Q1 2024 Earnings Summary
- Strong Revenue Growth and Positive Outlook: Marsh McLennan reported 9% underlying revenue growth in the first quarter, with accelerated growth in Marsh, Mercer, and Oliver Wyman compared to the fourth quarter. The company expects mid-single-digit or better underlying growth, margin expansion, and strong growth in adjusted EPS for 2024.
- Resilience and Strong Demand in Core Businesses: Despite economic uncertainties and a deceleration in insurance pricing, Marsh McLennan continues to experience strong demand for its services, benefiting from tight labor markets and rising healthcare costs. Clients' increased risk awareness drives growth in advisory and consulting services.
- Effective Expense Management Leading to Margin Improvement: The company has been disciplined in managing expenses, investing in client-facing talent, and leveraging efficiencies across the firm, resulting in operating margin expansion. They expect continued margin improvements, particularly in the second half of the year.
- Margin pressures are expected in the first half of 2024 due to higher merit pool costs from the prior year, acquisition-related costs, and higher reimbursable expenses, leading to lower margin expansion compared to the second half.
- Deceleration of growth in the Asia Pacific region, with Marsh's Asia Pacific underlying growth at 6%, a step down from previous quarters, possibly indicating challenges in maintaining growth momentum in that market.
- Stubbornly high valuations in the M&A market may pressure the company's growth strategy, as even lesser-quality assets are trading at high multiples, potentially leading to overpaying for acquisitions or reduced M&A activity.
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Marsh Growth vs. Pricing Deceleration
Q: Why did Marsh's growth accelerate despite pricing deceleration?
A: Marsh's organic growth accelerated to 8% this quarter from 6% last quarter, even though the global pricing index decelerated to 1% from 2%. Less than half of Marsh's revenue is exposed to P&C pricing, and pricing is up more in the middle market, which remains less cyclical. Strong demand, solid GDP growth, and investments contributed to growth across Marsh, Mercer, and Oliver Wyman. -
Margin Expansion Outlook
Q: What drives expected margin expansion in 2024?
A: MMC expects good margin expansion in 2024, with the second half better than the first due to factors like a higher merit pool, acquisition-related costs, and higher reimbursable expenses in the first half. Ongoing investments in workflow automation and efficiency improvements are expected to support medium- to long-term growth. -
Reinsurance Market Trends
Q: How is the reinsurance market affecting buyer behavior?
A: The reinsurance market is stabilizing, leading to increased client demand for additional property catastrophe limits, especially at the top end of programs. Strong capital inflows and competition among reinsurers have resulted in capacity being strong and some rates decreasing by around 5% in certain markets like Japan. -
M&A Activity and Interest Rates
Q: How are higher interest rates impacting M&A valuations?
A: Despite higher interest expenses due to rising rates, MMC remains active in M&A with a strong pipeline. Valuations have remained stubbornly high, even for lesser-quality assets. MMC focuses on acquiring well-led businesses with strong growth fundamentals that make the company better. -
Consulting Business Performance
Q: How did the consulting business perform this quarter?
A: The consulting segment had a strong quarter, with Oliver Wyman achieving 13% growth. Growth was broad-based across regions and sectors, including communications, health care, banking, and private capital work. Despite a tough consulting environment, MMC anticipates mid- to high single-digit growth through the cycle. -
Victor Access Wholesale Venture
Q: What is the strategy behind Victor Access?
A: MMC launched Victor Access to directly access the E&S market for clients, aiming to bring the best solutions by accessing as much of the market directly as possible. They are not seeking to build a third-party wholesale business but to manage client outcomes and experiences more directly. -
Commercial Insurance Pricing Trends
Q: Why is pricing decelerating in commercial insurance?
A: The Marsh Global Insurance Market Index declined to 1%, reflecting stabilization after several years of increases. Improved underwriting results and better data contribute to this stability, though it doesn't feel like a soft market to clients. Rising casualty loss costs remain a concern for the industry. -
Competitive Environment in Brokerage
Q: How is competition affecting market share in RIS?
A: The competitive environment remains intense, with MMC leveraging its scale in data analytics and market access to bring benefits to clients and colleagues. Clients' increased risk awareness allows MMC to gain market share by providing comprehensive solutions. -
Casualty Rates and Loss Trends
Q: Are casualty rates aligned with loss trends?
A: Casualty rates are up 3%, but this may not fully reflect troubling loss trends such as increased frequency of larger events and social inflation. Underwriters and the industry are cautious due to these rising loss costs. -
Health Care Costs and Growth
Q: How are rising health care costs impacting growth?
A: Rising health care costs and tight labor markets drive strong demand for MMC's Health segment, which grew 10% in Q1. Clients seek innovative and adaptive solutions to manage increased costs, creating opportunities for MMC.
Research analysts covering MARSH & MCLENNAN COMPANIES.