Arthur J. Gallagher's 2013 third-quarter net earnings increased to $74.6 million compared to $61.7 million a year ago as a $185.4 million jump in revenues more than offset a $176.2 million increase in expenses.

Total revenues for the quarter were $835.8 million. Brokerage-segment revenues increased from $479.7 million in 2012's third quarter to $546.3 million, while risk-management segment revenues were up slightly to $149.7 million compared to $142.2 million a year ago.

Net earnings for the brokerage segment increased to $61.2 million in 2013's third quarter compared to $49.6 million a year ago, while net earnings were unchanged at $11.1 million for the risk-management segment.

Chairman, President and CEO J. Patrick Gallagher, Jr. says in a statement, “We had another strong quarter of organic growth and margin expansion across our global operations. In the third quarter, our combined brokerage and risk-management segments posted 13 percent growth in adjusted total revenues, 6.2 percent organic growth in commission and fee revenues, 17 percent growth in adjusted EBITDAC and adjusted EBITDAC margin improved by 96 basis points.”

Gallagher also spoke of a new era in how carriers approach rates, stating, “We are encouraged about the state of the rate environment. Our recent discussions with carriers confirm that they have deep insight into their loss costs and understand what lines of business need rate. We believe we are in a new era of proactive and rational rate-setting by carriers, which bodes well for the brokerage industry. This is an excellent rate environment because it allows our professionals to successfully bring creative insurance and risk management solutions to our clients and prospects.”

In a conference call discussing the results, Gallagher expanded on his thoughts about the rate environment, noting that he spoke earlier this month with management teams of carriers AJG does business with and “came away very encouraged” that “sensible underwriting” will continue. He said the carriers are very aware of where they are and where they are not making money, and have a detatiled understanding of their loss cost inflation numbers. “In this investment environment,” he said, “they have to make money by successfully underwriting accounts.”

He said catastrophe-exposed property risks are seeing some rate relief due to the lack of cat events, but added that most other lines are seeing single percentage point rate increases, which he described as an “orderly market.” The single-digit increases, Gallagher noted, are more acceptable for customers than sharp increases of 50-100 percent.

Gallagher also discussed changes in the employee-benefits space as a result of implementation of the Affordable Care Act, stating that when it comes to helping customers understand the new law and the ins and outs of private and public exchanges, AJG's expertise creates growth opportunities. He said when AJG competes on an account, 85 percent of the time it is with a smaller agency. “And guess what, they don't have a clue,” he said, noting that they “don't know which way the exchanges are going and clients are beginning to ask those questions.”

He said AJG will have “tremendous new business opportunities” once employers really get serious about the Affordable Care Act, and indicated that employee benefits will likely become a bigger part of AJG's M&A program. “We're big believers that clients are going to need our help more today than they ever have, because this Affordable Care Act is complicated,” he said.

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