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Arthur J. Gallagher & Co. Q3 2022 Earnings Call Transcript


Listen to Conference Call View Latest SEC 10-K Filing View Latest SEC 10-Q Filing

Participants

Corporate Executives

  • J. Patrick Gallagher Jr.
    Chairman, President and Chief Executive Officer
  • Douglas K. Howell
    Chief Financial Officer

Analysts

Presentation

Operator

Good afternoon. Welcome to Arthur J. Gallagher & Company's Third Quarter 2022 Earnings Conference Call. Participants have been placed on a listen-only mode. Your lines will be open for questions following the presentation. 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 meanings of the securities laws. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to the cautionary statement and risk factors contained in the Company's 10-K, 10-Q, and 8-K filings for more details on its forward-looking statements.

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, Chairman, President and CEO of Arthur J. Gallagher & Company. Mr. Gallagher, you may begin.

J. Patrick Gallagher Jr.
Chairman, President and Chief Executive Officer at Arthur J. Gallagher & Co.

Thank you, operator, and good afternoon, everyone, and thank you for joining us for our third quarter 2022 earnings call. On the call for today is Doug Howell, our CFO, as well as the heads of our operating divisions.

Before I get to my comments about our financial results, I'd like to acknowledge the damage and devastation caused by Hurricane Ian. Our professionals are working diligently to help our clients sort through their coverages, file claims and ultimately get losses paid. At the same time, many of our own colleagues are doing the same for themselves. Our hearts -- hearts go out to all of those impacted by the storm. In the aftermath of events such as Ian, the insurance industry's role and response is paramount to help families, businesses and communities restore their lives. I'm really honored to be part of an industry with such important responsibility.

Okay, and to my comments regarding our third quarter financial performance. For our combined brokerage and risk management segments, we posted 15% growth in revenue, 8.4% organic growth, net earnings growth of 12%, adjusted EBITDAC growth of 15% and we completed or signed seven mergers in the quarter totaling about $60 million of annualized revenues. Another fantastic quarter by our team.

Let me give you some more detail on our third quarter performance starting with our brokerage segment. During the quarter, reported revenue growth was 16%, of that 7.8% was organic. That's right in line with our September IR Day expectations when we preview -- previewed, there would be about a full point of headwind related to timing from a tough 2021 comparison within our benefits business. Acquisition rollover revenues were a $162 million. Net earnings growth was a 11%. And we posted adjusted EBITDAC margins of 32.3%, a bit better than our IR Day guidance. Another excellent quarter for our brokerage team.

Focusing on brokerage segment organic, it continues to be broad based by both business and geography. Let me walk you around the world and provide some more detailed commentary. Starting with our PC operations. Our US retail business posted 9% organic, with strong new business and solid client retention, both consistent with last year's third quarter. Risk Placement Services, our US wholesale operations also posted organic of 9%. This includes more than 20% organic in open brokerage and about 5% organic in our MGA programs and binding businesses. New business was strong at more than 27% of prior-year revenue and retention was consistent with last year's third quarter.

Shifting outside the US. Our UK businesses posted organic of 15% with excellent new business production and retention. Australia and New Zealand combined, organic was 9%. New business production remained very strong and retention improved relative to last year's third quarter. Canada was up 13% organically and continues to benefit from renewal premium increases, robust new business and consistent retention.

Moving to our Employee Benefit Brokerage and Consulting business. As I mentioned earlier, as we signaled last quarter and again at our September IR Day, our benefits business faced a tough organic comparison this quarter. Recall that due to last year's upward development in covered lives as employers resumed hiring coming out of the depths of the pandemic. Leveling for that, our benefits business organic was about 3%. That's consistent with our IR Day expectations and includes strong growth within our HR benefits consulting units and solid growth in our international businesses.

And before I conclude my organic comments, let me give you a quick update on our December 21 reinsurance acquisition. Third quarter revenues were right in line with our expectations, and while not included in our brokerage segment organic yet, after controlling for great breakage -- breakage prior to closing, organic was around 8%, that's just outstanding. With expected revenues and EBITDAC for full-year unchanged, reinsurance continues to be a fantastic story. So headline brokerage segment all-in organic of 7.8% and around 9% after controlling for the benefits comparison, either way, an outstanding organic quarter.

Next, let me give you some thoughts on our current PC market environment. Starting in the primary insurance market. Overall, global third quarter renewal premiums that's both rate and exposure combined were up 10.5%, that's a bit higher than the renewal premium change in the first half of 2022. As for a rate, most lines of business and geographies saw increases in the third quarter similar to the first half, with only one exception being D&O, where rates are now closer to flat, but our customers are buying more limits. Additionally, our customers' third quarter business activity was not reflective of any economic slowdown. In fact, revenue related to the third quarter midterm policy endorsements, audits and cancellations combined were above the third quarter 2021 levels.

Looking ahead, thus far in October, midterm policy endorsements and audit adjustments remain higher than last year's level, and renewal premium increases are also consistent with the third quarter. But remember, our job is to help our clients mitigate that overall 10% increase in premiums by developing creative risk management solutions that fit with their budgets.

Let me move to the reinsurance market. Let me provide you with some broad observations regarding the upcoming 2023 reinsurance renewal season. First, there is no question that rates, terms and conditions will vary depending on geography, individual seen loss history, risk characteristics and line of business. Second, pricing on peak zone property catastrophe cover is moving higher, and tightening terms and conditions are highly likely. Third, while we haven't witnessed the impact of Hurricane Ian spillover to non-property lines yet, it is possible that that could happen if there is a broad shift in reinsurance risk appetite and capacity deployment strategies. Fourth and finally, the amount of property reinsurance capacity available remains an open question. Some reinsurance providers had already planned to pull back their cat capacity priority in.

And now it is likely there's significant level of ILS capital will be trapped into 01/01 renewals, further pressuring potential capacity. Ultimately, supply will depend on expected returns from changes in pricing, terms and conditions, and perhaps, expected returns will reach a level that will attract additional reinsurance capital. While we have yet to see any significant third-party capital in -- into the market, given ILS capital to move quickly there is still time before the January renewal season. This will play out over the next two months, but at this point, it seems the stage is set for a hard or even harder reinsurance market as we enter the important 01/01 renewal season. Reinsurance conditions will no doubt influence primary markets in 2023, and carriers were already facing rising loss costs in property and casualty lines. We see a good reason for our carrier partners to continue to underwrite retail and wholesale risks cautiously for the foreseeable future.

Moving to our Employee Benefit Brokerage and Consulting business, US labor market conditions remain tight, but broadly favorable. During August, while US employers reduced job openings by a 1 million positions, there's still more than 10 million job openings according to the most recent data. And the level of open jobs remains well above the nearly 6 million people unemployed and looking for work as of the end of September. So we see tight US labor market conditions lingering for some time and expect strong demand for our HR and benefits consulting services to continue as businesses prioritize attracting, retaining and motivating their workforce.

Let me wrap up my brokerage segment organic comments with three terrific quarters in the books. Year-to-date brokerage organic growth stands at 9.3%. And as I look to the fourth quarter, I see us posting another quarter above 9% that would deliver a fantastic year.

Moving on to mergers and acquisitions. During the third quarter, we completed six new tuck-in brokerage mergers representing about $20 million of estimated annualized revenues. We also signed another merger late in the third quarter representing an additional $40 million of estimated annualized revenues. I'd like to thank all of our new partners for joining us and extend a very warm welcome to our growing Gallagher family of professionals. As I look at our tuck-in merger and acquisition pipeline, we've about 50 term sheets signed or being prepared representing nearly $400 million of annualized revenue. We know that all of these will close. However, we believe we'll get our fair share.

Next, I'd like to move to our Risk Management segment, Gallagher Bassett. Third quarter organic growth was 12.2%, a strong finish to the quarter, pushed organic a bit higher than our IR Day expectations. We also continued to benefit from increases in new arising claims across general liability and core workers' compensation during the quarter. That's both on an organic existing client basis and also due to some recent new client wins, including the significant insurance company client we added to our fast-growing insurance carrier practice. And profitability remains excellent.

Third-quarter adjusted EBITDAC margin was 18.2% in line with our expectations. That would have been closer to 19% without the impact from the new large client ramp-up that we spoke about at our September IR meeting. Looking forward for the fourth quarter, we believe organic revenue growth will be about 10% and adjusted EBITDAC margins between 18.5% and 19%, that would close out a great year for the Gallagher Bassett team.

And, I'll conclude my remarks with some thoughts on our bedrock culture. October 2nd marks Gallagher's 95th Anniversary. I took note on that day that our teams were hard at work helping our clients assess damage, file claims, and ultimately start to repairing and rebuilding process from Ian. And if not directly assisting individuals and communities impacted, many Gallagher colleagues around the world donated their own money to help those impacted by Ian. What a fitting way for us to soundly celebrate this incredible milestone.

My grandfather would be proud of the company he founded. The employees that embody the culture he started in the industry in which we toil. It's our people's actions in challenging times that bring our unique Gallagher culture to the forefront. A culture that we believe will thrive for another 95 years.

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

Douglas K. Howell
Chief Financial Officer at Arthur J. Gallagher & Co.

Yeah, thank -- thanks, Pat, and hello, everyone. Today, I'll touch on organic and margins using our earnings release, then I'll move to the CFO commentary document that we posted to our website and make some comments on our corporate segment. I'll conclude my prepared remarks with some thoughts on M&A, debt and cash. During my comments today, I'll also provide some thoughts on our fourth quarter and some first thinking around how we are seeing 2023, now that we've started our budget process.

Okay, starting with the earnings release -- release, in the brokerage segment organic table on Page 3. Headline, all-in brokerage organic of 7.8%, that's over 9% when controlling for the top benefits compared, brings us to a strong 9.3% year-to-date organic growth. When I look at our organic quarter-to-quarter, it's fairly consistent at that 9% range. We posed 9.6% organic in the first quarter, about the same in the second quarter, when you exclude that infrequent large life sale we discussed last quarter. Now, we're at about 9% here in the third quarter when adjusting for the benefits headwind. And it's looking like over 9% in the fourth quarter. That would deliver a full year 2022 organic above 9%, a little noisy on the quarters but very consistent and actually a fantastic performance by our sales team. As for 2023, early feel is in that 7% to 9% organic range for our brokerage segment.

Next, turning to Page 5 to the brokerage segment adjusted EBITDAC margin table. Recall this is a year of quarterly margin change volatility due to the roll-in impact of the acquired reinsurance operations, expenses returning as we come out of the pandemic and the impact of a stronger dollar. Specifically, we've been saying to expect year-over-year margins to be up 50 basis points in the first quarter, down 100 basis points in the second quarter, down a 125 basis points in the third quarter and up about a 125 basis points in the fourth quarter. Well, that was a -- about right for our third quarter. We posted 32.3%, which was in line with our IR Day as per our guidance and we are still comfortable with our fourth quarter outlook of around a 125 basis points of margin expansion relative to the FX-adjusted fourth quarter of 2021 EBITDAC margin. That would suggest a fourth quarter margin of around 32% at today's FX rates.

In the end, since early 2022, we've been targeting around 10 basis points to 20 basis points of full year 2022 margin expansion, and we are on track to deliver that. More importantly, that would mean we improved margins around 570 basis points in 2019. As we look ahead to 2023, we continue to expect margin expansion next year starting around 4% or better organic growth, call it, maybe 50 basis points at 6%.

Moving on to the Risk Management segment on Pages 5 and 6, as Pat said, 12.2% organic and 18.2% adjusted margins, both pretty close to our September IR Day expectations. And looking forward, we see these excellent results continuing in the fourth quarter. Organic growth -- revenue growth of about 10% and margins in the mid-to-upper 18% range. That would mean full year of a -- full-year organic growth of about 12% and full-year margins around 18.5%.

Looking into 2023, we will see the roll in of the new large carrier client and we have already had a nice new business win in Australia that will incept midyear. Add continued strong new business production, combined with continued growth in new arising claims, we see organic at least in the high-single digits and margins around 19% in 2023.

All right. Let's shift now to the CFO commentary document. Starting with Page 6 -- 3, which shows our typical brokerage and risk management modeling helpers. A few things to highlight. First, the continued strengthening of the US dollar since our September IR Day, please take a look at our updated FX guidance for the fourth quarter of 2022. As for 2023, perhaps, the best start is just to assume what we're projecting for the full year 2022 repeats in 2023, but most of that will be seen in the first half.

Second, you will see our current estimate for the fourth quarter integration costs, most of all this relates to the reinsurance acquisition. The team is making really excellent progress on this and is executing at a faster pace than our original plan. It was terrific to see our new reinsurance colleague -- colleagues located with our other brokerage operations when I was in London a couple of weeks ago. As for technology and system rebuilds, we still see being done by the end of 2023 or early 2024.

Turning to the corporate segment on Page 4. Relative to our September outlook, interest and banking clean energy and M&A costs after adjusting for the large transaction-related expenses, those three lines totaled to above the midpoint of our outlook. Within the corporate line, most of the upside was due to some favorable tax items and a favorable FX remeasurement gain.

Looking towards the fourth quarter, moving down that page, only one significant change to our outlook. As you'll see in the fourth quarter corporate line and read in footnote seven on that Page 4, here in October, we settled litigation resulting in Gallagher receiving $55 million in cash. Net of litigation costs and taxes, we will record a gain of approximately $35 million and you'll see a few lines down that we'll adjust that gain out of our GAAP results.

As for the cash proceeds, which because of our tax credits is actually closer to $40 million, we'll put that to good work over the next couple of years to fund incremental production hires and make incremental investments in technology. I'll break down our thinking a little more during our -- our December IR Day.

Moving now to Page 5, clean energy. This page should be familiar to everyone by now. It highlights that we have close to a $1 billion of tax credit carry-forwards. The pinkish column shows that we expect to harvest a $125 million to a $150 million of cash flows here in 2022, and the peach column shows that we could be even greater in 2023 and beyond. And as a reminder, that will come through our cash flow statement, not our P&L.

Turning to Page 6. The top of the page is the rollover revenue table. Third quarter revenues of a $162 million, that's right in line with our expectations six weeks ago. Shifting to the lower half of the page, this table is an update on our December 2021 reinsurance acquisition. Third quarter revenue of a $120 million is consistent with our September IR Day estimate. As for EBITDAC, a timing -- timing difference between the third and fourth quarter. Punchline is full year revenue and EBITDAC should come in very close to our purchase pro forma, that's a really terrific story and great credit to the team.

Okay. As to cash and capital management and future M&A. At September 30, available cash on hand was about $500 million and we've been saying that we might have around $4 billion of M&A capacity in 2022 and 2023 combined without using stock, that still seems about right to us today.

Okay. Those are my comments. Another fantastic quarter and nine months is in the books, another strong outlook for the fourth quarter and it's looking like we're well-positioned for a terrific year in 2023.

Back to you, Pat.

J. Patrick Gallagher Jr.
Chairman, President and Chief Executive Officer at Arthur J. Gallagher & Co.

Thanks, Doug. And operator, if you would, let's open it up for questions, please.

Questions and Answers

Operator

Thank you. [Operators Instructions] Our first question is from Weston Bloomer with UBS. Please proceed.

Weston Bloomer
Analyst at UBS Group

Hi. Thanks for taking my question.

J. Patrick Gallagher Jr.
Chairman, President and Chief Executive Officer at Arthur J. Gallagher & Co.

Sure.

Weston Bloomer
Analyst at UBS Group

And my first one is on the 7% to 9% organic growth that you're expecting next year. I was hoping you could kind of expand on what sort of environment you're expecting next year in terms of the potential recession. And then, if you can hit that target in a -- in a recessionary environment? And then, maybe just comment on the magnitude of growth you're seeing across maybe P&C operations versus wholesale or international? Just trying to get a sense of how you're getting to that 7% to 9% more -- more granularly?

J. Patrick Gallagher Jr.
Chairman, President and Chief Executive Officer at Arthur J. Gallagher & Co.

Well, first, let me take the recession question and Doug can take a look at the numbers across. I think we did a pretty good job of laying out those numbers by division a moment ago. And I think we said we thought they're pretty -- pretty consistent next year. So, I think, if you look at our prepared remarks you've got that question answered. But the recession one is an interesting one because one of the reasons in our prepared remarks we talk about what's going on with endorsements is we can daily look at that information to see what's going on in the underlying business of our clients. We can also look at renewal exposure units says they're being put through to the market for renewal.

And as you know, when you renew a -- when you renew a client, did the estimate sales and payroll is going forward? So, clients are pretty smart. I might not wanting to basically overpay and then wait for a return of that premium and an audit 18 months or 15 months after the close of the year. So let's say a bit of yin and yang between the brokers, the underwriters and the client, as we look at what are those payrolls that we should be providing. We're not seeing a big decrease in sales and payrolls. Renewals are going out the door with perception of their business being okay. And that's verified by the midterm audits and endorsements that we're seeing. So, I read the Wall Street journal every day and I read the left-hand column yesterday, the world just came to an end, I just didn't know it.

Douglas K. Howell
Chief Financial Officer at Arthur J. Gallagher & Co.

Well, listen, I think the way we look at it this way, as it -- we're not seeing that in our underlying business today and we're also viewing if there is a recession in -- in 2023, we see that being more like what happened in early 2019 -- in the 1991 -- 1991 period and the 2000, 2001 period, more of a normal soft-landing recession. We do not see a recession next year like the subprime financial shock of 2008 and sub 2007, and 2008 or the pandemic recession that we saw for a few months in 2020. Those normal recessions typically lasts about two or three quarters and when we go back to the best we can do to get data back then we actually performed very well during those light recessions.

In this case or -- in this case, I think that -- that next year, if there is -- if anything happens and we do go into recession, I think it's going to dry up excess demand more than it is to contract supply. And we ensure supply. So in our contemplation for next year is a lot like this year, exposure units holding stable, rates going out like we're seeing this year, but I see to the -- I don't see a lot of change also not 01/01 that the world has changed dramatically from what it's been for the last three to six months, right now. So that's our -- that's our go-in case, that's how we're preparing our budgets in that range. And so that's how we came up with that 7% to 9%.

J. Patrick Gallagher Jr.
Chairman, President and Chief Executive Officer at Arthur J. Gallagher & Co.

And we'll give you more of a reflection on that in December.

Weston Bloomer
Analyst at UBS Group

Got it. Thank you. And just one follow-up there is -- is kind of like a high-single, low-double digit growth for reinsurance brokerage kind of the right range as well. And can you remind us how much of that businesses is more property versus long-tail bonds?

Douglas K. Howell
Chief Financial Officer at Arthur J. Gallagher & Co.

Yeah. All right. So, yes. An answer to your question, we see reinsurance in that high-single digit range next year. Right now, the best -- and remember you got a lot of -- lot of treaties that are multiline. But right now, the best we can tell is pure property is 28%, if you put it in the package on that, I'd say it might be closer to 40% of the book of business, and then, you look at some of our kind of a high-risk casualty lines, maybe you've got a book that's 60% of it is -- is facing a kind of a tough renewal season.

Weston Bloomer
Analyst at UBS Group

Great, thanks. And then just one more on the commentary around 50 bps of margin based on the 6% organic. Does that contemplate a potential pickup in discretionary spending and inflation maybe offset by higher fiduciary income? Or is that just core expansion net of -- net of any items?

Douglas K. Howell
Chief Financial Officer at Arthur J. Gallagher & Co.

Yeah. I think for 2023, and again, I'll give you some more here in December. There will be -- there'll be an upside from investment income. That -- not all of that will hit the bottom line because there could be some incremental inflation that we see in some of our numbers. Remember about 80% of our business we don't believe have significant exposure to -- to headline inflation, and like we said last at our IR Day or on earlier call about 20% of our expenses, they do have some inflation pressures on it. But in our opinion, there'll be clearly an upside that thinking as a result of incremental investment income next year. But I still need to work through that math over the next couple of months.

Weston Bloomer
Analyst at UBS Group

Yeah. I'm working through too. Thanks for taking my questions.

Douglas K. Howell
Chief Financial Officer at Arthur J. Gallagher & Co.

Thanks, Weston.

Operator

Our next question is from Mike Zaremski with BMO Capital Markets. Please proceed.

Mike Zaremski
Analyst at BMO Capital Markets

Hey. Good afternoon, and thanks. And just a follow-up on the investment income levels. And, you know, are you so -- is the -- is the guidance that you provided kind of inclusive of using the current level of interest rates in the -- in the curve? Does that makes sense?

Douglas K. Howell
Chief Financial Officer at Arthur J. Gallagher & Co.

Are you talking about the 2023.

Mike Zaremski
Analyst at BMO Capital Markets

Yeah, 2023. Sorry, Doug.

Douglas K. Howell
Chief Financial Officer at Arthur J. Gallagher & Co.

Yeah. I think that when we look at 6% organic growth with -- with possibly 50 basis points of margin expansion that does not include a possible upside from incremental investment income, but yeah -- but not all of that incremental investment income will likely hit the EBITDA line. It could go to some inflationary pressures on some of our cost base or it could go to some discretionary spend, but it would be upside to that 6 points, 50 basis points outlook.

Mike Zaremski
Analyst at BMO Capital Markets

Okay. Understood. And thanks for the clarification. And kind of switching gears a little bit, just curious, I mean, are you not calling out any kind of potential impacts to contingents or shops as a result of the -- of the hurricane. I know, you know, the -- the new accounting rules came into place a few years ago. Is there -- is there anything we should be contemplating that could impact Gallagher in the year to come or maybe even a kind of into programs business if there is a lack of capacity? Just trying to one of -- one of your peers kind of surprised us a little bit to just kind of see if there's anything there we're -- we're talking about?

Douglas K. Howell
Chief Financial Officer at Arthur J. Gallagher & Co.

Our outlook on the impact of Ian to our contingent commissions is $465,000 impact against our revenues that has all been fully booked in the numbers that you see here today. We do not believe that would develop differently than that. We just are not that -- that we're just not exposed to a subs -- to contingent commissions on property placements in our book of business.

Mike Zaremski
Analyst at BMO Capital Markets

Okay. Great. And then lastly, any change in the competitive environment on the M&I -- M&A side, given there's kind of now a consensus that interest rates may -- may stay higher for -- for longer? Or is it still just very competitive?

J. Patrick Gallagher Jr.
Chairman, President and Chief Executive Officer at Arthur J. Gallagher & Co.

No, it's still very, very competitive. And there's a -- there's a lot of interest out there in -- in our industry still. We're watching that very carefully to see if some of that falls off. You'll see some write-ups recently about the number of deals done coming down a bit. I don't know if that's an early sign that maybe some of the people want to sit on the sidelines a bit. But for the deals that we're after right now, the competition is very strong.

Mike Zaremski
Analyst at BMO Capital Markets

Some multiples. And I was trying to get -- I should have been clear. So, you don't expect multiples to -- to move south and you're not seeing that?

J. Patrick Gallagher Jr.
Chairman, President and Chief Executive Officer at Arthur J. Gallagher & Co.

I hope they do but we're not yet.

Mike Zaremski
Analyst at BMO Capital Markets

Okay. Thank you. Good luck.

J. Patrick Gallagher Jr.
Chairman, President and Chief Executive Officer at Arthur J. Gallagher & Co.

Thanks.

Douglas K. Howell
Chief Financial Officer at Arthur J. Gallagher & Co.

Thanks, Mike.

Operator

Our next question is from Greg Peters with Raymond James. Please proceed.

Greg Peters
Analyst at Raymond James & Associates

Good afternoon. So I...

J. Patrick Gallagher Jr.
Chairman, President and Chief Executive Officer at Arthur J. Gallagher & Co.

Hello.

Greg Peters
Analyst at Raymond James & Associates

Hey. I wanted to go back, Pat, to your comments about the reinsurance market and the reinsurance business, and sort of unpack what's going on and get your perspectives because it really feels like we're at a seminal moment in that marketplace where we could be in a hard market, especially for cat exposed property. But it seems like it's bleeding over into other lines. And so the -- the reinsurers haven't been able to get an adequate return on their business. And then, now the primary companies are going to be asked to take higher retentions and absolutely pay more on rate online. So, I guess my question is, you know, if these two partners of yours are getting pressure, profitability pressure, do you foresee a scenario where you may actually might get some pressure on commission rates as -- as, you know, as the market evolves here?

J. Patrick Gallagher Jr.
Chairman, President and Chief Executive Officer at Arthur J. Gallagher & Co.

No, I don't think so. Greg, I think it's -- it's clear -- it's clear that we earn our money. And let's -- you see that in the market. I mean, it's -- the business has been very stable. I've had a chance to meet with a number of managements. They know exactly every dollar that we're making. There is no hidden factor here anywhere. And we have to do the work that justifies that income level every single day.

Now in my experience as a retailer, I'm not a -- I'm not a reinsurance person, but a hard market makes you incredibly more valuable. You know, soft market in the retail business, some person with a shingle out, they'll get a quote and beat you. When you're sitting with someone in a hard market, you are talking strategy man. You are not talking about what's going to happen to my comp premium. You're talking about am I going to get GL cover. And that's going right down to personalize. I have got tons of friends as you can imagine in South Florida. I'm not going to get homeowners next year, I don't know. I mean, I think you will. But you're going to pay more, and they know it. Now that I think trusted advisor works its way all the way back to reinsurance and this is not a time when these carriers are going to put a lot of emphasis on how much we get paid when they're looking at trying to get returns, literally on hundreds of millions of dollars of ratings.

Douglas K. Howell
Chief Financial Officer at Arthur J. Gallagher & Co.

Yeah, Greg. Yeah, I will say that it's been 20 years since I've been the CFO of insurance companies, but right now this is a time where my reinsurance brokers would be the most important people to have in -- in my office with their skills, their capabilities and this is a time where they really are in their money.

Greg Peters
Analyst at Raymond James & Associates

Fair enough. I'm sure it's a -- it's -- there's a robust conversation happening -- happening around all of this stuff. So, I wanted to also and I know you've commented on this before, but I wanted to pivot and talk about the brokerage business and the pipeline if we're in a recession, if we go into a recession bla, bla, bla, it's pretty strong. And can you remind us again just when -- on the risk management piece? How you think that might perform, if we go into a soft landing? What kind of -- and I know you've commented on this before Pat, but just give us some -- some sort of guide posts that we should be thinking about on that?

J. Patrick Gallagher Jr.
Chairman, President and Chief Executive Officer at Arthur J. Gallagher & Co.

Well, I mean, first of all, Greg, as you know, when -- when prices are going up, one of the skills that brought us to the point we are today is the capability of taking people who are should be self-insuring into that market. And showing them how to take higher retentions and bringing Gallagher Bassett in. Recessionary work has the same -- now I'm talking about the larger upper-middle market. The recession has the same kind of impact, especially, if you get a recession, while at the same time pricing has gone up. They're looking for alternatives. And when I say your alternative is to pay tomorrow, instead it today and they really manage your claims hard and work at harder preventing them, there is a lot better listeners than when the prices are dropping and that's going right to the bottom line and their private companies and they're happy as a clam.

When you get to the larger accounts, these are very sophisticated buyers, and then, I will move around based on recessions. Now, if there is a recession and our larger clients have a lesser population, they close downshift, then you'll see claim counts drop. But I don't think you're going to see an impact on that business that -- that happens in the short term. And we'll know well in advance of -- of any kind of a downturn both -- as people start slowing their business down and cutting shifts will be well aware of it. We can -- we can probably comment better as we go into the new quarters.

We're just not seeing that right now, Greg. I think that's the interesting thing to me, as I said, I read the Journal every day and I'm sitting here, well, okay. And then we test and test and test and our primary business partners are doing really well. When you look at the GB results, and claim counts are up. So they're not down. So, it's -- I get why you're questioning that. I really do get the conundrum. But here's the thing. Doug pointed out that in other recessions, we've done well. Clients do not jump in and out of self-insurance. You make that decision to move to taking a big retention and paying your claims. You may have a -- you may see your claim counts go down because hours worked are less. But you're not jumping in and out of that market. It's a pretty good place to be.

Greg Peters
Analyst at Raymond James & Associates

Got it. Well, thanks for the answers, and, you know, I read the journal too and it does seem like the end of the world is imminent, but you guys are posting good results. So congratulations.

J. Patrick Gallagher Jr.
Chairman, President and Chief Executive Officer at Arthur J. Gallagher & Co.

Thanks, Greg.

Operator

Our next question is from Elyse Greenspan with Wells Fargo. Please proceed.

Elyse Greenspan
Analyst at Wells Fargo Securities

Hi, thanks. Good evening. My first question, you know, I'm going to head in the opposite direction of talking about a recession. And you know I want to go to the flip side and talk about how good, I guess, 2023 could be. You guys said 6% to 9% organic in September. Today, you're saying 7% to 9% for next year. Well, we could have a really strong reinsurance market and it sounds like you'd have really good exposure on the wholesale side where the market really firming? So, at 80% of your revenues is commission base. So, could there be an environment next year where pricing is so firm that Gallagher could print double-digit organic revenue growth?

J. Patrick Gallagher Jr.
Chairman, President and Chief Executive Officer at Arthur J. Gallagher & Co.

Yeah. From your lips to God's ears, Elyse. You know, if you take a look back at our results in other hard markets, yeah, that could happen. I mean, I'm not going to sit here and say no. If the capacity drives up, smaller brokers in those environments can't get the job done, reinsurance clearly is -- and look at cap -- capital in the ILS market depending on whether capacity is there or whether capacity comes in, yeah, I think you could see a very bullish, you could -- you could write a bullish story.

Elyse Greenspan
Analyst at Wells Fargo Securities

And then assuming, right, Doug you said, you know, at a 6% organic, we could see 50 basis points of margin improvement. So assuming that the base is 7% right and it sounds like it could be better than that. So is the base case that will see something margin improvement that's above that 50 -- 50 basis point level next year?

Douglas K. Howell
Chief Financial Officer at Arthur J. Gallagher & Co.

You know, I think that you -- it's not linear. If we posted 9%, I don't think it have a 150 basis points of margin expansion, but you might have 75 basis point to a 1 point something like that. But I think that, whether skip through this and get through our December, look at our budget and some of this is discretionary spending that we might want to make an investing in -- in technologies and other organic growth strategies. But, yes, I mean, there -- there is a case that that could happen.

Elyse Greenspan
Analyst at Wells Fargo Securities

And then on the M&A side, right, you guys obviously have a good amount of capital flexibility over the next couple of years. It does seem maybe its because you guys have had such a strong track record of M&A like deal flow has been a little light relative to historical levels this year. So I know the pipeline is still strong. At what point, do you reach that level? Will you consider buying back your shares? Or is it something where deals just ebb and flow depending upon time of herein you guys will give it some time and then maybe consider buybacks?

Douglas K. Howell
Chief Financial Officer at Arthur J. Gallagher & Co.

Well, listen, we ended up with excess capital. Our first -- our first metric would be is to make sure that we maintain a solid investment-grade rating on our borrowings with our interest rates going up, that's more and more important every day. Second of all, I think that our M&A pipeline is still robust and the third thing is remember the arbitrage that we get on the multiples. And more importantly, we're building up the team, we bring more people on -- on our side of the field to go out and compete on -- on every day and create more organic afterwards. So, for us, buying back stock is certainly what we can do. It's certainly part of the math and its part of the -- the story. But I'd like to see us doing more and more M&A every day to put out cash to work at multiples that are -- that deliver arbitrage value to our shareholders. So, we're out there, we're looking very hard. Sometimes you win, sometimes you lose, but I think we've got a ton of opportunities in our pipeline right now.

Elyse Greenspan
Analyst at Wells Fargo Securities

Given the strength of the US dollar, are you guys seeing more opportunities for international deals?

Douglas K. Howell
Chief Financial Officer at Arthur J. Gallagher & Co.

Well, listen, we've got some pretty good pipelines going on especially in -- in Canada, Australia and the UK right now. So, we'd -- we'd be happy to continue to look at those -- those acquisitions there. And yeah, the dollar does have a little bit of an impact on that, but it's not what drives our -- our investment choices.

Elyse Greenspan
Analyst at Wells Fargo Securities

Okay. Thanks for the color.

Douglas K. Howell
Chief Financial Officer at Arthur J. Gallagher & Co.

Sure. Thank you.

J. Patrick Gallagher Jr.
Chairman, President and Chief Executive Officer at Arthur J. Gallagher & Co.

Thanks, Elyse.

Operator

Our next question is from Yaron Kinar with Jefferies. Please proceed.

Yaron Kinar
Analyst at Jefferies Financial Group

Thanks. Good afternoon, everybody.

J. Patrick Gallagher Jr.
Chairman, President and Chief Executive Officer at Arthur J. Gallagher & Co.

Hey.

Yaron Kinar
Analyst at Jefferies Financial Group

My first question is on headcount. I noticed there was a nice pickup in headcount. And the one I'm referring to specifically is in brokerage. I think it's up 7% year-to-date. And can you maybe talk a little bit about what that is going into what type of roles you're hiring? And secondly, and actually, I was very impressed to see that the comp and benefit ratio is actually coming in year-over-year despite the increase in headcount. So, is there a catchup that we should expect or how -- how are you keeping that number down?

Douglas K. Howell
Chief Financial Officer at Arthur J. Gallagher & Co.

Hi. We got a couple of things -- we got a couple of things to unpack there. First, let's talk about the increase in the headcount. We have actually substantially increased our headcount in our offshore centers of excellence. As you know, we've been talking about it for 15 years now. We think that that's a terrific spot to improve the quality of the offer -- of our insurance offerings. And as a result, we're ramping up significantly more in -- in our offshore right now that can do that work for us. And then, so we're up considerably in -- in that. So that's what's driving the metric that you're seeing is mostly offshore resources there.

When it comes to the opportunity -- you know, the drop in the comp ratio this quarter, some of that has to do with bonus timing. If you recall last quarter, I said we were a little ahead on our bonus accruals. So we didn't have to -- we didn't have to post quite as much this quarter, which probably offset some of the -- yeah, we did have a little bit of inflation in our rates pool, maybe we gave away another $8 million this year or something like that in that -- in the rates pool this year. So what's -- what's offsetting that is the timing of the bonus.

Yaron Kinar
Analyst at Jefferies Financial Group

Got it. And I'm curious what led to the increase in the organic growth estimate for 2023, kind of at least the bottom end of the range from 6% to 7%, what changed in the last six weeks?

Douglas K. Howell
Chief Financial Officer at Arthur J. Gallagher & Co.

Well, listen. I think the -- I think the Ian has brought a different tone in the marketplace, and you're seeing some reports of reserves strengthening across line, you saw the reinsurance outlook that we've talked about, and remember the reason we got to 6% to 9% as we were saying that 2023 felt somewhere between 2019 and 2022, and 2019 happen to be 6% organic growth. So the context of the comment in September was relative to two different years and now as we're getting closer in our budget process and really looking at what we're starting to see in the renewal pipeline, we thought we could tighten out and inch up a little bit.

J. Patrick Gallagher Jr.
Chairman, President and Chief Executive Officer at Arthur J. Gallagher & Co.

Also and I think that before Ian, it was clear that loss cost and verdicts and what have you, we're -- we're putting pressure on our carriers. Today, we look across the losses and the cat level and wonder if they're not going to bleed into the casualty lines. And I've had some conversations with some of our reinsurance pros, who think that that's a very good -- that's a very good possibility. If that happens, that will -- that will be -- that will benefit from that as well.

Yaron Kinar
Analyst at Jefferies Financial Group

Got it. And maybe one last one and following up on Greg's question. I guess, in what markets, what kind of environments do you typically see some pressure on commission rates or maybe clients trying to shift over to fees?

J. Patrick Gallagher Jr.
Chairman, President and Chief Executive Officer at Arthur J. Gallagher & Co.

Yeah, primarily in the -- in the retail market, as accounts go from in, say, upper middle and middle market, where typically you'll have about 85% to 90% of your clients, probably, we're 100% transparent. This is their choice. We have an adult conversation. They know we collect contingents. Let's not go back to 2004 and get me all in trouble again for accepting contingents, and supplementals they're all disclosed. This is client's choice. And so as they get a little bigger, if they bring in a Risk Manager and that type of thing and there is usually a shift to fee and we're happy with that.

Yaron Kinar
Analyst at Jefferies Financial Group

Got it. Okay, thank you.

J. Patrick Gallagher Jr.
Chairman, President and Chief Executive Officer at Arthur J. Gallagher & Co.

Thanks, Yaron.

Operator

Our next question is from David Montemaden with Evercore ISI. Please proceed.

David Montemaden
Analyst at Evercore ISI

Hi, thanks, good afternoon.

J. Patrick Gallagher Jr.
Chairman, President and Chief Executive Officer at Arthur J. Gallagher & Co.

Hey, Dave.

David Montemaden
Analyst at Evercore ISI

Just had a question on investment income side, the fiduciary income. And could you just quantify how much that generated this quarter? I think you've said in the past, it's $40 million for every 100 basis point move in -- in short-term rates. But just wanted to -- just to double-check what the benefit was to revenues this quarter and then maybe just talk about how that impacted margins. How much of it fell to the bottom line?

Douglas K. Howell
Chief Financial Officer at Arthur J. Gallagher & Co.

Okay. I'll take that in a couple of different by side. This quarter is, you know, let's call it, $12.5 million that we had as additional investment income as a result of rate changes. Then you're asking how much of that fell to the bottom line. Maybe a better way for me to do this is to take a look at what does it mean for -- for full year. If you recall at the beginning of the year, what we said is since, you know, when we were sitting in January, we looked back and we had said that we had posted about 550 basis points of margin expansion. And when we looked out and that was over two years.

Then we said, if we look forward, again, I'm standing in January of 2022, we said that we might be able to get margin expansion of 10 basis points to 20 basis points on organic from about 8% here in 2022. So what's happened since that, there was expectations, right. And we're still looking at 10 basis points to 20 basis points of margin expansion. But organic is running a 1 point better and, let's say, investment income between this year that might be up, let's say, $30 million more of investment income in the year. And so that's about $80 million more of revenues this year. And so the way I look at it is, where did that go? Where did the $80 million of revenue go?

Well, first of all, we dropped a third -- we're going to drop a third of that to the bottom line, right. So that leaves $50 million to $53 million of additional revenues. Well, we have to pay our producers, field leadership and support staff. Usually, that runs about 45% of -- of the revenue on that organic of $50 million, call that $23 million. So now we're down to explain where did $30 million go to -- go as a result of incremental -- organic and incremental investment income, again, relative to our outlook at the beginning of the year. Well, I can tell you that we spent about $10 million on incremental hiring, some incremental raises and some incremental incentive comp this year. Maybe it's a third of a third of a third.

And we also know that we -- about $10 million went to incremental travel and entertainment expense. Now that's mostly due to inflation, and -- and it's not due to increased trips versus our expectation. Again, this is against our expectation at the beginning of the year. And then finally, we spent an extra $10 million on IT betterment projects than probably we would have expected at the beginning of the year because we have the bandwidth in order to implement those projects.

So for me, sitting here relative to our expectations at the beginning of the year, I think it's a really terrific outcome. And what I'm really proud of is the team has done a great job this year. Yeah, they -- they have been disciplined in their travel and they've been selected in their value-added efforts that they're bringing to the clients. And they've been pretty wise about other IT investments. And yet to still deliver 10 basis points to 20 basis points of margin expansion this year in an inflationary environment on top of the 550 that we had delivered in the previous two years, I think, it's a pretty darn good year, in my opinion.

So relative to expectation, that's a long-winded answer, but I think it gives you a perception -- perspective on incremental investment income and incremental organic relative to where we were sitting at the beginning of the year. And remember, we still, at the beginning of the year, we had the Omicron crisis going on, and we were still in the depths of the pandemic. So we still have done our way out of those pandemic expenses returning along the way. So a long story, long answer, but I hope it gets you to where you need to go.

David Montemaden
Analyst at Evercore ISI

Yeah, that definitely did. Thanks for all that color. It's really helpful. I guess, maybe just switching gears to the reinsurance -- reinsurance deal and how that's been going. The organic, I think, accelerated a 1 point to 8% this quarter from 7% in 2Q. I guess, you know, high-single digits in 2023 feels may be a little conservative. But maybe could you just talk about the range of outcomes around that high-single digit? And I guess, what's stopping it from being well above that just given the market that you're...

J. Patrick Gallagher Jr.
Chairman, President and Chief Executive Officer at Arthur J. Gallagher & Co.

Yeah, sure. First of all...

David Montemaden
Analyst at Evercore ISI

...is experiencing -- you guys are experiencing there?

J. Patrick Gallagher Jr.
Chairman, President and Chief Executive Officer at Arthur J. Gallagher & Co.

You're dealing with the most sophisticated buyers in the market. And this -- and as Doug -- as Doug just said a bit ago, when he is buying reinsurance, he wasn't messing around worrying about what the guy or girl is getting paid. The point is, this is -- this is talking at the essence of their capital, the returns, how they're going to balance out the demand, you've got a supply and demand imbalance. It's looking like it's coming down the path at being very substantial. They want to be good players. They want to take advantage of it. They want to make sure that they get good returns. And so it's good returns that ultimately hopefully bring in more capacity.

But these buyers are very sophisticated. They'll pay us more money. I mean, the question earlier on was are they going to keep paying us what they're used to paying us? And now, they'll pay us more money, but it's not -- this is not a linear progression. I get down to the bad policies and into the lower-middle market, it's linear. Prices up 10%. We're going to help the client reduce that by moving deductibles around dropping umbrella limits, et cetera. But by and large, policy-by-policy, we're going to get that commission. That's not the case in reinsurance.

Douglas K. Howell
Chief Financial Officer at Arthur J. Gallagher & Co.

Yeah. I think it's a little bit of a -- I wouldn't say it's a symmetrical bell curve, but around 8% -- I thought a 6% to 10% on that. So maybe it's 2 points on either side of it, and that probably favors the bull case on that more than the bare case on it.

David Montemaden
Analyst at Evercore ISI

Got it. That's helpful. And then maybe just one more. You mentioned that you don't expect a recession. And I don't want to be a Debbie Downer here, but if there is one like there was in the early '90s or early 2000s, have you guys given any thoughts on what organic growth would be in that type of scenario?

J. Patrick Gallagher Jr.
Chairman, President and Chief Executive Officer at Arthur J. Gallagher & Co.

I think Doug did a very good job, sure he did, of taking it back in time. I mean, go back and take -- our results are public going back to 1984. I think we do extremely well in good times and bad times. Certainly, recessions are not good for brokers. Sales and payrolls are what drive our -- our premiums. So there's no question that if sales and payrolls go down, we'll -- we'll feel the impact of that. Having said that, people get more interested in listening to us talking to them about how our professionalism, our capabilities in -- in our -- in our niches and what have you, you can help them deal with this, the local brokers who takes the hit.

Douglas K. Howell
Chief Financial Officer at Arthur J. Gallagher & Co.

Yeah. I would say, listen, we get into a recession that you wanted to refer to as you being a downer on it. That type of recession, we're still in an inflating rate environment, and we're not seeing a slowdown on that. When it comes to the contraction of exposure units, I'm not seeing trucks just come out of the fleet. They may not be running quite as much, and I know there's a mileage adjustment on it, but I'm not completely convinced that the stuff that we insure will just all of a sudden evaporate next year. It might have to -- they may take different covers on it. They may take some additional deductibles.

When you're also looking at an environment, if you get into a recession, that will help us on our employee retention because they will stay with a good company, versus jumping for a new opportunity. So when those three or four things applied, rate increases, stable workforce, a flight to quality and what people are looking for in terms of their broker, I see us performing very well in that environment. If you want me to pick a number in there, if we have a downer, I'd -- I'd be hard pressed to see how it would be less than 5% organic growth.

David Montemaden
Analyst at Evercore ISI

Oh, okay. Yeah. That's what I was looking for. Thank you. Appreciate the answers.

J. Patrick Gallagher Jr.
Chairman, President and Chief Executive Officer at Arthur J. Gallagher & Co.

Sure, David.

Operator

Our next question is from Rob Cox with Goldman Sachs. Please proceed.

Robert Cox
Analyst at The Goldman Sachs Group

Hey. I just had one question. I noticed open brokerage accelerated to 20% versus 15% last quarter. And I was just hoping you could talk about what inflected quarter-over-quarter and how you see open brokerage and the E&S market broadly trending from here?

J. Patrick Gallagher Jr.
Chairman, President and Chief Executive Officer at Arthur J. Gallagher & Co.

The E&S market is on fire. And I think you're seeing more premiums move there, freedom of rate, freedom of form, clients' need cover, everything from small accounts to large accounts, that's why we're seeing so much interest in terms of people investing in that market. That -- the primary markets, quite honestly, are not as flexible as the E&S markets and are able to move at the pace that they can move, and they are in a tough market sucking business out of the primaries. Did that answer your question, Rob?

Robert Cox
Analyst at The Goldman Sachs Group

Yes. Thank you. Very helpful.

Operator

Our next question is from Mark Hughes with Truist Securities. Please proceed.

Mark Hughes
Analyst at Truist Securities

Hey. Thank you, and good afternoon. Pat, you talked about the potential spillover to non-property lines from the hardness of the reinsurance market. And have you seen that in the past, I just wonder how much influence the cat property business is going to have on some of the other casualty lines, but I hear what you're saying? Just sort of curious to hear more about it.

J. Patrick Gallagher Jr.
Chairman, President and Chief Executive Officer at Arthur J. Gallagher & Co.

Yeah, let me -- let me caution because I've -- I've been a retailer my whole life, but for the last year, I've had a chance to spend a good bit of time with our reinsurance folks and do anything I can to learn that business and -- and I talked about this at length in the last quarter. And it has happened in the past. I can't give you dates, times and amounts or percent. But yes, when you have a capital situation where you need to increase the -- the pricing and you can add cat loads on other lines of coverage, you'll do that when you have to.

And now again, I can't say to you that this is exactly what travelers or hyper did in this year given this situation or what have you. I can't take you back to Andrew or something like that or even Katrina. But what the team is telling me is that it's very likely, given the dearth of our capacity and the need -- because of the supply and demand imbalance, the need for more rate, that their other lines are selling that are likely to take in advance as well. And sorry that I'm not more specific about that. I'm learning along with you.

Mark Hughes
Analyst at Truist Securities

No, no, interesting. Thank you. And then, any seeding -- you talked about the -- the economy is still looking good in terms of exposure units and endorsements. Any differentiation you see between larger accounts, middle market, smaller accounts?

J. Patrick Gallagher Jr.
Chairman, President and Chief Executive Officer at Arthur J. Gallagher & Co.

No. And that's the thing that's, you know, I keep referring to the Wall Street Journal, sorry, but I mean I read it and I sit there and I go, okay, and then I come back and I talk to our data people and they're like, no, I'm not seeing it. I can't say -- I can also can't break and say, well, construction is in the tank and retail is going through the roof or trucking is really hurting now and something -- so and we've checked things like our marine business. What's happening with cargo? Cargo seems to be holding up and if there's any -- if there's any decrease in cargo, then cruise ships are, I mean, going through the roof. So it's kind of a, it is a -- it's a weird time based on what we read and what we see in our -- and these are not anecdotal stores. These are higher data points that I've got, and I can get them every day. And broad geographic, solid, continued business growth is what we're seeing.

Mark Hughes
Analyst at Truist Securities

Appreciate it.

J. Patrick Gallagher Jr.
Chairman, President and Chief Executive Officer at Arthur J. Gallagher & Co.

Does it fall off a cliff? I guess. We're just not seeing it.

Mark Hughes
Analyst at Truist Securities

Understood.

J. Patrick Gallagher Jr.
Chairman, President and Chief Executive Officer at Arthur J. Gallagher & Co.

Thanks, Mark.

Operator

Our next question is from Josh Shanker with Bank of America. Please proceed.

Joshua Shanker
Analyst at Bank of America Merrill Lynch

Yeah. Thanks for getting me at the end here. So many people asked about competition for deals. I just want to talk about debt. And when I think about private equity being one of your competitors, is the marketplace different for them if they have to borrow at higher costs? Is it still debt generally cheap in your mind? And so we're not at the market where that's a consideration. How do you think about their role and their appetite in a higher interest rate environment?

Douglas K. Howell
Chief Financial Officer at Arthur J. Gallagher & Co.

Yeah, we kind of signaled that early on. Their appetite is still strong right now. But when you're adding an extra 300 basis points of debt cost into the structure, it does change return expectations. And I think that we're really not competing on price when we come to these deals, Josh, we're really competing on capabilities. And we win on those every day. If somebody decides our prices aren't dissimilar to what they're offering. That maybe be a turn higher, but people just have chosen that they don't want to -- to be in an organization with increased capabilities or resources. And so this -- this will cause a compression of pricing by the PEs. It'll probably come down to -- to where we're comfortable with pain. And I think we should excel in that then because now it isn't about price. It's entirely about capabilities.

J. Patrick Gallagher Jr.
Chairman, President and Chief Executive Officer at Arthur J. Gallagher & Co.

Well, dream with me a little here, Josh. I mean, yeah, I think what Doug meant is that our price is similar to our competitors. Yes, multiples over the last five years have expanded substantially. Prices are higher for these deals. But money was free. So now you start paying for that money, and I'm not hoping for a recession, and we don't see one, but show a little slowdown in there. And maybe that annuity isn't as strong as it was before. Our lever is about 2.3 times EBITDA. We've got competitors in the market that are happy to be at 9 times. I'm sorry, at some point, the music has got to stop and all the chairs aren't going to be full.

Joshua Shanker
Analyst at Bank of America Merrill Lynch

And if you think over as a 20 year, 30 year base, I mean, 4% tenure, it's not really that high. I mean, we'll see where it goes from here. But Doug seems to have more confidence that maybe they're able to go away. But if we're at the peak here and we stay here for a while, 4% isn't going to scare them away, I suppose. And obviously, they're going to pay more than what the 10 year is, but it is -- it's got to go higher really to cause their exit, I guess. Am I right with that?

J. Patrick Gallagher Jr.
Chairman, President and Chief Executive Officer at Arthur J. Gallagher & Co.

No, I'd agree with that, Josh. Yes, I'd agree with that. And the returns have been outstanding. I agree with that.

Joshua Shanker
Analyst at Bank of America Merrill Lynch

All right. And thanks for the answers.

J. Patrick Gallagher Jr.
Chairman, President and Chief Executive Officer at Arthur J. Gallagher & Co.

Sure.

Operator

Our final question is from Ryan Tunis with Autonomous Research. Please proceed.

Ryan Tunis
Analyst at Autonomous Research

Hey, thanks. Yeah, I first just wanted to say that the $55 million good guide, that's a nice line. I can't remember the last time in broker land, you had a below-the-line item that is somehow went in the right direction. I think some of your competitors might even count that as organic.

Douglas K. Howell
Chief Financial Officer at Arthur J. Gallagher & Co.

Yeah. Go ahead, Ryan.

Ryan Tunis
Analyst at Autonomous Research

But -- yeah, Doug, take your time spending it. We don't need it to lean on margins in 2023. But I just had one bigger picture question, I guess, on margins. So organic has been really soft for the past couple of years. And obviously -- but I mean, it could have not been strong too, in which case I also don't think your expense growth would have been as high as it's been. So there seems to be some element of clearly the organic has allowed you guys to have -- I want to make sure I'm thinking about this right, like kind of an investment cycle.

So I'm just curious, is that the right way to think about it? Like, has the strong organic allowed you to kind of potentially pull forward some investing you had to do. And I'm just kind of curious, you know, maybe some of the capabilities that you guys have been able to take on, I guess, to improve the organization over the past couple of years that you wouldn't have if we were any more than a 4% organic growth rate environment?

Douglas K. Howell
Chief Financial Officer at Arthur J. Gallagher & Co.

Yeah. I think you've got your notes right in it. And I think if you go back and you listen to our IR Days, these earnings calls, we get an hour to talk to here, but during our IR Days, you hear our five or six division leaders talk about all the investments. If you listen to the first 5 minutes or 6 minutes of their -- their prepared remarks. They're talking about all the value-added features and client-centric enhancements that we're doing in our business. And we're spending a lot of money on that. We've talked about Gallagher Drive. We've talked about SmartMarket, we've talked about Gallagher Submit. We've talked about our niche resources. If you really look at our content that's out there, all of that is investment and we're -- we're adding to it every year.

So we are running a business right now that has a substantial amount of investment in it to make us better. I think it's showing up in our organic to be real honest. I think the reason why we perform well on organic as we continued to make investments into our production and our sales and niche capabilities, our service. 15 years ago, we didn't know how long it took us to turn around a set. Right now, we turned around 99.9% of them within one hour of request because of the -- the investments that we've made to better the service. Those type of things are just in our blood at this point. And it's in our operating side, yet, we're still posting terrific margins on it. So...

J. Patrick Gallagher Jr.
Chairman, President and Chief Executive Officer at Arthur J. Gallagher & Co.

Yeah. And to add to that, Ryan, I would say, take a look at our internship. We're very proud of the fact that this summer, we had 500 young people look at our business. And these are paid interns. These aren't interns that come to work for free, and that's a -- that's a US-based number. If we take the people outside the US, it's probably closer to 600. I don't know another -- another organization investing in the future of their people like that in our business or frankly another business. So I'm very proud of that.

Ryan Tunis
Analyst at Autonomous Research

Thank you, guys.

J. Patrick Gallagher Jr.
Chairman, President and Chief Executive Officer at Arthur J. Gallagher & Co.

Thanks, Ryan, and thank you, everybody, for joining us. We really appreciate this evening. We had an excellent third quarter. We're well on our way to delivering a fantastic year of financial performance. I need to thank more than 42,000 colleagues around the globe for their hard work and dedication to our clients. We look forward to speaking with you again in-person in December at our Investment Day -- Investor Day in New York. Thanks again, everybody. Have a great evening.

Operator

[Operator Closing Remarks]

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