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Marsh & McLennan Companies, Inc. beats earnings expectations. Reported EPS is $1.68, expectations were $1.63. MMC isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Welcome to Marsh McLennan’s earnings conference call. Today’s call is being recorded. Fourth Quarter 2023 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. [Operator Instructions]. I’ll now turn this over to John Doyle, President and CEO of Marsh McLennan.

John Doyle: Good morning, and thank you for joining us to discuss our fourth quarter results reported earlier today. I’m John Doyle, President and CEO of Marsh McLennan. Joining me on the call today is Mark McGivney, our CFO, and the CEOs of our businesses, Martin South of Marsh, Dean Klisura of Guy Carpenter, Martine Ferland of Mercer, and Nick Studer of Oliver Wyman. Also with us this morning is Sarah DeWitt, head of Investor Relations. 2023 was an outstanding year for Marsh McLennan. Total revenue grew 10% to $22.7 billion. We generated 9% underlying revenue growth, continuing our best period of growth in more than two decades, with each of our businesses delivering strong results. Adjusted operating income grew 17% to $5.6 billion.

This on top of 11% growth in 2022. Our adjusted operating margin increased 130 basis points, marking the 16th consecutive year we’ve reported margin expansion, and adjusted EPS grew 17%. We invested $1.6 billion in acquisitions that added to our talent, capabilities, and scale. This was our largest year for acquisitions in nearly two decades, aside from 2019 when we acquired JLT. Our acquisition of Graham expanded MMA’s mid-Atlantic presence, Honan’s strength in our Australian middle market business, and our transaction with Westpac created one of Australia’s most competitive super funds. At the same time, we continued to optimize our portfolio, with the sale of two administration businesses at Mercer, which closed on January 1, 2024, and we delivered significant capital return to shareholders, raising our dividend by 20%, and completing $1.15 billion of share repurchases.

I’m proud of what our team achieved in 2023. Our colleagues executed on key initiatives and generated value for clients and shareholders. Our performance reflects execution of a well-defined strategy, which includes building a culture that attracts and retains top talent, strengthening our capabilities through organic and inorganic investment, positioning ourselves in segments and geographies with attractive growth and margin profiles, leveraging data insights and innovation to support clients in managing uncertainty and finding new opportunities, and delivering the power of Marsh McLennan’s perspective to help clients thrive. I just returned from the World Economic Forum where geopolitical, economic, climate, technology, and social risks were all very much top of mind for business and government leaders.

Marsh McLennan is uniquely positioned to help clients manage the broad range of outcomes they’re confronting from these issues. The launch of the Unity facility with Ukraine in November is a great example. Marsh, Oliver Wyman, and Guy Carpenter, came together to create an innovative insurance solution through a public-private partnership. Unity is now providing access to affordable war risk insurance for grain shipments in the Black Sea. The Ukrainian government’s ambition is for the facility to enable nearly 1,000 shipments annually, helping to support their economy and global food security. Launching this facility was a proud moment for us, and I can’t think of a better example of our purpose, our capabilities, and our impact in action. In so many ways, Marsh McLennan is well positioned to address today’s challenges, and we are only just beginning to harness our combined capabilities, which are a distinct advantage.

We are inspired by the possibilities, and consider it a privilege to do this important work. Our business strategy is complemented by a balanced approach to expense and capital management. We focus on generating consistent, strong earnings growth, and have a discipline of growing revenue faster than expenses. Our approach to capital allocation delivers results today, while investing to sustain growth in the future. And we are implementing new ways to operate, reduce complexity, and organize for impact. The strong value propositions of our individual businesses, the upside from bringing our collective strength to clients, and our restructuring actions, position us well for 2024. Looking to the year ahead, we continue to see a complex macro environment.

Major economies continue to face the risk of recession, but moderating inflation and the possibility of easing interest rates make a soft landing more likely. The geopolitical situation remains unsettled, with multiple wars, escalating conflict throughout the Middle East, and rising tension in the South China Sea. Despite these challenges, we continue to believe there are factors that are supportive of growth in our business. Nominal GDP expectations for 2024 remain healthy for our major markets. While inflation has moderated, it is still elevated, and tight labor markets and supply chain challenges persist. Continued low unemployment and sustained payroll growth, support demand in health and benefits and exposure unit growth in workers’ compensation.

The cost of risk continues to increase as insurers account for rising frequency and severity of catastrophe losses, the risks of social inflation, and higher reinsurance costs. Healthcare costs, driven in part by the rising cost of prescription drugs, accelerated in 2023, and are expected to remain elevated. And while short-term interest rates could ease, they remain at the highest level since the financial crisis. As we’ve stated before, we have a track record of resilience and performance across economic cycles. Now, let me turn to insurance and reinsurance market conditions. Primary insurance rates increased for the 25th consecutive quarter, with the Marsh Global Insurance Market Index up 2% overall, compared to a 3% increase in the third quarter.

Property rates increased 6% versus 7% in the third quarter, and casualty pricing continued to be up low single-digits. Workers’ compensation decreased slightly, while financial and professional liability rates were down mid-single-digits. Cyber pricing decreased modestly after several years of increases. In reinsurance, the January 1 renewals reflected a market with more balanced trading conditions than a year ago. As we expected, underwriting discipline continued, but the market was more responsive to client objectives. Capacity was generally adequate, and we saw increased demand from clients. In global property cat reinsurance, accounts without losses saw rates up modestly, while loss-impacted accounts increase between 10% and 30%. Casualty programs faced more scrutiny this year, with pressure on pro-rata seating commissions, and excess of loss pricing.

However, casualty capacity was adequate. As always, we’re helping our clients navigate these dynamic market conditions. Now, let me briefly turn to our fourth quarter financial performance, which Mark will cover in detail. We generated adjusted EPS of $1.68, which is up 14% versus a year ago. Revenue grew 7% on an underlying basis, with 8% growth in RIS, and 7% in consulting. Overall, in the fourth quarter, we had adjusted operating income growth of 16%, and our adjusted operating margin expanded 130 basis points year-over-year. In summary, 2023 was another outstanding year for Marsh McLennan. All of our businesses delivered, generating excellent revenue and earnings growth. We executed on our strategic initiatives, invested in high quality acquisitions, made the largest dividend increase in 25 years, and made meaningful share repurchases.

Looking forward, we are well positioned for 2024. We expect mid-single-digit or better underlying revenue growth, margin expansion, and strong adjusted EPS growth. Our outlook assumes current macro conditions persist. However, meaningful uncertainty remains, and the economic backdrop could be materially different than our assumptions. With that, let me turn it over to Mark for a more detailed review of our results.

Mark McGivney: Thank you, John, and good morning. Our strong fourth quarter results capped an excellent year. Our consolidated revenue increased 11% in the fourth quarter to $5.6 billion, with underlying growth of 7%. Operating income was $1.1 billion, and adjusted operating income was $1.2 billion, up 16% from a year ago. Our adjusted operating margin increased 130 basis points to 23.3%. GAAP EPS was $1.52. Adjusted EPS was $1.68, up 14%. Our full year of 2023 results were outstanding. Operating income for the year was $5.3 billion, and adjusted operating income was $5.6 billion, an increase of 17% over 2022. Adjusted EPS grew 17% to $7.99, and our adjusted operating margin expanded 130 basis points, marking our 16th consecutive year of reported margin expansion.

2023 was also a strong year for capital management. We deployed $4 billion of capital, enhanced our short-term liquidity, raised our quarterly dividend 20%, and saw Moody’s upgrade our senior unsecured debt rating to A3. Looking at risk and insurance services, fourth quarter revenue increased 11% to $3.3 billion, or 8% on an underlying basis. This result marks the 11th consecutive quarter of 8% or higher underlying growth in RIS, and continues the best stretch of growth in two decades. RIS operating income was $753 million in the fourth quarter. Adjusted operating income increased 15% to $791 million, and our adjusted margin expanded 140 basis points to 27%. For the full year, revenue in RIS was $14.1 billion, representing an increase of 11% on an underlying basis.

Adjusted operating income grew 17% for the year, and our adjusted operating margin in RIS increased 150 basis points to 31.3%. At Marsh, revenue in the quarter increased 7% to $2.9 billion, or 6% on an underlying basis. For the full year, revenue at Marsh was $11.4 billion, reflecting underlying growth of 8%. In US and Canada, underlying growth was 5% for the quarter, reflecting solid renewal and new business growth, despite continued headwinds in financial and professional lines. We also saw a headwind of nearly a point from lower flood claims in our MGA business. For the full year, underlying growth in US and Canada was strong at 7%. In international, underlying growth was 7% in the quarter, with Latin America up 11%, Asia Pacific up 10%, and EMEA up 5%.

For the full year, underlying growth in international was excellent at 9%. Guy Carpenter’s revenue was $252 million, up 9% on an underlying basis, driven by growth across global specialties in most regions. For the year, Guy Carpenter generated $2.3 billion of revenue and 10% underlying growth, our strongest year since 2003. In the consulting segment, fourth quarter revenue was $2.3 billion, up 10% from a year ago, or 7% on an underlying basis. Consulting operating income was $443 million, and adjusted operating income was $480 million, up 18%. Our adjusted operating margin expanded 130 basis points in the quarter to 21.3%. For the full year, consulting revenue was $8.7 billion, an increase of 7% on an underlying basis. Adjusted operating income for the year increased 13% to $1.7 billion, and our adjusted operating margin increased 70 basis points to 20.4%.

Mercer’s revenue was $1.4 billion in the quarter, reflecting underlying growth of 5%. This was Mercer’s 11th straight quarter of 5% or higher underlying growth, and continues the best run of growth in 15 years. Health grew 9% in the fourth quarter, reflecting strength in employer and government segments, and momentum across all regions. Wealth was up 4%, driven by growth and investment management and DB administration. Our assets under management were $420 billion at the end of the fourth quarter, up 11% sequentially, and up 22% compared to the fourth quarter of last year. Year-over-year growth was driven by our transaction with Westpac, a rebound in capital markets, and positive net flows. Career revenue increased 1%, reflecting tough comparables following a period of strong growth in the reward space.

For the year, revenue at Mercer was $5.6 billion, an increase of 7% on an underlying basis, the best result since 2008. Oliver Wyman’s revenue in the fourth quarter was 856 million, an increase of 9% on an underlying basis, like strength in Europe and the Middle East. For the full year, Oliver Wyman’s revenue was $3.1 billion, reflecting underlying growth of 8%. Adjusted corporate expense was $78 million in the quarter. Foreign exchange had very little impact on earnings in the fourth quarter and was a $0.07 headwind for the full year. Assuming exchange rates remain at current levels, we expect FX will have a negligible impact on the first quarter and full year of 2024. Total noteworthy items in the quarter were $90 million, the majority of which related to our restructuring actions, partly offset by a $58 million gain related to a legal settlement.

We reported $131 million of total restructuring costs, approximately $113 million of which relates to the program we launched in the fourth quarter of 2022. These charges largely reflect costs related to severance, lease exits, and streamlining our technology environment. We expect total charges under this program of approximately $475 million, and expect total savings of roughly $400 million, of which approximately $230 million was realized in 2023. We expect to realize the bulk of the remaining savings in 2024. To date, we’ve incurred approximately $440 million of charges under this program. Our other net benefit credit was $59 million in the quarter and $239 million for the full year. For 2024, we currently expect our other net benefit credit will be up slightly.

Cash contributions to our global defined benefit plans were $111 million in 2023. We expect a similar amount in 2024. Investment income was a loss of $1 million in the fourth quarter on both a GAAP and adjusted basis, and we aren’t currently projecting any investment income in the first quarter of 2024. Interest expense in the fourth quarter was $151 million, up from $127 million in the fourth quarter of 2022, reflecting higher levels of debt and higher interest rates. Based on our current forecast, we expect interest expense for the full year 2024 of approximately $625 million, with $159 million in the first quarter. Our adjusted effective tax rate in the fourth quarter was 25.5%. This compares with 22.9% in the fourth quarter last year, which benefited from favorable discrete items.

For the full year 2023, our adjusted effective tax rate was 24%, compared with 23.5% in 2022. Both periods benefited from favorable discrete items. 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 25.5% and 26.5% for 2024. Turning to capital management and our balance sheet, we ended the year with total debt of $13.5 billion. Our next scheduled debt maturities are in the first quarter of 2024, when $1 billion of senior notes mature, and in the second quarter when another $600 million of notes come due. Recall that last September we issued $1.6 billion of new debt to fund these maturities.

Our cash position at the end of the fourth quarter was $3.4 billion. Uses of cash in the quarter totaled $1.1 billion, and included $354 million for dividends, $486 million for acquisitions, and $250 million for share repurchases. For the year, uses of cash totaled $4 billion and included $1.3 billion for dividends, $1.6 billion for acquisitions, and $1.15 billion for share repurchases. I want to take a minute to reiterate our approach to capital management. We have consistently followed a balanced capital management strategy that helps us deliver solid performance in the near term, while investing for sustained growth over the long term. We prioritize investment in our business, both through organic investments and acquisitions. We favor attractive acquisitions over share repurchases, and believe they are the better value creator for shareholders and the company over the long term.

However, we also recognize that returning capital to shareholders generates meaningful returns for investors over time, and each year we target raising our dividend and reducing our share cap. Looking ahead to 2024, 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&A pipeline develops. As John noted, there is significant uncertainty in the outlook for the global economy. However, we feel good about our momentum and position, and despite the uncertainty, there are factors that remain supportive of growth. For 2024, we currently expect mid-single-digit or better underlying revenue growth, margin expansion, and strong growth in adjusted EPS.

With that, I’m happy to turn it back to John.

John Doyle: Thank you, Mark. Andrew, we’re ready to begin Q&A.

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Operator: [Operator Instructions] And our first question comes from the line of Elyse Greenspan with Wells Fargo.

Elyse Greenspan: Hi, thanks. Good morning. My first question, earlier this week, we had another insurance broker who’s updating their reported EPS metric to back out intangibles. So, that does leave you guys as the only broker peer, right, that doesn’t back out intangibles out of your adjusted EPS figure. Have you guys given consideration to moving towards what’s become industry common practice?

John Doyle: Good morning, Elyse. Mark, maybe you could comment on that.

Mark McGivney: Elyse, we don’t have any current plans to change our reporting. We do provide amortization and other information that allows you to stack us up against other companies, but we don’t plan to change how we report at this point.

Elyse Greenspan: Okay. Thanks.

John Doyle: You have a follow-up, Elyse?

Elyse Greenspan: And then my second – yes, my second question. I was hoping to get more color on both the US and Canada and EMEA, which did see growth slow in the quarter. I know Mark alluded to one point headwind from lower flood business within the US and Canada. I wasn’t sure if there was anything else to point out in the quarter, and also hoping to get similar color on anything one-off within organic growth within EMEA as well.

John Doyle: Sure, Elyse, and I’ll make a couple of comments and then ask Martin to jump in. First of all, Marsh had an excellent year of growth at 8% underlying revenue growth for the year, a strong finish to the year. We saw fourth quarter of 2022 have slightly lower underlying growth as well, but we feel like we’re very well positioned. Mark made a few comments about the growth in the quarter, but Martin, maybe you could add a little bit more color.

Martin South: Yes, thank you, John. As you said, we had a very good year, with 7% growth this year. And Marsh for the quarter at 5% growth, was also the same as the prior year. MMA had an outstanding performance, driven really by great retention new business. Our M&A pipeline is robust. The US business continued to perform well. There’s some headwinds in the capital markets activity and pressure on financial minds, but our advisory business grow – it was partially offset by Canada, which is impacted more by macro headwinds. And of course, we mentioned a lot of flood claims in the MGA business. So, in EMEA, we had an excellent year in EMEA, 9% growth. Q4 was 5% growth. The European business within EMEA is the smallest quarter by some margin.

And so, it’s susceptible to some slowdown in some of the projects, but we had a very strong year, strong quarter in the Middle East, steady results in the UK. And so, that was really it. Nothing remarkable, strong momentum, we’d expect to be very confident going into next year.

John Doyle: Thanks, Martin. So, Elyse, FINPRO pricing, as Mark mentioned, flood claims and the continued slow M&A environment, all factored in in the US, but again, we feel like we’re very well positioned and demand is quite strong for us in in 2024. Operator, next question.

Operator: Thank you. And our next question comes from the line of Jimmy Bhullar with J.P. Morgan.

Jimmy Bhullar: Hey, good morning. So, first, just a question on the reinsurance brokerage business. Obviously, prices this year haven’t gone up like they did last year. But what have you seen in terms of terms and conditions and buying behavior? Because last year we saw the primaries retain a lot of risk and attachment points went up. Have those come back down or are like sort of terms and structures programs similar to how they were last year?

John Doyle: Yes, thanks for the question, Jimmy. Guy Carpenter just had an excellent year helping clients navigate what was a very, very choppy market in 2023. We certainly began 2024 with a more orderly market, but growth was outstanding, and I feel terrific about how we’re positioned to help clients going forward. But Dean, maybe could share a little bit more insight on the market on 1/1.

Dean Klisura: Sure. Thanks, John. And Jimmy, let me give you a little bit more color on the 1/1 renewal in reinsurance. As John stated, we saw a balanced reinsurance market at the January 1st renewal. Overall capacity was adequate for the completion of most programs across products and classes of business. Capacity did increase given rebounding capital in the marketplace and improved reinsurer returns in 2023. We estimate the dedicated reinsurance capital increased double-digit for the 1/1 renewal. Turning to property cat, which I think you’re mainly referring to, as John noted, was more consistent trading rhythm than last year. Capacity overall was adequate to cover most non-frequency cat exposed layers. But as John noted, reinsurers held firm on terms and conditions.

Attachment points did not come down. So, reinsurers held on what they achieved in 2023, continuing to expose our clients’ balance sheets to attritional volatility moving forward. So, that certainly didn’t change. But overall, I thought it was a positive renewal. Clients bought more capacity at the top of cat programs. You saw some of those reported in the marketplace. So, clients were able to get more capacity than last year, achieve their objectives, as John noted. John talked about risk-adjusted rate increases. For clients with non-loss impacted portfolios, they saw a range of flat to high single-digit kind of rate increases, but clients with cat losses were in the 10% to 30% rate increase range, right? So, I think that was pretty robust in both kind of the US and European markets.

Maybe a minute on casualty as well. In prior calls, we talked a lot about casualty and increased scrutiny of casualty portfolios heading into the 1/1 renewal. Reinsurers have been expressing concerns about adverse loss development now for several quarters and real and social inflation. However, I would say that at 1/1, that pricing movement was more constrained, slightly more muted than we anticipated kind of earlier in the fourth quarter. That said, as John, as John mentioned, there was downward pressure on seating commissions for quota share contracts. And excess of lost contracts saw double-digit rate increases moving forward. But in the casualty renewal, I would say overall capacity was adequate.

John Doyle: Thanks, Dean. Jimmy, I would add, just in both the insurance and reinsurance market, the pace of loss cost inflation in casualty is the great unknown at the moment. We all know it’s increasing. We all see mounting evidence of it, but that’s the challenge for all of us in the market to sort through at the moment. Do you have a follow-up, Jimmy?

Jimmy Bhullar: Yes. Just on fiduciary investment income. So, it had been increasing at a pretty sharp rate and declined modestly sequentially. Is that a function of just what’s happened with interest rates or something to do with fiduciary balances or seasonality or something else?

John Doyle: Sure. Mark, you want to?

Mark McGivney: Yes. Jimmy, it is seasonality. Our balances tend to have a pattern of seasonality. It results in – Q4 and Q1 tend to be seasonal lows for average balances. So, it’s purely a function of that.

John Doyle: Thanks, Jimmy. Operator, next question, please.

Operator: And our next question comes from the line of Michael Zaremski with BMO Capital Markets.

MichaelZaremski: Good morning. Back to the organic growth commentary, especially on the brokerage side, you’re loud and clear on kind of some of the pluses and minuses. I didn’t hear anything about any influence from maybe a diminishing tailwind from some of the excess hires you’ve made in past years. Is that a dynamic we should be thinking about as we think about 2024 and 2025?

John Doyle: Yes. Thanks, Mike. No, I don’t think so. We continue to invest both organically and inorganically, maybe not that at the pace of a few years ago, but that’s an important metric for us that we track around how we’re driving production capacity in all of our businesses. So, as I mentioned in my prepared remarks, we think the macro environment continues to be supportive of growth in our business. Nominal GDP will drive some growth. Inflation, while easing, is still elevated, tight labor markets. We were just talking about the cost of risk in casualty as well. And as a result of that, we think pricing in the market will maintain – will remain relatively stable as it’s been really throughout most of 2023. So, we’re quite optimistic about 2024.

Our outlook is positive. I would also say a couple of other things. We’re a better business entering 2024. We’ve been working hard at that. Our mix continues to improve. I talked about that a little bit about some of the divestiture activity, but also the inorganic investment we made. And we’ll continue to invest organically in the business as well, and demand remains strong. So, we’re excited about 2024.

MichaelZaremski: Understood. And my follow-up, switching gears a little bit to Mercer. In your prepared remarks, I think you made, John, some comments about medical or health inflation. Some of the data points we’ve seen are – the medical costs for employers should – might accelerate in 2024. Should that have a tailwind or any influence on the health segment specifically? Thanks.

John Doyle: Sure. Health was a terrific story for us in 2023, and helping employers navigate what’s a very, very complex and increasing cost environment will be very much on the top of our agenda in 2024 as well. Maybe, Martine, I’ll ask you to comment a little bit about how we finished the year and what your outlook is around health for 2024.

Martine Ferland: Yes. Thanks, John, and thanks, Mike, for the question. We’re very pleased with the results in health, and we have had a quarter of 9% a year of 10 in overall health, and it comes from all regions, and it comes from many places. Of course, full employment does drive good results there, more people to cover in our employers’ benefit programs. But we also have invested in innovative and adaptive solutions. And medical cost inflation is there, and what it drives for us is a lot of consulting around trying to help clients and their employees control costs by better design, better fit for purpose programs. So, we’ll see. There’s not a huge portion of our business that is actually directly linked to inflation. We have a lot of fee-based revenue in the business.

So, usually, whether there’s a lot of inflation or inflation abates a little bit is not a big factor in the overall results. I think it’s more around access to healthcare, innovative form of healthcare, like digital health, mental health, good affordability for clients and their employees. That’s mostly driving our business results.

John Doyle: Thanks, Martine. Andrew, next question, please.

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

David Motemaden: Hi, thanks. Good morning. I had a question just on Oliver Wyman, and I know a few quarters ago, we spoke about the pipeline that had slowed a little bit, but growth has remained pretty resilient there. I’m wondering if you could just talk about some of the drivers there within Oliver Wyman for organic. And we’ve seen a few more – a little bit more activity on the life insurance transaction side, just M&A activity. Is that something that’s been an outside driver to results?

John Doyle: Yes, thanks, David. Oliver Wyman had a terrific year, and as we all recall, we had a flat start to 2023. So, demand continued to pick up and sales continued to pick up throughout the course of the year, and we had a real strong finish. But Nick, maybe you could share a bit more color on what drove the growth and your outlook a bit.

Nick Studer: Thank you, David, for the question. Yes, 12 months ago, we were coming off a pretty strong year, but we knew the first quarter was going to be tough. And looking back on the year, it was indeed a pretty tough marketplace for many of our competitors and for the industry, and we’re very proud of clawing back from that slow start to a strong year. It was pretty wide-based growth. As Mark mentioned in his prepared remarks, our Middle East business grew very strongly, had excellent growth in Europe. We had strong growth in our economic research capabilities, as well as in digital, in finance and risk. Some of our other capabilities grew, our people and organizational performance capability. And I’ve mentioned a few times that we’ve been building a restructuring practice.

It’s still not a big restructuring cycle, but that practice continues to grow very strongly. And across the industry is, again, broad-based growth in the public sector, which is a strong practice for us, particularly in the Middle East. Some good growth in banking. You mentioned life insurance and consolidation. We have a strong insurance practice. We’ve seen a lot more activity in post-merger integration and M&A across our sectors. And then our transportation and services and our communications media and technology practices also grew strongly. And I think it’s off the base of just good hiring, good organic growth, and also some good inorganic growth. We’ve made a number of acquisitions over the last few years. We announced one which we hope to complete in the next couple of months, and both great partner level hires and M&A are helping fuel that growth as well.

So, the business is now 50% bigger than it was three years ago. That scale, that breadth, allows us to play in more places, allows us to help our clients with their big transformative moments.

John Doyle: Thank you, Nick. And David, I would add, Oliver Wyman is just one of the ways in which we can show up in a very, very different way in front of clients and prospects. And so, we have a unique collection of capabilities, certainly with them and the family. Do you have a follow-up, David?

David Motemaden: I do, yes. Thanks for that. Just a bigger picture question. I just sort of look over the last decade or the decade pre-pandemic, Marsh as an enterprise has grown organically in the 3% to 5% range, and we’ve obviously been well above that over the last three years, including 9% here in 2023. There’ve been a number of tailwinds, but you guys have also been investing in the business. So, I’m wondering if you think we can sustainably grow above that 3% to 5% organic growth we saw in the decade pre-pandemic as we think about the next several years.

John Doyle: Yes, thanks, David. As I said just a couple of minutes ago, I think we’re a better business entering 2024 than we were in 2023. I thought we were an outstanding business leading into 2023, but we’ve been working hard at being a better growth business for many years now. Part of that’s reshaping the mix of business. As we’ve talked about, investing organically and inorganically. We’ve spent a lot of time refining our client engagement models and investing in sales operations and technology to support sales. And of course, in 2019, we made the biggest acquisition in our history with JLT. So, we were building up these capabilities going into 2020 when, of course, the pandemic hit. So, I knew we were ready to run coming out of the pandemic.

The macro environment, of course, has been supportive since the pandemic. And as I mentioned earlier, we expect the macros to continue to be supportive in in 2024. So, we think we’re well positioned. As I mentioned earlier, we expect mid single-digit revenue growth or better. So, we’re excited and quite optimistic heading into the year. Operator, next question, please.

Operator: Our next question comes from the line of Robert Cox with Goldman Sachs.

Robert Cox: Hey, thanks for taking my question. So, just curious if you could give us some more color on any changes in the middle market operating environment in particular, and anything you guys are thinking about in terms of competitive dynamics as some large peers enter this space in a bigger way.

John Doyle: I think you could ask Aon about NFP. I’m happy to talk about our middle market offering. I believe we have the best-in-class middle market US platform in MMA. It has been 12 years that we’ve been building our business here in the United States. And we’ve been building it out methodically and I’m very, very proud of it. We love competition. And so, I’ll take our team in the market, but we’re excited about our prospects at MMA. And candidly, I think we’re just getting started. And when we began this effort 12 years ago, there were 30,000 independent agents in the United States, and today there are 30,000 independent agents in the United States. So, there’s much more in front of us. Do you have a follow-up?

Robert Cox: That’s great. Yes. So, just for a follow-up, maybe going back to the health space, I think you guys have discussed how you’re largely compensated on a fee per employee basis, and employment growth is much lower than the 9% organic you achieved in the quarter. So, I was just wondering if you could help me understand, is this more consulting, new business opportunities out there? Are you raising fees and maybe is brokerage growing at a similar pace to the headline 9% organic?

John Doyle: Yes. it’s I think all of the above, but good sales and a value proposition to clients and prospects that they appreciate very much. I don’t know, Martine, do you have anything to add to that?

Martine Ferland: Yes. Well, first a correction. The large part of our business is actually consulting fees. It’s not fees per member, as you mentioned, Robert. So, just to be clear about that. There’s a small portion of the business in the US that is fee per participant, but that’s the business that we divested. It’s more in a (NIM) business. It’s how those businesses are usually paid out. So, the bulk of our business, some of it is based on the commission, but as I said, clients are really trying to control costs. So, there’s not a direct link to inflation in premium there, because they would change the attachment point, as my colleagues in reinsurance like to talk about. They would vary the benefit programs, et cetera. And there’s a large part that is project-based.

And to your point, our growth has been in part full employment because there’s much more work to be done to cover the employee population. But there’s also a lot of change. High cost of prescription drugs, for example, accessibility through different means, technology coming into the space to help out people choose the right providers, the right programs, and we’re there with them helping them design those programs, communicate them to employees, measure them in terms of efficacy, but also cost, et cetera. So, that’s what’s been – and you know that the health space everywhere is also seeing lots of change, lots of pressure on cost. So, I don’t see us being not busy anytime soon. Nothing climbs through that.

John Doyle: Thank you, Martine. Thank you, Robert. Andrew, next question please.

Operator: Our next question comes from the line of Meyer Shields with KBW.

Meyer Shields: Great, thank you. Two quick questions. First, can you give us a sense of the seasonality of the reinsurance acquisition that contributed so much to this quarter’s growth?

John Doyle: Mark, maybe you can?

Mark McGivney: Meyer, what you’re seeing – I think you’re referring to the underlying growth schedule and what looks like a large acquisition in Guy Carpenter, is actually that column is acquisitions, dispositions, and other adjustments. And we had a – in my prepared remarks, I mentioned a legal settlement that we had, a noteworthy item in the quarter. So, that’s what’s running through that schedule. It wasn’t a large – not M&A for Guy Carpenter.

Meyer Shields: Oh, okay. Thank you.

John Doyle: You have a follow-up, Meyer?

Meyer Shields: Yes, a quick one. When you’ve got the flood claims revenues in last year’s I guess US and Canada operations with risk and insurance services, did that have any impact on last year’s margins or the year-over-year progress?

John Doyle: Well, we don’t report margins by business, but you saw a good margin expansion during the course of the year. And again, our outlook for 2024 is for 17th year in a row to expand margins yet again. So, it wasn’t material. We managed through it. There are parts of our business that are lumpy, right? That’s why we caution everybody not to get too worked up about growth rates in a particular quarter. And the flood claim activity was largely related to Hurricane Ian-related work that we did at that time last year. Thank you, Meyer. Andrew, next question, please.

Operator: And our next question comes from the line of Brian Meredith with UBS.

Brian Meredith: Hey, thanks, John. Just quickly and kind of following on Rob’s question a little bit. If we look at the middle market space, there are some kind of larger competitors of yours that are going through some transitions, be it being acquired, maybe being acquired, not sure, all sorts of stuff. Is that creating maybe another opportunity here for you to kind of ramp up talent acquisition? You obviously were really successful a couple of years ago doing that. Is that opportunity out there you think again?

John Doyle: Yes. Look, Brian, what I would say first and foremost about talent acquisition is that we are very, very focused. I mentioned this in my prepared remarks about building a culture that attracts and retains the best in our work. The way we frame it, and we talk about being at your best at Marsh McLennan, right? How can we – for those that want to commit their career to risk strategy and people-related work, how is it that being at Marsh McLennan, you can be your best? And we frame those programs around learning and development, mobility, various aspects of wellness. And you get to do really purposeful work here. I mentioned the Ukraine work as an example earlier. You get to work with exceptional talent, and it’s a collaborative environment and a learning environment.

And so, I feel like we have the best talent in our business. I feel like our brand as an employer in the market is very, very strong. It doesn’t mean everybody wants to work here. Of course, we’re a big company and as we all know, there’s lots of things that come with working at a bigger company. But I like how we’re positioned. So, M&A, yes. Does it create opportunities for talent acquisition? Much like – we saw a bit of talent breakage when we acquired JLT. Folks sign up for working at a certain place, and when you have that kind of change, it’s an opportunity possibly for folks to think through what they want to do going forward. I like how we’re positioned in that respect. And then back to your other comment, yes, there are a number of bigger businesses, particularly in the risk space that are likely to change hands over time.

Brian Meredith: Great, thanks. And then I guess my next question, could you talk a little bit about kind of the M&A environment, particularly in the risk business, multiples being paid, what the pipeline kind of looks like there, more competitive, less competitive.

John Doyle: Yes, thanks, Brian. We remain very active in the market. As I said earlier, last year was our biggest year of acquisitions, other than 2019 when we did JLT, over a long period of time. We’re very selective. We’re looking for high performing businesses, well led businesses in attractive markets. As I mentioned, we want growth businesses with the ability to grow earnings as well. The three bigger deals that I highlighted in my prepared remarks, we’re very excited about Honan in Australia. It gives us really an anchor platform deeper into the middle market in what’s a very important and attractive market for us. Graham here in the United States, another step forward for us at MMA and then BT Westpac in Australia, strengthening our wealth business.

So, we have a couple of deals that we announced in the later part of last year. Vanguard’s OCIO operation, a career business, those will close sometime over the next the next few months. So, we’re going to continue to be active. Much like I was talking about our brand as an employer, our brand as a buyer is also quite strong, right? We do what we say we’re going to do. And so – and then on valuations, four really attractive assets. Their multiples remain high. And so, anyway, but we’ll continue to deploy capital that way. And as Mark mentioned, we’d rather deploy capital on attractive inorganic and organic investment for that matter over share buybacks. But in the course of a year, you never know how things will run. But the pipeline is quite strong at the moment.

Thank you, Brian. Andrew, next question.

Operator: Our next question comes from the line of Andrew Kligerman with TD Cowen.

Andrew Kligerman: Hey, good morning. John, you talked about the great unknown in terms of loss cost inflation, social inflation. On the flip side, we’ve seen a few carriers report, and their results have been exceptional. So, I understand that you’re kind of projecting out some good pricing, but at what point does that give and take ratio change and we kind of see some softer pricing, and how would that affect Marsh?

John Doyle: So, look, as I’ve said a couple of times on this call, we’ve been working very hard at becoming a better growth business. We’re not an index on P&C pricing. Of course, we’re exposed to it. And just to be clear, I wasn’t trying to project higher casualty prices over time. Our job is to get the most efficient risk financing as we can for our clients. But what I can tell you is, it is quite clear that there’s stress emerging in casualty. There’s no question about it. There are some casualty cats that are out there that are concerning to underwriters and buyers, and we’re just seeing greater frequency of mega settlements, and for that matter, even judgements on individual cases. Core inflation, of course, is something that’s always a factor in the market. And you see that – you’ve seen some of that manifest itself in shorter tail lines from carriers. But we’re all quite concerned inside of our risk business about where casualty loss costs are headed.

Andrew Kligerman: Thanks for that one. And then my second question is just the stellar growth, underlying growth in Asia Pacific at 10%, LATAM at 11% in risk and insurance services. Question is, what particularly you seeing in those markets that is driving some of that excellent growth? And then underlying that, what is Marsh doing differently from the competitors?

John Doyle: Yes. I mean, we’re very proud of our businesses in both of those regions. They’ve been growth leaders for us over the last several years. I would point out, it’s one of the things that JLT brought to us in 2019. We expanded our footprint and brought along much greater distribution in both Latin America and Asia. But Martin, maybe you could talk a little bit more about both of those regions.

Martin South: Yes, as you say, I mean, we’re the clear market leader by some margin in Asia-Pac. There’s several factors. We have literally market leadership in every single major geography there. We are able to bring all of our best capabilities from around the world to there. We have great teams, very specialized, a very strong employee benefits business. We have scale. We’re able to attract and retain talent in a way – there’s just – there’s real momentum there. And the same can be said in Latin America. Slightly different economic dynamics, obviously, with Latin America. A big protection gap. A lot of opportunities market leadership in the areas there, and still quite an unconsolidated marketplace. So, we like the fact that we built our businesses organically, so the cultures are strong.

There’s not much on the M&A pipeline in those markets that we like. We are confident that we can build our businesses organically. And the differentiation of having global service and our global capabilities is really well sought out to by our clients.

John Doyle: Yes, thanks, Andrew, and Martin, for that. We continue to be excited about how we’re positioned in those markets. Andrew, next question, please.

Operator: Our next question comes from the line of Bob Huang with Morgan Stanley.

Bob Huang: Hi. I only have one major question. So, this regarding MMA. So, just curious, how much did MMA contribute to the overall revenue for 2023? And as we move into 2024, how should we think about the trajectory for MMA? Is it like, should we continue to expect it to further outgrow the broader business as a whole, or how should we think about just the competitive dynamic overall as well?

John Doyle: So, we obviously don’t separately report MMA’s results, but it’s an important part of our business in the United States, and it continues to perform exceptionally well. We couldn’t be more pleased, as I mentioned earlier. And as I also said, I think we’re just getting started, right? So, and what I would also say is that the broader Marsh has learned a great deal from MMA about what it takes to win in the middle market. And Martin and the team apply those lessons as we expand in the middle market all over the world and where possible even deploy inorganic investment like we did in in the case of Honan in Australia. But our business at MMA also benefits from being part of Marsh. They’re excellent at really mining Marsh for content and capability that can enable them to show up with scale in local markets in a way that really distinguishes themselves from others.

So, as I mentioned earlier, we’ve been methodically building out MMA over the course of the last 12 years piece by piece and A+ asset by A+ asset. And so, we couldn’t be more excited, and we think there’s a long road ahead of us. Do you have a follow-up, Bob?

Bob Huang: No, I think I’m good. Thank you.

John Doyle: Okay. Thank you, Andrew. Next question, please.

Operator: One moment, please. Our next question comes from the line of Michael Ward with Citi.

Michael Ward: Thanks, guys. Good morning. Just on the capital deployment target, I think it was up over 10%. I was just wondering if that’s a function of the cost savings program rolling off or anything else.

John Doyle: No, but Mark, maybe you could just talk generally about our approach.

Mark McGivney: We had a, if you saw, a strong year of free cash flow generation. We have significant financial flexibility. Our balance sheet is strong. And so, it’s just really a reflection of the growth in our outlook for capital – cash generation.

Michael Ward: Okay. And then any kind of update on the progress with synergizing the various business sales efforts together?

John Doyle: Yes, thanks, Mike, for that question. One of the things that I think makes us a better business is we’re working better together than we ever have, right? And we have shared with you where we are on the expense side of things, but we’re showing up together in front of clients and prospects. As I mentioned earlier, the strength of our individual business propositions will continue to drive the growth of our business overall. But more and more, we can show up in a very, very unique way. And so, we made good progress during 2023. We’ve certainly learned a great deal. We’ve done some testing, and we’ll continue to refine that. But we have a number of global growth opportunities where we’re showing up in front of clients and prospects together.

And what we really did was create a framework for our folks in the field. As you’ll recall, we appointed Marsh McLennan leaders in each of the regions. And so, a big part of their day is making sure that we’re bringing our collective capabilities to market at a local level where it makes sense. So, we continue to be excited about what that’ll mean to future growth.

Operator: Thank you. I would now like to turn the call back over to John Doyle, President and CEO of Marsh McLennan, for any closing remarks.

John Doyle: Thanks, Andrew, and I want to thank you all for joining us on the call this morning. In closing, I want to thank our colleagues for their hard work and dedication. I also want to thank our clients for their continued support. Thank you all very much, and we look forward to speaking with you again next quarter.