The paragraph is an introduction to Marsh McLennan's Earnings Conference Call for the third quarter of 2024, featuring John Doyle (President and CEO), Mark McGivney (CFO), and other key business leaders. They discussed financial results, which were released earlier and are available on the company's website. The call may include forward-looking statements that involve risks and uncertainties, and any non-GAAP financial measures discussed will have a reconciliation available in the earnings release. Additionally, the company acknowledged Sarah DeWitt, who is transitioning to the role of CFO of Marsh, and expressed sympathy for those affected by Hurricane Helene and Milton in Florida and the Southeast U.S.

The paragraph discusses Marsh McLennan's focus on supporting colleagues, clients, and community recovery efforts following significant storm impacts, highlighting the disparity between economic and insured losses and the need for better protection against extreme weather. The company also sees opportunities in risk mitigation and alternative solutions. Additionally, the paragraph outlines Marsh McLennan's financial performance in the third quarter, reporting revenue growth and an acquisition of McGriff Insurance Services, a prominent U.S. insurance broking and risk management provider.

The paragraph highlights Marsh McLennan's acquisition of McGriff for $7.75 billion, funded via cash and debt. The deal, expected to close by year-end, is anticipated to be accretive to adjusted EPS. Marsh McLennan aims to leverage McGriff's strengths, enhancing their presence in the middle market segment. This acquisition is part of a record M&A year, with nearly $10 billion in acquisitions, including McGriff and other companies. Marsh McLennan focuses on near-term delivery and long-term growth, supported by a favorable global economic landscape despite volatility.

Inflation is declining, but labor markets remain healthy, and healthcare risks continue to rise amid global uncertainties like geopolitical tensions and conflicts. Technological advances, cyber threats, supply chain risks, and extreme weather are key concerns for businesses. The company remains optimistic about growth due to its proven resilience and value to clients. The Marsh Global Insurance Market Index dropped 1% in the third quarter. U.S. and Latin American rates saw slight increases, while rates declined in the UK, Asia, and Pacific regions. Property rates decreased, while casualty rates rose, notably a 20% increase in U.S. excess casualty. Workers' compensation decreased slightly, financial liability rates fell by 7%, and cyber rates dropped by 6%. Reinsurance demand grew but capacity remained stable. Future hurricane impacts may affect 2025 insurance pricing.

The article discusses the financial performance and future outlook of a company. Cat bond issuances are expected to remain high due to a heavy maturity schedule, despite inflation concerns. In the third quarter, the company generated an adjusted EPS of $1.63, up 4% or 11% excluding a prior tax benefit, with revenue growing 5%. Business areas saw varying growth, with Marsh and Guy Carpenter up 7%, Mercer up 5%, and Oliver Wyman up 1%. Adjusted operating income increased by 12%, and operating margins expanded by 110 basis points. For the first nine months, revenue grew 7% and adjusted EPS increased 10%. The company expects continued revenue growth and margin expansion in 2024, assuming stable macro conditions. The CEO expressed satisfaction with the Q3 results and appreciation for the team's efforts. Mark McGivney will provide a detailed review of the results.

In the third quarter, the company maintained strong momentum with a 6% increase in consolidated revenue to $5.7 billion and a 12% rise in adjusted operating income to $1.2 billion. Adjusted EPS grew by 4% or 11% when excluding a prior year's tax benefit. The adjusted operating margin improved by 110 basis points to 22.4%. In Risk and Insurance Services (RIS), revenue rose by 8% to $3.5 billion, with operating income increasing by 15% to $733 million and an adjusted margin expansion of 130 basis points to 24.7%. Marsh's revenue grew by 9% to $2.9 billion, driven by robust retention and new business, particularly in the U.S. and Canada. For the first nine months, RIS reported an 8% revenue increase to $11.7 billion and a 12% rise in adjusted operating income to $3.7 billion. Looking ahead to the fourth quarter, a $30 million decline in fiduciary income is anticipated due to recent rate cuts and seasonal factors.

In the third quarter, Marsh reported international underlying growth of 7%, with notable increases in Latin America, EMEA, and Asia Pacific. The company's revenue for the first nine months reached $9.2 billion, reflecting ongoing growth in U.S., Canada, and international markets. Guy Carpenter's quarterly revenue grew to $381 million, primarily due to international growth in global specialties. In consulting, third-quarter revenue increased by 3% to $2.3 billion, with operating income up 7% and an improved adjusted operating margin of 21.7%. Over the first nine months, consulting revenue hit $6.7 billion, showing a 5% growth. Mercer's revenue rose 5% in the quarter, marking its 14th consecutive quarter of similar growth, with robust performance in health, career, and wealth sectors. Assets under management surged to $548 billion, partly due to market impacts and a transaction with Vanguard. Mercer's revenue for the first nine months totaled $4.3 billion, achieving 6% underlying growth.

In the quarter, Oliver Wyman's revenue reached $810 million, showing a modest 1% growth compared to a strong 12% increase the previous year, with challenges in certain regions. Over the first nine months, revenue was $2.4 billion, up 5%. Foreign exchange effects were minimal, and are expected to remain so. The quarter included $78 million in noteworthy items, with $54 million in restructuring costs from a 2022 program and some transaction charges. A net benefit credit of $68 million was recorded, with a full-year 2024 expectation of $270 million. Interest expenses increased to $154 million due to higher debt and rates, with a forecast of $151 million for the next quarter. The adjusted tax rate was 26.7%, rising from 20.5% last year, primarily due to changes in foreign tax assets. The expected tax rate for 2024 is around 26.5%. Additionally, Oliver Wyman is acquiring McGriff, highlighting its strong leadership, culture, and diversified U.S. business presence.

The company plans to acquire an asset for $7.75 billion, funded through cash and $7.25 billion in new debt, leveraging a bridge loan facility until permanent financing is arranged by Q4. Although leverage ratios will initially increase, the company expects substantial cash flow and earnings growth will return them to optimal levels. The transaction is aligned with maintaining strong credit ratings, which were recently affirmed. Share repurchases will be paused in Q4, but the company intends to continue its balanced capital management strategy, including dividend increases and share count reductions, along with funding acquisitions. More guidance on capital deployment for 2025 will be provided during the Q4 earnings call.

The company anticipates that a recent transaction will initially modestly increase adjusted EPS, excluding amortization, and become more significantly beneficial in the following years. This aligns with their capital management strategy focusing on reinvesting for growth while maintaining financial flexibility. Their current total debt stands at $12.8 billion, with the next maturity in 2025. In 2024, they plan to allocate approximately $4.2 billion across dividends, acquisitions, and share repurchases, not including a specific transaction. At the end of the third quarter, the company had $1.8 billion in cash, having spent $1.1 billion during the quarter on various investments. They plan to modify their adjusted EPS reporting by excluding acquisition-related amortization and other non-cash items to enhance result comparability. Despite global economic uncertainties, the company is optimistic about their business momentum and growth prospects for 2024.

The paragraph discusses an anticipated earnings growth and margin expansion, specifically focusing on a deal involving McGriff. John Doyle expresses excitement about integrating McGriff, pending regulatory approval, emphasizing their strong culture and market capabilities. Although specific financial details such as margins and growth rates are not disclosed, Doyle mentions that the acquisition is expected to be modestly accretive in the first year and more beneficial thereafter. He highlights potential synergies and a positive long-term return on investment. The paragraph transitions into a Q&A segment with Elyse Greenspan from Wells Fargo, seeking further details about the deal's financial assumptions.

In the paragraph, Elyse Greenspan inquires about the recent growth dynamics in the U.S. and Canada markets, particularly concerning IPOs and SPACs. John Doyle responds positively about the overall growth during the quarter, highlighting strong performance at Marsh, Guy Carpenter, and Mercer across all regions, despite a softer quarter at Oliver Wyman. He notes that changes in the macro environment, like decreasing interest rates, have opened up new opportunities in IPOs and M&A activities. Martin South adds that the U.S. market saw consistent 6% growth, with contributions from MMA, Vector, capital markets, and construction and aviation sectors, pointing out that the double-digit growth in capital markets comes from a lower base after a few challenging years. Overall, the growth momentum is expected to continue.

In the paragraph, Jimmy Bhullar from JPMorgan asks about the impact of recent events, specifically Milton, on the reinsurance market and renewal pricing. John Doyle responds that it's too early to determine the full impact due to the wide range of estimates and ongoing assessments by property owners. Dean Klisura adds that ahead of the January 1 property catastrophe renewal, the market was expected to be competitive. Following Milton, they foresee a flattening of pricing, particularly for lower and mid-level risk layers, although there may still be some rate reductions in less risky areas. However, since the wind season isn't over, future catastrophic events could influence market conditions.

The paragraph discusses the impact of recent events on property catastrophe (cat) demand and insurance client renewals. Dean notes that while accurate loss estimates are still pending due to insufficient claims data, property cat demand is expected to increase by January 1, with adequate market capacity anticipated to meet this demand. The major cat losses will mostly affect clients due to high attachment points instituted post-Hurricane Ian. John Doyle and Nick Studer discuss Oliver Wyman's performance, noting challenges in some geographic regions related to economic factors, and recognizing a low point in the business cycle despite significant growth since the pre-pandemic period. They anticipate higher revenue growth from Oliver Wyman in the medium- to long-term.

The paragraph discusses a business's performance over a quarter, highlighting consolidation in a challenging market. Although no one is pleased with a drop from a 3 to a 1, the business is 8% larger compared to the same period last year, showing progress. Strong growth is noted in Asia and the Pacific, while regional softness is seen in the Americas and Europe, partly due to economic factors and corporate buying behaviors. Sector-wise, communications, media, technology, insurance, asset management, automotive, manufacturing, and banking practices are growing robustly. Despite the tough market, the company is making efforts to navigate the challenges. John Doyle acknowledges questions from Greg Peters, who focuses on free cash flow results, noting discrepancies in operating cash flow and revenue growth. Doyle mentions the inherent volatility in free cash flow growth and asks Mark to provide further details.

In this exchange, Mark McGivney discusses the volatility of free cash flow, emphasizing that it's best evaluated over long periods due to fluctuations from quarter-to-quarter and year-to-year. He highlights the company's strong track record of double-digit free cash flow growth over the past decade, supported by their high cash generation model. Currently, the free cash flow is down year-to-date after a 28% increase last year, attributed to factors like higher compensation payouts, increased receivables, and a change in business mix. McGivney expresses optimism for continued strong growth in earnings and free cash flow. Greg Peters asks McGivney to elaborate on his comments regarding fiduciary and interest income, seeking guidance for the upcoming quarters.

The paragraph discusses the expected decline in fiduciary income for Guy Carpenter in the fourth quarter due to seasonality and recent rate cuts, projecting a $30 million decrease from the third quarter. The company, with an average of $11.5 billion in balances, anticipates that a lower rate environment will persist, potentially posing challenges into 2025. Despite this, they are accustomed to operating under such conditions and will adjust their plans accordingly. The lower rate environment may also affect other business areas, including increased transaction risk in M&A markets, IPOs, construction, and Mercer Wealth, as well as the overall cost of capital.

The paragraph discusses the impact of the Marsh pricing index, which has moved into negative territory, on Marsh's organic growth. John Doyle explains that while overall markets are stable, insurers have increased prices over recent years, making the negative shift a relief for clients after a period of tough pricing. The cost of risk is rising, and about half of Marsh's business is sensitive to revenue through property and casualty pricing via commission, while the rest is fee-based. Changes in the market can influence client behavior, such as retaining less risk. Additionally, Marsh's captives business has been growing rapidly, which could change if market conditions become more competitive. Overall, the impact of pricing on growth is significant but not straightforward.

The paragraph discusses the current state of the U.S. liability market, noting that while the overall composite rating index has risen since 2012, specific segments like the casualty and excess books have seen significant increases, particularly the latter by 21%. Although there is no dislocation in terms of capacity for clients, insurers are offering smaller limits, prompting strategies like quota share programs to manage these constraints. The Excess & Surplus (E&S) market is also expanding, providing more flexibility in rates, which positions the company well to support clients facing challenges such as social inflation.

The paragraph discusses the challenges in the U.S. casualty reinsurance market due to ongoing tort inflation. Brian Meredith from UBS asks about insurers' reactions to this issue, particularly regarding terms and conditions. John Doyle acknowledges the market's challenges and hands over to Dean Klisura for specifics. Dean notes that while reinsurers are concerned, particularly about excess casualty, current market conditions are expected to persist through the 1/1 renewal season. There is downward pressure on ceding commissions for quota share deals, with rate increases for excess of loss contracts ranging from 5% to 25%, and some structural changes may be necessary to finalize deals. Adequate capacity is expected, although it might be more limited for certain deals.

The paragraph discusses the challenges and strategies related to the insurance market. It highlights the importance of portfolio performance and managing rate increases for successful renewals, particularly in the challenging casualty market. John Doyle mentions the impacts of economic factors and court closures on loss patterns, making it difficult for clients to navigate uncertainty. Brian Meredith asks about the trend of business moving to the non-admitted market. Doyle responds that while the E&S market is growing, Marsh is not losing market share. Marsh prefers admitted solutions but accesses E&S markets when suitable for clients, largely doing so directly.

The paragraph features a question-and-answer session from a conference call, where Grace Carter from Bank of America asks about the financial impacts and tax implications related to a deal with McGriff. John Doyle responds by stating that they are not prepared to disclose specifics like amortization increases or transaction expenses, but notes that McGriff is performing well with strong revenue growth. When asked about tax rates and the geographic mix, Doyle does not provide guidance for 2025, implying it's too early to predict.

In the paragraph, John Doyle discusses the company's approach to capital management, emphasizing their preference for investing in the business over share buybacks and their goal of consistently raising dividends. The company is committed to being responsible stewards of capital, despite rising multiples, and aims to achieve returns exceeding their cost of capital. He mentions their strong reputation as a buyer in the market and flexibility in capital deployment, whether for small to mid-sized acquisitions or larger deals like McGriff. Rob Cox, from Goldman Sachs, asks a follow-up question about commission and fee rates in the brokerage operations, seeking an update.

In the paragraph, John Doyle addresses the perception of recent years as a "hard market" in the insurance industry. He explains that instead of a true hard market, it was more of a "catch-up period" for insurers adjusting to increasing loss costs, affecting retail clients at Marsh. He notes that while certain markets, like cyber, faced challenges due to unforeseen risks like ransomware, these markets adjusted quickly. Doyle emphasizes that Marsh's average commission rates have remained stable across different product lines. The conversation then shifts to a question from Andrew Kligerman about Marsh's impressive underlying growth in their RIS segment, which has slightly decelerated but remains strong. Kligerman inquires about the confidence in maintaining this growth rate, and Doyle affirms that they always have time to address such inquiries.

The paragraph discusses the supportive macro environment for growth amidst elevated risks such as geopolitical issues, weather events, and cyber threats. The company is focusing on expanding its capabilities both organically and inorganically, with McGriff being a recent example. They're investing in the middle market and seeing growth by collaborating more effectively. Although specific segment growth numbers aren't disclosed, the middle market (MMA) is growing faster and more consistently than the large corporate business. The company is leveraging scale benefits for clients, and McGriff is highlighted as a strong business with excellent fundamentals and leadership within this strategy.

The paragraph describes the conclusion of a call where John Doyle expresses excitement about leveraging capabilities from MMA and Marsh to better serve clients. Due to a fire alarm in their building, the call is wrapped up prematurely. Doyle thanks colleagues for their hard work and clients for their support, and looks forward to the next quarterly discussion. The operator then concludes the call.

This summary was generated with AI and may contain some inaccuracies.