Marsh

Hello and welcome to Marsh's earnings conference call. Today's call is being recorded. Third quarter 2026 financial results and supplemental information were issued earlier this morning. They are available on the company's website at marsh.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 more detailed discussion of those factors, please refer to our earnings release to this quarter and to our most recent SEC filings, including our most recent Form 10-K, all of which are available on the Marsh website. During the call today, we may also discuss certain non-GAAP financial measures. For 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 touch tone 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 touch tone phone. I'll now turn this over to John Doyle, President and CEO of Marsh.

Good morning and thank you for joining us to discuss our third quarter results. I'm John Doyle, President and CEO of Marsh. On the call with me is Mark McGivney, our COO and CFO, and our business CEOs, Nick Studer from Risk, Dean Klisura, Reinsurance, Pat Tomlinson of People and Investments, and Ted Moynihan from Management Consulting. Also with us is Jay Gelb, Head of Investor Relations. Let me start by commenting on the conditions confronting businesses today. were clearly in a period of change and uncertainty in the world. This change is structural, not cyclical, and it's happening at pace and all at once. Wars, geoeconomics, extreme weather, and AI advances are challenging long-established norms. Businesses require a new playbook, better insights and perspectives, and the flexibility to adapt as never before. At the same time, access to information and technology, as well as greater focus on resilience, offers businesses great opportunity. It's why Marsh and Bloomberg announced the Competitive Resilience Coalition. As knowledge partner for the Bloomberg New Economy, Marsh will co-chair the coalition and bring together business and government leaders to strengthen resilience and help organizations in an increasingly complex environment. Marsha's vision and capabilities as a professional services firm across risk, strategy, people, and investments have us well positioned to help clients be more resilient and to thrive in this moment. When it comes to AI, we believe it will be good for our country and the global economy. However, we need to deploy the technology responsibly to avoid potentially severe, systemic, or Irreversible Risks. We're particularly concerned about the potential for heightened cyber exposure from AI, and we're working with governments, insurance companies and businesses to create awareness and resilience to this risk. Responsible AI implementation begins with the developers, but businesses and governments have a role to play in ensuring safeguards are in place. Marsh will be active in helping clients manage the risks and capture the opportunities from AI. Turning to results, Marsh had a strong quarter, reflecting our market-leading positions, the value we deliver to clients, and the commitment of our colleagues around the world. In our consulting segment, growth was strong in people and investments and management consulting. In RAS, growth accelerated in our risk business, while reinsurance faced continued market headwinds, but executed well. Overall, revenue grew 8% in the quarter. Underlying revenue growth was 5%, adjusted operating income grew 6%, and adjusted EPS grew 10%. And we repurchased $500 million of stock in the quarter, bringing us to $2 billion year-to-date. We also made meaningful progress executing our Thrive program and successfully completed our brand transition. When we launched Thrive a year ago, we targeted $400 million in savings. We're now seeing greater opportunities coming from business and client services, or BCS, and advances in technology. As a result, we are increasing our Thrive savings target to $600 million. The expanded savings will create additional capacity to invest in sales, new capabilities, our brand, and technology. Let me touch on some of the progress from our reinvestments. Thrive has enabled us to invest in sales capacity at a higher rate this quarter and year to date, and we're hiring producers and consultants in areas where we see the greatest opportunity for growth. Our colleague value proposition is strong, and we remain the destination for top talent in our business. I've been pleased with the strong, positive reaction from colleagues and clients to our new brand strategy, the efficiencies we've captured from it, and our progress marketing Marsh to prospective clients. As a result of very favorable market research, we accelerated the transition of Guy Carpenter and Mercer to Marsh several months ahead of schedule. We believe we can be the most impactful professional services firm in the world and we're investing in our new brand to reflect that ambition. Since its introduction last year, BCS has fundamentally changed how we work. An important part of the team's mission is to build shared services for greater efficiency, including in areas such as client onboarding, data ingestion, commercial enablement, and operational excellence. BCS is also reengineering our processes and moving work to our capability centers, which is generating additional savings. Overall, our execution of Thrive has been excellent to date, and we're excited about the investments and growth it's enabling. Turning to AI in our business, we're not thinking about it as something that will be a factor in our business. It already is a factor in our business. It's enhancing our client relationships, how we manage operations, and how colleagues work every day. We're focused currently on several areas where AI is driving growth, including building AI-enabled products, consulting on AI transformation, serving the digital infrastructure ecosystem and adding to capabilities and productivity for our producers and consultants. We've already deployed several AI-enabled products for clients that deliver valuable insights. These solutions tap into our large and expanding proprietary datasets in risk, health, and talent. Marsh Risk Companion is a good example. This AI-enabled analytics suite provides actionable insights for client risk programs. We can more easily model and optimize client risk scenarios with the new platform. This is leading to faster, more informed decision-making and reduced administrative burden for the client's risk management team. We're also advising clients on AI transformation. For example, Oliver Wyman's fastest growing practice, Quotient, is working with private equity firms to serve their portfolio companies. They're engaging us on everything from agentic commerce and commercial effectiveness to cost reduction and technology transformation. Digital infrastructure continues to be a growth driver for Marsh. More and more clients across broad sectors of the economy are asking for our help in risk, capital advisory, credit and consulting in the wake of extensive growth in digital infrastructure. We are also working to bring the insurance capacity needed to support digital infrastructure. Marsh recently launched the Stratus Exchange, which offers access up to $10 billion in property coverage for the ongoing operations of digital facilities. Stratus is a natural follow-up to Nimbus, our $2.7 billion insurance facility for construction risks. We're also focused on growth from greater colleague productivity. Notably, Broker Workbench. Launched in Q3 for our UK wholesale business, it uses our data and analytics to place a client's risks faster, matching risk and capital more efficiently. In fact, 93% of our wholesale trading in London is now digital, and the time to process placements is reduced from two to four weeks to a couple of hours with Workbench. Although it's early, and it is early, AI is making us better now in delivering new perspectives and insights more efficiently and with greater impact for our clients. Now, turning to market conditions, according to the Marsh Global Insurance Market Index, primary commercial insurance rates decreased 5% in Q3. This follows a 6% decline in the second quarter. As a reminder, our index skews to large accounts. Rates in the U.S. decreased 1%. Canada, Europe, and Asia declined mid-single digits. The UK, Latin America decreased in the high single digits, and the Pacific region had double-digit decreases. Global property rates decreased 10%. Global financial and professional liability rates were down 3%, while cyber decreased 4%. Global casualty rates increased 1%, with U.S. excess casualty up 13%, Reflecting inflationary pressure and loss costs. And workers' compensation decreased 5%. In reinsurance, market conditions led by short tail lines remain soft, driven by abundant capacity from both traditional reinsurers and alternative capital. Property cat reinsurance losses have been relatively benign this year, and capital is increasing, adding to a competitive market environment. We expect these conditions to persist through the January 1 renewal cycle. In casualty reinsurance, capacity is generally adequate. Reinsurers are focused on loss development and they're differentiating terms based on claims experience, exposure data, and portfolio quality. Our clients continue to explore alternative options to complement traditional strategies, including greater use of third-party capital solutions such as sidecar vehicles, for their liability portfolios. Market conditions remain supportive of our insurance and reinsurance clients, even as the cost of risk continues to rise. We are committed to helping clients optimize their risk financing and strengthen resilience in an uncertain environment. Now to our third quarter financial performance, which Mark will cover in more detail. Consolidated revenue increased 8% to $6.9 billion. were an increase of 5% on an underlying basis, with 3% growth in RIS and 8% in consulting. Risk was up 5%. Reinsurance declined 6%. People and investments increased 5%, and management consulting grew 14%. Adjusted operating income grew 6%, and adjusted EPS was $2.03, up 10% year over year. Looking ahead, we continue to expect underlying revenue growth in 2026, similar to last year. We also anticipate another year of margin expansion and solid adjusted EPS growth. Our outlook is based on current market conditions, but the economic and geopolitical environment could change materially from our assumptions. This is an exciting time for us. We have a new Marsh brand and a business and client services team optimizing how we work. We have long-standing, trusted client relationships and the advantage of large proprietary data sets. We're upsizing the Thrive program to drive greater efficiency and investment, and we see new possibilities from AI to better serve clients who strive to manage risk and capitalize on the opportunity of this moment. With that, I'll turn the discussion to Mark for a more detailed review of our results. Mark? Thank you, Johnny.

Good morning. We had a strong third quarter that showed continued momentum and underlying revenue growth and double-digit EPS growth, reflecting our strong position and great execution. Consolidated revenue increased 8% to $6.9 billion, with underlying growth of 5%. Operating income was $1.2 billion, and adjusted operating income was $1.5 billion, up 6%. Our adjusted operating margin was 22.7%. GAAP EPS was $1.69, and adjusted EPS was $2.03, up 10% over last year. For the first nine months of 2026, underlying revenue growth was 5%, adjusted operating income grew 7% to $6.1 billion, our adjusted operating margin was 28.1%, and adjusted EPS increased 9% to $8.29. As part of our previously announced brand change, we've updated several business descriptors in our earnings release. Dicarpenter results are now reported as reinsurance, and MRSA results are reported as people investments. Within people and investments, wealth is reported as investments in retirement, health as health and benefits, and career as workforce and reward. Looking at risk and insurance services, Third quarter revenue was $4.2 billion, up 7% from a year ago, or 3% on an underlying basis. Operating income in RIS was $745 million. Adjusted operating income was $1 billion, up 4% over last year, and the adjusted operating margin was 24.6%. The first nine months, revenue in RIS was $14.1 billion, reflecting underlying growth of 3%, Adjusted operating income increased 5% to $4.6 billion. The adjusted operating margin was 33.2%. At risk, revenue in the quarter was $3.7 billion, up 10% from a year ago, or 5% on an underlying basis. Despite the headwind from a soft pricing environment, sales and new business growth remain solid, and areas such as digital infrastructure and transactional risk are creating demands. In U.S. and Canada, underlying growth was 4%. In international, underlying growth was 6%, with EMEA up 7%, Asia Pacific up 4%, and Latin America up less. The first nine months of the year, risks revenue was $11.5 billion, with underlying growth of 4%. U.S. and Canada grew 4%, and international was up 5%. In reinsurance, revenue in the quarter was $374 million, down 6% on both the reported and underlying basis. Q3 is a small quarter for reinsurance, and revenue was impacted by continued softness in property reinsurance rates, as well as a tough comparison to a strong third quarter last year that benefited from non-recurring items. Through nine months, reinsurance is down 1% on an underlying basis, which better reflects our top-line performance this year. Significant rate pressure has more than offset strong new business growth and excellent client retention, which remains in the high 90s. In the consulting segment, third quarter revenue was $2.7 billion, up 9% or 8% on an underlying basis. Operating income was $563 million and adjusted operating income was $593 million, up 9%. Our adjusted operating margin in consulting was 22.1%. For the first nine months, consulting revenue was $7.8 billion, reflecting underlying growth of 7%. Adjusted operating income increased 11% to $1.7 billion. The adjusted operating margin is 21.4%. People and investments revenue was $1.7 billion and a quarter, up 6% or 5% on an underlying basis. Health and benefits grew 5%, reflecting continued growth across our regions. Investments in retirement was up 8%, led by our investments business. Our assets under management were $843 billion at the end of the third quarter, flat sequentially and up 23% from the third quarter last year. Year-over-year growth was driven by new business and the impact of capital markets. Workforce and rewards was down 1%. Growth in the U.S. and most of international, offset by the impact of a challenging environment in the Middle East. For the first nine months of the year, revenue in people and investments was $4.9 billion with 5% underlying growth. Management consulting generated revenue of $1 billion in the third quarter, up 14% on both a reported and underlying basis. This great result reflected strong demand and delivery across the business, especially in AI-related work. The quarter also benefited from favorable timing on success fees that we had expected in the fourth quarter. For the first nine months of the year, revenue at management consulting was $2.9 billion, an increase of 11% on an underlying basis. For the full year, management consulting is on pace for high single-digit growth. which would imply a roughly flat top line in Q4 due in part to the timing I mentioned. Fiduciary interest income was $100 million in the quarter, down $9 million from the third quarter last year. Looking ahead, we expect fiduciary interest income will be approximately $94 million in the fourth quarter. Foreign exchange was a one cent benefit in the third quarter. Based on current exchange rates, we expect FX will have an immaterial effect on earnings in the fourth quarter. Corporate expenses in the third quarter were $68 million on an adjusted basis compared to $71 million a year ago. Looking ahead to the fourth quarter, we expect adjusted corporate expense of approximately $80 million. Building on John's comments on Thrive, The program is going well, and our early success has resulted in us seeing more opportunities. We now expect to generate $600 million savings, with the vast majority of our actions taken by the end of 2028, and savings realized fairly evenly over the three years of the program. We expect costs associated with generating savings will be approximately $750 million. So far, most of our savings have come from simplifying and streamlining our organization, rightshoring actions, and efficiencies in BCS. We expect further savings in these areas. We are excited about our progress so far and the benefit we will get from the additional savings. Thrive is enabling us to accelerate investments that will help us sustain growth into the future while we continue to deliver solid results today. Total noteworthy items in the third quarter were $170 million, including $71 million of costs associated with Thrive. Noteworthy items this quarter also included $144 million relating to the Greensill litigation. As disclosed in our 10Q this morning, we have settled our involvement in this litigation and do not expect any additional charges relating to the case. Note that total settlement payments and costs are reflected in our statement of cash flows. Interest expense in the third quarter was $248 million. In our current forecast, we expect $255 million of interest expense in the fourth quarter. Our adjusted effective tax rate in the third quarter was 24.6% compared to 24.8% in the third quarter last year, with both periods benefiting modestly from discrete items. When we give forward guidance around our tax rate, we do not project discrete items. Based on the current environment, we expect an adjusted effective tax rate of around 25% for 2026. Turning to capital management, our balance sheet, we ended the quarter with total debt of 20.5 billion. We had 550 million of Euro-denominated senior notes mature in September, and we intend to replace them with new Euro-denominated notes in the fourth quarter. Our cash position at the end of the third quarter was $1.8 billion. Uses of cash in the quarter totaled $1.3 billion and included $476 million for dividends, $288 million for acquisitions, and $500 million for share repurchases. For the first nine months, uses of cash totaled $4 billion and included $1.4 billion for dividends, $607 million for acquisitions, and $2 billion for share repurchases. We continue to expect to deploy approximately 5.5 billion of capital in 2026 across dividends, acquisitions, and share repurchases. The ultimate level of share repurchase will depend on how our M&E pipeline develops. For the full year, we continue to expect underlying revenue growth similar to the levels we generated in 2025, along with another year of margin expansion, solid adjusted EPS growth. With that, I'm happy to turn it back to John.