Arthur J. Gallagher & Co. (AJG) FY2025 10-K and Q2 FY2026 10-Q Summary

Business

Source: Annual Report on Form 10-K for fiscal 2025 (year ended December 31, 2025), accession 0001628280-26-008662.

Gallagher is an insurance intermediary. It earns commissions and fees for placing insurance and reinsurance for clients, consults on employee benefits, and settles and administers property/casualty claims for organizations that self-insure or outsource their claims work. It takes no underwriting risk on a net basis (apart from de minimis capital put into captives and similar vehicles); insurers and reinsurers carry the losses. Most of its brokerage income comes from commissions, which are a percentage of the premiums clients pay, so revenue moves with premium rates and insured values. The rest comes from negotiated fees, supplemental and contingent payments from insurers, and interest earned on its own and fiduciary cash. In 2025 total revenues were $13.94 billion. About 67% of combined brokerage and risk management revenue came from the U.S., and the remaining 33% mostly from Australia, Canada, New Zealand and the U.K. Gallagher calls itself the world's third-largest insurance broker by revenue, citing Business Insurance magazine's June/July 2025 ranking.

The company reports three segments:

• Brokerage (87% of 2025 revenue). It runs more than 650 sales and service offices in the U.S. and about 400 in roughly 60 other countries, and serves clients in about 130 countries directly or through correspondent brokers. Within the segment:
  • Retail is 75% of segment revenue. It places almost every line of commercial property/casualty and health and welfare coverage. About 74% of retail revenue comes from niche/practice groups, which are industry teams covering construction, energy, healthcare, financial institutions, higher education, public sector, real estate, technology, transportation and others.
  • Wholesale is 13%. It places specialized and hard-to-place risks, often as a managing general agent or underwriter for insurers. It works from about 149 offices in the U.S., Bermuda and the Lloyd's market, and more than 75% of its revenue comes from brokers outside Gallagher.
  • Gallagher Re (reinsurance) is 12%. It works from more than 77 offices in 27 countries. Through Gallagher Securities it also provides capital-markets services, including underwriting insurance-linked securities.
  • The segment also owns rent-a-captive facilities in the U.S., Bermuda, Gibraltar, Guernsey and the Isle of Man.
• Risk Management (13%). This is Gallagher's third-party claims administration business. Of its 2025 revenue, about 59% came from workers' compensation claims, 34% from general and commercial auto liability claims and 7% from property claims. Its clients are Fortune 1000 companies, larger middle-market firms, public entities and insurers, and about 95% of its revenue comes from clients that do not use Gallagher's brokerage. It is paid per claim or per service, on a cost-plus basis, or through performance fees.
• Corporate. This segment holds the company's debt and interest expense, external acquisition costs, foreign-exchange remeasurement and clean-energy investments. It earns no meaningful revenue.

Acquisitions are central to the model. Gallagher completed about 780 acquisitions from 2002 through 2025, mostly regional brokers and benefits consultancies priced between $1 million and $100 million each. In 2025 it closed 33 acquisitions with about $3.56 billion of annualized revenue. That figure includes the two largest deals in its history:

• AssuredPartners, a U.S. broker with over 10,900 employees, acquired August 18, 2025 for gross consideration of $13.8 billion. It was funded by an $8.5 billion share offering in December 2024, $5.0 billion of senior notes, and a further $1.3 billion when the underwriters exercised their option on additional shares in January 2025.
• Woodruff Sawyer, acquired April 10, 2025 for $1.2 billion in cash.

The client base is diffuse: in 2025 the largest client was about 1% of combined brokerage and risk management revenue, and the ten largest together about 3%. Revenue is seasonal because commissions are recognized mostly on policy effective dates. About 85% of commission and fee revenue is booked on the effective date, and contingent commissions arrive mainly in the first and second quarters.

Risk factors

Source: Form 10-K for fiscal 2025, Item 1A, accession 0001628280-26-008662. The second-quarter 2026 Form 10-Q (accession 0001628280-26-053489) adds no new risk factors.

The risks that matter most for Gallagher's economics:

• Premium cycles and commission rates. Gallagher does not set the premiums its commissions are based on, so a soft market lowers revenue directly. Insurers can also cut commission rates. Clients moving to flat fees, self-insurance, captives or capital-markets alternatives can weaken the link between revenue and rising premiums.
• Contingent and supplemental revenue. These depend on insurers' profitability and volume thresholds. If thresholds are missed or insurers raise their loss reserves, contingent revenue already recognized can be reversed in a later period.
• Acquisition dependence and integration. Growth relies on continuing to buy brokers. Private equity buyers and other consolidators have made targets scarcer and more expensive. The company names AssuredPartners, its largest acquisition, as a source of greater integration complexity, especially in technology, and of exposure to wrong assumptions about synergies, costs and unknown liabilities. Underperforming acquisitions could lead to goodwill impairments.
• Interest income and the macro cycle. Lower rates cut the interest Gallagher earns on its own and fiduciary cash and on premium finance. Recessions shrink insured payrolls, headcounts and asset values. The company also holds significant receivables from insurers, which become a credit risk if an insurer fails.
• Talent and compensation costs. Brokers who leave can take clients with them, and several U.S. states have restricted non-compete agreements. In 2025 health care costs rose about 20%, and the consolidated compensation expense ratio was 56.2% of revenue.
• International operations (about 33% of brokerage and risk management revenue). These bring exposure to currency translation, anti-corruption and sanctions laws (FCPA, U.K. Bribery Act), tax changes including the OECD Pillar 2 minimum tax, and scrutiny of offshore service centers. Large operations in India support the group, and the 10-K cites the India–Pakistan dispute and India–China tensions as disruption risks there. After Brexit, EEA clients are served through a "reverse branch" structure using a Swedish subsidiary, and EEA regulators are still reviewing that model.
• Cybersecurity, data privacy and AI. Gallagher handles large volumes of personal and health data. The 10-K says integrating acquired companies' systems adds breach risk, which may be heightened by the AssuredPartners integration, and points to privacy fines of up to 4% of worldwide revenue under the GDPR and U.K. law. It also flags AI-specific risks: flawed models, data leakage, AI-enabled attacks, and competitors or insurers building AI tools that displace its services.
• Litigation and regulation. The company faces errors-and-omissions claims and employment and restrictive-covenant disputes. The IRS has been investigating its micro-captive (IRC 831(b)) advisory business as a possible tax-shelter promoter since 2013, and is running a separate criminal investigation into micro-captive underwriting enterprises; the company has been told it is not a target. Broker compensation from insurers, including contingent and supplemental revenue, has drawn regulatory scrutiny over conflicts of interest in the past, and future regulatory changes could limit Gallagher's ability to collect it.
• Debt and capital structure. Consolidated debt was about $13.1 billion at December 31, 2025. Its covenants limit flexibility, and a ratings downgrade would raise borrowing costs. Gallagher is a holding company that depends on dividends from subsidiaries, many of them outside the U.S. Issuing shares for acquisitions, including through its at-the-market program of up to 3.0 million shares, dilutes existing holders.
• Legacy clean-energy exposure. Of $1,706 million of IRC Section 45 tax credits generated from 2009 to 2021, $604 million remained unused at year-end 2025. Their value depends on the IRS accepting that the underlying operations qualified. Those operations also carry potential environmental and product-liability claims.

Management's discussion, fiscal 2025

Source: Form 10-K for fiscal 2025, Item 7, accession 0001628280-26-008662.

2025 was dominated by the AssuredPartners and Woodruff Sawyer acquisitions. Total revenues rose 21% to $13.94 billion. Net earnings attributable to controlling interests rose 2% to $1,494 million. Diluted EPS fell 12% to $5.74 from $6.50, while the weighted diluted share count rose to 260.1 million from 225.0 million after the December 2024 and January 2025 share sales that funded AssuredPartners. Adjusted EPS, which excludes intangible amortization, integration, transaction and other items, rose 6% to $10.69.

• Brokerage. Revenue rose 23% to $12.19 billion. Acquisitions and divestitures added $1,598 million of base commissions and fees. Organic growth in commissions, fees, supplemental and contingent revenue was 6%, down from 7% in 2024, with strong retention, new business and continued renewal premium increases. Adjusted EBITDAC rose 27% to $4,446 million, and adjusted EBITDAC margin widened 145 basis points to 36.5%. That margin included about $363 million of interest earned on the AssuredPartners financing proceeds before the deal closed. Reported segment net earnings rose 22% to $2,052 million, while amortization rose to $894 million from $651 million.
• Risk Management. Revenue before reimbursements rose 9% to $1,585 million. Organic fee growth was 6%, against 8% in 2024. Adjusted EBITDAC rose 12% to $336 million, at a 21.2% margin.
• Corporate. The net loss widened to $732 million from $390 million. Interest expense rose to $639 million from $381 million, almost entirely ($254 million) from the $5.0 billion of senior notes issued in December 2024. The segment also carried AssuredPartners transaction costs and a $47 million unrealized foreign-exchange remeasurement loss.

Management described the market as "continued price firming." The CIAB survey showed U.S. commercial property/casualty rates up 4.2%, 3.7% and 1.6% in the first three quarters of 2025. Management also saw insurers competing on property and staying cautious on casualty, and expected both trends to persist through 2026.

Operating cash flow fell to $1,930 million from $2,583 million. The main causes were larger earnout payments above original estimates, including a $750 million April 2025 payment to the sellers of the Willis Towers Watson treaty reinsurance business, and working-capital timing. Consolidated EBITDAC was $3,678 million.

Uses of cash in 2025:

• $15,766 million for acquisitions, net of cash acquired.
• $145 million of capital expenditure.
• $674 million of declared dividends ($2.60 per share).
• No share repurchases.

Management expects integration to cost about $575 million over three years for AssuredPartners and about $150 million for Woodruff Sawyer. It guided to about $227 million of capital expenditure and continued after-tax losses from clean-energy investments in 2026. It also expects effective tax rates of 24.5–26.5% in brokerage and 25.0–27.0% in risk management. At year-end, debt comprised:

• $9,550 million of senior notes.
• $3,323 million of private placement notes.
• $226 million under the premium finance facility.
• Nothing drawn on the $2.5 billion revolving credit facility.

Current quarter, three and six months ended June 30, 2026

Sources: Form 10-Q for the quarter ended June 30, 2026, accession 0001628280-26-053489; second-quarter 2026 earnings release furnished on Form 8-K, accession 0001628280-26-051070.

Overview. Acquisitions drove revenue sharply higher in the second quarter, but GAAP earnings fell. Two things went the other way: interest income dropped once the AssuredPartners cash was spent, and amortization of acquired intangibles rose. Total revenues rose 24% to $4,003 million from $3,222 million. Net earnings attributable to controlling interests fell 12% to $324 million, and diluted EPS fell to $1.25 from $1.40. Adjusted EPS rose 23% to $2.84 from $2.30. For the six months, revenues rose 26% to $8,761 million, net earnings rose 7% to $1,146 million, and diluted EPS rose to $4.41 from $4.12. The CEO said the combined brokerage and risk management segments "delivered revenue growth of 24%, including organic growth of 6%."

What changed versus a year earlier:

• Interest income collapsed. "Interest income, premium finance revenues and other income" fell to $98 million from $233 million. The second quarter of 2025 included about $144 million of interest on the AssuredPartners financing cash, which was spent at closing in August 2025. The company calculates that this, together with AssuredPartners' seasonality and newly acquired tuck-ins, reduced brokerage adjusted EBITDAC margin by about 3.9 points year over year.
• Acquisition-driven cost growth. Amortization rose to $301 million from $180 million. In brokerage, compensation rose $491 million, of which $406 million came from acquired businesses. Brokerage acquisition integration costs were $113 million pretax, against $41 million a year earlier.
• Organic growth slowed in brokerage but accelerated in risk management. Brokerage organic revenue grew 5%, with base commissions and fees up 4%, supplemental revenues up 20% and contingent revenues down 8%. Risk management organic fees grew 12% on strong new business and retention.

Segment results (second quarter 2026 versus 2025):

• Brokerage. Revenue was $3,502 million, up 26%. Net earnings were $450 million, down 12%. Adjusted EBITDAC was $1,163 million, up 16%, at a 33.3% margin against 36.1%. The segment closed 6 acquisitions in the quarter with about $58 million of annualized revenue (14 deals and $107 million year to date). Its workforce was 56,202 at quarter-end.
• Risk Management. Revenue before reimbursements was $453 million, up 16%. Net earnings were $57 million, up 33%. Adjusted EBITDAC was $101 million, up 22%, at a 22.3% margin against 20.9%. Headcount controls lowered the compensation ratio.
• Corporate. The net loss was $183 million, against $185 million. Interest expense rose to $168 million from $158 million because of revolver borrowings, partly offset by private-note paydowns. The quarter included $13 million of pretax legal and tax costs and $8 million related to benefit plans.

Rate environment. The first-quarter 2026 CIAB survey showed U.S. commercial property/casualty rates down 1.2%, after a 0.2% rise in the fourth quarter of 2025. That compares with 4.2% and 3.7% increases in early 2025. Management still sees insurers competing on property and cautious underwriting in U.S. casualty, while rising insurable values continue to lift exposures.

Acquisitions in the first half of 2026. Gallagher completed 16 acquisitions for a total recorded purchase price of $664 million, with about $122 million of annualized revenue:

• Krose GmbH & Co KG, effective February 25, 2026. Total recorded price $220 million: $203 million cash, 66,000 shares valued at $15 million, and a $2 million accrued liability.
• McKee Risk Management, Inc., effective May 1, 2026. Total recorded price $149 million: $135 million cash, a $5 million escrow, and a $9 million recorded earnout, with a maximum potential earnout of $30 million.
• Fourteen other acquisitions, for $295 million.

In the second quarter Gallagher finalized the AssuredPartners purchase-price allocation. The first-quarter adjustment had cut expiration-list intangibles by $222 million and raised goodwill by $220 million, after new information on average customer lives. No further changes were made.

Cash flow, balance sheet and capital return. First-half operating cash flow was $967 million against $448 million, mainly because earnout payments above original estimates fell to $141 million from $480 million. Other first-half movements:

• Bought back 2.3 million shares for $480 million, including about 0.9 million for $170 million in the second quarter. Gallagher made no repurchases in 2024 or 2025. About $1,020 million remained under the $1.5 billion authorization approved in July 2021.
• Borrowed $5,010 million and repaid $3,645 million on the revolving credit facility, leaving $1,365 million drawn and $1,133 million available at June 30.
• Repaid $640 million of maturing private placement notes from operating cash.
• Settled interest-rate hedges on $1,500 million of notional for about $11 million; no rate hedges or pre-issuance hedges remained open.

At June 30, 2026, total corporate and other debt was $13,732 million and cash was $1,386 million. The defined-benefit pension plan termination was completed in the second quarter, with a non-cash pretax loss of about $17 million.

Outlook statements in the filing:

• Effective tax rates of about 24.5–26.5% in brokerage and 25.0–27.0% in risk management.
• About $227 million of 2026 capital expenditure.
• Remaining 2026 acquisitions to be funded from cash, new debt, the credit facility, operating cash flow and stock.
• Further share repurchases possible to the extent available cash exceeds acquisition opportunities.

Subsequent events

Sources: Form 10-Q for the quarter ended June 30, 2026, accession 0001628280-26-053489; Forms 8-K, accessions 0000354190-26-000184 and 0000354190-26-000197.

The quarterly report does not disclose any acquisition, divestiture or financing completed after June 30, 2026. Disclosed events after the quarter:

• Board change (July 2026). Following the death of Lead Independent Director David Johnson on July 22, 2026, the board cut its size to eight members and named Ralph Nicoletti Lead Independent Director.
• Dividend (July 29, 2026). Gallagher declared a third-quarter 2026 dividend of $0.70 per share, unchanged from the first two quarters of 2026. At that level, it estimates annualized 2026 dividend cash of about $718 million.
• Chief Accounting Officer transition (announced August 2026). Richard C. Cary is stepping down as Controller and Chief Accounting Officer effective September 30, 2026. He is succeeded effective October 1, 2026 by Kyle G. Koreyva, who joined Gallagher with the AssuredPartners acquisition.