AJG — Q2 2026 Financial Report Analysis

Revenue up 24%, GAAP earnings down 12% — the AssuredPartners deal is doing both

Arthur J. Gallagher & Co. (NYSE: AJG) is an insurance broker: it does not carry insurance risk itself, it sits between clients and insurers, arranging coverage and collecting a commission or fee for the placement and the advice. Its second, smaller business, Risk Management, administers and settles claims for organizations that insure themselves rather than buy a policy. Because commissions scale with the premiums clients pay, a broker's revenue moves with both how much business it wins and what insurers are charging.

In the quarter ended June 30, 2026, Gallagher's total revenue rose 24.2% to $4.00 billion, but reported net earnings fell 12.0% to $324 million and GAAP diluted earnings per share fell to $1.25 from $1.40. Adjusted EPS — the company's own measure, which strips out acquisition accounting and integration costs — went the other way, up 23.5% to $2.84. That spread between the two EPS figures is the story of the quarter, and almost all of it traces back to one deal: the $13.5 billion acquisition of AssuredPartners, which closed on August 18, 2025 and is therefore in the 2026 numbers but not in the 2025 comparison.

Source: Form 10-Q for the quarterly period ended June 30, 2026 (filed August 5, 2026) and the Q2 2026 earnings release, Exhibit 99.1 to the Form 8-K filed July 30, 2026. EBITDAC is Gallagher's preferred profit measure: earnings before interest, taxes, depreciation, amortization and the change in estimated acquisition earnout payables.

Almost all of the revenue growth was bought, not grown

The most useful number in a serial acquirer's filing is the split between revenue it already had and revenue it purchased. "Organic growth" is the growth of the business Gallagher owned in both periods, with acquisitions made in the last twelve months, divested operations and currency movements stripped out.

The Brokerage segment's reported commissions, fees, supplemental and contingent revenues rose $849 million, from $2,563 million to $3,412 million. Of that increase, $816 million came from acquisitions, divestitures and other excluded items. Organic revenue contributed the remaining $114 million — a 5% organic increase, against 33% reported growth in base commissions and fees. Put plainly: roughly 96% of the quarter's revenue growth in the core brokerage business was acquired.

That is not a criticism — buying brokers is Gallagher's stated strategy, and 5% organic growth is real growth. But it does mean the headline 24% figure describes a change in the size of the company, not the momentum of the business it already owned. The two rates converge over time as acquired revenue ages past its first twelve months into the organic base.

The organic 5% also has its own internal mix. Within it:

• Base commissions and fees: +4% ($2,405M vs. $2,306M). Management attributes this to client retention, new business, and continued increases in renewal premiums — driven by both rates and rising insured values.
• Supplemental revenues: +20% ($124M vs. $103M). These are volume- and growth-based payments from insurers.
• Contingent revenues: −8% ($67M vs. $73M). Contingent commissions depend on how profitable the business a broker places turns out to be for the insurer. A decline here is a signal about carriers' loss experience rather than about Gallagher's own production, and it is the one organic line moving backwards.

Deal volume itself slowed sharply. Gallagher closed 6 brokerage acquisitions in the quarter (plus 1 in Risk Management) versus 9 a year earlier, with estimated annualized revenue acquired of $58 million against $291 million. Across the first half, 16 acquisitions brought in roughly $122 million of annualized revenue, versus 20 acquisitions and $392 million in the first half of 2025. Cash paid for acquisitions fell to $616 million from $1,662 million.

Why GAAP earnings fell while adjusted EPS rose

Three things pushed reported net earnings down even as revenue grew a quarter.

1. Amortization of intangibles — $301 million, up from $180 million. When a company buys a broker, it records the value of the acquired client relationships ("expiration lists") as an intangible asset and writes it off over two to fifteen years. That write-off is a real charge against reported profit but involves no cash leaving the business. The $121 million increase is the direct accounting consequence of AssuredPartners and the tuck-in deals. In the Brokerage segment alone, amortization cost $0.84 per diluted share this quarter versus $0.50 a year ago.

2. Integration and acquisition-related costs. Brokerage segment acquisition integration costs hit EBITDAC by $113 million (up from $41 million), workforce and lease termination charges by $40 million, and acquisition-related adjustments by $70 million. Compensation expense rose $491 million in the quarter, of which $406 million came with the acquired businesses, $39 million was added headcount to service organic growth, $33 million was integration cost, and $20 million was acquisition earnout-related. Operating expense rose $168 million, including $113 million from acquired businesses and $39 million of integration cost. The quarter also absorbed a $17 million non-cash pre-tax loss on completing the termination of Gallagher's defined benefit pension plan.

3. The interest income comparison is unusually unfavourable. Gallagher raised the AssuredPartners money in December 2024 and sat on it for roughly eight months before the deal closed, earning interest on the cash in the meantime. Q2 2025 therefore included approximately $144 million of incremental interest income in the Brokerage segment — worth about 42 cents of after-tax EPS — that simply does not recur. Consolidated interest income, premium finance and other income fell to $98 million from $233 million. Excluding that $144 million one-off, the remaining interest income base was broadly flat to modestly higher, so the $135 million decline is almost entirely the disappearance of a financing artefact, not a deterioration in the underlying business.

Stack those together and the $410 million gap between $324 million reported net earnings and $734 million adjusted net earnings is mostly non-cash purchase accounting plus integration spending on a deal that is still being absorbed. The pre-tax adjustments across all three segments totalled $550 million in the quarter, with a $126 million net tax effect.

Worth noting on the share count: implied diluted shares were roughly 259 million this quarter against roughly 263 million a year ago, so the EPS decline is not a dilution effect — it is entirely driven by lower reported earnings.

Margins: one segment giving, one taking

Brokerage (89% of first-half revenue) grew revenue before reimbursements 25.7% to $3,502 million, but its adjusted EBITDAC margin fell 2.8 points to 33.3%. Management quantifies the drag: the absent prior-year interest income, the seasonality of AssuredPartners' earnings, and the roll-in of tuck-in acquisitions together accounted for roughly 3.9 points of the year-over-year margin change. On that arithmetic the underlying margin trend is slightly positive, not negative — but the reader should treat a company-supplied bridge like that as an explanation to check rather than a fact. The hard number is that the adjusted compensation expense ratio rose 2.1 points to 53.4% of adjusted revenue, which the company attributes chiefly to the same missing interest income, partly offset by savings from headcount controls.

Risk Management (11% of revenue) is the cleaner read, because it has barely any acquisition noise. Revenue before reimbursements rose 15.6% to $453 million on 12% organic fee growth, and adjusted EBITDAC margin improved 1.4 points to 22.3% — with the adjusted compensation ratio down 1.6 points and the operating expense ratio down 0.1 points. Double-digit organic growth with expanding margins in the segment where almost nothing was bought is the most straightforward evidence in this filing that the underlying franchise is healthy.

The pricing backdrop is turning against brokers

Gallagher cites the Council of Insurance Agents and Brokers survey as its rate indicator. The trajectory is unambiguous: U.S. commercial property/casualty rates rose 4.2%, 3.7%, 1.6% and 0.2% across the four quarters of 2025, then fell 1.2% in the first quarter of 2026. The second-quarter survey was not published as of the 10-Q filing date.

This matters directly, because commission revenue is a percentage of premium. When rates fall, the same book of business generates less commission. Gallagher's own commentary points to the offsets it is relying on: carrier competition is concentrated in property coverages, while U.S. casualty lines "remain subject to more cautious underwriting" — that is, prices there are holding up on continued loss concerns — and rising insurable values from inflation and employment growth keep expanding the exposure base even when rates per unit fall. Those offsets are why 4% organic growth in base commissions is achievable in a market with a negative rate print. They are also finite. A sustained soft market would show up first in that 4% figure.

Takeaway: Strip out the AssuredPartners accounting and the quarter is a solid but unspectacular one — 5% brokerage organic growth and 12% at Risk Management, with margins roughly stable once the vanished interest income is accounted for. The real question the numbers raise is not whether reported EPS fell (it fell for mechanical, largely non-cash reasons) but whether 4% organic growth in base commissions can hold now that U.S. commercial rates have turned negative for the first time in this cycle. Acquisitions can buy revenue; they cannot buy the rate environment.

Balance sheet and capital allocation: the mix has shifted

At June 30, 2026, Gallagher carried $12,233 million of senior notes and note purchase agreements, $1,365 million drawn on its revolving credit facility and $134 million under its premium financing facility, against $1,386 million of cash and equivalents — roughly $13.7 billion of gross borrowings, the legacy of funding AssuredPartners. Interest expense rose to $168 million from $158 million, which the company attributes to higher revolver borrowings partly offset by paydowns of note purchase agreements. The company reported compliance with all debt covenants.

Two shifts stand out in the first-half cash flows. Operating cash flow more than doubled to $967 million from $448 million. And Gallagher repurchased 2.3 million shares for $480 million in the first half of 2026, having repurchased nothing at all in the first half of 2025 — when it was conserving capital for AssuredPartners. Management says it will consider further repurchases "to the extent that our available cash exceeds acquisition opportunities," which, read alongside the sharp drop in deal spending, suggests the pipeline of attractively priced targets is thinner than it was. The quarterly dividend rose to $0.70 per share from $0.65.

One forward liability worth tracking: maximum earnout obligations on past acquisitions total $1,233 million, of which $514 million is carried on the balance sheet at estimated fair value. Roughly $403 million of that can be settled in cash or stock at Gallagher's option.

Six-month picture and what to watch

For the first half of 2026, total revenue rose 26.1% to $8,761 million, GAAP net earnings rose to $1,147 million from $1,077 million, GAAP diluted EPS rose 7.0% to $4.41, and adjusted EPS rose 17.8% to $8.42. Brokerage organic growth was 5% for the half and Risk Management organic fee growth 11%. Brokerage adjusted EBITDAC margin for the half was 37.0% against 40.0%, with roughly 3.4 points of that gap attributed to the prior-year interest income and acquisition seasonality.

Gallagher did not issue numerical guidance in the filed documents. Its outlook commentary is given on the earnings call and in the CFO commentary, neither of which is part of the SEC filing. Management's filed statements are limited to expectations for an effective tax rate of roughly 24.5%–26.5% in Brokerage and 25.0%–27.0% in Risk Management, capital expenditure of approximately $227 million for 2026, and an intention to keep funding acquisitions from cash, debt and stock.

Three things will determine whether the next few quarters look better than this one:

1. The organic number, specifically base commissions. 4% is the figure to watch, not the 24% headline. With CIAB rates negative in Q1 2026, holding 4% requires new business wins and exposure growth to do work that rate increases used to do for free. Contingent revenues already turning negative (−8%) is an early warning that carrier profitability is under some pressure.
2. The unwinding of the integration drag. Integration costs of $113 million in the Brokerage segment this quarter are, by definition, meant to stop. As AssuredPartners revenue crosses its twelve-month anniversary in August 2026, it also begins entering the organic base — which will make Q3 and Q4 2026 organic comparisons structurally different, and worth reading carefully rather than at face value. Amortization, by contrast, will persist for years and will keep GAAP EPS well below adjusted EPS.
3. Capital allocation. A company that spent $1.66 billion on acquisitions in the first half of 2025 and bought back no stock has become one that spent $616 million on acquisitions and $480 million on buybacks. If deal multiples stay high enough to keep pushing cash toward repurchases, the growth algorithm that produced 24% revenue growth this quarter will look materially different a year from now.

The base case from this filing is a business compounding mid-single-digit organic growth with a large acquisition still working its way through the income statement. The reported earnings decline is an accounting outcome, not a cash one — but the softening rate environment that shows up in the CIAB data is a genuine headwind, and it is the variable that acquisitions cannot offset indefinitely.