Q4 2019 Earnings Call
Welcome to Marsh <unk> Mclennan companies Conference call today's conference is being recorded.
Fourth quarter 2000 to maintain financial results and supplemental information were issued earlier. This morning. They are available on the company's website at www Dot and I'm Si Dot com.
Please note that remarks made today may include forward looking statements.
Looking statements are subject to risks and uncertainties.
Two factors may cause actual results to differ materially from those contemplated by such statements.
For a more detailed discussion of those factors. Please refer to our earnings release for this quarter I'm sure most recently.
He filings.
We think our most recent Form 10-K , one of which are available on me and then see website. During the call. Today. We may also discuss certain non-GAAP financial measures for a reconciliation of those measures to the most closely comparable GAAP measures. Please refer to the schedule in todays earnings release.
I don't I turn the conference over to Dan Glaser, President and CEO of Marsh <unk> Mclennan companies.
Thanks Ali Good morning, Thank you for Johnny wants to discuss our fourth quarter results reported earlier today.
Dan Glaser, President and CEO of Washington on it.
Mainly on the call today's market given our CFO mr. yields about businesses, John Doyle more Peter Hearn Guy Carpenter marketing for a lot of Mercer and Scott Mcdonald of Oliver Wyman.
Oh, so what does this morning it sounds good.
That's the relations.
What do you know I came with a remarkable year for marketing Mclarney, we completed the acquisition with JLTV large deal in our history.
Liver and strong financial results and managing the global integration.
I'm, sorry, well position, our talent capabilities expertise and leadership has never been stronger.
Digital World Class houses JLTV complements our best in class teams in Washington.
While we still have work to do you feel good about how the cultures are coming together.
Early all our teams are now sitting together and more and more we are in the market working as one.
We finished the year with revenue of 16.7 billion.
Oh, 11%.
This represents our highest annual topline growth in 20 years, and it's a step change for us.
One worries basis, we now have over 17 billion annual revenue.
Got it actually wasn't here and I'm pleased that in the midst of the integration we generated underlying growth of 4%.
Your know where our underlying growth, which is a 3% to 5% range.
14% adjusted and I want to cool.
110 basis points of adjusted margin expansion.
And 7% adjusted EPS growth consistent with our guidance of modest dilution first year the deal.
Met our capital management.
Object is to reduce our share count increase our dividends like double digits.
We are running ahead of schedule on acquisition related cost savings no spec wondering savings of at least 350 million, we will continue to drive for additional operating efficiencies.
Overall I'm pleased with outperformance in 2019, you consistently challenge ourselves to balance delivering for today, while positioning for sustained growth in the future even in an exceptional year like 2019.
We continue to invest in Washington on an agency, our fast growing U.S. middle market brokerage business.
Completing five acquisitions in 29 see resulting in current run rate revenue was 1.7 billion, we'd have a robust pipeline for 2020.
We made additional investments in digital technology and data with it.
Further opportunities to leverage technology to spread in small commercial that's willing to streamline and automate our business.
You also see increasing opportunities to leverage the collective strength expertise and relationships across our businesses to deliver enhanced value to clients and drive growth.
Lastly, 29 canceled the seamless transition of leadership and merger with marketing taking over as CEO .
Watching moved quickly to install new leadership in key areas energize, the workforce and implement changes and streamline the operating model create more efficiency and enable better execution.
As we conclude 2019, we emerge a stronger from them. We started out this year with record revenues record adjusted operating income and record adjusted earnings per share.
As we look to the picture there were significant on certainty in the world given current global issues like geopolitical risk negative interest rates trade promotion extreme weather and climate change pandemic risk and cyber risk.
We come to the for at least dynamic times by providing trust and support to our clients in the areas of risk strategy and people.
Washington funding provided thought leadership on key global issues of the World Economic Forum in Davos. This marks the 15th consecutive year, we produce the annual global will work together with the World Economic Forum.
The report wants to talk global worse, this year climate and weather related risks created the greatest concern.
I would change was the most prominent issues discussed at Davos and there is growing recognition of the urgency of both mitigation an adaptation.
R&D age was our clients across all of our business is on helping them. It's what's the impact of a change in climate.
Merger and Oliver Wyman sessions on general quality longevity responsible investment and Hey, I readiness.
Despite all the uncertainty in the world I am optimistic.
[laughter] leader and continue to push for growth and investment despite near term risks and fears about the longer term implications of carbon change.
Perspectives in insights we provide all these topics as a reminder of the uniqueness dependency and the value we bring to our clients.
Let me spend a moment on current PNC insurance pricing trends.
Since farming across a wide range of geography as long.
The more global insurance market index saw an increase of nearly 11% in the fourth quarter compared with 8% to the third quarter, 6% in the second quarter drinkers doesn't suffer.
Well property insurance and financial and professional lines. So the highest average renewal rate increases at 13% and 18% respectively.
The rates are up 3% on average slightly versus the third quarter.
Virtual auto and excess cash they continue to see rates rise me well workers comp continues to see rates decline.
Most of the March index skews to larger reserves, which are seeing higher increases although middle market in small commercial insurance rates are up in certain geographies.
Turning to reinsurance the Guy Carpenter global property catastrophe radar line index rose by 5% at the January one renewals.
Oh dedicated reinsurance capital increase by approximately 2% you're right.
Although I'll call. It vary widely across individual programs capacity is heightened in some stress classes like commercial auto you know medical professional in general liability.
What's your sense, you know market continued to see meaningful increases in rate a January 1st driven in part by truck capital lots of new alternative capital entrance and continued redemptions from third party investors.
The overall global PNC insurance market is challenging and we continue to work hard to deliver the best solutions for our clients.
Times, like these where our expertise and capabilities Sean.
Turning to the fourth quarter, we are pleased with our results. Our overall when you go through the quarter was 15% underlying revenues grew 3% with growth in both segments.
[laughter] repairs done in the quarter on an underlying basis, which is solid was slower than the prior quarter I was expected due to a peak headwinds on new business.
Comparisons in the fourth quarter 2018.
I'm talking to finish the year strong, 10% underlying revenue growth in the quarter.
Murkier delivered 4% underlying revenue growth in the quarter its strongest school since the first quarter of 2018.
Oliver Wyman declined by 2% that's we expected.
The overall fourth quarter saw strong adjusted operating margin expansion of 100 basis points and adjusted operating income growth of 17%.
As we consistently right. It was important not the overemphasize the single quarter, rather look at performance over longer periods of time.
Looking at the full year, we are pleased with our results.
Generated strong overall revenue growth of 11% for the full year with 4% underlying growth.
Demonstrated topline strength across our businesses, while achieving the initial benefits of the integration.
On an underlying basis March delivered solid growth of 4% for the second consecutive year.
Our current or how to strong here was 5% growth.
Merger had 2% growth in Oliver Wyman grew 6% for the year. Despite the pullback in the fourth quarter.
Our adjusted or not why grew 14% with overall margin expansion of 110 basis points for the year walking the 12 consecutive year, we have reported margin expansion.
Adjusted EPS grew 7% or 8% on a constant currency basis, consistent with our guidance of modest adjusted EPS dilution in the first year of the guilty acquisition.
In some 29 team with an example of strong overall execution on multiple levels.
As we looked at 2020 and beyond our future as Brian .
The addition of JMP enhances our competitive position.
Our increasingly bringing our collective strength to clients and we expect to see benefits from our investments in digital.
Technology.
2020, we expect underlying revenue growth in that 3% to 5% range margin expansion and strong adjusted EPS growth.
Let me turn it over to Mark for more detailed review with our results.
Thank you Dan good morning.
Pleased with our fourth quarter results, which can't much stronger in 29.
Total revenue increased 15% in quarter 4.3 billion, reflecting underlying growth 3%.
And your contribution from JMP.
Operating income was 592 million or adjusted operating income rose, 17% to 856.
Adjusted operating margin increased 100 basis points to 21.9%.
Yes, yes rose to 76 cents, an adjusted EPS increased 9% $1.19.
Looking at risk insurance service.
Fourth quarter revenue grew 24% 2.4 billion was up 3% on an underlying big.
Good result, considering the tough comparison, mark faced with strong fourth quarter in 20.
The fact that Q4 was jail.
Only largest quarter.
Adjusted operating income increased 31% to 550 million you jump in margin in 200 basis points to 25.7%.
Pretty your revenue was 9.6 billion increased 17% solid underlying rose 4%.
Adjusted operating income for the year was up.
17% and our adjusted operating margin in Australia.
60 basis points to 26.3%.
At March revenue in the quarter Rose, 23% 2.2 billion, increasing 3% on an underlying base.
You West Canada Division underlying growth was 4% for the quarter <unk> five per cent for the full year.
This marks the seventh consecutive quarter, 4% or higher underlying growth for U.S., Canada.
In the quarter International.
Underlying rose, 1% Asia Pacific up, 7% Latin America up 2% young age out one person.
For the full year revenue at March one building, an increased 17%, 4% on an underlying thing.
I Carpenters revenues is 152 million, an increasing 10% on an underlying basis for the quarter, representing an outstanding finished with strong year.
Growth in the quarter benefited from strong result in North America, as well as growth Retrocessional, an active quarter for GP security.
The year revenue was 1.5 billion, an increase of 15% 5% on an underlying.
The consulting segment fourth quarter revenue increased 4%, the 1.9 billion with underlying growth of 2%.
Insulting adjusted operating income was flat year over year at 359 million. The adjusted operating margin of 19.7% declined 60 basis points versus a year ago, but looking at Oh your margin expansion. So.
What do your revenue was 7.1 billion, an increase of 5% underlying growth of 3%.
Adjusted operating income for the year was up 9% to 1.3 billion and our adjusted operating margin increased 90 basis points.
18.6%.
Mercers revenue increased 8% in the quarter to 1.3 billion underlying rose 4%.
Well increase 2% on an underlying basis.
Management up high single digit.
Fine benefit down low single digits.
Our overall assets under management continued to grow yearend exceeded 305 billion, 5% sequentially and 26% year over year.
Oh revenue grew 6% on an underlying business in the fourth quarter, reflecting strong growth both international anyway.
Premier, 4% I'm going to want to be strong growth serving product in digital implementation.
For the year revenue, what Mercer 5 billion increase 6%.
2% on an underlying base.
Oh, the warm in Britain fourth quarter, and 559 million a decline of 2% on an underlying base.
As we sit on our last call is expected to pull back in the fourth quarter.
Full year, Oliver Wyman pretty strong underlying revenue grew 6%.
Made great progress and 29 P. in jail integration and are on plan are ahead of schedule on key milestones.
We continue to expect the transaction will be modestly diluted adjusted EPS in the first few neutral year to an accretive in the right.
Youre ahead of schedule on cost restructuring action.
Now lets to meet run rate savings of at least 300 million.
Yes, definitely hurt by 625 million Cashcall generate those big.
In addition, it would be approximately 75 million noncash charge, mostly property property related costs as we consolidate how realistic footprint.
We achieved approximately 125 million savings through yearend 2019, and expect to achieve the balance by end of 2021.
We also incurred 335 million of JLTV integration and restructuring costs 2019 to achieve these days.
It's our expectation the bulk of the remaining cost would be earning 2020 more modest about extending to 2021.
Okay reflect the plans we have today.
Did you get deeper into the integration there is a possibility for more savings opportunities emerge.
As we looked at the first quarter 2020 keep in mind this last quarter, where a year over year comparisons are impacted by jail.
Remember in our I asked the first quarter, a seasonally small for jail.
In addition, jltvs employee benefits margins are relatively low first quarter. We expect this one was in quarterly volatility will result in a decline in first quarter consultant more.
However for full year, Dan mentioned, we expect strong earnings growth consolidated adjusted operating margin expansion.
Turning back to the fourth quarter adjusted corporate expense was 53 million quarter.
Fourth quarter, we reported 264 million of noteworthy items, the majority of which are related to the JLTV acquisition.
Who didnt totaled 143 million of JLTV integration costs largest categories, which is seven.
17, though you know JLTV acquisition related costs.
56 million of other restructuring costs.
42 million, an earn out true ups relating to prior acquisition.
Typically do you want our fourth quarter call that would give a brief update on a global retirement plan.
That's contribution to our global defined benefit plan for 122 million 2019 up slightly from the 112 million 28.
We expect cash contribution 2020 would be roughly 100 mm.
For 2020, we anticipate our other net benefit right.
Let me lower than 29.
Based on current expectation, we would assume roughly 264 million for them.
20 Twond.
That's been somewhat 2 billion fourth quarter for both GAAP and adjusted result.
Full year 2019, or GAAP investment in 22 million jumped investment income was approximately 12.
For 2020 expect only modest investment income on adjusted basis.
Foreign exchange was a slight headwinds and the Jeff yes in the quarter ended up five cents per share negative impact for the full year 29.
I mean constrained rates remain at current levels, we expect FX.
It was just yet for 2020.
Our effective adjusted tax rate in fourth quarter, 23.4% compared with 23.6% and the fourth quarter last year.
Full year 2019, or adjusted tax rate, 24.1%.
Excluding discrete items, our adjusted tax rate well here is approximately 26%.
When you give forward guidance around our tax rate not forget discreet items.
That is warranted.
On the current environment, it's reasonable to assume a tax rate between 25% 26% for 21.
The fourth quarter, we repurchased 1.8 million shares of our stock for 185 million.
For the full year 20 on <unk>.
We repurchased 4.8 million shares for 485 million.
Total debt to begin to 2019 12 billion compared with 12.6 billion. We ended the third quarter.
Net debt maturities in March 2020, 500 million of senior notes mature.
During the fourth quarter, we incurred 130 million of interest expense, we expect approximately the same amount in the first quarter 2020.
Let's look at 2020, the framework for capital management discussed in the early stages of JLTV still on track.
This year currently expected deployed approximately 2.6 to 2.9 billion of capital across three broad category.
Production dividends in line with our objective with double digit increases and in a combination of acquisitions and share.
Directionally, we currently expect the amount of capital deployed to be roughly equivalent across three categories.
This plan allows us to maintain our dividend growth objective and meet the commitments for de leveraging laid out when we announced GLP.
It also provides flexibility for M&A.
We've consistently stated in favor attractive acquisitions over Sharon.
As we do high quality acquisition better value creator for shareholder in the company over the long term.
Our track record as good as evidenced by our return on invested capital of nearly 20% over the last three years.
Given aren't de leveraging plans in our acquisition pipeline. We currently do not expect any share repurchases in the first half of 20 Twond.
Ultimately share repurchases later in the year would depend on how the M&A pipeline developed.
Or de leveraging should be largely complete by the end of this year, we expect to have substantial flexibility in terms of capital deployment in 2021 anyway.
Our cash position at the end of the fourth quarter was 1.2 billion.
Uses of cash in the fourth quarter totaled 444 million, including 24 million Brac witness and 235 million for dividend and 185 million for share repurchase.
For the full year 2019, <unk> cash totaled 7.5 billion, including 6.1 billion for acquisition.
90 million forgiven in 485 million for share repurchase.
In summary, we are proud of what we accomplished in 29.
Very much on track with the objectives, we said when we announced the jail theacquisition.
As we look forward to 2020, our outlook is for another year of strong performance without them, having been invested thing.
Mark.
Operator, we're ready to begin Q1 day.
Thank you if he would like to pose the question. Please press star one on your telephone keypad. Please ensure that your me mute function, which jumped although youre signal to reach our equipment and you may remember yourself from the Q at any time by pressing star too.
The interest of addressing questions from as many participants that's possible we would ask that participants limit themselves to one question I'm one follow up question.
Well take our first question today from at least Greenspan of Wells Fargo. Please go ahead.
Hi, Thanks. Good morning. So my first question you guys updated the savings program for JLTV today Dol. So it seems like intangibles are coming in a good amount lower than when you guys had announced this deal off so I'm just trying to.
I guess gets from that that you have these two tailwinds to your numbers and you still are you know we're farming I guess that the deal will be breakeven in 2020 and accretive in 2021, so what's the offset relative to your initial expectations at this deal might not be accretive sooner than you had expected.
No actually it it's going to be elite accretive consistent with our original expectations and so the deal does that side, there's always a number of puts and takes and as you mentioned I wouldn't say the cost savings are higher we did the amortization is lower but we also needed to divest of business.
It is principally aerospace, but also the minority interest and other businesses like CRP here in the U.S., which which we did not anticipate you know going into the transaction until and we also have.
Some revenue headwinds that we had described before the whether that was from the business pipeline issues or some staff that section you know that those are things that were grappling with so you put it all together.
And the deal is tracking in line with our original expectations than our original that's what patients I'll just remind everybody really good that it was going to be a good solid financial transaction, which was also very strategic in nature for more from a credit as as a company.
And when we talk about things like accretion dilution you know, it's always a level of how we're growing no. So it's it's.
We expect 2020 to be Oh, it was a strong year to adjusted EPS growth you know, that's a and not to a breakeven means to us.
Okay. That's helpful. And then my second question and last quarter's call you guys had alluded to the overall margin for the company expanding more than a year to date level. It seems like the fourth quarter came in a little bit below your expectations.
Was that just maybe on you know a little bit weaker consulting on margin just trying to understand what happened in the fourth quarter actually kind of think about the level of margin improvement going forward.
Oh really only focus very much on.
On earnings growth in top line growth much more than we do on margin and we certainly don't really paid much attention to any one single quarter. We were satisfied for the year with 110 Bips in the as the fourth quarter was pretty consistent through the year, there's always a lot going on in all of our.
Businesses. So you know it's not that.
That we look at one versus the other as in any way coming up short of what our expectations were I mean, when I look at margins in general for the company.
Many nike's onto VR 12 consecutive year of margin expansion and are really significant levels of mark. Good margin expansion. You go back a decade in were up by 1300 that you go back five years were up 450, Bips plus in both segments in as a company is so there but just.
Go back I wouldn't look it at any one quarter is being indicative you need to look at longer periods of time and margin expansion for US is an outcome of how we run the business, which is revenue growth almost always exceed expense growth and that would give us margin expansion over time.
The only areas that we were really.
Driving for some margin. This year was is our I guess in parts of the portfolio of particularly died carpenter that we felt we needed to adjust JLTV too just more similar margin levels than what we normally been operating within as Marsh <unk> Mclennan.
Next question please.
Our next question comes from Mike Zaremski of Credit Suisse.
Please go ahead, Mike good morning.
First a question regarding de risk and insurance segment.
Looking at the AMEA segment.
Growth they are a spin.
Let's call it very very low single digits for the past couple years. This is is that a pace that we should tariff.
Any color that pace, maybe we should expect thinking about it into the to this year and then I guess also last him well. It's also just talk a little bit we kinda second half of the or anything going on there and so taking out till 2020.
That's all I'll take it a little bit and then I'll hand over to John I'm. You know overall, we believe we're set up well in both of them, They and Latin America for for future growth not even is not only a 2020, but but beyond.
We have a made up includes UK, which has been our big this area of overlap with JMP, where we knew we got to be a bit choppy for awhile and so that that's essentially what we look at the business. We unpack the different component parts of other made up of the John you want to add more today.
Sure Dan Thanks.
Big picture, 23% cap growth in the quarter.
The grew 17% like some of your 4% underlying growth for the full year. So I was pleased with the results.
Endo it isn't as we expected in the UK.
The underlying growth was impacted by integration related headwinds and some first quarter challenges remain but you know I will say I'm encouraged by.
Improvements of the underlying performance.
You made some leadership changes, but nobody two months ago.
Okay, and then really setting the foundation for stronger growth going forward and in Latin America as I noted in his last call again integrated related challenges, but persists through the first quarter, but Latin America me, they hide with region for us so.
Second quarter on an expensive no <unk> results.
And again I I want to say I'm pleased overall with girls I'm quite proud of the team. We've managed through a lot of change throughout all 20 minutes you need of as being paid are focused on serving our clients and that's a increasingly challenging market.
Well, yes, Dan noted were stronger were stronger team a during 2020 jail fees, obviously, a big part of that but we also had whereas on the 18 and did a lot to work on integration.
We're them with last year, and we've got a two top 100 for the United States.
Well so.
I'm quite excited about the team and our position business.
Yes that was helpful. Yep lastly, sticking on the a brokerage Scott space down in your prepared remarks, you I think you said it was like a challenging marketplace I assume you're referring to help.
Well, maybe a couple quote unquote hard markets and you can correct me if I'm wrong I'm. Just just curious just see does this challenging market also puts a little pressure on on Marsh's expand space. Given you know your employees are.
Working capital potentially even harder to represent their clients to this marketplace.
Well were built.
Who operate well across cycle and.
No I mean, there there I wouldn't necessarily classify the entire market as a hard market. It's certainly heart in pockets added that certainly true as you noted.
The marketing Guy Carpenter.
Brokers.
I do want a lot harder to get things done I'd have to work you know really hard and creatively in order to serve clients and in these challenging market conditions and so we we recognize that we don't believe that could cause any over pressure on our exposure.
It's levels you know more more more than the fact that we recognize that that our people are working harder than than ever before and we appreciate that and we reward them for you know, but our our teams.
Our driven by serving clients and so that's what their focus is no. So they're out there hustling not not in the belief that somehow their compensation or anything else is going to change. It's it's actually that they're they're focused on delivering for their clients.
Next question please.
Our next question today comes from Ryan Tunis of Autonomous Research. Please go ahead.
Yes, thanks, good morning.
Organic I guess I was hoping maybe you might be able to.
Quantify perhaps the type of drags you think right now the organic revenue growth rate is feeling because [laughter] I want to say disruption, but because of the JLTV integration process and it is that you always get worse this quarter in the third quarter is it still getting worse or.
You know, it's the magnitude that lessening going forward.
[music].
Well, let me talk about that broadly because I think it's a good question.
First of all I start with the basis, what I would I looked at our underlying growth.
I'm pleased with 3% in the quarter and I'm I'm really pleased at 4% for the year, you'll look at the quarter micrometer at a terrific quarter and a strong your top and bottom line Oliver Wyman as expected they had a tough quarter, but 6% for the year Mercer, 4% solid for the fourth quarter and sequentially improving.
Throughout the year and you'll get Mark I'm pleased with a 3% given as we told you there were some tough comps both from from washes performance last year in the fourth quarter, but also jail. These performance in the fourth quarter and the new business hurdle, which was a very big new business quarter for JLTV last year.
You're talking about the pipeline issues throughout the year and so you know in that context of the largest acquisition in our history I'm quite happy with what the underlying growth level, Although I I just want to take another admitted to talk about little bit more because I I.
I understand the when you're looking at it is not the way I look at it.
From my perspective, we have had a tremendous growth year on multiple levels or would you have significantly outgrown our competitors has outgrown our competitors and capabilities in talent. Our headcount has thousand people than this time last year, we've outgrown our competitors in revenue.
A number of clients and it all starts with got you know, there's certain times, where gas is more important than underlying that I think this year was one of those times I mean, our total revenue is up 11% in 29 team and 15% in the fourth quarter well look at all I guess artists grew 24% in the fourth quarter, we've been out.
For a 148 years and to grow 24% in the quarter.
Our like ours is something that as John was alluding to before they looked specifically at March Latin America is up 15% during the year Asia Pacific, 39% Amir 16%. All in 29 seems allow a base and our trajectory will be better for years and years to calm as a result of there were.
Walkable year, we've had in 20, Nike entre growth basis.
But you have something else Ryan Yeah, you're just I guess, I'm, U.S., Canada or get a kick off a little bit of deceleration there and just curious fits and starts moving to 2020.
Speaking about the market conditions like does it seem to be a tailwind [laughter] you know how you're thinking about how all that comes together [noise].
I mean, you. It's kinda performance has been terrific. The last couple of years didn't want to talk about that little bit more yeah, I'm quite pleased with our team running nursing center, but we had a terrific year. This year I would also remind you that we had 7% organic fruits of last year. The you know the underlying growth would be a in the fourth quarter will benefit.
At March had had terrific years will set a very good finish to the year in Canada and quite a strong year there as well.
For our NGL operations in the U.S. are performing quite well as though or private client business did quite well.
The other specialties, but we had good good growth in our credit specialties or private equity business deviations as well.
Transaction risk and cyber a couple of products that are growing nicely.
Thank you next question please.
Your next question comes from Michael Phillips with Morgan Stanley . Please go ahead.
Oh, yeah. Thank you good morning, everybody.
Just curious stand on your thoughts on how much I guess in a very high level. How much you think there's more room to go on the legs of the PMC overall price environment. I mean, the second piece you said I guess, maybe a peak time for maybe by the end of this year or how much more room do you think there was to growing economy overall dilemma for Boise.
Well, that's the $64 a question at the end [laughter] [laughter].
[laughter] different things that work I think you've got many insurance companies, who are dissatisfied with the results.
They haven't cheap financially over the last several years and so there was a.
A factor impacting many companies at the same time and they've got a little blood me a in there they're looking to to get back to a better position.
You also have the the thoughts around social.
Inflation and how real that is and how it's impacting.
Their prior both says it will roll forward you have pressures on the reinsurance side and I'll go to John and Peter in a minute to give a little bit more but you know there's there's pressure on the reinsurance side, which may build throughout the year, which will put some pressure on primary carriers and so now.
Ultimately is it's a matter of what's the loss activity in the premium levels will over time reflect you know whether it's in there, but benign environment or whether it's a harsh one I mean, certainly when I think about this year I looked at the the level.
Catastrophe potential and feel if it's a tough cat year earlier, we're worried for quite a right. If it if it's a nine year in the southeast, particularly well maybe.
Maybe some of the wind goes out of the cell, but yeah. I also thing a lot out to do with how casualty develops but what I'm going to start with was primary John and then we'll we'll go to lead trying just to talk more broadly about market conditions and maybe if we have any prognosis, but John .
And for me, it's just it's an earnings driven market change but for sure.
I have talked about some of the trends continuing into the first quarter.
There continues to be a very wide range of outcomes in markets around the world I don't consider it a hard work that although certainly become more challenging.
For clients.
You know the geography bases, Australia, U.S. UK wholesaler see the largest increases you list it's about 10%.
Well to hike jeans average rate increase in Australia.
In Asia Continental Europe , Middle East Latin America, UK retail more mid single digits.
Increases.
You have got it from product perspective band or property, but 13% globally financial at 17%.
Chris there tends to be up 3% received a real mix work comp continues to be down excess liability though.
Particularly in Sir.
Classes of business are quite strips.
And public you know, particularly in United States in Australia, or a couple of classes that are most challenging.
No no debt.
This again, but or index skews the large accounts.
There.
It was flat.
No single digits.
In many markets most work so.
You know will continue to hear from from underwriters are concerned about rising was caused the standard that social inflation or the impact litigation funding on the claim environment. We're also observing and working with our clients through some challenging verdicts.
And large settlements and pharma and chemicals and commercial auto and at a deal. So so there's no question. There's some stress you know the loss of environment.
It's difficult to predict where no one work its way ahead, but.
There are some slows.
So Peter.
I think for reinsurance important market. There's this month irresponsibly ER and it's really been a function that one one or the pricing in the renewals were largely shaped by.
A couple of factors deteriorating loss experience or a lack of new alternative capital or an increasing challenges and the environment with regard to prime reinsurance and Retrocessional markets.
There was a wide spans of pricing some was flat to down in certain geographies and others. It was up significantly the retrocessional market, we saw increases in between.
And 20%, but I don't believe the market the reinsurance business. It's hard I think it's more expensive, but it's certainly isn't hard market, which we defined as any price you can't generate fashion.
Thanks, Mike do you have a follow up.
Thank you all for your thoughts or because of this will have.
Okay. Thank you next question please.
Our next question comes from Meyer Shields KBW. Please go ahead.
Great. Thanks, Dan the very a bunch about the fact that when you worked on the merger you anticipated some level.
Producer and plane outflow and I'm wondering if we look forward to 2020.
Is there any margin pressure because in 2019 overly simplistically you had revenues associated with people that about the farm.
It's a good question, but you know our anticipation.
As mentioned before this there's always a lot of puts and takes and in a transaction of the size and geographic breadth of and as we look to 2020, we expect to expand margins as Marsh Mcclennan no and so we think that if it will be our 13th consecutive year.
Margin expansion and we think we'll have a strong here in the adjusted <unk>, Yes.
Hi, I would say.
When we went into the transaction in a big people business combination we expected some level of the section and so when I really when we sit here today and we look at where we are even though there is some people who left the firms that we would have preferred not leaves the from where it.
Its shape, you know where where we've had.
The most significant levels of of leaders would be you know that say in London in UK market in London.
Well, we are strong in London, we were strong and we are stronger today and more more people by by a very very wide majority stake lie there left and so where we're in great shape from that perspective, and so what I I mentioned 10000 additional headcount.
And.
These are smart card working talented people with will.
Deliver a lot of value for us into the future and our ability in a place like.
London to regenerate ourselves using our existing capability.
The JLTV addition, and then going into the market to replace some people who would left our ability to regenerate and power talents in London is amongst the highest places in the world and so they you know, it's not something that that anything more than a short term.
Yeah.
So uh huh.
Voluntary turnover legacy March was the best it's bad.
Since we collect data right sort of so.
From that perspective, it was clips.
Though.
Okay and scratch that would.
Hello.
Yeah, just a quick one so in the breakdown by segment there was an 8%.
Yes.
[laughter] two guy Carpenter's revenues from a divestiture is that going to persist for the next few quarters.
Mark let anything.
Meyer Inc. on that schedule, you'll you'll see that collin heading into acquisitions dispositions and other so you from time to time will have just changes in mapping of businesses or other things that in.
You bet home, just what's the nature of the year over year comparisons or or or or apples to apples. There was no divestiture.
In Guy Carpenter really was just comparability adjustments and the fact that guy Carpenter's revenue base with the small in the quarters magnified.
Should be no ongoing impact from that.
Next question please.
Our next questions come from Jimmy Bhullar of JP Morgan. Please go ahead.
Hi, Good morning, So just a question first on Oliver Wyman the weakness there I think organic growth slowed the last couple of quarters. How much of that is just normal volatility in the business horses, maybe shifts and.
Spending on the body or client.
Yeah. So so a couple of things I've mentioned in the past that that Oliver Wyman has more volatility on the top line than than our other businesses because they have less recurring revenue would be a they actually had a.
Strong year through nine months, and we had anticipated some slowdown in the fourth quarter, but Scott you want to give more detail sure. We definitely had a weak Q4, but there was really nothing significant that happened in the result was driven by three things first was some project movement from quarter to quarter with regularly hopper.
Hmm and drive some volatility.
We could see dot com many.
And in Q4, and we signaled the a little bit of a pull back on our last call. The second thing was we did have a solid Q4 last year, where we grew 7%.
Third thing was we didn't see a modest but what feels very much like a temporary slowdown in a couple of markets in Q4, so broadly the business was strong across sectors.
Both Europe and Asia showed some weakness primarily primarily in the financial services business, but.
It feels like it was temporary.
And that the Q4 results it hasn't changed our medium term expectations. We continue to bomb from mid to high single digit revenue growth over time and for the time being at least demand for consulting services feel solid across across sectors and across regions.
Thanks, and all I can let me on Guy Carpenter and the second a each of the past couple of quarters, you've had double digit girls and those are obviously the lowest quarter as of the year in terms of the base. How much of this is driven just by the small days horses, maybe better momentum into business that could potentially carry.
But this year.
And Peter.
It's Jimmy it's really a combination of both they are they are smaller quarters for us, but they're also being driven by good new growth. We've had our third year of record new business wins in United States in our Retrocessional business, and our Asia Pacific business or facultative business, which we very rarely talk about this problem significantly.
All of those can impact a small quarter.
You've seen he was three and four but it's more a function of phasing that it is anything else and no a very disciplined approach to sales and growth.
We were very pleased with the 5% growth for the year.
The next question please.
Our next question comes from Yun Kim of Goldman Sachs. Please go ahead.
Hi, Good morning, My first questions I'm sure I'd be.
Cost saves from the integration programs or do you have any sense, how much of that 350 million or greater will actually fall to the bottom line for its you've got reinvested back in the platform.
I mean are the general sense is that that the majority of it.
Will fall right to the bottom line and that that's what how do we projected when we originally put things together. They are you know obviously earnings will go up so some of that will go into bonus pools and that sort of thing but lot of the efficiency gains that we have developed is because of the.
Estimates at Marsh and Mclennan made over a number of years you know when do you think about things like financial system, where Oracle 12 everywhere in the world HR system, where workday everywhere in the world.
Ah we use salesforce extensively throughout the world and so we're able to take an organization.
Like JLTV, and and integrate our systems and controls and function of lead seamlessly.
Without adding to a lot of our existing cost base in order to do that and that gives us a lot of benefit and really I should not impact the the flat line client facing people all that much and so you know that and that's one of the reason why like most of it will drop.
Okay understood.
And then going back a couple of questions around growth.
3% to 5% organic growth target there to be talked about in the past.
Just hoping you know one of your peers is when I'm talking about [noise].
Hi, mid single digit or better over the long term and I'm just trying to square the three to five to that other guidance.
Are there structural differences between the two organizations or was it just more conservative guidance on on your part or they're just near term headwinds just with the integration now that maybe once you got through those you do get to a higher a step up and that organic growth number.
Yeah, I mean, I I'm one of those people around like you are what your results that you are in for the last 10 years, we've been that 3% to 5% organic growth rate I do not believe that we have many competitors, we're a pretty unique company across the breadth of other things we do clearly we have certain formidable compare.
Letters in parts of our business, but across all the things that we do including Oliver Wyman and some of the strong businesses, we out within Mercer.
We don't have many men direct competitors, but when I when I look at the competitive landscape I, absolutely believe I wouldn't change our strategic positioning with anybody I wouldn't exchange our capabilities with anybody or our culture and there's no reason or under the sun to where our.
Revenue growth performance would not be.
As good or better than any of our competitors over time.
Next question please.
Our next question comes from Larry Greenberg Janney. Please go ahead.
Thank you are not much left to ask but I guess this is filling mark I'm just wondering if if maybe the trajectory of expense saves has accelerated a bit from earlier from when you. Initially gave you are.
Your guidance on that I mean, it looks like you you know what you saved in 2019 as a percentage of what you now think is that totals a little bit higher than than how you initially walked into this.
Period, and I'm, So I'm just wondering.
If that's correct.
I guess, Larry just that a little bit further on on phasing as I said, we [laughter] most of the action to generate the full three because by the end of this year the deal.
By what I said with the charges will be a little bit splitting between 21, then the saving the remainder of things have come in over the two years, probably more than 2020 and 2021.
But as that as I said earlier, we expect to realize the full impact of the savings by the end.
Thanks, that's it.
Yes, I think it seems.
Our next questions come from dates steep hill of Jefferies. Please go ahead.
Hi, there. Thanks for the questions I'm, just want to ask a little bit about a capital deployment. After 2020 I think you guys are pretty much me done with your debt pay down plans curious how that affects your thinking for for M&A. After this year does that open up and that possibly doing something of a larger or are you guys incline just to keep.
Things on a more modest basis as you continue to integrate jail team.
We we have you know.
Acquisitions that are a core part of our long term strategy, we've done something like.
175, plus acquisitions since January 1st of 2009, new we tend to be a balance company when they look about.
Ah we put our dividend first it sacrosanct, we want to grow at double digit every year and and that's going to have you know beat for the sake of argument because a number of circa $1 billion outdoor that would which should leave in most years 2021 and beyond you know roughly a couple of bill.
<unk> dollars to deploy between acquisitions and share repurchase and as we've said in the past we favor acquisition over share repurchase for the very reason, we're building a great company and our focus and as we've shown over time, we've been able to do that you look at Marsh <unk> Mclennan agency in 2009 zero.
<unk> revenue and no position now we've got a terrific platform $1.7 billion growing well good EBITDA margins et cetera, we're in a business that we otherwise would not have been it. That's that's what's called building a company away we're committed to continuing to do that we've all kinds of opportunities.
Across the enterprise not just in March, but but across the firm.
In order to acquire our way to be a better stronger more for medical company in the future. So silly look at that 2 billion and our debt to EBITDA at that level will probably be in the low twos and so we would have the ability to flex if we needed to but there's certainly nothing that we're we're piloting.
For in terms of Oh, a larger a larger Omega acquisition will we'll see how this strategy develops over time, but certainly having you know circuit $3 billion to deploy a year. After year. After year is going to make US you know what it one of the great companies of the world.
Right got it Okay, and just a quick housekeeping I think I heard for the first quarter, given that business mix and so forth that consulting margins were expected to be down year over year I don't know if I heard a common about our yes.
Yeah, I know, we didn't make a comment specifically about already asked where you wanted to point out consulting because of our visibility to it and we and we recognize that consulting has its own attributes you know our I guess is is a a different kind of business and so.
As you know the consulting margins declined in the in the fourth quarter, even though we we had a 90 bips improvement for consulting for the year and so we just wanted to give a heads up but our expectation was for a decline in the first quarter for a variety of different reasons, which was our view is this temporary.
When we look at the full year 2020, we expected to be our 13th year, Oh consolidated margin expansion for the entire for.
Our next question comes from Brian Meredith Oh, Yes. Please go ahead.
Hey, Thank you just two quick ones here first just curious on the E N me a.
Organic revenue growth you know to slow down we had before right. I know you explained it should we expect that the kind of continued in the first half of a 2020 years. Some of this leadership changes gone.
I wanted to take though I think there you know Brian there's still some headwinds in the first quarter for sure, but you know as I noted earlier I think the underlying performance.
Worked away through cut through some of the integration of living headwinds I think we've seen before.
So in the middle East the terrific growth year of last year, good solid results in Continental Europe .
Well so.
You know exactly.
We are hopeful to UK economy would seem to pick up enough is more certainty around Brexit. So a number of different factors that ultimately determine where we're really.
Quite encouraged by her team.
Right. So just to bear in mind, the new leader in UK.
Embarked veteran you know you work for the firm for more than 30 years and ran Canada for us at other big jobs. So it's not like somebody coming in and having to learn the ROE He knows the business very well and and as we mentioned in previous calls when we think about the short and long term we are optimistic about Britain.
It's sort of through the right there over the last couple of years, but there's no clarity around Brexit, we've got who leadership in the UK, where we're in many different businesses from large account of food to small commercial and and we believe it's gone to be a great business for us over Overstretched.
Time.
Great and then.
My second question, just hopefully just a quick one here [laughter].
The current players have any impact on your growth the fourth quarter and your Asia Pacific business, you're thinking at all.
Yeah, I mean, we're monitoring the situation closely.
Like I'm sure everybody is and our primary concern is definitely the out of our colleagues and their families and where we're doing everything we can to assist clients as they think the possible scenarios that can impact their business, but it's just too early you know the to see that as to whether it's gone to be any impact on our business.
Asia or otherwise you know where does have to see how this plays out in the coming weeks.
Thank you I would now like to turn the call back to Dan Glaser, President and CEO of Marsh and Mclennan companies for any closing remarks.
I'd like to thank everybody for joining us on the call. This morning, and then certainly bank our colleagues for their hard work and dedication as well as our clients for their support hope everybody has a good day. Thank you very much.
Thank you that will now conclude today's conference call. Thank you for your participation ladies and gentlemen, you may now disconnect [noise].
[noise].