MITRE MINING CORPORATION LTD (MMC) — Q3 2023 Earnings Call Transcript

Good morning, and thank you for joining us to discuss our third quarter results reported earlier today. I'm John Doyle, President, and CEO of Marsh McLennan. Joining me on the call 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. Before I get into our results, I'd like to take a moment to comment on the violent attacks on Israel and the tragic events unfolding in Israel and Gaza. We, along with our colleagues, condemn all acts of terror and violence and reject hatred. Our primary focus is on ensuring the safety and well-being of our colleagues in Tel Aviv and supporting colleagues around the world who have family and friends in Israel and Gaza. We're also supporting our clients as they grapple with the challenges of this conflict. Turning to our third quarter results. I'm very pleased with our performance. We extended our best run of quarterly underlying revenue growth in over two decades and reported significant growth in adjusted EPS. Top-line momentum continued with 10% underlying revenue growth, on top of 8% growth in the third quarter of last year. Adjusted operating income grew 24% versus a year ago. Our adjusted operating margin expanded 170 basis points compared to the third quarter of 2022. Adjusted EPS grew 33%, and we completed $300 million of share repurchases during the quarter. These results reflect our consistent focus on delivering in the near term, while investing for sustained growth over the long term. We are seeing the benefit of investments we've made in our talent and capabilities, and we continue to see opportunities to add high-quality acquisitions. During the third quarter, we announced two significant transactions. In early August, Marsh McLennan Agency acquired Graham Company, a top 100 U.S. insurance and benefits broker and risk management consultancy with 215 employees and over $70 million in revenue. Graham will provide significant business insurance and employee benefits expertise for MMA's clients in the Mid-Atlantic. This acquisition is another example of us attracting the best agencies in the U.S. MMA is now a $3 billion revenue business. In the same month, Marsh announced an agreement to acquire Honan Insurance Group. This deal expands our Australian middle market business and our position across the Pacific region and Asia. Honan specializes in corporate risk and employee benefits and serves over 30,000 clients. Beyond acquisitions, we continue to make targeted investments in talent, sales operations, and go-to-market strategies. We are also investing in new technologies and solutions to bring the best of Marsh McLennan to our clients. For example, Guy Carpenter recently launched the next generation of our catastrophe analytics platform, GC Advantage Point. The new platform is a critical tool to help clients drive profitable risk selection and manage catastrophe exposure in a quickly evolving risk landscape. Earlier this year, Marsh announced the launch of Cyber Pathway, an integrated cybersecurity and insurance solution for U.S. small and midsized businesses that helps enhance resilience in a volatile threat environment. The program provides access to key security tools and capabilities as well as insurance coverage that can grow as our clients evolve. And we are investing in technologies that enhance our internal productivity, insights for clients, and improve colleague experience. One example is LenAI, Marsh McLennan's internal AI assistant. LenAI offers the power of ChatGPT in a safe and data-secure environment and is available to all colleagues. Developed by our innovation center, it's also helping Oliver Wyman support clients in developing their own AI capabilities. Our approach to balancing investment and growth drives consistent exceptional performance for shareholders and positions us well to deliver new solutions and insights for our clients. Turning to our strategic initiatives. The combined value proposition of our businesses continues to gain traction with clients, especially in certain industries and lines of business. For example, we are focused on enterprise risks for healthcare clients. Our Marsh and Mercer teams are coming together to respond to emerging challenges, such as health and safety, labor actions, and workforce and liability risks from AI. In the private equity and M&A space, Mercer, Marsh, and Oliver Wyman are combining capabilities to help clients close deals and create post-transaction value. This can include due diligence, advisory on large transformations, health and benefits carve-out transactions, and providing stop-loss solutions. And in the insurance sector, Guy Carpenter is partnering with Mercer to provide portfolio management solutions to insurance clients. One example is our advanced balance sheet solution, which is a collaborative approach that aligns risk and return across an insurer's balance sheet. This offering has already resulted in several regional insurers choosing to partner with Mercer for OCIO. We are also finding new ways to operate, reduce complexity, and organize for impact. As we continue to execute on our restructuring actions, we've identified additional opportunities to rationalize technology, reduce our real estate footprint, and realign our workforce. We now expect to achieve total savings of roughly $400 million by 2024, with total costs to achieve these savings of $425 million to $475 million. Overall, the momentum we are seeing as our businesses increasingly serve clients together, combined with our restructuring efforts, offers opportunities to deliver enhanced value for clients, drive higher growth, and be more efficient and connected. Now let me turn to the macro environment. The outlook remains uncertain. Capital market volatility has returned with the continued rise in interest rates. The trajectory of inflation and further central bank tightening remain an open question and the geopolitical situation remains volatile. Despite the environment, we continue to perform well, and we have a track record of resilience. We believe we are well positioned to perform across economic cycles and manage our business to grow revenues faster than expenses in good as well as challenging periods. Now let me turn to insurance and reinsurance market conditions. Primary insurance rates continue to increase with the Marsh Global Insurance Market Index up 3% overall, in line with the second quarter. Property rates increased 7% compared to 10% in the second quarter. Casualty pricing was up in the low single-digit range. Workers' compensation increased slightly, while financial and professional liability insurance rates were down mid-single digits. Cyber insurance pricing decreased modestly after several years of increases. In reinsurance, our clients have faced consistent challenges throughout 2023, including elevated cat losses, core and social inflation, and continued political instability. As we look to January 1, the market appears to be more orderly than last year, but we expect underwriting discipline to continue. On the property side, we expect firm pricing, but a more stable market with adequate capacity and increased reinsurer appetite. In casualty, the market is more cautious with reinsurers assessing prior year loss development and inflation. We expect capacity to remain stable. Overall, clients will need thorough preparation and a proactive strategy to achieve desired outcomes. We are well-positioned to help our clients navigate these dynamic market conditions. Now let me turn to our third quarter financial performance. We generated adjusted EPS of $1.57, which is up 33% from a year ago. On an underlying basis, revenue grew 10%. Underlying revenue grew 11% in RIS and 9% in Consulting. Marsh was up 8%, Guy Carpenter 8%, Mercer 8%, and Oliver Wyman grew 12%. Overall, the third quarter saw adjusted operating income growth of 24% and our adjusted operating margin expanded 170 basis points year-over-year. For the nine months, consolidated revenue grew 10% on an underlying basis. Adjusted operating income grew 17% and our adjusted operating margin expanded 130 basis points. Adjusted EPS was $6.31, up 17% from a year ago. With our outstanding results in the third quarter and year-to-date, we remain on track for a terrific year. Based on our outlook today and assuming current market conditions persist, we now expect full-year underlying revenue growth to be 9% to 10%. We also continue to expect margin expansion for the full year and strong growth in adjusted EPS. Finally, I want to provide an update on our recently announced leadership changes. Martine Ferland, CEO of Mercer, will retire on March 31 of next year. Pat Tomlinson has been appointed President of Mercer, where he will work closely with Martine through a transition period and have responsibility for Mercer's global health, wealth, and career practices. Pat will succeed Martine as President and CEO of Mercer upon her retirement. I'm excited to work with Pat in his new role. He brings an outstanding track record as a leader and strong knowledge of our business. He currently serves as Marsh McLennan, U.S. and Canada CEO; and Mercer President of U.S. and Canada; has had 26 years of industry experience, including the last nine years in leadership roles at Mercer. I also want to thank Martine for her leadership. In her five years as CEO of Mercer, she delivered strong growth, built and cultivated our talent, and delivered impact for our clients. This announcement is another example of our depth of exceptional talent and focus on succession planning. Overall, I am proud of our third quarter performance, which demonstrates continued execution of our strategy and continued momentum across our business. I'm grateful to our colleagues for their focus and determination and the value they deliver to our clients, shareholders, and communities. With that, let me turn it over to Mark for a more detailed review of our results.

Thank you, John, and good morning. Our third quarter results were outstanding, continued momentum in underlying growth, strong double-digit adjusted EPS growth and significant margin expansion. Our consolidated revenue increased 13% to $5.4 billion, with underlying growth of 10%. Operating income was $996 million and adjusted operating income was $1.1 billion, up 24% from a year ago. Our adjusted operating margin increased 170 basis points to 21.3%. GAAP EPS was $1.47 and adjusted EPS was $1.57, up 33% over last year. Note that adjusted EPS in the third quarter included a $0.10 discrete tax benefit from the release of the valuation allowance on foreign deferred tax assets. Even without this benefit, our adjusted EPS grew 25% in the quarter. For the first nine months of 2023, underlying revenue growth was 10%. Adjusted operating income grew 17% to $4.4 billion. Our adjusted operating margin increased 130 basis points and adjusted EPS increased 17% to $6.31. Looking at Risk and Insurance Services, third quarter revenue was $3.2 billion, up 12% from a year ago or 11% on an underlying basis. This result marks the tenth consecutive quarter of 8% or higher underlying growth in RIS and continues the best stretch of growth in nearly two decades. Operating income increased 21% to $640 million. Adjusted operating income increased 19% to $671 million and our adjusted operating margin expanded 100 basis points to 23.4%. For the first nine months of the year, revenue in RIS was $10.8 billion. With underlying growth of 12%, adjusted operating income increased 18% to $3.3 billion. Margin increased 150 basis points to 32.6%. At Marsh, revenue in the quarter was $2.7 billion, up 9% from a year ago or 8% on an underlying basis. This comes on top of 8% growth in the third quarter of last year. Growth in the third quarter reflected solid new business and strong retention. In U.S. and Canada, underlying growth was 6% for the quarter, led by strong growth in MMA. In International, underlying growth was 10% and comes on top of 11% in the third quarter of last year. Latin America was up 14%. Asia Pacific was up 10% and EMEA grew 9%. For the first nine months of the year, Marsh's revenue was $8.5 billion, with underlying growth of 9%. U.S. and Canada grew 7% and International was up 10%. Guy Carpenter's revenue was $359 million in the quarter, up 9% or 8% on an underlying basis, driven by strong growth across our global specialties and regions. For the first nine months of the year, Guy Carpenter generated $2 billion of revenue, 10% underlying growth. In the Consulting segment, third quarter revenue was $2.2 billion, up 13% from a year ago or 9% on an underlying basis. Consulting operating income was $424 million. Adjusted operating income increased 24% to $447 million, and the adjusted operating margin expanded 170 basis points to 20.8%. For the first nine months of 2023, consulting revenue was $6.4 billion, with underlying growth of 7%. Adjusted operating income increased 11% to $1.3 billion. The adjusted operating margin expanded 50 basis points to 20.1%. Mercer's revenue was $1.4 billion in the quarter, up 8% on an underlying basis. This was Mercer's best quarter of underlying growth in 15 years. Wealth grew 7%, driven by continued demand in defined benefits consulting and higher growth in investment management. Our assets under management were $379 billion at the end of the third quarter, up 19% compared to the third quarter of last year and down 4% sequentially. Year-over-year growth was driven by our transaction with Westpac, a rebound in capital markets, and positive net flows. Health underlying growth was 8% and reflected strength in all segments and regions. Career revenue increased 7%, on top of 15% growth in the third quarter of last year. We continue to see growth in rewards and talent strategy. For the first nine months of the year, revenue at Mercer was $4.1 billion, with 7% underlying growth. Oliver Wyman's revenue in the quarter was $781 million, an increase of 12% on an underlying basis that reflected strength in the Middle East and Europe. For the first nine months of the year, revenue at Oliver Wyman was $2.3 billion, an increase of 8% on an underlying basis. Foreign exchange was a $0.01 headwind to EPS in the third quarter. Assuming exchange rates remain at current levels, we expect FX will have an immaterial effect on fourth quarter earnings. We reported $52 million of total restructuring costs in the quarter, approximately $37 million of which relates to the program we announced in the fourth quarter last year. These charges include costs related to severance, lease exits, and streamlining our technology environment. We've continued to pursue efficiencies under this program, and our outlook for savings has increased. As John noted, we now expect total charges of $425 million to $475 million and expect total savings of roughly $400 million, of which approximately $225 million will be realized in 2023. To date, we have incurred approximately $325 million of charges under this program. We currently expect to incur the majority of the remaining charges by the end of 2023 and to realize the bulk of the remaining savings in 2024. Our other net benefit credit was $62 million in the quarter. For the full year 2023, we expect our other net benefit credit will be about $240 million. Investment income was $1 million in the third quarter on a GAAP basis and $2 million on an adjusted basis. Interest expense in the third quarter was $145 million, up from $118 million in the third quarter of 2022, reflecting higher levels of debt and higher interest rates. Based on our current forecast, we expect approximately $157 million of interest expense in the fourth quarter. Our effective adjusted tax rate in the third quarter was 20.5% compared with 24.6% in the third quarter of last year. Our tax rate in both periods benefited from favorable discrete items. The largest discrete item this quarter was a $48 million release of a valuation allowance on foreign deferred tax assets. Excluding discrete items, our effective adjusted tax rate was approximately 25.5%. 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, it is reasonable to assume a tax rate of around 25.5% for 2023. Turning to capital management and our balance sheet. We ended the quarter with total debt of $13.6 billion. This includes the $1.6 billion of senior notes we issued in September. Our next scheduled debt maturities are in March 2024, when $1 billion of senior notes mature and in May, when another $600 million of senior notes come due. We also recently took the opportunity to increase borrowing capacity under our credit facility, increasing the size of the facility to $3.5 billion from $2.8 billion and extending the term of the facility by 2.5 years to 2028. This was a prudent step to increase our access to short-term funding given the significant growth in our business since we last renewed the facility in April 2021. We are also pleased that Moody's upgraded our senior unsecured debt rating to A3 in September. We continue to expect to deploy approximately $4 billion of capital in 2023 across dividends, acquisitions, and share repurchases. Our cash position at the end of the third quarter was $2.9 billion. Uses of cash in the quarter totaled $1 billion, including $353 million for dividends, $368 million for acquisitions, and $300 million for share repurchases. For the first nine months, uses of cash totaled $2.9 billion and included $944 million for dividends, $1.1 billion for acquisitions, and $900 million for share repurchases. Overall, we remain on track for a terrific 2023. Based on our outlook today and assuming current conditions persist, we expect to generate 9% to 10% full-year underlying revenue growth, strong growth in adjusted EPS, and to report margin expansion for the 16th consecutive year. And with that, I'm happy to turn it back to John.

Thank you, Mark. Operator, we are ready to begin Q&A.

Hi, thanks. Good morning. My first question is on the U.S., Canada within Marsh. Organic growth of 6%, but that is a slowdown from where you guys were in the first part of the year. Can you just give a little bit more color on what's causing the slowdown? And then I think in the introductory comments, you guys mentioned that MMA saw strong growth. So, can you give us a sense of the growth within MMA and the growth outside of MMA within that segment?

Sure, Elyse. Good morning. Thanks for the question. Again, overall, I was quite pleased with the revenue growth in the quarter. We had good growth at Marsh. Best growth at Mercer in 15 years. And again, strong performance at Guy Carpenter and Oliver Wyman. Marsh U.S., inclusive of MMA, and I would also note our MGA operation had a good quarter as well. Growth was strong. Marsh U.S. was up 6% versus 5% a year ago. Again, we caution you to look at growth at any one quarter. We think we're well positioned, and our team is executing well. Martin, do you have any other color on what impacted growth at Marsh this quarter?

Yes. Thank you, John. As you said, very strong growth for Marsh across the board in International and North America. As you said, we don't comment specifically on MMA, but they've had a good quarter. The growth in the MGA business was strong. There's partly some impact from the capital markets and some moderating growth in financial construction and cyber lines reflecting some pricing pressures. But as you say, we don't look at this on a quarter-over-quarter basis. We look at it over a longer period of time, and we feel very positive about the U.S. business and the Canadian business.

Thanks, Martin. Elyse, do you have a follow-up?

Yes. For my second question, regarding the revised savings program, could you provide some insight on how much the rationalization of technology, real estate, and workforce realignment are contributing to the additional savings? Also, is it reasonable to expect that the majority of the savings anticipated this year will positively impact the bottom line?

So really, backing up a little bit, Elyse. As our business has operated more closely together, we've just identified additional opportunities. They're largely in the same areas, right? It's around realigning our workforce and mostly in functions, I would say, as opposed to market-facing workforce talent, real estate, and technology. We've not broken it out by group, but the costs are severance, lease terminations, and streamlining technology. So again, we're excited about some of the opportunities that we've uncovered, and I'm proud of the team. We're executing against them.

Good morning. So, first question on the reinsurance market. I think you mentioned the word firm in terms of pricing. And are you expecting prices to be up further from these current levels? Or firm just means that they'll be somewhat stable? And then how do you think that will affect your growth? At Guy Carpenter, you've grown double digits this year. I'm not sure how much of that is because of the tailwind from pricing.

Yes. Thanks, Jimmy. I did use the word firm. There's no question. Our team at Guy Carpenter has done a terrific job this year, helping our clients navigate what's a challenging market. As I said, I expect that the market on January 1 will certainly be more orderly than last year. But there are concerns both in the insurance and reinsurance market about rising loss costs. And so, we don't want to project and can't really project with accuracy, and there's still a quarter to run. We expect underwriting discipline to remain. But with that, maybe, Dean, you could offer some thoughts on Guy Carpenter and what we think of the market?

Thanks, John. And Jimmy, maybe I'll give you a little color between property cat and casualty as John mentioned. As John noted, we expect challenging market conditions to persist for property cat at the upcoming January 1 renewal, as John noted, driven by inflation. As you're reading about, I mean, cat losses continue to be very elevated. Many attritional losses. Many billion-dollar-plus events this year. Political instability continues. We do expect pricing to remain firm in property cat. It will vary region by region. It won't be what we saw last year, as an example, in the U.S. and Europe, but we do think that firmness will be there. We do expect additional capacity and an increased appetite from reinsurers to write more business, particularly at higher attaching property cat layers. But I think the key is we expect reinsurers to continue to exhibit that discipline on attachment points, pricing, and terms, and I don't see anything going backward. As John noted, we think property cat capacity in the market will remain adequate. And as John noted, we think it will be a more manageable renewal for our clients without that significant supply-demand imbalance and dislocation that we saw last year. And we do expect increased demand for our clients to buy more reinsurance and particularly key regions like Europe. On the casualty side, for U.S. Casualty, as John noted, the market is trending very cautiously. And in all of our meetings with reinsurers this fall, everybody expressed concern with prior year loss development in U.S. casualty and certain lines, again, driven by economic and social inflation. And we do expect some downward pressure from reinsurers on seating commissions for our clients with quota share contracts and certain casualty lines. But in casualty, we do expect capacity to remain adequate.

The cost of risk, Jimmy, is rising, and it's up to us to find the best solutions in the market for both our insurance and reinsurance clients. And so, I think we're well-positioned to do that. Do you have a follow-up?

Just regarding Oliver Wyman, it's usually seen as being affected by economic uncertainty. However, this year, the business has demonstrated significant momentum. I know you secured the UBS and Credit Suisse integration contract, but I'm unsure about its overall importance. What are the main factors driving Oliver Wyman? What does your pipeline look like? How do you anticipate it performing if the economy slows down?

Yes, thanks, Jimmy. Oliver Wyman has been more sensitive to GDP over time, but it's also been a faster-growing part of our business over time as well. And after a relatively slow start to the year, Oliver Wyman had a terrific run, is now having strong growth year-to-date and a very, very strong quarter. So, Nick, maybe you can share with Jimmy some color on how things look at Oliver Wyman.

Thank you, John, and thank you, Jimmy. Yes, let me enlarge on that a little bit. It's definitely not an easy environment for discretionary spending in our clients. I still see a fairly wide range of possible economic paths. But John called out our wider resilience of Marsh McLennan, and I'm proud that Oliver Wyman has demonstrated that resilience and come our way back from flat to Q1. And as Martin said as well, we do try to look at the business on a year-over-year basis more than a quarter-over-quarter basis, but it does matter. We're quite a diverse business now, and we've been becoming more diverse. So, if you think about the sectors that are driving our growth in the regions, our India, Middle East, and Africa region has been the biggest contributor to our regional growth with Europe also contributing strongly. On the sectoral side, the public sector, which is quite present in the Middle East, our communications, media, and technology practice followed by banking, followed by transportation and services. So again, quite a wide array of industry sectors there. And maybe just an interesting case study on the industry side would be our private equity, private capital practice. Clearly, it's not been a great deal environment. But that practice has been doing quite well, driven by portfolio company work. And over the last few years, I've said a few times and have been asked questions about our offerings through the cycle, which we've been seeking to broaden our economic research practices grew strongly, our digital team, our restructuring practice, which is nascent grew very strongly. Our work on performance transformation with clients, which is more of a tough economic environment offering as well as our people in organizational performance work where we do a lot of collaboration with Mercer. So ultimately, I'm optimistic in our long-term growth prospects, but we continue to plan for mid to high single-digit growth over the longer term. And our pipeline is looking in line with that at this moment.

Good morning, thanks. I guess just a follow-up to the last question about kind of global growth. So, Marsh's growth clearly records high levels. I feel like historically, there's been more of a correlation between growth and nominal GDP. If you do agree with that, it just feels like there's been a decoupling of that relationship recently and a good way for you, obviously. And just curious if there's anything structurally permanently that's changed? Or are there kind of temporary phenomena with tires? Or anything you want to call out if you agree with the premise of my question.

Sure, Mike. What I would say is it is a volatile macro environment, certainly, both the economy and geopolitically, as I mentioned before. But I do believe nominal GDP is a better indicator of demand over time and with inflation, tight labor markets, and pricing positive in the P&C market, those macro factors are certainly supportive of growth. But what I would also say is we've been working very hard to shift our mix of business to better growth markets over time. A handful of examples, M&A, of course, the middle market at both Marsh and Mercer. ROCIO business we've been investing in. We have invested organically and inorganically throughout Asia. And then more broadly, we've invested in talent, sales operations, and our client engagement model. So, we believe we're a better growth business and better positioned. And while, again, that macro environment is quite volatile, we're confident in our ability to perform over economic cycles.

Okay. That's helpful. If I could ask a follow-up, and hopefully, it's not out of left field, but there's been chatter in the media and at a recent wholesale conference about potentially some of the larger brokers getting back into the wholesale business. I'm not sure if you want to comment on that or can. But maybe you can at least offer some perspective on why Marsh doesn't have as big of a wholesale presence relative to just its market share of non-wholesale insurance?

Yes, I'm happy to comment. First, I would say that historically, E&S market volumes have aligned with pricing cycles. Given the current volatile risk environment, I believe that E&S market volumes are likely to be more stable than in the past. Underwriters are seeking flexibility, and third-party wholesalers provide access to certain markets. Additionally, we directly access some E&S markets today. Regarding third-party wholesale, we need to consider whether we would be a suitable owner. We do have a division, Victor, that works extensively with independent, small commercial Main Street agents. This is a market we currently serve effectively with solutions. Overall, our main focus at Marsh is to provide access to the full range of market solutions, whether they are standard or admitted market solutions or non-admitted solutions. We aim to maintain the flexibility to offer the best options for our clients. I hope that clarifies things.

Thanks, good morning. John, in the press release, you mentioned continuing to make investments for the future in this quarter. I'm just wondering if there was an acceleration in some of those investments this quarter, particularly in RIS? And if so, if you could walk through the nature of them and how we can think about the future revenue contribution?

No, thanks, David. I don't view it as an acceleration this quarter. On a GAAP basis, expense growth was influenced by M&A, restructuring, and also foreign exchange. Even when looking at adjusted figures, foreign exchange was a factor. As I mentioned earlier, we aim to balance our current deliverables with future investments. Our focus isn't on optimizing margins for a specific quarter or even a year. We have a disciplined track record of increasing revenue faster than expenses, but this won't happen in every quarter across every business. We will seize the right opportunities to invest, as we believe these will create value for our clients, and we will proceed with those investments.

Got it. And then just on the Marsh Global Pricing Index, I guess I'm wondering just if we're seeing an acceleration in some of the casualty lines, excluding workers' compensation and excluding financial lines, if you're seeing an acceleration there. It sounded like on the reinsurance side, there's a bit more discipline that's entering the market given some social inflation concerns. I'm wondering if you're seeing any signs of that in the primary market?

Yes, it's not a market. I would suggest it's really a collection of markets. And what we saw in the third quarter was, on average, pretty similar to what we experienced in the second quarter. I would note, as it relates to our income statement, we have different levels of commission exposure to different products, right? So, it doesn't always add up to the same amount. But it's a mixed market, and maybe I'll ask Martin to share some thoughts. And just to remind everyone, it's our role is to get the best solution for our retail clients in the marketplace. And we have a role as a market maker, too. And so, we've done a few things as a market maker to try to bring more efficient financing solutions to our clients. Martin?

Yes, I agree with that, John. That's our job. To give some context, we're in the 24th consecutive quarter of rate increases. We will release our survey in a couple of weeks. I don't believe we are at a turning point regarding pricing. The pricing cycles we see across different areas and product lines are displaying a mix of strengths and weaknesses based on their combinations. The third quarter for Casualty grew by 3%, consistent with the previous three quarters. We aren't seeing an acceleration. However, we are hearing more discussions from carriers about pricing pressures and some notable legal judgments, and we are keeping our clients informed on these matters. Property rates were at 7%, roughly in line with the previous quarter. We noted some decline in FINPRO lines, which dropped by 6% in the third quarter following an 8% decline in the prior quarter. I wouldn't consider this a trend yet, but the decrease is evident. Additionally, as you mentioned, John, our cyber index fell by 2%, having risen by 1% in the prior quarter, resulting in a three percentage point difference between the two quarters. Overall, it's a relatively calm market for casualty.

Yes. Thanks, Martin. What I would also say, David, and I mentioned this to Jimmy, but clearly, the cost of risk is rising, right? So, whether it's a frequency of cat events, including extreme weather, casualty loss costs, whether it's core inflation, social inflation, some of the underwriting community referring to as legal system abuse, the growth in litigation funding, concerns for our clients for sure and the underwriting community as well. Thanks, David.

Thanks for taking my question. So, I think last quarter, there were some comments that I interpreted as expectations for the level of margin expansion to accelerate in RIS in the second half, but it was just a bit lower. So just curious if you could talk about the puts and takes with respect to the margin relative to and whether it's still fair to assume that the second half of the year will have stronger margin expansion than 2Q?

Yes. Sure, Rob. Again, margins and outcome, it's not our primary objective. Our focus is on growing earnings and free cash flow over time. We're not trying to optimize margin expansion in any period, certainly in any business in any period. We do expect solid margin expansion in 2023, which will be our 16th consecutive year of margin expansion. There were FX headwinds in RIS' margins in the third quarter. But again, I'm pleased with the progress that we've made there. And as I mentioned in my prepared remarks, again, we expect good solid margin expansion in 2023.

Got it. And maybe just a follow-up. I think some peers have highlighted expectations for medical costs to increase. So, I was hoping if you could discuss the trends you're seeing in the health and benefits space and expectations as we look into 2024.

Sure, Rob. I'll ask Martine to comment in a second, but we've had good growth in our health and benefits business at Mercer in our business internationally, which is Mercer Marsh Benefits and at MMA. It is a pressure point, clearly, for our clients in this economy. And so, clients more and more looking to us for solutions there. Martine, maybe you could share some insights.

Thank you, Robert, for the question. Thank you, John. Medical inflation is indeed on the rise, which can be advantageous for our clients. However, it doesn't constitute a significant portion of our revenue since many of our clients operate on a fee-based model. We are actively collaborating with clients to manage these costs and mitigate the impact of increases. As you may know, in the health benefits sector, employers often share costs with employees, and during periods of inflation, there is considerable concern about transferring these costs. Therefore, we are exploring various strategies, such as redesigning plans, enhancing access, and utilizing technology to assist our clients in tackling these rising expenses. While it does have a slight impact on our revenue, overall, it remains a minor issue for us considering all the other factors at play.

Good morning. Two quick questions, if I can. First, John, you talked about macroeconomic uncertainty. I'm wondering how that impacts near-term visibility typically for Mercer in terms of revenue?

Yes, thank you, Meyer. As I mentioned, the macro economy remains uncertain, and there are many questions surrounding it. Mature markets are showing resilience, but inflationary pressures continue. Central banks are focused on reducing inflation, yet we recognize there is a significant risk of recession, and we are prepared for that. Some markets are already in recession. I'll ask Nick and Martine to weigh in, as Oliver Wyman has historically been more sensitive to GDP fluctuations, and Mercer's Career business has shown similar patterns. Nick, could you share your insights on the economy and what implications that may have for our business?

Yes, thank you, John. Thank you, Meyer. As I mentioned earlier, I see a variety of economic scenarios affecting our sectors in different ways. Some industries have faced significant challenges since the pandemic, while others have experienced occasional growth. For instance, we have seen growth in Aerospace and Defense, where we made a major acquisition last year that we believe will be resilient over time. I think a challenging economic outlook usually leads to slower growth for Oliver Wyman. However, we have been working on expanding our offerings to be more versatile over the business cycle. When circumstances change and new questions arise, organizations often seek assistance in navigating them. Therefore, the link between economic conditions and our performance is not as strong as it used to be; in fact, it has weakened considerably over time.

Thank you, Nick. Martine, maybe you can share some thoughts on Mercer Career?

Yes, absolutely. Over the last few years, we have concentrated on diversifying our business portfolio and have slightly shifted our business mix away from the more discretionary segments, especially in Career, towards more recurring types of work. Additionally, in the current environment, there is significant demand, as Nick mentioned. For instance, volatile capital markets increase the need for advice in our defined benefit and other completion businesses, particularly with well-funded pension plans benefiting from high-interest rates and creating demand for pension risk transfer. We’ve seen tight labor markets and changes in work dynamics, along with the rise of digital health and technology in the workplace, all of which are driving demand and offsetting the traditional impact that was closely tied to GDP, as we discussed earlier.

Thanks, Martine. So, we, of course, Meyer, are not immune to economic growth, but we're a resilient business. And again, we have a track record of performing across economic cycles. And at the moment, demand remains strong. Do you have a follow-up?

I do. Just a quick one. That was very helpful. With regard to Oliver Wyman, in the past, I guess, you've communicated that Oliver Wyman, when you have strong growth, there could be some pressure on consulting margins just because of the nature of that business. And we didn't see that in this quarter. I'm wondering, is that context of lower margins of Oliver Wyman less true now?

No, it's not less true. But again, keep in mind, Mercer had its best quarter of growth. It's a bigger business than Oliver Wyman and it's best quarter of growth in 15 years. So that's the reason you didn't see anything there.

Good morning. Just at Marsh, just wondering if you could comment what's driving double-digit growth there at EMEA and Latin America? I know that's been strong for a few quarters, but can you give more detail on that? Is there any new areas we're seeing growth? And is there much of a benefit from rate increases there?

Yes, sure. Happy to talk about that, Scott. Again, very pleased with our growth at Marsh. It was particularly strong in the International segment in the quarter. And in spite of mixed economic outcomes in Europe, our business is performing exceptionally well there. And we've had good growth over a long period of time in Latin America. Martin, maybe you could share some color on growth in both of those markets.

I'd be thrilled to. Yes. As you say, great growth in international, 10%; Latin America, up 14%; APAC, 10%; EMEA grew 9%. So really, really pleasing growth. I'd say there are a few areas that are outstanding at the moment, the energy and power business, the transition is fueling growth. Credit Specialties had a terrific quarter in aviation, as well as MMB, which is a big part of our business in Europe, delivered strong double-digit growth. And our advisory business, our value proposition is to go to market through a lens to help our clients think through the cost of risk. And so that's been a big growth area for us as we think that, and we think that will continue to broaden our opportunities. That's been great growth. It's been good growth between renewal and new bid business across the business, and we've had less lost business. The clients are staying with us longer as they see the value in an organization like ours that has such broad capabilities. So, we feel very good about that across the board. And of course, you've got the fundamentals in Latin America, with the protection gap and somewhat emerging markets in Eastern Europe as well that have had very strong growth as well. So, we feel well positioned and very positive about the trajectory there.

Thanks, Martin. Scott, do you have a follow-up?

Yes. Just one other quick follow-up here. Just on M&A, you did those a couple of bigger-sized deals in the quarter. Just wondering if you could just comment on your M&A pipeline versus where it was maybe six months to nine months ago? You're feeling a bit better about those opportunities as you go into 2024, and maybe some areas that you're looking at in particular with the focus areas?

Certainly. We are actively engaged in the market and our pipeline remains strong. I want to stress how happy we were to bring Grant on board in the third quarter, and we anticipate closing the deal with Honan soon. Both companies are well-managed and have solid growth potential, which enhances our footprint in the middle market. In total, we completed five deals this quarter, with these two being the most significant. We are very excited about this activity. Although there are fewer transactions occurring, many dynamics are at play, and we are clear about our criteria. Valuations for strong businesses are still high, but we know our objectives and how to manage M&A risks. Therefore, we will be selective and disciplined while continuing to invest in inorganic growth.

Hi, thank you. So maybe if we can just go back to Oliver Wyman a little bit. Previously, you mentioned that regarding the UBS and Credit Suisse merger deal. That happened in the second quarter. Just curious if that was a meaningful driver of organic growth for Oliver Wyman into the second quarter and third quarter? And also, on top of that, do you expect any residual from that deal to come through in the fourth quarter and going forward for Oliver Wyman?

Yes. Thanks, Bob. We're not going to comment on individual clients and the work that we do for individual clients. So, as Nick talked about a couple of different times on this call, we have an increasingly diverse set of offerings that we think is more resilient, and we're very, very pleased with the growth at Oliver Wyman through three quarters. Again, quarter-to-quarter, we could see more volatility and expect to see more volatility at Oliver Wyman's top-line than our other businesses. But we also expect Oliver Wyman to grow faster over the medium term and longer term. And that's certainly been the case. That's been the case in this year, and we expect it to be the case over the longer term. Do you have a follow-up?

Yes, sure. One more thing very quickly. Regarding your cyber insurance practice. I know you mentioned that the cyber insurance pricing growth is slowing down a little bit. There had been a few relatively large headline cyber incidents, as well as some cyber claims, namely in the casino gaming area, as well as the government, and other areas. Do you expect the current slowdown in cyber pricing to be a sort of soft patch? But do you expect that pricing growth to rebound back? Or do you think the cyber insurance pricing will just kind of stay where it is right now?

Bob, the key point to emphasize is that our primary responsibility is to find efficient risk financing solutions for our clients. Yes, there have been significant breaches that will lead to insured losses in the market, and there has been an uptick in ransomware claims this year. However, it's important to note that the underwriting community has responded to the rise in ransomware claims in recent years by implementing higher attachment points. The underwriting market is also adjusting to potential systemic events that could aggregate losses in their portfolios. At Guy Carpenter, we are assisting them while also collaborating with Marsh to create improved solutions. The market has been limiting coverage for systemic events, which is another consideration. I don't believe the market will experience substantial movement based on a few losses. Nevertheless, we collectively have work to do to assist in a digital economy. When I say collectively, I mean everyone in the marketplace, to devise better solutions for clients managing cyber-related risks in this environment. Thank you.

Some competitors have specifically noted organic growth pressures in the U.S. related to D&O capital markets transactions. You mentioned it briefly. I'm curious, when we consider your operations in the U.S. and Canada within Marsh, is there any reason to think that you wouldn’t be facing a similar headwind?

Thank you, Ryan, for your question. Martin already pointed this out. I can't discuss relative exposure, but it's clear that capital market volatility, rising capital costs, and lower levels of M&A and IPO activity are all impacting us. SPAC and DSPAC activities have also decreased, which affects the risks and opportunities we can advise on. As Martin mentioned earlier, pricing is down as well, presenting headwinds for us. However, we have a well-diversified business in the United States, enabling us to assist our clients in managing various risks. Overall, the cost of risk continues to rise due to the factors I mentioned earlier. Thank you, Ryan, and I appreciate your insights. I also want to take this opportunity to thank our over 85,000 colleagues for their hard work and dedication, as well as our clients for their continued support. Thank you all very much, and we look forward to our next discussion next quarter.