Arthur J. Gallagher & Co. · NYSE:AJG
Arthur J. Gallagher & — Gallagher Arthur J & — Shareholder Meeting (May 2007)
69 slides from Arthur J. Gallagher &'s shareholder meeting presentation, May 15, 2007
Slide 1: Welcome to the Arthur J. Gallagher & Co. 2007 Annual Stockholders' Meeting
Exhibit 99.1 Welcome to the Arthur J. Gallagher & Co. 2007 Annual Stockholders’ Meeting Tuesday, May 15, 2007
Slide 2: Please turn off all cell phones and PDAs
Please turn off all cell phones and PDAs at this time. Thank you for your cooperation.
Slide 3: Stockholders' Meeting
Stockholders’ Meeting May 15, 2007 • Formal Annual Meeting • Financial Results – 2006 • 10-Year Review • Financial Results – 1st Quarter 2007 • Segment Highlights • Questions & Answers
Slide 4: Robert E. Gallagher 1923-2006
ROBERT E. GALLAGHER 1923-2006 The employees of Arthur J. Gallagher & Co. pay tribute to our Chairman, Robert E. Gallagher, who passed away on August 30, 2006. A true leader, philanthropist and consummate insurance broker, Bob was a source of inspiration to us all. Over his 58 year career, he was ins
Slide 5: The Gallagher Way
The Gallagher Way Shared values at AJGCo. are the rock foundation of the Company and our Culture. What is a Shared Value? These are the concepts that the vast majority of movers and shakers in the Company passionately adhere to. What are some of AJGCo.’s Shared Values? 1. We are a Sales and Marketin
Slide 6: Corporate Officer Retirements
Corporate Officer Retirements • 2006 – Nick Elsberg – Brian King – Warren Van der Voort • 2007 – Chris Greb – Elizabeth Brinkerhoff
Slide 7: New Faces
New Faces • 2006 – William Bax elected to Board of Directors – David Ross appointed Corporate Vice President/Managing Director, London Brokerage Operations – Dave Melchers hired as Corporate Vice President/Chief Information Officer • 2007 – Susan McGrath hired as Corporate Vice President/Chief Human
Slide 8: Board of Directors
Board of Directors • William L. Bax • T. Kimball Brooker • Gary P. Coughlan • Ilene S. Gordon • Elbert O. Hand • David S. Johnson • Kay W. McCurdy • James R. Wimmer Past CEO — A. James Gallagher, Jr.
Slide 9: Formal Annual Meeting 2007
G] Arthur}. Gallagher & Co. Formal Annual Meeting 2007
Slide 10: Stockholders' Meeting
Stockholders’ Meeting May 15, 2007 • Formal Annual Meeting • Financial Results – 2006
Slide 11: Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 Except for the historical information and discussions contained herein, statements contained herein may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.
Slide 12: Certain Non-GAAP Financial Measures
Certain Non-GAAP Financial Measures This presentation includes certain information that may be considered “non-GAAP financial measures” within the meaning of SEC regulations because it is derived from Gallagher’s consolidated financial information but is not required to be presented in financial sta
Slide 13: Financial Results – 2006
Financial Results – 2006 (in millions, except per share and employee data) 2006 2005 Change Total revenues $1,534.0 $1,483.9 $50.1 Pretax earnings from continuing operations before litigation and retail contingent commission matters, claims handling obligations, and medical and pension plan changes
Slide 14: Financial Results – 2006
Financial Results – 2006 (in millions, except per share and employee data) 2006 2005 Change Earnings from continuing operations $128.5 $28.6 $99.9 Earnings (loss) from discontinued operations — $2.2 ($2.2 ) Net earnings $128.5 $30.8 $97.7 Diluted net earnings per share $1.31 $.32 $.99 Dividends per
Slide 15: Financial Results – 2006 Brokerage & Risk Management
Financial Results – 2006 Brokerage & Risk Management Before Retail Contingent Commission Matters, Claims Handling Obligations, and Medical and Pension Plan Changes* (in millions, except per share and employee data) 2006 2005 Change Total revenues* $1,469.5 $1,342.6 $126.9 Pretax earnings from contin
Slide 16: 2006 Recap
2006 Recap • Brokerage – Developed a new business model – Revenue growth of 10% – pretax earnings growth of 31% – Internal revenue growth of 6% – Improved pretax margins by 2.5% – Closed 11 acquisitions – annualized revenues of $54M • Risk Management – Revenue growth of 8% – pretax margins of 14% –
Slide 17: Federal Class Action
Federal Class Action • Impacts most other brokers and insurers • Announced settlement of our portion – December 29, 2006 • Avoids substantial future costs/distractions • Client letters go out in May 2007 • Claim filing deadline – November 2007 • Payments to client claims in December 2007 • Done
Slide 18: Companywide, we produced more than $198 million in new business in 2006
Companywide, we produced more than $198 million, excluding acquisitions, in new business in 2006!
Slide 19: Training and Development
Training and Development • College Internship Program – 150 participants in 2006 – Expect more than 150 in 2007 • Executive Development Program (launched in 2000) • Corporate Training Department – Classroom; online, instructor-led; and online, self-paced training – New Learning Management System now
Slide 20: Where We're Going
Where We’re Going • Revenue and pretax growth of 15% per year • Target enterprise-wide margin expansion to 20+% • Solid organic growth • Maximize shareholder returns through dividends and stock repurchases
Slide 21: Market Conditions
Market Conditions • CIAB Market Survey indicated rate reductions on commercial P/C accounts throughout 2006, averaging about 10% in fourth quarter • Exception was coastal and earthquake-exposed properties, which faced rate increases, higher deductibles and coverage restrictions • In first quarter 20
Slide 22: Stockholders' Meeting
Stockholders’ Meeting May 15, 2007 • Formal Annual Meeting • Financial Results – 2006 • 10-Year Review
Slide 23: Total Revenues
Total Revenues (in millions) UP 165% $1,531.5 $577.1 See important disclosures regarding Non-GAAP measures
Slide 24: Pretax Earnings from Continuing Operations
Pretax Earnings from Continuing Operations UP 110% $167.1 Before Retail Contingent Commission Matters and Medical Plan Changes (in millions) $79.4 See important disclosures regarding Non-GAAP measures
Slide 25: Earnings from Continuing Operations
Earnings from Continuing Operations Before Retail Contingent Commission Matters and Medical Plan Changes (in millions) $54.1 See important disclosures regarding Non-GAAP measures UP 153% $136.9
Slide 26: Total Revenues Per Employee
Total Revenues Per Employee $123,000 See important disclosures regarding Non-GAAP measures UP 42% $175,000
Slide 27: Annual Dividends Per Share
Annual Dividends Per Share $.31 UP 287% $1.20
Slide 28: Stock Price Per Share
Stock Price Per Share As of December 31 $8.61 UP 243% $29.55
Slide 29: Market Capitalization
Market Capitalization As of December 31 $571M UP 408% $2.9B
Slide 30: Why Invest?
Why Invest? Since 1990, $1.9 Billion Cash Flow from Ops Dividends Paid ($642 M) Reinvested in Operations ($735 M) Shares Repurchased ($477 M) Balance sheet with $3.40 in tangible net worth per share and low corporate debt As of 12/31/06 Excludes cash payments made regarding special items discussed i
Slide 31: Arthur J. Gallagher & Co. Growth Story
Arthur J. Gallagher & Co. 23 Year Growth Story 1984 IPO Dec 31, 2006 Stock Price $1.72 $29.55 Market Cap $57M $2.9B Tangible Net Worth $23M $334M Annual Dividend/Share $.03 $1.24* Including Dividend Reinvestment, Compound Annual Growth Rate of 19% * Indicated annual dividend for 2007
Slide 32: Stockholders' Meeting
Stockholders’ Meeting May 15, 2007 • Formal Annual Meeting • Financial Results – 2006 • 10-Year Review • Financial Results – 1st Quarter 2007
Slide 33: Financial Results – 1Q 2007
Financial Results – 1Q 2007 (in millions, except per share data) 2007 2006 Change Total revenues $388.2 $327.5 $60.7 Pretax earnings from continuing operations $21.5 $29.0 ($7.5) Provision for income taxes $1.7 $11.9 ($10.2) Earnings from continuing operations $19.8 $17.1 $2.7 Diluted net earnings p
Slide 34: Segment Results 1Q 2007
Segment Results 1Q 2007 (in millions, except per share data) Brokerage Segment (from continuing operations and excluding retail contingent commission matters) 2007 2006 Change % Total revenues $245.2 $224.2 $21.0 9% Pretax earnings $14.7 $16.9 ($2.2) (13%) Pretax profit margin 6% 8% (2%) (25%) Risk
Slide 35: 1Q 2007 – Overview
1Q 2007 – Overview • Brokerage – 1% internal revenue growth in a very soft market – Closed 7 acquisitions – Annualized revenues of $39.5M – Revenue growth and expanding margins in Employee Benefits Brokerage unit • Risk Management – Good start for GB – Strong new business, domestic and international
Slide 36: Stockholders' Meeting
Stockholders’ Meeting May 15, 2007 • Formal Annual Meeting • Financial Results – 2006 • 10-Year Review • Financial Results – 1st Quarter 2007 • Segment Highlights
Slide 37: Three Distinct Segments
Arthur J. Gallagher & Co. Three Distinct Segments Total Revenues Pretax Earnings Brokerage 69% Brokerage 88% Financial Services 5% Risk Management 26% Financial Services (17)% Risk Management 29% See important disclosures regarding Non-GAAP measures
Slide 38: Three Distinct Segments
Three Distinct Segments • Brokerage – North America Retail P/C (U.S. and Canada) – Captive Management – Domestic, Bermuda and Grand Cayman – U.S. Wholesale, MGA & MGU – London Retail and Wholesale – Reinsurance – U.S. and International – International Strategic Alliance Network – U.S. Employee Benef
Slide 39: Brokerage Segment
Brokerage Segment Growth & Profits (in millions) 16% CAGR 1,100 900 700 500 300 100 $559 2001 $1,068 2006 Total Revenues* • 2006 pretax margins of 16% 15% CAGR 200 150 100 50 0 $103 2001 $168 2006 Pretax Earnings* *See important disclosures regarding Non-GAAP measures
Slide 40: North America Retail P/C
North America Retail P/C • Matrix Operating Structure – Retail Branches – Niche/Practice Groups
Slide 41: North America Retail P/C — Niche/Practice Groups
North America Retail P/C — Niche/Practice Groups (represents approximately 75% of business) • Aviation • Captives • Casualty • Construction • Construction Project Solutions (Wrap Ups) • Energy • Fine Arts • Food & Fiber / Agribusiness • Global Risk Management • Healthcare • Higher Education • Marine
Slide 42: Captive Management
Captive Management • Artex Risk Solutions, Inc. – Formed at beginning of 2007 – Single, unified brand dedicated to alternative risk transfer industry – Combines Arthur J. Gallagher (Bermuda), Innovative Risk Services and Gallagher Captive Services with captive management units in Bermuda, Grand Caym
Slide 43: North America Retail P/C — Acquisitions
North America Retail P/C — Acquisitions • Adams & Associates International, Ltd. • Commonwealth Premium Finance Corporation • Robert Keith & Associates, Inc. • S. P. Tarantino Insurance Brokerage, Inc. • William H. Connolly & Co. • Fishermans Insurance Services, Inc. • InterNational Insurance Group,
Slide 44: U.S. Wholesale
U. S. Wholesale • Risk Placement Services – Formed from scratch in 1997 – One of the largest wholesale brokers in U.S. – Much of business generated by producers outside Gallagher network
Slide 45: U.S. Wholesale – Acquisitions
U.S. Wholesale – Acquisitions • Lemac & Associates, Inc. • Sobieski & Bradley, Inc. • ISG International, Inc.
Slide 46: International Retail & Wholesale P/C
International Retail & Wholesale P/C • Gallagher Global Risks – Lloyd’s Broker – London and International • Risk Management Partners – Public Entity Business – England and Scotland • Arthur J. Gallagher Australasia – Retail and Wholesale – Australia and New Zealand
Slide 47: Reinsurance Brokerage
Reinsurance Brokerage • All reinsurance brokerage operations worldwide operate under brand name Gallagher Re, Inc. • Offices in U.S., U.K., Bermuda, Australia, Singapore and Beijing • Announced agreement with NYMEX in Dec. 2006 to list Property Damage Risk futures and options contracts
Slide 48: International Strategic Alliance Network
International Strategic Alliance Network • Non-owned network of leading independent brokers – Offers flexibility in choosing best broker for client – Account can be moved if not handled properly • More than 100 countries around the world • Combined with owned offices, provides comprehensive, worldwi
Slide 49: U.S. Employee Benefits
U.S. Employee Benefits Capabilities • Employee Benefits Brokerage/Consulting • Actuarial Services/Predictive Modeling • Healthcare Data Analysis and Claims Benchmarking • Pharmacy/Rx Consulting Services • Legislative Compliance Support • Employee Communications Tools/Resources • Executive Benefits/F
Slide 50: U.S. Employee Benefits
U.S. Employee Benefits Growth Focus • Niche marketing (7 niches) • Cross-selling opportunities with North America Retail • Merger & acquisition opportunities • Assisting clients/prospects with 4 top priorities – Controlling health and welfare costs – Providing better retirement tools/information – B
Slide 51: Employee Benefits Brokerage
Employee Benefits Brokerage Acquisitions • Benefit Management Group, Inc. • Mid America Group, Inc. • The Rains Group, Inc. • Y.S. Liedman & Associates • Financial Profiles, Inc. • Elite Benefits Insurance Marketing Services, Inc. • The Producer’s Choice, Inc.
Slide 52: Risk Management Segment — Gallagher Bassett
Risk Management Segment — Gallagher Bassett Growth & Profits (in millions) 12% CAGR $500 $400 $300 $200 $100 $0 $232 2001 $401 2006 Total Revenues* • 2006 pretax margin of 14% 12% CAGR $80 $70 $60 $50 $40 $30 $20 $10 $0 $29 2001 $56 2006 Pretax Earnings* *See important disclosures regarding Non-GAAP
Slide 53: Gallagher Bassett
Gallagher Bassett World’s largest P/C claims administrator in 2006, according to Business Insurance magazine
Slide 54: Gallagher Bassett – Capabilities
Gallagher Bassett – Capabilities • Real-Time Claims Reporting • Recoveries (subrogation, salvage, etc.) • Appraisal Services • Litigation Management • Information Management • Managed Care Services • Loss Control Services • Safety Programs • Settlement Management • Education and Training
Slide 55: Gallagher Bassett – Strengths
Gallagher Bassett – Strengths • Demand for unbundled claims management services remains strong in U.S. and abroad • The low-cost, high-quality provider • Cost of building infrastructure a barrier to entry for new players • Terrific growth potential
Slide 56: Gallagher Bassett – Strengths
Gallagher Bassett – Strengths Risxfacs.com • Customizable, real-time reports • Averaging 21 million site hits per month • Averaging 75,600 visitor sessions per month • 15,000 users – growing monthly
Slide 57: Gallagher Bassett – Strengths
Gallagher Bassett – Strengths International • Offices in England (5), Scotland (2), Australia (5) and Canada (1) • More than 15% of workforce outside U.S. at year-end 2006 • International revenues up 54% in 2006 • 5-year average growth of 21% • Growing UK commercial business – should represent more
Slide 58: Gallagher Bassett Growth Focus
Gallagher Bassett Growth Focus • Fortune 1,000 companies • Outsourcing of insurance company claims departments • Captives • Program business • Expanding global opportunities
Slide 59: This slide intentionally blank
This slide intentionally blank Contained client copyright-protected logos
Slide 60: Financial Services Segment
Financial Services Segment • Segment in run-off mode since 2002 • Sold ownership in: – Home office building – Low income housing developer – Airplane leasing company • Eliminated substantially all investment-related debt • Continue to monetize asset management investment • Current uncertainty with c
Slide 61: Financial Services Segment
Financial Services Segment Net Assets and Financial Guarantees* $400 $350 $300 $250 $200 $150 $100 $50 $362 2002 $89 2006* $ In Millions *As of 12/31/06 Net Assets* $60 $50 $40 $30 $20 $10 $0 Tax Adv Asset Mgmt Other Low Income Housing $3M Alternative Energy $43M Asset Alliance $28M Other $8M
Slide 62: Arthur J. Gallagher & Co. A Growth Company
Arthur J. Gallagher & Co. A Growth Company
Slide 63: Brokerage & Risk Management Total Revenues from Continuing Operations
Brokerage & Risk Management Total Revenues from Continuing Operations* (in millions) $1,600 $1,400 $1,200 $1,000 $800 $600 $400 15% CAGR $791 $961 $1,103 $1,232 $1,343 $1,470 2001 2002 2003 2004 2005 2006 * See important disclosures regarding Non-GAAP measures
Slide 64: Brokerage & Risk Management Pretax Earnings from Continuing Operations
Brokerage & Risk Management Pretax Earnings from Continuing Operations* 15% CAGR $250 $200 $150 $100 $50 $132 $156 $184 $211 $193 $225 2001 2002 2003 2004 2005 2006 *See important disclosures regarding Non-GAAP measures
Slide 65: Shareholder Value
Shareholder Value Brokerage & Risk Management Diluted Earnings Per Share from Continuing Operations Excluding Retail Contingent Commission Matters and Nonrecurring Items* 11% CAGR $1.80 $1.60 $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 $0.88 $1.02 $1.19 $1.32 $1.08 $1.35 2001 2002 2003 2004 2005
Slide 66: Brokerage & Risk Management Earnings Before Retail Contingent Commissions Matters
Brokerage & Risk Management Earnings Before Retail Contingent Commissions Matters, Claims-Handling Obligations, Medical and Pension Plan Changes, Depreciation, Amortization and Stock Compensation Expense* 13% CAGR $250 $200 $150 $100 $50 $100 $124 $151 $178 $155 $179 2001 2002 2003 2004 2005 2006 *
Slide 67: Dividends Per Share
Dividends Per Share (restated for stock splits) 19% Average Annual Increase $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 1986 $1.24* 2007 * Indicated annual dividend for 2007
Slide 68: Questions & Answers
Questions & Answers
Slide 69: 2007 Annual Stockholders' Meeting
2007 Annual Stockholders’ Meeting Tuesday, May 15, 2007
Gallagher Arthur J & — Shareholder Meeting (May 2007) on 6ix