Marsh & McLennan Companies, Inc.

Welcome to Marsh McLennan's earnings conference call. Today's call is being recorded. First quarter 2025 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 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, Pat Tomlinson of Mercer, and Nick Studer of Oliver Wyman. Also with us this morning is Jay Gelb, Head of Investor Relations. Marsh McLennan had a solid start to 2025. As we said coming into the year, results in Q1 faced headwinds due to several factors and our performance tracked well with our expectations. Overall, we grew revenue 9% in the quarter, reflecting continued momentum in underlying revenue growth and contributions from an active year of acquisitions in 2024. Underlying revenue grew 4% despite lower fiduciary interest income and a tough comparison to a strong Q1 last year, and we saw good growth in all four of our businesses. Adjusted operating income increased 8% from a year ago. Our adjusted operating margin declined 20 basis points compared to the first quarter of 2024, reflecting seasonality at McGriff. And adjusted EPS grew 5%. Turning to the macro picture, Clearly, the global economic outlook has become more uncertain since the start of the year. Ongoing trade negotiations will continue to create challenges for businesses, and this has led to reduced consumer and business confidence as well as financial market volatility. The outlook is likely to remain uncertain as stakeholders continue to assess the potential impacts on global trade and businesses pause new investments. As a result, expectations for GDP growth inflation, interest rates, and other factors have become less predictable. As far as the insurance industry is concerned, tariffs would likely be inflationary to the overall cost of risk. This comes on top of the increasing frequency and severity of natural catastrophes and rising social inflation costs. We continue to support our clients by leveraging our expertise and solutions as they navigate challenges and make decisions in this period of extreme uncertainty. In fact, we've been advising clients for years on risks to their global supply chains, which now includes disruptions in trade policy. Centrisk, our AI-powered supply chain platform, which we've highlighted in past calls, is a good example of our work to assess clients' vulnerabilities to ongoing trade negotiations. In addition, through webinars and thought leadership accessed by thousands of clients, we are helping them understand the complexity of the moment. In times like these, our clients find value in Marsh McLennan's unique perspectives, talent, and capabilities across risk, strategy, and people. And while we are not immune to shocks in the macroeconomy, we are well positioned to navigate these environments. Our track record of performance across economic cycles is a result of the strength of our business and the consistent demand for our advice and solutions. I would like to share some thoughts on resilience and preparedness for natural disasters and the role of insurance. The earthquake that struck Myanmar and Thailand is just the latest tragic reminder that we live in a time of heightened exposures to catastrophes. This tragedy, along with the California wildfires and recent flooding in the US, highlights the devastating human toll and economic impact caused by natural disasters. especially taking into consideration the significant proportion of losses that are typically uninsured. These events show the urgent need for resilience and risk mitigation planning in disaster-prone areas. Enhancing risk mitigation is essential for sustainable development and reducing the devastating impact of these events on individuals, businesses and economies. In catastrophe-prone areas, we must invest in ways that strengthen our infrastructure and lessen the impact of future disasters. To put this into perspective, a recent report from the U.S. Chamber of Commerce shows that every dollar spent on resilience saves communities $13 in damages, cleanup costs, and economic impact. U.S. homeowners are increasingly reliant on state-sponsored insurers of last resort in catastrophe-prone areas. In these circumstances, pricing that accurately reflects the true cost of risk can often be compromised in favor of making insurance more available and affordable. Governments and regulators can help by prioritizing resilience and creating the right economic incentives to mitigate losses and foster sustainable improvements in insurance markets. Without increased resilience, the human toll will remain high and the cost of risk will continue to be a significant tax on economies, diverting funds from other important societal priorities. Turning to insurance market conditions, according to the Marsh Global Insurance Market Index, rates decreased 3% in the first quarter despite an elevated risk landscape. This follows a 2% decline in the fourth quarter of 2024. As a reminder, our index skews the large account business. Overall, rates in the U.S. decreased 1%. Latin America was down low single digits. Europe, U.K., and Asia were down low to mid single digits. And Pacific was down high single digits. Global property rates decreased 6% year over year, following a 3% decline last quarter. Global casualty rates increased 4%. with U.S. excess casualty up approximately 16% in the quarter. Workers' compensation decreased mid-single digits. Global financial and professional liability rates were down 6%, while cyber also decreased by 6%. In reinsurance, despite the California wildfire losses, capacity remains more than sufficient to support compliant demand, including additional limits in loss-impacted programs. Throughout the first quarter, market conditions were consistent with what we saw at January 1st. Strong reinsurer profitability, high ROEs, and increased capital levels have resulted in ample supply of property CAT capacity and rate reductions. It was also a record quarter for CAT bond issuance. U.S. property CAT reinsurance rates remain competitive for the April 1 renewal period. Non-loss-impacted rates were down 5% to 15%, while loss-impacted programs typically experienced 10% to 20% rate increases. In U.S. casualty reinsurance, we continue to see a range of outcomes depending on loss experience, with primary carriers demonstrating limit, rate, and underwriting discipline. In Japan, April 1 property cat rates overall were down 10% to 15% on a risk-adjusted basis. Early signs for the June 1 Florida cat risk renewals point to similar market conditions seen in January and April, with an anticipated increase in demand ready to be absorbed by more than adequate supply. As always, our focus is on helping clients navigate these dynamic market conditions. Now let me provide a brief update on our acquisition of McGriff, which closed on November 15th of last year. Our colleagues at McGriff performed well in the quarter, and the integration remains on track. The team is quickly leveraging the broader capabilities of our company while bringing their own distinct advantages to the market. We are already seeing wins from bringing together the best of both. As we said when we announced the transaction, McGriff is a business with outstanding talent and a track record of strong growth, and I'm excited to have them as part of our firm. Now, let me turn to our first quarter financial performance and outlook, which Mark will cover in more detail. Revenue grew 4% on an underlying basis, with 4% growth in RIS and 4% in consulting. Marsh was up 5%, Guy Carpenter grew 5%, Mercer 4%, and Oliver Wyman was up 4%. We had adjusted operating income growth of 8%, and we generated adjusted EPS in the quarter, of $3.06, which was up 5% from a year ago. We also repurchased $300 million of stock in the quarter. Turning to our outlook for 2025, we continue to expect mid-single digit underlying revenue growth, another year of margin expansion, and solid adjusted EPS growth. Of course, this outlook is based on conditions today, and the economic backdrop could turn out to be materially different than our assumptions. In particular, and as discussed earlier, the uncertainty in ongoing trade negotiations and their effect on consumer and business confidence could have a significant impact on the global economy and our results. In summary, we are pleased with our results and are off to a good start in 2025. We are well positioned and have a resilient business that provides critically important advice and solutions and we have proven our ability to deliver across cycles. With that, let me turn it over to Mark for a more detailed review of our results.

Thank you, John, and good morning. Our first quarter results represented a solid start to the year. Consolidated revenue increased 9% in the first quarter to $7.1 billion, with underlying growth of 4%. Operating income was $2 billion, and adjusted operating income was $2.2 billion, up 8%. Our adjusted operating margin was 31.8%. GAAP EPS was $2.79, and adjusted EPS was $3.06, up 5% over last year. Looking at risk and insurance services, first quarter revenue was $4.8 billion, up 11%, or 4% on an underlying basis. Operating income in RIS was $1.6 billion in the first quarter. Adjusted operating income was $1.8 billion, up 8% over last year, and our adjusted margin was 38.2%. Our margin in RIS reflected the impact of seasonality in McGriff's revenue we previously guided to. At Marsh, revenue in the quarter was $3.5 billion, up 15% from a year ago, or 5% on an underlying basis. This comes on top of 8% underlying growth in the first quarter of last year. In U.S. and Canada, underlying growth was 4% for the quarter. In international, underlying growth was 6%. Latin America up 8%, EMEA up 6%, and Asia Pacific up 4%. Guy Carpenter's revenue in the quarter was $1.2 billion, up 5% on both a GAAP and underlying basis. Growth remained solid despite softer reinsurance market conditions and came on top of 8% growth in the first quarter of last year. In the consulting segment, first quarter revenue was $2.3 billion, up 5%, or 4% on an underlying basis. Consulting operating income was $456 million, and adjusted operating income was $491 million, up 8%. Our adjusted operating margin in consulting was 21.2%, up 50 basis points from a year ago. Mercer's revenue was $1.5 billion in the quarter, up 5% or 4% on an underlying basis. Health underlying growth was 7%, reflecting continued solid growth across all regions. Wealth was up 3%, led by investment management. Our assets under management were $613 billion at the end of the first quarter, down 1% sequentially, and up 25% compared to the first quarter of last year. Year-over-year growth was driven by our acquisition of Cardano, positive net flows, and the impact of capital markets. Career declined 1%, reflecting growth in international, offset by continued slower demand in the U.S. Oliver Wyman's revenue in the first quarter was $818 million, an increase of 4% on both a gap and underlying basis. Growth in the quarter was led by strength in the U.S. and came on top of 13% growth in the first quarter of last year. Fiduciary income was $103 million in the quarter, down $9 million from the fourth quarter, and $19 million compared with the first quarter last year, reflecting lower interest rates. Looking ahead to the second quarter, we expect fiduciary income will be approximately $100 million. Foreign exchange was a $0.05 headwind in the first quarter. Exchange rates have been volatile over the past several trading days, making it challenging to predict their impact looking forward. However, based on current rates, we anticipate that FX will have an immaterial impact on earnings in the second quarter and the rest of the year. Turning to our McGriff transaction, as John mentioned, our integration continues to go well. As we said last quarter, the first quarter is McGriff's seasonally smallest from a revenue perspective, which resulted in modest dilution to adjusted EPS in the quarter. We continue to expect that McGriff will be modestly accretive to adjusted EPS for full year 2025, becoming more meaningfully accretive in 2026 and beyond. We still expect noteworthy charges associated with McGriff of approximately $450 to $500 million in total through 2027, 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 flowed through our financial statements, but were funded by the seller through a purchase price adjustment. As is our convention, we are excluding McGriff from our underlying growth calculations for the first year. As we mentioned last quarter, we are now excluding acquisition-related intangible amortization and the net benefit credit from our adjusted earnings. Last quarter, we provided a supplement to our press release that recasts historical financial information on this new basis of reporting. Total noteworthy items in the quarter were $91 million, the largest of which was $69 million related to McGriff. Interest expense in the first quarter was $245 million, up from $159 million in the first quarter of 2024. This increase reflects higher levels of debt associated with the McGriff transaction. Based on our current forecast, we expect interest expense will be approximately $250 million in the second quarter. Our adjusted effective tax rate in the first quarter was 23.1%. which compares with 23.9% in the first quarter 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 25.5%. When we give forward guidance around our tax rate, we do not project discrete items, which can be positive or negative. Based on the current environment, we expect an adjusted effective tax rate of between 25% and 26% in 2025. Turning to capital management and our balance sheet, we ended the quarter with total debt of $20.5 billion. In the first quarter of 2025, we repaid $500 million of senior notes that matured in March. Our next scheduled debt maturity is in the first quarter of 2026, when $600 million of senior notes mature. Our cash position at the end of the first quarter was $1.6 billion. Uses of cash in the quarter totaled approximately $800 million and included $405 million for dividends, $95 million for acquisitions, and $300 million for share repurchases. We continue to expect to deploy approximately $4.5 billion of capital in 2025 across dividends, acquisitions, and share repurchases. The ultimate level of share repurchase will depend on how our M&A pipeline develops. Overall, we are pleased with our first quarter results. For the full year, we continue to expect mid-single-digit underlying growth, margin expansion, and solid growth in adjusted EPS. However, as John mentioned, this outlook is based on conditions today, and the economic backdrop, especially in light of recent uncertainty around global trade policies, could turn out to be materially different than our assumptions. With that, I'm happy to turn it back to John.