MITRE MINING CORPORATION LTD (MMC) — Q1 2024 Earnings Call Transcript

Good morning. Thank you for joining us to discuss our first quarter results reported earlier today. I'm John Doyle, President and CEO of Marsh McLennan. On the call with me is Mark McGivney, our CFO, and the CEOs of our businesses: Martin South of Marsh; Dean Klisura of Guy Carpenter; Nick Studer of Oliver Wyman; and Pat Tomlinson of Mercer, who is joining us for the first time. Welcome, Pat. Also with us today is Sarah DeWitt, Head of Investor Relations. Marsh McLennan had a strong start to 2024. Our first quarter results were excellent, and we are well-positioned for another good year. Top-line growth continued with 9% underlying revenue growth, which was on top of 9% growth in the first quarter of last year. All of our businesses had strong revenue growth with Marsh, Mercer, and Oliver Wyman accelerating growth from the fourth quarter. We grew adjusted operating income by 11% from a year ago. Our adjusted operating margin expanded 80 basis points compared to the first quarter of 2023. We had adjusted EPS growth of 14%. And we completed $300 million of share repurchases in the quarter. In addition, we continue to add to our talent, capabilities, and scale through acquisitions. These investments will help strengthen our strategic position and sustain top-line growth. For example, Mercer completed the purchase of Vanguard's OCIO business, which expands our reach into the endowments and foundation segment. MMA acquired two leading agencies in Louisiana, and Oliver Wyman closed the acquisition of SeaTec, which extends our capabilities in the aviation, transportation, and defense industries. At Marsh McLennan, we bring together specialized capabilities and perspectives across risk, strategy, and people to help clients make critical decisions with confidence. For example, in the area of supply chain risk, we developed a solution called Centrisk, which draws on the perspective and capabilities of Marsh and Oliver Wyman to identify key risks in our client supply chains. Using this framework, we create a digital twin model of a client supply lines, which provides a scenario-based vulnerability assessment to help manage risk. This product is already helping clients across multiple sectors, including in the banking, manufacturing, aviation, and defense industries. As we noted last quarter, Marsh, Oliver Wyman, and Guy Carpenter developed the Unity facility, a public-private insurance solution that enables grain shipments from Ukrainian ports. In the first quarter, we worked with the Ukrainian government, DZ Bank, Lloyd's, and others to expand the facility to all ships carrying non-military cargo. This will help support Ukraine's economic resilience in time of war. In the healthcare sector, Marsh and Mercer are working together to help clients evaluate connections between talent retention, patient safety, and the cost of malpractice insurance. Marsh's risk assessment capabilities and Mercer's extensive health and human capital expertise, combined with our rich datasets, are creating new, highly-valued perspectives in the healthcare sector. These are just a few examples of how we're applying our unique expertise to address pressing challenges and deliver significant value to clients. Recently, we released our Annual ESG Report. The report includes enhanced disclosure on our ESG efforts and underscores how the actions we're taking on behalf of our clients also have a positive impact on the communities where we live and work. Let me share some examples. We collaborated with the Center for NYC Neighborhoods to launch a community-based catastrophe insurance program. This parametric insurance program helps finance emergency grants to community members following an event, with funds reaching households within days of a catastrophe. In cyber, we developed a global personal microinsurance solution to protect against threats like online identity theft, viruses, cyberbullying, and failure to deliver purchased goods. With regard to sustainability, we are supporting the Dubai Energy and Water Authority's commitment to provide 100% of its energy from clean sources by 2050. As part of this work, we conducted a climate resilience assessment of one of the world's largest solar parks. We modeled the site's ability to withstand future climate conditions and proposed adaptation measures to mitigate extreme risks. We continue to improve sustainability in our own operations as well. For example, in 2023, we expanded the use of renewable electricity across our US offices and in our largest UK locations. And we submitted our climate targets for validation as part of our goal to achieve net zero globally by 2050. We remain committed to generating exceptional financial performance and returns for shareholders, and we also recognize that the successful outcomes we help enable for our clients and our own actions can have a lasting positive effect on communities around the world. Shifting to the macro picture, we see significant opportunity to help clients navigate the range of outcomes driven by a more complex environment. The geopolitical backdrop remains unsettled with multiple major wars and rising tensions globally. More than half the world's population will go to elections in 2024, and the economic outlook remains uncertain as well. Despite this uncertainty, the environment is supportive of growth in our business. In general, we see continued economic growth in most of our major markets. Inflation and interest rates remain elevated, labor markets are tight, the cost of risk is up, and healthcare costs continue to rise. We have a strong record of performance across economic cycles due to the resilience of our business and demand for our advice and solutions. Turning to insurance and reinsurance market conditions, primary insurance rates increased, with the Marsh Global Insurance Market Index up 1% overall in the quarter. Property rates increased 3% versus 6% in the fourth quarter. Casualty was up 3%, in line with last quarter. Workers' compensation decreased mid-single digits while financial and professional liability rates were down 7%, and cyber pricing decreased 6%. Reinsurance market conditions remained stable, with increased client demand and adequate capacity. In the April renewal period, US property cat reinsurance rates were flat with some decreases for accounts without losses. Loss-impacted accounts averaged increases in the 10% to 20% range. The US casualty reinsurance market was challenging, but rates were in line with January renewals. In January, April 1 property cat rates overall were down slightly on a risk-adjusted basis. Early signs for June 1 Florida cat risk renewals point to improved market conditions for cedents. Increased reinsurance appetite for growth should be adequate to meet higher demand. As always, we are helping our clients navigate these dynamic market conditions. Now, let me turn briefly to our first quarter financial performance, which Mark will cover in detail. We generated adjusted EPS of $2.89, which is up 14% versus a year ago. Revenue grew 9% on an underlying basis with 9% growth in both RIS and in consulting. Marsh was up 8%, Guy Carpenter grew 8%, Mercer 6%, and Oliver Wyman was up 13%. Overall, in the first quarter, we had adjusted operating income growth of 11%, and our adjusted operating margin expanded 80 basis points year-over-year. Turning to our outlook, we are very well-positioned for another good year in 2024. We continue to expect mid-single-digit or better underlying revenue growth, another year of margin expansion and strong growth in adjusted EPS. Our outlook assumes current macro conditions persist. However, meaningful uncertainty remains and the economic backdrop could be materially different than our assumptions. In summary, the first quarter was a great start to the year for Marsh McLennan. Our business delivered strong performance and we continue to execute well on our strategic initiatives. I'm proud of the focus and determination of our colleagues and the value they deliver to our clients and shareholders. With that, let me turn it over to Mark for a more detailed review of our results.

Thank you, John, and good morning. Our first quarter results were outstanding and represent an excellent start to the year. We saw continued momentum in underlying growth, strong margin expansion, and double-digit growth in adjusted EPS. Our consolidated revenue increased 9% in the first quarter to $6.5 billion, with underlying growth of 9%. Operating income was $1.9 billion, and adjusted operating income increased 11% to $2 billion. Our adjusted operating margin increased 80 basis points to 32%, and we expect higher margin expansion for the rest of the year, particularly in the second half. GAAP EPS was $2.82, and adjusted EPS was $2.89, up 14% from last year. Looking at Risk and Insurance Services, first quarter revenue was $4.3 billion, up 9% compared with a year ago on both a reported and underlying basis. This result marks the 12th consecutive quarter of 8% or higher underlying growth in RIS and continues the best stretch of growth in two decades. RIS operating income was $1.6 billion in the first quarter. Adjusted operating income was also $1.6 billion, up 11% over last year, and our adjusted operating margin expanded 50 basis points to 39.1%. At Marsh, revenue in the quarter increased 9% to $3 billion or 8% on an underlying basis. This comes on top of 9% growth in the first quarter of last year. In the US and Canada, underlying growth was 8% for the quarter, reflecting solid renewal and new business growth. In international, underlying growth was strong at 8% and comes on top of 10% in the first quarter last year. EMEA was up 9%, Latin America grew 8%, and Asia-Pacific was up 6%. Guy Carpenter's revenue was $1.1 billion, up 7%, or 8% on an underlying basis, driven by growth across most regions and Global Specialties. This was the fifth straight quarter of 8% or higher underlying growth at Guy Carpenter. In the Consulting segment, first quarter revenue was $2.2 billion, up 9% on an underlying basis. Consulting operating income was $432 million, and adjusted operating income was $444 million, up 9%. Our adjusted operating margin in Consulting was 20.7% in the first quarter, an increase of 40 basis points. Mercer's revenue was $1.4 billion in the quarter, up 6% on an underlying basis. This was Mercer's 12th straight quarter of 5% or higher underlying growth and continues the best run of growth in 15 years. Health underlying growth was 10% and reflected strong momentum across all regions. Wealth grew 5%, driven by growth in both investment management and defined benefit consulting. Our assets under management were $489 billion at the end of the first quarter, up 17% sequentially and up 38% compared to the first quarter of last year. Year-over-year growth was driven by our transactions with Westpac and Vanguard, rebounding capital markets, and positive net flows. Career revenue increased 1%, reflecting a tough comparison to a period of strong growth last year, as well as softness in the US. Oliver Wyman's revenue in the first quarter was $789 million, up 13% on an underlying basis from the slow start we had in the first quarter of last year, and reflected strength across all regions. Foreign exchange had very little impact on earnings in the first quarter. Assuming exchange rates remain at current levels, we expect FX to be a $0.02 headwind in the second quarter and a further $0.01 headwind in the second half. Total noteworthy items in the quarter were $49 million. The majority of these items were restructuring costs, mostly related to the program we began in the fourth quarter of 2022. Our other net benefit credit was $67 million in the quarter. For the full year, we expect our other net benefit credit will be approximately $265 million. Interest expense in the first quarter was $159 million, up from $136 million in the first quarter of 2023, reflecting higher levels of debt and higher interest rates. Based on our current forecast, we expect $158 million of interest expense in the second quarter and approximately $620 million for the full year. Our adjusted effective tax rate in the first quarter was 23.9% compared with 25% in the first quarter of last year. Our tax rate benefited from favorable discrete items, the largest of which was the accounting for share-based compensation, similar to a year ago. Excluding discrete items, our adjusted effective tax rate was approximately 26.5%. 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, we continue to expect an adjusted effective tax rate of between 25.5% and 26.5% for 2024. Turning to capital management and our balance sheet. We ended the quarter with total debt of $13.5 billion. Our next scheduled debt maturity is in the second quarter, when $600 million of senior notes mature. Our cash position at the end of the first quarter was $1.5 billion. Uses of cash in the quarter totaled $1 billion, and included $354 million for dividends, $347 million for acquisitions, and $300 million for share repurchases. We continue to expect to deploy approximately $4.5 billion of capital in 2024 across dividends, acquisitions, and share repurchases. The ultimate level of share repurchase will depend on how our M&A pipeline develops. While there continues to be uncertainty in the outlook for the global economy, we feel good about the momentum in our business, and the current environment remains supportive of growth. Overall, our strong start leaves us well-positioned for another good year in 2024. Based on our outlook today, for the full year, we continue to expect mid-single-digit or better underlying growth, margin expansion, and strong growth in adjusted EPS. With that, I'm happy to turn it back to John.

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

Hi, thanks. Good morning. My first question is just on the Marsh growth. John, I caught what you said on the global pricing index, which moved down or decelerated a little bit to 1% from 2% last quarter. But the Marsh organic growth accelerated to 8% this quarter from 6% last quarter. So, I'm hoping you can help me bridge the gap between accelerating growth and the decelerating pricing.

Thanks, David, for the question, and good morning. We work very hard not to be an index on P&C pricing, right? It's an element. It's a macro factor that does have some impact. But less than half of Marsh's revenue is exposed to P&C pricing. What I would also say to you is that where we're most exposed to commission is in the middle-market. Our index skews to larger account data. Pricing is up a bit more in the middle-market than it is in the large account segment, and typically is less cyclical than what you see in the large account market. But I want to just talk about growth overall. I was very pleased with the start to the year, 9% on top of 9% last year and accelerated growth from the fourth quarter of 7%, as I mentioned. Marsh, Mercer, and Oliver Wyman all had accelerated growth from the fourth quarter. The macros continue to be supportive, David. Solid GDP growth in most major markets, although it's under a bit of pressure. Inflation and interest rates remain elevated. There's tight labor markets, as I said before, and rising healthcare costs. The overall cost of risk continues to increase. Demand remains very strong. Not long out of the pandemic, of course, we've got a couple of global wars happening, and supply chain stress. Our clients are showing broader risk awareness. We're talking to them about that and really trying to help them find a better balance between resilience and efficiency. And we continue to invest through this cycle, right? I talked about a couple of the acquisitions we did. We're improving our mix of business as well. We sold some admin businesses at Mercer in the quarter. And I'm very, very pleased with how our colleagues are executing, too. We've been working on our client engagement model and improving that, continue to invest in sales operations. And as I've talked about, over the course of the last year, we're collaborating more than ever. It starts with the talent that we have. We have the best talent in the markets that we operate in. We're, of course, not immune to macros, including pricing on some level, but we're a resilient business and we're quite excited about 2024. Do you have a follow-up?

I do. And thanks for that answer, that's helpful. I guess, just specifically zeroing in on the US and Canada within Marsh, that had a nice acceleration in the quarter. Could you talk about the drivers specifically for that business? Was it middle-market, was it your capital markets activity coming back and sort of your outlook on the sustainability, further recovery and growth there?

Sure, yeah. Marsh in the US got off to a terrific start, US and Canada, I would point out. And Martin, maybe you could give David a little bit more color.

The growth across the business was well balanced, not limited to just the US and Canada. However, I will focus on the US and highlight the key factors contributing to our growth there. Our overall growth of 8% is a result of extensive efforts over the past few years. The mid-market segment, MMA, had an excellent beginning to the year, with growth fueled by both renewals and impressive new business. Our MGA business, Victor, also showed significant improvement, especially in Canada, after a challenging year last year. The core business in the US also performed well. Specifically, the specialty areas such as construction showed strong performance in the first quarter. Our MMA and advisory businesses in the US also excelled, enhancing our relationships with clients. We experienced good renewal growth and a decrease in our loss business rate. We are optimistic about our focus areas, including client relationships, specialization, and industry-focused advisory services, as these are key drivers of our growth. Overall, we have a positive outlook.

Thanks, Martin. David, I would add, it wasn't a standout quarter in terms of M&A activity in our transaction risk business, but it's a smaller part of our business now. It's a little feedback there. It's a smaller part of our business after the slowdown. So, the impact was less. But we did see some volume in M&A activity pick up during the quarter, which of course is encouraging. So, thank you for your questions. Andrew, next question, please.

Good morning. I would like you to elaborate on John's remarks regarding the reinsurance market. It appears that the market is not as tight as it was over the past year. What are you observing in terms of buyer behavior? Are cedents looking to increase their purchases now that pricing has decreased somewhat, or are they focusing on conserving costs while maintaining coverage levels similar to the previous year?

Sure, Jimmy. Thanks for the question. Maybe I'll elaborate a little bit on some of my prepared remarks and then ask Dean to talk a bit about the reinsurance market. But I think both markets continue to stabilize on average in the quarter. And again, I would remind everyone it's a collection of markets, not a single market. That stabilization is good for our clients. And in some cases, a better market has led to increased demand in both insurance and reinsurance. I would also point out that in recent years, we've had higher premium growth in the captives that we manage at Marsh compared to the premium flow into the traditional market. That may change a bit now, we'll see as markets stabilize and our clients can adjust to what the market looks like going forward. I mentioned earlier our index skews to major accounts. So, pricing in the middle-market continues to move up a bit more than the data points I mentioned earlier. But I would also say that insurers and reinsurers are cautious about that rising cost-of-risk environment that I mentioned as well. And so, while again, a stabilizing market is better for our clients overall, I don't expect that relative stability to change anytime soon, given some of the rising cost of risk issues that the insurance community is confronting. So, Dean, maybe you can talk a little bit more about what's happening in reinsurance.

Yeah. Thanks, John. And Jimmy, I'll give you a little bit more color on the April 1 reinsurance renewal, that would be helpful. As John noted, we saw a continuation of market conditions that we experienced at January 1. And as John noted, market conditions are stable, but we're definitely seeing increased client demand to provide additional property cat limit, particularly at the top end of programs. That was very pronounced throughout the first quarter at 1/1 through the quarter. Strong capital inflows into the reinsurance market, driven by strong reinsurer returns, double-digit returns in 2023. We talked about last quarter on the call, reinsurer appetite has increased for property cat. There is an inflow of capital and capacity. Competition at the top end of programs has been good for both buyers and sellers in the marketplace. Specifically to property cat, in the US, at April 1, as I said, capacity was strong. As John noted, the market was generally flat to down incrementally for clients without cat losses. Accounts with cat losses saw 10% to 20% kind of rate increases. But keep in mind, we give you rate-adjusted figures. But when you factor in inflation, exposure growth, and value growth, premiums on these cat programs are still increasing year-over-year. It continues to be a tailwind for Guy Carpenter in the marketplace. And as I said, there's a lot of competition for cat business. US casualty, as John noted, was challenging, just as challenging on April 1 as it was at the January 1 renewal. Reinsurers are exerting pressure on pricing in terms and conditions. Ceding commissions are facing downward pressure from reinsurers on certain quota-share contracts, particularly in financial lines, which Martin has talked about in the past. Excess-of-loss contracts are seeing rate increases across the board, in some cases, double-digit. However, there was adequate casualty capacity in the marketplace at April 1, and all of the programs that we placed got completed in full. But I would balance that against continued reinsurer concern with the adverse development, driven by social inflation and increasing loss cost trends. I think that's a good summary of where we were in the US market. Just a note on Japan. Big April 1 cat date in Japan, a very orderly market, sufficient capacity, many cat programs were oversubscribed. We didn't observe any structural changes. Attachment points stayed where they were from a year ago. And again, it was a market that was down on average 5% from a rating perspective, and we didn't really observe any rate impact from the January earthquake in Japan. Overall, a very orderly market at April 1 in Japan.

Terrific, Dean. Thank you. Jimmy, do you have a follow-up?

I do. Income remained flat sequentially and was lower than in the third quarter. I assume that's largely due to seasonality. Could you share your expectations for that considering the current short-term rates?

Mark, you want to jump on that one?

Yes, Jimmy, there is a bit of seasonality in our fiduciary balances. The first and fourth quarters usually reflect modest seasonal lows, which accounts for that. Regarding our outlook, the future rate environment will play a crucial role. Our fiduciary interest income will be influenced by both balances and rates, and we currently have about $11.5 billion in balances. Depending on your assumptions about the direction of rates, the calculations are relatively simple.

Thank you, Mark. And thank you, Jimmy. Andrew, next question, please.

Thanks. Good morning. My first question was on the margin guidance. You guys said more margin expansion in the back half of the year. What's driving that? Is there just more investment in the first half, more savings falling in the second half, or something else that's driving the seasonality within the margin expansion this year?

Good morning, Elyse. We expect again good margin expansion in 2024. As you pointed out, Mark noted, we expect the second half to be better than the first half. We have some expected headwinds, not really seasonality, but driven from a higher merit pool a year ago, some acquisition-related costs, and some higher reimbursable expenses. But I want to remind everybody not to focus on any one particular quarter. Again, margin is an outcome of really how we run the business, and it's not a primary objective of ours. Again, having said that, we see opportunity for margin improvement, continued margin improvement. But we're going to continue to make attractive investments to support the medium to long-term growth of the business. We have a number of different efforts underway, ongoing workflow and automation efforts at Marsh, Mercer, and Guy Carpenter. And we continue to press for opportunities to improve efficiency at the intersections of our businesses as well. So, we see opportunity. And as we pointed out, we expect the second half to be better than the first.

Yes, thanks. And then my second question, Marsh recently launched its wholesale venture Victor Access. I know it's early days, but what was the impetus for this strategy? And is there any reason why the majority of the wholesale risk currently placed by Marsh with third-party wholesalers couldn't potentially be internalized through Victor over time?

So, let me be clear, Elyse, we're not looking to build a third-party wholesale business. There's obviously been considerable growth in the wholesaler to E&S market over the course of the last several years. We want to bring the best solutions in the marketplace to our clients. Generally, we're preferring admitted solutions for our clients. Not that there aren't good things that happen in the E&S market. Of course, there are, and innovation is one of the areas where the E&S market is important. But we want to access as much of that E&S market directly. We actually access most of our E&S market solutions directly today. But we want to continue to press and make sure that we can access as much of that market directly. So, it's client-driven. It's about us managing the client outcomes, client experiences, really as directly as possible. Having said that, we'll continue to use wholesalers for niche expertise. They serve us very well and our clients very well. In those cases, they also have strong program businesses as well. So, anyway, that's what it's about. It's just, again, making sure we can directly access as much capital directly as possible for our clients. Thank you for that. Andrew, next question?

Good morning, everyone. I'd like to pivot to the Consulting business, which had a nice quarter. I'm wondering if you can provide some additional color around how the different pieces are moving. I know some of the management consultants have pre-announced that they're going to be cutting staff this year. Not really seeing any signs of weakness in your pipeline, but maybe you could give us some color, because forecasting this out seems to be a little bit of a black box?

Okay. Thanks, Greg. Yeah, we are very pleased with the start to the year. As you recall, of course, Oliver Wyman had a slow start to the year in 2023, had a nice year overall of growth. There's going to be a bit more volatility to revenue growth at Oliver Wyman, but we also expect better growth on average from Oliver Wyman over the medium to longer term. Nick, maybe you can share with Greg some color on demand in the first quarter.

Thank you, John, and thank you, Greg. Yeah, 13% was a very pleasing start to the year, it makes a marvelous headline, and we're very, very proud of a good start on what, as you noted, is a tough environment for many in our profession. John has already given the caution about taking the two-year view. We also probably benefited from a few little timing benefits of things that might have shown up in Q2, might have shown up in Q1. And we still very much give guidance through the cycle. This should be a mid-to-high single-digit business. And you noted the sort of forecasting it out is a tricky challenge. That is true because we have a relatively short backlog. The nature of our work is such that when clients need assistance, they need it quickly. And so, we are always ready to move very, very nimbly. To give you a little bit more color, we grew pretty strongly across all the four regions of our management consulting business and our economic research business, NERA, also grew very strongly, fastest in the Middle East, but in the double digits or very close to double digits in all three of the other major regions we have. And sectorally, it was also fairly broadly spread. Our communications media and technology team grew well, healthcare grew well, banking saw a rebound in private capital work, which I've noted on previous calls has been pretty robust even in the face of obviously a very much lower deal market, but our work on portfolio company performance has helped us there. But insurance also growing, and quite broadly across the capabilities that we bring to bear as well. So, we think we're in a good position. We're very confident we gained share over the last few years, but it's a tough consulting environment. And our pipeline indicates that mid-to-high single-digit growth environment, growth forecast, is how we think about this business through the cycle.

Thank you, Nick. That's very helpful. And Greg, maybe I'll ask Pat Tomlinson also to share some thoughts just on the first quarter at Mercer, given our consulting operations there. And Pat, while you have the floor, as I mentioned, obviously, you're joining this call for the first time. Maybe you could talk a bit about your priorities at Mercer.

Sure. Thanks, John. Yes, we are pleased with our Q1 2024 underlying growth, as mentioned earlier, of 6%. It was our 12th consecutive quarter with 5% or more growth, especially the breadth across the practices. Health, another impressive quarter with 10% growth in Q1. That growth was really double-digit growth nearly across all regions. And it comes on the back of investments in hiring new talent, focus on thought leadership, creating digital tools, and really focusing in on client segmentation, trying to match client healthcare needs based upon industry segment size with the innovative and adaptive solutions that we have. So, really trying to meet clients where they are. We certainly benefited from strong retention. We had good renewal growth. Insurer revenue and medical cost inflation has an impact there. We see significant demand for digital solutions and the innovative benefits that are kind of underscoring the value that we're providing to clients. If I pivot over to wealth, we grew 5% in Q1. There was good, balanced, equally strong performance in defined benefit and investment management. We see defined benefit plans funding statuses continue to benefit from elevated interest rates that are driving an increase in risk transfer over the last couple of years, as well as we have some regulatory requirements and demands that are creating some project work. If you add in some volatile capital markets, it's driving strong demand for both our actuarial and our investment solutions business. Speaking of investment solutions, in OCIO, we benefited from some transactions in Westpac and Vanguard, Mark mentioned that earlier, but also good net new inflows and capital markets provided us some revenue lift in Q1. From a career perspective, growth was muted to 1% for the quarter, but we're following a period of strong growth over the past several years, including a challenging 12% comparable last year. The growth was strong in international and is very broad across all practices and regions. We did see, as was mentioned, some softness in US career, specifically in rewards in the transformation space, as I would say, clients are starting to navigate some of the macro conditions. So, let me highlight the career practices coming off that very long period of high growth. As I mentioned, double-digits in for the past eight quarters, driven in large part, I would say, by inflation and employee attrition. If we all remember the great resignation coming out of the pandemic, which drove a lot of labor shortages and created a lot of demand for projects with clients as they were trying to think about how to reward employees and retain them.

Thank you, Pat. We're excited to have you at this table. Greg, do you have a follow-up?

I do. Thanks for the detail on that answer. I want to pivot to M&A. And specifically, Mark, I think you mentioned the interest expense outlook for the company, and we note the higher interest rate cost of the debt that's being issued versus that which is being paid off. So, I'm curious if there's been any follow-through on those higher costs in terms of valuation of transactions that you're looking at. And, I'm also curious if there's any valuation difference between larger properties versus smaller properties that you're looking at in the M&A market. Thank you.

Yeah. Thanks, Greg. What I would say is we remain quite active in the market. We have a good strong pipeline, as I've talked about in the past, we have an excellent reputation in that marketplace as being a good owner as well. So, we're excited about the deals we did in the first quarter. And again, we're going to continue to remain active in the market. I think valuations have remained stubbornly high, I would say, on the other side of things. And while we might expect that for top-quality assets, I would also point out that some lesser-quality assets have traded at some very, very high multiples of late. And so, we're going to be picky. We're looking for well-led businesses with real strong growth fundamentals that make us better and are a good cultural fit for our organization. We've been very successful at it. And again, as Mark pointed out, we expect to continue to deploy capital in the market going forward. Thank you, Greg. Andrew, next question, please.

Hey, great. Good morning. Probably for Mark on the margins and the expense bucket. If I look over the last year-plus, the margin improvements come much more so from the general and other bucket, rather than compensation and benefits. It looks like that it flipped a little bit that relationship this quarter, if I'm correct. Anything changing there, given the expense management programs, or just in terms of how we should think about where the margin improvement is coming from on a go-forward basis?

Thanks, Mike. Mark, you want to...

Yeah, I think it's a great point that you're making and I think it reflects the strategy of the company. We've said we continually invest in positioning ourselves for the future. And over the last several years, we've talked about the heavy investments we've made organically in talent. And so, I think we've done a terrific job of really being thoughtful about all of our other operating expenses, functional costs, how we're leveraging things across the firm, T&E. Really some of the gains we made in the pandemic, we've harvested them. So, as you point out, a lot of our margin expansion over the last five years has come from being really disciplined on things far away from the client and investing heavily in client-facing talent. And so, I think that is a factor in our growth. And I think also as we look forward, there's going to be leverage in those investments, which is why we're optimistic about margins going forward.

Thank you. Mike, do you have a follow-up?

I have a quick follow-up. You provided a lot of insights regarding the commercial primary insurance pricing power and mentioned that the Marsh Index has slightly declined. I'm curious if you could give additional context. A 1% change seems like a soft market figure. Are you observing that your carrier partners are achieving strong returns, which might be contributing to the pricing power decrease despite ongoing inflationary trends? Any further details on the factors behind the slowdown would be appreciated, especially since you've already shared some commentary.

I don’t think it feels like a soft market for our clients after five years of price increases. Our index tends to focus on larger accounts, which experience more variability throughout the cycle. I believe cycles will be shorter and more constrained than before due to advancements in data and technology within underwriting. Capital is moving much faster in and out, contributing to the dynamics we’ve seen in the E&S market in recent years. As a result, I expect greater overall stability, though some specific areas of risk may see notable changes that could affect certain products outside typical cycles. Generally, insurer and reinsurer underwriting results have improved over the last couple of years, and most feel confident about their portfolio positions. However, there have been some reserve additions in the fourth quarter. As I pointed out in our first-quarter call, casualty loss costs remain an uncertainty, with emerging data raising concerns for our ecosystem, contributing to the increasing cost of risk I mentioned earlier. It's also important to note that our index accounts for limit, exposure, attachment point, and includes new business, unlike some other indices that may not adjust for these factors. Lastly, the figure does not directly reflect premium growth in the market. It’s possible to see less of an increase or certain clients purchasing more coverage. This trend is notably seen in the reinsurance market right now, and we’re observing it at Marsh as well. Clients have adapted to new market pricing, leading to a higher demand for coverage. I hope that provides clarity. Andrew, please proceed to the next question.

Thank you. Good morning. Two questions on Marsh and the market environment you're seeing there. And I think the first one maybe ties well to your last comments, John. Are you surprised to see casualty rates only up 3% just given the loss trends? I guess I'd love to hear your views both as the CEO of Marsh but also maybe as a former underwriter.

It's very, very hard right now. As I mentioned earlier, there are some troubling data points, right? And thrown in the mix of the last several accident years, of course, a couple of years of the impact of the pandemic. Just on the clients where we help them, larger clients, with big risk management programs that have a level of frequency, it's very, very difficult to project where loss costs are. But as I said, the underwriting community is better than it's ever been. They have better data and better technology. But there, again, are some troubling signs. It's not just increased frequency. It's not just kind of nuclear verdicts that term gets kind of thrown around, or even some of the bigger settlements. There's a frequency of larger events. See the Francis Scott Key Bridge as an example, that will be a big loss in the market, maybe not as much a casualty loss, but a big loss in the market. But even in like commercial auto, and you've certainly seen that play out in the personal lines auto market, just kind of more frequency type events just costing more to get resolved. And so, we're putting our efforts to helping our clients think through how to better run off liabilities that they assume and even transfer into the market. The insurers are investing quite a bit in their claims capabilities as well to try to get ahead of this. But I think we're all pointing to again some flashing yellow signals out there about the rising costs overall. Do you have a follow-up?

Yes, I do. Thank you for the details. In Marsh, organic growth was strong, and we also experienced solid results in the US and Canada. However, I might raise a concern regarding Asia Pacific, where we noticed a decline. Is there a timing issue or any one-off events affecting that region? I recognize you had exceptionally strong results in the first quarter of 2023, so any insights on the organic performance in Asia Pacific would be appreciated.

There are no one-time events or significant issues to report, just a continuation of a couple of years of very strong comparisons and growth. We are pleased with our positioning in Asia, where there are significant protection gaps. Our operations in each country throughout the region are robust, as we are actively engaged with our clients on the ground. As we have mentioned previously, we wouldn't focus on any single quarter. This is in addition to the exceptional growth we've experienced in Asia over the past couple of years. Overall, we feel optimistic about our trajectory in Asia. Andrew, please proceed to the next question.

Great. Thanks. I was hoping to discuss the competitive environment in Risk and Insurance Services maybe from two perspectives. First, I'm wondering whether there is a difference in the market share gain potential when you're in a rising rate environment and the enormously fragmented brokerage world includes a lot of companies that just don't have the resources to help clients manage higher insurance costs as successfully as a company with Marsh's resources. How much of a difference does that make?

It's a good question, Meyer. We're very focused on bringing scale benefits to our key stakeholders, including our colleagues. We want them to feel like they have nearly 90,000 people supporting them with learning and development, data and analytics, and market access that they might not have if they chose to work elsewhere in our industry. We consider this from the perspective of colleagues, clients, and investors. From the client perspective, broadly speaking, our clients are more risk aware than they have been in the past. We have played a role in making them more aware of some meta-risks, and recent events have certainly heightened that awareness. It's our responsibility to deliver those scale benefits to the market, not just in terms of data analytics or market access, but also through different types of solutions. I mentioned our captive business; we are the largest captive manager in the world, which has provided our clients a meaningful way to manage risk in the rising rate environment over the last several years. So, yes, scale matters. It also impacts some sellers in the market as we engage with potential M&A targets regarding their reasons for selling at the moment, often related to our scale capabilities that are difficult for them to replicate. We're looking for well-led businesses with strong growth fundamentals, and we know we can improve them as well. That's the exciting part for us. Do you have a follow-up?

I appreciate that thorough response. When considering the more concentrated segments of the brokerage market, such as reinsurance or Fortune 100 accounts, do you believe competitors are operating at full capacity? Is the level of competition as strong as usual, or have you noticed any changes compared to long-term trends?

In both of the segments you mentioned, it is a highly competitive market, and we embrace competition. Nothing energizes me more than engaging with clients and ultimately winning their business. Our team shares this enthusiasm and is dedicated to delivering value to our clients. As I noted earlier, we are collaborating more than ever, and in those specific segments, our efforts over the past year to enhance our capabilities for that client base have been particularly significant. However, it remains a very competitive market, which we welcome as it drives us to improve. Thanks, Meyer. Andrew, what’s your next question? And perhaps this will be the last one.

Hey, thanks. In the prepared remarks, there were some comments on healthcare costs continuing to rise. I was hoping you guys could talk about what you're seeing there and maybe parts of the business, maybe between brokerage and consulting that are generating the strongest organic growth in that 10% organic in health.

Sure. Thank you, Robert. Healthcare and the healthcare industry is a big part of our business overall. And I don't think it's any secret that medical inflation and healthcare-related cost inflation is a major pressure point for our clients in many markets really around the world. It's been a big driver of growth for us, and we continue to invest in it. I talked about in my prepared remarks some of the collaboration between Marsh and Mercer to try to bring some sort of relief to an angle of cost pressure in that marketplace. But Pat, maybe you could talk about the growth we're seeing and some of the cost inflation as well.

Healthcare inflation affects our business differently depending on the region. In some areas, particularly in the US and other mature markets where we primarily operate on a fee-based model, the impact is more pronounced. In many other regions, our approach is more brokerage-based. Nevertheless, it’s important to note that even in fixed fee situations, healthcare inflation leads to significant cost increases for clients. This creates a demand for our services, resulting in numerous project opportunities arising from the inflation. However, the projects are not solely driven by inflation. In brokerage environments, while we see inflation reflected in costs, the relationship is not straightforward from a commission standpoint. As healthcare costs rise in clients' financial statements, we consistently engage in plan redesign efforts to help mitigate these costs, as clients often lack direct control over this significant expense. Thus, inflation provides us with increased activity and project work. Sometimes, it can lead to higher rates in brokerage, but we continually work with clients to minimize the financial impact on their accounts, regardless of the commission structure.

So, rising health and benefit costs in a tight labor market, again, is a pressure point. And another example of where, again, we can bring scale and a broader set of capabilities to the market that our clients appreciate. Do you have a follow-up, Robert?

Yeah, very helpful. Thank you. Maybe just last question. On the wealth segment, correct me if I'm wrong, but I think last year, probably the pension business was growing stronger than your investment business. Did that occur as well in the first quarter here, or were both of them kind of similar to the 5% organic growth that was achieved in wealth?

Yeah, we had good solid growth across investment management and defined benefits. As Pat mentioned, our defined benefit business in this period of elevated interest rates has seen a bit more growth than we expected over the course of the last couple of years, but good growth in our OCIO business and our broader set of consulting capabilities inside of our investment business. So, yes, we felt good about that. Thank you, Robert. Andrew?

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