Good morning, ladies and gentlemen. And welcome to the Arthur J. Gallagher & Company fourth 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. (Operator Instructions) 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 introduce the host J. Patrick Gallagher, Jr., Chairman, President and CEO of Arthur J. Gallagher & Company. Thank you, Mr. Gallagher. You may begin.

Thank you, Diego. Good morning everyone and thank you very much for being with us this morning. This morning I’m joined by Doug Howell, our Chief Financial Officer, as well as the heads of our operating divisions. As I said in my remarks and our press release, we did not escape the negative impact of the rapidly deteriorating economy and a continued soft market in the fourth quarter. However, as you saw there are a lot of moving parts in the quarter, so I encourage you to use the tables on page three and four, as you evaluate our results. We’ll answer questions on the table and any other part of the press release you have when we get to questions and answers. Although I think that we are very lucky to be in a business that people need and will continue to buy, we saw some changes in buying behavior in the quarter. Buyers are buying less coverage and reducing limits. They are also increasing deductibles and self-insured retentions. Rates continue to soften and exposure units are down. Remember all insurance is predicated on sales, payrolls, values and in benefits its full time equivalent employees. In my 35-year career, I believe these are the toughest headwinds I can ever, ever remember. Our construction niche has been hit hard by the fall off in construction activity. Our transportation and our hospitality niches have seen significant slowdowns. In fact, I think it’s fair to say when you look across all our stated niche markets, even the public sector are feeling the negative effects of the global financial slowdown. During 2008, we worked hard to proactively address expenses and headcount reductions. The items that we listed on page two of our release our actions we’ve already taken. We’ll see the benefits of…

Thanks Pat and good morning everyone. Today I’ve seven comments. First, a housekeeping comment. We intend on filing our 10-K later this week and don't forget to use the quarterly spread on our website that shows trends and seasonality. Please don’t forget that our first quarter is our smallest of the year. Second, some comments on the Financial Services & Corporate segment. When you turn to page eight of their earnings release, there was not much left in the whole Financial Services assets. As we said today, I don’t expect significant P&L activity from those remaining assets in 2009. So, as you build your models for 2009, just assuming the segment, we’ll report interest expense on our debt and our line of credit, first of all $1.5 million per quarter of operating cost. That equates to about $0.06 of loss per quarter after tax. Third, given the banking sector turmoil during the fourth quarter, we moved nearly all of our cash in the fully secured accounts, but we sacrificed return for safety. In unsecured accounts, yields are next to nothing today, so we can probably earn another two or three million of EBITDA annually if we wanted to risk the principal. But in our view, the significant risk is now worth the minimal return. Of course when stability returns we’ll look to generate more investment income. Fourth, our Brokerage and Risk Management segments, both have foreign operations. Overall because the lion share of our revenues in London are U.S. dollars. Our stronger dollar in 2009 would improve our EBITDA earnings. So, if the U.S. dollar stays where it is today, the combined units should generate above $5 million more of EBITDA than it did in 2008. On my fifth point, you can see an earnings release that we anticipate saving…

Thank you, Doug. Diego if we could go to questions and answers and now?

Thank you. (Operator Instructions). Our first question comes from the Keith Walsh with Citi. Please state your question. Keith Walsh – Citigroup: Hi, good morning everybody. A couple of questions for Doug. I’m just a little confused, looking at $0.12 versus $0.37. I know there is a lot of one-time as you talk about in the release, but just a cut through at all. What is the core EPS for this quarter if you can walk us through that? Thanks.

Good morning Keith. I think the way to look at is in the Financial Services and Corporate segment. Again $0.06 share of loss per quarter is what we told you at the beginning of the year. The reason why it shows a negative, I’m looking backwards up the face of the press release here. If you are working backwards, we took a write off at 5.7 on asset alliance and we wrote off some state taxes of $1.9 million. So, that’s the difference between the $0.06 of interest in operating cost and then the reportable $0.11 negative. Going up into the risk management segment you can see on page four of the press release, if you add that the one-time items there is about $6.6 million worth of one-time items, if you tax effect that you get about $0.04 a share differential, sort of $0.05 plus the $0.04 to $0.05, the result of that is about $0.09 to $0.10 there. On the brokerage segment doing the same exercise, we give an add back to the earnings there, how about a nickel again, so your 18 moves to 23 and the difference between that and probably what you are expecting was 4% negative organic growth and loss investment income. So those are the big pieces that navigate you back to the kind of the quarter earnings. Keith Walsh – Citigroup: So about $0.23 versus the $0.37 if we wanted to do apples–to–apples?

If you assume no investment income and you assume 4% negative organic growth that’s right. Keith Walsh – Citigroup: Okay and then just for Pat the two questions, in the press release you said, renewal exposure units are down as one of the reasons for the organic being down. I assume this issue is only going to accelerate in first quarter. Maybe if you can correct me if I’m wrong but I believe first quarter would probably be a bigger renewal season than fourth quarter and then I have a followup.

No, actually first quarter seasonally Keith is a smaller quarter than the fourth quarter for us. Keith Walsh – Citigroup: Okay.

As far as whether or not we’ll see an acceleration of the impact of the economy I think your guess is as good as mine. Keith Walsh – Citigroup: Okay, and then just on the headcount reductions, I mean you guys have successfully accomplished that. But there was something you announced in 1Q'08, the world changed dramatically since 1Q'08. And I’m just curious why there hasn’t been a much more aggressive push on the cost reduction side if you saw this comment. Thanks.

I think Keith, if you take a look at our headcount on the brokerage units, in fact if you go back to the efforts that we put in 2007, we've reduced the headcount in those units by about 9% and that’s pretty aggressive reduction in headcount. So we are cutting in everyplace we can. We put in basically a hiring freeze and as it wouldn't surprise you our attrition dropped in half in 2008. So, we had to be a little bit more aggressive than just using attrition itself. And we targeted 400 heads and that’s what we've landed on. Now we will share with you this stress and strain in our field. Some of those items that you see on page three of the press release, are departures that frankly we didn’t want those departures to occur. So at what point are you cutting muscle and at what point are you cutting fat and we are going to watch you just closely as we can and take whatever action we had to take to keep ourselves moving forward. Keith Walsh – Citigroup: Okay, thanks a lot.

Our next question comes from Mike Grasher with Piper Jaffray. Please state you question. Michael Grasher – Piper Jaffray: Thank you, very much good morning.

Good morning Mike. Michael Grasher – Piper Jaffray: On the – also I think after the reduced renewal exposures, you spoke a little bit here about declines in claim frequencies if you could just expand on that?

Both from economic downturn and frankly from I think the not Gallagher [asset] but the industry has seen a decrease in claim activity primarily in workers compensation and in automobile coverages and we attribute that to a lot of labor in many respects. It’s moved offshore. But also the fact that I think risk management and safety programs in the like are doing a good job of actually making our customers safer. So when claim counts reduce and inventories grow, you get a cost squeeze in the claims business. Michael Grasher – Piper Jaffray: That primarily working comp and auto are two areas?

Correct, workers compensation is about 65% of the activity in our risk management segment. Michael Grasher – Piper Jaffray: Okay, thanks very much.

Our next question comes from Alison Jacobowitz with Bank of America - Merrill Lynch. Please state your question. Alison Jacobowitz – Bank of America – Merrill Lynch: Hi, thanks.

Good morning. Alison Jacobowitz – Bank of America – Merrill Lynch: I was wondering if you could, if there is any troubled spot in your book that you’ve seen now. Anything that you think you might need to divest going forward and at the same time, given all the changes do you see any opportunities or any new business areas, you might be expanding into?

Well, I think a little of both house. And we have not got any glaring place on our map that screams at me get out of this and a year ago, we did it was called reinsurance. And we divested our treaty reinsurance efforts. Right now what we have got is I think a team of people across all of our segments in all the divisions in the segments they really get it, they are working hard and I think they will be very successful in the long run. So, I really don’t have any spots out there right now that I’m thinking both we got to duck out of this. Now we do have a branch or two here and there that needs some remedial work and we’re on top of that and that doesn’t mean that there won’t be a divestiture here or there of someone that maybe has joined us and then isn’t going to be able to pull their way, but it’s nothing of any major size at all. As far as opportunities whenever there is turmoil we have opportunities. We had an awful lot of activity in 2008 that did not produce successful efforts – where we get down to the individual producer, the guy that’s worked $300,000, $400,000, $500,000 in opportunities and really hasn’t written any because the market soft and the incumbent kept it. Now with pain in the economy, people are truly willing to listen to us and I think our niche expertise sets us apart. We can going into these people and talk about their business. What it is they need to do and where we can help them pay back premium costs. So, I think there is going to be good opportunities for new business. We actually saw an improvement in loss business in the fourth quarter, so I think our guys are doing a good job of holding onto their accounts and at the end of the day that’s what going to make us or break us. 4% negative organic growth is not our style, I mean that’s really not a good quarter, so we are focused on selling a lot of new business. Alison Jacobowitz – Bank of America – Merrill Lynch: Great thank you.

Our next question comes from Bill Bergman with Morningstar. Please state your question. Bill Bergman – Morningstar: Hi good morning, Pat

Good morning Bill. Bill Bergman – Morningstar: Hi Pat. You mentioned this - the tendency towards self insurance and with the economic slowdown historically is it your experience but it takes time for that to come back during a recovery or do people continue to self insure as recovery develops or how quick does that appetite for insurance some back during an economic recovery?

Well, it’s interesting. What I said was, my comments were that the self-insured retentions are increasing. In a softening market, people moving to self insurance actually slows down. Its when the market tightens that people will move into self insurance, take a self insured retention and reduce their premium cost, but those people who go into the alternative market which isn’t so alternative anymore but those people who move into the self insurance alternative market tend to stay there whether there is a soft market or not and what we are seeing now is that people are basically looking at their budgets and saying if I had $150,000 retention and I can take that to $250,000 and reduce premiums accordingly I’ll take the game along the losses instead of paying out the premium. Bill Bergman – Morningstar: All right, thank you. I appreciate it.

Thank you. (Operator Instructions). Our next question comes for Meyer Shields with Stifel Nicolaus. Please state your question. Meyer Shields – Stifel Nicolaus & Company, Inc.: Thanks good morning everyone.

Good morning Meyer. Meyer Shields with Stifel Nicolaus & Company, Inc.: Pat, in contrast, I guess when we saw a significant [dip] in employment in the fourth quarter.

Sorry, clearly I’m not hearing you. Meyer Shields with Stifel Nicolaus & Company, Inc.: I’m sorry, I’ve a [severed] headset. Can you contrast the organic growth rate employee benefits [through] September versus the fourth quarter trend?

The organic growth in employee benefits through the third quarter versus fourth quarter is that the question? Meyer Shields with Stifel Nicolaus & Company, Inc.: Yes.

I think it’s probably the same guys. We didn’t see much difference in the employee benefit space throughout the year. We had good strong organic growth throughout the year, pretty consistent.

And it raised to about 4 to 5%. Meyer Shields – Stifel Nicolaus & Company, Inc.: Okay, thanks, that’s helpful. With regarding to the provision, I’m not sure what it’s termed but the provision for commission refunds, can you talk a little about the expectations that you have for declining payrolls and policy cancellations? Was there any change in the fourth quarter and what are you anticipating for 2009?

First we maintain a reserve for commission refunds based on subsequent orders that will come up or virtual adjustments. We looked at that reserve. We adjusted as we saw the economy at the end of the year. With the downturn in the economy in the fourth quarter we don’t have a significant series of historical data points when we took our best estimate right now and I think we are okay, but we haven’t had a situation where the economy has falling off a cliff in one quarter before. So, with that, we will adjust our reserve every quarter as that develops for any brokerage right now. Meyer Shields – Stifel Nicolaus & Company, Inc.: Okay. Could you quantify the adjustments in the fourth quarter?

I think it was about a $1 million. Meyer Shields – Stifel Nicolaus & Company, Inc.: Okay. And one last question if I can.

Sure. Meyer Shields – Stifel Nicolaus & Company, Inc.: Do you have a sense I guess if the business that the formal with the mutual teams in the past been exclusively all the very mutual and now its basically going to be up perhaps in the general marketplace. Jeff is there - should we anticipate an increase in their revenues because they can charge higher admissions?

It’s not going to be a matter of higher commissions there. We think is the opportunity is in the Liberty world as a direct rating organization. It just did not have access to be able to round up the whole account. So, in their world they wrote about two lines of cover for each client they had. Our average would be closer to 4 or 5. And so, that’s were we think the opportunity is for them to expand the relationship with clients. Now remember each of those clients if they have two lines is buying insurance from a broker agent somewhere else as well. So, you are right there is going to be a bit of a battle, but we like our odds. Meyer Shields – Stifel Nicolaus & Company, Inc.: Okay that’s very helpful. Thanks very much.

Our next question comes from Dan Farrell with Fox-Pitt Kelton, please state your question. Dan Farrell – Fox-Pitt Kelton: Good morning.

Dan, how are you? Dan Farrell – Fox-Pitt Kelton : Good, good. I was wondering if you could give a little more clarity on the economic drag and particularly the decline in unit exposure. Could you put some numbers around that? How much of a headwind that is are we talking 5%, 7%. And then also did this quarter reflect year-end audits and the audits of the insignificant exposures and is there any unusual true-up in that? Should we think about this as a run rate level for unit exposure as we head into 2009?

Well I think when we look at our units, the real question is how much of our negative organic growth was as a result of units going backwards versus how much was as a result of rate. And I think the second piece of your question was what have we seen in terms of refund? Did I get that right Dan? Dan Farrell – Fox-Pitt Kelton: Yeah. That's great.

On the refund side, I just answered. I think that our reserve for that is where it needs to be right now, but will see how it develops with respect to how much was backwards because of rate versus unit. I think three quarters of the decrease was as a result of unit or exposure shrinkage and I think the other quarter is as a result of rates. Dan Farrell – Fox-Pitt Kelton: Okay, great, thank you.

Our next question comes from Ken Ruskin with Temujin Asset Management. Please state your question. Kenneth Ruskin – Temujin Asset Management: Hi. I just wanted to look into the understanding the brokerage segment margins a bit better and just adjusting for the adjustments that you layout on the table, you get to around [250] basis point decrease in EBITDA margins and if organic growth was down around 4%, that sort of implies a full decremental margin or so you basically all those revenues impacted earnings by an equivalent amounts. So, I just wonder as the why you want to seamless of a margin decline with the 4% organic growth decline?

Yeah. Here that's a good question. I think that we are at the point now where when you have unit exposure going backwards and rates going backwards, remember our teams have to do the same amount of work in order to service that policy whether it’s got $50,000 SIR. It got a $100,000 or $200,000 SIR. So the amount of work going into making the placement is basically the same amount of work at just we're giving less premiums and less commission on that policy because they are buying, actual policy premiums are less. So you are going to see when you get into a situation where you got negative organic growth of 4%, a big piece of that’s going to hit the bottom line. We don’t pay the producer about 20% of that numbers. So you get a little bit of an offset there, but also contributing to that decline was a lack of investment income. Again going back to what I said earlier, we lost about $5 million in the quarter from lesser investment income than we would have had in prior years because of a decrease in rates and the fact that we put all of our money in safety resident yielding accounts. So, you are seeing to gearing there. When organic goes backwards this is going to hit the bottom line, $0.80 on the dollar and in the lost investment income is what makes up the difference. Kenneth Ruskin – Temujin Asset Management: Okay, the investment that comes in that makes sense, so I guess isn’t it in there for this quarter. The savings, the $25 million to $30 million, can you just help me understand whether that is incremental in ’09 or because you’ve been working on some of this for a while it hits in ’08 as well?

I think that number is meant to be incremental in ’09. Kenneth Ruskin – Temujin Asset Management: Okay, and that’s shows up what kind of run rate this will take a law for that’s to start showing up or is it going to be in Q1 start to show up for the full run rate?

Pretty close to full run rate in Q1, maybe slightly secured just a little bit but not much. We figured, took the average of the $228 million at $7 million a quarter maybe you will get, I’m just saying that its illustrating $5 million to $6 million in the first quarter and you will get $8 million or more in the fourth quarter. But you can see it’s pretty much so a flat emergence versus the wedge emergence.

Okay, great. Thanks a lot.

Our next question comes from Ken Billingsley with Signal Hill. Please state your question. Kenneth Billingsley – Signal Hill Group LLC.: Hi, good morning. Just one question on your Liberty acquisition. Are you going to be able to receive contingence on that business for the next two to three years?

Ken, we do not take contingent commissions at this point, which is our agreement with the Attorney General in Illinois. However, the Attorney Generals have agreed that we can participate in what are called guaranteed supplemental commissions and we will negotiate an arrangement such as that with Liberty.

Okay, so, you hadn’t signed on, I believe I thought there was a change where they were, some of the larger guys were accepting contingent on only acquired businesses for two or three years?

That’s correct Ken. We are allowed when we acquire company continue to take their contingence for a period of three years.

Okay,

But this is a renewal rates situation. It’s not a growing concern acquisition and so this will be negotiated as a guaranteed supplemental arrangement. And the good news about that Ken is that a guaranteed supplemental arrangement will go on beyond three years. Kenneth Billingsley – Signal Hill Group LLC.: Very good. And in the past you had made comments that when you talk to customers and your clients that you really didn’t care how you got paid whether it was brokerage or agency basis. With the way the market is going now are you seeing any change there. Are you still able to make that push and what are you going to do if rates do actually raise in 2009 will that negatively impact you?

Well I mean I think that those clients who’ve chosen to pay us on a fee, we will not see the typical rise in compensation that goes with commission income in a tightening market. And that equates to about 25% of our property cash lead retail commission and a probably similar amount well it’s actually a little higher probably in the benefit side. So when rates go up we will have probably something on the order of 70% to 75% of our book of business that will actually be subject to the increasing rates. You raise a good point in that we are in fact transparent and I think there will be tougher discussions with our production force by clients especially if this hits while the recession is still strong. We are set to see how that goes. But the push to increase our compensation by asking our clients to make as whole with fees in addition to commissions has slowed dramatically in this economy. Kenneth Billingsley – Signal Hill Group LLC.: Yeah thank you.

Our next question comes from Alison Jacobowitz with Bank of America - Merrill Lynch. Please state your question. Alison Jacobowitz – Bank of America - Merrill Lynch: Thanks. I just figured. I get an updated view on the dividend and how you are thinking about that these days?

Well as you saw Alison, just last week we had our Board Meeting and declared the dividend at the same level for our next path and the January meeting is when we go over our capital plan with the board for the year, so where we stand today, we receive no reason to reduce the dividend and we're slowing the cash used in our acquisitions, would be in very cautious in our capital planning and then we'll work it very hard on our expenses. We're in unprecedented times but the board just reviewed where we stand and is comfortable with it. Alison Jacobowitz – Bank of America - Merrill Lynch: Thanks.

Thank you.

(Operator Instructions) Our next question comes from Meyer Shields with Stifel Nicolaus, please state your question. Meyer Shields – Stifel Nicolaus & Company, Inc. : Thanks. Can you talk a little bit about how clients are increasing their retention? Are you seeing any additional claim flow in risk management from that trend?

No. Because the size of the retention doesn’t really have much to do with the number of claims. Meyer Shields – Stifel Nicolaus & Company, Inc.: Okay thanks.

Thank you. Ladies and Gentlemen there are no further questions at this time. I will now turn the conference back over to Patrick Gallagher for closing comments.

Yeah, just a few quick comments. Thank you Diego. Thank you everyone for being here. Look I've said we were disappointed in our results. We plan at Gallagher for growth every single quarter, every year. However, I don’t think anyone on this call would doubt that we’re in unprecedented times and these have created an unbelievable headwind. So in 2009 we are focussed on watching our costs and looking for every opportunity to save more. And I stayed very focussed on producing new business. We’re a sales and marketing company. We are also going to focus on taking good care of our customers if they are feeling pain and we are in business to serve them. We are going to continue to add merger and acquisition partners because we think there will be great opportunities there and we offer our new partners great opportunities to grow and prosper. And it’s all these activities that will get us through this tough time. And those who come through these times are going to excel in the next upturn, and we intend to be one of the stronger players when the opportunity arises. Thank you for being with us today and we look forward to talking to you after the first quarter.

Thank you, all for you participation. Ladies and gentlemen, this does conclude today's conference call. You may disconnect your lines at this time.