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.

Thank you, Mark. Andrew, we are ready to begin Q&A. Certainly.

We will now begin the question and answer session. 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 one one on your touch tone phone. And 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.

One moment, please. And our first question comes from the line of Elise Greenspan with Wells Fargo.

Hi, thanks. Good morning. My first question is on margin. So the margin was flat overall right in the fourth quarter. But earlier in the year, you guys had pointed to second half margin improvement being greater than the first half, which didn't transpire. So I'm just trying to get a sense of what went on with the margins in the second half. you know, relative to prior expectations and also, you know, specifically the fourth quarter.

Yeah, good morning, Elise. You know, I was pleased with our margin expansion for the year, 80 bps of margin expansion, our 17th consecutive year. You know, as we've talked about in the past, you know, from quarter to quarter, it will be different outcomes and really 17 consecutive years, you know, just says it's a reflection of our disciplined approach to the way we run our business and It's not a primary objective. Margins are an outcome of the way we run the business, and we're going to continue to make attractive investments. They're going to drive medium to longer-term growth in the company as well. The fourth quarter was impacted by FX. It was also impacted by acquisitions and divestitures, but it wasn't a disappointment. It was a good, strong year of margin expansion, and as we guided to for 2025, we expect it to be our 18th consecutive year you know, margin expansion. And, you know, we've got opportunities to continue to focus on the shared infrastructure across the company. We have some opportunities in operations. You know, we've got important workflow optimization efforts happening at Marsh, Mercer, and Guy Carpenter. And of course, automation is an important lever for us too. And, you know, as we learn and continue to test and experiment around AI, we see possibilities there as well. So, So, you know, we're quite optimistic about the possibilities looking forward and, you know, we're pleased with the outcome in 2024. Do you have a follow-up?

Yeah, my second question is on free cash flow. I know you guys typically haven't provided, you know, annual guidance, but the growth there was 4%, you know, in 24. I think when I, you know, look at the CAGR, right, over the past three years, it was, you both below double digits. So I'm not sure if there was anything in 24 that was impacted by McGriff, but anything you could provide just in terms of what impacted free cash flow in 24 and how we should think about growth, headwinds and tailwinds in free cash flow in 2025?

Yeah, I don't have a three-year cater in front of me, but I know we had north of 20% free cash flow growth in 23 and 4%, I believe, in 2024. It's obviously not going to attract you know, as a straight line or as consistently with earnings growth, but over time it will. You know, Mark, do you have anything to add there?

Yeah, Lee, free cash flow, we were really pleased with 4%, as John mentioned. We were up 28% last year, so kind of holding that and growing a little bit is not bad. And if you look over the last five years, we've doubled free cash flow since 2019. So that has been a very good story for us. Given the nature of our business, as we've talked about, you would expect free cash flow would track our earnings growth over time. And it certainly has over a long stretch with that double-digit growth in free cash flow. And as you pointed out, we don't typically give guidance because it can be volatile, you know, period to period, year to year. But over time, it will track and should track in line with our earnings growth. And as our guidance suggests, we have an outlook for earnings growth into the future. Thank you, Elise.

Andrew, next question, please.

Certainly. Our next question comes from the line of Jimmy Buehler with JP Morgan.

Hey, good morning. First is a question for Mark. I think you mentioned you expect organic growth of mid-single digits in 2025. I think previously you'd been saying mid-single digits are better, so I'm not sure if I'm reading too much into your comments or Is there a change that you're seeing in any aspect of her business that's making you adjust the language slightly?

Hey, Jimmy, it's John. Let me jump in front of Mark. First of all, I just want to talk about our strong finish to the year, 7% in the fourth quarter underlying revenue growth, terrific full-year revenue growth as well. And the strength was really broad-based in the quarter. Marsh, 8%. Guy Carpenter is a seasonally small quarter, but a really good finish to what was an excellent year at Guy Carpenter. Mercer above 5%, underlying growth again, and a better finishing career where, as you know, growth's been a bit soft over the course of the last year or so. And Oliver Wyman had a strong finish too where we're starting to see some demand pick up. The macros remain largely supportive of growth. Fiduciary income, as we mentioned, is the one real exception to it. But economic growth in most major markets remains resilient. Strong labor markets in most of the economies that we're exposed to. Of course, there are a lot of risks out there, big geopolitical risks, uncertainty around tariffs and potential trade wars. As I talked about, the frequency... of extreme weather impacts economies around the world as well, and then risks around technology and other areas. But those are areas that we help our clients and give them advice so that they can invest with a level of confidence. So we're optimistic about growth for 2025. I wouldn't read much into it. We feel like we're well-positioned. We continue to invest and shape the mix of our business. McGriff coming in and then admin businesses at Mercer, you know, going out in 2024, you know, would be a good example of our focus there. And so our team's highly engaged and, you know, we're executing well.

So we feel good entering 2025.

And just on McGriff, should we assume that it actually is a positive for your organic growth beyond 25, just given their market focus and the fact that they'll be part of a larger platform, so maybe they could do a little bit better than they might have done in the past or should not expect much of an impact on their or your growth as a result.

We're excited about McGriff. As Mark noted, from an earnings point of view, it'll be slightly dilutive to us or modestly dilutive to us early in the year, but accretive over the full year and more so in 26 and beyond. I talked about it so far so good in terms of the integration Culturally, things seem to be going well. McGriff's a business that we've admired for a long time as a competitor. We knew there were going to be a few big assets in the market in 2024, and McGriff was the business that we wanted. It doesn't just make us bigger. They make us better. They've got terrific talent and leadership, as I talked about. They've got some real specialty capabilities, and it extends our reach into the middle market where we're quite focused on bringing scale benefits to that segment of the market. So we're excited about McGrip.

Thank you.

Thank you, Jimmy. Andrew, next question, please.

Our next question comes from the line of Alex Scott with Barclays.

Hey, good morning. First one I have for you is on March. I just want to see if you could help us unpack the strong organic growth, I mean, just with rates in the U.S. being more flattish. I'm guessing most of that came from growth in the book. I was just interested if you had any comments on new business versus retention. Maybe just helping us understand the underlying dynamics where you're winning.

Sure, Alex. Again, really strong finish. I'll ask Martin to comment in a second here. We're really well positioned. In terms of rates, I would say we're most exposed to pricing through commission in the middle market. So, you know, it's a subset of our business overall. So it's an impact. It does have an impact, of course, pricing does, but we have a lot of fee-based business as well. You know, Mark commented on the notable pickup in M&A activity in the quarter. That certainly, you know, helped with growth in the quarter. And, you know, we see a more positive environment there going forward as well. But, Mark, maybe you could share a little bit more color on the broad-based growth that we had at March in the quarter.

Of course, John. So we had a great year in there, 24.7% on top of 8 in 23. Good balance of growth throughout the globe with international at 8 and US and Canada at 7. Looking at Q4, revenue was 8, which is a reacceleration from Q3. This signifies the 16th consecutive quarter of 6% or better underlying growth. US and Canada had a very good year. with growth of 7% consistent with a full-year underlying growth of 22 and 23. And for the fourth quarter, 8%, which was supported by improvement in retention and lost, as well as a better balance of recurring business. The U.S. business is also beginning to see some green shoots from deal activity from capital markets. However, we continue to see rate pressure on financial lines to offset that. International had a terrific year. underlying growth of 8%, 4% in the quarter, and consistently strong growth for EMEA, Latin America, for both the full year and the quarter. APAC continues to show some signs of moderation with solid growth at 5%. We've got great talent in all the markets. We've been investing well, extremely well positioned for the future. So we feel very good about that.

So, yes. Perfect. Thank you. It was a strong finish. Alex, do you have a follow-up?

Yeah, I do. The other question I wanted to ask you all is on the potential for M&A, IPOs, et cetera, to have the environment improve more activity. As I think across your businesses, can you help us think through the different ways that that benefits you? And is there any way you can help us frame you know, the kind of impact that that would have on organic growth if we do have, you know, a return of that kind of activity?

Yeah, we, you know, we're not going to report out, you know, separately around M&A or IPO activity, but we have important capabilities across the firm, you know, at Morris Mercer and Oliver Wyman in particular. Of course, Guy Carpenter's almost entirely focused on, you know, on the insurance industry, but, you know, we help with different levels of due diligence. We have a suite of products that can help facilitate transactions when there might be some, you know, terms that need to be settled between buyer and seller. So it's an important capability set that we bring to our clients. And, you know, it's obviously an important moment when a company is selling itself or divesting of a business. And then, of course, on the buy side, you know, meaningful investment. And so, you know, those are important moments where we can really distinguish ourselves and show the overall strength of our companies. So it's an important capability. As we noted, we saw a pickup in M&A activity in the fourth quarter. We'll see what 2025 brings. I know a couple of IPOs have been out in the market. I'm not sure I'm ready to declare some giant IPO year in 2025, but we'll see. It's an important capability and We distribute through a range of investors. We stay close to our corporate clients, of course, and spend a lot of time with law firms as well, again, to support our clients' efforts to invest. Thank you, Alex. Andrew, next question, please.

Our next question comes from the line of David Motemaden with Evercore ISI.

Hey, thanks. Good morning. I had just a question more prospectively just on the market. And obviously, the wildfire is still very early days. But I'm wondering if you guys are seeing any impact on both the primary and reinsurance property markets and what your outlook is there given an over $30 billion insured loss.

Yeah, thanks, David. Maybe I'll make a couple of comments and then I'll ask Dean and Martin to talk about what they're seeing in the market, which I think in highlight is not a lot in terms of market impact at this point. But as I noted in my prepared remarks, it's just absolutely devastating events in Southern California, and our focus is on helping our colleagues and our clients recover. It's going to be a long road back, and we're going to support them along the way. We're helping with relocation of families. beginning to think about claims prep and filing claims with insurers, you know, and then the rebuilding effort. And, you know, I would say that our exposure as a business is primarily as an advisor to high net worth homeowners. So it's a, you know, a limited view in that perspective and not overall that impactful to, you know, Marsh McLennan from a financial perspective. But as a major risk advisor, we certainly have something to say about the about the future and efforts to build back with greater resilience. And, you know, I would say, you know, reading lots of comments about, you know, how to support the fair plan or how to create subsidies for insurance, candidly, it's the wrong conversation. The conversation we should be having, you know, really is about building greater resilience into these communities rather than, you know, trying to find ways to subsidize insurance. That will lead to happier homeowners and residents of Southern California and other cap-prone areas over time. And of course, that conversation isn't limited to Southern California. So important steps need to be taken so that we're not in this same place, this sad and devastating place again sometime soon. But with that, Dean, maybe you could talk about you know, what you're seeing so far in the reinsurance market, and then we'll have Martin comment on the insurance market.

Thanks, John. And, you know, David, from a reinsurance perspective, you know, as John noted, we're first and foremost committed to supporting our clients as they navigate the complexity of this loss. You know, Guy Carpenter has formed a dedicated wildfire task force, you know, comprised of our best meteorologists, cap modelers, analytics, claims, colleagues, brokers, We're fully engaging with our clients to give them insights so they can better assess the magnitude of the loss. It's clear that many of our reinsurance clients will have losses resulting in claims to the reinsurance programs. As John noted, we've seen industry estimates expect the loss to exceed $30 billion, although we saw bigger numbers than that in the market yesterday being reported. The impact on the reinsurance market is uncertain at this time and will certainly depend on the ultimate magnitude of the reinsurance loss. But I would say, David, at this stage, the risk-adjusted rate reductions that we witnessed in January 1 could certainly be tempered moving forward as we go into the April 1 renewal season.

Thanks, Dean. Martin, any thoughts?

Yeah. Overall rates came down 2% in the fourth quarter. You have to put that in context. It's focused on a large account segment and it's gone up one and a half times since 2012. We did see some rate decreases in property book in the last quarter and slowdown across the world. It's really too early to say what this impact is going to have. It's not a big commercial event for our clients. I think we're going to have to wait and see. And our focus is really on making sure that our colleagues, our clients are there and we're providing the right advice for our high net worth clients as they think about resilience and building forward.

So not market hysteria, that's for sure. David, as you know, the California market was on, homeowners market was under real stress before these events. And so again, it just underscores the just a critical need to build better resilience into these communities.

So do you have a follow-up? I do, yeah, and thanks for that answer. So just switching gears to consulting and the health business within Mercer, Could you help me think through the underlying growth deceleration? I know the comp got a little bit more difficult, but I was surprised to see the 5% growth. I think it's the lowest it's been since 2021. And I know, John, you mentioned health costs still increasing. I think it was 11% was the expectation in 25. So could you help me think through the deceleration there and how you guys are thinking about growth as we go into 25?

Sure, David. I'll ask Pat to comment in a second. I would say we're not necessarily exposed directly to those cost increases that I spoke about in my prepared remarks. I was mostly raising those issues just around the critical nature of the advice that we provide to employers where you have employer-sponsored care or maybe supplemental care in other markets around the world outside of the United States. So obviously inflation and broader cost increases, you know, are a real source of stress for, you know, for employers around the world and for economies, you know, as well. And so, again, it just underscores the critical nature of the advice we provide. So, Pat, maybe you could talk about, you know, the results in 24 and a little bit of our outlook in health.

Sure. And thanks for the question. Listen, overall for Mercer, I just want to start that we're pleased with our Q4 underlying growth of 5%. It's our 15th consecutive quarter with 5% or more growth, and also really pleased that all of the practices are contributing to that growth. Full year results of 5%, I think, highlights the resilience and the consistency of our business during uncertain and volatile times, and really underscores the continued relevance that we have in our solutions in helping our clients. Now, specifically on the health, Health group 5% in the fourth quarter, as you highlight, 8% for the full year. I would say the performance was broad-based across regions, and it comes from a few different things. Continued hiring and new talent, our focus on thought leadership. John highlighted a few of the pieces during his opening around our national survey of employer-sponsored health plans, our 2025 health trends report, our people risk survey, and We've also been expanding the digital tools. We're now in 102 countries with those digital tools. And we've got a real focus on client segmentation to go ahead and make sure that we can match client healthcare needs with the innovative and tailored solutions we have based on large market, mid-market, global multinationals. We think we continue to see some tailwinds from continued high employment rates, regulatory changes, and then obviously medical cost inflation, all of which drives clients' focus on affordability and access to quality health care for their employers. And I think collaboration, as we've talked about before, across the firm continues to support our growth momentum. Now, from the quarter, I would say we can have some variability in any given quarter, including one-offs and timing, but we believe our full-year growth is much more reflective of our performance, which was the eighth. percent that I talked about. I think we maintain a positive outlook and anticipate our growth momentum will continue due to the strong value proposition we offer clients and that we have the thought leadership, the strong ongoing demand. John mentioned the various different pieces of our business and his tee up just now. Absolutely higher medical inflation drives up health and benefits costs for employers, right? So absolutely. Employers are facing elevated prices and combined with structural industry obstacles like labor shortages, like health system consolidation, and we definitely see continued demand for health expertise. But globally, our health revenue does have a balance of fixed fee and commission work. So I would say, generally speaking, we don't directly see the full impact of inflation and that medical inflation that John was talking about on our revenue, right? Either when it's in periods of high, like it's been in the last couple of years, or in periods of low. But at the same point, while not necessarily directly through higher commissions, higher medical costs and higher medical inflation absolutely drives client demand as we think about how we have to do fee-based plan design work and projects to try and help clients mitigate that cost escalation and the impact on their clients and on their colleagues.

Thanks, Pat. And I would note that Oliver Wyman does a lot of important work in the industry as well. So thank you, David, for the questions. Andrew? Next question, please.

Our next question comes from the line of Greg Peters with Raymond James.

Good morning, everyone. Can I go back to the comments on McGriff? I think you mentioned $450 to $500 million in total retention incentives that are going to be somehow flowing through or recaptured. I guess the reason why I'm triggered by this is I look at your income statement. I see the $60 million of acquisition retention-related costs that go into the adjustments. So just trying to map out what I should think about in terms of the adjustments is, I think, about 25.

Yeah, sure, Greg. You know, I'll ask Mark to jump in for a second. But, of course, retention is a critical part of any acquisitions we do. And, you know, we had a, you know, meaningful seller-funded acquisition retention plan that was put in place to, you know, to help our transaction work here. But Mark, maybe you could talk on the top.

Yeah, so as I said, we expect $450 to $500 million of noteworthy charges in total over the next three years. And even though retention isn't, it's not solely retention, that'll be the biggest chunk of it. What you're seeing come through in the fourth quarter is actually that, you might have heard me mention $26 million of just bridge financing costs. And then the beginnings of starting to amortize those retentions. And it is important to recognize that a healthy amount of that retention was put in place by the seller and was funded through a purchase price adjustment. But it has to be amortized and flowed through our financial statements. That's why we'll consider it noteworthy.

Thanks, Mark.

Greg, do you have a follow-up? I do. Just keeping in the adjustment category, you know, for the full year, I think you recorded $148 million of restructuring charges. Oh, I was just, that's risk and insurance total 276. How is the restructuring charges that we think about for 25? Is it going to be exclusive or independent of what's going on in McGriff? And what kind of, what are you, what are you expecting in terms of restructuring charges in 25?

Sure. Yeah, 24 was, you know, as Mark noted, we wrapped up our restructuring program. I talked about it a bit as well, but Mark, maybe you could share an outlook in 25.

So as we said, we're really happy with the execution of the restructuring program we started back in 2022. And it's a big driver of the margin expansion that we've seen and definitely contributed to our earnings growth, but it is, that program is essentially closed at this point. So the remaining charges were in the fourth quarter. So as you look forward, the largest, our expectation at this point is the largest piece of noteworthy items coming through will be related to McGriff. I mean, from time to time, we'll have things like true ups to earn outs and some other stuff that'll go through there. But in terms of major programs, it's really McGriff at this point.

Thank you. Thanks, Greg. Appreciate the questions. Andrew? We're ready for our next question, please.

Our next question comes from the line of Michael Zaremski with BMO Capital Markets.

Hey, morning. Going back to the organic or just mid-single-digit growth commentary that you made, John, the prepared remarks, I know I heard your answer to Jimmy with don't read into it, but I guess we're of analysts were going to try to read into it still. The last few years, at least, you've said mid-single digits are greater. So is it, you know, did something maybe change in the planning process for 25 that we'll see in the proxy? Or I guess just also, like, you told us the Marsh index, pricing index, is down, too. And so I'm assuming there's some sensitivity to your revenues from it being kind of a soft-dish market for a while. in the large account marketplace. So maybe that's kind of playing into your prepared remarks.

Yeah, no, thanks, Mike. I appreciate the question. You know, look, I think where we're most exposed to P&C pricing is in the middle market, and middle market pricing tends to be more stable. So I certainly, your attempt to read into that, I would, you know, I don't think that's a major factor. The primary issue is FID, right? And so, you know, it's an uncertain outlook. Mark shared some insights on what we thought the first quarter headwinds would be like. We'll see from here. Obviously, inflation has remained stickier than most central banks would like, certainly here in the United States. But I think there's some volatility with potential volatility from some of the steps that the new administration is taking around inflation. trade in tariffs and, you know, we'll see what that means, right? And so, but FID really is the, you know, it's the primary driver.

Got it. I'm in quick follow up also on probably from Mark on capital. So the 4.5 billion of deploy guide for 25 and no change year over year. I'm assuming most of that is just due to charges. to integrate McGrath, or are there other material moving pieces we should be thinking about?

So the outlook for capital deployment, which I think is what you're asking about, at $4.5 billion, we're really happy with that outlook. If you think back to last year, we spent close to $12 billion, and we had built up a significant amount of flexibility And that was certainly a lot more than we had planned coming into the year. But to be looking at a year, having done all of that and be looking at a year in 2025 that's a normal year of capital deployment and have still a lot of flexibility to do M&A, pay dividends, and buy back stock is just a great position to be in. So we feel really good about where we are.

Largest deal in our history in McGriff, two top 100 agencies, Cardano, vanguard's ocio business and we've got four and a half billion to deploy um you know so yeah i mean it speaks to the cash flow generation of you know of the company and the strength of of our franchise you know i would i would add um that we are you know we're quite active in the market too uh the m&a market i mean and we have a great brand and reputation um in that market and That's important in people businesses. Of course, we do have the ability to do bigger deals if the right deal presents itself. I think we're more likely to continue our string of pearls strategy that's served us so well, and we're likely to bring our leverage back down. But as Mark and I both talked about, we want to retain the flexibility to strike when it makes sense. Thank you, Mike. Andrew?

Our next question comes from the line of Mayor Shields with KBW.

Great. Thank you. Good morning. John, I want to follow up on the point that you just made. Does the effort required to integrate McGriff impede the ability to do big deals in the United States, either overall or with an MMA?

I'm not sure I understand. Impede for what reasons? What do you mean? Just management effort in the... Oh, well, look, you know, again, these are people businesses, right? So there's no question, you know, social issues are important. Yeah, that's why I highlighted our, you know, our reputation of, you know, really doing what we say we're going to do when, you know, when we're getting to know businesses and talking about what the possibilities are when we come together as an organization. So... you know, there's always going to be a, you know, a capacity, you know, some level of capacity constraint around management time and attention. And of course, you know, we don't want to make any big mistakes either. We've been very, very successful and have been a consolidator for, you know, much of our 150 year plus history. And so, but, but again, you know, I, again, we're more likely to continue our string of pearl strategy, Mayor, but, But we do have the ability to do something bigger. You know, there's no question. And at MMA, you know, Dave and his team, you know, have obviously a lot of experience in doing this. And, you know, I would also note we're not meeting these target firms for the first time when we're welcoming them to the family. So we work on many of these deals for many, many years. Do you have a follow-up, Mayor?

Yeah, just a quick one. Mark mentioned that there was a difficult organic growth comp coming up, and I just wanted to dig in a little bit. I know other brokers have talked about that as well. Was there something in last year's first quarter revenues that are less recurring than the typical book?

No, no, not at all. We have some unusual headwinds in the first quarter. FX, tax, we've got some of the seasonality that You know, Mark mentioned around, you know, McGriff's revenue in the first quarter being a bit seasonally late. You know, we do have some bid headwinds as well, but, you know, we're planning on that, you know, to persist throughout the full year. So anyway, no, nothing unusual about prior year's first quarter. All those things and a bit of a tougher comp in the first quarter. Okay, perfect. Thank you. Thank you, Mayor. Andrew, another question, please.

Certainly. Our next question comes from the line of Rob Cox with Goldman Sachs.

Hey, thanks. Good morning. My first question was a bit of a bigger picture question for you, John. A large insurer recently highlighted a secular shift in the small and middle market where more premiums are flowing to a smaller number of middle market insurers kind of based on their scale and data and analytics advantages. I'm curious if you agree with that trend and if you could talk about what that trend means for marsh growth opportunities.

I'm not sure I'm familiar with those comments, so I want to be careful about commenting on what somebody else might say about the middle market. Do I think scale matters? Yes, I think scale matters in our business. I think it matters. to intermediaries, and I think it matters to underwriters. There's no question data matters, the ability to develop broader insights, you know, and then, of course, you know, having, you know, diversification of risk on both the asset and liability side of a balance sheet. All of those things matter. So, you know, we do, we are, through Martian, I guess if your question was about the middle market, maybe in the United States, you know, we originate more risk than just about anybody, certainly on a global basis. And as we talked about in the middle market, MMA will be on a standalone basis, the fifth largest broker out there. You know, our ability to trade with some of the larger insurers there, yeah, I mean, we have terrific relationships and they bring innovative solutions to, you know, to the middle market. And, you know, I commented really in the context of McGriff one of the things that we find so attractive about the middle market is our ability to bring scale benefits to that segment of the market. And that matters to that customer base. And so to the extent an insurer can bring similar scale benefits, yeah, it matters.

Do you have a follow-up? Yeah, and just for clarification, I mean, I think the comments were meant to imply that more market share is going to larger insurers, and I would think that that might be a benefit for Marsh as you have relationships with those larger insurers.

Got it. Got it. Thank you. Do you have a follow-up, Rob?

Yeah, the follow-up, appreciate no specific guidance on McGriff margins, but I was hoping you could give us some rough insight into whether you expect the acquisition to be directionally additive or dilutive to margins in 2025? And if you think there's an above average opportunity to expand those McGriff margins over time?

Yeah, you know, I think we mentioned this in last quarter. McGriff really was a carve out of a carve out. So, you know, the possibilities around McGriff are not built around meaningful expense synergies, you know, just to be clear. As I mentioned earlier, scale matters not just to our clients. It matters for our colleagues because we can give them tools and data and insights and technology that others can't. It matters to our shareholders as well. We expect to bring scale benefits to all three. We're excited about what McGriff will mean to adjusted EPS, you know, later in 25 and into 26 and 27. So thank you, Rob. With that, Andrew, we've got to wrap up. We're past the bottom of the hour. Thank you. I want to thank everyone for joining us on the call this morning. And I also want to thank our colleagues for their hard work and their dedication. I also want to thank all of our clients for their continued support and confidence in Marshall McLennan. Thanks again to everyone, and we look forward to speaking with you all again next quarter. Thank you, Andrew.