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spk09: Welcome to Marsh McLennan's earnings conference call. Today's call is being recorded. First quarter 2024 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 Forum 10-K, all of which are available on the Marshall 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 gap 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're 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 will now turn this over to John Doyle, President and CEO of Marsh McLennan.
spk10: Good morning.
spk15: Thank you for joining us to discuss our first quarter results reported earlier today. I'm John Doyle, President and CEO of Marsh McLennan. On the call with me is Mark McGivney, our CFO, and the CEOs of our businesses, Martin South of Marsh, Dean Klasura of Guy Carpenter, Nick Studer of Oliver Wyman, and Pat Tomlinson of Mercer, who is joining us, joining this call for the first time. Welcome, Pat. Also with us today is Sarah DeWitt, head of investor relations. Marsh McLennan had a strong start to 2024. Our first quarter results were excellent, and we were well positioned for another good year. Top line continued with 9% underlying revenue growth, which was on top of 9% growth in the first quarter of last year. All of our businesses had strong revenue growth, with Marsh, Mercer, and Oliver Wyman accelerating growth from the fourth quarter. We grew adjusted operating income by 11% from a year ago. Our adjusted operating margin expanded 80 basis points compared to the first quarter of 2023. We had adjusted EPS growth of 14%, and we completed $300 million of share repurchases in the quarter. In addition, We continue to add to our talent, capabilities, and scale through acquisitions. These investments will help strengthen our strategic position and sustain top-line growth. For example, Mercer completed the purchase of Vanguard's OCIO business, which expands our reach into the endowments and foundations segment. MMA acquired two leading agencies in Louisiana. And Oliver Wyman closed the acquisition of CTEK which extends our capabilities in the aviation, transportation, and defense industries. At Marsh McLennan, we bring together specialized capabilities and perspectives across risk, strategy, and people to help clients make critical decisions with confidence. For example, in the area of supply chain risk, we developed a solution called Centrisk, which draws on the perspective and capabilities of Marsh and Oliver Wyman to identify key risks in our client supply chains. Using this framework, we create a digital twin model of a client's supply lines, which provides for a scenario-based vulnerability assessment to help manage risk. This product is already helping clients across multiple sectors, including in the banking, manufacturing, aviation, and defense industries. As we noted last quarter, Marsh, Oliver Wyman, and Guy Carpenter developed the Unity Facility, a public-private insurance solution that enables grain shipments from Ukrainian ports. In the first quarter, we worked with the Ukrainian government, VZ Bank, Lloyd's, and others to expand the facility to all ships carrying non-military cargo. This will help support Ukraine's economic resilience in time of war. In the healthcare sector, Marsh and Mercer are working together to help clients evaluate connections between talent retention, patient safety, and the cost of malpractice insurance. Marsh's risk assessment capabilities and Mercer's extensive health and human capital expertise, combined with our rich data sets, are creating new, highly valued perspectives in the healthcare sector. These are just a few examples of how we're applying our unique expertise to address pressing challenges and deliver significant value to clients. Recently, we released our annual ESG report. The report includes enhanced disclosure on our ESG efforts and underscores how the actions we're taking and on behalf of our clients also have a positive impact on the communities where we live and work. Let me share some examples. We collaborated with the Center for NYC Neighborhoods, to launch a community-based catastrophe insurance program. This parametric insurance program helps finance emergency grants to community members following an event with funds reaching households within days of a catastrophe. In cyber, we developed a global personal micro-insurance solution to protect against threats like online identity theft, viruses, cyberbullying, and failure to deliver purchased goods. With regard to sustainability, we are supporting the Dubai Energy and Water Authority's commitment to provide 100% of its energy from clean sources by 2050. As part of this work, we conducted a climate resilience assessment of one of the world's largest solar parks. We modeled the site's ability to withstand future climate conditions and proposed adaptation measures to mitigate extreme risks. We continue to improve sustainability in our own operations as well. For example, in 2023, we expanded the use of renewable electricity across our US offices and in our largest UK locations. And we submitted our climate targets for validation as part of our goal to achieve net zero globally by 2050. We remain committed to generating exceptional financial performance and returns for shareholders. And we also recognize that the successful outcomes we help enable for our clients and our own actions can have a lasting positive effect on communities around the world. Shifting to the macro picture, we see significant opportunity that helps clients navigate the range of outcomes driven by a more complex environment. The geopolitical backdrop remains unsettled with multiple major wars and rising tensions globally. More than half the world's population will go to elections in 2024, and the economic outlook remains uncertain as well. Despite this uncertainty, the environment is supportive of growth in our business. In general, we see continued economic growth in most of our major markets. Inflation and interest rates remain elevated. Labor markets are tight. The cost of risk is up, and healthcare costs continue to rise. We have a strong record of performance across economic cycles due to the resilience of our business and demand for our advice and solutions. Turning to insurance and reinsurance market conditions, primary insurance rates increased, with the Marsh Global Insurance Market Index up 1% overall in the quarter. Property rates increased 3% versus 6% in the fourth quarter. Casualty was up 3% in line with last quarter. Workers' compensation decreased mid-single digits, while financial and professional liability rates were down 7%, and cyber pricing decreased 6%. Reinsurance market conditions remained stable, with increased client demand and adequate capacity. In the April renewal period, U.S. property CAT reinsurance rates were flat, with some decreases for accounts without losses. Loss-impacted accounts averaged increases in the 10% to 20% range. The U.S. casualty reinsurance market was challenging, but rates were in line with January renewals. In January, April 1 property cat rates overall were down slightly on a risk-adjusted basis. Early signs for June 1 Florida cat risk renewals point to improved market conditions for seedings. Increased reinsurance appetite for growth should be adequate to meet higher demands. As always, we are helping our clients navigate these dynamic market conditions. Now let me turn briefly to our first quarter financial performance, which Mark will cover in detail. We generated adjusted EPS of $2.89, which is up 14% versus a year ago. Revenue grew 9% on an underlying basis, with 9% growth in both RIS and in consulting. Marsh was up 8%. Guy Carpenter grew 8%, Mercer 6%, and Oliver Wyman was up 13%. Overall, in the first quarter, we had adjusted operating income growth of 11%, and our adjusted operating margin expanded 80 basis points year over year. Turning to our outlook, we are very well positioned for another good year in 2024. We continue to expect mid-single-digit or better underlying revenue growth, another year of margin expansion, and strong growth in adjusted EPS. Our outlook assumes current macro conditions persist, however, meaningful uncertainty remains and the economic backdrop could be materially different than our assumptions. In summary, the first quarter was a great start to the year for Marsh McLennan. Our business delivered strong performance and we continue to execute well on our strategic initiatives. I'm proud of the focus and determination of our colleagues and the value they deliver to our clients and shareholders. With that, let me turn it over to Mark for a more detailed review of our results.
spk18: Thank you, John, and good morning. Our first quarter results were outstanding and represent an excellent start to the year. We saw continued momentum and underlying growth, strong margin expansion, double-digit growth, and adjusted EPS. Our consolidated revenue increased 9% in the first quarter to $6.5 billion. underlying growth of 9%. Operating income was $1.9 billion, and adjusted operating income increased 11% to $2 billion. Our adjusted operating margin increased 80 basis points to 32%, and we expect higher margin expansion for the rest of the year, particularly in the second half. Gap EPS was $2.82, and adjusted EPS was $2.89, up 14% over the last year. Looking at risk and insurance services, first quarter revenue was $4.3 billion, up 9% compared with a year ago, on both a reported and underlying basis. This result marks the 12th consecutive quarter of 8% or higher underlying growth in RIS and continues the best stretch of growth in two decades. RIS operating income was $1.6 billion in the first quarter. Adjusted operating income was also $1.6 billion, up 11% over last year, and our adjusted operating margin expanded 50 basis points to 39.1%. At March, revenue in the quarter increased 9% to $3 billion, or 8% on an underlying basis. This comes on top of 9% growth in the first quarter of last year. In U.S. and Canada, underlying growth was 8% for the quarter, reflecting solid renewal and new business growth. In international, underlying growth was strong at 8% and comes on top of 10% in the first quarter last year. EMEA was up 9%, Latin America grew 8%, and Asia Pacific was up 6%. Guy Carpenter's revenue was $1.1 billion, up 7% or 8% on an underlying basis. driven by growth across most regions and global specialties. This was the fifth straight quarter of 8% or higher underlying growth at Guy Carpenter. In the consulting segment, first quarter revenue was $2.2 billion, up 9% on an underlying basis. Consulting operating income was $432 million, and adjusted operating income was $444 million, up 9%. Our adjusted operating margin in consulting was 20.7% in the first quarter, an increase of 40 basis points. Mercer's revenue was $1.4 billion in the quarter, up 6% on an underlying basis. This was Mercer's 12th straight quarter of 5% or higher underlying growth and continues the best run of growth in 15 years. Health underlying growth was 10% and reflected strong momentum across all regions. Wealth grew 5%, driven by growth in both investment management and DB consulting. Our assets under management were $489 billion at the end of the first quarter, up 17% sequentially and up 38% compared to the first quarter of last year. Year-over-year growth was driven by our transactions with Westpac and Vanguard, rebounding capital markets, and positive net flows. Career revenue increased 1%, reflecting a tough comparison to a period of strong growth last year, as well as softness in the US. Oliver Wyman's revenue in the first quarter was $789 million, up 13% on an underlying basis from the slow start we had in the first quarter of last year, and reflected strength across all regions. Foreign exchange had very little impact on earnings in the first quarter. Assuming exchange rates remain at current levels, we expect FX to be a two-cent headwind in the second quarter and a further one-cent headwind in the second half. Total noteworthy items in the quarter were $49 million. The majority of these items were restructuring costs, mostly related to the program we began in the fourth quarter of 2022. Our other net benefit credit was $67 million in the quarter. For the full year, we expect our other net benefit credit will be approximately 265 million. Interest expense in the first quarter was 159 million, up from 136 million in the first quarter of 2023, reflecting higher levels of debt and higher interest rates. Based on our current forecast, we expect 158 million of interest expense in the second quarter and approximately 620 million for the full year. Our adjusted effective tax rate in the first quarter was 23.9%, compared with 25% in the first quarter of last year. Our tax rate benefited from favorable discrete items, the largest of which was the accounting for share-based compensation, similar to a year ago. Excluding discrete items, our adjusted effective tax rate was approximately 26.5%. 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, we continue to expect an adjusted effective tax rate of between 25.5% and 26.5% for 2024. We're going to need capital management in our balance sheet. We ended the quarter with total debt of $13.5 billion. Our next scheduled debt maturity is in the second quarter when $600 million of senior notes mature. Our cash position at the end of the first quarter was $1.5 billion. Uses of cash in the quarter totaled $1 billion and included $354 million for dividends, $347 million for acquisitions, and $300 million for share repurchases. We continue to expect to deploy approximately $4.5 billion of capital in 2024 across dividends, acquisitions, and share repurchases. The ultimate level of share repurchase will depend on how our M&A pipeline develops. While there continues to be uncertainty in the outlook for the global economy, we feel good about the momentum in our business, and the current environment remains supportive of growth. Overall, our strong start leaves us well positioned for another good year in 2024. Based on our outlook today, for the full year, we continue to expect mid-single-digit or better underlying growth, margin expansion, and strong growth in adjusted EPS. With that, I'm happy to turn it back to John. Thank you, Mark.
spk15: Andrew, we are ready to begin Q&A.
spk09: Certainly. We will now begin the question and answer session. If you have a question, please press star 11 on your touchtone phone. If you wish to be removed from the queue, please press star 11 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 1-1 on your touch-tone 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. One moment, please, for our first question.
spk10: And our first question comes from the line of David Motomaden with Evercore ISI.
spk16: Hi, thanks. Good morning. My first question is just on the marsh growth. John, I caught what you said on the global pricing index, which moved down or decelerated a little bit to 1% from 2% last quarter. But the marsh organic growth accelerated to 8% this quarter. from 6% last quarter. So I'm hoping you can help me bridge the gap between accelerating growth and the decelerating pricing.
spk15: Thanks, David, for the question, and good morning. We work very hard not to be an index on P&C pricing. It's an element. It's a macro factor that obviously does have some impact. But less than half of March's revenue is exposed to P&C pricing. What I would also say to you is that where we're most exposed to commission is in the middle market. Our index skews to larger account data. Pricing is up a bit more in the middle market than it is in the large account segment and typically is less cyclical than what you see in the large account market. But I want to just talk about growth overall. I was very pleased with the start to the year. 9% on top of 9% last year and accelerated growth from the fourth quarter of 7%. As I mentioned, Marsh Mercer and Oliver Wyman all had accelerated growth from the fourth quarter. The macros continue to be supportive, David. Solid GDP growth in most major markets, although it's under a bit of pressure. Inflation and interest rates remain elevated. There's tight labor markets. As I said before, rising health care costs. The overall cost of risk continues to increase. And demand remains very strong. We're not long out of the pandemic, of course. We've got a couple of global wars happening, supply chain stress. Our clients are showing broader risk awareness. We're talking to them about that and really trying to help them find better balance between resilience and efficiency. And we continue to invest through this cycle. I talked about a couple of the acquisitions we did We're improving our mix of business as well. We sold some admin businesses at Mercer in the quarter. And I'm very, very pleased with how our colleagues are executing too. We've been working on our client engagement model and improving that, continue to invest in sales operations. And as I've talked about over the course of the last year, we're collaborating more than ever. It starts with the talent that we have. We have the best talent in the markets that we operate in. We're, of course, not immune to macros, including pricing on some level, but we're a resilient business, and we're quite excited about 2024. Do you have a follow-up?
spk16: I do, and thanks for that answer. That's helpful. I guess just specifically zeroing in on the U.S. and Canada within March, that had a nice acceleration in the quarter. Could you talk about the driver specifically for that business? Was it middle market? Was it capital markets activity coming back and sort of your outlook on the sustainability for the recovery and growth there?
spk15: Sure, sure. Yeah, Marsh in the U.S. got off to a terrific start. U.S. and Canada, I would point out. Martin, maybe you could give David a little bit more color.
spk04: Yeah, it wasn't just the US and Canada. It was great balanced growth across the business. But I'll dig into the US a little bit and give you some color on some of the drivers of growth there. And it's really been a product of a lot of work in the last few years to get where we are. So in the overall growth of 8%, our businesses, the mid-market business, MMA, had a terrific start to the year. The growth in that business is driven both by renewal and fantastic new business. Victor, our MGA business rebounded, has a great performance, very strong performance in Canada. They had a tough year last year, but it bounced back, and the core business in the U.S. grew nicely. So very good that the drive was really particularly in the specialty areas. Construction was very strong in the first quarter. Our MMP business was strong. Our advisory business in the U.S. was very strong. part of the risk advisor of the future to the tip of the spear and makes our relationship much stickier. So our renewal growth was good and our lost business rate was down. So we feel very good about all the areas that we've been focusing on, about client relationships, specialization, industry focus, advisory. All these things are the drivers for growth.
spk15: So we feel very good about things. Thanks, Martin. David, I would add, It wasn't a bang-out quarter in terms of M&A activity in our transaction risk business, but it's a smaller part of our business now. A little feedback there. It's a smaller part of our business after the slowdown, so the impact was less. But we did see some volume in M&A activity pick up during the quarter, which, of course, is encouraging. So thank you for your questions. Andrew, next question, please. Certainly.
spk09: Our next question comes from the line of Jimmy Buehler with JP Morgan.
spk26: Good morning. So I was wondering if you could just elaborate on the comments John had on the reinsurance market. And it seems like the market's less tight than it was over the past year. But what are you seeing in terms of buyer behavior? Are seedings trying to buy more given that pricing's come in a little bit? Or Are they trying to save money and keep coverage levels consistent with what they've had the past year?
spk15: Sure, Jimmy. Thanks for the question. Maybe I'll elaborate a little bit on some of my prepared remarks and then ask Dean to talk a bit about the reinsurance market. But I think both markets continue to stabilize on average in the quarter. And again, I would remind everyone it's a collection of markets, not a single market. That stabilization is good for our clients. In some cases, a better market has led to increased demand in both insurance and reinsurance. I would also point out that in recent years, we've had higher premium growth in the captives that we manage at Marsh compared to the premium flow into the traditional market. That may change a bit now. We'll see as markets stabilize and our clients can adjust to what the market looks like going forward. I mentioned earlier our index skews to major accounts, so pricing in the middle market continues to move up a bit more than the data points I mentioned earlier. I would also say that insurers and reinsurers are cautious about that rising cost of risk environment that I mentioned as well. Again, a stabilizing market is better for our clients overall. I don't expect that relative stability to change anytime soon, given some of the rising cost of risk issues that the insurance community is confronting. Dean, maybe you could talk a little bit more about what's happening in reinsurance.
spk25: Thanks, John. Jimmy, I'll give you a little bit more color on the April 1 reinsurance renewal. That would be helpful. As John noted, we saw a continuation of market conditions that we experienced in January 1. As John noted, market conditions are stable, but we're definitely seeing increased client demand to buy additional property cap limit, particularly at the top end of programs. That was very pronounced throughout the first quarter, at 1.1 through the quarter, and certainly that trend continued on April 1. Strong capital inflows into the reinsurance market driven by strong reinsure returns, double digit returns in 2023. You know, we talked about last, about last quarter on the call, you know, reinsure appetite has increased for property cat. You know, there's an inflow of capital and capacity, um, competition at the top end of programs. It's been good for both buyers and sellers, you know, in the marketplace, you know, specifically to property cat in the U S at April one, you know, as I said, um, you know, capacity was strong. As John noted, you know, the market was generally flat to down incrementally for clients without CAT losses. You know, accounts with CAT losses saw 10% to 20% kind of rate increases. You know, but keep in mind, we give you rate-adjusted figures, but when you factor in inflation, exposure growth, value growth, premiums on these CAT programs are still increasing year over year. It continues to be a tailwind for Guy Carpenter in the marketplace. And as I said, there's a lot of competition for cat business. U.S. casualty, as John noted, was challenging, just as challenging on April 1 as it was at the January 1 renewal. Reinsurers are exerting pressure on pricing and terms and conditions. Seeding commissions are facing downward pressure from reinsurers on certain quota share contracts, particularly financial lines, which Martin has talked about in the past. Excessive loss contracts are seeing rate increases across the board, in some cases double digit. However, there was adequate casualty capacity in the marketplace in April 1, and all of the programs that we placed got completed in full. You know, but I would balance that against continued, you know, reinsure concern with adverse development driven by social inflation and increasing loss cost trends. I think that's a good summary of where we were in the U.S. market. Just a note on Japan, you know, big April 1 cap date in Japan, a very orderly market, sufficient capacity, many cap programs were oversubscribed. We didn't observe any structural changes. Attachment points stayed where they were from a year ago. And again, it was a market that was down on average 5% from a rating perspective. And we didn't really observe any rate impact from the January earthquake in Japan. Overall, a very orderly market at April 1 in Japan.
spk13: Terrific, Dean. Thank you. Jimmy, do you have a follow-up?
spk26: That's an income. It was flat sequentially and lower than 3Q. I'm assuming that's more seasonality, but if you could just talk about your expectation for that, given where short-term rates are currently.
spk14: Mark, you want to jump on that one?
spk18: Yeah, Jimmy. There is a little seasonality, as you pointed out. There tends to be a little seasonality in our fiduciary balances. Q1 and Q4 tend to be seasonal lows, modestly. So that would explain that. In terms of outlook, we'll see what happens to the rate environment. The fiduciary interest income is going to be a function of balances and rates. And we've got about $11.5 billion of balances. So depending on what you want to assume for the trajectory of rates, the math is pretty straightforward.
spk15: Thank you, Mark. And thank you, Jimmy.
spk09: Andrew, next question, please. And our next question comes from the line of Elise Greenspan with Wells Fargo.
spk20: Thanks. Good morning. My first question was on the margin guidance. You guys said more margin expansion in the back half of the year. What's driving that? Is there just more investment in the first half, more savings falling in the second half, or something else that's driving the seasonality within the margin expansion this year?
spk15: Good morning, Elise. We expect, again, good margin expansion in 2024. As you pointed out, Mark noted, we expect the second half to be better than the first half. We have some expected headwinds, not really seasonality, but really driven from a higher merit pool a year ago, some acquisition-related costs, and some higher reimbursable expenses. But I want to remind everybody, not to focus on any one particular quarter. Again, margin to outcome of really how we run the business, and it's not a primary objective of ours. Again, having said that, we see opportunity for margin improvement, continued margin improvement, but we're going to continue to make attractive investments to support the medium to long-term growth of the business. We have a number of different efforts underway ongoing workflow and automation efforts at Mercer and Guy Carpenter. And we continue to press for opportunities to improve efficiency at the intersections of our businesses as well. So we see opportunity, and as we pointed out, we expect the second half to be better than the first. Do you have a follow-up, Elise?
spk20: Yes, thanks. And then my second question. Marsh recently launched its wholesale venture, Victor Access. I know it's early days, but what was the impetus for this strategy? And is there any reason why the majority of the wholesale risk currently placed by Marsh with third party wholesalers couldn't potentially be internalized through Victor over time?
spk15: So, you know, let me be clear, Elise. We're not looking to build a third party wholesale business. There's obviously been considerable growth in the wholesaler, the ENS market, over the course of the last several years. We want to bring the best solutions in the marketplace to our clients. Generally, we're preferring admitted solutions for our clients. Not that there aren't good things that happen in the ENS market. Of course, there are, and innovation is one of the areas where the ENS market is important. But we want to access as much of that ENS market directly. We actually access... most of our ENS market solutions directly today. But, you know, we want to continue to press and make sure that we can access as much of that market directly. So it's client-driven. It's about us managing the client outcomes, client experiences really as directly as possible. You know, having said that, we'll continue to use wholesalers for niche expertise. They serve us very well and our clients very well. In those cases, they also have strong program businesses as well. So anyway, that's what it's about. It's just, again, making sure we can directly access as much capital directly as possible for our clients.
spk10: Thank you for that. Andrew, next question.
spk09: Our next question comes from the line of Greg Peters with Raymond James.
spk06: Good morning, everyone. I'd like to pivot to, for the first question, pivot to the consulting business, which had a nice quarter. Wondering if you can provide some additional color around how the different pieces are moving. I know, you know, some of the management consultants have pre-announced that they're going to be cutting staff this year. Not really seeing any signs of weakness in your pipeline, but maybe you could give us some color because it forecasting this out seems to be a little bit of a black box.
spk15: Okay. Thanks, Greg. Yeah, we are very pleased to the start to the year. As you recall, of course, Oliver Wyman had a slow start to the year in 2023, had a nice year overall of growth. There's going to be a bit more volatility to revenue growth at Oliver Wyman, but we also expect better growth on average from Oliver Wyman over the over the medium to longer term. Nick, maybe you can share with Greg some color on demand in the first quarter.
spk00: Thank you, John. Thank you, Greg. Yeah, 13% is a very pleasing start to the year. It makes a marvelous headline. And we're very, very proud of a good start on what, as you noted, is a tough environment for many in our profession. John's already given the caution about taking the two-year view. We also probably benefited from a few little timing benefits of things that might have shown up in Q2, might have shown up in Q1. And we still very much give guidance that through the cycle, this should be a mid to high single-digit business. And you noted that the sort of forecasting it out is a tricky challenge. That is true because we have a relatively short backlog. The nature of our work is such that when clients need assistance, they need it quickly. And so we are always ready to move very, very nimbly. To give you a little bit more color, we grew pretty strongly across all the four regions of our management consulting business and our economic research business Nira also grew very strongly. fastest in the Middle East, but in the double digits or very close to the double digits in all three of the other major regions we have. And sectorally, it was also fairly broadly spread. Our communications, media, and technology team grew well, healthcare grew well, banking. Seeing a rebound in private capital work, which I've noted on previous calls, has been pretty robust even in the face of obviously a very much lower deal market, but our work on portfolio company performance has helped us there, and insurance also growing, and quite broadly across the capabilities that we bring to bear as well. So we think we're in a good position. We're very confident we've gained share over the last few years, but it's a tough consulting environment, and our pipeline indicates that that mid to high single-digit growth environment, growth forecasters, how we think about this business through the cycle.
spk15: Thank you, Nick. That's very helpful. And Greg, maybe I'll ask Pat Tomlinson also to share some thoughts just on the first quarter at Mercer, given our consulting operations there. And Pat, while you have the floor, as I mentioned, obviously you're joining this call for the first time. Maybe you could talk a bit about your priorities at Mercer.
spk02: Sure. Thanks, John. Yes, we are... Pleased with our Q1 2024 underlying growth, as mentioned earlier, of 6%. It was our 12th consecutive quarter with 5% or more growth, especially the breadth across the practices. Health, another impressive quarter with 10% growth in Q1. That growth was really with double-digit growth nearly across all regions, and it comes on the back of investments in hiring new talent, focused on thought leadership, creating digital tools, and really focusing in on client segmentation, trying to match client healthcare needs based upon industry segment size with the innovative and adaptive solutions that we have, so really trying to meet clients where they are. We certainly benefited from strong retention. We had good renewal growth, insurer revenue, and medical cost inflation has an impact there. We see significant demand for digital solutions and the innovative benefits that are kind of underscoring the value that we're providing to clients. If I pivot over to wealth, we grew 5% in Q1. There was good, balanced, equally strong performance in DB&A and IMS. We see DB plans funding statuses continue to benefit from elevated interest rates. that's driving an increase in risk transfer over the last couple of years, as well as we have some regulatory requirements and demands that are creating some project work. If you add in some volatile capital markets, it's driving strong demand for both our actual and our investment solutions business. Speaking of investment solutions, in OCIO, we benefited from some transactions in Westpac and Vanguard. Mark mentioned that earlier. But also good net new inflows and capital markets provided us some revenue lift in Q1. From a career perspective, growth was muted to 1% for the quarter, but we're following a period of strong growth over the past several years, including a challenging 12% comparable last year. The growth was strong in internationals, very broad across all practices and regions. We did see, as was mentioned, some softness in U.S. specifically in rewards in the transformation space, as I would say clients are starting to navigate some of the macro conditions, right? So let me highlight the career practices coming off that very long period of high growth, as I mentioned, double digits for the past eight quarters, driven in large part, I would say, by inflation and employee attrition. If we all remember the great resignation back coming out of the pandemic, which drove a lot of labor shortages and and really created a lot of demand for projects with clients as they were trying to think about the rewards and how to pay people to keep them retained, the skills that they might need if they had to pivot because they didn't have the right resources, and also starting to think about transformation as they were having less resources to work with, and there was innovation in technology, as we've all talked about, AI, in the past, and helping clients through those. So certainly, I think, from that perspective, we feel... We feel good that there's good breadth of our solutions and demand in the market as we go ahead and fill those needs. John quickly asked me to talk a little bit about how I think about the business and the priorities too. So obviously my first call on April 1st, I got to step in and begin this opportunity of a lifetime leading Mercer and our 21,000 colleagues from around the world as we are focused on creating brighter futures for our clients and for their people. I am extremely humbled and honored to be the CEO of this fantastic firm. And personally, I really want to thank Martin Ferland for a very smooth transition and for the growth momentum and culture that she helped create here. Priority-wise, I want to accelerate that momentum from the impact that we're having to clients to the fantastic careers we build for colleagues here, the collaboration amongst our colleagues across Marsh McLennan. We can leverage new technologies here. and we perform really purpose-driven work and can have a positive impact on our communities as well. I think we're very well positioned as we've been repositioning ourselves over the last several years, reshaping our portfolio. Mark mentioned the divestitures. We've been divesting admin practices. We've been building capabilities and reach and global benefits in OCIO. We've been accelerating acquisitions, and we're really just creating more value for clients at scale, and that's what we've been focused in on. So I'm very optimistic about our future.
spk15: Thank you, Pat. We're excited to have you at this table. Greg, do you have a follow-up?
spk06: I do. Thanks for the detail on that answer. I want to pivot to M&A, and specifically, Mark, I think you mentioned the interest expense outlook for the company, and we note the higher interest rate cost of the debt that's being issued versus that which is being paid off. So I'm curious if there's been any follow through on those higher costs in the terms of valuation of transactions that you're looking at. And I'm also curious if there's any valuation difference between larger properties versus smaller properties that you're looking at in the M&A market. Thank you.
spk15: Yeah, thanks, Greg. You know, what I would say is we remain quite active in the market. There's a, you know, a good, we have a good strong pipeline as, you know, I've talked about in the past. We have an excellent reputation for in that marketplace, you know, as being a good owner as well. So, you know, we're excited about the deals we did in the first quarter. And, you know, again, we're going to continue to remain active in the market. I think valuations have remained stubbornly high, I would say, on the other side of things. And while, you know, we might expect that for top quality assets, I would also point out that, you know, some lesser quality assets have traded at, some very, very high multiples of late. And so we're going to be picky. We're looking for well-led businesses with real strong growth fundamentals that make us better and are a good cultural fit for our organization. We've been very successful at it. And again, as Mark pointed out, we expect to continue to deploy capital in the market going forward.
spk10: Thank you, Greg. Andrew, next question, please.
spk09: And our next question comes from the line of Michael Zaremski with BMO Capital Markets.
spk07: Hey, Greg, good morning. Probably for Mark on the margins and the expense buckets, if I look over the last year plus, the margin improvements come much more so from the general and other bucket rather than Comp and Ben. It looks like it flipped a little bit in our relationship this quarter, if I'm correct. Anything changing there given the expense management programs or just in terms of how we should think about where the margin improvement is coming from on a go-forward basis?
spk14: Thanks, Mike. Mark, do you want to?
spk18: I think it's a great question. It's a great point that you're making, and I think it reflects the strategy of the company. We've said we continually invest in position on ourselves for the future. And over the last several years, we've talked about the heavy investments we've made organically in talent. And so I think we've done a terrific job really being thoughtful about all of our other operating expenses, functional costs, how we're leveraging things across the firm, T&E, Really, some of the gains we made in the pandemic, we've harvested them. So as you point out, a lot of our margin expansion over the last five years has come from being really disciplined on things far away from the client and investing heavily in client-facing talent. And so I think that is a factor in our growth. And I think also as we look forward, there's going to be leverage in those investments, which is why we're optimistic about margins going forward.
spk05: Thank you, Mike. Okay. Do you have a follow-up?
spk07: Yeah, quick follow-up. And I know you gave a lot of commentary on kind of commercial primary insurance pricing power. You told us the March index declined a bit. Just curious if you can offer any more context. You know, 1% kind of feels like a soft market number. You know, what is it, you know, are you seeing just, you know, returns on behalf of your carrier partners being kind of excellence that's kind of driving the, you know, pricing power downwards in light of kind of what still seems like inflationary trends or just any more color there on kind of what's causing the decel. I know you gave us by line commentary too, so I don't know if there's a lot more to add.
spk15: Yeah. You know, Mike, I would say that it doesn't feel like a soft market to our clients. You know, after five years of of price increases. As I noted, our index skews to larger accounts where there's a bit more volatility typically throughout the cycle. I expect cycles to be shorter and narrower than what they've been in the past. There's better data, better technology on the underwriting front. Capital moves so much more quickly in and out That's part of the ENS market dynamic that you all have observed over the course of the last several years. So, you know, I expect kind of more relative stability. And, you know, from time to time, of course, certain areas of risk, you know, things will change in some meaningful way. And that, you know, that will maybe bounce a particular product outside of, you know, a normal cycle. You know, ensure reliability. you know, and reinsure underwriting results have improved in the aggregate over the course of the last couple of years. And, you know, I think most feel good about how their book, how their portfolios are positioned. It's not all one result, of course, you know, we saw some reserve additions in the fourth quarter results, you know, overall. And, you know, as I mentioned on our call in the first quarter, you know, the great unknown is casualty loss costs, right? There's lots of emerging data that's troubling for our entire ecosystem, for our client, you know, and it contributes to that rising cost of risk, you know, that I mentioned earlier. You know, I maybe should also point out, and Dean touched on this a little bit, that, you know, our index adjusts for limit, exposure, attachment point, and it includes new business, right? You see some other indices that are out in the market, right? that don't necessarily adjust for all those factors. And maybe the last point, Mike, that I would make is that that number doesn't necessarily correlate directly with what the premium growth is in the market, right? Because at the end of the day, you might have less of an increase. You might have certain clients buying more. I think that's most prevalent in the reinsurance market at the moment. But we're seeing that in some cases at March as well, where clients, again, having adjusted to the new market pricing and new market equilibrium has led to a higher level of demand for coverage from our clients. So anyway, I hope that's helpful. Andrew, next question, please.
spk09: Our next question comes from the line of Yaron Kinnar with Jefferies.
spk21: Thank you. Good morning. Two questions on Marsh and the market environment you're seeing there. And I think the first one maybe ties well to your last comments, John. Are you surprised to see casualty rates only up 3% just given the lost trends? I guess I'd love to hear your views both as the CEO of Marsh but also maybe as a former underwriter.
spk14: It's a...
spk15: You know, I actually, you know, it's very, very hard, you know, right now, as I mentioned earlier, you know, there's some troubling data points, right? And thrown in, you know, in the mix of the last several, you know, accident years, of course, you know, a couple of years of the impact of the pandemic, right? And so, you know, just on the clients where, you know, we... We help them, larger clients, with big risk management programs that have a level of frequency. It's very, very difficult to project where lost costs are. But as I said, the underwriting community is better than it's ever been. They have better data, better technology. But there, again, are some troubling signs. It's not just increased frequency. It's not just kind of nuclear verdicts. That term gets kind of thrown around, or even some of the bigger settlements. There's a frequency of larger events. See the Francis Scott Key Bridge as an example. That'll be a big loss in the market. Maybe not as much a casualty loss, but a big loss in the market. But even in commercial auto, and you've certainly seen you know, that play out in the personal lines, auto market, just, you know, kind of more frequency type events just costing more to get resolved. And so we're putting our efforts to, you know, helping our clients think through how to better run off liabilities that they assume and even transfer into the market. And the insurers are investing quite a bit, you know, in their claims capabilities as well to try to get ahead of this. But, you know, I think we're all pointing to, again, some, some, flashing yellow signals out there about the rising costs overall. Do you have a follow-up?
spk21: Yes, I do, and thanks for the caller there. So in Marsh, organic obviously was strong, and then we certainly saw a very nice result in U.S. and Canada. I guess the only place I could maybe poke a little bit if I were to try would be Asia-Pacific, where we saw a step down. Is there a timing issue there with some one-offs? I know you had a very, very strong 1Q23 there, but anything you could point to in terms of the organic results in Asia Pacific would be helpful.
spk15: Yeah, no one-offs or major issues there. Just on top of a couple of years of very, very good comps and strong growth, we love how we're positioned in Asia. Big protection gaps throughout Asia. We have really strong in-country operations all throughout the region. So we're not just a regional center. We're in-country and working very, very closely with our clients there. As we've said to you in the past, I wouldn't look at any one particular quarter. And again, it's on top of what's been some outstanding growth in Asia over the last couple of years. So we feel good about where we're headed in Asia overall.
spk10: Andrew, next question, please. Certainly.
spk09: One moment, please. Our next question comes from the line of Meyer Shields with KBW.
spk19: Great. Thanks. I was hoping to discuss the competitive environment in RIS, maybe from two perspectives. First, I'm wondering whether there is a difference in the market share gain potential when you're in a rising rate environment and The enormously fragmented brokerage world includes a lot of companies that just don't have the resources to help clients manage higher insurance costs as successfully as a company with Marsha's resources. How much of a difference does that make?
spk15: It's a good question, Meyer. We're very, very focused on trying to bring scale benefits to all of our key stakeholders, including our colleagues. We want them, when they work here, We want them to feel like they have nearly 90,000 folks helping support them with learning and development, data and analytics, market access that you might not have should you choose to work somewhere else in our industry. So we certainly think about it from the colleague perspective, we think about it from the client perspective, and we think about it from an investor point of view as well. What I would say from a client perspective, broadly speaking, Again, this is maybe a bit more upmarket than some of the fragmented segments that you talked about before. Our clients are more risk aware than they've been in the past. I think we have had a role to play in that in trying to make them more risk aware of some meta risks. And again, recent events have certainly helped heighten that. But it's incumbent upon us to bring those scale benefits to the market. And not just scale benefits in terms of data analytics or market access, but different types of solutions. I mentioned earlier our captive business. We're the largest captive manager in the world. And that's been a meaningful outlet for our clients to manage risk in the rising rate environment over the course of the last several years. So yes, scale matters. I would also tell you that it plays a role For some of the sellers in the market, you know, as well, as we talk through with potential M&A targets, you know, why they may look to sell at the moment. At times, you know, it's regarding, you know, scaled-up type capabilities that we have that, you know, are difficult for them to replicate. And so, as I said earlier, we're looking for well-led businesses with really solid growth fundamentals, but we know we can make them better too. And that's, you know, that's the exciting part for us. Do you have a follow-up?
spk19: I do, but I want to thank you for that. That was very thorough. When we look at the parts of the brokerage market that are more concentrated here, I guess I'm thinking reinsurance or Fortune 100 type accounts. In your view, is the competitive, are competitors fighting at full strength? Are they all Is competition right now as intense as it normally is, or are there any differences from longer-term norms?
spk15: In both of the segments you mentioned, it is a highly competitive market, and we love competition. There's nothing that gets me more fired up than getting out in front of clients and, of course, winning, ultimately. And our team is the same way. We're passionate about the value that we try to deliver to our clients. And so, you know, as I mentioned earlier, we're collaborating more than ever. And in those particular segments you mentioned, I think it's been particularly meaningful, you know, over the course of the last year or so, you know, our efforts to bring a broader set of capabilities to that client set. But no, it's, you know, it's a very, very competitive market and we welcome it. You know, it makes us better. Thanks, Meyer. Andrew, next question, maybe the last one.
spk09: Our next question comes from the line of Robert Cox with Goldman Sachs.
spk22: Hey, thanks. In the prepared remarks, there were some comments on healthcare costs continuing to rise. I was hoping you guys could talk about what you're seeing there and maybe parts of the business, maybe between brokerage and consulting, that are generating the strongest organic growth in that 10% organic in health.
spk15: Sure. Thank you, Robert. Healthcare and the healthcare industry is a big part of our business overall, and I don't think it's any secret that medical inflation and healthcare related cost inflation is a major pressure point for our clients in many markets really around the world. It's been a big driver of growth for us and we continue to invest in it. I talked about in my prepared remarks some of the collaboration between Marsh and Mercer to try to bring some relief to an angle of cost pressure in that marketplace. But Pat, maybe you could talk about the growth we're seeing and some of the cost inflation as well.
spk02: Sure. So the way that healthcare inflation impacts the business varies based upon the area of the world that we're in. In certain areas of the world, we're predominantly fee-based. It's a more large market. That would predominantly be from a Mercer perspective inside like the U.S. and some of our more mature, larger markets. And then in a lot of the markets, we are a little bit more brokerage-based to where it's based that way. But let me be clear, even the spots where we're fixed fee, healthcare inflation drives significant increased cost to clients. So it does create a lot of, it creates demand for work for us, a lot of project work. So we will see projects out of that healthcare inflation. It's not necessarily directly driven that way. And even if there's healthcare inflation in the other areas where it's brokerage, it's not a linear type activity from a commission perspective because once that cost is flowing through to the client P&L, we're always out there doing plan redesigns. for a client to help make sure that that full cost of healthcare inflation is not flowing through their P&L, right? Because that's one of the larger costs that they don't control themselves based upon the activity that they've had. So that's really where a lot of the inflation helps us. Part of it is increased activity and project work. Occasionally it does create higher rates that flows through in brokerage, but many times those higher rates, we're still doing plan design with the client to try and mitigate the impact that is going to have on the client P&L, even in a spot where it's straight commission-based brokerage, we're trying to mitigate those costs.
spk15: So rising health and benefit costs in a tight labor market, you know, again, is a pressure point. And another example of where, again, we can bring scale and a broader set of capabilities to the market that, you know, our clients appreciate. Do you have a follow-up, Robert?
spk22: Yeah, very helpful. Thank you. Maybe just last question. On the wealth segment, and correct me if I'm wrong, but I think last year probably the pension business was growing stronger than your investment business. Did that occur as well in the first quarter here, or were both of them kind of similar to the 5% organic growth that was achieved in wealth?
spk15: Yeah, we had good, solid growth across investment management and defined benefits. As Pat mentioned, our DB business and this period of elevated interest rates has seen a bit more growth than we expected over the course of the last couple of years, but good growth in our OCIO business and our broader set of consulting capabilities inside of our investment business. So, yeah, we felt good about that. Thank you, Robert. Andrew?
spk09: Thank you. I would now like to turn the call back over to John Doyle, President and CEO of Marshall McLennan, for any closing remarks.
spk15: All right. Thank you, Andrew. And I want to thank everyone for joining us on the call this morning. In closing, I want to thank our colleagues for their hard work and dedication. I also want to thank our clients for their continued support. Thank you all very much, and I look forward to speaking with you again next quarter.
spk09: This concludes today's conference.
spk10: Thank you for participating, and you may now disconnect. you Thank you. Thank you. Thank you. Thank you.
spk09: Welcome to Marsh McLennan's earnings conference call. Today's call is being recorded. First quarter 2024 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 Marshall 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 gap 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're 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 will now turn this over to John Doyle, President and CEO of Marsh McLennan.
spk10: Good morning.
spk15: Thank you for joining us to discuss our first quarter results reported earlier today. I'm John Doyle, President and CEO of Marsh McLennan. On the call with me is Mark McGivney, our CFO, and the CEOs of our businesses, Martin South of Marsh, Dean Klasura of Guy Carpenter, Nick Studer of Oliver Wyman, and Pat Tomlinson of Mercer, who is joining us, joining this call for the first time. Welcome, Pat. Also with us today is Sarah DeWitt, head of investor relations. Marsh McLennan had a strong start to 2024. Our first quarter results were excellent, and we were well positioned for another good year. Top line continued with 9% underlying revenue growth, which was on top of 9% growth in the first quarter of last year. All of our businesses had strong revenue growth, with Marsh, Mercer, and Oliver Wyman accelerating growth from the fourth quarter. We grew adjusted operating income by 11% from a year ago. Our adjusted operating margin expanded 80 basis points compared to the first quarter of 2023. We had adjusted EPS growth of 14%, and we completed $300 million of share repurchases in the quarter. In addition, We continue to add to our talent, capabilities, and scale through acquisitions. These investments will help strengthen our strategic position and sustain top-line growth. For example, Mercer completed the purchase of Vanguard's OCIO business, which expands our reach into the endowments and foundations segment. MMA acquired two leading agencies in Louisiana, and Oliver Wyman closed the acquisition of CTEK which extends our capabilities in the aviation, transportation, and defense industries. At Marsh McLennan, we bring together specialized capabilities and perspectives across risk, strategy, and people to help clients make critical decisions with confidence. For example, in the area of supply chain risk, we developed a solution called Centrisk, which draws on the perspective and capabilities of Marsh and Oliver Wyman to identify key risks in our client supply chains. Using this framework, we create a digital twin model of a client's supply lines, which provides for a scenario-based vulnerability assessment to help manage risk. This product is already helping clients across multiple sectors, including in the banking, manufacturing, aviation, and defense industries. As we noted last quarter, Marsh, Oliver Wyman, and Guy Carpenter developed the Unity Facility, a public-private insurance solution that enables grain shipments from Ukrainian ports. In the first quarter, we worked with the Ukrainian government, VZ Bank, Lloyd's, and others to expand the facility to all ships carrying non-military cargo. This will help support Ukraine's economic resilience in time of war. In the healthcare sector, Marsh and Mercer are working together to help clients evaluate connections between talent retention, patient safety, and the cost of malpractice insurance. Marsh's risk assessment capabilities and Mercer's extensive health and human capital expertise, combined with our rich data sets, are creating new, highly valued perspectives in the healthcare sector. These are just a few examples of how we're applying our unique expertise to address pressing challenges and deliver significant value to clients. Recently, we released our annual ESG report. The report includes enhanced disclosure on our ESG efforts and underscores how the actions we're taking and on behalf of our clients also have a positive impact on the communities where we live and work. Let me share some examples. We collaborated with the Center for NYC Neighborhoods, to launch a community-based catastrophe insurance program. This parametric insurance program helps finance emergency grants to community members following an event with funds reaching households within days of a catastrophe. In cyber, we developed a global personal micro-insurance solution to protect against threats like online identity theft, viruses, cyberbullying, and failure to deliver purchased goods. With regard to sustainability, we are supporting the Dubai Energy and Water Authority's commitment to provide 100% of its energy from clean sources by 2050. As part of this work, we conducted a climate resilience assessment of one of the world's largest solar parks. We modeled the site's ability to withstand future climate conditions and proposed adaptation measures to mitigate extreme risks. We continue to improve sustainability in our own operations as well. For example, in 2023, we expanded the use of renewable electricity across our US offices and in our largest UK locations. And we submitted our climate targets for validation as part of our goal to achieve net zero globally by 2050. We remain committed to generating exceptional financial performance and returns for shareholders. And we also recognize that the successful outcomes we help enable for our clients and our own actions can have a lasting positive effect on communities around the world. Shifting to the macro picture, we see significant opportunity that helps clients navigate the range of outcomes driven by a more complex environment. The geopolitical backdrop remains unsettled with multiple major wars and rising tensions globally. More than half the world's population will go to elections in 2024, and the economic outlook remains uncertain as well. Despite this uncertainty, the environment is supportive of growth in our business. In general, we see continued economic growth in most of our major markets. Inflation and interest rates remain elevated. Labor markets are tight. The cost of risk is up, and healthcare costs continue to rise. We have a strong record of performance across economic cycles due to the resilience of our business and demand for our advice and solutions. Turning to insurance and reinsurance market conditions, primary insurance rates increased, with the Marsh Global Insurance Market Index up 1% overall in the quarter. Property rates increased 3% versus 6% in the fourth quarter. Casualty was up 3% in line with last quarter. Workers' compensation decreased mid-single digits, while financial and professional liability rates were down 7%, and cyber pricing decreased 6%. Reinsurance market conditions remained stable, with increased client demand and adequate capacity. In the April renewal period, U.S. property CAT reinsurance rates were flat, with some decreases for accounts without losses. Loss-impacted accounts averaged increases in the 10% to 20% range. The U.S. casualty reinsurance market was challenging, but rates were in line with January renewals. In January, April 1 property cat rates overall were down slightly on a risk-adjusted basis. Early signs for June 1 Florida cat risk renewals point to improved market conditions for seedings. Increased reinsurance appetite for growth should be adequate to meet higher demands. As always, we are helping our clients navigate these dynamic market conditions. Now let me turn briefly to our first quarter financial performance, which Mark will cover in detail. We generated adjusted EPS of $2.89, which is up 14% versus a year ago. Revenue grew 9% on an underlying basis, with 9% growth in both RIS and in consulting. Marsh was up 8%. Guy Carpenter grew 8%, Mercer 6%, and Oliver Wyman was up 13%. Overall, in the first quarter, we had adjusted operating income growth of 11%, and our adjusted operating margin expanded 80 basis points year over year. Turning to our outlook, we are very well positioned for another good year in 2024. We continue to expect mid-single digit or better underlying revenue growth, another year of margin expansion, and strong growth in adjusted EPS. Our outlook assumes current macro conditions persist. However, meaningful uncertainty remains, and the economic backdrop could be materially different than our assumptions. In summary, the first quarter was a great start to the year for Marsh McLennan. Our business delivered strong performance, and we continued to execute well on our strategic initiatives. I'm proud of the focus and determination of our colleagues, and the value they deliver to our clients and shareholders. With that, let me turn it over to Mark for a more detailed review of our results.
spk18: Thank you, John, and good morning. Our first quarter results were outstanding and represent an excellent start to the year. We saw continued momentum and underlying growth, strong margin expansion, double-digit growth, and adjusted EPS. Our consolidated revenue increased 9% in the first quarter to $6.5 billion. underlying growth of 9%. Operating income was $1.9 billion, and adjusted operating income increased 11% to $2 billion. Our adjusted operating margin increased 80 basis points to 32%, and we expect higher margin expansion for the rest of the year, particularly in the second half. Gap EPS was $2.82, and adjusted EPS was $2.89, up 14% over the last year. Looking at risk and insurance services, first quarter revenue was $4.3 billion, up 9% compared with a year ago, on both a reported and underlying basis. This result marks the 12th consecutive quarter of 8% or higher underlying growth in RIS and continues the best stretch of growth in two decades. RIS operating income was $1.6 billion in the first quarter. Adjusted operating income was also $1.6 billion, up 11% over last year, and our adjusted operating margin expanded 50 basis points to 39.1%. At March, revenue in the quarter increased 9% to $3 billion, or 8% on an underlying basis. This comes on top of 9% growth in the first quarter of last year. In U.S. and Canada, underlying growth was 8% for the quarter, reflecting solid renewal and new business growth. In international, underlying growth was strong at 8% and comes on top of 10% in the first quarter last year. EMEA was up 9%, Latin America grew 8%, and Asia Pacific was up 6%. Guy Carpenter's revenue was $1.1 billion, up 7% or 8% on an underlying basis. driven by growth across most regions and global specialties. This was the fifth straight quarter of 8% or higher underlying growth at Guy Carpenter. In the consulting segment, first quarter revenue was $2.2 billion, up 9% on an underlying basis. Consulting operating income was $432 million, and adjusted operating income was $444 million, up 9%. Our adjusted operating margin in consulting was 20.7% in the first quarter, an increase of 40 basis points. Mercer's revenue was $1.4 billion in the quarter, up 6% on an underlying basis. This was Mercer's 12th straight quarter of 5% or higher underlying growth and continues the best run of growth in 15 years. Health underlying growth was 10% and reflected strong momentum across all regions. Wealth grew 5%, driven by growth in both investment management and DV consulting. Our assets under management were $489 billion at the end of the first quarter, up 17% sequentially and up 38% compared to the first quarter of last year. Year-over-year growth was driven by our transactions with Westpac and Vanguard, rebounding capital markets, and positive net flows. Career revenue increased 1%, reflecting a tough comparison to a period of strong growth last year, as well as softness in the U.S. Oliver Wyman's revenue in the first quarter was $789 million, up 13% on an underlying basis from the slow start we had in the first quarter of last year and reflected strength across all regions. Foreign exchange had very little impact on earnings in the first quarter. Assuming exchange rates remain at current levels, we expect FX to be a two-cent headwind in the second quarter and a further one-cent headwind in the second half. Total noteworthy items in the quarter were $49 million. The majority of these items were restructuring costs, mostly related to the program we began in the fourth quarter of 2022. Our other net benefit credit was $67 million in the quarter. For the full year, we expect our other net benefit credit will be approximately $265 million. Interest expense in the first quarter was $159 million, up from $136 million in the first quarter of 2023, reflecting higher levels of debt and higher interest rates. Based on our current forecast, we expect $158 million of interest expense in the second quarter and approximately $620 million for the full year. Our adjusted effective tax rate in the first quarter was 23.9%, compared with 25% in the first quarter of last year. Our tax rate benefited from favorable discrete items, the largest of which was the accounting for share-based compensation, similar to a year ago. Excluding discrete items, our adjusted effective tax rate was approximately 26.5%. 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, we continue to expect an adjusted effective tax rate of between 25.5% and 26.5% for 2024. We're going to need capital management in our balance sheet. We ended the quarter with total debt of $13.5 billion. Our next scheduled debt maturity is in the second quarter when 600 million of senior notes mature. Our cash position at the end of the first quarter was $1.5 billion. Uses of cash in the quarter totaled $1 billion and included $354 million for dividends, $347 million for acquisitions, and $300 million for share repurchases. We continue to expect to deploy approximately $4.5 billion of capital in 2024 across dividends, acquisitions, and share repurchases. The ultimate level of share repurchase will depend on how our M&A pipeline develops. While there continues to be uncertainty in the outlook for the global economy, we feel good about the momentum in our business, and the current environment remains supportive of growth. Overall, our strong start leaves us well positioned for another good year in 2024. Based on our outlook today, for the full year, we continue to expect mid-single-digit or better underlying growth, margin expansion, and strong growth in adjusted EPS. With that, I'm happy to turn it back to John.
spk14: Thank you, Mark.
spk15: Andrew, we are ready to begin Q&A.
spk09: Certainly. We will now begin the question and answer session. If you have a question, please press star 11 on your touch-tone phone. If you wish to be removed from the queue, please press star 11 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 11 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. One moment, please, for our first question.
spk10: And our first question comes from the line of David Motomaden with Evercore ISI.
spk16: Hi, thanks. Good morning. My first question is just on the marsh growth. John, I caught what you said on the global pricing index, which moved down or decelerated a little bit to 1% from 2% last quarter. But the marsh organic growth accelerated to 8% this quarter. from 6% last quarter. So I'm hoping you can help me bridge the gap between accelerating growth and the decelerating pricing.
spk15: Thanks, David, for the question, and good morning. We work very hard not to be an index on P&C pricing. It's an element, it's a macro factor that obviously does have some impact, but less than half of March's revenue is exposed to P&C pricing. What I would also say to you is that where we're most exposed to commission is in the middle market. Our index skews to larger account data. Pricing is up a bit more in the middle market than it is in the large account segment and typically is less cyclical than what you see in the large account market. But I want to just talk about growth overall. I was very pleased with the start to the year. 9% on top of 9% last year and accelerated growth from the fourth quarter of 7%. As I mentioned, Marsh Mercer and Oliver Wyman all had accelerated growth from the fourth quarter. The macros continue to be supportive, David. Solid GDP growth in most major markets, although it's under a bit of pressure. Inflation and interest rates remain elevated. There's tight labor markets. As I said before, rising health care costs. The overall cost of risk continues to increase. And demand remains very strong. We're not long out of the pandemic, of course. We've got a couple of global wars happening, supply chain stress. Our clients are showing broader risk awareness. We're talking to them about that and really trying to help them find better balance between resilience and efficiency. And we continue to invest through this cycle. I talked about a couple of the acquisitions we did. We're improving our mix of business as well. We sold some admin businesses at Mercer in the quarter. And I'm very, very pleased with how our colleagues are executing too. We've been working on our client engagement model and improving that, continue to invest in sales operations. And as I've talked about over the course of the last year, we're collaborating more than ever. It starts with the talent that we have. We have the best talent in the markets that we operate in. We're, of course, not immune to macros, including pricing on some level, but we're a resilient business, and we're quite excited about 2024. Do you have a follow-up?
spk16: I do, and thanks for that answer. That's helpful. I guess just specifically zeroing in on the U.S. and Canada within March, that had a nice acceleration in the quarter last Could you talk about the driver specifically for that business? Was it middle market? Was it capital markets activity coming back and sort of your outlook on the sustainability for the recovery and growth there?
spk15: Sure, sure. Yeah, Marsh in the U.S. got off to a terrific start. U.S. and Canada, I would point out. Martin, maybe you could give David a little bit more color.
spk04: Yeah, it wasn't just the US and Canada. It was great balanced growth across the business. But I'll dig into the US a little bit and give you some color on some of the drivers of growth there. And it's really been a product of a lot of work in the last few years to get where we are. So in the overall growth of 8%, our businesses, the mid-market business, MMA, had a terrific start to the year. The growth in that business is driven both by renewal and fantastic new business. Victor, our MGA business rebounded, has a great performance, very strong performance in Canada. They had a tough year last year, but it bounced back, and the core business in the U.S. grew nicely. So very good that the drive was really particularly in the specialty areas. Construction was very strong in the first quarter. Our MMP business was strong. Our advisory business in the U.S. was very strong. part of the risk advisor of the future to the tip of the spear and makes our relationship much stickier. So our renewal growth was good and our lost business rate was down. So we feel very good about all the areas that we've been focusing on, about client relationships, specialization, industry focus, advisory. All these things are the drivers for growth.
spk15: So we feel very good about things. Thanks, Martin. David, I would add, It wasn't a bang-out quarter in terms of M&A activity in our transaction risk business, but it's a smaller part of our business now. A little feedback there. It's a smaller part of our business after the slowdown, so the impact was less. But we did see some volume in M&A activity pick up during the quarter, which, of course, is encouraging. So thank you for your questions. Andrew, next question, please. Certainly.
spk09: Our next question comes from the line of Jimmy Buehler with JP Morgan.
spk26: Good morning. So I was wondering if you could just elaborate on the comments John had on the reinsurance market. And it seems like the market's less tight than it was over the past year. But what are you seeing in terms of buyer behavior? Are seedants trying to buy more given that pricing's come in a little bit? Or Are they trying to save money and keep coverage levels consistent with what they've had the past year?
spk15: Sure, Jimmy. Thanks for the question. Maybe I'll elaborate a little bit on some of my prepared remarks and then ask Dean to talk a bit about the reinsurance market. But I think both markets continue to stabilize on average in the quarter. And again, I would remind everyone it's a collection of markets, not a single market. That stabilization is good for our clients. And in some cases, a better market has led to increased demand in both insurance and reinsurance. I would also point out that in recent years, we've had higher premium growth in the captives that we manage at Marsh compared to the premium flow into the traditional market. That may change a bit now. We'll see as markets stabilize and our clients can adjust to what the market looks like going forward. I mentioned earlier our index skews to major accounts, so pricing in the middle market continues to move up a bit more than the data points I mentioned earlier. But I would also say that insurers and reinsurers are cautious about that rising cost of risk environment that I mentioned as well. And so, again, a stabilizing market is better for our clients overall. I don't expect that relative stability to change anytime soon, given some of the rising cost of risk issues that the insurance community is confronting. Dean, maybe you could talk a little bit more about what's happening in reinsurance.
spk25: Thanks, John. Jimmy, I'll give you a little bit more color on the April 1 reinsurance renewal. That would be helpful. As John noted, we saw a continuation of market conditions that we experienced in January 1. As John noted, market conditions are stable, but we're definitely seeing increased client demand to buy additional property cap limit, particularly at the top end of programs. That was very pronounced throughout the first quarter, at 1.1 through the quarter, and certainly that trend continued on April 1. Strong capital inflows into the reinsurance market driven by strong reinsure returns, double-digit returns in 2023. You know, we talked about that last quarter on the call. You know, reinsure appetite has increased for PropertyCat. You know, there's an inflow of capital and capacity, competition at the top end of programs. It's been good for both buyers and sellers, you know, in the marketplace. You know, specifically to PropertyCat in the U.S. at April 1, you know, as I said, you know, you know, capacity was strong. As John noted, you know, the market was generally flat to down incrementally for clients without CAT losses. You know, accounts with CAT losses saw 10 to 20% kind of rate increases. You know, but keep in mind, we give you rate-adjusted figures. But when you factor in inflation, exposure growth, value growth, premiums on these CAT programs are still increasing year over year. It continues to be a tailwind for Guy Carpenter in the marketplace. And as I said, there's a lot of competition for cat business. U.S. casualty, as John noted, was challenging, just as challenging on April 1 as it was at the January 1 renewal. Reinsurers are exerting pressure on pricing and terms and conditions. Seeding commissions are facing downward pressure from reinsurers on certain quota share contracts, particularly financial lines, which Martin has talked about in the past. Excessive loss contracts are seeing rate increases across the board, in some cases double digit. However, there was adequate casualty capacity in the marketplace in April 1, and all of the programs that we placed got completed in full. You know, but I would balance that against continued, you know, reinsure concern with adverse development driven by social inflation and increasing loss cost trends. I think that's a good summary of where we were in the U.S. market. Just a note on Japan, you know, big April 1 cap date in Japan, a very orderly market, sufficient capacity, many cap programs were oversubscribed. We didn't observe any structural changes. Attachment points stayed where they were from a year ago. And again, it was a market that was down on average 5% from a rating perspective. And we didn't really observe any rate impact from the January earthquake in Japan. Overall, a very orderly market at April 1 in Japan.
spk13: Terrific, Dean. Thank you. Jimmy, do you have a follow-up?
spk26: That's an income. It was flat sequentially and lower than 3Q. I'm assuming that's more seasonality, but just talk about your expectation for that, given where short-term rates are currently.
spk14: Mark, you want to jump on that one?
spk18: Yeah, Jimmy. There is a little season, as you pointed out. There tends to be a little seasonality in our fiduciary balances. Q1 and Q4 tend to be seasonal lows, modestly. So that would explain that. In terms of outlook, we'll see what happens to the rate environment. The fiduciary interest income is going to be a function of balances and rates. And we've got about $11.5 billion of balances. So depending on what you want to assume for the trajectory of rates, the math is pretty straightforward.
spk15: Thank you, Mark. And thank you, Jimmy.
spk09: Andrew, next question, please. And our next question comes from the line of Elise Greenspan with Wells Fargo.
spk20: Thanks. Good morning. My first question was on the margin guidance. You guys said more margin expansion in the back half of the year. What's driving that? Is there just more investment in the first half, more savings falling in the second half, or something else that's driving the seasonality within the margin expansion this year?
spk15: Good morning, Elise. We expect, again, good margin expansion in 2024. As you pointed out, Mark noted, we expect the second and a half to be better than the first half. We have some expected headwinds, not really seasonality, but really driven from a higher merit pool a year ago, some acquisition-related costs, and some higher reimbursable expenses. But I want to remind everybody, not to focus on any one particular quarter. Again, margins outcome of really how we run the business, and it's not a primary objective of ours. Again, having said that, we see opportunity for margin improvement, continued margin improvement, but we're going to continue to make attractive investments to support the medium to long-term growth of the business. We have a number of different efforts underway ongoing workflow and automation efforts at Mercer and Guy Carpenter. And, you know, we continue to press for opportunities to improve efficiency at the intersections of our businesses as well. So we see opportunity, and as we pointed out, we expect the second half to be better than the first. Do you have a follow-up, Elise?
spk20: Yes, thanks. And then my second question – Marsh recently launched its wholesale venture, Victor Access. I know it's early days, but what was the impetus for this strategy? And is there any reason why the majority of the wholesale risk currently placed by Marsh with third-party wholesalers couldn't potentially be internalized through Victor over time?
spk15: So, you know, let me be clear, Elise. We're not looking to build a third-party wholesale business. There's obviously been considerable growth in the wholesaler to ENS market over the course of the last several years. We want to bring the best solutions in the marketplace to our clients. Generally, we're preferring admitted solutions for our clients. Not that there aren't good things that happen in the ENS market. Of course, there are. Innovation is one of the areas where the ENS market is important. But we want to access as much of that ENS market directly. We actually access... most of our ENS market solutions directly today. But, you know, we want to continue to press and make sure that we can access as much of that market directly. So it's client-driven. It's about us managing the client outcomes, client experiences really as directly as possible. You know, having said that, we'll continue to use wholesalers for niche expertise. They serve us very well and our clients very well. In those cases, they also have strong program businesses as well. So anyway, that's what it's about. It's just, again, making sure we can directly access as much capital directly as possible for our clients.
spk10: Thank you for that. Andrew, next question.
spk09: Our next question comes from the line of Greg Peters with Raymond James.
spk06: Good morning, everyone. I'd like to pivot to, for the first question, pivot to the consulting business, which had a nice quarter. Wondering if you can provide some additional color around how the different pieces are moving. I know, you know, some of the management consultants have pre-announced that they're going to be cutting staff this year. Not really seeing any signs of weakness in your pipeline, but maybe you could give us some color because it forecasting this out seems to be a little bit of a black box.
spk15: Okay. Thanks, Greg. Yeah, we are very pleased to the start to the year. As you recall, of course, Oliver Wyman had a slow start to the year in 2023, had a nice year overall of growth. There's going to be a bit more volatility to revenue growth at Oliver Wyman, but we also expect better growth on average from Oliver Wyman over the over the medium to longer term. Nick, maybe you can share with Greg some color on demand in the first quarter.
spk00: Thank you, John, and thank you, Greg. Yeah, 13% is a very pleasing start to the year. It makes a marvelous headline, and we're very, very proud of a good start on what, as you noted, is a tough environment for many in our profession. John's already given the caution about taking the two-year view. We also probably benefited from a few little timing benefits of things that might have shown up in Q2, might have shown up in Q1. And we still very much give guidance that through the cycle, this should be a mid to high single-digit business. And you noted that the sort of forecasting it out is a tricky challenge. That is true because we have a relatively short backlog. The nature of our work is such that when clients need assistance, they need it quickly. And so we are always ready to move very, very nimbly. To give you a little bit more color, we grew pretty strongly across all the four regions of our management consulting business. And our economic research business Nira also grew very strongly. fastest in the Middle East, but in the double digits or very close to the double digits in all three of the other major regions we have. And sectorally, it was also fairly broadly spread. Our communications, media, and technology team grew well. Healthcare grew well. Banking. Seeing a rebound in private capital work, which I've noted on previous calls, has been pretty robust even in the face of obviously a very much lower deal market, but our work on portfolio company performance has helped us there, and insurance also growing, and quite broadly across the capabilities that we bring to bear as well. So we think we're in a good position. We're very confident we've gained share over the last few years, but it's a tough consulting environment, and our pipeline indicates that that mid to high single-digit growth environment, growth forecasters, how we think about this business through the cycle.
spk15: Thank you, Nick. That's very helpful. And Greg, maybe I'll ask Pat Tomlinson also to share some thoughts just on the first quarter at Mercer, given our consulting operations there. And Pat, while you have the floor, as I mentioned, obviously you're joining this call for the first time. Maybe you could talk a bit about your priorities at Mercer.
spk02: Sure. Thanks, John. Yes, we are... Pleased with our Q1 2024 underlying growth, as mentioned earlier, of 6%. It was our 12th consecutive quarter with 5% or more growth, especially the breadth across the practices. Health, another impressive quarter with 10% growth in Q1. That growth was really with double-digit growth nearly across all regions. And it comes on the back of investments in hiring new talent, focused on thought leadership, creating digital tools, and really focusing in on client segmentation, trying to match client healthcare needs based upon industry segment size with the innovative and adaptive solutions that we have. So really trying to meet clients where they are. We certainly benefited from strong retention. We had good renewal growth, insurer revenue, and medical cost inflation has an impact there. We see significant demand for digital solutions and the innovative benefits that are kind of underscoring the value that we're providing to clients. If I pivot over to wealth, we grew 5% in Q1. There was good, balanced, equally strong performance in DB&A and IMS. We see DB plans funding statuses continue to benefit from elevated interest rates. that's driving an increase in risk transfer over the last couple of years, as well as we have some regulatory requirements and demands that are creating some project work. If you add in some volatile capital markets, it's driving strong demand for both our actual and our investment solutions business. Speaking of investment solutions, in OCIO, we benefited from some transactions in Westpac and Vanguard. Mark mentioned that earlier. But also good net new inflows and capital markets provided us some revenue left in Q1. From a career perspective, growth was muted to 1% for the quarter, but we're following a period of strong growth over the past several years, including a challenging 12% comparable last year. The growth was strong in internationals, very broad across all practices and regions. We did see, as was mentioned, some softness in U.S. career growth, specifically in rewards in the transformation space, as I would say clients are starting to navigate some of the macro conditions. So let me highlight the career practices coming off that very long period of high growth, as I mentioned, double digits for the past eight quarters, driven in large part, I would say, by inflation and employee attrition. If we all remember the great resignation back coming out of the pandemic, which drove a lot of labor shortages and and really created a lot of demand for projects with clients as they were trying to think about the rewards and how to pay people to keep them retained, the skills that they might need if they had to pivot because they didn't have the right resources, and also starting to think about transformation as they were having less resources to work with, and there was innovation in technology, as we've all talked about, AI, in the past, and helping clients through those. So certainly, I think, from that perspective, we feel... We feel good that there's good breadth of our solutions and demand in the market as we go ahead and fill those needs. John quickly asked me to talk a little bit about how I think about the business and the priorities too. So, you know, obviously my first call on April 1st, I got to step in and begin this opportunity of a lifetime leading Mercer and our 21,000 colleagues from around the world as we are focused on creating brighter futures for our clients and for their people. I am extremely humbled and honored to be the CEO of this fantastic firm. And personally, I really want to thank Martin Verland for a very smooth transition and for the growth momentum and culture that she helped create here. Priority-wise, I want to accelerate that momentum from the impact that we're having to clients to the fantastic careers we build for colleagues here, the collaboration amongst our colleagues across Marsh McLennan. We can leverage new technologies. and we perform really purpose-driven work and can have a positive impact on our communities as well. I think we're very well positioned as we've been repositioning ourselves over the last several years, reshaping our portfolio. Mark mentioned the divestitures. We've been divesting admin practices. We've been building capabilities and reach and global benefits in OCIO. We've been accelerating acquisitions, and we're really just creating more value for clients at scale, and that's what we've been focused in on. So I'm very optimistic about our future.
spk15: Thank you, Pat. We're excited to have you at this table. Greg, do you have a follow-up?
spk06: I do. Thanks for the detail on that answer. I want to pivot to M&A, and specifically, Mark, I think you mentioned the interest expense outlook for the company, and we note the higher interest rate cost of the debt that's being issued versus that which is being paid off. So I'm curious if there's been any follow through on those higher costs in the terms of valuation of transactions that you're looking at. And I'm also curious if there's any valuation difference between larger properties versus smaller properties that you're looking at in the M&A market. Thank you.
spk15: Yeah, thanks, Greg. You know, what I would say is we remain quite active in the market. There's a, you know, a good, we have a good strong pipeline as, you know, I've talked about in the past. We have an excellent reputation for in that marketplace, you know, as being a good owner as well. So, you know, we're excited about the deals we did in the first quarter. And, you know, again, we're going to continue to remain active in the market. I think valuations have remained stubbornly high, I would say, on the other side of things. And while, you know, we might expect that for top quality assets, I would also point out that, you know, some lesser quality assets have traded at some very, very high multiples of late. And so we're going to be picky. We're looking for well-led businesses with real strong growth fundamentals that make us better and are a good cultural fit for our organization. We've been very successful at it. And again, as Mark pointed out, we expect to continue to deploy capital in the market going forward.
spk10: Thank you, Greg. Andrew, next question, please.
spk09: And our next question comes from the line of Michael Zaremski with BMO Capital Markets.
spk07: Hey, Greg, good morning. Probably for Mark on the margins and the expense buckets. If I look over the last year plus, the margin improvements come much more so from the general and other bucket rather than Comp and Ben. It looks like it flipped a little bit in our relationship this quarter, if I'm correct. Anything changing there given the expense management programs or just in terms of how we should think about where the margin improvement is coming from on a go-forward basis?
spk14: Thanks, Mike. Mark, do you want to?
spk18: I think it's a great question. It's a great point that you're making, and I think it reflects the strategy of the company. We've said we continually invest in positioning ourselves for the future. And over the last several years, we've talked about the heavy investments we've made organically in talent. And so I think we've done a terrific job really being thoughtful about all of our other operating expenses, functional costs, how we're leveraging things across the firm, T&E, Really, some of the gains we made in the pandemic, we've harvested them. So as you point out, a lot of our margin expansion over the last five years has come from being really disciplined on things far away from the client and investing heavily in client-facing talent. And so I think that is a factor in our growth. And I think also as we look forward, there's going to be leverage in those investments, which is why we're optimistic about margins going forward.
spk05: Thank you, Mike. Okay. Do you have a follow-up?
spk07: Yeah, quick follow-up. And I know you gave a lot of commentary on kind of commercial primary insurance pricing power. You told us the March index declined a bit. Just curious if you can offer any more context. You know, 1% kind of feels like a soft market number. You know, what is it, you know, are you seeing just, you know, returns on behalf of your carrier partners being kind of excellence that's kind of driving the, you know, pricing power downwards in light of kind of what still seems like inflationary trends or just any more color there on kind of what's causing the desal. I know you gave us by line commentary too, so I don't know if there's a lot more to add.
spk15: Yeah. You know, Mike, I would say that it doesn't feel like a soft market to our clients. You know, after five years of of price increases. As I noted, our index skews to larger accounts where there's a bit more volatility typically throughout the cycle. I expect cycles to be shorter and narrower than what they've been in the past. There's better data, better technology on the underwriting front. Capital moves so much more quickly in and out That's part of the ENS market dynamic that you all have observed over the course of the last several years. So I expect kind of more relative stability. And from time to time, of course, certain areas of risk, things will change in some meaningful way. And that will maybe bounce a particular product outside of a normal cycle. you know, and reinsure underwriting results have improved in the aggregate over the course of the last couple of years. And, you know, I think most feel good about how their book, how their portfolios are positioned. It's not all one result, of course, you know, we saw some reserve additions in the fourth quarter results, you know, overall. And, you know, as I mentioned on our call in the first quarter, you know, the great unknown is casualty loss costs, right? There's lots of emerging data that's troubling for our entire ecosystem, for our client, and it contributes to that rising cost of risk that I mentioned earlier. I maybe should also point out, and Dean touched on this a little bit, that our index adjusts for limit, exposure, attachment point, and it includes new business. You see some other indices that are out in the market that don't necessarily adjust for all those factors. And maybe the last point, Mike, that I would make is that that number doesn't necessarily correlate directly with what the premium growth is in the market, right? Because at the end of the day, you might have less of an increase. You might have certain clients buying more. I think that's most prevalent in the reinsurance market at the moment. But we're seeing that in some cases at March as well, where clients, again, having adjusted to the new market pricing and new market equilibrium has led to a higher level of demand for coverage from our clients. So anyway, I hope that's helpful. Andrew, next question, please.
spk09: Our next question comes from the line of Yaron Kinnar with Jefferies.
spk21: Thank you. Good morning. Two questions on Marsh and the market environment you're seeing there. And I think the first one maybe ties well to your last comments, John. Are you surprised to see casualty rates only up 3% just given the lost trends? I guess I'd love to hear your views both as the CEO of Marsh but also maybe as a former underwriter.
spk14: It's a...
spk15: you know, I actually, you know, it's very, very hard, you know, right now, as I mentioned earlier, you know, there's some troubling data points, right? And thrown in, you know, in the mix of the last several, you know, accident years, of course, you know, a couple of years of the impact of the pandemic, right? And so, you know, just on the clients where, you know, we've We help them, larger clients with big risk management programs that have a level of frequency. It's very, very difficult to project where lost costs are. But as I said, the underwriting community is better than it's ever been. They have better data, better technology. But there, again, are some troubling signs. It's not just increased frequency. It's not just kind of nuclear verdicts. That term gets kind of thrown around, or even some of the bigger settlements. There's a frequency of larger events. See the Francis Scott Key Bridge as an example. That'll be a big loss in the market. Maybe not as much a casualty loss, but a big loss in the market. But even in commercial auto, and you've certainly seen you know, that play out in the personal lines, auto market, just, you know, kind of more frequency type events, just costing more to get resolved. And so we're putting our efforts to, you know, helping our clients think through how to better run off liabilities that they assume and even transfer into the market. And the insurers are investing quite a bit, you know, in their claims capabilities as well to try to get ahead of this. But, you know, I think we're all pointing to, again, some... flashing yellow signals out there about the rising costs overall. Do you have a follow-up?
spk21: Yes, I do, and thanks for the caller there. So in Marsh, organic obviously was strong, and then we certainly saw a very nice result in U.S. and Canada. I guess the only place I could maybe poke a little bit if I were to try would be Asia-Pacific, where we saw a step down. Is there a timing issue there with some one-offs? I know you had a very, very strong 1Q23 there, but anything you could point to in terms of the organic results in Asia Pacific would be helpful.
spk15: Yeah, no one-offs or major issues there. Just on top of a couple of years of very, very good comps and strong growth. We love how we're positioned in Asia. Big protection gaps throughout Asia. We have really strong in-country operations all throughout the region. So we're not just a regional center. We're in-country and working very, very closely with our clients there. As we've said to you in the past, I wouldn't look at any one particular quarter. And again, it's on top of what's been some outstanding growth in Asia over the last couple of years. So we feel good about where we're headed in Asia overall.
spk10: Andrew, next question, please.
spk09: Certainly. One moment, please. Our next question comes from the line of Meyer Shields with KBW.
spk19: Great. Thanks. I was hoping to discuss the competitive environment in RIS, maybe from two perspectives. First, I'm wondering whether there is a difference in the market share gain potential when you're in a rising rate environment and The enormously fragmented brokerage world includes a lot of companies that just don't have the resources to help clients manage higher insurance costs as successfully as a company with Marsha's resources. How much of a difference does that make?
spk15: It's a good question, Meyer. We're very, very focused on trying to bring scale benefits to all of our key stakeholders, including our colleagues. We want them, when they work here, We want them to feel like they have nearly 90,000 folks helping support them with learning and development, data and analytics, market access that you might not have should you choose to work somewhere else in our industry. So we certainly think about it from the colleague perspective, we think about it from the client perspective, and we think about it from an investor point of view as well. What I would say from a client perspective, broadly speaking, Again, this is maybe a bit more upmarket than some of the fragmented segments that you talked about before. Our clients are more risk-aware than they've been in the past. I think we have had a role to play in that in trying to make them more risk-aware of some better risks. And again, recent events have certainly helped heighten that. But it's incumbent upon us to bring those scale benefits to the market. And not just scale benefits in terms of data analytics or market access, but different types of solutions. You know, I mentioned earlier our captive business. We're the largest captive manager in the world. And that's been a meaningful outlet for our clients to manage risk and, you know, the rising rate environment over the course of the last several years. So, yes, scale matters. I would also tell you that it plays a role For some of the sellers in the market, you know, as well, as we talk through with potential M&A targets, you know, why they may look to sell at the moment. At times, you know, it's regarding, you know, scaled-up type capabilities that we have that, you know, are difficult for them to replicate. And so, as I said earlier, we're looking for well-led businesses with really solid growth fundamentals, but we know we can make them better too. And that's, you know, that's the exciting part for us. Do you have a follow-up?
spk19: I do, but I want to thank you for that. That was very thorough. When we look at the parts of the brokerage market that are more concentrated here, I guess I'm thinking reinsurance or Fortune 100 type accounts. In your view, is the competitive, are competitors fighting at full strength? Are they all Is competition right now as intense as it normally is, or are there any differences from longer-term norms?
spk15: In both of the segments you mentioned, it is a highly competitive market, and we love competition. There's nothing that gets me more fired up than getting out in front of clients and, of course, winning, ultimately. And our team is the same way. We're passionate about the value that we try to deliver to our clients. And so, you know, as I mentioned earlier, we're collaborating more than ever. And in those particular segments you mentioned, I think it's been particularly meaningful, you know, over the course of the last year or so, you know, our efforts to bring a broader set of capabilities to that client set. But no, it's, you know, it's a very, very competitive market and we welcome it. You know, it makes us better. Thanks, Meyer. Andrew, next question, maybe the last one.
spk09: Our next question comes from the line of Robert Cox with Goldman Sachs.
spk22: Hey, thanks. In the prepared remarks, there were some comments on healthcare costs continuing to rise. I was hoping you guys could talk about what you're seeing there and maybe parts of the business, maybe between brokerage and consulting that are generating the strongest organic growth in that 10% organic in health.
spk15: Sure. Thank you, Robert. Healthcare and the healthcare industry is a big part of our business overall and I don't think it's any secret that medical inflation and healthcare related cost inflation is a major pressure point for our clients in many markets really around the world. It's been a big driver of growth for us and we continue to invest in it. I talked about in my prepared remarks some of the collaboration between Marsh and Mercer to try to bring some relief to an angle of cost pressure in that marketplace. But Pat, maybe you could talk about the growth we're seeing and some of the cost inflation as well.
spk02: Sure. So the way that healthcare inflation impacts the business varies based upon the area of the world that we're in. In certain areas of the world, we're predominantly fee-based. It's a more large market. That would predominantly be from a Mercer perspective inside like the U.S. and some of our more mature, larger markets. And then in a lot of the markets, we are a little bit more brokerage-based to where it's based that way. But let me be clear, even the spots where we're fixed fee, healthcare inflation drives significant increased cost to clients. So it does create a lot of, it creates demand for work for us, a lot of project work. So we will see projects out of that healthcare inflation. It's not necessarily directly driven that way. And even if there's healthcare inflation in the other areas where it's brokerage, it's not a linear type activity from a commission perspective because once that cost is flowing through to the client P&L, we're always out there doing plan redesigns. for a client to help make sure that that full cost of healthcare inflation is not flowing through their P&L, right? Because that's one of the larger costs that they don't control themselves based upon the activity that they've had. So that's really where a lot of the inflation helps us. Part of it is increased activity and project work. Occasionally it does create higher rates that flows through in brokerage, but many times those higher rates, we're still doing plan design with the client to try and mitigate the impact that is going to have on the client P&L, even in a spot where it's straight commission-based brokerage, we're trying to mitigate those costs.
spk15: So rising health and benefit costs in a tight labor market, you know, again, is a pressure point. And another example of where, again, we can bring scale and a broader set of capabilities to the market that, you know, our clients appreciate. Do you have a follow-up, Robert?
spk22: Yeah, very helpful. Thank you. Maybe just last question. On the wealth segment, correct me if I'm wrong, but I think last year, probably the pension business was growing stronger than your investment business. Did that occur as well in the first quarter here, or were both of them kind of similar to the 5% organic growth that was achieved in wealth?
spk15: Yeah, we had good, solid growth across investment management and defined benefits. As Pat mentioned, our DB business and this period of elevated interest rates has seen a bit more growth than we expected over the course of the last couple of years, but good growth in our OCIO business and our broader set of consulting capabilities inside of our investment business. So, yeah, we felt good about that. Thank you, Robert. Andrew?
spk09: Thank you. I would now like to turn the call back over to John Doyle, President and CEO of Marshall McLennan, for any closing remarks.
spk15: All right. Thank you, Andrew. And I want to thank everyone for joining us on the call this morning. In closing, I want to thank our colleagues for their hard work and dedication. I also want to thank our clients for their continued support. Thank you all very much, and I look forward to speaking with you again next quarter.
spk09: This concludes today's conference. Thank you for participating, and you may now disconnect.
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