Q3 2022 Marsh & McLennan Companies Inc Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Okay.
Welcome to Marsh Mclennan as earnings Conference call today's call is being recorded.
Fourth quarter 2022 financial results and supplemental information were issued earlier this morning.
Are available on the company's website at Marsh Mcclennan Dot com.
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.
Conciliation of these measures to the most closely comparable GAAP measures. Please refer to the schedule in today's earnings release.
If you have a question. Please press star one one on your Touchtone phone.
If you are using a speakerphone you may need to pick up the handset before pressing the numbers. Once again, if you have a question. Please press star one one on your Touchtone phone.
I'll now turn this over to Dan Glaser, President and CEO of Marsh <unk> Mclennan.
Thank you Andrew Good morning, and thank you for joining us to discuss our third quarter results reported earlier today, I'm, 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.
Mcgivney, our CFO and the Ceos of our businesses.
South of Marsh deemed for Sora of Guy Carpenter.
Our team for a long of Mercer.
And Nick Studer of Oliver Wyman.
With us this morning is Sarah Dewitt head of Investor Relations.
Today is my 60 at the earnings call at Marsh, Mcclennan and 40th as CEO . After 10 years as President and CEO I will I will be retiring from marsh mclennan at the end of the year.
Leading this firm over the past decade has been the honor of a lifetime before.
Before I jump into our results I'd like to say, how pleased I am about the leadership succession, we announced the appointment of John Doyle as President and Chief Executive Officer effective January 1st continues to underscore Marsh Mcclennan deep trove of industry leading talent.
During John's tenure, as president and CEO of Marsh, he drove exceptional revenue and earnings growth.
And as group President and C. O O John is finding new ways to harness the capabilities of marsh mcclennan across our business accelerating impact for clients colleagues and communities.
John has been an indispensable partner to me and the other members of our executive committee in shaping and executing our strategy.
He knows our business well and is focused on delivering outstanding performance for our clients and shareholders.
I am confident that our extraordinary success will continue under John's leadership.
Marsh Mclennan third quarter results demonstrated strength on strength.
Top line momentum continued across our business extending the best front of quarterly underlying growth in over two decades.
We generated strong top and bottom line results despite difficult year over year comparison.
Underlying growth of 8% in the quarter reflects considerable strength across our organization.
It represents the sixth consecutive quarter of 8% or higher topline growth building on 13% growth a year ago adjusted.
Operating income of 851 million was a third quarter record and grew 12% on top of 19% in the third quarter of 2021.
Adjusted EPS growth of 9% as excellent, especially given costs related to our strategic talent investments the rebound of TNA and 32% growth in the third quarter of 2021.
We completed $500 million of share repurchases in the third quarter, bringing year to date repurchases to $1 6 billion, which is higher than any full year level of repurchases in our history.
While the economic and geopolitical backdrop is uncertain, we have a proven track record of being resilient through cycles and are well positioned.
Overall, our third quarter performance highlights the strength of Washington, Mclennan, the critical nature of what we do for our clients and the unmatched expertise of our colleagues with that let me turn it over to John .
Thanks, Dan and good morning, everyone.
I am honored to become Marsh Mcclennan next president and CEO .
And grateful for the trust and confidence Dan and the board are placed in me to lead this exceptional company.
I'm eager to work with our colleagues at realizing new possibilities to serve our clients great value for our shareholders and support our communities.
I am pleased with our third quarter results.
We delivered strong growth despite a macro backdrop that is becoming more uncertain.
We are delivering solutions to help clients navigate volatile economic geopolitical and risk landscape.
As we discussed last quarter there are aspects of the current environment that remains supportive of our growth.
Higher inflation offsets lower real GDP growth rising interest rates Boost-start fiduciary income.
And the challenging insurance market drives a flight to quality.
We also have a track record of success and being resilient through cycles, and I believe marsh <unk> Mclennan is well positioned for.
I would like to take a moment to discuss hurricane in gist.
Just had a devastating impact on the people and communities in Florida.
Ian has the potential to be the costliest insured event in Florida history, and the second most damaging insured loss of all time.
We are working with insurers to help our clients receive much needed support.
Insurance is a critical role to play you're building homes and restoring shuttered businesses. Our work reinforces marsh mclennan its purpose to be there in the moments that matter for our clients and communities.
<unk> category for strength.
Incredible size slow pace resulted in tremendous damage.
Cost of which is exacerbated by the effects of postal development the escalation of property values general inflation.
And persistent supply chain challenges.
While the ultimate insured loss won't be known for some time the impact on an already stressed property market will be significant.
At mid year reinsurance renewals property market is already exhibiting strengths.
Following in the property cat market is likely to tighten even further and perhaps see a significant supply demand imbalance.
We are harnessing our collective expertise.
Scale and capabilities to bring solutions help our clients navigate this complex risk environment.
Turning to our third quarter financial performance, we generated strong results.
Adjusted EPS of $1 18.
Is up 19% versus a year ago, which is impressive on top of 32% growth in the third quarter of 2021.
Total revenue increased 4% versus a year ago, and rose, 8% on an underlying basis with 9% in RIS and 8% in consulting.
This is a terrific result, especially considering the prior year third quarter underlying growth was 13%.
Bosch had an excellent quarter growth was 8%, reflecting new business and strong renewals.
Guy Carpenter grew 7% quarter, continuing its string of terrific votes.
Mercer grew 5% in the quarter despite capital market.
And Oliver Wyman grew 13% seventh consecutive quarter of W double digit.
The third quarter saw adjusted operating income growth of 12%.
And our adjusted operating margin expanded 110 basis points.
Overall, I am proud of our third quarter performance, which demonstrates the strength and resilience of our business.
Given our strong third quarter and year to date performance. We are on track for an outstanding year.
We expect to generate high single digit growth underlying revenue.
Solid growth adjusted EPS and to report margin expansion 15th consecutive.
We are focused aligned at succeeding together as our results demonstrate.
Before I turn it over to Mark I'd like to say a few words about that.
During <unk> tenure at the helm of Marsh Mclennan company has been transformed.
Our revenue has nearly doubled.
Our adjusted EPS has more than tripled and our market cap is QUADRA.
Our scale and capabilities have been enhanced and our talent is unmatched.
Dan, let our expansion into new client segments, and launched Marsh <unk> Mclennan agency.
Which has grown to $2 $5 billion of annual revenue closed 100 acquisitions.
Okay.
Dan also successfully led the company's five $6 billion acquisition J L. T. In 2019, the largest in our history.
Most importantly, and has led our firm with vision courage and integrity.
Faced with the consequences of the pandemic is values first leadership ensured that the tough choices were made safeguard our colleagues.
To protect jobs and incomes.
River for clients.
Bolster liquidity.
And still produce significant growth.
His decision we are an inspiration to our colleagues and an example to the broader business.
Our financial performance speaks for itself.
With Marsh Mclennan, it's total shareholder return or the doubling the S&P 500 during dance stewardship.
Less visible, but even more significant.
Is there a sense of pride and the culture of Dan is instilled in the firm.
Under his leadership not only a great stock a great company.
We owe him our gratitude.
So on behalf of our 86000 colleagues I, thank Dan for his leadership.
And with that 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 2000.
Thank you John and good morning.
Dan and John mentioned, our performance in the third quarter reflects continued momentum across our business.
So another quarter of strong underlying revenue growth meaningful earnings growth, despite tough revenue and expense comparison.
Consolidated revenue increased 4% $4 8 billion.
And reflected underlying growth of 8%.
Operating income was $791 million adjusted operating income was 851.
Our adjusted.
<unk> operating margin of 19, 6% up 110 basis points from last year.
Increase was driven by modest operating leverage and a benefit from foreign exchange.
We generated GAAP EPS of $1.08 in the quarter and adjusted EPS of $1 18.
9%.
For the first nine months of 2022 underlying revenue growth of 9%.
Adjusted operating income, 11% to 3 billion.
Julien.
Our adjusted operating margin 60 basis points to 25, 6%, our adjusted EPS, 12% $5 38.
Looking at risk and insurance services third quarter revenue was $2 8 billion up 6% compared with a year ago or 9% on an underlying basis.
Operating income increased 32% to $529 million.
Adjusted operating income increased 20% to $562 million and our adjusted operating margin expanded 200 basis points to 22, 4%.
For the first nine months year revenue nine 7 billion underlying growth 10%.
Adjusted operating income for the first nine months increased 13% to $2 8 billion with a margin of 31, 1% up 80 basis points from the same period in 2021.
At Marsh revenue quarter was $2 5 billion odd percent year ago.
Revenue growth was 8% underlying.
Supported by strong retention and.
U S and Canada had 5% underlying growth a solid result, considering the 16% growth in the third quarter of 2021 that included the benefit of significant M&A in spec related activity.
International underlying growth was 11%.
Latin America grew 15% Asia Pacific was up 14% EMEA was up 9%.
First nine months of the year Marsh's revenue was $7 8 billion underlying growth 9%.
U S and Canada was up 8% international tenders.
Guy Carpenter's third quarter revenue was 328 up 7% on an underlying basis.
Solid production and retention.
Guy Carpenter has now achieved underlying revenue growth of 7% or higher six of the last seven quarters.
For the first nine months of the year Carpenter generated $1 8 billion revenue, 10% underlying.
Okay.
In the consulting segment revenue of 2 billion was up 1% from a year ago or 8% on an underlying basis building on 12% in the third quarter of 2021.
Operating income decreased 14% to $350 million, reflecting a onetime noteworthy benefit a year ago.
Adjusted operating income to be.
362 billion were solid earnings.
Asked by a drag from foreign exchange.
The adjusted operating margin expanded 20 basis points to 19 one.
Consulting generated revenue of 6 billion for the first nine months of 2022 and underlying growth of 9%.
Adjusted operating income for the first nine months of the year increased 5% to $1 1 billion. The adjusted operating margin was 19, 6% flat versus the third quarter 2021.
<unk> revenue was $1 3 billion in the third quarter up 5% on an underlying basis, which is impressive given the impact of market declines on our investments.
Career grew 15% on an underlying basis, the sixth consecutive quarter mid to high teens growth.
<unk> continued to see strong demand for solutions workforce transformation as well as compensation and rewards.
Health underlying growth was also excellent 10% quarter, reflecting strength across all geos.
Wealth decreased 1% on an underlying basis due to declines in both equity and fixed income market.
This market impact represented a 2% head to Mercer its overall growth quarter. However.
However, solid demanded defined benefits help mitigate decline at best.
Our <unk> our assets under management was 318 billion at the end of third quarter down, 8% sequentially and 20% from the third quarter of last year due entirely to Mark Lyons and foreign exchange.
For the first nine months of the year Avenue at Mercer was 4 billion, 6% on an underlying.
Oliver Wyman has strong momentum.
Revenue in the third quarter was 667 million an increase of 13% on an underlying.
This comes on top of 25% of the third quarter last year.
Flex.
<unk> demand across most geographies and solution.
First nine months of the year revenue with Oliver Wyman with 2 billion increase at 15% and underlying.
Adjusted corporate expense was $73 million in the third quarter.
Based on our current outlook, we expect approximately $80 million for the fourth quarter.
Foreign exchange had an immaterial effect on our adjusted EPS in the third quarter, although year to date.
Headwinds of seven.
Assuming exchange rates remain at current levels, we expect FX to be a headwind seven in the fourth quarter.
Our other net benefit credit was $57 million.
For the full year of 2020 to affect our other net benefit credit year around 230.
We reported an investment loss of $1 million in the third quarter on a GAAP basis.
On an adjusted basis, we had investment income of 3 million.
Interest expense in the third quarter was $118 million compared to 107 in the third quarter of 2001.
Based on our current forecast expect interest expense 121 billion fourth quarter.
Our adjusted effective tax rate in the third quarter was 24, 6% compared with 24, 4% third quarter of last year included a modest net benefit discrete.
Excluding discrete items, our adjusted effective tax rate was 25%.
When we give forward guidance around our tax rate now project discrete items, which can be positive or negative based.
Based on the current environment.
Reasonable to assume an adjusted tax rate to be 5%.
Full year 2022.
Turning to capital management in our balance sheet, we ended the quarter with total debt of $11 4 billion.
Our next scheduled debt maturity March of 2023, when $300 million of senior notes mature.
Our cash position at the end of the third quarter was $802 million.
Uses of cash in the quarter totaled $931 billion, including $293 million dividends 138 million for acquisition.
500 billion share repurchases.
For the first nine months uses of cash totaled $2 9 billion included $840 million dividend 411 billion for acquisitions $1 6 billion share repurchases.
We continue to expect to deploy approximately $4 billion of cap 2022, plus dividends acquisitions and share repurchase.
Overall, we remain on track for a terrific 2022.
For the full year, we expect to generate high single digit growth in underlying revenue solid growth in adjusted EPS and margin expansion.
Secondly.
And with that I'm happy to turn it back.
Thank you Mark.
Before we open up the call for Q&A I, just want to say it has been a great privilege to lead this firm and work side by side with smart creative and dedicated people.
Immensely proud of our colleagues and what we have accomplished together, we've grown innovated and persevered.
We launched and built MMA expanded our capabilities in combination with J L T and demonstrated resilience in the face of a financial crisis and global pandemic.
We emerged as a better and stronger firm by relying on each other living our values supporting our communities and staying focused on clients.
I've always believed the greatness of our company is in how we deliver and the big moments and the small.
Under John's leadership, I know Marsh Mclennan will continue to thrive and prosper make a difference in the moments that matter. There is no one I trust more with the company, we have built together and what the important work ahead.
I'd like to thank our clients for choosing to do business with us our shareholders for their continued confidence and most importantly, our colleagues all of that we have achieved is due to their efforts with that operator, we are ready to begin Q&A.
Thank you.
We will now begin the question and answer session. If you have a question. Please press star one one on your Touchtone phone if youre using a speakerphone you may need to pick up the handset before pressing the numbers. Once again, if you have a question. Please press star one on your Touchtone phone.
In the interest of addressing questions from as many participants as possible, we ask that participants limit themselves.
One <unk>.
One moment please.
And our first question comes from the line of Elyse Greenspan with Wells Fargo.
Hi, Thanks, good morning.
First off Dan My Congrats to you on your upcoming retirement.
And it's been great working with you through the years.
My first question.
On U S and Canada within RIS in the quarter.
The growth did slow.
From where you guys had been trending.
I know we've had some good and bad quarters as we've gone through the pandemic and came out was there anything specific going on in the third quarter that you want to point out within that business.
Thanks, Elyse and I appreciate your comments. So thank you very much and I hope to keep in touch with you.
Yes.
So let me just start I'll I'll handoff to Martin and the second.
Obviously marches has been doing fantastically well in U S. Canada has done well as well so I would just start by saying that the comparable was pretty tough at 16% growth in U S. Canada last year, but Martin do you want to dig in and give a little bit more color. Thank you Dan. Yes, we are very pleased with the strong organic growth of eight <unk>.
<unk> in the quarter, which was on top of 13% in the prior quarter at 21.
Growth was strong across all the geographies EMEA was up 9% Asia Pac 14.
C was up 15% to 5% as you've as you noted in the U S. Overall, good year to date growth of 9%.
And whilst the 5% is a slowdown it was 16% in Q3 of 'twenty one.
And when we look at the U S over longer periods.
The U S and Canada is 8% year to date.
And 13% in the in the full year of 'twenty one.
Canada is doing extremely well in the U S growth last year in the back half of the year. It was exceptional performance in M&A spec and capital markets activity, we don't see that repeating in the volatility of the markets going forward, we made fantastic investments last year and producers that are focused on recurring business.
So we feel that we're very well positioned in the U S going forward.
So basically.
A lot of activity last year in M&A.
Particularly in the back half of last year, which is not repeating in and so that's a bit of a headwind but overall.
Concerning.
Do you have a follow up elyse.
Yes. Thanks, My follow up question on <unk>.
Is on the outlook for Guy Carpenter, you guys mentioned the loss that we saw from hurricane.
From what we've been hearing it really has the potential to turn on the catastrophe reinsurance market significantly next year. So what are you guys seeing there and can you just talk about how guy carpenter could benefit from a pretty a pretty hard reinsurance market in 2023.
Yeah. So why don't we start with Jon just to talk a little bit about the overall market primary and reinsurance and then and then we'll go to Deane, but John sure. Thanks, Dan.
The insurance markets remain challenging in the third quarter for our clients prices continued to rise in the quarter, although moderating slightly overall from where we were in the in the second quarter.
Reinsurance markets, though are a different really a different matter the property cat market in particular was tightening in advance of Aeon.
And then as I noted in my prepared remarks, we're likely headed to a much more challenging January one reinsurance renewals. So so with that maybe I'll ask dean to jump in on some of the details of what we're seeing in the market today. Thanks John .
We look forward demand for our advice and solutions remains very strong and we feel we're very well positioned to continue to create value for clients and grow our business moving forward.
Demand for reinsurance, including cap property is expected to remain very strong as our clients manage volatility and continue to address systemic risk, including cyber and the impacts of climate change in the emerging parallels we're seeing around flood wildfire and convective storms around the <unk>.
World continue to accelerate and concern our clients.
The impact of Aeon will certainly create challenging market conditions at January one and the property cat space, but as John noted a tightening cat market could be a tailwind for guy Carpenter, but we have a track record of strong growth in any market conditions.
Terrific. Thanks, Martin maybe you could talk a little bit about where we are starting to see in terms of the impact of <unk> on the property markets.
<unk> operates in it that just broadly what's happening in pricing in the marketplace. Okay. Thanks John .
We are in the into this into the <unk> consecutive quarter of rate increases across the board.
We will be announcing a rate survey at the end.
And a couple of weeks' time, it'll show a 6% year to date.
Quarterly results in the property area.
No question, there's going to be strained in the proxy market, particularly for clients that have high cat exposures.
We would have thought by now at this point in the cycle after such as consistent growth in property.
We've just started to see some easing of the reverse is going to be true sadly for our clients.
Going through the back end of the year.
Across the board, though right. So I'll just I'll give you some color on those John .
The composite rate is 6%, which is down a little bit from the last quarter.
Casualty is up 4% still.
As I mentioned, probably 6% simpler lines at down 1% they were heavily weighted in the prior year from the.
Prior quarters from.
DNO specs and cyber and we broke it out we will be breaking out cyber, especially this year.
Which is showing.
Rate increases of 53%.
And thats down a little bit could raise increases in the prior quarter, but still very strong rate increases and some of the activity. We've seen there is slowing down a little bit but.
It's a healthy market.
But of course, we're worried about our clients and as we said we're going to be looking for solutions to defend them and we see that as a potential demand driver as well perfect.
Next question please.
Thank you.
And our next question comes from the line of Jimmy <unk> with JP Morgan.
Hey, good morning.
I just had a question first on Oliver Wyman I.
I think there's concerns that if the economy slows down.
It's a business that might be vulnerable.
The slower organic growth, but you've obviously had a very strong results for the last several quarters. So if you could talk about what your.
What youre seeing in terms of pipeline and just what your expectations are for the business.
Sure.
We've mentioned before Oliver Wyman and Mercer career business are probably the most sensitive to the economic cycle and it represents about 17% of our business and both have been perf.
Performing remarkably well over over a long stretch of time, I mean, Mercer as we mentioned earlier.
Mercury's career is up 15% and it's their sixth quarter of double digit growth in a row and Oliver Wyman has had seven quarters of double digit growth in a row.
If there are clouds somewhere in the future, we're not seeing them right today, but.
Nick you want to give us more on Oliver Wyman.
Thank you Jimmy Yes, it is true that our market tends to prosper when the economy is healthy but at the same time with all the questions change our clients' need nuances and I will tell you we're not seeing any reversal in our business and our pipeline continues to be robust.
Diana Martin both mentioned the M&A and spec cycle, we would have seen slower pace in the businesses that thrive on M&A activity.
And I suspect, we won't be immune to some of the tough elements in the cycle, but our current offerings are less cyclical than they were perhaps five years ago, we have a strong capability in risk management.
Lots of work in performance improvement, both topline and bottom line, we've established a restructuring practice.
So.
It's actually been an incredibly tough environment for quite a few just now in several of the sectors, we serve with the effects of the pandemic.
So for now the pipeline remains strong and the other thing about it is that even though.
The career business and Oliver Wyman are more sensitive.
Actually bounce back a lot quicker.
Posted a down cycle, so they're great businesses, we're glad we're in them.
And overall they they.
Provide us with leading growth over long stretches of time, and we're not overly concerned with with short burst.
Yes, I have a follow up Jimmy.
Yes, just on fiduciary and investment income, it's up I think around 10 times, what it was a year ago and almost three times.
The sequential quarter. So obviously, there's a benefit there from higher interest rates.
But wondering if that's all it is and should we assume that it goes up further as rates have gone even higher since the end of the quarter or was there any sort of discrete items that benefited <unk> results.
Well, it's nice to say it was up 10 times it started from a very.
Yes.
Yes.
Mark do you want to talk about fiduciary income.
Yes, Jimmy there was nothing unusual or one time in the results. So as you noted we had $4 million a year ago in the third quarter was 40 in this third quarter and it just reflects the rising global rates. So it's definitely a source of upside for US obviously, we have balances all over the world and so we are dependent on rates moving.
In different jurisdictions, but there is just generally a trend up.
And just remember we've got over $10 billion of fiduciary balances on any given day, so 100 basis points equals $100 million of income.
Noted and good luck.
Regulations.
Thank you very much Jimmy next question. Please.
Thank you.
And our next question comes from the line of David <unk> with Evercore ISI.
Hi, Thanks, good morning.
Dan Congrats on the retirement spend quite a ride.
So thank you congrats.
Thanks, David.
Just had a question on <unk>.
The hiring activity that's been picking up obviously, the tough comp in the U S.
Just on the M&A side.
In Marsh makes it a little tough to see any impact.
But I was just wondering if you could just comment on how much this quarter benefited from some of the strategic hires that you've made over the last year and a half two years.
And maybe give us a sense of how much that should ramp as we head into 2023.
So why don't we start with John and maybe we'll go deeper but John why don't you take that sure Dan David We're very very pleased we continue to be just.
Absolutely pleased with the strat hiring that we did last year.
Not only are they producing but we did a lot of work.
As we are hiring these folks to make sure that theyre right cultural fit and that's proven to be the case as well so.
We started with World class talent, we think the best talent in the markets that we serve and these folks have made us better we serve are our clients and teams and they've fit in very very nicely.
At both Marsh and Guy Carpenter, where we did most of it we did some of the hiring and Mercer as well, but Martin maybe you could just talk about the productivity today.
The hires.
John . Thank you you know as you said very very happy with the investments that we made last year.
The cultural accretion to us as being significantly new skills, new insights to.
The firm and they've spread like wildfire, we focus very heavily in the investments in areas, where we thought there was high recurring revenue growth to the point.
<unk> was yes, we see these ramping up everything is penciling out exactly as we thought it would.
In some areas, we're actually ahead of plan.
So we continue to see this as a continuing add too.
So our revenue growth and our capabilities couldnt be happier. So as you know David it's two to three years before there.
Fully productive but.
But we couldnt be more pleased with the progress to date.
Don't want to sound like a Hollywood agent, but it is about the talent, we're a people business.
<unk>.
Smart dedicated dedicated creative people attract other smart dedicated and creative people and so we've got a mountain of talent within the company.
And we would continue to build upon that do you have a follow up David.
I do yes, and just on the property cat market on the reinsurance side, it sounds like thats spilling over a bit into.
Cat exposed primary Im wondering if youre seeing that at all starting to spillover into non property lines at all or if you expect that to happen.
David not not at this point.
I would say I wouldn't expect that to happen of course things.
Things are.
Haven't even yet begun to settle so there's a lot for us to learn but as I noted in my prepared comments. This is a major major loss.
So.
It will impact both the insurance and reinsurance markets, but principally in property.
Understood. Thank you.
Next question. Please thank you.
And our next question comes from the line of Juran Qunar with Jefferies.
Thank you very much good morning, everybody and I also want to congratulate Dan on a phenomenal career and good luck in retirement and good luck to John as well tough act to follow.
The reinsurance market.
And more broadly in property cat.
Sure.
So I think I understand the rate environment, but at the same time, we're also hearing about.
Joseph capital.
Reinsurance pulling out of the market, maybe public markets looking to take on some of that.
Okay.
Bucket, if you will.
I guess, how how are you.
Envisioning the.
The supply issue and how how much of an impact could that have on overall growth.
And next year and related to that I would think that a lot of your colleagues is actually number.
Appearance of real hard market and certainly in Guy Carpenter.
How are you preparing them to sort of address this new environment.
Yes.
Good series of questions and it's certainly something that <unk> been at the executive team table.
We.
I think through how to serve clients in this kind of environment, we've been in tough markets before.
But your basic point about supply and demand, yes demand will outstrip supply it's already outstripping supply. So it's just an extent of how quickly the market can adapt to that Dan you want to give us more.
Sure maybe I'll give you a little more color. Thanks, Dan.
John noted earlier.
<unk> impact on already strong straps property market could be significant.
Priority in right. There seemed like there was increased demand from clients to absorb inflation and recent losses in the market. So we're already starting to feel that one one stress and as John noted following in we're really starting to see the property cat market tightened, particularly in the U S with potential.
Supply imbalances in the marketplace as you know, it's the third year in a row of $100 billion of cat losses in the market and I would say, it's going to be more potentially more than just rate increases for U S cat exposed clients right increased retentions changes.
Changes in coverage in terms.
Reduced capacity from individual players and also the impact from the retrocession market, which could be significantly impacted as well.
Some are discussing 25% of the retrocession capital being trapped by Ian in the market and not replenish for January one. So certainly we've got some stresses there. However, I would say, we're very working very closely with our clients leveraging our deep expertise in the market to work.
Closely with clients to deliver successful incomes and we're investigating new capacity in the marketplace. We've been working for several months with players around the world to bring more capital more interest into the cat market on behalf of our clients.
Yeah, absolutely and so it's one of those things very tough markets.
Really in some ways.
It's the period, where marsh mclennan shines, the most and so guy Carpenter will do well.
But in any time, where there is supply and demand imbalances you could have short term pressure is that something that not being able to be place because there's not enough capital providers willing to write a particular line of business, but solutions will be found to where we're actively working for our clients in that area.
Any follow up juran, although you asked about four questions.
Another one is you have one.
They are ready.
I have one more hopefully shorter.
Fiber you mentioned very strong rate increases I think that's also a continuation of a couple of years it's strong.
Rate improvement.
That said my understanding is that 22, starting the loss experience is starting to moderate how are you envisioning 'twenty three as far as rate increases and maybe increased demand if rate increases are slower.
Yes, Youre right.
I'm not going to forecast the pricing environment for cyber price increases are moderating I think you used the word improving not sure our clients would at Marsh would considered an improving rate environment. We've had a lot of rate on rate, it's been a difficult market.
What I would also note about cyber.
Ransomware, it's to some extent I think reflective of the reduction in ransomware in recent quarters.
Underwriters have also responded to ransomware through higher Retentions lower limits for example.
Longer term, though the cyber market is not near maturity and so we're still working to bring more capital to the market better solutions to the marketplace, but but the cyber insurance market should be.
An area of growth for us for some time as we help our clients navigate the risks of a digital economy.
The next question please.
Thank you.
And our next question comes from the line of Meyer Shields with <unk>.
Thanks, Good morning, and I want to add my congratulations to Dan and I Remember where March was when you first came on board and you've done an absolutely phenomenal job.
Yes.
I had your headline from November of 2007, what else could go wrong as statement not a question that was on <unk>.
That was not my vote in Florida for about five years there.
Sure.
Yes.
Well, yeah anyhow.
[laughter].
A quick question.
I'm trying to decipher how much politics is real but is a fair amount of opposition.
And some parts of the country to ESG and I'm wondering how that impacting demand for ESG related consulting.
Sure.
It's a great question.
We're reading the same reports.
Well why don't we go first to two Martine to talk a little bit about the Mercer investment side of business in other areas of Mercer that that are impacted.
Or that make markets in ESG, and then will hand over to Nick Studer as well Marty yes for sure and thanks Meyer for the question.
For us with Mercer interim vento, and social and governance ICD, we can work with clients on all three fronts.
Low carbon economy, the transition sustainable investment.
Clients wherever they are in their philosophy of <unk>.
Investment objectives.
Looked at the market and the best risk and reward our clients invest for the long run.
And they looked at the risk elements of their investment and with that lens that we're looking at.
ESG factors with them.
We don't see that kind of demand and necessity to look at risk coming all through the Q&A today, we have talked about climate risk. For example, so we need to take are factored these risks and when we look at investment in all of our clients get the returns that they are looking for.
Other elements of core C&I solar scale.
Minimum standards of benefits across the world. So we pay equity we have a lot of work there with our clients that are focused very much on building diverse workforces and.
And the whole governance elements around.
The results from executive compensation.
To the.
The way that they manage and govern their their investment activity coming back to investment.
Ben.
<unk> year on the capital market the senior.
But we've been working with clients and actually.
We've been very busy.
DB consulting side of the house in particular to help clients navigate that.
A very intense headwinds and volatility.
Thanks, Nick.
Yes.
And Oliver Wyman the main focus of the three would be around the climate transition.
And I think.
Backlash that youre seeing in some places it's something we've expected for quite some time.
Delicate balance to strike.
In.
The carbon transition between security and affordability.
And the transition itself, but ultimately when many sizes of trying to reverse engineer 200 years since the industrial Revolution in 20 years.
There'll be actions, which are the shape there'll be actions, which title I'm.
Great So resistance.
But.
Second of all business.
Columbus sustainability practice, one of the fastest growing areas of global warming.
That's what we've made over the last three or four years.
And they continue to grow.
And the very high double digit.
We're not seeing any.
Reduction in demand, we are seeing that the questions are getting more complex.
Yeah. Thank you any follow up.
Yes, just a brief one.
This is for Mark I was hoping you could talk us through.
Capital deployment plans.
The cost of capital that's reflected in the risk free rate rises.
Yes.
Meyer I don't.
Even though interest rates have come up and obviously the weighted average cost of capital for the firm has come up as a result, we.
We tend to value balance and consistency in our approaches and they served us well over a long period of time, so even think even though things have gotten a little more expensive in economic terms.
Isn't it isn't enough to make us change our fundamental views on capital allocation capital structure.
Things like that when it comes to M&A, we've held our size ourselves too much higher return standards and our weighted average cost of capital.
Consistently and we'll continue to do that but I don't think theres anything about the current environment that makes us change our basic strategy.
Okay next question please.
Take care.
Thank you.
And our next question comes from the line of Robert Cox with Goldman Sachs.
Hey, Thanks for taking my question.
So Latin American and Asia, and Asia Pacific have been particularly strong I was wondering if we could get a little more color on what's driving that relative to the U S is at.
A higher inflation higher pricing.
Market share gains anything any color on that would be great.
Sure.
We'll dig in with Martin in a second I mean in general what we've seen in <unk>.
Over really the last couple of decades is that not only have right year of higher levels of growth.
A bit more inflation, sometimes over long stretches of time in places like Asia, and Latin America, but you also have increased insurance penetration as the economy develops.
Insurance fee becomes the underpinning for development and so that has always been a benefit to us as well Martin do you want to give us more.
Thank you.
For the last few years as well you've.
<unk> seen international.
It has been slightly weaker than the U S thats rebounding and we that's the balance.
So strong and our portfolio. So we're really pleased with the overall balance in our business.
As Dan said for Asia Pacific.
Very strong growth of 14%.
We have.
We have a terrific franchise in Asia Pacific.
Pretty well.
Unrivaled positions in almost all of the markets there so.
You could not buy what we have.
And that market is.
The mixture of in Japan matures E&S, having been there for such a long period of time in building the trust with the with the local community and the carriers and do more attention in this business.
The protection gap that you see across southeast Asia, that's giving us sure.
It strengthened.
Benefits business across Asia, and the same for Latin America, we have an unbelievable franchise, there very strong businesses in all the big geographies and all the big markets in Latin America.
There's some great strength that but it's been relatively modest for well. It's really a question of just getting market share and strength and a terrific leadership team and Dan I would add that J L. T made us stronger in both in both regions as well absolutely.
Any follow up Robert.
Yes, I think that's a.
That's very helpful and I just had a follow up on career.
So.
There's been some favorable trends and career driven by some of the changing dynamics in the labor market.
How sustainable are those trends if unemployment.
Horizon has a couple of points could you still see strong growth given those underlying changes or is that too optimistic.
Martin.
Yes. Thank you for the question Robert.
It's a good question, there's no doubt that coming out of the pandemic. The World network has completely changed and that is driven demand, but you look at all of that's currency playing out where there is high inflation.
Labor shortage, it's emerging new skills that we have to help client gravitate to reorganizing the way that you work.
We have talked before about the.
The impact that recession I've had in the past on the career services business. There is also the career product business about <unk> of revenue in that space Kurt.
Sleep more resilient through.
Through recessions and curious services given the fundamentals that we see in the market today.
Currently don't see any slowdown clients are really needing help to navigate all of these changes.
We are not immune to a change in the economy pace, but we rebound quickly and.
<unk>.
We'll carry through so so far so good.
Next question please.
Thank you.
And our next question comes from the line of Brian Meredith with UBS.
Yes, Thanks, and also I just want to congratulate you, Dan and I want to Echo <unk> comments, it's been absolute pleasure watching you lead this organization for the last decade.
Question for you first Emma.
M&A.
What does the pipeline look like right now and particularly as we kind of look at M&A here with private equity maybe cooling off a little bit here, becoming a little more challenging or are you seeing a better pipeline here.
Assuming that John wants to out to you on GLC here pretty quickly.
Yes, licking his chops over there.
Yes no.
The M&A pipeline is good.
As we've said a few times before in the past, we cultivate relationships over long stretches of time, we're less interested in in the call from a banker, saying hey, something is going to market. We're inviting 10 people you want to participate in.
And so for us pipeline development and meeting as a core executive team on a regular cadence to review the pipeline and talk to potential prospects in the future.
A part of how we go about the business.
As you know, we we favor.
Building, our business through acquisition over share repurchase, but they sort of go in tandem when we have a lighter year in M&A, we will have more share repurchase sort of like this year. When we have a heavier year in M&A, we'd have less share repurchase because our dividend is.
Comes first and as sacrosanct.
So when we look at the pipeline the pipeline is good.
We have a transaction that we've mentioned to you before in BT, Westpac, which won't close until next year, but still when we're thinking about the utilization of our capital pretty much thinking that is kind of well, it's partly this year and thats, partly next year regardless of what.
The cash goes out the door and as you know we've sort of average if you exclude J L. T. We've sort of averaged about $1 billion a year on acquisitions and that's likely to continue.
Makes sense. Thanks, and then my quick follow up here for Mark.
Mark any initial thoughts on what the net benefit from pension could look like in 2023, given the big rise we've seen in interest rates.
Hey, Brian It's just really too early to.
To tell us so much that goes into that that calculation of the other net benefit credit is really not not until we see.
With with Mercer is great help of course, the outlook for expected returns in our year end valuation that we really.
Formulate a view on that so I think when we were back together in January I'll have a perspective man.
Great. Thank you.
Thank you take care next question. Please thank.
Thank you and our next question comes from the line of Michael Phillips with Morgan Stanley .
Thanks. Good morning first question so back on the theme of property Cat reinsurance guys. How much of a real risk is it then that some business just simply is not going to get placed and at the beginning of the year and then how material could that be.
Don you want to start with that.
Yes, Mike happy to jump back in on this again, it's still quite early so.
I think most reinsurers and insurers are planning.
Trying to decide how to best deploy capital going forward is.
Dean and Dan and I've discussed, we expect some level of disruption, it's going to be a challenging market, but again, we're using the capabilities of our entire firm to bring solutions to the market.
As data and analytics, new investors new facilities and in some cases it may mean clients.
Clients retaining more risk both insurers, but also our retail clients as well.
We're the global leader in managing captives on behalf of our clients and so.
An example.
Now some of our clients may be pushed by the market to do that and some may choose just given.
What might be elevated pricing.
Maybe more elect themselves to to retain more risk. So we're going to work with them to help all of our clients accomplish their risk management goals.
Yeah.
Okay. Thank you and then.
As you said the property cat market with certainly coordinate a bit before and I think we were hearing kind of low single digits I'm, sorry, low double digit.
But now that we are hearing pretty massive increases.
The question is is that strictly are those levels that we are hearing pick a number 30 40, 50%.
But is that strictly just Florida or do you see such high levels as well outside of Florida around the world.
Well, Mike I think what you've seen over the last several years as cat losses have exceeded modeled estimates. So the market is under price insurers and reinsurers broadly.
Under priced the risk over that period of time or you can look at it.
Extended period of time and of course get a gift, but get different outcomes. So you know the market is reacting to that.
You've also had an escalation of values that has happened in many cat exposed markets as well and then broadly speaking inflation, creating some challenges so.
I noted in my prepared remarks, we're heading to meaningful rate change prior to Ian and.
In the 2025% plus range to cover inflation and against the elevated weather related.
Events of the last several years.
Now, it's likely to of course be be higher than that and so.
In talking to reinsurers and insurers, they're thinking about again about how to best deploy their capital going forward. They are in the business of taking these risks that will ultimately make choices about where to best deploy that capital and what they are saying today is they want to reserve it for their best clients on the reinsurance side that might mean clients that.
<unk>.
They also support them in casualty and other lines as an example, and so.
It's Ed.
<unk>.
Thinking about March for a second it's an interesting market, we have a high net worth personal lines supports inside of MMA.
We're in business to us this loss is going to be more of a small business and personal lines loss. So.
It won't impact our <unk>.
<unk> accounts really as much.
Ed.
As other events.
Okay. Thank you for the color I appreciate it.
Thank you.
Thank you.
And our next question comes from the line of Ryan Tunis with Autonomous research.
Okay. Thanks, Good morning could you just.
A follow up on the fiduciary investment income. So we've had a number of years of really strong margin expansion.
Where that Hasnt played a role at all.
Is it right thinking about this right.
This should be a kind of a separate and distinct margin tailwind on top of the type of margin expansion.
That we've seen over the past decade or so.
Their investment potentially against some of that investment income.
I mean.
Youre basically right in that fiduciary income we didn't have.
A lot of it is drops to the bottom line. So a lot of it is profit and that will help margins in the future.
Perfect.
I guess from our team.
Well is there any.
Way you can quantify.
With markets Rolling over.
The type of impact that's having on organic growth.
Yes, no no. Thanks Ryan.
It has an impact which we commented on it.
You can imagine.
Our what we call our <unk> business, where we're paid in this point of the assets under management and a very good business to us it's been growing rapidly but it is.
Suppose to short term volatility from capital markets.
And based on the market value that we see at the end of Q3, we do expect a drag from capital market to continue.
Third quarter as I referenced and I think we alluded to that in our script.
In Q3, this has cost us about two points of margin Mercer four points on the top line.
Spine revenue revenue exactly so mercer would've been more like a seven instead of a five.
For yes.
And.
<unk>.
Yes.
At 15% and career and 10% in health rounding this up and also it does.
Help us on that DB consulting side, where we consult with clients lenders.
Such impact on the capital market our portfolio is diversified so that helps we had also.
Great.
So I mean to our funds, which will then okay.
Here, let me do it.
Uh huh.
So it's a terrific business Ryan.
Sure.
As we noted.
<unk>.
It's under delegated management are down about 20% year over year, but having said that if you look over the decade over a decade the CAGR on assets under delegated management is about a 20% number.
On a CAGR basis, so it's a great business, we're glad we're in it but obviously its a headwind in the short term hopefully in the short term.
Thank you I would now like to turn the call back over to Dan Glaser, President and CEO of Marsh <unk> Mclennan for any closing remarks.
Thank you and thank you for joining us on the call. This morning, I want to thank our 86000 colleagues for their commitment hard work and dedication to marsh mcclennan and from the bottom of my heart. Thank you for the trust you have put in my serving as CEO of Marsh <unk> Mclennan has been an honor.
Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.
Okay.
Okay.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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