Release Date: October 17, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Marsh & McLennan Companies Inc (MMC, Financial) reported a 5% underlying revenue growth in the third quarter, following a 10% growth in the same quarter last year.
- The company achieved a 12% increase in adjusted operating income and expanded its adjusted operating margin by 110 basis points.
- Marsh & McLennan Companies Inc (MMC) completed $300 million in share repurchases during the quarter.
- The acquisition of McGriff Insurance Services is expected to be modestly accretive to adjusted EPS in the first year and more significantly accretive in subsequent years.
- The company is on track for its largest M&A year in history, with nearly $10 billion committed to acquisitions year-to-date.
Negative Points
- The impact of Hurricanes Helene and Milton is expected to be significant, potentially affecting 2025 property insurance and reinsurance pricing.
- Oliver Wyman's revenue growth was only 1% in the quarter, reflecting a tough comparison to the previous year's growth.
- The company anticipates a decline in fiduciary income by approximately $30 million in the fourth quarter due to recent rate cuts and seasonal drops.
- Interest expense increased to $154 million in the third quarter, up from $145 million in the same quarter last year.
- The adjusted effective tax rate increased to 26.7% from 20.5% in the third quarter of the previous year.
Q & A Highlights
Q: Can you provide some color on the McGriff acquisition, specifically regarding revenue growth and margin assumptions?
A: John Doyle, President and CEO, emphasized excitement about the McGriff acquisition, highlighting its strong culture and client focus. While specific margins and growth rates weren't disclosed, Doyle noted that the acquisition is expected to be modestly accretive in year one and more so in subsequent years. The company is conservative in its modeling and expects good returns over time.
Q: What are the dynamics in the US and Canada market, and have there been any improvements in IPO and SPAC activities?
A: John Doyle mentioned that the company is pleased with the 6% growth in the US and Canada, driven by strong performance in MMA and Vector. Martin South, Vice Chairman and CEO of Marsh, added that there was double-digit growth in capital markets and MMA products, with strong performance in construction and aviation sectors.
Q: How might Hurricane Milton impact reinsurance renewals, and could prices increase?
A: John Doyle stated it's too early to determine the full impact of Hurricane Milton on renewals. Dean Klisura, CEO of Guy Carpenter, noted that while the market was expected to be competitive, post-Milton, there might be a flattening of pricing. Capacity is expected to be adequate, and the renewal should be manageable for most clients.
Q: What factors are affecting Oliver Wyman's performance, and is it linked to the economy?
A: John Doyle acknowledged softer growth at Oliver Wyman, attributing it to tough comparisons and regional economic factors. Nicholas Studer, CEO of Oliver Wyman Group, noted strong growth in Asia and the Pacific, with softness in the Americas and Europe due to corporate buying habits and economic uncertainty.
Q: Can you explain the volatility in free cash flow growth compared to revenue growth?
A: Mark McGivney, CFO, explained that free cash flow is inherently volatile and best viewed over long periods. The year-to-date decline is due to higher variable compensation payouts and receivables growth. Despite this, the company expects continued strong growth in earnings and free cash flow.
Q: How does the Marsh pricing index impact organic growth, and what is the effect of pricing changes?
A: John Doyle explained that about half of Marsh's business is sensitive to P&C pricing through commissions. While the index is skewed to large accounts, middle market pricing remains stable. Changes in client buying habits and risk retention can also impact growth.
Q: What are the expectations for the casualty reinsurance market given tort inflation?
A: Dean Klisura noted that reinsurers are concerned about US casualty reinsurance, particularly excess casualty. Current market conditions are expected to prevail, with downward pressure on ceding commissions and rate increases for excess of loss contracts. Adequate capacity is anticipated, though deals may be challenging.
Q: How does the growth in the non-admitted market affect Marsh, and does McGriff offer any advantages?
A: John Doyle clarified that Marsh is not losing share due to the growth in the E&S market. The company accesses these markets directly when beneficial for clients. McGriff's acquisition is expected to enhance capabilities, but the focus remains on accessing capital efficiently to drive client solutions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
