Profile: Arthur J. Gallagher & Co (AJG.N)

Arthur J. Gallagher & Co. (Gallagher), incorporated in 1972, is engaged in providing insurance brokerage and third-party claims settlement, and administration services to entities in the United States and abroad. Gallagher operates three business segments: Brokerage, Risk Management, and Financial Services and Corporate. The two major sources of operating revenues for Gallagher are commissions and fees from brokerage operations and fees from its Risk Management operations. In October 2009, the Company announced the acquisition of Fox Lawson & Associates, LLC. In addition, in October 2009, Arthur J. Gallagher & Co. announced the acquisition of Triad Insurance Agency, Inc. from The Bank of Hawaii. In November 2009, the Company announced the acquisition of Shuford Insurance Agency, Inc.

During the year ended December 31, 2008, the Company acquired 37 insurance brokerage firms. In addition, in October 2008, Gallagher acquired a 40.0% equity interest in Specialized Broking Associates Pty Ltd. In February 2009, the Company acquired PartnerSource, Inc. In February 2009, the Company acquired Fidelity Benefits & Insurance Services in Waco, Texas. In May 2009, the Company announced the acquisition of Sellers Group LLC. Sellers Group LLC is an employee benefit broker that offers a range of group employee benefit products and consulting services. In May 2009, the Company announced the acquisition of Nourse Insurance Brokers, Inc. In June 2009, the Company announced the acquisition of Walker Taylor Agency of Wilmington, North Carolina.

Gallagher operates in Australia and Canada primarily as a retail commercial property and casualty brokerage. In the United Kingdom, Gallagher has a wholesale brokerage operation for United States and international clients looking to access the Lloyd’s of London and other international insurance markets, a program operation offering customized risk management products and services to United Kingdom public entities and a small retail commercial property casualty brokerage. In Bermuda, Gallagher acts principally as a wholesaler for clients looking to access the Bermuda insurance markets and also provides services relating to the formation and management of offshore captive insurance companies. Gallagher has ownership interests in two Bermuda-based insurance companies that operate segregated account rent-a-captive facilities that enable clients to receive the benefits of owning a captive insurance company without disadvantages of ownership. Gallagher’s international Risk Management operations are principally in Canada, the United Kingdom, Australia and New Zealand. Services are provided primarily on behalf of commercial and public entity clients.

Brokerage

During 2008, the Brokerage segment accounted for 72% of Gallagher’s revenue. The Brokerage segment primarily comprises retail and wholesale brokerage operations. Gallagher’s retail brokerage operations negotiate and place property/casualty (P/C), employer-provided health and welfare insurance and retirement solutions principally for middle-market commercial, industrial, public entity, religious and not-for-profit entities. Gallagher’s wholesale brokerage operations assist Gallagher brokers and other unaffiliated brokers and agents in the placement of specialized insurance programs. The primary source for Gallagher’s compensation for its retail brokerage services is commissions paid by insurance companies, which are based upon both percentage of the premium paid by insured’s, and brokerage and advisory fees paid directly by its clients. For wholesale brokerage services, Gallagher receives a share of the commission paid to the retail broker by the insurer. The Company operates its Brokerage operations through a network of more than 200 sales and service offices located throughout the Unites States and in 14 countries abroad.

Gallagher’s retail brokerage operations are organized in 180 geographical profit centers located in the United States, Australia and Canada, and operate within certain key Niche/Practice Groups, which accounted for approximately 60% of its domestic retail brokerage revenues. As of December 31, 2008, Gallagher’s retail insurance brokerage operations accounted for 80% of Gallagher’s Brokerage Segment revenues. The Company’s wholesale brokers assist Gallagher’s retail brokers and other non-Gallagher brokers in the placement of specialized and hard to place insurance coverages through 60 geographical profit centers across the United States, Bermuda and through its approved Lloyd’s of London brokerage in London. Gallagher acts as a brokerage wholesaler and, in other cases, Gallagher acts as a managing general agent (MGA) or managing general underwriter (MGU) distributing specialized insurance coverages for insurance carriers. Activities performed on behalf of the insurer includes marketing, underwriting, issuing policies, collecting premiums, appointing and supervising other agents, paying claims and negotiating reinsurance.

Risk Management Segment

The Risk Management Segment provides contract claim settlement and administration services for enterprises that choose to self-insure some or all of their P/C coverages and for insurance companies that choose to outsource some or all of their P/C claims departments. Gallagher generates revenues from integrated disability management programs, information services, risk control consulting (loss control) services and appraisal services, individually or in combination with arising claims.

The segment’s revenues for risk management services are substantially in the form of fees. Risk management services are marketed directly to Fortune 1000 companies, larger middle market companies, not-for-profit organizations and public entities on an unbundled basis independent of Gallagher’s Brokerage operations. Gallagher manages its third-party claims adjusting operations through a network of 110 offices located throughout the United States, the United Kingdom, New Zealand and Canada. During 2008, the Risk Management Segment accounted for 28% of Gallagher’s revenues.

Financial Services and Corporate Segment

The Financial Services and Corporate Segment manages the Company’s interests in tax-advantaged and clean-energy investments, venture capital funds, and Gallagher’s equity ownership position in an alternative investment fund manager. At December 31, 2008, significant remaining investments in this segment include Clean Energy, Tax Advantaged Investments, Asset Management, Venture Capital Funds and International Operations.

Gallagher competes with Marsh & McLennan Companies, Inc., Aon Corporation and Willis Group Holdings, Ltd., Brown & Brown Inc., Hub International Ltd., Lockton Companies, Inc., Wells Fargo & Co., USI Holdings Corporation, Watson Wyatt, Hewitt Associates, Towers Perrin, Crump Group, CRC Insurance Services, AmWINS Group, Swett & Crawford, Sedgwick CMS, Broadspire Services/Crawford, Cambridge Solutions Ltd., Fiserv Health, ESIS, Specialty Risk Services, AIG Insurance and Zurich Insurance.