Arthur J. Gallagher & Co. (AJG) 2006 Q3 法說會逐字稿

Good morning ladies and gentlemen, and welcome to the Arthur J. Gallagher & Company third quarter 2006 earnings conference call.

At this time, all participants have been placed on a listen-only mode.

The call will be open for your questions following the presentation.

It is important to note that some of the comments made by Arthur J. Gallagher & Company today may constitute forward-looking statements within the meaning of the Securities laws, and are subject to certain factors and risks described in its filings within the Securities and Exchange Commission, which may cause actual results to differ materially from those expected.

It is now my pleasure to hand the floor over to your host, J. Patrick Gallagher, Jr., Chairman, President and CEO of Arthur J. Gallagher & Company.

Sir, the floor is yours.

Thank you very much, Toni.

Welcome, everyone, to our third quarter conference call, and thank you for joining us this morning.

We appreciate you being on the line.

I am joined today by Doug Howell, our Chief Financial Officer, John Rosengren, our General Counsel, as well as our division heads.

This morning, as is our custom, I am not going to sit here and read our press release, but I will make some comments.

I will turn it over to Doug to comment on the financials, get pretty quickly to questions and answers, and hopefully be able to answer the questions you have.

Before I comment on the third quarter results though, I would like to take a moment and just thank the many, many people, in fact hundreds of people, who have offered their condolences on the loss of our Chairman, our mentor, our friend, and my uncle, Bob Gallagher.

Bob took over the reins of this Company in 1963, and that year we finished with $363,000 in total revenue and lost $10,000.

He was a very big part of guiding the firm to the $1.5 billion that we are approximately this year, and well over 8,000 employees.

To my uncle, there was never a Mr. Gallagher.

He would tell any of our colleagues, whether they were in the mailroom or executive suite, to just simply call him Bob, and they did.

He was a visionary, a man who always put his family first, and who related to all of us at AJG Co. as part of his family.

He leaves a tremendous legacy of growth, always, always putting our clients first, and an undying commitment to integrity in everything we do.

We are going to miss him greatly.

Bob believed we were divinely inspired.

And with Bob Gallagher now part of a higher team, I am sure this will be more certain than ever.

Also before I get into the results of the quarter, I want to comment on the fact that last week we signed up a new Board member.

We are glad to welcome Bill Bax to our Board of Directors.

Bill's business background and experience are going to be very helpful to our efforts to continue to build the Company.

And I want to welcome him.

I'm hopeful that he is listening this morning, and we appreciate his joining our Board.

Let me move now to some comments on the quarterly results.

I am very, very pleased with the solid results that we were able to generate in the third quarter.

I want to touch specifically this morning on 6 areas;

The first is our sales and marketing culture, which just continues to be very, very strong.

Organic growth in the Brokerage Segment of 5%, with 9% -- organic growth of 5%, but total top-line growth of 9% for the quarter, and 10% year-to-date, I think really does reflect the fact that our people are hitting the street hard.

Our team understands that it is all about keeping what you've got, and getting more new business.

Nothing happens until someone rings the cash register.

I couldn't be more proud of our continued sales and marketing success, and the people that are generating that success.

Not surprisingly, by the way, we are seeing faster growth in our 25 managed niches.

It is becoming clearer and clearer that buyers want brokers who add value to their business, and will operate transparently.

Secondly, pretax in the Brokerage Segment for the quarter was up 12%.

Remember, this is a large quarter for us.

Our margin has expanded on a year-to-date basis by 3 percentage points.

This does adjust for the lack of contingent commissions, but also includes the cost of stock-based compensation expense.

Our Brokerage Segment pretax profit is up 40% on a year-to-date basis.

I am very proud of the teams and all the efforts that are going on in growing our Brokerage business.

Thirdly, our Risk Management business, Gallagher Bassett Services, had a terrific third quarter.

Revenue was up 12%, helped significantly by a $5.2 million service and quality bonus in Australia.

I just want to take a moment to acknowledge how great a job our Australian colleagues are doing in delivering high-quality service to our clients.

Fourthly, also on Gallagher Bassett, we are slightly behind pretax on a year-to-date basis from last year.

Our margin is down slightly, but that margin is still very much in line with our stated goal of 15% to 17% in that business line.

Interestingly, GB's renewal business continues to show little claim count growth.

Now we have discussed this in past conference calls, and this is kind of a double-edged sword.

It is a good thing for our clients.

I mean, we are actively helping our clients with their loss control efforts, and it's obvious that these efforts are slowing the number of rising claims.

And, therefore, there is fewer numbers of injuries to workers, which is, as I said, a good thing.

Nonetheless, we continue to see solid growth opportunities in this business.

And we already have commitments for new accounts that are going to be generating significant revenues in '07.

Fifth, I think we had a good quarter for acquisitions.

On a year-to-date basis, we have closed eight deals, and we have several nice ones that we hope will close by the end of the year. 2005 was a bit of a slower year for acquisitions from a revenue perspective, but 2006 looks like we are getting nicely back on track to a normal pace of closings, and I feel we've got a good solid pipeline for 2007.

Finally, number six, property casualty market continues to be what I call "a tale of two cities."

For catastrophe-exposed property, wind and earthquake exposures, we see little rate relief at all.

Rates are up, in some instances, hundreds and hundreds of percentage points, while limits are very hard to fill out.

And unfortunately for our clients, we don't see a lot of relief in this area in the near future.

On the other hand, the second city, non-cat exposed middle market and Risk Management accounts are seeing rates come down.

The Council of Insurance Agents and Brokers recent survey of agents said that the market was off about 5.3% for the quarter.

Our results were better than that for a number of reasons.

But remember, with no wind blowing in '06, the industry could post its best results since 1955.

And this, of course, will add significantly to industry surplus, which could put pressure on rates in '07.

So all in all, a very solid first 9 months.

Looking at Brokerage and Risk Management together, that is the way we measure our core business.

Our revenue year-to-date up 10%, 7% of which is organic.

Pretax up 24%.

Solid results.

And we feel good about the fourth quarter and getting going in '07.

Now let me turn it over to Doug for some financial comments.

Doug?

Thanks, Pat, and good morning, everyone.

It is nice to kick off today's call with another quarter of solid results in our core Brokerage and Risk Management businesses.

Today I have five comments.

First, related to our cash, during the quarter we used about $29 million to pay dividends, about $8 million for capital expenditures, $15 million in acquisitions and earnouts, and $37 million to pay off our line of credit.

At the end of the third quarter, we have no debt for general Corporate purposes.

Second, as Pat mentioned in his remarks, we posted a healthy service and quality bonus in our Risk Management segment this quarter.

A couple of points here.

These bonuses are a direct part of our core business.

So while they may come at varying times, we do work hard to get them, and we staff our operations in a way to put ourselves in the best position possible to earn the awards.

Gallagher Bassett is known to have the highest quality in the industry, and our customers recognize this.

That said, please know that our customers are always raising the bar, and there can be no assurances that we will get as large, or any bonus for that matter, in 2007 and beyond.

Third, I have several points related to our 2006 tax rate.

When we closed the third quarter, we estimated a Corporate-wide effective tax rate for the full year 2006 of about 24%.

But remember, all of our tax credits are now allocated to the Financial Services segment and not to the Brokerage and Risk Management segment.

Accordingly, you should expect to see a tax rate of about 40% for our Brokerage and Risk Management segments for the foreseeable future.

Fourth, while it is still a little early, here is some guidance for 2007 related to the Financial Services segment.

If oil prices average below $62 per barrel for all of 2007, there would be no phase out, and the Financial Services segment would earn between $0.20 and $0.30 per share after-tax if we run our coal plant at a level similar as the last couple of years.

However, if oil prices average around $70 per barrel for all of 2007, the phase out would be about 50%, and the Financial Services segment would run at about break-even.

These are early estimates based on what we know today, so actual results might vary significantly.

We will try to give more specific guidance in our January 2007 conference call.

Also, please don't forget that the law allowing these tax credits expires on December 31st, 2007.

For my fifth point, I want to briefly mention our expense initiatives around the Company.

Recall that our initial work has been around sourcing our consumables, communication costs, and more recently, our leased real estate properties.

We continue to make good progress in our real estate projects, and did a couple smaller leases in the third quarter, and one-time lease termination costs were less than $1 million related to those transactions.

In addition, we are well into the project of changing the administrator of our medical plans.

Making such a change will result in a one-time charge of about $0.04 per share in the fourth quarter 2006.

But making this change is expected to save about $6 million to $8 million, or about $0.04 to $0.05 per share after-tax annually beginning in 2007.

A couple of wrap-up points.

We expect to file our 10-Q before the end of the week.

And remember that our web -- that on our website, we have a quarterly spreadsheet going back to 2001.

I really encourage all of you to use that spreadsheet to help you understand the quarterly seasonality patterns in our business as you build your future model.

Okay, Pat, those are my comments.

Back to you.

Toni, I think we are ready to go to questions-and-answers, if you are there.

[OPERATOR INSTRUCTIONS] Jon Balkind, Fox-Pitt.

Just a couple of nit-picky questions.

One, Doug, you mentioned a charge related to some cost savings initiatives, and you cut out on my line.

I just wanted to know, what was that for?

My comment related to -- we've resourced our medical plan administration.

And what I said was we were going to take a charge in the fourth quarter of about $0.04 per share to make the change.

But it should save us annually about $0.04 to $0.05 per share after-tax beginning in 2007.

Great.

Second nit-picky thing, and then one more strategic thing.

Investment income in Brokerage looked like it was way up sequentially in year-over-year.

Is there anything unusual in that item?

No, just it reflects -- primarily two things.

Interest rate changes and then just we have more cash in our International operations that are earning investment income at this point.

Great.

And then lastly, the claims business, I guess, particularly in the U.S., you mentioned for a couple of quarters now that you are doing better for your clients and the claim counts have remained depressed, or you are not seeing as much growth as you might have expected to see.

And I was just wondering, in terms of how that is business priced, I know it has traditionally been priced on a per client basis depending on the type of claim.

And I'm just wondering how many -- are you thinking about changing the way you look at your -- how you price those services?

And how many contracts or what percentage of the book do you have the ability to earn performance fees based on your management of the process?

Because I am assuming you provide fairly good loss control services, to boot.

Well, Jon, this is Pat.

There aren't that many accounts that we have the opportunity to earn significant quality -- quality bonuses.

And you are right, the preponderance of the book has been priced historically on the claim activity.

We are looking very carefully and discussing with some of our larger clients whether or not that is the appropriate way to be remunerated going forward.

But I don't have anything at this point that I could tell you, in terms of how we are changing it.

It is just an interesting phenomenon occurring across the claims world.

If you have seen some of the stuff that Allstate, State Farms has put out, auto claims are below what they expected.

Crawford & Company's release this week talked about the fact that claim counts are down.

So we are having discussions with our clients, but I have nothing to report to you at this point, in terms of any fundamental change in the way we price our services.

Great, thank you very much.

Adam Klauber, CCW.

Growth was -- organic growth in the Brokerage was different between 2Q and 3Q.

Could you point out what those differences were?

I think if you recall the second-quarter conference call, one of the things we said to everybody is don't be modeling 9% organic growth going forward, and we weren't exactly sure what was driving that organic growth.

In retrospect looking at the second and first quarter, first of all, remember those are smaller -- seasonally smaller quarters for us.

But we just had really outstanding sales efforts in the second quarter.

Third quarter is a bigger number to grow off of.

Sales efforts are still good, but the market -- the market is down.

It is tough out there.

And 5% is a good number.

Thank you.

You mentioned the market is getting a little tougher.

What was the impact of rate on your book of business for, say, third quarter?

We were slightly down.

Not even -- not even two percentage points down.

But the market as a whole is dropping pretty rapidly.

Our people, I think, have done a good job.

Number one, we have been assisted by coastal placements.

We have also done a good job as salespeople expanding the coverage that we sell to our clients.

Clients are buying more insurance.

We do have deals with insurance companies that we've made you aware of in the past, that pays us a little bit more additional commission now that we have given up contingents.

And we've also been assisted by some client exposure growth.

So if you look at that, that has helped us I think, fight the -- run up the down escalator.

So I am pleased with those efforts.

But the general market movement is certainly on a downswing.

Okay.

From a growth perspective, if you are going to be adding producers going forward, which areas would you be adding?

And also, sort of the same question on acquisitions.

You have done some -- a mix of acquisitions, but some on the benefit side.

Can we see more of those going forward?

Are you going to add to your reinsurance, the London operation?

Any visibility in those areas would help.

I think it is fair to say, Adam, in this Company, every single enterprise is expected to be talking to, looking for, and hoping to be adding new production talent.

So whether it is benefits, whether it's London, whether it's -- there is no particular part of the country that we are targeted on.

It really boils down to the individuals.

And our individual branch managers and business managers across the globe, really, are expected to be aware of those people in their area that we would like to recruit, the seasoned professionals.

As you know, we also are added -- we had 150 interns this summer.

We continue to add young people into the mix.

We think that's a very important part of our recruiting efforts, and that's ongoing.

And that's also driven by the individuals themselves.

So I can't sit here today and say our focus for recruiting next quarter would be London.

Our focus on recruiting is never-ending when it comes to production talent.

As far as -- as far as acquisitions go, again, there is no territorial drive here.

The acquisition process is driven in our Company by the people.

And if we are already in a city and there's a great opportunity to have great people join the Company, we are more than happy to move ahead.

If you look at our -- if you look at our map, obviously, there's places we would like to fill out.

I mean, we are not strong at all in the -- in kind of the mid-Atlantic area.

There's places out West that we don't have much in the way of a footprint.

Phoenix is an example.

So there are geographic areas we want to expand in.

But even when we go to those places, 99% of our due diligence is on the people.

This is intended to be a marriage for a long, long time.

Thank you very much.

Bob Glasspiegel, Langen McAlenney.

I would like to echo your very well-said positive comments about Bob.

He will be missed.

Thank you.

In thinking about acquisitions, you say you are sort of back on track.

In looking at your core and supplement, you are at eight acquisitions year-to-date, which is similar to last year.

All acquisitions are not equal, obviously.

Your organic growth equals your revenue growth year-to-date at 6%.

Obviously, rates are slipping, so it is hard to really get at what acquisitions are adding.

I know the Qs and the Ks sort of give us more data.

But qualitatively, what -- or quantitatively, what do you look for in -- you say you are back on track to your goal.

What do you look at acquisitions to contribute percentage of revenues generally?

And question two, Hyatt Brown on yesterday's call, indicated that he's now starting to see competition from BCs and vulture funds, more than banks and insurance brokers on the margin.

And, we see the rumors of KKR swirling with respect to even bigger companies.

Where do you see the acquisition landscape, and what are your goals sort of on acquisitions?

Well, first of all, Bob, if you take -- when I made the comment on our prepared remarks, total -- all acquisitions all in 2005 were about $32 million.

This year in nine months we have added about $35 million.

So in nine months, we have done better than we did last year, all in.

And when I talk about activity, if you go back in time, we have averaged probably anywhere from ten to fifteen deals a year, spread across our three enterprises that are doing mergers, that would be our Specialty Marketing Wholesaling operation, our Benefits, as well as Retail Brokerage.

We try very hard not to establish specific revenue goals for the year, because we want to be -- we are talking to people constantly, and we don't ever want to put ourselves in a position where we are doing a deal just to get revenue in the door.

But I think that it is fair to say that if the Company is clicking along, we should be adding somewhere between $60 million and $100 million of revenue a year.

I think we would be disappointed if we weren't able to get to that pace.

And again, it's driven one deal at a time, with people -- the timing is different for every deal.

When the people are ready, when they are interested, when it will actually close -- every one is completely different.

Commenting on your other questions, yes, we are seeing a little bit less activity from the banks.

I think the controversy in our industry over contingent commissions and the like over the last couple of years have maybe slowed some of the appetite for the Brokerage business, as does a softening market.

And then there is additional BC interest in the business, and I think you have seen that reported over the last few weeks publicly.

And that's just an interesting phenomenon.

Does that concern you at all?

I mean -- or you can manage through it without an issue.

I think we can manage through it without an issue.

Quite frankly, when you take a look at this business, I mean, I don't know another industry that's got the kind of makeup we've got.

You have got literally thousands and thousands of agents and brokers.

And we're happy to do $2 million, $3 million, $4 million deals.

In fact, we would rather do ten $5 million deals than one $50 million deal.

There is say, on the average, maybe 30, 35,000 agents and brokers out there.

For the most part, they are run by baby boomers who are quickly approaching 60, if not hitting 60.

And there is really four or five industry players that make these purchases, and we each have our own personality.

So, BC money coming and going, those aren't long-term players.

And the people we are trying to get together with are looking at the long term, playing at a higher playing field, and having fun in the insurance business, and not worrying about flipping the business five years from now.

So there's a difference in personality and people's appetites.

It doesn't bother me in the least.

Thank you very much.

Dan Johnson, Citadel.

Most of mine have been answered.

So, Doug, the only simple one that's left here is what's the scenario outcome for oil over $70?

The scenario outcome for oil over $70 for 2007 would be if we buy a hedge.

Then we'd try to hedge ourselves into a break-even position.

Got it.

And if -- and then if not, then we just don't produce?

Correct.

Okay.

I think that's it.

Thank you very much.

Brian DiRubbio, U.S. Trust.

Pat or Doug, just looking at the acquisitions you made this year, it seems as if the revenue dollar per acquisition is a bit higher than it has been in the past.

Are you seeing generally any larger deals?

I'll answer that.

I wouldn't say that.

Brian, I wouldn't say that we are seeing larger deals.

Okay.

It just happens to be -- we bought a really nice wholesaler on the West Coast who will be a great member of our team.

He is a great guy.

Been in the business a long time.

Very well-respected.

And he just happened to have a little larger shop than -- in the last couple of years we have bought.

We have bought shops that size before.

But like Pat said, $4 million, $5 million agencies are good for us. $10 million agencies are good.

And sometimes you get one that is a little higher than that.

And I guess with the generally softening market, are you seeing a pickup in your pipeline?

Yes, we are.

Okay.

I think there's two points to that, Brian.

One, most of the controversy about our business model and what's happening with AGs and directors of insurance, and lawsuits, the landscape has quieted significantly.

And people sense the fact that we are back to selling and servicing clients.

And it is making it easier for us to discuss the prospects of being part of Gallagher.

Great.

And finally for you, Doug, deferred income taxes are up somewhat from the end of last year through this quarter.

When could you expect us to start seeing the benefits of those DTAs, and over approximately how many years?

The -- if you assume that we don't burn any tax credit next year, then you would immediately start seeing the monetization of that deferred tax asset, and it would take us two to three years to run through it.

All right.

If we burn credits again next year, then it just pushes it off another year.

But by and large, our deferred tax asset, let's say 75% of it would monetize over a two to three year period, unless we are building it through other tax credits.

So it is that kind of tail as we convert that to cash.

There is significant positive cash flows that come off of our deferred cash assets over a two to three year period.

Got you.

Thanks a lot, guys.

[Chris Rexipore], Goldman Sachs.

Just two quick questions if I could.

One, I was wondering if you can provide with us an update as to how much Reinsurance Brokerage contributed to revenue during the quarter?

And maybe put that in context of how much it has done year-to-date, and maybe compare that to 2005.

I don't think we have ever broken out our reinsurance revenues, specifically, Chris.

Could you maybe give us some sort of indication as to how the growth has been then?

Yes, I can.

We are getting some very, very good traction in reinsurance.

We're really pleased with the first nine months, in particular in London.

About three years ago we recruited a strong, very, very talented team of people into the office there, and they have gotten very nice traction and have broken that business into the black for us.

United States, we have struggled the last few years.

And that business is -- has not grown to the extent that we would like it to.

But once again, we've got a kind of reorganized and re-energized team there that I think we're going to -- we will see some real benefits in the New Year in terms of growth there.

Overall, you might remember I said last year, reinsurance really didn't contribute from a pretax standpoint.

This year, it should be break-even to a little profit.

So it is a building business for us.

Okay, great, thanks.

And then, similar question.

Could you discuss what sort of growth you are seeing in the Employee Benefits segment, and where maybe that growth is coming from?

The Employee Benefit segment is also a segment we don't break out specifically, so I will give it to you in general terms.

We are seeing renewal increases there.

I often comment that I think that's a business that plays in industry's most difficult area, and that's just the whole area of cost containment for health insurance, and employee benefits in general.

Solid, solid new business there.

Double-digit top-line growth, and an opportunity to do some great acquisitions.

That's primarily driven by the health and welfare business, which is basically arranging health insurance for our clients.

Great, thank you so much.

Alison Jacobowitz, Merrill Lynch.

Two questions.

One little nit-picky one.

I just want to confirm that I heard right for Brokerage and Risk Management, we are using a 40% tax rate going forward.

About, right.

About.

And then the second -- I don't think I heard it in here, some of it cut in and out for me too.

But could you just give maybe an update, some kind of color talk about margins in the Brokerage Segment or the compensation ratio, or, I don't know, something like that like do you similar to Risk Management?

Sure.

We have stated often that what we would like to do as an organization is get our margin, including Risk Management, as well as Brokerage, back to about 20%.

And above 20% we would probably reinvest that in production talent.

We are working very hard on the sourcing efforts, and we are seeing some benefit there in terms of margin improvement.

You saw a year ago that we froze our pension plan, very much driven towards, number one, eliminating a growing liability, but also improving the compensation ratio.

We are very, very cautious on headcount additions at the present time.

You can always hire a solid producer at Gallagher, and we measure that very carefully.

But headcount additions beyond that are tough to come by.

And so we are looking at everything we can do to continue to improve margins.

Now, I won't break out for you the specifics, but the margin in the Brokerage Segment, especially in the PC retail side, is very interesting.

We have some units out there that are 50% pretax margin, and we got have some units frankly, that are break-even.

So part of Jim Gault's major undertaking is to get margin up by fixing shops that should have higher margins.

And again, I won't go into specifics there.

Over time, we hope to generate a margin, ex- the contingents, nicely over 20% as a retail broker.

The other thing, too, Allison, to pile on to that, stock-based compensation.

Because Gallagher has a ten year amortization -- a ten year vesting period.

Not exercise period, but a ten year vesting period with respect to stock-based compensation, primarily options.

Eroding our margins slightly is the non-cash amortization of our stock options that we have granted since 1997.

So that pulled the margin back slightly, but it is a non-cash item, and because of the change in accounting, we now report that as a charge to earnings rather than as an equity amount.

So that's -- yes, we have a little bit of an uphill race on that.

But that is something that is coming through our accounts right now, too.

I think you can see evidence of our efforts there, if you just take a look at our operating expense line.

We are working very, very hard at managing operating expenses, as well as compensation expenses.

Thanks.

[OPERATOR INSTRUCTIONS] Meyer Shields, Stifel Nicolaus.

Let me start with this, are any compensation or other expenses associated with the bonus in Australia?

No.

So that goes right to the bottom line?

Yes.

Well, yes, it goes to the bottom line.

But remember there are increased staffing levels associated with that bonus that we have been running for the last year or more.

So it's not like that is a 100% margin free -- or 100% for the margin.

Okay.

Any estimate in terms of -- well the associated expenses are continuous though?

Correct.

Okay.

I think I ask this question every quarter.

Can you give an update in terms of the trend we've seen for account splitting among large corporate accounts?

And how much -- not numerically, but generally that is helping your top-line growth?

Yes, I can.

I can comment on the fact that I think it is fair to say that most major Risk Management accounts -- and let me make sure I put this in perspective for you.

We do large Risk Management accounts, and when we get an opportunity from one of those accounts, we think we do it extremely well.

On an item count basis, though, remember that primarily our businesses is driven by the commercial middle market.

But in the large Risk Management accounts, there is clearly a trend by risk managers not to be using just one insurance brokerage firm.

And that is not completely totally new.

I think it is fair to say that most major accounts had more than one brokerage relationship, even before all the controversy hit in 2005.

So that trend continues.

It certainly plays as a benefit to us.

Our Risk Management practice is up.

And that is about as much color as I would like to give it.

Okay.

Let me ask a question sort of around that then.

Can you talk about the recruiting you've done last year and this year, in addition to the new people in the intern program and acquisitions?

Yes, we have a number of new hires that we have measured since the -- we have actually tracked new hires for about a year to two years just to make sure that they are becoming accretive.

I don't have the exact number of new hires in '05 and '06.

I can tell that you that I do know, and I just don't have the sheet in front of me -- probably should have it -- that those new hires we manage by branch, by region, and by operation, and by person.

And we have had tremendous success with the people that we've brought aboard.

Now, an awful lot of those people have been in the California market, as well as in the Chicago market, to some degree -- and also in the London market.

And they've been very significant producers for us.

I don't know if that's enough color.

If you have got another question, I would be glad to keep going.

Oh, sure, just one more.

Is interest of these folks towards joining Gallagher, is that going down at all?

Say it again, Meyer.

Are you seeing the same level of interest in outside brokers seeking to join Gallagher as you did, say a year ago?

Probably more.

Culture -- we mention this all the time and culture is a -- it is a very important part of any people business.

And we work very, very hard at Gallagher to maintain a culture that we believe is unique.

And we work hard to have a culture that says everybody, every colleague is important, every job is important.

You never ask anybody to do something you wouldn't do.

You have access to me with a phone call.

I answer my own telephone, and I will be glad to help you sell an account.

And I think that's different.

And we are finding that there is a tremendous amount of interest in joining our team.

And I think that interest frankly builds, rather than diminishes, as this market softens, especially with our niche focus.

What's beginning to happen in the marketplace in certain niches, is that people are looking at Gallagher and saying, well, I am not going to take them on in public entity.

Just not going to do it.

I'm not going to spend my time trying to chase a Gallagher public entity account because they are just too good at it, and I am not going to get there.

Flip side of that is, if you would like to be in the public entity market, you might want to come here.

Okay.

That is very helpful.

Thank you.

Brian DiRubbio, U.S. Trust.

Just one thought for you guys.

As you talked about the stock option expenses for your pre-2003 grants, most companies that I follow have sort of deep-sixed that number with a one-time charge.

Don't you think it would be a little bit cleaner if you did that here, leaving the fourth quarter?

Brian, this is Pat.

That's something that we discuss internally.

And we actually have had a discussion with our Board.

And we have no decision at all on that at this point in time.

Okay.

Great.

Thanks.

At this time, there appear to be no further questions.

I would like to turn the floor back over to Mr. Gallagher for any further or closing remarks.

Yes, Toni, thanks.

I would like to make a closing remark here.

Thanks, everyone, again for being with us.

We really appreciate your listening in this morning.

As I said at the start, I am very, very pleased with the quarter and year-to-date results.

Our Brokerage pretax up 40% is -- that's an unbelievable effort in this market.

And I think it bodes extremely well for the future.

We are building momentum.

We are selling a lot of insurance and services.

Our producers are on the street.

Frankly, we are having fun.

And the culture is very, very solid.

My uncle left us, I think, with an unbelievable legacy.

I just think that I couldn't be more confident that that legacy of growth is something we will continue to build on.

So thanks, everyone, and have a great day.

Thank you.

Thank you for your participation, ladies and gentlemen.

This does conclude today's teleconference.

You may disconnect your lines at this time, and have a wonderful day.