Good morning, ladies and gentlemen. And welcome to the Arthur J. Gallagher & Company Third Quarter 2008 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode. Your lines will be opened for questions following the presentation. As a reminder, today's call is being recorded. If you have any objections, you may disconnect at this time. Some of the comments made during this conference call, including answers given in response to questions, may constitute forward-looking statements within the meaning of the securities laws. These forward-looking statements are subject to certain risks and uncertainties described in the company's reports filed with the Securities and Exchange Commission. Actual results may differ materially from those discussed today. It is now my pleasure to hand the floor over to your host J. Patrick Gallagher, Jr., Chairman, President and CEO of Arthur J. Gallagher & Company. Sir, the floor is yours.

Thank you very much. Good morning everyone and thank you for joining us this morning. We appreciate you being here. This morning I am joined by Doug Howell, our Chief Financial Officer; Walt Bay, our General Counsel as well as the heads of our operating divisions. I think it's clear, we all know what's happening in the financial markets. I have to say that I am feeling very blesses to be in this business. I can tell you one thing is for sure and that is clients will continue to buy their insurance. So I won't spend any time on the financial markets, I'll just instead jump right into what's happening in our market and I'd like to start with our Brokerage segment. We continue to fight the headwinds of rate reduction. You can see that in our results. Rates in the quarter according to the Council of Insurance Agents and Broker Survey, we're off again about 11% in the commercial market. But even with that continuing softening, our results EBITDA up 11%, EPS up 9% margins holding steady. And we think these are very good results given the environment. Holding our margins steady, growing revenues 8% in the phase of negative organic growth of 2%, I believe shows that our strategies are working. We've closed 28 acquisitions this year for almost $100 million of revenue and we believe that we will continue in the fourth quarter. Our pipeline, frankly this has never been better. Also think about our position. Presently, there are only two publicly traded strategic buyers with an appetite for the deals the size that we are doing. We believe that there are 18,000 to 20,000 agencies in America. Most of them are run by Baby Boomers. Eventually, they have to capitalize their life's worth. I am…

Thanks Pat and good morning everyone. Today, I have six comments. First, a couple of quick housekeeping items. We are going to file our 10-Q later this week and don't forget that on our website we have a five year quarterly spread that helps you see trends and seasonality that's usefully build your models. Let's jump into some comments on the Financial Services & Corporate segment. As you can see, there are many ins and outs this quarter, but here is the short kind of way to think about it. Interest expense was about $0.05 and normal administrative and overhead cost in this segment run about a $0.01 a share. So abnormal quarter will be about $0.06 of loss. But in this quarter we took some further actions to wrap up many of our historical investments and those wrap up activities cost us about $0.04 a share. But overall, we made some very nice headway there. Then, we also put several federal and state tax matters behind us, which gave us about a net $0.08 of income. So as you read the narrative, here is the simple math. $0.06 of loss from normal interest and administrative expenses, $0.04 of loss related to wrapping up many of our investments and then an offset of $0.08 of income from tax matters. That gets you to the reported $0.02 of loss in this segment. And since we're talking about taxes, let me go to my third point. I still get a few questions on how to model additional cash flows from realizing our deferred tax assets. The shortcut answer, I'd given before is for you to just compute what you think we'll pay in taxes, your normal way when you do your cash flows, then reduce your estimate by about $30 million to…

Thanks Doug, Brandy, we are ready for questions, if you are, would you open the lines please? Question And Answer

Thank you. The floor is now open for questions. [Operator Instructions]. Thank you. Our first question is coming from Keith Walsh of Citi. Please state your question.

Good morning everybody and thank you.

Good morning, Keith.

I guess first for Doug. Just on pension expense. Obviously, with the decline in planned assets we've seen, I'm assuming year-to-date and probably higher discount rates. I know that these assumptions are set on December 31st, but if you can just give us a little color incremental GAAP pension expense, how that's going to change for you guys, if the year ended today and then I have follow up fro Pat. Thanks.

First, to step the stage. We frozen our plan, you recall three years ago and so we have frozen plan. The assets in that plan, well refunded last year. They are slightly under funded this year. We think it'll drive between $2 million and $3 million of additional expense into '09 numbers compared to our '08 numbers.

Great. Okay, so for pretty modest headwind there.

Right.

And then I just for Pat. Lots of talk about pricing going on. Okay, just what's your take, what's the reality of this on 10.1 renewals and what do you think about 1.1 renewals and any color that you're seeing out there?

Yes, thanks. We are not seeing that Keith. Certain areas of the market, heavy marine that type of things that was really hit by Ike, you might see some pricing improvement there, but by and large where we play the pricing is still going down and was going down at 10.1. As for first of the year, my crystal ball would more the same.

Okay and do you think that's something that's just maybe more geared towards where you guys play in the market relative to maybe some of other, maybe larger brokers out there or is that something just overall you are seeing?

I think it's overall. I think we are all playing in the same... in the same playing field.

Okay. Thanks a lot.

Sure.

Our next question is coming from Meyer Shields of Stifel Nicolaus. Please state your question. Meyer Shields - Stifel Nicolaus & Company, Inc.: Thanks good morning everybody. Pat --

Hi, how are you? Meyer Shields - Stifel Nicolaus & Company, Inc.: I am doing okay, how are you?

Good. Meyer Shields - Stifel Nicolaus & Company, Inc.: Can you talk a little bit about how you see AIG scenario, not in terms of what happens at the company, but how is that impacting business and maybe commission levels or from the brokers standpoint?

Well, obviously for a period of about three weeks, it was significant impact on our people. Our clients were very, very concerned, especially as the news was coming out, that week before the long from federal government days before. Every single client was calling in, our brokers were trying to do everything they could to communicate them. I think that AIG did a very good job of communicating though their broker network, through their clients in terms of what was going on. When the loans were solidified, I think that took a lot of pressure up. And also I have to say that these state regulators both in New York and Illinois spend a lot of time and effort. If you go to our website, in fact you can click on a listen to the Illinois Director of Insurance, Michael Machette, who did a conference call for our people and our clients. And I think they really calm the waters as best they could, relative to what's happening there. The rating agencies continue to be solidly behind the insuring enterprises of AIG, but to say that it's... it has caused some real consternation in the market and AIG is our biggest trading partner and they're doing everything they can weather the storm, but it's difficult. Meyer Shields - Stifel Nicolaus & Company, Inc.: Okay. You don't see it presenting a particular challenges or opportunities for 2009, do you?

No, I really don't. I think that what it's going to so, it will create a lot more work as we do. Everything we can communicate with our clients as what the ongoing situation is there. Meyer Shields - Stifel Nicolaus & Company, Inc.: Okay that's helpful, second, in terms quickly to benefits. You talked a little bit about how employment picture is probably going to get worst and its implications on potential workers compensation, say in volume, how they are going to affect benefits of revenue growth?

It's real simple, Meyer. If we are in a deep recession and people start letting people go, as you know all benefits is predicated on employee counts and that's just going to be... it will headwind for us for sure. Meyer Shields - Stifel Nicolaus & Company, Inc.: Okay, you just headcount for that?

We will, absolutely. Meyer Shields - Stifel Nicolaus & Company, Inc.: Okay. Thanks so much.

You bet.

Our next question is coming from Dan Farrell with FPK. Please state your question.

Hi, good morning.

Good morning, Dan.

Can you talk a little bit about the performance of the acquisition over 12 months, maybe just some prior comments on the growth of those and revenues there, versus decrease in book [ph] and then also maybe the margin impact from the acquisitions, given the significant activity?

Yes. I will let Doug talk about the margins and we're very, very happy with the deals we've done over the last two years. And I'd go back three, four years we have to deals and every six months we take our Board through a reflection of what are the internal rate of returns on each deal as they go forward and as you can deal, I am sure you are aware that as the season that becomes a better number. But, I think we're buying really terrific units. And as I've said many times, the due diligence on an acquisition, 95% of the due diligence is on the people. Are we going to get along, are excited, are there things that we're going to bring to the table. We're not downsizing and rightsizing these things. We're trying to be additive, we're trying to help them recruit production talent, get in the niches that we are and bring certain benefit programs to them that they wouldn't be able to solve themselves. So across each division it's doing acquisitions every time, we do and we're hoping that one plus one is going to equal five. And I have to tell you that some of the people would have joined us this year. And I get comments from the field from our competitors many, many times during the year. I was surprised that so and so sold their business and congratulation you got a great operation. And those things are proving out. Doug, you want to comment on the numbers?

Yes, I think overall the comment is good. I think that it's better on, the ones that we, the real true tuck-ins where we can roll them into shop [ph] and they join our teams and they start working with our staff and have done outstanding. They simply are tremendous financial wins for us. And ones that are standalone, obviously they are suffering from the same pressures that we are, but I wouldn't say it's any different. There are five in a headwind of the soft market, but their teams are turned down and we are not having lots of early accepts from people baling out. So overall, we are pleased with the margins they are contributing, and I would say it's no different than in the past.

Can you refresh us roughly on the mix of cash and stock that you were using for deals and where that mix goes to?

Yes, historically in 2007 and early 2008 we are using almost a 100% cash and throughout the mid part of 2008, we are going to more like 60% cash and 40% stock on a blended basis. And now we are going to favor stock a little bit more, as we go into early part of next year. Again, multiples need to be come down in terms of what we are paying. We are working on that and if the sellers want to participate in there, in the recovery of the multiple, they will have the opportunity to do that by holding our stock. There is no for prohibition for them selling them right after they get it, but if they want to right up as brokers recover, moving into a hard market they have that opportunity to do that with our stock.

Great, thank you.

Thanks, Dan.

[Operator Instructions]. Our next question is coming from Mark Dwelle of RBC Capital Markets.

Good morning.

Good morning, Mark.

A couple of questions. Did you provide... you often do the trailing amount of acquired revenue during the quarter?

Well, what we have as we say that we bought $41 million worth of annualized revenue.

That's what I meant.

Yes, it's on a base of... it's in the bottom of face and another information on face of the press release.

I am sorry, I missed it.

It's alright.

Second question, within the risk management unit what portion of that revenue is foreign or FX exposed as compared to the domestic portion?

15%.

15, one five?

Yes.

Okay and I guess you have noted in the past that's the growing portion. Is that... is the growth both UK and Australia or is there... are other components to that?

No it's UK and Australia, both operations are doing very well.

Okay. You'd commented on a prior question in terms of just your words, you are sort of doing a whole lot more work related to AIG related quotes and to servicing your customers during a difficult segment. Is there an actual cost to your business related to that or you are really just leveraging the telephones and people that already have in place?

We are basically leveraging the telephones and people we have in place. It's just adds to the work load, that's all.

Okay.

And there is not anything unusual for us, and we have other carriers that have run into problems, our brokers are there and that's what they do, when there's disruption in the carrier marketplace, our brokers understand the program, they understand who will build to pick it up. And all those sit down and talk to our clients about staying where they are. So this not an unusual behavior for our brokers out there.

Okay, last question. On couple of prior conference calls, we talked about some changes or something's that maybe in the works with respect to contingent commissions, you heard any update related to that.

No, I think Mark we, the State of New York held hearings, on the subject over the summer. And we've really heard nothing from those hearings in terms of a change or an affirmation of the status call. I've been very verbal, I've been very public about the fact that I think it's important to have two sets of rules, a few regulators. I don't know how they justify that. So make the rules one way or the other. We can play by whatever the rule book is, but having two sets of rules is just, it just doesn't make any sense at all. And I think that's what New York is looking at.

Okay. Very good. Thanks for your help.

Thanks, Mark.

Our next question is coming from Jason Marrer [ph] of Lord Abbett.

Good morning, guys.

Good morning, Jason [ph].

Just question on AIG, do you guys view even though like you have been saying it's important to get out there and stay in front of people and communicate what's going on. Is any potential of dislocation or movement towards others beneficial to you guys or is it just kind of out of one into the other, so to speak?

The out of one pocket into the other.

Yes. Great. Thank you.

Sure.

At this time there are no further questions. I would like to turn the call back over to J. Patrick Gallagher, Jr. for any closing remarks.

Thanks Brandy. I will make just a clearly brief couple of remarks here. Let me reiterate that I really think that this quarter shows that even in a soft market, our strategies [ph] are going to be sound. The brokers business, EBIT is up 11%, our EPS is up 9%, our margins are holding. So, as we go forward there's going to be five things we continue to focus on. One, we are going to maintain a conservative balance sheet. Two, we are going to continue roll-in acquisitions, our pipeline is terrific. Three, we are going to watch our costs. We understand it's time to be fugal. Number four, we are going to constantly recruit producers that we believe can sell. And fifth, we are going to continue to focus on maintaining our unique culture. We really do think we building a unique company and we see a bright future. So thank you for being with us this morning. We really appreciate it. That's it.

Thank you for your participation, ladies and gentlemen. This does conclude today's teleconference. You may now disconnect your lines at this time and have a wonderful day. .