MITRE MINING CORPORATION LTD (MMC) — Q3 2022 Earnings Call Transcript

Thank you, Andrew. Good morning, and thank you for joining us to discuss our third quarter results reported earlier today. I'm Dan Glaser, President and CEO of Marsh McLennan. Joining me on the call today is John Doyle, our Group President and COO; 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. Today is my 60th earnings call at Marsh McLennan, and 40th as CEO. After 10 years as President and CEO, I will be retiring from Marsh McLennan at the end of the year. Leading this firm over the past decade has been the honor of a lifetime. Before I jump into our results, I'd like to say how pleased I am about the leadership succession we announced. The appointment of John Doyle as President and Chief Executive Officer, effective January 1st continues to underscore Marsh McLennan's deep trove of industry-leading talent. During John's tenure as President and CEO of Marsh, he drove exceptional revenue and earnings growth. And as Group President and COO, John is finding new ways to harness the capabilities of Marsh McLennan across our business, accelerating impact for clients, colleagues and communities. John has been an indispensable partner to me and the other members of our Executive Committee in shaping and executing our strategy. He knows our business well and is focused on delivering outstanding performance for clients and shareholders. I am confident that our extraordinary success will continue under John's leadership. Marsh McLennan's third quarter results demonstrated strength on strength. Top line momentum continued across our business, extending the best run of quarterly underlying growth in over two decades. We generated strong top and bottom line results despite difficult year-over-year comparisons. Underlying growth of 8% in the quarter reflects considerable strength across our organization. It represents the sixth consecutive quarter of 8% or higher top line growth, building on 13% growth a year ago. Adjusted operating income of $851 million was a third quarter record, and grew 12% on top of 19% in the third quarter of 2021. Adjusted EPS growth of 9% is excellent, especially given costs related to our strategic talent investments, the rebound of travel and expenses, and 32% growth in the third quarter of 2021. We completed $500 million of share repurchases in the third quarter, bringing year-to-date repurchases to $1.6 billion, which is higher than any full year level of repurchases in our history. While the economic and geopolitical backdrop is uncertain, we have a proven track record of being resilient through cycles and are well positioned. Overall, our third quarter performance highlights the strength of Marsh McLennan, a critical nature of what we do for our clients and the unmatched expertise of our colleagues. With that, let me turn it over to John.

Thanks Dan and good morning everyone. I am honored to become Marsh McLennan’s next President and CEO, and grateful for the trust and confidence Dan and the Board have placed in me to lead this exceptional company. I'm eager to work with our colleagues in realizing new possibilities to serve our clients, create value for our shareholders, and support our communities. I'm pleased with our third quarter results. We delivered strong growth despite a macro backdrop that is becoming more uncertain. We are delivering solutions to help clients navigate the volatile economic, geopolitical, and risk landscape. As we discussed last quarter, there are aspects of the current environment that remain supportive of our growth. Higher inflation offsets lower real GDP growth, rising interest rates boost our fiduciary income, and the challenging insurance market drives a flight to quality. We also have a track record of success and being resilient through cycles, and I believe Marsh McLennan is well positioned to perform. I would like to take a moment to discuss Hurricane Ian, which has had a devastating impact on the people and communities in Florida. Ian has the potential to be the costliest insured event in Florida's history and the second most damaging insured loss of all time. We are working with insurers to help our clients receive much-needed support. Insurance has a critical role to play in building homes and restoring shuttered businesses. Our work reinforces Marsh McLennan's purpose to be there in the moments that matter for our clients and communities. Ian's Category 4 strength, incredible size, and slow pace resulted in tremendous damage, the cost of which is exacerbated by the effects of coastal development, the escalation of property values, general inflation, and persistent supply chain challenges. While the ultimate insured loss won't be known for some time, the impact on an already stressed property market will be significant. At mid-year reinsurance renewals, the property market is already exhibiting strains. Following Ian, the property cat market is likely to tighten even further and perhaps see a significant supply-demand imbalance. We are harnessing our collective expertise, scale and capabilities to bring solutions to help our clients navigate this complex risk environment. Turning to our third quarter financial performance, we generated strong results. Adjusted EPS of $1.18 is up 9% versus a year ago, which is impressive on top of 32% growth in the third quarter of 2021. Total revenue increased 4% versus a year ago and rose 8% on an underlying basis, with 9% in Risk and Insurance Services (RIS) and 8% in Consulting. This is a terrific result, especially considering the prior year third quarter underlying growth of 13%. Marsh had an excellent quarter. Growth was 8%, reflecting new business and strong renewal growth. Guy Carpenter grew 7% in the quarter, continuing its string of terrific results. Mercer grew 5% in the quarter despite capital market headwinds, and Oliver Wyman grew 13%, the seventh consecutive quarter of double-digit growth. The third quarter saw adjusted operating income growth of 12% and our adjusted operating margin expanded 110 basis points year-over-year. Overall, I am proud of our third quarter performance, which demonstrates the strength and resilience of our business. Given our strong third quarter and year-to-date performance, we are on track for an outstanding year. We expect to generate high single-digit growth, underlying revenue, solid growth adjusted EPS and to report margin expansion for the 15th consecutive year. We are focused, aligned and succeeding together, as our results demonstrate. Before I turn it over to Mark, I'd like to say a few words about Dan. During Dan's tenure at the helm of Marsh McLennan, the company has been transformed. Our revenue has nearly doubled, our adjusted EPS has more than tripled, and our market cap has quadrupled. Our scale and capabilities have been enhanced, and our talent is unmatched. Dan led our expansion into new client segments and launched Marsh McLennan Agency, which has grown to $2.5 billion of annual revenue, closed 100 acquisitions in just over a decade, and also successfully led the company's $5.6 billion acquisition of JLT in 2019, the largest in our history. Most importantly, Dan has led our firm with vision, courage, and integrity. Faced with the consequences of the pandemic, his values-first leadership ensured that the tough choices were made to safeguard our colleagues, protect jobs and incomes, deliver for clients, bolster liquidity, and still produce significant growth. His decisions were an inspiration to our colleagues and an example to the broader business community. Our financial performance speaks for itself, with Marsh McLennan's total shareholder return more than doubling the S&P 500 during Dan's stewardship as CEO. Less visible but even more significant is the sense of pride and the culture that Dan has instilled in the firm. Under his leadership, we are not only a great stock but a great company. We owe him our gratitude. So on behalf of our 86,000 colleagues, I thank Dan for his leadership. And with that, I'll turn the call over to Mark for further detail on our financial results and a discussion of our outlook for the rest of 2022.

Thank you, John, and good morning. As Dan and John mentioned, our performance in the third quarter shows continued momentum across our business. We experienced another quarter of strong underlying revenue growth and significant earnings growth despite challenging revenue and expense comparisons. Consolidated revenue rose by 4% to $4.8 billion, reflecting an underlying growth of 8%. Operating income was $791 million, with adjusted operating income of $851 million. Our adjusted operating margin was 19.6%, an increase of 110 basis points compared to the previous year. This growth was supported by modest operating leverage and a favorable foreign exchange impact. We reported GAAP EPS of $1.08 for the quarter, and adjusted EPS of $1.18, up 9% year-over-year. For the first nine months of 2022, underlying revenue growth was 9%, with adjusted operating income rising by 11% to $3.7 billion, our adjusted operating margin increasing by 60 basis points to 25.6%, and our adjusted EPS growing by 12% to $5.38. In the Risk & Insurance Services sector, third-quarter revenue reached $2.8 billion, up 6% from last year or 9% on an underlying basis. Operating income grew by 32% to $529 million, while adjusted operating income increased by 20% to $562 million, leading to an expanded adjusted operating margin of 22.4%. For the first nine months, revenue totaled $9.7 billion, with underlying growth of 10%. Adjusted operating income for this period rose by 13% to $2.8 billion, with a margin of 31.1%, an 80 basis point increase from the same period in 2021. At Marsh, quarter revenue was $2.5 billion, which is 5% higher than a year ago. Underlying revenue growth was 8%, supported by strong retention. The U.S. and Canada experienced 5% underlying growth, a solid performance considering a 16% increase in the third quarter of 2021 due to significant M&A and SPAC-related activity. Internationally, underlying growth was 11%, with Latin America increasing by 15%, Asia Pacific by 14%, and EMEA by 9%. For the first nine months of the year, Marsh's revenue reached $7.8 billion, reflecting a 9% underlying growth. Guy Carpenter's third-quarter revenue was $328 million, a 7% rise in underlying growth, showcasing solid production and retention. Guy Carpenter has achieved 7% or higher underlying revenue growth in six of the last seven quarters. For the first nine months, Guy Carpenter generated revenue of $1.8 billion with 10% underlying growth. In the Consulting segment, revenue was $2 billion, up 1% from last year or 8% on an underlying basis, building on a 12% increase in the third quarter of 2021. Operating income declined by 14% to $350 million, reflecting a significant one-time benefit from a year ago. Adjusted operating income increased by 3% to $362 million, though solid earnings growth was impacted by foreign exchange. The adjusted operating margin grew by 20 basis points to 19.1%. Consulting generated revenue of $6 billion for the first nine months of 2022, with an underlying growth of 9%. Adjusted operating income for this period rose by 5% to $1.1 billion, maintaining an adjusted operating margin of 19.6%, consistent with the third quarter of 2021. Mercer's revenue for the third quarter was $1.3 billion, a 5% increase on an underlying basis, which is commendable given the market declines affecting our investments. Career services grew by 15% on an underlying basis, marking a sixth consecutive quarter of robust growth. We continue to see strong demand for workforce transformation and compensation solutions. Health services also showed excellent underlying growth of 10% in the quarter, reflecting strength across all regions. Wealth services experienced a 1% decline on an underlying basis due to downturns in the equity and fixed income markets, which posed a 2% headwind to Mercer's overall growth for the quarter. However, solid demand in defined benefits helped offset the losses. Our assets under management stood at $318 billion at the end of the third quarter, down 8% sequentially and 20% from the same quarter last year, entirely due to market declines and foreign exchange impacts. For the first nine months of the year, Mercer's revenue was $4 billion, an increase of 6% from underlying growth. Oliver Wyman continued to demonstrate strong momentum, with third-quarter revenue of $667 million, marking a 13% increase on an underlying basis, building on 25% growth from the same quarter last year. This reflects sustained strong demand across most geographies for our solutions. For the first nine months, Oliver Wyman's revenue was $2 billion, up by 15% on an underlying basis. Adjusted corporate expenses were $73 million in the third quarter, and we estimate about $80 million for the fourth quarter based on our current outlook. Foreign exchange had a minimal impact on our adjusted EPS in the third quarter, although year-to-date assessments reveal a negative impact of roughly 7%. Assuming exchange rates remain stable, we anticipate an FX headwind of $0.07 in the fourth quarter. Our other net benefit credit was $57 million, and we expect it to be around $230 million for the full year 2022. We reported an investment loss of $1 million in the third quarter on a GAAP basis, while on an adjusted basis, we gained $3 million in investment income. Interest expense for the third quarter was $118 million compared to $107 million in the third quarter of 2021, with an expected interest expense of $121 million in the fourth quarter. Our adjusted effective tax rate in the third quarter was 24.6%, slightly up from 24.4% last year, which included some minor net benefits from discrete items. Excluding discrete items, our adjusted effective tax rate was 25% for the quarter. When providing future guidance on our tax rate, we do not factor in discrete items, which could vary. Considering the current environment, it is reasonable to estimate an adjusted effective tax rate of 25% for the entire year 2022. Regarding capital management and our balance sheet, we ended the quarter with total debt of $11.4 billion, with the next scheduled debt maturity in March of 2023 for $350 million in senior notes. Our cash position at the end of the third quarter was $802 million. Cash expenditures during the quarter totaled $931 million, including $293 million for dividends, $138 million for acquisitions, and $500 million for share repurchases. For the first nine months, total cash expenditures amounted to $2.9 billion, consisting of $840 million for dividends, $411 million for acquisitions, and $1.6 billion in share repurchases. We continue to plan for approximately $4 billion in capital deployment in 2022, along with dividends, acquisitions, and share repurchases. Overall, we are on track for a strong 2022. For the full year, we expect to achieve high single-digit growth in underlying revenue, solid adjusted EPS growth, and margin expansion for the 15th consecutive year. With that, I am pleased to turn it back.

Thank you, Mark. Before we open up the call for Q&A, I just want to say it has been a great privilege to lead this firm and work side-by-side with smart, creative and dedicated people. I am immensely proud of our colleagues and what we have accomplished. Together, we've grown, innovated and persevered. We launched and built Marsh McLennan Agency, expanded our capabilities in combination with JLT, and demonstrated resilience in the face of a financial crisis and global pandemic. We emerged as a better and stronger firm by relying on each other, living our values, supporting our communities, and staying focused on clients. I have always believed that the greatness of our company lies in how we deliver in the big moments and the small. Under John's leadership, I know Marsh McLennan will continue to thrive and prosper, and make a difference in the moments that matter. There is no one I trust more with the company we've built together, and with the important work ahead. I'd like to thank our clients for choosing to do business with us, our shareholders for their continued confidence, and most importantly our colleagues. All that we have achieved is due to their efforts. With that, operator, we are ready to begin Q&A.

Hi, thanks. Good morning. First, Dan my congrats to you on your upcoming retirement. It's been great working with you through the years. My first question is on U.S. and Canada within RIS in the quarter. The growth did slow from where you guys have been trending. I know we've had some good and bad quarters as we've gone through the pandemic and came out. Was there anything specific going on in the third quarter that you want to point out within that business?

Thanks, Elyse and I appreciate your comments. So thank you very much, and I hope to keep in touch with you. So let me just start out. I'll hand off to Martin in a second. Obviously, Marsh has been doing fantastically well, and U.S., Canada has done well as well. So I would just start by saying that the comparable was pretty tough at 16% growth in U.S., Canada last year. But Martin, do you want to dig in and give a little bit more color?

Thank you, Dan. We are very pleased with the strong organic growth of 8% in the quarter, following 13% in the previous quarter of 2021. Our growth is robust across all regions. EMEA increased by 9%, Asia Pacific by 14%, and LAC grew by 15%, while the U.S. saw a growth of 5%. Overall, we achieved a solid year-to-date growth of 9%. While the 5% reflects a slowdown compared to 16% in Q3 of 2021, the longer-term view shows that the U.S. and Canada are up 8% year-to-date and 13% for the full year of 2021. Canada is performing exceptionally well, and while the U.S. growth in the latter half of last year benefited from notable activity in M&A, SPACs, and capital markets, we do not anticipate that level of performance continuing amid market volatility. We made excellent investments last year in producers focusing on recurring business, positioning us well in the U.S. for the future.

So basically, a lot of activity last year in M&A, particularly in the back half of last year, which is not repeating, and so that's a bit of a headwind overall. So nothing concerning. Do you have a follow-up, Elyse?

Yes, thanks. My follow-up question is on the outlook for Guy Carpenter. You guys mentioned the loss that we saw from Hurricane Ian. From what we've been hearing, it really has the potential to turn on the catastrophe reinsurance market significantly next year. So what are you guys seeing there and can you just talk about how Guy Carpenter could benefit from a pretty hard reinsurance market in 2023?

So why don't we start with John just to talk a little bit about the overall market, primary and reinsurance, and then we'll go to Dean. But John?

Sure. Thanks, Dan. So Elyse, the insurance markets remained challenging in the third quarter for our clients. Prices continued to rise in the quarter, although moderating slightly overall from where we were in the second quarter. Reinsurance markets though, are really a different matter. The property cat market in particular was tightening in advance of Ian. And then as I noted in my prepared remarks, we're likely headed to a much more challenging January 1 reinsurance renewal. So with that, maybe I'll ask Dean to jump in on some of the details of what we're seeing in the market today.

Thanks, John. As we look forward, demand for our advice and solutions remains very strong, and we feel we're very well positioned to continue to create value for clients and grow our business moving forward. Demand for reinsurance, including cat properties, is expected to remain very strong as our clients manage volatility and continue to address systemic risks, including cyber and the impacts of climate change and the emerging perils we're seeing around flood, wildfire, and convective storms around the world continue to accelerate and concern our clients. The impact of Ian will certainly create challenging market conditions at January 1 in the property cat space. But as John noted, a tightening cat market could be a tailwind for Guy Carpenter, but we have a track record of strong growth in any market conditions.

Terrific. Martin, maybe you could talk a little bit about what we're starting to see in terms of the impact of Ian on the property markets, if that Marsh operates in, and then just probably what's happening in pricing in the marketplace?

Thank you, John. We are currently in our 20th consecutive quarter of rate increases across the industry. We will be releasing our rate survey in a couple of weeks, which will indicate a 6% year-to-date increase in quarterly results in the property sector. Clearly, the property market is feeling pressure, especially for clients with significant catastrophe exposures. At this point in the cycle, after such consistent growth in property, we would expect to see some easing; unfortunately, that is not the case for our clients as we head into the latter part of the year. Overall, rates are still solid. The composite rate stands at 6%, slightly lower than the previous quarter. Casualty rates have increased by 4%, while property remains at 6%. FinPro lines have decreased by 1%, primarily influenced by the previous year's performance in D&O SPACs and cyber. We will be focusing on cyber this year, which is experiencing rate increases of 53%; although that is a slight decline from the previous quarter, the increases remain robust. Some of the activity in this area is decelerating, but the market remains healthy. However, we are concerned about our clients and will be seeking solutions to assist them, which we view as a potential driver of demand.

Next question please.

Hey, good morning. I just had a question first on Oliver Wyman. I think there's concerns that if the economy slows down, that's a business that might be vulnerable to slower organic growth, but you've obviously had very strong results for the last several quarters. So if you could talk about what you're seeing in terms of pipeline and just what your expectations are for the business?

Sure. As we've mentioned before, Oliver Wyman and Mercer's Career business are probably the most sensitive to the economic cycle, and it represents about 17% of our business. And both have been performing remarkably well over a long stretch of time. I mean, Mercer, as we mentioned earlier, Mercer's Career is up 15%, and it's their sixth quarter of double-digit growth in a row. And Oliver Wyman has had seven quarters of double-digit growth in a row. So if there are clouds somewhere in the future, we're not seeing them right today. But Nick, do you want to give us more on Oliver Wyman?

Thank you, Jimmy. Yes, our market tends to thrive when the economy is strong. However, as circumstances change, our clients require specific insights. I can confirm that we are not witnessing any downturn in our business, and our pipeline remains strong. As Dan and Martin mentioned regarding the M&A and SPAC cycle, we have observed a slower pace in businesses reliant on M&A activities, and we may face some of the challenges present in this cycle. Nonetheless, our service offerings are less affected by economic fluctuations than they were about five years ago. We possess strong capabilities in risk management and performance improvement, impacting both revenue and profit margins. We have also established a restructuring practice, and I must note that it has been a particularly challenging environment for many sectors we serve due to the aftereffects of the pandemic. Nevertheless, our pipeline continues to look promising.

Yes. And the other thing about it is that even though the Career business and Oliver Wyman are more sensitive, they actually bounced back a lot quicker post a down cycle. So they're great businesses, and we're glad we're in them. Overall, they provide us with leading growth over long stretches of time, and we're not overly concerned with short-term fluctuations. Do you have a follow-up, Jimmy?

Yes. Just on fiduciary investment income. It's up, I think, around 10 times what it was a year ago and almost three times the sequential quarter. So obviously, there's a benefit there from higher interest rates, but wondering if that's all it is? And should we assume that it goes up further as rates have gone even higher since the end of the quarter, or was there any sort of discrete items that benefited the 3Q results?

Well, it's nice to say it was up 10 times. It started from a very low base. Mark, do you want to talk about fiduciary income?

Jimmy, there was nothing unusual or one-time in the results. So as you noted, we had $4 million a year ago in the third quarter, and it was $40 million in this third quarter, and it just reflects the rise in global rates, so it's definitely a source of upside for us. Obviously, we have balances all over the world, and so we're dependent on rates moving in different jurisdictions, but there is generally a trend upwards. And just remember, we've got over $10 billion of fiduciary balances on any given day, so 100 basis points equals $100 million of income.

Noted. And good luck, and congratulations.

Thank you very much, Jimmy. Next question please.

Hi, thanks, good morning. And Dan, congrats on the retirement. It's been quite a ride. Congrats.

Thanks, David.

Just had a question on the hiring activity that's been picking up. Obviously, the tough comp in the U.S. just on the M&A side in Marsh makes it a little tough to see any impact. But I was just wondering if you could just comment on how much this quarter benefited from some of the strategic hires that you've made over the last year and a half, two years? And maybe give us a sense of how much that should ramp as we head into 2023?

Yes. So why don't we start with John, and maybe we'll go deeper. But John, why don't you take that?

Sure, Dan. David, we're very, very pleased. We continue to be just absolutely pleased with the strategic hiring that we did last year. Not only are they producing, but we did a lot of work as we were hiring these folks to make sure that they're a right cultural fit, and that's proven to be the case as well. So we started with world-class talent. We think the best talent in the markets that we serve, and these folks have made us better as we serve our clients and teams, and they've fit in very, very nicely at both Marsh and Guy Carpenter, where we did most of it. We did some of the hiring in Mercer as well. But Martin, maybe you could just talk about the productivity of the hires.

John, thank you. And as you said, we are very, very happy with the investments that we made last year. The cultural enhancement to us has been significant. They've brought new skills and insights to the firm, and they've spread it out like wildfire. We focus heavily on the investments, as you know, in areas where we thought there was high recurring revenue growth, to the point the question was, yes, we see these ramping up. Everything is penciling out exactly as we thought it would. In some areas, we're actually ahead of plan, so we continue to see this as a continuing addition to our revenue growth and our capabilities. Couldn't be happier.

So as you know, David, it's two to three years before they are fully productive. But we couldn't be more pleased with the progress to date.

I don't want to sound like a Hollywood agent, but it is about the talent. We're a people business. It's the smart, dedicated, creative people that attract other smart, dedicated and creative people. So we've got a mountain of talent within the company, and we will continue to build upon that. Do you have a follow-up, David?

I do, yes. And just on the property cat market on the reinsurance side, it sounds like that's spilling over a bit into cat-exposed primary. I'm wondering if you're seeing that at all starting to spill over into non-property lines at all or if you expect that to happen?

David, not at this point, and I wouldn't expect that to happen. Things haven't even begun to settle, so there's much for us to learn. As I mentioned in my prepared comments, this is a significant loss, and it will affect both the insurance and reinsurance markets, primarily in property.

Next question please.

Thank you very much. Good morning everybody and I also want to congratulate Dan on a phenomenal career, and good luck in retirement. And good luck to John as well. Tough act to follow. I guess first question, going back to the reinsurance market and maybe the dislocation we're seeing in Florida, and more broadly in property cat. So I think I understand the rate environment, but at the same time, we're also hearing about maybe a dearth of capital, private reinsurance pulling out of the market, maybe public markets looking to take on some of that bucket, if you will. I guess, how are you envisioning the supply issue and how much of an impact could that have on overall growth next year? And related to that, I would think that a lot of your colleagues have actually never experienced a real hard market, and certainly in Guy Carpenter. So how are you preparing them to address this new environment?

Yes, that's a good series of questions, and it's certainly something that's been at the executive team table as we think through how to serve clients in this kind of environment. We've been in tough markets before, but your basic point about supply and demand, yes. Demand will outstrip supply. It's already outstripping supply, so it's just an extent of how quickly the market can adapt to that. Dean, do you want to give us more?

Sure. Maybe I'll give you a little more color. Thanks, Dan. As John noted earlier, Ian's impact on an already strapped property market could be significant. Prior to Ian, there seemed to be increased demand from clients to absorb inflation and recent losses in the market, so we're already starting to feel that stress. And as John noted, following Ian, we're really starting to see the property cat market tighten, particularly in the U.S., with potential supply and demand imbalances in the marketplace. As you know, it's the third year in a row of $100 billion of cat losses in the market. And I would say it's going to be more than just rate increases for U.S. cat-exposed clients. Increased retentions, changes in coverage terms, reduced capacity from individual players, and also the impact from the retrocession market, which could be significantly impacted as well. Some are discussing that 25% of the retrocession capital is trapped by Ian and the market, and not replenished for January 1. So certainly, we've got some stresses there. However, I would say we're working very closely with our clients, leveraging our deep expertise in the market to work closely with clients to deliver successful outcomes, and we're investigating new capacity in the marketplace. We've been working for several months with players around the world to bring more capital, more interest into the cat market on behalf of our clients.

Yes, absolutely. And so it's one of those things, very tough markets really, in some ways, it's the period where Marsh McLennan shines the most. And so Guy Carpenter will do well, but in any time where there's supply and demand imbalances you could have short-term pressures of something not being able to be placed, because there's not enough capital providers willing to write a particular line of business. But solutions will be found, and we're actively working for our clients in that area. Any follow-up Yaron, although you asked about four questions. Give me another one, if you have one at the ready.

I have one more question, hopefully shorter. Cyber, you mentioned very strong rate increases, which I believe continues a trend of two years of strong rate improvement. However, my understanding is that the loss experience in 2022 is starting to moderate. How do you see 2023 in terms of rate increases and potential increased demand if those rate increases slow down?

Yes, Yaron. I'm going to forecast the pricing environment for cyber. Price increases are moderating. I think you used the word improving, but I'm not sure our clients would consider it an improving rate environment. We've had a lot of rate on rate. It's been a difficult market. What I would also note about cyber, well, ransomware, to some extent, I think is reflective of the reduction in ransomware in recent quarters. Underwriters have also responded to ransomware through higher retentions and lower limits, for example. Longer term, though, the cyber market is not near maturity. So we're still working to bring more capital to the market, better solutions to the marketplace. But the cyber insurance market should be an area of growth for us for some time as we help our clients navigate the risks of a digital economy.

Absolutely. Next question please.

Thanks, good morning, and I want to add my congratulations to Dan. I remember where Marsh was when you first came on board. You've done an absolutely phenomenal job.

I had your headline from November of 2007, what else could go wrong? A statement, not a question. That was on my bulletin board for about five years there.

Well yes. Anyhow, quick question. Look, I'm trying to decipher how much politics is real. But a fair amount of opposition brewing in some parts of the country to ESG, and I'm wondering how that's impacting demand for ESG-related consulting?

Sure. It's a great question. We're reading the same reports. Why don't we go first to Martine to talk a little bit about the Mercer investment side of the business and other areas of Mercer that are impacted, or that markets in ESG? And then we'll hand over to Nick Studer as well. But Martine?

Yes, for sure. And thanks, Meyer, for the question. For us at Mercer in terms of environmental and social governance, actually, we can work with clients on all three fronts; low-carbon economy, the transitions, sustainable investment. We help clients wherever they are in their philosophy of investment and their objectives to look at the market and the best risk and rewards. So our clients invest for the long run, and they look at the risk elements of their investment. And it's with that length that we're looking at the ESG factors with them. We don't see that kind of demand diminishing, and necessity to look at risk. I mean, all through the Q&A today, we have talked about climate risk, for example. We need to factor these risks in when we look at investment so our clients can get the returns that they're looking for. Other elements, of course, CE&I, social minimum standards of benefit across the world, so we pay equity. We have a lot of work there with our clients that are focused very much on building diverse workforces and the whole governance elements around it. Whether it goes from executive compensation, to the way that they manage and govern their investment. Actually coming back to investment, it's been quite a rough year on the capital market this year. But we've been working with clients and actually, we've been very busy on the consulting side of the house, in particular, to help clients navigate that very intense headwinds and volatility in capital markets.

Thanks. Nick?

Yes, Meyer. In Oliver Wyman, our primary focus will be on the climate transition. The backlash we are witnessing in certain areas is something we anticipated for some time. There is a sensitive balance to maintain, particularly regarding the carbon transition, balancing security, affordability, and the transition itself. However, as multiple sectors attempt to reverse the impacts of the last 200 years of the Industrial Revolution within 20 years, there will inevitably be extreme actions and significant resistance. Regarding our business, our climate and sustainability practice has become one of the fastest-growing segments at Oliver Wyman, with the most significant investments over the past three to four years, and it continues to see very high growth rates. We are not experiencing any decline in demand, although the inquiries are becoming more sophisticated.

Thank you. Any follow-up?

Yes, just a brief one, maybe this is for Mark. I was hoping you could talk us through capital deployment plans as the cost of capital is reflected in the risk-free rate rises?

Yes, Meyer. Even though interest rates have increased and our firm's weighted average cost of capital has also risen, we prioritize balance and consistency in our strategies, which have proven effective over a long time. Although economic factors have made things a bit more costly, it doesn't alter our fundamental views on capital allocation and capital structure. Regarding mergers and acquisitions, we maintain much higher return expectations than our weighted average cost of capital and will continue to do so. I believe the current environment does not necessitate a change in our core strategy.

Okay, next question please.

Thank you for taking my question. Latin America and Asia Pacific have shown particularly strong performance. I would like to know more about the factors driving that compared to the U.S. Is it due to higher inflation, increased pricing, market share gains, or something else? Any insights would be appreciated.

Sure. We'll begin with Martin in a second. I mean, in general, what we've seen over really the last couple of decades is that you not only have regular higher levels of growth and a bit more inflation sometimes over long stretches of time in places like Asia and Latin America, but you also have increased insurance penetration. As the economy develops insurance becomes the underpinning for development, and so that has always been a benefit to us as well. Martin, do you want to give us more?

Yes. Thank you. And look, for the last few years you’ve seen international slightly weaker than the U.S. That's rebounding, and we best have balance. So strong in our portfolio, so we're really pleased with the overall balance in our business. As Dan said, for Asia Pacific, very strong growth of 14%. We have a terrific franchise in Asia Pacific, with pretty well unrivaled positions in almost all the markets there. So you could not buy what we have in that market. It's a mixture of in Japan, maturities and us having been there for such a long period of time and building the trust with the local community, and the carriers and doing more indigenous business. It's the protection gap that you see across Southeast Asia that's giving us share and strength, and the same for Latin America. We have an unbelievable franchise there, very strong businesses in all the big geographies in all the big markets in Latin America. There's some great strength there, but it's been relatively modest for a while. It's really a question of just getting market share and strength and a terrific leadership team.

And Dan, I would add that JLT made us stronger in both regions as well.

Any follow-up, Robert?

Yes. Thanks, that's very helpful. And I just had a follow-up on Career. So there's been some favorable trends in Career driven by some of the changing dynamics in the labor market. How sustainable are those trends if unemployment rises a couple of points? Could you still see strong growth given those underlying changes, or is that too optimistic?

Yes. Thank you for the question, Robert. No, it's a good question. There's no doubt that coming out of the pandemic, the world of work has completely changed, and that has driven demand. But you look at all that's currently playing out, whether it's high inflation, labor shortages, or emerging new skills that we have to help clients gravitate to reorganizing the way that you work. So we have talked before about the impact that recession has had in the past on the Career Services business. There's also the Career Product business, about half and half of the revenue in that space. Career Product is actually more resilient through recessions. And Career Services, given the fundamentals that we see in the market today, we currently don't see any slowdown. Clients are really needing help to navigate all of the changes. We're not immune to a change in economic pace, but we rebound quickly, and we'll carry through. So far, so good.

Thank you. Next question please.

Yes, thanks. And also just want to congratulate Dan, and I want to echo Meyer's comments. It's an absolute pleasure watching you lead this organization for the last decade. Question for you first, M&A. What does the pipeline look like right now and particularly as we kind of look at M&A here with private equity maybe cooling off a little bit here, becoming a little more challenging, are you seeing a better pipeline here? And I'm assuming that John wants to outdo you on JLT here pretty quickly?

The M&A pipeline looks promising. We build relationships over extended periods and prefer proactive engagement rather than responding to immediate market invitations. Regular meetings among our executive team help us review the pipeline and explore future opportunities. While we prefer growth through acquisitions rather than share repurchases, both strategies are related. In years with fewer acquisitions, we tend to repurchase more shares, while in active M&A years, share repurchase is reduced since our dividend remains a priority. We have a transaction with BT Westpac that will not close until next year, but capital utilization is considered both for this year and next, regardless of cash flow timing. Excluding JLT, we have averaged around $1 billion annually for acquisitions, and this trend is expected to continue.

Makes sense. Thanks. And then a quick follow-up here for Mark. Mark, any initial kind of thoughts on what the net benefit from the pension could look like in 2023, given the big rise we've seen in interest rates?

Brian, it's just really too early to tell. There's so much that goes into that calculation of the other net benefit credit. It's really not until we see, with Mercer's great help, the outlook for expected returns and our year-end valuation that we really formulate a view on that. So I think when we're back together in January, I'll have a perspective then.

Great, thank you.

Thank you, take care. Next question please.

Thanks, good morning. First question is still back on the theme of property cat reinsurance, guys. How much of a real risk has it been that some business just simply is not going to get placed at the beginning of the year? And then how material could that be?

John, do you want to start with that?

Yes, Mike, happy to jump back in on this. Again, it's still quite early, and so I think most reinsurers and insurers are planning and trying to decide how to best deploy capital going forward. As we, Dean and Dan and I have all discussed, we expect some level of disruption. It's going to be a challenging market. But again, we're using the capabilities of our entire firm to bring solutions to the market. Data and analytics, new investors, new facilities. And in some cases, it may mean clients retaining more risk, both insurers and also our retail clients as well. We're the global leader in managing captives on behalf of our clients, and so it's an example. Now some of our clients may be pushed by the market to do that, and some may choose just given what might be elevated pricing, to retain more risk. So we're going to work with them to help all of our clients accomplish their risk management goals.

Thank you. The property cat market was definitely hardening a bit before Ian. We were seeing increases in the low double digits, but now reports indicate significant increases. The question is whether these increases, such as 30%, 40%, or 50%, are solely relevant to Florida or if similar trends are observed globally.

Well, Mike, I think what you've seen over the last several years is that cat losses have exceeded modeled estimates. So the market is underpriced, insurers and reinsurers broadly have underpriced the risk over that period of time. You can look at an extended period of time and, of course, get different outcomes. So the market is reacting to that. You've also had an escalation of values that's happened in many cat-exposed markets as well. And then broadly speaking, inflation creates some challenges. So as I noted in my prepared remarks, we're heading to meaningful rate changes prior to Ian in the 20%, 25% plus range to cover inflation and against just the elevated weather-related events over the last several years. Now it's likely to, of course, be higher than that. And so in talking to reinsurers and insurers, they're thinking about, again, how to best deploy their capital going forward. They're in the business of taking these risks and will ultimately make choices about where to best deploy that capital. What they're saying today is they want to reserve it for their best clients. On the reinsurance side, that might mean clients that they also support in casualty and other lines as an example. And so thinking about Marsh for a second, it's an interesting market. We have high net worth personal lines support inside of M&A, which is important business to us. This loss is going to be more of a small business and personal line loss, and so it won't impact our major accounts and really as much as other events have.

Okay, thank you for the color. I appreciate it.

Hey guys, good morning. Just a follow-up on the fiduciary investment income. So we've had a number of years of really strong margin expansion where that hasn't played a role at all. Is it right, am I thinking about this correctly that this should be a kind of a separate and distinct margin tailwind on top of the type of margin expansion that we've seen over the past decade or is there investment potentially against some of that investment income?

I mean, you're basically right in that fiduciary income, we didn't have. A lot of it drops to the bottom line. So a lot of it is profit, and that will help margins in the future.

Perfect. And then a follow-up, I guess, for Martine, just in wealth. Is there any way you can quantify with markets rolling over the type of impact that's having on organic growth?

Please.

Yes, it does have an impact. We mentioned that this is related to our OCIO business, which earns fees based on assets under management. This segment has been performing well and growing quickly, but it is vulnerable to short-term market fluctuations. Based on the market value at the end of Q3, we anticipate that these capital market effects will persist into the fourth quarter. For reference, in Q3, this resulted in a margin decrease of about two points at Mercer and four points within Wealth.

So Mercer would have been more like a 7 instead of a 5, not 4.

Yes. We experienced a 15% increase in Career and a 10% increase in Health, which contributes positively. This also supports our consulting efforts on the DB side as we advise clients affected by capital market fluctuations. Our diversified portfolio is beneficial, and we also saw strong inflows into our funds, which will be advantageous.

Okay. So it's a terrific business, Ryan. As we noted, the assets under delegated management are down about 20% year-over-year. But having said that, if you look over the decade, the CAGR on assets under delegated management is about a 20% number on a CAGR basis. So it's a great business. We're glad we're in it. But obviously, it's a headwind in the short term. Hopefully, in the short term.

Thank you, and thank you for joining us on the call this morning. I want to thank our 86,000 colleagues for their commitment, hard work, and dedication to Marsh McLennan. And from the bottom of my heart, thank you for the trust you have put in me. Serving as CEO of Marsh McLennan has been an honor. Thank you.