UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

☒ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2021

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                                          to

Commission file number 1-09761

ARTHUR J. GALLAGHER & CO.

(Exact name of registrant as specified in its charter)

Delaware	36-2151613
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
2850 Golf Road Rolling Meadows, Illinois	60008-4050
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code (630) 773-3800

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $1.00 per share	AJG	New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes ☒ No ☐.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes ☐ No ☒.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ☒ No ☐.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes ☒ No ☐.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company.  See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 726(b)) by the registered public accounting firm that prepared or issued its audit report    Yes ☒ No ☐.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐ No ☒.

The aggregate market value of the voting common equity held by non-affiliates of the registrant, computed by reference to the last reported price at which the registrant’s common equity was sold on June 30, 2021 (the last day of the registrant’s most recently completed second quarter) was $25,186,468,000.

The number of outstanding shares of the registrant’s Common Stock, $1.00 par value, as of January 31, 2022 was 208,542,000.

Documents incorporated by reference: Portions of Arthur J. Gallagher & Co.’s definitive 2022 Proxy Statement are incorporated by reference into this Form 10‑K in response to Part III to the extent described herein.

Information Concerning Forward-Looking Statements

This report contains certain statements related to future results, or states our intentions, beliefs and expectations or predictions for the future, which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to expectations or forecasts of future events.  Such statements use words such as “anticipate,” “believe,” “estimate,” “expect,” “contemplate,” “forecast,” “project,” “intend,” “plan,” “potential,” and other similar terms, and future or conditional tense verbs like “could,” “may,” “might,” “see,” “should,” “will” and “would.” You can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts.  For example, we may use forward-looking statements when addressing topics such as: comments regarding the expected benefits of our acquisition of the Willis Towers Watson plc treaty reinsurance brokerage operations; the remaining twelve international deferred closings that require local regulatory approvals for such acquisition; the expected duration and costs of integration of such acquisition; market and industry conditions, including competitive and pricing trends; acquisition strategy including the expected size of our acquisition program; the expected impact of acquisitions and dispositions; the development and performance of our services and products; changes in the composition or level of our revenues or earnings; our cost structure and the size and outcome of cost-saving or restructuring initiatives; future capital expenditures; future debt levels and anticipated actions to be taken in connection with maturing debt; future debt to earnings ratios; the outcome of contingencies; dividend policy; pension obligations; cash flow and liquidity; capital structure and financial losses; future actions by regulators; the outcome of existing regulatory actions, audits, reviews or litigation; the impact of changes in accounting rules; financial markets; interest rates; foreign exchange rates; matters relating to our operations; income taxes, expectations regarding our investments, human capital management, including diversity and inclusion initiatives; environmental, social and governance matters, including climate-resilience products and services and carbon emissions; and integrating recent acquisitions.  These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from either historical or anticipated results depending on a variety of factors.  

Potential factors from the acquisition of the Willis Towers Watson plc treaty reinsurance brokerage operations that could impact results include:

• Risks related to the integration of the operations, businesses and assets acquired in the acquisition into the Company;

• Risks related to retention of clients following completion of the acquisition;

• The possibility that the twelve remaining international deferred closings that are subject to local regulatory approval, and which are expected to close in the first and second quarters of 2022, are not closed on a timely basis or at all;  

• Potential adverse reactions or changes to business or employee relationships, including those resulting from the completion of the acquisition;

• The possibility that our estimates of lost revenue in the operations acquired, are inaccurate and actual lost revenue is greater;

• The increased legal and regulatory complexity of entering additional geographic markets, including the risks associated with the labor and employment law frameworks in certain countries where the Company did not previously operate;

• Diversion of management’s attention from ongoing business operations and opportunities;

• The inability to retain certain key employees of the operations acquired in the acquisition or the Company; and

• That financial information subsequently presented for the business acquired in the acquisition in our subsequent public filing may be different from that presented herein.

Additional potential factors that could impact results include:  

• The ongoing COVID-19 pandemic, including its effect on the economy, our employees, our clients, the regulatory environment and our operations;

• A future economic downturn or unstable economic conditions, whatever the cause, including the stalling or reversal of economic recovery following COVID-19, or other factors like inflation, worsening international relations, a military conflict between Russia and Ukraine, tariffs, trade wars, political violence and unrest in the U.S. or around the world, or climate change and other long-term environmental, social and governance matters and global health risks;

• Volatility or declines in premiums or other adverse trends in the insurance industry;

• Competitive pressures, including as a result of innovation, in each of our businesses;

• Risks that could negatively affect the success of our acquisition strategy, including the impact of current economic uncertainty on our ability to source, review and price acquisitions, continuing consolidation in our industry and growing interest in acquiring insurance brokers on the part of private equity firms and newly public insurance brokers, which could make it more difficult to identify targets and could make them more expensive, the risk that we may not receive timely

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regulatory approval of desired transactions, execution risks, integration risks, poor cultural fit, the risk of post-acquisition deterioration leading to intangible asset impairment charges, and the risk we could incur or assume unanticipated liabilities such as cybersecurity issues or those relating to violations of anti-corruption and sanctions laws;

• Failure to successfully and cost-effectively integrate recently acquired businesses and their operations or fully realize synergies from such acquisitions in the expected time frame;

• Cyber attacks or other cybersecurity incidents including the ransomware incident we publicly disclosed in September 2020; improper disclosure of confidential, personal or proprietary data; and changes to laws and regulations governing cybersecurity and data privacy;

• Risks arising from changes in U.S. or foreign tax laws, including the current U.S. president’s administration’s potential reversal of all or part of the U.S. Tax Cuts and Jobs Act 2017 (which we refer to as the TCJA) and related regulations and the recent increase in U.K. corporate tax rates;

• Our failure to attract and retain experienced and qualified talent, including our senior management team;

• Risks arising from our international operations, including the risks posed by political and economic uncertainty in certain countries, (including the repercussions of a military conflict between Russia and Ukraine), risks related to maintaining regulatory and legal compliance across multiple jurisdictions (such as those relating to violations of anti-corruption, sanctions and privacy laws), rising global tensions and protectionism, and risks arising from the complexity of managing businesses across different time zones, languages, geographies, cultures and legal regimes that conflict with one another at times;

• Risks particular to our risk management segment, including wage inflation, staffing shortages, any slowing of the trend toward outsourcing claims administration, and the concentration of large amounts of revenue with certain clients;

• Risks particular to our benefit consulting operations, including risks to the business posed by potential changes to health legislation under the current U.S. president’s administration;

• The higher level of variability inherent in contingent and supplemental revenues versus standard commission revenues, particularly in light of the changed revenue recognition accounting standard;

• Sustained increases in the cost of employee benefits;

• A disaster or other significant disruption to business continuity; including natural disasters and political violence and unrest in the U.S. or elsewhere around the world;

• Damage to our reputation including as a result of environmental, social and governance (ESG) matters;

• Climate risks, including the risk of a systemic economic crisis and disruptions to our business caused by the transition to a low-carbon economy;

• Our failure to apply technology effectively in driving value for our clients through technology-based solutions, or failure to gain internal efficiencies and effective internal controls through the application of technology and related tools;

• Our failure to comply with regulatory requirements, including those related to governance and control requirements in particular jurisdictions, international sanctions, or a change in regulations or enforcement policies that adversely affects our operations (for example, relating to insurance broker compensation methods);

• Violations or alleged violations of the U.S. Foreign Corrupt Practices Act (which we refer to as FCPA), the U.K. Bribery Act 2010 or other anti-corruption laws and the Foreign Account Tax Compliance provisions of the Hiring Incentives to Restore Employment Act (which we refer to as FATCA);

• The outcome of any existing or future investigation, review, regulatory action or litigation;

• Unfavorable determinations related to contingencies and legal proceedings;

• Significant changes in foreign exchange rates;

• Changes to our financial presentation from new accounting estimates and assumptions;

• Intellectual property risks;

• Risks related to our legacy clean energy investments, including intellectual property claims, environmental and product liability claims, environmental compliance costs and the risk of disallowance by the Internal Revenue Service (which we refer to as the IRS) of previously claimed tax credits;

• The risk that our outstanding debt adversely affects our financial flexibility and restrictions and limitations in the agreements and instruments governing our debt;

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• The risk of credit rating downgrades;

• The risk we may not be able to receive dividends or other distributions from subsidiaries;

• The risk of share ownership dilution when we issue common stock as consideration for acquisitions and for other reasons; and

• Volatility of the price of our common stock.

Forward-looking statements are not guarantees of future performance.  They involve risks, uncertainties and assumptions, including the risk factors referred to above, and are currently, or in the future could be, amplified by the COVID-19 pandemic.  Our future performance and actual results or outcomes may differ materially from those expressed in forward-looking statements. Accordingly, you should not place undue reliance on forward-looking statements, which speak only as of, and are based on information available to us on, the date of the applicable document. Many of the factors that will determine these results are beyond our ability to control or predict.  All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.  Forward-looking statements speak only as of the date that they are made, and we do not undertake any obligation to update any such statements or release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of this report or to reflect new information, future or unexpected events or otherwise, except as required by applicable law or regulation.  In addition, historical, current and forward-looking sustainability-related statements may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future.

A detailed discussion of the factors that could cause actual results to differ materially from our published expectations is contained under the heading “Risk Factors” in this report and any other reports we file with the Securities and Exchange Commission (SEC) in the future.

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Arthur J. Gallagher & Co.

Annual Report on Form 10-K

For the Fiscal Year Ended December 31, 2021

Index

			Page No.
Part I.
	Item 1.	Business	5-9
	Item 1A.	Risk Factors	10-27
	Item 1B.	Unresolved Staff Comments	27
	Item 2.	Properties	27
	Item 3.	Legal Proceedings	27
	Item 4.	Mine Safety Disclosures.	27
	Information About Our Executive Officers		28
Part II.
	Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	29-30
	Item 6.	[Reserved]	30
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30-61
	Item 7A.	Quantitative and Qualitative Disclosure about Market Risk	61-63
	Item 8.	Financial Statements and Supplementary Data	64-116
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	121
	Item 9A.	Controls and Procedures	121
	Item 9B	Other Information	121
	Item 9C.	Disclosures Regarding Foreign Jurisdictions that Prevent Inspections	121
Part III.
	Item 10.	Directors, Executive Officers and Corporate Governance	122
	Item 11.	Executive Compensation	122
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	122
	Item 13.	Certain Relationships and Related Transactions, and Director Independence	122
	Item 14.	Principal Accountant Fees and Services	122
Part IV.
	Item 15.	Exhibits and Financial Statement Schedules	122-125
	Item 16.	Form 10-K Summary	125
Signatures			126
Schedule II - Valuation and Qualifying Accounts			127

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Part I

Item 1. Business.

Overview

Arthur J. Gallagher & Co. and its subsidiaries, collectively referred to herein as we, our, us or Gallagher, are engaged in providing insurance brokerage, consulting, and third-party property/casualty claims settlement and administration services to businesses and organizations around the world.  We believe that our major strength is our ability to deliver comprehensively structured insurance, insurance and risk management solutions, superior claim outcomes and comprehensive consulting services to our clients.

Our brokerage segment operations provide brokerage and consulting services to businesses and organizations of all types, including commercial, not-for-profit, public entities, insurance companies and insurance capital providers, and, to a lesser extent, individuals, in the areas of insurance placement, risk of loss management, and management of employer sponsored benefit programs.  Our risk management segment operations provide contract claim settlement, claim administration, loss control services and risk management consulting for commercial, not-for-profit, captive and public entities, and various other organizations that choose to self-insure property/casualty coverages or choose to use a third-party claims management organization rather than the claim services provided by an underwriting enterprise.

We do not assume underwriting risk on a net basis, other than with respect to de minimis amounts necessary to provide minimum or regulatory capital to organize captives, pools, specialized underwriters or risk-retention groups.  Rather, capital necessary for covering events of loss is provided by “underwriting enterprises,” which we define as insurance companies, reinsurance companies and various other risk-taking entities, including intermediaries of underwriting enterprises, that we do not own or control.

Since our founding in 1927, we have grown from a one-person insurance agency to the world’s fourth largest insurance broker/risk manager based on revenues, according to Business Insurance magazine’s July/August 2021 edition, to the world’s third largest insurance broker/risk manager based on market capitalization as of December 31, 2021, and one of the world’s largest property/casualty third party claims administrators, according to Business Insurance magazine’s May 2021 edition.  We have three reportable segments: brokerage, risk management and corporate, which contributed approximately 73%, 13% and 14%, respectively, to 2021 revenues.  We generate approximately 67% of our revenues from the combined brokerage and risk management segments in the United States (U.S.), with the remaining 33% generated internationally, primarily in the United Kingdom (U.K.), Australia, Canada, New Zealand and Bermuda.  All of the revenues of the corporate segment are generated in the U.S.

Shares of our common stock are traded on the New York Stock Exchange under the symbol “AJG”, and we had a market capitalization at December 31, 2021 of approximately $35.4 billion.  Information in this report is as of December 31, 2021 unless otherwise noted.  We were reincorporated as a Delaware corporation in 1972.  Our executive offices are located at 2850 Golf Road, Rolling Meadows, Illinois 60008-4050, and our telephone number is (630) 773‑3800.

Operating Segments

We report our results in three segments: brokerage, risk management and corporate.  The major sources of our operating revenues are commissions, fees and supplemental and contingent revenues from our brokerage operations, and fees, including performance‑based fees, from our risk management operations.  The corporate segment generates revenues from our clean energy investments.  Our ability to generate additional tax credits from our Section 45 clean energy investments ended in December 2021.

Our business, particularly our brokerage business, is subject to seasonal fluctuations.  Commissions, fees, supplemental revenues and contingent revenues, and our costs to obtain and fulfill the service obligations to our clients, can vary from quarter to quarter as a result of the timing of contract-effective dates.  On the other hand, salaries and employee benefits, rent, depreciation and amortization expenses generally tend to be more uniform throughout the year.  The timing of acquisitions, recognition of books of business gains and losses and the variability in the recognition of tax credits generated by our clean energy investments also impact the trends in our quarterly operating results.  

Brokerage Segment

The brokerage segment accounted for 73% of our revenues in 2021.  Our brokerage segment operates through a network of more than 475 sales and service offices located throughout the U.S. and more than 300 sales and service offices in 67 countries, most of which are in the U.K., Australia, Canada, New Zealand and Bermuda.  Most of these offices are fully staffed with sales and service personnel.  We also offer client service capabilities in more than 150 countries around the world through a network of correspondent brokers and consultants.

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On December 1, 2021, we acquired substantially all of the Willis Towers Watson’s plc treaty reinsurance brokerage operations for an initial gross consideration of $3.25 billion, and potential additional consideration of $750 million subject to certain third-year revenue targets.  There are twelve remaining international operations with deferred closings that comprise approximately $180 million of the initial purchase consideration that are subject to local regulatory approval and are expected to close in first and second quarters of 2022.  Together with our existing reinsurance operations, the combined businesses will trade as Gallagher Re from more than 70 offices across 31 countries and incorporate approximately 2,200 employees.  This acquisition brings specialist expertise, underpinned by a portfolio of analytics capabilities including catastrophe modeling, dynamic financial analysis, rating agency analysis and capital modeling that will immediately provide value to insurance carriers and insurance capital providers around the world.

Domestic Retail Insurance Brokerage Operations

Our retail insurance brokerage operations accounted for 82% of our brokerage segment revenues in 2021. Our retail brokerage operations place nearly all lines of commercial property/casualty and health and welfare insurance coverage.  Significant lines of insurance coverage and consultant capabilities are as follows:

Aviation	Disability	General Liability	Products Liability
Casualty	Earthquake	Health & Welfare	Professional Liability
Claims Advocacy	Errors & Omissions	Healthcare Analytics	Property
Commercial Auto	Exchange Solutions	Human Resources	Retirement
Compensation	Executive Benefits	Institutional Investment	Surety Bond
Cyber Liability	Fiduciary Services	Loss Control	Voluntary Benefits
Dental	Fine Arts	Marine	Wind
Directors & Officers Liability	Fire	Medical	Workers’ Compensation

Our retail brokerage operations are organized and operate within certain key niche/practice groups, which account for approximately 79% of our retail brokerage revenues.  These specialized teams target areas of business and/or industries in which we have developed a depth of expertise and a large client base.  Significant niche/practice groups we serve are as follows:

Affinity	Equity Advisors	Law Firms	Real Estate/Hospitality
Automotive	Financial Institutions	Life Sciences	Religious
Aviation	Food/Agribusiness	Marine	Restaurant
Construction	Global Risks	Not-for-Profit	Technology
Energy	Healthcare	Personal	Trade Credit/Political Risk
Entertainment	Higher Education	Private Client	Transportation
Environmental	K12 Education	Public Entity

Our specialized focus on these niche/practice groups allows for highly-focused marketing efforts and facilitates the development of value-added products and services specific to those industries.  We believe that our detailed understanding and broad client contacts within these niche/practice groups provide us with a competitive advantage.

We anticipate that our retail brokerage operations’ greatest revenue growth over the next several years will continue to come from:

• Mergers and acquisitions;

• Our niche/practice groups and middle-market accounts;

• Cross-selling other brokerage products to existing clients; and

• Developing and managing alternative market mechanisms such as captives, rent-a-captives and deductible plans/self‑insurance.

Wholesale Insurance Brokerage Operations

Our wholesale insurance brokerage operations accounted for 18% of our brokerage segment revenues in 2021.  Our wholesale brokers assist our retail brokers and other non-affiliated brokers in the placement of specialized and hard-to-place insurance. These brokers operate through approximately 300 offices primarily located across the U.S., Bermuda and through our approved Lloyd’s of London brokerage operation.  In certain cases we act as a brokerage wholesaler, and in other cases we act as a managing general agent or managing general underwriter distributing specialized insurance coverages for underwriting enterprises.  Managing general agents and managing general underwriters are agents authorized by an underwriting enterprise to manage all or a part of its business in a specific geographic territory.  Activities they perform on behalf of the underwriting enterprise may include marketing, underwriting (although we do not assume any underwriting risk), issuing policies, collecting premiums, appointing and supervising other agents, paying claims and negotiating reinsurance.

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More than 79% of our wholesale brokerage reve3nues comes from non-affiliated brokerage clients.  Based on revenues, our domestic wholesale brokerage operation ranked as the largest managing general agents/underwriting managers/Lloyds coverholders according to Business Insurance magazine’s September 2021 edition.  

We anticipate growing our wholesale brokerage operations by increasing the number of broker-clients, developing new managing general agency and underwriter programs, and through mergers and acquisitions.  

Risk Management Segment

Our risk management segment accounted for 13% of our revenues in 2021.  Approximately 63% of our risk management segment’s revenues are from workers’ compensation-related claims, 30% are from general and commercial auto liability-related claims and 7% are from property-related claims in 2021.  

Risk management services are primarily marketed directly to Fortune 1000 companies, larger middle-market companies, not for profit organizations and public entities on an independent basis from our brokerage operations.  We manage our third party claims adjusting operations through a network of more than 57 offices located throughout the U.S., Australia, the U.K., New Zealand and Canada.  Most of these offices are fully staffed with claims adjusters and other service personnel.  Our adjusters and service personnel act solely on behalf and under the instruction of our clients.

While this segment complements our brokerage and consulting offerings, approximately 90% of our risk management segment’s revenues come from clients not affiliated with our brokerage operations, such as underwriting enterprises and clients of other insurance brokers.  Based on revenues, our risk management operation ranked as one of the world’s largest property/casualty third party claims administrators according to Business Insurance magazine’s May 2021 edition.  

We expect that the risk management segment’s most significant growth prospects through the next several years will come from:

• Program business and the outsourcing of portions of underwriting enterprise claims departments;

• Increased levels of business with Fortune 1000 companies;

• Larger middle-market companies and captives; and

• Mergers and acquisitions.

Corporate Segment

The corporate segment accounted for 14% of our revenues in 2021.  The corporate segment reports the financial information related to our debt, clean energy investments, external acquisition-related expenses, other corporate costs and the impact of foreign currency translation.  The revenues reported by this segment result almost solely from our consolidated clean energy investments.

We own 35 commercial clean coal production facilities that are qualified to produce refined coal using Chem-Mod LLC’s proprietary technologies.  These operations produced refined coal that we believe qualifies for tax credits under Internal Revenue Code Section 45 (which we refer to as IRC Section 45).  The law that provides for IRC Section 45 tax credits expired as of December 31, 2019 for 14 of our plants and expired on December 31, 2021 for the other 21 plants. Chem-Mod LLC (described below) is a privately held enterprise that has commercialized multi-pollutant reduction technologies to reduce mercury, sulfur dioxide and other emissions at coal-fired power plants.  We own 46.5% of Chem-Mod LLC and are its controlling managing member.  We also have a 12.0% noncontrolling interest in dormant, privately-held, enterprises, C-Quest Technology LLC and C-Quest Technologies International LLC (which we refer to together as, C-Quest), which own technologies that reduce carbon dioxide emissions created by burning fossil fuels.  At this time, it is unclear if C‑Quest will ever become commercially viable.  

International and Other Brokerage Related Operations

We operate as a retail commercial property and casualty broker throughout 51 locations in Australia, 52 locations in Canada and 36 locations in New Zealand.  In the U.K., we operate as a retail broker from approximately 110 locations. We also have specialty, wholesale, underwriting and reinsurance intermediary operations in London for clients to access Lloyd’s of London and other international underwriting enterprises, and a program operation offering customized risk management products and services to U.K. public entities.  See the previous discussion regarding our acquisition of the Willis Towers Watson’s plc treaty reinsurance brokerage operations as it relates to the impact on our international operations.

In Bermuda, we act principally as a wholesale broker for clients looking to access Bermuda-based underwriting enterprises and we also provide management and administrative services for captive insurance entities.  

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We also have strategic brokerage alliances with a variety of independent brokers in countries where we do not have a local office presence.  Through this global network of correspondent insurance brokers and consultants, we are able to serve our clients’ coverage and service needs in more than 150 countries around the world.

Captive Underwriting Enterprises - We have ownership interests in several underwriting enterprises based in the U.S., Bermuda, Gibraltar, Guernsey, Isle of Man and Malta, that primarily operate segregated account “rent-a-captive” facilities.  These “rent-a-captive” facilities enable our clients to receive the benefits of participating in a captive underwriting enterprise without incurring certain disadvantages of ownership.  

We also have a wholly owned underwriting enterprise subsidiary based in the U.S. that cedes all of its insurance risk of loss to reinsurers or captives under facultative and quota-share treaty reinsurance agreements.  See Note 18 to our 2021 consolidated financial statements for additional financial information related to the insurance activity of our wholly owned underwriting enterprise subsidiary for 2021, 2020 and 2019.

Competition

Brokerage Segment

The insurance brokerage and consulting business is highly competitive and there are many organizations and individuals throughout the world who actively compete with us in every area of our business.  

We believe that the primary factors determining our competitive position with other organizations in our industry are the quality of the services we render, the personalized attention we provide, the individual and corporate expertise providing the actual service to the client, and the overall cost to our clients. We provide sophisticated data analysis to help our clients make insurance decisions.  Through our electronic platform, SmartMarket, we also provide insurance carriers with individualized preference setting and risk identification capabilities, as well as performance data and metrics.  We believe these capabilities provide a growing competitive advantage with respect to many of the smaller organizations with which we compete. 

Risk Management Segment

Our risk management operation currently ranks as one of the world’s largest property/casualty third party claims administrators based on revenues, according to Business Insurance magazine’s May 2021 edition.  We believe that the primary factors determining our competitive position are our ability to deliver better outcomes, reputation for outstanding service, cost-efficient service and financial strength.

Business Combinations

We completed and integrated 621 acquisitions from January 1, 2002 through December 31, 2021, most of which were within our brokerage segment.  The majority of these acquisitions have been smaller regional or local brokerages, agencies, or employee benefit consulting operations with a middle or small client focus and/or significant expertise in one of our niche/practice groups.  The total purchase price for individual acquisitions has typically ranged from $1.0 million to $100.0 million.  

Through acquisitions, we seek to expand our talent pool, enhance our geographic presence and service capabilities, and/or broaden and further diversify our business mix.  We also focus on identifying:

• A corporate culture that matches our sales-oriented and ethics-based culture;

• A profitable, growing business whose ability to compete would be enhanced by gaining access to our greater resources; and

• Clearly defined financial criteria.

See Note 3 to our 2021 consolidated financial statements for a summary of our 2021 acquisitions, the amount and form of the consideration paid and the dates of acquisitions.

Clients

Our client base is highly diversified and includes commercial, industrial, public entity, religious and not-for-profit entities. In 2021, our largest single client represented approximately 1% and our ten largest clients together represented approximately 3% of our combined brokerage and risk management segment revenues.

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Human Capital

In 2021, the COVID-19 pandemic continued to have a significant impact on our human capital management. Many of our employees continue to work remotely for some or all of their work week and we continue to make investments in support of a hybrid work environment. We have instituted safety protocols and procedures for employees when they are in an office.

As of December 31, 2021, we had approximately 39,000 employees, with approximately 47% in the U.S. and 53% outside of the U.S.  Approximately 76% of our employees work in our brokerage segment and 19% in our risk management segment. Our remaining employees work in our corporate segment, primarily in our home office and financial services division, as well as in our service centers in India and elsewhere around the world.  In 2021, our total compensation expense was $3,252.4 million for the brokerage segment and $580.7 million for the risk management segment, representing 55% and 60%, respectively, of brokerage and risk management segment revenues. Additional information regarding compensation expense, both on a reported and an adjusted basis can be found elsewhere in this report under Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

While many of our new employees come to us through mergers and acquisitions and traditional hiring, “growing our own” has long been a key part of our human capital strategy. Our summer internship program began more than fifty years ago with a single intern. Since then, our program has grown globally and we employ more than 400 interns each summer, pre-pandemic (we had fewer interns in 2020 and 2021 due to the COVID-19 pandemic). We provide our interns with professional development and on-the‑job sales training that gives them the opportunity to cultivate expertise and accelerate their full-time sales career growth.

As of December 31, 2021, approximately 58% of our employees were women, including 47% of managers and 40% of producers. In the U.S., approximately 25% of our employees were racially/ethnically diverse, including 15% of managers and 18% of producers.

Regulation

Many of our activities throughout the world are subject to supervision and regulations promulgated by regulatory or self-regulatory bodies such as the SEC, the NYSE, the Department of Justice (DOJ), the IRS, the Office of Foreign Assets Control, the Federal Trade Commission and the Financial Industry Regulatory Authority (FINRA) in the U.S., the Financial Conduct Authority in the U.K., the Australian Securities and Investments Commission in Australia and insurance regulators in nearly every jurisdiction in which we operate.  Our retirement-related consulting and investment services are subject to pension law and financial regulation in many countries. Our activities are also subject to a variety of other laws, rules and regulations addressing licensing, data privacy, wage-and-hour standards, employment and labor relations, anti-competition, anti-corruption, currency, reserves and the amount of local investment with respect to our operations in certain countries.  

The global nature of our operations increases the complexity and cost of compliance with laws and regulations, including increased staffing needs, the development of new policies, procedures and internal controls and providing training to employees in multiple locations, adding to our cost of doing business.  Many of these laws and regulations may have differing or conflicting legal standards across jurisdictions, increasing further the complexity and cost of compliance.  In emerging markets and other jurisdictions with less developed legal systems, local laws and regulations may not be established with sufficiently clear and reliable guidance to provide us with adequate assurance that we are aware of all necessary licenses to operate our business, that we are operating our business in a compliant manner, or that our rights are otherwise protected.  In addition, major political and legal developments in jurisdictions in which we do business may lead to new regulatory costs and challenges.  Related to our acquisition of the Willis Towers Watson’s plc treaty reinsurance brokerage operations there are twelve remaining international deferred closings that comprise approximately $180 million of the initial purchase consideration that are subject to local regulatory approval and various licensing requirements that are expected to close in first and second quarters of 2022. 

Regulations promulgated by the U.S. Treasury Department pursuant to FATCA require us to take various measures relating to non-U.S. funds, transactions and accounts.

Available Information

Our executive offices are located at 2850 Golf Road, Rolling Meadows, Illinois 60008-4050, and our telephone number is (630) 773‑3800.  Our annual reports on Form 10-K, quarterly reports on Form 10‑Q, current reports on Form 8‑K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, are available free of charge on our website at http://investor.ajg.com/sec-filings as soon as reasonably practicable after electronically filing or furnishing such material to the Securities and Exchange Commission.  The Securities and Exchange Commission also maintains a website (www.sec.gov) that includes our reports, proxy statements and other information. Unless expressly noted, the information on our website, including our investor relations website, or any other website is not incorporated by reference in this Form 10-K and should not be considered part of this Form 10-K or any other filing we make with the SEC.

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Item 1A. Risk Factors.

Risk Factor Summary

Risks Relating to the Acquisition of the Willis Towers Watson plc Treaty Reinsurance Brokerage Operations

• We may encounter integration challenges and the Acquisition may not perform as expected.

• The risk of non-compliance with non-U.S. laws, regulations and policies could adversely affect our results of operations, financial condition or strategic objectives.

• We have made certain assumptions relating to the Acquisition which may prove to be materially inaccurate.

• There can be no assurance that deferred closings in certain jurisdictions will occur or that we will realize the expected benefits of the Acquisition.

Risks Relating to our Business Generally

• The ongoing COVID-19 pandemic has and could continue to adversely affect our business, results of operations and financial condition.

• An economic downturn, as well as unstable economic conditions in the countries and regions in which we operate, could adversely affect our results of operations and financial condition.

• Economic conditions that result in financial difficulties for underwriting enterprises or lead to reduced risk-taking capital capacity could adversely affect our results of operations and financial condition.

• We have historically acquired large numbers of insurance brokers, benefit consulting firms and, to a lesser extent, third party claims administration and risk management firms.  We may not be able to continue such an acquisition strategy in the future and there are risks associated with such acquisitions, which could adversely affect our growth and results of operations.

• We face significant competitive pressures in each of our businesses.

• Volatility or declines in premiums or other adverse trends in the insurance industry may seriously undermine our profitability.

• Contingent and supplemental revenues we receive from underwriting enterprises are less predictable than standard commission revenues, and any decrease in the amount of these forms of revenue could adversely affect our results of operations.

• If we are unable to apply technology effectively in driving value for our clients through technology-based solutions or gain internal efficiencies and effective internal controls through the application of technology and related tools, our operating results, client relationships, growth and compliance programs could be adversely affected.

• Damage to our reputation could have a material adverse effect on our business.

• Climate risks, including the risk of an economic crisis, risks associated with the physical effects of climate change and disruptions caused by the transition to a low-carbon economy, could adversely affect our business, results of operations and financial condition.

• Our ESG-related aspirations, goals and initiatives, and our public statements and disclosures regarding them, expose us to numerous risks.

• Our future success depends success depends, in part, on our ability to attract and retain experienced and qualified talent, including our senior management team.

• Our substantial operations outside the U.S. expose us to risks different than those we face in the U.S.

• We face a variety of risks in our risk management third-party claims administration operations that are distinct from those we face in our insurance brokerage and benefit consulting operations.

• We face a variety of risks in our benefit consulting operations distinct from those we face in our insurance brokerage operations.

• Sustained increases in the cost of employee benefits could reduce our profitability.

• Business disruptions could have a material adverse effect on our operations, damage our reputation and impact client relationships.

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Regulatory, Legal and Accounting Risks

• Improper disclosure of confidential, personal or proprietary information and cybersecurity attacks could result in regulatory scrutiny, legal liability or reputational harm, and could adversely affect our business, financial condition and reputation.

• Changes in data privacy and protection laws and regulations, or any failure to comply with such laws and regulations, could adversely affect our business and financial results.

• We are subject to regulation worldwide.  If we fail to comply with regulatory requirements or if regulations change in a way that adversely affects our operations, we may not be able to conduct our business, or we may be less profitable.

• We could be adversely affected by violations or alleged violations of laws that impose requirements for the conduct of our overseas operations, including the FCPA, the U.K. Bribery Act or other anti-corruption laws, sanctioned parties restrictions and FATCA.

• We are subject to a number of contingencies and legal proceedings which, if determined unfavorably to us, would adversely affect our financial results.

• Changes in our accounting estimates and assumptions could negatively affect our financial position and operating results.

• Limited protection of our intellectual property could harm our business and our ability to compete effectively, and we face the risk that our services or products may infringe upon the intellectual property rights of others.

Risks Relating to our Investments, Debt and Common Stock

• Our clean energy investments are subject to various risks and uncertainties.

• The IRC Section 45 operations in which we have invested and the by-products from such operations may result in environmental and product liability claims and environmental compliance costs.

• We have debt outstanding that could adversely affect our financial flexibility and subjects us to restrictions and limitations that could significantly impact our ability to operate our business.

• Credit rating downgrades would increase our financing costs and could subject us to operational risk.

• We are a holding company and, therefore, may not be able to receive dividends or other distributions in needed amounts from our subsidiaries.

• Future sales or other dilution of our equity could adversely affect the market price of our common stock.

Please carefully consider the following discussion of significant factors, events, and uncertainties that make an investment in our securities risky.  The events and consequences discussed in these risk factors could, in circumstances we may not be able to accurately predict, recognize, or control, have a material adverse effect on our business, growth, reputation, prospects, financial condition, operating results (including components of our financial results such as revenues and net earnings), cash flows, liquidity, and stock price. These risk factors do not identify all risks that we face; our operations could also be affected by factors, events, or uncertainties that are not presently known to us or that we currently do not consider to present significant risks to our operations. In addition, the global economic climate amplifies many of these risks.

Risks Relating to the Acquisition of Willis Towers Watson plc Treaty Reinsurance Brokerage Operations

We may encounter integration challenges and the Acquisition may not perform as expected.

On December 1, 2021, we completed the acquisition of the treaty reinsurance brokerage operations of Willis Towers Watson plc (the “Acquisition”).  Upon completion of the Acquisition, we paid Willis Towers Watson plc an initial gross purchase price of $3.25 billion. Under the terms of the purchase agreement, the purchase price is subject to potential additional deferred consideration of up to $750 million, payable in 2025 based on revenues of the acquired operations in 2024.  We can provide no assurance that we will be able to successfully integrate the operations acquired in the Acquisition, that the acquired operations will perform as expected, or that we will not incur unforeseen obligations or liabilities. It is possible that our experience in running the operations acquired in the Acquisition will require us to adjust our expectations regarding the impact of the acquisition on our operating results. In particular, the amount of revenue we expect the acquired operations to lose, due to the departure of key employees, the loss of key clients within the acquired operations, or for other reasons, is based upon estimates, assumptions and projections that may turn out to be incorrect.  As a result, actual lost revenue within the acquired operations may be greater than anticipated.  In addition, integration efforts are anticipated to be complex and may divert management’s attention and resources, which could adversely affect our operating results.

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The risk of non-compliance with non-U.S. laws, regulations and policies could adversely affect our results of operations, financial condition or strategic objectives.

The Acquisition will introduce us to several new geographic markets, subjecting us to additional non-U.S. laws, regulations and policies, which do not currently apply to us.  These laws and regulations are complex, change frequently, have become more stringent over time, could increase our cost of doing business, and could result in conflicting legal requirements. These laws and regulations include international labor and employment laws, data privacy requirements, and local laws prohibiting corrupt payments to government officials. We will be subject to the risk that we, our employees, our agents, or our affiliated entities, or their respective officers, directors, employees and agents, may take actions determined to be in violation of any of these laws, regulations or policies, for which we might be held responsible. Actual or alleged violations could result in substantial fines, sanctions, civil or criminal penalties, debarment from government contracts, curtailment of operations in certain jurisdictions, competitive or reputational harm, litigation or regulatory action and other consequences that might adversely affect our results of operations, financial condition or strategic objectives.

While we believe that relations with work councils and trade unions in these countries are and will continue to be satisfactory, work stoppages could occur and we may not be successful in negotiating new collective bargaining agreements. In addition, collective bargaining negotiations may (1) result in significant increases in the cost of labor, (2) divert management’s attention away from operating the business or (3) break down and result in the disruption of operations. The occurrence of any of the preceding conditions could result in increased costs and impair our ability to operate our business.

We have made certain assumptions relating to the Acquisition, which may prove to be materially inaccurate.

We have made certain assumptions relating to the Acquisition, which assumptions may be inaccurate, including as a result of the failure to realize the expected benefits of the Acquisition, higher than expected transaction and integration costs and unknown liabilities as well as general economic and business conditions that adversely affect the combined company following the Acquisition. These assumptions relate to numerous matters, including:

• Projections of future revenue, EBITDAC and our earnings per share, including assumptions and projections regarding revenue we expect to lose;

• Projections of future expenses and expense allocation relating to the Acquisition and the acquired assets;

• Our ability to maintain, develop and deepen relationships with employees, including key brokers, and customers associated with the acquired assets;

• The amount of goodwill and intangibles that will result from the Acquisition;

• Certain other purchase accounting adjustments that we may be required to record in our financial statements in connection with the Acquisition;

• Acquisition costs, including restructuring charges and transaction costs; and

• Other financial and strategic risks of the Acquisition.

There can be no assurance that deferred closings in certain jurisdictions will occur or that we will realize the expected benefits of the Acquisition.

There are deferred closings in twelve jurisdictions scheduled for the first and second quarters of 2022, representing approximately $180 million of the initial purchase consideration. We can provide no assurance that the various conditions to these deferred closings will be satisfied, including the receipt of regulatory or other necessary approvals, or as to the terms on which any such approvals may be given.