MITRE MINING CORPORATION LTD (MMC) — Q2 2024 Earnings Call Transcript

Good morning, and thank you for joining us to discuss our second-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; Pat Tomlinson 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 comment on the attempted assassination of former US President, Donald Trump, this past weekend. We're thankful that he is safe and our hearts go out to the victims and their loved ones. Violence has no place in our politics or our society. We condemn it and affirm our commitment to civil discussion, debate, and resolution. Our political process and democracy depend on all candidates having the ability to safely convey their visions for our country. We believe that each of us can help shape peaceful public discourse and advocate for a culture of respect and unity. Now, turning to the second quarter, Marsh McLennan delivered strong results across our businesses and geographies. We generated 6% underlying revenue growth on top of 11% in the second quarter of last year, reflecting strong execution in both RIS and Consulting. We grew adjusted operating income by 11% from a year ago. Our adjusted operating margin expanded 130 basis points and adjusted EPS grew 10%. We also announced a 15% increase to our quarterly dividend to $0.815 and completed $300 million of share repurchases during the quarter. These results highlight our consistent focus on delivering in the near term while investing for sustained growth over the long term. We're benefiting from organic investments we've made in our talent and capabilities, and we also continue to make high-quality acquisitions that build on the scale and breadth of our business. In the second quarter, we announced several significant transactions. Mercer announced an agreement to acquire Cardano, a long-term savings specialist in the UK and Netherlands. With approximately $66 billion in AUM, Cardano operates the third-largest UK master trust platform and serves more than 2 million customers across 27,000 employers. This transaction builds on our leading position in OCIO, enhances our DC offerings, and adds important trading capabilities. Oliver Wyman agreed to acquire Veritas Total Solutions, an advisor in commodity and energy markets. And Marsh McLennan Agency completed three acquisitions in the quarter. Fisher Brown Bottrell, one of the five largest bank affiliate agencies in the United States, specializing in commercial P&C insurance and employee benefits, expands our presence across the Southeast. AC Risk Management builds on our scale in commercial P&C in the Northeast and Perkins Insurance Agencies adds to our commercial P&C business in Texas. Last week, MMA also announced the acquisition of Horton, a Top 100 broker with over $100 million in revenue, operating primarily in the Midwest. And we recently announced the acquisitions of AmeriStar, a commercial P&C high-net-worth agency based in Minnesota, and Hudson Shore, a public sector employee benefits agency in New Jersey. These acquisitions are great examples of our ability to attract the very best insurance agencies to our company. And along with high rates of sustained underlying growth, they've helped to make MMA a $3.5 billion annual revenue business. We also continue to help our clients thrive by investing in innovation. Drawing on our expertise, perspective, data, and insights, we are creating new solutions for a complex environment. For example, Marsh continues to evolve Blue[i], a digital suite of solutions for insurance strategy decisions that uses our data and analytics to generate insights for clients. This quarter, we added Blue[i] Risk Appetite Analytics to help clients define the amount and type of risk they're willing to retain. With customizable calculations, our insights help clients navigate a challenging landscape with greater confidence. Guy Carpenter launched CatStop+, a new solution to address the volatility of cyber risk using GC's proprietary analytics. CatStop+ offers clients protection against Cyber CAT losses. Mercer launched SelectRx, a technology solution in the US that creates competition amongst pharmacies for high-cost specialty medications. Leveraging Free Market Health's cloud-based platform, SelectRx lowers costs for employers and delivers savings to employees by directing prescriptions to a curated network of specialty pharmacies. And Oliver Wyman is helping our clients innovate in their own businesses with the launch of Quotient, which combines our expertise in AI implementation, deployment, and strategic advisory with our deep industry knowledge. Quotient moves clients beyond the hype surrounding AI to deliver real value and meaningful outcomes. Our approach to balancing near-term performance with investment and innovation delivers significant value to our clients. It also enables us to sustain growth over the long term and drive consistent exceptional performance for shareholders. Shifting to the macro picture, we continue to see significant opportunity to help clients navigate the complexity they're facing today. Beyond the shocking assassination attempt in the US, the geopolitical backdrop is unsettled with ongoing wars and areas of tension across the globe. Uncertainty also remains around the frequency of extreme weather, escalating cyber-attacks, and key variables in the economic outlook, like the persistence of inflation and the timing of changes to central bank policy. Despite this uncertainty, the environment remains supportive of growth in our business. In general, we see continued economic growth in most of our major markets. The cost of risk in healthcare continues to rise and labor markets remain tight. And the consensus probability of a near-term recession for major economies continues to decrease. We have performed well across economic cycles due to the resilience of our business, sustained demand for our advice and solutions, and consistent execution for our clients. Turning to insurance and reinsurance market conditions, the Marsh Global Insurance Market Index was flat overall in the second quarter versus a 1% increase in the first quarter. Generally, rates in the US, Europe, and Latin America continued to increase in the low to mid-single-digits, while the UK, Asia, and Pacific saw low to mid-single-digit decreases. Global property rates were flat versus up 3% in the first quarter. Casualty increased in the low-single digits with US excess casualty up 10% in the quarter, while workers' compensation decreased low single-digits. Financial and professional liability rates and cyber pricing were down 5% and 6%, respectively. Midyear reinsurance renewals reflected increased demand for property cat with easing rates after significant increases in 2023. The majority of property placements were completed at renewal with adequate capacity. The global property cat reinsurance rates were generally flat to down mid-single-digits with greater decreases for upper layers on accounts without losses. The cat bond market had the most active quarter on record with over 30 new bonds issued involving approximately $8 billion of limit. Casualty programs faced continued underwriting scrutiny, but there was adequate capacity in the market. Excess of loss programs with US exposure saw upward pricing pressure, while quota share ceding commissions were flat to down slightly. As always, we are helping our clients navigate these dynamic market conditions. Now, let me turn to our second-quarter financial performance. We generated adjusted EPS of $2.41, which is up 10% from a year ago. On an underlying basis, revenue grew 6%. Underlying revenue grew 7% in RIS and 4% in Consulting. Marsh was up 7%, Guy Carpenter 11%, Mercer 5%, and Oliver Wyman grew 3%. Overall, the second quarter saw adjusted operating income growth of 11% and our adjusted operating margin expanded 130 basis points year-over-year. Turning to our outlook, we are well-positioned for another great 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. Overall, I'm proud of our second-quarter performance, which demonstrates continued execution on key initiatives and 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 second-quarter results were strong with solid underlying growth, significant margin expansion, and 10% growth in adjusted EPS. Our consolidated revenue increased 6% to $6.2 billion with underlying growth of 6%. Operating income was $1.6 billion and adjusted operating income was $1.7 billion, up 11%. Our adjusted operating margin increased 130 basis points to 29%. GAAP EPS was $2.27 and adjusted EPS was $2.41. For the first six months of 2024, underlying revenue growth was 8%, our adjusted operating income grew 11% to $3.7 billion, our adjusted operating margin increased 100 basis points, and our adjusted EPS increased 12% to $5.30. Looking at Risk and Insurance Services, second-quarter revenue was $4 billion, up 8% from a year ago or 7% on an underlying basis. This result marks the 14th consecutive quarter of 7% or higher underlying growth in RIS and continues the best stretch of growth in two decades. RIS operating income was $1.3 billion in the second quarter. Adjusted operating income was also $1.3 billion, up 12% over last year, and our adjusted operating margin expanded 110 basis points to 35.3%. For the first six months of the year, revenue in RIS was $8.3 billion with underlying growth of 8%, adjusted operating income increased 12% to $2.9 billion, and our margin increased 90 basis points to 37.3%. At Marsh, revenue in the quarter was $3.3 billion, up 8% from a year ago or 7% on an underlying basis. This strong growth came on top of 10% growth in the second quarter of last year. Growth in the second quarter reflected strong new business and solid renewals. In the US and Canada, underlying growth was 6% for the quarter. International underlying growth was 7%. EMEA was up 7%, Asia-Pacific grew 7%, and Latin America was up 8%. For the first six months of the year, Marsh's revenue was $6.3 billion with underlying growth of 7%. US and Canada grew 7% and international was up 8%. Guy Carpenter's revenue was $632 million in the quarter, up 10% or 11% on an underlying basis. This terrific result came on top of 11% growth last year and was driven by double-digit growth across most geographies and specialties. For the first six months of the year, Guy Carpenter generated $1.8 billion of revenue and 9% underlying growth. In the Consulting segment, second quarter revenue was $2.2 billion, up 2% from a year ago or 4% on an underlying basis. Consulting operating income was $410 million and adjusted operating income was $426 million, up 6%. Our adjusted operating margin in Consulting was 19.8% in the second quarter, an increase of 60 basis points. For the first six months of 2024, Consulting revenue was $4.4 billion, reflecting underlying growth of 6%. Adjusted operating income increased 7% to $870 million and our margin increased 50 basis points to 20.3%. Mercer's revenue was $1.4 billion in the quarter, flat compared to a year ago, but up 5% on an underlying basis. This was Mercer's 13th straight quarter of 5% or higher underlying growth and continues the best run of growth in 15 years. Wealth grew 3%, driven by growth in both Investment Management and DB Consulting. Our assets under management were $492 billion at the end of the second quarter, up 1% sequentially and up 25% compared to the second quarter of last year. Year-over-year growth was driven by our transaction with Vanguard, impact of capital markets, and positive net flows. Health underlying growth remained strong at 9% and reflected growth across all regions. Career revenue increased 2%, continuing the trend of modest growth following a two-year stretch of strong growth in demand. For the first six months of the year, revenue at Mercer was $2.8 billion with 6% underlying growth. Oliver Wyman's revenue in the quarter was $837 million, an increase of 3% on an underlying basis. This comes on top of 11% growth a year ago. For the first six months of the year, revenue at Oliver Wyman was $1.6 billion, an increase of 8% on an underlying basis, up from 6% growth in the first half of last year. Foreign exchange was a $0.02 headwind in the second quarter. Assuming exchange rates remain at current levels, we expect FX to be a $0.02 headwind in the third quarter and $0.02 in the fourth quarter. Total noteworthy items in the quarter were $73 million. These included $44 million of restructuring costs, mostly related to the program we began in the fourth quarter of 2022, as well as some transaction-related expenses. Our other net benefit credit was $66 million in the quarter. For the full year, we continue to expect our other net benefit credit will be approximately $265 million. Interest expense in the second quarter was $156 million, up from $146 million in the second quarter last year, reflecting higher levels of debt and higher interest rates. Based on our current forecast, we expect approximately $154 million of interest expense in the third quarter and approximately $620 million for the full year. Our adjusted effective tax rate in the second quarter was 26.2% compared with 24.2% in the second quarter of last year. Our tax rate in both periods benefited from favorable discrete items. Excluding discrete items, our adjusted effective tax rate was approximately 26.5%. When we provide 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 first quarter of 2025 when $500 million of senior notes mature. 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 the M&A pipeline develops. Last week, we announced a 15% increase to our quarterly dividend, making this our 15th consecutive year of dividend growth. This comes on top of a 20% increase a year ago and reflects our strong earnings growth and confidence in our outlook. Our cash position at the end of the second quarter was $1.7 billion. Uses of cash in the quarter totaled $1.2 billion and included $352 million for dividends, $500 million for acquisitions, and $300 million for share repurchases. For the first six months, uses of cash totaled $2.2 billion and included $706 million for dividends, $847 million for acquisitions, and $600 million for share repurchases. 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 excellent first half leaves us well-positioned for another great 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. And with that, I'm happy to turn it back to John.

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

Thanks. Good morning. I just had a question on the underlying revenue growth outlook of mid-single-digit or greater. You guys just did 8% in the first half of underlying revenue growth, but are increasing the range to high single-digit. Could you just help me think through the puts and takes in terms of why you guys aren't increasing the range?

Good morning, David. I'm glad to share that I was pleased with our growth during the quarter, building on a strong performance from a year ago with an 11% increase. Marsh experienced solid growth across regions and practices despite challenging comparisons. Guy Carpenter had a standout quarter, with improved market conditions leading to higher demand following a volatile reinsurance market in 2023. Mercer also saw consistent growth, marking its best stretch in a long time. Our health segment continues to perform well, wealth growth was strong, and we noticed an increase in career growth from the first quarter. Although Oliver Wyman faced a tough comparison, it achieved good year-to-date growth. As we've mentioned before, we may see more quarter-to-quarter volatility compared to our other businesses. Overall, the macroeconomic environment remains favorable for growth. While we are operating in a risky environment, factors like GDP, inflation, labor markets, and the rising costs associated with risk and healthcare are all supportive. I believe we are well-positioned, with the best talent in our competitive markets. Therefore, we are optimistic about our outlook for the second half, as conditions remain favorable for us, and we feel confident about our current standing.

Got it. Thanks, John. And then, Mark, I think you mentioned on last quarter's call that you guys are expecting greater margin expansion in the second half than in the first half. Is that still the case?

You want to go ahead, Mark?

Yeah. We're really happy with 130 basis points and it validated the statements we made about the first-quarter margin expansion facing headwinds from several items. So we were glad to see the acceleration and we're on track for solid margin expansion for the year.

Thank you, David. Andrew, next question.

Hey, good morning. So first, John, just following up on your comments on Oliver Wyman. The growth this quarter slowed versus what it's been in the last few quarters. How much of that is a function of just tough comps and normal volatility in the business versus maybe a slowdown in the pipeline?

Thank you for the question, Jimmy. I'll let Nick take it from here. I think it's a combination of both factors. It was definitely a challenging comparison, but we feel very positive about our year-to-date growth. Nick, would you like to elaborate further?

I agree with John, Jimmy. It's a bit of both factors. Just like I mentioned last quarter, our 13% growth was against a weak 0% comparison, while this 3% is compared to a tougher 11%. The 8% growth year-to-date aligns with our expectation of mid to high-single-digit growth over the cycle. Our quarters tend to be somewhat volatile. Mark pointed out that the first half has actually accelerated compared to last year. In terms of where we are seeing stronger growth, both Asia and our regions in India, the Middle East, and Africa continue to show robust growth. From an industry standpoint, our communications, media, and technology practice has been our fastest-growing so far this year, alongside our strong banking and insurance practices, which are also doing well, as is our public sector practice. We have a diverse set of capabilities, and our economic research business, NERA, is experiencing significant growth. Our finance and risk practice, especially in financial services, along with our pricing team, is performing well. Additionally, our people and organizational performance practice is effectively assisting clients during significant transformative moments. However, the market does carry some uncertainties. While the economy appears to be improving, there are still pressures on discretionary spending, as John and Mark have pointed out. We are also navigating some pricing pressures due to excess capacity, as some competitors adjust their headcounts.

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

Yeah, I have a question for Mark regarding fiduciary investment income. It has remained relatively stable on a sequential basis. Should we expect it to grow in line with business growth given the current interest rates, or were the flat results in the second quarter primarily due to seasonal factors, balance issues, or other influences?

Mark?

Jimmy, there is seasonality in balances as we've discussed before. However, I believe the primary factor moving forward will be the outlook for interest rates. As noted in our balance sheet for the quarter, we have approximately $11.5 billion in fiduciary balances. Therefore, the future trajectory will depend largely on the actions of central banks regarding short-term interest rates. When modeling going forward, please consider that our balances reflect the revenue mix of our business. It's not solely US rates that influence this; our balances come from the global distribution of our business. Thus, as I mentioned, the outlook will mainly depend on the interest rate environment.

Thank you, Jimmy. Andrew, next question?

Hi, thanks. Good morning. My first question, within RIS, can you give us a sense of how much of the expenses helped your margins in the quarter?

Expense savings, can you provide more clarity on that? Okay. Sure. Thanks, Elyse. Mark?

Yes, Elyse, we are definitely experiencing the benefits. We have intentionally avoided specifying how much will drop from quarter to quarter, but you can clearly observe the trend in expense growth that has played a significant role. Our robust growth and savings have contributed to the 130 basis points of margin expansion. While we haven't quantified the exact amount for each quarter, we are on track for the level of savings we discussed and are reaping the rewards.

Do you have a follow-up, Elyse?

Yeah. And then my second question within Marsh, could you just give us a sense of what you're seeing, some more color in both the US and internationally within organic growth, both for the Q2 and then how you think about the outlook in the back half of the year? And are US or internationally, are you guys more indexed to property in one versus the other?

Yeah. I mean the markets are quite dynamic, right? And so, I would just caution you a little bit on pricing, right? I think Guy Carpenter is a good indication of that, right? So we saw a better market lead to increased demand. But as I mentioned earlier, it was a good solid growth by region and by practice, again in the second quarter and on top of a tough comp. But Martin, maybe you could share a little bit more color on growth international versus US and the demand you're seeing.

In the quarter, we experienced a 7% growth, following a 10% growth in the second quarter of 2023. The growth was fairly balanced, with international growth at 7% and the US and Canada at 6%. Our US business, including MMA and Victor, performed exceptionally well, although Canada had a weaker quarter due to some macroeconomic factors. Internationally, we achieved 7% growth on top of the 10% in 2023. In the Asia-Pacific region, growth accelerated to 7% from 6% in 2023, while Latin America saw 8% growth on top of 17% in the second quarter, and EMEA posted 7% growth on top of 11% in 2023. The robust performance was largely driven by strong results in our international benefits business, with construction, energy, and power sectors also showing significant double-digit growth, mirroring last year's performance. We're starting to see some revitalization in the US capital markets, which have previously hindered new business growth since 2021. Growth in our renewal base was solid, as was new business in both the US, Canada, and internationally. We noted an improvement in lost business as we developed stronger relationships with clients, engaging with them more comprehensively and aiming to be their future risk advisor, extending our conversations beyond traditional risk. We believe we are very well-positioned. In terms of premium mix, the US will likely lean more towards casualty, while the balance in international will be more evenly distributed between property and casualty.

Yeah, reflection of the liability environment in the US for sure. Thank you, Elyse, and thanks, Martin. Andrew, next question?

Yeah, good morning. Just a quick question. Given the M&A pace has been pretty strong over the past few quarters and certainly for the year, just wondering if we should assume kind of a deceleration in the run-rate for share buybacks in the second half versus the first half? Just how you're thinking about that and how is your M&A tracking versus kind of what you thought going into the year?

Sure, Scott. Thanks for the question. Our philosophy remains unchanged. We maintain a balanced approach to capital management and have about $4.5 billion to deploy throughout the year. Generally, we prefer attractive investments in our business, whether they are organic or inorganic, over share buybacks, but we also won't let cash accumulate on the balance sheet. As mentioned earlier, we’ve raised our dividend starting this quarter and aim to increase it every year. In the second quarter, we repurchased $300 million in shares and are satisfied with our observations in the M&A market, which was quite active. We announced a couple of deals right at the beginning of the second quarter, just after the 1st of July, and we're excited about those opportunities. We'll remain active in the market, but the volume of share repurchase will ultimately depend on the fluctuations in M&A activity. There are promising opportunities for us to invest in our business. Do you have a follow-up?

Just one quick question regarding Mercer. The organic growth in Health has been really strong at 9% for quite some time. Career and Wealth seem to be growing at a slower pace compared to Health. Can you elaborate on the differences you're seeing in growth between Health and the other areas and if there are any factors affecting the performance of those areas aside from challenging comparisons?

Thank you, Scott. I’ll ask Pat to provide his insights shortly. I mentioned earlier the escalating healthcare costs, which are a significant challenge for our clients in the current economic climate. This is especially true considering the tight labor markets in most major economies globally. Despite these challenges, we are providing great value to our clients in a highly competitive marketplace. There may be some fluctuations in Wealth from quarter to quarter, but Pat, could you discuss what we're observing in the marketplace?

Thank you for the question. We are pleased with the 5% underlying growth in Q2, marking our 13th consecutive quarter with similar growth, with all practices contributing. Health has shown a particularly strong contribution with 9% growth, driven by broad-based performance across most regions. This growth stems from our investments in hiring, thought leadership, new digital tools, and tailored client solutions. We've also experienced renewal and new business growth, alongside some revenue from insurers, despite medical cost inflation. There is strong demand for digital solutions and innovative benefits that demonstrate the value and breadth of our offerings. Wealth grew by 3% in Q2, benefiting from elevated interest rates, which have led to increased project work related to risk transfers and regulatory requirements. Market volatility has boosted demand for actuarial and investment solutions, and we've seen some benefit from our transaction with Vanguard, along with net new inflows. It’s important to note that our IMS business includes a range of solutions beyond just OCIO, which is directly impacted by assets under management. While markets can introduce volatility, equity markets have a muted impact on the growth of IMS. Career saw modest growth of 2%, which was sequentially up over the quarter after a long growth period post-pandemic. Certain practices, like talent and transformation, showed good momentum, while rewards faced challenges due to lower wage inflation and reduced employee turnover, leading to lower demand. However, it's noteworthy that our Career practice is now nearly 20% larger than before the pandemic, which gives us confidence in maintaining these levels. Overall, we are optimistic about Mercer's outlook.

Terrific. Thank you, Pat. Scott, thank you for your questions. Andrew, next question.

Okay. Great. Good morning. Focusing on the property cat's key pricing environment and the competitive landscape, John, I believe you mentioned that the Marsh index has dropped to zero from one. I'm curious, considering Marsh now handles a larger portion of small to mid-account business, it seems there are two distinct narratives emerging between large accounts and SMid accounts. Do you agree with that? If so, could you provide some insight into why we're observing these differing pricing trends?

Sure, Mike. Thank you for the question. I'll share some high-level thoughts, and then I'll ask both Martin and Dean to discuss some market observations. It's important to note that larger account pricing typically experiences more volatility. Historically, mid-market pricing has been more stable and consistent, with less volatility across cycles. Our index is primarily focused on large accounts, where we have the most reliable data. The insurance and reinsurance markets are settling this quarter after years of increases. This involves various markets, not just the differentiation between middle and large accounts. As I mentioned in my prepared remarks, prices in sectors like cyber and FinPro are continuing to moderate. Some market segments are showing early signs of stress; for example, US Excess Casualty saw a 10% price increase, and loss cost inflation remains challenging. Overall, the current market offers our clients an opportunity to revisit their risk financing decisions, which were uncertain due to tighter market conditions. This is a beneficial moment for many clients to reassess those choices. At Guy Carpenter, this led to increased demand in the second quarter, as reflected in our strong growth. Martin, could you provide more insight into what we are observing in the pricing market?

Sure. We have experienced 26 quarters of rate increases, which have now stabilized. As John mentioned, our index is significantly focused on larger accounts within our business, while the mid-market and smaller segments show less pricing volatility. In terms of specific lines of business, casualty in the US increased by 3%, primarily driven by a 10% rise in the umbrella sector, which we previously discussed concerning claims inflation volatility. Property rates are mostly stable across most regions, with exceptions in the Middle East and India where increases are observed, likely due to recent activity in the Middle East. Core FinPro is contracting at 5%, with global rate declines, and cyber is down 6%, consistent with first-quarter trends. While we see slight price increases in certain regions, overall rate contraction is noticeably elevated. Additionally, much of our business is fee-based or on a controlled commission basis, and we have seen significant exposure growth over recent years, which helps balance the situation.

Thanks, Martin. Dean, maybe you can just quickly cover the reinsurance market.

Yeah, thanks, John. And, Mike, just a couple of headlines about the property cat reinsurance market, which certainly is connected to the underlying property market that Martin is describing. As John noted, it's a much more predictable and smooth market than we experienced last year in the 2023 hard market for property cat. Placements have been completed on time. There's been adequate capacity in the marketplace for our clients. There's an increased reinsurer appetite in the market, and we know why, right? They're driving 20% plus ROEs in this market given the rate increases of last year and the higher attachment points our clients have been forced to absorb with greater volatility. We're seeing very strong ILS activity in the market. John noted record cat bond issuance in the quarter, 34 discrete cat bonds, some $8 billion of limit in the quarter. And I think that we're seeing moderating cat rates in the market compared to 2023. But I would say that if you look at year-over-year premium spent for property cat and our rate online index, it's still up 1% year-over-year. It has not gone negative in the market. And really, as John noted, Mike, I think the headline, the key takeaway is significant increased client demand for additional property cat limit. In the first half of the year, two-thirds of our US clients bought more property cat coverage across an additional $10 billion of limit, which is truly significant in the marketplace. We're also seeing clients reinsure by more retrocession coverage with improved pricing, market dynamics, improved appetite by sellers, both rated and ILS vehicles in the market. And I think the last headline for you is there's caution in the property market. There's $50 billion-plus of insured losses in the first half of the year. When you think about severe convective storms in the US and Japan, Taiwanese earthquake, floods in Germany, the UAE, Baltimore bridge collapse, Hurricane Beryl, I mean we could be on track for another $100 billion a year of insured losses. So there's caution in the market around property and property debt.

Thanks, Dean. So, Mike, not a big shift from the first quarter, but a modest evolving market more in favor of buyers. And so that obviously factors into the advice we give to our clients and help them navigate what's a world where, again, the cost of risk continues to escalate. Do you have a follow-up?

Thank you for the quick follow-up. I just want to clarify my thoughts on total revenue growth and adjusted EBITDA. I think divestitures and possibly some foreign exchange factors might be areas where the consensus, including myself, may have missed the mark a bit. I want to ensure there's nothing I might be overlooking. It's clear that we are still focused on acquisitions in terms of M&A, but are there any significant divestitures or other factors I should be considering in the short term that could have an impact?

No, no. I mean at Mercer, we sold two admin businesses, one in the US, one in the UK to Aptia. And the reason we sold them is they're relatively low-growth and lower-margin businesses. And again on a relative basis, they were capital-intensive. And so we think they have a better owner now and so we feel good about that decision. Thank you, Mike. Andrew, next question, please.

Good morning. I'd like to revisit some of your earlier comments. You mentioned Blue, and I was hoping you could share more specific data about it. Could you give us an idea of its scale within the business since you highlighted it during your call?

It's not a business in itself. It's part of how we advise our clients at Marsh. Blue is the brand for our analytics suite. Martin, could you share some insights on the various tools we use to help our clients manage and finance risk?

Sure. As you mentioned, John, we have a suite of analytics tools that assist our clients across various product lines in evaluating which risks to retain and which they could transfer, along with understanding the economic implications of those decisions. We provide coverage across multiple lines to give them a comprehensive view of total cost of risk scenarios. Our tools help analyze claims and support clients who self-insure significant losses in identifying which losses require early attention and how to settle them. This suite of real-time analytics is a unique aspect of our business, as we have access to a vast amount of data, which we believe serves as a strong competitive advantage. Many of the analytics tools we utilize are referred to as Blue[i], and we even deploy them for clients who don’t purchase insurance, some of whom are among our largest clients in the US. We will keep investing in this area, and as we mentioned last year, we have enhanced our offerings with supply chain capabilities, aligning with the expectations of how clients wish to engage with us.

We use these tools primarily to help our clients understand the risks and strategies for managing and mitigating those risks. During these calls, we focus extensively on the financing of risk, which is a critical aspect of our value proposition. This also illustrates how we can leverage our unique data set and the variety of proprietary analytics we employ to bring scale benefits to the market. Although it operates under a different brand, we maintain the same approach with our clients at Guy Carpenter. Do you have a follow-up, Greg?

I do appreciate that information. As I review the operating cash flow and free cash flow for the past six months, I've noticed a slight decrease, which seems to be related to changes in working capital. Could you provide more details on the operating cash flow for both the quarter and the six-month period?

Sure, Greg. Yeah, it's going to be volatile from quarter-to-quarter. But Mark, maybe you can.

Thanks, Greg. We always advise not to place too much emphasis on the results of a single quarter, especially regarding cash flows and free cash flow, which can fluctuate significantly from quarter to quarter and year to year due to the timing of balance sheet items. For the first six months, there has been a decline, largely due to the substantial bonus payouts in the first quarter, creating a minor denominator issue. Therefore, caution is warranted. Two significant factors in the first half include the higher compensation payouts in the first quarter and an increase in receivables driven by business growth. However, we have a strong history of double-digit growth in free cash flow that aligns well with our earnings growth, which is what we would anticipate in a capital-light business like ours.

Thank you, Mark, and thanks, Greg, for the questions. Andrew, next question, please.

Thank you. Good morning. I have a follow-up regarding margins. Last quarter, you mentioned that you anticipated margin acceleration, especially in the second half of the year. Based on your response this morning, it seems that may no longer be the case. To be clear, with about 100 basis points of margin expansion in the first half of this year, do you expect that to improve in the second half? Additionally, if there is a change, is it because the margin expansion in the second quarter exceeded your initial expectations, or are you expecting some softening compared to your guidance for the second half of the year?

No, we anticipate that margin expansion in the second half will be better than in the first half. I apologize if there was any confusion earlier, but that is our continued expectation. I would like to emphasize that margins are an outcome of our business operations. We strategically manage investments and costs alongside our revenue growth. While this won’t occur in every business or every quarter, it reflects our approach. We will keep making attractive investments to support medium to long-term growth, and we see opportunities ahead. As I've noted before, we have initiatives in workflow and automation within Marsh, Mercer, and Guy Carpenter. We're also testing AI on a larger scale. However, this value creation is not expected to significantly impact 2024 or probably even 2025. As technology advances, we will keep pushing ourselves to improve. Once again, we do expect that margin expansion in the second half will surpass that of the first half. Do you have a follow-up?

Thanks so much for the color and clarification. I asked a two-part question, so I'll turn it back to you.

Got it. Thank you. Andrew, next question please.

Great. Thanks. Good morning, all. I guess to start, can you talk about how you're advising both insurance and reinsurance clients to think about their exposure to casualty lines following the overturning of the Chevron doctrine?

I'm not certain there's a direct correlation between that case and the overall environment. However, what I can say is that we've observed troubling signs of loss cost inflation, especially in the United States, and the number of significant judgments and settlements poses a challenge. We spend considerable time on analytics to assist our clients in evaluating various outcomes, determining appropriate limits to consider purchasing, and benchmarking against others in their industry. These factors are crucial, but ultimately, our clients decide how to manage risk. Some may choose to finance more risk themselves, while others might rely on insurance companies or capital markets for support. I hope that addresses your question, Meyer.

It is. Thank you. This gives us a positive overall perspective, although the current issue is more focused on specific details. When examining the two-year stacked organic growth in Career, we see it increased significantly since the first quarter; you had 12% plus 1% at 13% in this quarter and 6% plus 2% at 8%. Based on the issues you pointed out earlier, is your outlook for Career slowing compared to what you anticipated at the end of the first quarter?

No, I don't think there's a real change from the first quarter. As Pat mentioned, some of the dynamics include less active labor markets from a turnover perspective and lower compensation. We didn't have expectations of higher growth in that business during 2024, and we haven't seen anything in the first six months that alters that outlook.

Fantastic. Thank you very much.

Thank you. Andrew, time for maybe one more?

Hey, thanks for fitting me in. John, I wanted to go back to something you said last quarter, which was that Marsh accesses most of its E&S market solutions directly today. I'm curious how that split between the percentage of premiums placed directly in E&S versus through a third-party wholesaler has trended over recent years and how you think that might trend going forward?

We're not aiming to establish a third-party wholesale business. Our focus is on providing the best solutions to our clients. The E&S markets have experienced significant changes over the past few years, largely due to the high-risk environment, allowing insurers more flexibility to adjust rates, manage risk, and modify pricing or terms. Our goal is to manage our clients' outcomes and experiences as directly as possible, without outsourcing this crucial aspect of our value proposition. While wholesalers do a commendable job for us and we will continue to use them when it makes sense, a large portion of the wholesale premium is accessed directly by us in the E&S markets. However, we've seen growth in intermediated wholesale premium recently. Our objective is to gain as much market access as possible. Do you have a follow-up, Robert?

Yeah. Thank you. That's a great color. Yeah, second question was just on sort of the different economics Guy Carpenter gets from cat bonds versus traditional reinsurance placement. And if you could help us think about how much that record cat bond quarter contributed to organic growth?

Yeah. The economics can be different, of course, and they're different from treaty to treaty as well. We work with our insurance company clients. As we talked about when the market was particularly tight last year, while commission is a factor and growing price was a factor in many respects, really what we do with our large insurance company clients is big wholesale relationships where effectively we work on, what amounts to a fee. Thank you. Go ahead, Andrew.

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