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    Marsh & McLennan Companies Inc (MMC)

    Business Description

    Marsh & McLennan Companies, Inc. (MMC) is a global professional services firm that specializes in risk management, insurance broking, reinsurance services, and consulting. The company operates through two main segments: Risk and Insurance Services, and Consulting, offering a range of services from insurance and reinsurance to health, wealth, and career advice, as well as strategic consulting . MMC's diverse offerings cater to a wide array of client needs, positioning it as a leader in both the insurance and consulting industries.

    1. Risk and Insurance Services - Provides comprehensive risk management, insurance broking, and reinsurance services through its subsidiaries, Marsh and Guy Carpenter.

      • Marsh - The world's leading insurance broker and risk advisor, offering a wide range of insurance and risk management solutions.
      • Guy Carpenter - A reinsurance intermediary and advisor, delivering strategic reinsurance and risk management services.

    2. Consulting - Offers health, wealth, and career advice, along with strategic, economic, and brand consulting services through its subsidiaries, Mercer and Oliver Wyman Group.

      • Mercer - Provides consulting services in health, wealth, and career, helping clients improve the health and financial well-being of their employees.
      • Oliver Wyman Group - Delivers strategic, economic, and brand consulting services, assisting clients in navigating complex business challenges.

    Q3 2024 Summary

    Initial Price$211.16July 1, 2024
    Final Price$222.79October 1, 2024
    Price Change$11.63
    % Change+5.51%

    What went well

    • Confidence in sustained growth due to elevated risk environment and supportive macro conditions, leading to opportunities in areas such as geopolitical risk, cyber events, and extreme weather impacts.
    • Strategic investments and acquisitions, notably the McGriff Insurance Services deal, enhance capabilities and expand reach in faster-growing segments like the middle market, expected to be accretive to earnings and contribute to sustained growth.
    • Resilience and growth in key segments, with Risk and Insurance Services achieving 15 consecutive quarters of 6% or higher underlying growth, and Oliver Wyman's business being 8% larger than the same period last year despite current market softness.

    What went wrong

    • Slowing Growth in Oliver Wyman Segment: The Oliver Wyman business experienced a significant slowdown, with underlying revenue growth of only 1% in the third quarter, down from 12% growth in the same quarter last year. Management acknowledged that they are "at a low point in the cycle" and expect the tough market conditions to continue, particularly with regional softness in the Americas and Europe due to economic factors and corporate buying habits.
    • Decelerating Growth in Risk and Insurance Services (RIS): The RIS segment's underlying revenue growth has decelerated from double-digit levels last year to 6% in the current quarter. Analysts questioned the company's confidence in maintaining mid-single-digit growth and whether it might decelerate further, raising concerns about future growth prospects.
    • Pressure from Rising Casualty Insurance Rates: There are "real troubling signs in the U.S. liability market," with the excess casualty book experiencing rate increases of 21% in North America. While the company is working to mitigate these challenges, higher rates could pose difficulties for clients and potentially impact Marsh McLennan's business if clients reduce coverage or if placement becomes more challenging.

    Q&A Summary

    1. McGriff Deal Assumptions
      Q: What are revenue growth and margin assumptions for McGriff?
      A: John Doyle stated they are excited to welcome McGriff, which will extend their reach into the middle market with excellent specialty capabilities. They do not disclose margins or growth details for MMA transactions, but he mentioned that the deal will be modestly accretive in year one and more so after that, expecting a good return on investment over time.

    2. Free Cash Flow Decline
      Q: Why is free cash flow not growing with revenue?
      A: Mark McGivney explained that free cash flow is volatile quarter-to-quarter and best viewed over long periods. Year-to-date free cash flow is down due to higher variable compensation payouts in the first quarter because of strong results last year, and increased receivables due to growth. Despite this, they have an outlook for continued strong earnings growth, and expect free cash flow growth to remain strong.

    3. Fiduciary Income Outlook
      Q: What is the guidance for fiduciary income next year?
      A: Mark McGivney noted they expect fiduciary income to be about $30 million lower in Q4 compared to Q3 due to rate cuts and seasonal drops in fiduciary balances. Looking into 2025, it will depend on future rate actions. With roughly $11.5 billion in balances, they suggest using this for sensitivity analysis on fiduciary income.

    4. Pricing Impact on Growth
      Q: Does the negative pricing index affect Marsh's organic growth?
      A: John Doyle explained that markets are stable, and the -1% pricing was welcome relief for clients. About half of Marsh's business is sensitive to P&C pricing through commission. While pricing has an impact, it's not a direct line to revenue as clients' buying habits change. The index is skewed to large accounts; middle market pricing is more stable, up low to mid-single digits.

    5. Oliver Wyman Weakness
      Q: What's causing regional weakness at Oliver Wyman?
      A: Nicholas Studer mentioned they are at a low point in the cycle, with softness in the Americas and Europe linked to the economy and corporate buying habits amid uncertainty. Despite this, they saw strong growth in Asia and the Pacific region, and in sectors like communications, media and technology, and insurance and asset management.

    6. Reinsurers and Tort Inflation
      Q: How are reinsurers reacting to tort inflation?
      A: Dean Klisura stated that reinsurers express concern about the U.S. casualty reinsurance market, particularly excess casualty. At 1/1 renewals, they expect current conditions to prevail, with downward pressure on ceding commissions averaging 100 basis points, and rate increases on excess of loss contracts between 5% to 25%. Despite challenges, deals are getting done, and adequate capacity is expected.

    7. Shift to Non-Admitted Markets
      Q: Is business flow to non-admitted markets impacting Marsh?
      A: John Doyle stated they are not losing share due to growth in the E&S market. They prefer admitted solutions but access non-admitted markets when appropriate. Their strategy is to access as much of the market directly as possible, including E&S insurers. The E&S premium they place is mostly done directly, and they will continue to use wholesale brokers for niche expertise.

    8. Brokerage Commission Rates
      Q: Have commission and fee rates changed recently?
      A: John Doyle explained that over time, average commission rates at Marsh have remained fairly stable. While there is some movement across product lines, average acquisition expense has been pretty constant. He does not view the past few years as a hard market but rather a catch-up period for insurers.

    9. RIS Growth Confidence
      Q: Can you maintain mid-single-digit RIS growth?
      A: John Doyle expressed confidence in maintaining growth, citing an elevated risk environment with geopolitical risks, weather severity, cyber events, and loss cost inflation creating opportunities. They are focused on building capabilities organically and inorganically, with the McGriff acquisition being the latest example, and are reshaping the mix of their business.

    10. U.S./Canada Growth Dynamics
      Q: What are the growth dynamics in U.S./Canada, any IPO/SPAC improvement?
      A: John Doyle noted they had a terrific quarter with widespread growth. Interest rates coming down have led to new opportunities in IPOs and M&A activity. Martin South added that the U.S. performed well with 6% growth, seeing double-digit growth in capital markets and M&A products, construction, aviation, and strong growth in benefits business.

    Key Metrics

    View all financials →
    Revenue by Segment - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Risk and Insurance Services3,9063,7223,1903,27114,0894,2734,0223,453
    - Marsh2,8003,1032,7822,97211,6573,0813,2652,934
    - Guy Carpenter1,1066194082992,4321,192632381
    - Fiduciary Interest Income------125-
    Consulting2,0312,1722,2062,38,7092,2142,2162,262
    - Mercer1,3441,3741,4251,4445,5871,4251,3791,452
    -- Wealth581-635--672612625
    -- Health545-496--538547520
    -- Career218-294--215220307
    - Oliver Wyman Group6877987818563,122789837810
    Corporate/Eliminations-13----62---
    Total Revenue5,9245,8765,3825,55422,7366,4736,2215,697
    Revenue by Geography - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    United States----10,924---
    United Kingdom----3,555---
    Continental Europe--------
    Asia Pacific--------
    Other----8,319---
    Marsh--------
    - EMEA932858692783,2621,025912747
    - Asia Pacific3123573113151,295336391342
    - Latin America115137134173559125137134
    - Total International1,3591,3521,1371,2685,1161,4861,4401,223
    - U.S./Canada1,3851,6861,5631,6286,2621,5171,8251,711
    - Total Marsh2,7443,0382,700--3,0033,2652,934
    Total Revenue5,9245,8765,3825,55422,7366,4736,2215,697

    Executive Team

    NamePositionStart DateShort Bio
    Paul BeswickSenior Vice President and Global Chief Information Officer (CIO)January 2021Paul Beswick manages over 5,000 technologists supporting MMC's global businesses. He was previously a Partner and Global Head of Oliver Wyman Labs and the Digital Practice at Oliver Wyman .
    Katherine J. BrennanSenior Vice President and General CounselMarch 11, 2022Katherine J. Brennan leads MMC's global legal, compliance, and public affairs functions and the company's ESG efforts. She has held several legal and compliance leadership roles at MMC, including General Counsel of Marsh LLC .
    John Q. DoylePresident and Chief Executive OfficerJanuary 1, 2023John Q. Doyle succeeded Daniel Glaser as CEO. He joined MMC in 2016 and has over 35 years of experience in the commercial insurance industry, having previously worked at AIG .
    Martine FerlandChief Executive Officer of Mercer, Vice Chair of Marsh McLennanMarch 2019Martine Ferland joined Mercer in 2011 and has held various leadership roles. She began her career as a pension actuary and consultant at Willis Towers Watson .
    Carmen FernandezSenior Vice President and Chief People OfficerJanuary 2021Carmen Fernandez has held various roles within MMC for 15 years. Before joining MMC, she worked in investment banking at Bank of America and Goldman Sachs .
    John JonesChief Marketing and Communications OfficerJanuary 1, 2023John Jones joined Marsh in 2016 and has over 25 years of marketing experience. He previously served as Chief Marketing and Communications Officer of Marsh from 2018 to 2022 .
    Dean KlisuraPresident and Chief Executive Officer of Guy Carpenter, Vice Chair of MMCJanuary 2022Dean Klisura joined Marsh in 1993 and has held several key global leadership roles, including President of Marsh Global Placement and Advisory Services .
    Mark C. McGivneyChief Financial OfficerJanuary 2016Mark C. McGivney joined MMC in 2007 and has held several senior financial management positions. Prior to MMC, he worked at The Hanover Insurance Group, Merrill Lynch, and PricewaterhouseCoopers .
    Martin SouthPresident and Chief Executive Officer of Marsh, Vice Chair of MMCJanuary 2022Martin South has over 30 years of experience in the insurance industry and initially joined Marsh in 1985. He has held various senior leadership roles, including CEO of Marsh's Asia-Pacific region .
    Nick StuderChief Executive Officer of Oliver Wyman Group, Vice Chair of MMCJuly 2021Nick Studer has over 25 years of consulting experience and has held several senior positions at Oliver Wyman. He was previously the Managing Partner of the Consumer, Industrial and Services Practice Group .

    Questions to Ask Management

    1. The acquisition of McGriff Insurance Services is expected to be modestly accretive to adjusted EPS, excluding amortization, in year 1 and become more meaningfully accretive in year 2 and beyond ; can you provide more specific guidance on the revenue growth and margin assumptions underpinning this expectation?

    2. With your plan to change how you report adjusted EPS by excluding the impact of acquisition-related amortization starting next year , how do you address potential concerns about transparency and the comparability of your results to prior periods and peers?

    3. Given that the Marsh Global Insurance Market Index was down 1% in the third quarter , and that approximately half of your business at Marsh is sensitive to P&C pricing through commission , how do you anticipate the continued softening of the market impacting your organic growth?

    4. As business continues to flow to the non-admitted market , what strategies are you implementing to mitigate potential loss of share in this area, and does the McGriff acquisition provide any capabilities to help you in the non-admitted market?

    5. Considering the rising frequency and severity of extreme weather events like Hurricanes Helene and Milton and the associated protection gap between economic and insured losses , how is Marsh McLennan positioning itself to address this gap and what specific measures are being taken to develop alternative solutions such as community-based parametric products?

    Share Repurchase Program

    Program DetailsProgram 1
    Approval DateN/A
    End Date/DurationN/A
    Total additional amountN/A
    Remaining authorization amount$2.3 billion
    DetailsAuthorized to repurchase shares with no time limit

    Past Guidance

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Underlying Revenue Growth: Mid-single-digit or better .
      2. Adjusted Operating Margin: Expect margin expansion .
      3. Adjusted EPS Growth: Strong growth expected .
      4. Adjusted Effective Tax Rate: Approximately 26.5% .
      5. Interest Expense: Approximately $151 million in Q4, excluding McGriff transaction .
      6. Fiduciary Income: Decline by approximately $30 million in Q4 .
      7. McGriff Transaction: Modestly accretive to adjusted EPS in year 1, more in year 2 .
      8. Capital Deployment: Approximately $4.2 billion in 2024 .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Underlying Revenue Growth: Mid-single-digit or better .
      2. Margin Expansion: Expected .
      3. Adjusted EPS Growth: Strong growth expected .
      4. Adjusted Effective Tax Rate: Between 25.5% and 26.5% .
      5. Interest Expense: Approximately $154 million in Q3 and $620 million for the full year .
      6. Capital Deployment: Approximately $4.5 billion in 2024 .
      7. Margin Expansion in Second Half: Better than in the first half .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Revenue Growth: Mid-single-digit or better .
      2. Margin Expansion: Continued, with more in the second half .
      3. Adjusted EPS Growth: Strong growth expected .
      4. Interest Expense: Approximately $620 million for the full year .
      5. Adjusted Effective Tax Rate: Between 25.5% and 26.5% .
      6. Capital Deployment: Approximately $4.5 billion in 2024 .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024
    • Guidance:
      1. Revenue Growth: Mid-single-digit or better .
      2. Margin Expansion: Expected .
      3. Adjusted EPS Growth: Strong growth expected .
      4. Interest Expense: Approximately $625 million for the full year, $159 million in Q1 .
      5. Adjusted Effective Tax Rate: Between 25.5% and 26.5% .
      6. Capital Deployment: Approximately $4.5 billion .

    Competitors

    Competitors mentioned in the company's latest 10K filing.

    • Insurance and reinsurance brokerage firms: Compete on a global, regional, national, or local scale in every geography in which the company operates .
    • Insurance and reinsurance companies: Market, distribute, and service their products without the assistance of brokers .
    • Commercial and investment banks, accounting firms, consultants, and online platforms: Provide risk-related services and products or alternatives to traditional insurance brokerage services .
    • Third-party capital providers: Entered the insurance and reinsurance risk transfer market offering products and capital directly to the company’s clients .
    • Managing general agents, affinity programs, and private client services providers: Compete with the company's offerings .
    • Independent consulting, broking, and outsourcing firms: Compete in the consulting business .
    • Consulting, broking, and outsourcing operations affiliated with larger accounting, information systems, technology, and financial services firms .
    • Insurers and non-traditional competitors: Compete in the health benefits space, including payroll firms, large consumer businesses, and digitally oriented consultancies .
    • Investment consulting firms, investment management firms, and other financial institutions: Compete with Mercer's investments business .