Arthur J. Gallagher knows all about risky business. The company provides insurance brokerage and risk management services through a network of subsidiaries and agencies. It places traditional and niche property/casualty lines in addition to offering retirement solutions and managing employee benefits programs. Risk management services include claims management, loss control consulting, and workers' compensation investigations. Gallagher UK places insurance with the Lloyd's of London exchange. The global company operates 300 sales and service locations in about 20 nations and, through correspondent brokers and consultants, does business in more than 110 countries.
Gallagher has grown to become one of the world's top five insurance brokers based on revenue, as well as a top property/casualty claims administrator. It also ranks among the top employee benefits consulting firms. The company gets more than 80% of its revenues from the US, but it is working to expand its international operations. Its largest overseas markets include Australia, Bermuda, Canada, New Zealand, and the UK.
Most of the brokerage business comes from retail customers, which include commercial, industrial, not-for-profit, government, and religious organizations, while Gallagher's wholesale brokerage centers provide insurance placement assistance to affiliated and independent agents. Most of Gallagher's brokerage income comes from commissions paid by insurance companies (upon placement of their policies), while the risk management business earns fees from insurance companies and self-insured clients.
The company continues to grow through the acquisition of small regional insurance agencies and benefits consulting firms; it has completed about 285 acquisitions from 1985 through 2011. Purchases typically cost between $1 million and $50 million and target strong sales organizations with a focus on middle-market clients or expertise in niche property/casualty lines (such as aviation, energy, hospitality, and health care).
In early 2011 Gallagher made a larger-than usual purchase when it bought HLG Holdings, parent of UK-based brokerage firm Health Lambert, for some $178 million. The purchase expanded the company's property/casualty and employee benefit operations in that market.
During the rest of 2011, Gallagher acquired 31 smaller brokerage firms to strengthen its regional and international presence in targeted areas. Purchases included Risk Planners (midwestern US), Meyers-Reynolds & Associates (southern US), and Woodbrook Underwriting Agencies (UK). The firm purchased about 18 companies in 2010, including Risk & Reward Group (UK), Behnke & Co. (midwestern US), and Securitas Re (Brazil).
As economic conditions prompt clients to pursue additional cost-management consulting, Gallagher has been reinforcing its risk management operations. In 2010 the firm purchased portions of the GAB Robins US third-party administration operations, as well as Tribeca Strategic Advisors, which provides consulting services to small and midsized insurers throughout the US.
Gallagher's growth efforts in both the brokerage segment (which accounts for more than 70% of sales) and the risk management segment have helped the company to increased new customer volumes and created substantial annual revenue increases in recent years, including a 14% jump to $2.1 billion in 2011. The company also keeps a healthy bottom line, though net income was down 17% in 2011 to $144 million (from $174 million in 2010). Gallagher has also influenced the growth of its business by expanding and strengthening its relationships with independent brokerage partners, increasing cross-selling opportunities, and pursuing niche markets such as employee benefit risk management.
The company is not immune to economic troubles though, and it routinely pursues strategic cost-cutting reviews on its own operations as well. For instance, during recessionary times in 2008, Gallagher sold its global reinsurance brokerage operations, as well as its wholesale brokerage business in Ireland, due to poor financial performance in those segments. In addition, Gallagher has been slowly winding down its financial services business, which makes equity and clean-energy investments, over the last several years. The company is also working to reduce expenses in back office functionality.
Gallagher is led by J. Patrick Gallagher, grandson of founder Arthur Gallagher, who formed the company back in 1927. – less