Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

165K characters. Original on sec.gov · Markdown

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The discussion and analysis that follows relates to our financial condition and results of operations for the three and nine-month periods ended September 30, 2022. Readers should review this information in conjunction with the September 30, 2022 unaudited consolidated financial statements and notes included in Item 1 of Part I of this quarterly report on Form 10‑Q and the audited consolidated financial statements and notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in our annual report on Form 10-K for the year ending December 31, 2021.

Prior Year Discussion of Results and Comparisons

For Information on fiscal third quarter 2021 results and similar comparisons, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-Q for the fiscal three and nine-month periods ended September 30, 2021.

Information Regarding Non-GAAP Measures and Other

In the discussion and analysis of our results of operations that follows, in addition to reporting financial results in accordance with GAAP, we provide information regarding EBITDAC, EBITDAC margin, adjusted EBITDAC, adjusted EBITDAC margin, diluted net earnings per share, as adjusted (adjusted EPS), adjusted revenue, adjusted compensation and operating expenses, adjusted compensation expense ratio, adjusted operating expense ratio and organic revenue. These measures are not in accordance with, or an alternative to, the GAAP information provided in this quarterly report on Form 10‑Q. We believe that these presentations provide useful information to management, analysts and investors regarding financial and business trends relating to our results of operations and financial condition or because they provide investors with measures that our chief operating decision makers use when reviewing the company’s performance. See further below for definitions and additional reasons each of these measures is useful to investors. Our industry peers may provide similar supplemental non-GAAP information with respect to one or more of these measures, although they may not use the same or comparable terminology and may not make identical adjustments. The non-GAAP information we provide should be used in addition to, but not as a substitute for, the GAAP information provided. We make determinations regarding certain elements of executive officer incentive compensation, performance share awards and annual cash incentive awards, partly on the basis of measures related to adjusted EBITDAC.

Adjusted Non-GAAP presentation - We believe that the adjusted non-GAAP presentation of the current and prior period information presented on the following pages provides stockholders and other interested persons with useful information regarding certain financial metrics that may assist such persons in analyzing our operating results as they develop a future earnings outlook for us. The after-tax amounts related to the adjustments were computed using the normalized effective tax rate for each respective period.

Adjusted measures - We define these measures as revenues (for the brokerage segment), revenues before reimbursements (for the risk management segment), net earnings, compensation expense and operating expense, respectively, each adjusted to exclude the following, as applicable:

Net (losses) gains on divestitures, which are primarily net proceeds received related to sales of books of business and other divestiture transactions, such as the disposal of a business through sale or closure.

Acquisition integration costs, which include costs related to certain large acquisitions (including Willis Re), outside the scope of our usual tuck-in strategy, not expected to occur on an ongoing basis in the future once we fully assimilate the applicable acquisition. These costs are typically associated with redundant workforce, compensation

- 39 -

expense related to amortization of certain retention bonus arrangements, extra lease space, duplicate services and external costs incurred to assimilate the acquisition into our IT related systems.

Transaction-related costs primarily associated with the acquisition of the Willis Towers Watson plc treaty reinsurance brokerage operations. These include costs related to regulatory filings, legal, accounting services, insurance and incentive compensation.

Workforce related charges, which primarily include severance costs (either accrued or paid) related to employee terminations and other costs associated with redundant workforce.

Lease termination related charges, which primarily include costs related to terminations of real estate leases and abandonment of leased space.

Acquisition related adjustments, which include change in estimated acquisition earnout payables adjustments and acquisition related compensation charges.

Amortization of intangible assets reflects the amortization of customer/expiration lists, non-compete agreements, trade names and other intangible assets acquired through our merger and acquisition strategy, the impact to amortization expense of acquisition valuation adjustments to these assets as well as non-cash impairment charges.

The impact of foreign currency translation, as applicable. The amounts excluded with respect to foreign currency translation are calculated by applying current year foreign exchange rates to the same period in the prior year.

Income tax related, which represents the impact of a one-time U.S. state tax benefit that resulted from legal entity restructuring in second quarter 2022 and a net favorable U.K. tax impact related to earnout liability adjustments in second and third quarters of 2022. This represents the impact in first quarter 2022 of a one-time income tax benefit related to the revaluation of certain deferred income tax assets as a result of a change in our state effective income tax rate. The 2021 values represent the impact in second quarter 2021 of a one-time income tax expense associated with the change in the U.K. effective income tax rate from 19% to 25% that is effective in 2023. It also includes the impact of additional U.K. income tax expense related to the non-deductibility of some acquisition related adjustments made in third quarter 2021.

Loss on extinguishment of debt represents costs incurred on the early redemption of the $650 million of 2031 Senior Notes, which included the redemption price premium, the unamortized discount amount on the debt issuance and the write-off of all the debt acquisition costs.

Adjusted ratios - Adjusted compensation expense and adjusted operating expense, respectively, each divided by adjusted revenues.

Non-GAAP Earnings Measures

We believe that the presentation of EBITDAC, EBITDAC margin, adjusted EBITDAC, adjusted EBITDAC margin, adjusted EPS and adjusted net earnings for the brokerage and risk management segments, each as defined below, provides a meaningful representation of our operating performance. Adjusted EPS is a performance measure and should not be used as a measure of our liquidity. We also consider EBITDAC and EBITDAC margin as ways to measure financial performance on an ongoing basis. In addition, adjusted EBITDAC, adjusted EBITDAC margin and adjusted EPS for the brokerage and risk management segments are presented to improve the comparability of our results between periods by eliminating the impact of the items that have a high degree of variability.

EBITDAC and EBITDAC Margin - EBITDAC is net earnings before interest, income taxes, depreciation, amortization and the change in estimated acquisition earnout payables and EBITDAC margin is EBITDAC divided by total revenues (for the brokerage segment) and revenues before reimbursements (for the risk management segment). These measures for the brokerage and risk management segments provide a meaningful representation of our operating performance for the overall business and provide a meaningful way to measure its financial performance on an ongoing basis.

Adjusted EBITDAC and Adjusted EBITDAC Margin - Adjusted EBITDAC is EBITDAC adjusted to exclude net gains (losses) on divestitures, acquisition integration costs, workforce related charges, lease termination related charges, acquisition related adjustments, transaction related costs, legal and income tax related costs and the period-over-period impact of foreign currency translation as applicable, and Adjusted EBITDAC margin is Adjusted EBITDAC divided by total adjusted revenues (defined above). These measures for the brokerage and risk management segments provide a meaningful representation of our operating performance, and are also presented to improve the comparability of our results between periods by eliminating the impact of the items that have a high degree of variability.

Adjusted EPS and Adjusted Net Earnings - Adjusted net earnings have been adjusted to exclude the after-tax impact of net gains (losses) on divestitures, acquisition integration costs, the impact of foreign currency translation, workforce

- 40 -

related charges, lease termination related charges, acquisition related adjustments, transaction related costs, amortization of intangible assets, legal and income tax related costs and effective income tax rate impact, as applicable. Adjusted EPS is Adjusted Net Earnings divided by diluted weighted average shares outstanding. This measure provides a meaningful representation of our operating performance (and as such should not be used as a measure of our liquidity), and for the overall business is also presented to improve the comparability of our results between periods by eliminating the impact of the items that have a high degree of variability. This is the third quarter we have excluded amortization of intangible assets from adjusted EPS, and as such, we have provided the same adjustment for the prior period for comparability.

Organic Revenues (a non-GAAP measure) - For the brokerage segment, organic change in base commission and fee revenues, supplemental revenues and contingent revenues exclude the first twelve months of such revenues generated from acquisitions and such revenues related to divested operations in each year presented. These revenues are excluded from organic revenues in order to help interested persons analyze the revenue growth associated with the operations that were a part of our business in both the current and prior period. In addition, organic change in base commission and fee revenues, supplemental revenues and contingent revenues excludes the period‑over‑period impact of foreign currency translation to improve the comparability of our results between periods by eliminating the impact of the items that have a high degree of variability. For the risk management segment, organic change in fee revenues excludes the first twelve months of fee revenues generated from acquisitions in each year presented. In addition, change in organic growth excludes the period-over-period impact of foreign currency translation to improve the comparability of our results between periods by eliminating the impact of the items that have a high degree of variability.

These revenue items are excluded from organic revenues in order to determine a comparable, but non-GAAP, measurement of revenue growth that is associated with the revenue sources that are expected to continue in the current year and beyond. We have historically viewed organic revenue growth as an important indicator when assessing and evaluating the performance of our brokerage and risk management segments. We also believe that using this non‑GAAP measure allows readers of our financial statements to measure, analyze and compare the growth from our brokerage and risk management segments in a meaningful and consistent manner.

Reconciliation of Non-GAAP Information Presented to GAAP Measures - This quarterly report on Form 10‑Q includes tabular reconciliations to the most comparable GAAP measures, as follows: for EBITDAC (on pages 48 and 55), for adjusted revenues, adjusted EBITDAC and adjusted diluted net earnings per share (on pages 42 and 43), for organic revenue measures (on pages 49 and 55), respectively, for the brokerage and risk management segments, for adjusted compensation and operating expenses and adjusted EBITDAC margin, (on pages 50 and 51), respectively, for the brokerage segment and on page 56 for the risk management segment.

Other Information - Allocations of investment income and certain expenses are based on reasonable assumptions and estimates primarily using revenue, headcount and other information. We allocate the provision for income taxes to the brokerage and risk management segments using local statutory rates. As a result, the provision for income taxes for the corporate segment for 2021 and prior periods reflects the entire benefit to us of the IRC Section 45 tax credits produced, because that is the segment which generated the credits. The law that provides for IRC Section 45 tax credits expired in December 2019 for our fourteen plants placed in service prior to December 31, 2009 (which we refer to as the 2009 Era Plants) and expired in December 2021 for our twenty-one plants placed in service prior to December 31, 2011 (which we refer to as the 2011 Era Plants). We anticipate reporting an effective tax rate of approximately 24.0% to 25.5% in the brokerage segment and 25.0% to 27.0% in the risk management segment for the foreseeable future. Reported operating results by segment would change if different allocation methods were applied. Because the law governing IRC Section 45 tax credits expired as of December 31, 2021, reported GAAP revenues and net earnings will decrease, yet our net cash flow will increase as a result of not having to pay expenses to operate the clean coal facilities and also from an increase in the use of credits against our U.S. federal income tax obligations.

In the discussion that follows regarding our results of operations, we also provide the following ratios with respect to our operating results: pretax profit margin, compensation expense ratio and operating expense ratio. Pretax profit margin represents pretax earnings divided by total revenues. The compensation expense ratio is compensation expense divided by total revenues. The operating expense ratio is operating expense divided by total revenues.

Overview and Third Quarter 2022 Highlights

We are engaged in providing insurance brokerage and consulting services, and third-party property/casualty claims settlement and administration services to entities in the U.S. and abroad. In the nine-month period ended September 30, 2022, we generated approximately 65% of our revenues for the combined brokerage and risk management segments domestically and 35% internationally, primarily in Australia, Bermuda, Canada, the Caribbean, New Zealand and the U.K. We have three reportable segments: brokerage, risk management and corporate, which contributed approximately 86%, 14% and 0% for brokerage, risk management and corporate, respectively, to revenues during the nine-month period ended September 30, 2022. Our major sources of operating revenues are commissions, fees and supplemental and contingent revenues from brokerage operations and fees from risk management operations.

- 41 -

Investment income is generated from invested cash and fiduciary funds, and other investments, and interest income from premium financing.

We typically cite the Council of Insurance Agents and Brokers (which we refer to as CIAB) insurance pricing quarterly survey at this time as an indicator of the current insurance rate environment. The third quarter 2022 survey had not been published as of the filing date of this report. The second quarter 2022 survey indicated that commercial property/casualty rates increased by 7.1% on average. We expect a similar trend to be noted when the CIAB third quarter 2022 survey report is issued, which would indicate overall continued price firming and hardening in some lines. The CIAB represents the leading domestic and international insurance brokers, who write approximately 85% of the commercial property/casualty premiums in the U.S.

We believe increases in property/casualty rates will continue for the remainder of 2022 and in 2023. If loss trends deteriorate over the coming quarters, including the impact of natural catastrophes, it could lead to a more difficult rate and conditions environment in certain lines. The combination of increasing insurable values (due in large part to inflation), a tight labor market and lower unemployment is likely contributing to increases in client insured exposures. Additionally, we expect that our history of strong new business generation, solid retentions and enhanced value-added services for our carrier partners should all result in further organic growth opportunities around the world. Overall, we believe that in a positive rate environment with increasing exposures, our professionals can demonstrate their expertise and high-quality, value-added capabilities by strengthening our clients’ insurance portfolios and delivering insurance and risk management solutions within our clients’ budget. Based on our experience, most insurance carriers appear to be making rational pricing decisions and there is adequate capacity in the insurance and reinsurance market for most lines of coverage; however, the U.S. property catastrophe market could face significant price increases, tightening terms and conditions and a supply/demand imbalance during the 2023 renewal season.

Summary of Financial Results - Three-Month Periods Ended September 30, 2022 and 2021

See the reconciliations of non-GAAP measures on page 43.


(Dollars in millions, except per share data)	3rd Quarter 2022						3rd Quarter 2021						Change
	Reported			Adjusted			Reported			Adjusted			Reported			Adjusted
	GAAP			Non-GAAP			GAAP			Non-GAAP			GAAP			Non-GAAP
Brokerage Segment
Revenues	$	1,736.2		$	1,737.5		$	1,499.7		$	1,446.6			16	%		20	%
Organic revenues				$	1,537.9					$	1,427.3						7.8	%
Net earnings	$	282.5					$	253.6						11	%
Net earnings margin		16.3	%					16.9	%				- 64 bpts
Adjusted EBITDAC				$	560.3					$	484.3						16	%
Adjusted EBITDAC margin					32.2	%					33.5	%				- 123 bpts
Diluted net earnings per share	$	1.31		$	1.83		$	1.20		$	1.64			9	%		12	%
Risk Management Segment
Revenues before reimbursements	$	275.5		$	275.5		$	248.0		$	244.4			11	%		13	%
Organic revenues				$	274.0					$	244.3						12.2	%
Net earnings	$	26.9					$	22.0						22	%
Net earnings margin (before reimbursements)		9.8	%					8.9	%				+ 89 bpts
Adjusted EBITDAC				$	50.2					$	47.6						5	%
Adjusted EBITDAC margin (before reimbursements)					18.2	%					19.5	%				- 126 bpts
Diluted net earnings per share	$	0.13		$	0.14		$	0.10		$	0.13			30	%		8	%
Corporate Segment
Diluted net loss per share	$	(0.25	)	$	(0.25	)	$	(0.24	)	$	(0.11	)
Total Company
Diluted net earnings per share	$	1.19		$	1.72		$	1.06		$	1.66			12	%		4	%
Total Brokerage and Risk Management Segment
Diluted net earnings per share	$	1.44		$	1.97		$	1.30		$	1.77			10	%		11	%

Summary of Financial Results - Nine-Month Periods Ended September 30, 2022 and 2021

See the reconciliation of non-GAAP measures on page 44.

- 42 -


(Dollars in millions, except per share data)	Nine-Months 2022						Nine-Months 2021						Change
	Reported			Adjusted			Reported			Adjusted			Reported			Adjusted
	GAAP			Non-GAAP			GAAP			Non-GAAP			GAAP			Non-GAAP
Brokerage Segment
Revenues	$	5,599.5		$	5,596.6		$	4,500.1		$	4,385.8			24	%		28	%
Organic revenues				$	4,736.2					$	4,331.5						9.3	%
Net earnings	$	1,058.5					$	845.6						25	%
Net earnings margin		18.9	%					18.8	%				+ 11 bpts
Adjusted EBITDAC				$	1,959.8					$	1,553.6						26	%
Adjusted EBITDAC margin					35.0	%					35.4	%				- 40 bpts
Diluted net earnings per share	$	4.92		$	6.52		$	4.09		$	5.41			21	%		21	%
Risk Management Segment
Revenues before reimbursements	$	802.0		$	802.0		$	713.3		$	703.5			12	%		14	%
Organic revenues				$	791.0					$	703.3						12.5	%
Net earnings	$	79.4					$	64.9						22	%
Net earnings margin (before reimbursements)		9.9	%					9.1	%				+ 80 bpts
Adjusted EBITDAC				$	145.7					$	135.1						8	%
Adjusted EBITDAC margin (before reimbursements)					18.2	%					19.2	%				- 103 bpts
Diluted net earnings per share	$	0.37		$	0.40		$	0.31		$	0.36			18	%		11	%
Corporate Segment
Diluted net loss per share	$	(0.72	)	$	(0.70	)	$	(0.52	)	$	(0.27	)
Total Company
Diluted net earnings per share	$	4.57		$	6.22		$	3.88		$	5.50			18	%		13	%
Total Brokerage and Risk Management Segment
Diluted net earnings per share	$	5.29		$	6.92		$	4.40		$	5.77			20	%		20	%

Within our corporate segment, net after-tax (loss) earnings related to our clean energy investments were $(2.2) million and $30.8 million, as reported, in the three-month periods ended September 30, 2022 and 2021, respectively. Within our corporate segment, net after-tax (loss) earnings related to our clean energy investments were $(6.5) million and $85.0 million, as reported, in the nine-month periods ended September 30, 2022 and 2021, respectively. At this time, we do not anticipate our clean energy investments will produce after-tax earnings in 2022.

The following provides information that management believes is helpful when comparing revenues before reimbursements, net earnings, EBITDAC and diluted net earnings per share for the three and nine-month periods ended September 30, 2022 with the same periods in 2021. In addition, these tables provide reconciliations to the most comparable GAAP measures for adjusted revenues, adjusted EBITDAC and adjusted diluted net earnings per share. Reconciliations of EBITDAC for the brokerage and risk management segments are provided on pages 48 and 55, respectively, of this filing.

For the Three-Month Periods Ended September 30 Reported GAAP to Adjusted Non-GAAP Reconciliation:

- 43 -



	Revenues Before																	Diluted Net Earnings
	Reimbursements					Net Earnings (Loss)						EBITDAC						(Loss) Per Share
Segment	2022		2021			2022			2021			2022			2021			2022			2021			Chg
	(in millions)					(in millions)						(in millions)
Brokerage, as reported	$	1,736.2	$	1,499.7		$	282.5		$	253.6		$	488.5		$	481.2		$	1.31		$	1.20			9	%
Net losses (gains) on divestitures		1.3		(4.3	)		1.0			(3.4	)		1.3			(4.3	)		—			(0.02	)
Acquisition integration		—		—			30.3			4.6			39.5			5.8			0.14			0.02
Workforce and lease termination		—		—			4.5			3.3			6.8			3.9			0.02			0.01
Acquisition related adjustments		—		—			(8.8	)		24.6			24.2			5.8			(0.04	)		0.12
Amortization of intangible assets		—		—			85.3			70.1			—			—			0.40			0.33
Levelized foreign currency translation		—		(48.8	)		—			(5.2	)		—			(8.1	)		—			(0.02	)
Brokerage, as adjusted *		1,737.5		1,446.6			394.8			347.6			560.3			484.3			1.83			1.64			12	%
Risk Management, as reported		275.5		248.0			26.9			22.0			47.3			43.7			0.13			0.10			30	%
Workforce and lease termination		—		—			1.7			4.0			2.2			4.5			0.01			0.02
Acquisition related adjustments		—		—			0.1			(0.1	)		0.1			0.1			—			—
Acquisition integration		—		—			0.5			—			0.6			—			—			—
Amortization of intangible assets		—		—			1.0			1.6			—			—			—			0.01
Levelized foreign currency translation		—		(3.6	)		—			(0.4	)		—			(0.7	)		—			—
Risk Management, as adjusted *		275.5		244.4			30.2			27.1			50.2			47.6			0.14			0.13			8	%
Corporate, as reported		0.3		357.9			(53.1	)		(37.0	)		(27.1	)		(51.5	)		(0.25	)		(0.24	)
Loss on extinguishment of debt		—		—			—			12.2			—			—			—			0.06
Transaction-related costs		—		—			5.9			8.2			6.3			11.0			0.03			0.04
Income tax related		—		—			(7.0	)		4.9			—			—			(0.03	)		0.03
Corporate, as adjusted*		0.3		357.9			(54.2	)		(11.7	)		(20.8	)		(40.5	)		(0.25	)		(0.11	)
Total Company, as reported	$	2,012.0	$	2,105.6		$	256.3		$	238.6		$	508.7		$	473.4		$	1.19		$	1.06			12	%
Total Company, as adjusted *	$	2,013.3	$	2,048.9		$	370.8		$	363.0		$	589.7		$	491.4		$	1.72		$	1.66			4	%
Total Brokerage & Risk
Management, as reported	$	2,011.7	$	1,747.7		$	309.4		$	275.6		$	535.8		$	524.9		$	1.44		$	1.30			10	%
Total Brokerage & Risk
Management, as adjusted *	$	2,013.0	$	1,691.0		$	425.0		$	374.7		$	610.5		$	531.9		$	1.97		$	1.77			11	%

*For the three-month period ended September 30, 2022, the pretax impact of the brokerage segment adjustments totals

$146.3 million, with a corresponding adjustment to the provision for income taxes of $34.0 million relating to these items. For the three-month period ended September 30, 2022, the pretax of the risk management segment adjustments totals $4.4 million, with a corresponding adjustment to the provision for income taxes of $1.1 million relating to these items. For the three-month period ended September 30, 2022, the pretax impact of the corporate segment adjustments totals $6.3 million, with a corresponding adjustment to the benefit for income taxes of $7.4 million relating to this item and the other tax items noted on page 62 in note (3). A detailed reconciliation of the 2022 provision (benefit) for income taxes is shown on page 44.

*For the three-month period ended September 30, 2021, the pretax impact of the brokerage segment adjustments totals $121.8 million, with a corresponding adjustment to the provision for income taxes of $27.8 million relating to these items. For the three-month period ended September 30, 2021, the pretax of the risk management segment adjustments totals $6.8 million, with a corresponding adjustment to the provision for income taxes of $1.7 million relating to these items. For the three-month period ended September 30, 2021, the pretax impact of the corporate segment adjustments totals $27.2 million, with a corresponding adjustment to the benefit for income taxes of $1.9 million relating to this item and the other tax items noted on page 62 in note (3). A detailed reconciliation of the 2021 provision (benefit) for income taxes is shown on page 44.

- 44 -

For the Nine-Month Periods Ended September 30 Reported GAAP to Adjusted Non-GAAP Reconciliation:



	Revenues Before																		Diluted Net Earnings
	Reimbursements						Net Earnings (Loss)						EBITDAC						(Loss) Per Share
Segment	2022			2021			2022			2021			2022			2021			2022			2021			Chg
	(in millions)						(in millions)						(in millions)
Brokerage, as reported	$	5,599.5		$	4,500.1		$	1,058.5		$	845.6		$	1,781.6		$	1,539.6		$	4.92		$	4.09			21	%
Net gains on divestitures		(2.9	)		(8.9	)		(2.4	)		(7.0	)		(2.9	)		(8.9	)		(0.01	)		(0.03	)
Acquisition integration		—			—			97.9			12.5			122.3			16.1			0.46			0.06
Workforce and lease termination		—			—			19.1			11.9			21.1			13.2			0.09			0.06
Acquisition related adjustments		—			—			(27.2	)		41.5			37.7			19.6			(0.13	)		0.20
Amortization of intangible assets		—			—			254.1			230.1			—			—			1.19			1.12
Levelized foreign currency translation		—			(105.4	)		—			(17.6	)		—			(26.0	)		—			(0.09	)
Brokerage, as adjusted *		5,596.6			4,385.8			1,400.0			1,117.0			1,959.8			1,553.6			6.52			5.41			21	%
Risk Management, as reported		802.0			713.3			79.4			64.9			140.0			131.1			0.37			0.31			18	%
Net gains on divestitures		—			(0.1	)		—			(0.1	)		—			(0.1	)		—			—
Workforce and lease termination		—			—			2.8			5.0			3.6			5.8			0.01			0.03
Acquisition related adjustments		—			—			(1.1	)		2.0			0.3			0.3			(0.01	)		0.01
Acquisition integration		—			—			1.4			—			1.8			—			0.01			—
Amortization of intangible assets		—			—			3.4			4.4			—			—			0.02			0.02
Levelized foreign currency translation		—			(9.7	)		—			(1.1	)		—			(2.0	)		—			(0.01	)
Risk Management, as adjusted *		802.0			703.5			85.9			75.1			145.7			135.1			0.40			0.36			11	%
Corporate, as reported		23.4			921.6			(157.4	)		(76.4	)		(107.2	)		(145.0	)		(0.72	)		(0.52	)
Loss on extinguishment of debt		—			—			—			12.2			—			—			—			0.06
Transaction-related costs		—			—			25.6			16.9			27.7			21.2			0.11			0.08
Income tax related		—			—			(19.0	)		24.2			—			—			(0.09	)		0.11
Corporate, as adjusted*		23.4			921.6			(150.8	)		(23.1	)		(79.5	)		(123.8	)		(0.70	)		(0.27	)
Total Company, as reported	$	6,424.9		$	6,135.0		$	980.5		$	834.1		$	1,814.4		$	1,525.7		$	4.57		$	3.88			18	%
Total Company, as adjusted *	$	6,422.0		$	6,010.9		$	1,335.1		$	1,169.0		$	2,026.0		$	1,564.9		$	6.22		$	5.50			13	%
Total Brokerage & Risk
Management, as reported	$	6,401.5		$	5,213.4		$	1,137.9		$	910.5		$	1,921.6		$	1,670.7		$	5.29		$	4.40			20	%
Total Brokerage & Risk
Management, as adjusted *	$	6,398.6		$	5,089.3		$	1,485.9		$	1,192.1		$	2,105.5		$	1,688.7		$	6.92		$	5.77			20	%

*For nine-month period ended September 30, 2022, the pretax impact of the brokerage segment adjustments totals $443.4 million, with a corresponding adjustment to the provision for income taxes of $101.9 million relating to these items. For the nine-month period ended September 30, 2022, the pretax impact of the risk management segment adjustments totals $8.7 million, with a corresponding adjustment to the provision for income taxes of $2.2 million relating to these items. For the nine-month period ended September 30, 2022, the pretax impact of the corporate segment adjustments totals $27.7 million, with a corresponding adjustment to the benefit for income taxes of $21.1 million relating to these items and the other tax items noted on page 62 in note (3). A detailed reconciliation of the 2022 provision (benefit) for income taxes is shown on page 45.

*For the nine-month period ended September 30, 2021, the pretax impact of the brokerage segment adjustments totals $353.7 million, with a corresponding adjustment to the provision for income taxes of $82.3 million relating to these items. For the nine-month period ended September 30, 2021, the pretax impact of the risk management segment adjustments totals $13.6 million, with a corresponding adjustment to the provision for income taxes of $3.4 million relating to these items. For the nine-month period ended September 30, 2021, the pretax impact of the corporate segment adjustments totals $37.4 million, with a corresponding adjustment to the benefit for income taxes of $(15.9) million relating to these items and other tax items noted on page 62 in note (3). A detailed reconciliation of the 2021 provision (benefit) for income taxes is shown on page 45.

- 45 -

Reconciliation of Non-GAAP Measures - Pre-tax Earnings and Diluted Net Earnings per Share


(In millions except share and per share data)
	Earnings			Provision						Net Earnings (Loss)			Net Earnings (Loss)
	(Loss)			(Benefit)						Attributable to			Attributable to			Diluted Net
	Before Income			for Income			Net Earnings			Noncontrolling			Controlling			Earnings (Loss)
	Taxes			Taxes			(Loss)			Interests			Interests			per Share
Quarter Ended September 30, 2022
Brokerage, as reported	$	370.7		$	88.2		$	282.5		$	1.2		$	281.3		$	1.31
Net losses on divestitures		1.3			0.3			1.0			—			1.0			—
Acquisition integration		39.5			9.2			30.3			—			30.3			0.14
Workforce and lease termination		5.8			1.3			4.5			—			4.5			0.02
Acquisition related adjustments		(11.4	)		(2.6	)		(8.8	)		—			(8.8	)		(0.04	)
Amortization of intangible assets		111.1			25.8			85.3			—			85.3			0.40
Brokerage, as adjusted	$	517.0		$	122.2		$	394.8		$	1.2		$	393.6		$	1.83
Risk Management, as reported	$	36.6		$	9.7		$	26.9		$	—		$	26.9		$	0.13
Workforce and lease termination		2.2			0.5			1.7			—			1.7			0.01
Acquisition related adjustments		0.1			—			0.1			—			0.1			—
Acquisition integration		0.6			0.1			0.5			—			0.5			—
Amortization of intangible assets		1.5			0.5			1.0			—			1.0			—
Risk Management, as adjusted	$	41.0		$	10.8		$	30.2		$	—		$	30.2		$	0.14
Corporate, as reported	$	(92.3	)	$	(39.2	)	$	(53.1	)	$	(0.7	)	$	(52.4	)	$	(0.25	)
Transaction-related costs		6.3			0.4			5.9			—			5.9			0.03
Income tax related		—			7.0			(7.0	)		—			(7.0	)		(0.03	)
Corporate, as adjusted	$	(86.0	)	$	(31.8	)	$	(54.2	)	$	(0.7	)	$	(53.5	)	$	(0.25	)
Quarter Ended September 30, 2021
Brokerage, as reported	$	334.5		$	80.9		$	253.6		$	1.2		$	252.4		$	1.20
Net gains on divestitures		(4.3	)		(0.9	)		(3.4	)		—			(3.4	)		(0.02	)
Acquisition integration		5.8			1.2			4.6			—			4.6			0.02
Workforce and lease termination		4.2			0.9			3.3			—			3.3			0.01
Acquisition related adjustments		32.0			7.4			24.6			—			24.6			0.12
Amortization of intangible assets		90.8			20.7			70.1			—			70.1			0.33
Levelized foreign currency translation		(6.7	)		(1.5	)		(5.2	)		—			(5.2	)		(0.02	)
Brokerage, as adjusted	$	456.3		$	108.7		$	347.6		$	1.2		$	346.4		$	1.64
Risk Management, as reported	$	29.5		$	7.5		$	22.0		$	—		$	22.0		$	0.10
Workforce and lease termination		5.4			1.4			4.0			—			4.0			0.02
Acquisition related adjustments		(0.1	)		—			(0.1	)		—			(0.1	)		—
Amortization of intangible assets		2.1			0.5			1.6			—			1.6			0.01
Levelized foreign currency translation		(0.6	)		(0.2	)		(0.4	)		—			(0.4	)		—
Risk Management, as adjusted	$	36.3		$	9.2		$	27.1		$	—		$	27.1		$	0.13
Corporate, as reported	$	(132.6	)	$	(95.6	)	$	(37.0	)	$	12.3		$	(49.3	)	$	(0.24	)
Loss on extinguishment of debt		16.2			4.0			12.2			—			12.2			0.06
Transaction-related costs		11.0			2.8			8.2			—			8.2			0.04
Income tax related		—			(4.9	)		4.9			—			4.9			0.03
Corporate, as adjusted	$	(105.4	)	$	(93.7	)	$	(11.7	)	$	12.3		$	(24.0	)	$	(0.11	)

- 46 -

Reconciliation of Non-GAAP Measures - Pre-tax Earnings and Diluted Net Earnings per Share


(In millions except share and per share data)
	Earnings			Provision						Net Earnings (Loss)			Net Earnings (Loss)
	(Loss)			(Benefit)						Attributable to			Attributable to			Diluted Net
	Before Income			for Income			Net Earnings			Noncontrolling			Controlling			Earnings (Loss)
	Taxes			Taxes			(Loss)			Interests			Interests			per Share
Nine-Months Ended September 30, 2022
Brokerage, as reported	$	1,400.0		$	341.5		$	1,058.5		$	3.3		$	1,055.2		$	4.92
Net gains on divestitures		(2.9	)		(0.5	)		(2.4	)		—			(2.4	)		(0.01	)
Acquisition integration		122.3			24.4			97.9			—			97.9			0.46
Workforce and lease termination		23.6			4.5			19.1			—			19.1			0.09
Acquisition related adjustments		(32.4	)		(5.2	)		(27.2	)		—			(27.2	)		(0.13	)
Amortization of intangible assets		332.8			78.7			254.1			—			254.1			1.19
Brokerage, as adjusted	$	1,843.4		$	443.4		$	1,400.0		$	3.3		$	1,396.7		$	6.52
Risk Management, as reported	$	107.7		$	28.3		$	79.4		$	—		$	79.4		$	0.37
Workforce and lease termination		3.7			0.9			2.8			—			2.8			0.01
Acquisition related adjustments		(1.5	)		(0.4	)		(1.1	)		—			(1.1	)		(0.01	)
Acquisition integration		1.8			0.4			1.4			—			1.4			0.01
Amortization of intangible assets		4.7			1.3			3.4			—			3.4			0.02
Risk Management, as adjusted	$	116.4		$	30.5		$	85.9		$	—		$	85.9		$	0.40
Corporate, as reported	$	(302.7	)	$	(145.3	)	$	(157.4	)	$	(1.5	)	$	(155.9	)	$	(0.72	)
Transaction-related costs		27.7			2.1			25.6			—			25.6			0.11
Income tax rate related		—			19.0			(19.0	)		—			(19.0	)		(0.09	)
Corporate, as adjusted	$	(275.0	)	$	(124.2	)	$	(150.8	)	$	(1.5	)	$	(149.3	)	$	(0.70	)
Nine-Months Ended September 30, 2021
Brokerage, as reported	$	1,114.5		$	268.9		$	845.6		$	5.6		$	840.0		$	4.09
Net gains on divestitures		(8.9	)		(1.9	)		(7.0	)		—			(7.0	)		(0.03	)
Acquisition integration		16.1			3.6			12.5			—			12.5			0.06
Workforce and lease termination		15.3			3.4			11.9			—			11.9			0.06
Acquisition related adjustments		53.9			12.4			41.5			—			41.5			0.20
Amortization of intangible assets		300.2			70.1			230.1			—			230.1			1.12
Levelized foreign currency translation		(22.9	)		(5.3	)		(17.6	)		—			(17.6	)		(0.09	)
Brokerage, as adjusted	$	1,468.2		$	351.2		$	1,117.0		$	5.6		$	1,111.4		$	5.41
Risk Management, as reported	$	87.0		$	22.1		$	64.9		$	—		$	64.9		$	0.31
Net gains on divestitures		(0.1	)		—			(0.1	)		—			(0.1	)		—
Workforce and lease termination		6.7			1.7			5.0			—			5.0			0.03
Acquisition related adjustments		2.6			0.6			2.0			—			2.0			0.01
Amortization of intangible assets		5.9			1.5			4.4			—			4.4			0.02
Levelized foreign currency translation		(1.5	)		(0.4	)		(1.1	)		—			(1.1	)		(0.01	)
Risk Management, as adjusted	$	100.6		$	25.5		$	75.1		$	—		$	75.1		$	0.36
Corporate, as reported	$	(339.4	)	$	(263.0	)	$	(76.4	)	$	31.1		$	(107.5	)	$	(0.52	)
Loss on extinguishment of debt		16.2			4.0			12.2			—			12.2			0.06
Transaction-related costs		21.2			4.3			16.9			—			16.9			0.08
Income tax related		—			(24.2	)		24.2			—			24.2			0.11
Corporate, as adjusted	$	(302.0	)	$	(278.9	)	$	(23.1	)	$	31.1		$	(54.2	)	$	(0.27	)

Acquisition of the Willis Towers Watson plc Treaty Reinsurance Brokerage Operations

- 47 -

Results of Operations

Brokerage

The brokerage segment accounted for 86% of our revenues during the nine-month period ended September 30, 2022. Our brokerage segment is primarily comprised of retail, wholesale and reinsurance brokerage operations. Our brokerage segment generates revenues by:

(i)

Identifying, negotiating and placing all forms of insurance or reinsurance coverage, as well as providing risk-shifting, risk-sharing and risk-mitigation consulting services, principally related to property/casualty, life, health, welfare and disability insurance. We also provide these services through, or in conjunction with, other unrelated agents and brokers, consultants and management advisors;

(ii)

Acting as an agent or broker for multiple underwriting enterprises by providing services such as sales, marketing, selecting, negotiating, underwriting, servicing and placing insurance coverage on their behalf;

(iii)

Providing consulting services related to health and welfare benefits, voluntary benefits, executive benefits, compensation, retirement planning, institutional investment and fiduciary, actuarial, compliance, private insurance exchange, human resource technology, communications and benefits administration; and

(iv)

Providing management and administrative services to captives, pools, risk-retention groups, healthcare exchanges, small underwriting enterprises, such as accounting, claims and loss processing assistance, feasibility studies, actuarial studies, data analytics and other administrative services.

The primary source of revenues for our brokerage services is commissions from underwriting enterprises, based on a percentage of premiums paid by our clients, or fees received from clients based on an agreed level of service usually in lieu of commissions. Commissions are fixed at the contract effective date and generally are based on a percentage of premiums for insurance coverage or employee headcount for employer sponsored benefit plans. Commissions depend upon a large number of factors, including the type of risk being placed, the particular underwriting enterprise’s demand, the expected loss experience of the particular risk of coverage, and historical benchmarks surrounding the level of effort necessary for us to place and service the insurance contract. Rather than being tied to the amount of premiums, fees are most often based on an expected level of effort to provide our services. In addition, under certain circumstances, both retail brokerage and wholesale brokerage services receive supplemental and contingent revenues. Supplemental revenue is revenue paid by an underwriting enterprise that is above the base commission paid, is determined by the underwriting enterprise and is established annually in advance of the contractual period based on historical performance criteria. Contingent revenue is revenue paid by an underwriting enterprise based on the overall profit and/or volume of the business placed with that underwriting enterprise during a particular calendar year and is determined after the contractual period.

Litigation, Regulatory and Taxation Matters

In October 2022, we resolved a series of lawsuits where we were the plaintiffs, which resulted in us receiving $55.0 million in a cash settlement. This settlement gain will be recognized in fourth quarter 2022 (approximately $35.0 million net of litigation costs and taxes). We expect to utilize these cash proceeds over the following five to nine quarters to fund incremental production talent hires and make investments in technology.

As previously disclosed, our IRC 831(b) (or “micro-captive”) advisory services business has been under audit by the IRS since 2013. Among other matters, the IRS is investigating whether we have been acting as a tax shelter promoter in connection with these operations. Additionally, the IRS is conducting a criminal investigation related to IRC 831(b) micro-captive underwriting enterprises. We have been advised that we are not a target of the criminal investigation. We are fully cooperating with both matters. We are not able to reasonably estimate the ultimate amount of any potential loss in connection with these matters, we do not expect any such loss to be material to our consolidated financial statements.

- 48 -

Financial information relating to our brokerage segment results for the three and nine-month periods ended September 30, 2022 compared to the same periods in 2021, is as follows (in millions, except per share, percentages and workforce data):


	Three-month period ended September 30,									Nine-month period ended September 30,
Statement of Earnings	2022			2021			Change			2022			2021			Change
Commissions	$	1,186.9		$	1,016.2		$	170.7		$	4,034.6		$	3,118.7		$	915.9
Fees		396.0			353.8			42.2			1,111.5			983.4			128.1
Supplemental revenues		64.7			61.0			3.7			204.7			183.0			21.7
Contingent revenues		52.4			43.7			8.7			167.1			150.3			16.8
Investment income		37.5			20.7			16.8			78.7			55.8			22.9
Net (losses) gains on divestitures		(1.3	)		4.3			(5.6	)		2.9			8.9			(6.0	)
Total revenues		1,736.2			1,499.7			236.5			5,599.5			4,500.1			1,099.4
Compensation		985.8			827.9			157.9			3,061.4			2,423.0			638.4
Operating		261.9			190.6			71.3			756.5			537.5			219.0
Depreciation		23.1			21.8			1.3			76.7			65.0			11.7
Amortization		111.1			90.8			20.3			332.8			300.2			32.6
Change in estimated acquisition earnout payables		(16.4	)		34.1			(50.5	)		(27.9	)		59.9			(87.8	)
Total expenses		1,365.5			1,165.2			200.3			4,199.5			3,385.6			813.9
Earnings before income taxes		370.7			334.5			36.2			1,400.0			1,114.5			285.5
Provision for income taxes		88.2			80.9			7.3			341.5			268.9			72.6
Net earnings		282.5			253.6			28.9			1,058.5			845.6			212.9
Net earnings attributable to noncontrolling interests		1.2			1.2			—			3.3			5.6			(2.3	)
Net earnings attributable to controlling interests	$	281.3		$	252.4		$	28.9		$	1,055.2		$	840.0		$	215.2
Diluted net earnings per share	$	1.31		$	1.20		$	0.11		$	4.92		$	4.09		$	0.83
Other Information
Change in diluted net earnings per share		9	%		14	%					21	%		13	%
Growth in revenues		16	%		16	%					24	%		14	%
Organic change in commissions and fees		7	%		9	%					9	%		7	%
Compensation expense ratio		57	%		55	%					55	%		54	%
Operating expense ratio		15	%		13	%					14	%		12	%
Effective income tax rate		24	%		24	%					24	%		24	%
Workforce at end of period (includes acquisitions)											32,061			26,877
Identifiable assets at September 30										$	34,924.4		$	21,184.7
EBITDAC
Net earnings	$	282.5		$	253.6		$	28.9		$	1,058.5		$	845.6		$	212.9
Provision for income taxes		88.2			80.9			7.3			341.5			268.9			72.6
Depreciation		23.1			21.8			1.3			76.7			65.0			11.7
Amortization		111.1			90.8			20.3			332.8			300.2			32.6
Change in estimated acquisition earnout payables		(16.4	)		34.1			(50.5	)		(27.9	)		59.9			(87.8	)
EBITDAC	$	488.5		$	481.2		$	7.3		$	1,781.6		$	1,539.6		$	242.0

- 49 -

The following provides information that management believes is helpful when comparing EBITDAC and adjusted EBITDAC for the three and nine-month periods ended September 30, 2022 compared to the same periods in 2021 (in millions):


	Three-month period ended September 30,									Nine-month period ended September 30,
	2022			2021			Change			2022			2021			Change
Net earnings, as reported	$	282.5		$	253.6			11	%	$	1,058.5		$	845.6			25	%
Provision for income taxes		88.2			80.9						341.5			268.9
Depreciation		23.1			21.8						76.7			65.0
Amortization		111.1			90.8						332.8			300.2
Change in estimated acquisition earnout payables		(16.4	)		34.1						(27.9	)		59.9
EBITDAC		488.5			481.2			2	%		1,781.6			1,539.6			16	%
Net losses (gains) on divestitures		1.3			(4.3	)					(2.9	)		(8.9	)
Acquisition integration		39.5			5.8						122.3			16.1
Workforce and lease termination related charges		6.8			3.9						21.1			13.2
Acquisition related adjustments		24.2			5.8						37.7			19.6
Levelized foreign currency translation		—			(8.1	)					—			(26.0	)
EBITDAC, as adjusted	$	560.3		$	484.3			16	%	$	1,959.8		$	1,553.6			26	%
Net earnings margin, as reported		16.3	%		16.9	%	- 64 bpts				18.9	%		18.8	%	+ 11 bpts
EBITDAC margin, as adjusted		32.2	%		33.5	%	- 123 bpts				35.0	%		35.4	%	- 40 bpts
Reported revenues	$	1,736.2		$	1,499.7					$	5,599.5		$	4,500.1
Adjusted revenues - see pages 42 and 43	$	1,737.5		$	1,446.6					$	5,596.6		$	4,385.8

Commissions and fees - The aggregate increase in base commissions and fees for the three-month period ended September 30, 2022, compared to the same period in 2021, was due to revenues associated with acquisitions that were made in the twelve-month period ended September 30, 2022 ($161.2 million), and to the organic change in base commissions and fee revenues. The organic change in base commissions and fee revenues was 7.3% and 8.5% for the three-month periods ended September 30, 2022 and 2021, respectively.

The aggregate increase in base commissions and fees for the nine-month period ended September 30, 2022, compared to the same period in 2021, was due to revenues associated with acquisitions that were made in the twelve-month period ended September 30, 2022 ($777.9 million), and to the organic change in base commissions and fee revenues. The organic change in base commissions and fee revenues was 9.1% and 6.7% for the nine-month periods ended September 30, 2022 and 2021, respectively.

In our property/casualty brokerage operations, during the three-month period ended September 30, 2022 we saw continued strong customer retention and new business generation and increasing renewal premiums (premium rates and exposures). We believe these favorable trends should continue into the fourth quarter of 2022; however, if economic conditions worsen, we could see our revenue growth soften.

- 50 -

Items excluded from organic revenue computations yet impacting revenue comparisons for the three and nine-month periods ended September 30, 2022 and 2021 include the following (in millions):


	Three-Month Period Ended September 30,									Nine-Month Period Ended September 30,
Organic Revenues (Non-GAAP)	2022			2021			Change			2022			2021			Change
Base Commissions and Fees
Commission and fees, as reported	$	1,582.9		$	1,370.0			15.5	%	$	5,146.1		$	4,102.1			25.5	%
Less commission and fee revenues from acquisitions		(161.2	)		—						(777.9	)		—
Less divested operations		—			(0.1	)					—			(2.2	)
Levelized foreign currency translation		—			(45.0	)					—			(96.1	)
Organic base commission and fees	$	1,421.7		$	1,324.9			7.3	%	$	4,368.2		$	4,003.8			9.1	%
Supplemental revenues
Supplemental revenues, as reported	$	64.7		$	61.0			6.1	%	$	204.7		$	183.0			11.9	%
Less supplemental revenues from acquisitions		(0.3	)		—						(1.4	)		—
Levelized foreign currency translation		—			(2.0	)					—			(4.4	)
Organic supplemental revenues	$	64.4		$	59.0			9.2	%	$	203.3		$	178.6			13.8	%
Contingent revenues
Contingent revenues, as reported	$	52.4		$	43.7			19.9	%	$	167.1		$	150.3			11.2	%
Less contingent revenues from acquisitions		(0.6	)		—						(2.4	)		—
Levelized foreign currency translation		—			(0.3	)					—			(1.2	)
Organic contingent revenues	$	51.8		$	43.4			19.4	%	$	164.7		$	149.1			10.5	%
Total reported commissions, fees, supplemental revenues and contingent revenues	$	1,700.0		$	1,474.7			15.3	%	$	5,517.9		$	4,435.4			24.4	%
Less commissions, fees, supplemental revenues and contingent revenues from acquisitions		(162.1	)		—						(781.7	)		—
Less divested operations		—			(0.1	)					—			(2.2	)
Levelized foreign currency translation		—			(47.3	)					—			(101.7	)
Total organic commissions, fees, supplemental revenues and contingent revenues	$	1,537.9		$	1,427.3			7.8	%	$	4,736.2		$	4,331.5			9.3	%

The following is a summary of brokerage segment acquisition activity for 2022 and 2021:


	Three-month period ended September 30,				Nine-month period ended September 30,
	2022		2021		2022		2021
Number of acquisitions closed		6		5		19		17
Estimated annualized revenues acquired (in millions)	$	20.4	$	16.1	$	102.7	$	139.9

In the three and nine-month periods ended September 30, 2022 we issued 91,000 shares of our common stock at the request of sellers and/or in connection with tax-free exchange acquisitions. We issued 185,000 and 751,000 shares of our common stock at the request of sellers and/or in connection with tax-free exchange acquisitions made in the three and nine-month periods ended September 30, 2021, respectively.

On September 29, 2022, we signed a definitive agreement to acquire 100% of the equity of M&T Insurance Agency, Inc., an indirect subsidiary of M&T Bank Corporation, headquartered in Buffalo, New York for approximately $170.0 million of cash consideration, plus a potential earnout obligation of approximately $22.5 million. In connection with the transaction, we will become the preferred insurance broking partner of M&T Bank. The transaction was subject to regulatory approval and customary closing conditions and closed October 31, 2022.

- 51 -

Supplemental and contingent revenues - Reported supplemental and contingent revenues recognized in 2022, 2021 and 2020 by quarter are as follows (in millions):


	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter		YTD
2022
Reported supplemental revenues	$	74.3	$	65.7	$	64.7			$	204.7
Reported contingent revenues		71.6		43.1		52.4				167.1
Reported supplemental and contingent revenues	$	145.9	$	108.8	$	117.1			$	371.8
2021
Reported supplemental revenues	$	66.8	$	55.2	$	61.0	$	65.7	$	248.7
Reported contingent revenues		63.3		43.3		43.7		37.7		188.0
Reported supplemental and contingent revenues	$	130.1	$	98.5	$	104.7	$	103.4	$	436.7
2020
Reported supplemental revenues	$	59.0	$	50.3	$	54.7	$	57.9	$	221.9
Reported contingent revenues		45.1		37.4		34.5		30.0		147.0
Reported supplemental and contingent revenues	$	104.1	$	87.7	$	89.2	$	87.9	$	368.9

Investment income and net (losses) gains on divestitures - This primarily represents (1) interest income earned on cash, cash equivalents and restricted funds and interest income from premium financing and (2) net (losses) gains related to divestitures and sales of books of business, which were $(1.3) million and $4.3 million for the three-month periods ended September 30, 2022 and 2021, respectively and $2.9 million and $8.9 million for the nine-month periods ended September 30, 2022 and 2021, respectively. Investment income in the three and nine-month periods ended September 30, 2022 increased compared to the same periods in 2021, primarily due to increases in interest income due to increases in interest rates earned on our funds.

Compensation expense - The following provides non-GAAP information that management believes is helpful when comparing compensation expense for the three and nine-month periods ended September 30, 2022 with the same periods in 2021 (in millions):


	Three-month period ended September 30,						Nine-month period ended September 30,
	2022			2021			2022			2021
Compensation expense, as reported	$	985.8		$	827.9		$	3,061.4		$	2,423.0
Acquisition integration		(25.7	)		(4.7	)		(81.5	)		(11.9	)
Workforce and lease termination related charges		(4.4	)		(2.0	)		(15.9	)		(9.3	)
Acquisition related adjustments		(24.2	)		(5.8	)		(37.7	)		(19.6	)
Levelized foreign currency translation		—			(29.8	)		—			(60.6	)
Compensation expense, as adjusted	$	931.5		$	785.6		$	2,926.3		$	2,321.6
Reported compensation expense ratios		56.8	%		55.2	%		54.7	%		53.8	%
Adjusted compensation expense ratios		53.6	%		54.3	%		52.3	%		52.9	%
Reported revenues	$	1,736.2		$	1,499.7		$	5,599.5		$	4,500.1
Adjusted revenues - see pages 42 and 43	$	1,737.5		$	1,446.6		$	5,596.6		$	4,385.8

The $157.9 million increase in compensation expense for the three-month period ended September 30, 2022 compared to the same period in 2021, was primarily due to compensation associated with the acquisitions completed in the twelve-month period ended September 30, 2022 ‑ $96.9 million, base compensation related to merit wage increases and hiring to support growth, benefits and other incentive compensation - $21.6 million in the aggregate, increases in acquisition integration costs - $21.0 million and acquisition earnout related adjustments - $18.4 million.

The $638.4 million increase in compensation expense for the nine-month period ended September 30, 2022, compared to the same period in 2021, was primarily due to compensation associated with the acquisitions completed in the twelve-month period ended September 30, 2022 ‑ $373.6 million, base compensation related to merit wage increases and hiring to support growth, benefits and other incentive compensation linked to operating results - $177.1 million in the aggregate, increases in acquisition integration costs - $69.6 million and acquisition earnout related adjustments - $18.1 million.

Operating expense - The following provides non-GAAP information that management believes is helpful when comparing operating expense for the three and nine-month periods ended September 30, 2022 with the same periods in 2021 (in millions):

- 52 -


	Three-month period ended September30,						Nine-month period ended September30,
	2022			2021			2022			2021
Operating expense, as reported	$	261.9		$	190.6		$	756.5		$	537.5
Acquisition integration		(13.8	)		(1.1	)		(40.8	)		(4.2	)
Workforce and lease termination related charges		(2.4	)		(1.9	)		(5.2	)		(3.9	)
Levelized foreign currency translation		—			(10.9	)		—			(18.8	)
Operating expense, as adjusted	$	245.7		$	176.7		$	710.5		$	510.6
Reported operating expense ratios		15.1	%		12.7	%		13.5	%		11.9	%
Adjusted operating expense ratios		14.1	%		12.2	%		12.7	%		11.6	%
Reported revenues	$	1,736.2		$	1,499.7		$	5,599.5		$	4,500.1
Adjusted revenues - see pages 42 and 43	$	1,737.5		$	1,446.6		$	5,596.6		$	4,385.8

The $71.3 million increase in operating expense for the three-month period ended September 30, 2022 compared to the same period in 2021, was primarily due to expenses associated with the acquisitions completed in the twelve-month period ended September 30, 2022 - $34.6 million, increases in travel, entertainment, technology, advertising, and other client-related expenses - $24.0 million in the aggregate and acquisition integration costs - $12.7 million.

The $219.0 million increase in operating expense for the nine-month period ended September 30, 2022 compared to the same period in 2021, was primarily due to expenses associated with the acquisitions completed in the twelve-month period ended September 30, 2022 ‑ $99.3 million, increases in travel, entertainment, technology, advertising, and other client-related expenses ‑ $83.1 million in the aggregate, and acquisition integration costs - $36.6 million. During third quarter 2022 and the nine-month period ended September 30, 2022, relative to the same periods in 2021, as we increased our business activities, we experienced increases in travel and entertainment, full restoration of advertising and more normalized usage of our employee medical plan, resumption of annual support-layer wage increases, merit wage increases and hiring to support growth, further investment in support of our hybrid employee environment and continued investment in cyber security.

Depreciation - Depreciation expense increased in the three and nine-month periods ended September 30, 2022 compared to the same periods in 2021 by $1.3 million and $11.7 million, respectively. The increase in depreciation expense in 2022 compared to 2021 was due primarily to the purchases of furniture, equipment and leasehold improvements related to office consolidations and moves, and expenditures related to upgrading computer systems. Also contributing to the increase in depreciation expense was the depreciation expenses associated with acquisitions completed in the twelve month period ended September 30, 2022.

Amortization - The increase in amortization expense in the three-month period ended September 30, 2022 compared to the same period in 2021 was primarily due to the impact of acquisition valuation true-ups recorded in the third quarter of 2022 relating to acquisitions made in fourth quarter of 2021, partially offset by the impact of amortization expense of intangible assets associated with acquisitions completed in the twelve month period ended September 30, 2022. The increase in amortization expense in the nine-month period ended September 30, 2022 compared to the same period in 2021 was primarily due to the impact of amortization expense of intangible assets associated with acquisitions completed in the twelve month period ended September 30, 2022, partially offset by 2021 impairment charges and acquisition valuation adjustments in 2021 and 2022. Based on the results of impairment reviews during the nine-month periods ended September 30, 2022 and 2021, we wrote off $0.4 million and $13.1 million, respectively, of amortizable assets. We review all of our intangible assets for impairment periodically (at least annually for goodwill) and whenever events or changes in business circumstances indicate that the carrying value of the assets may not be recoverable. We perform such impairment reviews at the division (i.e., reporting unit) level with respect to goodwill and at the business unit level for amortizable intangible assets. In reviewing intangible assets, if the undiscounted future cash flows were less than the carrying amount of the respective (or underlying) asset, an indicator of impairment would exist and further analysis would be required to determine whether or not a loss would need to be charged against current period earnings as a component of amortization expense. Expiration lists, non-compete agreements and trade names are amortized using the straight-line method over their estimated useful lives (two to fifteen years for expiration lists, two to six years for non-compete agreements and two to fifteen years for trade names).

Change in estimated acquisition earnout payables - The change in the expense from the change in estimated acquisition earnout payables in the three and nine-month periods ended September 30, 2022 compared to the same periods in 2021, was primarily due to adjustments made to the estimated fair value of earnout obligations related to revised assumptions due to rising interest rates and increased market volatility and projections of future performance. During the three-month periods ended September 30, 2022 and 2021, we recognized $19.2 million and $7.9 million, respectively, of expense related to the accretion of the discount recorded for earnout obligations in connection with our acquisitions made in the period from 2018 to 2022. During the nine-month periods ended September 30, 2022 and 2021, we recognized $42.2 million and $25.6 million, respectively, of expense related to the accretion of the discount recorded for earnout obligation in connection with our acquisitions made in the period from 2018 to 2022. In addition,

- 53 -

during the three-month periods ended September 30, 2022 and 2021, we recognized $35.6 million of income and $26.2 million of expense, respectively, related to net adjustments in the estimated fair value of earnout obligations in connection with revised assumptions due to changes in interest rates, volatility and other assumptions and projections of future performance for 27 and 43 acquisitions, respectively. In addition, during the nine-month periods ended September 30, 2022 and 2021, we recognized $70.1 million of income and $34.3 million of expense, respectively, related to net adjustments in the estimated fair value of the earnout obligations in connection with revised assumptions due to changes in interest rates, volatility and other assumptions and projections of future performance for 67 and 77 acquisitions, respectively. The net adjustments in the three-month and nine-month periods ended September 30, 2022, include changes made to the estimated fair value of the Willis Towers Watson plc treaty reinsurance brokerage operations acquisition earnout and reflect updated assumptions as of September 30, 2022. However, we do not currently expect any material change in the underlying performance of this acquisition or the ultimate earnout expected to be paid at the end of the earnout measurement period.

The amounts initially recorded as earnout payables for our 2018 to 2022 acquisitions were measured at fair value as of the acquisition date and are primarily based upon the estimated future operating results of the acquired entities over a two- to three-year period subsequent to the acquisition date. The fair value of these earnout obligations is based on the present value of the expected future payments to be made to the sellers of the acquired entities in accordance with the provisions outlined in the respective purchase agreements. In determining fair value, we estimate the acquired entity’s future performance using financial projections developed by management for the acquired entity and market participant assumptions that were derived for revenue growth and/or profitability. We estimate future earnout payments using the earnout formula and performance targets specified in each purchase agreement and these financial projections. Subsequent changes in the underlying financial projections or assumptions will cause the estimated earnout obligations to change and such adjustments are recorded in our consolidated statement of earnings when incurred. Increases in the earnout payable obligations will result in the recognition of expense and decreases in the earnout payable obligations will result in the recognition of income.

Provision for income taxes - The brokerage segment’s effective income tax rates for the three-month periods ended September 30, 2022 and 2021, were 23.8% and 24.2%, respectively. The brokerage segment's effective income tax rates for the nine-month periods ended September 30, 2022 and 2021, were 24.4% and 24.1%, respectively. In the first quarter of 2022, we increased our state effective income tax rate, which resulted in the overall U.S. effective income tax rate increasing from 25% to 26% and caused us to incur additional income tax expense. We anticipate reporting an effective tax rate of approximately 24.0% to 25.5% in our brokerage segment for the foreseeable future.

Net earnings attributable to noncontrolling interests - The amounts reported in this line for the three-month periods ended September 30, 2022 and 2021, include noncontrolling interest earnings of $1.2 million in each period, and for the nine-month periods ended September 30, 2022 and 2021, $3.3 million and $5.6 million, respectively.

- 54 -

Risk Management

The risk management segment accounted for 14% of our revenue during the nine-month period ended September 30, 2022. 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 underwriting enterprises. Revenues for our risk management segment are comprised of fees generally negotiated (i) on a per-claim or per-service basis, (ii) on a cost-plus basis, or (iii) as performance-based fees. We also provide risk management consulting services that are recognized as the services are delivered.

Financial information relating to our risk management segment results for the three and nine-month periods ended September 30, 2022 and 2021 as compared to the same periods in 2021, is as follows (in millions, except per share, percentages and workforce data):

- 55 -


Statement of Earnings	Three-month period ended September 30,									Nine-month period ended September 30,
	2022			2021			Change			2022			2021			Change
Fees	$	275.3		$	247.9		$	27.4		$	801.6		$	713.0		$	88.6
Investment income		0.2			0.1			0.1			0.4			0.2			0.2
Net gains on divestitures		—			—			—			—			0.1			(0.1	)
Revenues before reimbursements		275.5			248.0			27.5			802.0			713.3			88.7
Reimbursements		32.0			32.6			(0.6	)		97.4			101.7			(4.3	)
Total revenues		307.5			280.6			26.9			899.4			815.0			84.4
Compensation		169.3			148.9			20.4			487.1			428.9			58.2
Operating		58.9			55.4			3.5			174.9			153.3			21.6
Reimbursements		32.0			32.6			(0.6	)		97.4			101.7			(4.3	)
Depreciation		9.0			12.0			(3.0	)		28.8			35.1			(6.3	)
Amortization		1.5			2.1			(0.6	)		4.7			5.9			(1.2	)
Change in estimated acquisition earnout payables		0.2			0.1			0.1			(1.2	)		3.1			(4.3	)
Total expenses		270.9			251.1			19.8			791.7			728.0			63.7
Earnings before income taxes		36.6			29.5			7.1			107.7			87.0			20.7
Provision for income taxes		9.7			7.5			2.2			28.3			22.1			6.2
Net earnings		26.9			22.0			4.9			79.4			64.9			14.5
Net earnings attributable to noncontrolling interests		—			—			—			—			—			—
Net earnings attributable to controlling interests	$	26.9		$	22.0		$	4.9		$	79.4		$	64.9		$	14.5
Diluted net earnings per share	$	0.13		$	0.10		$	0.03		$	0.37		$	0.31		$	0.06
Other information
Change in diluted net earnings per share		30	%		11	%					18	%		24	%
Growth in revenues (before reimbursements)		11	%		22	%					12	%		18	%
Organic change in fees (before reimbursements)		12	%		17	%					12	%		12	%
Compensation expense ratio (before reimbursements)		61	%		60	%					61	%		60	%
Operating expense ratio (before reimbursements)		21	%		22	%					22	%		21	%
Effective income tax rate		27	%		25	%					26	%		25	%
Workforce at end of period (includes acquisitions)											8,297			7,108
Identifiable assets at September 30										$	1,128.0		$	1,079.7
EBITDAC
Net earnings	$	26.9		$	22.0		$	4.9		$	79.4		$	64.9		$	14.5
Provision for income taxes		9.7			7.5			2.2			28.3			22.1			6.2
Depreciation		9.0			12.0			(3.0	)		28.8			35.1			(6.3	)
Amortization		1.5			2.1			(0.6	)		4.7			5.9			(1.2	)
Change in estimated acquisition earnout payables		0.2			0.1			0.1			(1.2	)		3.1			(4.3	)
EBITDAC	$	47.3		$	43.7		$	3.6		$	140.0		$	131.1		$	8.9

- 56 -

The following provides non-GAAP information that management believes is helpful when comparing EBITDAC and adjusted EBITDAC for the three and nine-month periods ended September 30, 2022 to the same periods in 2021 (in millions):


	Three-month period ended September 30,									Nine-month period ended September 30,
	2022			2021			Change			2022			2021			Change
Net earnings, as reported	$	26.9		$	22.0			22	%	$	79.4		$	64.9			22	%
Provision for income taxes		9.7			7.5						28.3			22.1
Depreciation		9.0			12.0						28.8			35.1
Amortization		1.5			2.1						4.7			5.9
Change in estimated acquisition earnout payables		0.2			0.1						(1.2	)		3.1
Total EBITDAC		47.3			43.7			8	%		140.0			131.1			7	%
Net gains on divestitures		—			—						—			(0.1	)
Workforce and lease termination related charges		2.2			4.5						3.6			5.8
Acquisition related adjustments		0.1			0.1						0.3			0.3
Acquisition integration		0.6			—						1.8			—
Levelized foreign currency translation		—			(0.7	)					—			(2.0	)
EBITDAC, as adjusted	$	50.2		$	47.6			5	%	$	145.7		$	135.1			8	%
Net earnings margin (before reimbursements), as reported		9.8	%		8.9	%	+ 89 bpts				9.9	%		9.1	%	+ 80 bpts
EBITDAC margin (before reimbursements), as adjusted		18.2	%		19.5	%	- 126 bpts				18.2	%		19.2	%	- 103 bpts
Reported revenues (before reimbursements)	$	275.5		$	248.0					$	802.0		$	713.3
Adjusted revenues (before reimbursements) - see pages 42 and 43	$	275.5		$	244.4					$	802.0		$	703.5

Fees - In our risk management operations, for the three-month period ended September 30, 2022, new core workers compensation and general liability claims arising improved from 2021 due to our clients’ improving business conditions and are well above second quarter 2020 pandemic lows. We believe these favorable trends should continue for the remainder of 2022, however, worsening economic conditions or a reversal in the number of workers employed could cause fewer new core workers compensation claims to arise in future quarters. Organic change in fee revenues for the three-month period ended September 30, 2022 was 12.2% compared to 16.6% for the same period in 2021. Organic change in fee revenues for the nine-month period ended September 30, 2022 was 12.5% compared to 11.9% for the same period in 2021.

Items excluded from organic fee computations yet impacting revenue comparisons for the three and nine-month periods ended September 30, 2022 and 2021 include the following (in millions):


	Three-Month Period Ended September 30									Nine-Month Period Ended September 30
Organic Revenues (Non-GAAP)	2022			2021			Change			2022			2021			Change
Fees	$	272.4		$	245.9			10.8	%	$	789.8		$	703.2			12.3	%
International performance bonus fees		2.9			2.0						11.8			9.8
Fees as reported		275.3			247.9			11.1	%		801.6			713.0			12.4	%
Less fees from acquisitions		(1.3	)		—						(10.6	)		—
Levelized foreign currency translation		—			(3.6	)					—			(9.7	)
Organic fees	$	274.0		$	244.3			12.2	%	$	791.0		$	703.3			12.5	%

Reimbursements - Reimbursements represent amounts received from clients reimbursing us for certain third-party costs associated with providing our claims management services. In certain service partner relationships, we are considered a principal because we direct the third party, control the specified service and combine the services provided into an integrated solution. Given this principal relationship, we are required to recognize revenue on a gross basis and service partner vendor fees in the operating expense line in our consolidated statement of earnings.

- 57 -

Investment income - Investment income primarily represents interest income earned on our cash and cash equivalents. Investment income in the three and nine-month periods ended September 30, 2022 was relatively flat compared to the same periods in 2021.

The following is a summary of risk management segment acquisition activity for 2022 and 2021:


	Three-month period ended September 30,				Nine-month period ended September 30,
	2022		2021		2022		2021
Number of acquisitions closed		—		—		1		2
Estimated annualized revenues acquired (in millions)	$	—	$	—	$	2.5	$	50.0


	Three-month period ended September 30,						Nine-month period ended September 30,
	2022			2021			2022			2021
Compensation expense, as reported	$	169.3		$	148.9		$	487.1		$	428.9
Acquisition integration		(0.3	)		—			(0.3	)		—
Workforce and lease termination related charges		(0.7	)		(0.7	)		(1.5	)		(1.5	)
Acquisition related adjustments		(0.1	)		(0.1	)		(0.3	)		(0.3	)
Levelized foreign currency translation		—			(2.3	)		—			(6.2	)
Compensation expense, as adjusted	$	168.2		$	145.8		$	485.0		$	420.9
Reported compensation expense ratios (before reimbursements)		61.5	%		60.0	%		60.7	%		60.1	%
Adjusted compensation expense ratios (before reimbursements)		61.1	%		59.7	%		60.5	%		59.8	%
Reported revenues (before reimbursements)	$	275.5		$	248.0		$	802.0		$	713.3
Adjusted revenues (before reimbursements) - see pages 42 and 43	$	275.5		$	244.4		$	802.0		$	703.5

The $20.4 million increase in compensation expense for the three-month period ended September 30, 2022 compared to the same period in 2021, was primarily due to increased base compensation related to merit wage increases and hiring to support growth, and other incentive compensation linked to operating results - $19.8 million in the aggregate, and compensation associated with the acquisitions completed in the twelve-month period September 30, 2022 - $0.6 million.

The $58.2 million increase in compensation expense for the nine-month period ended September 30, 2022 compared to the same period in 2021, was primarily due to increased base compensation related to merit wage increases and hiring to support growth, and other incentive compensation linked to operating results - $50.7 million in the aggregate, and compensation associated with the acquisitions completed in the twelve-month period ended September 30, 2022 ‑ $7.5 million.

Operating expense - The following provides non-GAAP information that management believes is helpful when comparing operating expense for the three and nine-month periods ended September 30, 2022 with the same periods in 2021 (in millions):

- 58 -


	Three-month period ended September 30,						Nine-month period ended September 30,
	2022			2021			2022			2021
Operating expense, as reported	$	58.9		$	55.4		$	174.9		$	153.3
Workforce and lease termination related charges		(1.5	)		(3.8	)		(2.1	)		(4.3	)
Acquisition integration		(0.3	)		—			(1.5	)		—
Levelized foreign currency translation		—			(0.6	)		—			(1.5	)
Operating expense, as adjusted	$	57.1		$	51.0		$	171.3		$	147.5
Reported operating expense ratios (before reimbursements)		21.4	%		22.3	%		21.8	%		21.5	%
Adjusted operating expense ratios (before reimbursements)		20.7	%		20.9	%		21.4	%		21.0	%
Reported revenues (before reimbursements)	$	275.5		$	248.0		$	802.0		$	713.3
Adjusted revenues (before reimbursements) - see pages 42 and 43	$	275.5		$	244.4		$	802.0		$	703.5

- 59 -

The $3.5 million increase in operating expense for the three-month period ended September 30, 2022 compared to the same period in 2021, was primarily due to increases in technology, travel, entertainment and other client-related expenses, partially offset by savings in real estate related to office consolidations - $5.8 million in the aggregate, and acquisition related costs - $0.3 million, partially offset by lower workforce and lease termination related charges - $2.3 million.

The $21.6 million increase in operating expense for the nine-month period ended September 30, 2022 compared to the same period in 2021, was primarily due to increases in professional fees, business insurance, travel, entertainment and other client-related expenses partially offset by savings in real estate related to office consolidations - $18.0 million in the aggregate, expenses associated with the acquisitions completed in the twelve-month period ended September 30, 2022 ‑ $2.1 million and acquisition integration costs - $1.5 million.

Depreciation - Depreciation expense decreased in the three and nine-month periods ended September 30, 2022 compared to the same periods in 2021 by $3.0 million and $6.3 million, respectively, which reflects the impact of office consolidations that occurred as leases expired in 2022 and 2021 (less depreciation associated with furniture, equipment and leasehold improvements), partially offset by expenditures related to upgrading computer systems.

Amortization - The amortization expense decreased in the three and nine-month periods ended September 30, 2022 compared to the same periods in 2021 by $0.6 million and $1.2 million, respectively, was primarily due to amortization expense of intangible assets associated with acquisitions completed in the twelve-month period ended September 30, 2022.

Change in estimated acquisition earnout payables - The change in expense from the change in estimated acquisition earnout payables in the nine-month period ended September 30, 2022 compared to the same period in 2021, was primarily due to adjustments made to the estimated fair value of earnout obligations related to revised projections of future performance. During the three-month periods ended September 30, 2022 and 2021, we recognized $0.2 million and $0.3 million of expense, respectively, related to the accretion of the discount recorded for earnout obligations in connection with our acquisitions. During the nine-month periods ended September 30, 2022 and 2021, we recognized $0.6 million and $0.8 million, respectively, of expense related to the accretion of the discount recorded for earnout obligations in connection with our acquisitions. In addition, during the three-month period ended September 30, 2021 we recognized $0.2 million of income, respectively, related to net adjustments in the estimated fair value of earnout obligations in connection with revised projections of future performance for one acquisition. In addition, during the nine-month periods ended September 30, 2022 and 2021, we recognized $1.8 million of income and $2.3 million of expense, respectively, related to net adjustments in the estimated fair value of earnout obligations in connection with revised projections of future performance for three acquisitions.

Provision for income taxes - The risk management segment’s effective income tax rates for the three-month periods ended September 30, 2022 and 2021, were 26.5% and 25.4%, respectively. The risk management's effective income tax rates for the nine-month periods ended September 30, 2022 and 2021, were 26.3% and 25.4%, respectively. In the first quarter of 2022, we increased our state effective income tax rate, which resulted in the overall U.S. effective income tax rate increasing from 25% to 26% and caused us to incur additional income tax expense. We anticipate reporting an effective tax rate on adjusted results of approximately 25.0% to 27.0% in our risk management segment for the foreseeable future.

- 60 -

Corporate

The corporate segment reports the financial information related to our clean energy and other investments, our debt, certain corporate and acquisition-related activities and the impact of foreign currency translation. For a detailed discussion of the nature of these investments, see Note 14 to our most recent Annual Report on Form 10‑K as of December 31, 2021. For a detailed discussion of the nature of our debt, see Note 7 to our consolidated financial statements included herein as of September 30, 2022 and in Note 8 to our most recent Annual Report on Form 10‑K as of December 31, 2021.

Financial information relating to our corporate segment results for the three and nine-month periods ended September 30, 2022 compared to the same periods in 2021 is as follows (in millions, except per share):


	Three-month period ended September 30,									Nine-month period ended September 30,
Statement of Earnings	2022			2021			Change			2022			2021			Change
Revenues from consolidated clean coal production plants	$	—		$	337.3		$	(337.3	)	$	22.3		$	865.7		$	(843.4	)
Royalty income from clean coal licenses		—			21.0			(21.0	)		0.7			55.3			(54.6	)
Loss from unconsolidated clean coal production plants		—			(0.7	)		0.7			—			(1.8	)		1.8
Other net revenues		0.3			0.3			—			0.4			2.4			(2.0	)
Total revenues		0.3			357.9			(357.6	)		23.4			921.6			(898.2	)
Cost of revenues from consolidated clean coal production plants		—			366.1			(366.1	)		22.9			944.0			(921.1	)
Compensation		26.7			23.7			3.0			76.4			61.3			15.1
Operating		0.7			19.6			(18.9	)		31.3			61.3			(30.0	)
Interest		64.4			60.3			4.1			192.9			164.6			28.3
Loss on extinguishment of debt		—			16.2			(16.2	)		—			16.2			(16.2	)
Depreciation		0.8			4.6			(3.8	)		2.6			13.6			(11.0	)
Total expenses		92.6			490.5			(397.9	)		326.1			1,261.0			(934.9	)
Loss before income taxes		(92.3	)		(132.6	)		40.3			(302.7	)		(339.4	)		36.7
Benefit for income taxes		(39.2	)		(95.6	)		56.4			(145.3	)		(263.0	)		117.7
Net loss		(53.1	)		(37.0	)		(16.1	)		(157.4	)		(76.4	)		(81.0	)
Net (loss) earnings attributable to noncontrolling interests		(0.7	)		12.3			(13.0	)		(1.5	)		31.1			(32.6	)
Net loss attributable to controlling interests	$	(52.4	)	$	(49.3	)	$	(3.1	)	$	(155.9	)	$	(107.5	)	$	(48.4	)
Diluted net loss per share	$	(0.25	)	$	(0.24	)	$	(0.01	)	$	(0.72	)	$	(0.52	)	$	(0.20	)
Identifiable assets at September 30										$	2,615.4		$	4,651.4
EBITDAC
Net loss	$	(53.1	)	$	(37.0	)	$	(16.1	)	$	(157.4	)	$	(76.4	)	$	(81.0	)
Benefit for income taxes		(39.2	)		(95.6	)		56.4			(145.3	)		(263.0	)		117.7
Interest		64.4			60.3			4.1			192.9			164.6			28.3
Loss on extinguishment of debt		—			16.2			(16.2	)		—			16.2			(16.2	)
Depreciation		0.8			4.6			(3.8	)		2.6			13.6			(11.0	)
EBITDAC	$	(27.1	)	$	(51.5	)	$	24.4		$	(107.2	)	$	(145.0	)	$	37.8

Revenues - Revenues in the corporate segment consist of the following:

Revenues from consolidated clean coal production plants represents revenues from the consolidated IRC Section 45 facilities in which we have a majority ownership position and maintain control over the operations at the related facilities. The law governing IRC Section 45 tax credits expired as of December 31, 2021.

The decrease in revenue from consolidated clean coal production plants for the three and nine-month periods ended September 30, 2022 compared to the same periods in 2021, was due to the expiration of the IRC Section 45 program. Even though the law governing IRC Section 45 tax credits expired as of December 31, 2021, we did have some production at our clean coal production plants in the three-month period ended March 31, 2022 to run-off existing chemical supplies.

Royalty income from clean coal licenses represents revenues related to Chem-Mod LLC. As of September 30, 2022, we held a 46.5% controlling interest in Chem-Mod LLC. As Chem-Mod LLC’s manager, we are required to consolidate its operations.

- 61 -

The decrease in royalty income in the three and nine-month periods ended September 30, 2022 compared to the same periods in 2021, was due to the expiration of the IRC Section 45 program.

Loss from unconsolidated clean coal production plants in the three and nine-month periods ended September 30, 2022 represents our equity portion of the pretax operating results from the unconsolidated IRC Section 45 facilities. The production of the refined coal generates pretax operating losses.

Cost of revenues - Cost of revenues from consolidated clean coal production plants consists of the cost of coal, labor, equipment maintenance, chemicals, supplies, management fees and depreciation incurred by the clean coal production plants to generate the consolidated revenues discussed above. The decrease in cost of revenues in the three and nine-month periods ended September 30, 2022, compared to the same periods in 2021, was due to the expiration of the IRC Section 45 program. Even though, the law governing IRC Section 45 tax credits expired as of December 31, 2021, we did have some production at our clean coal production plants in the three-month period ended March 31, 2022 to run-off existing chemical supplies.

Compensation expense - Compensation expense in the three-month periods ended September 30, 2022 and 2021, includes salary, incentive compensation, and associated benefit expenses of $26.7 million and $23.7 million, respectively. The change in compensation expense for the three-month period ended September 30, 2022 compared to the same period in 2021 was primarily due to higher base and incentive compensation recognized in 2022 compared to 2021.

Compensation expense in the nine-month periods ended September 30, 2022 and 2021, includes salary, incentive compensation, and associated benefit expenses of $76.4 million and $61.3 million, respectively. The change in compensation expense for the nine-month period ended September 30, 2022 compared to the same period in 2021 was primarily due to higher base and incentive compensation recognized in 2022 compared to 2021 as well as transaction-related costs as described on page 62 in note (2).

Operating expense - Operating expense in the three-month period ended September 30, 2022, includes banking and related fees of $0.6 million, external professional fees and other due diligence costs related to acquisitions of $8.1 million, which includes $6.3 million of transaction-related costs as described on page 62 in note (2), other corporate and clean energy related expenses, including technology and professional fees, of $8.8 million, partially offset by a net unrealized foreign exchange remeasurement gain of $16.8 million.

Operating expense in the nine-month period ended September 30, 2022 includes banking and related fees of $1.8 million, external professional fees and other due diligence costs related to acquisitions of $30.8 million, which includes $27.7 million of transaction‑related costs as described on page 62 in note (2), other corporate and clean energy related expense, including technology and professional fees, of $32.2 million, partially offset by a net unrealized foreign exchange remeasurement gain on $33.5 million.

Operating expense in the three-month period ended September 30, 2021 includes banking and related fees $0.8 million, external professional fees and other due diligence costs related to acquisitions of $8.3 million, which includes $6.3 million of transaction-related costs as described on page 62 in note (2), other corporate and clean energy related expenses, including technology and professional fees, of $13.5 million, and a net unrealized foreign exchange remeasurement gain of $3.0 million.

Operating expense in the nine-month period ended September 30, 2021 includes banking and related fees of $2.9 million, external professional fees and other due diligence costs related to acquisitions of $23.0 million, which includes $16.5 million of transaction‑related costs as described on page 62 in note (2), other corporate and clean energy related expenses, including technology and professional fees, of $33.2 million, and a net unrealized foreign exchange remeasurement loss of $2.2 million.

Interest expense - The increase in interest expense for the three and nine-month periods ended September 30, 2022, compared to the same periods in 2021, was due to the following:

- 62 -


Change in interest expense related to:	Three-month period ended September 30, 2022			Nine-month period ended September 30, 2022
Interest on borrowings from our Credit Agreement	$	2.4		$	3.5
Interest on the maturity of the Series G notes		(1.8	)		(2.1	)
Interest on the maturity of the Series C notes		—			(0.4	)
Interest on the $500.0 million notes funded on June 13, 2018		0.2			0.3
Interest on the $100.0 million notes funded on February 10, 2020		—			0.3
Interest on the $75.0 million notes funded on May 5, 2021		0.1			1.0
Interest on the $1,500.0 million senior notes funded on May 20, 2021		(2.0	)		7.8
Interest on the $750.0 million senior notes funded on November 9, 2021		5.2			15.8
Amortization of hedge gains/losses		—			2.1
Net change in interest expense	$	4.1		$	28.3

Depreciation - Depreciation expense in the three and nine-month periods ended September 30, 2022 decreased compared to the same periods in 2021, due to the IRC Section 45 fixed assets becoming fully depreciated in 2021 related to the expiration of the IRC Section 45 program.

Benefit for income taxes - We allocate the provision for income taxes to the brokerage and risk management segments using local country statutory rates. As a result, the provision for income taxes for the corporate segment reflects the entire benefit to us of the IRC Section 45 tax credits generated, because that is the segment which produced the credits. The law that provides for IRC Section 45 tax credits expired in December 2019 for our fourteen 2009 Era Plants and expired in December 2021 for our twenty-one 2011 Era Plants. Our consolidated effective tax rate for the three-month period ended September 30, 2022 was 18.6% compared to (3.1)% for the same period in 2021. Our consolidated effective tax rate for the nine-month period ended September 30, 2022 was 18.6% compared to 3.2% for the same period in 2021. The tax rate for the three and nine-month periods ended September 30, 2022 was lower than the statutory rate primarily due to the state tax benefits of legal entity restructuring as well as the revaluation of deferred tax assets to a higher state effective tax rate. The tax rate for the three and nine-month periods ended September 30, 2021 was lower than the statutory rate primarily due to the amount of IRC Section 45 tax credits generated and recognized during the periods. There were no tax credits produced in the nine-month period ended September 30, 2022. There were $156.1 million of tax credits produced in the nine-month period ended September 30, 2021. In the first quarter of 2022, we increased our state effective income tax rate, which resulted in the overall U.S. effective income tax rate increasing from 25% to 26%, and caused us to incur additional income tax benefit during the quarter and recognized a one-time benefit related to the revaluation of certain deferred income tax assets. In second quarter 2022, we recognized a one-time U.S. state tax benefit that resulted from legal entity restructuring and a favorable U.K. tax impact related to earnout liability adjustments. In addition, the production of IRC Section 45 clean energy tax credits ceased in December 2021. In second quarter 2021, the U.K. government enacted tax legislation that increases the corporate tax rate from 19.0% to 25.0% effective in 2023. We incurred additional income tax expense in the quarter to adjust certain deferred income tax liabilities to the higher income tax rate.

Net (loss) earnings attributable to noncontrolling interests - The amounts reported in this line for the three-month periods ended September 30, 2022 and 2021 include noncontrolling interest (loss) earnings of ($0.7) million and $12.3 million, respectively, related to our investment in Chem-Mod LLC. The amounts reported in this line for the nine-month periods ended September 30, 2022 and 2021 include noncontrolling interest (loss) earnings of ($1.5) million and $31.5 million, respectively, related to our investment in Chem-Mod LLC. As of September 30, 2022 and 2021, we held a 46.5% controlling interest in Chem-Mod LLC. Also included in net earnings attributable to noncontrolling interests are offsetting amounts related to non-Gallagher owned interests in several clean energy investments.

The following provides non-GAAP information that we believe is helpful when comparing our operating results for the three and nine-month periods ended September 30, 2022 and 2021 for the corporate segment (in millions):

- 63 -


	2022									2021
							Net Earnings									Net Earnings
				Income			(Loss)									(Loss)
				Tax			Attributable to						Income			Attributable to
	Pretax			(Provision)			Controlling			Pretax			Tax			Controlling
Three-Month Periods Ended September 30,	Loss			Benefit			Interests			Loss			Benefit			Interests
Interest and banking costs	$	(65.0	)	$	16.9		$	(48.1	)	$	(77.3	)	$	19.3		$	(58.0	)
Clean energy related (1)		(3.0	)		0.8			(2.2	)		(37.8	)		68.6			30.8
Acquisition costs (2)		(8.6	)		0.6			(8.0	)		(13.0	)		2.5			(10.5	)
Corporate (3) (4)		(15.0	)		20.9			5.9			(16.8	)		5.2			(11.6	)
Corporate, as reported		(91.6	)		39.2			(52.4	)		(144.9	)		95.6			(49.3	)
Adjustments
Loss on extinguishment of debt (2)		—			—			—			16.2			(4.0	)		12.2
Transaction-related costs (2)		6.3			(0.4	)		5.9			11.0			(2.8	)		8.2
Income tax related (3)		—			(7.0	)		(7.0	)		—			4.9			4.9
Components of Corporate Segment, as adjusted
Interest and banking costs		(65.0	)		16.9			(48.1	)		(61.1	)		15.3			(45.8	)
Clean energy related (1)		(3.0	)		0.8			(2.2	)		(37.8	)		68.6			30.8
Acquisition costs		(2.3	)		0.2			(2.1	)		(2.0	)		(0.3	)		(2.3	)
Corporate (4)		(15.0	)		13.9			(1.1	)		(16.8	)		10.1			(6.7	)
Adjusted three months	$	(85.3	)	$	31.8		$	(53.5	)	$	(117.7	)	$	93.7		$	(24.0	)


	2022									2021
							Net Earnings									Net Earnings
				Income			(Loss)						Income			(Loss)
				Tax			Attributable to						Tax			Attributable to
	Pretax			(Provision)			Controlling			Pretax			(Provision)			Controlling
Nine-Month Periods Ended September 30,	Loss			Benefit			Interests			Loss			Benefit			Interests
Interest and banking costs	$	(194.7	)	$	50.6		$	(144.1	)	$	(183.7	)	$	45.9		$	(137.8	)
Clean energy related (1)		(8.8	)		2.3			(6.5	)		(94.7	)		179.7			85.0
Acquisition costs (2)		(34.4	)		2.6			(31.8	)		(26.3	)		4.2			(22.1	)
Corporate (3) (4)		(63.3	)		89.8			26.5			(65.8	)		33.2			(32.6	)
Corporate, as reported		(301.2	)		145.3			(155.9	)		(370.5	)		263.0			(107.5	)
Adjustments
Loss on extinguishment of debt (2)		—			—			—			16.2			(4.0	)		12.2
Transaction-related costs (2)		27.7			(2.1	)		25.6			21.2			(4.3	)		16.9
Income tax related (3)		—			(19.0	)		(19.0	)		—			24.2			24.2
Components of Corporate Segment, as adjusted
Interest and banking costs		(194.7	)		50.6			(144.1	)		(167.5	)		41.9			(125.6	)
Clean energy related (1)		(8.8	)		2.3			(6.5	)		(94.7	)		179.7			85.0
Acquisition costs		(6.7	)		0.5			(6.2	)		(5.1	)		(0.1	)		(5.2	)
Corporate (4)		(63.3	)		70.8			7.5			(65.8	)		57.4			(8.4	)
Adjusted nine months	$	(273.5	)	$	124.2		$	(149.3	)	$	(333.1	)	$	278.9		$	(54.2	)

(1)

Pretax loss for the three-month periods ended September 30, 2022 and 2021 is presented net of amounts attributable to noncontrolling interests of $(0.7) million and $12.3 million, respectively. Pretax loss for the nine-month periods ended September 30, 2022 and 2021 is presented net of amounts attributable to noncontrolling interests of $(1.5) million and $31.1 million, respectively.

(2)

We incurred transaction-related costs, which include legal, consulting, employee compensation and other professional fees primarily associated with our acquisition of the Willis Towers Watson plc treaty reinsurance brokerage operations. In third quarter 2021, we redeemed $650 million of 2031 Senior Notes and incurred a loss on early extinguishment of $16.2 million.

(3)

In second and third quarters 2022, we recognized a net favorable U.K. tax impact related to earnout liability adjustments. In second quarter 2022, we recognized a one-time U.S. state tax benefit that resulted from legal entity restructuring. In first quarter 2022, we increased our state effective income tax rate, which resulted in the overall U.S. effective income tax rate increasing from 25% to 26% and caused us to have additional income tax benefit during the quarter and recognized a one‑time benefit related to the revaluation of certain deferred income tax assets. In third quarter 2021, we incurred additional U.K. income tax

- 64 -

expense related to the non-deductibility of some acquisition related adjustments made in the quarter. In second quarter 2021, the U.K. government enacted tax legislation that increases the corporate income tax rate from 19% to 25% effective in 2023. We incurred additional income tax expense in second quarter 2021 to adjust certain deferred income tax liabilities to the higher income tax rate.

(4)

Corporate pretax loss includes a net unrealized foreign exchange remeasurement gain of $16.9 million in third quarter 2022 and a net unrealized foreign exchange remeasurement gain of $3.0million in third quarter 2021. Corporate pretax loss includes a net unrealized foreign exchange remeasurement gain of $33.6 million in the nine-month period ended September 30, 2022 and a net unrealized foreign exchange remeasurement loss of $2.2 million in the nine-month period ended September 30, 2021.

Interest and banking costs and debt - Interest and banking costs includes expenses related to our debt.

Clean energy - Consists of the operating results related to our investments in clean coal production plants and royalty income from clean coal licenses related to Chem-Mod LLC. The production of IRC Section 45 clean energy tax credits ceased in December 2021, which reduced the royalty income received by Chem-Mod LLC and net earnings generated by our investments in clean coal production plants.

Acquisition costs - Consists mostly of external professional fees and other due diligence costs related to our acquisitions. On occasion, we enter into forward currency hedges for the purchase price of committed, but not yet funded, acquisitions with funding requirements in currencies other than the U.S. dollar. The gains or losses, if any, associated with these hedge transactions are also included in acquisition costs.

Corporate - Consists of overhead allocations mostly related to corporate staff compensation, other corporate level activities, and net unrealized foreign exchange remeasurement. In addition, it includes the tax expense related to partial taxation of foreign earnings, nondeductible executive compensation and entertainment expenses and the tax benefit from vesting of employee equity awards. The income tax benefit of stock based awards that vested or were settled in the nine-month periods ended September 30, 2022 and 2021 was $42.8 million and $31.1 million, respectively, and is included in the table above in the Corporate line.

Clean energy investments - We have investments in limited liability companies that own 29 clean coal production plants developed by us and six clean coal production plants we purchased from a third party. All 35 plants produced refined coal using propriety technologies owned by Chem-Mod LLC. We believe that the production and sale of refined coal at these plants were qualified to receive refined coal tax credits under IRC Section 45. The 14 2009 Era Plants received tax credits through 2019 and the 21 2011 Era Plants received tax credits through 2021. The law governing IRC Section 45 tax credits expired as of December 31, 2021. Even though the law governing IRC Section 45 tax credits expired as of December 31, 2021, we did have some production at our clean coal production plants in the three-month period ended March 31, 2022 to run-off existing chemical supplies. The carrying value of the assets related to these investments in limited liability companies was zero as of September 30, 2022 and December 31, 2021.

Please refer to our filings with the SEC, including Item 1A, “Risk Factors,” on pages 24 and 25 of our Annual Report on Form 10‑K for the fiscal year ended December 31, 2021, for a more detailed discussion of these and other factors that could impact the information above.

Our investment in Chem-Mod LLC generates royalty income from refined coal production plants owned by those limited liability companies in which we invest as well as refined coal production plants owned by other unrelated parties.

Liquidity and Capital Resources

Liquidity describes the ability of a company to generate sufficient cash flows to meet the cash requirements of its business operations. The insurance brokerage industry is not capital intensive. Historically, our capital requirements have primarily included dividend payments on our common stock, repurchases of our common stock, funding of our investments, acquisitions of brokerage and risk management operations and capital expenditures.

On December 1, 2021, we acquired substantially all of the Willis Towers Watson 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. As of the date of this filing, there is one remaining of the initial twelve international operations with deferred closings that is subject to local regulatory approval and is expected to close in the fourth quarter of 2022. We funded the transaction using cash on hand, including the $1.4 billion of net cash raised in our May 17, 2021 follow‑on common stock offering, $850 million of net cash borrowed in our May 20, 2021 30-year senior note issuance, $750 million of net cash borrowed in our November 9, 2021 10-year ($400 million) and 30-year ($350 million) senior note issuances and short-term borrowings.

- 65 -

Operating Cash Flows

Historically, we have depended on our ability to generate positive cash flow from operations to meet a substantial portion of our cash requirements. We believe that our cash flows from operations and borrowings under our Credit Agreement (defined below) will provide us with adequate resources to meet our liquidity needs in the foreseeable future. To fund acquisitions made during 2021 and for the nine-month period ended September 30, 2022, we relied on a combination of net cash flows from operations, proceeds from borrowings under our Credit Agreement, proceeds from issuances of senior unsecured notes and the follow-on common stock offering.

Cash provided by operating activities was $1,925.0 million and $1,210.3 million for the nine-month periods ended September 30, 2022 and 2021, respectively. The increase in cash provided by operating activities during the nine-month period ended September 30, 2022 compared to the same period in 2021 was primarily due to timing differences between periods with cash receipts and disbursements related to other current assets compared to the same period in 2021. The change in income taxes paid was due to a decrease in domestic taxes and foreign taxes paid.

During the nine-month period ended September 30, 2022 employee matching contributions to the 401(k) plan of $65.7 million relating to 2021 were funded using common stock. During the nine-month period ended September 30, 2021, employee matching contributions to the 401(k) plan of $63.6 million relating to 2020 were funded using common stock.

Our cash flows from operating activities are primarily derived from our earnings from operations, as adjusted for our non‑cash expenses, which include depreciation, amortization, change in estimated acquisition earnout payables, deferred compensation, restricted stock and stock‑based and other non-cash compensation expenses. Cash provided by operating activities can be unfavorably impacted if the amount of IRC Section 45 tax credits generated (which is the amount we recognize for financial reporting purposes) is greater than the amount of tax credits utilized to reduce our tax cash obligations. Excess tax credits produced during the period result in an increase to our deferred tax assets, which is a net use of cash related to operating activities. Please see “Clean Energy Investments” below for more information on their potential future impact on cash provided by operating activities.

When assessing our overall liquidity, we believe that the focus should be on net earnings as reported in our consolidated statement of earnings, adjusted for non‑cash items (i.e., EBITDAC), and cash provided by operating activities in our consolidated statement of cash flows. Consolidated EBITDAC was $1,814.4 million and $1,525.7 million for the nine-month periods ended September 30, 2022 and 2021, respectively. Net earnings attributable to controlling interests were $978.7 million and $797.4 million for the nine-month periods ended September 30, 2022 and 2021, respectively. We believe that EBITDAC items are indicators of trends in liquidity. From a balance sheet perspective, we believe the focus should not be on premiums and fees receivable, premiums payable or restricted cash for trends in liquidity. Net cash flows provided by operations will vary substantially from quarter to quarter and year to year because of the variability in the timing of premiums and fees receivable and premiums payable. We believe that in order to consider these items in assessing our trends in liquidity, they should be looked at in a combined manner, because changes in these balances are interrelated and are based on the timing of premium payments, both to and from us. In addition, funds legally restricted as to our use relating to premiums and clients’ claim funds held by us in a fiduciary capacity are presented in our consolidated balance sheet as “Restricted cash” and have not been included in determining our overall liquidity.

Fiduciary Funds

In addition, cash provided by operating activities for the nine-month periods ended September 30, 2022 and 2021 was favorably impacted by timing differences in the receipts and disbursements of client fiduciary related balances in 2022 compared to 2021. The following table summarizes two lines from our consolidated statement of cash flows and provides information that management believes is helpful when comparing changes in client fiduciary related balances for the nine-month period ended September 30, 2022 with the same period in 2021 (in millions):


	Nine-month period ended September30,
	2022			2021
Net change in premiums and fees receivable	$	(5,776.8	)	$	(1,129.7	)
Net change in premiums payable to underwriting enterprises		6,200.1			1,176.7
Net cash provided by the above	$	423.3		$	47.0

At September 30, 2022 and 2021, we had fiduciary funds of $4.7 billion and $3.3 billion, respectively. The increase in the fiduciary funds and the premiums receivables and payables between periods is due primarily to the acquisition of the Willis Towers Watson plc treaty reinsurance brokerage operations in December 2021.

Defined Benefit Pension Plan

- 66 -

Our policy for funding our defined benefit pension plan is to contribute amounts at least sufficient to meet the minimum funding requirements under the IRC. The Employee Retirement Security Act of 1974, as amended (which we refer to as ERISA), could impose a minimum funding requirement for our plan. We are not required to make any minimum contributions to the plan for the 2022 plan year, nor were we required to make any minimum contributions to the plan for the 2021 plan year. Funding requirements are based on the plan being frozen and the aggregate amount of our historical funding. The plan’s actuaries determine contribution rates based on our funding practices and requirements. Funding amounts may be influenced by future asset performance, the level of discount rates and other variables impacting the assets and/or liabilities of the plan. In addition, amounts funded in the future, to the extent not due under regulatory requirements, may be affected by alternative uses of our cash flows, including dividends, acquisitions and common stock repurchases. We did not make any discretionary contributions to the plan during the nine-month periods ended September 30, 2022 and 2021. We are not considering making any discretionary contributions to the plan in 2022, but may be required to make significantly larger minimum contributions to the plan in future periods.

Investing Cash Flows

Capital Expenditures - Capital expenditures were $140.3 million and $103.2 million for the nine-month periods ended September 30, 2022 and 2021, respectively. In 2022, we expect total expenditures for capital improvements to be approximately $185.0 million, part of which is related to expenditures on office moves and investments being made in information technology and software development projects.

Acquisitions - Cash paid for acquisitions, net of cash and restricted cash acquired, was $418.9 million and $631.6 million in the nine-month periods ended September 30, 2022 and 2021, respectively. In addition, during the nine-month period ended September 30, 2022, we issued 0.1 million shares ($17.2 million) of our common stock as payment for a portion of the total consideration paid for 2022 acquisitions and earnout payments made in 2022. During the nine-month period ended September 30, 2021, we issued 0.9 million shares ($114.7 million) of our common stock as payment for consideration paid for 2021 acquisitions and earnout payments made in 2021. We completed 20 and 19 acquisitions in the nine-month periods ended September 30, 2022 and 2021. Annualized revenues of businesses acquired in the nine-month periods ended September 30, 2022 and 2021 totaled approximately $105.2 million and $189.9 million, respectively. For the remainder of 2022, we expect to use cash from operations, our Credit Agreement, new debt and our common stock, or a combination thereof to fund all of the acquisitions we complete.

If liquidity concerns arise, we may be more likely to issue common stock to fund acquisitions.

Dispositions - During the nine-month periods ended September 30, 2022 and 2021, we sold several books of business and recognized net gains of $2.9 million and $9.0 million, respectively. We received net cash proceeds of $5.2 million and $14.3 million related to the 2022 and 2021 transactions, respectively.

Clean Energy Investments - During the period from 2009 through 2021, we made significant investments in clean energy operations capable of producing refined coal that we believe qualifies for tax credits under IRC Section 45. The IRC Section 45 tax credits generate positive cash flow by reducing the amount of federal income taxes we pay. We anticipate positive net cash flow related to IRC Section 45 activity in 2022. However, there are several variables that can impact net cash flow from clean energy investments in any given year. Therefore, accurately predicting cash flows in particular future periods is not possible at this time. However, if we continue to generate sufficient taxable income to use the tax credits produced by our IRC Section 45 investments, we anticipate that these investments will continue to generate positive net cash flows through at least 2027 due to the utilization of IRC Section 45 tax credits to offset taxable income in years after the program expired. In October 2022, we filed our 2021 federal tax return and elected to continue a tax method change in the return. This resulted in an acceleration of the amount of tax credits that we utilized on the return by approximately $150.0 million, which will be recorded in fourth quarter 2022. Please see “Clean energy investments” on page 62 for a more detailed description of these investments and their risks and uncertainties. Please see “Other Information” on page 40 for the cash flow impact of the expiration of laws governing tax credits.

Financing Cash Flows

There was $190.0 million of borrowings outstanding under the Credit Agreement at September 30, 2022. Due to the outstanding letters of credit, $1,010.0 million remained available for potential borrowings under the Credit Agreement at September 30, 2022.

We use the Credit Agreement to post letters of credit and to borrow funds to supplement our operating cash flows from time to time. In the nine-month period ended September 30, 2022, we borrowed $2,290.0 million and repaid $2,145.0 million under our Credit Agreement. In the nine-month period ended September 30, 2021, we borrowed $925.0 million and repaid $925.0 million under our Credit Agreement. Principal uses of the 2022 and 2021 borrowings under the Credit Agreement were to fund acquisitions, earnout payments related to acquisitions and general corporate purposes.

- 67 -

On September 20, 2022, we entered into an amendment to our revolving loan facility (which we refer to as the Premium Financing Debt Facility), that provides funding for the three Australian (AU) and New Zealand (NZ) premium finance subsidiaries. The amendment, among other things, extended the expiration date of the Premium Financing Debt Facility from September 15, 2023 to September 15, 2024, and increased the total commitment for the AU$ denominated tranche from AU$340.0 million to AU$410.0 million. The Premium Financing Debt Facility is comprised of: (i) Facility B, is separated into AU$350.0 million and NZ$10.0 million tranches (the NZ$ tranche will increase as of October 1, 2022 to NZ$25.0 million and then decrease as of May 1, 2023 to NZ$10.0 million), (ii) Facility C, an AU$60.0 million equivalent multi-currency overdraft tranche and (iii) Facility D, a NZ$15.0 million equivalent multi-currency overdraft tranche. At September 30, 2022, AU$345.0 million and NZ$0.0 million of borrowings were outstanding under Facility B, AU$10.7 million of borrowings were outstanding under Facility C and NZ$14.9 million of borrowings were outstanding under Facility D, which in aggregate amount to US$245.4 million of borrowings outstanding under the Premium Financing Debt Facility. See Note 7 to our September 30, 2022 unaudited consolidated financial statements for a discussion of the terms of the Premium Financing Debt Facility. In addition to the quoted margin to interbank rates on Facility C and Facility D on any drawn funds, there is a line fee charged on the total Facility C and Facility D commitment of 0.77% and 0.90%, respectively.

On February 10, 2021, we closed a private placement of $100.0 million aggregate principal amount of unsecured senior notes. The unsecured senior notes were issued with an interest rate of 2.44% and are due in 2036. We used the proceeds of these offerings in part to fund the $75.0 million February 10, 2021 Series D note maturity, and for acquisitions and general corporate purposes. The weighted average interest rate is 3.97% after giving effect to a net hedging loss. In 2018, we entered into a pre-issuance interest rate hedging transaction related to this private placement. We realized a net cash loss of approximately $22.9 million on the hedging transactions that will be recognized on a pro rata basis as an increase in our reported interest expense over ten years of the total 15‑year notes.

On May 5, 2021, we closed and funded a private placement of $75.0 million aggregate principal amount of unsecured senior notes. The unsecured senior notes were issued with an interest rate of 2.46% and are due in 2036. We used the proceeds of this offering in part to fund acquisitions and general corporate purposes. The weighted average interest rate is 3.98% after giving effect to a net hedging loss. In 2018, we entered into a pre-issuance interest rate hedging transaction related to this private placement. We realized a net cash loss of approximately $17.2 million on the hedging transactions that will be recognized on a pro rata basis as an increase in our reported interest expense over ten years of the total 15‑year notes.

We used these offerings to repay certain existing indebtedness and for general corporate purposes, including to fund acquisitions.

On May 20, 2021, we closed and funded an offering of $1,500.0 million of unsecured senior notes in two tranches. The $650.0 million aggregate principal amount of 2.50% Senior Notes were due 2031 (which we refer to as the 2031 May Notes) and $850.0 million aggregate principal amount of 3.50% Senior Notes are due 2051 (which we refer to as the 2051 May Notes and together with the 2031 May Notes, the May Notes). The weighted average interest rate is 3.13% per annum after giving effect to underwriting costs and the net hedge loss. In 2018 and 2019, we entered into a pre-issuance interest rate hedging transaction related to these notes. We realized a net cash loss of approximately $57.8 million on the hedging transactions that will be recognized on a pro rata basis as an increase to our reported interest expense over a ten year period.

The offering of the May Notes was made pursuant to a shelf registration statement filed with the SEC. The relevant terms of the May Notes, the Indenture and the Officers’ Certificate are further described under the caption “Description of Notes” in the prospectus supplement dated May 13, 2021, filed with the SEC on May 17, 2021.

The 2031 May Notes had a special optional redemption whereby, we had the option to redeem the 2031 May Notes, in whole and not in part, by providing notice of such redemption to the holders of the 2031 May Notes within 30 days following a Willis Towers Watson plc transaction termination event, at a redemption price equal to 101% of the aggregate principal amount of the 2031 May Notes, plus any accrued and unpaid interest. These notes were redeemed on August 13, 2021. As a result of the redemption of this debt, we incurred a loss on extinguishment of debt of $16.2 million, which included the redemption price premium of $6.5 million, which is presented in cash flows from financing activities, and the unamortized discount amount on the debt issuance and the write-off of all the debt acquisition costs of $9.7 million, which is presented in cash flows from operating activities. The 2051 May Notes are not subject to the special optional redemption. We used the net proceeds of the 2051 May Notes offering to fund a portion of the cash consideration paid in connection with the Willis Towers Watson plc treaty reinsurance brokerage operations transaction.

On November 9, 2021, we closed and funded an offering of $750.0 million of unsecured senior notes in two tranches. The $400.0 million aggregate principal amount of 2.40% Senior Notes are due 2031 (which we refer to as the 2031 November Notes) and $350.0 million aggregate principal amount of 3.05% Senior Notes are due 2052 (which we refer to as the 2052 November Notes and together with the 2031 November Notes, the November Notes). The weighted average interest rate is 2.80% per annum after giving effect to underwriting costs. The November Notes were issued pursuant to an indenture, dated as of May 20, 2021, as modified and

- 68 -

supplemented in respect of the November Notes by an Officers’ Certificate pursuant to the indenture, dated as of November 9, 2021. The relevant terms of the November Notes, the indenture and the Officers’ Certificate are further described under the caption “Description of Notes” in the prospectus supplement filed with the SEC on November 3, 2021. We used the net proceeds of the November Notes offering to fund a portion of the cash consideration paid in connection with the Willis Towers Watson plc treaty reinsurance brokerage operations transaction.

On June 14, 2022, we used operating cash to fund the $200.0 million Series G note maturity.

At September 30, 2022, we had $1,600.0 million of Senior Notes, $248.0 million of corporate‑related borrowings outstanding under separate note purchase agreements entered into during the period from 2011 to 2022, $190.0 million outstanding under our credit facility, $245.4 million outstanding under our Premium Financing Debt Facility and a cash and cash equivalent balance of $553.7 million. See Note 7 to our September 30, 2022 unaudited consolidated financial statements for a discussion of the terms of the Senior Notes, Note purchase agreements, the Credit Agreement and the Premium Financing Debt Facility.

Consistent with past practice, as of September 30, 2022, we have entered into pre-issuance hedging transactions of $350.0 million for 2023 and $500.0 million for 2024.

The Senior Notes, Note purchase agreements, the Credit Agreement and the Premium Financing Debt Facility contain various financial covenants that require us to maintain specified financial ratios. We were in compliance with these covenants at September 30, 2022.

Dividends - Our board of directors determines our dividend policy. Our board of directors determines dividends on our common stock on a quarterly basis after considering our available cash from earnings, our antiipated cash needs and current conditions in the economy and financial markets.

In the nine-month period ended September 30, 2022, we declared $324.8 million in cash dividends on our common stock, or $0.51 per common share, a 6% increase over the nine-month period ended September 30, 2021. On October 26, 2022, we announced a quarterly dividend for fourth quarter 2022 of $0.51 per common share. This dividend level in 2022 will result in annualized net cash used by financing activities in 2022 of approximately $430.1 million (based on the number of outstanding shares as of September 30, 2022) or an anticipated increase in cash used of approximately $38.1 million compared to 2021. We make no assurances regarding the amount of any future dividend payments**.**

Shelf Registration Statement - On November 15, 2019, we filed a shelf registration statement on Form S-3 with the SEC, registering the offer and sale from time to time, of an indeterminate amount of our common stock. The availability of the potential liquidity under this shelf registration statement depends on investor demand, market conditions and other factors. We make no assurances regarding when, or if, we will issue any shares under this registration statement. On November 15, 2016, we also filed a shelf registration statement on Form S-4 with the SEC, registering 10.0 million shares of our common stock that we may offer and issue from time to time in connection with the future acquisitions of other businesses, assets or securities. At September 30, 2022, 2.4 million shares remained available for issuance under this registration statement.

Common Stock Repurchases - We have in place a common stock repurchase plan, last amended by our board of directors in July 2021, that authorizes the repurchase of up to $1.5 billion of common stock. During the nine-month periods ended September 30, 2022 and 2021, we did not repurchase shares of our common stock. The plan authorizes the repurchase of our common stock at such times and prices as we may deem advantageous, in transactions on the open market or in privately negotiated transactions. We are under no commitment or obligation to repurchase any particular number of shares, and the plan may be suspended at any time at our discretion. Funding for share repurchases may come from a variety of sources, including cash from operations, short-term or long‑term borrowings under our Credit Agreement or other sources. See “Issuer Purchases of Equity Securities” below for more information regarding shares repurchased during the quarter.

Public Offering of Common Stock - On May 12, 2021, we entered into an Underwriting Agreement with Morgan Stanley & Co. LLC to issue 9.0 million shares of our common stock in a public offering. On May 12, 2021, we agreed to price the offering of 9.0 million shares of our common stock at $142.00 and granted the underwriters in the offering a 30-day option to purchase up to an additional 1.3 million shares of our common stock at the same price. On May 12, 2021, the underwriters exercised the option to purchase an additional 1.3 million shares. The offering closed on May 17, 2021 and 10.3 million shares of our stock were issued for net proceeds, after underwriting discounts and other expenses related to this offering, of $1,437.9 million. We used the net proceeds of this offering to fund a portion of the cash consideration paid in connection with the Willis Towers Watson plc treaty reinsurance brokerage operations transaction.

- 69 -

Common Stock Issuances - Another source of liquidity to us is the issuance of our common stock pursuant to our stock option and employee stock purchase plans. Proceeds from the issuance of common stock under these plans for the nine-month periods ended September 30, 2022 and 2021, were $102.2 million and $86.0 million, respectively. On May 10, 2022, our stockholders approved the 2022 Long-Term Incentive Plan (which we refer to as the LTIP), which replaced our previous stockholder-approved 2017 Long-Term Incentive Plan. All of our officers, employees and non-employee directors are eligible to receive awards under the LTIP. Awards which may be granted under the LTIP include non-qualified and incentive stock options, stock appreciation rights, restricted stock units and performance units, any or all of which may be made contingent upon the achievement of performance criteria. Stock options with respect to 13.4 million shares (less any shares of restricted stock issued under the LTIP – 3.3 million shares of our common stock were available for this purpose as of September 30, 2022) were available for grant under the LTIP at September 30, 2022. Our employee stock purchase plan allows our employees to purchase our common stock at 95% of its fair market value. Proceeds from the issuance of our common stock related to these plans have contributed favorably to net cash provided by financing activities in the nine-month periods ended September 30, 2022 and 2021, and we believe this favorable trend will continue in the foreseeable future.

We have a qualified contributory savings and thrift 401(k) plan covering the majority of our domestic employees. For eligible employees who have met the plan’s age and service requirements to receive matching contributions, we historically have matched 100% of pre-tax and Roth elective deferrals up to a maximum of 5.0% of eligible compensation, subject to federal limits on plan contributions and not in excess of the maximum amount deductible for federal income tax purposes. Beginning with the match paid in 2021, the amount matched by the company will be discretionary and annually determined by management. Employees must be employed and eligible for the plan on the last day of the plan year to receive a matching contribution, subject to certain exceptions enumerated in the plan document. Matching contributions are subject to a five-year graduated vesting schedule and can be funded in cash or company stock. We expensed (net of plan forfeitures) $59.8 million and $51.8 million related to the plan in the nine-month periods ended September 30, 2022 and 2021, respectively. Our board of directors authorized the use of common stock to fund our 2020 employer matching contributions to the 401(k) plan, which we funded in February 2021. Our board of directors authorized a 5.0% employer match on eligible compensation to the 401(k) plan for the 2021 plan year and used common stock to fund our 2021 employer matching contributions, which we funded in February 2022. During third quarter 2022, our board of directors authorized a 5.0% employer match on eligible compensation to the 401(k) plan for the 2022 plan year and the possible use of common stock to fund our 2022 employer matching contributions, which is expected to be funded in February 2023.

Outlook - We believe that we have sufficient capital and access to additional capital to meet our short- and long-term cash flow needs.

Critical Accounting Estimates

There have been no changes in our critical accounting estimates, which include revenue recognition, income taxes and intangible assets/earnout obligations, as discussed in our Annual Report on Form 10-K for the year ended December 31, 2021.

Business Combinations and Dispositions

See Note 3 to the unaudited consolidated financial statements for a discussion of our business combinations during the nine-month period ended September 30, 2022. We did not have any material dispositions during the nine-month period ended September 30, 2022.

Previous: Item 1. Financial Statements (Unaudited) · Next: Item 3. Quantitative and Qualitative Disclosures About Market Risk