Arthur J. Gallagher & Co.‌‌

CFO Commentary

July 28, 2016

Arthur J. Gallagher & Co.

Non-GAAP Measures and Forward-Looking Statements

Information Regarding Non-GAAP Measures

In this CFO Commentary, we have provided information regarding Adjusted EBITDAC Margin (for the brokerage and risk management segments) presented on a forward-looking basis, and Adjusted Net Earnings Attributable to Controlling Interests (for the corporate segment) presented on a historical basis. Adjusted EBITDAC margin is Adjusted EBITDAC divided by Adjusted Revenue (EBITDAC and Revenue, respectively, adjusted to exclude the impact of net gains realized from sales of books of business, acquisition integration costs, workforce related charges, lease termination related charges, acquisition related adjustments and the period-over-period impact of foreign currency translation, as applicable; acquisition integration costs are related to certain of our large acquisitions 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). EBITDAC is net earnings before interest, income taxes, depreciation, amortization and the change in estimated acquisition earnout payables. Adjusted Net Earnings Attributable to Controlling Interests is net earnings attributable to controlling interests adjusted to exclude the impact of a litigation settlement. Management believes that both Adjusted EBITDAC Margin and Adjusted Net Earnings Attributable to Controlling Interests are meaningful indicators of our operating performance. The adjustments made to each measure are intended to improve the comparability of our results between periods by eliminating the impact of items that have a high degree of variability and, in the case of the litigation settlement, are unlikely to recur during the next two years.

We have not reconciled the forward-looking Adjusted EBITDAC Margin information to the most directly comparable GAAP measure because certain material items that impact this measure, including the timing and exact amount of highly variable elements of revenue (such as acquired revenue), gains from the sales of books of business and acquisition related adjustments, have not yet occurred or are out of management's control or cannot be reasonably predicted. Accordingly, a reconciliation of forward-looking Adjusted EBITDAC Margin to the corresponding GAAP measure is not available without unreasonable effort. The non-GAAP information provided in this CFO Commentary should be used in addition to, but not as a substitute for, GAAP information.

Cautionary Statement Regarding Forward-Looking Statements

This CFO Commentary contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, for our brokerage and risk management segments, 2016 estimates of the impact of foreign currency on EPS and revenues, integration costs, workforce and lease termination costs, adjusted EBITDAC margin, amortization, depreciation, change in estimated earnout payables, acquisition rollover revenues, the adjusted effective tax rate, earnings from continuing operations attributable to non-controlling interests, run-off revenues in Australia and the UK, the weighted average multiple paid for acquisitions, debt levels, the use of shares in acquisitions, and sales of shares under our at-the-market program. These forward-looking statements also include, for our corporate segment, estimates of the net earnings attributable to controlling interests impact of various items, including interest and banking costs, Gallagher's clean energy investments, acquisition costs, corporate expenses and the impact of a litigation settlement. We also make forward-looking statements relating to our clean energy investments, including estimates of the number of tax credits and we expect to produce and recognize and the ultimate future potential annual after-tax earnings of the various clean energy plants.

Actual results may differ materially from the estimates set forth herein. Readers are therefore cautioned against relying on any of the forward-looking statements, which are neither statements of historical fact nor guarantees or assurances of future performance. The statements regarding our clean energy investments and future effective tax rates could be materially impacted by various risk and uncertainties, including uncertainties related to political and regulatory risks, such as potential actions by Congress or challenges by the IRS eliminating or reducing the availability of tax credits under IRC Section 45 retroactively and/or going forward; the ability to maintain and find co-investors; the potential for divergent business objectives by co-investors and other stakeholders; plant operational risks, including supply-chain risks; utilities' future use of, or demand for, coal; the market price of coal; the costs of moving a clean coal plant; intellectual property litigation risks; and environmental risks. The other forward-looking statements referred to above could be materially impacted by various risks and uncertainties including changes in the economy (including due to the recent Brexit vote) or premium rates; changes in our acquisition pipeline; changes in our competitive position; and fluctuations in global exchange rates. Please refer to Gallagher's filings with the SEC, including Item 1A, "Risk Factors," of its most recently filed Annual Report on Form 10-K and Quarterly Report on Form 10-Q, for a detailed discussion of these and other factors that could impact its forward-looking statements. Any forward- looking statement made by Gallagher in this press release speaks only as of the date on which it is made. Except as required by applicable law, Gallagher does not undertake to update the information included herein.

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ARTHUR J. GALLAGHER & CO. - CFO COMMENTARY - JULY 28, 2016

This communication is intended to be used in conjunction with, and should be read and understood in combination with, the commentary provided by our executive officers on the July 29, 2016 earnings call.

Other commentary is likely to be made during the investor meeting. This communication is subject to, and you are urged to carefully read, the cautions set forth at the beginning of this communication.

ACTUAL

PROVIDED ON JUNE 13, 2016

ESTIMATES ON JULY 28, 2016

BROKERAGE SEGMENT

Q1 2016

Q2 2016

2016 Quarterly (Estimated)

2016 Quarterly

Full Year 2016

Foreign Currency Impact on Earnings Per Share

(will be shown as an adjustment to 2015 numbers)

$0.01

Q2: $0.01 to $0.02

Q3 & Q4: very little impact

very little impact

$0.01 to $0.02

Foreign Currency Impact on Revenues

(will be shown as an adjustment to 2015 numbers)

$18 million

$15 million

Q2: $17 million Q3 & Q4: $7 million

Q3: $18 million Q4: $16 million

$67 million

Integration Costs Per Share

$0.06

$0.05

Q2: $0.05 Q3 & Q4: $0.03

Q3: $0.03 - $0.04 Q4: $0.02 - $0.03

$0.17 to $0.19

Workforce & Lease Termination Costs Per Share

$0.02

$0.01 to $0.02

$0.01 to $0.02

$0.05 to $0.07

Adjusted EBITDAC Margin

Expanded 79 basis points over Q1 2015

Expanded 57 basis points over Q2 2015

difficult to expand margins if organic is below 3%

----------- difficult to expand margins if organic is below 3% ---------

Amortization - Recurring (1)

$59 million pretax

$62 million pretax

$62 million pretax

$62 million pretax

$245 million pretax

Depreciation - Recurring

$14 million pretax

$14 million pretax

$15 million pretax

$15 million pretax

$60 million pretax

Change in Estimated Earnout Payable - Recurring

$4 million pretax

$4 million pretax

$4 million pretax

$4 million pretax

$16 million pretax

Rollover Revenues from Acquisitions

----------------------------------------------- See table on page 5 -----------------------------------------------

----------------- See table on page 5 ---------------

------------------------------- See table on page 5 --------------------------

Adjusted Effective Tax Rate

34%

35%

Q2: 35%

Q3 & Q4: 34% to 36%

34% to 36%

34% to 36%

Earnings from continuing operations attributable to noncontrolling interests

$4.5 million

very little impact

very little impact

very little impact

$4 million

RISK MANAGEMENT SEGMENT

Foreign Currency Impact on Earnings Per Share

(will be shown as an adjustment to 2015 numbers)

very little impact

very little impact

very little impact

Foreign Currency Impact on Revenues

(will be shown as an adjustment to 2015 numbers)

$3 million

$2 million

Q2: $3 million

Q3 & Q4: very little impact

very little impact

$5 million

Adjusted EBITDAC Margin

17.6%

17.1%

-------------- 17.0% margin target ---------------

----------------------------- 17.5% margin target -----------------------------

Run-off Revenues in Australia & UK

(will be shown as an adjustment to 2015 numbers)

$5 million (Q1 2015)

$7 million (Q2 2015)

Q2: $7 million (Q2 2015) Q3: $4 million (Q3 2015) Q4: very little impact

Q3: $4 million (Q3 2015)

Q4: very little impact

$16 million (FY 2015)

Amortization - Recurring

$1 million pretax

$1 million pretax

$1 million pretax

$4 million pretax

Depreciation - Recurring

$7 million pretax

$7 million pretax

$7 million pretax

$7 million pretax

$28 million pretax

Adjusted Effective Tax Rate

37.6%

37.7%

36% to 38%

36% to 38%

36% to 38%

OTHER

Weighted Average Multiple of EBITDAC for Acquisition Pricing

7.0x

6.7x

Between 7.0x and 7.5x

Between 7.0x and 7.5x

Debt

We closed a $275 million private placement debt transaction on June 2, 2016.

We closed a $275 million private placement debt transaction on June 2, 2016.

At March 31, 2016, debt-to-EBITDAC ratio was 2.6x (calculated per bank covenants). Targeting similar level for year-end 2016.

At June 30, 2016, debt-to-EBITDAC ratio was 2.7x (calculated per bank covenants). Targeting similar level for year-end 2016.

Shares

We repurchased approximately 764,000 shares in the quarter to fully offset 527,000 of shares issued for tax-free exchange mergers in the first quarter and 237,000 shares we expect to issue for transactions in the second quarter.

We repurchased 697,000 shares in the quarter to fully offset shares issued for tax-free exchange mergers in the second quarter and 804,000 shares we expect to issue for transactions in the third quarter of 2016 or thereafter.

If we need to issue shares for acquisitions or earnouts in 2016, we intend to repurchase those shares in the open market.

We have $15.6 million available under our at-the-market equity program, which we do not expect to use in 2016.

If we need to issue shares for acquisitions or earnouts in 2016, we intend to repurchase those shares in the open market.

We have $15.6 million available under our at-the-market equity program, which we do not expect to use in 2016.

Notes

Yellow highlighted rows will be presented as adjustments to GAAP earnings

All commentary related to foreign currency is based on July 27, 2016 exchange rates.

(1) As we do more acquisitions, for every dollar we spend, increase amortization by about 1% of the purchase price per quarter.

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ARTHUR J. GALLAGHER & CO. - CFO COMMENTARY - JULY 28, 2016

This communication is intended to be used in conjunction with, and should be read and understood in combination with, the commentary provided by our executive officers on the July 29, 2016 earnings call.

Other commentary is likely to be made during the investor meeting. This communication is subject to, and you are urged to carefully read, the cautions set forth at the beginning of this communication.

Clean Energy Investments

The following provides certain information related to Gallagher's investments in limited liability companies that own 34 clean coal production plants, which produce refined coal using proprietary technologies owned by Chem-Mod. We believe that the production and sale of refined coal at these plants qualifies to receive refined coal tax credits under IRC Section 45 through 2019 for the fourteen 2009 Era Plants and through 2021 for the twenty 2011 Era Plants. The underlying operations of those investments where Gallagher has a controlling ownership interest are consolidated.

($ in millions)

Gallagher's

Tax-Effected Book Value at

June 30, 2016

Additional

Required Tax- Effected Capital

Investment

Ultimate Annual After-tax

Earnings (1)

Investments that own 2009 Era Plants

10

Under long-term production contracts

$ 6.1

$ 0.4

$ 30.0

2

Under long-term production contracts, estimated to

resume production in 4th quarter 2016

2.0

1.5

5.0

2

In late stages of negotiations for long-term production

contracts

0.6

4.2

5.0

Investments that own 2011 Era Plants

17

Under long-term production contracts

35.0

-

80.0

2

Under long-term production contracts, estimated to

resume production in 4th quarter 2016

1.8

8.9

15.0

1

In early stages of negotiations for long-term production

contract

0.4

Not Estimable

Not Estimable

(1)

Reflects management's current best estimate of the ultimate future potential annual after-tax earnings based on production estimates from the host utilities and preliminary investment partner assumptions.

It is unlikely Gallagher will fully achieve these earnings in 2016 as the clean-coal production plants are forecasted to start or resume production at various dates throughout 2016. Further, host utilities do not consistently utilize the refined fuel plants at ultimate production levels due to seasonal electricity demand, as well as many other operational, regulatory and environmental compliance reasons. Achieving these ultimate estimates in 2017 may be possible assuming successful progress in 2016 in both plant deployments and recruitment of investment partners to purchase portions of our Section 45 portfolio.

Gallagher's investment in Chem-Mod generates royalty income from clean energy plants owned by those limited liability companies in which it invests as well as refined coal production plants owned by other unrelated parties. Based on current production estimates provided by licensees, Chem-Mod could generate for Gallagher an average of approximately $4.0 million to $5.0 million of net aftertax earnings per quarter.

All estimates set forth above regarding the potential future earnings impact of our clean energy investments are subject to significant risks. Please refer to Gallagher's filings with the SEC, including Item 1A, "Risk Factors," of its Annual Report on Form 10-K for the fiscal year ended December 31, 2015 for a more detailed discussion of these and other factors that could impact these estimates.

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Arthur J.Gallagher & Co. published this content on 28 July 2016 and is solely responsible for the information contained herein.
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