Q4 2023 Earnings Summary
- Marsh & McLennan Companies achieved underlying growth of 10% in Asia Pacific and 11% in Latin America in Risk and Insurance Services, driven by market leadership and strong client demand in these regions.
- The company expects to sustain strong growth, anticipating mid-single-digit or better underlying revenue growth in 2024, supported by continued investments in both organic and inorganic growth initiatives, including refining client engagement models and investing in sales operations and technology.
- Marsh & McLennan Agency (MMA), the company's middle-market platform, is considered best-in-class in the U.S., with a methodical 12-year build-out and a large addressable market of 30,000 independent agents, positioning it for continued growth.
- Growth in the U.S. and Canada, as well as EMEA, slowed in the fourth quarter, with the U.S. and Canada experiencing a decrease from 7% to 5% growth, potentially indicating a slowdown in key markets.
- Increased competition in the middle market segment from large peers entering the space could pressure Marsh McLennan’s market share and margins in this area.
- Challenges in sustaining high organic growth rates above the pre-pandemic levels of 3%-5%, as the company may return to historical growth rates in the coming years.
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Sustaining Higher Growth
Q: Can you sustain above pre-pandemic growth rates in coming years?
A: Management believes they're a better business entering 2024 and are confident in sustaining higher growth rates due to investments in reshaping their business mix and refining client engagement models. They expect mid-single-digit revenue growth or better and are quite optimistic about 2024. -
Reinsurance Market Outlook
Q: How are terms and conditions in reinsurance brokerage?
A: The reinsurance market at January 1 renewal was balanced, with adequate capacity and a double-digit increase in dedicated reinsurance capital. In property catastrophe, attachment points did not come down, and reinsurers held firm on terms and conditions. Risk-adjusted rate increases for non-loss impacted portfolios ranged from flat to high single digits, while clients with cat losses saw increases of 10% to 30%. -
Casualty Loss Cost Inflation
Q: Are casualty loss costs inflating, affecting pricing?
A: Management notes that the pace of loss cost inflation in casualty is the great unknown and is increasing, with evidence of mounting stress in casualty lines. This is challenging for all in the market to sort through. -
Middle Market Competition
Q: Any changes in middle market environment and competition?
A: MMC believes they have the best-in-class middle market U.S. platform in MMA, built over 12 years. They welcome competition and are excited about their prospects, noting they're just getting started and see opportunities as competitors enter the space. -
Impact of Medical Cost Inflation
Q: Will rising medical costs boost the health segment?
A: The health business had an excellent year with 10% overall sales growth, driven by consulting services that help clients control costs through better program design and innovative solutions. Elevated medical cost inflation is generating demand, and they don't see themselves being less busy anytime soon. -
Organic Growth Drivers
Q: Will diminishing tailwinds from past hires affect growth?
A: Management does not expect diminishing tailwinds from past hires to impact growth in 2024 and 2025. They continue to invest organically and inorganically to drive production capacity across all businesses and believe the macro environment remains supportive of growth. -
EPS Reporting Practices
Q: Will you adjust EPS to exclude intangibles like peers?
A: MMC has no current plans to change their reporting to back out intangibles from adjusted EPS. They provide amortization and other information for comparison but intend to maintain their current reporting practices. -
Fiduciary Investment Income Decline
Q: Why did fiduciary investment income decline sequentially?
A: The modest sequential decline in fiduciary investment income is due to seasonality. Fiduciary balances tend to be seasonally lower in Q4 and Q1, leading to lower average balances and income in these periods.
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