Q4 2021 Marsh & McLennan Companies Inc Earnings Call
Welcome to Marsh Mcclennan Conference call today's call is being recorded fourth quarter and full year 2021 financial results and supplemental information were issued earlier this morning.
They arent available on the Companys website at Marsh Mcclennan Dot com.
Please note that remarks made today may include forward looking statements.
We're 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 of those factors. Please refer to our earnings release for this quarter and to our most recent SEC filings, including our most recent Form 10-K , all of which are available on the Marsh Mclennan 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 in today's earnings release.
Now I'll turn this over to Dan Glaser, President and CEO Glenn.
Thanks, Andrew Good morning, and thank you for joining us to discuss our fourth quarter results reported earlier today.
Dan Glaser, President and CEO of Marsh <unk> Mclennan.
Joining me on the call today is John Doyle, Our group, President and COO, Mark Mcgivney, our CFO .
The Ceos of our businesses.
Martin South of Marsh <unk> <unk> of Guy Carpenter Martine for loan of Mercer and Nick's Studer of Oliver Wyman.
With us this morning is Sarah Dewitt head of Investor Relations.
John Doyle assumes his new role on January one and I am pleased to be working alongside him during John's five years as CEO of Marsh the business thrived under his leadership experiencing accelerated revenue growth and record new business.
He also inspired and even stronger culture of colleague engagement inclusion and diversity.
I look forward to unlocking the greater potential of Marsh Mcclennan together.
I'd also like to welcome Martin South and Dean for Sora, who assume their new roles on January one.
Barton, who succeeded John as CEO of Marsh has worked in March for 27 years. Most recently Martin served as CEO of Marsh U S and Canada, where he produced a superior track record of growth.
The <unk> two succeeds Peter Hearn as CEO of Guy Carpenter has been with Marsh Mclennan for nearly 30 years. During his time at Marsh Mcclennan Dean has served in executive leadership roles in Marsh's global specialties and placement before joining guy Carpenter last year as president.
<unk> brings deep knowledge and broad industry relationships to his new role I look forward to seeing Marsh and Guy Carpenter continue to thrive and grow under their leadership.
These moves represent further examples of the extraordinary talent and Marsh Mcclennan and seamless process, we have built to manage orderly succession.
On behalf of the entire company I want to express my deep gratitude to Peter Hearn for his exceptional leadership of Guy Carpenter.
During Peters tenure Guy Carpenter achieved record financial performance and cultivated a culture, where colleagues professional success and personal fulfillment is a consistent priority.
We look forward to the contributions he will continue to make as vice chair of Marsh <unk> Mclennan.
I'd also like to thank Dominic Burke for his many contributions following our acquisition of J L T and wish him the best in his retirement.
His leadership ensured our combination with <unk> the largest acquisition in our history was a win for our clients for our company and for our colleagues.
2021 was a banner year for Marsh <unk> Mclennan, we generated the strongest underlying revenue growth in over two decades with each of our businesses contributing meaningfully adjusted EPS growth was 24% the highest in over two decades, we reported adjusted margin expansion for the 14th.
Incentive year, we invested meaningfully in our talent and capabilities, both organically and through attractive acquisitions.
And we completed our deleveraging and resumed significant share repurchases.
Across the firm 2021 was a year of extraordinary growth and achievement consistent.
Consistent with our philosophy of balancing near term financial results. While also investing for the future we capitalized on available opportunities to make significant investments. This is reflected in an organic increase of nearly 6000 colleagues on a net basis the highest level in our history.
Our new colleagues not only add scale in client facing roles, but critical capabilities the capacity to streamline operations drive efficiency enhanced client service outcomes and expand the bandwidth of our market facing operations.
We pursued attractive acquisitions.
<unk> broadened its geographic footprint in the key middle market segment with the addition of pain West.
Oliver Wyman deepened, our healthcare expertise and client service capabilities with the acquisition of <unk> Life Sciences business.
And marsh enhance its market leading position in India with an increase in the ownership stake in our Indian brokerage business from 49% to 92%.
Portfolio optimization efforts continued as well, including the sale of Marsh's U K networks versus pension administration business in Brazil and versus U S associations business.
Across the organization, we took steps to accelerate productivity gain efficiency and enhanced client experience with initiatives like Marsh is operational excellence program, our buildout of our India and other centers of excellence and improving our technology and HR functions.
2021 was also a year in which we accelerated impact for clients through innovation and areas of pressing concern.
Marsh Mclennan provided thought leadership on key global issues in partnership with the World Economic Forum.
For the 17th consecutive year, we collaborated in the production of the annual Global risks report, which was issued earlier this month.
This year's report identifies climate action failure, and extreme weather the decline of social cohesion infectious diseases cyber security failure mental health deterioration in digital and our quality among the top 10 risks facing society.
Marsh Mclennan as a business is to help clients adapt to this evolving risk landscape and to product course through longer term secular challenges in.
In areas like cyber risk climate resilience, digitization diversity, and inclusion healthy societies and new ways of working we brought forward creative solutions for our clients in 2021.
All of this is consistent with our legacy as an innovator for the past 150 years since the founding of our company and $18 71, we have been at our client sites finding opportunities in navigating uncertainty in the areas of risk strategy and people. This approach is.
<unk> to significant value creation for our shareholders over time.
Since our IPO with $19 62, our consolidated revenue has grown from $52 million to nearly $20 billion. Our adjusted EPS has increased from <unk> <unk> per share to over $6 a share at our head count has risen from 3000 colleagues to nearly 83000 today.
This translates to an average of 11% revenue growth, 10% adjusted EPS growth and 6% head count growth each year over this period.
And we exit this first century and a half on a high note with terrific 2021 results.
Now, let me provide an update on current P&C insurance market conditions.
<unk> increases continued to persist reflecting losses low returns concerns about inflation and affirming reinsurance market.
The Marsh global insurance market index showed price increases of 13% year over year. This marks the 17th consecutive quarter of rate increases in the commercial P&C insurance marketplace.
Looking at pricing by line. The March market Index showed global property insurance was up 8% global financial and professional lines were up 31% driven in part by cyber rates more than doubling in some geographies and global casualty rates were up mid single digits on average.
As a reminder, our index skews to large account business, however, small and middle market insurance rates continue to rise as well, although less than for large complex accounts.
At the January renewals capacity in most areas was available, although although insurers push for price increases and in some cases coverage changes and tighter terms and conditions.
Turning to reinsurance the January one reinsurance renewals reflected an evolving market.
<unk> was adequate but reinsurers adjusted their risk appetite and pricing thresholds for certain sectors.
This was in response to ongoing and emerging challenges such as the frequency and severity of catastrophe losses climate change core inflation, social inflation and underlying rate increases.
The overall Guy Carpenter global property catastrophe rate online index increased 10, 8% with non loss impacted clients being generally flat to up 7% and loss impacted up from 10% to over 30%.
Marsh Mclennan remains focused on helping our clients navigate challenging P&C rates and the evolving risk environment.
As we look ahead to 2022, we continue to see a good runway for growth given the outlook for above average GDP growth sustained firm P&C pricing conditions, the inflationary impact on exposures further opportunities from disruption in the brokerage sector and the benefit of our recent <unk>.
<unk> investments.
Taking a longer view, we believe demand for our solutions will remain strong given rising levels of complexity volatility and uncertainty across the economic landscape supporting growth in years ahead.
The global macroeconomic outlook remains positive even as there continues to be uncertainty due to the omicron variant geopolitical pressures supply chain challenges inflation and tightening monetary conditions.
In 2021, we broke out of the 3% to 5% underlying growth range of recent years. We believe we will sustain that momentum driving mid single digit or better growth in 2022.
We also expect to continue our track record of annual margin expansion and solid EPS growth.
With that let me turn it over to Jon for his comments on the quarter and other business trends.
Thanks, Dan and good morning, everyone I am excited about the new role and the opportunity to work with Dan and the Executive Committee Marsh Mclennan as overall strategic and operational objectives. I'm also excited for the leadership that Martin Indeed bring to marsh and Guy Carpenter and to support them in their new roles.
Since I joined Marsh Mclennan, almost six years ago I continue to be impressed by the strength and depth of our talent and capabilities across the areas of risk strategy and people.
Also been impressed by the unwavering commitment of our colleagues clients to one another and to the communities, where we live and work.
I am meeting with our colleagues clients and business leaders to identify areas, where we can have greater impact and accelerate growth.
As Dan noted our clients are operating in a volatile environment, where emerging issues are creating both challenges and opportunities our expertise scale data and insights position us well to meet their needs.
I believe we have meaningful runway to harness the power of marsh mclennan across our businesses and find the intersections, where we can have outsized client impact.
Together, we can accelerate innovation deliver critical solutions and drive growth and value for shareholders.
Marsh Mclennan has tremendous momentum as evidenced by our strong fourth quarter results highlights include continued double digit underlying revenue growth and record adjusted operating income we closed out a fantastic year with fourth quarter underlying revenue growth of 10% the third consecutive quarter of double digit growth and.
The longest stretch of double digit quarterly growth in over two decades.
Looking at risk and insurance services fourth quarter revenue was 3 billion up 20% compared with a year ago or 9% on an underlying basis adjusted operating income increased 6% to $557 million, while our adjusted operating margin declined 80 basis points to 22, 7%.
Reflecting investments made in the business for.
For the year revenue was a record $12 1 billion with underlying growth of 10%.
Adjusted operating income for the year increased 17% to a record $3 billion with a margin of 28, 5% up 50 basis points from the same period a year ago.
At Marsh revenue in the quarter was $2 9 billion up 22% compared with a year ago revenue growth was 9% on an underlying basis.
And Canada delivered another exceptional quarter with underlying revenue growth in the double digits for the third consecutive quarter at 11% and international underlying revenue growth was 7%.
Latin America grew 14% Asia Pacific was up 10% and EMEA was up 5%.
For the year Marsh's revenue was $10 2 billion with underlying growth of 11%.
U S and Canada underlying revenue growth was 13% and international was up 9% the highest since we began reporting these regions in 2008.
Guy Carpenter's fourth quarter revenue was $170 million up 5% on an underlying basis for the year Guy Carpenter generated $1 9 billion of revenue and 9% underlying growth.
In the consulting segment revenue of $2 1 billion was a fourth quarter record up 10% from a year ago or 11% on an underlying basis, the third consecutive quarter of double digit growth.
Adjusted operating income increased 6% to $410 million. The adjusted operating margin was 22% down 120 basis points versus a year ago, reflecting investments in the business.
<unk> generated revenue of $7 8 billion for the year, representing underlying growth of 10% the highest in nearly 15 years.
Adjusted operating income for the year increased 19% to $1 $5 billion and the adjusted operating margin expanded 100 basis points to 19, 8%.
<unk> revenue was $1 4 billion in the quarter up 6% on underlying basis career.
Career grew 15% on an underlying basis. This is the third straight quarter of double digit growth in the career business. We're seeing strong demand for solutions linked to new ways of working skills gaps workforce transformation and DNI issues like pay equity.
Wealth increased 4% on an underlying basis, reflecting growth in both investment management and defined benefit.
Our assets under management grew to 415 billion at the end of the fourth quarter up 16% year over year benefiting from net new inflows and market gains.
Health underlying revenue growth was 4% in the quarter.
For the year revenue at Mercer was $5 3 billion, an increase of 5% on an underlying basis the highest in over a decade.
Oliver Wyman revenue in the quarter was $722 million, an increase of 22% on an underlying basis. This represents the fourth consecutive quarter of double digit growth and reflects continued strong demand across geographies and practices.
For the year revenue at Oliver Wyman was $2 5 billion, an increase of 21% on an underlying basis overall, our strong fourth quarter and full year 2021 performance as well as the investments we made in the year sets us up for success in 2022 and beyond now I'll turn the call over to Mark for further detail on our financial results.
And a discussion of our initial outlook for 2022.
Thank you John and good morning.
As Dan and John mentioned, our financial performance in the fourth quarter was strong capping an outstanding year.
We saw another quarter of double digit underlying revenue growth and meaningful earnings growth. Despite substantial investments that position us for continued success.
We generated GAAP EPS of $1 57 in the quarter and adjusted EPS of $1 36 up 14% versus a year ago.
Operating income was $986 million and adjusted operating income was $905 million a fourth quarter record.
Our adjusted operating margin decreased 90 basis points in the fourth quarter to 24%, reflecting significant investments in the business.
As we noted on our third quarter call. While we are excited about the future benefits. These investments will deliver they come with upfront costs, we absorb in the short term.
Our full year 2021 results were outstanding our adjusted EPS was $6 17.
An increase of 24% the highest in over two decades.
Full year operating income was $4 3 billion and our adjusted operating income was also $4 3 billion.
Finally, our adjusted operating margin expanded 70 basis points, marking our 14th consecutive year of margin expansion.
2021 was also a strong year for capital management.
We completed our <unk> related deleveraging.
<unk>, our short term liquidity flexibility and saw S&P, Moody's and Fitch restore our rating outlook to stable.
Through solid operating performance and our focus on working capital efficiency. We also exceeded our plans for capital deployment.
This included a 15% increase in our dividend at $1 2 billion of share repurchases.
This was the highest level of share repurchases since 2015, resulting in a meaningful reduction in our share count.
John covered our business operating results. So I'll cover some of the other aspects of our performance and outlook.
Adjusted corporate expense was $62 million in the fourth quarter.
As we had expected foreign exchange was a modest headwind.
Assuming exchange rates remain at current levels, we expect FX to be a 7% headwind in 2022, most of which will affect the first half of the year.
As we typically do on our fourth quarter calls I will give a brief update on our global retirement plan.
Our other net benefit credit was $66 million on a GAAP basis in the quarter and $277 million for the full year.
For 2022 based on our current expectations, we anticipate our other net benefit credit will be about $255 million.
Cash contributions to our global defined benefit plans were $129 million in 2021, compared with $143 million in 2020.
We expect cash contributions in 2022 will be roughly $180 million.
Investment income was $18 million in the fourth quarter on a GAAP basis and $14 million on an adjusted basis.
For the full year 2021, our investment income was $61 million on a GAAP basis and $55 million on an adjusted basis.
Yes.
Interest expense in the fourth quarter was $109 million.
Based on our current forecast, we expect a similar level of quarterly interest expense in 2022.
Our adjusted effective tax rate in the fourth quarter was 26% compared with 24% in the fourth quarter last year and reflected some discrete benefits we realized in the quarter.
For the full year 2021, our adjusted effective tax rate was 23, 6% compared to 2024, 4% for the full year of 2020.
Excluding discrete items, our adjusted effective tax rate for the full year was approximately 25%.
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. It is reasonable to assume an adjusted effective tax rate of around 25% for 2022.
Turning to capital management, our balance sheet, we ended the year with total debt of 11 billion, including the proceeds from the $750 million of senior notes we issued in December .
We used a portion of the proceeds to redeem $500 million of senior notes that were scheduled to mature in January .
Our next scheduled debt maturity isn't until March of 2023.
Our cash position at the end of the fourth quarter was $1 8 billion.
Uses of cash in the quarter totaled $1 2 billion and included 276 million for dividends $494 million for acquisitions and $425 million for share repurchases.
For the year uses of cash totaled $3 7 billion and included $1 billion for dividend $1 1 billion for acquisitions, $1 2 billion for share repurchases and 500 million for debt repayment.
Now that we've completed our post <unk> deleveraging, we expect to return to our strategy of balanced capital management, which supports our consistent focus on delivering solid performance in the near term while investing for sustained growth over the long term.
We prioritize reinvestment in the business, both through organic investments and acquisitions.
In 2011, our revenues were $11 5 billion.
<unk>, we stand at nearly $20 billion in acquired revenues of accounted for roughly half of this growth.
These acquisitions have added critical capabilities talent greater scale expanded insight and have driven significant value for clients and shareholders.
We've consistently said that we would prefer acquisitions to share repurchases.
We view high quality acquisitions at better at creating value for shareholders and the company over the long term.
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.
Looking ahead to 2022, the combination of our available cash and expected cash generation set us up for another year of significant capital deployment.
Based on our outlook today, we currently expect to deploy approximately $4 billion of capital in 2022 across dividends acquisitions and share repurchases.
The ultimate level of share repurchase will depend on how the M&A pipeline development.
As we look to 2022, we are well positioned given the strong momentum across our businesses as well as a largely favorable macroeconomic and P&C pricing backdrop.
Based on our outlook today for the full year 2022, we expect to deliver underlying revenue growth of mid single digit or better margin expansion and solid growth in adjusted EPS.
Keep in mind 2021 benefited from several items such as significant investment income and favorable discrete tax benefit that can fluctuate considerably from year to year.
Also as you consider the phasing of expenses in 2020 to recognize that we made significant investments in talent in 2021 and don't begin to lap the full impact of these costs until the second half of the year.
In summary, 2021 was a remarkable year, one in which all of our businesses delivered outstanding performance we.
We made substantial organic investments in the business continued to execute on our acquisition strategy completed our deleveraging and resumed meaningful share repurchases.
We are proud of the focus and determination of our colleagues and the value they deliver to our clients and shareholders. We closed the year on a high note and look forward to another year of strong performance in 2022, and with that I'm happy to turn it back to Dan.
Thanks, Mark and operator, we're ready to begin Q&A.
Certainly in.
In the interest of addressing questions from as many participants as possible, we would ask that participants limit themselves to one question and one follow up.
To ask a question you will need to press star one on your telephone.
Draw your question press the pound key.
Please standby, while we compile the Q&A roster.
And our first question comes from the line of Elyse Greenspan with Wells Fargo.
Hi, Thanks, Good morning, My first question.
Specifically on RIS fee.
Adjusted comp and benefits as a percent of revenue.
Close to flat.
Fourth quarter.
And I thought we would have seen a jump there just given all the new hires that you've been referencing so I guess my question is on.
Are the cost of the <unk>.
Higher.
Perhaps would've been some of the offsets to keep that ratio flat and then would you expect upward pressure next year, meaning 2022, just given the hires and wage inflation in the system.
Thanks, Elise and it's a good question I'll start with it.
We've said in the past, how we look at our business and we manage comp and Ben ratios, we actually consider it and yes, not only in RIS for the total company, our comp and Ben ratio in 2021 is.
Almost identical to the comp and Ben ratio in 2020, and the big factor, that's causing that as our revenue grows.
So comp and Ben as base the ratios are based upon revenue growth. So the the significant 10% revenue growth that we had in the year underlying plus the momentum we had where we had 10% in the fourth quarter as well gave us the room to absorb.
Some of these.
This hiring strategy and is one of the reasons why we point to 2021 is in our view, our best year ever and 150 years I mean, it's a year, where we had tremendous financial performance and dramatic organic investments but.
When you think about how is the hiring at RIS in general John you have anything to add to that.
Yes at least what I would add is that.
The hiring was principally in three different areas right. So we've tried to be quite strategic.
I wanted to focus on some of the disruption in the marketplace and so we made strategic hires at Marsh Guy Carpenter Mercer they have onboard it right. So you asked that question they joined US mostly in the second half of the year. Some on the first of January but largely in the second half of the year. The second area of hiring and this was mostly at March.
<unk> was around the operational excellence program that Dan spoke to we're standing up centers of excellence in support of segregation of duties moving mid back office work to lower cost environments lead to better client and colleague better client outcomes better colleague experience, but it also will increase over time.
Capacity of our market facing colleagues. So we're excited about about that investment and then the third area was an early career.
Pause in 2020 at the height of the pandemic, but we got back at it last year and on boarded some some early career colleagues so.
So we're quite bullish on the hiring that we did and we're in a period now of again Onboarding. These colleagues.
And getting them to a productive state as quickly as possible.
So basically at least.
There is there is not a <unk>.
Surge of expense coming with regard to the hiring we've been absorbing the additional expense.
As we go and we're very happy that we were able to put up an adjusted EPS growth of 14%. Despite all the investments that we made in the second and third quarter.
Thanks, and then my follow up would be on the.
The other side of the revenue benefits that you guys can see from this incremental hiring that you guys laid out a mid single digit or better organic growth outlook for 2022 can you help us think about the revenue benefit embedded with that.
From the hires that you brought on throughout 2021.
Yes, I mean, I think there's a few things one we.
Or a capability company, we're a content company when we're hiring somebody it's not like okay. What's your book of business and how much do we have to pay you and how long is it going to take you to to pull that book, it's really what's your capability. What are you specialize in what segment are you an expert in at.
Our focus over years has been on building that that level of capability and Mark was with.
With stating that a bit in the script.
We've gone from $11 $5 billion company to nearly $20 billion at half of that is acquisition related that's based upon capability not not somebody who can.
Pulling a counter too so.
So the way I would look at it would be we do expect to grow more over time base.
Based upon our hiring strategy, that's absolutely true.
We think it could take two or three years before people are operating at their optimum whether that is a producer our client facing colleagues or somebody who is working in and out.
Our service areas.
But ultimately it takes some time for people to embed into a new company, a new culture, a new team and so we give them that time.
But when we talk about mid single digit or better for 2022.
It's really looking at a number of factors.
Is that a.
Better global GDP growth that on average strong P&C market.
Organic hiring strategy that we've done and the capabilities that we've built and so our goal is now that we broke out of that 3% to 5% world is to <unk>.
To stay above that and not just in 2022 and beyond and it's beyond that and therefore, we think that the hiring strategy has a lot to do with how we're going to perform in 2023 and 2024 as well it is a permanent.
Capability added to the firm.
Next question please.
Your next question comes from the line of Jimmy Buhler with J P. Morgan.
Hey, good morning, So first I had a question on just what do you think about the acquisition pipeline and just comment on competition for deals and how youre seeing multiples for potential targets. Obviously, the public brokers are all trading at fairly high multiples versus historically are you seeing that in the private market as well.
Just what your.
Any comments on the pipeline.
Yes, I'll take that a little bit and then I'll hand off to.
Jonathan to talk about the business more more broadly on the M&A front.
I would say first of all.
We referenced that we've been around for 150 years in the firm was founded.
<unk>.
A combination of Donald Mclennan, and Henry Marsh and their agencies. So we haven't been we've been active in acquisitions for 150 years, and we intend to do so having said that we have no budget on acquisitions.
Well, we're not particularly opportunistic were strategic we build the pipeline over years and we're patient.
So when we when you talk about things like competition around acquisitions Thats not us.
We're talking to companies that ultimately that they have their ability to sell to anybody they choose to want to be part of marsh mcclennan. They want to be part of the <unk> team and they believe that they can grow and they can offer their colleagues and opportunity to grow within marsh Mclennan, which is beyond what they would be able to do with them.
Any other firm so when you hear about all this competition and frost.
Usually not engaged in that as many times when we don't even pick up the deck or.
The teaser because there is a process.
Now, having said that multiples over a number of years have increased I don't I don't.
Particularly in recent times, they've increased much but it's fair to say that over the last couple of years. They are higher than they were five or six years ago, and so you have to be really careful and make sure when youre going through a pro forma because most of these acquisitions are private companies to make sure that you understand.
And how the P&L works.
Because there what the actual in their pro forma is often quite different and so.
I would say in general.
Our pipeline looks good.
And that we're not on any timetable or a budget and we'll just see how it goes we will deploy that capital. So as Mark was saying, if we don't use it and acquisitions, which we favor well then we will use it in share repurchase and either way, we probably have a reasonable amount of both acquisition and share repurchase.
John what can you see in the pipeline and what do you see it in the market in general on the acquisition front sure. We remain active in the market Jimmy for sure as Dan noted we have a good solid pipeline. We did we did seven deals in the fourth quarter three at MMA, a modest sized deals at MMA, we did three deals at March.
As well.
Quite small, but India of course, which was quite important and very strategic for US. We also acquired <unk> and affinity broker in France.
Cited about what that can do or to our business. There and then of course, we did Huron.
As Dan mentioned.
Prepared remarks earlier.
We're looking for.
Strong performing businesses that are well led.
That make us better in some way that either fit or a market that we're not serve serving at the moment were particularly strong and we're in a geography that we don't cover all of that well you know an example of that was last year with the acquisition of pain West which.
So it was a high performing business outstanding leadership team performing well and they're just.
Terrific cultural fit and it just fit perfectly for us in the us.
For northwest of MMA operation here in the United States. So so we'll continue to be active.
Maybe one thing just to add on multiple side.
Seed some MGA is that I think.
Certainly.
Some very very high multiples in the MGA market I think many of them are kind of trading under the insure Tech label.
And so driving some interest there and we haven't been particularly active in that market, we keep a close eye on it and we serve many of them as clients through through Guy Carpenter, but.
Outside of that we've earned a terrific reputation in the market and so we end up with good high quality conversations before things go to market.
Yes, just one other thing.
Just adding.
<unk> has been a tremendous acquisition for the company.
Back to whenever 2003 2000 and for now.
Now at $2 5 billion dollar management consulting company with all kinds of capability and it was good to see <unk> out there.
And acquiring here on life Sciences business, which again adds capability to the firm that will help us grow more into the future, but Jimmy I have a follow up.
And it's partly an O W. But overall, if you think about organic growth. Obviously, it's benefited in a number of your businesses from the economic recovery and I'm wondering and especially at Oliver Wyman, but.
With Amazon picking up in December and into January should we assume a little bit of an impact on some of your businesses are not much.
Across the enterprise.
Well I think.
I'll hand off to.
Both Nick and my team to give them a little comment about whether theyre seeing an only caught impact but my overall feeling is the world has become pretty resilient.
And has learned to adapt and so therefore.
GDP projections, while they've come down a bit.
Our major countries are still relatively strong compared to.
Four or five years ago, and so but but.
Why don't we go to you first Nick and then to my team about whether Youre seeing any impact of omicron on on your business.
Thanks, very much Tom Thanks, Jeremy for the question.
Our business does tend to prosper when the economy is really healthy.
I think we also see that we're.
When our clients questions change they also need more support on the short answer is.
We're not seeing any.
<unk> down in the business in the first quarter our pipeline is strong.
And really over the last 12 months I'm still into well into the first quarter were up.
Optimistic because the growth is very broad based.
Across almost every single one of our industry areas.
The majority of our capabilities, whether it's payments or private equity, whether its climates or digital whether its growth strategy or cost management and some restructuring. It is broad based growth and were not seeing it on the chrome effect.
Thanks Martine.
Yes, there is similarity to Nick and thanks for the questions.
I will focus a bit on career here because that's the part of Mercer that is more.
Connected to the economy and similarly, we come into the year with good momentum and strong sales.
And what we have been busy with for the last part of 'twenty. One is not gone away if any anything it's continuing to accelerate whether it's in talent.
Our neighbour shortage skill gaps redefining the way that we work the return to work that has been in and out in and out in many countries. So that's keeping the team busy so for now we're not seeing much of an impact and if anything commenting on healthy movement that is that has also been impacted.
<unk> seen enrolled lives come up.
We don't see this going away.
Not in the near future.
Tom medical inflation, returning as well impacting premiums because.
Non covered medical treatment and picked up so we might see a little bit of a gap there due to <unk> and I don't think it'll last.
Thank you. Thank you.
Next question please.
Our next question comes from the line of Mike Zaremski with Wolfe Research.
Hey, great good morning, maybe.
Maybe.
Switching gears to the property and casualty insurance marketplace.
I think in the comments.
And the outlook you talked about a strong P&C market from the prepared remarks, I think you cited.
The Marsh index. It seems like pricing had decelerated a couple of points, but still have kind of.
Hi absolute levels.
Are you seeing a deceleration in pricing amongst.
Amongst your clients.
So John you want to take that sure sure Mike as Dan noted.
The 17th consecutive quarter of price increases.
As market, obviously has had some legs at least compared to the time that I've been in it which is a long time.
There was some moderation in the fourth quarter compared to the third quarter I think cyber is probably the biggest outlier.
Martin Dean to talk about their observations in a second but the underwriting.
<unk> and cyber of course is still reacting to the frequency and severity.
Ransomware claims and they are worried about systemic events as well, but but I think the market reaction right now is more driven by by ransomware losses, the market remains challenging for our clients and broadly speaking.
The underwriting community is worried about property cat losses, the impact of inflation.
<unk> cost and as I mentioned earlier cyber related claims, but Martin do you want to share some thoughts about the market and Joe. Thank you.
As you said, there's a slight deceleration of the global rate index is down.
By couple of points from <unk>.
Youre seeing deceleration in most of the geographies interesting outlier in Latin America, where rate increases continues to be strong.
If I turn to.
Aligns more cat exposed areas still strength that.
You put out a casualty, which is still showing some.
Deceleration there is still strength in the umbrella area in the property book.
Multi line.
Multilayer insurers on double.
What you see for single carriers, so whether our cat exposures is still seeing price increases.
And Thats Thats the trends you're seeing across the board as you said John on cyber very strong.
Almost double in Europe , and over 100% in North America, the cyber range. So still strength got it got it. Thanks Martin deemed we've just had a big reinsurance renewal date in January one what's happening in the reinsurance market. Thank you John .
As discussed the reinsurance market at January one renewal was very late however, overall placements were very orderly and everything got completed.
Clearly reinsurer is differentiated among individual risks pricing has been bifurcated between loss impacted and non loss impacted accounts.
As Dan mentioned earlier, the Guy Carpenter global property catastrophe rate online index increased to 10, 8% the largest increase in 15 years.
Capacity is ample across most lines of business, but certainly more constrained in the catastrophe property market that John mentioned, the cyber market, particularly the cyber aggregate market and certainly the retrocession market.
Got it thank you.
The other question, Mike, Yes, a quick follow up this might be for Mark Mcgivney.
If.
If a short term interest rates do in feed move higher over the coming year years.
But marsh get a slight benefit from fiduciary investment income levels.
Mark you want to handle that.
Mike We would and fiduciary interest income in 2021, I hope bottomed out at $15 million. If you look back just two years ago was 105.
So the pandemic and the impact on short term rates relief.
Took the wind out of that line item and so if rates.
Climb it certainly is a source of opportunity for us just keep in mind as you think about 2022.
It's a function of not only how how rates move when they move and where they move we've got fiduciary balances outside of the U S. Obviously in.
But certainly if rates go up over the next couple of years that that's opportunity for us.
Thank you next question please.
Our next question comes from the line of Juran Qunar with Jefferies.
Thank you very much good morning.
Good morning, My first question.
It goes back to I think some of the comments on you made regarding your previous question, which is it.
Ron wage inflation and potential impact on revenue.
Both in R&D and in consulting how do you see that playing out.
Is it more of a headwind more of a.
Tailwind for 'twenty two.
Well I would say wage inflation in general.
Let's take a broader <unk>.
<unk> in general would be a.
A bit of a tailwind for us because when we look at past cycles.
Marsh Mclennan intends to do a bit better than inflationary periods than what preceded them.
No.
So with large probably a mild benefit because of exposure unit growth principally.
That wage inflation in particular.
It's hard to see how that would be more than than a negative for our clients and for our.
For ourselves.
But when you think about it some of some of the rating factors that are utilized to figure out.
Some some casualty and some medical benefits et cetera are based upon head count and also sometimes on payroll so payrolls rising while that means the exposure units rising so so it's pretty moderate.
So we're very wary of course like everybody else about wage inflation, but I start from the basis of what I was saying to a lease earlier, our comp and Ben ratios have been very consistent over time, we have shared the growth of the company with our colleagues and it is not a one year wonder it for multiple years.
Not all about pay.
It's also about what kind of company you are what kind of carrying employer, how you treat your colleagues et cetera, and so we create an environment at marsh Mclennan, where we really strive to make it a great place to work and we will continue to do that and so while we're watchful about wage inflation we.
Haven't really seen much of that and then it would be matched in any event by our variable comp which is based upon net operating income and so that has risen.
Significantly over a number of years.
Thank you for the comments.
Comments, and then a follow up on fiber.
Just curious as to how clients view this.
Line item is this non discretionary item for most of them.
What I'm trying to get out is.
With no real slowdown in the rate increases we're seeing there is there a risk that clients ultimately start.
Buying down or not buying fiber coverage.
John look at some time.
At some point.
Would that become the case.
Sure.
Potential, but I don't think we are running into that risk at the moment and by the way is a discretionary yes, it's discretionary I would say.
About 50% of our clients in the United States, only 50% of them by Standalone cyber coverage in about 25% of our clients outside of the United States by by Standalone cyber coverage. So.
The market is finding an equilibrium.
It is sorting out how to deal with ransomware, when Martin talked about the price increases that doesn't all manifest itself in premium growth.
Or increased premiums for our clients underwriters are insisting on higher attachment points co insurance for ransomware sub limits. For example that all gets character gets factored into the rate change that that we talk about so so we work with our clients and we work with the markets to try to find the.
Best way to finance the risk.
And it's not just.
Financing risk after the fact of course.
<unk> working across the entire firm Marsh Guy Carpenter Oliver Wyman Mercer.
To help our clients better understand the risk and tapes take steps to mitigate.
Mitigate the risk upfront, but also the impact of an event once it happens yes.
Cyber is going to be a tremendous growth market for us, we're nowhere close to saturation where clients will start.
Not buying cyber because of the price.
Bear in mind that this is a significant governance issue for most board just like an ESG issue.
And so you'd have to be a pretty brave company.
Decide to not buy Ciber, if it's presented to you at a board level.
Next question please.
Our next question comes from the line of Meyer Shields with K B W.
Thanks.
I wanted to start with I guess the question on risk and insurance services, we've had other operating expenses.
<unk> hundred $39 million on a year over year basis.
Trying to figure out how much of that was adjusted out.
Just get a sense of the underlying increase in other operating expenses.
Yes, I mean, if you look at all other expenses other than comp and Ben.
For the year all other expenses in 2021 was up 1%.
And thats across the firm.
So really this has been if you look at our underlying expense growth for the year comp and Ben as 85% of that growth and variable comp and Ben as two thirds of that 85%. So this is really about.
The opportunity we saw in the strategy, we put in place to increase the size of the firm through a concerted effort around organic hiring it doesn't have to do with all other expenses veg, it's fair to say that certain all other expenses that are more discretionary in the fourth.
Quarter like TNA and meetings marketing increased over 2000, twenty's fourth quarter, but still relative to the entire year. They were only up 1%.
Okay perfect. That's fantastic and then a question for Dean I think you had commented and I'm going to get the quote wrong, but you said that basically reinsurance placements gotten done at one one we certainly heard some commentary on the call.
LTE accuracy aggregate programs and retro and I'm, hoping you could talk about those components specifically.
Sure.
Speaker 1: Sure.
Those components of the market, where clearly challenging at one one.
Speaker 2: Those components of the market were clearly challenging at 1-1. I mentioned cyber-aggregates programs.
I mentioned cyber aggregates programs.
Speaker 2: You know, reinsures definitely pulled back some capacity there.
<unk> definitely pulled back some capacity there around cyber aggregate capacity.
Speaker 2: around cyber aggregate capacity, just like property catastrophe.
Just like property catastrophe.
Capacity was certainly pulled back by key reinsurers.
Speaker 2: capacity was certainly pulled back by key reinsurers, and probably the most challenging part of the market on 1.1 was the retrocession market, where we saw several ILS funds.
And probably the most challenging part of the market on one one whats the retrocession market, where we saw several ice.
Funds patient Bermuda really kind of pull back right you had investors pulling capital out redemption catastrophic losses straight from climate change and other cat losses impacting their results. So clearly that was the most challenging part of the market on the January 1st.
Speaker 2: based in Bermuda really kind of pull back, right? You had investors pulling capital out, redemption, catastrophic losses, right, from climate change and other cat losses impacting their results.
Speaker 3: So clearly, that was the most challenging part of the market on the January 1st renewal. Thanks.
<unk>.
Thanks, Steve next question please.
Our next question comes from the line of David <unk> with Evercore ISI.
Speaker 4: Our next question comes to the line of David Motomayden with Evercore ISI.
Hi, Thanks, good morning.
Speaker 5: Hi, thanks. Good morning. Dan, you spoke about absorbing some of the expenses in 2021 just due to the hiring.
So Dan you spoke about absorbing some of the expenses in 2021, just due to the hiring.
Could you just help us think about how much the hiring activity dragged or impacted margins in 2021.
Speaker 5: Could you just help us think about how much the hiring activity dragged or impacted margins in 2021? Because, you know, I'm thinking that, you know, as we go through 2022 and those those producers start to ramp up, you know, that could be less of a drag. So I'm just trying to quantify that just as I think about comparing margins in 22 versus 21. Sure. I mean.
Because I'm thinking that as we go through 2022 and those those producers start to ramp up.
That could be less of a drag so I'm just trying to quantify that just as I think about comparing margins in 'twenty two versus Jeremy one sure.
Sure.
Certainly the hiring will be less of a drag in 2022, particularly in the back half of the year. When we start to lap that the decisions, we've made and the onboarding that we've done.
Speaker 6: the hiring will be less of a drag in 2022, particularly in the back half of the year when we start to lap the decisions we've made and the onboarding that we've done.
Yeah.
Speaker 6: You know, we don't overly focus on margins within the company. We focus on...
We don't focus we don't overly focus on margins within the company, we focus on growing the firm and earnings.
Speaker 6: on growing the firm and earnings, you know, so both underlying revenue and earnings margins.
<unk> underlying revenue and earnings margins are an outcome of how we run the business revenue growth exceeds expense growth and almost every quarter and certainly in every year as it has done for 14 years, we expect to grow margins in 2022.
Speaker 6: are an outcome of how we run the business. Revenue growth exceeds expense growth in almost every quarter and certainly in every year, as it's done for 14 years. We expect...
Speaker 6: to grow margins in 2022. And we think that our margins should be viewed over long stretches of time, certainly not a quarter or two. We're very happy with 2021, because as I was mentioning earlier, we had a tremendous financial performance and.
And we think that our margin should be viewed over long stretches of time, certainly not a quarter or two we're very happy with 2021, because as I was mentioning earlier, we had a tremendous financial performance and we.
Speaker 6: we invested heavily in the business. And when I say heavily, invested heavily, more heavily in hiring in 2021 than in any time in our 150 year history. And so, you know, it positions us very well. And we look at 2021, we grew margins in 2021 despite.
We invested heavily in that.
Business and when I say heavily invested heavily more heavily in hiring in 2021 than in any time in our 150 year history, and so positions us very well and we look at 2021, we grew margins in 2021, despite all of the organic investments that we've made our margin was up <unk>.
Speaker 6: all of the organic investments that we've made. Our margin was up 70 bps in RIS, or 70 bps overall, 50 in RIS, and consulting was up 100 bps. So overall, I think we're kicking the box on margin. We expect margin expansion. We expect strong adjusted EPS growth, and we expect to grow mid-single digits or higher. So 2022, for us, is going to be another terrific year. Now, it's pretty hard to have two banner years in a row.
70 bps in RIS or 70 bps overall 50 in RIS and consulting was up 100 bps. So overall again I think we're taking the box on margin. We expect margin expansion, we expect strong adjusted EPS growth and we expect to grow mid single digits or higher so 2022 for us it's going to be.
Another terrific year now, it's pretty hard to have two bad years in a row.
Speaker 6: I'm not going to sit here and say it's not a tough cop when you grow adjusted EPS 24%.
I'm not going to sit here and say, it's not a tough comp when you grow adjusted EPS, 24%.
Speaker 6: But having said that, we expect strong adjusted EPS growth in 2022.
But having said that we expect strong adjusted EPS growth in 2022.
Speaker 5: No, great. That makes sense. And then maybe just on that, you know, obviously 6,000 producers added in 2021.
Great that makes sense.
And then maybe just on that obviously 6000 producers added in 2021.
Yes.
Speaker 6: So I kind of wish that they were 6,000 producers there, David, but they're not 6,000 producers. It is a portion of that is production-related talent, but it also gave us the opportunity to build surface.
I kind of wish that they were at 6000 producers there, David but they're not 6000 producers.
Is a portion of that is production related talent, but it also gave us the opportunity to build surface.
Speaker 6: And there's an old adage about, you know,
Service capability.
There's an old adage about.
Speaker 6: More sales doesn't equal better service. Better service always equals more sales. So we invested in services as much as we did in sales.
More sales doesn't equal better service better service always equals more sales and so we invested in services as much as we did in sales.
Right. Thanks, Thanks for that clarification, I guess, you did mention there's disruption still.
Speaker 5: Right. Thanks for that clarification. I guess you did mention that there's disruption still and opportunities still. I guess I'm just wondering on the hiring pipeline, I'm assuming has this disruption started to stabilize maybe a little bit less or are you still seeing the opportunities to add talent?
And opportunities still I guess or.
Wondering on the hiring pipeline I'm, assuming has this disruption started to stabilize maybe a little bit less or are you still seeing the opportunities to add talent.
Well I'm going to hand off to John I'll start by just saying.
Speaker 6: I'm going to hand off to John , but I'll start by just saying this is a professional service firm issue, not an issue particularly within RIS. On balance, we have smart.
This is a professional service firm issue not an issue, particularly within RIS.
On balance we have smart.
Speaker 6: high-talent, creative, hardworking people. As does a lot of professional services firm, each of our employees, each of our colleagues has all kinds of opportunities. Our job is to make us an ideal place for them to give their careers, and so it almost became a cliche in terms of the war for talent. When you go back four years ago, five years ago, it's not a cliche anymore.
Hi talent creative hardworking people as as there is a lot of professional services firm each of our employees. Each of our colleagues has all kinds of opportunities our job is to make us an ideal place for them to give their careers and so there is.
It almost became a cliche in terms of the war for talent. When you go back four years ago five years ago is that a cliche anymore. So there is a significant amount of talent movement.
Speaker 6: So there is a significant amount of talent movement that occurred at the...
That occurred at the lab.
Speaker 6: the latter stages of the pandemic, and that probably will continue, and so we're in that.
The latter stages of the pandemic and that probably will continue.
And so we're in that so it's not necessarily disruption because of of issues within the RIS segment. There is disruption in society around where people choose to work and how they choose to work, but John can you can you add to that sure David.
Speaker 6: So it's not necessarily disruption because of issues within the RIS segment, there's disruption in society.
Speaker 6: around where people choose to work and how they choose to work. But John , can you can you add to that? Sure, you know, David, we have an excellent brand as an employer, you know, I think is evidenced by the amount of talent we were able to attract last year. We've got a purpose-driven culture. Our colleagues are highly engaged. We do impactful work.
We have an excellent brand as an employer I think as evidenced by the amount of talent, we're able to attract last year. We've got purpose driven culture. Our colleagues are highly engaged we do impactful work.
Speaker 7: We're a collaborative place to work. You feel like you're part of a team when you work at Marsh & McClennan. It's also a place where you can learn and develop, and as Dan noted before, and we pay well, too. It's pay is not everything, of course, but it's important. We took the opportunity last year to strengthen the team. You know, I talked about the three different areas earlier, strat hires.
We're collaborative place to work you feel like you are part of a team when you when you work at Marsh Mclennan. It's also a place where you can learn and develop and as Tim noted before and we pay well to its pay is not everything of course, but but but it's important we took the opportunity last year to strengthen the team. It talks about the three different areas earlier strat hires.
Speaker 7: of service centers and an early career. But I think we started 2021 with the best team on the field, and we're starting 2022 even stronger. Our focus is on onboarding and getting those colleagues.
Our service centers.
And in early career.
But I think we started 2021 with the best team on the field and we're starting 2022, even stronger our focus is on onboarding and getting those colleagues productive.
Speaker 7: productive, but we will be active in the market and take advantage of our brand at times, but we won't have the same level of organic hiring.
We will be active in the market.
And take advantage of our brand at times, but we won't have the same level of organic hiring in 2022.
Speaker 4: 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 I would now like to turn the call back over to Dan Glaser, President and CEO of Marsh Mclennan for any closing remarks.
Sure. Thank you.
Speaker 6: Sure, thank you. And I thank everybody for joining us on the call this morning. 2021 may have been our best ever, the year of tremendous financial performance and dramatic organic investment. Our competitive position has never been stronger and we enhanced our leading position this year.
Everybody for joining us on the call. This morning, 2021 may have been our best ever the year, a tremendous financial performance and dramatic organic investment our competitive position has never been stronger and we enhanced our leading position this year.
Speaker 6: People use the term fortress balance sheet to describe strength of their firm. We are an ideas company, a people business, and I would say that Marsh & McLennan has a fortress talent base that got even stronger this year. I want to thank our 83,000 colleagues for their commitment, hard work, and dedication to Marsh & McLennan. Thank you all very much, and I look forward to speaking with you next quarter.
We'll use the term fortress balance sheet to describe the strength of their firm. We are in we are an ideal company a people business and I would say that marsh Mclennan has a fortress talent base that got even stronger this year I want to thank our 83000 colleagues for their commitment hard work and dedication to marsh mclennan. Thank you.
All very much and I look forward to speaking with you next quarter.
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