Good morning and welcome to Arthur J. Gallagher & Company’s Fourth Quarter 2012 Earnings Conference Call. Participants have been placed on a listen-only mode. Your lines will be opened for questions following the presentation. 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 that will be discussed on this call and which are also described in the company’s reports filed with the SEC. Actual results may differ materially from those discussed today. It is now my pleasure to introduce J. Patrick Gallagher, Jr., Chairman, President, and CEO of Arthur J. Gallagher & Company. Mr. Gallagher, you may begin.

Thank you, Christine. Good morning everyone and welcome to our fourth quarter and year-end earnings conference call. Today, I am joined by the division head’s that run our businesses as well as Doug Howell, Chief Financial Officer. Before I get into my prepared remarks, I want to thank the sell-side that are listening in today; I think many of you probably seen the December ’12 and January ’13 issue of Institutional Investors and in that magazine the sell-side voted Doug Howell The Best CFO in the insurance business and I think that's well deserved. Today, we are going to talk about the quarter and the year-end. Another record quarter and a record year and I will tell you it feels really, really great. Our team hit on all cylinders throughout all 2012. Our growth came from all operations across all geographies. I couldn’t be proud of the team and our results. We are growing the company for our shareholders, year in and year out, quarter after quarter. We are getting stronger in our capabilities to deliver services to our clients and to attract new business. In the fourth quarter, we did 21 acquisitions bringing in $76 million of projected revenue. Our legal teams, our HR teams, all the support groups’ seamless efforts to put these people on the books, incredible, incredible work. The fourth quarter was also a testament to our sales culture and the strategy we’re focused on for years. Everyday, we focus on four things, I’ve mentioned on this call many times. The first is organic growth. Everyone in this company knows that nothing happens until somebody rings the cash register. The second thing we are after is mergers and acquisitions and attracting the best entrepreneurial talent in the marketplace to our growing family. Third is productivity and…

Thanks Pat and good morning everyone. Let's jump in and start on the second page of the earnings release with the brokerage segment. The first item you are used to seeing is the Heath Lambert integration cost. The (inaudible) size and we are on track to wrap up the integration in mid 2013. So you will see just a couple of pennies of integration costs in the first and second quarter and then about $0.03 in the third quarter. The third quarter actually reflects the cost to consolidate almost all of our London operations into new space near Lloyd’s which will be the capstone on nearly two years of hard work by the team to put these organizations together. The next item is a $0.05 charge relating to contracting our middle and back office. We took these actions at a time of strength because it was the proactive step to realize savings from our process improvement initiatives, increased utilization of our operational service centers and our investments in improving technologies. It’s also a prudent step to offset the impact of medical cost inflation to reduce the financial impact of our frozen pension plan and most importantly, allow us to continue to recognize and reward the broader work force. And the third item in the brokerage segment is we resolved some tax items in the fourth quarter that cost us a couple cents. Recall that we resolved some tax items in the second quarter that generated $0.02 of earnings. So while it creates some noise between quarters, for the year they offset and have no impact on our annual numbers. Moving slightly down to risk management, I’ve already hit on the severance cost item and the next item is the ramp up efforts to onboard our new clients in Australia that…

Thank you Doug and Christine we are ready for questions, hopefully some answers.

(Operator Instructions) Our first question is coming from the line of Mike Nannizzi with Goldman Sachs.

I have one question on the charge, just trying to understand kind of what came first, was it the expectation that you would have that kind of $35 million expense or was it the expectation that you would incur these work force savings. Just trying to understand, have a thought process around the determination of that number, thanks.

Good, just to clarify, we take $12 million of severance in related costs of charges and we expect to save about $35 million of which much of that will be offset by what we refer to as just work force inflation. Those were planned reductions based on our work in August and September to look at our staffing levels in light of the ramp up of our offshore centers of excellence and looking at our technologies and looking at our productivity gains. So it was a necessary step in order to harvest the savings that we expect as a result of the investments and just getting better at what we do everyday.

I mean but if we were to peel that out, just peel that piece out for a second, the second part which is the increased medical costs, reduced discount rate on the pension plan, salary increases, performance based compensation, long term incentive, did you know, is that new or was that the result of the study or was that something that you kind of expected that you would be incurring anyway down the road.

Those costs are always in place. Medical cost is going up. I think the decline in pension yields has been there and we've known about that and giving raises to and incentive comp to our broader work force, it’s something that is in our numbers every year. So this is something we just took, we saw it, but there was no surprise there at all.

Our next question is coming from the line of Arash Soleimani with Stifel Nicolaus.

I just wanted to clarify on Doug’s comment on the M&A financing. Would it be fair to assume that it would be roughly 75% cash and then 25% stock, is that kind of a fair breakdown?

No, we intend to use 100% cash and debt to fund our M&A program unless for some reason in the structure of a deal, we need to use stock in order for tax to be at tax rate exchange, and if we have a merger partner that has a strong, strong desire to hold stock, we would consider give it in the stock in that transaction. But by and large, we are going to favor cash and debt. Arash Soleimani – Stifel Nicolaus: That’s should continue in to 2014 also that logic?

Yes, it should. But again if our acquisition appetite grows, we would have to use stock in the deal. We're trying to keep our debt somewhere south of two times debt-to-EBITDA. So at some point, if we really have a strong M&A pipeline, we would be back to using stock towards the end of the year. Arash Soleimani – Stifel Nicolaus: My other question, in terms of monetizing (inaudible) is there any update in terms of timing of that or?

We had talked about that last year, trying to be ready by the end of ‘12 on that. We think its port more of a mid-2013 exercise at this point. Arash Soleimani – Stifel Nicolaus: Okay, and then lastly, in terms of the health exchange, I know you have the partnership with Liaison. Are you guys also looking to form other partnerships with other exchange platforms or do you think that’s going to be the primary partner over the next 12 to 24 months?

We are entertaining partnerships with other providers as well.

Our next question is coming from the line of Gregory Locraft with Morgan Stanley. Please state your question.

Just wanted to pursue - the core operations look great, just on the coal side a very helpful chart in the supplement where you give forward guidance. Can you just go backwards though and talk a bit about what the guidance was versus what the actual came in at for clean energy and why the differences?

Fourth quarter guidance we guided $0.04 to $0.07 of loss for a corporate segment. The clean energy production in the fourth quarter wasn’t quite as high as I had probably guided generally due to warmer weather in a couple of locations where we have plants. So compared to the fourth quarter we are little short on that but still not too bad.

Okay, so what you really want us Doug to do is to focus on the corporate segment guidance all in, not in the component parts as much, because obviously we keep cutting finally the numbers and there is going to be puts and takes. What I am trying to understand is just 75 to 91 on clean energy, how baked in the cake is that? What’s the difference between 75, what’s the difference between 91?

I understand your question, we are highly dependent on the activities of the utility to dictate how much they actually burden of refined fuel or clean coal. So we sit down and we go through each of our utility partners and we get their best guess with respect to production for the next year, and we do suffer from weather issues, from plant maintenance issues. So I would say that our $70 million to $90 million is our best guess at this point, based on what we know now, and so I think it’s a range that we feel reasonably comfortable with.

Okay, and then any of this contracts that you talk about in the release spread could come through mid-year, is that all upside?

We are taking our best guess with respect to ramp up of all the plans that we disclose in page 6, but it does not include any of our best guess for the plans that have not been put into the construction phase at this point.

Okay, perfect great. And then jumping into the M&A side just an awesome year, as you mentioned, it seems like people are choosing you with the destination. So I guess what I am trying to do is just model it, and I think you have been very upfront in saying take off free cash flow, do we then add an additional amount due to the clean energy funding so say $75 million bucks on top of free cash and then that becomes affectively the budget for M&A in 2013 and forward?

Yes.

Perfect, okay, any incremental debt you would add, because you just mentioned less then two times and you could squeeze some in there.

In my comments I said we are right now looking at adding $200 million.

Okay, I missed that.

So we got a $160 million in the balance sheet, we got free cash flows that will develop this year plus $200 million of debt, so we have a lot of money to spend on acquisition this year.

Great, and then what's the rough revenue range at which you buy these things at, or how should we think about backing into, what if it can get in the market?

Our multiples of EBITDA have been between 6 and 8 times historically.

Okay, perfect.

We don't buy on revenue, we buy on EBITDA.

Yeah, of course, okay. Okay, that's great. And then the last one from me is the organic is sort of above that 3% threshold, where I think you guys have said at least in the past I think you got margin expansion above that level. So it seems like we should continue to, you know, we are running at a good clip there and no break in trends, so should we just expect kind of what we've been seeing going forward on the brokerage side?

Well, we feel like the environment this year is a lot like last year at this time. When it comes to margin I've always said that if you expand, don't expect much margin expansion greater than, unless we have organic greater than 3% on the brokerage side and 5% on the risk management, but what the proactive steps we've taken to control our compensation and benefit, the natural inflation in that we feel good about our prospects for holding and then expanding margin in 2013.

Okay, great. I'll squeeze one last one just for Pat then, just your view on the cycle, you mentioned quite bullish comments on pricing and where it’s heading. Do you see an acceleration in the rate of change or do you think we are more in a unique world where we’re in call it 5% to 10% depending on the line for the next few years

I think we are in a unique situation. This is my fourth cycle and it’s completely different than anything I have ever seen before. I do think it’s in that 5% to 8% continual pressure to push rates up.

Okay, multi-year?

Well, we are going into the third one right now.

Our next question is coming from Sarah DeWitt of Barclays. Pleas state your question.

I was wondering if you could elaborate on what drove the acceleration in brokerage organic growth versus the third quarter and maybe if you could break that down between what you are seeing in terms of rate versus exposure versus new to lost business that would be really helpful?

I'll give you a general comment and let Doug comment on the break out if he can. But, we just had a great fourth quarter in new business and retention. I mean frankly coming into the fourth quarter and December in particular you know what your pipeline looks like and you don't know what your orders are going to look like. It’s an aggravating quarter and an aggravating month for me to be perfectly honest, because you can get hurt by one big loss, you can really be helped by various operations doing well and this is just as time we are in the fourth quarter and in December in particular across every geography, so our international operations had an incredible quarter, our MGAs and wholesalers strong organic growth, I already commented on our benefits operation and our straight PC retail folks knocked it out of the park in the quarter and it really comes down to incrementally keeping a better rate of retention and adding more new business. And in Doug’s comments this is the thing that I'm really proud of, it was a tough quarter to compare. Last year, if you recall in the fourth quarter, we also did 5% organic and didn't see that level of organic growth again for the three next quarters and to have a big quarter last year and then to do it again this year is just solid work by the team.

Yeah, I think that Pat hit it; I mean basically we didn't get a lot of lift this quarter from economy and we didn't get a lot of lift from rate, it was just a little better new business and a little less loss business. So that's what we are seeing.

The rate increases that we talked about by the way, I should comment on this, the rate increases that we are talking about by a comp by comp, we are working very hard to offset those for our clients. So we are seeing about 1% impact on our revenues from rate, so don't be thinking that just because the carriers are getting an 8% rate increase that necessarily our clients are paying that, they will take higher deductibles, they will move to self insurance; if it's really in a situation where they are squeezed economically, they will reduce coverage and overall impact in our numbers is just 1% from rate.

Great, that’s helpful. And then on risk management business, can you just talk about where you are seeing in terms of clean trends there and based on your comment, is it right to think about the right run rate for organic growth around the 6% range in that business?

Well, we thought the lower run rate for organic in the fourth quarter was an anomaly, and frankly, we did have some impact there, negative impact from a bit of a slower economy. So yes, I would think that our more normalized run rate would be something along the lines of 5% to 6%.

Okay. And finally if I could just squeeze one more in, on the Australia business; is that business running around the 16% margin as well or something different?

Yeah, about 16.

Our next question is coming from Mark Hughes of SunTrust. Please state your question.

Pat, did you say how the workers comp claims were looking within risk management?

Did I say how they are looking?

Yeah.

We didn’t mentioned it, but I can tell you we're not seeing claim count growth, because we're not seeing employment growth and what we are seeing is the same thing that the insurance carriers are finding is that we're seeing medical inflation within the comp line to a point where the medical costs are growing much faster than the indemnity costs.

Right. How about the, you had mentioned, I think the new business startups were looking better. Could you elaborate on that a little bit?

Yeah, especially in our MGA book business market, that’s very sensitive to that. So when the economy tanked in ‘09 and ‘10 and really for that business to do well we need bars and taverns and tattoo parlors and people like that to start businesses and when they do, they end up in the excess and surplus market and then specialty programs and so we are seeing -- we have over the last really three quarters seen some improvement in business startup which is helping us in our MGAs.

Yeah, and the final question just touching on the margin issue again, Doug kind of the 5% organic but 40 basis points margin in brokerage. Should we expect a bit more than that if you are able to hold it kind of organic growth or is that an appropriate number?

No, I think there is behind the 40 basis points expansion of margin this quarter there is a couple of subtleties that I think you should think about. First is, margins would have expanded probably another 20 basis points, but our 2012 tranche acquisition of M&A partners happened to be seasonally smaller in the fourth quarter just like Heath Lambert is smaller in the first quarter, this tranche of acquisitions tends to have smaller margins in the fourth quarter. We also spent about another 25 basis points on more travel this quarter; half of that was related to the M&A activity, so may be 12 basis points of expansion; about six basis points were related to our efforts to harvest the productivity improvements that we have talked about that led to our workforce contraction and then may be another six basis points related just more to organic travel to get out there and see our clients and pick up new business. So I am not saying that those are one-timers, but they did have an impact on margin expansion in the quarter that would not have the seasonality and maybe just little less M&A activity, probably would have expanded another 20 to 40 basis points.

I know you can count on that level of detail from the award winning CFO.

There you go Mark.

Again, I’ll intrude by asking one more, how do those things look when we look at 1Q, the seasonality, the travel, productivity issues etcetera, are they is the impact similar kind of the slightly diluted in 1Q, or should it be more positive in 1Q?

I think that the organic travel for new business and for our new business and our existing clients will be there in the first quarter, but that is only six basis points of costs. I think there is always a natural slowdown in M&A activity in the first quarter; there is, generally if you look at M&A activities and you do 60 deals, you know the first quarter people are kind of just catching their breath and then they target to get stuff down before the end of the year. So we always say we do a year worth of acquisitions in nine months, so that should be not be there the next quarter.

Our next question is coming from Adam Klauber of William Blair. Please state your question.

Contingents on supplementals were up pretty good in 2012, how much of that is maybe having new carriers come into program or how much of that is just normal growth and what do you expect for 2013?

I’ll touch on where it’s coming from and let Doug touch on what is sort of forecasting for next year. This is more about having new partners through the merger and acquisition process than it is new carriers coming in. Most of our supplementals and contingents are coming from the same partners that we worked with in building those programs over the last four or five years and its building more volume with the carriers that support us essentially with those revenues.

Yeah, to contributing to that Adam is that we spent a lot of time on carrier analysis and compensation analysis and that's starting to pay some benefits there. As we look into 2013 frankly, the teams are hard at working with the carriers right now to come up with fair supplemental and contingent commission agreement. So I really won't have a big deal of that until the April call. Overall, if you model that equal to what we did this year, you wouldn't be too terribly far off and then also we are starting to see a few carriers start talking about moving back from supplemental into contingents. That would create a timing issue perhaps that we normally accrued during the year but we might get it next March. So, I will give you more guidance on that in April on our call.

In the benefit business, there's been pressure on commissions for smaller businesses, 50 lives in west even 100 lives in west; is there any movement by the health insurers to push that up past that 100 to 50 lives?

You know Adam for us its really, that's kind of a non-event to be honest. We don't do an awful lot of business in the under 100 life case area. What we do is primarily above that level and when you get over a 100 lives whether even if the client chooses to pay it by commission, it’s a disclosed, negotiated discussed fee and so it comes through our books as commission but its really what the client agrees and we have for a decade now made it very clear to clients that in essence under risk for 20 plus years we've been transparent with our clients. If we have a certain level of cost, we need to cover that to do the work for the client. We are very transparent about that, we are very open and so the pressure on insurance companies to reduce commissions is not really impacting our benefits book-of-business at all.

Can you give some idea what was organic in the benefits business this year in 2012?

It is almost the same as what it was for the whole company.

Okay, so pretty solid year and also in that same vein, how is organic in the London operations and Heath?

It’s good. I think that I'm actually pretty pleased with that. The revenue retention there, I think that we are culling out some of that book-of-business as we look at it to say if we can't make money we will put it out. They are doing a good job of holding in there and we picked up some nice accounts over there too. I think that…

We picked up some very nice risk management accounts with their risk management team and the team that we had in London before the acquisition. We've done an excellent job of holding on to books of business in both the affinity which is small business programs that we have as well as middle market and in the branches around the UK. And as I said, we bolted on [four] acquisitions that we never would have been able to do if we hadn't done the deal so all in all organic growth is strong there and M&A growth is strong there and the team has done a really good job of integrating that business. Just as an example how difficult that is, you can imagine Heath Lambert’s benefits programs were substantially different than our Arthur J. Gallagher’s benefits programs. Harmonizing those is really, really difficult and our team did a fantastic job of working through that so that we are all now one company, one set of benefits across the entire platform. That's just one example of the work that had to be done.

Great and one last question what was the end of period shares if you haven't said that?

Let's see, let me pull it out here its 425,600,000.

Our next question is coming from Brian Durubio of Yield Capital. Please state your question.

Pat, a question for you, maybe, if Scott since there maybe he can answer it. If I heard you correctly a few moments ago, you said, you didn’t see much in terms of claim count growth in Gallagher Bassett. Is that correct?

Organic claim count growth. Yes.

So how should we think about employment growth, the [ADP] numbers were pretty good this morning. How that translates in to potential claim account growth? Is there any correlation that we can look to?

It is very correlated. Gallagher Bassett is incredibly sensitive to the economy. When you are working three shifts and you take that down to one shift, you are going to lose two-thirds of your claim count. [Scott], go ahead.

Yeah, we look at two things. I mean there is the overall claim count growth which is influenced by the new business that we bring on and then we also breakout kind of existing claim count growth and that’s the part that we kind of correlate to the economy specifically and that part of it is, we are talking about 5% to 6% claim count growth overall. The part that it is influenced by the economic growth that existing clients are about 1% to 2%, it is still relatively low and so until we see an uptick in the economic activity that part of it won't go much above that.

I would also comment, Brian. We're not seeing FTE hires in our benefits book either. Our clients are not hiring people. Their businesses are getting a little better but they are not stepping up and hiring people.

Okay, next question then, it's probably (inaudible) by Pat, yourself and Doug. So, inflation, there are signs of inflations moving up higher, you are seeing it in the yields of 10-year treasuries most notably. So I guess the two part question Pat for you how do you see that affecting pricing in the business in general and for you Doug I know you talked about raising $200 million in debt this year, but with your six and a quarter percent notes do in about [80 months] from now, would it make more sense for you to lever up a little bit more so you are locking them a lower rate for a longer period of time for when that bond matures in 80 months?

Let me take the first half of your question Brad and then Doug can talk about the capital management secondly. I am really impressed within this cycle and I think this is both information situation as well as just strong management. Senior management at the insurance companies know where they are making money, they know by line, by city, by country, by state they really have information at their finger tips. As I have said before, this is one of the first times in my career where what I am hearing from the senior executives at insurance companies is actually happening exactly as they are saying it on the street. There is usually a bit of a disconnect as you are getting towards the end of a cycle and they know exactly what’s happening to their cost structure and if costs are inflating which (inaudible) is in fact inflating and medical is in fact inflating, they recognize loss cost are going up and they know exactly what percent that is and what the impact will be on the next year and they are going to try to cover that loss cost with rate increases and it’s actually quite impressive, they are doing a very, very good job. And I think our people are getting better and better at explaining that to clients because when it first came about three, four quarters ago may be six quarters ago frankly, all the people we had hired for eight years all they had ever done is sell cheaper insurance with broader terms and all of a sudden they are explaining to clients that carriers have no return and they are having to become more sophisticated in how they explain how insurance works to clients and its been quite impressive and I do think that as long as yields remained suppressed, you are going to see carriers that fight hard to try to cover their cost of capital.

Yeah, in terms of debt Brian, I think that, let keep those $200 million put to bad and then what we need to look at little bit of longer term, it doesn't paid right now to do that at this point, but if we have a little bit of trough in rates still for the rest of the year, we would look at doing something with our 2017 tranche.

(Operator Instructions) Our next question comes from the line of Bob Glasspiegel of Janney Montgomery Scott. Please take your question.

Pat, in light of your expense cuts, are you changing the dynamics of the 3% organic been the breakeven of margin hurdle?

Bob, great question and yes, you should look at that, it's in the past I have said that it takes 3% to cover the natural inflation that goes on inside of our book, if we believe we cut that natural inflation by this reduction enforce then it would stand to reason that we probably could have margin expansion at less than 3%, so you are providing the linkage there.

I have next seen recovery from restructuring charges so dynamic 200% plus ROI how does that phase in?

It’s immediate.

So its $35 million, I mean, I didn't know that was annual cost or cumulative cost recovery?

No that's our one time severance cost we expect to harvest $35 million of savings.

$35 million accumulative or $35 million a year, I guess that's what I was…

Per year.

$35 million per year.

Which will offset additional costs Bob, don’t drop that in the EBITDA.

No I wasn’t, but I just wanted to make sure I understood your recovery. So that's evenly in the first quarter, your run rate is down by 8.5 million a quarter and you are going to spend some of that on inflation.

Correct.

Okay. On the, it sounded like Pat for (inaudible) port cycle that we've had together, you are more bullish for this cycle than I have heard you on the environment, is that a correct read or…

Yeah Bob if I can get mid single digit increases in rate and if our clients businesses can recover to even a 2% economic growth, with our new business machine we will show very solid organic growth which is what showed up in the fourth quarter and if you give me 5% to 8% organic growth and I'm not predicting 8% right now, but if you see a real change in the economy and rates stay affirming you can show some real growth at the profit line.

Our next question is coming from Ray Iardella with Macquarie.

Just a couple of numbers question because I guess a lot of the topics have been covered already, but maybe Doug can you talk about the tax rate on the core business, I know we spent some time talking about the clean energy initiatives, but it seems like you guys maybe are expecting a lower tax rate going forward.

Yeah, good question Ray if you read in our press release and income tax section we have moved historically we would say 39% to 41%, we are kind of south of that now. That has to do with the mix of our international business. As we grow internationally the tax rates in those jurisdictions are less than what we have here and so that does have a tendency to bring down the rate.

And then I know you mentioned the one large client on the risk management side, margins around 16%, but any other sort of drag you guys expect in the first quarter from bringing some of those hires online.

No I think actually we should hit the ground running with respect to our South Australia clients, so I don't expect it to drag.

And then international versus domestic cash do you have that.

Yeah, we have about 40 million free in the US and about 120 million internationally. So when I gave the 160 million in free cash, its about 40 in the US and a 120 internationally.

Okay and then I think I missed the number at the very beginning Pat in your prepared remarks, where you talked about you know $232 million of acquisitions that you guys did in 2012 but what was the expectation for 2013 for those acquisitions.

A $130 million.

The roll over rate.

That’s the roll over.

Our next question is coming from the line of Joshua Shanker of Deutsche Bank.

Doug can we talk a little bit about ace of plants coming online throughout 2013 comparing the early part of the year to the late part of the year.

Just say your question again. You beeped out on the first part of the question.

Sorry ace of expectations for the pace of plants coming online.

The pace that we have in here is, if you add up the ultimate numbers on page six, you get a number higher than what we have on page 14 of the investor supplement. So what that would imply is that the pace is probably a three months set back. So if you think about the pace of these plant coming on, not going to each one of them, but we have two that we think is going to be in mid-2013 and then the ones that were currently like we have been selected as the finalist, those would come up in the fourth quarter if that works. So I think the pace on six rather than going through each one is our best guess, but we’ve given our selves a few months cushion age of those pieces.

Okay, and Pat, you said a word that I talked about a lot, but I don’t hear a lot. Self insurance as at protection for your clients to avoid paying higher rates. Towards that can you see now and forecasting if we are in this continues rate environment that self insurance becomes a larger part of the pie.

Every single cycle, every single cycle it does and in particular, the workers compensation line. Workers compensation is running very high. Combined loss expense ratio for the industry as a whole, something on probably north of probably north of 115%. That’s going to create a natural push from the carriers to increase workers comp premiums and those will be offset by people who will join pools, find together to create ways to self insure. It will take individual clients that will form captives or group captives and you will also see just individual clients that are on the cusp, taking more risk themselves, working harder at loss prevention and trying to not pay the premium but pay the losses themselves. This is our wheelhouse. This is what built our company. We got in to this in the 60s and in every single cycle, this is what expand for us greatly and that really benefits Gallagher Bassett as well as the brokerage side. Now remember part of that is a little bit self defeating on the brokerage side, because if we are writing an account with a very high commission that then take self insurance and takes a huge retention, our commission has actually come down. The fees on the Gallagher Bassett side our new fees that we didn’t have, but those are little bit lower in terms of margin. Nonetheless it’s the right thing to do for our clients and we are really, really good at it.

Our last question is coming from Brett Huff of Stevens. Please state your question.

Two questions Pat you said all in you guys end up sort of squeezing the rate down to 1% on brokerage, should I just to do the math and that implies a 4% in terms of unit growth?

Yes.

Okay. And the second one and you mentioned Doug a little bit on this in terms of the acquired revenue seasonality and in terms of a little bit lower margin and I don’t know if Doug or Pat is best one for this, but more generally in the just really big push you guys have done on M&A, have those new businesses you acquired come in at a lower margin and if so what is your expectation for expanding that margin to get back to a higher level or your average level or whatever can you sort of give us a sense of that?

I think of the portfolio of acquisitions if you look overtime, they come in not that dissimilar to us. So I wouldn’t say that the fuel margin or depressed margin, you can get some quarterly anomalies like we talked about here, but by and large they look a lot like us and that’s an important strategy of our M&A strategy. When it comes to most of these deals, we want to buy successful, growing entrepreneurs that know how to run a business to make money for themselves and because we want them to make money for us together as a combined organization, we try not to ever buy small deal that’s a turnaround, we try not to buy retirements, we want to buy people, we want to continue to produce for us, and that they have shown that they can make for their family. If they don't make money for their family, they are never going to make money for us when they come in. So buy and large these are successful entrepreneurs that run margins that are on par with ours.

In some instance it is better than ours.

Right, and there is nothing about this, the truant, the big truant that you guys acquired this year that's better or worse than that sort of historical view?

No, the truants that I am talking about, they just were seasonally smaller in the fourth quarter, full year they are on par with us.

Okay, that's what I needed, thanks again.

Christine is that it for questions.

We have no further questions at this time.

Great, let me just make a brief wrap up comment then. Again thank you all of you for being on the call this morning, we appreciate it. As you can tell we are pleased with our 2012 results, we are excited about 2013; we believe we got a solid strategy. We have a team that we believe the second to none and we look forward to continue to grow the enterprise in 2013 and beyond. So thank you again for being with us. Thank you Kristine and that we will end our call today.

Ladies and Gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time.