Marsh & McLennan Companies, Inc.

Hello, and welcome to Marsh McLennan's earnings conference call. Today's call is being recorded. Third 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 one one on your touchstone 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 touchstone phone. I'll now turn this over to John Doyle, President and CEO of Marsh McLennan.

Thanks, Andrew. Good morning and thank you for joining us to discuss our third 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 Klosura 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 third quarter. As we said coming into the year, we anticipated impacts from a changing macro environment and our performance continues to track with our expectations. Overall, we grew revenue 11% in the quarter, reflecting continued momentum in our business and contributions from an active year of acquisitions in 2024. Underlying revenue increased 4% for the quarter, reflecting the impact of lower fiduciary interest income, declining P&C pricing, and economic uncertainty affecting our clients, especially in the U.S. Adjusted operating income increased 13% from a year ago. Our adjusted operating margin increased 30 basis points compared to the third quarter of 2024, and adjusted EPS grew 11%. Earlier this week, we announced that we will change our brand in January from Marsh McLennan to Marsh. Also in January, our stock ticker symbol on the New York Stock Exchange will change from MMC to MRSH. Our businesses will adopt the Marsh brand after a transition period. We also introduced Business and Client Services, or BCS. This unit brings together our operations and technology teams from across the company under Paul Beswick, our Chief Information and Operations Officer. Our new brand strategy, the creation of BCS, and the efficiencies we expect to gain are core parts of a new program we call Thrive. Thrive will also include automation efforts and workforce actions to optimize our scale and specialization. The program is designed to deliver greater value to clients, accelerate growth, and improve efficiency. The efficiencies we gain through the program will support investments in talent and technology. As we increasingly deploy AI, we can deliver even greater value for clients and colleagues. Thrive will also help us continue to expand margins. Let me take a moment to comment on our brand strategy. Marsh will be our new brand and represent our vision to be the most impactful professional services firm in the world. This change will increase our visibility, strengthen our value proposition, and support our business strategy. The Marsh brand is highly regarded and has the broadest global reach among our businesses. Today, Marsh stands for excellence in risk advising and insurance broking. Going forward, the new Marsh will represent the full value of our offerings in risk, strategy, and people. Turning to BCS, our company has a long history of innovation. which has been an important factor in our success for over 150 years. We continue to innovate in the AI era, having invested in large language models for more than two years. And while the full impact of AI is still emerging, we are seeing an increase in opportunities from our use cases. We are focused on developing tools that boost colleague productivity to better support our clients. For example, LenAI, our proprietary GenAI tool for colleagues, responds to about 1 million inquiries per week, fueling efficiency and automation. We are also rolling out new market-facing AI tools, including most recently Ada. This is Mercer's proprietary AI-powered assistant within the Talent All Access portal, which is a global intelligence platform supporting HR decision-making. And prior to Ada, we introduced CentRISC, our AI-enabled supply chain risk assessment platform. We have a vast data set as the global leader in risk strategy and people, and BCS will accelerate our efforts to extract valuable insights through AI and analytics. This enables us to better serve our clients, empower our colleagues, and increase our efficiency. Over the next three years, we expect Thrive will generate approximately $400 million in savings with a portion being reinvested to drive additional growth. We will incur around $500 million in charges to achieve these savings. Now I'd like to take a moment to talk about talent in the insurance and reinsurance markets. This is a people business, and we have an unmatched depth of talent with over 90,000 colleagues, and we'd love to compete because it makes us better. Colleague mobility is good for our industry. and has served us well because we are an employer of choice with a strong colleague value proposition. Our colleagues can be their best at our company because they work with the top talent in our industry, they manage meaningful client issues, and they have access to market-leading analytics and technology. We make a point of differentiating ourselves through a collaborative team-based model. This is reflected in strong colleague retention and excellent engagement scores. A few competitors have engaged in unlawful and unethical hiring practices and encouraged talent to violate their covenants as a deliberate strategy to build their businesses. In these cases, I believe it's important to call out this behavior and to protect our rights. It's also the right thing to do to sustain the trust that we've built with our clients over a long time. Turning to insurance and reinsurance market conditions, we continue to see a competitive market characterized by slower growth from an uneven economy, stronger carrier ROEs, and continued decreases in overall rates, particularly in property reinsurance and property cat reinsurance. According to the Marsh Global Insurance Market Index, commercial insurance rates decreased 4% in the third quarter, driven by property. This follows a 4% decline in the second quarter of 2025. As a reminder, our index skews the large account business. Overall, rates were down in the U.S. by 1%. Canada was down 3%. The U.K., EMEA, Latin America, and Asia were all down mid-single digits. And Pacific was down by double digits. Global casualty rates increased 3%, with U.S. excess casualty up 16%. reflecting continued pressure in the liability environment. Workers' compensation decreased by 5%. Global property rates decreased by 8% year-over-year, compared with a 7% decline last quarter. Global financial and professional liability rates were down 5%, while cyber decreased 6%. In reinsurance, the market remains resilient. It has responded to an extended period of elevated natural catastrophe losses, as well as ongoing geopolitical and macroeconomic uncertainty. Dedicated reinsurance capital is projected to reach approximately $650 billion by year-end 2025. With ample capacity, increased competition is driving reinsurers to look for profitable ways to deploy capacity. The cap-on market is on pace for a record year of issuance. with over 60 new bonds in the first nine months, generating approximately $17.5 billion of limit. In casualty reinsurance, renewals were largely stable with sufficient capacity. This outcome reflects underwriting actions of primary carriers and increased reinsurer appetite. Across both insurance and reinsurance, we advise our clients on proactive strategies that reflect the risk environment and market conditions. and of course, tailored to their tolerance for volatility. Today, we see decreasing property casualty prices, but also a growing cost of risk. Over time, this trend is unsustainable. With that being said, barring significant changes in large loss activity, as well as the broader macro environment, we anticipate insurance and reinsurance market conditions seen so far this year will likely continue in 2026. Now, let me turn to our third quarter financial performance and outlook, which Mark will cover in more detail. Consolidated revenue increased 11% to $6.4 billion and grew 4% on an underlying basis, with 3% growth in RIS and 5% growth in consulting. Marsh was up 4%, Guy Carpenter grew 5%, Mercer 3%, and Oliver Wyman was up 8%. We had adjusted operating income growth of 13%, and we generated adjusted EPS in the quarter of $1.85, which was up 11% from a year ago. We also repurchased $400 million of our stock in the quarter. Turning to our outlook for 2025, we continue to expect to deliver mid-single-digit underlying revenue growth, solid growth in adjusted EPS, and our 18th consecutive year of reported margin expansion. Of course, this outlook is based on conditions today, and the economic backdrop could turn out to be materially different than our assumptions. In summary, we're pleased with our year-to-date performance in a complex environment. Thrive will amplify our value proposition for clients across all our businesses, and it creates opportunities to invest in talent, growth, AI, and our new brand. Our capabilities are unique, and there is strong demand for our advice and solutions. We've earned our leadership position in our markets through 154 years of innovation and growth. Our disciplined approach to investing for the future, while delivering results in the near term, remains a guiding principle for our planning and capital allocation. Our announcements today and earlier this week align with this philosophy. With that, I'll hand the discussion over to Mark for a more detailed review of our results.

Thank you, John, and good morning. Our third quarter results were solid, reflecting our strong position and execution despite a more challenging environment. Consolidated revenue increased 11% to $6.4 billion, with underlying growth of 4%, which came despite a headwind from fiduciary interest interest. Operating income was $1.2 billion, and adjusted operating income was $1.4 billion, up 13%. Our adjusted operating margin increased 30 basis points to 22.7%. Gap EPS was $1.51, and adjusted EPS was $1.85, up 11% over the last year. For the first nine months of 2025, underlying revenue growth was 4%, Adjusted operating income grew 11% to $5.7 billion. Our adjusted operating margin increased 20 basis points, and adjusted EPS increased 9%, $7.63. Looking at risk and insurance services, third quarter revenue was $3.9 billion, up 13% from a year ago, or 3% on an underlying basis. Operating income in RIS was $750 million. Adjusted operating income was $965 million, up 13% over last year. The adjusted operating margin was 24.7%. For the first nine months of the year, revenue in RIS was $13.3 billion, with underlying growth of 4%. Adjusted operating income increased 12% to $4.4 billion. The adjusted operating margin was 33.3%. At Marsh, revenue in the quarter was $3.4 billion, up 16% from a year ago, or 4% on an underlying basis. The 16% growth at Marsh is impressive and reflects the contribution from McGriff, where integration seems to go well. In U.S. and Canada, underlying growth was 3% for the quarter, reflecting good new business growth overall and continued momentum in MMA. And international underlying growth remained solid at 5%, with EMEA up 5%, Asia Pacific up 6%, and Latin America up 3%. The first nine months of the year, Marsha's revenue was $10.7 billion, with underlying growth of 5%. U.S. and Canada grew 4%, and international was up 6%. Guy Carpenter's revenue in the quarter was $398 million, up 5% from a year ago on both a gap and underlying basis. Growth remained solid despite softer reinsurance market conditions and came on top of 7% underlying growth in the third quarter of last year. For the first nine months of the year, Guy Carpenter generated $2.3 billion of revenue and 5% underlying growth. In the consulting segment, third quarter revenue was $2.5 billion, up 9% or 5% on an underlying basis. Consulting operating income was $501 million, and adjusted operating income was $545 million, up 11%. Our adjusted operating margin in consulting was 22.1%, up 40 basis points from a year ago. For the first nine months, consulting revenue was $7.2 billion, reflecting underlying growth of 4%. Adjusted operating income increased 9% to $1.5 billion, and the adjusted operating margin increased 50 basis points to 21.2%. Mercer's revenue was $1.6 billion in the quarter, up 9%, or 3% on an underlying basis. Health grew 6%, reflecting continued strong growth across all regions. Wealth was up 3%, led by investment management. Our assets under management were $683 billion at the end of the third quarter, up 2% sequentially and up 25% compared to the third quarter of last year. Year-over-year growth was driven by our acquisitions of Cardano and Secor, positive net flows, and the impact of capital markets. Career was flat year-over-year on an underlying basis, reflecting continued softness in project-related work in the U.S. and Canada, offset by sustained demand in international and good growth in our workforce products. For the first nine months of the year, revenue at Mercer was $4.6 billion, with 3% underlying growth. Oliver Wyman's revenue in third quarter was $886 million, up 9% or 8% on an underlying basis, reflecting growth in each of our regions. The third quarter benefited from favorable timing, so we expect moderating growth for Oliver Wyman in the fourth quarter. For the first nine months of the year, revenue at Oliver Wyman was $2.6 billion, an increase of 5% on an underlying basis. Fiduciary interest income was $109 million in the quarter, down $29 million compared with the third quarter last year, reflecting lower interest rates. Looking ahead to the fourth quarter, based on the current environment, we expect fiduciary interest income will be approximately $85 million. Foreign exchange had a de minimis impact on adjusted EPS in the third quarter. Based on current rates, we anticipate FX will be a four-cent benefit to adjusted EPS in the fourth quarter. Turning to our Thrive program, as John mentioned, we are excited about this significant new step in the evolution of our firm, which should enable us to continue to deliver exceptional results while we invest for sustained growth. We began executing the program in the third quarter and expect to generate $400 million of total savings, a portion of which will be reinvested for growth. Although we will see a modest benefit in the fourth quarter, the vast majority of the savings will be realized over the next three years. We expect to incur approximately $500 million of charges to generate the savings. The majority of savings will result from efficiencies created by BCS. with a significant portion coming from further optimization of our global operating model. We have mature capability centers in locations around the world, and our plans over the next three years will accelerate this journey. Today, we have over 19,000 colleagues in cost-effective locations across BCS and our global functions. Through this program, we expect to further optimize our model by shifting more work to these locations. In addition, we're excited about the possibilities of AI-enabled enhancements in client service, insights, and efficiency as we look to take our AI journey from experimentation at scale to business impact. A substantial portion of the work in DCS will be driving savings through efficiency in process and automation, including through the use of AI. This will also be an area where we increase investments. These initiatives in BCS are closely linked. In order to capitalize on the full value of emerging technology, we need to concentrate more of our operations work in locations with scale. A critical enabling step in this journey is combining the distributed operations across our businesses into a single team. We also anticipate significant savings by continuing to streamline our organization. We have a long track record of executing for efficiency and have consistently demonstrated our ability to drive near-term results while investing for sustained growth.