Marsh & McLennan Companies, Inc.

Welcome to Marsh McLennan's earnings conference call. Today's call is being recorded. Fourth 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 Marsh McLennan website. During the call today, we may also discuss certain non-GAAP financial measures. For a reconciliation of these measures to the most closely comparable GAAP measures, please refer to the schedule in today's earnings release. If you have a question, please press Star 1-1 on your touchtone phone. If you wish to be removed from the queue, please press Star 1-1 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 1-1 on your touchtone phone. I'll now turn this over to John Doyle, President and CEO of Marsh McLennan.

Good morning, and thank you for joining us to discuss our fourth quarter and full year 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 Klosura of Guy Carpenter, Pat Tomlinson of Mercer, and Nick Studer of Oliver Wyman. Also with us this morning is Jay Gelb, who recently joined Marsh McLennan as our new head of investor relations. Many of you know Jay from his time as an equity analyst covering the insurance industry. Before I discuss our results, I want to take a moment to comment on the California wildfires. These events represent a profound human tragedy. Lives have been lost, and tens of thousands of people have been left homeless and hurting. Among those affected are Marsh McLennan colleagues and clients in the Los Angeles area, and our company is committed to doing everything we can to support them during this challenging time. With regard to the wildfires impact on the insurance industry, insured losses are expected to exceed $30 billion. This means the LA wildfires will be among the top 10 largest natural disasters in history in terms of insured losses. The increasing frequency and severity of natural disasters, along with rising property values and continued development in catastrophe-prone areas, underscore the need for greater resilience and risk mitigation planning. Marsh McLennan will continue to bring together stakeholders, including individuals, businesses, the insurance industry, and governments, to build the resilience to mitigate the devastating impact from these catastrophic events and to accelerate recovery. Turning to our results, 2024 was a milestone year for Marsh McLennan. We executed against our strategic objectives, generated excellent financial performance, and had the largest year of acquisitions in our history. Total revenue grew 8% to $24.5 billion. We generated 7% underlying revenue growth, continuing our best stretch of growth in more than two decades with both risk and insurance services and consulting delivering strong results. Our adjusted operating income grew 11% to $6.2 billion. This is on top of 17% growth in 2023. Our adjusted operating margin increased 80 basis points, marking the 17th consecutive year of reported margin expansion, and adjusted EPS grew 10%. In addition to another year of excellent financial performance, we continue to execute on our key priorities. We had a record year of M&A by investing $9.4 billion in acquisitions, including our $7.75 billion acquisition of McGriff. We also delivered significant capital return to shareholders, raising our dividend by 15% and completing $900 million of share repurchases. And we successfully completed our restructuring program, achieving the goals we set two years ago, accelerating client impact, reinvesting in our capabilities, boosting efficiency, and increasing collaboration across the firm. Let me touch briefly on our acquisition of McGriff, which closed on November 15th. McGriff has great momentum, and I couldn't be more excited to have them join Marsh McLennan Agency. Our integration is proceeding according to plan, and although it's early days, our fundamental outlook remains the same. As I said when we announced the transaction, it's a business with excellent leadership, outstanding talent, and a record of strong growth. The addition of McGriff also extends our presence and capabilities in the growing middle market. It's worth noting that MMA would be the fifth largest broker in the United States on a standalone basis. In addition to McGriff, we completed several other notable acquisitions, including two top 100 agencies in MMA, as well as Vanguard's OCIO business and Cardano in Mercer. As we start the new year, I want to take a moment to give you an update on our strategy. First and foremost, we are a growth company that is well-positioned globally in market-leading businesses with significant opportunities. We strive for outstanding year-term results while also investing to sustain our strong performance over the long term. We consistently reinvest the significant portion of our cash flow into organic investments, particularly in talent, technology, and capabilities. Innovations like Centrisk, BlueEye, LenAI, and other digital tools are examples of how we are delivering value for our colleagues and clients. Investing in data and insights enables us to work smarter on behalf of our clients, helping them gain the perspective needed to pursue their ambitions. We also maintain a balanced approach to capital management. We look to maintain financial flexibility as we manage the efficiency of our capital structure. We have a bias to reinvest the capital we generate into high-quality acquisitions. However, we also recognize that returning capital to shareholders delivers meaningful value over time, and each year we target raising our dividend and repurchasing enough stock to reduce our share count. A focus on high-quality acquisitions is also an important part of our growth strategy. Over the past decade, we've invested approximately $24 billion in M&A across more than 200 transactions that have accelerated our growth at attractive returns. These acquisitions extend our reach, enhance our capabilities, and boost our scale. The growth plans of our businesses remain at the core of our strategy. At the same time, we're working together better than ever to capture opportunities at the intersections of our businesses, and we constantly challenge ourselves to operate more efficiently. We've expanded our operating margin by over 900 basis points in the past decade, and we've improved our margin by nearly 500 basis points in the last five years alone. This has been achieved primarily through increasing efficiencies in other operating expenses while continuing to grow our talent base. Despite these gains, we still see opportunities for further improvement. While the core tenets of growth, discipline, and balanced investment will continue to underpin our strategy, we are constantly evolving to deliver greater value to our clients and all of our stakeholders. Turning to insurance market conditions, the global insurance and reinsurance market remains dynamic. At nearly $130 billion, 2024 was the fifth consecutive year of more than $100 billion of insured natural catastrophe losses. Despite an elevated risk landscape, the Marsh Global Insurance Market Index decreased by 2% in the fourth quarter compared to a 1% decline in the third quarter. As a reminder, our index skews to large account business. Overall, rates in the U.S. were flat. Latin America was up low single digits. Europe, UK, and Asia were down low to mid single digits, and Pacific was down high single digits. Global property rates declined 3% compared to down 2% in the third quarter. Global casualty rates increased 4%, with U.S. excess casualty up approximately 15% in the quarter. Workers' compensation decreased mid single digits, Global financial and professional liability rates were down 6%, while cyber decreased 7%. In reinsurance, underwriting discipline persisted, particularly on program retentions. Capacity increased at a more significant pace than client demand. In global property cat reinsurance, accounts not impacted by loss saw risk-adjusted rates down 5% to 15%, while risk-adjusted rates for loss-impacted accounts were flat to up 30%. Casualty renewals were completed with varying outcomes. Excessive loss placements continue to face pressure on treaty terms. Quota shares were more stable with sufficient capacity, while seating commissions were flat to slightly down. Turning to health trends, our surveys indicate medical costs are expected to increase 11% on a global basis in 2025. This would be the fifth consecutive year of at least a 10% increase. On a regional basis, the pace of anticipated increase is 8% in North America, 9% in the Pacific region, 10% in both Europe and Latin America, 11% in the Middle East and Africa, and 13% in Asia. For employee-sponsored health plans in the US, the total health benefit cost per employee is expected to rise 5.8% on average in 2025, after accounting for planned cost reduction measures. This would be the third consecutive year of cost growth around 5%. As always, our focus is on helping our clients navigate these dynamic market conditions. Now let me turn to our fourth quarter financial performance, which Mark will cover in more detail. We are pleased with our fourth quarter performance, where growth remained strong and solid earnings capped another terrific year. Revenue grew 7% on an underlying basis, with 8% growth in RIS and 6% in consulting. We had adjusted operating income of 9%, and we generated adjusted EPS in the quarter of $1.87, which is up 11% from a year ago. Turning to our outlook for 2025, we are well positioned for another strong year. We currently expect mid-single-digit underlying revenue growth, including an anticipated headwind from fiduciary income, along with continued margin expansion and solid adjusted EPS growth. Our outlook assumes current macro conditions persist. However, the environment remains uncertain and the economic backdrop could be materially different than our assumptions. In summary, we are pleased with our performance in 2024. We executed against our strategic objectives and continued our track record of delivering strong results. With that, let me turn it over to Mark for a more detailed review of our results.

Thank you, John. Good morning. Our solid fourth quarter results reflected continued momentum and capped an excellent year with strong underlying revenue growth, double-digit growth, and adjusted EPS. Our consolidated revenue increased 9% in the fourth quarter to $6.1 billion, with underlying growth of 7%. Operating income was $1.1 billion, and adjusted operating income was $1.3 billion, up 9%. Our adjusted operating margin was 23.3%. Gap EPS was $1.59. Adjusted EPS increased 11% to $1.87 and included a 5-cent benefit from favorable discrete tax items and a 2-cent headwind from foreign exchange. For the full year, underlying revenue growth was 7%, adjusted operating income grew 11% to $6.2 billion, adjusted VPS grew 10% to $8.80, and our adjusted operating margin expanded 80 basis points to 26.8%, marking our 17th consecutive year of reported margin expansion. 2024 was also a record year for capital deployment. We invested $9.4 billion in acquisitions, the largest year in our history. We also raised our quarterly dividend 15% and bought back $900 million of our stock. Looking at risk and insurance services, fourth quarter revenue was $3.6 billion, up 11% or 8% on an underlying basis. Operating income in RIS increased 2% to $770 million. Adjusted operating income increased 13% to $893 million, and our adjusted margin was 27%. For the full year, revenue in RIS was $15.4 billion, with underlying growth of 8%. Adjusted operating income increased 13% to $4.6 billion, and our adjusted operating margin increased 70 basis points to 32%. At March, revenue in the quarter was $3.3 billion, up 15% from a year ago, or 8% on an underlying basis, reflecting continued growth across our regions, as well as a rebound in transaction risk products and claims activity in our torrent flood business. This result marks the 16th consecutive quarter of 6% or higher underlying growth at March. In U.S. and Canada, underlying growth was 8% for the quarter, In international, underlying growth was 9%, with Latin America up 13%, PMEA up 9%, and Asia Pacific up 6%. For the full year, Marsha's revenue was $12.5 billion, with underlying growth of 7%. U.S. and Canada was up 7%, and international grew 8%. Guy Carpenter's revenue in the quarter was $201 million, up 7% on an underlying basis, driven by growth across our regions and global specialties. For the year, revenue was $2.4 billion, representing 8% underlying growth, Guy Carpenter's fourth consecutive year of 8% or higher underlying growth. In the consulting segment, fourth quarter revenue was $2.4 billion, up 6% on both a gap and underlying basis, Consulting operating income was $466 million, and adjusted operating income was $484 million, up 1%. Our adjusted operating margin in consulting was 20.7%, compared to 21.3% a year ago, reflecting seasonality in the impact of acquisitions and dispositions. For the full year, consulting revenue was $9.1 billion, with underlying growth of 6%. Adjusted operating income increased 6% to 1.8 billion, and our adjusted operating margin increased 30 basis points to 20.7%. Mercer's revenue was 1.5 billion in the quarter, up 5% on an underlying basis. This was Mercer's 15th consecutive quarter of 5% or higher underlying growth and continues the best run of growth in over 15 years. Health underlying growth was 5% in the quarter, reflecting growth across all regions. Wealth was up 4%, led by growth in investment management. Our assets under management were $617 billion at the end of the fourth quarter, up 13% sequentially and up 47% compared to the fourth quarter of last year. Year-over-year growth was driven by our transactions with Cardano and Vanguard, positive net flows, and the impact of capital markets. Career increased 7%, driven by growth in talent and rewards, surveys, and products. For the year, revenue at Mercer was $5.7 billion, an increase of 5% on an underlying basis, the fourth straight year of 5% or higher underlying growth. Oliver Wyman's revenue in the fourth quarter was $954 million, an increase of 7% on an underlying basis. This reflects growth across all regions and businesses and was achieved despite a tough comparison to 9% growth in the fourth quarter of last year. For the full year, Oliver Wyman's revenue was 3.4 billion, reflecting underlying growth of 6%. Fiduciary income was $112 million in the quarter, a decline of $26 million from the third quarter, reflecting lower interest rates. Looking ahead to the first quarter of 2025, We expect fiduciary income will be approximately $100 million. Foreign exchange was a $0.02 headwind in the fourth quarter and a $0.05 headwind for the full year. Assuming exchange rates remain at current levels, we expect FX will be a headwind of $0.04 in the first quarter and $0.09 for all of 2025. Turning to our McGriff transaction, we closed the deal in mid-November, and as John mentioned, the integration is going well. McGriff is a terrific business, and we are excited about what they bring to MMA. In November, we issued $7.25 billion of senior notes to fund the transaction. The first quarter is McGriff's seasonally smallest from a revenue perspective, so for Q1, we expect McGriff will be modestly diluted to adjusted EPS. However, I want to emphasize that we continue to expect McGriff will be modestly accretive to adjusted EPS for full year 2025, becoming more meaningfully accretive in 2026 and beyond. We expect noteworthy charges associated with McGriff of approximately $450 to $500 million in total over the next three years, with the vast majority of these costs associated with retention incentives, a significant portion of which was put in place by the seller. These costs flow to our financial statements, but were funded by the seller through a purchase price adjustment. Also note that we will exclude McGriff from our underlying growth calculations for the first year, as is our convention. Total noteworthy items in the quarter were $154 million, including $136 billion of restructuring costs, primarily related to the program we began in the fourth quarter of 2022. Interest expense in the fourth quarter was $231 million, up from $151 million in the fourth quarter of 2023. This increase reflects higher levels of debt, as well as $26 million of bridge financing fees associated with the McGriff transaction. Based on our current forecast, we expect interest expense in the first quarter of 2025 of approximately $246 million. Our adjusted effective tax rate in the fourth quarter was 21.1%, compared with 25.5% in the fourth quarter last year. For the full year of 2024, our adjusted effective tax rate was 24.5%, compared with 24% in 2023. Excluding discrete items, our adjusted effective tax rate in 2024 was 25.8%, compared with 25% in 2023. 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 expect an adjusted effective tax rate of between 25% and 26% in 2025. Turning to capital management in our balance sheet, we ended the year with total debt of $19.9 billion. Our next scheduled debt maturity is in the first quarter of 2025, when $500 million of senior notes mature. Our cash position at the end of the fourth quarter was $2.4 billion. Uses of cash in the quarter totaled $8.5 billion and included $403 million for dividends and $8.1 billion for acquisitions, including the GRIF. For the year, uses of cash totaled $11.8 billion, including $1.5 billion for dividends, $9.4 billion for acquisitions, and $900 million for share repurchase. Looking to 2025, based on our outlook today, we expect to deploy approximately $4.5 billion of capital across dividends, acquisitions, and share repurchases. The ultimate level of share repurchase will depend on how the M&E pipeline develops. As we discussed last quarter, beginning in the first quarter of 2025, we will exclude the impact of acquisition-related intangible amortization and the other net benefit credit from adjusted EPS. We've provided tables in our fourth quarter earnings relief and recast adjusted operating income and adjusted EPS for the past eight quarters on this basis. Turning to 2025, as John noted, we remain positive in our outlook for growth. For 2025, we currently expect mid-single digit underlying revenue growth, margin expansion, and solid growth in adjusted EPS. This outlook contemplates anticipated headwinds from short-term interest rate declines, foreign exchange, and favorable discrete tax items in 2024. We expect these headwinds will have a more significant impact in the first quarter, which will also reflect a difficult revenue growth comparison versus a year ago. Overall, we are pleased with our performance in 2024. We have momentum across our business and are well-positioned for another strong year in 2025. With that, I'm happy to turn it back to John.