Q2 2025 Earnings Call Transcript

Good afternoon, and welcome to Arthur J. Gallagher & Company's Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Today's call is being recorded. If you have any objections, you may disconnect at this time. Some of the comments made during this conference call, including answers given in response to questions, may constitute forward- looking statements within the meaning of the securities laws.

The company does not assume any obligation to update information or forward-looking statements provided on this call. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to the information concerning forward-looking statements and Risk Factors sections contained in the company's most recent 10-K, 10-Q and 8-K filings for more details on such risks and uncertainties. In addition, for reconciliations of the non-GAAP measures discussed on this call as well as other information regarding these measures, please refer to the earnings release and other materials in the Investor Relations section of the company's website.

It is now my pleasure to introduce J. Patrick Gallagher, Jr., Chairman and CEO of Arthur J. Gallagher & Company. Mr.

Gallagher, you may begin.

Thank you. Good afternoon, and thank you for joining us for our second quarter '25 earnings call. On the call with me today is Doug Howell, our CFO; and other members of the management team. We had a great second quarter.

For our combined Brokerage and Risk Management segments, we posted 16% growth in revenue, 5.4% organic growth, reported net earnings margin of 17.3%, adjusted EBITDAC margin of 34.5%, up 307 basis points year-over-year, adjusted EBITDAC growth of 26%, our 21st consecutive quarter of double-digit growth. GAAP earnings per share of $2.11 and adjusted earnings per share of $2.95, another strong quarter by the team. Moving to results on a segment basis, starting with the Brokerage segment. Reported revenue growth was 17%.

Organic growth was 5.3%, in line with our expectations despite headwinds from CAT property renewal premium changes in June. Adjusted EBITDAC margin expanded 334 basis points to 36.4%, with underlying margin up around 60 basis points. Doug will break down the margin expansion further in his comments. Let me provide you with some insights behind our Brokerage segment organic.

Within our retail operations, we delivered 4% organic overall, a reflection of the heavier weighting to property business this quarter. U.S. organic was 5%, with P/C a bit below and Benefits a bit above that level. Outside the U.S., our international operations, primarily in the U.K. and Canada, Australia and New Zealand were collectively around 3%, with U.K. a bit above and Canada a bit below 3%, shifting to our reinsurance, wholesale and specialty businesses. In total organic of nearly 7%.

This includes 5% organic from Gallagher Re and more than 7% organic from our wholesale and specialty businesses. So we continue to deliver organic growth across retail, wholesale and reinsurance. Next, let me provide some thoughts on the P/C insurance pricing environment, starting with the primary insurance market. Overall, the global P/C insurance market remains rational, and we expect that to continue.

Carriers today have insights into what products and geographies are generating appropriate returns and areas that need to be re-underwritten or repriced to improve profitability. Accordingly, we are seeing more carrier competition across property and continued caution within casualty lines. Breaking down second quarter global renewal premium changes, which includes both rate and exposure, we saw the following by product line, property down 7%. That's a couple of points below what we were seeing at the time of our early June IR Day.

Casualty lines, up 8% overall, including general liability up 4%; commercial auto up 7% and umbrella up 11%. Package up 5%, D&O, down 3%, workers' comp up about 1 point and personal lines up 7%. Breaking down renewal premiums by client size, we continue to see significant differences. For clients generating less than $100,000 of revenue, renewal premiums were up 3%.

For clients generating more than $100,000, renewal premiums were down 2%. As we discussed with you in June, second quarter renewal premium changes are more heavily influenced by property coverages than the other quarters. Excluding property, both small to midsized accounts and larger accounts are seeing global renewal premium increases in the 4% to 6% range. Now good accounts will get some premium relief from that.

However, accounts with poor loss experience are likely to see greater increases. Today's environment is actually ideal for us to show our expertise, product knowledge and data-driven capabilities. Our talented team can help clients navigate market complexities while finding the best coverage, moving to the reinsurance market now. Our June and July renewals reflected broadly similar conditions as earlier in the year.

Property covers continued to favor reinsurance buyers, particularly on CAT-exposed risks and increased limits being purchased are somewhat offsetting rate decreases. Casualty reinsurance dynamics reflected continued concerns over prior year loss development and rising loss trends from inflation and the litigation environment. Thus, pricing was flat to modestly higher. In a growing market with opportunities to differentiate clients' underwriting abilities and risk profiles, Gallagher Re will continue to perform very well.

Moving to some comments on our customers' business activity. Our second quarter and July revenue indications from audits, endorsements and cancellations continue to be a nice positive. So we see solid client business activity in our data and no signs of a broad, meaningful global economic downturn nor any changes from the prospect of tariffs. We will continue to watch these carefully for any early signs of changes in our clients' business activity.

Within the U.S., we are seeing continued job growth, just not quite at the robust levels we saw during 2024. Additionally, trends from health insurance carriers continue to indicate ongoing increases in medical utilization and treatment costs. Our benefit professionals are well positioned to guide employers through these many challenges. So with a great first half of the books, we now see full year '25 Brokerage segment organic in the 6.5% to 7.5% range. Doug will unpack our organic outlook by quarter in his comments.

Regardless of market and economic conditions, I believe we are very well positioned. Today, our niche expertise, extensive data and analytics offerings and global resources put us in a great place competitively. Moving on to our Risk Management segment, Gallagher Bassett. Second quarter revenue growth was 9%, including organic of 6.2%.

We saw solid new business revenue in the second quarter as the new business sold that we spoke about last quarter began to generate revenue. Combined with our fantastic client retention, we believe we will see full year '25 organic in that 6% to 8% range. Second quarter adjusted EBITDAC margin was 21%, a bit better than our June expectations. And looking ahead, we still see full year margin around 20.5%, and that would be another great year for Gallagher Bassett.

Shifting to comments about mergers and acquisitions, starting with Assured Partners. Since our early June IR day, we've had -- we've made terrific progress and now believe we will be in a position to complete this transaction here in the third quarter. As for other M&A activity during the second quarter, we completed 9 new mergers, representing around $290 million of estimated annualized revenue. For those new partners joining us, I'd like to extend a very warm welcome to the Gallagher family of professionals.

Looking at our pipeline, we have around 40 term sheets signed or being prepared, representing around $500 million of annualized revenue. Good firms always have a choice, and it would be terrific if they chose to partner with Gallagher. I'll conclude with some comments about our Bedrock Gallagher culture. During the second quarter, I had the pleasure of spending time with thousands of colleagues across the organization, including more than 500 college students from the 60th class of the Gallagher internship program.

This rigorous 2-month sales internship program is an essential investment in our future. And from many -- my many interactions with this talented group. I am more than confident that our sales culture will remain strong for years to come, and that is the Gallagher way. Okay.

I'll stop now and turn it over to Doug. Doug?

Thanks, Pat, and hello, everyone. Today, I'll walk you through our earnings release and provide some comments on organic growth and margins by segment, including how we are seeing the rest of the year shape up. Next, I'll move to the CFO commentary document that we post on our IR website and walk you through our typical modeling helpers. And then I'll conclude my prepared remarks with my usual comments on cash, M&A and capital management.

All right. Let's flip to Page 3 of the earnings release. Brokerage segment organic growth of 5.3% was right in line with our June IR Day guidance. With our first quarter organic at 9.5%, year-to-date, we are at 7.6%.

Looking forward to the second half of '25, we see third and fourth quarter organic each around 5% plus, which will put full year organic in the 6.5% to 7.5% range. Let me give you 4 call-outs on that. First, recall from our first quarter earnings call and our June IR Day, our 9.5% first quarter organic growth had some positive timing that is now flipping to a headwind in the second half. Second, as we discuss every quarter, organic can be dependent on those large and lumpy live cases.

Given the current interest rate outlook uncertainty, clients may accelerate or even delay when to buy policies. Third is property rates further decreases or on the other hand, a large CAT here in wind season, causing a quick shift higher would also influence our organic and fourth, our casualty rate. We are seeing some lines perhaps bottoming out and other lines continuing to steadily march higher. Looking to Page 5 of the earnings release to the Brokerage segment adjusted EBITDAC table.

Second quarter adjusted EBITDAC margin was 36.4%, up 334 basis points year-over-year and above our June IR Day expectations. Let me walk you through our typical bridge from last year. First, if you pull out last year's 2024 second quarter earnings release, you'd see we reported back then adjusted EBITDAC margin of 33.1%. Now adjust that using current FX rates, which for this quarter is next to nothing.

So just assume adjusted EBITDAC margin levelized for FX would remain at 33.1%. Then organic growth of 5.3% gave us about 60 basis points of expansion this quarter. The roll-in impact of M&A used about 40 basis points. The impact of lower rates on fiduciary interest income used about 30 basis points.

And then interest income on the cash we're holding for Assured Partners added about 340 basis points of margin this quarter. Follow that bridge, and it will get you to second quarter 2025 margin of 36.4%. That's great discipline by the team. As for the second half of the year, we don't see anything that causes us to change how we view underlying margin expansion potential.

We call it organic greater than 4%. We should see some underlying margin expansion, then say at 6.5% organic, perhaps around 70 basis points of expansion and at 7.5% organic, around 90 basis points of expansion. I would say the same thing looking out towards '26. We have a long list that will continue to benefit our productivity and quality, including a more stable labor environment, increased returns from our technology spends on client-facing sales and service tools, our proven early AI successes, further centralization of back-office services, all on top of an industrial strength core operating system that can handle significantly more revenue with marginal costs.

So in a sound bite, in any organic environment, we still see significant opportunities to get better, faster and more productive and thereby provide higher quality offerings to our clients at lower cost. Sticking on Page 5. Risk Management segment organic at 6.2%. As Pat said, that's a bit better than our expectations due to strong new business revenues from contracts that incepted in Q2. And for the year, we continue to see organic in that 6% to 8% range. Adjusted EBITDAC margin of 21% was better than our June IR Day expectations.

And looking forward, we still see full year margins closer to 20.5%. Turning now to Page 7 of the earnings release and the corporate segment shortcut table. Compared to our June IR day expectations, the adjusted interest in banking line and the clean energy line, both were very close to our expectations. The adjusted acquisition cost line related to our typical tuck-in acquisitions came in a penny better and the adjusted corporate line was $0.04 below.

That's solely due to a larger noncash unrealized FX remeasurement loss because of the dollar weakened in June. That has already mostly reversed here in July. So it just shows the noise that this can create in our corporate segment results. So let's move now from the earnings release to the CFO commentary document that we posted on our website.

As a general statement, please read the headers and the footers on each page carefully on how numbers in this document include or exclude the impact of Assured Partners. Flipping to Page 3 and our typical modeling helpers, most of the second quarter '25 actual numbers were close to what we provided back in June. One call out here, a small flip from amortization to depreciation that cost us about a penny of adjusted EPS. That's simply because we updated opening balance sheet numbers related to our recent acquisition.

Finally, on this page, please look at the FX disclosures for the Brokerage and Risk Management segments as you refine your models. Turning now to Page 4 and the corporate segment outlook for the second half of '25. There's not much change here from what we provided 8 weeks ago. So you can flip to Page 5 to our tax credit carryovers. As of June 30, about $685 million, which we get over the next few years.

And recall that those -- that benefit flows through our cash flow statement, not through the P&L. Also, no change to the value of these credits from the recent U.S. OB3 tax bill. So that's good news.

And while I'm at it, there isn't anything concerning to us in the other provisions of the new bill either. So that's good news, too. Turning to Page 6, the investment income table. We've updated our forecast to reflect current FX rates and changes in fiduciary cash balances.

These numbers assume two future 25 basis point rate cuts, one in September and one in December. You also see that the interest income associated with Assured Partners financing runs through the third quarter in this table. If we close before that, obviously, that number would come down. Shifting down the page is the rollover revenue table.

Only a small change from our June CFO commentary, and that was due to a refinement in the seasonality of revenues from our second quarter '25 acquisitions, which are more heavily weighted towards first quarter versus second, third and fourth. And then looking forward, you'll see in the pinkish columns to the right, they included estimated revenues for brokerage M&A closed through yesterday. So there's a standard reminder, you'll need to make a pick for future M&A. And also, you'll need to make a pick for when AP might close.

The purple section on that page should help with that. All right. Moving to cash, capital management and M&A funding. Available cash on hand at June 30 was about $14 billion and no outstanding borrowings on our line of credit.

With our strong second half cash flows, we are in a great position to fund another $2 billion of M&A here in '25 and is looking like we would have about $5 billion in '26 before using any stock, all while maintaining a solid investment-grade debt rating. Think about that for a minute, another $7 billion over the next 17 months. That should allow us to add another $600 million to $700 million of EBITDAC at a really nice arbitrage. And I'm bullish about this because for 20 years, we've invested in building the chassis that can support billions and billions more of revenue, provide world-class service and enable thousands and thousands of talented producers to win at the point of sale.

So our M&A strategy has a fantastic outlook. So a great quarter and first half in the books, and we have an exciting future with AP, organic growth, margin expansion, M&A opportunities, all driven by a talented team with a bedrock culture. Those are my comments. Back to you, Pat.

Thanks, Doug. Dale, do you want to open up for questions, please?

[Operator Instructions] our first questions come from the line of Elyse Greenspan with Wells Fargo.

My first question, what was the date that you guys sent the information, the HSR information to the DOJ and responded to that request? And did you get a timing agreement there? Or is it just a 30-day clock that starts once you gave them all the information?

Well, Elyse, we aren't going to give out dates that we did this or did that. We are done responding to their second request, and we do continue to engage with them and respond to certain inquiries. And so the review is ongoing. So I'm not going to get into any more real details about timing.

But our evaluation of where we stand, given the give and take back and forth and given the relationship is that we'll be in a position to close the transaction during the third quarter. We're very, very excited about it.

And then my second question, you guys -- I'm just trying to get a sense with the 5% brokerage outlook for the back half, I guess, are you assuming a continuation of just pricing trends that we saw in Q2 and just the slowdown in property in June? And then if I recall from the June IR Day, you were talking about some benefits business that was getting pushed to the back half. Is that still the expectation? And then what quarter are you expecting that might come on?

All right. So yes, so let me just reiterate what I said is that we see the next 2 quarters in the 5-plus range, too, not to be -- not to quibble over picking at one single number. And yes, I think that there's some risk and opportunity with the life business. We'll see how that comes out.

Obviously, sometimes those policies incept depending on interest rates, with what's happening with the Fed holding tight right now, your guess might be as good as mine about whether they accelerate to close or whether they try to wait until a little longer, maybe into next year to actually incept those policies. So there is some dependency on those large and lumpy life cases. Other things is those picks are based on what we're seeing in the property environment right now, what we're seeing in the casualty environment right now. And again, some of that's influenced a little bit by the timing that we had coming out of the first quarter with such a great first quarter.

There's a little headwind to that in the third and the fourth quarters. Overall, though, our business, we're excited about it, and we think that we could be in that 6.5% and 7.5% range for the year.

And we are heavier in the second quarter on property than we are the next two.

Our next questions come from the line of Andrew Kligerman with TD Cowen.

On the property, I just heard an E&S writer say that we made the same point as you about June seeing a big drop-off, maybe 20% to 30%. Is that baked into your guidance for the balance of the year, something along the magnitude of 20% to 30% property lines? Or is that just...

That's a bad number. That's a bad number. Whoever gave you that number, it's not what we're seeing. Absolutely not close. So no, we didn't take any 20% or 30% decrease.

Property in that 7% range, a little bit plus or minus on that in June. Property is a pretty heavy quarter during -- we say, in June. And so I think it's -- the other thing, too, is you got to understand -- you got to always remember the difference between our revenues that could include exposure changes also. So as property rates might come off, when you talk pure rate, that might be one thing, but our customers are smart.

When rates are dropping, they buy more cover. So when we give you a number, when we see property down 7%, that would include rates going down, but exposures or the consumption of that -- of those risks is going up.

Got it. And the number I gave you might have been off because it might have been weighted more towards E&S and large risk.

That's a bad number. It's a bad number on large accounts, it's a bad number on middle accounts, it's a bad number on small accounts.

Good to hear. And then maybe just shifting to your pipeline. I mean it sounds really exciting. You've done 9 mergers already. No disruption from Assured Partners. You can just kind of keep going at your regular pace.

I'll tell you what, I have to agree, if I was an outsider, I'd be pretty impressed. Our machine, and we're in just a great position is driven by literally hundreds of people in the field around the world, talking to folks that they admire and working with people who have been hired by folks to sell their business. And we're on that short list of virtually anybody that wants to take a look at possibly selling their enterprise, large or small. Our tuck-in acquisition business purchases are not all $50 million, $100 million.

There's lots of 2s, 5s, 10s. These are family businesses, and they're not PE roll-ups and they're looking for a home for their people. And I couldn't be proud of the fact that there were still at the high end of that checklist. They want to know is Gallagher still the kind of company I'd like to join.

And you're exactly right to pick up on the fact that 9 closures at the very time that they know we're doing the biggest transaction in our history. So it is a testament to...

Our next questions come from the line of Charlie Lederer with BMO Capital Markets.

On the RPC numbers that you gave, Pat, would you be able to -- I don't think I missed or I may have missed it, but would you be able to give an all-in RPC number? And I guess, what would that look like with 3Q and 4Q's mix instead of 2Q?

Well, it'd be about 4%.

Yes. I think you're picking up on something, Charles. There seems to be a heavy focus on property. Property for us in the course of a year, might be 35% of our business casualty, and we're seeing a steady march of casualty rates going forward.

Recollection says that casualty is up about 8% and the mix and the weight of the business. So I think overall, you're seeing a market that's still mid-single digits going up in terms of rates. So you're right to sniff out the difference between those 2 and -- but the combined number in that mid-single digits number is still a spot for -- in the second part of your question, we see that happening for the rest of the year. We are just in the beginning of wind season.

So let's see what happens here. Over the next 3 months, that could change the market. We're at $80 billion of CAT losses, the biggest first half of the year ever in the history of our business. It's only been 5 months ago that the tragic California fires were there.

I think carriers still have to digest that and how that's impacting the reserves still. There's still development to come out of that. So between the casualty rates still marching higher, property is -- you're at the plate taking a swing at it. We'll see what happens for the rest of the year.

Got it. And I guess, the 4.7% in base organic, are you expecting acceleration off of that in the back half of the year? Or I guess, are you expecting supplemental and contingents to kind of drive organic a little, yes.

I kind of look at base and supplementals together, and not pushing like 4.9% or 5%. So right in there, what we're seeing going forward, the contingents. I think the carriers are doing well. We do well in the environments where carriers do well.

So I think that it's nice to see that base and supplemental together is still around 5%. Supplementals, maybe topping that up a little bit. So I think you're reading through that right. But we're holding in there.

Our fee accounts are doing well, too. So it wouldn't surprise me that's the same number in the next 3 quarters or next 2 quarters also.

Our next questions come from the line of Gregory Peters with Raymond James.

So I think, Doug, as you're going through in rapid fire formation, your comments, you alluded to the opportunities that you have to expand margins in all type of organic revenue environments. And I think it's particularly interesting as we think about next year. So could you go back and sort of unpack some of those comments and talk about the drivers, not for this year, but what you're seeing for '26 and beyond?

Well, listen, here's thing. How would I promise this, and I'll give you a little bit more detail in September when we do our IR Day on some of those exact points. But in a nutshell, there is a culture of change inside of Gallagher that every day, people are waking up and getting after making ourselves better. We know that we've got to get more productive every day.

We've got some terrific AI projects that are underway that are starting to show early success. We now have 15,000 associates that we can use that are in our centers of excellence that provide good value to us. They are the early founders of standardization, centralization that allows us to deploy AI into that information. The technologies we're developing now have kind of toggled from hardening our environment against cyber and against just uptime and run times to now really enabling the business.

The presentation layers that we're providing are producers that show customers like you bought this and [indiscernible] to adviser because it's a list of -- that keeps going on and on and on. And every time you think the list is going to get smaller of opportunities to get better, it just grows. And so we've got a runway for years of how we can make ourselves better. And the acquisition pipeline feeds that because we're putting more revenue over a cost structure that doesn't change dramatically.

All right. I'll wait until September for more detail. I guess I want to go back to the Assured Partners transaction. I think the last time we were talking about or you were talking about, I should say, you mentioned or highlighted that you had to suspend, I think, 11 of the 13 work streams on the integration process?

And with the timing -- with a little bit more visibility on the timing, have you kick-started those work streams or processes for integration back up? I guess ultimately, what I'm getting here is we previously mapped out some revenue and margin assumptions for the acquisition and just wondering if because of this delay, it's going to cause a delay in the recognition of some of the benefits as we start to integrate that operation at the end of this year and next year?

I think, Greg, it is fair to say we had to suspend some actual work streams that were things like what producers would work with what other producers on accounts, what branches would be sharing once you're there. But we've had a lot of time, and we have been allowed at the senior levels to continue to have dialogue to work on the plan here. And so it's been -- we followed the rules very closely. We've had a longer period of time to review this, and we've been allowed to do more integration planning, just not getting into some of the details of some of these work streams.

So I'd say that we're really ready to hit the ground running. I think that if you recall, when we announced this acquisition, we're very proud of the fact that we said in its first year, it would be accretive. We still maintain that. I think we're going to see a bump in opportunities to sell stuff in geographies and places that we have not been represented.

Remember, only 94% of these acquisitions done by AP, we didn't have a chance at. So these are fresh new bodies that are coming on our team. It seems like they're very excited, and we're looking forward to getting going.

Yes. And Greg, just to clarify, I think you had your numbers backwards. I mean there are 12 or 13 work streams, and we really had to spend 2 of them or 3 of them or something like that. So I think if you spoke backwards on that.

But I got to say, like Pat said, is that we've used this time to get ready when things happen. If we're delayed 7 months in closing, 8 months in closing, maybe we lost 2 or 3 months in that journey, to be honest, so we didn't lose the entire time. So we're still bullish on the opportunity to put 2 great companies together and get a lot of benefit out of it.

Our next questions come from the line of Jing Lee with KBW.

My first question is on pricing. You mentioned that casualty, some lines bottoming out and some lines getting higher. Just curious, any specific lines that you want to call out? Just kind of want to know the mix that drives it.

And casualty line pricing is like 8% in 2Q, which is in line with 1Q, look pretty steady. Do you expect casualty rates going to be flat or bumpy when it increases from here?

All right. Let me try to answer a little bit of that right off of my script, Jing. I think we're seeing property down 7%, casualty overall up 8%. We did unpack that.

General liability is up about 4%. Commercial auto continues to be up 7% and umbrella up 11%, that tells you a lot about what's going on in the underlying business of underwriters. Package, which is packaged together with other property type covers, is up 5%. But D&O, interestingly enough, is down 3%.

Workers' comp is up about 1 point and overall personal lines are up 7%. I think that's about as unpacked as we could get for you by line today, and I think that's pretty good data. What I'm seeing in the casualty market is a continuing caution as we talked about under our reinsurance report. Carriers from a reinsurance perspective are still concerned about prior years.

And when they look at that and look forward, they're not willing to throw the numbers out to some additional credits that caused that problem from the past to get bigger. And I think if you add that to Doug's comments, I mean, we're one storm away from the market turning in property. And that -- so you're in a really interesting time in the market. These carriers are very good at knowing where they are or aren't making money, and they're very determined to try to keep their revenue coming in above loss costs.

So it's a good time for us to be talking to clients about all this because they're confused, to be honest with you.

Got it. My second question is on the E&S market. One of your competitors kind of mentioned, seeing some early signs of business coming back from E&S to the mid market? Are you seeing any similar trend? Or what are you expecting for here?

Yes. I would tell you this. First of all, every retail broker in the world has game plan #1 in a market like this, and that's to reinstitute a direct play to take the wholesale commission away from the wholesaler. Now that's a bold statement.

There are wholesalers that have helped you write accounts, you're going to work together. So it's not -- you can't say every single account. But that is clearly a strategy that a retailer will use to not have to split commissions.

And we're actually seeing in our submissions. Our submission count is actually up. So when it comes to opportunities, we're still having a lot of opportunities to grow. That's obviously in our wholesale and E&S market.

Now also, there's a differentiation between programs and MGA-type lines of coverage where you've got something that's in an underwriting environment that's excess and surplus. Those are growing nicely right now. They're continuing to grow. So it is a mixed bag.

But as you saw in our results, our excess surplus and specialty business was up 7% at a very strong quarter. So this is not like all the business is returning to the primaries. It's a logical balance.

Our next questions come from the line of David Motemaden with Evercore ISI.

I just wanted to confirm that in the outlook for a 5% plus organic growth in brokerage in the back half of the year that you guys are assuming a continued 7% decline in property RPC? And then maybe if you could help us think through some of the sensitivity around that if pricing came in maybe a little bit better or if it came in maybe a little bit worse, what sort of impact that might have to organic in the second half?

Right. So yes, on the first part of the question, we're assuming property pricing that happened in June continuing through the year. But again, we're not as heavily weighted to property in the second half of the year. Second thing, I think the sensitivity is, I think that we lose 40 basis points of organic every time there's a 2% drop in rates without any changes, including increases in exposure that would come along with that.

So maybe down a little bit more because of the changes in rates, but then because of increased consumption and people opting back in. I think the net impact is about 40 basis points or 2% of drop on net-net property.

Got it. Great. That's helpful. And then maybe just following up on that. I think you said in June, -- is that different than the down 7%? Or is that more than the down 7%? Because I think you said 5 in April and May, and then it was -- it sounds like June was definitely worse than 7%, ended up being 7% for the quarter.

Yes, maybe June was 8% or 9%, something like that by the time it averages. But July is -- we're not seeing that in July.

Got it. Okay. But you're assuming like the 8%, 9% in the outlook going forward?

I think there's some moderation as you get halfway binding property business in the middle of the storm season can have -- is not going to get quite the cuts that you get it in earlier. So let's see what happens during the storm season here. But I think the carriers have -- they've got a target of what they want to write, and I think they may have -- they're going to hit that harder in the May and June time frame because you get 7 months of the unearned premium.

Right. No, that's fair. And then for my second question, and I know it's early, but just wondering just given all the dynamics within the different lines, I think you had said up 4% to 6% ex property and then obviously, everything that's going on in property. Any sort of early thoughts in terms of how you're thinking about organic in brokerage in 2026?

Yes. We're working through that right now. I think that our reinsurance business is still killing it. I think there's still opportunities there. Our benefit business in the first quarter was very good. So on an overall year in and year out basis, maybe where we close this year, I think we got a shot at that next year. Wherever we end up this year, we probably could repeat that next year.

Our next questions come from the line of Mark Hughes with Truist Securities.

Pat, if I heard you properly, I think you said workers' comp was up one -- and if I'm looking at it right, it was up 5% last quarter. I know you said job growth may not be as robust and maybe there's a little less wage inflation, but anything else impacting that number?

I'm not seeing it, Mark. I think comp is surprising to me. The last 10 years, it's been pretty flattish. So I wouldn't read too much into that. We can unpack it every single quarter, but it's in a pretty tight range of not much movement. This is not an indication of it falling through the floor and the second -- in the previous quarter was not an indication of a start to run up.

The benefits organic, I think you said it was maybe a little bit faster than the overall U.S. retail. Is that right? Do you have a specific number on that?

We didn't provide that, but it might be 2 points better, maybe 1 point, 1.5 points better.

Our next questions come from the line of Andrew Andersen with Jefferies.

I think I heard you say 5% organic in reinsurance, and that's relative to some really strong quarters in recent history. Can you maybe break down just any impact on pricing on that organic number? And would also be interested in hearing maybe any benefit you saw from ILS activity.

In the second quarter, not much benefit from ILS. We've had a -- relatively speaking, it's not a big quarter on reinsurance. And just ask your question about the reinsurance 5% again, maybe I didn't hear you right.

Just any impact from pricing that was a headwind to that 5%?

Maybe a little bit, but we're seeing some -- the carriers are realizing there's some opportunities here to increase their purchase of reinsurance. So that more than offset that.

Great. And then I think in the script, you mentioned some early AI successes. Could you maybe elaborate a bit on those?

Well, listen, I told Greg, I wasn't going to talk about it until September, so I wouldn't be very fair of me to go ahead and listen, we're doing some really -- Gallagher Bassett is really having some terrific results in their claim submissions. We're starting to do really well with policy review. On the back office side, we're starting to get some momentum on kind of what I call near AI on bank reconciliations, et cetera, we still have a lot of those going on. And so there's a smattering of business, but the big things that stand out right now are claims summarization and policy review.

Our final questions will come from the line of Katie Sakys with Autonomous Research.

I think I heard you guys mention 7% growth on E&S business in the quarter. Would you be able to break that down a little bit further, thinking about the difference between open brokerage and MGA's?

I think the faster grower of the 2 MGA's programs and open market is clearly the MGA business. I don't have a stat ready off the top of my head. Let me just look down the table here.

Yes. Listen, I can tell you, this is that the binding and is up towards double digit. And the issue you've got to look at an open brokerage is the submissions are up, but because some of the renewable premiums are flat, it's primarily a property quarter. For me to say that it was flat, that might be a little unfair without context that we're still getting tons of submissions going into the open brokerage spot.

I appreciate the additional context. And then just on thinking about the closure of the Assured Partners acquisition. I can appreciate that you don't have a whole lot of additional detail for us. But is there any changing in your thinking about the need to potentially divest some parts of that business or offer other remedies in order to get the deal over the finish line?

Absolutely not. Okay. I think that's our last question. I've got just a quick thank you for everybody for joining us.

I know it's late this afternoon. I appreciate it. We feel we had a great first half of 2025. Most importantly, I want to thank the 59,000 colleagues that we have for all their hard work. Thank you.

And to all our clients around the globe, we're proud to be your trusted advisers. Thank you, and thank all of you for joining us. Have a great evening.

Thank you. That does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.