Marsh & McLennan Companies Inc. Q1 2023 Earnings Call
Speaker 1: All right. All right.
Speaker 2: Welcome to Marsh McLennan's earnings conference call. Today's call is being recorded. First quarter 2023 financial results and supplemental information were issued earlier this morning. They are available on the company's website at marshmclennan.com
Speaker 2: 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.
Speaker 2: For a more detailed discussion of those factors, please refer to our earnings release for this quarter and to our most recent SEC filings, including our most recent Form 10-K , all of which are available on the Marsh Mclennan website.
Speaker 2: During the call today, we may also discuss certain non-GAAP financial measures. For reconciliation of these measures to the most closely comparable GAAP measures, please refer to the schedule in today's earnings release.
Speaker 2: If you have a question, please press star 11 on your touch tone phone.
Speaker 2: If you wish to be removed from the queue, please press star 1 1 again. If you are using a speakerphone, you may need to pick up the handset before pressing the numbers.
Speaker 2: Once again, if you have a question, please press star 1 1 on your touch tone phone. I'll now turn this over to John Doyle, President and CEO of Marsh McLennan.
Speaker 2: Good morning and thank you for joining us to discuss our first quarter results reported earlier today. I'm John Doyle, President and CEO of Marsh McLennan. Joining me on the call is Mark McGivney, our CFO and the CEOs of our businesses.
Speaker 2: Martin South of Marsh, Dean Klassur of Guy Carpenter, Martin Furlong of Mercer, and Nick Studer of Oliver Wyman.
Speaker 2: Also with us this morning is Sarah DeWitt, Head of Investor Relations.
Speaker 2: Marsh Mclennan had a strong start to 2023. Our first quarter results were excellent and we are well positioned for another good year.
Speaker 3: Top line momentum continued as we generated 9% underlying revenue growth on top of 10% growth in the first quarter of last year. We had strong growth across most businesses, segments, and geographies.
Speaker 3: with underlying growth at Marsh, Guy Carpenter, and Mercer accelerating compared to the fourth quarter.
Speaker 3: Adjusted operating income grew 13% versus a year ago, reflecting our strong growth.
Speaker 3: Our adjusted operating margin expanded by 150 basis points compared to the first quarter of 2022.
Speaker 3: And adjusted EPS growth was strong at 10%, building on 16% in the first quarter of 2022.
Speaker 3: In addition to delivering terrific results, we continue to execute on acquisitions.
Speaker 3: On April 1, we completed the merger of BT Super with Mercer Super Trust, creating one of Australia's most competitive super funds with approximately 850,000 members and 63 billion of assets under management.
Speaker 3: I am pleased with our performance, especially when viewed in the context of the volatile macroeconomic environment.
Speaker 3: The global economy has been contending with high inflation.
Speaker 3: aggressive tightening of monetary policy by central banks.
Speaker 3: some recent bank failures, and the effects of geopolitical instability. We have a track record of resilience across economic cycles, and there are factors that support continued growth in our business.
Speaker 3: Although the outlook for real GDP growth continues to be under pressure, inflation remains elevated, driving higher insured values and loss costs.
Speaker 3: P&C insurance and reinsurance rates continue to increase as carriers price to account for the rising frequency and severity of catastrophe losses.
Speaker 3: social inflation, and higher reinsurance costs.
Speaker 3: Health care costs are trending higher, and employers expect further increases in the years ahead.
Speaker 3: Labor markets remain tight in most major economies.
Speaker 3: with three and a half percent unemployment and nearly 10 million unfilled jobs in the US.
Speaker 3: short-term interest rates are at the highest level since the financial crisis, lifting fiduciary income.
Speaker 3: Change and uncertainty create complexity as well as opportunity for clients.
Speaker 3: Marsh McLennan's leadership and capabilities in risk strategy and people help them navigate shifting landscapes.
Speaker 3: Turning to insurance and reinsurance market conditions.
Speaker 3: Primary insurance rate increases persisted with the Marsh Global Insurance Market Index up 4% overall in line with the fourth quarter.
Speaker 3: Property rate increases accelerated to 10% and casualty pricing was up in the low single-digit range.
Speaker 3: workers' compensation was flat, and financial and professional liability insurance rates were down mid-single digits.
Speaker 3: Cyber insurance saw the highest increase in our index, although the rate of increase continued to moderate.
Speaker 3: re-insurance market conditions remain challenging from January 1 through April 1.
Speaker 3: Risk appetite for property catastrophe reinsurance remains constrained.
Speaker 3: Reinsurers continue to push for structural changes and tighten terms and conditions.
Speaker 3: Limited new capital has entered the market to support property catastrophe risks.
Speaker 3: At April renewals, U.S. property cat reinsurance rates saw increases of 40 to 60 percent on average for non-loss affected accounts.
Speaker 3: with higher increases for loss-affected business. U.S. casualty reinsurance rate increases were more modest.
Speaker 3: In Japan, property cap rates were up 15 to 25 percent.
Speaker 3: The impact of rate increases on seated premiums was mitigated by higher retentions.
Speaker 3: We continue to help our clients manage through these challenging market conditions.
Speaker 3: Now I'd like to take a moment to provide an update on our recent strategic initiatives and highlight some of the steps we've taken.
Speaker 3: As we discussed last quarter, our leadership team is focused on delivering the full capabilities of Marsh-McClennan to our clients.
Speaker 3: continuously improving the client and colleague experience, efficiently managing capital.
Speaker 3: and driving growth and value for shareholders.
Speaker 3: There are meaningful opportunities at the intersections of our businesses, where our colleagues can deliver the benefits of our scale, data, insights, and solutions that are highly valued by clients. In February , we named Flavio Piccolomini to lead Marsh McLennan for International and Pat Tomlinson to lead US and Canada.
Speaker 3: Since then, we have also named additional Marshmacklennan region and country leaders.
Speaker 3: These leaders are driving greater client impact through enhanced collaboration while at the same time maintaining the strength of the value propositions of each of our businesses.
Speaker 3: This deliberate focus on collaboration is already yielding benefits.
Speaker 3: Let me share some examples.
Speaker 3: Guy Carpenter Securities and Mercer Investments successfully arranged an insurance-linked securities transaction for a major insurer to transfer earthquake risk.
Speaker 3: This type of win, the first of its kind in the insurer's market, was possible because of the combined strength of Guy Carpenter's leadership in earthquake parametric structuring and Mercer's deep local investment and regulatory expertise.
Speaker 3: Marsh and Guy Carpenter brought the best of our capabilities to a complex clean energy opportunity.
Speaker 3: Together we facilitated a project to bring clean hydropower to New York City from Canada and advance New York State's goal of obtaining 70% of electricity statewide from renewable sources by 2030.
Speaker 3: Mercer career and economist from Oliver Wyman delivered an executive compensation solution for a joint venture between two major medical device manufacturers.
Speaker 3: Mercer designed a new equity compensation rewards program for the joint venture, while Oliver Wyman provided the modeling work for the rewards.
Speaker 3: As we drive deeper collaboration, we're also finding ways to operate, reduce complexity, and organize for impact.
Speaker 3: As we noted in January , we took actions to align our workforce and skill sets with evolving needs.
Speaker 3: rationalized technology and reduce our real estate footprint.
Speaker 3: We see opportunities for savings beyond the actions we have already taken.
Speaker 3: Mark will provide further details, but overall we now expect roughly $300 million of savings by 2024.
Speaker 3: with total costs to achieve these savings of $375 to $400 million.
Speaker 3: Our leadership appointments, go to market collaboration and restructuring actions are an opportunity to accelerate impact for clients.
Speaker 3: reinvest in our capabilities, and to be more efficient and connected.
Speaker 3: Before I turn to our results, I want to comment on ESG.
Speaker 3: Our recently released ESG report highlights the many ways in which Marshmacklennan is meeting these challenges and helping clients better manage their strategies.
Speaker 3: We have a track record of ESG engagement and it's an area where we continue to see an opportunity to support our colleagues.
Speaker 3: clients and communities. Sometimes this work takes place at the macro or community level, like Guy Carpenter's work helping communities build resilience in the face of natural disasters through community-based catastrophe insurance.
Speaker 3: But more often it takes place in our work with clients such as helping clients navigate.
Speaker 3: in evolving climate landscape or our efforts to help organizations address gender and racial pay equity and ensure fairness in rewards.
Speaker 3: We are proud of the work we do in this area and consider it a privilege to help clients progress their ESG strategies. Now let me turn to our first quarter financial performance.
Speaker 3: We generated adjusted EPS of $2.53, which is up 10% from a year ago, or 12%, excluding the impact of foreign exchange.
Speaker 3: On an underlying basis, revenue grew 9%.
Speaker 3: Underlying revenue grew 11% in RIS and 5% in consulting.
Speaker 3: Mars was up 9%, got carpenter degree 10%.
Speaker 3: Versa grew 7% and Oliver Wymo was flat after growing revenue nearly 40% over the last two years. Overall the first quarter so adjusted operating income growth at 13% and our adjusted operating margin expanded 150 basis points year over year.
Speaker 3: Turning to our outlook, we're well positioned for 2023 and continue to expect mid-single digit or better underlying revenue growth, another year of margin expansion and strong growth in adjusted EPS.
Speaker 3: Our Outlook contemplates that current macro conditions persist.
Speaker 3: But as we discussed earlier, there's uncertainty regarding the economic backdrop, which could turn out to be different than our assumptions.
Speaker 3: In summary, the first quarter was a great start to the year for Marsh McLennan. Our business delivered strong performance and we continue to execute well on our strategic initiatives. I'm proud of the focus and determination of our colleagues and the value that they deliver to our clients and shareholders. With that, let me turn it over to Mark for a more detailed review of our results.
Speaker 3: In summary, the first quarter was a great start to the year for Marshmcleanen. Our business delivered strong performance and we continue to execute well on our strategic I'm proud of the focus and determination of our colleagues and the value that they deliver to our clients and shareholders. With that, let me turn it over to Mark for a more detailed review of our results. Thank you, Johnny. Good morning.
Speaker 3: Our first quarter results were outstanding and reflected continued momentum in underlying growth, strong margin expansion and double digit growth and adjusted EPS.
Speaker 3: Our consolidated revenue increased 7% in the first quarter to 5.9 billion with underlying growth of 9%.
Speaker 3: Operating income was 1.7 billion and adjusted operating income increased 13% to 1.8 billion.
Speaker 3: Our adjusted operating margin increased 150 basis points to 31.2%.
Speaker 3: Gap EPS was $2.47 and adjusted EPS was $2.53 up 10% over last year.
Speaker 3: Looking at risk and insurance services, first quarter revenue was 3.9 billion up 10% compared with a year ago or 11% on an underlying basis.
Speaker 3: This result marks the eighth consecutive quarter of 8% or higher underline growth in RIS continues the best stretch of growth in nearly two decades.
Speaker 3: Adjusted operating income increased 17% to 1.4 billion, and our adjusted operating margin expanded 210 basis points to 38.6%.
Speaker 3: At March, revenue in the quarter was 2.7 billion of 8% from the first quarter of last year or 9% on an underlying basis.
Speaker 3: This comes on top of 11% growth in the first quarter of last year and reflects acceleration from the fourth quarter.
Speaker 3: GROPHEN the first quarter reflected excellent retention and strong new business.
Speaker 3: The US and Canada underlying growth was 7% for the quarter, a solid result given the continued-head win from lower M&A and capital markets activity. An international underlying growth was strong at 10% and comes on top of 11% growth in the first quarter of 2022.
Speaker 3: Asia Pacific was up 11%, EMEA was up 10%, and Latin America grew 10%.
Speaker 3: Guy Carpenter's revenue was 1.1 billion, up 7% or 10% on an underlying basis driven by strong growth across all regions and global specialties.
Speaker 3: and reflecting the tighter reinsurance market conditions.
Speaker 3: In the consulting segment, first quarter revenue was $2 billion, up 1% from a year ago, or 5% on an underlying basis.
Speaker 3: Consulting operating income was $411 million, and adjusted operating income was $406 million of 1 percent, reflecting continued foreign exchange headwinds, and the software quarter at Oliver Wyman. Are adjusted operating margin and consulting?
Speaker 3: was 20.3% in the first quarter, a decrease of 30 basis points. Mercer's revenue was 1.3 billion in the quarter, up 7% on an underlying basis.
Speaker 3: Career revenue increased 12%, the eighth straight quarter of double-digit growth, and reflected continued demand in rewards, talent strategy, and workforce transformation. Health underlying growth was 12%.
Speaker 3: and reflected strength in employer and government segments and momentum across all regions.
Speaker 3: Wealth through 2% on an underlying basis driven by continued strength and defined benefits consulting partly offset by a decline in investment management due to continued capital market headwinds.
Speaker 3: Our assets under management were 354 billion at the end of the first quarter up 3% sequentially, but down 9% from the first quarter of last year due to market declines and foreign exchange that more than offset positive net flows.
Speaker 3: Oliver Weimann's revenue in the first quarter was $687 million, which was flat on an underlying basis.
Speaker 3: As John noted, this follows a nearly 40% increase in Oliver Wyman's revenue over the past two years.
Speaker 3: Recent sales activity has been encouraging, however, suggesting we could see a return to modest growth in all of our Wyman in the second quarter.
Speaker 3: Bar and Exchange was a 4 cent headwind in the first quarter.
Speaker 3: Assuming exchange rates remain at current levels, we expect FX to be a 2 cent headwind in the second quarter, and mostly neutral in the second half.
Speaker 3: I want to provide an update on the restructuring program we discussed last quarter.
Speaker 3: Based on our plans today, we expect total charges related to this program of between 375 and 400 million.
Speaker 3: To date, we have incurred nearly 250 million of charges and currently expect to incur most of the remaining costs in 2023.
Speaker 3: We expect to achieve total savings of approximately 300 million by 2024, with 160 to 180 million realized in 2023 and the balance in 2024.
Speaker 3: Our other net benefit credit was $58 million in the quarter. For the full year of 2023, we continue to expect our other net benefit credit will be about $235 million. Investment income was $2 million in the first quarter on a GAAP basis or $4 million on an adjusted basis.
Speaker 3: to. This reflects an increase in long-term debt and higher interest rates on commercial paper, which we use for efficient working capital management.
Speaker 3: Based on our current forecast, we expect approximately $150 million of interest expense in the second quarter. And approximately $575 million for the full year.
Speaker 3: Our effective adjusted tax rate in the first quarter was 25 percent compared with 23.1 percent 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.
Speaker 3: Excluding discrete items, our effective adjusted tax rate was approximately 25.5%.
Speaker 3: When we give forward guidance around our tax rate, we do not project discrete items which can be positive or negative. Based on the current environment, it's reasonable to assume a tax rate between 25 and 26% for 2023.
Speaker 3: Turning to capital management or balance sheet, we ended the quarter with total debt of 13 billion.
Speaker 3: This includes the 600 million of senior notes we issued in March. Our next scheduled debt maturity is October 2023 when 250 million of senior notes mature.
Speaker 3: Our cash position at the end of the first quarter was 1 billion. Uses of cash in the quarter totaled $876 million, and included $296 million for dividends.
Speaker 3: 280 million per acquisition and 300 million for shareake bardzoTechBS 2, 70, 300 million for share research
Speaker 3: We continue to expect to deploy approximately 4 billion of capital in 2023 across dividends, acquisitions, and share repurchases.
Speaker 3: The ultimate level of sharey purchase will depend on how the M&A pipeline develops. While it continues to be uncertainty in the outlook for the global economy, we feel good about the momentum in our business and there are factors in the macro environment that remain supportive of growth. I would also note that while our current outlook contemplates margin expansion in the second quarter, this is the intersection of large changeable accountant etc.
Speaker 3: is well positioned for another good year in 2023. Based on our outlook today, for the full year, we continue to expect did single digit or better underlying growth, margin expansion, and strong growth in adjusted EPS. With that, I'm happy to turn it back to John .
Speaker 2: Thank you, Mark. Operator, we're ready to begin Q&A. Thank you. We will now begin the question and answer session. If you have a question, please press star 11 on your touch-tone phone.
Speaker 2: If you wish to be removed from the queue, please press star 11 again. If you are using a speaker phone, you may need to pick up the handset before pressing the numbers. Once again, if you have a question, please press star 11 on your touchstone phone. And in the interest of addressing questions from as many participants as possible, we ask that participants limit themselves to one question and one follow-up. One moment, please.
Speaker 2: The first question comes from the line of David Motamaden with Evercore ISI.
Speaker 3: Thanks, good morning. I had a question just on the increased cost saves from the restructuring.
Speaker 3: in the future. Sure, thanks David and good morning. So, you know, as I mentioned in my prepare remarks, we're excited about the opportunities at the intersections of our businesses, we're being more deliberate and focused on areas of collaboration and that's creating both revenue and expense.
Speaker 3: So I'm excited about that and the other region leaders and country leaders that we've put in place to really capture these opportunities for us. But from an efficiency point of view, they're in the similar areas to what we talked about on the fourth quarter call earlier this year. It's in the area of...
Speaker 3: I'm excited about that and the other region leaders and country leaders that we put in place to really capture these opportunities for us. But from an efficiency point of view, they're in the similar areas to what we talked about on the fourth quarter call earlier this year. It's in the area of talent, of course, and...
Speaker 3: and re-skilling and moving talent to important growth opportunities. And I would point out, we are reinvesting as well, although the savings we talked about, you know, that's net of reinvestment. You know, beyond people, it's technology and real estate. And so it's our best estimate at the moment. But again, we're going to continue to look for opportunities.
Speaker 4: operational excellence program and using centers of excellence. I'm just wondering how many employees you have in these you know in these in these centers and and where you think you can get that to over what time period
Speaker 5: Yeah, it's um
Speaker 3: You know, we're not in the early stages of the game in terms of, you know, mid and back office efficiency opportunity. I would point out it's, you know, it's part of that marshwork, have similar work underway at Mercer and at Carpenter as well.
Speaker 3: There are still opportunities in front, but we're also still investing in capabilities, including in talent and in technology to support these efforts. So that will drive further efficiencies for us down the road.
Speaker 2: Thank you, David. Operator, next question. Our next question comes from the line of Jimmy Bueller with JP Morgan.
Speaker 6: Hey, good morning. So I had a question on organic growth and the acceleration you reported in the first quarter in the RIS division. I just wondering to what extent results benefited from sort of one off timing of business type things or...
Speaker 3: Were there other factors that you think are more sustainable in nature? Yeah, I'm sure Jimmy and good morning. I was very pleased with the start to the year, as you noted and I pointed out in my prepared remarks, it's an acceleration from our growth in the fourth quarter. You know, I talked about some of the macros that are supportive of growth, not just in RAS, but in our business more broadly.
Speaker 3: But you know, I also want to point out we've invested in talent in growth areas. We've deployed capital in markets that we think have strong growth fundamentals. And we've also been quite focused.
Speaker 3: All throughout the company in investing in our sales operations capabilities in tools as well. There's nothing really want off about what happened in the first quarter. And we feel good about, you know, feel good again about the revenue growth. Maybe I'll ask Martin.
Speaker 3: you know, to share some details and then Dean to give a little bit more color where we saw some of the strong growth in RIS in the quarter. Thank you, John . I'd be delighted to. Yeah, we're very pleased with the strong organic growth at 9% in Q1, which is on top of 11% posted in Q1 22.
Speaker 3: our strongest scores of last year and better than the full year growth of 8%. Solid growth is across international 10%, APAC at 11%, EMEA at 10%, LAC at 10%, US and Canada at 7%. And as expected, the US and Canada results were once again impacted through tough cons and transactional risk and elevated M&A.
Speaker 3: back in capital markets activity to be in year 22. And the overall 9% growth in the quarter was on top of 11% in 1, Q122.
Speaker 3: The specialty growth was good. Credit specialties, construction, aviation, and marine cargo easily over set the drop in M&A growth. Renewal growth is very strong in US and Canada fuel by the new business we put on in 22. And stronger client retention and reduced loss business, which is very pleasing.
Speaker 3: So we feel very good how we position we're very very good about our talent capabilities in the business and the consistency of the performance across the book and over a number of courses All right. Great. Thanks Martin. Dean, you want to share some thoughts on the reinsurance market? Thanks, Sean.
Speaker 7: Similar to Martin, we're very pleased with Guy Carpenter's 10% underlying growth in the quarter. Again, following 11% growth in the first quarter of 2022, we had very strong growth, consistent growth across all of our regions globally.
Speaker 7: And despite significant headwinds in the ILS capital market impacting retrocession placements, our global specialties team had a very, very strong first quarter.
Speaker 7: Certainly, our results reflect tightening market conditions and restrictions in capacity, as Sean noted, but I think demand for our advice and solutions remains very, very strong and a very challenging environment for our clients. We think the marketplace will be a pricing tailwind moving throughout 2023 and beyond.
Speaker 7: And keep in mind, at Guy Carpenter, we hired significant talent in the marketplace the last three years. And that showed up with record new business levels in 2022 with very strong momentum into the first quarter and beyond.
Speaker 6: Great. Thanks, Dean. Jimmy, do you have a follow-up? Yeah, just a similar question on Oliver Beiman. I think Mark mentioned that you expect modest growth in the second quarter. But should we assume that?
Speaker 6: This is all this quarter were impacted by just economic uncertainty and to the extent that continues Then that's a business that will see slower growth through the course of this year
Speaker 3: Jim, I'll ask Nick to jump in, but I want to reiterate again, there's a step change in the size of all of the requirements business over the last couple of years. It's 40% growth. There is good demand for our capabilities at all of the requirements, but Nick, maybe you could talk a little bit more about...
Speaker 8: the first quarter and what you're seeing in the paper line at the moment. Thank you very much for the question, Jimmy. We've known it was coming. I think as I was looking back over the transcripts, it's four or five quarters. I've had the question about economic uncertainty and growth. And you can see from the business headlines, it's a tougher environment for consulting firms right now.
Speaker 8: We have flat underlying growth, we have added some size through excellent acquisitions. Even at that level, I'm confident that we continue to gain share. It's a fragmented market, it's falling back from the peaks of the last couple of years. And we signaled in Q4 a slowing in our sales as our clients and probably a little bit.
Speaker 8: us as well, paused after a torrid two years. We were taking stock, they were taking stock. In our clients cases, there was that economic uncertainty that you've highlighted. And on top of that, the regular drum beat of the old River News and our private equity practice and across our industry practices also remains depressed.
Speaker 8: paused after a torrid two years. We were taking stock, they were taking stock. In our clients cases, there was that economic uncertainty that you've highlighted. And on top of that, the regular drum beat of the old River News and our private equity practice and across our industry practice is also remains depressed. I'm extremely confident.
Speaker 8: For the future we continue to be selected support clients in significant transformations around the world We have growth in a range of our businesses our Indian Middle East and Africa business where we had a good acquisition last year is going strongly Our top sectors of the public sector automotive and manufacturing and energy to quite broad base Lip and cop brands and innovation business our economic consultants see mirror and robust health
Speaker 8: Our digital practice continues well. And as I said before, we've been preparing for walk-out, thick-like offerings, and our nascently structuring practice, although it's small, is growing strongly. So we generally guide that through the cycle, we expect mid to high single-digit growth.
Speaker 8: But last year's Rob C. much higher than this one and the slow part of the cycle. But as Mark said, we are currently expecting more display in Q2.
Speaker 3: Thanks, Nick. Before we leave the revenue growth story, I want to ask Martin to jump in here as well. We had a terrific quarter at Mercer, a particularly strong growth in both career and our benefits business, but also a rebounding investment. It's more than 10 maybe. Sure, some thoughts. Yeah, and I'll thank you, John . And indeed, we're very pleased with our results. 7% overall and put on a 6% Q1 last year. It's across all the regions.
Speaker 3: And I would say there's, you know, there's the current macroeconomic environment. It's really supportive of the services that we bring to market, isolation and interest rate, volatile capital market, well-funded, defined benefit plans, tight labor market, demand for digital health services.
Speaker 3: These market conditions combined with clarity of our strategy, our investment are conducive to this kind of growth. The pipeline that we see, the sales that we are entering Q2 with is strong and we have good visibility in the next quarter and probably a little bit over.
Speaker 9: Of course, we're always monitoring the macroeconomic conditions as we discuss with Oliver Wyman.
Speaker 9: But over the years, we've also invested in diversifying our portfolio towards faster growth elements and more recurring businesses in the portfolio. So it looks, it looks solid for a continuous, a continuous team to year. Thank you, Morton. Operator, next question.
Speaker 9: years, we've also invested in diversifying our portfolio towards faster growth elements and more recurring businesses in the portfolio. So it looks, it looks on it for a continuous and a continuous team to hear. Thank you, Morton. Operator, next question. Thank you.
Speaker 2: And our next question comes from the line of Michael Zeremsky with BMO Capital Markets.
Speaker 3: Hey, good morning. I hope the question's not out of the left field, but I want to hear. I'm curious about any comments on the U.S. Federal Trade Commission proposal to get rid of non-competes. One of your peers commented publicly that they were against that.
Speaker 3: any potential regulatory changes or possible impacts on our business. We're certainly very well aware of the FTC proposal and we've offered feedback through a number of different industry channels. We think Marshall McLennan is an employer of choice in a very competitive industry.
Speaker 3: We see a healthy environment, you know, for sure. And...
Speaker 3: There really aren't non-competes in businesses for our producers and if you read the trade press, you see pretty active market for talent. It's a market that we're a net winner in, but nonetheless there's an active market in talent moving around throughout the industry.
Speaker 3: Okay, understood. My follow-ups on the good, better than expected, consulting, result, XR, RYM, and just digging in maybe more. It sounds like from your comments, you're not really calling out any kind of one-offs. Just kind of curious.
Speaker 3: If you'd be willing to share whether the results were better than you internally had expected given the kind of macro outlook, especially in like career or things really just were be focusing too much on some of the headlines we read and things underneath the surface aren't as bad as some of the headlines might suggest.
in the past than they are in the current environment.
Mark, Mark 10 also noted how we've really tried to move into and deploy capital into more growth markets. We have high expectations for our businesses. And so again, we're pleased with the start to the year. It was good terrific growth. Mark 10 talked about the environment. It remains quite strong. It's a lot of fun, so work.
So no major surprises, but again, we're pleased with the start to the year. Operator, next question. Thank you. Our next question comes from the line of Elise Greenspan with Wells Fargo. Hi, thanks. Good morning. My first question is on the savings program. Can you give us a sense of how much of those 160 to 180.
at more or less. We haven't been terribly specific, but I'll try to be helpful. So in terms of how much hit in the first quarter, I think we took a lot of action in the fourth quarter of last year as we saw through the size of the charges. So I think it's probably a reasonable assumption if you wanted to assume a ratable pacing of the 180 to 160 to 180 throughout this year, that's probably not bad. And it's not noted earlier. That's net of reinvestments.
that will fall to the bottom line. In terms of split across businesses, we haven't been specific there, but you could look at the portion of charges and some more disclosures in, and make a rough approximation there as well. And so I think ratable spreading of the 160 to 180 through this year is not a bad way to go. You have a follow-up, Elise?
Yeah, on the re-enter inside, you guys have highlighted that's an area where you've hired a lot of talent over the last few years. I think I've also seen recently, you might have lost some talent, which we often see in the industry. So just as you think about the tailwinds of strong pricing in that business, which came up earlier, on.
Do you think we can continue to see double digit organic growth within that business? We see the full impact of the media when it all is in beyond. I'm sure at least look, again, it was a terrific start to the year. Very proud of our team. It's a very difficult marketplace and helping our insurance company clients navigate very, very...
From a talent point of view, I really like how we're positioned. Our focus from a talent value proposition is about being your best at Marsh McClellan, at all of our businesses. Again, we've been a net winner there from time to time. Obviously, we do have some voluntary turnover, but the turnover you may have read about.
It won't impact that your directorial guy Carpenter are a business. So we'll see where the market heads, both Dean and I commented. Property cats, the big headline at the moment, that's a line of business. It's most acute here in the United States. We have a much bigger broader business than that. But the demand for our services there remains quite strong. So we look forward to a good year.
any comments on how the economic backdrop may be impacting the business and providing any benefits? Sure Robert, thanks for the question. I'll ask Morton to unpack some of the investment and MRSR wealth results overall. Martin? Yeah, no, I'm excited to do so. Thanks for the question Robert. It was a good quarter for our defined benefit business.
interest rate even though the asset side of the pension plans are depressed through equity. We've seen a great improvement in the funding of these plans and when the funding of these plans become better, a lot of our clients looked for ways to digest the liabilities and assets to ensure that we were seeing activities there in the biode space.
require quite a lot of work and we're happy to help clients through these times. The other side of that equation in retirement is also the investment side. On the consulting side, again, we were very busy helping through the volatility, the decline in equity, etc.
and our OCIO business, which is directly related, we're taking this.
basis points off of the value of assets as a way to pay for the services we render. And of course when the value of assets are depressed our revenue goes down. But we have net flows into that business. It's a business that has very good long-term growth through net flows through return.
It's just been a more difficult period over the last year and a half. We're seeing still quarter over quarter, like year over year, headwinds because the decline in market really started later in Q2 and in through Q3 last year. So that pressure on the year over year basis should ease out at current, at the current to make sure that AMPF
any benefits from China reopening in RIS and just wondering if that's something you expect could potentially be a tailwind as we progress through the year.
from China reopening in RIS and just wondering if that's something you expect could potentially be a tailwind as we progress through the year. It's hard to...
To say overall, Robert, I mean, what I would tell you is that our business in China has performed well, even through, if you want to call it the shutdown of the economy. So, we've had good, solid growth in our business, both in the mainland and in Hong Kong. You know, I think obviously,
You know, I think, broadly speaking, the reopening of that that economy should ease some of the economic uncertainty all around the world. And to the extent that that could be helpful from a macro point of view. You know, we certainly are, you know, we're certainly pleased with with those developments, but it's hard to draw a direct correlation. We haven't seen.
meaningful uptick, for example, in our in-growth in China since the reopening. Operator, next question please.
Thank you. Our next question comes from the line of Myers-Eels with KBW. Thanks, Devourning. I need to talk about this in the past, John . Let's hope you could walk us through the impact of higher-producery income on margins. I'm asking specifically about second quarter where you were talking about more cautious.
margin expansion expectations, the spike effect that at least in the first quarter fiduciary income was up like 2000 percent. Yeah, you know, look obviously fiduciary income is a you know, it's a factor in our overall results. We don't look at it, you know, separately, we're, we're constantly trying to, you know, to balance.
near-term performance delivering excellent results in the near term with also investing in the capabilities that are going to lead to sustainable growth in the future. We're very thoughtful about how we manage our expense base that leads to very few surprises for us around our results.
And I think we've, you know, we've read that needle well, if you will, you know, nailed that balance over the course of the last couple of years. So, so we're very pleased with the start to the year from a margin point of view, as we've talked about in the past.
You know margins or particularly in a quarter or not our primary objective. It's an outcome of the way, you know, the way we've run the business. We've had 15 consecutive years of margin expansion. We expect 2023 to be year number 16. But from quarter to quarter, you know, some seasonality to investments we make.
You know, some of the other variability that could lead to a different outcome from it won't be a straight line quarter to quarter. Okay, that's helpful. Thank you. 2nd question if I can, and you're prepared remarks, you talked about healthcare costs going up and I was hoping you could talk us through from, I guess our perspective how that impacts.
I'm thinking predominantly MRSA because I wouldn't think it would have the same upside that P and C rate increases have. Well, where we are in commission obviously, it could be helpful and we get paid in different ways in different EHMV markets around the world.
Again, it's not a straight line and much like we've talked about in the context of re-inference, we're very transparent about the compensation we earn and how we get paid with our clients. Effectively, a rising cost of risk is a tailwind, whether it's in PNC or in benefits.
to us, but we also provide other services and consulting services to our clients to help them navigate some of the challenges and the tight labor markets of a factor here as well. So more timid, you can offer a little more color. You're absolutely right. There's also another element within Health Add Distinguished.
from PNC in a way is that very often our clients are looking to not increase net costs for their employees because they very often share in the cost. So we see a lot of demand for services from our part on the consulting basis to change the design of these plans to come up with digital solutions instead so that we can control the cost. So the inflation is not always directly...
manifesting itself in the premiums or in the coverage. There's also, as you said, John , a good part of our book that is on fees, rather than on commission. So overall, there are many different components pushing the pressure, because you're absolutely right. The healthcare costs are increasing all over the world, but the reaction from employers.
is to try to mitigate these costs through innovative solutions. One other point on our health and benefits business that just to share with everyone is that it's kind of an important proof point around some of the possibilities around collaboration inside of the company. This is a business that Mercer and Marsh work on together all over the world and it's been an amazing experience.
really important growth driver for us over the course of the last couple of years and it's a you know, it's been a bit of a source of inspiration on what's possible as we as we come together more and and and bring our collective capabilities to to the client. So Thank You Meyer. Operator, next question.
Thank you. And our next question comes from the line of your own canar with Jeffries.
Good morning. Thanks for taking my questions. I have two, both margin related. So the first one, maybe piggybacking on mayor's last question. So clearly you've had three consecutive quarters of 200 basis points or more of adjusted margin improvement in RIS. That's very notable.
At the same time, if I'm doing the math correctly, you know, fiduciary income added 230 basis points in margins this quarter. Cost is, I think, by Mark's comments at another 100 basis points. So there seems to have been some offsets in RAS. Can you talk about those? I certainly don't think of it in terms of offsets.
Again, I'm pleased with the margin expansion in the quarter. As I said, we're very disappointed about how we manage our cross space. And we're not trying to optimize margins in any given quarter, right? We're trying to strike that balance.
between delivering terrific results today and sustainable growth and investment in capabilities that our clients are looking for in the future. So I'm very pleased with our start to the year from a margin perspective.
And I apologize if I'm belaboring the point, but I'm still a little confused because I thought the 160 to 180 million dollars of cost savings that were going to be ratable over the year were net of reinvestments. And sounds like there was some reinvestment in growth this quarter.
We're always investing, of course, in future capabilities that will lead to sustainable growth in the future. There was some direct hiring that we did and an investment that we did connected with some growth opportunities in our efforts to be more deliberate around collaboration, but we continue to invest broadly across the business as well. There's also T&E pressure, there's other inflationary impacts on the expense.
four years from how the acquisition, do you expect those to continue? Yeah, we're pretty far along in that story. There could be occasionally some smaller charges that will happen going forward. They are excluded in the adjusted margin that we report.
So you're aware of that. Most of what happened in the first quarter was the resolution of some legacy litigation that existed at JLT. I think there could be some real estate that those sorting are way through, but we're largely past these charges.
Operator, next question. Thank you. Our next question comes from the line of Andrew Kliegerman with Credit Suisse.
Hey, good morning. 2 quick questions. I think Martin on Marsh mentioned a bit of a headwind still from the.
the robust IPO and M&A markets in the first quarter of last year. Maybe could you help us size that headwind in the first quarter? In the next quarter, maybe some color on sort of the tailwind of not having it there. I had heard from some competitors that it had a 5% dampening effect on organic revenue growth.
last year. So just curious if you could help us size that at Marsh. Yeah we're not going to you know size that Andrew. We talked about it a bit in the in the fourth quarter. It was you know a bit more of a headwind in the in the fourth quarter than it was in the first quarter but.
It remained a headwind for us. Again, we're pleased with the growth overall. You know, capital markets are just one input to the overall macro environment. And then, of course, you know, what we're doing to execute and to expand our growth. But, you know, I mean, you can look at the big data and get a sense of, you know, when obviously M&A activity started to tail off in IPO activity.
And while it won't be as much of a headwind, any of us are projecting a major rebound in the market over the course of the next quarter or two as well. Got it. Okay. So no more headwinds at least. And then you had another good year of net hiring. I think it was around 3,000 last year following...
And well, it won't be as much of a headwind. Yeah, he was projecting a major rebound in the market over the course of the next quarter or two as well. OK. So no more headwinds at least. And then you had another good year of net hiring. I think it was around 3,000 last year following 6,000 in 2021.
I'm curious what your outlook is for 2023. Are you expecting to see material net hiring, maybe in any color on what you'd like to do and the geographies of the company where you'd do it? Sure, thanks, Andrew. A lot of the hiring we did last year, some of it was connected to the mid and back office, some of the work, the investments that we're making to drive some efficiency.
Some of it we brought some contractors on as full-time employees. It was the right economic trade and the right trade from a service perspective as well. But we're always active in the market and trying to bring talent that will make us better and stronger. I mentioned earlier we feel very, very good about our brand in the market as an employer. We work very, very hard at it. Every turnover is.
in all of our businesses at or below historical levels. And so, you know, we feel terrific. Our colleagues are highly engaged and, you know, it's a complex operating environment and they're delivering exceptional value to our clients. We'll hire less this year than we did, you know, than we did last year or the year before. But again, it's not only the number, the raw number, it's, you know, it's who's on the team and making sure that we're aligning our talent with our clients' needs.
Operator, next question. Thank you. Our next question comes from the line of Brian Meredith with UBS. Yeah, thanks. A couple questions here. First, I want to dig into all the wine and just a little bit more here. Mark, I think you said that sales activity looks like it picked up a little bit in the second quarter, so we'll see a little better. I'm assuming that's because you've got such a good financial services practice all the wine in your sink.
spill over from what's going on with the banking crisis. That's one and also, if I think about X-
Thanks Brian , we have a little less visibility into the pipeline at Alverwim.
You know, historically been the case with that business, but you know, Mark pointed recent sales activities been better. We appreciate the advertisement on our FI practice. We have a great team of people there, but Nick, maybe you could add a little more color. Yeah, thank you, Bon, it's a very good question.
I think what we've really seen is uncertainty more than economic decline. A lot of what we do is a matter of choice, but John made a comment with respect to Mercer earlier that some of those choices become harder not to take right now with lots of questions changing, lots of important problems to solve.
I think a number of our plans, particularly in the US, have been pausing because of the uncertainty. We don't necessarily see that as a big downward step, but they're not quite sure if they're investing for growth or they're investing for cost. And to some extent, the financial services of the banking turmoil extends that period of uncertainty.
But we're extremely proud of our market-leading financial services practice in Oliver-Oyman. We are, of course, very engaged in that global banking situation, whether that's supporting banks on the management of their funding, deposit, and interest rate risks, working with involved actors in the sale and purchase of assets, preparing for some of the restructuring that will no doubt be coming. And when we think in the medium to longer term, that will continue to fuel the growth of that excellent practice. Great. Thanks, Max. We have a follow-up?
Yeah, absolutely. I just wanted to quickly chat a little bit about commercial property insurance. You know, pricing was going on in that market. You mentioned, you know, good strong price increases in the first quarter. Are we seeing kind of an acceleration in that in the second quarter as some of these carriers kind of adjust to higher re-insurance costs?
you know, as we expected in the first quarter given, you know, what happened late in the year and what we saw in the reinsurance market at January 1st. So, you know, what I would say is, broadly speaking, it's a challenging market for, you know, for our insurance clients at Marsh. Inflation broadly is driving a higher cost of risk, the frequency of weather related losses.
as you point out, we did see the US retail market, the property market begin to react to some of the reinsurance market changes as well. But, you know, Martin, maybe you could talk about pricing in the market broadly and in property. Yes, of course. Well, John , as you said, it's not a good day for our clients. Our focus is on obviously getting the best deals for our clients, making sure that they stay with us and they understand.
we're driving innovation where we can. The 22nd quarter of consecutive rate increases, you highlighted property and that did look as I picked up momentum again into Q1, it accelerated from 7% rating for each year's group of reporters in Q4.
22 to 10% this year. And in addition to that, from a premium perspective, there's clear inflation and exposure growth as well. So, you know, real pain for clients. It doesn't necessarily go through to our businesses. A good chunk of that high-risk business with high-cap business is fee-based. And so, you know, it provides the stability there. Other lines of business are being driven by social
So I think driven by the fact that there are 20 new carriers that have come into the market place over the last year. But actually the professional and empty lines are robust and that's really a function of a prior year action deterioration in the professional lines. Social inflation drives that. So it's a bit of a mixed picture but the highlight in terms of growth is the improperity and the rest is.
seem to And Brian maybe just one last point on the retail property market a lot of the retail wind and quake risk is from February 1st or even March 1st through the 1st of June and so you know really
just beginning to see, you know, what's happening from a risk appetite and from a marketplace perspective. So we're in the middle of the story right now. Thank you.
beginning to see what's happening from a risk appetite and from a marketplace perspective. We're in the middle of the story right now. Thank you.
I would now like to turn the call back over to John Doyle, President and CEO of Marsh McLendon for any closing remarks.
All right, thank you, Andrew, and thank you all for joining us on the call this morning. In closing, I want to thank our over 85,000 colleagues for their hard work and dedication. I also want to thank our clients for their continued support. Thank you all very much. I look forward to speaking with you again next quarter. Thank you. This concludes today's conference call.
Thank you for participating and you may now disconnect.
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Welcome to Marsh McLennan's Earnings Conference call. Today's call is being recorded. First quarter 2023 financial results and supplemental information were issued earlier this morning. They are available on the company's website at marshmclennan.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 and to our most recent SEC filings, including our most recent Form 10-K , all of which are available on the Marsh Mclennan website.
During the call today, we may also discuss certain non-GAAP financial measures. For reconciliation 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 1 1 on your touch tone phone. If you wish to be removed from the queue, please press star 1 1 again. 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 1 1 on your touch tone phone.
I'll now turn this over to John Doyle, President and CEO of Marsh McLennan. Good morning, and thank you for joining us to discuss our first quarter results reported earlier today. I'm John Doyle, President and CEO of Marsh McLennan. Joining me on the call is Mark McGivney, our CFO , and the CEOs of our businesses. Martin South of Marsh, Dean Klassur of Guy Carpenter, Martin Furlong of Mercer, and Nick Studer of Oliver Wyman.
Also with us this morning is Sarah DeWitt, Head of Investor Relations. Marsh Mclennan had a strong start to 2023. Our first quarter results were excellent and we are well positioned for another good year. Top line momentum continued as we generated 9% underlying revenue growth on top of 10% growth in the first quarter of last year. We had strong growth across most businesses, segments, and geographies, and
with underlying growth at Marsh, Guy Carpenter, and Mercer accelerating compared to the fourth quarter. Adjusted operating income grew 13% versus a year ago, reflecting our strong growth. Our adjusted operating margin expanded by 150 basis points compared to the first quarter of 2022.
And adjusted EPS growth was strong at 10%, building on 16% in the first quarter of 2022. In addition to delivering terrific results, we continue to execute on acquisitions.
On April 1, we completed the merger of BT Super with Mercer Super Trust, creating one of Australia's most competitive super funds with approximately 850,000 members and $63 billion of assets under management. I am pleased with our performance, especially when viewed in the context of the volatile macroeconomic environment. The global economy has been contending with high inflation.
aggressive tightening of monetary policy by central banks, some recent bank failures, and the effects of geopolitical instability. We have a track record of resilience across economic cycles, and there are factors that support continued growth in our business.
Although the outlook for real GDP growth continues to be under pressure, inflation remains elevated, driving higher insured values and loss costs.
P&C insurance and reinsurance rates continue to increase as carriers price to account for the rising frequency and severity of catastrophe losses, social inflation, and higher reinsurance costs.
Health care costs are trending higher, and employers expect further increases in the years ahead.
Labor markets remain tight in most major economies with three and a half percent unemployment and nearly 10 million unfilled jobs in the US and short-term interest rates are at the highest level since the financial crisis lifting fiduciary income. Change and uncertainty create complexity as well as opportunity for clients.
Marsh McLennan's leadership and capabilities in risk strategy and people help them navigate shifting landscapes. Turning to insurance and reinsurance market conditions.
Primary insurance rate increases persisted with the Marsh Global Insurance Market Index up 4% overall in line with the fourth quarter.
Property rate increases accelerated to 10 percent and casualty pricing was up in the low single-digit range. Workers' compensation was flat and financial and professional liability insurance rates were down mid-single digits. Cyber insurance saw the highest increase in our index, although the rate of increase continued to moderate.
In reinsurance, market conditions remain challenging from January 1 through April 1. Risk appetite for property catastrophe reinsurance remains constrained. Reinsurers continue to push for structural changes and tighten terms and conditions. Limited new capital has entered the market to support property catastrophe risks. At April renewals, the market continues to push for structural changes and conditions.
U.S. property cat reinsurance rates saw increases of 40 to 60 percent on average for non-loss affected accounts, with higher increases for loss affected business. U.S. casualty reinsurance rate increases were more modest.
In Japan, property cap rates were up 15 to 25 percent. The impact of rate increases on seated premiums was mitigated by higher retention.