Arthur J Gallagher : Q1 2016 Earnings Release

1st Qtr 2016 PR Earnings Exhibits - Final (2).xlsx ARTHUR J. GALLAGHER & CO. ANNOUNCES FIRST QUARTER 2016 FINANCIAL RESULTS NEWS RELEASE

ITASCA, IL, April 28, 2016 - Arthur J. Gallagher & Co. (NYSE: AJG) today reported its financial results for the quarter ended March 31, 2016. A printer-friendly format of this earnings release, "Supplemental Quarterly Data" and "CFO Commentary," which includes certain estimates relating to 2016 results, are available at ajg.com/IR. For a description of the non-GAAP measures used to report financial results in this earnings release and information regarding their most comparable GAAP measures, please see "Information Regarding Non-GAAP Measures" beginning on page 7.

"We had an outstanding start to the year, building off last year's momentum. Our global team is energized and well positioned for 2016," said J. Patrick Gallagher, Jr., Chairman, President and CEO. "In the first quarter, our combined Brokerage and Risk Management segments posted 11% growth in adjusted revenues, of which 4.8% was total organic growth, adjusted EBITDAC increased 15% and our adjusted EBITDAC margin improved 91 basis points. Total company adjusted net earnings per share grew 26%."

• Our Brokerage segment had an excellent quarter. Adjusted total revenues increased 12%, of which 4.8% was total organic growth, adjusted EBITDAC increased 16% and we improved our adjusted EBITDAC margin 79 basis points.

• Our Risk Management segment had a strong quarter. Total organic revenues increased 4.7%, adjusted EBITDAC increased 9%, we improved our adjusted EBITDAC margin 103 basis points and we exceeded our 17% EBITDAC margin target.

• Our clean energy investments had a solid quarter. We expect 2016 net after tax earnings from our clean energy investments to increase by about 15% over 2015.

• First quarter integration charges were $0.06 per share, in line with our forecast. We continue to expect full year 2016 integration charges to be less than half of the 2015 level.

• In our historically smallest quarter of activity, we completed 8 acquisitions with annualized revenues of $30 million with a weighted average purchase price of 7.0x EBITDAC. Further, we repurchased shares in the quarter to fully offset shares issued for tax-free exchange mergers in the first quarter.

"The current domestic rate environment is rational and we are seeing some early signs of cycle-bottoming in select geographies outside the U.S. We believe the P&C insurance marketplace is favorable for our clients and is allowing our producers to demonstrate our expertise and value-added service. Integration of our larger deals remains on track and should be largely complete by year end and our bolt-on merger strategy continues to add value for shareholders. Lastly, our culture is thriving, demonstrated by being selected as a World's Most Ethical Company for the fifth year in a row by the Ethisphere Institute. We are hitting on all cylinders around the world and successfully executing our strategies."

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The following table provides information that management believes is helpful when comparing first quarter 2016 revenues, EBITDAC and diluted net earnings per share with the same period in 2015. In addition, this table provides reconciliations to the most comparable GAAP measures for adjusted revenues, adjusted EBITDAC and adjusted diluted net earnings per share. A reconciliation of EBITDAC is provided on page 9.

Quarter Ended March 31 Diluted Net Revenues EBITDAC Earnings Per Share Segment 1st Q 16 1st Q 15 Chg 1st Q 16 1st Q 15 Chg 1st Q 16 1st Q 15

(in millions) (in millions)

Brokerage, as adjusted	$ 823.3	$ 732.5	12%	$ 191.2	$ 164.3	16%	$ 0.40	$ 0.36
Gains on book sales	2.2	0.9	2.2	0.9	0.01	-
Acquisition integration	-	-	(14.2)	(20.8)	(0.06)	(0.08)
Workforce & lease termination	-	-	(1.6)	(8.5)	-	(0.03)
Acquisition related adjustments	-	-	(0.8)	-	-	(0.03)
Levelized foreign currency translation	-	17.7	-	2.6	-	-
Brokerage, as reported	825.5	751.1	176.8	138.5	0.35	0.22
Risk Management, as adjusted	179.3	174.7	3%	31.5	28.9	9%	0.09	0.09
Workforce & lease termination	-	-	(0.5)	(0.2)	(0.01)	-
Levelized foreign currency translation	-	2.5	-	0.9	-	-
Risk Management, as reported	179.3	177.2	31.0	29.6	0.08	0.09
Total Brokerage & Risk Management, as reported	$1,004.8	$ 928.3	$ 207.8	$ 168.1	0.43	0.31
Corporate, as adjusted	(0.15)	(0.18)
Impact of 2015 litigation settlement	(0.02)	-
Corporate, as reported	(0.17)	(0.18)
Total Company, as reported	$ 0.26	$ 0.13
Total Brokerage & Risk Management, as adjusted	$1,002.6	$ 907.2	11%	$ 222.7	$ 193.2	15%	$ 0.49	$ 0.45	9%

Total Company, as adjusted

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$ 0.34 $

0.27

26%

Brokerage Segment First Quarter Highlights - The following tables provide information that management believes is helpful when comparing certain 2016 financial information with the same period in 2015 (in millions). Orga nic Re ve nue s (non-GAAP) 1st Q 16 1st Q 15 Base Commissions and Fees

Commissions as reported

$ 566.0 $

519.7

Fees as reported 159.1 146.1

Less commissions and fees from acquisitions (50.4) -

Less non-owned portion of consolidated entities (11.9) (8.4) Less disposed of operations - (0.3)

Levelized foreign currency translation - (16.4)

Organic base commissions and fees

$ 662.8 $

640.7

Organic change in base commissions and fees 3.5%

Supplemental Commissions

Supplemental commissions as reported

$ 32.9 $

26.9

Less supplemental commissions from acquisitions (1.0) - Levelized foreign currency translation - (0.7)

Organic supplemental commissions

$ 31.9 $

26.2

Organic change in supplemental commissions 21.8%

Contingent Commissions

Contingent commissions as reported

$ 55.2 $

44.5

Less contingent commissions from acquisitions (4.5) - Levelized foreign currency translation - (0.3)

Organic contingent commissions

$ 50.7 $

44.2

Organic change in contingent commissions 14.7%

Total organic change 4.8%

Acquisition Activity 1st Q 16 1st Q 15

Number of acquisitions closed * 8 11

Estimated annualized revenues acquired (in millions)

$ 30.0 $

33.6

* Gallagher repurchased 527,000 shares in the first quarter of 2016 to fully offset shares issued for tax-free exchange mergers in the quarter. Gallagher also repurchased 237,000 shares in the first quarter of 2016 in contemplation of closing tax-free exchange mergers that will occur in the second quarter of 2016.

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Brokerage Segment First Quarter Highlights (continued) Adjuste d Compe nsa tion Ex pe nse a nd Ra tio (non-GAAP) 1st Q 16 1st Q 15

Reported amounts

$ 492.9 $

460.3

Acquisition integration (1) (4.6) (11.6)

Workforce and lease termination related charges (1.3) (8.5)

Acquisition related adjustments (0.8) -

Levelized foreign currency translation - (11.1)

Adjusted amounts

$ 486.2 $

429.1

Adjusted ratios using adjusted revenues on page 2 * 59.1% 58.6%

* Adjusted first quarter compensation ratio was 0.5 pts higher compared to the same period in 2015. This ratio was primarily impacted by increased employee benefits of 0.3 pts. All other items were essentially consistent with the prior year.

Adjuste d Ope ra ting Ex pe nse a nd Ra tio (non-GAAP) 1st Q 16 1st Q 15

Reported amounts

$ 155.8 $

152.3

Acquisition integration (1) (9.6) (9.2)

Workforce and lease termination related charges (0.3) - Levelized foreign currency translation - (4.0)

Adjusted amounts

$ 145.9 $

139.1

Adjusted ratios using adjusted revenues on page 2 * 17.7% 19.0%

* Adjusted first quarter operating expense ratio was 1.3 pts lower than the same period in 2015. This ratio was primarily impacted by savings in technology expenses of 0.7 pts and business insurance of 0.4 pts.

Adjuste d EBI TDAC (non-GAAP) 1st Q 16 1st Q 15

Total EBITDAC - see page 9 for computation

$ 176.8 $

138.5

Gains from books of business sales (2.2) (0.9)

Acquisition integration (1) 14.2 20.8

Acquisition related adjustments 0.8 -

Workforce and lease termination related charges 1.6 8.5

Levelized foreign currency translation - (2.6)

Adjusted EBITDAC

$ 191.2 $

164.3

Adjusted EBITDAC change 16.4% 52.3%

Adjusted EBITDAC margin 23.2% 22.4%

(1) Acquisition integration costs consist mostly of IT system conversion costs, professional fees, branding and compensation related to acquisitions.

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