Arthur J. Gallagher & Co. (AJG) is “off to an excellent start in 2021,” reporting net earnings of US$393.7 million (approx. AU$506.7 million) in the first quarter (Q1) of the year, up from US$355.4 million in the same period of 2020.
The insurance brokerage and risk management giant has successfully built on the momentum it achieved in 2020, when it generated a record annual profit of US$858.1 million.
In the three months ending March 31, 2021, AJG’s insurance brokerage segment reported net earnings of US$364.4 million, with diluted net earnings per share of US$1.82, compared to US$311.4 million and US$1.61 respectively in Q1 the prior year.
Meanwhile, the risk management business saw a small decline in net earnings, reporting income of US$18 million, or US$0.09 diluted net earnings per share in Q1, down from US$19.1 million and US$0.10 respectively in the first three months of 2020.
“We’re off to an excellent start in 2021,” said J. Patrick Gallagher, Jr., AJG’s chairman, president and CEO. “We posted strong total revenue growth, including excellent organic revenue growth and continued growth from our tuck-in M&A strategy. Combined with our expense discipline, we once again delivered fantastic growth in net earnings and EBITDAC.
“We are operating in a firm property casualty environment where rates are up in nearly all lines and geographies around the globe, which is consistent with the past few quarters. At this time, we don’t see conditions that would indicate this rate environment would change anytime soon. Exposure units also show signs of continued growth as business activity rebounds and unemployment falls. An increasing rate and exposure unit environment is when our team shines by providing clients with the very best insurance, consulting and risk management advice – and our global team remains energised.”
In its P&C brokerage operations, AJG’s customer retention and new business generation in Q1 of 2021 remained similar to pre-pandemic levels. Meanwhile, renewal exposure units – such as insured values, payrolls, employees, miles driven, etc. – declined compared to pre-pandemic Q1 of 2020, but were higher than the last three quarters of 2020. And as the P&C market continues to harden, premium rates across most geographies and lines of coverage have continued to increase.
Of its nearly 1,000 office locations, more than 400 are open, but most are working at reduced capacity due to the COVID-19 pandemic, and the majority of AJG employees are working remotely. The global firm has not had any office-wide outbreaks of COVID-19, reporting 450 confirmed cases among approximately 34,000 employees - all of which are believed to have contracted the virus outside of office locations.
AJG stated: “Given the deterioration in economic conditions since first quarter 2020, we are actively managing costs by limiting discretionary spending such as travel, entertainment and advertising expenses, adjusting our real estate footprint, reducing capital expenditures, limiting use of outside labour and consultants, increasing utilisation of our centres of excellence, and in mid-2020 we adjusted portions of our workforce where business had declined significantly and normal attrition was not sufficient.
“During first quarter 2021, the cost saving impact of these actions totalled approximately US$64 million compared to pre-pandemic first quarter 2020, adjusted for pro forma full-quarter costs related to acquisitions. These cost savings were consistent with savings realised in second, third and fourth quarter 2020. Offsetting these savings were severance and lease termination costs related to these actions.”
As well as delivering consistent financials, AJG was recently selected as a World’s Most Ethical Company for the tenth year in a row by the Ethisphere Institute. Gallagher described the accolade as “another affirmation” that AJG’s “unique culture continues to thrive around the world.”
The CEO added: “I believe we are very well positioned for the remainder of 2021!”