Q1 2022 Marsh & McLennan Companies Inc Earnings Call
Yeah.
Welcome to Marsh Mcclennan conference call today's call is being recorded.
First quarter 2022 financial results and supplemental information were issued earlier this morning.
They are available on the company's website at Marsh Mcclennan dotcom.
Please note that remarks made today may include forward looking statements.
Forward 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 into 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 of Marsh Mclennan.
Yeah.
Thank you good morning, and thank you for joining us to discuss how our first quarter results reported earlier today I'm Dan.
Dan Glaser, President and CEO of Marsh <unk> Mclennan.
Joining me on the call today is John Doyle, Our group President and C O O Mark Mcgivney, our CFO and the Ceos of our businesses Martin South of Marsh.
<unk> Sora of Guy Carpenter Martine for law of Mercer and Nick Studer of Oliver Wyman.
Also with US. This morning is Sarah Dewitt head of Investor Relations.
Marsh Mclennan started 2022 strong and we are well positioned for another good year. Our top line momentum continued we generated a fourth consecutive quarter of double digit underlying growth and the highest first quarter underlying growth in over two decades with each of our business is showing strength.
Our adjusted operating income grew 12%. This comes despite a tough comparable of 20% growth in the first quarter of 2021.
Adjusted EPS growth was 16% the fifth consecutive quarter of double digit growth and we saw modest margin expansion. Despite the substantial investments we made in organic hiring last year.
Overall, a strong start to the year.
At Marsh Mcclennan advancing good in the world is important to us and our view great companies have to not only do well and deliver for investors, but also do good and make a broader contribution to society.
We believe in order to deliver long term value for shareholders. We also have to be a good employer, a good global citizen and bring our best to our clients.
We are proud of our track record on ESG and recently released our second environmental social and governance report.
I will report highlights the many ways in which we are confronting the most complex ESG challenges of our time.
Both within our own company and on behalf of clients.
We made progress on several ESG initiatives. For example, we are committed to energy transition and achieved a carbon neutral certification in 2021.
We also declared a new goal of being net zero by 2050 with a target of reducing carbon emissions, 50% by 2030.
We are committed to inclusion and diversity, we launched our inclusion and diversity center of excellence and enhanced our DNI disclosure in the areas of pay equity workforce representation and talent flows and.
And we added <unk> to our board of directors furthering our commitment to increase gender diversity on our board.
We are also working across our businesses to help clients address the broad spectrum of complex ESG issues, such as climate change diversity and inclusion affordable healthcare cyber security and sustainable investing among others.
I wanted to highlight several recent examples of how we are developing ESG solutions for clients.
Marsh launched the new directors and officers liability insurance initiative that recognize recognizes U S based clients with superior ESG frameworks.
Guy Carpenter arrange floods smart re catastrophe bonds for FEMA to secured capital market space, one reinsurance coverage for its <unk> program.
These bonds held FEMA pay for NFIB claims when disaster strikes.
Mercer continues to be a leader in helping firms quantified and address pay equity as well as diversity and inclusion challenges.
As an example, our recently released stepping up for equity study provides insights on closing the opportunity gap for Black Americans.
Oliver Wyman help clients pursue commercially viable climate transitions working with CDP the world Economic Forum, the United Nations and others to set new agendas and build consensus on the issue of climate change.
We are also helping clients develop low carbon business models and manage risks associated with the transition from fossil fuels to renewable energy.
As we do our part to accelerate this transition we recognize that a secure energy supply is crucial for the global economy and society as a whole.
This is especially true in the context of today's geopolitical environment we.
We believe all communities are best served by working with both operators of clean energy assets and traditional energy companies to make the transition as quickly and smoothly as possible.
The work we're doing across all of these ESG related areas has a direct impact on the communities, where we live and operate we are making a difference through disaster mitigation and recovery promoting healthy societies and diversity and inclusion.
Overall ESG continues to be an area, where we see both significant growth potential and an opportunity to benefit our clients colleagues and communities.
I'd like to take a moment to comment on the war in Ukraine.
We strongly condemn the Russian government invasion of Ukraine, and our horrified by the tragic human toll. This war is taking.
On March 10th we announced the decision to exit our business in Russia.
In a minute John will provide more detail on steps, we've taken to support colleagues and serve our clients during this crisis.
Yeah.
Turning to current economic conditions and the outlook for the rest of 2022, we see a picture with greater risks and uncertainties than when we entered the year.
That said, we continue to see an environment that is supportive of growth.
Based on our current outlook, we continue to expect mid single digit or better underlying revenue growth for the full year.
We also expect solid growth in adjusted EPS and to extend our track record of annual margin expansion.
Macro challenges like supply chain pressures energy market and commodity dislocations ryzen cyber security concerns and future of work create demand for our services and opportunities to help clients.
We also believe that over the long term demand for our solutions will remain strong.
Rising levels of complexity volatility and uncertainty across the business landscape.
With that let me turn it over to Jon for his comments on the quarter.
Thanks, Dan and good morning, everyone. Our first quarter results were strong we had double digit underlying revenue growth with all businesses positively contributing in our adjusted operating income hit a record level in the first quarter, our strong start positions us well for 2022, despite greater uncertainty about the macroeconomic outlook.
Before I discuss market trends and our performance I want to comment on our response to the crisis in Ukraine.
As Dan noted, we condemn the Russian aggression.
And by the human suffering the war in Ukraine has caused our primary concern is the wellbeing of colleagues affected by this crisis, we took a number of steps to assist them, including providing evacuation support for Ukrainian colleagues and creating assistance programs in Poland and Ukraine.
In addition, we've established the humanitarian relief fund to help the Ukrainian people.
We're also bringing our capabilities and risk strategy and people to support clients as they grapple with the challenges of this conflict and it's wider economic effects.
Oliver Wyman is helping clients in the public and private sectors manage a wide scope of issues. We are working on government security and defense matters, helping a number of banks manage their exposure to the region supporting energy clients with their supply chain considerations and assisting large manufacturers as they manage the risk and production shutdowns.
Marsh is advising clients on risks around aircraft nationalization cyber security physical assets supply chain and transitioning away from Russian energy <unk>.
Mercer is helping clients deal with capital market volatility asset allocation and Russian exposures. We're also working to provide continued health coverage for Ukrainians, leaving the country.
Guy Carpenter is helping clients understand their exposures portfolio concentrations and reinsurance recoveries.
We're also advising clients on the complexities around sanctions and cause of loss number of occurrences and claims aggregation I'm extremely proud of how our firm has responded to this crisis. Overall, we are harnessing the power of Marsh Mclennan to help our colleagues and our clients in this moment that matters.
Now, let me provide an update on current P&C insurance market conditions rate increases in the marketplace continue to persist, reflecting losses and concerns about the impact of inflation on claims and a firm reinsurance market.
The Marsh global insurance market index showed price increases of 11% year over year. This March marks the 18th consecutive quarter of rate increases in the commercial P&C insurance marketplace.
At pricing by line. The March market Index showed global property insurance was up 7% and global casualty rates were up mid single digits on average.
Global financial and professional lines, excluding cyber increased high single digits, while cyber rates more than doubled in some geographies.
As a reminder, our index skews the large account business, however, small and middle market insurance rates continue to rise as well, although less than for large complex accounts.
Turning to reinsurance April one renewals largely reflected a continuation of the January one pricing environment the.
The industry remains well capitalized, but finding capacity is challenging in specific segments. This reflects ongoing and emerging issues such as the frequency of severe events.
Cyber climate change and core and social inflation.
Overall at April one U S property catastrophe rates were up in the high single digits for non loss impacted accounts, while loss impacted accounts generally increase in a range of 10% to 30%.
U S cyber rates were up mid teens or higher depending on loss activity.
Japanese property catastrophe rates increased low single digits.
We remain focused on helping clients navigate challenging insurance and reinsurance markets and the evolving risk environment.
Turning to our performance in the quarter as I noted earlier Marsh Mclennan had strong results in the first quarter, we had double digit underlying revenue growth in both RIS and consulting adjusted operating income income grew 12% on top of 20% in the first quarter of 2021, a terrific result.
First quarter marks the fourth consecutive quarter of double digit underlying revenue growth the longest stretch in over two decades.
Looking at risk and insurance services first quarter revenue was $3 5 billion up 10% compared with a year ago or 11% on an underlying basis. This is the third quarter in the last 12 months risk and insurance grew 10% or better the best trend since 2003.
Adjusted operating income increased 12% to $1 2 billion, while our adjusted operating margin declined 10 basis points to 36, 5% reflecting investments in the business.
At Marsh revenue in the quarter was $2 5 billion up 10% compared with a year ago revenue growth was 11% on an underlying basis, we had excellent renewal growth and we continue to see strong new business.
U S and Canada at 10% underlying revenue growth. This marks the U S and Canada is fourth consecutive quarter of double digit underlying revenue growth.
International was also strong with underlying revenue growth of 11% Asia Pacific was up 17% Latin America grew 16% and EMEA was up 9%.
Guy Carpenter's first quarter revenue was $1 billion up 11% on an underlying basis, driven by strong growth in new business and exceptional retention.
Guy Carpenter has now achieved underlying revenue growth of over 10% and three of the last four quarters.
In the consulting segment revenue of 2 billion was a first quarter record up 7% from a year ago or 10% on an underlying basis. This is the fourth consecutive quarter of 10% or higher growth.
Adjusted operating increased 9% to a first quarter record of $402 million the adjusted operating.
Operating margin was 26% up 10 basis points versus a year ago.
<unk> revenue was $1 3 billion in the quarter up 6% on an underlying basis, the fourth consecutive quarter of 6% or higher growth.
Career grew 16% on an underlying basis, we continue to see robust demand for solutions linked to new ways of working skills gaps workforce transformation and DNI issues like pay equity.
Health underlying revenue growth was strong at 9% in the quarter, reflecting growth across all geographies. This quarter's results benefited from strong demand for our services higher retention rising employment and medical inflation.
Wealth increased 2% on an underlying basis, reflecting modest growth in both investment management and defined benefits are.
Our assets under management were 388 billion at the end of the first quarter down 7% sequentially as net inflows were more than offset by capital market declines however, compared to the first quarter last year AUM was up 2%.
Oliver Wyman this momentum continued despite starting to lap tougher comparables to an outstanding 2021 revenue in the first quarter was $667 million an increase of 17% on an underlying basis. This represents the fifth consecutive quarter of double digit growth and reflects continued strong demand across all.
Fees.
Overall im pleased with our excellent first quarter performance and it sets us up for a good year now I'll turn the call over to Mark for further detail on our financial results and a discussion of our outlook for the rest of 2022.
Thank you John and good morning.
Dan and John mentioned, our financial performance in the first quarter marked a strong start to the year. We saw another great quarter of double digit underlying revenue growth meaningful earnings growth despite tough expense comparison.
We generated GAAP EPS of $2 10 in the quarter and adjusted EPS of $2 30 up 16% from a year ago.
Operating income was $1 4 billion and adjusted operating income was $1 6 billion a first quarter record.
Our adjusted operating margin expanded 10 basis points in the first quarter to 29, 7%. Despite the impact of the significant organic investments we made last year.
We remain excited about the benefits we expect from these investments, but they come with upfront costs, we continue to absorb in the short term.
The first quarter was also active an active quarter for capital management.
We completed the highest quarterly level of share repurchases since the third quarter of 2015.
The pace of acquisition activity continues with the recent announcement of our acquisition of Booz Allen Hamiltons medium practice, and we announced an additional $5 billion share repurchase authorization.
John covered our business operating results. So I'll cover some of the other aspects of our performance and outlook.
Adjusted corporate expense was $60 million in the first quarter.
Foreign exchange was a headwind of <unk> <unk> to our adjusted EPS.
Assuming exchange rates remain at current levels, we expect FX to be a modest headwind in the second quarter.
Our other net benefit credit was $62 million in the quarter.
For the full year 2022, we expect our other net benefit credit will be about $250 million.
Investment income was $26 million in the first quarter on a GAAP basis or $17 million on an adjusted basis and mainly reflects gains in our private equity portfolio.
Interest expense in the first quarter was $110 million compared to $118 million in the first quarter of 2021, reflecting lower long term debt balances.
Based on our current forecast, we expect a similar level of interest expense in the second quarter.
Our adjusted effective tax rate in the first quarter was 23, 1% compared with 24, 3% in 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%.
When we give forward guidance around our tax rate, we do not project discrete items, which can be positive or negative based.
Based on the current environment. It is reasonable to assume an adjusted effective tax rate of around 25% for 2022.
In the first quarter, we recorded $52 million charge, which is mostly noncash relating to our exit from Russia.
This has been treated as a noteworthy item and excluded from adjusted results.
We reached an agreement to transfer ownership of our Russian business to local management, who will operate independently in the Russian market.
This situation resulted in the deconsolidation of our business and an associated associated breakdown of our carrying value.
In terms of ongoing impact revenues and operating income from Russia are not significant.
Turning to capital management, our balance sheet.
We ended the quarter with total debt of $11 7 billion.
Our next scheduled debt maturity isn't until March of 2023.
In the first quarter, we repurchased three 2 million shares of our stock for $500 million, reflecting our strong financial position and outlook for cash generation.
We continue to 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 developments.
As we've consistently said, we favor attractive acquisitions over share repurchases as we view high quality acquisitions as the better value creator 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.
Our cash position at the end of the first quarter was 772 million.
Uses of cash in the quarter totaled $813 million and included 272 million for dividends $41 million for acquisitions and 500 million for share repurchases.
Yes.
As we look ahead to the rest of the year, we see continued strong demand for our advice and solutions, even though we start to lap tougher growth comparisons in the second quarter.
The investments we made in hiring last year will continue to be a headwind to expense in the first half, but as we get further into the third quarter as it becomes less of a drag.
Also we recognized there was a higher level of uncertainty and outlook is caused by the war in Ukraine and its potential impact on the global economy.
Overall, our strong start leaves us well positioned for another good year in 2022.
The full year, we continue to expect to deliver mid single digit or higher underlying growth solid growth in adjusted EPS and margin expansion and with that I'm happy to turn the call back to Dan.
Thanks, Mark and operator, we're ready to go to Q&A.
Certainly.
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 question.
To ask a question you will need to press star one on your telephone.
So withdraw your question first the penalty.
Our first question comes from the line of Elyse Greenspan with Wells Fargo.
Hi, Thanks. Good morning. My first question is on the organic growth another double digit growth quarter.
It sounds like you guys are still expecting that.
Revenue benefited from the hires that you guys did last year is more something that we should think about coming in the future can you give us a sense. If there was any benefit from those hires that positively impacted Q1, and how we should think about the rest of the year or is it still more benefit you expect.
Back in 'twenty, three and beyond.
Sure sure Elyse and good morning.
Take it to begin with and then I'll hand off to John to add some detail to it.
This is many factors, which are underpinning our growth we are in fundamental growth markets. You look at the areas of risk strategy and people. The demand is all on the rise and we are the most strategically positioned company in the world as an advisor in those areas I think that broadly.
And fundamentally we've got some competitive advantages, which are assisting growth and we'll continue to do so.
The hiring strategy of last year.
It has given us a mild benefit thus far in particular on Guy Carpenter, but John why don't you go into that a little bit more detail sure then at least as I noted.
Earlier, we're very pleased with our start to the year growth was strong pretty much across the board.
You're referring to strat hires in.
Yes, but I want to note.
Growth in consulting, which was quite strong in the quarter as well as we're seeing good demand for our services across the board.
We are pleased with the start in terms of the strat higher impact as Dan noted the impact was a little bit.
More notable in Guy Carpenter at this point.
It will take some time for them to become.
Really fully accretive to.
To our revenue expectations, it's a two to three year period, I'm, sorry focuses on onboarding them as successfully as possible but.
But so far so good.
The quarter really create some good momentum for us obviously, there's some macroeconomic uncertainty given the war given rising rates supply chain issues inflation, although I would note inflation is generally a good thing for us of capital markets volatility but.
We're well positioned as I said earlier, there's strong demand for our services and we expect a good strong year of growth.
Thanks, and then my follow up.
Within RIS, if I look at the other operating expenses on an adjusted basis and look to be flat to down modestly versus last Q1, which represented a pretty tough comp. So any color on the drivers of that given that I would think <unk> should have been higher there and how should we think about the outlook.
For the other op expenses over the balance of the year.
Sure.
Similar to last year the growth of expenses was virtually all.
Related to compensation and benefits and so we continue to manage our expenses as we've always done.
And when we look at the start of this year, yes things like <unk>.
Our.
A bit higher than what they were we would and we would hope that that would continue because it would point to more of a return to a normal operating environment How's.
However, our searches for efficiency never ends out our goal and I think I've said it on previous calls in the past.
A healthy comp and Ben as a percentage of revenue.
Good think for our business, we're a people business, but continued.
<unk> on reducing all other operating expenses, particularly as we grow the firm bigger and bigger and use our some of our scale advantages to get some economies.
<unk> is something that's core to how we operate the firm.
So I don't think youre going to see a lot of growth in the all other expense category in fact over time, you'll you'll see reductions there.
Next question please.
Our next question comes from the line of Jimmy Buhler with J P. Morgan.
Hi, Good morning, you spoke about this a little bit.
Your comments as well, but can you talk about what youre seeing in terms of just pricing in both the commercial market and in reinsurance and getting.
It seems like the prices are still up but the pace is slowing down and what sort of pushback.
Are you getting if any from newer clients.
The steady increases in and what are some of the things that they're doing where they are increasing retention or otherwise.
It's a good question John you want to take that sure Jimmy as I as I noted in my prepared remarks, the insurance and reinsurance markets remain pretty challenging for our clients, having said that rate increases are decelerating in it.
And at least most insurance markets around the world Cyber of course is the most notable.
Exception for us, though there is a the mitigating impact of that rate deceleration around.
Inflation.
And values, but let me ask Martin and Dean to comment a bit Martin maybe you could start off for a bit more color on what's happening in the insurance market sure. Thank you John .
Well as you noted, it's the 18th consecutive quarter of rate increases to our clients.
Wary.
It's a concern but they decelerated as I noted in the last call. We had they came down by two points in last quarter. Another two points this quarter.
To land at 11% geographically still as I noted last one this one outlier, which is Latin America, where they still modest rate increases but has it been flattish during the rest of the cycle.
By product across the board growth casualty still strong at 4% property up 7%.
<unk>, which includes side, but 26% of your stripping that out that comes down and we're still seeing double digit and doubling of rates in cyber.
Over 110% in the U S and the UK rates are 100%. This is a lot more.
Concerned about that but otherwise.
<unk> is a modest deceleration.
Thanks, Mark Deane thank.
Thank you John .
John mentioned earlier the April one renewal reflected the continuation of the January one pricing environment.
But theres challenges in the reinsurance market in certain segments that are driving pricing up.
Examples of that would be the property catastrophe market, where aggregate capacity continues to be constrained and the trading environment.
Parts of the cyber market, including aggregate capacity for extra well excess of loss contracts is currently a challenge and we're seeing double digit pricing in the cyber market.
And then I would referred to segments of the London specialty market that are really being impacted by the Russia, Ukraine War, including war terrorism political violence aviation and marine coverages were experiencing very challenging renewals for excess of loss Contra.
<unk> and then certainly retro session capacity again as capital has flowed out of the ILS market in Bermuda and London.
Again capacity for retro session coverage continues to be very expensive and a challenge for our clients.
Thanks, Dan just one quick last point, Jimmy we've continued to invest heavily in data and analytics really help our clients navigate the market and make the tradeoffs that work for them. So it's a client by client.
Ultimately.
Okay.
If I could just ask one more on the Russia is the.
Russia directly obviously is a very small part of your business, Ukraine as well, but the full impact of the conflict in terms of any sort of.
Collateral impacts or something.
Is that fully reflected in your results or is there something that would be a lag in future periods.
Because it sometimes takes clients time to react and like should we expect anything noticeable.
Tokyo from Russia.
Yeah, there's no inherent built up issues that we're aware of but there are implications to this war there's war on Ukraine that are yet to play out and so we don't know what those are what's the impact on energy prices, what's the impact on GDP globally in particular in Europe .
Is there.
A continuation of taking sides, which creates more division in the world and what's the impact on that basis in terms of the last 20 years globalization developments and so theres a lot of factors Jimmy.
And that's part of the uncertainty that we've all talked about.
We're doing very well in some ways, we thrive in periods of uncertainty and volatility because our clients want to talk issues through and we're a company that they turn to on some of these issues, but in terms of.
Headwinds that it could conceivably create I think it's going to play out for quite a while now and we'll just have to.
See how it goes but we've demonstrated in many different periods of time, whether it's the global financial crisis, Covid et cetera that we are.
Extremely resilient organization.
Thanks next question please.
Our next question comes from the line of Juran Qunar with Jefferies.
Thank you and good morning, everybody.
My first question I guess, maybe.
Maybe continuing on your last comment then.
Clearly you have a very strong track record of hosting expenses that are lower than revenues.
But with the significant hires you had last year, if we do head into a recession. This year do you think that you can still achieve margin expansion.
We're going to have margin expansion this year.
And then it will be our 15th year of.
Five consecutive years of margin expansion, we run our business, where every year, our revenue growth will exceed our expense growth and it's not every quarter, but it's most quarters and it certainly every year is the way we approach.
The business and we have.
Tremendous capability of managing that expense base.
In both good times and tough times, some ways managing your expense base in tough times is easier than managing our expense base in good times, where everybody wants to do.
Neat and different things, so but ultimately.
We're comfortable that.
That.
That we've got growth momentum and that will that will continue based upon the industries that we serve.
Okay and my second question is with the <unk>.
Fed hiking rates now fiduciary income I'm, assuming is going to move up do you expect to.
We have that flow all to the bottom line or do you have some maybe.
Additional investments that you would see taking action on.
Taking advantage of the higher margin coming from fiduciary income.
Good question.
So mark you want to take that yes, you Ryan good morning.
Fiduciary.
Interest income is that it's certainly a source of upside.
For us in <unk>.
Exactly how much and when and when we see the benefit all depends on on when rates move, but the vast majority of that would just flow right through to the.
Bottom line 2019, we had $105 million of interest income last year was $15 million.
We've overcome that.
These days, we are averaging about $10 billion of fiduciary asset so if rates move across the world, where all our balances are by.
100 basis points.
That's $100 million of upside for us.
Thank you.
Next question please.
Our next question comes from the line of Meyer Shields with K B W.
Thanks, Good morning, I wanted to follow up on that if I can to clients.
Sure.
Pushed back against fee increases when could you carry income is rising or those seen as completely separate.
No.
It's a good question and I have been in the business for 40 years clients don't want to get involved in the.
The paying the 27 underwriters who are on their account in some of those things are semiannual payments and some are even monthly or quarterly it is an administrative complexity.
Clients have no interest in being part of <unk>.
Take our fiduciary responsibilities.
Very seriously so it's not like we can invest long on fiduciary asset. So it's all the short end of the curve but.
We would anticipate no pushback on getting.
Some income from fiduciary income because the fact of the matter is for a number of years. This has only been one way.
<unk> in the direction of down and so there's been many years, where we've done an awful lot of work around.
Billings and payments in which there was very little or no compensation related to it. So so we're looking at this as a.
The potentially large upside to us.
Okay perfect.
Second question I was hoping you could frame.
I guess clients willingness to spend on ESG, how has that been developing and is there any difference.
Based on client size.
Yeah, no. It's a very good question and in some ways the addressable market for <unk> has not yet been determined it is going to go wide.
Getting larger every year and fundamentally I think that every company.
Private or public mid size or larger it's going to have to demonstrate that they're a good company.
And they demonstrate that in a multitude of different ways, but two.
<unk>.
With tight labor market.
The kind of company that people want to work for clients want to be associated with companies who are doing good work in the world.
But I think it's an interesting question I would like to go around the horn, a little bit and maybe John can talk about it and then maybe martine and Nick can address it a little bit because they are seeing a lot of ESG benefit in their results with John sure Ed.
We're quite excited about our role here.
The ability to impact clients and their future and it's contributing positively to our growth now, but we're in the very early stages of what's possible here.
Across all of the businesses Dan noted some of the work that we're doing in his prepared remarks, but but again, we're developing new solutions new products.
Working with our clients every single day.
No we're part of the sustainable markets initiative overall as a company.
Excited about that Nick maybe I'll ask you to comment first youre doing a lot of work, particularly around climate.
Other issues as well, yes, Jonathan. Thank you. Thank you all for the questions.
Oliver Wyman has been working a great deal with companies across sectors to help plan for a small club of transitional over lines that Tom described in his prepared comments.
We largely work with the larger companies so I called the segmentation Paul to your question, but.
But whether it's in <unk>.
Financial services supporting buckled industry as they move to support back clients or whether it's with some of the hub to abate sectors like steel like some of the transportation sectors.
We see an enormous amount of work of our climate and sustainability practice more than doubled last year, it's as big as some of the significant industry practices already.
Maybe you could comment obviously see big demand and career services, but also doing a lot of work and investment investments no absolutely John and thanks for the question Matt.
We've been pioneering in ESG for many many years now first and foremost in your transition to the low carbon economy. So the investors are signed.
Work with us in managing their assets and they want to understand the transition to a lower net zero emissions economy and also the impact of for example, the Emerson.
We're making and their exposure to Russia, which both under for them their ESG policies that were helping them.
Look at this and the consequences on oil supplies, the energy strategy et cetera. So there's high demand for research for advice modeling of the risk.
That are associated with that and do we learn the various investment strategies and as you mentioned John of course.
The diversity and inclusion domain.
That's another place where we've been very active we have many studies that help clients bridge, the gender gap or the race and ethnicity gap, we do workforce analytics, we do pay equity.
And bill diverse workforces.
And that's been such a top us.
Minded Jen.
Agenda item for our clients in the last couple of years.
We just issued as we've said in the.
Opening remarks, a stepping up for equity study, where we've worked with 50 clients to identify the techniques and strategies that you can employ that.
For employers to really close.
Close the gap on the <unk> Black Americans and Theres a G. In ESG and that can also been always on our agenda. When you think about the work we do for executive compensation, DB and DC the pension patent covering <unk>.
Governance advice, our OTI <unk> business is very much.
And on <unk>.
Governance.
Model that is agility and integrated to the investments.
So that's really top of mind for our clients and it's a business that's been growing really fast over the last many years.
Thank you. Thank you Martin what's happening at Marsh.
Thank you John .
Yes.
Exciting things going on in March we sell it.
Our resilient index too has still proposing from cost to see that progress on that business with testing hypotheses on clients about how a positive school can impact on the loss cost growing food and an initial study on D&O rates as mentioned in your remarks.
<unk> that claims can be dismissed earlier and then lower outcome is companies have seem to be doing good.
We're testing that hypothesis in other areas of the business on the casualty lines to offset social inflation.
And property as well where companies are investing heavily in social in.
Pollution protection and so forth, we will make in pet data, we feel that we're going to back that up with the the data strategy, we have and make a positive for our clients as they as they look ahead and this goodwill perhaps two terrific terrific. Thank you team one last one thanks, John obviously climate change is a top priority for Guy Carpenter.
As clients and we're working very closely with them to support them. In these efforts, obviously, helping them understand physical risk to climate change across their portfolios across the world and we're doing a lot of modeling and analytics work there to help them support their we're advising them on regular.
Tori requests that come in that wanted to assess climate change, we do credit rating advisory lots of questions about the impact on climate change and last John I would mentioned structuring transitional reinsurance solutions to help kind of mitigate that exposure for our clients.
Thanks, Steve. Thanks, So you can see Myer, where we're all over the ESG space and expected to underpin our growth.
In future years next question. Please.
Our next question comes from the line of David motivated with Evercore ISI.
Hi, Thanks, good morning.
Just wanted to clarify a comment.
On on.
On the reductions in other G&A expenses.
Over time, I guess was that a comment for this year or is that over a medium term timeframe and also just want to get a sense for what's driving that because I know in the past Dan you've spoken about the operational excellence program, which might be contributing but I'm also wondering are there any sort of other.
Or you know sort of like real estate optimization or any other cost save programs that you're implementing as a result of some of the changes that.
Had been put in place due to COVID-19, and what that means for the workplace is that also a driver that's coming through in that comment as well.
Yeah.
It absolutely is David ultimately the way we run our business is one.
One of the operative words that we use is more we wanted to get better every year, we wanted to provide our clients with more capabilities with less internal costs until our search for efficiency.
As a core part of this executive team's job.
And something that we're very focused on it and whether it's real estate more purposeful travel tech modernization operational efficiency gains. The fact that we've got several new faces around the table and new cases come up with good ideas and fresh ideas and Theres, a lots and lots of ways of running the business and our goal over.
<unk> is supporting our clients with a combination of really good comp and Ben because that makes us a strong company and.
<unk> us be an employer of choice in the industries that we operate.
But always relentlessly going after all other expenses that are just fundamental aspects of running a multinational. So so this is a.
A midterm and a long term.
Downward trend in our expense base and all other expenses.
Our next question or you have a follow up David Yeah, I do have a follow up that's helpful. Dan I appreciate that and you mentioned a lot of new faces around the table, which is obviously.
Yeah, you guys have been prolific in hiring I guess I look at the $30 million of legal claims that you guys have.
That you guys have incurred this quarter I think its around $90 million.
Over the last five quarters is there a way to approximate.
How much of revenues are coming with those.
Just from some of the teams that you guys have have hired is.
Is it is it $50 million and $90 million is there just like a rule of thumb that we can think about for the potential revenue impact over the next few years as those people are on boarded.
Yeah, I mean, I think I think the way to look at it is.
<unk>.
Our revenue over the next several years should benefit from the organic hiring that we did last year I mean, you look at it on the basis of.
Last year, we had an opportunity to make significant organic investments in building our business and it's something that we always focus on delivering good results today, but always focusing on the future and how we can build a better company and this is an opportunity.
John and I haven't seen in our careers in terms of being able to build the business on an organic basis and so we have the opportunity and we have the means and last year's strong levels of organic growth helped to provide those means.
Meant that we could still deliver good results to investors last year, while we were making these strong organic investments.
You have to know that we all know around the table that organic investments are always short term dilutive and it's harder to do in some ways and acquisitions just by the P&L that while we've made the right decision and pressed forward. The vast majority of that expenses comp and Ben and the way I would look at it is we've got another.
Two or three quarters.
And then the expense growth is going to be in the rearview mirror, but the capability and the growth kicker will remain and so this is a huge benefit to the overall organization, we're not going to quantify.
Weather.
Henry and Sally are delivering today I mean, we're a big organization, we've added to our market leading capabilities.
We like where we're positioned right now in terms of the performance of observe them that strategic hiring and this is going to be a benefit for us.
In coming years as well as this year.
Understood. Thank you.
Sure next question please.
Our next question comes from the line of Brian Meredith with UBS.
Yeah. Thanks, a couple quick questions here first.
Maybe mark free cash flow this quarter.
It was pretty weak.
And it looks like there was a lot of pay compensation, how much of that was call. It onetime in nature just from all the hires that you had.
Last year end.
Kind of how do I think about free cash flow here going forward.
Sure Good morning, Brian .
I'd start by saying, our if you look back over a long stretch of time, our track record on free cash flow growth has been terrific flat decade, we generated double digit free cash flow growth and you expect that given our strong earnings and our outlook for continued strong earnings growth and continued strong free cash flow growth.
If you look back over that last decade ago, you'd see a lot of volatility and you see that volatility.
A couple of years so Jenny.
Generally would stay away from talking about predicting free cash flow and give the year. Although we expect strong cash generation. This year now as you pointed out first quarter is typically our low <unk>.
Our cash generation, because we do pay out the majority of our variable comp in the first quarter.
And the reduction this year was because our variable comp payouts for where up.
And that was.
Mostly a function of the strong performance, we had last year, both on new business growth of sales related plants as well as just the overall growth in earnings.
And the bonus plans that accrue from that.
Great and then my next question I'm just curious if.
Perhaps you could talk a little bit about what the M&A kind of environment and landscape looks like right now given all of the uncertainties right now with respect to you know what economic growth could look like over the next 12 months.
Wonder if you can comment on that.
Sure.
I'll start and then I'll hand to John .
M&A is a big part of our organization and not just for the last decade, but but literally since its inception.
We don't have a budget around acquisitions, where we're cautious when we make acquisitions, we like to.
Cultivate relationships relationships over long stretches of time.
It has been commented in the marketplace before many times over the last decade.
<unk> have risen. So therefore, we are even more selective than we used to be and we're careful around pro forma is because most of the companies that we acquire are private and we wanted to really understand the ongoing.
Characteristics of the business and not some fancy dressed up pro forma statement and so.
The one thing that we're committed to this capital deployment and so we look at we favor share repurchase.
Our acquisitions over share repurchase, but we certainly favor share repurchase over building more cash on the balance sheet and so we will utilize that circa $4 billion between dividend, which is sacrosanct and growing acquisitions, and then share repurchase, but the M&A pipeline ebbs and flows it looks pretty.
Good right now, but we don't really have we wouldn't at this stage to have a strong idea of where we would end up the year on that because many of the discussions. We have are are exclusive and then discussion is essentially the company deciding whether they want to join forces with us or stay private but John do you want to talk about the <unk>.
<unk> on how we're looking at M&A. These days sure good morning, Brian .
Did we did three small deals in the quarter, one at Oliver Wyman and Australia wanted MMA here of course in the United States and then we did.
One.
Mercer Marsh benefits in France. So we remain very active in the market. The pipeline as Dan noted is it was pretty solid generally speaking the pipeline is deepest in the middle market brokerage space.
Typically where we see I'm, sorry, best the most attractive opportunities.
I would point out we've done some more at Oliver Wyman to a lot of work at Oliver Wyman of late not just in the quarter, but in the later part of last year and you may have seen that we recently announced that we expect to close on Booz Allen Hamiltons middle Eastern business sometime in the second quarter. So we'll see how the market.
Evolves.
Part of the dynamic here is our reputation as a buyer is very strong in these markets.
So we get a good look at very attractive assets.
Thanks, Nick next question please.
Our next question comes from the line of Ryan Tunis with Autonomous research.
Hey, Thanks, just on EMEA within RIS those results were particularly strong.
Just curious if you can.
Could give us some color on sort of how demand and trading trends.
Developed I guess as the quarter went on and as geopolitical got a little more complicated.
Sure John sure sure Ryan Yes.
We're pleased with our start.
In EMEA, we had good growth in the UK, we've shared in the past for Continental Europe . The first quarter is a big part of the overall year. So.
I'm pleased to have to get off to a strong start I think.
One area that was probably notable on the RIS side is the impact of capital markets.
The slowdown in M&A the slowdown in Ipos.
We began to see a bit of an impact.
As the quarter went on but but overall demand again for our services remains quite strong and we feel good about how we're positioned in all over the world, but in EMEA in particular.
Got it and then on the Mercer side results were strong again, there as well.
Can you maybe just remind us is there seasonality to the discretionary aspect of that like I wasn't sure.
Perhaps first quarter, there are more discretionary projects in.
Maybe that's why it was outside so it's not even throughout the year and also curious I guess from our team on the wealth side with higher interest rates in choppy markets.
What are the headwinds and tailwind you said that that produces.
Ah you sneaking in two questions.
Yes.
I might add that sorry.
Thanks Martine.
Thank you Ryan.
First you asked about the discretionary project and I would say no. It does not there's no cycle to this it's pretty much through the year as big projects that clients.
Work with us.
Theres still lots of demand for these projects of course, we always keep an eye on on the outlook.
In terms of potential recession as we know this is the discretionary projects are a little bit more sensitive to that than other parts of the business, but so far so good the demand is really strong and we see an immediate and very strong outlook for the year and you just think about the solutions that we saw.
Following through with our clients in these discretionary project, whether they are the future of work or.
And there is a link to your question on the volatility on the wealth business because when there is uncertainty clients need us to do more modeling or.
We're in.
Planning around the investments in the pension plan.
The bottom line is it's not seasonal.
And just to complete the thought on your question on the wealth side.
Of course, the capital markets have been.
Creating some headwinds on the short term basis.
Part of the business that's linked to our assets under management, we call it <unk> outsourced.
Chief investment officer business of Tio is a fantastic business, it's given us many many years of strong growth we.
We have strong flows but of course on the short term as this business grows.
Proportionate to our portfolio will maybe see a little bit more volatility there but.
We're able to manage that in the Grand scheme of the firm and we've done so this quarter because it has been negatively impacted since the beginning of the year.
The other thing the other end on this and you've alluded to that in your question.
First of all the AUM portfolio or assets are diversified so theres some risk management in that equities fixed income and alternative in the long run it will grow.
It's also that this business now is larger than our traditional DB business.
Therefore over the long run we also see that as a debt.
As a tailwind.
And the market Volatilities, just creates demand for a stronger governance better agility in moving assets from one to the next and you'll see this as interest rates go up and the pension funding gets better youll see clients wanted to secure that and art.
Shifting assets to fixed income and also provides them more opportunity to think of EBIT scheme.
Side of the business, which has been a trend for many years now.
Perfect next question.
Yes.
Thanks.
Our next question comes from the line of Josh Shanker with Bank of America.
You've been really generous with your time and we're at the end. So I'll be quick with just one easy one can we just talk about Covid in Asia Pac right now and what that means for the coming quarter and how you see that playing out.
Sure I mean I think.
I used the word resilience before it's not just us I think the world has gotten pretty resilient.
We're not in 2020 anymore.
Been able to adapt.
Two different waves that have occurred in certain segments, whether that's in Europe U S Asia.
The one thing about Covid is no part of the world actually escaped and so we don't see a tremendous.
Impact on our results from Covid.
It would be more of a softer potential impact on just.
Any headwind on GDP or or business development, but other than that we feel pretty good I mean, you just look at it.
March's results as an example in Asia Pac and in the quarter.
It wasn't it's not COVID-19 free.
We're pretty active in Asia Pac.
So.
Some ways in terms of impact on our results. We think COVID-19 is pretty much in the rearview mirror as well knock on wood.
Thank you.
Thanks.
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.
So thank you all for joining US today, we look forward to speaking to you next quarter and in a particular shout out to all of our colleagues for their hard work and dedication in serving our clients. So thank you very much.
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