
Interests
Total
Balance at December 31, 2021
208.5
$
208.5
$
6,143.7
$
2,882.3
$
(726.1) $
51.7
$
8,560.1
Net earnings
—
—
—
1,114.2
—
1.8
1,116.0
Net purchase of subsidiary shares
from noncontrolling interests
—
—
—
—
—
(3.2)
(3.2)
Dividends paid to
noncontrolling interests
—
—
—
—
—
(3.5)
(3.5)
Net change in pension asset/liability,
net of taxes of $(3.0) million
—
—
—
—
(12.3)
—
(12.3)
Foreign currency translation
—
—
—
—
(511.8)
(0.2)
(512.0)
Change in fair value of
derivative instruments,
net of taxes of $39.3 million
—
—
—
—
109.8
—
109.8
Compensation expense related
to stock option plan grants
—
—
27.9
—
—
—
27.9
Common stock issued in:
Eighteen purchase transactions
0.9
0.9
164.6
—
—
—
165.5
Stock option plans
1.4
1.4
74.7
—
—
—
76.1
Employee stock purchase plan
0.3
0.3
47.3
—
—
—
47.6
Shares issued to benefit plans
0.5
0.5
73.9
—
—
—
74.4
Deferred compensation
and restricted stock
0.3
0.3
(22.2)
—
—
—
(21.9)
Cash dividends declared
on common stock
—
—
—
(434.3)
—
—
(434.3)
Balance at December 31, 2022
211.9
211.9
6,509.9
3,562.2
(1,140.4)
46.6
9,190.2
Net earnings
—
—
—
969.5
—
(3.5)
966.0
Net purchase of subsidiary shares
from noncontrolling interests
—
—
—
—
—
(3.1)
(3.1)
Dividends paid to
noncontrolling interests
—
—
—
—
—
(1.0)
(1.0)
Net change in pension asset/liability,
net of taxes of $3.0 million
—
—
—
—
12.3
—
12.3
Foreign currency translation
—
—
—
—
257.8
1.0
258.8
Change in fair value of
derivative instruments,
net of taxes of $26.8 million
—
—
—
—
78.2
—
78.2
Compensation expense related
to stock option plan grants
—
—
33.5
—
—
—
33.5
Common stock issued in:
Twenty-three purchase
transactions
2.5
2.5
523.3
—
—
—
525.8
Stock option plans
1.2
1.2
64.0
—
—
—
65.2
Employee stock purchase plan
0.3
0.3
54.7
—
—
—
55.0
Shares issued to benefit plans
0.4
0.4
84.2
—
—
—
84.6
Deferred compensation
and restricted stock
0.4
0.4
28.2
—
—
—
28.6
Cash dividends declared
on common stock
—
—
—
(478.8)
—
—
(478.8)
Balance at December 31, 2023
216.7
$
216.7
$
7,297.8
$
4,052.9
$
(792.1) $
40.0
$
10,815.3
See notes to consolidated financial statements.
75
Arthur J. Gallagher & Co.
Consolidated Statement of Stockholders’ Equity (continued)
(In millions)
Capital in
Accumulated Other
Common Stock
Excess of
Retained
Comprehensive
Noncontrolling
Shares
Amount
Par Value
Earnings
Loss
Interests
Total
Balance at December 31, 2023
216.7
$
216.7
$
7,297.8
$
4,052.9
$
(792.1 ) $
40.0
$
10,815.3
Net earnings
—
—
—
1,462.7
—
7.7
1,470.4
Net purchase of subsidiary shares
from noncontrolling interests
—
—
—
—
—
(17.9 )
(17.9 )
Dividends paid to
noncontrolling interests
—
—
—
—
—
(3.8 )
(3.8 )
Net change in pension asset/liability,
net of taxes of $3.3 million
—
—
—
—
13.9
—
13.9
Foreign currency translation
—
—
—
—
(365.4 )
0.1
(365.3 )
Change in fair value of
derivative instruments,
net of taxes of $(2.5) million
—
—
—
—
(7.5 )
—
(7.5 )
Compensation expense related
to stock option plan grants
—
—
47.8
—
—
—
47.8
Common stock issued in:
Thirteen purchase transactions
0.6
0.6
140.2
—
—
—
140.8
Stock option plans
1.3
1.3
91.4
—
—
—
92.7
Employee stock purchase plan
0.3
0.3
69.5
—
—
—
69.8
Shares issued to benefit plans
0.4
0.4
98.1
—
—
—
98.5
Deferred compensation
and restricted stock
0.3
0.3
10.1
—
—
—
10.4
Stock issuance from public
offering
30.4
30.4
8,314.0
—
—
—
8,344.4
Cash dividends declared
on common stock
—
—
—
(529.9 )
—
—
(529.9 )
Balance at December 31, 2024
250.0
$
250.0
$
16,068.9
$
4,985.7
$
(1,151.1 ) $
26.1
$
20,179.6
See notes to consolidated financial statements.
76
Arthur J. Gallagher & Co.
Notes to Consolidated Financial Statements
December 31, 2024
1. Summary of Significant Accounting Policies
Terms Used in Notes to Consolidated Financial Statements
ASC - Accounting Standards Codification.
ASU - Accounting Standards Update.
FASB - The Financial Accounting Standards Board.
GAAP - United States (U.S.) generally accepted accounting principles.
IRC - Internal Revenue Code.
IRS - Internal Revenue Service.
Topic 606 - ASU No. 2014-09, Revenue from Contracts with Customers.
Underwriting enterprises - Insurance companies, reinsurance companies and various other forms of risk-taking entities,
including intermediaries of underwriting enterprises.
Nature of Operations
Arthur J. Gallagher & Co. and its subsidiaries, collectively referred to herein as we, our, us or the Company, provide insurance
brokerage, consulting and third party claims settlement and administration services to both domestic and international entities.
We have three reportable segments: brokerage, risk management and corporate. Our brokers, agents and administrators act as
intermediaries between underwriting enterprises and our clients.
Our brokerage segment operations provide brokerage and consulting services to entities of all types, including commercial,
nonprofit, public sector entities and to a lesser extent, individuals, in the areas of insurance and reinsurance placements, risk of
loss management and management of employer sponsored benefit programs. Our risk management segment operations provide
contract claim settlement, claim administration, loss control services and risk management consulting for commercial, nonprofit,
captive and public sector entities, and various other organizations that choose to self-insure property/casualty coverages or
choose to use a third-party claims management organization rather than the claim services provided by underwriting enterprises.
The corporate segment reports the financial information related to our debt, external acquisition-related expenses, other corporate
costs and the impact of foreign currency translation. Legacy clean energy investments consist of our investments in limited
liability companies that own or have owned 35 commercial clean coal production facilities that produced refined coal using
Chem-Mod LLC’s proprietary technologies. We believe these operations produced refined coal that qualifies for tax credits
under IRC Section 45.
We do not assume underwriting risk on a net basis, other than with respect to de minimis amounts necessary to provide minimum
or regulatory capital insurance to organize captives, pools, specialized underwriters or risk-retention groups. Rather, capital
necessary for covering losses is provided by underwriting enterprises.
Investment income and other revenues are primarily generated from our premium financing operations, our invested cash and
restricted cash we hold on behalf of our clients, as well as clean energy investments. In addition, our share of the net earnings
related to partially owned entities that are accounted for using the equity method is included in investment income.
Arthur J. Gallagher & Co., a global insurance brokerage, risk management and consulting services firm, is headquartered in
Rolling Meadows, Illinois. The Company provides these services in approximately 130 countries around the world through its
owned operations and a network of correspondent brokers and consultants.
77
Basis of Presentation
The accompanying consolidated financial statements include our accounts and all of our majority-owned subsidiaries (50% or
greater ownership). Substantially all of our investments in partially owned entities in which our ownership is less than 50% are
accounted for using the equity method based on the legal form of our ownership interest and the applicable ownership percentage
of the entity. However, in situations where a less than 50%-owned investment has been determined to be a variable interest
entity and we are deemed to be the primary beneficiary in accordance with the variable interest model of consolidation, we will
consolidate the investment into our consolidated financial statements. For partially owned entities accounted for using the equity
method, our share of the net earnings of these entities is included in consolidated net earnings. All material intercompany
accounts and transactions have been eliminated in consolidation.
In the preparation of our consolidated financial statements as of December 31, 2024, management evaluated all material
subsequent events or transactions that occurred after the balance sheet date through the date on which the financial statements
were issued for potential recognition and/or disclosure in the notes therein.
Use of Estimates
The preparation of our consolidated financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and accompanying notes. These accounting principles
require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenues and
expenses, and the disclosure of contingent assets and liabilities at the date of our consolidated financial statements. We
periodically evaluate our estimates and assumptions, including those relating to the valuation of goodwill and other intangible
assets, right-of-use assets, investments, income taxes, revenue recognition, deferred costs, stock-based compensation, claims
handling obligations, retirement plans, litigation and contingencies. We base our estimates on historical experience and various
assumptions that we believe to be reasonable based on specific circumstances. Such estimates and assumptions could change in
the future as more information becomes known, which could impact the amounts reported and disclosed herein.
Revenue Recognition
Our revenues are derived from commissions and fees as primarily specified in a written contract, or unwritten business
understanding, with our clients or underwriting enterprises. We also recognize investment income over time from our invested
assets and invested assets we hold on behalf of our clients or underwriting enterprises.
BROKERAGE SEGMENT
Our brokerage segment generates revenues by:
(i)
Identifying, negotiating and placing all forms of insurance coverage, as well as providing data analytics, risk-
shifting, risk-sharing and risk-mitigation consulting services, principally related to property/casualty, life, health,
welfare and disability insurance. We also provide these services through, or in conjunction with, other unrelated
agents and brokers, consultants and management advisors;
(ii)
Identifying, negotiating and placing all forms of reinsurance coverage, as well as providing capital markets services,
including acting as underwriter, with respect to insurance linked securities, weather derivatives, capital raising and
selected merger and acquisition advisory activities;
(iii)
Acting as an agent or broker for multiple underwriting enterprises by providing services such as sales, marketing,
selecting, negotiating, underwriting, servicing and placing insurance coverage on their behalf;
(iv)
Providing consulting services related to health and welfare benefits, voluntary benefits, executive benefits,
compensation, retirement planning, institutional investment and fiduciary, actuarial, compliance, private insurance
exchange, human resource technology, communications and benefits administration; and
(v)
Providing management and administrative services to captives, pools, risk-retention groups, healthcare exchanges,
small underwriting enterprises, such as accounting, claims and loss processing assistance, feasibility studies,
actuarial studies, data analytics and other administrative services.
The vast majority of our brokerage contracts and service understandings are for a period of one year or less.
78
Commissions and fees
The primary source of revenues for our brokerage services is commissions from underwriting enterprises, based on a percentage
of premiums paid by our clients, or fees received from clients based on an agreed level of service usually in lieu of commissions.
These commissions and fees revenues are substantially recognized at a point in time on the effective date of the associated
policies when control of the policy transfers to the client, as well as deferring certain revenues to reflect delivery of services over
the contract period.
Commissions are fixed at the contract effective date and generally are based on a percentage of premiums for insurance coverage
or employee headcount for employer sponsored benefit plans. Commissions depend upon a large number of factors, including
the type of risk being placed, the particular underwriting enterprise’s demand, the expected loss experience of the particular risk
of coverage, and historical benchmarks surrounding the level of effort necessary for us to place and service the insurance
contract. Rather than being tied to the amount of premiums, fees are most often based on an expected level of effort to provide
our services.
Whether we are paid a commission or a fee, the vast majority of our services are associated with the placement of an insurance
(or insurance-like) contract. Accordingly, we recognize approximately 85% of our commission and fee revenues on the effective
date of the underlying insurance contract. The amount of revenue we recognize is based on our costs to provide our services up
and through that effective date, including an appropriate estimate of our profit margin on a portfolio basis (a practical expedient
as defined in Topic 606). Based on the proportion of additional services we provide in each period after the effective date of the
insurance contract, including an appropriate estimate of our profit margin, we recognize approximately 10% of our commission
and fee revenues in the first three months, and the remaining 5% thereafter. These periods may be different than the underlying
premium payment patterns of the insurance contracts, but the vast majority of our services are fully provided within one year of
the insurance contract effective date.
For consulting and advisory services, we recognize our revenue in the period in which we provide the service or advice. For
management and administrative services, our revenue is recognized ratably over the contract period consistent with the
performance of our obligations, mostly over an annual term.
Supplemental revenues
Certain underwriting enterprises may pay us additional revenues for the volume of premium placed with them and for insights
into our sales pipeline, our sales capabilities or our risk selection knowledge. These amounts are in excess of the commission
and fee revenues discussed above, and not all business we place with underwriting enterprises is eligible for supplemental
revenues. Unlike contingent revenues, discussed below, these revenues are primarily a fixed amount or fixed percentage of
premium of the underlying eligible insurance contracts. For supplemental revenue contracts based on a fixed percentage of
premium, our obligation to the underwriting enterprise is substantially completed upon the effective date of the underlying
insurance contract and revenue is fully earned at that time. For supplemental revenue contracts based on a fixed amount, revenue
is recognized ratably over the contract period consistent with the performance of our obligations, almost always over an annual
term. We receive these revenues on a quarterly or annual basis.
Contingent revenues
Certain underwriting enterprises may pay us additional revenues for our sales capabilities, our risk selection knowledge, or our
administrative efficiencies. These amounts are in excess of the commission or fee revenues discussed above, and not all business
we place with participating underwriting enterprises is eligible for contingent revenues. Unlike supplemental revenues, also
discussed above, these revenues are variable, generally based on growth, the loss experience of the underlying insurance
contracts, and/or our efficiency in processing the business. We generally operate under calendar year contracts, but we do not
receive these revenues from the underwriting enterprises until the following calendar year, generally in the first and second
quarters, after verification of the performance indicators outlined in the contracts. Accordingly, during each reporting period, we
must make our best estimate of amounts we have earned using historical averages and other factors to project such revenues. We
base our estimates each period on a contract-by-contract basis where available. In certain cases, it is impractical to assess a very
large number of smaller contingent revenue contracts, so we use a historical portfolio estimate in aggregate (a practical expedient
as defined in Topic 606). Because our expectation of the ultimate contingent revenue amounts to be earned can vary from period
to period, especially in contracts sensitive to loss ratios, our estimates might change significantly from quarter to quarter. For
example, in circumstances where our revenues are dependent on a full calendar year loss ratio, adverse loss experience in the
fourth quarter could not only negate revenue earnings in the fourth quarter, but also trigger the need to reverse revenues
previously recognized during the prior quarters. Variable consideration is recognized when we conclude, based on all the facts
79
and information available at the reporting date, that it is probable that a significant revenue reversal will not occur in future
periods.
Sub-brokerage costs
Sub-brokerage costs are excluded from our gross revenues in our determination of total revenues. Sub-brokerage costs represent
commissions paid to sub-brokers related to the placement of certain business by our brokerage segment operations. We
recognize this contra revenue in the same manner as the commission revenue to which it relates.
RISK MANAGEMENT SEGMENT
Revenues for our risk management segment are comprised of fees generally negotiated (i) on a per-claim or per-service basis, (ii)
on a cost-plus basis, or (iii) as performance-based fees. We also provide risk management consulting services that are
recognized as the services are delivered.
Per-claim or per-service fees
Where we operate under a contract with our fee established on a per-claim or per-service basis, our obligation is to process
claims for a term specified within the contract. Because it is impractical to recognize our revenues on an individual claim-by-
claim basis, we recognize revenue plus an appropriate estimate of our profit margin on a portfolio basis by grouping claims with
similar characteristics (a practical expedient as defined in Topic 606). We apply actuarially-determined, historical-based patterns
to determine our future service obligations, without applying a present value discount.
Cost-plus fees
Where we provide services and generate revenues on a cost-plus basis, we recognize revenue over the contract period consistent
with the performance of our obligations.
Performance-based fees
Certain clients pay us additional fee revenues for our efficiency in managing claims or on the basis of claim outcome
effectiveness. These amounts are in excess of the fee revenues discussed above. These revenues are variable, generally based on
performance metrics set forth in the underlying contracts. We generally operate under multi-year contracts with fiscal year
measurement periods. We do not receive these fees, if earned, until the following year after verification of the performance
metrics outlined in the contracts. Each period we base our estimates on a contract-by-contract basis. We must make our best
estimate of amounts we have earned using historical averages and other factors to project such revenues. Variable consideration
is recognized when we conclude that it is probable that a significant revenue reversal will not occur in future periods.
Reimbursements
Reimbursements represent amounts received from clients reimbursing us for certain third-party costs associated with providing
our claims management services. In certain service partner relationships, we are considered a principal because we direct the
third party, control the specified service and combine the services provided into an integrated solution. Given this principal
relationship, we are required to recognize revenue gross and service partner vendor fees in the operating expense in our
consolidated statement of earnings.
Deferred Costs
We incur costs to provide brokerage and risk management services. Those costs are either (i) costs to obtain a contract or (ii)
costs to fulfill such contract, or (iii) all other costs.
(i)
Costs to obtain - we incur costs to obtain a contract with a client. Those costs would not have been incurred if the
contract had not been obtained. Almost all of our costs to obtain are incurred prior to, or on, the effective date of the
contract and consist primarily of incentive compensation we pay to our production employees. Our costs to obtain
are expensed as incurred as described in Note 4 to these consolidated financial statements.
(ii)
Costs to fulfill - we incur costs to fulfill a contract (or anticipated contract) with a client. Those costs are incurred
prior to the effective date of the contract and relate to fulfilling our primary placement obligations to our clients.
Our costs to fulfill prior to the effective date are capitalized and amortized on the effective date. These fulfillment
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activities include collecting underwriting information from our client, assessing their insurance needs and
negotiating their placement with one or more underwriting enterprises. The majority of costs that we incur relate to
compensation and benefits of our client service employees. Costs incurred during preplacement activities are
expected to be recovered in the future. If the capitalized costs are no longer deemed to be recoverable, then they
would be expensed.
(iii)
Other costs that are not costs to obtain or fulfill are expensed as incurred. Examples include other operating costs
such as rent, utilities, management costs, overhead costs, legal and other professional fees, technology costs,
insurance related costs, communication and advertising, and travel and entertainment. Depreciation, amortization
and change in estimated acquisition earnout payable are expensed as incurred.
Investment Income
Investment income primarily includes interest (including revenue from our premium financing operations) and dividend income,
which is accrued as it is earned. Net gains on divestitures represent one-time gains related to sales of brokerage related
businesses, which are primarily recognized on a cash received basis.
Earnings per Share
Basic net earnings per share is computed by dividing net earnings by the weighted average number of common shares
outstanding during the reporting period. Diluted net earnings per share is computed by dividing net earnings by the weighted
average number of common and common equivalent shares outstanding during the reporting period. Common equivalent shares
include incremental shares from dilutive stock options, which are calculated from the date of grant under the treasury stock
method using the average market price for the period.
Cash and Cash Equivalents
Short-term investments, consisting principally of cash and money market accounts that have average maturities of 90 days or
less, are considered cash equivalents.
Fiduciary Assets and Liabilities
Fiduciary assets represent cash held and insurance and reinsurance receivables that relate to our clients and are held on their
behalf. Fiduciary liabilities represent the corresponding amounts that are owed to underwriting enterprises on behalf of our
clients. In our capacity as an insurance broker, we collect premiums from insureds and, after deducting our commissions and/or
fees, remit these premiums to underwriting enterprises. We hold unremitted insurance premiums in a fiduciary capacity until we
disburse them, and the use of such funds is restricted by laws in certain states and foreign jurisdictions in which our subsidiaries
operate. Various state and foreign agencies regulate insurance brokers and provide specific requirements that limit the type of
investments that may be made with such funds. Accordingly, we invest these funds in cash and U.S. Treasury fund accounts.
We can earn interest income on these unremitted funds, which is included in investment income in the accompanying
consolidated statement of earnings. These unremitted amounts are included in fiduciary assets in the accompanying consolidated
balance sheet, with the related liability included in fiduciary liabilities. Additionally, several of our foreign subsidiaries are
required by various foreign agencies to meet certain liquidity and solvency requirements. We were in compliance with these
requirements at December 31, 2024. This restricted cash is included in cash and cash equivalents net in the accompanying
consolidated balance sheet.
Related to our third party administration business and in certain of our brokerage operations, we are responsible for client claim
funds that we hold in a fiduciary capacity. We do not earn any interest income on the funds held. These client funds have been
included in fiduciary assets, along with a corresponding liability in fiduciary liabilities in the accompanying consolidated balance
sheet.
Accounts Receivable
Accounts receivable, net in the accompanying consolidated balance sheet includes accrued agency billed commissions, fees,
supplemental commissions, direct bill commissions and contingent commission receivables due to the Company. Accounts
receivable are net of allowances for estimated policy cancellations and doubtful accounts. The allowance for estimated policy
cancellations was $13.3 million and $9.9 million at December 31, 2024 and 2023, respectively, which represents a reserve for
future reversals in commission and fee revenues related to the potential cancellation of client insurance policies that were in
force as of each year end. The allowance for doubtful accounts was $21.8 million and $23.0 million at December 31, 2024 and
81
2023, respectively. We establish the allowance for estimated policy cancellations through a charge to revenues and the
allowance for doubtful accounts through a charge to operating expenses. Both of these allowances are based on estimates and
assumptions using historical data to project future experience. Such estimates and assumptions could change in the future as
more information becomes known which could impact the amounts reported and disclosed herein. We periodically review the
adequacy of these allowances and make adjustments as necessary.
Derivative Instruments
We are exposed to market risks, including changes in foreign currency exchange rates and interest rates. To manage the risk
related to these exposures, we enter into various derivative instruments that reduce these risks by creating offsetting exposures.
In the normal course of business, we are exposed to the impact of foreign currency fluctuations that impact our results of
operations and cash flows. We utilize a foreign currency risk management program involving foreign currency derivatives that
consist of several monthly put/call options designed to hedge a portion of our future foreign currency disbursements through
various future payment dates. To mitigate the counterparty credit risk we only enter into contracts with major financial
institutions based upon their credit ratings and other factors. These derivative instrument contracts are cash flow hedges that
qualify for hedge accounting and primarily hedge against fluctuations between changes in the British pound and Indian Rupee
versus the U.S. dollar. Changes in fair value of the derivative instruments are reflected in other comprehensive earnings in the
accompanying consolidated balance sheet. The impact of the hedge at maturity is recognized in the income statement as a
component of investment income, compensation and operating expenses depending on the nature of the hedged item. We enter
into various long-term debt agreements. We use interest rate derivatives, typically swaps, to reduce our exposure to the effects
of interest rate fluctuations on the forecasted interest rates for up to three years into the future. These derivative instrument
contracts are periodically monitored for hedge ineffectiveness, the amount of which has not been material to the accompanying
consolidated financial statements. We do not use derivatives for trading or speculative purposes.
Premium Financing
Seven subsidiaries of the brokerage segment make short-term loans (generally with terms of twelve months or less) to our clients
to finance premiums. These premium financing contracts are structured to minimize potential bad debt expense to us. Such
receivables are generally considered delinquent after seven days of the payment due date. In normal course, insurance policies
are canceled within one month of the contractual payment due date if the payment remains delinquent. We recognize interest
income as it is earned over the life of the contract using the “level-yield” method. Unearned interest related to contracts
receivable is included in the receivable balance in the accompanying consolidated balance sheet. The outstanding loan
receivable balance was $616.1 million and $685.7 million at December 31, 2024 and 2023, respectively.
Fixed Assets
We carry fixed assets at cost, less accumulated depreciation, in the accompanying consolidated balance sheet. We periodically
review long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying value of
the assets may not be recoverable. Under those circumstances, if the fair value were less than the carrying amount of the asset,
we would recognize a loss for the difference. Depreciation for fixed assets is computed using the straight-line method over the
following estimated useful lives:
Useful Life
Office equipment
Three to ten years
Furniture and fixtures
Two to ten years
Computer equipment
Three to five years
Building
Fifteen to forty years
Software
Three to five years
Leasehold improvements
Shorter of the lease term or useful life of the asset
Intangible Assets
Intangible assets represent the excess of cost over the estimated fair value of net tangible assets of acquired businesses. Our
primary intangible assets are classified as either goodwill, expiration lists, non-compete agreements or trade names. Expiration
lists, non-compete agreements and trade names are amortized using the straight-line method over their estimated useful lives
(two to fifteen years for expiration lists, two to six years for non-compete agreements and two to fifteen years for trade names),
while goodwill is not subject to amortization. The establishment of goodwill, expiration lists, non-compete agreements and trade
82
names and the determination of estimated useful lives are primarily based on valuations we receive from qualified independent
appraisers. The calculations of these amounts are based on estimates and assumptions using historical and projected financial
information and recognized valuation methods. Different estimates or assumptions could produce different results. We carry
identifiable intangible assets at cost, less accumulated amortization, in the accompanying consolidated balance sheet.
We review all of our intangible assets for impairment periodically (at least annually for goodwill) and whenever events or
changes in business circumstances indicate that the carrying value of the assets may not be recoverable. We perform such
impairment reviews at the division (i.e., reporting unit) level with respect to goodwill and at the business unit level for
amortizable intangible assets. While goodwill is not amortizable, it is tested for impairment at least annually in the fourth
quarter, and more frequently if there are indicators of impairment or whenever business circumstances suggest that the carrying
value of goodwill may not be recoverable. We may initially perform a qualitative analysis to determine if it is more likely than
not that the goodwill balance is impaired. If a qualitative assessment is not performed or if a determination is made that it is not
more likely than not that the fair value of the reporting unit exceeds its carrying amount, then we will perform a quantitative
analysis. The fair value of each reporting unit is compared to its carrying value. If the fair value of the reporting unit is less than
its carrying value, a non-cash impairment charge is recognized for the amount by which the carrying value exceeds the reporting
unit’s fair value with the loss not exceeding the total amount of goodwill allocated to that reporting unit. We completed our
2024 annual assessment in the fourth quarter and concluded goodwill was not impaired, as the fair value of each reporting unit
exceeded its carrying value.
The carrying value of amortizable intangible assets attributable to each business or asset group is periodically reviewed by
management to determine if there are events or changes in circumstances that would indicate that its carrying amount may not be
recoverable. Accordingly, if there are any such changes in circumstances during the year, we assess the carrying value of the
amortizable intangible assets by considering the estimated future undiscounted cash flows generated by the corresponding
business or asset group. Any impairment identified through this assessment may require that the carrying value of related
amortizable intangible assets be adjusted and charged against current period earnings as a component of amortization expense.
Based on the results of impairment reviews in 2024, 2023 and 2022, we wrote off $19.4 million, $3.5 million and $2.0 million,
respectively, of amortizable intangible assets primarily related to acquisitions (made prior to 2023) of our brokerage and risk
management segments, which is included in amortization expense in the accompanying consolidated statement of earnings. The
determinations of impairment indicators and fair value are based on estimates and assumptions related to the amount and timing
of future cash flows and future interest rates. Such estimates and assumptions could change in the future as more information
becomes known which could impact the amounts reported and disclosed herein.
Income Taxes
Our tax rate reflects the statutory tax rates applicable to our taxable earnings and tax planning in the various jurisdictions in
which we operate. Significant judgment is required in determining the annual effective tax rate and in evaluating uncertain tax
positions. We report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken
in our tax return. We evaluate our tax positions using a two-step process. The first step involves recognition. We determine
whether it is more likely than not that a tax position will be sustained upon tax examination based solely on the technical merits
of the position. The technical merits of a tax position are derived from both statutory and judicial authority (legislation and
statutes, legislative intent, regulations, rulings and case law) and their applicability to the facts and circumstances of the position.
If a tax position does not meet the “more likely than not” recognition threshold, we do not recognize the benefit of that position
in the financial statements. The second step is measurement. A tax position that meets the “more likely than not” recognition
threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured
as the largest amount of benefit that has a likelihood of greater than 50% of being realized upon ultimate resolution with a taxing
authority.
Uncertain tax positions are measured based upon the facts and circumstances that exist at each reporting period and involve
significant management judgment. Subsequent changes in judgment based upon new information may lead to changes in
recognition, derecognition and measurement. Adjustments may result, for example, upon resolution of an issue with the taxing
authorities, or expiration of a statute of limitations barring an assessment for an issue. We recognize interest and penalties, if
any, related to unrecognized tax benefits in our provision for income taxes.
Tax law requires certain items to be included in our tax returns at different times than such items are reflected in the financial
statements. As a result, the annual tax expense reflected in our consolidated statements of earnings is different than that reported
in our tax returns. Some of these differences are permanent, such as expenses that are not deductible in our tax returns, and some
differences are temporary and reverse over time, such as depreciation expense and amortization expense deductible for income
tax purposes. Temporary differences create deferred tax assets and liabilities. Deferred tax liabilities generally represent tax
expense recognized in the financial statements for which a tax payment has been deferred, or expense which has been deducted
83
in the tax return but has not yet been recognized in the financial statements. Deferred tax assets generally represent items that
can be used as a tax deduction or credit in tax returns in future years for which a benefit has already been recorded in the
financial statements.
We establish or adjust valuation allowances for deferred tax assets when we estimate that it is more likely than not that future
taxable income will be insufficient to fully use a deduction or credit in a specific jurisdiction. In assessing the need for the
recognition of a valuation allowance for deferred tax assets, we consider whether it is more likely than not that some portion, or
all, of the deferred tax assets will not be realized and adjust the valuation allowance accordingly. We evaluate all significant
available positive and negative evidence as part of our analysis. Negative evidence includes the existence of losses in recent
years. Positive evidence includes the forecast of future taxable income by jurisdiction, tax-planning strategies that would result
in the realization of deferred tax assets and the presence of taxable income in prior carryback years. The underlying assumptions
we use in forecasting future taxable income require significant judgment and take into account our recent performance. Such
estimates and assumptions could change in the future as more information becomes known which could impact the amounts
reported and disclosed herein. The ultimate realization of deferred tax assets depends on the generation of future taxable income
during the periods in which temporary differences are deductible or creditable.
Fair Value of Financial Instruments
Fair value accounting establishes a framework for measuring fair value, which is defined as the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an
exit price). This framework includes a fair value hierarchy that prioritizes the inputs to the valuation technique used to measure
fair value.
The classification of a financial instrument within the valuation hierarchy is based upon the transparency of inputs to the
valuation of an asset or liability on the measurement date. The three levels of the hierarchy in order of priority of inputs to the
valuation technique are defined as follows:
•
Level 1 - Valuations are based on unadjusted quoted prices in active markets for identical financial instruments;
•
Level 2 - Valuations are based on quoted market prices, other than quoted prices included in Level 1, in markets that
are not active or on inputs that are observable either directly or indirectly for the full term of the financial instrument;
and
•
Level 3 - Valuations are based on pricing or valuation techniques that require inputs that are both unobservable and
significant to the overall fair value measurement of the financial instrument. Such inputs may reflect management’s
own assumptions about the assumptions a market participant would use in pricing the financial instrument.
The level in the fair value hierarchy within which the fair value measurement is classified is determined based on the lowest
level input that is significant to the fair value measure in its entirety.
The carrying amounts of financial assets and liabilities reported in the accompanying consolidated balance sheet for cash and
cash equivalents, fiduciary assets, accounts receivable, other current assets, fiduciary liabilities, accrued compensation and other
accrued liabilities and deferred revenue - current, at December 31, 2024 and 2023, approximate fair value because of the short-
term duration of these instruments. See Note 3 to these consolidated financial statements for the fair values related to the
establishment of intangible assets and the establishment and adjustment of earnout payables. See Note 7 to these consolidated
financial statements for the fair values related to borrowings outstanding at December 31, 2024 and 2023 under our debt
agreements. See Note 12 to these consolidated financial statements for the fair values related to investments at December 31,
2024 and 2023 under our defined benefit pension plan.
Litigation
We are the defendant in various legal actions related to claims, lawsuits and proceedings incidental to the nature of our business.
We record liabilities for loss contingencies, including legal costs (such as fees and expenses of external lawyers and other service
providers) to be incurred, when it is probable that a liability has been incurred on or before the balance sheet date and the amount
of the liability can be reasonably estimated. We do not discount such contingent liabilities. To the extent recovery of such losses
and legal costs is probable under our insurance programs, we record estimated recoveries concurrently with the losses
recognized. Significant management judgment is required to estimate the amounts of such contingent liabilities and the related
insurance recoveries. In order to assess our potential liability, we analyze our litigation exposure based on available information,
including consultation with outside counsel handling the defense of these matters. As these liabilities are uncertain by their
84
nature, the recorded amounts may change due to a variety of different factors, including new developments in, or changes in
approach, such as changing the settlement strategy as applicable to each matter.
Retention Bonus Arrangements
In connection with the hiring and retention of both new talent and experienced personnel, including our senior management,
brokers and other key personnel, we have entered into various agreements with key employees setting up the conditions for the
cash payment of certain retention bonuses. These bonuses are an incentive for these employees to remain with the Company, for
a fixed period of time, to allow us to capitalize on their knowledge and experience. We have various forms of retention bonus
arrangements; some are paid up front and some are paid at the end of the term, but all are contingent upon successfully
completing a minimum period of employment. A retention bonus that is paid to an employee upfront that is contingent on a
certain minimum period of employment, will be initially classified as a prepaid asset and amortized to compensation expense as
the future services are rendered over the duration of the stay period. A retention bonus that is paid to an employee at the end of
the term that is contingent on a certain minimum period of employment, will be accrued as a liability through compensation
expense as the future services are rendered over the duration of the stay period. If an employee leaves prior to the required time
frame to earn the retention bonus outright, then all or any portion that is ultimately unearned or refundable, and recovered by the
Company if prepaid, is forfeited and reversed through compensation expense.
Stock-Based Compensation
We have several employee equity-settled and cash-settled share-based compensation plans. Equity-settled share-based payments
to employees include grants of stock options, performance stock units and restricted stock units and are measured based on
estimated grant date fair value. We have elected to use the Black-Scholes option pricing model to determine the fair value of
stock options on the dates of grant. Performance stock units are measured on the probable outcome of the performance
conditions applicable to each grant. Restricted stock units are measured based on the fair market values of the underlying stock
on the dates of grant. Shares are issued on the vesting dates net of the minimum statutory tax withholding requirements, as
applicable, to be paid by us on behalf of our employees. As a result, the actual number of shares issued will be fewer than the
actual number of performance stock units and restricted stock units outstanding. Furthermore, we record the liability for
withholding amounts to be paid by us as a reduction to additional paid-in capital when paid.
Cash-settled share-based payments to employees include awards under our Performance Unit Program and stock appreciation
rights. The fair value of the amount payable to employees in respect of cash-settled share-based payments is recognized as
compensation expense, with a corresponding increase in liabilities, over the vesting period. The liability is remeasured at each
reporting date and at settlement date. Any changes in fair value of the liability are recognized as compensation expense.
We recognize share-based compensation expense over the requisite service period for awards expected to ultimately vest.
Forfeitures are estimated on the date of grant and revised if actual or expected forfeiture activity differs from original estimates.
Employee Stock Purchase Plan
We have an employee stock purchase plan (which we refer to as the ESPP), under which the sale of 8.0 million shares of our
common stock has been authorized. Eligible employees may contribute up to 15% of their compensation towards the quarterly
purchase of our common stock at a purchase price equal to 95% of the lesser of the fair market value of our common stock on the
first business day or the last business day of the quarterly offering period. Eligible employees may annually purchase shares of
our common stock with an aggregate fair market value of up to $25,000 (measured as of the first day of each quarterly offering
period of each calendar year), provided that no employee may purchase more than 2,000 shares of our common stock under the
ESPP during any calendar year. At December 31, 2024, 4.7 million shares of our common stock was reserved for future
issuance under the ESPP.
Defined Benefit Pension Plans
We recognize in our consolidated balance sheet, an asset for our defined benefit pension plans’ overfunded status or a liability
for our plans’ underfunded status. We recognize changes in the funded status of our defined benefit pension plans in
comprehensive earnings in the year in which the changes occur. We use December 31 as the measurement date for our plans’
assets and benefit obligations. See Note 12 to these consolidated financial statements for additional information required to be
disclosed related to our defined benefit pension plans.
85
2. Effect of New Accounting Pronouncements
Segment Reporting
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment
Disclosures, which requires that an entity report segment information in accordance with Topic 280, Segment Reporting. The
amendment in the ASU is intended to improve reportable segment disclosure requirements primarily through enhanced
disclosures about significant segment expenses. The amendments in this update are effective for fiscal years beginning after
December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. We adopted this ASU as of
December 31, 2024, which affected our segment disclosures. See Note 19 to these consolidated financial statements for further
detail regarding the impact of this ASU.
Income Taxes
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures,
which requires that an entity, on an annual basis, disclose additional income tax information, primarily related to the rate
reconciliation and income taxes paid. The amendment in the ASU is intended to enhance the transparency and decision
usefulness of income tax disclosures. The amendments in this update are effective for annual periods beginning after
December 15, 2024. We are currently evaluating the impact of the new standard on our consolidated financial statements which
is expected to result in enhanced disclosures.
Climate Risk Disclosures
In March 2024, the SEC issued final climate-related disclosure rules that will require disclosure of material climate-related risks
and material direct greenhouse gas emissions from operations owned or controlled (Scope 1) and/or material indirect greenhouse
gas emissions from purchased energy consumed in owned or controlled operations (Scope 2). Additionally, the rules require
disclosure in the notes to the financial statements of the effects of severe weather events and other natural conditions, subject to
certain materiality thresholds. The disclosure requirements were scheduled to begin phasing in for annual reports and
registration statements including financial information with respect to annual periods beginning in calendar year 2025. On
April 4, 2024, the SEC issued an order staying the rules during the pendency of a number of legal challenges to the rules’
validity. We are continuing to monitor these developments while evaluating the impact of the rules on our consolidated financial
statements, which are expected to result in additional disclosures.
Disaggregation of Income Statement Expenses
In November 2024, the FASB issued ASU 2024-03, Income Statement Reporting–Comprehensive Income–Expense
Disaggregation Disclosures (Subtopic 220-40), Disaggregation of Income Statement Expenses. The standard update improves
the disclosures about a public business entity’s expenses by requiring more detailed information about the types of expenses
(including purchases of inventory, employee compensation, depreciation and amortization) included within income statement
expense captions. The guidance will be effective for annual reporting periods beginning after December 15, 2026, and interim
reporting periods beginning after December 15, 2027. Early adoption is permitted. The standard updates are to be applied
prospectively with the option for retrospective application. We are currently evaluating the impact of adoption of the standard
update on its financial statement disclosures.
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3. Business Combinations
During 2024, we acquired substantially all of the ownership interests or net assets, as applicable, of the following firms in
exchange for our common stock and/or cash. These acquisitions have been accounted for using the acquisition method for
recording business combinations (in millions, except share data):
Name and Effective Date of
Acquisition
Common
Shares
Issued
Common
Share
Value
Cash
Paid
Accrued
Liability
Escrow
Deposited
Recorded
Earnout
Payable
Total
Recorded
Purchase
Price
Maximum
Potential
Earnout
Payable
(000s)
Ericson Insurance Services, LLC
January 1, 2024 (EIS)
129
$
30.1
$
26.5
$
—
$
3.0
$
7.3
$
66.9
$
10.0
The Rowley Agency, LLC
January 1, 2024 (TRA)
—
—
117.2
—
11.0
—
128.2
—
OperationsInc, LLC
June 1, 2024 (OPR)
—
—
52.6
—
2.8
11.0
66.4
20.0
RIBV Holdings, LLC
October 1, 2024 (RIBV)
—
—
171.4
6.5
5.1
24.3
207.3
50.0
Redington Limited
October 24, 2024 (RED)
—
—
199.3
0.4
0.7
—
200.4
—
Forty-three other acquisitions
completed in 2024
231
48.8
806.5
9.1
44.4
121.8
1,030.6
288.6
360
$
78.9
$1,373.5
$
16.0
$
67.0
$
164.4
$1,699.8
$
368.6
On December 7, 2024, we signed a definitive agreement to acquire all of the issued and outstanding stock of Dolphin Topco,
Inc., the holding company of AssuredPartners, Inc., a Delaware corporation (together with its subsidiaries, “AssuredPartners”)
for gross consideration of $13.45 billion. The transaction is subject to customary regulatory approval, standard closing
conditions and is expected to close during first quarter 2025. AssuredPartners is a leading U.S. insurance broker with client
capabilities across commercial property/casualty, specialty, employee benefits and personal lines with operations in the U.K. and
Ireland. We expect to fund the transaction using $8.5 billion of cash raised in our December 11, 2024 follow-on common stock
offering and $5.0 billion of cash borrowed in our December 19, 2024 senior notes issuance (which we refer to, together with the
follow-on common stock offering, as the AssuredPartners Financing). On January 7, 2025, we received an additional
$1.28 billion of cash due to the exercise by the underwriters of the overallotment provision related to the follow-on common
stock offering.
Common shares issued in connection with acquisitions are valued at closing market prices as of the effective date of the
applicable acquisition or on the days when the shares are issued, if purchase consideration is deferred. We record escrow
deposits that are returned to us as a result of adjustments to net assets acquired as reductions of goodwill when the escrows are
settled. The maximum potential earnout payables disclosed in the foregoing table represent the maximum amount of additional
consideration that could be paid pursuant to the terms of the purchase agreement for the applicable acquisition. The amounts
recorded as earnout payables, which are primarily based upon the estimated future operating results of the acquired entities over
a two- to three-year period subsequent to the acquisition date, are measured at fair value as of the acquisition date and are
included on that basis in the recorded purchase price consideration in the foregoing table. We will record subsequent changes in
these estimated earnout obligations, including the accretion of discount, in our consolidated statement of earnings when incurred.
The fair value of these earnout obligations is based on the present value of the expected future payments to be made to the sellers
of the acquired entities in accordance with the provisions outlined in the respective purchase agreements, which is a Level 3 fair
value measurement. In determining fair value, we estimated the acquired entity’s future performance using financial projections
developed by management for the acquired entity and market participant assumptions that were derived for revenue growth
and/or profitability. Revenue growth rates generally ranged from 3.0% to 19.0% for our 2024 acquisitions. We estimated future
payments using the earnout formula and performance targets specified in each purchase agreement and the financial projections
just described. We then discounted these payments to present value using a risk-adjusted rate that takes into consideration
market-based rates of return that reflect the ability of the acquired entity to achieve the targets. The discount rates generally
ranged from 7.1% to 9.0% for our 2024 acquisitions. In some instances, the fair value of these earnout obligations can be based
on other valuation methods including the Black-Scholes Option Pricing Method or Monte Carlo Simulation method. Changes in
financial projections, market participant assumptions for revenue growth and/or profitability, or the risk-adjusted discount rate,
would result in a change in the fair value of recorded earnout obligations.
87
During 2024, 2023 and 2022, we recognized $61.7 million, $76.6 million and $61.0 million respectively, of expense in our
consolidated statement of earnings related to the accretion of the discount recorded for earnout obligations in connection with our
acquisitions. In addition, during 2024, 2023 and 2022, we recognized $35.7 million of income, $300.7 million of expense and
$22.0 million of expense, respectively, related to net adjustments in the estimated fair value of the liability for earnout
obligations in connection with revised assumptions due to changes in interest rates volatility and other assumptions and
projections of future performance for 91, 80 and 89 acquisitions, respectively. The net adjustments during 2024, include changes
made to the estimated fair value of the Willis Re acquisition earnout and reflect updated assumptions as of December 31, 2024.
The aggregate amount of maximum earnout obligations related to acquisitions made in 2021 and subsequent years was
$1,998.2 million as of December 31, 2024, of which $1,302.0 million was recorded in the consolidated balance sheet as of that
date based on the estimated fair value of the expected future payments to be made, of which approximately $511.9 million can be
settled in cash or common stock at our option and $790.1 million must be settled in cash. The aggregate amount of maximum
earnout obligations related to acquisitions made in 2020 and subsequent years was $2,009.8 million as of December 31, 2023, of
which $1,294.2 million was recorded in the consolidated balance sheet as of that date based on the estimated fair value of the
expected future payments to be made, of which approximately $564.8 million can be settled in cash or common stock at our
option and $729.4 million must be settled in cash.
The following is a summary of the estimated fair values of the net assets acquired at the date of each acquisition made in 2024
(in millions):
EIS
TRA
OPR
RIBV
RED
Forty-three
Other
Acquisitions
Total
Cash and cash equivalents
$
0.1
$
4.1
$
0.8
$
1.5
$
19.9
$
24.3
$
50.7
Fiduciary assets
1.0
2.6
—
—
—
49.5
53.1
Other current assets
3.4
0.5
2.7
28.7
6.8
66.0
108.1
Fixed assets
—
0.4
—
2.8
2.9
5.5
11.6
Noncurrent assets
0.1
1.7
2.0
0.2
3.6
9.2
16.8
Goodwill
29.6
59.4
41.9
92.4
107.0
506.9
837.2
Expiration lists
34.2
64.1
22.1
98.7
84.2
488.2
791.5
Non-compete agreements
0.2
0.3
0.2
0.2
8.8
13.9
23.6
Trade names
0.2
—
—
0.9
—
0.8
1.9
Total assets acquired
68.8
133.1
69.7
225.4
233.2
1,164.3
1,894.5
Fiduciary liabilities
1.0
2.6
—
—
—
49.5
53.1
Current liabilities
0.8
0.6
1.1
11.9
5.9
37.3
57.6
Noncurrent liabilities
0.1
1.7
2.2
6.2
26.9
46.9
84.0
Total liabilities assumed
1.9
4.9
3.3
18.1
32.8
133.7
194.7
Total net assets acquired
$
66.9
$
128.2
$
66.4
$
207.3
$
200.4
$
1,030.6
$
1,699.8
Among other things, these acquisitions allow us to expand into desirable geographic locations, further extend our presence in the
retail and wholesale insurance and reinsurance brokerage markets and increase the volume of general services currently
provided. The excess of the purchase price over the estimated fair value of the tangible net assets acquired at the acquisition date
was allocated to goodwill, expiration lists, non-compete agreements and trade names in the amounts of $837.2 million,
$791.5 million, $23.6 million and $1.9 million, respectively, within the brokerage and risk management segments.
The fair value of the tangible assets and liabilities for each applicable acquisition at the acquisition date approximated their
carrying values. In general, the fair value of expiration lists was established using the excess earnings method, which is an
income approach based on estimated financial projections developed by management for each acquired entity using market
participant assumptions. Revenue growth and attrition rates generally ranged from 0.7% to 5.3% and 5.0% to 13.5% for our
2024 and 2023 acquisitions, respectively, for which valuations were performed in 2024. We estimate the fair value as the
present value of the benefits anticipated from ownership of the subject expiration list in excess of returns required on the
investment in contributory assets necessary to realize those benefits. The rate used to discount the net benefits was based on a
risk-adjusted rate that takes into consideration market-based rates of return and reflects the risk of the asset relative to the
acquired business. These discount rates generally ranged from 9.5% to 11.5% for our 2024 and 2023 acquisitions, for which
valuations were performed in 2024. The fair value of non-compete agreements was established using the profit differential
method, which is an income approach based on estimated financial projections developed by management for the acquired
company using market participant assumptions and various non-compete scenarios.
88
Provisional estimates of fair value are established at the time of each acquisition and are subsequently reviewed and finalized
within the first year of operations subsequent to the acquisition date to determine the necessity for adjustments. During this
period, we may use independent third-party valuation specialists to assist us in finalizing the fair value of assets acquired and
liabilities assumed. Fair value adjustments, if any, are most common to the values established for amortizable intangible assets,
including expiration lists, non-compete agreements, acquired software, and for earnout liabilities, with the offset to goodwill, net
of any income tax effect.
Expiration lists, non-compete agreements and trade names related to our acquisitions are amortized using the straight-line
method over their estimated useful lives (two to fifteen years for expiration lists, two to six years for non-compete agreements
and two to fifteen years for trade names), while goodwill is not subject to amortization. We use the straight-line method to
amortize these intangible assets because the pattern of their economic benefits cannot be reasonably determined with any
certainty. We review all of our identifiable intangible assets for impairment periodically (at least annually) and whenever events
or changes in business circumstances indicate that the carrying value of the assets may not be recoverable. In reviewing
identifiable intangible assets, if the undiscounted future cash flows were less than the carrying amount of the respective (or
underlying) asset, an indicator of impairment would exist and further analysis would be required to determine whether or not a
loss would need to be charged against current period earnings as a component of amortization expense.
Of the $791.5 million of expiration lists, $23.6 million of non-compete agreements and $1.9 million of trade names related to the
2024 acquisitions, $239.8 million, $16.7 million and $0.5 million, respectively, is not expected to be deductible for income tax
purposes. Accordingly, we recorded a deferred tax liability of $64.9 million, and a corresponding amount of goodwill, in 2024
related to the nondeductible amortizable intangible assets.
Our consolidated financial statements for the year ended December 31, 2024 include the operations of the acquired entities from
their respective acquisition dates. The following is a summary of the unaudited pro forma historical results, as if these entities
had been acquired at January 1, 2023 (in millions, except per share data):
Year Ended December 31,
2024
2023
Total revenues
$
11,766.9
$
10,458.0
Net earnings attributable to controlling interests
1,457.0
963.1
Basic net earnings per share
6.61
4.47
Diluted net earnings per share
6.48
4.38
The unaudited pro forma results above have been prepared for comparative purposes only and do not purport to be indicative of
the results of operations which actually would have resulted had these acquisitions occurred at January 1, 2023, nor are they
necessarily indicative of future operating results. Annualized revenues of entities acquired in 2024 totaled approximately
$386.5 million. Total revenues, pre-tax loss and net earnings before interest, income taxes, depreciation, amortization and the
change in estimated acquisition earnout payables recorded in our consolidated statement of earnings for 2024 related to the 2024
acquisitions in the aggregate, were $169.2 million, $(18.0) million and $33.1 million, respectively.
4. Contracts with Customers
Contract Assets and Liabilities/Contract Balances
Information about unbilled receivables, contract assets and contract liabilities from contracts with customers is as follows (in
millions):
December 31,
2024
December 31,
2023
Unbilled receivables
$
1,273.9
$
1,093.7
Deferred contract costs
206.8
169.1
Deferred revenue
604.3
706.2
The unbilled receivables, which are included in premium and fees receivable in our consolidated balance sheet, primarily relate
to our rights to consideration for work completed but not billed at the reporting date. These are transferred to the receivables
when the client is billed. The deferred contract costs represent the costs we incur to fulfill a new or renewal contract with our
clients prior to the effective date of the contract. These costs are expensed on the contract effective date. The deferred revenue
in the consolidated balance sheet included amounts that represent the remaining performance obligations under our contracts and
amounts collected related to advanced billings and deposits received from customers that may or may not ultimately be
89
recognized as revenues in the future. Deposits received from customers could be returned to the customers based on lesser actual
transactional volume than originally billed volume.
Significant changes in the deferred revenue balances, which include foreign currency translation adjustments, during the period
are as follows (in millions):
Brokerage
Risk
Management
Total
Deferred revenue at December 31, 2022
$
434.0
$
175.3
$
609.3
Incremental deferred revenue
386.3
106.7
493.0
Revenue recognized during the year ended December 31,
2023 included in deferred revenue at December 31, 2022
(358.4)
(103.6)
(462.0)
Net change in collected billings/deposits received from customers
18.8
(5.8)
13.0
Impact of changes in foreign exchange rates
15.2
—
15.2
Deferred revenue recognized from business acquisitions
37.7
—
37.7
Deferred revenue at December 31, 2023
533.6
172.6
706.2
Incremental deferred revenue
305.0
91.5
396.5
Revenue recognized during the year ended December 31,
2024 included in deferred revenue at December 31, 2023
(389.9)
(86.1)
(476.0)
Net change in collected billings/deposits received from customers
(40.3)
(4.3)
(44.6)
Impact of changes in foreign exchange rates
(0.3)
(0.3)
(0.6)
Deferred revenue recognized from business acquisitions
22.8
—
22.8
Deferred revenue at December 31, 2024
$
430.9
$
173.4
$
604.3
Revenue recognized during 2024 in the table above included revenue from 2023 acquisitions that would not be reflected in prior
years.
Remaining Performance Obligations
Remaining performance obligations represent the portion of the contract price for which work has not been performed. As of
December 31, 2024, the aggregate amount of the contract price allocated to remaining performance obligations was
$604.3 million.
The estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially
unsatisfied) at the end of the reporting period is as follows (in millions):
Brokerage
Risk
Management
Total
2025
$
401.1
$
38.1
$
439.2
2026
26.5
68.6
95.1
2027
1.8
26.4
28.2
2028
0.8
17.1
17.9
2029
0.4
8.5
8.9
Thereafter
0.3
14.7
15.0
Total
$
430.9
$
173.4
$
604.3
Deferred Contract Costs
We capitalize costs incurred to fulfill contracts as “deferred contract costs” which are included in other current assets in our
consolidated balance sheet. Deferred contract costs were $206.8 million and $169.1 million as of December 31, 2024 and 2023,
respectively. Capitalized fulfillment costs are amortized to expense on the contract effective date. The amount of amortization
of the deferred contract costs was $666.0 million and $570.8 million for the years ended December 31, 2024 and 2023,
respectively.
We have applied the practical expedient to recognize the incremental costs of obtaining contracts as an expense when incurred if
the amortization period of the assets that we otherwise would have recognized is one year or less for our brokerage segment.
These costs are included in compensation and operating expenses in our consolidated statement of earnings.
90
5. Fixed Assets
Major classes of fixed assets consist of the following (in millions):
December 31,
2024
2023
Office equipment
$
34.2
$
32.9
Furniture and fixtures
151.8
154.1
Leasehold improvements
259.9
232.6
Computer equipment
362.6
353.5
Land and buildings - corporate headquarters
171.6
168.9
Software
720.7
722.9
Other
41.3
31.3
Work in process
64.2
54.1
1,806.3
1,750.3
Accumulated depreciation
(1,156.0)
(1,023.9)
Net fixed assets
$
650.3
$
726.4
The amounts in work in process in the table above primarily are for capitalized expenditures incurred related to IT development
projects in 2024 and 2023.
6. Intangible Assets
The carrying amount of goodwill at December 31, 2024 and 2023 allocated by domestic and foreign operations is as follows (in
millions):
Brokerage
Risk
Management
Corporate
Total
At December 31, 2024
United States
$
6,965.6
$
74.8
$
—
$
7,040.4
United Kingdom
2,591.4
25.7
—
2,617.1
Canada
586.9
—
—
586.9
Australia
509.1
219.3
—
728.4
New Zealand
183.2
8.5
—
191.7
Other foreign
1,087.2
—
18.5
1,105.7
Total goodwill - net
$ 11,923.4
$
328.3
$
18.5
$ 12,270.2
At December 31, 2023
United States
$
6,304.5
$
74.8
$
—
$
6,379.3
United Kingdom
2,493.4
18.5
—
2,511.9
Canada
623.7
—
—
623.7
Australia
514.6
135.9
—
650.5
New Zealand
204.2
9.6
—
213.8
Other foreign
1,077.4
—
19.0
1,096.4
Total goodwill - net
$ 11,217.8
$
238.8
$
19.0
$ 11,475.6
91
The changes in the carrying amount of goodwill for 2024 and 2023 are as follows (in millions):
Brokerage
Risk
Management
Corporate
Total
Balance as of December 31, 2022
$
9,358.1
$
112.2
$
19.1
$
9,489.4
Goodwill acquired during the year
1,667.4
121.8
—
1,789.2
Goodwill adjustments related to appraisals and other acquisition
adjustments
20.0
(0.1)
—
19.9
Foreign currency translation adjustments during the year
172.3
4.9
(0.1)
177.1
Balance as of December 31, 2023
11,217.8
238.8
19.0
11,475.6
Goodwill acquired during the year
829.7
7.5
—
837.2
Goodwill adjustments related to appraisals and other acquisition
adjustments
98.7
101.5
—
200.2
Goodwill written-off related to sales of business
(5.8)
—
—
(5.8)
Foreign currency translation adjustments during the year
(217.0)
(19.5)
(0.5)
(237.0)
Balance as of December 31, 2024
$
11,923.4
$
328.3
$
18.5
$
12,270.2
Major classes of amortizable intangible assets consist of the following (in millions):
December 31,
2024
2023
Expiration lists
$
8,763.7
$
8,222.8
Accumulated amortization - expiration lists
(4,312.7)
(3,733.2)
4,451.0
4,489.6
Non-compete agreements
117.7
112.2
Accumulated amortization - non-compete agreements
(85.4)
(74.9)
32.3
37.3
Trade names
120.0
171.8
Accumulated amortization - trade names
(73.2)
(65.4)
46.8
106.4
Net amortizable assets
$
4,530.1
$
4,633.3
Estimated aggregate amortization expense for each of the next five years is as follows (in millions):
2025
$
638.9
2026
594.8
2027
556.1
2028
516.8
2029
466.7
Thereafter
1,756.8
Total
$
4,530.1
92
7. Credit and Other Debt Agreements
The following is a summary of our corporate and other debt (in millions):
December 31,
2024
2023
Senior Notes:
Semi-annual payments of interest, fixed rate of 4.60%, balloon due December 15, 2027
$
750.0
$
—
Semi-annual payments of interest, fixed rate of 4.85%, balloon due December 15, 2029
750.0
—
Semi-annual payments of interest, fixed rate of 2.40%, balloon due November 9, 2031
400.0
400.0
Semi-annual payments of interest, fixed rate of 5.00%, balloon due February 15, 2032
500.0
—
Semi-annual payments of interest, fixed rate of 5.50%, balloon due March 2, 2033
350.0
350.0
Semi-annual payments of interest, fixed rate of 6.50%, balloon due February 15, 2034
400.0
400.0
Semi-annual payments of interest, fixed rate of 5.45%, balloon due July 15, 2034
500.0
—
Semi-annual payments of interest, fixed rate of 5.15%, balloon due February 15, 2035
1,500.0
—
Semi-annual payments of interest, fixed rate of 3.50%, balloon due May 20, 2051
850.0
850.0
Semi-annual payments of interest, fixed rate of 3.05%, balloon due March 9, 2052
350.0
350.0
Semi-annual payments of interest, fixed rate of 5.75%, balloon due March 2, 2053
600.0
600.0
Semi-annual payments of interest, fixed rate of 6.75%, balloon due February 15, 2054
600.0
600.0
Semi-annual payments of interest, fixed rate of 5.75%, balloon due July 15, 2054
500.0
—
Semi-annual payments of interest, fixed rate of 5.55%, balloon due February 15, 2055
1,500.0
—
Total Senior Notes
9,550.0
3,550.0
Note Purchase Agreements:
Semi-annual payments of interest, fixed rate of 4.72%, balloon due February 13, 2024
—
100.0
Semi-annual payments of interest, fixed rate of 4.58%, balloon due February 27, 2024
—
325.0
Semi-annual payments of interest, fixed rate of 4.31%, balloon due June 24, 2025
200.0
200.0
Semi-annual payments of interest, fixed rate of 4.85%, balloon due February 13, 2026
140.0
140.0
Semi-annual payments of interest, fixed rate of 4.73%, balloon due February 27, 2026
175.0
175.0
Semi-annual payments of interest, fixed rate of 4.40%, balloon due June 2, 2026
175.0
175.0
Semi-annual payments of interest, fixed rate of 4.36%, balloon due June 24, 2026
150.0
150.0
Semi-annual payments of interest, fixed rate of 3.75%, balloon due January 30, 2027
30.0
30.0
Semi-annual payments of interest, fixed rate of 4.09%, balloon due June 27, 2027
125.0
125.0
Semi-annual payments of interest, fixed rate of 4.09%, balloon due August 2, 2027
125.0
125.0
Semi-annual payments of interest, fixed rate of 4.14%, balloon due August 4, 2027
98.0
98.0
Semi-annual payments of interest, fixed rate of 3.46%, balloon due December 1, 2027
100.0
100.0
Semi-annual payments of interest, fixed rate of 4.55%, balloon due June 2, 2028
75.0
75.0
Semi-annual payments of interest, fixed rate of 4.34%, balloon due June 13, 2028
125.0
125.0
Semi-annual payments of interest, fixed rate of 5.04%, balloon due February 13, 2029
100.0
100.0
Semi-annual payments of interest, fixed rate of 4.98%, balloon due February 27, 2029
100.0
100.0
Semi-annual payments of interest, fixed rate of 4.19%, balloon due June 27, 2029
50.0
50.0
Semi-annual payments of interest, fixed rate of 4.19%, balloon due August 2, 2029
50.0
50.0
Semi-annual payments of interest, fixed rate of 3.48%, balloon due December 2, 2029
50.0
50.0
Semi-annual payments of interest, fixed rate of 3.99%, balloon due January 30, 2030
341.0
341.0
Semi-annual payments of interest, fixed rate of 4.44%, balloon due June 13, 2030
125.0
125.0
Semi-annual payments of interest, fixed rate of 5.14%, balloon due March 13, 2031
180.0
180.0
Semi-annual payments of interest, fixed rate of 4.70%, balloon due June 2, 2031
25.0
25.0
Semi-annual payments of interest, fixed rate of 4.09%, balloon due January 30, 2032
69.0
69.0
Semi-annual payments of interest, fixed rate of 4.34%, balloon due June 27, 2032
75.0
75.0
Semi-annual payments of interest, fixed rate of 4.34%, balloon due August 2, 2032
75.0
75.0
Semi-annual payments of interest, fixed rate of 4.59%, balloon due June 13, 2033
125.0
125.0
Semi-annual payments of interest, fixed rate of 5.29%, balloon due March 13, 2034
40.0
40.0
Semi-annual payments of interest, fixed rate of 4.48%, balloon due June 12, 2034
175.0
175.0
Semi-annual payments of interest, fixed rate of 4.24%, balloon due January 30, 2035
79.0
79.0
Semi-annual payments of interest, fixed rate of 2.44%, balloon due February 10, 2036
100.0
100.0
Semi-annual payments of interest, fixed rate of 2.46%, balloon due May 5, 2036
75.0
75.0
Semi-annual payments of interest, fixed rate of 4.69%, balloon due June 13, 2038
75.0
75.0
Semi-annual payments of interest, fixed rate of 5.45%, balloon due March 13, 2039
40.0
40.0
Semi-annual payments of interest, fixed rate of 4.49%, balloon due January 30, 2040
56.0
56.0
Total Note Purchase Agreements
3,523.0
3,948.0
Credit Agreement:
Periodic payments of interest and principal, prime or SOFR plus up to 1.075%, expires June 22, 2028
—
245.0
Premium Financing Debt Facility - expires October 31, 2026:
Facility B
AUD denominated tranche, interbank rates plus 1.400%
218.2
249.0
NZD denominated tranche, interbank rates plus 1.850%
—
—
Facility C and D
AUD denominated tranche, interbank rates plus 0.830%
—
31.4
NZD denominated tranche, interbank rates plus 0.990%
7.0
8.6
Total Premium Financing Debt Facility
225.2
289.0
Total corporate and other debt
13,298.2
8,032.0
Less unamortized debt acquisition costs on Senior Notes and Note Purchase Agreements
(90.1 )
(38.4 )
Less unamortized discount on Bonds Payable
(51.0 )
(28.6 )
Net corporate and other debt
$
13,157.1
$
7,965.0
The Senior Notes in the table above are registered by the Company with the Securities and Exchange Commission and are not guaranteed.
93
Senior Notes - On December 19, 2024, we closed and funded an offering of $5,000.0 million of unsecured senior notes in five
tranches. The $750.0 million aggregate principal amount of 4.60% Senior Notes is due in 2027, $750.0 million aggregate
principal amount of 4.85% Senior Notes is due in 2029, $500.0 million aggregate principal amount of 5.00% Senior Notes is due
in 2032, $1,500.0 million aggregate principal amount of 5.15% Senior Notes is due in 2035 and $1,500.0 million aggregate
principal amount 5.55% Senior Notes is due in 2055. The weighted average interest rate is 5.25% per annum after giving effect
to underwriting costs and a net hedge gain. During 2024, we entered into a pre-issuance interest rate hedging transaction related
to these notes. We realized a net cash gain of approximately $4.1 million on the hedging transactions that will be recognized on
a pro rata basis as a decrease to our reported interest expense over ten years. We expect to use the net proceeds of this offering to
fund a portion of the cash consideration payable in connection with the AssuredPartners transaction and, to the extent that any
proceeds remain thereafter, or if the AssuredPartners transaction is not completed, for general corporate purposes including other
acquisitions.
On February 12, 2024, we closed and funded an offering of $1,000.0 million of unsecured senior notes in two tranches. The
$500.0 million aggregate principal amount of 5.45% Senior Notes is due in 2034 and $500.0 million aggregate principal amount
of 5.75% Senior Notes is due in 2054. The weighted average interest rate is 5.71% per annum after giving effect to underwriting
costs and a net hedge loss. During 2023, we entered into a pre-issuance interest rate hedging transaction related to these notes.
We realized a net cash loss of approximately $1.4 million on the hedging transactions that will be recognized on a pro rata basis
as an increase to our reported interest expense over ten years. We used the proceeds of these offerings to fund acquisitions,
earnout payments related to acquisitions and general corporate purposes.
On November 2, 2023, we closed and funded an offering of $1,000.0 million of unsecured senior notes in two tranches. The
$400.0 million aggregate principal amount of 6.50% Senior Notes is due 2034 and $600.0 million aggregate principal amount of
6.75% Senior Notes is due 2054. The weighted average interest rate is 5.97% per annum after giving effect to underwriting costs
and a net hedge gain. During 2021 through 2023, we entered into a pre-issuance interest rate hedging transaction related to these
notes. We realized a net cash gain of approximately $128.0 million on the hedging transactions that will be recognized on a pro
rata basis as a decrease to our reported interest expense over ten years. We used the proceeds of these offerings to fund
acquisitions, earnout payments related to acquisitions and general corporate purposes.
On March 2, 2023, we closed and funded an offering of $950.0 million of unsecured senior notes in two tranches. The
$350.0 million aggregate principal amount of 5.50% Senior Notes is due 2033 and $600.0 million aggregate principal amount of
5.75% Senior Notes is due 2053. The weighted average interest rate is 5.05% per annum after giving effect to underwriting costs
and a net hedge gain. During 2019 through 2022, we entered into a pre-issuance interest rate hedging transaction related to these
notes. We realized a net cash gain of approximately $112.7 million on the hedging transactions that will be recognized on a pro
rata basis as a decrease to our reported interest expense over ten years. We used the proceeds of these offerings to fund
acquisitions, earnout payments related to acquisitions and general corporate purposes.
Note Purchase Agreements - During February 2024, we used operating cash to fund the $100.0 million Series HH note
maturity that had a fixed rate of 4.72% that was due February 13, 2024 and the $325.0 million Series H note maturity that had a
fixed rate of 4.58% that was due February 27, 2024.
During June 2023, we used operating cash to fund the $200.0 million Series N note maturity that had a fixed rate of 4.13% that
was due June 24, 2023 and the prepayment of the $50.0 million Series CC note floating rate of 90 day LIBOR plus 1.40%,
balloon that was originally due on June 13, 2024.
During February 2023, we used operating cash to fund the $50.0 million Series E note maturity that had a fixed rate of 5.49%
that was due February 10, 2023.
Under the terms of the note purchase agreements described above, we may redeem the notes at any time, in whole or in part, at
100% of the principal amount of such notes being redeemed, together with accrued and unpaid interest and a “make-whole
amount”. The “make-whole amount” is derived from a net present value computation of the remaining scheduled payments of
principal and interest using a discount rate based on the U.S. Treasury yield plus 0.5% and is designed to compensate the
purchasers of the notes for their investment risk in the event prevailing interest rates at the time of prepayment are less favorable
than the interest rates under the notes. We do not currently intend to prepay any of the notes.
The note purchase agreements described above contain customary provisions for transactions of this type, including
representations and warranties regarding us and our subsidiaries and various financial covenants, including covenants that
require us to maintain specified financial ratios. We were in compliance with these covenants as of December 31, 2024. The
note purchase agreements also provide customary events of default, generally with corresponding grace periods, including,
without limitation, payment defaults with respect to the notes, covenant defaults, cross-defaults to other agreements evidencing
94
our or our subsidiaries’ indebtedness, certain judgments against us or our subsidiaries and events of bankruptcy involving us or
our material subsidiaries.
The notes issued under the note purchase agreement are senior unsecured obligations of ours and rank equal in right of payment
with our Credit Agreement discussed below.
Credit Agreement - On June 22, 2023, we entered into a new Credit agreement (which we refer to as the Credit Agreement)
with an administrative agent and a group of other lenders. The Credit Agreement provides for a five-year unsecured revolving
credit facility in the amount of $1,200.0 million (including a $75.0 million letter of credit sub-facility), which is also available in
Pounds Sterling, Canadian Dollars, Australian Dollars, New Zealand Dollars, Euros, Japanese Yen and any other currencies
agreed by the lenders. On November 7, 2023, we entered into the First Amendment to the Credit Agreement, pursuant to which
we increased the commitments under the Credit Agreement to $1,700.0 million. The Credit Agreement permits us to designate
wholly-owned subsidiaries located in certain jurisdictions as additional borrowers, the obligations of which under the Credit
Agreement will be guaranteed by the Company, subject to the terms and conditions set forth in the Credit Agreement. Any
subsidiary that guarantees any notes under the Company’s existing note purchase agreements is required to guarantee the
obligations under the Credit Agreement. There are currently no subsidiary borrowers or guarantors under the Credit Agreement.
Loans borrowed under the Credit Agreement bear interest at a variable annual rate based on a customary benchmark rate for each
available currency including Secured Overnight Financing Rate (which we refer to as SOFR) for loans in U.S. Dollars, or at our
election solely for loans in U.S. Dollars, the base rate, plus in each case an applicable margin. Interest rates on base rate loans
and outstanding drawings on letters of credit under the Credit Agreement will be based on the Base Rate, as defined in the Credit
Agreement, plus a margin of 0.00% to 0.375%, depending on the rating of our long-term senior unsecured debt. Interest rates for
SOFR loans and loans in currencies other than U.S. dollars under the Credit Agreement will be based on, as applicable, a SOFR
Daily Floating Rate, Term SOFR, Alternative Currency Daily Rate or Alternative Currency Term Rate, as defined in the Credit
Agreement, plus a margin of 0.775% to 1.375%, depending on the rating of our long-term senior unsecured debt. The annual
facility fee related to the Credit Agreement is between 0.100% and 0.250% of the revolving credit commitment, depending on
the rating of our long-term senior unsecured debt. Subject to certain conditions stated in the Credit Agreement, we may borrow,
prepay and reborrow amounts under the Credit Agreement at any time during the term of the Credit Agreement. Funds borrowed
under the Credit Agreement may be used for general corporate and working capital purposes of the Company and its
subsidiaries.
The Credit Agreement also contains customary representations and warranties and affirmative and negative covenants, including
financial covenants, as well as customary events of default, with corresponding grace periods, including without limitations,
payment defaults, cross-defaults to other agreements evidencing indebtedness and bankruptcy-related defaults. We were in
compliance with these covenants as of December 31, 2024.
Concurrently, on June 22, 2023, we paid off and terminated all of our obligations under the Second Amended and Restated
Multicurrency Credit Agreement, dated as of June 7, 2019.
At December 31, 2024, $10.9 million of letters of credit (for which we had $12.0 million of liabilities recorded at December 31,
2024) were outstanding under the Credit Agreement. See Note 15 to these consolidated financial statements for a discussion of
the letters of credit. There were no borrowings outstanding under the Credit Agreement at December 31, 2024. Accordingly, at
December 31, 2024, $1,689.1 million remained available for potential borrowings.
Premium Financing Debt Facility - On October 30, 2024, we entered into an amendment to our revolving loan facility (which
we refer to as the Premium Financing Debt Facility), that provides funding for the three Australian (AU) and New Zealand (NZ)
premium finance subsidiaries. The Premium Financing Debt Facility is comprised of: (i) Facility B is separated into
AU$410.0 million and NZ$25.0 million tranches (the AU$ tranche has been decreased as of February 1, 2025 to
AU$390.0 million and the NZ$ tranche will be decreased as of May 1, 2025 to NZ$10.0 million), (ii) Facility C, an
AU$60.0 million equivalent multi-currency overdraft tranche and (iii) Facility D, a NZ$15.0 million equivalent multi-currency
overdraft tranche.
The interest rates on Facility B are Interbank rates, which vary by tranche, duration and currency, plus a margin of 1.400% and
1.850% for the AU$ and NZ$ tranches, respectively. The interest rates on Facilities C and D are 30 day Interbank rates, plus a
margin of 0.830% and 0.990% for the AU$ and NZ$ tranches, respectively. The annual fee for Facility B is 0.56% and 0.8325%
for the undrawn commitments for the AU$ and NZ$ tranches, respectively. The annual fee for Facility C is 0.77% and for
Facility D is 0.90% of the total commitments of the facilities.
95
The terms of our Premium Financing Debt Facility include various financial covenants, including covenants that require us to
maintain specified financial ratios. We were in compliance with these covenants as of December 31, 2024. The Premium
Financing Debt Facility also includes customary provisions for transactions of this type, including events of default, with
corresponding grace periods and cross-defaults to other agreements evidencing our indebtedness. Facilities B, C and D are
secured by the premium finance receivables of the Australian and New Zealand premium finance subsidiaries.
At December 31, 2024, AU$350.0 million and NZ$0.0 million of borrowings were outstanding under Facility B, AU$0.0 million
of borrowings outstanding under Facility C and NZ$12.5 million of borrowings were outstanding under Facility D, which in
aggregate amount to US$225.2 million of borrowings outstanding under the Premium Financing Debt Facility. Accordingly, as
of December 31, 2024, AU$60.0 million and NZ$25.0 million remained available for potential borrowing under Facility B, and
AU$60.0 million and NZ$2.5 million under Facilities C and D, respectively.
See Note 15 to these consolidated financial statements for additional discussion on our contractual obligations and commitments
as of December 31, 2024.
The aggregate estimated fair value of the $13,073.0 million in debt under our various senior notes and note purchase agreements
at December 31, 2024 was $12,072.7 million due to the long-term duration and fixed interest rates associated with these debt
obligations. No active or observable market exists for our private long-term debt. Therefore, the estimated fair value of this debt
is based on the income valuation approach, which is a valuation technique that converts future amounts (for example, cash flows
or income and expenses) to a single current (that is, discounted) amount. The fair value measurement is determined on the basis
of the value indicated by current market expectations about those future amounts. Because our debt issuances generate a
measurable income stream for each lender, the income approach was deemed to be an appropriate methodology for valuing the
private placement long-term debt. The methodology used calculated the original deal spread at the time of each debt issuance,
which was equal to the difference between the yield of each issuance (the coupon rate) and the equivalent benchmark treasury
yield at that time. The market spread as of the valuation date was calculated, which is equal to the difference between an index
for investment grade insurers and the equivalent benchmark treasury yield today. An implied premium or discount to the par
value of each debt issuance based on the difference between the origination deal spread and market as of the valuation date was
then calculated. The index we relied on to represent investment graded insurers was the Bloomberg Valuation Services (BVAL)
U.S. Insurers BBB index. This index is comprised primarily of insurance brokerage firms and was representative of the industry
in which we operate. For the purpose of our analysis, the average BBB rate was assumed to be the appropriate borrowing rate
for us. The estimated fair value of the borrowings outstanding under our Credit Agreement approximate their carrying value due
to their short-term duration and variable interest rates. The estimated fair value of the $225.2 million of borrowings outstanding
under our Premium Financing Debt Facility approximates their carrying value due to their short-term duration and variable
interest rates.
8. Earnings per Share
The following table sets forth the computation of basic and diluted net earnings per share (in millions, except per share data):
Year Ended December 31,
2024
2023
2022
Net earnings attributable to controlling interests
$
1,462.7
$
969.5
$
1,114.2
Weighted average number of common shares outstanding
220.5
214.9
210.3
Dilutive effect of stock options using the treasury stock
method
4.5
4.4
4.4
Weighted average number of common and common
equivalent shares outstanding
225.0
219.3
214.7
Basic net earnings per share
$
6.63
$
4.51
$
5.30
Diluted net earnings per share
$
6.50
$
4.42
$
5.19
Anti-dilutive stock-based awards of 0.9 million, 0.9 million and 2.0 million shares were outstanding at December 31, 2024, 2023
and 2022, respectively, but were excluded in the computation of the dilutive effect of stock-based awards for the year then
ended. These stock-based awards were excluded from the computation because the exercise prices on these stock-based awards
were greater than the average market price of our common shares during the respective period, and therefore, would be
anti-dilutive to earnings per share under the treasury stock method.
96
9. Stock Option Plans
On May 10, 2022, our stockholders approved the Arthur J. Gallagher & Co. 2022 Long-Term Incentive Plan (which we refer to
as the LTIP), which replaced our previous stockholder-approved Arthur J. Gallagher & Co. 2017 Long-Term Incentive Plan
(which we refer to as the 2017 LTIP). The LTIP term began May 10, 2022 and terminates on the date of the annual meeting of
stockholders in 2032, unless terminated earlier by our board of directors. All of our officers, employees and non-employee
directors are eligible to receive awards under the LTIP. The compensation committee of our board of directors determines the
annual number of shares delivered under the LTIP. The LTIP provides for non-qualified and incentive stock options, stock
appreciation rights, restricted stock and restricted stock units, any or all of which may be made contingent upon the achievement
of performance criteria.
Shares of our common stock available for issuance under the LTIP include authorized and unissued shares of common stock or
authorized and issued shares of common stock reacquired and held as treasury shares or otherwise, or a combination thereof.
The number of available shares will be reduced by the aggregate number of shares that become subject to outstanding awards
granted under the LTIP. A maximum of 3.5 million shares issued for full value awards (i.e., awards other than stock options or
stock appreciation rights) will be counted one-for-one against the 13.5 million share pool, and every share subject to a full value
award in excess of such limit count as 3.8 shares against the pool. To the extent that shares subject to an outstanding award
granted under either the LTIP or prior equity plans are not issued or delivered by reason of the expiration, termination,
cancellation or forfeiture of such award or by reason of the settlement of such award in cash, then such shares will again be
available for grant under the LTIP.
The maximum number of shares available under the LTIP for restricted stock, restricted stock unit awards and performance unit
awards settled with stock (i.e., all awards other than stock options and stock appreciation rights) is 2.5 million as of
December 31, 2024.
The LTIP provides for the grant of stock options, which may be either tax-qualified incentive stock options or non-qualified
options and stock appreciation rights. The compensation committee determines the period for the exercise of a non-qualified
stock option, tax-qualified incentive stock option or stock appreciation right, provided that no option can be exercised later than
seven years after its date of grant. The exercise price of a non-qualified stock option or tax-qualified incentive stock option and
the base price of a stock appreciation right cannot be less than 100% of the fair market value of a share of our common stock on
the date of grant, provided that the base price of a stock appreciation right granted in tandem with an option will be the exercise
price of the related option.
Upon exercise, the option exercise price may be paid in cash, by the delivery of previously owned shares of our common stock,
through a net-exercise arrangement, or through a broker-assisted cashless exercise arrangement. The compensation committee
determines all of the terms relating to the exercise, cancellation or other disposition of an option or stock appreciation right upon
a termination of employment, whether by reason of disability, retirement, death or any other reason. Stock option and stock
appreciation right awards under the LTIP are non-transferable.
On March 1, 2024, the compensation committee granted 1,044,000 options under the LTIP to our officers and key employees
that become exercisable at the rate of 34%, 33% and 33% on the anniversary date of the grant in 2027, 2028 and 2029,
respectively. On March 15, 2023, the compensation committee granted 1,131,000 options under the LTIP to our officers and key
employees that become exercisable at the rate of 34%, 33% and 33% on the anniversary date of the grant in 2026, 2027 and
2028, respectively. On February 1, 2022 and March 15, 2022, the compensation committee granted 1,197,000 and 1,141,000
options, respectively, under the 2017 LTIP to our officers and key employees that become exercisable at the rate of 34%, 33%
and 33% on the anniversary date of the grant in 2025, 2026, and 2027, respectively.
The 2024, 2023 and 2022 options expire seven years from the date of grant, or earlier in the event of certain terminations of
employment. Stock options granted in 2023 and 2022 to certain executive officers age 55 or older are not subject to forfeiture
upon such officers’ departure from the Company after two years from date of grant. Stock options granted in 2024 to executive
officers are not subject to forfeiture upon such officers’ departure from the Company once they attain the age of 62.
Our stock option plans provide for the immediate vesting of all outstanding stock option grants in the event of a change in
control of the Company, as defined in the applicable plan documents.
During 2024, 2023 and 2022, we recognized $47.8 million, $33.5 million, and $27.9 million, respectively, of compensation
expense related to our stock option grants.
97
For purposes of expense recognition in 2024, 2023 and 2022, the estimated fair values of the stock option grants are amortized to
expense over the options’ vesting period. We estimated the fair value of stock options at the date of grant using the Black-
Scholes option pricing model with the following weighted average assumptions:
Year Ended December 31,
2024
2023
2022
Expected dividend yield
1.0%
1.2%
1.3%
Expected risk-free interest rate
4.2%
3.6%
1.9%
Volatility
25.3%
25.0%
23.1%
Expected life (in years)
5.5
5.5
5.4
Option valuation models require the input of highly subjective assumptions including the expected stock price volatility. The
Black-Scholes option pricing model was developed for use in estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. The weighted average fair value per option for all options granted during 2024, 2023 and
2022, as determined on the grant date using the Black-Scholes option pricing model, was $69.55, $46.48 and $33.25,
respectively.
The following is a summary of our stock option activity and related information for 2024 and 2023 (in millions, except exercise
price and year data):
Weighted
Average
Weighted
Remaining
Shares
Average
Contractual
Aggregate
Under
Exercise
Term
Intrinsic
Option
Price
(in years)
Value
Year Ended December 31, 2024
Beginning balance
7.9
$
123.85
Granted
1.0
243.54
Exercised
(1.4)
77.93
Forfeited or canceled
(0.2)
160.87
Ending balance
7.3
$
148.26
3.78
$
995.3
Exercisable at end of year
1.7
$
90.06
1.78
$
336.9
Ending unvested and expected to vest
5.2
$
164.49
4.40
$
624.4
Year Ended December 31, 2023
Beginning balance
8.3
$
107.47
Granted
1.2
177.78
Exercised
(1.3)
62.33
Forfeited or canceled
(0.3)
143.78
Ending balance
7.9
$
123.85
3.97
$
793.9
Exercisable at end of year
1.8
$
73.04
1.63
$
266.4
Ending unvested and expected to vest
5.7
$
137.02
4.60
$
497.2
Options with respect to 11.1 million shares (less any shares of restricted stock issued under the LTIP - see Note 11 to these
consolidated financial statements) were available for grant under the LTIP at December 31, 2024.
The total intrinsic value of options exercised during 2024, 2023 and 2022 amounted to $243.7 million, $181.6 million and
$168.2 million, respectively. As of December 31, 2024, we had approximately $123.8 million of total unrecognized
compensation expense related to nonvested options. We expect to recognize that cost over a weighted average period of
approximately four years.
98
Other information regarding stock options outstanding and exercisable at December 31, 2024 is summarized as follows (in
millions, except exercise price and year data):
Options Outstanding
Options Exercisable
Weighted
Average
Remaining
Weighted
Weighted
Contractual
Average
Average
Number
Term
Exercise
Number
Exercise
Range of Exercise Prices
Outstanding
(in years)
Price
Exercisable
Price
$
70.74
$
—
$
70.74
$
0.2
$
0.20
$
70.74
$
0.2
$
70.74
79.59
—
79.59
0.6
1.20
79.59
0.6
79.59
86.17
—
86.17
1.0
2.19
86.17
0.6
86.17
127.90
—
127.90
1.3
3.21
127.90
0.3
127.90
156.85
—
156.85
1.0
4.09
156.85
—
—
158.56
—
161.14
1.1
4.21
158.65
—
—
177.09
—
202.13
1.1
5.21
177.80
—
—
238.88
—
243.54
1.0
6.17
243.54
—
—
$
70.74
$
—
$
243.54
$
7.3
$
3.78
$
148.26
$
1.7
$
90.06
10. Deferred Compensation
We have a Deferred Equity Participation Plan, (which we refer to as the DEPP), which is a non-qualified plan that generally
provides for distributions to certain of our key executives when they reach age 62 (or the one-year anniversary of the date of the
grant for participants over the age of 61 as of the grant date) or upon or after their actual retirement if later. Under the provisions
of the DEPP, we typically contribute cash in an amount approved by the compensation committee to a rabbi trust on behalf of the
executives participating in the DEPP, and instruct the trustee to acquire a specified number of shares of our common stock on the
open market or in privately negotiated transactions based on participant elections. Distributions under the DEPP may not
normally be made until the participant reaches age 62 (or the one-year anniversary of the date of the grant for participants over
the age of 61 as of the grant date) and are subject to forfeiture in the event of voluntary termination of employment or
termination for cause prior to then. DEPP awards are generally made annually in the first quarter. In addition, we annually
make awards under sub-plans of the DEPP for certain production staff, which generally provide for vesting and/or distributions
no sooner than five years from the date of awards, although certain awards vest and/or distribute after the earlier of fifteen years
or the participant reaching age 65. All contributions to the plan (including sub-plans) deemed to be invested in shares of our
common stock are distributed in the form of our common stock and all other distributions are paid in cash.
Our common stock that is issued to or purchased by the rabbi trust as a contribution under the DEPP is valued at historical cost,
which equals its fair market value at the date of grant or date of purchase. When common stock is issued, we record an unearned
deferred compensation obligation as a reduction of capital in excess of par value in the accompanying consolidated balance
sheet, which is amortized to compensation expense ratably over the vesting period of the participants. Future changes in the fair
market value of our common stock owed to the participants do not have any impact on the amounts recorded in our consolidated
financial statements.
In the first quarter of 2024, 2023 and 2022, the compensation committee approved $23.2 million, $25.1 million and
$26.3 million, respectively, of awards in the aggregate to certain key executives under the DEPP that were contributed to the
rabbi trust in the first quarters of 2024, 2023 and 2022, respectively. We contributed cash to the rabbi trust and instructed the
trustee to acquire a specified number of shares of our common stock on the open market to fund these 2024, 2023 and 2022
awards. During 2024, 2023 and 2022, we charged $20.9 million, $21.7 million and $18.5 million, respectively, to compensation
expense related to these awards.
In 2024, 2023 and 2022, the compensation committee approved $2.3 million, $3.0 million and $1.9 million, respectively, of
awards under the sub-plans referred to above, which were contributed to the rabbi trust in first quarter 2024, 2023 and 2022,
respectively. During 2024, 2023 and 2022, we charged $2.1 million, $2.6 million and $2.3 million, respectively, to
compensation expense related to these awards. There were $3.0 million and $13.8 million of distributions from the sub-plans
during 2024 and 2023. There were no distributions from the sub-plans during 2022.
99
At December 31, 2024 and 2023, we recorded $77.0 million (related to 2.2 million shares) and $81.1 million (related to
2.2 million shares), respectively, of unearned deferred compensation as a reduction of capital in excess of par value in the
accompanying consolidated balance sheet. The total intrinsic value of our unvested equity based awards under the plan at
December 31, 2024 and 2023 was $616.4 million and $504.9 million, respectively. During 2024, 2023 and 2022, cash and
equity awards with an aggregate fair value of $40.4 million, $78.1 million and $45.6 million, respectively, were vested and
distributed to executives under the DEPP.
We have a Deferred Cash Participation Plan (which we refer to as the DCPP), which is a non-qualified deferred compensation
plan for certain key employees, other than executive officers, that generally provides for vesting and/or distributions no sooner
than five years from the date of awards. Under the provisions of the DCPP, we typically contribute cash in an amount approved
by the compensation committee to the rabbi trust on behalf of the executives participating in the DCPP, and instruct the trustee to
acquire a specified number of shares of our common stock on the open market or in privately negotiated transactions based on
participant elections. In the first quarter of each of 2024, 2023 and 2022, the compensation committee approved $8.1 million,
$9.8 million and $8.3 million, respectively, of awards in the aggregate to certain key executives under the DCPP that were
contributed to the rabbi trust in second quarters of 2024, 2023 and 2022, respectively. During 2024, 2023 and 2022 we charged
$19.3 million, $17.3 million and $13.4 million to compensation expense related to these awards. There were $43.8 million,
$23.2 million and $16.9 million of distributions from the DCPP during 2024, 2023 and 2022, respectively.
11. Restricted Stock, Performance Share and Cash Awards
Restricted Stock Awards
As discussed in Note 9 to these consolidated financial statements, on May 10, 2022, our stockholders approved the LTIP, which
replaced our previous stockholder-approved 2017 LTIP. The LTIP provides for the grant of a stock award either as restricted
stock or as restricted stock units to officers, employees and non-employee directors. In either case, the compensation committee
may determine that the award will be subject to the attainment of performance measures over an established performance period.
Stock awards and the related dividend equivalents are non-transferable and subject to forfeiture if the holder does not remain
continuously employed with us during the applicable restriction period or, in the case of a performance-based award, if
applicable performance measures are not attained. The compensation committee will determine all of the terms relating to the
satisfaction of performance measures and the termination of a restriction period, or the forfeiture and cancellation of a restricted
stock award upon a termination of employment, whether by reason of disability, retirement, death or any other reason.
The agreements awarding restricted stock units under the LTIP will specify whether such awards may be settled in shares of our
common stock, cash or a combination of shares and cash and whether the holder will be entitled to receive dividend equivalents,
on a current or deferred basis, with respect to such award. Prior to the settlement of a restricted stock unit, the holder of a
restricted stock unit will have no rights as a stockholder of the Company. The maximum number of shares available under the
LTIP for restricted stock, restricted stock units and performance unit awards settled with stock (i.e., all awards other than stock
options and stock appreciation rights) is 4.0 million. At December 31, 2024, 2.5 million shares were available for grant under
the LTIP for such awards.
In 2024, 2023 and 2022, we granted 355,245, 396,913 and 650,355 restricted stock units, respectively, to employees under the
LTIP and 2017 LTIP, with an aggregate fair value of $85.1 million, $67.0 million and $99.4 million, respectively, at the date of
grant.
These 2024, 2023 and 2022 restricted stock units vest as follows: 344,600 units granted in first quarter 2024, 800 units granted in
second quarter 2024, 700 units in third quarter 2024, 2,300 units in fourth quarter 2024, 390,000 units granted in first quarter
2023, and 641,000 units granted in first quarter 2022 vest in full based on continued employment through March 1, 2029,
March 15, 2028 and March 15, 2027, respectively, while the other 2024, 2023 and 2022 restricted stock unit awards generally
vest in full based on continued employment through the vesting period on the anniversary date of the grant. For our executive
officers age 55 or older, restricted stock units awarded in 2024, 2023 and 2022 are not subject to forfeiture upon such officers’
departure from the Company after two years from the date of grant.
100
The vesting periods of the 2024, 2023 and 2022 restricted stock unit awards are as follows (in actual shares):
Restricted Stock Units Granted
Vesting Period
2024
2023
2022
One year
6,800
7,360
9,270
Five years
348,445
389,553
641,085
Total shares granted
355,245
396,913
650,355
We account for restricted stock awards at historical cost, which equals its fair market value at the date of grant, which is
amortized to compensation expense ratably over the vesting period of the participants. Future changes in the fair market value of
our common stock that is owed to the participants do not have any impact on the amounts recorded in our consolidated financial
statements. During 2024, 2023 and 2022, we charged $53.8 million, $43.4 million and $36.4 million, respectively, to
compensation expense related to restricted stock awards granted in 2017 through 2023. The total intrinsic value of unvested
restricted stock at December 31, 2024 and 2023 was $548.9 million and $468.5 million, respectively. During 2024 and 2023,
equity awards (including accrued dividends) with an aggregate fair value of $93.5 million and $62.2 million were vested and
distributed to employees under this plan.
Performance Share Awards
On March 1, 2024, March 15, 2023 and March 15, 2022, pursuant to the LTIP, the compensation committee approved 58,000,
58,000 and 54,000, respectively of provisional performance share awards, with an aggregate fair value of $14.2 million,
$10.3 million and $8.6 million, respectively, for future grants to our officers. Each performance share award was equivalent to
the value of one share of our common stock on the date such provisional award was approved. At the end of the performance
period, eligible participants will receive a number of earned shares based on the growth in adjusted EBITDAC per share (as
defined in our 2024 Proxy Statement). Earned shares for the 2024, 2023 and 2022 provisional awards will fully vest based on
continuous employment through March 1, 2027, March 15, 2026 and March 15, 2025, respectively, and will be settled in
unrestricted shares of our common stock on a one-for-one basis as soon as practicable thereafter. The 2024, 2023 and 2022
awards are subject to a three-year performance period that began on January 1, 2024, 2023 and 2022, respectively, and vest on
the three-year anniversary of the date of grant (March 1, 2027, March 15, 2026 and March 15, 2025). Performance share awards
granted in 2023 and 2022 to certain executive officers age 55 or older, are not subject to forfeiture upon such officers’ departure
from the Company after two years from the date of grant. Performance share awards granted in 2024 to executive officers are
not subject to forfeiture upon such officers’ departure from the Company once they attain the age of 62. In each case, the awards
vest on a pro rata basis based on the number of months rounded up during which the officer was employed during the three-year
performance period. During 2024, 2023 and 2022, we recognized $22.0 million, $20.0 million and $15.2 million, respectively,
to compensation expense related to performance share awards granted in 2020 through 2024. The total intrinsic value of
unvested performance share awards at December 31, 2024 and 2023 was $93.0 million and $75.2 million. During 2024, 2023
and 2022, equity awards (including accrued dividends) with an aggregate fair value of $31.6 million, $28.9 million and
$21.8 million were vested and distributed to employees under this plan.
Cash Awards
Pursuant to our Performance Unit Program (which we refer to as the Program), there were no units granted in 2024 and 2023.
The Program consists of a one-year performance period based on our financial performance and a three-year vesting period
measured from January 1 of the year of grant. At the discretion of the compensation committee and determined based on our
performance, the eligible officer or key employee will be granted a percentage of the provisional cash award units that equates to
the EBITDAC growth achieved (as defined in the Program). At the end of the performance period, eligible participants will be
granted a number of units based on achievement of the performance goal and subject to approval by the compensation
committee. Granted units will fully vest based on continuous employment through the three-year vesting period. The ultimate
award value will be equal to the trailing twelve-month price of our common stock, multiplied by the number of units subject to
the award, but limited to between 0.5 and 1.5 times the original value of the units determined as of the grant date. The fair value
of the awarded units will be paid out in cash as soon as practicable. If an eligible employee leaves us prior to the vesting date,
the entire award will be forfeited.
On March 15, 2022, pursuant to the Program, the compensation committee approved provisional cash awards of $19.9 million in
the aggregate for future grants to our officers and key employees that are denominated in units (125,000 units in the aggregate),
each of which was equivalent to the value of one share of our common stock on the date the provisional award was approved.
Based on our performance for 2022, we granted 122,000 units under the Program in first quarter of 2023 that fully vested on
101
January 1, 2025. During 2024 and 2023 we charged $13.2 million and $13.4 million to compensation expense related to these
awards. We did not recognize any compensation expense during 2022 related to the 2022 provisional award under the Program.
On March 16, 2021, pursuant to the Program, the compensation committee approved provisional cash awards of $18.8 million in
the aggregate for future grants to our officers and key employees that are denominated in units (147,000 units in the aggregate),
each of which was equivalent to the value of one share of our common stock on the date the provisional award was approved.
Based on our performance for 2021, we granted 143,000 units under the Program in the first quarter of 2022 that fully vested on
January 1, 2024. During 2023 and 2022 we charged $13.1 million and $12.4 million, respectively, to compensation expense
related to these awards. We did not recognize any compensation expense during 2021 related to the 2021 provisional award
under the Program.
During 2024, cash awards related to the 2021 provisional awards with an aggregate fair value of $25.4 million (129,000 units in
the aggregate) were vested and distributed to employees under the Program. During 2023, cash awards related to the 2020
provisional awards with an aggregate fair value of $24.7 million (191,000 units in the aggregate) were vested and distributed to
employees under the Program. During 2022, cash awards related to the 2019 provisional awards with an aggregate fair value of
$21.1 million (177,000 units in the aggregate) were vested and distributed to employees under the Program.
12. Retirement Plans
We have a noncontributory defined benefit pension plan that, prior to July 1, 2005, covered substantially all of our domestic
employees who had attained a specified age and one year of employment. Benefits under the plan were based on years of service
and salary history. In 2005, we amended our defined benefit pension plan to freeze the accrual of future benefits for all U.S.
employees, effective on July 1, 2005. Since the plan is frozen, there is no difference between the projected benefit obligation
and accumulated benefit obligation at December 31, 2024 and 2023.
Through the acquisition of the partnership interests of BCHR holdings, L.P. and its subsidiaries dba Buck (which we refer to as
Buck), we acquired the assets and assumed the liabilities associated with three frozen defined benefit pension plans that provide
postretirement benefits to their participants located in the U.S., U.K. and Canada (which we refer to as the Buck Pension Plans).
The Buck Pension Plans were amended to freeze benefit plan accruals for all participants (closed to new entrants and existing
participants do not accrue any additional benefits) effective December 31, 2014. Effective December 31, 2024, the U.S. Buck
Pension Plan was merged into our defined benefit pension plan.
In January 2025, we notified plan participates that we will fully terminate such plan. In first quarter 2025, we will initiate the
wind down of the plan and we expect to complete such wind down by settling all future obligations under the plan through a
combination of lump sum payments to eligible, electing participants and transferring the remaining liability through the purchase
of a group annuity contract to a highly-rated third-party insurance company. We expect that the wind down will be completed in
fourth quarter 2025. Based on estimates as of December 31, 2024, we anticipate recognizing a non-cash, pre-tax loss of
approximately $34.2 million in fourth quarter 2025 to compensation expense in the consolidated statement of earnings that may
be offset by an approximately $12.8 million adjustment to consolidated statement of comprehensive earnings, a $16.5 million
write-down of a prepaid pension asset and a $4.6 million reversal of a deferred tax asset.
102
In the table below, the service cost component represents plan administration costs that are incurred directly by the plan. A
reconciliation of the beginning and ending balances of the pension benefit obligation and fair value of plan assets and the funded
status of the plan is as follows (in millions):
Year Ended December 31,
2024
2023
Change in pension benefit obligation:
Benefit obligation at beginning of year
$
216.0
$
211.9
Service cost
0.6
3.3
Interest cost
9.9
10.7
Merger of the Buck U.S. pension plan
95.4
—
Net actuarial loss (gain)
(10.5)
8.8
Benefits paid
(15.4)
(18.7)
Benefit obligation at end of year
$
296.0
$
216.0
Change in plan assets:
Fair value of plan assets at beginning of year
$
228.9
$
212.5
Actual (loss) return on plan assets
15.3
35.1
Merger of the Buck U.S. pension plan
83.7
—
Contributions by the Company
—
—
Benefits paid
(15.4)
(18.7)
Fair value of plan assets at end of year
$
312.5
$
228.9
Funded status of the plan (underfunded)
$
16.5
$
12.9
Amounts recognized in the consolidated balance sheet
consist of:
Noncurrent assets - prepaid pension asset
$
16.5
$
12.9
Accumulated other comprehensive income
17.7
37.3
Net amount included in retained earnings
$
34.2
$
50.2
The components of the net periodic pension benefit cost for the plan and other changes in plan assets and obligations recognized
in earnings and other comprehensive earnings consist of the following (in millions):
Year Ended December 31,
2024
2023
2022
Net periodic pension cost:
Service cost
$
0.6
$
3.3
$
0.5
Interest cost on benefit obligation
9.9
10.7
6.8
Expected return on plan assets
(15.4)
(14.2)
(19.1)
Amortization of net loss
2.5
4.9
2.4
Net periodic benefit income (cost)
(2.4)
4.7
(9.4)
Other changes in plan assets and obligations recognized
in other comprehensive earnings:
Net loss (gain) incurred
(10.3)
(12.0)
14.1
Amortization of net loss
(2.5)
(4.9)
(2.4)
Total recognized in other comprehensive income (loss)
(12.8)
(16.9)
11.7
Total recognized in net periodic pension cost and other
comprehensive income (loss)
$
(15.2) $
(12.2) $
2.3
The following weighted average assumptions were used at December 31 in determining the plan’s pension benefit obligation:
December 31,
2024
2023
Discount rate
5.50%
4.75%
Weighted average expected long-term rate of return on plan assets
7.00%
7.00%
103
The following weighted average assumptions were used at January 1 in determining the plan’s net periodic pension benefit cost:
Year Ended December 31,
2024
2023
2022
Discount rate
4.75%
5.25%
2.50%
Weighted average expected long-term rate of return on plan assets
7.00%
7.00%
7.00%
The following benefit payments are expected to be paid by the plan (in millions):
2025
$
25.2
2026
22.1
2027
22.5
2028
22.5
2029
22.6
2030 to 2034
448.5
The following is a summary of the plan’s weighted average asset at December 31 by asset category:
December 31,
Asset Category
2024
2023
Equity securities
0.0%
61.0%
Debt securities
100.0%
32.0%
Real estate
0.0%
7.0%
Total
100.0%
100.0%
Plan assets are invested in various pooled separate accounts under annuity contracts managed by two life underwriting
enterprises. The plan’s investment policy provides that investments will be allocated in a manner designed to provide a
long-term investment return greater than the actuarial assumptions, maximize investment return commensurate with risk and to
comply with the Employee Income Retirement Security Act of 1974, as amended (which we refer to as ERISA), by investing the
funds in a manner consistent with ERISA’s fiduciary standards. The weighted average expected long-term rate of return on plan
assets assumption was determined based on a review of the asset allocation strategy of the plan using expected ten-year return
assumptions for all of the asset classes in which the plan was invested at December 31, 2024 and 2023. The return assumptions
used in the valuation were based on data provided by the plan’s external investment advisors.
The following is a summary of the plan’s assets carried at fair value as of December 31 by level within the fair value hierarchy
(in millions):
December 31,
Fair Value Hierarchy
2024
2023
Level 1
$
—
$
—
Level 2
205.7
120.3
Level 3
106.8
108.6
Total fair value
$
312.5
$
228.9
The plan’s Level 2 assets consist of ownership interests in various pooled separate accounts within a life insurance carrier’s
group annuity contract. The fair value of the pooled separate accounts is determined based on the net asset value of the
respective funds, which is obtained from the underwriting enterprise and determined each business day with issuances and
redemptions of units of the funds made based on the net asset value per unit as determined on the valuation date. We have not
adjusted the net asset values provided by the underwriting enterprise. There are no restrictions as to the plan’s ability to redeem
its investment at the net asset value of the respective funds as of the reporting date. The plan’s Level 3 assets consist of pooled
separate accounts within another life insurance carrier’s annuity contracts for which fair value has been determined by an
independent valuation. Due to the nature of these annuity contracts, our management makes assumptions to determine how a
market participant would price these Level 3 assets. In determining fair value, the future cash flows to be generated by the
annuity contracts were estimated using the underlying benefit provisions specified in each contract, market participant
104
assumptions and various actuarial and financial models. These cash flows were then discounted to present value using a risk-
adjusted rate that takes into consideration market based rates of return and probability-weighted present values.
The following is a reconciliation of the beginning and ending balances for the Level 3 assets of the plan measured at fair value
(in millions):
Year Ended December 31,
2024
2023
Fair value at January 1
$
108.6
$
99.6
Settlements
(10.6)
(1.4)
Unrealized gain
8.8
10.4
Fair value at December 31
$
106.8
$
108.6
We were not required under the IRC to make any minimum contributions to the plan for each of the 2024, 2023 and 2022 plan
years. This level of required funding is based on the plan being frozen and the aggregate amount of our historical funding.
During 2024, 2023 and 2022 we did not make discretionary contributions to the plan.
We comply with the minimum funding requirements in the U.S., U.K. and Canada and will make annual contributions to the
Buck Pension Plans consistent with those funding requirements. We recognize the funded status of the Buck Pension Plans,
measured as the difference between the fair value of the plan assets and the projected benefit obligation, in the accompanying
December 31, 2024 and 2023 consolidated balance sheets. As of December 31, 2023, the funded/(unfunded) status related to the
Buck Pension Plans was $(21.6) million in the U.S., $10.8 million in the U.K. and $(1.3) million in Canada and have been
recorded in other noncurrent assets and liabilities.
We also have a qualified contributory savings and thrift 401(k) plan covering the majority of our domestic employees. For
eligible employees who have met the plan’s age and service requirements to receive matching contributions, we historically have
matched 100% of pre-tax and Roth elective deferrals up to a maximum of 5.0% of eligible compensation, subject to federal
limits on plan contributions and not in excess of the maximum amount deductible for federal income tax purposes. Beginning in
2021, the amount matched by the Company will be discretionary and annually determined by management. Employees must be
employed and eligible for the plan on the last day of the plan year to receive a matching contribution, subject to certain
exceptions enumerated in the plan document. Matching contributions are subject to a five-year graduated vesting schedule and
can be funded in cash or common stock of the Company. We expensed (net of plan forfeitures) $105.4 million, $86.0 million
and $73.8 million related to the plan in 2024, 2023 and 2022 respectively. During 2022 and 2023, management determined the
5.0% employer matching contributions on eligible compensation to the 401(k) plan for the 2022 and 2023 plan years to be
funded with our common stock, which were funded in February 2023 and 2024, respectively. During 2024, management
determined the 5.0% employer matching contributions on eligible compensation to the 401(k) plan for the 2024 plan year would
be funded with our common stock, which is expected to be funded in February 2025.
We also have a nonqualified deferred compensation plan, the Supplemental Savings and Thrift Plan, for certain employees who,
due to IRS rules, cannot take full advantage of our matching contributions under the 401(k) plan. The plan permits these
employees to annually elect to defer a portion of their compensation until their retirement or a future date. Our matching
contributions to this plan (up to a maximum of the lesser of a participant’s elective deferral of base salary, annual bonus and
commissions or 5.0% of eligible compensation, less matching amounts contributed under the 401(k) plan) are also discretionary
and annually determined by management. Matching contributions can be funded in cash or common stock of the Company. We
expensed $14.3 million, $12.3 million and $11.0 million related to contributions made to a rabbi trust maintained under the plan
in 2024, 2023 and 2022, respectively. During 2024, management determined the 5.0% employer matching contributions on
eligible compensation to the plan for the 2024 plan year would be funded with our common stock, which is expected to be
funded in February 2025. The fair value of the assets in the plan’s rabbi trust at December 31, 2024 and 2023, including
employee contributions and investment earnings, was $909.1 million and $728.4 million, respectively, and has been included in
other noncurrent assets and the corresponding liability has been included in other noncurrent liabilities in the accompanying
consolidated balance sheet.
We also have several foreign benefit plans, the largest of which is a defined contribution plan that provides for us to make
contributions of 5.0% of eligible compensation. In addition, the plan allows for voluntary contributions by U.K. employees,
which we match 100%, up to a maximum of an additional 5.0% of eligible compensation. Net expense for foreign retirement
plans amounted to $92.6 million, $76.7 million and $62.9 million in 2024, 2023 and 2022, respectively.
105
13. Leases
We have operating leases primarily related to branch facilities, data centers, sales offices, and agent locations, automobiles and
office equipment. Many of our leases include both lease (fixed rent payments) and non-lease components (common-area or
other maintenance costs) which are accounted for as a single lease component as we have elected the practical expedient to group
lease and non-lease components for all leases. Variable lease payments, such as periodically indexed and/or market adjustments,
are presented as lease expense in the period in which they are incurred. Since we did not elect the short-term policy election, we
record leases of 12 months or less on the balance sheet.
We exclude options to extend or terminate a lease from our recognition as part of our right-of-use assets and lease liabilities until
those options are reasonably certain and/or executed. We do not have any material guarantees, options to purchase, or restrictive
covenants related to our leases.
As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the
lease commencement date in determining the present value of the lease payments. We consider qualitative factors including our
derived credit rating, notched adjustments for collateralization, lease term, and, if significant, adjustments to our collateralized
rate to borrow in the same currency in which the lease is denominated.
The components of lease expense are as follows (in millions):
Statement of Earnings
Year ended
Lease Components
Classification
December 31, 2024
Operating lease expense
Operating expense
$
142.5
Variable lease expense
Operating expense
27.4
Sublease income
Investment income
(1.4)
Total net lease expense
$
168.5
Variable lease cost consist primarily of common-area and other maintenance costs for our lease facilities, as well as variable
lease payments related to indexed and/or market adjustments. Our sublease income derives primarily from a few office lease
arrangements and we have no significant sublease losses.
Year ended
Supplemental Cash Flow Information Related to Leases (in millions)
December 31, 2024
Cash paid for amounts included in the measurement of
lease liabilities:
Operating cash flows from operating leases
$
124.1
Right-of-use assets obtained in exchange for new
operating lease liabilities
$
98.7
We present all noncash transactions related to adjustments to the lease liability or right-of-use asset as noncash transactions.
This includes all noncash charges related to any modification or reassessment events triggering remeasurement.
Supplemental balance sheet information related to leases is as follows (in millions, except lease term and discount rate):
Lease Components
Balance Sheet Classification
December 31, 2024
Lease right-of-use assets
Right-of-use assets
$
377.8
Other current lease liabilities
Accrued compensation and other
current liabilities
91.8
Lease liabilities
Lease liabilities - noncurrent
328.1
Total lease liabilities
$
419.9
Weighted-average remaining lease term, years
5.0
Weighted-average discount rate
4.5%
106
Maturities of operating lease liabilities for each of the next five years and thereafter are as follows (in millions):
2025
$
113.9
2026
103.6
2027
83.8
2028
62.8
2029
33.9
Thereafter
74.3
Total lease payments
472.3
Less interest
(52.4)
Total
$
419.9
Our leases have remaining lease terms of 0.0 years to 12.0 years, some of which may include options to extend the leases for up
to 10.0 years and some of which may include options to terminate the leases.
As of December 31, 2024, we had $20.9 million of additional leases that have not yet commenced. These leases will commence
in 2025 and 2026 with lease terms of 1 year to 11.1 years.
14. Derivatives and Hedging Activity
We are exposed to market risks, including changes in foreign currency exchange rates and interest rates. To manage the risk
related to these exposures, we enter into various derivative instruments that reduce these risks by creating offsetting exposures.
We generally do not enter into derivative transactions for trading or speculative purposes.
Foreign Exchange Risk Management
We are exposed to foreign exchange risk when we earn revenues, pay expenses, or enter into monetary intercompany transfers
denominated in a currency that differs from our functional currency, or other transactions that are denominated in a currency
other than our functional currency. We use foreign exchange derivatives, typically forward contracts and options, to reduce our
overall exposure to the effects of currency fluctuations on cash flows. These exposures are hedged, on average, for less than
three years.
Interest Rate Risk Management
We enter into various long-term debt agreements. We use interest rate derivatives, typically swaps, to reduce our exposure to the
effects of interest rate fluctuations on the forecasted interest rates for up to three years into the future.
We have not received or pledged any collateral related to derivative arrangements at December 31, 2024.
107
The notional and fair values of derivatives designated as hedging instruments are as follows at December 31, 2024 and 2023 (in
millions):
Derivative Assets
Derivative Liabilities
Notional
Balance Sheet
Fair
Balance Sheet
Fair
Instrument
Amount
Classification
Value
Classification
Value
At December 31, 2024
Interest rate contracts
$
—
Other current assets
$
—
Accrued compensation and
$
—
Other noncurrent assets
—
other current liabilities
Other noncurrent liabilities
—
Foreign exchange contracts (1)
24.4
Other current assets
6.2
Accrued compensation and
2.4
other current liabilities
Other noncurrent assets
2.6
Other noncurrent liabilities
2.9
Total
$
24.4
$
8.8
$
5.3
At December 31, 2023
Interest rate contracts
$
150.0
Other current assets
$
—
Accrued compensation and
$
5.7
Other noncurrent assets
—
other current liabilities
Other noncurrent liabilities
—
Foreign exchange contracts (1)
67.8
Other current assets
3.9
Accrued compensation and
3.9
other current liabilities
Other noncurrent assets
14.2
Other noncurrent liabilities
4.0
Total
$
217.8
$
18.1
$
13.6
(1)
Included within foreign exchange contracts at December 31, 2024 were $595.4 million of call options offset with
$595.4 million of put options, and $1.2 million of buy forwards offset with $25.6 million of sell forwards. Included within
foreign exchange contracts at December 31, 2023 were $331.3 million of call options offset with $331.3 million of put
options, and $5.5 million of buy forwards offset with $73.3 million of sell forwards.
Fair values of these hedge contracts are based on observable and unobservable inputs. Observable inputs include all of the
following: quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities
in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (for example: interest
rates and yield curves observable at commonly quoted intervals, implied volatilities, credit spreads) and market-corroborated
inputs. Unobservable inputs are used to measure fair value to the extent that relevant observable inputs are not available, thereby
allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.
108
The effect of cash flow hedge accounting on accumulated other comprehensive loss were as follows (in millions):
Instrument
Amount of
Gain (Loss)
Recognized in
Accumulated
Other
Comprehensive
Loss (1)
Amount of
Gain (Loss)
Reclassified
from
Accumulated
Other
Comprehensive
Loss into
Earnings
Amount of
Gain (Loss)
Recognized
in Earnings
Related to
Amount
Excluded
from
Effectiveness
Testing
Statement of Earnings
Classification
Year ended December 31, 2024
Interest rate contracts
$
(6.1)
$
(1.2)
$
—
Interest expense
Foreign exchange contracts
(10.7)
(2.0)
—
Commission revenue
(2.2)
0.8
Compensation
expense
(1.4)
0.6
Operating expense
Total
$
(16.8)
$
(6.8)
$
1.4
Year ended December 31, 2023
Interest rate contracts
$
63.9
$
(1.1)
$
—
Interest expense
Foreign exchange contracts
38.0
1.3
(0.1)
Commission revenue
(1.9)
1.8
Compensation
expense
(1.4)
1.3
Operating expense
Total
$
101.9
$
(3.1)
$
3.0
(1)
During 2024, the amount excluded from the assessment of hedge effectiveness for our foreign exchange contracts
recognized in accumulated other comprehensive loss was a loss of $0.2 million.
We estimate that approximately $15.7 million of pretax gain currently included within accumulated other comprehensive income
will be reclassified into earnings in the next twelve months.
15. Commitments, Contingencies and Off-Balance Sheet Arrangements
In connection with our investing and operating activities, we have entered into certain contractual obligations and commitments.
See Note 7 to these consolidated financial statements for additional discussion of these obligations and commitments. Our future
minimum cash payments, including interest, associated with our contractual obligations pursuant to the Senior Notes, Note
purchase agreements, Credit Agreement, Premium Financing Debt Facility, operating leases and purchase commitments at
December 31, 2024 were as follows (in millions):
Payments Due by Period
Contractual Obligations
2025
2026
2027
2028
2029
Thereafter
Total
Senior Notes
$
—
$
—
$
750.0
$
—
$
750.0
$
8,050.0
$ 9,550.0
Note purchase agreements
200.0
640.0
478.0
200.0
350.0
1,655.0
3,523.0
Credit Agreement
—
—
—
—
—
—
—
Premium Financing Debt Facility
225.2
—
—
—
—
—
225.2
Interest on debt
566.7
611.5
593.0
539.2
528.5
6,589.4
9,428.3
Total debt obligations
991.9
1,251.5
1,821.0
739.2
1,628.5
16,294.4
22,726.5
Operating lease obligations
113.9
103.6
83.8
62.8
33.9
74.3
472.3
Less sublease arrangements
(2.2)
(1.7)
(1.6)
(1.0)
(0.8)
—
(7.3)
Outstanding purchase obligations
122.7
86.3
58.1
38.6
23.2
50.8
379.7
Total contractual obligations
$ 1,226.3
$ 1,439.7
$ 1,961.3
$
839.6
$
1,684.8
$ 16,419.5
$23,571.2
The amounts presented in the table above may not necessarily reflect our actual future cash funding requirements, because the
actual timing of the future payments made may vary from the stated contractual obligation.
109
Senior Notes, Note Purchase Agreements, Credit Agreement and Premium Financing Debt Facility - See Note 7 to these
consolidated financial statements for a summary the amounts outstanding under the Senior Notes, Note purchase agreements, the
Credit Agreement and Premium Financing Debt Facility.
Operating Lease Obligations - Our corporate segment’s executive offices and certain subsidiary and branch facilities of our
brokerage and risk management segments are located in a building we own at 2850 Golf Road, Rolling Meadows, Illinois, where
we have approximately 360,000 square feet of space and can accommodate approximately 2,000 employees. Relating to the
development of our corporate headquarters, we expect to receive property tax related credits under a tax-increment financing
note from Rolling Meadows and an Illinois state Economic Development for a Growing Economy (which we refer to as EDGE)
tax credit. Incentives from these two programs could total between $50.0 million and $80.0 million over a fifteen-year period.
We have earned approximately $62.6 million of EDGE credits from inception in 2017 through December 31, 2024.
We generally operate in leased premises at our other locations. Certain of these leases have options permitting renewals for
additional periods. In addition to minimum fixed rentals, a number of leases contain annual escalation clauses which are
generally related to increases in an inflation index.
Total rent expense, including rent relating to cancelable leases and leases with initial terms of less than one year, amounted to
$183.4 million in 2024, $183.5 million in 2023 and $176.6 million in 2022.
We have leased certain office space to several non-affiliated tenants under operating sublease arrangements. In the normal
course of business, we expect that certain of these leases will not be renewed or replaced. We adjust charges for real estate taxes
and common area maintenance annually based on actual expenses, and we recognize the related revenues in the year in which the
expenses are incurred. These amounts are not included in the minimum future rentals to be received in the contractual
obligations table above.
Outstanding Purchase Obligations - We typically do not have a material amount of outstanding purchase obligations at any
point in time. The amount disclosed in the contractual obligations table above represents the aggregate amount of unrecorded
purchase obligations that we had outstanding at December 31, 2024. These obligations represent agreements to purchase goods
or services that were executed in the normal course of business.
Off-Balance Sheet Commitments - Our total unrecorded commitments associated with outstanding letters of credit, financial
guarantees and funding commitments at December 31, 2024 were as follows (in millions):
Total
Amount of Commitment Expiration by Period
Amounts
Off-Balance Sheet
Commitments
2025
2026
2027
2028
2029
Thereafter
Committed
Letters of credit
$
—
$
—
$
—
$
—
$
—
$
23.0
$
23.0
Financial guarantees
0.7
—
—
—
—
32.0
32.7
Total commitments
$
0.7
$
—
$
—
$
—
$
—
$
55.0
$
55.7
Since commitments may expire unused, the amounts presented in the table above do not necessarily reflect our actual future cash
funding requirements. See the Off-Balance Sheet Debt section below for a discussion of letters of credit. All of the letters of
credit represent multiple year commitments that have annual, automatic renewing provisions and are classified by the latest
commitment date.
Substantially all of the purchase agreements related to these acquisitions we do contain provisions for potential earnout
obligations. For all of our acquisitions made in the period from 2021 to 2024 that contain potential earnout obligations, such
obligations are measured at fair value as of the acquisition date and are included on that basis in the recorded purchase price
consideration for the respective acquisition. The amounts recorded as earnout payables are primarily based upon estimated
future potential operating results of the acquired entities over a two- to three-year period subsequent to the acquisition date. The
aggregate amount of the maximum earnout obligations related to these acquisitions was $1,998.2 million, of which
$1,302.0 million was recorded in our consolidated balance sheet as of December 31, 2024 based on the estimated fair value of
the expected future payments to be made, of which approximately $511.9 million can be settled in cash or common stock at our
option and $790.1 million must be settled in cash.
110
Off-Balance Sheet Debt - Our unconsolidated investment portfolio includes investments in enterprises where our ownership
interest is between 1% and 50%, in which management has determined that our level of influence and economic interest is not
sufficient to require consolidation. As a result, these investments are accounted for under the equity method. None of these
unconsolidated investments had any outstanding debt at December 31, 2024 and 2023 that was recourse to us.
At December 31, 2024, we had posted two letters of credit totaling $9.2 million in the aggregate, related to our self-insurance
deductibles, for which we had a recorded liability of $12.0 million. We have an equity investment in a rent-a-captive facility,
which we use as a placement facility for certain of our insurance brokerage operations. At December 31, 2024, we had posted
eight letters of credit totaling $13.0 million to allow certain of our captive operations to meet minimum statutory surplus
requirements plus additional collateral related to premium and claim funds held in a fiduciary capacity and one letter of credit
totaling $0.8 million for collateral related to claim funds held in a fiduciary capacity by a recent acquisition. These letters of
credit have never been drawn upon.
Our commitments associated with outstanding letters of credit, financial guarantees and funding commitments at December 31,
2024 were as follows (all dollar amounts in table are in millions):
Description, Purpose and Trigger
Collateral
Compensation
to Us
Maximum
Exposure
Liability
Recorded
Credit support under letters of credit (LOC) for
deductibles due by us on our own insurance
coverages - expires after 2028
None
None
$
9.2
$
12.0
Trigger - We do not reimburse the insurance
companies for deductibles the insurance companies
advance on our behalf
Credit enhancement under letters of credit for our
captive insurance operations to meet minimum
statutory capital requirements - expires after 2028
None
Reimbursement
of LOC fees
13.0
—
Trigger - Dissolution or catastrophic financial
results of the operation
Collateral related to claims funds held in a fiduciary
capacity by a recent acquisition - expires 2028
None
None
0.8
—
Trigger - Claim payments are not made
$
23.0
$
12.0
(1)
The guarantees are collateralized by shares in minority holdings of our Canadian operating companies.
Since commitments may expire unused, the amounts presented in the table above do not necessarily reflect our actual future cash
funding requirements.
Litigation, Regulatory and Taxation Matters - We routinely are involved in legal proceedings, claims, disputes, regulatory
matters and governmental inspections or investigations arising in the ordinary course of or incidental to our business, including
relating errors and omissions (which we refer to as E&O) claims and those noted below in this section. We record accruals in the
consolidated financial statements for pending litigation when we determine that an unfavorable outcome is probable and the
amount of the loss can be reasonably estimated. For the matters we disclose that do not include an estimate of the amount of loss
or range of losses, such an estimate is not possible or is immaterial, and we may be unable to estimate the possible loss or range
of losses that could potentially result from the application of non-monetary remedies, unless disclosed below. We currently
believe that the ultimate outcome of these proceedings, individually and in the aggregate, will not materially harm our financial
position, results of operations or cash flows. However, legal proceedings and government investigations are subject to inherent
uncertainties, and unfavorable rulings or other adverse events could occur, including the payment of substantial monetary
damages or an injunction or other order prohibiting us from selling one or more products at all or in particular ways, precluding
particular business practices or requiring other remedies, which may result in a material adverse impact on our business, results
of operations or financial position.
As previously disclosed, our IRC 831(b) (or “micro-captive”) advisory services businesses has been under a promoter
investigation by the IRS since 2013. Among other matters, the IRS is investigating whether we have been acting as a tax shelter
promoter in connection with these operations. Additionally, the IRS is conducting a criminal investigation related to IRC 831(b)
111
micro-captive underwriting enterprises. We have been advised that we are not a target of the criminal investigation. We are
fully cooperating with both matters.
Contingent Liabilities - We purchase insurance to provide protection from E&O claims that may arise during the ordinary
course of business. Currently we retain the first $15.0 million of each and every E&O claim. In addition, we retain, in
aggregate: up to another $2.0 million between $15.0 million and $100.0 million, plus up to another $10.0 million between $100.0
million and $225.0 million, and up to another $20.0 million between $225.0 million and $400.0 million. We have historically
maintained self-insurance reserves for the portion of our E&O exposure that is not insured. We periodically determine a range of
possible reserve levels using actuarial techniques that rely heavily on projecting historical claim data into the future. Our E&O
reserve in the December 31, 2024 consolidated balance sheet is above the lower end of the most recently determined actuarial
range by $4.4 million and below the upper end of the actuarial range by $10.7 million. We can make no assurances that the
historical claim data used to project the current reserve levels will be indicative of future claim activity. Thus, the E&O reserve
level and corresponding actuarial range could change in the future as more information becomes known, which could materially
impact the amounts reported and disclosed herein.
16. Income Taxes
We and our principal domestic subsidiaries are included in a consolidated U.S. federal income tax return. Our international
subsidiaries file various income tax returns in their jurisdictions. Significant components of earnings before income taxes and
the provision for income taxes are as follows (in millions):
Year Ended December 31,
2024
2023
2022
Earnings before income taxes:
United States
$
972.1
$
605.0
$
781.6
Foreign, principally Australia, Canada, New Zealand
and the U.K.
902.7
580.1
545.4
Total earnings before income taxes
$
1,874.8
$
1,185.1
$
1,327.0
Provision for income taxes:
Federal:
Current
$
38.0
$
(21.4) $
109.1
Deferred
112.1
112.9
(3.5)
150.1
91.5
105.6
State and local:
Current
53.3
(15.4)
114.3
Deferred
(1.3)
43.0
(83.5)
52.0
27.6
30.8
Foreign:
Current
194.3
212.8
196.6
Deferred
8.0
(112.8)
(122.0)
202.3
100.0
74.6
Total provision for income taxes
$
404.4
$
219.1
$
211.0
112
A reconciliation of the provision for income taxes with the U.S. federal statutory income tax rate is as follows (in millions,
except percentages):
Year Ended December 31,
2024
2023
2022
Amount
% of Pretax
Earnings
Amount
% of Pretax
Earnings
Amount
% of Pretax
Earnings
Federal statutory rate
$
393.7
21.0
$
248.9
21.0
$
278.7
21.0
State income taxes - net of
federal benefit
61.0
3.3
49.7
4.2
32.9
2.5
Differences related to non U.S.
operations
(13.8)
(0.7)
(20.6)
(1.7)
(31.9)
(2.4)
Alternative energy and other
tax credits
(8.9)
(0.5)
(7.9)
(0.7)
(6.9)
(0.5)
Other permanent differences
42.6
2.3
27.6
2.3
22.5
1.7
Stock-based compensation
(88.9)
(4.7)
(76.1)
(6.4)
(59.3)
(4.5)
Changes in unrecognized tax benefits
7.4
0.4
11.9
1.0
4.0
0.3
Change in valuation allowance
10.0
0.5
3.9
0.3
15.5
1.2
Change in tax rates
1.3
—
(18.3)
(1.5)
(44.5)
(3.4)
Provision for income taxes
$
404.4
21.6
$
219.1
18.5
$
211.0
15.9
A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows (in
millions):
December 31,
2024
2023
Gross unrecognized tax benefits at January 1
$
25.3
$
13.4
Increases in tax positions for current year
1.2
14.6
Settlements
(2.6)
(2.9)
Lapse in statute of limitations
(5.5)
(3.4)
Increases in tax positions for prior years
17.0
3.6
Decreases in tax positions for prior years
(10.2)
—
Gross unrecognized tax benefits at December 31
$
25.2
$
25.3
The total amount of net unrecognized tax benefits that, if recognized, would affect the effective tax rate was $24.7 million and
$24.5 million at December 31, 2024 and 2023, respectively. We accrue interest and penalties related to unrecognized tax
benefits in our provision for income taxes. At December 31, 2024 and 2023, we had accrued interest and penalties related to
unrecognized tax benefits of $10.3 million and $2.8 million, respectively.
We file income tax returns in the U.S. and in various state, local and foreign jurisdictions. We are routinely examined by tax
authorities in these jurisdictions. At December 31, 2024, our corporate returns had been examined by the IRS or the statute had
lapsed through calendar year 2020. In addition, from 2020 forward, various state and foreign jurisdictions remain open. It is
reasonably possible that our gross unrecognized tax benefits may change within the next twelve months. However, we believe
any changes in the recorded balance would not have a significant impact on our consolidated financial statements.
113
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax
assets and liabilities are as follows (in millions):
December 31,
2024
2023
Deferred tax assets:
Alternative minimum tax and other credit carryforwards
$
768.9
$
867.3
Accrued and unfunded compensation and employee benefits
431.5
364.4
Amortizable intangible assets
94.7
122.9
Compensation expense related to stock options
21.9
18.3
Accrued liabilities
125.9
129.9
Investments
1.9
1.2
Net operating loss carryforwards
162.7
172.7
Capital loss carryforwards
8.4
8.5
Other tax attributes
1.9
34.7
Depreciable fixed assets
22.0
13.2
Lease liabilities
106.4
103.4
Capitalized indirect property costs
0.2
0.2
Revenue recognition
4.6
42.1
Other
5.2
10.1
Total deferred tax assets
1,756.2
1,888.9
Valuation allowance for deferred tax assets
(176.5)
(195.8)
Deferred tax assets
1,579.7
1,693.1
Deferred tax liabilities:
Nondeductible amortizable intangible assets
564.8
531.7
Accrued pension liability
8.6
1.7
Investment-related partnerships
4.2
6.5
Right-of-use assets
97.1
95.0
Hedging instruments
35.7
38.2
Other prepaid items
16.4
17.4
Total deferred tax liabilities
726.8
690.5
Net deferred tax assets
$
852.9
$
1,002.6
At December 31, 2024 and 2023, $106.3 million and $129.6 million, respectively, of deferred tax liabilities have been included
in noncurrent liabilities in the accompanying consolidated balance sheet. General business and other tax credits of $736.9
million begin to expire, if not utilized, in 2032 and state credits, net of federal benefit, of $32.0 million expire, if not used, by
2028. Net operating loss carryforwards of $162.7 million, related to federal, state and foreign begin to expire, if not utilized in
2025. We expect the historically favorable trend in earnings before income taxes to continue in the foreseeable future.
Valuation allowances have been established for certain foreign intangible assets (including nondeductible amortization and
earnout payable expenses) and various state net operating loss carryforwards that may not be utilized in the future.
At December 31, 2024, foreign earnings in all jurisdictions are considered indefinitely reinvested offshore. We have not
provided for state or withholding income taxes on the undistributed earnings of $812.3 million and $632.3 million at
December 31, 2024 and 2023, respectively, of foreign subsidiaries which are considered permanently invested outside of the
U.S. The amount of unrecognized deferred tax liability on these undistributed earnings was not material at December 31, 2024
and 2023.
Current U.S. tax law requires U.S. shareholders to include in income certain “global intangible low-taxed income” (which we
refer to as GILTI) beginning in 2018. Our policy is to include the GILTI income in the future period when the tax arises and we
recorded income tax expense on such income in 2024, 2023 and 2022. Current U.S. tax law includes the U.S. Base Erosion and
Anti-Abuse Tax (which we refer to as BEAT) beginning in 2018. Based on our analysis, we determined that our base erosion
payments do not exceed the threshold for applicability for the years in 2024, 2023 and 2022, and we do not currently anticipate
any significant long-term impact from the BEAT in our provision for income taxes in future periods.
114
17. Supplemental Disclosures of Cash Flow Information
Year ended December 31,
Supplemental disclosures of cash flow information (in millions):
2024
2023
2022
Interest paid
$
346.8
$
270.8
$
240.2
Income taxes paid, net
330.6
225.8
317.6
The 2023 income taxes paid amount was favorably impacted due to the reversal of tax method changes on filing of the 2022 tax
return. In 2022, we elected to defer the utilization of 2021 and 2022 net operating losses in the U.K. causing additional cash tax
payments of $28.4 million relating to 2021 and $49.0 million relating to 2022. Both the U.S. and U.K. payments would have
been made in future periods, and do not represent additional taxes due.
The following is a reconciliation of our end of period cash, cash equivalents, restricted cash and fiduciary cash balances as
presented in the consolidated statement of cash flows for the years ended December 31, 2024, 2023 and 2022 (in millions):
December 31,
2024
2023
2022
Cash and cash equivalents - non-restricted cash
$
14,758.7
$
780.9
$
539.4
Cash and cash equivalents - restricted cash
228.6
190.6
199.0
Total cash and cash equivalents
$
14,987.3
$
971.5
$
738.4
Fiduciary cash
5,481.3
5,571.8
4,225.8
Total cash, cash equivalents, restricted cash and fiduciary cash
$
20,468.6
$
6,543.3
$
4,964.2
Total cash and cash equivalents, restricted cash and fiduciary cash at December 31, 2024 and December 31, 2023, include
$15,371.6 million and $1,744.9 million, respectively, of income earning money market accounts. The increase in cash invested
in money market accounts between years is primarily due to the proceeds received in December 2024 from the stock issuance
($8.5 billion) and senior notes ($5.0 billion). Refer to Note 7 for more information regarding the senior notes. These proceeds
are intended to be used toward the acquisition of AssuredPartners, refer to Note 3 for more information regarding this
acquisition. The dividend income on money market accounts was recorded in interest income, premium finance and other
income in our consolidated statement of earnings, which increased $105.9 million during 2024 ($29.0 million of which related to
the proceeds from the AssuredPartners financing) to $473.2 million for the year ended December 31, 2024 compared to
$367.3 million for the year ended December 31, 2023.
We have a qualified contributory savings and thrift 401(k) plan covering the majority of our domestic employees. For eligible
employees who have met the plan’s age and service requirements to receive matching contributions, we historically have
matched 100% of pre-tax and Roth elective deferrals up to a maximum of 5.0% of eligible compensation, subject to federal
limits on plan contributions and not in excess of the maximum amount deductible for federal income tax purposes. Beginning in
2021, the amount matched by the Company will be discretionary and annually determined by management. Employees must be
employed and eligible for the plan on the last day of the plan year to receive a matching contribution, subject to certain
exceptions enumerated in the plan document. Matching contributions are subject to a five-year graduated vesting schedule and
can be funded in cash or the common stock of the Company. We expensed (net of plan forfeitures) $105.4 million, $86.0 million
and $73.8 million related to the plan in 2024, 2023 and 2022, respectively. During 2023, management determined the 5.0%
employer matching contributions on eligible compensation to the 401(k) plan for the 2023 plan year to be funded with our
common stock, which was funded in February 2024. During 2024, management determined the 5.0% employer matching
contributions on eligible compensation to the 401(k) plan for the 2024 plan year to be funded with our common stock, which is
expected to be funded in February 2025.
115
18. Accumulated Other Comprehensive Loss
The after-tax components of our accumulated comprehensive loss attributable to controlling interests consist of the following (in
millions):
Pension
Liability
Foreign
Currency
Translation
Fair Value
of Derivative
Instruments
Accumulated
Comprehensive
Loss
Balance as of January 1, 2022
$
(37.1) $
(613.4) $
(75.6) $
(726.1)
Net change in period
(12.3)
(511.8)
109.8
(414.3)
Balance as of December 31, 2022
(49.4)
(1,125.2)
34.2
(1,140.4)
Net change in period
12.3
257.8
78.2
348.3
Balance as of December 31, 2023
(37.1)
(867.4)
112.4
(792.1)
Net change in period
13.9
(365.4)
(7.5)
(359.0)
Balance as of December 31, 2024
$
(23.2) $
(1,232.8) $
104.9
$
(1,151.1)
The foreign currency translation in 2024, 2023 and 2022 relates to the net impact of changes in the value of the local currencies
relative to the U.S. dollar for our operations in Australia, Canada, the Caribbean, India, New Zealand, the U.K. and other
non-U.S. locations. The reporting currency for our financial statements is the U.S. dollar. Certain of our assets, liabilities,
expenses and revenues are denominated in currencies other than the U.S. dollar, primarily the Australian dollar, British pound,
Canadian dollar, and New Zealand dollar. To prepare our consolidated financial statements, we must translate those assets,
liabilities, expenses and revenues into U.S. dollars at the applicable exchange rates. Assets and liabilities of non-U.S. dollar
functional currency operations are translated into U.S. dollars at end-of-period exchange rates while revenues, expenses and cash
flows are translated at average monthly exchange rates over the period. Equity is translated at historical exchange rates and the
resulting cumulative translation adjustments are included as a component of accumulated other comprehensive loss in the
consolidated balance sheet. The net change in the foreign currency translation during 2024 primarily relates to goodwill (see
Note 6 to these consolidated financial statements for the impact on goodwill) and amortizable intangible assets held by
operations with a non-U.S. dollar functional currency.
During 2024, 2023 and 2022, $2.2 million, $5.2 million and $2.2 million, respectively, of expense related to the pension liability
was reclassified from accumulated other comprehensive loss to compensation expense in the statement of earnings. During
2024, 2023 and 2022, $6.8 million of expense, $3.1 million of expense and $3.2 million of income, respectively, related to the
fair value of derivative investments, was reclassified from accumulated other comprehensive loss to the statement of earnings.
During 2024, 2023 and 2022, no amounts related to foreign currency translation were reclassified from accumulated other
comprehensive loss to the statement of earnings.
19. Segment Information
We have three reportable segments: brokerage, risk management and corporate.
The brokerage segment is primarily comprised of our retail and wholesale insurance and reinsurance brokerage operations. The
brokerage segment (which comprises our retail P/C, wholesale, reinsurance, benefits and captive operations) generates revenues
through commissions paid by underwriting enterprises and through fees charged to our clients. Our brokers, agents and
administrators act as intermediaries between underwriting enterprises and our clients and we do not assume net underwriting
risks.
The risk management segment provides contract claim settlement and administration services for commercial, nonprofit, captive
and public sector entities, and various organizations that choose to self-insure some or all of their property/casualty coverages
and for underwriting enterprises that choose to outsource some or all of their property/casualty claims departments. These
operations also provide claims management, loss control consulting and insurance property appraisal services. Revenues are
principally generated on a negotiated per-claim or per-service fee basis. Our risk management segment also provides risk
management consulting services that are recognized as the services are delivered.
Revenues in the corporate segment consist of other income related to the run-off of clean energy and legacy investments, and in
2024, some interest income related to the proceeds from the AssuredPartners financing. In addition, the corporate segment
reports the financial information related to our debt, external acquisition-related expenses, other corporate costs and the impact
of foreign currency remeasurement.
116
Allocations of investment income and certain expenses are based on reasonable assumptions and estimates primarily using
revenue, headcount and other information. We allocate the provision for income taxes to the brokerage and risk management
segments using the local country statutory rates. Reported operating results by segment would change if different methods were
applied.
Our Chief Operating Decision Maker (which we refer to as CODM) (our Chairman and Chief Executive Officer) analyzes and
evaluates the operating performance of the three reportable segments presented below. We have disclosed for each reportable
segment the significant expense categories that are reviewed by the CODM and there are no additional significant expenses
within the expense categories presented in the tables below. The key areas of focus by the CODM for allocation of resources are
revenues from each reportable segment, as well as their compensation and operating expenses.
Financial information relating to our segments for 2024, 2023 and 2022 is as follows (in millions):
Year Ended December 31, 2024
Brokerage
Risk
Management
Corporate
Total
Revenues:
Commissions
$
6,693.8
$
—
$
—
$
6,693.8
Fees
2,192.6
1,414.0
—
3,606.6
Supplemental revenues
359.4
—
—
359.4
Contingent revenues
267.6
—
—
267.6
Interest income, premium finance revenues and other income
420.4
36.5
16.3
473.2
Revenues before reimbursements
9,933.8
1,450.5
16.3
11,400.6
Reimbursements
—
154.3
—
154.3
Total revenues
9,933.8
1,604.8
16.3
11,554.9
Compensation
5,501.4
882.4
138.5
6,522.3
Operating
1,363.4
278.7
111.8
1,753.9
Reimbursements
—
154.3
—
154.3
Interest
—
—
381.3
381.3
Depreciation
133.1
37.6
6.8
177.5
Amortization
651.0
13.8
—
664.8
Change in estimated acquisition earnout payables
25.6
0.4
—
26.0
Total expenses
7,674.5
1,367.2
638.4
9,680.1
Earnings (loss) before income taxes
2,259.3
237.6
(622.1)
1,874.8
Provision (benefit) for income taxes
573.6
63.1
(232.3)
404.4
Net earnings (loss)
1,685.7
174.5
(389.8)
1,470.4
Net earnings (loss) attributable to noncontrolling interests
7.7
—
—
7.7
Net earnings (loss) attributable to controlling interests
$
1,678.0
$
174.5
$
(389.8) $
1,462.7
Net foreign exchange gain (loss)
$
0.8
$
—
$
(1.2) $
(0.4)
Revenues:
United States
$
6,103.9
$
1,307.7
$
16.3
$
7,427.9
United Kingdom
2,168.4
57.0
—
2,225.4
Australia
348.8
225.8
—
574.6
Canada
409.1
6.9
—
416.0
New Zealand
202.8
7.4
—
210.2
Other foreign
700.8
—
—
700.8
Total revenues
$
9,933.8
$
1,604.8
$
16.3
$ 11,554.9
At December 31, 2024
Identifiable assets:
United States
$ 20,910.6
$
1,110.0
$ 16,028.8
$ 38,049.4
United Kingdom
16,051.2
150.2
—
16,201.4
Australia
1,766.8
381.5
—
2,148.3
Canada
1,684.1
5.9
—
1,690.0
New Zealand
718.9
14.1
—
733.0
Other foreign
5,307.6
—
125.5
5,433.1
Total identifiable assets
$ 46,439.2
$
1,661.7
$ 16,154.3
$ 64,255.2
Goodwill - net
$ 11,923.4
$
328.3
$
18.5
$ 12,270.2
Amortizable intangible assets - net
4,412.7
117.4
—
4,530.1
117
Year Ended December 31, 2023
Brokerage
Risk
Management
Corporate
Total
Revenues:
Commissions
$
5,865.0
$
—
$
—
$
5,865.0
Fees
1,885.0
1,259.7
—
3,144.7
Supplemental revenues
314.2
—
—
314.2
Contingent revenues
235.3
—
—
235.3
Interest income, premium finance revenues and other
income
337.7
27.9
1.7
367.3
Revenues before reimbursements
8,637.2
1,287.6
1.7
9,926.5
Reimbursements
—
145.4
—
145.4
Total revenues
8,637.2
1,433.0
1.7
10,071.9
Compensation
4,769.1
776.8
135.3
5,681.2
Operating
1,272.3
257.4
160.0
1,689.7
Reimbursements
—
145.4
—
145.4
Interest
—
—
296.7
296.7
Depreciation
124.4
35.9
4.9
165.2
Amortization
523.6
7.7
—
531.3
Change in estimated acquisition earnout payables
376.8
0.5
—
377.3
Total expenses
7,066.2
1,223.7
596.9
8,886.8
Earnings (loss) before income taxes
1,571.0
209.3
(595.2)
1,185.1
Provision (benefit) for income taxes
401.6
55.3
(237.8)
219.1
Net earnings (loss)
1,169.4
154.0
(357.4)
966.0
Net earnings (loss) attributable to noncontrolling interests
6.3
—
(9.8)
(3.5)
Net earnings (loss) attributable to controlling interests
$
1,163.1
$
154.0
$
(347.6) $
969.5
Net foreign exchange loss
$
(0.3) $
(9.9) $
(0.1) $
(10.3)
Revenues:
United States
$
5,216.1
$
1,208.7
$
1.7
$
6,426.5
United Kingdom
1,946.5
47.6
—
1,994.1
Australia
312.1
154.7
—
466.8
Canada
397.7
6.2
—
403.9
New Zealand
192.2
15.8
—
208.0
Other foreign
572.6
—
—
572.6
Total revenues
$
8,637.2
$
1,433.0
$
1.7
$
10,071.9
At December 31, 2023
Identifiable assets:
United States
$
21,763.9
$
1,026.0
$
2,520.4
$
25,310.3
United Kingdom
15,999.7
129.9
—
16,129.6
Australia
1,969.7
469.2
—
2,438.9
Canada
1,692.9
4.1
—
1,697.0
New Zealand
773.1
20.1
—
793.2
Other foreign
5,246.8
—
—
5,246.8
Total identifiable assets
$
47,446.1
$
1,649.3
$
2,520.4
$
51,615.8
Goodwill - net
$
11,217.8
$
238.8
$
19.0
$
11,475.6
Amortizable intangible assets - net
4,427.9
205.4
—
4,633.3
118
Year Ended December 31, 2022
Brokerage
Risk
Management
Corporate
Total
Revenues:
Commissions
$
5,187.4
$
—
$
—
$
5,187.4
Fees
1,476.9
1,090.8
—
2,567.7
Supplemental revenues
284.7
—
—
284.7
Contingent revenues
207.3
—
—
207.3
Interest income, premium finance revenues and other income
147.5
1.8
0.7
150.0
Revenue from clean coal activities
—
—
23.0
23.0
Revenues before reimbursements
7,303.8
1,092.6
23.7
8,420.1
Reimbursements
—
130.5
—
130.5
Total revenues
7,303.8
1,223.1
23.7
8,550.6
Compensation
4,024.7
664.9
110.2
4,799.8
Operating
1,039.9
233.9
57.1
1,330.9
Reimbursements
—
130.5
—
130.5
Cost of revenues from clean coal activities
—
—
22.9
22.9
Interest
—
—
256.9
256.9
Depreciation
103.6
37.8
3.3
144.7
Amortization
448.7
6.2
—
454.9
Change in estimated acquisition earnout payables
90.4
(7.4)
—
83.0
Total expenses
5,707.3
1,065.9
450.4
7,223.6
Earnings (loss) before income taxes
1,596.5
157.2
(426.7)
1,327.0
Provision (benefit) for income taxes
394.7
41.4
(225.1)
211.0
Net earnings (loss)
1,201.8
115.8
(201.6)
1,116.0
Net earnings (loss) attributable to noncontrolling interests
4.4
—
(2.6)
1.8
Net earnings (loss) attributable to controlling interests
$
1,197.4
$
115.8
$
(199.0) $
1,114.2
Net foreign exchange gain
$
2.6
$
31.4
$
—
$
34.0
Revenues:
United States
$
4,503.9
$
1,029.6
$
23.7
$
5,557.2
United Kingdom
1,544.3
44.1
—
1,588.4
Australia
281.8
129.1
—
410.9
Canada
356.0
5.9
—
361.9
New Zealand
166.9
14.4
—
181.3
Other foreign
450.9
—
—
450.9
Total revenues
$
7,303.8
$
1,223.1
$
23.7
$
8,550.6
At December 31, 2022
Identifiable assets:
United States
$
17,485.3
$
914.5
$
2,540.8
$ 20,940.6
United Kingdom
9,338.5
115.9
—
9,454.4
Australia
1,792.1
89.0
—
1,881.1
Canada
1,465.3
4.4
—
1,469.7
New Zealand
730.9
18.8
—
749.7
Other foreign
3,862.9
—
—
3,862.9
Total identifiable assets
$
34,675.0
$
1,142.6
$
2,540.8
$ 38,358.4
Goodwill - net
$
9,358.1
$
112.2
$
19.1
$
9,489.4
Amortizable intangible assets - net
3,325.9
46.2
—
3,372.1
119
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Arthur J. Gallagher & Co.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Arthur J. Gallagher & Co. (the Company) as of December 31,
2024 and 2023, the related consolidated statements of earnings, comprehensive earnings, stockholders’ equity and cash flows for
each of the three years in the period ended December 31, 2024, the related notes and the financial statement schedule listed in the
Index at Item 15(2)(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated
financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and
2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in
conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework), and our report dated February 17, 2025 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that
was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are
material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The
communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken
as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit
matter or on the accounts or disclosures to which it relates.
Accounting for business combinations
Description of the
Matter
As described in Note 3 to the consolidated financial statements, the Company completed 48 acquisitions
during 2024 for total net consideration of $1,699.8 million. All the acquisitions have been accounted for
using the acquisition method for recording business combinations. The excess of the purchase price
over the estimated fair value of the net assets acquired, including identifiable intangible assets, at the
acquisitions date was allocated to goodwill. Identifiable intangible assets from the acquisitions consists
primarily of acquired customer lists of $791.5 million. Provisional estimates of fair value are established
on the closing date of each acquisition and are subsequently reviewed and finalized within twelve
months of the acquisition date.
Auditing the accounting for these acquisitions involved subjectivity in evaluating management’s
estimates, specifically, the identification and measurement of intangible assets. The Company, with the
assistance of a third-party valuation firm, as applicable, used the discounted cash flow method to
measure the fair value of the intangible assets to finalize the accounting for its acquisitions. The
significant assumptions used to estimate the fair value of the intangible assets included, revenue growth
rates, and projected profit margins. These assumptions are forward-looking and could be affected by
future economic and market conditions.
120
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of the
controls over the Company’s accounting for acquisitions. For example, we tested controls over the
recognition and measurement of assets acquired, consideration paid, and management’s review of
significant assumptions used to determine the fair value of intangible assets of the acquisitions for which
management finalized its accounting.
To test the estimated fair value of intangible assets, our audit procedures included, among other things,
an evaluation of the identification of intangible assets. Additionally, we have tested the significant
assumptions, including, revenue growth rates, and projected profit margins, used to value the identifiable
intangible assets for acquisitions that the Company has deemed the accounting as final. We have also
tested the completeness and accuracy of the underlying data supporting the fair value estimates. We also
compared the above assumptions to the historical results of the acquired companies, past performance of
similar acquisitions by the Company, and current market conditions. For select acquisitions, we utilized
the assistance of our valuation specialists to evaluate the methods and assumptions used to determine the
fair value of intangible assets.
/s/ Ernst & Young LLP
Ernst & Young LLP
We have served as the Company’s auditor since 1973
Chicago, Illinois
February 17, 2025
121
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in
Rules 13a-15(f) under the Exchange Act. Under the supervision and with the participation of management, including our
principal executive officer and principal financial officer, we conducted an assessment of the effectiveness of our internal control
over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 framework).
In conducting our assessment of the effectiveness of its internal control over financial reporting, we have excluded 22 of the 48
entities acquired in 2024, which are included in our 2024 consolidated financial statements. Collectively, these acquired entities
constituted approximately 0.6% of total assets as of December 31, 2024, approximately 0.6% of total revenues, and
approximately (0.4)% of net earnings for the year then ended.
Based on our assessment under the 2013 framework, management concluded that our internal control over financial reporting
was effective as of December 31, 2024. In addition, the effectiveness of our internal control over financial reporting as of
December 31, 2024, has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their
attestation report which is included herein.
Arthur J. Gallagher & Co.
Rolling Meadows, Illinois
February 17, 2025
/s/ J. Patrick Gallagher, Jr.
/s/ Douglas K. Howell
J. Patrick Gallagher, Jr.
Douglas K. Howell
Chairman and Chief Executive Officer
Chief Financial Officer
122
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Arthur J. Gallagher & Co.
Opinion on Internal Control Over Financial Reporting
We have audited Arthur J. Gallagher & Co.’s internal control over financial reporting as of December 31, 2024, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework), (the COSO criteria). In our opinion, Arthur J. Gallagher & Co (the Company) maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2024, based on the COSO criteria.
As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s
assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls
of 22 of the 48 entities acquired in 2024, which are included in the 2024 consolidated financial statements of the Company and
constituted approximately 0.6% of total assets as of December 31, 2024, approximately 0.6% of total revenues, and
approximately (0.4)% of net earnings for the year then ended. Our audit of internal control over financial reporting of the
Company also did not include an evaluation of the internal control over financial reporting of these acquired entities.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2024 and 2023, the related consolidated
statements of earnings, comprehensive earnings, stockholders’ equity and cash flows for each of the three years in the period
ended December 31, 2024, and the related notes and financial statement schedule listed in the Index at Item 15(2)(a) and our
report dated February 17, 2025 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report
on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Ernst & Young LLP
Chicago, Illinois
February 17, 2025
123
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
There were no changes in or disagreements with our accountants on matters related to accounting and financial disclosure.
Item 9A. Controls and Procedures.
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures.
We carried out an evaluation required by the Exchange Act, under the supervision and with the participation of our principal
executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and
procedures, as defined in Rule 13a-15(e) of the 1934 Act, as of the end of the period covered by this report. Based on this
evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures
were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or
submit under the 1934 Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules
and forms and to provide reasonable assurance that such information is accumulated and communicated to our management,
including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding
required disclosure.
Design and Evaluation of Internal Control over Financial Reporting.
Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives as specified
above. Management does not expect, however, that our disclosure controls and procedures will prevent or detect all error and
fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only
reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute
assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within
the Company have been detected. Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we included a report of
management’s assessment of the design and effectiveness of our internal controls as part of this annual report for the fiscal year
ended December 31, 2024. Our independent registered public accounting firm also attested to, and reported on, the effectiveness
of internal control over financial reporting. Management’s report and the independent registered public accounting firm’s
attestation report are included in Item 8, “Financial Statements and Supplementary Data,” under the captions entitled
“Management’s Report on Internal Control Over Financial Reporting” and “Report of Independent Registered Public Accounting
Firm on Internal Control Over Financial Reporting.”
Changes in Internal Control over Financial Reporting.
During the three-month period ended December 31, 2024, there has not occurred any change in our internal control over
financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial
reporting.
Item 9B. Other Information.
During the three-month period ended December 31, 2024, no director or officer adopted or terminated any Rule 10b5-1 trading
arrangement or non-Rule 10b5-1 trading arrangement, as each term is defined in Item 408(a) of Regulation S-K.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
None.
124
Part III
Item 10. Directors, Executive Officers and Corporate Governance.
Our 2025 Proxy Statement will include the information required by this item under the headings “Election of Directors,” “Other
Board Matters,” “Board Committees,” “Insider Trading Policy” and, if necessary, “Delinquent Section 16(a) Reports,” which we
incorporate herein by reference.
Item 11. Executive Compensation.
Our 2025 Proxy Statement will include the information required by this item under the headings “Compensation Committee
Report” and “Compensation Discussion and Analysis,” which we incorporate herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Our 2025 Proxy Statement will include the information required by this item under the headings “Security Ownership by Certain
Beneficial Owners and Management” and “Equity Compensation Plan Information,” which we incorporate herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Our 2025 Proxy Statement will include the information required by this item under the headings “Certain Relationships and
Related Transactions” and “Other Board Matters,” which we incorporate herein by reference.
Item 14. Principal Accountant Fees and Services.
Our independent registered public accounting firm is Ernst & Young LLP, Chicago, Illinois, Auditor Firm ID: 42.
Our 2025 Proxy Statement will include the information required by this item under the heading “Ratification of Appointment of
Independent Auditor - Principal Accountant Fees and Services,” which we incorporate herein by reference.
Part IV
Item 15. Exhibits and Financial Statement Schedules.
The following documents are filed as a part of this report:
1.
Consolidated Financial Statements:
(a)
Consolidated Statement of Earnings for each of the three years in the period ended December 31, 2024.
(b)
Consolidated Balance Sheet as of December 31, 2024 and 2023.
(c)
Consolidated Statement of Cash Flows for each of the three years in the period ended December 31, 2024.
(d)
Consolidated Statement of Stockholders’ Equity for each of the three years in the period ended December 31, 2024.
(e)
Notes to Consolidated Financial Statements.
(f)
Report of Independent Registered Public Accounting Firm on Financial Statements.
(g)
Management’s Report on Internal Control Over Financial Reporting.
(h)
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting.
2.
Consolidated Financial Statement Schedules required to be filed by Item 8 of this Form:
(a)
Schedule II - Valuation and Qualifying Accounts.
All other schedules are omitted because they are not applicable, or not required, or because the required information is included
in our consolidated financial statements or the notes thereto. Exhibits:
125
2.1
Stock Purchase Agreement, dated as of December 7, 2024, by and among Arthur J. Gallagher & Co., The
AssuredPartners Group LP and Dolphin Topco, Inc. (incorporated by reference to Exhibit 2.1 to our Form 8-K
Current Report dated December 7, 2024, File No. 1-09761).
3.1
Restated Certificate of Incorporation of Arthur J. Gallagher & Co. (incorporated by reference to Exhibit 3.2 to our
Form 8-K Current Report dated May 11, 2023, File No. 1-09761).
3.2
Amended and Restated By-Laws of Arthur J. Gallagher & Co (incorporated by reference to Exhibit 3.1 to our Form
8-K Current Report dated January 29, 2025, File No. 1-09761).
4.1
Description of Securities (incorporated by reference to Exhibit 4.1 to our Form 10-K Annual Report for 2023, File
No. 1-09761)
4.2
Indenture, dated as of May 20, 2021, between the Company and The Bank of New York Mellon Trust Company,
N.A., as Trustee (incorporated by reference to Exhibit 4.1 to our Form 8-K Current Report dated May 20, 2021, File
No. 1-09761).
10.1
Credit Agreement, dated as of June 22, 2023, by and among Arthur J. Gallagher & Co., as borrower, Bank of
America, N.A., as administrative agent and L/C issuer, and the lenders and other L/C issuers party thereto
(incorporated by reference to Exhibit 10.1 to our Form 8-K Current Report dated June 23, 2023, File No. 1-09761).
10.2
First Amendment to Credit Agreement, dates as of November 7, 2023, by and among Arthur J. Gallagher & Co., as
borrower, Bank of America, N.A., as administrative agent, and the lenders party thereto (incorporated by reference
to Exhibit 10.2 to our Form 10-K Annual Report for 2023, File No. 1-09761).
*10.3
Form of Indemnity Agreement between Arthur J. Gallagher & Co. and each of our directors and executive officers.
*10.4
Arthur J. Gallagher & Co. Deferral Plan for Nonemployee Directors (amended and restated as of February 1, 2022)
(incorporated by reference to Exhibit 10.12 to our Form 10-K Annual Report for 2022, File No. 1-09761).
*10.5
Form of Change in Control Agreement between Arthur J. Gallagher & Co. and those Executive Officers hired prior
to January 1, 2008 (incorporated by reference to Exhibit 10.14.1 to our Form 10-K Annual Report for 2011, File
No. 1-09761).
*10.6
Form of Change in Control Agreement between Arthur J. Gallagher & Co. and those Executive Officers hired after
January 1, 2008 (incorporated by reference to Exhibit 10.14.2 to our Form 10-K Annual Report for 2011, File No.
1-09761).
*10.7
The Arthur J. Gallagher & Co. Supplemental Savings and Thrift Plan, as amended and restated effective October
20, 2020 (incorporated by reference to Exhibit 10.15 to our Form 10-K Annual Report for 2020, File No. 1-09761).
*10.8
Arthur J. Gallagher & Co., Deferred Equity Participation Plan (as amended and restated as of February 20, 2021)
(incorporated by reference to Exhibit 10.16 to our Form 10-Q for the quarterly period ended March 31, 2021 File
No. 1 09761).
*10.9
Form of Deferred Equity Participation Plan Award Agreement (incorporated by reference to Exhibit 10.16.1 to our
Form 10-K Annual Report for 2022, File No. 1-09761).
*10.10
Arthur J. Gallagher & Co. Severance Plan (effective September 15, 1997, as amended and restated effective January
1, 2009) (incorporated by reference to Exhibit 10.17 to our Form 10-K Annual Report for 2008, File No. 1-09761).
*10.11
First Amendment to the Arthur J. Gallagher & Co. Severance Plan (effective September 15, 1997, as amended and
restated effective January 1, 2009) (incorporated by reference to Exhibit 10.1 to our Form 10-Q Quarterly Report
for the quarterly period ended June 30, 2010, File No. 1-09761).
*10.12
Arthur J. Gallagher & Co. Deferred Cash Participation Plan, amended and restated as of September 11, 2018
(incorporated by reference to Exhibit 10.18 to our Form 10-K Annual Report for 2019, File No. 1-09761).
*10.13
Form of Long-Term Incentive Plan Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit
10.42.1 to our Form 10-K Annual Report for 2022, File No. 1-09761).
*10.14
Form of Long-Term Incentive Plan Stock Option Award Agreement (incorporated by reference to Exhibit 10.42.2
to our Form 10-K Annual Report for 2022, File No. 1-09761).
*10.15
Form of Long-Term Incentive Plan Stock Appreciation Rights Award Agreement (incorporated by reference to
Exhibit 10.42.3 to our Form 10-K Annual Report for 2010, File No. 1-09761).
*10.16
Form of Long-Term Incentive Plan Restricted Stock Unit Award Agreement for executive officers over the age of
55 (incorporated by reference to Exhibit 10.42.4 to our Form 10-K Annual Report for 2022, File No. 1-09761).
126
*10.17
Form of Long-Term Incentive Plan Stock Option Award Agreement for executive officers (incorporated by
reference to Exhibit 10.17 to our Form 10-K Annual Report for 2023, File No. 1-09761).
*10.18
Arthur J. Gallagher & Co. Performance Unit Program (incorporated by reference to Exhibit 10.43 to our Form 10-Q
Quarterly Report for the quarterly period ended June 30, 2007, File No. 1-09761).
*10.19
Form of Performance Unit Grant Agreement under the Performance Unit Program (incorporated by reference to
Exhibit 10.43.1 to our Form 10-K Annual Report for 2022, File No. 1-09761).
*10.20
Form of Performance Unit Grant Agreement under the Long-Term Incentive Plan for executive officers
(incorporated by reference to Exhibit 10.20 to our Form 10-K Annual Report for 2023, File No. 1-09761).
*10.21
Arthur J. Gallagher & Co. 2017 Long-Term Incentive Plan (incorporated by reference to Exhibit 4.8 to our Form S-
8 Registration Statement, File No. 333-221274).
*10.22
Arthur J. Gallagher & Co. U.K. Employee Share Incentive Plan (incorporated by reference to Exhibit 4.3 to our
Form S-8 Registration Statement, File No. 333-258331).
*10.23
Form of Partnership Share Agreement under the Arthur J. Gallagher & Co. U.K. Employee Share Incentive Plan
(incorporated by reference to Exhibit 4.4 to our Form S-8 Registration Statement, File No. 333-258331).
*10.24
Arthur J. Gallagher & Co. 2022 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to our Form
8-K Current Report dated May 13, 2022 File No. 1-09761).
19
Insider Trading Policy
21.1
Subsidiaries of Arthur J. Gallagher & Co., including state or other jurisdiction of incorporation or organization.
23.1
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.
24.1
Power of Attorney.
31.1
Rule 13a-14(a) Certification of Chief Executive Officer.
31.2
Rule 13a-14(a) Certification of Chief Financial Officer.
32.1
Section 1350 Certification of Chief Executive Officer.
32.2
Section 1350 Certification of Chief Financial Officer.
97
Incentive Compensation Recovery Policy (incorporated by reference to Exhibit 97 to our Form 10-K Annual Report
for 2023, File No. 1-09761).
101.INS
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its
XBRL tags are embedded within the Inline XBRL document.
101.SCH
Inline XBRL Taxonomy Extension Schema with embedded linkbases document.
104
Cover Page Interactive Data File formatted in Inline XBRL (included as Exhibit 101).
All other exhibits are omitted because they are not applicable, or not required, or because the required information is included in
our consolidated financial statements or the notes thereto. The registrant agrees to furnish to the Securities and Exchange
Commission upon request a copy of any long-term debt instruments that have been omitted pursuant to Item 601(b)(4)(iii)(A) of
Regulation S-K.
^ Certain exhibits and schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company hereby
undertakes to furnish supplemental copies of any of the omitted exhibits and schedules upon request by the SEC; provided,
however, that the Company may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934,
as amended, for any exhibits or schedules so furnished.
* Such exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this form
pursuant to item 601 of Regulation S-K.
Item 16. Form 10-K Summary.
None.
127
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 17th day of February,
2025.
ARTHUR J. GALLAGHER & CO.
By
/S/ J. PATRICK GALLAGHER, JR.
J. Patrick Gallagher, Jr.
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on the 17th day of
February, 2025 by the following persons on behalf of the Registrant in the capacities indicated.
Name
Title
/S/ J. PATRICK GALLAGHER, JR.
Chairman, Chief Executive Officer and Director (Principal
Executive Officer)
J. Patrick Gallagher, Jr.
/S/ DOUGLAS K. HOWELL
Vice President and Chief Financial Officer (Principal
Financial Officer)
Douglas K. Howell
/S/ RICHARD C. CARY
Controller (Principal Accounting Officer)
Richard C. Cary
*SHERRY S. BARRAT
Director
Sherry S. Barrat
*DEBORAH CAPLAN
Director
Deborah Caplan
*TERESA H. CLARKE
Director
Teresa H. Clarke
* D. JOHN COLDMAN
Director
D. John Coldman
* RICHARD HARRIES
Director
Richard Harries
* DAVID S. JOHNSON
Director
David S. Johnson
*CHRISTOPHER C. MISKEL
Director
Christopher C. Miskel
* RALPH J. NICOLETTI
Director
Ralph J. Nicoletti
*NORMAN L. ROSENTHAL
Director
Norman L. Rosenthal
*By:
/S/ WALTER D. BAY
Walter D. Bay, Attorney-in-Fact
128
Schedule II
Arthur J. Gallagher & Co.
Valuation and Qualifying Accounts
Balance at
Beginning
of Year
Amounts
Recorded in
Earnings
Adjustments
Balance at
End
of Year
(In millions)
Year ended December 31, 2024
Allowance for doubtful accounts
$
23.0
$
12.2
$
(13.4) (1) $
21.8
Allowance for estimated policy cancellations
9.9
3.0
0.4
(2)
13.3
Valuation allowance for deferred tax assets
195.8
(19.3)
—
176.5
Accumulated amortization of expiration
lists, non-compete agreements and trade
names
3,873.5
664.8
(67.0) (3)
4,471.3
Year ended December 31, 2023
Allowance for doubtful accounts
$
11.1
$
26.0
$
(14.1) (1) $
23.0
Allowance for estimated policy cancellations
9.3
(0.5)
1.1
(2)
9.9
Valuation allowance for deferred tax assets
135.2
60.6
—
195.8
Accumulated amortization of expiration
lists, non-compete agreements and trade
names
3,300.0
531.3
42.2
(3)
3,873.5
Year ended December 31, 2022
Allowance for doubtful accounts
$
8.3
$
6.8
$
(4.0) (1) $
11.1
Allowance for estimated policy cancellations
10.0
2.4
(3.1) (2)
9.3
Valuation allowance for deferred tax assets
154.9
(19.7)
—
135.2
Accumulated amortization of expiration
lists, non-compete agreements and trade
names
2,924.0
454.9
(78.9) (3)
3,300.0
(1)
Net activity of bad debt write offs and recoveries and acquired businesses.
(2)
Net activity to allowance related to acquired businesses.
(3)
Elimination of fully amortized expiration lists, non-compete agreements and trade names, intangible asset/amortization
reclassifications and disposal of acquired businesses.
Exhibit 31.1
Rule 13a-14(a) Certification of Chief Executive Officer
Certification
I, J. Patrick Gallagher, Jr., certify that:
1.
I have reviewed this annual report on Form 10-K of Arthur J. Gallagher & Co.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a.)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b.)
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
(c.)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
(d.)
Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board
of directors (or persons performing the equivalent functions):
(a.)
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
(b.)
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: February 17, 2025
/s/ J. Patrick Gallagher, Jr.
J. Patrick Gallagher, Jr.
Chairman and Chief Executive Officer
(principal executive officer)
Exhibit 31.2
Rule 13a-14(a) Certification of Chief Financial Officer
Certification
I, Douglas K. Howell, certify that:
1.
I have reviewed this annual report on Form 10-K of Arthur J. Gallagher & Co.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a.)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b.)
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
(c.)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
(d.)
Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
(a.)
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
(b.)
Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: February 17, 2025
/s/ Douglas K. Howell
Douglas K. Howell
Vice President
Chief Financial Officer
(principal financial officer)
Exhibit 32.1
Section 1350 Certification of Chief Executive Officer
I, J. Patrick Gallagher, Jr., the chief executive officer of Arthur J. Gallagher & Co., certify that (i) the
Annual Report on Form 10-K of Arthur J. Gallagher & Co. for the twelve month period ended December 31,
2024 (the “Form 10-K”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 and (ii) the information contained in the Form 10-K fairly presents, in all material respects,
the financial condition and results of operations of Arthur J. Gallagher & Co. and its subsidiaries.
Date: February 17, 2025
/s/ J. Patrick Gallagher, Jr.
J. Patrick Gallagher, Jr.
Chairman and Chief Executive Officer
(principal executive officer)
Exhibit 32.2
Section 1350 Certification of Chief Financial Officer
I, Douglas K. Howell, the chief financial officer of Arthur J. Gallagher & Co., certify that (i) the Annual
Report on Form 10-K of Arthur J. Gallagher & Co. for the twelve month period ended December 31, 2024 (the
“Form 10-K”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934 and (ii) the information contained in the Form 10-K fairly presents, in all material respects, the financial
condition and results of operations of Arthur J. Gallagher & Co. and its subsidiaries.
Date: February 17, 2025
/s/ Douglas K. Howell
Douglas K. Howell
Vice President
Chief Financial Officer
(principal financial officer)
ANNUAL MEETING
The Arthur J. Gallagher & Co. 2025 Annual Meeting of
Stockholders will be held on Tuesday, May 13, 2025, at 9 a.m.
(Central Time) and will be a virtual meeting. The meeting
website is www.virtualshareholdermeeting.com/AJG2025.
REGISTRAR AND TRANSFER AGENT
Computershare Trust Company, N.A.
150 Royall Street
Canton, MA 02021
(877) 373 6374
www.computershare.com/investor
AUDITORS
Ernst & Young LLP
STOCKHOLDER INQUIRIES
Communications regarding direct stock purchases, dividends,
lost stock certificates, direct deposit of dividends, dividend
reinvestment, and changes of address should be directed to:
Computershare Trust Company, N.A.
P.O. Box 43006
Providence, RI 02940
(877) 373 6374 or
(312) 360 5386
www.computershare.com/investor
Online inquiries:
web.queries@computershare.com
STOCKHOLDER INFORMATION
$350
Arthur J. Gallagher & Co.
S&P 500 Index
Peer Group
2019
2020
2021
2023
2022
2024
$150
$100
$200
$250
$300
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
Assumes initial investment of $100
December 2024
COMPARATIVE PERFORMANCE GRAPH
The graph above demonstrates a five-year comparison of cumulative total returns for our company; the S&P 500; and a peer group
consisting of Aon plc, Marsh & McLennan Companies, Inc., Willis Towers Watson plc, and Brown & Brown, Inc. The chart shows the
performance of $100 invested in our company, the S&P 500, and the peer group on December 31, 2019, with dividend reinvestment.
BOARD OF DIRECTORS
J. PATRICK GALLAGHER, JR.
Chairman of the Board
Chief Executive Officer
RICHARD HARRIES 1,4
Former Chief Executive Officer
Atrium Underwriters Limited
SHERRY BARRAT 2,3
Former Vice Chairman
Northern Trust Corporation
TERESA CLARKE 1,4
Chair and Chief Executive Officer
Africa.com LLC
JOHN COLDMAN 4
Former Chairman
The Benfield Group
DAVID JOHNSON 2,3,4
Lead Director
Former Chief Executive Officer of North America
Aryzta AG
1Member of the Audit Committee
2Member of the Compensation Committee
3Member of the Nominating/Governance Committee
⁴Member of the Risk and Compliance Committee
Further information regarding the principal employment or occupation of each
director may be found beginning on page 3 of the proxy statement.
CHRIS MISKEL2,3
President and Chief Executive Officer
Versiti, Inc.
RALPH NICOLETTI 1
Former Senior Vice President
and Chief Financial Officer
The AZEK Company
DEBORAH CAPLAN 2,3
Former Executive Vice President, Human
Resources and Corporate Services
NextEra Energy, Inc.
NORMAN ROSENTHAL, PH.D.1,4
President
Norman L. Rosenthal & Associates, Inc.
The Gallagher Way. Since 1927.
Global Headquarters
2850 Golf Road
Rolling Meadows, IL 60008-4050
(630) 773 3800
www.AJG.com
© 2025 Arthur J. Gallagher & Co.