Arthur J. Gallagher Extends Growth Streak With Strong Call

Arthur J. Gallagher ((AJG)) has held its Q4 earnings call. Read on for the main highlights of the call.

Arthur J. Gallagher Delivers Another Quarter of Double-Digit Earnings Momentum

Arthur J. Gallagher’s latest earnings call painted a decidedly upbeat picture of both operations and strategy. Management highlighted powerful top‑line growth, durable margin expansion and a long M&A runway, arguing that recent noise from accounting quirks, lost investment income and softer property pricing is largely technical and short term. With 23 consecutive quarters of double‑digit EBITDA growth, broad-based organic gains and a clear integration roadmap for its largest deals, the tone was confident that the company can compound earnings even through shifting market conditions.

Strong Q4 and Full-Year Revenue Growth

Gallagher posted more than 30% revenue growth in the fourth quarter, powered by both acquisitions and organic expansion, underscoring the leverage from its deal strategy. For full-year 2025, combined brokerage and risk management revenue climbed 21%, including 6% organic growth, a solid result given mixed pricing in parts of the market. The company’s growth profile remains balanced between acquired and internally generated gains, providing investors with both scale and resilience as it builds out its global platform.

Robust Profitability and EBITDA Expansion

Profitability continued to move higher alongside revenue. Adjusted EBITDA (and adjusted EBITDAC) rose 30% in Q4 and 26% for the full year, marking the 23rd consecutive quarter of double‑digit EBITDA growth. The combined brokerage and risk management businesses delivered a 35% full‑year adjusted EBITDAC margin, roughly 70 basis points higher on an underlying comparable basis. Management reiterated its confidence in ongoing underlying margin expansion, highlighting tight cost control, operating leverage from M&A and continued mix shift toward higher‑margin lines.

Brokerage Segment Outperformance

The brokerage segment was a standout in the quarter. Revenue increased 38% year over year in Q4, with 5% organic growth, demonstrating that the core retail and wholesale franchise is still adding volume despite some regional and product‑specific headwinds. Fourth quarter brokerage adjusted EBITDAC margin reached 32.2%, with underlying expansion of around 50 basis points, comfortably within management’s 40–60 basis point target band. Looking ahead, Gallagher is guiding to approximately 5.5% organic growth for the brokerage business in 2026, signaling expectations of continued healthy client activity and pricing support across key lines.

Gallagher Bassett’s Steady Risk Management Growth

Gallagher Bassett, the risk management arm, delivered another solid quarter with Q4 revenue up 13% and organic growth of 7%. The unit’s adjusted EBITDAC margin came in at 21.6%, slightly better than management’s December expectations, reflecting ongoing progress in scaling the claims and risk‑management platform. For 2026, the company expects Gallagher Bassett to sustain roughly 7% organic growth and keep margins in the 21–22% range, suggesting a steady contribution to group earnings and an attractive, recurring-fee profile for investors focused on stability.

Broad-Based Organic Growth Across Regions and Lines

Organic growth was broad-based across geographies and business lines in Q4, even as market conditions diverged between property and casualty. In the Americas retail P&C business, organic growth was 5%, while the UK & EMEA delivered 7% and APAC 3%. Specialty and U.S. wholesale operations grew 7%, reinsurance advanced 8%, and the benefits segment increased 1%. Management noted that excluding property, renewal premium changes would have been roughly 3% higher, underscoring the strength of casualty and specialty markets and indicating that Gallagher’s global footprint continues to generate diversified growth.

M&A Momentum, Integration Progress and Synergy Targets

Gallagher’s acquisition engine remains central to its strategy. In Q4 alone the company completed seven mergers representing about $145 million of estimated annualized revenue. For full-year 2025, acquired annualized revenue exceeded $3.5 billion, underscoring the scale of recent deal activity. The high‑profile Assured Partners transaction is progressing ahead of plan, with the U.S. retail operations already rebranded and integration moving quickly. Management is targeting run‑rate synergies of $160 million by 2026 and $260–$280 million by early 2028, and it sees potential upside to those figures. The current M&A pipeline includes more than 40 term sheets or in‑process deals totaling around $350 million of annualized revenue, indicating further bolt‑on activity ahead.

Large M&A Firepower and a Strong Capital Position

Beyond the current pipeline, Gallagher emphasized that it has substantial capital capacity to continue consolidating the fragmented insurance brokerage and risk management space. Management estimates it could deploy close to $10 billion on acquisitions over the next two years before needing to consider issuing equity, supported by available cash, expected free cash flow and significant investment‑grade borrowing capacity. This financial flexibility provides the company with optionality to pursue a wide range of targets while maintaining balance sheet discipline, a key consideration for investors following the sector’s consolidation trend.

Stable Producer Retention and Reinforced Culture

Management stressed that producer retention remains “dead flat” and consistent with historical levels since 2019, a critical metric for a relationship-driven brokerage business. The firm highlighted its strong sales culture, supported by tools such as the Gallagher Drive platform, as well as a sizeable internship pipeline of roughly 600 interns annually to feed future producer ranks. These efforts suggest that Gallagher is investing meaningfully in talent development, productivity and retention, which should help sustain organic growth and preserve franchise value over the long term.

Positive Customer Activity and Underlying Economic Signals

Gallagher’s internal data on client behavior painted a constructive backdrop. Metrics such as audits, endorsements and cancellations in Q4 were stronger than both Q4 2024 and Q3 2025, indicating that insured clients remain active and engaged. Management reported that these favorable trends carried into early January, with no clear signs of economic weakening in its book. For investors, these proprietary data points offer a helpful real‑time check on commercial activity, suggesting that Gallagher’s middle‑market and larger clients are still growing and buying coverage.

Investments in Technology and AI to Lift Efficiency

The company is leaning into technology and artificial intelligence as tools to enhance service quality and efficiency, rather than as threats to its producer‑led distribution model. Gallagher Bassett is deploying AI and automation within claims to speed processing and reduce costs, while the broader group is rolling out digital tools to improve client interactions and internal workflows. Management was clear that it sees AI as an enabler that can free up producers to focus on advisory work, not a near‑term disintermediator. Over time, these investments could support margin expansion and competitive differentiation.

Property Pricing Softness and a Two-Speed Market

Despite strong overall performance, Gallagher acknowledged some headwinds in property markets. Property renewal premium change was down about 5% in the quarter, while the property reinsurance market saw double‑digit rate declines in certain layers. Property reinsurance premiums were down mid‑ to high‑single digits year over year, creating what management described as a two‑speed environment: softness in property contrasted with firmer pricing in casualty and other lines. This dynamic weighs on top‑line growth in specific books but is being offset by strength elsewhere in the portfolio.

Lost Investment Income and Headline Margin Noise

One key technical drag on reported margins is the loss of investment income previously earned on funds held to finance the Assured Partners acquisition. Once that capital was deployed, the associated interest income disappeared, creating what management termed “headline margin noise.” When adjusting for this rolling impact, underlying margin expansion remains solid, but the issue complicates period‑to‑period comparisons and may obscure the true earnings power in the near term. Investors are being encouraged to focus on underlying trends rather than reported headline figures alone.

Accounting Volatility from Life Sales and Deferred Revenue Assumptions

Further complicating quarterly comparisons, life sales and changes in deferred revenue assumptions generated volatility in the reported numbers. In Q4, deferred revenue adjustments had about a 2% negative impact, and life sales added additional comparability noise. Management pegged the net EBITDA effect of these items at roughly $25 million, modest in the context of overall earnings but enough to cloud organic growth optics. The company’s message to investors is that these are technical and timing issues, not indicators of underlying business weakness.

Near-Term Headline Margin Volatility Ahead

Looking into early 2026, Gallagher cautioned that headline margins—particularly in the first half—will likely show volatility due to the continuing impact of lost investment income tied to the Assured Partners deal, foreign exchange swings and other one‑off items. While underlying margin expansion guidance of 40–60 basis points remains intact, reported margins may not move in a straight line. For investors, this means evaluating performance through an adjusted lens, separating noise from the underlying profitability trend.

Corporate Segment One-Time and Noncash Items

The corporate segment also saw some non-recurring and noncash items in Q4. The adjusted corporate line landed a couple of cents below the midpoint of expectations, primarily due to a noncash unrealized foreign exchange remeasurement loss, a small tax item and a noncash GAAP pension annuitization expense that will reverse through other comprehensive income, with no cash funding required. While these items pressured reported earnings, they are not expected to have a lasting impact on Gallagher’s cash flow or capital deployment strategies.

Reinsurance Rate Declines in Property Towers

Reinsurance markets presented a mixed picture, particularly in property towers. In parts of the market, property reinsurance rates declined in the teens, with top‑end layers facing the most pressure while lower layers held up better. This has reduced the overall premium pool in property reinsurance despite ongoing client demand for protection. For Gallagher, the impact is a drag on growth in that niche, but management suggested that firm conditions in casualty and other reinsurance lines, combined with cross‑selling and client retention, help mitigate the effect.

M&A Execution Challenges Amid Valuation Shifts

While Gallagher has significant capital to deploy, management acknowledged that putting nearly $10 billion to work would require a high volume of transactions—potentially dozens of deals—over the coming years. They noted that near‑term seller hesitancy and valuation compression could slow the pace of pipeline conversion, as some prospective sellers reassess pricing expectations or timing. Even so, the company continues to complete a steady stream of bolt‑on acquisitions and believes that market conditions ultimately favor disciplined consolidators with strong balance sheets.

Rising Medical Costs Pressure Benefits Clients

On the employee benefits side, Gallagher expects medical costs to rise at a high single‑digit rate in 2026, driven by higher utilization, provider consolidation and expensive therapies. This trend increases cost pressure on clients but also expands demand for advisory services and sophisticated benefit design. Gallagher sees an opportunity to deepen relationships by helping employers navigate these complex dynamics, potentially translating medical inflation into advisory-led revenue growth, even as it adds challenges for clients.

Guidance Underscores Confidence in Growth and M&A Strategy

Management’s forward-looking guidance reinforced the positive tone of the call. For 2026, Gallagher is targeting about 5.5% organic growth in brokerage and around 7% in Gallagher Bassett, with risk management margins expected in the 21–22% range after delivering 21.6% in Q4. The company aims for underlying brokerage margin expansion of 40–60 basis points in 2026, building on 2025’s 35% adjusted EBITDAC margin for the combined businesses, which was up roughly 70 basis points on a comparable basis. Modeling assumptions include two 25‑basis‑point rate cuts, removal of interest income on funds held for the Assured Partners deal, and cash taxes of about 10% of EBITDAC. On the M&A front, Gallagher has already closed seven Q4 deals adding roughly $145 million of revenue, booked more than $3.5 billion of acquired annualized revenue in 2025, and is working with a pipeline of more than 40 term sheets representing about $350 million in additional revenue. Assured Partners is expected to contribute $160 million of run‑rate synergies by 2026 and $260–$280 million by early 2028, underpinning continued earnings growth alongside organic expansion.

In summary, Arthur J. Gallagher’s earnings call delivered a clear message: the core franchises are growing, margins are steadily expanding, and the balance sheet can support substantial further consolidation. While property markets, accounting quirks and the loss of investment income will inject some volatility into near‑term reported margins, management’s emphasis on underlying trends, integration execution and disciplined capital deployment suggests that the long‑term growth story remains intact. For investors, the combination of consistent organic growth, robust M&A capability and rising synergy capture keeps Gallagher firmly positioned as a leading compounder in the insurance brokerage and risk management space.