Katie Sakys: Thanks. It’s a helpful clarification. Just maybe as a quick follow-up, in terms of benefits from headcount controls and client-related expense saves, are those things that you expect to persist as the year goes on, or are those more specific to 1Q in particular?
J. Patrick Gallagher: Listen, I think the team does a really nice job of looking at our headcount controls. We have work model that show how many people we need to have, how many do we have. Do we need to hire in July, August and September, we can kind of forecast that. Our retention has been very good. I got to say that when you look at it, our retention is better today than it was, let’s say, in ‘18 and ‘19. So, I think we have done a really nice job of taking care of our employees throughout this inflation period. So, we are not seeing significant terminations here. So, overall, I think our work planning models and our ability to kind of forecast retention has helped us not have to push and pull on the joystick there to see how many more we need to bring on, how many do we need to take off. So, it’s pretty steady right now.
Katie Sakys: Alright. Thank you.
Doug Howell: Thank you.
Operator: Thank you. Our next question comes from the line of Yaron Kinar with Jefferies. Please proceed with your question.
Yaron Kinar: Thanks. Good afternoon. I have no idea where I am but I am pretty sure it’s afternoon. So, I just want to touch on a couple of market questions, if I could. I think in the prepared remarks, you were talking about general liability and retail being up like 9%. If I go back to the investor meeting from, like a month or so ago, I think you were talking about maybe seeing liability lines moving up to the 9%, 10% range over the course of a year or two. So, are you – are we talking apples-to-apples here, or are you surprised by the magnitude of improvement that you are seeing in liability lines right now?
J. Patrick Gallagher: I think – let me go back to my prepared remarks. We have seen umbrella in the quarter, up 9%, which is kind of in-line with what we are talking about in March. GL 7%, and that’s where I think probably we have got to look at our carriers and say, are there going to be some reserve challenges going forward. So, 7% seems pretty – it seems pretty stable. Maybe there will be a push up a bit. And package, which is of course, property and liability together at 8%, where comp, really not much, 2%. I think that feels like it’s going to be there for the year. I think you could take our March discussions and kind of update them six weeks later for those numbers.
Yaron Kinar: Okay.
J. Patrick Gallagher: There is a tone of concerns that seems to be louder today in our interactions with carriers and clients around casualty rate adequacy. So, I would say that what we were chatting about in January and February seems to be louder today. That confirms to be a little bit louder today. And so I think that – and we are just – I don’t know if I have enough data yet to say absolutely that there was a tone shift in March in our data compared to what we were seeing in January and February, but when you look at some isolated situations, you boil that down with what we all read, when you combine that with what we hear in meetings with the carriers, we feel that casualty rates probably are more likely to be going up again in the next three quarters – each of the next three quarters than we would see going down by any means. So, there is a tone shift there. I just can’t quite see it 100% in our data yet, but it seems like it’s coming.
Yaron Kinar: That makes sense. I appreciate the color. And then – and I apologize if you have already addressed this, and I may have missed it, but we saw the stamping office data come out in March around E&S flows and into our rates. And it seems like it was a little bit of a surprise and disappointment. How much of that do you think is noise? Are you seeing that slowdown in your wholesale business, or is that real? And sorry, or is that just noise and you are kind of looking past that and still see a very strong E&S market?
Doug Howell: That is noise. Our E&S business is on fire. We are seeing submissions come in. We are renewing our business. I don’t have any caution on that.
Yaron Kinar: Thank you.
Doug Howell: Thanks.
Operator: Our next question comes from the line of Meyer Shields with KBW. Please proceed with your question.
Meyer Shields: Thanks. I was hoping to start on the reinsurance side. I think you talked about 13% organic growth. And is there any way of breaking that down between maybe the increasing limits that are being purchased versus market share wins versus pricing?
J. Patrick Gallagher: I don’t have the actual stats on that, Doug…
Doug Howell: Well, listen. I will tell you this that we had a terrific new business quarter. Our teams are working together. I think we are starting to see some nice wins of working with our retailers on that. So, when you go down, we were hearing a lot of great stories about teams settled in. When we look back and see it and try to measure our success on doing that merger, our teams are working together. We are selling more new business. Our retention seems to be pretty darn good on that. And I think the fact is customers are buying some more cover while you are seeing a little price stability maybe. So, we are checking the box on everything that we have considered to be this to be a successful merger.
Meyer Shields: Okay. That’s helpful. And second question, and clearly, I guess the premise is we are not seeing any successful pressure on the part of carriers to reduce commission percentages. I was hoping you would update us on efforts that are being made, even if they are not successful.
J. Patrick Gallagher: No. I think that our partners are being very reasonable. We are not having a lot of head-butting on that subject at all.
Meyer Shields: Okay, perfect. Thank you.
J. Patrick Gallagher: Thank you, Meyer.
Operator: Our next question comes from the line of Rob Cox with Goldman Sachs. Please proceed with your question.
Rob Cox: Hey, thanks. So, I think in March, at the Investor Day, you guys were pretty optimistic on the potential for reacceleration in RPC in the remainder of 2024 due to higher exposure to property business and less workers’ comp and the potential for casualty pricing increases. Is that still the case, or is the property rate environment, with a little deceleration in the rate of increase, made you change your view a little bit?
J. Patrick Gallagher: No, I think our view is unchanged. We are very bullish.
Rob Cox: Okay. Got it. And then maybe sort of a similar question in some ways, but if we strip out reinsurance, is the touch lower organic guide for the remainder of the year the same, or do you think ex-reinsurance, what would you say, for the trend of organic growth ex-reinsurance?
Doug Howell: Well, yes, I think just because reinsurance is a little more skewed seasonally to the first quarter, it did help us, let’s say, get from 8% to 8.9% this quarter, right. We do have some pretty good April 1 renewals coming in, so we will see that in the second quarter. So, I think we will get the benefit of reinsurance a little bit in the second quarter, even though it’s not as big percentage-wise as the total amount of our revenues. And then in the third quarter and fourth quarter, we will see what happens. We will see what happens with the wind. Hopefully, there is not a shake anywhere else in the world. But right now, that’s why I say, I feel pretty comfortable each quarter in that 7% to 9% range because reinsurance did help, but it wasn’t like it moved us from 6% to 9%. It moved us up 75 basis points, something like that this quarter.
Rob Cox: Got it. And if I could sneak one more in, in the Brokerage segment, could you remind us how much you are reinvesting in the business annually and what you are spending it on?
Doug Howell: Well, it’s a laundry list. I mean first, you start with our people. I think that our training, our development, our internship program, I think bringing on more producers, we are seeing lots of interest in joining Gallagher by experienced producers out there. I think they see that the organization has a lot to offer for them. Then the next thing you would look at is technology. We are spending a ton on technology that both enables us to sell more, right, enables us to service better. Those numbers are probably – the projects on the sheet could be $75 million, something like that. When I look at this year’s budget, some of that’s capital, some of that’s operating expense. Looking back, we are spending about $75 million a year on cyber today.
If you go back 5 years ago, we were spending about $15 million on that, so the fact that we are investing in infrastructure improvement, cyber and other infrastructure improvements. Then you get down into the data and analytics. We are hiring more and more people every day that help us slice and dice our data, look at industry statistics and bring a better delivery of that data through a digital platform to our customers. My guess is we are spending $30 million a year on those efforts. And then you look at AI now, there is starting to be a lot of AI projects inside of the company that are starting to deliver some yield. And so we are spending $5 million a year kind of on AI-related activities out there. So, you add all that up, it can get to $200 million to $300 million pretty quickly, what we think we are doing to make a better franchise going forward.
J. Patrick Gallagher: I would like to emphasize what Doug – I have got a lot of listeners on this call. I would like to emphasize where Doug started this. Most of that spend is, in one way or another, directly related either to making our service offering to our clients better, and we happen to know, for instance, that our digital offerings from small accounts through the risk management accounts, connectivity, things like Gallagher Go or even a middle market client can see what their policies are, what’s going on with their buildings, etcetera, etcetera, are being incredibly well received. And we are rolling things out like that literally every quarter, so that’s spend. And then you get into the data and analytics. And if you had asked me 5 years ago, clients would really care that much about being able to tell them what people like you buy.
Oh my God, they care. And then they want to know the rate structure and they want to know why. And when I was started – when I was selling insurance day-to-day, I tell them they had a good deal because Hartford quoted and so did CNA. Buy the cheaper one, let’s move on, or I would have a reason why they should stay where they were, but I don’t have capability of saying, here is what’s happening in the world market. It’s incredible. And remember what we said in our prepared remarks, 90% of the time our people go out and they are fighting against somebody who is substantially smaller and doesn’t have any of this, let alone $200 million to $300 million to reinvest in more of it. I mean it’s just – it’s an incredible advantage.
I appreciate the question.
Rob Cox: Awesome color. Thank you.
Operator: Our next question comes from the line of Mike Ward with Citi. Please proceed with your question,
Mike Ward: Thank you, guys. Kind of a similar question, but specifically on reinsurance, just curious where you guys are in terms of the innings of getting that business where you want it to be?
J. Patrick Gallagher: It’s really where we had dreamed it would be. The team is incredibly solid. We are not having defections. We have got – what’s been fun about that is that there is a remarkable interest in having continued relationships and building relationships with the retail side of the house, which is what we predicted. We predicted it, we did it that we would be, not only getting data and analytics, but we would be working together, and we have seen that impact on existing, for instance, pooled accounts that were the biggest and probably the longest running pooling broker in the country, especially in the public sector business, been incredibly helpful, the dialogue back-and-forth. That’s just one example.
