Today's Viewpoint: A MarshBerry Publication

AJG Announces Q1 2022 Earnings

Spearheaded by strong new business results, AJG’s organic revenue growth is off to a great start in 2022. Learn about AJG’s encouraging revenue results, including forecasts for full-year organic growth below.

Arthur J. Gallagher & Co. (NYSE: AJG) reported 1Q22 adjusted Earnings Per Share (EPS) of $2.81 on revenue of $2.40 billion vs. consensus estimates of adjusted EPS of $2.76 on $2.41 billion. This compares to adjusted EPS of $0.98 on revenue of $1.94 billion in 4Q21. AJG’s Brokerage and Risk Management segments had a good start to the year driven by strong new business.

Notable Highlights from the AJG Q1 2022 Earnings Report

  • AJG’s Brokerage segment had organic growth of 9.6% compared to fourth quarter’s 11%. The segment had rollover revenue of $380 million, consistent with what AJG projected at its March IR Day, and largely driven by the December Reinsurance Brokerage acquisition.
  • The segment saw 1Q22 total revenue growth of 32% compared to 4Q21 total revenue growth of 18%. The domestic retail business had 11% organic growth, driven by new business, ongoing premium increases and good retention. AJG sees full-year organic growth around the upper 8%-9% range.
  • Global first quarter renewal premium increases came in at 8%, in-line with the prior fourth quarter 8%, “after controlling for line of coverage mix differences,” according to CEO J. Patrick Gallagher. ”We see these difficult PC market conditions continuing throughout the remainder of this year. Carriers will likely continue their cautious underwriting stance due to rising loss costs and increases in reinsurance pricing. And this comes at a time when the conflict in Ukraine is elevating geopolitical uncertainty, courts are reopening and global monetary policy is tightening.”
  • Risk Placement services reported organic growth of 10% in 1Q22 vs. 15% in 4Q21. First quarter growth included more than 20% organic in open brokerage and 6% organic in Managing General Agent (MGA) programs and binding businesses.
  • For international operations, AJG’s U.K. segment had organic growth of 14% in 1Q22, up from 12% organic growth in 4Q21. Specialty posted organic growth of 17% and Retail saw 10% growth in 1Q22 which was driven by new business and renewal premium increases. Australia and New Zealand increased by more than 10% combined. Canada was up over 12% organically, benefiting from robust new business increases and renewal premium increases.
  • Employee benefit brokerage and consulting segment’s organic growth was up over 7%, roughly consistent with the 7% in the prior 4Q21. This segment’s results were boosted by international operations, HR consulting, pharmacy benefits, and additional other life insurance product sales.
  • AJG sees robust demand for its HR and benefits consulting services as employers focus on attracting, retaining and motivating their employees in a challenging hiring environment. The company noted that there currently are five million more job openings than people looking for work in the U.S.
  • Gallagher Bassett Services, Inc., AJG’s Risk Management segment, reported 1Q22 organic growth of 15.2%, higher than its investor relations day guidance and prior 4Q21’s 13.1%. AJG attributed the performance to a strong March, new business wins, and higher-than-expected COVID-19 claims.
  • In terms of mergers & acquisitions, the company completed five new tuck-in brokerage mergers, or about $32 million in annual revenue. AJG commented that it currently has about 40 term sheets signed or being prepared which comprise about $250 million in annual revenue.

In summary, AJG had a strong quarter to start 2022, growing organically and through acquisitions, with broad-based rate and exposure increases, driven by firm global property & casualty insurance rates across most segments. The company is confident that it’s well positioned for growth in the future as it sees “robust demand for services continuing as clients look to manage their risk and human capital challenges.”

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This earnings summary has been prepared by Marsh, Berry & Co., LLC. and is not intended to provide investment recommendations on any company. It is not a research report, as such term is defined by applicable laws and regulations, and it does not contain sufficient information upon which to make an investment decision. It is not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any securities, financial instruments or to participate in any particular trading strategy. These materials are based solely on information contained in publicly available documents and Marsh, Berry & Co., LLC has not independently attempted to investigate or to verify such information.

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