Q1 2021 Marsh & McLennan Companies Inc Earnings Call
Yes.
Welcome to Marsh Mclennan its conference call today's call is being recorded first quarter 2021 financial results and supplemental information were issued earlier. This morning are available on the company's website at <unk> Dot com.
Please note that remarks made today may include forward looking statements, including certain expectations related to COVID-19, and other matters.
And looking statements are subject to risks and uncertainties and a variety of factors may cause actual results to differ materially from those contemplated by such statements.
For a more detailed discussion on both factors. Please refer to our earnings release for this quarter, that's where our most recent SEC filings, including our most recent form 10-K, all of which are available on the Masha Kahn and website.
During the call today, we may also discuss certain non-GAAP financial measures for a reconciliation of these measures to the most closely comparable GAAP measures. Please refer to the schedule on today's earnings release.
I'll now turn this over to Dan Glaser, President and CEO of Marsh <unk> Mclennan.
Thank you.
And thank you for joining us to discuss our first quarter results reported earlier today.
And Dan Glaser, President and CEO of Marsh and Mclennan.
Joining me on the call today is Mark Mcgivney, our CFO and the Ceos of our businesses John Doyle of Marsh.
Peter Hearn of Guy Carpenter Martine.
Our team for a long of Mercer and Scott Mcdonald of Oliver Wyman.
Also with US. This morning is Sarah Dewitt head of Investor Relations.
Marsh and Mclennan and had an outstanding start to 2021, our first quarter results were excellent and we are well positioned for a very good year.
Even though the pandemic is ongoing our underlying revenue growth of 6% is the highest and over six years and accelerated sequentially across every business.
We also grew adjusted EPS by 21% and generated significant margin expansion.
Our business has proven resilient throughout the pandemic.
And the global economy now beginning to turn the corner, we saw an acceleration and our growth was 6% underlying growth to begin the year. We now expect full year 2021 underlying revenue growth to be at the high end of our 3% to 5% guidance range and possibly above.
As we look ahead and the outlook for the U S and many other countries. We operate in and is encouraging. However, many parts of the world continue to suffer with high levels of infection and there is still a significant amount of uncertainty.
GDP and the U S was close to flat and the first quarter and <unk>.
Truong levels of growth are expected starting in the second quarter due to a rebound in demand as the impact of vaccines takes hold and along with favorable economic comparisons to a year ago.
Meanwhile, in India, Brazil, and many other parts of the World case counts continue to rise and broad levels of vaccination remain a long way off.
Our proprietary pandemic navigator now forecast that the U S will achieve the herd immunity threshold by early to mid summer and we see a fairly similar timeline and the U K.
These milestones and spring hope for reopening and economic growth, although it will vary by country.
We are also mindful that the risks exist and that there still are many unknowns such as variance of the virus.
Efficacy and vaccines on the variance the duration of the immunity and vaccine hesitancy, but we are resilient and are confident we will be able to adapt to a wide range of scenarios just as we have since the beginning of this crisis.
Our colleagues are our single largest competitive advantage, we have world class talent that has delivered for clients and one in other throughout the crisis, we continue to invest and hiring.
And an employer of choice for smart hard working talented individuals and are adding to what is already the deepest talent pool and the industry.
We're also pressing ahead with acquisitions and then they made a significant acquisition on April one paying west.
And West who is one of the largest independent agencies and the U S with more than 700 employees and 26 locations.
The acquisition adds nicely to our geographic footprint and the middle market space and brings and northwest hub.
Overall, we are on track for a very good year demand for our advice and solutions and strong. The economy is recovering P&C insurance pricing remains firm and we are benefiting from industry disruption.
Although the outlook remains uncertain, we are more optimistic than we were when we started the year and our efforts are focused on resurgence rather than recovery.
At the end of the first quarter Marsh and Mclennan and released our inaugural environmental social and governance report truly.
Truly great companies must deliver both exceptional financial performance and be good employers and global citizens and we.
And we're working on many fronts to advance the interest of all of our stakeholders we.
We believe that starts with transparency.
Our old Port provides enhanced disclosure and a variety of ESG related areas from how we measure our own carbon footprint. So how we use data to manage our workforce for the first time, we provide gender and ethnic and racial diversity representation data at all levels of our organization.
<unk> and workforce maps that track talent flows and inform how and where we build and recruit talent.
Our reported highlights our commitment to a diverse and inclusive workplace and 2020, we launched our leading the change initiatives to underscore the need to continuously nurture our inclusive culture and serve the fundamental principles of human dignity quality community and mutual risk.
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We also strengthened our commitment to a better sustainable future through our pledge to be carbon neutral this year, along with the commitment to reduce our carbon emissions by 15% by 2025.
ESG issues are among the most critical challenges facing our clients today, we are creating solutions for our clients related to complex business issues, such as climate change diversity and inclusion affordable healthcare cyber security and responsible investing.
Marsh and Guy Carpenter are helping clients build resilience to flood risk and the documented increase and natural catastrophe perils witnessed in recent years.
Marsh and Guy Carpenter's experience and the alternative energy space has sparked innovation and been a growth driver.
Marsh designed and place to first of its kind policy for a European utility, which set lower upfront premium payments based on the client's achievement of sustainability targets.
Oliver Wyman is actively advising and its clients across sectors, including banking energy industrials and transportation and <unk>.
Managing the risks and capturing the opportunities associated with climate change and the transition to a low carbon economy through a new climate and sustainability practice.
Away from climate risk Mercer and is helping address the gender pay gap diversity and inclusion and the workplace the workforce of the future and consulting on new normal strategies and the weight of the pandemic.
Overall, we see significant growth potential and the areas of ESG as well as an opportunity to benefit our clients.
Colleagues and communities.
Yeah.
Let me spend a moment on current P&C insurance market conditions, the first quarter marks the 14th consecutive quarter of rate increases and the commercial P&C insurance marketplace and <unk>.
Harsh global insurance market index showed price increases of 18% year over year versus 22% and the fourth quarter.
And the pace of price increases moderated sequentially and the first quarter after accelerating for 11 straight quarters. However, the 18% increase is still one of the highest since we started publishing index in 2012.
Global property insurance was up 15% and global financial and professional lines were up 40%, while global casualty rates were up 6% on average and U S workers' compensation rates were modestly negative.
Keep in mind, our index skews to large account business.
However, U S small and middle market insurance pricing continues to rise as well, although the magnitude of price increases is less than for large complex accounts.
Turning to reinsurance the Guy Carpenter's global property catastrophe rate online index increased just under 5% at the January one reinsurance renewals for <unk>.
On April 1st Renewables Japanese property catastrophe pricing increase for the third year in a row, but at a more moderate pace versus prior years.
Meanwhile, pricing and terms and conditions and the U S. On April <unk> business were largely a continuation of the January one pricing environment.
Capacity is more than adequate and demand remains high.
However, reinsurance capacity remains constrained on all on certain lines of business most notably.
Notably for cyber risk.
Overall price increases continue to persist and both the P&C insurance and reinsurance markets.
Low interest rates elevated loss activity and continued uncertainty related to the pandemic present challenges for underwriters.
Times of uncertainty underscore the need for our advice and solutions and we are working hard to help our clients navigate these challenges.
Now, let me turn to our first quarter financial performance, which represents an excellent start to 2021.
We generated adjusted EPS of $1 99.
Which is up 21% versus a year ago, driven by a combination of strong growth and the continuation of the suppressed environment for travel and entertainment expenses as we continue to operate largely remotely.
Total revenue increased 9% versus a year ago and rose, 6% on an underlying basis underlying revenue grew 7% in RIS and 3% and consulting.
Marsh grew 8% and the quarter on an underlying basis, the highest quarterly underlying growth since 2003 and.
And benefited from double digit new business growth.
Carpenter grew 7% on an underlying basis and the quarter Mercer.
Mercer underlying revenue was flat and the quarter, which showed sequential improvement from the fourth quarter.
Oliver Wyman underlying revenue grew by 11% as demand accelerated.
Overall, the first quarter saw adjusted operating income growth of 20% and our adjusted operating margin expanded 260 basis points year over year, reflecting positive operating leverage and favorable expense comparisons.
As we look out for the remainder of 2021, we are well positioned given the strong demand for our advice and solutions and our expectation for and improving economic backdrop.
As we mentioned, we now expect 2021 underlying revenue growth to be at the high end of our 3% to 5% range and possibly above.
We also expect to generate margin expansion and strong growth and adjusted EPS.
As we mentioned last quarter 2021 represents the 150 <unk> anniversary of Marsh and Mclennan.
As we look back on our storied history, one theme runs through at all.
This companies steps up and the moments that matter.
And at times of war, and peace and errors of transcendent innovation.
And serving the public good.
And March we changed our name from Marsh and Mclennan companies to Marsh Mclennan.
And as a small but important change that better reflects the way that our company has come together.
One company with four global businesses.
Added by a shared purpose to make a difference and the moments that matter.
And the challenges before us all our vast it's solar the possibilities climate resilience systemic risk.
Digital disruption the protection gap.
Affordable health care the future of work.
As we face this new world together, one thing we will never change Marsh Mclennan will be at our clients' side, finding opportunity and navigating uncertainty and the areas of risk strategy and people.
With that let me turn it over to Mark for a more detailed review of our results.
Thank you Dan and good morning, our first quarter results were outstanding and we are well positioned for a very good 2021. Despite the continued uncertainty associated with the pandemic.
Underlying growth accelerated across all of our businesses and our margin expansion and earnings growth were impressive.
Consolidated revenue increased 9% from the first quarter to $5 1 billion, reflecting underlying growth of 6%.
Operating income and adjusted operating income were both approximately $1 4 billion.
Our adjusted operating margin increased 260 basis points to 29, 6%.
GAAP EPS was $1 91.
And adjusted EPS was $1 99.
Up 21% compared with the first quarter a year ago.
Looking at risk and insurance services first quarter revenue was $3 2 billion up 11% compared with a year ago or 7% on on underlying basis.
This marks the highest level of underlying growth since 2012.
Adjusted operating income increased 17% to $1 1 billion and our adjusted operating margin expanded 210 basis points to 36, 6%.
At Marsh revenue and the quarter was $2 3 billion up 13% compared with a year ago or 8% on an underlying basis.
This was marsh is highest level of underlying growth and nearly two decades.
Growth in the quarter was broad based and driven by double digit new business growth and solid retention and was impressive considering marsh is strong growth and the first quarter of last year.
The U S and Canada Division delivered another exceptional quarter with underlying revenue growth of 9%. This.
This is the highest quarterly underlying growth U S and Canada has achieved since we began reporting their results and they have now averaged 6% underlying growth over the last 12 quarters.
And international underlying growth was strong at 6%, marking the highest underlying growth since 2013.
EMEA was up 6% with strong results in each region, including and the UK.
Asia Pacific was up 8% a strong rebound from the fourth quarter and comes on top of 6% growth from the first quarter of 2020.
And Latin America grew 6% on on underlying basis, continuing to show sequential improvement.
Guy Carpenter's revenue was 895 million up 8% or 7% on on underlying basis, driven by strong growth in North America, EMEA Global specialties, and Latin America Treaty.
Guy Carpenter has now achieved 5% or higher underlying growth and 12 of last 14 quarters.
And the.
<unk> segment revenue and the quarter was $1 9 billion up 6% from a year ago or 3% on on underlying basis.
Adjusted operating income was $370 million and the adjusted operating margin expanded by 330 basis points to 25%.
At Mercer revenue and the quarter was $1 3 billion, which was flat on an underlying basis.
<unk> top line performance improved each month, and the first quarter and we expect Mercer to returned to underlying growth and the second quarter.
Wealth increased 1% on an underlying basis, reflecting strong growth and investment management offset by a modest decline and defined benefit.
Our assets under delegated management grew to approximately 380 billion at the end of the first quarter up 42% year over year or 6% sequentially benefiting from net new inflows and market gains.
Health underlying revenue was flat on a quarter, but faced the tough comparison to 8% growth from the first quarter of last year and career grew 1% on on underlying basis, reflecting strong sequential improvement.
At Oliver Wyman and revenue in the quarter was $585 million and increase of 11% on an underlying basis.
First quarter results were a continuation of the momentum we started to see materializing in the fourth quarter.
Adjusted corporate expense was 57 million and the quarter.
Foreign exchange added approximately <unk> <unk> to our adjusted EPS.
Assuming exchange rates remain at current levels, we expect FX to be a slight benefit and the second quarter with limited impact thereafter.
Our other net benefit credit was $71 million and a quarter for the full year 2021, we continue to expect our other net benefit credit will increase modestly year over year.
Investment income was $11 million and the first quarter on a GAAP basis or $10 million on an adjusted basis, and mainly reflects gains and our private equity portfolio.
Interest expense from the first quarter was $118 million compared to $127 million and the first quarter of 2020, reflecting lower debt levels and the period.
Based on our current forecast, we expect approximately $114 million of interest expenses and the second quarter.
Our effective adjusted tax rate and the first quarter was 24, 3% compared to 23, 2% and the first quarter of last year.
Our tax rate benefited from favorable discrete items, the largest of which was the accounting for share based compensation similar to a year ago.
Excluding discrete items, our effective adjusted tax rate was approximately 25, 5%.
When we give forward guidance around our tax rate, we do not project discrete items, which can be positive or negative.
Based on the current environment and it is reasonable to assume a tax rate between 25 and 26% for 2021.
Our current outlook for 2021 assumes the global economy returns to growth and the second quarter with a strong recovery and the U S.
Based on this outlook and our strong first quarter performance. We now expect underlying revenue growth to be at the high end of our 3% to 5% underlying growth guidance and possibly above.
We currently expect we will deliver margin expansion for the full year, but as you think through the quarterly cadence and keep in mind, we have tough expense comparison, and the second and third quarters.
This view is based on our outlook today and it goes without saying that conditions could turn out materially different and our assumptions, which would affect our projections.
Turning to capital management, and our balance sheet. So far this year, we have completed our <unk> related deleveraging and enhanced our short term liquidity flexibility and seen S&P, Moody's and Fitch restore our rating outlook to stable.
We ended the quarter was $11 3 billion of total debt, which was consistent with the level at December 31.
And April we repaid $500 million of senior notes scheduled to mature and July taking advantage of a prepayment option.
This repayment brought our debt down to $10 8 billion and completed our planned deleveraging marketing and import and important milestone for us.
Our next scheduled debt maturity is in January 2022, when $500 million of senior notes will mature.
Earlier this month, we entered into a new five year revolving credit agreement.
Under this new facility, we increased the credit available to $2 8 billion from $1 8 billion.
In addition, we increased the size of our commercial paper program and now have capacity to issue $2 billion up from $1 5 billion previously.
We view these changes as prudent step and enhanced our liquidity profile and provide additional flexibility.
And the first quarter, we resumed share repurchases, reflecting our strong financial position and outlook for cash generation.
We repurchased 1 million shares of our stock for $112 million.
We continue to expect to deploy approximately $3 5 billion of capital in 2021 across dividend debt reduction acquisitions and share repurchases.
The ultimate level of share repurchases will depend on how the M&A pipeline developments.
As we've consistently said and we favor attractive acquisitions over share repurchases as we do high quality acquisitions as the better value creator for shareholders and the company over the long term.
Now that our deleveraging is behind US we are back to our normal focus for capital management.
Our capital management strategy reflects balance and supports our consistent focus on delivering solid performance and the near term while investing for sustained growth over the long term.
For the capital, we generate and targets and deploy we prioritize reinvestment and the business both through organic investments and acquisition.
However, we also recognize that returning capital to shareholders generate meaningful returns for investors over time, and each year, we target raising our dividend and reducing our share count.
Our cash position at the end of the first quarter was $1 1 billion.
Uses of cash and the quarter totaled 392 million and included $237 million for dividend $112 million for share repurchases and $43 million for acquisition.
Overall, we had an outstanding first quarter positioning us well to deliver strong growth and both underlying revenue and adjusted earnings and 2021 and with that I'm happy to turn it back to Dan.
Thanks, Mark operator, we're ready to begin Q&A.
Thank you and the interest that is addressing questions from as many participants as possible.
And so limit themselves to one question and one follow up question.
To ask a question. Please press star one of your telephone withdraw your question press the pound key.
Net income how the Q&A roster.
Our first question comes from Mike Zaremski with Credit Suisse. Your line is open.
Hey, great. Good morning first question.
Thinking about some of your comments about organic growth. So this quarter clearly excellent.
6%.
And I believe Dan you said debt for the full year, you could potentially be over the guide.
And you also ex that you expected Mercer organic growth levels to improve and to Q. So if I understood correctly then.
I think it implies that there might be some might be some deceleration and in parts of the business.
And in later quarters, so maybe just kind of curious.
Were there any kind of one time items and nature or things, we should be thinking about and the.
And back half of the year that could show less positive momentum.
Sure sure so.
Why don't I take that.
To begin with and then I'll hop.
And off too.
To each of our business leaders. So they can talk a little bit about their growth prospects and how they looked at the quarter and.
And what Theyre looking at going forward I would just start by saying, we've got real momentum right now and you.
<unk> economy is getting stronger and <unk>.
<unk> integration is well behind us and the combined organization is emerging from the pandemic strong focus and on our front foot.
New business generation was terrific across the business and in particular at Marsh and Oliver Wyman and so when Scott and John speak. They can talk to you a little bit about about their new business, but.
But overall retention was strong growth was broad based on.
On the RIS side pricing is a tailwind and we are benefiting from some disruption and flight to quality that said.
And Mike There is nothing one off or unusual about our results and we're not really going to.
Get into.
And coming quarters do we expect a deceleration obviously is as mark was saying.
And then we start to get some easier comps on the top line and some tougher comps on the expense line, but it will play itself out and we expect to have a very strong year, but why don't we start with with Marsh and John to just talk about growth a little bit.
And thanks, Dan and Mike is as Dan noted and nothing, particularly one off and nature about the growth and the quarter and it was very pleased with the start to the year Mark gave a bit of on and around the world view and in his prepared remarks, but just a little bit more color specialty growth was particularly strong.
And in the quarter.
Thin pro and our private equity practice construction and energy also very very strong results and the quarter, we had good growth and benefits our MGA and affinity operations also had a good quarter.
So I was quite pleased with it I think we executed well for sure Dan talked about on new business and the renewal line was strong as well we were very very focused and what's still a very difficult market for for our clients, but I think we're positioned well and as Dan noted the economy is picking up and some important markets for us there's still obviously.
Some uncertainty as Dan and Mark both and noted in the macros, but.
And I'm very very pleased with the start to the year.
Thanks, John.
And I will go to Peter for a couple of minutes Guy Carpenter has grown.
Incidentally and consistently over a number of years now, but Peter what are you thinking about growth right now.
Thanks, Dan and Mike our model is consistent growth over a long period of time I think we've demonstrated that as Dan said.
We do benefit from the rate increases that are going on and the market, but the bulk of our income is coming from new business wins, and it's well balanced across all of our businesses from North America Latin America.
Middle East.
Asia Pac global specialties, all and recognize strong growth and the first quarter and we see the same holding true for Q2, now Q3s and four tend to be very small quarters for us. So there is more volatility inherent in them, but over the past few years, we've shown once again that even with smaller quarters based on the disciplined approach we had to new business.
And the approach of growing and in any market condition, we've demonstrated our ability to grow.
Thanks, Peter Hey, Mike You mentioned and Mercer Martine, you want to talk about growth and Mercer.
Yes, sure then and.
We're very pleased with our <unk>.
<unk>.
One 2021 results, especially since we were facing a comparison of 5% growth the same quarter last year, we've seen increased demand and our services sequential revenue growth months 10 months and months during the quarter and a return to growth actually in March.
And we know that during the pandemic clients and postponed discretionary work due to uncertainty and also employment levels have dropped.
And now we expect tailwind from and kind of make and Joe job growth.
Partially offset of course by the continued.
Structural decline and defined benefit.
Clearly, we see and returned to growth and the rest of the year, starting with Q2 in terms of demand.
Our investment and business investment management business, and particular with lots of demand and the alternative space and ESG and DNI and seen the investment opportunities is strong we started the year with strong inflow and.
And demand for digital solutions around the whole net business is also strong.
<unk> health has been resilient through the pandemic and we see lots of demand and our.
Darwin Health platform and global benefit management, and we've seen quite a good uptick and career as well.
Demand for engagement survey and transformation of the workplace returned to a new normals and redefinition of the way to work so overall.
Looks like a strong rest of the year from MRSA.
Okay. Thanks, Martin So we've often said how Oliver Wyman.
No.
And more sensitive to business confidence economic outlook et cetera.
And there is strong growth actually bodes very well for us.
The company overall, but Scott you want to talk a little bit about Oliver Wyman and how you see at least the quarter and the next couple of quarters.
Yes happy to round out on growth for us. So we had a really strong quarter. As you saw I think that is driven by business confidence across really all of our sectors.
And I am, particularly strong growth and the U S and Europe and the growth was really widespread across all the types of business. We did whether that was a growth strategy.
Our technology transformation, some restructuring and.
And in new areas like climate and sustainability, so it felt really healthy.
I think though Mike given the volatility and our business is just important to maintain a long term perspective, and we continue to be able to to think we can grow the business at mid to high single digits over the long term.
And the shorter term with the current robust demand the strong new sales.
Combined with the weaker performance from last year.
We may exceed that long term target in any quarter and possibly for the year overall.
Thanks, Scott So Mike I know that was a lot, but I figured there'd be a lot of questions on growth and we might as well go around the horn and and hear from our business later, so anything else Mike.
Yes that was great and one last quick follow up.
I believe you.
Dan You said the Marsh pricing index.
And at 18.
Down a little bit from 'twenty two quarter over quarter I think some investors may want to focus on that stat. So I just wanted to.
And maybe potentially some more color pricing clearly is a tailwind I know you've said that but I believe the majority and maybe vast majority of your revenues are on a fee basis. So I think.
The beta and.
So from a sensitivity to pricing.
And it's not right, it's not as as influential.
And so as other brokers that are maybe more commission based on China, maybe you can give any color around how to think about the deceleration and pricing. Thanks.
Sure sure.
Let's just be clear we're on the client side of the table. So these are even at 18% deceleration.
And from 'twenty, two and the quarter sequentially.
These are trying times for our clients and Marsh brokers are working real hard to put together.
The best package, the best solutions and the circumstances.
John you want to talk a little bit about commission versus fee and the impact of the.
And the rating environment on on your overall growth just in general terms.
Sure Mike about about 60% of our revenue is commission based.
About <unk>.
50% of Marsh is total revenue is exposed to P&C pricing rates sort of commission and the benefits side as well and in some markets. So and as Dan noted, it's still a very very difficult market for our clients.
And obviously and uneven economy for for so many of our clients and so our clients of course are adapting to that.
Some and this market and certainly throughout 2020, we're choosing to retain some more risk whether it's through higher retentions are lower limits. Our captive managed business is experiencing pretty strong growth as well as an indicator of maybe how our clients are reacting to it to the market, but it's still a difficult market and D&O market.
On the excess casualty market and the U S and the cyber market remained remain the most challenging and on the other hand.
Pricing continues to be pretty favorable for for our clients and woods.
It was modestly down pricing was modestly down in that product area here and the United States.
And with the underwriting community is clearly concerned about elevated cat activity was obviously, a busy cataract cat quarter, and the United States and the first quarter, they're worried about loss cost inflation and lower interest rates.
But my expectations and that will continue to see some moderation of price increases throughout the rest of the year again, I expect prices to be up year over year, but I do expect them to be up somewhat less and they've been up in recent quarters.
Thanks, John next question please.
Our next question comes from Elyse Greenspan with Wells Fargo. Your line is open.
Yes.
Hi, Thanks, good morning on Mike.
And my first question.
Now digging into one other topic.
Expenses.
And on your prepared remarks human King.
Continued low Kinney and first quarter.
And you also mentioned rights on tougher comps year over year, and then obviously once we get you know.
Torrance herd immunity right and you could start to see.
And so on one of the pick up and <unk>, but can you just help us think through the expenses.
And any sense of.
How we should think about kind of run rate when we kind of.
And with COVID-19 in terms of what is Ethan.
And you can guys from kind of potentially keep on and I'm going people.
Sure sure so at least many companies, including Marsh and Mclennan and reduced expenses significantly, particularly in the second and third quarter and as you know last year, we started coming back and had positive expense growth and the fourth quarter, because we did some hiring and and that sort of thing.
The largest reductions were and TNA and and our view is that will be a gradual comeback and we.
We believe people will travel with more purpose and.
For thought than pre pandemic, and we're certainly going to encourage that within the company, we're going to try to get away from the anytime anywhere hop on an airplane culture and pause and say okay. There are important times, where you go visit a client here you go visit them.
Market, that's absolutely to be sure, but we have proven that we can operate effectively remotely and so we want to create that little bit of a pause to say can I do this.
A remote access like zoom or teams et cetera, and so so it also is important for us in terms of as we manage our carbon footprint going forward and it's important for us for other companies I think to act and a similar fashion. So.
Now no one thing.
Lets not to lose sight of even though there may be some pressure.
As some expenses start to come back.
As we go through the year, that's actually good news that means that the world is recovering the economy's recovering that means business is getting back to normal as growth implications for us and longer term.
Learned a lot during this pandemic period, and we believe we can be a leaner more agile organization and that has implications that means that while the office is core to our culture and.
And is a central part of how we operate.
We know we can operate with more flexibility and more agility, and we have done and the past and and.
And longer term that has implications for our real estate expenses, which are quite heavy and so I would expect that we'll be able to get some savings there.
Over time.
Do you have another question Elyse.
Thank you and then my second question on on the capital side of things on.
You guys alluded to right and did one deal in the queue line.
And my sense on.
And that kind of thing a little bit of a slowdown and around some broker deal just as we you know I think thats by Keith and Mike and we could see a pickup later on and the year on.
And there's certainty around tax reform, so I guess on and I wanted to see if you guys kind of agreed with that and you were thinking through the capital plan for the year and then did you say, where we are and that $3 5 billion.
And as at the end of the Q1.
Sure. So a couple of things and then I'll hand over to Mark I mean low.
Overall, just to bear in mind that pain west into April 1st So and so that was not a first quarter item at the beginning of the second quarter, but we wanted to call. It out because it's an important acquisition for the company.
And we've been at it for 150 years, and we have been acquiring firms and for that.
Higher period of time and lets not forget Henry Marsh, <unk>, Mclennan came together and and for Marsh and Mclennan and and so we don't pay much attention to what's happening to the tax rate and capital gains or what interest rates are low.
Because we're not looking for for our companies to combine with and to join us.
Who really are just playing and the economics.
And we.
Cultivate relationships over long stretches of time, we almost always for our important acquisitions are in exclusive discussions with with the other company and we're coming together because we see value on both sides. We can grow better together, we can serve clients better together et cetera, and so.
So I don't I don't believe that we don't have a budget around acquisitions.
And we go through our process and what happens happens as we go through but ultimately there. Let me had some market and can talk about capital management more broadly and and what we have available for this year and our expectations of how we would likely use it but mark.
Thanks, Dan So let me let me just run you through so we still expect as you said.
Roughly $3 5 billion of capital deployed this year and I'll just run you through the math of how that breaks down.
We've already spent <unk> 5 billion that we had targeted on deleveraging. So as I mentioned earlier and we pulled forward our July debt repayment dividends will run around $1 billion and at least $2 billion of that $3 5 billion available for M&A and share repurchase Dan mentioned that we closed pain west which was a chunky.
On our M&A pipeline remains.
It remains full it's always hard to predict how much will actually do but our hope is that we see a meaningful amount of M&A. This year, but we also expect that we will see a meaningful amount of share repurchase at least enough to CRE.
Our share count go down go down this year.
Thanks, Mark next question please.
Our next question comes from sales to pharma with Deutsche Bank. Your line is open.
Yeah. Thanks, good morning.
And looking at the organic growth I guess for international in particular I was surprised at the strength just given how it feels like the vaccination rates and the impact of COVID-19 is still a bit of a headwind there.
I was hoping you could talk about the potential that the different regions have.
To the rollout of the take up rate of vaccinations, and how we think about economic development and it might be trailing.
And because it could there be slowdowns coming as we see fourth waves.
And we're fortunately not going to get and the U S.
Yes.
We had good international growth overall and the company.
Both and in.
Marsh, but also on O W and.
And Guy Carpenter as well and Merck.
<unk> had sequential growth. So overall I would also.
And mind that over the last couple of years, we've digested the biggest acquisition and our history and that had some headwind with us as well and in terms of revenue growth and we've seen.
And disruption so we've seen a nice comeback and places like Latin America.
And also in Asia Pac and then.
And what what we've been experiencing.
Experiencing for the last year or so.
The big winner in terms of turnaround was U K, John you want to talk about your business and the U K a little bit.
Sure Dan and.
Phil as you noted.
And of course, we'll be ups and downs on a global basis, and any kind of normal economy, and obviously were.
We are still recovering and.
Still in the <unk>.
And then Mike.
As Dan noted in his and his prepared remarks earlier, but.
And it was very very pleased with our performance and the quarter and the U K and it's been a bit of a stress point for us over the last 18 months or so.
Some of it related to just and digestion from coming together with <unk> and some headwinds on there but.
But we saw good growth a lot of it from.
Our middle market and U K business, but also in the specialty areas I noted before on <unk>.
Particularly strong growth and in our financial lines business, the D&O market as I said earlier, it's difficult for our clients.
Very very meaningful cyber growth.
On the U K and and construction and energy were off to a terrific start.
Elsewhere in the World I think just another bright spot to point out we saw very very good new business growth and Australia.
So it was quite pleased with that so so yes. It was a you know and <unk>.
<unk> performance by the international team and we expect continued good momentum.
Anything else so yeah.
A follow up on on the M&A discussion from earlier and Dan You had mentioned when you when you're buying things you tend to be kind of the sole buyer at the table.
I'm sure there's a political way to ask this but I'm just gonna be direct so apologies.
But the Aon and Willis is going through a transaction and it feels like there's going to be some businesses that they come out of this debt ultimately need to be divested.
And as I think about your global position can you be involved and the process right and that's not whether or not you choose to be and anything is going to happen, but just given your size is this a process you can be involved in and.
Can you take a look at kind of what's what's being shopped.
I mean.
I think the general idea of divestment would be to satisfy regulators concerns about having.
Competitors and our marketplace. So it would be unusual for them to look to us as a possible answer I mean, we're open to all ideas, but but ultimately I think it's unlikely that we would be a participant and all but.
And.
Very small area that and and that kind of vein now having said that there are plenty of of very good high quality firms that we're in discussions with and so when we look at our M&A pipeline and we look over the course of the years not over the course of months and we've got it.
A very rich pipeline of companies that we're having discussions with so we feel very good about our ability to continue to add to the strength and I would just use that as a backdrop to growth in general we generally feel that underlying growth is the most important measure.
And to evaluate the health of the overall organization. So our focus is generally on underlying growth, but every once in a while.
You have to look at GAAP.
A company doing on and overall basis and as I just look at RIS. As an example, first quarter last year, we grew a very big organization on a GAAP basis, 20% and.
And followed up and this first quarter by and 11% on top of the 20% on a GAAP basis, we are significantly growing the organization and and on the consulting side and was more like a five on GAAP last year, followed by a 6% this year on GAAP. So so we're having good underlying performance.
And we're also having.
A much larger organization and growing a much larger organization.
Innovation.
Next question please operator.
Our next question comes from Jimmy Buhler with Jpmorgan. Your line is open.
Hi.
Good morning, most of my questions were answered about.
A couple of Boyd's first on.
The deal environment can you talk about competition for deals, especially sort of small and mid sized deals. It seems like valuations have steadily gone up over the past.
A few years and then on pricing you spoke about sort of a slowdown.
And reinsurance and.
And a slowdown in overall and.
And your index can you talk a little bit and a little bit more detail about lines, where you've seen the most noticeable change over the past three months up or down.
And.
Okay. So I'll talk about your M&A point, and then I'll.
And off to John and.
Peter Hearn, so they can talk a little bit about the rate environment and a little bit more debt, although that's really inside baseball.
Ultimately when we look at deals as I mentioned before we're not we're not chasing any deals. Your your conclusion that multiples have gone up over the last number of years is absolutely true multiples are higher which.
It means we should be more selective and.
And it means that we should understand the pro forma calculations and a deep way.
Because most of these organizations are private.
So the pro forma results are far different than the actual results over the previous years and and.
There can be a disconnect in terms of what expectations are versus the reality of a performing business.
Now our our goal is actually to buy high quality firms. That's our primary goal of firms that match our culture. The way, there's good chemistry, where the the leaders plan to stay and the business and keep growing the business.
And there are number it's still a very fragmented market and there are a number of small to midsized companies and which we're able to speak with really.
Recognize the value of Marsh Mclennan and then we can demonstrate the companies the amount of additional Mega producers that are developed post acquisition by Marsh Mclennan and then existed pre acquisition. So joining marsh <unk> Mclennan is good for the production force of.
These companies and that is a that's our unique.
Unique selling proposition the capabilities and resources of the organization broadly enable producers to be more successful than they otherwise would be but John you want to talk about rating environment and what's been moving around the most keep.
Keep it pretty high level and then we can move on to Peter on that.
Sure sure again, Jimmy and I covered it before what I, what I would say is that.
In most geographies and in most major product lines and there was a slight moderation in the average trading price increase and the first quarter as compared to the fourth quarter It was pretty consistent.
I would say is probably the most notable thing when you look at it on a line by line basis and country by country basis. So you can prices on average again went from 22% to 18%.
We've shared in the past this is our index skews to large accounts the middle market pricing is more modest than that I think the most notable quarter to quarter change was in cyber.
On the average price increase actually doubled from the fourth quarter and into the first quarter from high teens to mid Thirty's and so and you know.
As you might expect given the exposure environment there.
Our cyber sales are growing quite rapidly at the moment.
Thanks, Peter and do you have anything to add.
No I would reflect much of what John says, Jimmy and that reinsurance pricing has been reasonably consistent by and line of business over the past several quarters and.
I think it's.
And he is adequate demand is high.
As John said.
Eric lines of business like cyber have been more capacity constraint, but there's still capacity available at a price and I think the end of the day. The reinsurer approach to our client base has been reasonable and that's just based on experience and exposure of the individual client and.
So prices I wouldn't say have gone down I'd say prices have moderated.
But that's based on capacity.
It's a function of exposure and experience by client and it is not a broad base.
Across the board rate increase for everybody regardless of how you performed.
Thank you thanks.
Next question please.
Our next question comes from David Madden.
Evercore ISI your line is open.
Hi, good morning.
I had a question just on some of the.
Disruption that the Aon and Willis.
And could be having and the marketplaces as you look at teams and.
And hiring.
And maybe maybe you could just talk about how thats progressing and Dan and I think you've talked about adding 500 people and head count.
Last quarter in terms of strategic hires I was just wondering maybe to give an update on that this quarter and how you see that progressing throughout the year.
Yeah, I mean, we expect to be a real employer of choice and the business and where.
But we're a big company, we've got 76000 people.
So whether we lose a team of 20 people or higher.
Is it 10 or 20 or 30 individuals ultimately, it's not a huge needle mover for us, but it's a way for us to build our strength.
Build on the mountain of talent that we already have the 500 net head count increase in the fourth quarter didn't all come from Aon and Willis, Although the majority did it and I think and the first quarter.
And we're up over 100 heads net from from Aon, and Willis and I would expect that kind of thing to continue.
This is.
And competitive environment, and and I do believe working at Marsh and Mclennan is is it choice not just for companies going through consolidation, but for.
Experts broadly within our industry.
Got it that's helpful. Thanks.
Thanks for that Dan.
And then I guess just another question.
Just just taken a look at other operating expenses.
And those were down quite a bit year over year I think it was down 10, 5% year over year.
Vs basically flat.
Last quarter.
Both against pre COVID-19 comps.
I guess I'm wondering were there any timing or sort of delayed expenses this quarter outside of.
T any or any sort of.
Other sort of COVID-19 related.
<unk> expense.
And expense reductions.
During the quarter.
Yes.
Comparisons a bit different and things like meetings for example, I can take the first quarter. What do you do when the year starts to get together and you talk about growth.
So that happened in 2020, it didn't happen in 2020, one, but and so meeting some advertising some.
On the use of facilities.
And that sort of thing but.
We're not really overly concerned about.
On the expense comparisons we were always working to move our other operating expenses down to me the glory would be.
Nice solid chunky comp and Ben ratio and a much lower other operating expense ratio.
And as a kind of thing over time that we wanted to do and and we have all kinds of initiatives and the firm to try to reduce other operating expenses as a way to deliver better margin, but also to deliver better comp and Ben ratios as well as Youll note comp and Ben ratios were up and the quarter and so that to me is a pretty good thing.
Other operating expenses down comp and Ben flat or up.
A pretty good result with low.
Delivering big margin expansion for shareholders as well.
Next question please.
Our next question comes from Meyer Shields with <unk>. Your line is open.
With a question for Peter you've described I think consistently.
Hi, reinsurance demand and solid capacity does the Florida and the upcoming Florida reinsurance renewals does that look any different from what we've seen so far in one one and four one.
Daniel.
Right over to you.
Yes, Thank you Dan.
If we look to the rest of the year and obviously June what is the next big.
Renewal date, I think we have to separate Florida from the.
The rest of the of our portfolio because it is a different animal and a lot of different ways not only from a regulatory environment not only from a capital environment not only from a capacity environment not only from a legal environment. So as we look out into the rest of the year, we anticipate that for the fraud.
And <unk> of our portfolio that pricing will remain consistent again as I said just said it is and based on individual client exposure and experience, Florida, obviously has gone through quite a turbulent time, not only from a loss standpoint, but and underwrite.
Underlying erosion of capital due to heightened litigation.
What that has resulted in is demand is actually going to be less because people are re underwriting their books of business.
And to deal with some of the spikes and the exposure that they have but overall I'd say that.
And enough capacity and Florida.
And for the non frequency layers and more capacity layers there'll be plenty of.
Capacity and four for the lower down higher risk layers pricing will go up.
We are still unsure as to what the dimensions are.
And we're expecting mid to high single digits for loss experience and loss experience.
And.
It's still wait and see but a lot of the capital and Florida comes from third party capital. Unlike the rest of our portfolio of safe for our retro sessional business.
Okay. That's tremendously helpful. Thank you.
And I was hoping to sign and a question for John when you look at the small accounts component.
Your domestic P&C business can you talk about how that and what their pricing or underwriting appetite has changed over the last three to six months.
Sure Meyer.
Really and in most market cycles middle market small commercial pricing just doesn't move with the same level of volatility that we see and the upper middle market and.
And.
And large multinational accounts and.
And that this market cycle it really the last couple of years.
And quite consistent with that with that observation.
Saab.
First of last year on small commercial.
And you know there is a bit of nodes and not every insurer looks at the market kind of the same way, but small to the lower end of the middle market. We saw a low single digit price increases most of last year and accelerated a bit in the fourth quarter to mid single digit digit increases.
Increases and that's what we observed in in the first quarter as well.
What I would what I would note and.
And that segment, where we do see more commission and we do and other parts of our business where comp though is a huge part of our business there and as I noted earlier work comp pricing remains pretty favorable for our clients.
Thank you I would now like to turn the call back over to Dan Glaser, President and CEO of Marsh Mclennan for any closing remarks.
Thank you. Thank you everybody and I, thank everybody for joining us on the call. This morning.
And thank our 76000 colleagues for your perseverance under trying circumstances. These are the moments when our clients need us most thank you all very much and I look forward to speaking with you next quarter.
This concludes today's conference call. Thank you for participating you may now disconnect.
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