Marsh McLennan - Q2 2023
July 20, 2023
Transcript
Operator (participant)
Welcome to Marsh McLennan's earnings conference call. Today's call is being recorded. Second 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 a 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 one one on your touchtone phone. If you wish to be removed from the queue, please press star one one 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 one one on your touchtone phone. I'll now turn this over to John Doyle, President and CEO of Marsh McLennan.
John Doyle (President and CEO)
Good morning, and thank you for joining us to discuss our second 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 Klisura of Guy Carpenter, Martine Ferland of Mercer, and Nick Studer of Oliver Wyman. Also with us this morning is Sarah DeWitt, Head of Investor Relations. Marsh McLennan's second quarter results were excellent. We performed well across our businesses and geographies, extended the best run of quarterly underlying revenue growth in over two decades, and generated double-digit growth in adjusted EPS. Top-line momentum continued, with 11% underlying revenue growth on top of 10% growth in the second quarter of last year. Adjusted operating income grew 17% versus a year ago.
Our adjusted operating margin expanded 100 basis points compared to the second quarter of 2022, and adjusted EPS grew 16%. We also raised our quarterly dividend by 20% to $0.71 and completed $300 million of share repurchases during the quarter. I'm pleased with our performance, especially when viewed in the context of the current macroeconomic and geopolitical environment. While the U.S. and other major economies have been resilient, there remains significant uncertainty given persistent inflation, continued central bank tightening, and geopolitical instability. However, we continue to perform well. As we have discussed in the past, there are factors that are supportive of our growth. We also have a track record of resilience and believe we are well-positioned to perform across economic cycles. We manage our business to grow revenues faster than expenses in both good and challenging periods.
We've made meaningful investments in market-facing talent and improving sales operations and client engagement, which are contributing to our growth. We continue to deliberately shift our business mix to faster growth areas. While the macroeconomic and geopolitical environment remains volatile, we see opportunity to deliver greater value to clients through our leadership and capabilities in risk, strategy, and people. A good example is Marsh McLennan's work to aid Ukraine's economy. Our four businesses together are mobilizing our unique expertise to support their future recovery and reconstruction efforts. In June, I attended the Ukraine Recovery Conference, hosted by U.K. Prime Minister Rishi Sunak. We had the honor of hosting a delegation of Ukrainian and British officials at our London offices, where we announced proposals to help with Ukraine's recovery.
Some estimates suggest over $1 trillion may be required for this effort, yet investment capital will not be forthcoming until investors can protect themselves from war risk. To this end, we proposed to Ukraine and the G7, the creation of a war risk insurance pool that would ensure commercial insurance is available for reconstruction projects. We also announced that we will partner with the Ukrainian government and insurers to create a data platform for the assessment of war risks. This project draws on Marsh McLennan's expertise and leverages data and information provided by the Ukrainians. By enabling effective and targeted risk modeling, it represents a critical first step for the industry to offer commercial insurance and unlock capital. Our colleagues at Oliver Wyman also partnered with the Ukrainian government to develop a post-war transformation strategy.
This would reposition Ukraine's economy in a way that leverages national strengths to move beyond resilience to opportunity. At Marsh McLennan, we consider it a privilege to support these endeavors. Now, I'd like to take a moment to provide an update on the strategic initiatives we discussed last quarter. As a reminder, in the first quarter, we appointed new leaders for Marsh McLennan International and U.S. and Canada, as well as region and country leaders.... These leaders are driving client impact through enhanced collaboration, while at the same time, maintaining the individual value propositions of the businesses. We are bringing our collective capabilities where there is opportunity to provide greater value. This allows us to harness the benefits of our scale, data, insights, and expertise to meet our clients' challenges and realize possibilities. This approach is already yielding benefits and improving the client and colleague experience.
At the same time, we are also finding new ways to operate, reduce complexity, and organize for impact. The actions we are taking aim to realign our workforce and skill sets with evolving needs, rationalize technology, and reduce our real estate footprint. As we said last quarter, we expect roughly $300 million of total savings by 2024, with total costs to achieve these savings of $375 million-$400 million. Our go-to-market collaboration and restructuring actions are an opportunity to drive higher growth, enhance the colleague value proposition, and be more efficient and connected. Turning to insurance and reinsurance market conditions, primary insurance rate increases continued, with the Marsh Global Insurance Market Index up 3% overall versus 4% in the first quarter. Property rates increased 10%, the same as last quarter. Casualty pricing was up in the low single-digit range.
Workers' compensation was down low single digits. Financial and professional liability insurance rates were down high single digits. Cyber insurance pricing stabilized after several years of increases. In reinsurance, challenging market conditions persisted at midyear renewals. Reinsurers were disciplined, and rate increases remained significant, although the market showed more interest in deploying capacity than at January 1, given the firm pricing and improved terms. Global property cat reinsurance risk-adjusted rates increased about 30% on average, with loss of impacted clients seeing higher pricing. The impact of rate increases on ceded premiums was mitigated by higher retentions. On the casualty side, pricing pressure continued across most lines, driven by prior year loss development and concerns about social and economic inflation. We continue to help clients manage through these dynamic market conditions. Let me turn to our second quarter financial performance.
We generated adjusted EPS of $2.20, which is up 16% from a year ago. On an underlying basis, revenue grew 11%. Underlying revenue grew 13% in RIS and 8% in consulting. Marsh was up 10%, Guy Carpenter, 11%, Mercer, 6%, and Oliver Wyman grew 11%. Overall, the second quarter saw adjusted operating income growth of 17%, and our adjusted operating margin expanded 100 basis points year-over-year. For the six months, consolidated revenue grew 10% on an underlying basis. Adjusted operating income grew 15%, and our adjusted operating margin expanded 130 basis points. Adjusted EPS was $4.74, up 13% from a year ago. Turning to our outlook, we are well positioned for a strong year in 2023.
In terms of revenue outlook, given our momentum, we expect full-year underlying revenue growth to be high single digits. This reflects a continuation of current trends, but as we noted, the macro outlook remains uncertain and can turn out to be different than our assumptions. As for the bottom line outlook, we continue to expect margin expansion for the full year and strong growth in adjusted EPS. Overall, I'm proud of our second quarter performance, which demonstrates our continued execution on strategic initiatives and momentum across our business, despite an uncertain macro environment. I'm grateful to our colleagues for their focus and determination and the value they deliver to our clients, shareholders, and communities. With that, let me turn it over to Mark for a more detailed review of our results.
Mark McGivney (CFO)
Thank you, John. Good morning. Our second quarter results were outstanding, with continued momentum and underlying growth, mid-teens adjusted EPS growth, and solid margin expansion. Our consolidated revenue increased 9% to $5.9 billion, with underlying growth of 11%. Operating income was $1.5 billion, and adjusted operating income was also $1.5 billion, up 17%. Our adjusted operating margin increased 100 basis points to 27.7%, a good result, given the headwinds from the talent investments we made in 2022, the timing of our annual raises, and a continued rebound in expenses such as T&E that we mentioned last quarter. GAAP EPS was $2.07, and adjusted EPS was $2.20, up 16% over last year.
For the first six months of 2023, underlying revenue growth was 10%, our adjusted operating income grew 15% to $3.3 billion, our adjusted operating margin increased 130 basis points, and our adjusted EPS increased 13% to $4.74. Looking at risk and insurance services, second quarter revenue was $3.7 billion, up 12% compared with a year ago, or 13% on an underlying basis. This result marks the 9th consecutive quarter of 8% or higher underlying growth in RIS and continues the best stretch of growth in nearly two decades. Operating income increased 20% to $1.2 billion. Adjusted operating income increased 18% to $1.2 billion, and our adjusted operating margin expanded 140 basis points to 34.2%.
For the first six months of the year, revenue in RIS was $7.6 billion, with underlying growth of 12%. Adjusted operating income increased 17% to $2.6 billion, and the margin increased 170 basis points to 36.4%. At Marsh, revenue in the quarter was $3 billion, up 9% from a year ago, or 10% on an underlying basis. This comes on top of 9% growth in the second quarter of last year. Growth in the second quarter reflected strong new business and excellent retention. In U.S. and Canada, underlying growth was 9% for the quarter. In international, underlying growth was 10% and comes on top of 9% in the second quarter of 2022. Latin America was up 17%, EMEA was up 11%, and Asia Pacific grew 6%.
For the first six months of the year, Marsh's revenue was $5.8 billion, with underlying growth of 9%. U.S. and Canada grew 8%, and international was up 10%. Guy Carpenter's revenue was $576 million in the quarter, up 10% or 11% on an underlying basis, driven by strong growth across all regions in Global Specialty. For the first six months of the year, Guy Carpenter generated $1.6 billion of revenue and 10% underlying growth. In the consulting segment, second quarter revenue was $2.2 billion, up 4% from a year ago, or 8% on an underlying basis. Consulting operating income was $388 million. adjusted operating income increased 9% to $403 million.
The adjusted operating margin was 19.2%, compared to 19.3% in the second quarter of last year. For the first six months of 2023, consulting revenue was $4.2 billion, representing underlying growth of 6%, and adjusted operating income increased 5% to $809 million. Mercer's revenue was $1.4 billion in the quarter, up 6% on an underlying basis, representing the ninth consecutive quarter of 5% or higher underlying growth in Mercer. Wealth grew 3%, driven by continued strength in defined benefits. Investment management also delivered modest growth. Our assets under management were $393 billion at the end of the second quarter, up 11% sequentially, and 14% compared to the second quarter of last year.
Growth was driven by a modest rebound in capital markets, positive net flows, and our transaction with Westpac. Health underlying growth was 10% and reflected strength in all segments and regions. Career revenue increased 6% on top of 17% growth in the second quarter of last year. We continue to see demand for rewards, talent strategy, and workforce transformation advice and solutions. For the first six months of the year, revenue at Mercer was $2.7 billion, with 7% underlying growth. Oliver Wyman's revenue in the quarter was $798 million, an increase of 11% on an underlying basis, and reflected continued strength in the Middle East and Europe and a rebound in the Americas. For the first six months of the year, revenue at Oliver Wyman was $1.5 billion, an increase of 6% on an underlying basis.
Foreign exchange was a $0.02 headwind in the second quarter. Assuming exchange rates remain at current levels, we expect FX to be a $0.01 headwind in the third quarter and a $0.01 benefit in the fourth quarter. We reported $65 million of total restructuring costs in the quarter, approximately $50 million of which relates to the program we announced in the fourth quarter. These charges include costs related to severance, lease exits, and streamlining our technology environment. We continue to expect total charges under this program to be $375 million-$400 million. To date, we've incurred approximately $300 million in charges and currently expect to incur most of the remaining costs in 2023. We still expect to achieve total savings of roughly $300 million by 2024 and now expect to realize approximately $200 million in 2023.
Our other net benefit credit was $60 million in the quarter. For the full year of 2023, we expect our other net benefit credit will be about $240 million. Investment income was $3 million in the second quarter on a GAAP basis and $2 million on an adjusted basis. Interest expense in the second quarter was $146 million, up from $114 million in the second quarter of 2022. This reflects an increase in long-term debt and higher interest rates on short-term borrowings, which we use for efficient working capital management. Based on our current forecast, we expect approximately $142 million of interest expense in the third quarter and approximately $567 million for the full year.
Our effective adjusted tax rate in the second quarter was 24.2%, compared with 23.7% in the second quarter of last year. Our tax rate in both periods benefited from favorable discrete items. The largest discrete item this quarter was the accounting for share-based compensation. Excluding discrete items, our effective adjusted tax rate was approximately 25.5%. 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 is reasonable to assume a tax rate between 25% and 26% for 2023. Turning to capital management and our balance sheet, we ended the quarter with total debt of $12.6 billion. Our next scheduled debt maturity is October 2023, when $250 million of senior notes mature.
We continue to expect to deploy approximately $4 billion of capital in 2023 across dividends, acquisitions, and share repurchases. The ultimate level of share repurchase will depend on how the M&A pipeline develops. Last week, we raised our quarterly dividend by 20%, marking our 14th consecutive year of dividend growth. This increase, the largest in 25 years, reflects our strong earnings growth over the past couple of years, confidence in our outlook. Our cash position at the end of the second quarter was $1.2 billion. Uses of cash in the quarter totaled $1 billion and included $295 million for dividends, $421 million for acquisitions, and $300 million for share repurchases.
The first six months, uses of cash totaled $1.9 billion and included $591 million for dividends, $701 million for acquisitions, and $600 million for share repurchases. Given our strong results in the first half, we now expect high single-digit underlying revenue growth for the full year. We continue to expect margin expansion for the full year and strong growth in adjusted EPS. This guidance is based on our outlook today, but as John mentioned, there continues to be uncertainty in the environment looking forward, so outcomes could be different than our current assumptions. Overall, our excellent start leaves us well positioned for another great year in 2023. With that, I'm happy to turn it back to John.
John Doyle (President and CEO)
Thank you, Mark. Operator, we're ready to begin Q&A.
Operator (participant)
Certainly. We will now begin the question-and-answer session. If you have a question, please press star one one on your touchtone phone. If you wish to be removed from the queue, please press star one one 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 one one on your touchtone phone. 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 question. Please stand by. Our first question comes from the line of Elyse Greenspan with Wells Fargo.
Elyse Greenspan (Managing Director and Senior Equity Analyst)
Hi, thanks. Good morning. My first question, you guys updated your organic growth guidance for the full year to high single digits. You guys started off the year pretty strong at 10% organic growth through the first six months. Trying to get a sense, as you think about the back half, you know, what businesses, you know, might you expect to see, you know, some kind of moderation in, right, to get to high single digits for the full year? Embedded within that guide, what are you assuming for fiduciary investment income in the back half of the year?
John Doyle (President and CEO)
Good morning, Elyse. Thanks for the for the question. You know, as I said, I'm quite pleased with the growth year-to-date. You know, the macro environment, although volatile, you know, remains supportive of, you know, good strong growth, inflation, pricing, tight labor markets, you know, our tailwinds. You know, as I pointed out in my prepared remarks, we've been shifting our mix of business to better growth markets. We've been investing in talent, sales operations, client engagement. You know, we've sold some non-core businesses and recently announced the sale of a non-core business. We've been working very hard at the growth profile of the company, and our outlook remains quite positive. You know, we upped our guidance to high single digits. It's, you know, again, a terrific start to the year.
I feel like we're well positioned. I think our team is executing very well in the marketplace. You know, in spite of the volatile macro environment, I, you know, I think we'll have a good second half of growth as well. We're not going to give specific guidance on fiduciary income, but you saw what it looked like in the, you know, in the second quarter, obviously meaningful growth, and, you know, we expect that to likely continue in the second half.
Elyse Greenspan (Managing Director and Senior Equity Analyst)
Thanks. My second question is on margin. You guys had pointed, right, that the Q2 would see lower improvement than the other quarters of the year. Does that still stand, and would you expect margin improvement to, you know, pick up in the Q3 and the Q4? With the higher expense savings, now $200 million this year, do the higher savings in 2023, do those all come in the back half, or was that spread throughout the year?
John Doyle (President and CEO)
Yeah, I'll ask Mark to talk about the, you know, the restructuring program. You know, I was very pleased with the margin improvement in the quarter and year-to-date, 100 basis points in the second quarter, 130 basis points year-to-date. You know, just a reminder for everyone, you know, margin's an outcome for us. It's not the primary objective, but we do expect to grow revenue more than expense over time. You know, we're constantly trying to balance with delivering today and investing for the future. I think we're getting that balance right. You know, our growth in both top line and earnings shows that. You know, we did guide to less improvement in the second quarter. Mark talked about in his prepared remarks, some of the drivers, you know, behind that. Again...
You know, I'm quite pleased with where we are. You know, we expect solid margin expansion again for the 16th year. Mark, maybe you can talk about the restructuring program.
Mark McGivney (CFO)
Yes. Hi, Elyse, how are you? you know, Elyse, you see that we did take up the outlook for this year to $200 million, but left the overall at $300 million. It just reflects the fact that we're executing well, and we've just gotten at it a little bit quicker. As we said last quarter, you know, wouldn't be a bad assumption just to assume the savings comes in ratably across the year. I would say the same thing. It's just that we've gotten at the savings a little bit quicker. I would just assume a ratable spreading over the course of the year, as opposed to all the increase coming in the back half.
John Doyle (President and CEO)
We do have a bit of better second half comps from the expense on the expense line, so. Thank you, Elyse. Operator, next question?
Operator (participant)
Thank you. Our next question comes from the line of Jimmy Bhullar with JPMorgan.
Jimmy Bhullar (Equity Research Analyst)
Hey, good morning. First, just a question on revenues in the RIS business. You've grown at a pretty fast rate the last several quarters, and I think generally better than some of your larger peers, and part of that might have been just the benefit from the hiring activity that you've done over the past couple of years. Is the tailwind from that fully reflected in your results, and has it fully ramped up, or is there sort of more to go there?
John Doyle (President and CEO)
Yeah, thanks, Jimmy. You know, as I said, quite pleased with our growth. You know, to pick up one of your words, just a benefit from some hiring. You know, as I noted, we've been working quite hard at shifting the mix of business, bringing in talent, improving our sales operations, including investing in client engagement. We've made terrific inorganic investments as well. You know, it's much more than some of the lateral hiring that's in the market. Having said that, we're quite pleased with the hiring we did, and we've gotten good returns from those investments. You know, as I've pointed out in the past, we've not just been pleased with the financial outcome.
Culturally, you know, we're very thoughtful about who we brought into the organization, and they're not only helping us grow, but they're making us better as well. We're quite pleased with those investments.
Jimmy Bhullar (Equity Research Analyst)
Just-
John Doyle (President and CEO)
Yeah.
Jimmy Bhullar (Equity Research Analyst)
you mentioned, sorry, go ahead.
John Doyle (President and CEO)
No, I'm sorry. Do you have a follow-up?
Jimmy Bhullar (Equity Research Analyst)
I was just going to say, you mentioned macro and geopolitical a bunch of times, and geopolitical obviously is understandable. Macro from the outside in, it seems like most of the factors are tailwinds more than they're headwinds. The equity market's strong, inflation's high, GDP growth has held in. Maybe you could just elaborate a little bit on what is it that on the macro side that you see as a negative? Specifically on inflation, if it stays elevated, is that a obviously, it's a positive on your growth, but is it a positive on your earnings as well overall, or is the benefit offset by just higher expenses in your own business?
John Doyle (President and CEO)
Yeah, you know, it's a good question. I was trying to thread the needle a bit, right? I mean, again, the economy's been, you know, quite resilient, but inflation remains persistent. You know, you're obviously beginning to see it come down here in the United States, but not, you know, at the level that, you know, the central bank, you know, seems to be targeting. You know, with their mission to reduce inflation, you know, that's going to have an impact on not just the market here, but in other markets. So, you know, I think there is still a meaningful risk of recession. In fact, you know, where we do have exposure in other parts of the world, we have economies in recession currently so...
I think, you know, you had it right. You know, I think nominal GDP is a better indicator of demand for us, you know, rather than real GDP, and excuse me, and inflation overall, we do think is, you know, is beneficial to the company. We're not, again, immune to some of the challenges that we confront from an inflationary environment in our expenses, but overall, it's a bit of a benefit. I would say, while, you know, while equity markets, you pointed out, equity markets have improved, you know, year-over-year, you know, we've had some headwinds in our investment business from a growth perspective. Although, you know, we're pleased with what's an improving growth profile, year-to-date in Mercer Investments. Thank you, Jimmy.
Operator, next question?
Operator (participant)
Thank you. Our next question comes from the line of Michael Zaremski with BMO Capital Markets.
Michael Zaremski (Managing Director and Senior Equity Research Analyst)
Hey, great. First question, maybe I'll try to ask the Jimmy's question differently. In the risk segment, specifically, organic growth, you know, much stronger than consensus expectations, which is great. Any way you can offer any thoughts on, you know, whether a material portion of that kind of excess growth was, you know, market share taking versus just the, you know, the entire maybe overall market conditions for the entire industry were stronger than maybe some expected?
John Doyle (President and CEO)
You know, it's a, it's a mix of impacts, of course. You know, it's difficult to say with real precision, Mike. You know, again, you've started to see inflation come down here in the United States. You saw, and in many markets, you're seeing GDP growth slow. P&C pricing moderated a bit in the quarter as well. Tight labor markets, though, you know, remain a, you know, a positive factor. Overall, at least, you know, compared to, you know, the 2010 to 2020 decade, you know, it's certainly, you know, we have more tailwinds than headwinds.
Again, we've been working, you know, quite aggressively to shift our mix and to improve the growth profile of the company, and not just be a passive index, candidly, on GDP or or for that matter, P&C pricing. Again, you know, we're pleased. You know, I forgot to mention, you know, when Jimmy asked the question, too, you know, I talked about the economy a bit, but, you know, the geopolitical environment remains a risk as well, right? Again, just trying to thread the needle between, you know, what's been obviously a terrific first half of the year and what we think is a terrific outlook for revenue growth in the second half. You know, there's macro risk as well.
Michael Zaremski (Managing Director and Senior Equity Research Analyst)
Okay. That's helpful. My follow-up's on, if you look at cash flow from operations, net of CapEx, if I'm doing the math right, it looks like, you know, it's growing at a, you know, at a pretty big clip. Do you expect free cash flow at this point to grow faster than earnings? Any comments, you know, if that's the case, your cash flow conversion will take a step up this year?
John Doyle (President and CEO)
It can be a bit lumpier than, you know, than earnings growth, as we pointed out in the past and have demonstrated in the past. Maybe I'll ask Mark to talk about the outlook for free cash flow growth.
Mark McGivney (CFO)
Yeah. Thanks, Mike. I, you know, we've, as I consistently say, we really try not to emphasize focusing too much on free cash flow growth in any quarter or even a year. It can be really volatile. Yep, yes, as you point out, in the second quarter, free cash flow was up quite nicely. You have to be careful, especially early in the year for us, because there's a bit of a low base issue. Our cash flows tend to be lower early in the year, as you know, than later in the year. Look, we've had a terrific run over a long period of time of double-digit free cash flow growth that has tracked pretty closely to our run of double-digit earnings growth last decade.
As we've talked about, we're confident in our outlook for continued strong earnings growth. You know, we would expect that our free cash flow growth in the future would track that as well.
John Doyle (President and CEO)
Thank you, Mike. Operator, next question.
Operator (participant)
Thank you. Our next question comes from the line of Robert Cox with Goldman Sachs.
Robert Cox (VP of Equity Research)
Hey, thanks for taking my question. just thinking about the Marsh business, and I realize growth has been strong, both domestically and internationally. You know, domestically and internationally, if you look at those two areas over the next, say, the next one year and the next five years, which are you most excited about?
John Doyle (President and CEO)
Well, we're not going to give, revenue guidance past the, you know, what we've given today, you know, past this year. You know, as I said, we're, you know, we're performing well. We're well positioned. I think we have the best talent, in the market. I do believe we are, we are capturing share. You know, maybe I'll ask Martin to talk a little bit about the growth, so far this year, and, you know, what you see for the rest of the year, Martin.
Martin South (President and CEO)
Sure. Thanks, John. As you said, we had a strong organic growth of 10% in the second quarter, which is on top of 9%, which we posted in the second quarter of 2022. Better the full year growth of 8%. As you said, great balance. International was 10%, Latin America is 17%, EMEA, 11%, APAC, 6%, U.S. and Canada, 9%. You know, I'd say the growth has been, so it's really nice balance across all the geographies. Specialties growth was strong. Credit specialties, construction, aviation, energy and power, strong. Our advisory business, part of the risk advisory of the future, very strong, double-digit growth. M&A was strong. Renewal both growth was strong. It's just a nice mix of business across the board, both new business and renewal.
John Doyle (President and CEO)
Yeah. Thanks, Martin. Again, the consistency of growth has been, you know, just outstanding in addition to the total. Do you have a follow-up, Rob?
Robert Cox (VP of Equity Research)
Yeah, thanks. Maybe switching to Oliver Wyman, growth came in well above the levels you guys had guided from last quarter. There's been a number of positive economic data points as of late. Do you see the pipeline reflecting that? Is it looking like growth in the back half?
John Doyle (President and CEO)
Yeah, Thanks, Rob. Very pleased with the growth at Oliver Wyman. I'll ask Nick to talk a bit more about it in detail. Nick?
Nick Studer (CEO)
Yeah. Thank you, Robert. We still see a relatively wide range of possible future outcomes. When we gave guidance at the end of the first quarter, that was based on what we saw in our sales pipeline, which was ticking up nicely, but not aggressively. In the second quarter, we saw quite strong growth in sales. It's a, I would say, a reflection on places where Oliver Wyman is being selected to support our clients' really transformative moments, led by our public sector practice, led by our banking practice, transportation and services, and our telco teams. Also, some of our other businesses, our economic research consultancy, NERA, and our brand consulting business, Lippincott, showing strong growth, and our digital practice showing strong growth. I wouldn't say yet that it's correlated with economic uptick.
Clients need to use this for their performance transformation, as well as for their growth strategy.
Dean Klisura (President and CEO)
Sales in the second quarter have been better than we'd expected. In the near term, I'm relatively optimistic. In the longer term, the economic outcomes are still fairly widely ranged.
John Doyle (President and CEO)
Thank you, Nick. Operator, do we have a follow-up? I'm sorry. Next question, actually. That was the follow-up.
Operator (participant)
Thanks. The next question comes from the line of David Motemaden with Evercore ISI.
David Motemaden (Managing Director and Senior Equity Research Analyst)
Hey, thanks. Good morning. Just had another question on the increased outlook to high single digit for the year. Just sort of high-level question: Was that improved outlook more a function of the results you've achieved to date, or has your outlook improved at all going forward?
John Doyle (President and CEO)
You know, thanks, David, for the question. It's really a function of both, right? We, you know, we've had, again, a terrific start to the year. Very pleased with the growth. Again, not just, you know, growth in parts of the business, just broad-based, good execution and a lot of hard work by the team, and really a reflection of the value that we're creating for clients. You know, we remain positive, you know, with that outlook. Again, you know, geopolitical environment, particularly, but also, you know, the macroeconomic outlook, you know, or there's volatility there, so we want to be mindful of that. We feel very good about the second half.
David Motemaden (Managing Director and Senior Equity Research Analyst)
Got it. Thanks. Maybe, just a question on Mercer Career. I saw that decelerated a little bit, the growth decelerated, and the compare wasn't that much harder than the first quarter. I'm just wondering, is there anything that you're seeing there, you know, on the pipeline front, or just anything that would indicate that, you know, any clouds on the horizon?
John Doyle (President and CEO)
Thanks, David. We, you know, we love what we're doing at Mercer Careers. Let me ask Martine to talk about our results here today.
Martine Ferland (President and CEO)
Yes. Thanks, David, for the question. You touched on it. The quarter growth this quarter was on top of challenging 17% comparable for the second quarter of last year. Our quarter at 6% in 2022 now has also been impacted by the delay of start of certain projects. I would say that the fundamentals for the business remain very strong. We have 9% growth year-to-date. The demand for service continues. You know, our clients still grapple with labor shortages, wage inflation, dealing with new ways of working, tech in the workplace. We discuss generative AI with the clients.
You're right, it's also a business that has the largest component of discretionary from clients for us, at Mercer, and we are always watching the macroeconomics. I would say at this point, our sales, our pipeline, the client sentiment, very strong. It continues to give us good visibility into strength for the third quarter and beyond. I'm confident that the rest of the year will be good for Career.
John Doyle (President and CEO)
Thanks, Martine. Thanks, David. Operator, next question, please.
Operator (participant)
Thank you. Our next question comes from the line of Mike Ward with Citi.
Michael Ward (Financial Analyst)
Thanks. Good morning. You called out Marsh Specialty and Guy Carpenter. Just wondering if you can discuss some of those trends, and maybe the runway, and how significant those impacts are?
John Doyle (President and CEO)
Sure. you know, thanks, Michael, for the question. Maybe I'll ask Dean. You know, we're quite pleased with our execution and what's been a very, very challenging, you know, reinsurance market in the first half of this year. Dean, maybe you could talk about the growth at GC.
Dean Klisura (President and CEO)
Sure. Thanks, John. We're very pleased with our 11% underlying growth in the quarter, 10% for the first half of the year. As you call out, we've seen strong growth across all of our regions, in particular, internationally, and global specialties. You know, global specialties plays deeply in the retrocession capital market based in London and globally, and there's been some capital challenges. Despite that, we've seen some capital inflow into the marketplace. Despite market conditions, our global specialty team, you know, continues to grow and perform impressively. You know, new business across Guy Carpenter continues to accelerate. You know, some of that's from all the talent that we hired. We're winning in the marketplace. We're seeing very strong demand in this marketplace for our analytics platform, which we think is the best in the marketplace.
Demand for our advice and solutions remains strong. I mean, our clients are, you know, really experiencing and seeing a flight to quality works in a challenging market environment where capital is still constrained, where reinsurers are driving, you know, really challenging terms and conditions. You know, you want to be with the best. You know, I think also, Guy Carpenter Securities is differentiating in the marketplace. You know, we did over 20 cat bond deals in the first half of the year with some of that new ILS capital coming into the marketplace. We've done ILS structuring for key clients. I think there's just, you know, kind of real momentum in the business, you know, kind of globally. Of course, you know, the market continues to be a tailwind.
There's not enough new capital in the marketplace to change the trajectory of the pricing environment.
John Doyle (President and CEO)
Thank you, Dean. Martin, maybe you could talk a little bit about the growth in specialties?
Martin South (President and CEO)
Thank you, John. As I mentioned earlier, you know, where we've seen really good growth in the specialty area has been in the credit specialties. Maybe not surprising given, you know, what's happening in the environment. Construction has been very strong internationally. Aviation and energy and power as those go through a transition there, and aviation has bounced back. Feeling very good about that. I'll also take it with the advisory business as well, where we, you know, the two businesses hang together. We're advising clients increasingly on how to manage their loss costs, how to drive growth, you know, during the energy transition, and so forth. All of those specialty areas, we're seeing really strong growth and momentum, and that's how we go to market.
That's how we differentiate ourselves through that, through that lens.
John Doyle (President and CEO)
In a world where the cost of risk is continuing to escalate, our efforts on risk consulting are really important to our clients and driving a lot of value, Mike. I also want to point out, you know, what's obviously been a, particularly on the reinsurance side of late. After several years of pricing increases, of course, at, you know, at Marsh as well, you know, it's a difficult market. You know, we take our role as a market maker, you know, quite seriously, and in the quarter, you know, announced a couple of different things that I would point out, a multi-line facility in London that we call Fast Track for our clients at Marsh.
We also created a reciprocal inside of our MGA, our MGA operations at Victor, as well, trying to bring new solutions to, you know, what is a difficult market for clients. Do you have a follow-up, Mike?
Michael Ward (Financial Analyst)
Thank you. Yes, that was super helpful. Maybe last quarter, you spoke a little bit about developing countercyclical products in Oliver Wyman. Just wondering if you can share some examples on that?
John Doyle (President and CEO)
Yeah, Nick, you want to talk about some of the capabilities we've been building inside of Oliver Wyman?
Nick Studer (CEO)
I mean, there are various of our sectors which are perhaps less exposed to the cycles. Last year, you saw we acquired the excellent Avascent business, which is an aerospace and defense specialist, as an example. Some of our sectors, we've been trying to position ourselves carefully through the cycle. On the capabilities side, we do a very large amount of work now in performance transformation. That's not solely a downturn-oriented solution, but it's needed when clients are going through either margin squeeze on the top line or the bottom line. A couple of years ago, we started to build a restructuring practice. It's still very nascent, but we've seen very strong growth in that area as well. That's just a few different examples.
I think the final point I'd make is that really, from the pandemic onwards, we've seen a reduction in the correlation between our different industries. You know, some have been in downturn for quite a long time, some are working through their own sort of mini crises, which sometimes requires advisory support. Then some are quite procyclical. I'd note that our private equity, private capital practice, which obviously slowed considerably over the last three or four quarters, has started to pick up, and we're seeing activity there, both pre- and post-deal. That, that's a sort of bit of a picture across the business.
John Doyle (President and CEO)
Thank you, Nick. Thank you, Mike, for the questions. Operator, next question, please.
Operator (participant)
Thank you. Our next question comes from the line of Brian Meredith with UBS.
Weston Bloomer (Director of Equity Research)
Hi, this is Weston Bloomer on for Brian. My first question is a follow-up on Oliver Wyman. Obviously, strong growth there, and you highlighted a few subsectors that saw the growth. I'm curious, within financial services and banking, was any of that growth driven by the banking turmoil that we saw earlier in the year, or more one-off opportunities? Where I guess I'm going with that, too, is that something that you think could play out in the back half of this year or 2024, just given the turmoil earlier in the year?
John Doyle (President and CEO)
Thanks, Weston. Good question. Nick, maybe you could talk a little bit about, you mentioned banking being a strength to date, but, maybe you could talk about the outlook.
Nick Studer (CEO)
Yeah, I mean, you know, there were different puts and takes in our growth numbers, but perhaps 35%-40% of our growth was driven by our banking practice. As you know, that is really a preeminent business for us. At the beginnings of that crisis, we felt that that was just adding to uncertainty, may lead to some pauses in decisions which may slow down the pipeline. In the second quarter, we did see some work coming through from it. It's hard to separate out exactly how much is driven by crisis response versus banks preparing to get ahead of capabilities that they now know they need, given the very different interest rate environment.
There are a lot of the core essentials of the banking system are muscles that haven't had to be used in the very low rate environment we've had for a very, very long time. There is work on liability management, interest rate risk management, deposit management, the value of the branch network, not to mention tooling ourselves up for the new tech and AI capabilities that might be helpful. Yeah, we have seen that be a driver of some business already, and we continue to expect that over the coming quarters.
John Doyle (President and CEO)
Thanks, Nick.
Weston Bloomer (Director of Equity Research)
Got it.
John Doyle (President and CEO)
Yep, go ahead.
Weston Bloomer (Director of Equity Research)
Yeah, you'd highlighted that 35%-40% of growth was driven within financial services. Have you given a rule of thumb, I'd always assumed that financial services was the largest subsector within OI. Just want to confirm that that's the case, or if you've given a breakout there.
Nick Studer (CEO)
We don't give a breakout. I mean, it's one of our strongest practices. It's also one of the largest sectors in management consulting globally. Yeah, it's one of our strength areas.
Weston Bloomer (Director of Equity Research)
Got it. Just one more within Guy Carpenter. Can you talk about the dynamic versus treaty versus FAS placements, and the kind of the growth outlook that you're seeing there? Are there more opportunities within FAS, given just changes in buying or buyer behavior?
John Doyle (President and CEO)
You know, thanks, Weston. We've seen good growth in FAS over the course of the last couple of years, you know, both seeded and client-driven FAS. Oliver Wyman and, excuse me, Guy Carpenter at Marsh work quite closely together to capture that opportunity and to make sure we're bringing all the available capital all over the world to, you know, to our clients to help, you know, again, navigate what's been a very, very difficult marketplace. The growth has been quite strong in both FAS and in treaty as well. Thank you, Weston. Operator, next question, please.
Operator (participant)
Thank you. Our next question comes from the line of Paul Newsome with Piper Sandler.
Paul Newsome (Managing Director and Senior Research Analyst)
Good morning. Thanks for squeezing me in. I didn't think I heard much of anything about the M&A environment. I think we're all sort of waiting for things to change there versus the, because the interest rate environment changes. Any updated thoughts on M&A and how you see in the environment there for yourself?
John Doyle (President and CEO)
Yeah, sure. Sure, Paul. We remain quite active in the market and have a solid pipeline. You know, of course, we continue to look for businesses with solid growth fundamentals that, you know, are well led and, you know, have terrific talent. Not only will they make us better, but hopefully, we think we can make them better, as well. You know, I'd say the pipeline is pretty broad from, you know, both an RAS and consulting perspective. We, of course, did a big deal in Mercer Investments on the 1st of April, so we're excited about that in Australia, and we were just in Australia as a team. So excited about the acquisition there and what it means to our investments. You know, the market, obviously, the number of deals is, you know, is down.
Some buyers, primarily financial buyers, are sitting it out at the moment, but, you know, strategic players are still quite active. You know, what I would say is demand is strong, you know, for higher quality businesses that are out there. You know, while obviously the cost of capital has increased quite a bit, you know, prized assets are still trading at a premium. Again, we're excited about what's possible there, and we've worked very hard and have built a very strong reputation as a buyer in the market, and that creates a lot of opportunity for us. You have a follow-up, Paul?
Paul Newsome (Managing Director and Senior Research Analyst)
Yes, as a follow-up, could you talk about the divestitures that you've made and how important or maybe not important they are to the margin improvements over the last quarter or last year?
John Doyle (President and CEO)
Yeah, I mean, they're...
Paul Newsome (Managing Director and Senior Research Analyst)
I know they're small in size.
John Doyle (President and CEO)
Yeah. Yeah, no, thanks. Sorry to jump in on you there. They are relatively modest in size, but, you know, we, you know, we are being thoughtful about the portfolio in that respect. For the most part, you know, they've happened at Mercer. You know, again, we recently announced the divestiture of what really is an admin business, primarily or really entirely an admin business. Not core, you know, lower growth, capital-intensive operations. Candidly, there are better owners, you know, of assets, you know, like that than us, others that can bring, you know, greater scale and technology and solutions. So, you know, we don't expect to, you know, to do a lot of it.
Where we see the opportunity and it makes us better and stronger and enables us to invest in our core, you know, we'll take steps to do that. Thank you, Paul. Operator, next question.
Operator (participant)
Thank you. Our next question comes from the line of Jing Li with KBW.
Jing Li (AVP of Equity Research)
Hi there. Thank you for taking my questions. Just a question on the Asia Pacific business. Can you add some color on it, since I see that it deteriorated some for this quarter? Do you expect it to continue for the coming quarters?
John Doyle (President and CEO)
Sure, Jing. Maybe I'll ask Martin to talk about it, you know, we're very excited about the possibility for growth in Asia and in the Pacific, not just at Marsh, but, you know, across our business. 'Cause as I mentioned, as a leadership team, we're recently in Australia, and we see, you know, lots of possibilities. Martin, maybe you could talk a little bit about the quarter and your outlook.
Martin South (President and CEO)
Look, I think the important thing when we look at international, we like to look at growth over longer periods of time. You know, with regard to APAC, 6% underlying growth in the quarter, it's 8% year-to-date. We think that's much more indicative of what the growth would be like over a longer period of time. Likewise, we probably have slightly elevated growth from that in America. We'd expect that to normalize over a period of time as well. I just think it's something that we're not worried about. We have a great business in Asia-Pac and feel very confident about the future.
John Doyle (President and CEO)
Lots of opportunities. you know, it's one of the parts of the world where, you know, there's a meaningful protection gap. Jing, do you have a follow-up?
Jing Li (AVP of Equity Research)
Yeah. For this quarter, 6%, I guess, you guys mean that, it's kind of like a one-time thing, it'll continue to be a double-digit going forward?
John Doyle (President and CEO)
Sure, yeah. We're not going to give specific guidance on Asia Pacific underlying revenue growth, but we do think it's an area, a region that we're very well positioned for strong growth, you know, going forward. You know, as Martine mentioned, we're well positioned in that market. We've got, you know, terrific distribution throughout most major countries throughout the region, and we're excited about it. It's one of the ways in which JLT made us quite stronger. Thank you, Jing. Operator, are there any more questions?
Operator (participant)
I'm showing no questions at the moment, but as a reminder, please press star one one if you'd like to ask a question.
John Doyle (President and CEO)
Operator, I think we can wrap up if there are no more questions.
Operator (participant)
I am showing we do have a question, a follow-up.
John Doyle (President and CEO)
Okay.
Operator (participant)
One moment, please. Our follow-up question comes from Robert Cox with Goldman Sachs.
Robert Cox (VP of Equity Research)
Hey, just one follow-up on, you know, the M&A SPAC and capital markets activity. Can you give us a sense of whether that continued, maybe just directionally, if that was more or less of a headwind in this quarter versus the first quarter?
John Doyle (President and CEO)
Sure. maybe I'll ask Martine to unpack our growth in, at Mercer Investments a bit. Martine?
Martine Ferland (President and CEO)
Yes, absolutely. I mean, we, our OCIO business has grown really rapidly over the last few years, but as you know, has been impacted by capital markets over the last many quarters. Although it does benefit from net AUM inflows, some of the that volatility does drive demand for the OCIO service. What we've seen in Q2 is still a small drag due to year-over-year capital markets, but based on the value that we see at the end of the quarter, it bodes well for the rest of the year. Small accretive growth from capital markets for Q3, as far as we can see from levels today. This is a good business for us. It's a diversified portfolio. The volatility in the equity market has come down.
On the bond market, it's still a little bit elevated, but all of that has contributed to a lot of need on the client side for advice regarding the volatility, the funding of their pension plans, et cetera. It's been good for us, and our clients have been finding new ways to deal with the environment.
John Doyle (President and CEO)
Thank you, Martine, and thanks, Rob, for the follow-up. You know, I want to 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, and we look forward to speaking with you next quarter. Operator, thank you.
Operator (participant)
Ladies and gentlemen, this does conclude today's program. You may now disconnect.