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spk04: Welcome to Marsh and McLennan's Companies Conference call. Today's conference is being recorded. Fourth quarter 2019 financial results and supplemental information were issued earlier this morning. They are available on the company's website at .mmc.com. Please note that remarks made today may include forward-looking statements. Forward-looking statements are subject to risk 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 10K, all of which are available on the MMC website. During the call today, we may also discuss certain non-GAAP financial measures. For a reconciliation of those measures to the most closely comparable GAAP measures, please refer to the schedule in today's earnings release. I will now turn the conference over to Dan Glazer, president and CEO of Marsh and McLennan's Companies.
spk02: Thanks, Holly. Good morning, and thank you for joining us to discuss our fourth quarter results reported earlier today. I'm Dan Glazer, president and CEO of Marsh and McLennan. Joining me on the call today is Mark McGivney, our CFO, and the CEOs of our businesses, John Doyle of Marsh, Peter Hearn of Guy Carpenter, Martin Forlán of Mercer, and Scott McDonald of Oliver Lyman. Also with us this morning is Sarah DeWitt, head of investor relations. 2019 was a remarkable year for Marsh and McLennan. We completed the acquisition of JLT, the largest deal in our history, while delivering strong financial results and managing the global integration. MMC is well positioned. Our talent, capabilities, expertise, and leadership have never been stronger. The addition of world-class talent at JLT complements our -in-class teams at Marsh and McLennan. And while we still have work to do, we feel good about how the cultures are coming together. Nearly all our teams are now sitting together, and more and more we are in the market working as one. We finished the year with revenue of $16.7 billion, up 11%. This represents our highest annual top line growth in 20 years, and is a step change for us. On a run-range basis, we now have over 17 billion of annual revenue. We had an excellent year and are pleased that in the midst of the integration, we generated underlying growth of 4%, the 10th year in a row where our underlying growth was in the 3% to 5% range. 14% adjusted NOI growth, 110 basis points of adjusted margin expansion, and 7% adjusted EPS growth, consistent with our guidance of modest dilution in the first year of the deal. We met our capital management objectives to reduce our share count and increase our dividend by double digits. And we are running ahead of schedule on acquisition-related cost savings. We now expect run-rate savings of at least 350 million, and we will continue to drive for additional operating efficiencies. Overall, I am pleased with our performance in 2019. We consistently challenge ourselves to balance the livering for today while positioning for sustained growth in the future, even in an exceptional year like 2019. We continue to invest in Washington-Carton Agency, our fast-growing U.S. middle market brokerage business, completing five acquisitions in 2019, resulting in current run-rate revenue of 1.7 billion. And we have a robust pipeline for 2020. We made additional investments in digital technology and analytics. We see further opportunities to leverage technology to expand in small commercial, as well as streamline and automate our business. We also see increasing opportunity to leverage the collective strength, expertise, and relationships across our businesses to deliver enhanced value to clients and drive growth. Lastly, 2019 saw the seamless transition of leadership and Mercer, with Martine taking over as CEO. Martine moved quickly to install new leadership in key areas, energize the workforce, and implement changes that streamline the operating model, create more efficiency, and enable better execution. As we conclude 2019, we emerge a stronger firm than we started out the year, with record revenue, record-adjusted operating income, and record-adjusted earnings per share. As we look to the future, there is significant uncertainty in the world, given current global issues like geopolitical risk, negative interest rates, trade friction, extreme weather and climate change, pandemic risk, and cyber risk. We come to the fore in these dynamic times by providing trusted support to our clients in the areas of risk, strategy, and people. Marsha McClendon provided thought leadership on key global issues of the World Economic Forum in Dallas. This March, the 15th consecutive year, we produced the annual Global Risk Report, together with the World Economic Forum. The report ranks the top global risks, and this year climate and weather-related risk created the greatest concern. Climate change is the most prominent issue discussed at Davos, and there is growing recognition of the urgency of both mitigation and adaptation. We are engaged with our clients across all of our businesses on helping them assess the impact of a changing climate. Marsha and Oliver Wyman led sessions on gender equality, longevity, responsible investment, and AI readiness. Despite all the uncertainty in the world, I am optimistic. Business leaders continue to push for growth and investment despite near-term risks and fears about the longer-term implications of climate change. The perspectives and insights we provide on these topics are a reminder of the uniqueness of MMC and the value we bring to our clients. Let me spend a moment on current PNC insurance pricing trends. Pricing is firming across a wide range of geographies and lines. The March global insurance market in depth saw an increase of nearly 11% in the fourth quarter, compared with 8% in the third quarter, 6% in the second quarter, and 3% in the first. Global property insurance and financial and professional lines saw the highest average renewal rate increases at 13% and 18%, respectively. Poverty rates are up 3% on average, up slightly versus the third quarter. Commercial auto and exit casually continue to see rates rising while workers' comp continues to see rates decline. Note that the March index skews to larger risks, which are seeing higher increases, although middle market and small commercial insurance rates are up in certain geographies. Turning to reinsurance, the Guy Carpenter global property catastrophe rate online index rose by 5% at the January 1 renewals. Total dedicated reinsurance capital increased by approximately 2% at year end. Although renewal outcomes vary widely across individual programs, capacity is tightened in some stress classes like commercial auto, D&O, medical professional, and general liability. The retrofessional market continues to see meaningful increases in rates at January 1st, driven in part by trapped capital, a lack of new alternative capital, entrance, and continued redemption from third party investors. The overall global P&C insurance market is challenging, and we continue to work hard to deliver the best solutions for our clients. Even times like these where our expertise and capabilities shine. Turning to the fourth quarter, we are pleased with our results. Our overall revenue growth in the quarter was 15%. Underlying revenue grew 3% with growth in both segments. Marsh grew 3% in the quarter on an underlying basis, which is solid but slower than the prior quarter as expected due to a peak headwind on new business and a tough comparison to the fourth quarter of 2018. Guy Carpenter finished the year strong with 10% underlying revenue growth in the quarter. Mercer delivered 4% underlying revenue growth in the quarter, the strongest growth since the first quarter of 2018. And Oliver Wyman declined by 2% as we expected. The overall fourth quarter saw strong adjusted operating margin expansion of 100 basis points, and adjusted operating income growth of 17%. As we consistently say, it is important not to overemphasize a single quarter and rather look at performance over longer periods of time. Looking at the full year, we are pleased with our results. We generated strong overall revenue growth of 11% for the full year with 4% underlying growth. We demonstrated top line strength across our businesses while achieving the initial benefits of the integration. On an underlying basis, Marsh delivered solid growth of 4% for the second consecutive year. Guy Carpenter had a strong year with 5% growth. Mercer had 2% growth, and Oliver Wyman grew 6% for the year despite the pullback in the fourth quarter. Our adjusted NOI grew 14% with overall margin expansion of 110 basis points for the year. Marketing the 12th consecutive year, we have reported margin expansion. Adjusted EPS grew 7% or 8% on a constant currency basis, consistent with our guidance of modest adjusted EPS dilution in the first year of the JLT acquisition. In sum, 2019 was an example of strong overall execution on multiple levels. As we look to 2020 and beyond, our future is bright. The addition of JLT enhances our competitive position. We are increasingly bringing our collective strength to clients, and we expect to see benefits from our investments in digital and technology. In 2020, we expect underlying revenue growth in the 3% to 5% range, margin expansion, and strong adjusted EPS growth. With that, let me turn it over to Mark for a more detailed review of our results. Thank you, Danny, good morning. We are pleased with our fourth quarter results, which cap a strong year in 2019. The audited revenue increased 15% in the quarter to 4.3 billion, reflecting underlying growth of 3% and a continued contribution from JLT. Operating income was 592 million, while adjusted operating income rose 17% to 856 million. Our adjusted operating margin increased 100 basis points to 21.9%. Gap EPS rose to 76 cents, and adjusted EPS increased 9% to $1.19. Looking at risk and insurance services, fourth quarter revenue grew 24% to 2.4 billion and was up 3% on an underlying day. A good result considering the tough comparison Marsh faced with strong fourth quarter in 2018, and the fact that Q4 was JLT's seasonally largest quarter. Adjusted operating income increased 31% to 550 million, and the adjusted margin expanded 200 basis points to 25.7%. For the year, revenue was 9.6 billion and increased to 17%, with solid underlying growth of 4%. Adjusted operating income for the year was up an impressive 17%, and our adjusted operating margin in RIS increased 60 basis points to 26.3%. At Marsh, revenue in the quarter rose 23% to 2.2 billion, increasing 3% on an underlying day. The US Canada division, underlying growth was 4% for the quarter and 5% for the full year. It's March the seventh consecutive quarter of 4% or higher underlying growth for US Canada. In the quarter, the international division had underlying growth of 1%, with Asia Pacific up 7%, Latin America up 2%, and EMEA down 1%. For the full year, revenue at Marsh was 8 billion and increased to 17% or 4% on an underlying basis. Guy Carpenter's revenue was 152 million and increased to 10% on an underlying basis for the quarter, representing an outstanding finish to a strong year. The growth in the quarter benefited from strong results in North America, as well as growth in RetroSessional and an active quarter for GCE security. The year revenue was 1.5 billion and increased to 15%, or 5% on an underlying basis. In the consulting segment, the fourth quarter revenue increased 4% to 1.9 billion with underlying growth of 2%. Consulting's adjusted operating income was flat year over year at 359 million, and the adjusted operating margin of .7% declined 60 basis points versus a year ago, but looking at the full year, margin expansion was solid. For the year of revenue with 7.1 billion, an increase of 5% with underlying growth of 3%. Adjusted operating income for the year was up 9% to 1.3 billion, and our adjusted operating margin increased 90 basis points to 18.6%. Mercer's revenue increased 8% in the quarter to 1.3 billion with underlying growth of 4%. Wealth increased 2% on an underlying basis with investment management up high single digits and defined benefit down low single digits. Our overall assets under management continued to grow. At year end, exceeded 305 billion, up 5% sequentially to 26% year over year. Health revenue grew 6% on an underlying basis in the fourth quarter, reflecting strong growth in both international and the US. Career grew 4% on an underlying basis with strong growth in survey products and digital implementation. Career revenue at Mercer was 5 billion, an increase of 6% for 2% on an underlying basis. Oliver Wyman's revenue in the fourth quarter was 559 million, a decline of 2% on an underlying basis. As we said on our last call, we expected a pullback in the fourth quarter. For the full year, Oliver Wyman produced strong underlying revenue growth, 6%. We made great progress in 2019 on the JLC integration and are on plan or ahead of schedule on key milestones. We continue to expect the transaction will be modestly diluted to adjusted EPS in the first year, neutral in year two, and accretive in year three. We are ahead of schedule on cost savings and restructuring actions. We now estimate run rate savings of at least 350 million. We expect to incur approximately 625 million of cash costs to generate those savings. In addition, there'll be approximately 75 million of non-cash charges, mostly property-related costs as we consolidate our real estate footprint. We achieved approximately 125 million in savings through year-end 2019 and expect to achieve the balance by the end of 2021. We also incurred 335 million of JLC integration and restructuring costs in 2019 to achieve these savings. It is our expectation that the bulk of the remaining costs will be incurred in 2020 with a more modest amount extending into 2021. This update reflects the plans we have today. And if we continue to get deeper into the integration, there is a possibility for more savings opportunities to emerge. As we look to the first quarter of 2020, keep in mind this is the last quarter where our -over-year comparisons are impacted by JLT. Remember in RIS, the first quarter is seasonally small for JLT. In addition, JLT's and floating benefits margins are relatively low in the first quarter. And we expect this, along with some quarterly volatility, will result in a decline in first quarter consulting margin. However, for the full year, as Dan mentioned, we expect strong earnings growth, consolidated and adjusted operating margin expansion. Turning back to the fourth quarter, adjusted corporate expense was 53 million in the quarter. The fourth quarter, we recorded 264 million of noteworthy items, the majority of which are related to the JLT acquisition. Included in this total are 143 million of JLC integration costs, the largest category of which is severance, 17 million of JLC acquisition-related costs, 56 million of other restructuring costs, and 42 million of earn-out true-ups relating to prior acquisition. As we typically do on our fourth quarter calls, and we'll give a brief update on our global retirement plan. Cash contributions to our global defined benefit plan were 122 million in 2019, up slightly from the 112 million in 2018. We expect cash contributions in 2020 will be roughly 160 million. For 2020, we anticipate our other net benefit credit will be slightly lower than in 2019. Based on current expectations, we would assume roughly 264 million for this item in 2020. Investment income was 2 million in the fourth quarter for both GAAP and adjusted results. For the full year 2019, our GAAP investment income was 22 million, and adjusted investment income was approximately 12 million. For 2020, we expect only modest investment income on adjusted data. Bar exchange was a slight headwind to adjusted EPS in the quarter, and it had a five cent per share negative impact for the full year 2019. Assuming exchange rates remain at current levels, we expect FX to be a slight headwind to adjusted EPS for 2020. Our effective adjusted tax rate in the fourth quarter was .4% compared with .6% in the fourth quarter last year. For the full year 2019, our adjusted tax rate was 24.1%. Excluding discrete items, our adjusted tax rate for the full year was approximately 26%. When we give forward guidance around our tax rate, we do not project the screen guidance, which can be positive or negative. Based on the current environment, it is reasonable to assume a tax rate between 25% and 26% for 2020. The fourth quarter, we repurchased 1.8 million shares of our stock for 185 million. For the full year 2019, we repurchased 4.8 million shares for 485 million. Total data at the end of 2019 was 12 billion compared to 12.6 billion at the end of the third quarter. Next debt maturity is in March 2020 when 500 million of senior nodes will mature. During the fourth quarter, we incurred 130 million of interest expense. We expect approximately the same amount in the first quarter of 2020. As we look to 2020, the framework for capital management we discussed in the early stages of JLC is still on track. This year, we currently expect to deploy approximately 2.6 to 2.9 billion of capital across three broad categories. Debt reduction, dividends in line with our objective with double digit increases annually, and a combination of acquisitions and share repurchase. Directionally, we currently expect the amount of capital deployed to be roughly equivalent across these three categories. This plan allows us to maintain our dividend growth objectives and meet the commitments for deleveraging we laid out when we announced JLC. It also provides flexibility for M&A. We've consistently stated that we favor attractive acquisitions over sharing purchases as we view high quality acquisitions as the better value creator for shareholders and the company over the long term. Our track record is good as evidenced by our return on invested capital of nearly 20% over the last three years. Given our deleveraging plan and our acquisition pipeline, we currently do not expect any share repurchases in the first half of 2020. Ultimately, share repurchases later in the year would depend on how the M&A pipeline develops. Our deleveraging should be largely complete by the end of this year, and we expect to have substantial flexibility in terms of capital deployment in 2021 and beyond. Our cash position at the end of the fourth quarter is 1.2 billion. Uses of cash in the fourth quarter totaled 444 million and included 24 million for acquisition, 235 million for dividend, and 185 million for share repurchase. For the full year 2019, uses of cash totaled 7.5 billion and included 6.1 billion for acquisition, 890 million for dividend, and 485 million for share repurchase. In summary, we are proud of what we accomplished in 2019. We are very much on track with the objectives we set when we announced the JLC acquisition. And if we look forward to 2020, our outlook is for another year of strong performance. With that, I'm happy to turn it back to Dan. Thanks, Mark. Operator, we are ready to begin Q&A.
spk04: Thank you. If you would like to pose a question, please press star one on your telephone keypad. Please ensure that your mute function is switched off to allow your signal to reach our equipment and you may remove yourself from the queue at any time by pressing star two. In the interest of addressing questions from as many participants as possible, we would ask that participants limit themselves to one question and one follow-up question. We will take our first question today from Elise Greenspan of Wells Fargo. Please go ahead.
spk01: Hi, thanks. Good morning. So my first question, you guys updated the savings program for JLT today. It also seems like intangibles are coming in a good amount lower than when you guys had announced this deal. So I'm just trying to, I guess, get from that, that you have these two tailwinds to your numbers and you still are reaffirming, I guess, that the deal will be breakeven in 2020 and accretive in 2021. So what's the offset relative to your initial expectations that this deal might not be accretive sooner than you had expected?
spk02: Excellent. No, actually it's going to be at least accretive consistent with our original expectations. And so the deal is this size, there's always a number of puts and takes. And as you mentioned, we think the cost savings are higher, we think the amortization is lower, but we also need to divest some businesses, principally aerospace, but also some minority interests in other businesses like CRP here in the US, which we did not anticipate going into the transaction. And we also have some revenue headwinds that we had described before, whether that was from new business pipeline issues or some staff defections, those are things that we're grappling with. So you put it all together and the deal is tracking in line with our original expectations and our original expectations, I'll just remind everybody, were really good, that it was going to be a good, solid financial transaction, which was also very strategic in nature for Marshall McLennan as a company. And when we talk about things like accretion and dilution, it's always a level of how we're growing. We expect 2020 to be a strong year in adjusted EPS growth.
spk03: And
spk02: that's what breaking even means to us.
spk01: Okay, that's helpful. And then my second question, on last quarter's call, you guys had alluded to the overall margin for the company expanding more than the year to date level. It seems like the fourth quarter came in a little bit below your expectations. Was that just maybe a little bit weaker consulting margin, just trying to understand what happened in the fourth quarter as we kind of think about the level of margin improvement going forward?
spk02: And we focus very much on earnings growth and top line growth much more than we do on margin. And we certainly don't really pay much attention to any one single quarter. We were satisfied for the year with 110 bids and the fourth quarter was pretty consistent to the year. There's always a lot going on in all of our businesses. And so, it's not that we look at one versus the other as in any way coming up short of what our expectations were. I mean, when I look at margins in general for the company, 2019 is going to be our 12th consecutive year of margin expansion. And really significant levels of margin expansion. You go back a decade and we're up like 1300 bids. You go back five years, we're up 450 bids plus in both segments and as a company. And so, just to go back, I wouldn't look at any one quarter as being indicative. You need to look at longer periods of time. And margin expansion for us is an outcome of how we run the business, which is revenue growth almost always exceeds expense growth and that will give us margin expansion over time. The only areas that we were really driving for some margin this year was in RIS and parts of the portfolio, particularly in Dicarphenter that we felt we needed to adjust JLP to more similar margin levels than what we had normally been operating within as Marshall McLennan. Next question, please. Our next
spk04: question comes from Mike Zarenski of Credit Suisse. Please go ahead, your line. Good morning.
spk10: First question regarding the risk and insurance segment. Looking
spk03: at the EMEA segment, growth there has been, let's call it, the very, very low single digits
spk02: for the past couple years. Is that a pace that we should kind of, any color, is that a pace maybe we should expect thinking about into this year? And then I guess also LATAM growth also, just a little bit weaker in the second half of the year, anything going on there and just thinking out to 2020. And so I'll take it a little bit and then I'll hand over to John. Overall, we believe we're set up well in both the EMEA and Latin America for future growth, not only in 2020 but beyond. Obviously, EMEA includes the UK, which has been our biggest area of overlap with JLP and where we knew was going to be a bit choppy for a while. And so that's essentially, when we look at the business, we unpack the different component parts of EMEA. But John, you wanna add more to that? Sure,
spk10: Dan,
spk02: thanks. Big picture, 23% gap growth in the quarter, very big growth, 17% for the full year, 4% underlying growth for the full year. So I was pleased with the results. As Dan noted,
spk08: as we expected in the UK, the underlying growth is impacted by integration-related headwinds. And some first quarter challenges remain,
spk02: but I will say I'm encouraged by improvements in the underlying performance in the UK. We made some leadership changes now about 18 months ago in the UK, and we're really setting the foundation for stronger growth going forward. And in Latin America, as I noted in the last call, again, integrative-related challenges will persist through the first quarter, but Latin America remains a high-growth region for us. So from the second quarter on, I expect improved results there. And again, I wanna say I'm pleased overall with the growth. I'm quite proud of the team. We managed through a lot of change throughout all 2019, and we maintained our focus on serving our clients in what's an increasingly challenging market as well. And as Dan noted, we're a stronger team entering 2020. JLT is obviously a big part of that, but we also added Wortham in late 18 and did a lot of work on integration. Wortham last year, and we added two top 100 firms in the United States, the NMA as well. So I'm quite excited about the team and how it positioned as we enter 2020. Another one, Mike? Yep, lastly, sticking on the brokerage
spk03: space. Dan, in your prepared remarks, I think you said it was a challenging marketplace. I assume you're referring to what's maybe become quote unquote a hard market, and you can correct me if
spk10: I'm wrong. Just curious, does this challenging market also put a little bit of pressure on Marsh's expense space given your
spk03: employees are working potentially even harder to represent their clients in this marketplace?
spk02: Well, we're built to operate well across cycles. And I wouldn't necessarily classify the entire market as a hard market, it's certainly hard in pockets. And it's certainly true, as you noted, that Marsh and Dicarpenter brokers have to run a lot harder to get things done and have to work really hard and creatively in order to serve clients in these challenging market conditions. And so we recognize that. We don't believe that that's put any overt pressure on our expense levels, more than the fact that we recognize that our people are working harder than ever before, and we appreciate that, and we reward them for it. But our teams are driven by serving clients, and so that's what their focus is. So they're out there hustling, not in the belief that somehow their compensation or anything else is going to change, it's actually that they're focused on delivering for their clients. Next question, please.
spk04: Our next question today comes from Ryan Tunis of Autonomous Research. Please go ahead.
spk07: Yeah, thanks, good morning. Again, I guess I was hoping maybe you might be able to quantify perhaps the type of drag you think right now, the organic revenue growth rate is feeling because of, I want to say disruption, but because of the JLP integration process. And is that, you know, was that worse this quarter than the third quarter? Is it still getting worse, or is the magnitude of that lessening going forward?
spk02: Well, let me talk about that broadly, because I think it's a good question. First of all, I start with the basis when I look at our underlying growth. I'm pleased with 3% in the quarter, and I'm really pleased with 4% for the year. If you look at the quarter, Carpenter had a terrific quarter in Australia, top and bottom line. Alva Wyman, as expected, they had a tough quarter with 6% for the year. Mercer, 4% for the year. And then, you know, 3%, solid for the fourth quarter and sequentially improving throughout the year. And you'll get March, I'm pleased with the 3%. Given, as we told you, there were some tough cops, both from March's performance last year in the fourth quarter, but also JLP's performance in the fourth quarter, and the new business hurdle, which was a very big new business quarter for JLP last year. We had talked to you about the pipeline issues throughout the year. And so, you know, in the context of the largest acquisition in our history, I'm quite happy with the underlying growth levels. Although I just want to take another minute to talk about growth a little bit more, because I understand the way you're looking at it, it's not the way I look at it. From my perspective, we have had a tremendous growth year on multiple levels, and we have significantly outgrown our competitors. We've outgrown our competitors in capabilities, in talent. Our headcount's up 10,000 people from this time last year. We've outgrown our competitors in revenue, in the number of clients, and it all starts with gap. You know, there's certain times where gap is more important than underlying, and I think this year was one of those times. I mean, our total revenue is up 11% in 2019 and 15% in the fourth quarter. Look at RIS. RIS grew 24% in the fourth quarter. We've been at it for 148 years. It's grown 24% in the quarter, and a firm like ours is something. And as John was alluding to before, he's looked specifically at March. Latin America is at 15% in a year. Asia Pacific, 39%. EMEA, 16%. All in 2019. So our base and our trajectory will be better for years and years to come as a result of the remarkable year we had in 2019 on a growth basis. Did you have something else, Ryan?
spk07: Yeah, yeah, just, I guess just in US-Canada, organic, a little bit of deceleration there, and just curious for your perspective into 2020. I'm thinking about the market conditions, like those would seem to be a tailwind. You know, how are you thinking about how all that comes together?
spk02: I mean, US-Canada performance has been terrific the last couple of years, but John, you wanna talk about that a little bit more? Yeah, I'm quite pleased with our team, Ryan, in US-Canada. I
spk08: thought we had a terrific year this year. I would also remind you that we had 7% organic growth last year in the, you know, the underlying growth in the fourth quarter. Both EMEA
spk02: and Marsh had terrific years. We also had a very good finish to the year in Canada, and quite a strong year there as well. Our NGA operations in the US are performing quite well as well. Our private client business did quite well from a growth perspective. On the specialty front, we had good growth in our credit specialties, our private equity business. Aviation did well, and then transaction risk and cyber are a couple of products that are growing nicely. Thank you. Next question, please.
spk04: The next question comes from Michael Phillips of Morgan Stanley. Please go ahead.
spk08: Yeah, thank you. Good morning, everybody. I was just curious, Dan, on your thoughts on how much, I guess, at a very high level, how much you think there's more room to go on the legs of the P&C overall pricing environment? I mean, is that gonna peak, I guess, a peak time for maybe by the end of this year, or how much more room do you think there is to grow on the overall environment for pricing?
spk02: That's a $64 question. I mean, at the end, you've got different things at work. I think you've got many insurance companies who are dissatisfied with the results they have achieved financially over the last several years, and so there was a factor impacting many companies at the same time, and they've got a little blood in the eye, and they're looking to get back to a better position. You also have the thoughts around social inflation and how real that is and how it's impacting their prior books as it rolls forward. You have pressures on the reinsurance side, and I'll go to John and Peter in a minute to give a little bit more, but there's pressure on the reinsurance side, which may build throughout the year, which will put some pressure on primary carriers. And so ultimately, it's a matter of what's the loss activity and the premium levels will over time reflect whether it's an -buck-denying environment or whether it's a harsh one. I mean, certainly when I think about this year, I looked at the level of catastrophe potential, and if it's a tough cat year, we're in for quite a ride. If it's a benign year in the Southeast particularly, well, maybe some of the wind goes out of the sound, but I also think a lot has to do with how cash will be developed. But why don't we start with primary and John, and then we'll go to reinsurance just to talk more broadly about market conditions and maybe if we have any prognosis. But John, for me, it's an earnings-driven market change, for sure. Dan talked about some of the trends continuing into the first quarter. But there continues to be a very wide range of outcomes in markets around the world. I don't consider it a hard market, although it's certainly become more challenging
spk08: for our clients. You know, on a geography basis, Australia, the US, and UK wholesale are seeing the
spk02: largest increases. In the US, it's about 10%, and you go up to high teams, average rate increase in Australia.
spk08: In Asia, continental Europe, Middle East, Latin America, UK retail, more -single-digit
spk02: price increases. You look at it from a product perspective, band-aided properties up 13% globally, financial on it's up 17%, I think
spk08: that's
spk02: a meaningful increase there. It has to be up 3% where you see a real mix, where comp continues to be down. Excess liability, though, particularly in certain classes of business are quite stressed at the moment. And public, you know, particularly in the United States and Australia, are a couple of classes that are the most challenging. You know, I wouldn't know, Dan talked about this again, but our index skews the large accounts. The middle market is flat, low single digits in many markets, most markets around the world. But, you know, we continue to hear from underwriters the concerns about rising loss costs, whether it's the standard social inflation or the impact of litigation funding on the claim environment. You know, we're also observing and working with our clients through some challenging verdicts and large settlements in pharma, in chemicals, in commercial auto, and in the NLD. So, you know, there's no question there's some stress, you know, in the loss environment that it's difficult to predict where markets will head, but there are some storms on the road. Peter? Thank you. I think from a reinsurance standpoint, the market is responding very responsibly. And it's really been a function that's won one. The pricing and the renewals were largely shaped by, you know, a couple of factors, deteriorating loss experience, a lack of new alternative capital, and increasing challenges in the environment with regard to primary insurance and retrocessional markets. You know, there's a wide span of pricing. Some was flattened down in certain geographies, and others it was up significantly. The retrocessional market, we saw increases of between 15 and 20%. But I don't believe the market, the reinsurance business is hard. I think it's more expensive, but it certainly isn't a hard market, which redefines at any price you can generate faster. Thanks. Mike, do you have a follow-up? No, thank you
spk08: all for your
spk02: thoughts. I appreciate this a lot. Okay, thank you. Next question, please.
spk04: Our next question comes from Meyer Shields of KBW. Please go ahead.
spk09: Great, thanks. Dan, you're very upfront about the fact that when you worked on
spk02: the merger, you anticipated some level of producer and client outflow. And I'm wondering, if we look forward to 2020, is there any margin pressure, because in 2019, overly simplistically, you had revenues associated with people that had left the firm? Yeah, it's a good question, but our anticipation, and as I was mentioning before, there's always a lot of puts and takes in the transaction of this size and geographic breadth. And as we look to 2020, we expect to expand margins as Marshall McClennan. And so we think that it will be our 13th consecutive year of margin expansion, and we think we'll have a strong year in adjusted EPS. I would say when we went into the transaction, big people business combination, we expected some level of defection. And so when we sit here today and we look at where we are, even though there are some people who left the firm who we would have preferred not leave the firm, we're in good shape. Where we've had the most significant levels of leavers would be, let's say in London, in the UK market in London. Well, we are strong in London. We were strong and we are stronger today. And more people by a very, very wide margin by majority state rather than less. And so we're in great shape from that perspective. And so when I mentioned 10,000 additional headcount, and that either smart, hardworking, talented people which will deliver a lot of value for us into the future. And our ability in a place like London to regenerate ourselves using our existing capability, the JLP addition, and then going into the market to replace some people who had left. Our ability to regenerate and have talent in London is the most the highest places in the world. And so it's not something that's anything more than short term. And I would also note that the voluntary turnover rate at legacy March was the best it's been since we collected the data. So from that perspective, it was quite stable here from a talent perspective.
spk00: Okay, next question. Yeah,
spk02: a follow up. Yeah, just a quick one. So in the breakdown by
spk10: segment, there was an 8%, I guess, hit to die carpenters revenues from a divestiture. Is that gonna persist
spk02: for the next few quarters? Mark, why don't you take that. Meier, on that schedule, you'll see that column heading it's acquisitions, institutions, and others. So from time to time, we'll have just changes in mapping the businesses or other things that we use that column to adjust for just to make sure the year of year comparisons are, or apples to apples. There was no divestiture in die carpenter. It really was just comparability adjustments. And the fact that die carpenters' revenue base with the small and the gorgeous magnified that. There should be no ongoing impact from that. Next question, please.
spk04: Our next questions come from Jimmy Buller of JP Morgan. Please go ahead.
spk09: Hi, good morning. So just a question first on all the environment. The weakness there, I think organic growth slowed the last couple of quarters. How much of that is this normal while 30 in the business versus maybe shifts in spending on the body or clients?
spk02: Yeah, so a couple of things. I've mentioned in the past that our alignment has more volatility on the top line than our other businesses because they have less recurring revenue. But they actually had a strong year through nine months and we had anticipated some slowdown in the fourth quarter. But Scott, you wanna give more detail?
spk05: Sure, we definitely had a weak Q4, but there was really nothing significant that happened. And the result was driven by three things. The first was project movement from quarter to quarter, which regularly happens with us and drives some volatility. You can see that coming in Q4 and we signaled a little bit of a pullback on our last call. The second thing was we did have a solid Q4 last year where we grew 7%. And the third thing was we didn't see a modest, but what feels very much like a temporary slowdown in a couple of markets in Q4. So broadly the business was strong across sectors, but both Europe and Asia showed some weakness, primarily in the financial services business, but that feels like it was temporary. And the Q4 result, it hasn't changed our medium term expectations. We continue to plan for mid to high single digit revenue growth over time. And for the time being, at least demand for consulting services feels solid across sectors and across regions.
spk09: Thanks. And secondly, on Guy Carpenter, in the second, each of the past couple of quarters, you've had double digit growth. And those are obviously the lowest quarters of the year in terms of the base. How much of this is driven just by the small base versus maybe better momentum in the business that could potentially carry into this year?
spk02: Thanks, Peter. Jimmy, it's really a combination of both. They are smaller quarters for us, but they're also being driven by good new growth. We've had our third year of record new business wins in the United States, in our retrocessional business, in our Asia Pacific business, our faculty business, which we very rarely talk about is grown significantly. All of those can impact a small quarter, as you've seen in Qs three and four, but it's more a function of phasing than it is anything else. And a very disciplined approach to sales and growth. And we were very pleased with the 5% growth of the year. The next question, please.
spk04: Our next question comes from Yaron Kinnar of Goldman Sachs. Please go ahead.
spk11: Good morning. My first question is around the cost is from the integration programs. Do you have any sense how much of that 350 million or greater will actually fall to the bottom line versus get reinvested back in the platform?
spk02: I mean, the general sense is that the majority of it will fall right to the bottom line. And that's how we projected when we originally put things together. Obviously earnings will go up, so some of them will go into bonus pools and that sort of thing. But a lot of the efficiency gains that we have developed is because of the investments that Marshall McLennan made over a number of years. When you think about things like financial systems, we're Oracle 12 everywhere in the world. HR systems, we're Workday everywhere in the world. We use Salesforce extensively throughout the world. So we're able to take an organization like JLT and integrate our systems and controls and functions reasonably seamlessly without adding to a lot of our existing cost base in order to do that. And that gives us a lot of benefit. And really should not impact the frontline client facing people all that much. So that's one of the reasons why most of it will drop.
spk11: Okay, understood. And then going back to some of the questions around growth, this three to five percent organic growth probably that there to be talked about in the past. Just looking, one of your peers has been kind of talking about just kind of mid-simple budget or better over the long-term. And I'm just trying to square the three to five to that other guidance. Are there structural differences between the two organizations? Or is it just more conservative guidance on your part? Or are there just near-term headwinds just for the integration now that maybe once you get through those, you do get to a step up in that organic growth number?
spk02: Yeah, I mean, I'm one of those people where I'm like, you are what your results say you are. And for the last 10 years, we've been in the three to five percent organic growth range. I do not believe that we have many competitors. We're a pretty unique company across the breadth of the things we do. Clearly we have certain formidable competitors in parts of our business, but across all of the things that we do, including out of the Wyman and some of the strong businesses we have within Mercer, we don't have many direct competitors. But when I look at the competitive landscape, I absolutely believe I wouldn't change our strategic positioning with anybody. I wouldn't exchange our capabilities with anybody or our culture, and there's no reason under the sun to where our revenue growth performance would not be as good or better than any of our competitors over time. Next question, please.
spk04: Our next question comes from Larry Greenberg of JANI. Please go ahead.
spk06: Thank you. Not much left to ask, but I guess this is for Mark. Just wondering if maybe the trajectory of expenses has accelerated a bit from earlier, from when you initially gave your presentation, your guidance on that. I mean, it looked like what you saved in 2019 as a percentage of what you now think is the total is a little bit higher than how you initially walked into this period, so I'm just wondering if that's correct.
spk02: I guess, Larry, just a little bit further on saving. As I said, we expect to take most of the action to generate the full 350 by the end of this year, just by what I said with the charges, it would be a little bit slowly into 2021. Then the saving, the remainder of the savings will come in over the two years, probably more in 2020 than 2021, but as I said earlier, we expect to realize the full impact of the savings by the end of 2021. Thanks, that's it.
spk04: Thank you. Thank you. Our next questions come from Dave Stieblo of Jeffreeds, please go ahead.
spk03: Hi there, thanks for the questions. Just wanna ask a little bit about cattle deployment after 2020, I think you guys are pretty much already done with your debt pay down plans. Curious how that affects your thinking for M&A after this year, does that open up the net to possibly doing something a little bit larger, or are you guys inclined just to keep things on a more modest basis as you continue to integrate JLT?
spk02: We have acquisitions that are a core part of our long-term strategy, we've done something like 175 plus acquisitions since January 1st of 2009. We tend to be a balanced company, when we looked about, we put our dividend first, it's sacrosanct, we wanna grow it double-digit every year, and that's going to be for the sake of argument, look at a number of circle $1 billion for that, which should lead in most years, 2021 and beyond, roughly a couple of billion dollars to deploy between acquisitions and share repurchase. And as we've said in the past, we favor acquisition over share repurchase, for the very reason we're building a great company, and our focus, and as we've shown over time, we've been able to do that. You look at Marshall MacLennan Agency in 2009, zero revenue and no position, and now we've got a terrific platform, $1.7 billion, growing well, good e-dollars, et cetera, we're in a business that we otherwise would not have been in. That's what's called building a company, and we're committed to continuing to do that, and we have all kinds of opportunities across the enterprise, not just in March, but across the firm, in order to acquire our way to be a better, stronger, more formidable company in the future. And so when you look at that $2 billion, and our debt to EBITDA at that level, will probably be in the low twos, and so we would have the ability to flex if we needed to, but there's certainly nothing that we're pining for in terms of a larger or mega acquisition. We'll see how the strategy develops over time, but certainly having, you know, circa $3 billion to deploy year after year after year, is going to make us one of the great companies of the world.
spk03: Right, got it. Okay, and just a quick housekeeping. I think I heard for the first quarter, given the business mix and so forth, that consulting margins were expected to be down year over year. I don't know if I heard a comment about RIS.
spk02: Yeah, no, we didn't make a comment specifically about RIS. We wanted to point out consulting because of our visibility to it, and we recognize that consulting has its own attributes. You know, RIS is a different kind of business, and so, you know, as you know, the consulting margin declined in the fourth quarter, even though we had a 90-fifths improvement for consulting for the year, and so we just wanted to give a heads up that our expectation was for a decline in the first quarter for a variety of different reasons, which our view is temporary, and when we look at the full year of 2020, we expect it to be our 13th year of consolidated margin expansion for the entire firm.
spk04: Our next question comes from Brian Meridis of UBS. Please go ahead.
spk10: Hey, thanks. Yeah, just two quick ones here. First, just curious, on the EMEA, organic revenue growth, you know, the slowdown we had in the fourth quarter, I know you explained it. Should we expect it to kind of continue into the first half of 2020 as some of this leadership changes go on? Don,
spk02: you want
spk10: to take
spk02: that? Yeah, I think they're, you know, Brian, they're still kind of in the middle of the process. We'll still have some headwinds in the first quarter for sure, but as I noted earlier, I think the underlying performance works its way through, cut through some of the integration-related headwinds. I think we'll see improved performance throughout the rest of the year. By the way, in the Middle East, that's
spk08: a
spk02: terrific growth year,
spk08: a lot
spk02: of last year, good, solid results in continental Europe as well. So, you know, obviously, somewhat hopeful to see that the UK economy will begin to pick up now if there's more certainty around Brexit. So, you know, a number of different factors that will ultimately determine where we are. But I'm quite encouraged by how our team is leading through all this change. And also, just to bear in mind, the new leader in the UK, he was a Marsh veteran, you know, he's worked for the firm for more than 30 years and ran Canada for us, had other big jobs, so it's not like somebody coming in and having to learn the ropes. He knows the business very well. And as we mentioned in previous calls, when we think about the short and midterm, we are optimistic about Britain. Britain's sort of been through the ringer over the last couple of years, but there's now clarity around Brexit. We've got new leadership in the UK. We're in many different businesses, from large accounts through to small commercial, and we believe it's going to be a great business for us over a stretch of time.
spk10: Great. And then my second question, just hopefully just a quick one here. The coronavirus, have any impact on your growth in the fourth quarter, in your Asia Pacific business, you think, at all?
spk02: Yeah, I mean, we're monitoring the situation closely, like I'm sure everybody is, and our primary concern is definitely the health of our colleagues and their families, and we're doing everything we can to assist clients as they think through possible scenarios that can impact their business, but it's just too early to see that as to whether there's going to be any impact on our business, Asia or otherwise. We'll just have to see how this plays out in the coming weeks.
spk04: Thank you. I would now like to turn the call back to Dan Glaser, President and CEO of Marsh and McClendon Companies, for any closing remarks.
spk02: I'd like to thank everybody for joining us on the call this morning, and certainly thank our colleagues for their hard work and dedication, as well as our clients for their support. Hope everybody has a good day. Thank you very much.
spk04: Thank you. That will now conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.
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