AJG
#Our wholesale business is awesome.
It is just awesome.
To me, it's a corporate gem.
I would say, <UNK>, remember again, we said on the front, property can be a little weak in the second quarter with the property market right now.
But wholesale still was nicely in the upper 2%s when it comes to organic growth this quarter.
So it's performing well, even in the kind of a seasonal property quarter that they have.
Let me back up my earlier comments, <UNK>, first of all, we started this thing from scratch about 15 years ago, from dead scratch de novo startup.
Today, we're the largest MGA in the United States.
We're one of the strongest open market brokerage operations.
When we started it, we had hoped that our own domestic PC branches would utilize RPS, but we also started it as a true wholesaler, open to our competitors throughout the United States.
They've captured 50% of our go-forward wholesale business out of our retail branch network in the United States.
That's because they perform.
The commission levels on the small accounts are a struggle.
I think that we see that with the mandated loss ratios in the smaller area, that they're squeezed.
But remember, our benefits business is a consulting business.
Yes, we get commissions, but it's negotiated as a fee.
So if we're not receiving commissions on an account and we need a fee to do the work, we charge it as a fee.
We're very, very successful at getting the remuneration we deserve in that business.
Honestly, it grew the same this quarter.
In the front-end of the comments, we said it grew about 3% this quarter, which is the same as our domestic retail.
We also said in the commentary, it tends to grow a little better in the second half of year, which is natural, as customers look at for their year-end benefit planning.
Also, I'd point out that an awful lot of activity on the M&A side there, <UNK>.
We've got really, really good M&A pipeline in the benefits business, and for all the reasons you would imagine.
The ACA is extremely complicated.
The brokers that have really nice accounts, 500 lives to 1,000 lives, right in our sweet spot, are lining up to join our enterprise for all kinds of reasons, a lot of which is just the ACA is too difficult to deal with.
Really good.
Very pleased.
Organic ---+ it's a little softer market up there, so organic around 2%.
But we had seven separate brands when we bought Noraxis.
Those brands are all <UNK> now.
I was up there in May for a better part of a week, had a chance to interact with a whole bunch of the team.
I will tell you that the interaction between those brands together and then their relations with their brethren in the United States and the UK is outstanding.
Thanks, <UNK>
Primarily, workers compensation in the United States, which by the way is a good ---+ you can't sit and complain about slower claim growth, right.
For our customers, that's a good thing.
It can be an indicator that the economy is slowing a bit, because typically when you're putting on more shifts there is more claim activity.
But this is not unusual ---+ from time to time, <UNK> Bassett will see loss control works better, clients are working very hard to cut the number of claims, and we're helping them do that.
We've seen ---+ it's interesting, because <UNK>une was kind of the month that looked like a little bit of out of pattern number of new horizons.
We went back and take a look and there are some times, we're just ---+ once every 22 months or something, you get a slow month.
So I wouldn't consider it a trend necessarily, but it is something we'll keep an eye out in.
As <UNK>uly comes in and August comes in, we'll get together again and we do an investor event in September.
We'll update you on it.
But we've had these patterns before, where just some months, the claims just don't show up.
I've got to tell you, I give a lot of credit to the management teams of our major insurance companies.
It's softer, as I said earlier, in New Zealand and Australia, Canada and the UK, especially in our specialty business in London.
Those markets are soft.
But here in the United States, we're coming up five, six years of what I would call flat.
When rates are down 1%, 2% or up 1%, 2%, in my experience, that's a flat market.
In a typical hard market, rates are jumping 15%, 25%, 30%, 40%, 50%.
In a typical soft market, they're dropping 12%, 15%, could be 16%, 17%.
We're five or six years now, where that band is 1.5% to 2% up, to 1.5% to 2% down.
I know that's driven by the lack of investment returns in the investment market, but it's pretty darn good discipline by the underwriting community.
We saw that again in the quarter, soft on the property side.
I've said this in past quarters, I think our clients deserve that softness.
They will pay a price when the wind blows.
It hasn't for a number of years.
So the property market is soft, but casualty, rate and exposures contributed less than 1% negative to our results this quarter, domestically.
That's pretty good.
By the way, that's a great environment.
That's a great environment for our clients.
It's also a great environment for our producers.
When rates are dropping 15% to 20%, anybody can throw a quote out there and catch you off guard, with a number that's so low that lose your client.
Today, it's all around how creative can you be.
And how helpful can you be to your client in helping them deal with their risk management costs.
Thanks, <UNK>.
No.
I think what's happening in comp, which is interesting, is that medical costs are escalating a level faster than the indemnity side.
So what you've got is kind of a shift.
Severity is remaining about the same.
Return to work is really, really critical.
But it's all about the medical costs including pharma that is something that everybody's concerned about.
No, we've seen it on the ground.
We've seen it ---+ I'm not going to mention any specific carriers by name at all.
But no, we're seeing disruption.
The good news is, there's plenty of market.
So where there's disruption we're able to move business.
But there are major companies that are undergoing underwriting reviews.
They're making the moves that they believe ---+ again, I give them credit.
I think we're looking at domestic US pretty darned disciplined senior management.
Thanks, Chuck.
Yes.
It says that ---+ if you look at the CFO commentary, it says almost no impact on EPS as a result of that.
Yes, listen, let me just say it this way, I think that first of all, in integration ---+ for our integration teams out there that are listening, I know you got got a lot of hard work left, but financially we're ---+ it's not going to cost us that much between now and the end of the year.
So I'd like to say, it's all done.
But maybe towards ---+ maybe on our <UNK>anuary call, we'll declare that.
When it comes to CapEx, the spending that we've done on the home office build ---+ recall that we have an opportunity for a lot of tax credits that come through on that, that will improve future cash flow on it.
That's about $125 million to $150 million this year, that we won't have next year.
Integration, we spent well over $100 million in 2015.
We're running somewhere in that $50 million range right now, half, maybe less than that.
So you're going to free up $200 million next year just in those two numbers alone.
So that's ---+ I don't see a lot of big real estate moves.
We moved a big piece of our real estate in the UK this year.
We won't have those costs.
That was probably in that $150 million of building costs: there was $125 million in the US and $25 million in the UK.
So I just don't see a lot of those big cash needs coming in 2017.
So that's a nice pot of money to have.
I think you need to think about $750 million again next year, because we just wouldn't borrow quite as much money next year at this point.
So that $200 million ---+ if we have an extra $250 million, $200 million, we'll still be in the $750 million ability to buy companies next year ---+ of funds available to buy companies.
Actually, what's interesting is the account that we didn't pick up the performance bonus income has actually rehired us for the next five years.
Actually, we've picked up a large piece of business that flows through that program.
So we didn't lose any account on the risk management, rather we just didn't hit a couple metrics that have clip metrics in it.
We didn't get the performance bonus.
But we'll be back after it in ---+ in this next fiscal year that ends in 2017.
Thanks.
Bye, <UNK>.
Thanks, Donna.
Yes, I've got a bit of a wrap up.
Thank you again for being with us this morning.
We appreciate it.
Our teams are focused and energized.
We will continue to execute on the four components of our value creation: we will grow organically; we will grow through acquiring the best brokers; we will continue to improve our quality and productivity; and we will invest in our culture.
I'm very pleased with the first-half results of 2016.
I remain excited about the remainder of the year and beyond.
So thank you all for being with us.
