Arthur J. Gallagher & Co.

AJG’s moat is built on multi‑layer switching costs (embedded workflows, compliance, claims advocacy, loss‑control programs), intangible assets (brand, specialist expertise, data/analytics), and efficient scale across retail brokerage, reinsurance intermediation, and third‑party claims administration.

Its global footprint and category depth create cross‑sell and renewal advantages that are hard for regional brokers to replicate. The firm’s culture (The Gallagher Way) and long‑tenured leadership support consistent client service and producer productivity.

Competitive pressure from Marsh McLennan and Aon remains, but the top‑tier broker oligopoly has proven resilient through cycles.

Risks to moat erosion include: softening rate cycle over time, continued consolidation that empowers carriers or alternative capital to disintermediate some placements, and technology platforms narrowing small‑commercial distribution spreads. Net, we view the moat as wide and durable.

January 2025 commentary noted premium increases above 5 percent in casualty lines, echoing healthy pricing that, while cyclical, augments the economic engine in the near term.

Quality Value Investing checklist (scores 0–100, concise rationale): 1) Wide/Narrow Moat (Morningstar framing): 90 – We independently assess a wide moat given scale and switching costs; third‑party methodologies typically classify leading brokers as wide. 2) High/Consistent ROC: 85 – Asset‑light model yields high returns despite GAAP amortization from M&A. 3) Revenue/FCF Growth: 85 – Double‑digit revenue growth in 2024; FCF growth strong over multi‑year periods. 4) High Margins: 80 – Adjusted segment margins robust; Q4 2024 adjusted EBITDAC margin 31.4 percent. 5) Owner‑CEO: 85 – Third‑generation leadership; long‑tenured CEO J.

Patrick Gallagher Jr. aligns culture and strategy. 6) Simplicity: 90 – Understandable fee‑for‑service model with recurring renewals. 7) Very Low Debt: 75 – Management targeted maintaining investment‑grade while funding AP; temporary leverage/dilution around deal close. 8) Dilution: 60 – Material equity raise in Dec 2024 to finance AP. 9) Favorable Jurisdiction: 95 – U.S.‑based with diversified global operations. 10) Trend Alignment & Boringness: 90 – Complexity of risk (cyber, supply chain, climate) supports long‑term advisory demand. 11) Superinvestor Inspiration: 85 – Fits the repeatable playbook (toll‑like, capital‑light compounder). 12) Valuation: 60 – On TTM FCF, fairness requires patience; see valuation section.

Brokers monetize expertise and market access. While they cannot directly set insurance prices, they participate in premium growth via commission and fee structures, cross‑sell, and exposure growth.

In hard/firming markets, pricing power manifests through higher premium bases and increased demand for services (risk consulting, analytics, alternative risk). AJG’s 2024 results and Q2 2025 showed strong commissions and fee trends; management cited January 2025 renewals above 5 percent, especially in casualty.

Over the very long term, competitive fee pressure and potential digital disintermediation temper ultimate pricing latitude, but the embedded role in risk placement and claims advocacy remains potent.

Retention is high, the revenue base is diversified by industry and geography, and the model is subscription‑like through policy renewals and ongoing claims administration. Category cycles exist, but AJG’s breadth and mix (brokerage, Gallagher Re, Gallagher Bassett) dampen volatility and smooth cash conversion over time.

Management commentary highlighted orderly 1/1/2025 reinsurance renewals and continued primary premium increases, reinforcing near‑term visibility. The business avoids commodity production, has minimal regulatory capriciousness versus insurers, and is not dependent on a single country for growth.

The model is cash‑generative with low capital needs. For the six months ended June 30, 2025, operating cash flow was 445.7 million with capex 67.6 million; 2025 capex guide is about 150 million.

AJG funded AssuredPartners with an 8.5 billion equity offering in December 2024 and additional debt but explicitly targeted retaining solid investment‑grade status.

It also paid a 750 million earn‑out related to the 2021 Willis Re acquisition in April 2025. While the large equity raise increased share count to 256.4 million outstanding by June 30, 2025, leverage remains manageable for a broker of AJG’s scale.

Historically excellent tuck‑in M&A with attractive returns has been AJG’s hallmark, and 2024 saw 48 mergers totaling about 387 million of annualized revenue.

The firm executed two outsized moves: Willis Re in 2021 (with an earn‑out settled in 2025) and AssuredPartners closing in August 2025. We view the AP deal as strategically sound for middle‑market breadth and cross‑sell, but we deduct points for the size of the equity raise and the integration/execution burden.

AJG’s legacy clean‑energy tax investments and corporate items can add noise to reported results but are being managed within a clear capital framework focused on brokerage scale, technology/analytics, and measured buybacks/dividends.

Chairman and CEO J. Patrick Gallagher Jr. and the leadership team have compounded the franchise for decades with a distinctive culture, consistent producer development, and a disciplined M&A playbook. Communication is forthright, and the investor materials emphasize organic growth, margin discipline, and cash conversion.

We view management as owner‑oriented and long‑term focused, albeit willing to deploy significant capital when the industrial logic is compelling, as with AssuredPartners.