UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

FORM 10-K

For the fiscal year ended December 31, 2018    2020

For the transition period fromto

Commission file number1-09761

ARTHUR J. GALLAGHER & CO.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code (630)773-3800

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

            None                 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities

Act. Act.    Yes ☒ No ☐.☐.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the

Act.    Yes ☐ No ☒.

Note:Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ☒ No ☐.☐.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of RegulationS-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes ☒ No ☐.☐.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of RegulationS-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form10-K or any amendment to this Form10-K.    ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company, or emerging growth company.  See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule12b-2 12b‑2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 726(b)) by the registered public accounting firm that prepared or issued its audit report    Yes ☒ No ☐.

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act)Act).  Yes ☐ No ☒.☒.

The aggregate market value of the voting common equity held bynon-affiliates of the registrant, computed by reference to the last reported price at which the registrant’s common equity was sold on June 30, 20182020 (the last day of the registrant’s most recently completed second quarter) was $10,435,000.$16,249,616,000.

The number of outstanding shares of the registrant’s Common Stock, $1.00 par value, as of January 31, 20192021 was 184,060,000.193,740,000.

Documents incorporated by reference: Portions of Arthur J. Gallagher & Co.’s definitive 20192021 Proxy Statement are incorporated by reference into thisForm 10-K10‑K in response to Part III to the extent described herein.

Information Concerning Forward-Looking Statements

This report contains certain statements related to future results, or states our intentions, beliefs and expectations or predictions for the future, which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to expectations or forecasts of future events.  Such statements use words such as “anticipate,” “believe,” “estimate,” “expect,” “contemplate,” “forecast,” “project,” “intend,” “plan,” “potential,” and other similar terms, and future or conditional tense verbs like “could,” “may,” “might,” “see,” “should,” “will” and “would.” You can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts.  For example, we may use forward-looking statements when addressing topics such as: market and industry conditions, including competitive and pricing trends; acquisition strategy;strategy including the expected size of our acquisition program; the expected impact of acquisitions and dispositions; the development and performance of our services and products; changes in the composition or level of our revenues or earnings; our cost structure and the size and outcome of cost-saving or restructuring initiatives; future capital expenditures; future debt levels and anticipated actions to be taken in connection with maturing debt; future debt to earnings ratios; the outcome of contingencies; dividend policy; pension obligations; cash flow and liquidity; capital structure and financial losses; future actions by regulators; the outcome of existing regulatory actions, investigations, reviews or litigation; the impact of changes in accounting rules, including the new revenue recognition and lease accounting standards;rules; financial markets; interest rates; foreign exchange rates; matters relating to our operations; income taxes, including the impact of tax reform; and expectations regarding our investments, including our clean energy investments.investments; human capital management, including diversity and inclusion initiatives; environmental, social and governance matters, including climate-resilience products and services and carbon emissions; and integrating recent acquisitions.  These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from either historical or anticipated results depending on a variety of factors.

Potential factors that could impact results include:

1

Forward-looking statements are not guarantees of future performance.  They involve risks, uncertainties and assumptions, including the risk factors referred to above.above, and are currently, or in the future could be, amplified by the COVID-19 pandemic.  Our future performance and actual results may differ materially from those expressed in forward-looking statements. Accordingly, you should not place undue reliance on forward-looking statements, which speak only as of, and are based on information available to us on, the date of the applicable document. Many of the factors that will determine these results are beyond our ability to control or predict.  All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.  Forward-looking statements speak only as of the date that they are made, and we do not undertake any obligation to update any such statements or release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of this report or to reflect new information, future or unexpected events or otherwise, except as required by applicable law or regulation.  Further information about

A detailed discussion of the factors that could cause actual results to differ materially affect us, includingfrom our results of operations and financial condition,published expectations is contained under the heading “Risk Factors” in this report and any other reports we file with the Securities and Exchange Commission (SEC) in the “Risk Factors” section in Part I, Item 1A of this report.

Arthur J. Gallagher & Co.

Annual Report on Form10-K

For the Fiscal Year Ended December 31, 20182020

Index

Part I

Item 1. Business.

Overview

Arthur J. Gallagher & Co. and its subsidiaries, collectively referred to herein as we, our, us or Gallagher, are engaged in providing insurance brokerage, consulting, and third-party property/casualty claims settlement and administration services to businesses and organizations around the world.  We believe that our major strength is our ability to deliver comprehensively structured insurance, insurance and risk management solutions, superior claim outcomes and comprehensive consulting services to our clients.

Our brokerage segment operations provide brokerage and consulting services to businesses and organizations of all types, including commercial,not-for-profit, and public entities, and, to a lesser extent, individuals, in the areas of insurance placement, risk of loss management, and management of employer sponsored benefit programs.  Our risk management segment operations provide contract claim settlement, claim administration, loss control services and risk management consulting for commercial,not-for-profit, captive and public entities, and various other organizations that choose to self-insure property/casualty coverages or choose to use a third-party claims management organization rather than the claim services provided by an underwriting enterprise.enterprise.

We do not assume underwriting risk on a net basis, other than with respect to de minimis amounts necessary to provide minimum or regulatory capital to organize captives, pools, specialized underwriters or risk-retention groups.  Rather, capital necessary for covering events of loss is provided by “underwriting enterprises,” which we define as insurance companies, reinsurance companies and various other risk-taking entities, including intermediaries of underwriting enterprises, that we do not own or control.

Since our founding in 1927, we have grown from aone-person insurance agency to the world’s fourth largest insurance broker/risk manager based on revenues, according toBusiness Insurancemagazine’s July 2018July/August 2020 edition, and one of the world’s largest property/casualty third party claims administrators, according toBusiness Insurance magazine’s May 20182020 edition.  We have three reportable segments: brokerage, risk management and corporate, which contributed approximately 61%74%, 14% and 25%12%, respectively, to 20182020 revenues.  We generate approximately 70%68% of our revenues from the combined brokerage and risk management segments in the United States (U.S.), with the remaining 30% derived32% generated internationally, primarily in Australia, Bermuda, Canada, the Caribbean, New Zealand and the United Kingdom (U.K.)., Australia, Canada, New Zealand and Bermuda.  All of the revenues of the corporate segment are generated in the U.S.

Shares of our common stock are traded on the New York Stock Exchange under the symbol “AJG”, and we had a market capitalization at December 31, 20182020 of approximately $13.6$24.0 billion.  Information in this report is as of December 31, 20182020 unless otherwise noted.  We were reincorporated as a Delaware corporation in 1972.  Our executive offices are located at 2850 Golf Road, Rolling Meadows, Illinois 60008-4050, and our telephone number is(630) 773-3800.773‑3800.

Operating Segments

We report our results in three segments: brokerage, risk management and corporate.  The major sources of our operating revenues are commissions, fees and supplemental and contingent revenues from our brokerage operations, and fees, includingperformance-based performance‑based fees, from our risk management operations.  The corporate segment generates revenues from our clean energy investmentsinvestments.

Our business, particularly our brokerage business, is subject to seasonal fluctuations.  Commissions, fees, supplemental revenues and contingent revenues, and our costs to obtain and fulfill the service obligations to our clients, can vary from quarter to quarter as a result of the timing of contract-effective dates.  On the other hand, salaries and employee benefits, rent, depreciation and amortization expenses generally tend to be more uniform throughout the year.  The timing of acquisitions, recognition of books of business gains and losses and the variability in the recognition of tax credits generated by our clean energy investments also impact the trends in our quarterly operating results.  See Note 20 to our 2018 consolidated financial statements for unaudited quarterly operating results for 2018 and 2017.

Brokerage Segment

The brokerage segment accounted for 61%74% of our revenues in 2018. We operate our2020.  Our brokerage segment operationsoperates through a network of more than 590480 sales and service offices located throughout the U.S. and another 277more than 170 sales and service offices in 3549 countries, but most of which are in the U.K., Australia, Canada, the Caribbean, New Zealand and the U.K.Bermuda.  Most of these offices are fully staffed with sales and service personnel.  We also offer client service capabilities in more than 150 countries around the world through a network of correspondent brokers and consultants.

.

Our brokerage segment generates revenues by:

The vast majority of our brokerage contracts and service understandings are for a period of one year or less.

Commissions and fees

The primary source of brokerage segment revenues is commissions from underwriting enterprises, which are based on a percentage of premiums paid by our clients, or fees received from clients based on an agreed level of service usually in lieu of commissions.

Commissions are fixed at the contract effective date and generally are based on a percentage of premium for insurance coverage or employee head count for employer sponsored benefit plans. Commissions depend upon a large number of factors, including the type of risk being placed, the particular underwriting enterprise’s demand, the expected loss experience of the particular risk of coverage, and historical benchmarks surrounding the level of effort necessary for us to place and service the insurance contract. Rather than being tied to the amount of premiums, fees are typically based on an expected level of effort to provide our services.

Whether we are paid a commission or a fee, the vast majority of our services are associated with the placement of an insurance (or insurance-like) contract. See Revenue Recognition in Note 1 to our 2018 consolidated financial statements. See Note 2 to our 2018 consolidated financial statements for information with respect to the impacts that a new accounting standard, relating to revenue recognition, had on our financial position and operating results.

Supplemental revenues

Certain underwriting enterprises may pay us additional revenues based on the volume of premium we place with them and for insights into our sales pipeline, our sales capabilities or our risk selection knowledge. These amounts are in excess of the commission and fee revenues discussed above, and not all business we place with underwriting enterprises is eligible for supplemental revenues. See Revenue Recognition in Note 1 to our 2018 consolidated financial statements. See Note 2 to our 2018 consolidated financial statements for information with respect to the impacts that a new accounting standard, relating to revenue recognition, had on our financial position and operating results.

Contingent revenues

Certain underwriting enterprises may pay us additional revenues for our sales capabilities, our risk selection knowledge, or our administrative efficiencies. These amounts are in excess of the commission revenues discussed above, and not all business we place with participating underwriting enterprises is eligible for contingent revenues. Unlike supplemental revenues, also discussed above, these revenues are variable, generally based on growth, the loss experience of the underlying insurance contracts, and/or our efficiency in processing the business. See Revenue Recognition in Note 1 to our 2018 consolidated financial statements. See Note 2 to our 2018 consolidated financial statements for information with respect to the impacts that a new accounting standard, relating to revenue recognition, had on our financial position and operating results.

Sub-brokerage costs

Sub-brokerage costs are excluded from our gross revenues in our determination of our totalrevenues. Sub-brokerage costs represent commissions paid tosub-brokers related to the placement of certain business by our brokerage segment operations. We recognize this contra revenue in the same manner as the commission revenue to which it relates.

Retail Insurance Brokerage Operations

Our retail insurance brokerage operations accounted for 84%82% of our brokerage segment revenues in 2018.2020. Our retail brokerage operations place nearly all lines of commercial property/casualty and health and welfare insurance coverage.  Significant lines of insurance coverage and consultant capabilities are as follows:

Our retail brokerage operations are organized and operate within certain key niche/practice groups, which account for approximately 73%64% of our retail brokerage revenues.  These specialized teams target areas of business and/or industries in which we have developed a depth of expertise and a large client base.  Significant niche/practice groups we serve are as follows:

Our specialized focus on these niche/practice groups allows for highly-focused marketing efforts and facilitates the development of value-added products and services specific to those industries.  We believe that our detailed understanding and broad client contacts within these niche/practice groups provide us with a competitive advantage.

We anticipate that our retail brokerage operations’ greatest revenue growth over the next several years will continue to come from:

Wholesale Insurance Brokerage Operations

Our wholesale insurance brokerage operations accounted for 16%18% of our brokerage segment revenues in 2018.2020.  Our wholesale brokers assist our retail brokers and othernon-affiliated brokers in the placement of specialized andhard-to-place insurance. These brokers operate through more than 295approximately 170 offices primarily located across the U.S., Bermuda and through our approved Lloyd’s of London brokerage operation.  In certain cases we act as a brokerage wholesaler, and in other cases we act as a managing general agent or managing general underwriter distributing specialized insurance coverages for underwriting enterprises.  Managing general agents and managing general underwriters are agents authorized by an underwriting enterprise to manage all or a part of its business in a specific geographic territory.  Activities they perform on behalf of the underwriting enterprise may include marketing, underwriting (although we do not assume any underwriting risk), issuing policies, collecting premiums, appointing and supervising other agents, paying claims and negotiating reinsurance.

More than 79% of our wholesale brokerage revenues comes fromnon-affiliated brokerage clients.  Based on revenues, our domestic wholesale brokerage operation ranked as one of the largest domestic managing general agents/underwriting managers/wholesale brokers/Lloyds coverholders according toBusiness Insurancemagazine’s September 20182020 edition.

We anticipate growing our wholesale brokerage operations by increasing the number of broker-clients, developing new managing general agency and underwriter programs, and through mergers and acquisitions.

Risk Management Segment

Our risk management segment accounted for 14% of our revenues in 2018.2020.  Approximately 64%63% of our risk management segment’s revenues are from workers’ compensation-related claims, 27%29% are from general and commercial auto liability-related claims and 9%8% are from property-related claims in 2018.2020.  

Risk management services are primarily marketed directly to Fortune 1000 companies, larger middle-market companies, not for profit organizations and public entities on an independent basis from our brokerage operations.  We manage our third party claims adjusting operations through a network of more than 9565 offices located throughout the U.S., Australia, Canada,the U.K., New Zealand and the U.K.Canada.  Most of these offices are fully staffed with claims adjusters and other service personnel.  Our adjusters and service personnel act solely on behalf and under the instruction of our clients.

While this segment complements our brokerage and consulting offerings, more thanapproximately 90% of our risk management segment’s revenues come from clients not affiliated with our brokerage operations, such as underwriting enterprises and clients of other insurance brokers.  Based on revenues, our risk management operation ranked as one of the world’s largest property/casualty third party claims administrators according toBusiness Insurance magazine’s May 20182020 edition.

Revenues for our risk management segment are comprised of fees generally negotiated (i) on aper-claim basis, (ii) on a cost-plus basis, or (iii) as performance-based fees. We also provide risk management consulting services that are recognized as the services are delivered.

Per-claim fees

Where we operate under a contract with our fee established on aper-claim basis, our obligation is to process claims for a term specified within the contract. Because it is impractical to recognize our revenues on an individualclaim-by-claim basis, we recognize revenue plus an appropriate estimate of our profit margin on a portfolio basis by grouping claims with similar characteristics (a practical expedient as defined in ASU No.2014-09, Revenue from Contracts with Customers, which we refer to as Topic 606). We apply actuarially-determined, historical-based patterns to determine our future service obligations, without applying a present value discount.

Cost-plus fees

Where we provide services and generate revenues on a cost-plus basis, we recognize revenue over the contract period consistent with the performance of our obligations.

Performance-based fees

Certain clients pay us additional fee revenues for our efficiency in managing claims or on the basis of claim outcome effectiveness. These amounts are in excess of the fee revenues discussed above. These revenues are variable, generally based on various performance metrics of the underlying contracts. We generally operate under multi-year contracts with fiscal year measurement periods. We do not receive these fees, if earned, until the following year after verification of the performance metrics outlined in the contracts. Each period we base our estimates on acontract-by-contract basis. We make our best estimate of amounts we have earned using historical averages and other factors to project such revenues. Variable consideration is recognized when we conclude that is it probable that a significant revenue reversal will not occur in future periods.

We expect that the risk management segment’s most significant growth prospects through the next several years will come from:

Corporate Segment

The corporate segment accounted for 25%12% of our revenues in 2018.2020.  The corporate segment reports the financial information related to our debt, clean energy investments, external acquisition-related expenses, other corporate costs and the impact of foreign currency translation.translation.  The revenues reported by this segment result almost solely from our consolidated clean energy investments.

Clean-Energy Investments

We own 3435 commercial clean coal production facilities that are qualified to produce refined coal usingChem-Mod LLC’s proprietary technologies.  These operations produce refined coal that we believe qualifies for tax credits under Internal Revenue Code (which we refer to as IRC) Section 45.  The law that provides for IRC Section 45 tax credits will expire inexpired as of December 31, 2019 for 14 of our plants and inwill expire on or before December 31, 2021 for the other 2021 plants.Chem-Mod LLC (described below) is a privately-held enterprise that has commercialized multi-pollutant reduction technologies to reduce mercury, sulfur dioxide and other emissions at coal-fired power plants.  We own 46.5% ofChem-Mod LLC and are its controlling managing member.  We also have a 12.0% noncontrolling interest in dormant, privately-held, enterprises,C-Quest Technology LLC andC-Quest Technologies International LLC (which we refer to as together,C-Quest), which ownsown technologies that reduce carbon dioxide emissions created by burning fossil fuels.  At this time, it is unclear ifC-Quest C‑Quest will ever become commercially viable.

International and Other Brokerage Related Operations

We operate as a retail commercial property and casualty broker throughout more than 4346 locations in Australia, 4146 locations in Canada and 3634 locations in New Zealand.  In the U.K., we operate as a retail broker from approximately 105116 locations. We also have specialty, wholesale, underwriting and reinsurance intermediary operations in London for clients to access Lloyd’s of London and other international underwriting enterprises, and a program operation offering customized risk management products and services to U.K. public entities.

In Bermuda, we act principally as a wholesale broker for clients looking to access Bermuda-based underwriting enterprises and we also provide management and administrative services for captive insurance entities.

We also have strategic brokerage alliances with a variety of independent brokers in countries where we do not have a local office presence.  Through this global network of correspondent insurance brokers and consultants, we are able to serve our clients’ coverage and service needs in more than 150 countries around the world.

Captive underwriting enterprises - We have ownership interests in several underwriting enterprises based in the U.S., Bermuda, Gibraltar, Guernsey, Isle of Man and Malta, that primarily operate segregated account“rent-a-captive” “rent-a-captive” facilities.  These“rent-a-captive” “rent-a-captive” facilities enable our clients to receive the benefits of participating in a captive underwriting enterprisewithout incurring certain disadvantages of ownership.  Captive underwriting enterprises, or“rent-a-captive” facilities, are created for clients to insure their risks and capture any underwriting profit and investment income, which would then be available for use by the insureds, generally to reduce future costs of their insurance programs. In general, these companies are set up as protected cell companies that are comprised of separate cell business units (which we refer to as Captive Cells) and the core regulated company (which we refer to as the Core Company). The Core Company is owned and operated by us and no insurance policies are assumed by the Core Company. All insurance is assumed or written within individual Captive Cells. Only the activity of the supporting Core Company of therent-a-captive facility is recorded in our consolidated financial statements, including cash and stockholder’s equity of the legal entity, and any expenses incurred to operate therent-a-captive facility. Most Captive Cells reinsure individual lines of insurance coverage from external underwriting enterprises. In addition, some Captive Cells offer individual lines of insurance coverage from one of our underwriting enterprise subsidiaries. The different types of insurance coverage include special property, general liability, products liability, medical professional liability, other liability and medical stop loss. The policies are generally claims-made. Insurance policies are written by an underwriting enterprise and the risk is assumed by each of the Captive Cells. In general, we structure these operations to have no underwriting risk on a net written basis. In situations where we have assumed underwriting risk on a net written basis, we have managed that exposure by obtaining full collateral for the underwriting risk we have assumed from our clients. We typically require pledged assets including cash and/or investment accounts, or letters of credit to limit our risk.

We also have a wholly owned underwriting enterprise subsidiary based in the U.S. that cedes all of its insurance risk of loss to reinsurers or captives under facultative and quota-share treaty reinsurance agreements.  While we believe these ceding reinsurance agreements displace all of our risk of loss, they do not discharge us of our primary liability See Note 18 to our clients. For example, in the event that all or any of the reinsuring companies or captives are unable to meet their obligations, we would be liable for such defaulted amounts. Therefore, we are subject to credit risk with respect to the obligations of our reinsurers or captives. In order to minimize our exposure to losses from reinsurer credit risk and insolvencies, we believe we have managed that exposure by obtaining full collateral, typically requiring pledged assets, including cash and/or investment accounts or letters of credit to offset the risk. See Note 17 to our 20182020 consolidated financial statements for additional financial information related to the insurance activity of our wholly owned underwriting enterprise subsidiary for 2018, 20172020, 2019 and 2016.2018.

Competition

Brokerage Segment

According toBusiness Insurancemagazine’s July 2018 edition, we were the world’s fourth largest insurance broker based on revenues. The insurance brokerage and consulting business is highly competitive and there are many organizations and individuals throughout the world who actively compete with us in every area of our business.

Our retail and wholesale brokerage operations compete globally with Aon plc, Marsh & McLennan Companies, Inc. and Willis Towers Watson Public Limited Company, each of which has greater worldwide revenues than us. In addition, various other competing firms, such as Brown & Brown Inc., Hub International Ltd., Lockton Companies, Inc., USI Holdings Corporation and BB&T Insurance Services operate globally or nationally or are strong in a particular region or locality and may have, in that region or locality, an office with revenues as large as or larger than those of our corresponding local office. Our wholesale brokerage and binding operations compete with large wholesalers such as CRC Insurance Services, Inc., RT Specialty, AmWINS Group, Inc., Burns & Wilcox, Ltd. and All Risks Ltd., as well as a vast number of local and regional wholesalers. We also compete with certain underwriting enterprises that offer insurance and risk management products and solutions directly to clients. In addition, for our employee benefit consulting services, we compete with larger firms such as Aon plc, Mercer (a subsidiary of Marsh & McLennan Companies, Inc.); Willis Towers Watson Public Limited Company;mid-market firms such as Lockton Companies, Inc. and USI Holdings Corporation, specialized consulting firms such as Pearl Meyer, and the benefits consulting divisions of the national public accounting firms, as well as a vast number of local and regional brokerages and agencies. Government benefits relating to health, disability and retirement are also alternatives to private insurance, and indirectly compete with us.

We believe that the primary factors determining our competitive position with other organizations in our industry are the quality of the services we render, the personalized attention we provide, the individual and corporate expertise providing the actual service to the client, and the overall cost to our clients.We provide sophisticated data analysis to help our clients make insurance decisions.  Through our electronic platform, SmartMarket, we also provide insurance carriers with individualized preference setting and risk identification capabilities, as well as performance data and metrics.  We believe these capabilities provide a growing competitive advantage with respect to many of the smaller organizations with which we compete. 

Risk Management Segment

Our risk management operation currently ranks as one of the world’s largest property/casualty third party claims administrators based on revenues, according toBusiness Insurance magazine’s May 20182020 edition. While many global and regional claims administrators operate within this space, we compete directly with Sedgwick Claims Management Services, Inc., and Broadspire Services, Inc. (a subsidiary of Crawford & Company). Several large underwriting enterprises, such as Chubb Limited, Travelers Companies, Inc. and Liberty Mutual Holding Co, Inc. also maintain their own claims administration units, which can be strong competitors. In addition, we compete with various smaller third party claims administrators on a regional level.  We believe that the primary factors determining our competitive position are our ability to deliver better claim outcomes, reputation for outstanding service, cost-efficient service and financial strength.

Business Combinations

We completed and integrated 507583 acquisitions from January 1, 2002 through December 31, 2018,2020, most of which were within our brokerage segment.  The majority of these acquisitions have been smaller regional or local brokerages, agencies, or employee benefit consulting operations with a middle or small client focus and/or significant expertise in one of our niche/practice groups.  The total purchase price for individual acquisitions has typically ranged from $1.0 million to $50.0$100.0 million.

Through acquisitions, we seek to expand our talent pool, enhance our geographic presence and service capabilities, and/or broaden and further diversify our business mix.  We also focus on identifying:

See Note 43 to our 20182020 consolidated financial statements for a summary of our 20182020 acquisitions, the amount and form of the consideration paid and the dates of acquisitions.

Clients

Our client base is highly diversified and includes commercial, industrial, public entity, religious andnot-for-profit entities. No material part of our business depends upon a single client or on a few clients. The loss of any one client would not have a material adverse effect on our operations. In 2018,2020, our largest single client represented approximately 1.0% and our ten largest clients together represented approximately 3.0% of our combined brokerage and risk management segment revenues.

Employees

Human Capital

In 2020, the COVID-19 pandemic had a significant impact on our human capital management. Of our nearly 1,000 office locations, nearly 400 are open, but most of those at reduced capacity. Accordingly, the vast majority of our employees continue to work remotely for some or all of their work week. We have instituted safety protocols and procedures for employees when they are in an office and have not had any office-wide outbreaks of COVID-19.

As of December 31, 2018,2020, we had 32,401 employees, with approximately 30,400 employees.50% in the U.S. and 50% outside of the U.S.  Approximately 76% of our employees work in our brokerage segment and 20% in our risk management segment. Our remaining employees work in our corporate segment, primarily in our home office and financial services division, as well as in our service centers in India and elsewhere around the world.  In 2020, our total compensation expense was $2,882.5 million for the brokerage segment and $517.5 million for the risk management segment, representing 55.8% and 63.0%, respectively, of brokerage and risk management segment revenues. Additional information regarding compensation expense, both on a reported and an adjusted basis, can be found elsewhere in this report under Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

We enter into agreements withWhile many of our brokerage salespersonsnew employees come to us through mergers and significant client-facing employees, plus allacquisitions and traditional hiring, “growing our own” has long been a key part of our executive officers, which prohibithuman capital strategy. Our summer internship program began more than fifty years ago with a single intern. Since then, our program has grown globally and we employed more than 400 interns each summer in 2018 and 2019 (we had fewer interns in 2020 due to the COVID-19 pandemic). We provide our interns with professional development and on-the-job sales training that gives them from disclosing confidential information and/or solicitingthe opportunity to cultivate expertise and accelerate their full-time sales career growth.

As of December 31, 2020, approximately 59.8% of our clients, prospectsemployees were women, including 47.3% of managers and 40.2% of producers. In the U.S., approximately 23.6% of our employees upon their terminationwere racially/ethnically diverse, including 14.4% of employment. The confidentialitymanagers andnon-solicitation provisions 18.9% of producers.

Regulation

Many of our activities throughout the world are subject to regulatory supervision and regulations promulgated by bodies such agreements terminateas the SEC, the Department of Justice (DOJ), the IRS, the Office of Foreign Assets Control and the Federal Trade Commission in the event of a hostile change in control, as definedU.S., the Financial Conduct Authority in the agreements. We pursueU.K., the Australian Securities and Investments Commission in Australia and insurance regulators in nearly every jurisdiction in which we operate.  Our retirement-related consulting and investment services are subject to pension law and financial regulation in many countries. Our activities are also subject to a variety of other laws, rules and regulations addressing licensing, data privacy, wage-and-hour standards, employment and labor relations, anti-competition, anti-corruption, currency, reserves and the amount of local investment with respect to our operations in certain countries.  

The global nature of our operations increases the complexity and cost of compliance with laws and regulations, including increased staffing needs, the development of new policies, procedures and internal controls and providing training to employees in multiple locations, adding to our cost of doing business.  Many of these laws and regulations may have differing or conflicting legal actions for alleged breachesstandards across jurisdictions, increasing further the complexity and cost ofnon-compete compliance.  In emerging markets and other jurisdictions with less developed legal systems, local laws and regulations may not be established with sufficiently clear and reliable guidance to provide us with adequate assurance that we are aware of all necessary licenses to operate our business, that we are operating our business in a compliant manner, or other restrictive covenants, theft of trade secrets, breaches of fiduciary duties, intellectual property infringementthat our rights are otherwise protected.  In addition, major political and related causes of action.legal developments in jurisdictions in which we do business may lead to new regulatory costs and challenges.

Regulations promulgated by the U.S. Treasury Department pursuant to FATCA require us to take various measures relating to non-U.S. funds, transactions and accounts.

Available Information

Our executive offices are located at 2850 Golf Road, Rolling Meadows, Illinois 60008-4050, and our telephone number is (630) 773‑3800.  Our annual reports onForm 10-K, quarterly reports onForm 10-Q,10‑Q, current reports onForm 8-K,8‑K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, are available free of charge on our website athttp://investor.ajg.com/sec-filings as soon as reasonably practicable after electronically filing or furnishing such material to the Securities and Exchange Commission.  The Securities and Exchange Commission also maintains a website (www.sec.gov) that includes our reports, proxy statements and other information. Unless expressly noted, the information on our website, including our investor relations website, or any other website is not incorporated by reference in this Form 10-K and should not be considered part of this Form 10-K or any other filing we make with the SEC.

Item 1A. Risk Factors.

Item 1A.Risk Factors.Please carefully consider the following discussion of significant factors, events, and uncertainties that make an investment in our securities risky.  The events and consequences discussed in these risk factors could, in circumstances we may not be able to accurately predict, recognize, or control, have a material adverse effect on our business, growth, reputation, prospects, financial condition, operating results (including components of our financial results such as revenues and net earnings), cash flows, liquidity, and stock price. These risk factors do not identify all risks that we face; our operations could also be affected by factors, events, or uncertainties that are not presently known to us or that we currently do not consider to present significant risks to our operations. In addition, the global economic climate amplifies many of these risks.

Risks Relating to our Business Generally

The ongoing COVID-19 pandemic has and could continue to adversely affect our business, results of operations and financial condition.

The global spread of COVID-19 (including potentially more contagious strains of COVID-19 such as those recently detected in the U.K., South Africa and Brazil) has created significant volatility and uncertainty and economic disruption. The extent to which the pandemic impacts our business, operations and financial results will depend on numerous evolving factors, many of which are not within our control and which we may not be able to accurately predict, including: its duration and scope; the ultimate availability, administration and effectiveness of vaccines, and our employees’ and the general population’s willingness to receive them; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic; the impact of the pandemic on economic activity and actions taken in response; the effect on our clients and client demand for our services; our ability to sell and provide our services, including limitations on travel and difficulties of our clients and employees working from home; the ability of our clients to pay their insurance premiums which could impact our commission and fee revenues for our services; the nature and extent of claims impacting the ability of underwriting enterprises to pay supplemental and contingent commissions; the decrease in new arising workers’ compensation and general liability claims; the long-term impact of closing our offices and our employees working from home, including increased technology costs; the impact of lost revenue on our employees’ variable and base compensation levels; the impact of uncertainty related to salary raises and future compensation levels; the impact of reduced investments and postponements related to business modernization projects; the impact of furloughed or terminated employees; and the impact of reduced advertising and sponsorship investments.

COVID-19 and the volatile regional and global economic conditions stemming from the pandemic, as well as reactions to future pandemics or new strains or resurgences of COVID-19, could also precipitate or aggravate the other risk factors that we identify in this report, which in turn could materially adversely affect our business, financial condition, liquidity, results of operations (including revenues and profitability) and/or stock price.  Further, COVID-19 may also affect our operating and financial results in a manner that is not presently known to us or that we currently do not consider to present significant risks to our operations.

An economic downturn, as well as unstable economic conditions in the countries and regions in which we operate, could adversely affect our results of operations and financial condition.

AApart from the impact of COVID-19, a decline in economic activity for any other reason (including climate change, or the uncertainty caused by political violence and chaos) could adversely impact us in future years as a result of reductions in the amount of insurance coverage and consulting services that our clients purchase due to reductions in their headcount, payroll, properties, and the market values of assets, among other factors.  In addition, specific industriesAny such reduction or sectors of the economy could experience declines in ways that impact our business; for example, if climate change and environmental risks harm the oil and gas industry, clients in our energy niche could go out of business or have reduced needs for insurance coverage or consulting services. All such reductionsdecline (whether caused by an overall economic decline or declines in particular industries)certain industries or in certain countries and regions in which we operate) could adversely impact futureour commission revenues, when the underwriting enterprises perform exposure audits if they lead to subsequent downward premium adjustments. We record the commission income effects of subsequent premium adjustments when the adjustments become known and, as a result, any downturnconsulting revenues or improvement in our results of operations and financial condition may lag a downturn or improvement in the economy.revenues from managing third-party insurance claims.  Some of our clients may experience liquidity problems or other financial difficulties in the event of a prolonged deterioration in the economy, which could have an adverse effect on our results of operations and financial condition.  If our clients become financially less stable, enter bankruptcy, liquidate their operations or consolidate, our revenues and collectability of receivables could be adversely affected.

The exit of the U.K. from the European Union (Brexit) could adversely affect our results of operations and financial condition.

Our operations inThe U.K. formally left the European Union (EU) on January 31, 2020 and an agreed implementation period ended on December 31, 2020. Although the U.K., which contributed approximately 17% and the EU reached a trade and customs agreement, this agreement did not extend to insurance brokerage services.  Accordingly, while our European Economic Area (EEA) client base is a small part of our brokerage segment and approximately 4% of our risk management segment revenues in 2018, expose us to risk in the event of an economic downturn in the U.K. due to Brexit. Such a downturn could adversely affect our U.K. operations, throughwe have now transferred those clients to a declineSwedish subsidiary, authorized in the insurance coverage and consultingEEA.  Some services will be provided through staff working in a U.K. branch of the subsidiary.  Although this “reverse branch” model is typical of other brokers of a similar size, there can be no assurance that the approach of EU regulators will not change, potentially requiring us to adjust our clients purchase as they face reductionsplans in their headcount, payroll, properties or the market value of their assets. In aso-called “hard” or“no-deal” Brexit whererelation to the U.K. leaves the European Union without trade or other deals in place with member countries,branch and causing further management distraction and cost. In such an event, our European client base outside the U.K., which is minimal, would need to be serviced fromresults of operations in a country in the European Union. While we have a plan in place to service these clients from one of our existing offices in Sweden, such a transitionand financial condition could be a distraction to both clients and our management. In addition, the uncertainty surrounding Brexit has and may continue to result in substantial volatility in foreign exchange markets and may lead to a sustained weakness in the British pound’s exchange rate against the U.S. dollar. Any significant weakening of the British pound to the U.S. dollar will have an adverse impact on our brokerage and risk management segments’ net earnings as reported in U.S. dollars.adversely affected.

Economic conditions that result in financial difficulties for underwriting enterprises or lead to reduced risk-taking capital capacity could adversely affect our results of operations and financial condition.

We have a significant amount of trade accounts receivablereceivables from somecertain of the underwriting enterprises with which we place insurance.  If those companies experience liquidity problems or other financial difficulties, we could encounter delays or defaults in payments owed to us, which could have a significant adverse impact on our consolidated financial condition and results of operations.  The failure of an underwriting enterprise with which we place business could result in errors and omissions claims against us by our clients, andclients.  Further, the failure of errors and omissions underwriting enterprises could make the errors and omissions insurance we rely upon cost prohibitive or unavailable, whichunavailable. Any of these developments could adversely affect our results of operations and financial condition.  In addition, if underwriting enterprises merge or if a large underwriting enterprise fails or withdraws from offering certain lines of coverage, for example, because of large payouts related to climate change or other emerging risk areas, overall risk-taking capital capacity could be negatively affected, which could reduce our ability to place certain lines of coverage and, as a result, reduce our revenues and profitability.  Such failures or coverage withdrawals on the part of underwriting enterprises could occur for any number of reasons, including large unexpected payouts related to climate change or other emerging risk areas.

We have historically acquired large numbers of insurance brokers, benefit consulting firms and, to a lesser extent, claim and risk management firms.  We may not be able to continue such an acquisition strategy in the future and there are risks associated with such acquisitions, which could adversely affect our growth and results of operations.

Our acquisition program has been an important part of our historical growth, particularly in our brokerage segment, and we believe that similar acquisition activity will be important to maintaining comparable growth in the future.  Failure to successfully identify and complete acquisitions likely would result in us achieving slower growth.  Continuing consolidation in our industry and growing interest in acquiring insurance brokers on the part of private equity firms, and private equity-backed consolidators and newly public insurance brokers (one of which has a partnership tax structure that gives it an advantage in pricing acquisitions) has in some cases made and could in the future make itappropriate acquisition targets more difficult for us to identify appropriate targets and could make them more expensive.  Even if we are able to identify appropriate acquisition targets, we may not have sufficient capital to fund acquisitions, be able to execute transactions on favorable terms or integrate targets in a manner that allows us to realize the benefits we have historically experienced from acquisitions.  When regulatory approval of acquisitions is required, our ability to complete acquisitions may be limited by an ongoing regulatory review or other issues with the relevant regulator.  Our ability to finance and integrate acquisitions may also decrease if we complete a greater number of largelarger acquisitions than we have historically.See Note 3 to the consolidated financial statements elsewhere in this report for information regarding the size of transactions in the reporting period.

Post-acquisition risks include thosepoor cultural fit and risks relating to retention of personnel, retention of clients, entry into unfamiliar or complex markets or lines of business, contingencies or liabilities, such as violations of sanctions laws or anti-corruption laws including the FCPA and U.K. Bribery Act, risks relating to ensuring compliance with licensing and regulatory requirements, tax and accounting issues, the risk that the acquisition distracts management and personnel from our existing business, and integration difficulties relating to accounting, information technology, pay equity, human resources, or employee attrition, or poor organizational culture and fit, some or all of which could have an adverse effect on our results of operations and growth.  The failure of acquisition targets to achieve anticipated revenue and earnings levels could also result in goodwill impairment charges.

We own interests in firms where we do not exercise management control (such as Casanueva Perez S.A.P. de C.V. in Mexico) and are therefore unable to direct or manage the business to realize the anticipated benefits, including mitigation of risks, that could be achieved through full integration.

We face significant competitive pressures in each of our businesses.

The insurance brokerage and employee benefit consulting businesses are highly competitive and many insurance brokerage and employee benefit consulting organizations actively compete with us in one or more areas of our business around the world.  WeThree of the firms we compete with three firms in the global risk management and brokerage markets that(two of which are in the process of merging, subject to regulatory approval) have revenues significantly larger than ours.  In addition, many other smaller firms that operate nationally or that are strong in a particular country, region or locality may have, in that country, region or locality, an office with revenues as large as or larger than those of our corresponding local office.  Our third party claims administration operation also faces significant competition from stand-alone firms as well as divisions of larger firms.  Over the past decade or more, private equity sponsors have invested heavily in the insurance brokerage and third party claims administration industries, creating new competitors and strengthening existing ones.  Across all of our operations, Insurtech and technology-based start-ups are entering the business. In most cases, these businesses complement or enhance our offerings, but in some cases they compete with us.

We believe that the primary factors determining our competitive position with other organizations in our industry are the quality of the services we render, the personalized attention we provide, the individual and corporate expertise of the brokers and consultants providing the actual service to the client and our ability to help our clients manage their overall risk exposure and insurance costs.  Losing business to competitors offering similar services or products at a lower cost or having other competitive advantages would adversely affect our business.

Consolidation among our existing competitors (such as the pending merger between Aon and Willis Towers Watson) could create additional competitive pressure on us as such firms grow their market share, take advantage of strategic and operational synergies and develop lower cost structures.  In addition, any increase in competition due to new legislative or industry developments could adversely affect us.  

These developments include:

New competition as a result of these or other legislative or industry developments could cause the demand for our products and services to decrease, which could in turn adversely affect our results of operations and financial condition.

Volatility or declines in premiums or other adverse trends in the insurance industry may seriously undermine our profitability.

We derive much of our revenue from commissions and fees for our brokerage services.  We do not determine the insurance premiums on which our commissions are generally based.  Moreover, insurance premiums are cyclical in nature and may vary widely based on market conditions.  Because of market cycles for insurance product pricing, which we cannot predict or control, our brokerage revenues and profitability can be volatile or remain depressed for significant periods of time.

As underwriting enterprises continue to outsource the production of premium revenue tonon-affiliated brokers or agents such as us, those companies may seek to further minimize their expenses by reducing the commission rates payable to insurance agents or brokers.  The reduction of these commission rates, along with general volatility and/or declines in premiums, may significantly affect our profitability.  Because we do not determine the timing or extent of premium pricing changes, it is difficult to precisely forecast our commission revenues precisely, including whether they will significantly decline.  As a result, we may have to adjust our budgets for future acquisitions, capital expenditures, dividend payments, loandebt repayments and other expenditures to account for unexpected changes in revenues, and any decreases in premium rates may adversely affect the results of our operations.

In addition, there have been and may continue to be various trends in the insurance industry toward alternative insurance markets including, among other things, greater levels of self-insurance, captives,rent-a-captives, risk retention groups andnon-insurance capital markets-based solutions to traditional insurance.  While historically we have been able to participate in certain of these activities on behalf of our clients and obtain fee revenue for such services, there can be no assurance that we will realize revenues and profitability as favorable as those realized from our traditional brokerage activities.  Our ability to generate premium-based commission revenue may also be challenged by the growing desire of some clients to compensate brokers based upon flat fees rather than variable commission rates.a percentage of premium.  This could negatively impact us because fees are generally not indexed for inflation and domight not automatically increase with premiums as commissions do.do or with the level of service provided.

Contingent and supplemental revenues we receive from underwriting enterprises are less predictable than standard commission revenues, and any decrease in the amount of these forms of revenue could adversely affect our results of operations.

A significantmeaningful portion of our revenues consists of contingent and supplemental revenues from underwriting enterprises.  Contingent revenues are paid after the insurance contract period, generally in the first or second quarter, based on the growth and/or profitability of business we placed with an underwriting enterprise during the prior year.  On the other hand, supplemental revenues are paid up front, on an annual or quarterly basis, generally based on our historical premium volumes with the underwriting enterprise and additional capabilities or services we bring to the engagement. While underwriting enterprises generally maintain supplemental revenues in the current year at a pre-determined rate, that rate can change in future years as described above.  If, due to the current economic environment or for any other reason, we are unable to meet an underwriting enterprise’s particular profitability, volume or growth thresholds, as the case may be, or such companies increase their estimate of loss reserves (over which we have no control), actual contingent revenues or supplemental revenues could be less than anticipated, which could adversely affect our results of operations. In the case of contingent revenues, under the new revenue recognition accounting standard, that was effective January 1, 2018,standards, this could lead to the reversal of revenues in future periods that were recognized in prior periods (See Note 2 to our 2018 consolidated financial statements for more information).periods.

If we are unable to apply technology effectively in driving value for our clients through technology-based solutions or gain internal efficiencies and effective internal controls through the application of technology and related tools, our operating results, client relationships, growth and compliance programs could be adversely affected.

Our future success depends, in part, on our ability to anticipate and respond effectively to the threat and opportunity presented by digital disruption and developments in technology.  These may include new applications or insurance-related services based on artificial intelligence, machine learning, robotics, blockchain or new approaches to data mining.  We may be exposed to competitive risks related to the adoption and application of new technologies by established market participants (for example, through disintermediation) or new entrants such as technology companies, “Insurtech”start-up companies and others. These new entrants are focused on using technology and innovation, including artificial intelligence and blockchain, to simplify and improve the client experience, increase efficiencies, alter business models and effect other potentially disruptive changes in the industries in which we operate.  We must also develop and implement technology solutions and technical expertise among our employees that anticipate and keep pace with rapid and continuing changes in technology, industry standards, client preferences and internal control standards.  We may not be successful in anticipating or responding to these developments on a timely and cost-effective basis and our ideas may not be accepted in the marketplace.  Additionally, the effort to gain technological expertise and develop new technologies in our business requires us to incur significant expenses. Investments in technology systems (for example, technology and cybersecurity investments we are making in response to the ransomware incident referred to elsewhere in this report) may not deliver the benefits or perform as expected, or may be replaced or become obsolete more quickly than expected, which could result in operational difficulties or additional costs.If we cannot offer new technologies as quickly as our competitors, or if our competitors develop more cost-effective technologies or product offerings, we could experience a material adverse effect on our operating results, client relationships, growth and compliance programs.

In some cases, we depend on key third-party vendors and partners to provide technology and other support for our strategic initiatives.  If these third parties fail to perform their obligations or cease to work with us, our ability to execute on our strategic initiatives could be adversely affected.

Damage to our reputation could have a material adverse effect on our business.

Our reputation is one of our key assets.  We advise our clients on and provide services related to a wide range of subjects and our ability to attract and retain clients is highly dependent upon the external perceptions of our level of service, ability to protect client information, trustworthiness, business practices, financial condition and other subjective qualities such as culture and values. Our success is also dependent on maintaining a good reputation with existing and potential employees, investors, regulators and regulators.the communities in which we operate.  Negative perceptions or publicity regarding the matters noted above, including our association with clients or business partners who themselves have awith damaged reputation,reputations, or from actual or alleged conduct by us or our employees, could damage our reputation. Our reputation could also be impactedharmed by negative perceptions or publicity regarding ESG matters including concerns with environmental social and governance (ESG) issues or cybersecuritymatters, climate change, workforce diversity, pay equity, harassment, racial justice, cyber security and data privacy concerns. privacy. Any resulting erosion of trust and confidence could make it difficult for us to attract and retain clients, employees or investors, result in lower ESG ratings and investorsexclusion of our stock from ESG-oriented indices or investment funds, or harm our relationships with regulators anyand the communities in which we operate.  Any of whichthese matters could have a material adverse effect on our business, financial condition and results of operations.

Our future success depends, in part, on our ability to attract and retain experienced and qualified talent, including our senior management team.

We depend upon members of our senior management team, who possess extensive knowledge and a deep understanding of our business and strategy.  We could be adversely affected if we fail to plan adequately for the succession of these leaders, including our chief executive officer. officer, or if one or more of them contracts COVID-19.  We could also be adversely affected if we fail to attract and retain talent and foster a diverse and inclusive workplace throughout our organization. Competition for talent in rapidly developing fields such as artificial intelligence and data engineering is particularly intense. In addition, our industry has experienced competition for leading brokers and in the past we have lost key brokers and groups of brokers, along with their clients, business relationships and intellectual property directly to our competition.  We enter into agreements with many of our brokers and significant client-facing employees and all of our executive officers, which prohibit them from disclosing confidential information and/or soliciting our clients, prospects and employees upon their termination of employment.  The confidentiality and non-solicitation provisions of such agreements terminate in the event of a hostile change in control, as defined in the agreements.  Although we pursue legal actions for alleged breaches of non-compete or other restrictive covenants, theft of trade secrets, breaches of fiduciary duties, intellectual property infringement and related causes of action, such legal actions may not be effective in preventing such breaches, theft or infringement.  Our failure to adequately address any of these issues could have a material adverse effect on our business, operating results and financial condition. See also “Risks related to remote work” in our COVID-19 risk factor above.

Our substantial operations outside the U.S. expose us to risks different than those we face in the U.S.

In 2018,2020, we generated approximately 30%32% of our combined brokerage and risk management revenues outside the U.S.  The global nature of our business creates operational and economic risks.  Adverse geopolitical or economic conditions may temporarily or permanently disrupt our operations outside the U.S. or create difficulties in staffing and managing such operations.  For example, we have substantial operations in India that provide important back-office services for other parts of our global organization.  To date, the dispute between India and Pakistan involving the Kashmir region, rising tensions between India and China, incidents of terrorism in India and general geopolitical uncertainties have not adversely affected our operations in India.  However, such factors could potentially affect our operations there in the future.  Should our access to these services be disrupted, our business, operating results and financial condition could be adversely affected.

Operating outside the U.S. may also present other risks that are different from, or greater than, the risks we face doing comparable business in the U.S.  These include, among others, risks relating to:

The potential costs, difficultiestrade and risks associated with local regulations across the globe, including the risk of personal liability for directors and officers and “piercing the corporate veil” risks under the corporate law regimes of certain countries;

The trade policies of the current U.S. presidential administration couldfurther develop in ways that exacerbate the risks described above, or introduce new risks for our international operations.  If any of these risks materialize, our results of operations and financial condition could be adversely affected.

We face a variety of risks in our risk management third-party claims administration operations that are distinct from those we face in our insurance brokerage and benefit consulting operations.

Our third party claims administration operations face a variety of risks distinct from those faced by our brokerage operations, includingIn 2020, the risks that:

We began generating tax credits under IRC Section 45 in 2009. As of December 31, 2018,2020, we had generated a total of $1,168$1,512.7 million ($1.168 billion) in IRC Section 45 tax credits, of which approximately $370$534.9 million have been used to offset U.S. federal tax liabilities and $798$977.8 million remain unused and available to offset future U.S. federal tax liabilities. Our ability to use tax credits under IRC Section 45 depends upon the operations in which we have invested satisfying certain ongoing conditions set forth in IRC Section 45.  These include, among others, the“placed-in-service” “placed-in-service” condition and requirements relating to qualified emissions reductions, coal sales to unrelated parties and at least one of the operations’ owners qualifying as a “producer” of refined coal.  While we have received some degree of confirmation from the IRS relating to our ability to claim these tax credits, the IRS could ultimately determine that the operations have not satisfied, or have not continued to satisfy, the conditions set forth in IRC Section 45.  Similarly, the law permitting us to claim IRC Section 29 tax credits (related to our prior synthetic coal operations) expired on December 31, 2007. At December 31, 2018,2020, we had exposure with respect to $108.0 million of previously earned tax credits under IRC Section 29. We believe our claim for IRC Section 29 tax credits in 2007 and prior years was in accordance with IRC Section 29 and four private letter rulings previously obtained byIRC Section 29-related limited liability companies in which we had an interest. We understand

these private letter rulings were consistent with those issued to other taxpayers and we have received no indication from the IRS that it will seek to revoke or modify them. In addition, the IRS audited certain of the IRC Section 29 facilities without requiring any changes.

While none of our prior IRC Section 29 operations are currently under audit, manyseveral of the IRC Section 45 operations in which we are invested are under audit by the IRS.  See “IRS Audits” above.  The IRS could place the remaining IRC Section 45 operations and any of the prior IRC Section 29 operations under audit. An adverse outcome with respect to our ability to claim tax credits under any such audit would likely cause a material loss or cause us to be subject to liability under indemnification obligations related to prior sales of partnership interests in IRC Section 29 tax credits.

The IRC Section 45 operations in which we have invested and theby-products from such operations may result in environmental and product liability claims and environmental compliance costs.

The construction and operation of the IRC Section 45 operations are subject to federal, state and local laws, regulations and potential liabilities arising under or relating to the protection or preservation of the environment, natural resources and human health and safety.  Such laws and regulations generally require the operations and/or the utilities at which the operations are located to obtain and comply with various environmental registrations, licenses, permits, inspections and other approvals.  There are costs associated with ensuring compliance with all applicable laws and regulations, and failure to fully comply with all applicable laws and regulations could lead to the imposition of penalties or other liability.  Failure of TheChem-Mod™ Solution utilized at coal-fired generation facilities, for example, could result in violations of air emissions permits, which could lead to the imposition of penalties or other liability. Additionally, some environmental laws, without regard to fault or the legality of a party’s conduct, impose liability on certain entities that are considered to have contributed to, or are otherwise responsible for, the release or threatened release of hazardous substances into the environment.  One party may, under certain circumstances, be required to bear more than its share or the entire share of investigation and cleanup costs at a site if payments or participation cannot be obtained from other responsible parties.  By using TheChem-Mod™ Chem‑Mod™ Solution at locations owned and operated by others, we and our partners may be exposed to the risk of being held liable for environmental damage from releases of hazardous substances we may have had little, if any, involvement in creating.  Such risk remains even after production ceases at an operation to the extent the environmental damage can be traced to the types of chemicals or compounds used or operations conducted in connection with TheChem-Mod™ Solution. Increasing attention to global climate change has resulted in an increased possibility of regulatory attention and private litigation.  For example, claims have been made against certain energy companies alleging that greenhouse gas emissions constitute a public nuisance.  In addition to the possibility of our being named in such actions, we and our partners could face the risk of environmental and product liability claims related to concrete incorporating fly ash produced using TheChem-Mod™ Solution.  No assurances can be given that contractual arrangements and precautions taken to ensure assumption of these risks by facility owners or operators, or other end users, will result in that facility owner or operator, or other end user, accepting full responsibility for any environmental or product liability claim. Nor can we or our partners be certain that facility owners or operators, or other end users, will fully comply with all applicable laws and regulations, and this could result in environmental or product liability claims.  It is also not uncommon for private claims by third parties alleging contamination to also include claims for personal injury, property damage, nuisance, diminution of property value, or similar claims.  Furthermore, many environmental, health and safety laws authorize citizen suits, permitting third parties to make claims for violations of laws or permits.  Our insurance may not cover all environmental risk and costs or may not provide sufficient coverage in the event of an environmental or product liability claim, and defense of such claims can be costly, even when such defense prevails.  If significant uninsured losses arise from environmental or product liability claims, or if the costs of environmental compliance increase for any reason, our results of operations and financial condition could be adversely affected.

We have debt outstanding that could adversely affect our financial flexibility and subjects us to restrictions and limitations that could significantly impact our ability to operate our business.

As of December 31, 2018,2020, we had total consolidated debt outstanding of approximately $3.6$4.5 billion. The level of debt outstanding each period could adversely affect our financial flexibility. We also bear risk at the time our debt matures. Our ability to make interest and principal payments, to refinance our debt obligations and to fund our acquisition program and planned capital expenditures will depend on our ability to generate cash from operations. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control, such as an environment of rising interest rates. A small portion of our private placement debt consists of floating rate notes and interest payments under our senior revolving credit facility are based on a floating rate (in both cases currently based on LIBOR, which willis expected to transition soonat the end of 2021 to the Secured Overnight Financing Rate)Rate), which exposes us to additionalthe risk in an environment of rising interest rates.a changing or unknown rate environment. Our indebtedness will also reduce the ability to use that cash for other purposes, including working capital, dividends to stockholders, acquisitions, capital expenditures, share repurchases, and general corporate purposes. If we cannot service our indebtedness, we may have to take actions such as selling assets, issuing additional equity or reducing or delaying capital expenditures, strategic acquisitions, and investments, any of which could impede the implementation of our business strategy or prevent us from entering into transactions that

would otherwise benefit our business. Additionally, we may not be able to effect such actions, if necessary, on commercially reasonable terms, or at all. We may not be able to refinance any of our indebtedness on commercially reasonable terms, or at all.

The agreements governing our debt contain covenants that, among other things, restrict our ability to dispose of assets, incur additional debt, engage in certain asset sales, mergers, acquisitions or similar transactions, create liens on assets, engage in certain transactions with affiliates, change our business or make investments, and require us to comply with certain financial and legal covenants. The restrictions in the agreements governing our debt may prevent us from taking actions that we believe would be in the best interest of our business and our stockholders and may make it difficult for us to execute our business strategy successfully or effectively compete with companies that are not similarly restricted.  We may also incur future debt obligations that might subject us to additional or more restrictive covenants that could affect our financial and operational flexibility, including our ability to pay dividends.  We cannot make any assurances that we will be able to refinance our debt or obtain additional financing on terms acceptable to us, or at all. A failure to comply with the restrictions under the agreements governing our debt could result in a default under the financing obligations or could require us to obtain waivers from our lenders for failure to comply with these restrictions.  The occurrence of a default that remains uncured or the inability to secure a necessary consent or waiver could cause our obligations with respect to our debt to be accelerated and have a material adverse effect on our financial condition and results of operations.

We are a holding company and, therefore, may not be able to receive dividends or other distributions in needed amounts from our subsidiaries.

We are organized as a holding company, a legal entity separate and distinct from our operating subsidiaries.  As a holding company without significant operations of our own, we are dependent upon dividends and other payments from our operating subsidiaries to meet our obligations for paying principal and interest on outstanding debt obligations, for paying dividends to stockholders, repurchasing our common stock and for corporate expenses.  In the event our operating subsidiaries are unable to pay sufficient dividends and other payments to us, we may not be able to service our debt, pay our obligations, pay dividends on or repurchase our common stock.

Further, we derive a significantmeaningful portion of our revenue and operating profit from operating subsidiaries located outside the U.S.  Since the majority of financing obligations as well as dividends to stockholders are paid from the U.S., it is important to be able to access the cash generated by our operating subsidiaries located outside the U.S. in the event we are unable to meet these U.S. based cash requirements.

Funds from our operating subsidiaries outside the U.S. may be repatriated to the U.S. via stockholder distributions and intercompany financings, where necessary.  A number of factors may arise that could limit our ability to repatriate funds or make repatriation cost prohibitive, including, but not limited to the imposition of currency controls and other government restrictions on repatriation in the jurisdictions in which our subsidiaries operate, fluctuations in foreign exchange rates, the imposition of withholding and other taxes on such payments and our ability to repatriate earnings in atax-efficient manner.

In the event we are unable to generate or repatriate cash from our operating subsidiaries for any of the reasons discussed above, our overall liquidity could deteriorate and our ability to finance our obligations, including to pay dividends on or repurchase our common stock, could be adversely affected.

Future sales or other dilution of our equity could adversely affect the market price of our common stock.

WeAn important way we grow our business organically as well asis through acquisitions.  One method of acquiring companies or otherwise funding our corporate activities is through the issuance of additional equity securities.  The issuance of any additional shares of common or of preferred stock or convertible securities could be substantially dilutive to holders of our common stock. Moreover, to the extent that we issue restricted stock units, performance stock units, options or warrants to purchase shares of our common stock in the future and those options or warrants are exercised or as the restricted stock units or performance stock units vest, our stockholders may experience further dilution. Holders of our common stock have no preemptive rights that entitle holders to purchase their pro rata share of any offering of shares of any class or series and, therefore, such sales or offerings could result in increased dilution to our stockholders. The market price of our common stock could decline as a result of sales of shares of our common stock or the perception that such sales could occur.

The price of our common stock may fluctuate significantly, and this may make it difficult for you to resell shares of common stock owned by you at times or at prices you find attractive.

The trading price of our common stock may fluctuate widely as a result of a number of factors, including the risk factors described above, many of which are outside our control. In addition, the stock market is subject to fluctuations in the share prices and trading volumes that affect the market prices of the shares of many companies. These broad market fluctuations have adversely affected and may continue to adversely affect the market price of our common stock. Among the factors that could affect our stock price are:

Stockholder class action lawsuits may be instituted against us following a period of volatility in our stock price. Any such litigation could result in substantial cost and a diversion of management’s attention and resources.

Item 1B. Unresolved Staff Comments.

Not applicable.

Item 2. Properties.

The executive offices of our corporate segment and certain subsidiary and branch facilities of our brokerage and risk management segments are located at 2850 Golf Road, Rolling Meadows, Illinois, where we own approximately 360,000 square feet of space, and can accommodate 2,000 employees at peak capacity.

Elsewhere, we generally operate in leased premises related to the facilities of our brokerage and risk management operations.operations.  We prefer to lease office space rather than own real estate related to the branch facilities of our brokerage and risk management segments.segments.  Certain of our office space leases have options permitting renewals for additional periods.  In addition to minimum fixed rentals, a number of our leases contain annual escalation clauses generally related to increases in an inflation index.  See Note 16 Notes 15 and 17 to our 20182020 consolidated financial statements for information with respect to our lease commitments as of December 31, 2018.2020.

Item 3. Legal Proceedings.

Please see the information set forth in Note 1617 to our consolidated financial statements, included herein, under “Litigation, Regulatory and Taxation Matters.”

Item 4. Mine Safety Disclosures.

Not applicable.

Information About Our Executive Officers

Set forth below are the names, ages, positions and business backgrounds of our executive officers as of the date hereof:

We

With the exception of Mr. Mead, we have employed each such person principally in management capacities for more than the past five years.  All executive officers are appointed annually and serve at the pleasure of our board of directors.

Part II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock is listed on the New York Stock Exchange, trading under the symbol “AJG.”

As of January 31, 2019,2021, there were approximately 1,000 holders of record of our common stock.

(c)    Issuer Purchases of Equity Securities

The following table shows the purchases of our common stock made by or on behalf of us or any “affiliated purchaser” (as such term is defined in Rule10b-18(a)(3) under the Securities Exchange Act of 1934, as amended) of us for each fiscal month in the three-month period ended December 31, 2018:2020:

Item 6. Selected Financial Data.

The following selected consolidated financial data for each of the five years in the period ended December 31, 20182020 have been derived from our consolidated financial statements.  Such data should be read in conjunction with our consolidated financial statements and notes thereto in Item 8 of this annual report.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Introduction

The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes included in Item 8 of this annual report. In addition, please see “Information RegardingNon-GAAP Measures and Other” beginning on page 3234 for a reconciliation of thenon-GAAP measures for adjusted total revenues, organic commission, fee and supplemental revenues and adjusted EBITDAC to the comparable GAAP measures, as well as other important information regarding these measures.

We are engaged in providing insurance brokerage and consulting services, and third-party property/casualty claims settlement and administration services to entities in the U.S. and abroad.  We believe that one of our major strengths is our ability to deliver comprehensively structured insurance and risk management services to our clients.  Our brokers, agents and administrators act as intermediaries between underwriting enterprises and our clients and we do not assume net underwriting risks.  We are headquartered in Rolling Meadows, Illinois, have operations in 35 other49 countries and offer client-service capabilities in more than 150 countries globally through a network of correspondent brokers and consultants.  In 2018,2020, we expanded, and expect to continue to expand, our international operations through both acquisitions and organic growth.  We generate approximately 70%68% of our revenues for the combined brokerage and risk management segments domestically, with the remaining 30% derived32% generated internationally, primarily in the U.K., Australia, Bermuda, Canada, the Caribbean, New Zealand and the U.K.Bermuda (based on 20182020 revenues).  We expect that our international revenue as a percentage of our total revenues in 20192021 will be comparable to 2018.2020. We have three reportable segments: brokerage, risk management and corporate, which contributed approximately 61%74%, 14% and 25%12%, respectively, to 20182020 revenues.  Our major sources of operating revenues are commissions, fees and supplemental and contingent revenues from brokerage operations and fees from risk management operations.  Investment income is generated from invested cash and fiduciary funds, clean energy investments, and interest income from premium financing.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains certain statements relating to future results which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995.  Please see “Information Concerning Forward-Looking Statements” at the beginning of this annual report, for certain cautionary information regarding forward-looking statements and a list of factors that could cause our actual results to differ materially from those predicted in the forward-looking statements.

Accounting Changes - Impact

Prior Year Discussion of New Revenue Recognition Accounting StandardResults and Comparisons

As a resultFor information on fiscal 2018 results and similar comparisons, see "Item 7. Management's Discussion and Analysis of adopting a new revenue recognition accounting statement, we restated our consolidated financial statementsFinancial Condition and related information from amounts previously reported herein for 2017 and 2016. Notes 2 and 3 to our 2018 consolidated financial statements included in this report contains information regarding the impact the new revenue recognition accounting standard had on our financial presentation. We adopted the new standard asResults of January 1, 2018, using the full retrospective method to restate each prior reporting period presented. The cumulative effect of the adoption was an increase to retained earnings of $125.3 million as of January 1, 2016. While the adoption of the new standard did not have a material impact on the presentationOperations" of our consolidated results of operations on an annual basis, there was a material impact onForm 10-K for the presentation of our results in certain quarters due to timing changes in the recognition of certain revenue and expenses. As a result, we did experience a different “seasonality” in our quarterly results after adoption of the new standard, with a shift in the timing of revenue recognized from the second, third and fourth quarters to the first quarter.

Summary of Financial Results - Year Ended December 31,

See the reconciliations ofnon-GAAP measures on pages 28 and 29.page 30.