International insurance brokerage firm, Arthur J. Gallagher & Co. has reported a 40% increase in net earnings for the second quarter of 2020, helped by stringent expense control measures.
Gallagher posted adjusted net earnings of $229.0 million for its Brokerage & Risk Management segments, compared with $164.1 million for the same period last year.
Earnings also grew when looking at the first six months of the year, rising from $462.8 million last year to $567.8 million in H1 2020.
Growth was achieved despite significant disruption due to the COVID-19 pandemic, which led Gallagher to limit discretionary spending such as travel, entertainment and advertising expenses.
The broker also adjusted its real estate footprint, reduced capital expenditures, limited use of outside labor and consultants, increased utilization of its centers of excellence, and implemented a support-layer hiring and wage freeze.
These actions saved approximately $74 million pre-tax compared to Q2 2019, offset by around $14 million of severance and lease termination costs.
Gallagher intends to continue implementing similar cost savings measures over the remainder of the year, and projects savings of around $60 million and $70 million in the third and fourth quarters, respectively.
“We delivered an excellent second quarter,” said J. Patrick Gallagher, Jr., Chairman, President and CEO. “Despite the economic deterioration caused by COVID-19, our teams are executing at the highest levels while we continue to place health and safety first.”
“We are servicing our clients, we are selling new business, we continue to look at merger and acquisition opportunities, and our bedrock culture keeps our teams working together, even while physically apart,” Gallagher continued.
“We grew our combined brokerage and risk management revenues in the second quarter – organically and through M&A – and our expense control actions delivered excellent growth in EBITDAC and net earnings.”
“This demonstrates that our investments over the last decade have enabled us to quickly adjust our workforce and expense base, increase the utilization of our centers of excellence, efficiently work remotely, improve our productivity, while continually raising our quality.”
In Gallagher’s property and casualty broking operations, new business generation remained at pre-pandemic levels over Q2, while retention and non-recurring business were both lower than pre-pandemic levels.
Renewal customer exposure units showed some decline, but premium rates across most geographies and lines of coverage continued to increase, effectively mitigating the decline, and net positive mid-term policy modifications were also lower.
“In the second quarter, most P&C rates increased mid-to-high single digits, offsetting exposure unit decreases,” Gallagher explained. “Employee benefits covered lives decreased during the second quarter, but not nearly as much as head-line unemployment numbers. New arising risk management claims bottomed in April and showed improvement in both May and June.”
“Looking forward, we feel highly confident our expense control efforts can offset a lull in organic growth and we see our M&A program returning to more historical levels by the end of the year.”