MITRE MINING CORPORATION LTD (MMC) — Q3 2024 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. 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 for her last quarter as Head of Investor Relations is Sarah DeWitt. We’d like to congratulate Sarah on her new role as Chief Financial Officer of Marsh. Before I get into our results, I’d like to take a moment to comment on Hurricane Helene and Milton, which have devastated communities in Florida and the Southeast United States. These events are first and foremost the human tragedy and our thoughts are with all of those impacted by the storms. Our primary concern has been the wellbeing of our colleagues and their families as well as our clients, and we’re actively working to assist in their recovery. While the ultimate insured loss won’t be known for some time, the impact of these storms will be significant and given their wide paths of destruction and close timing, they will put enormous pressure on resources available for recovery. Both hurricanes also highlight the meaningful disparity between economic loss and insured loss. According to some estimates, Helene may have the largest multiple of economic to insured loss of any U.S. storm. This protection gap imposes a meaningful burden on the economy, makes near-term recovery more challenging and undercuts resilience. In addition, rising frequency and severity of extreme weather events, higher property values and increased development in catastrophe-prone areas are driving the need for greater protection. We and the insurance industry help communities, businesses and governments build resilience to manage these perils. But as these storms highlight, there is opportunity to do more through risk mitigation, event preparedness and alternative solutions such as community-based parametric products. Turning to our results, the third quarter marked another milestone for Marsh McLennan. We continue to perform well across our business and we were thrilled to announce the acquisition of McGriff Insurance Services. In the quarter, we generated 5% underlying revenue growth following 10% in the third quarter of last year, reflecting solid execution in Risk and Insurance Services (RIS) and Consulting. We grew adjusted operating income 12%. Our adjusted operating margin expanded 110 basis points, adjusted EPS grew 4% or 11%, excluding a discrete tax benefit in the third quarter of last year, and we completed $300 million of share repurchases in the quarter. Turning to McGriff, it is a leading provider of insurance broking and risk management services in the U.S. with approximately $1.3 billion in revenue. I have long admired McGriff. They have excellent leadership, talented colleagues and a track record of strong growth. Their deep specialty and industry capabilities will strengthen the value proposition and expand the reach of Marsh McLennan Agency in the vast and growing middle market segment. McGriff's client focus, culture of collaboration and commitment to excellence and integrity mirror our own. Together, McGriff and MMA will create new opportunities for colleagues to be their best and help them deliver even greater value to clients. The $7.75 billion transaction will be funded by cash on hand and debt financing. We expect to close by year end, subject to regulatory approval. We would also expect the transaction to be modestly accretive to adjusted EPS, excluding amortization in year one and become more meaningfully accretive in year two and beyond. We have a terrific track record of acquiring and integrating businesses and we are excited to welcome McGriff's over 3,500 colleagues to the company when the deal closes. McGriff has added to what is already an active year for M&A across our business. We are on track for the largest M&A year in Marsh McLennan's history, with nearly $10 billion of capital committed to acquisitions year to date, including McGriff, Vanguard's U.S. OCIO business, Cardano, Horton and FBBI. These acquisitions highlight our strategy to deploy capital to faster-growing segments of our business. As we have said before, we consistently focus on delivering in the near term, while investing for sustained growth over the long term. Shifting to the macro environment, the overall backdrop remains supportive of growth despite what continues to be a complex and volatile landscape. Central banks have begun a cycle of easing and consensus views of the likelihood of near-term recession for most major economies are well below where they were coming into the year. We continue to see economic growth across most of our major markets. Inflation remains elevated, but declining. Labor markets remain healthy and the cost of risk in healthcare continues to rise. That said, uncertainty remains with rising geopolitical tensions and continuing conflicts in Ukraine and the Middle East. Clients across the world continue to assess the implications of technology advances in AI, the ever-present threat from cyber-attacks, supply chain risk, and the impact of increasing frequency and severity of extreme weather events on their businesses. Our talent, expertise and solutions help clients manage challenges and accelerate opportunities to thrive, so we remain positive in our outlook for growth. We are well positioned and have a track record of performing across economic cycles due to the enduring value we bring to clients and the resilience of our business. Turning to insurance and reinsurance market conditions, the Marsh Global Insurance Market Index was down 1% overall in the third quarter versus flat in the second quarter. Rates in the U.S. and Latin America were up low-single-digits, Europe was flat, and in the UK, Asia, and Pacific rates were down mid-single-digits. Global property rates were down 2% versus flat in the second quarter; however, global casualty rates increased 6%, with U.S. excess casualty up approximately 20% in the quarter. Workers' compensation decreased low-single-digits. Global financial and professional liability rates were down 7%, while cyber decreased 6%. In reinsurance, demand continued to rise and capacity remained adequate in the quarter. While it is too early to know the ultimate insured losses from hurricanes Helene and Milton, we expect there to be an impact on 2025 property insurance and reinsurance pricing. Cat bonds, which posted record volume in the first half, remain likely to have elevated issuance activity through year end, driven by a heavy maturity schedule and capacity for casualty programs is expected to be adequate despite concerns over the pace of loss cost inflation. As always, we are helping clients navigate these dynamic market conditions. Now, let me turn to our third quarter financial performance. We generated adjusted EPS of $1.63, which is up 4% from a year ago or 11%, excluding a $0.10 discrete tax benefit in the third quarter of last year. On an underlying basis, revenue grew 5%. Underlying revenue grew 6% in RIS and 4% in consulting. Marsh was up 7%. Guy Carpenter 7%, Mercer 5% and Oliver Wyman grew 1%. Overall in the third quarter, adjusted operating income grew 12%, and our adjusted operating margin expanded 110 basis points year-over-year. For the nine months, consolidated revenue grew 7% on an underlying basis. Adjusted operating income grew 12%, and our adjusted operating margin expanded 110 basis points. Adjusted EPS was $6.93, up 10% from a year ago. 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, the environment remains uncertain and the economic backdrop could be materially different than our assumptions. Overall, I'm pleased with our Q3 performance, which demonstrates 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 momentum continued in Q3, with solid underlying revenue growth, significant margin expansion and 4% growth in adjusted EPS or 11% excluding a large discrete tax benefit last year. Our consolidated revenue increased 6% to $5.7 billion with underlying growth of 5%. Operating income was $1.1 billion and adjusted operating income was $1.2 billion, up 12%. Our adjusted operating margin increased 110 basis points to 22.4%. GAAP EPS was $1.51, adjusted EPS was $1.63. For the first nine months, underlying revenue growth was 7%, adjusted operating income grew 12% to $4.9 billion. Our adjusted operating margin increased 110 basis points to 28%, and adjusted EPS increased 10% to $6.93. Looking at Risk and Insurance Services, third quarter revenue was $3.5 billion, up 8% from a year ago or 6% on an underlying basis. This result marks the 15th consecutive quarter of 6% or higher underlying growth in RIS and continues the best stretch of growth in two decades. Note that fiduciary income was $138 million in the quarter and looking ahead to Q4, we expect to see this amount decline by approximately $30 million reflecting recent rate cuts and a seasonal drop in fiduciary assets. Operating income in RIS increased 15% to $733 million. Adjusted operating income increased 16% to $775 million, and our adjusted operating margin expanded 130 basis points to 24.7%. For the first nine months, revenue in RIS was $11.7 billion, with underlying growth of 8%. Adjusted operating income increased 12% to $3.7 billion, and margin increased 100 basis points to 33.6%. At Marsh, revenue in the quarter was $2.9 billion, up 9% from a year ago or 7% on an underlying basis. This comes on top of 8% growth in the third quarter of last year. Growth in Q3 was broad-based and reflected solid retention and new business growth. In the U.S. and Canada, underlying growth was 6% for the quarter led by strong growth in MMA and in Victor, our MGA business. In international, underlying growth was 7% and comes on top of 10% in the third quarter of last year. Latin America was up 8%, EMEA was up 7%, and Asia Pacific was up 5%. For the first nine months of the year, Marsh's revenue was $9.2 billion with underlying growth of 7%. U.S. and Canada grew 7% and international was up 7%. Guy Carpenter's revenue was $381 million in the quarter, up 6% or 7% on an underlying basis, driven by strong growth in international including global specialties. For the first nine months of the year, Guy Carpenter generated $2.2 billion of revenue and 8% underlying growth. In the consulting segment third quarter revenue was $2.3 billion, up 3% from a year ago or 4% on an underlying basis. Consulting operating income was $462 million and adjusted operating income was $478 million, up 7%. Our adjusted operating margin in consulting was 21.7% in the third quarter, an increase of 90 basis points. The first nine months consulting revenue was $6.7 billion with underlying growth of 5%. Adjusted operating income increased 7% to $1.3 billion and our adjusted operating margin increased 60 basis points to 20.7%. Mercer's revenue was $1.5 billion in the quarter, up 5% on an underlying basis. This was Mercer's 14th consecutive quarter of 5% or higher underlying growth. Health underlying growth remains strong at 8% and reflected growth across all regions. Career grew 5%, where we saw strong growth in rewards and talent strategy. Wealth grew 4% driven by continued demand in defined benefits consulting and growth in investment management. Our assets under management at the end of the third quarter rose to $548 billion, up significantly from the third quarter of last year and up 11% sequentially. Year-over-year growth was driven by the impact of capital markets, our transaction with Vanguard and positive net flows. For the first nine months of the year, revenue at Mercer was $4.3 billion with 6% underlying growth. Oliver Wyman's revenue in the quarter was $810 million, up 1% on an underlying basis. This reflects a tough comparison to 12% growth in the third quarter of last year and softness in certain geographies. We currently see this trend extending into the fourth quarter. The first nine months of the year revenue at Oliver Wyman was $2.4 billion, an increase of 5% on an underlying basis. Foreign exchange had very little impact on earnings in the third quarter, assuming exchange rates remain at current levels, we also expect minimal FX impact in the fourth quarter. Total noteworthy items in the quarter were $78 million. These included $54 million of restructuring costs mostly related to the program we began in the fourth quarter of 2022, as well as some transaction-related charges. Our other net benefit credit was $68 million in the quarter. For the full year 2024 we expect our other net benefit credit will be about $270 million. Interest expense in the third quarter was $154 million, up from $145 million in the third quarter of 2023, reflecting higher levels of debt and higher interest rates. Based on our current forecast, we expect approximately $151 million of interest expense in the fourth quarter, excluding any amounts related to the McGriff transaction. Our adjusted effective tax rate in the third quarter was 26.7% compared with 20.5% in the third quarter of last year. Our tax rate last year included the release of evaluation allowance on foreign deferred tax assets. 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 expect an adjusted effective tax rate of approximately 26.5% for 2024. Turning to our McGriff transaction. McGriff is a terrific company with excellent leadership, a culture similar to MMA's, a diversified business mix, presence in faster-growing U.S. markets and a strong track record of performance. We will be paying $7.75 billion in cash consideration, funded by a combination of cash on hand and new debt, and we expect to close by year end subject to regulatory approval. As part of the transaction, we expect to assume a deferred tax asset valued at approximately $500 million. As we've noted in the past, we maintain considerable balance sheet flexibility to position us for this type of opportunity. We've secured a committed bridge loan facility for the full amount of the purchase price and currently plan to replace these commitments with permanent financing in Q4 as we get closer to closing. Based on our outlook today, we expect to raise $7.25 billion in new debt to fund the transaction. We value our high-quality ratings and we were pleased that all three rating agencies recently affirmed our current ratings with no changes in outlook. The financial and capital management plan contemplated in the transaction is not only consistent with maintaining our current ratings, but we also expect to have meaningful flexibility for capital deployment next year. Although initially our leverage ratios will increase, the substantial cash flow we expect to generate as well as increased debt capacity through earnings growth will enable us to bring our leverage ratios back in line with levels necessary to maintain a strong ratings profile. As a result, while we intend to pause share repurchases in the fourth quarter, as we think about capital management into next year, we expect we will maintain our balanced approach that includes increasing our dividend and reducing our share count each year, as well as continuing to fund high-quality acquisitions. We will obviously have more guidance around our outlook for capital deployment in 2025 on our Q4 earnings call early next year. As John noted, we expect the transaction will be modestly accretive to adjusted EPS, excluding amortization in year one, becoming more meaningfully accretive in year two and beyond. This transaction is a great reflection of several elements of our capital management strategy, maintaining flexibility to take advantage of opportunities, a bias to reinvest capital for growth, and delivering in the near term while challenging ourselves to invest to sustain growth into the future. Earnings capital management and our balance sheet, we ended the quarter with total debt of $12.8 billion. Our next scheduled debt maturity is in the first quarter of 2025, when $500 million of senior notes mature. We currently expect to deploy approximately $4.2 billion of capital in 2024 across dividends, acquisitions, and share repurchases excluding the McGriff transaction. Our cash position at the end of the third quarter was $1.8 billion. Uses of cash in the quarter totaled $1.1 billion and included $404 million for dividends, $435 million for acquisitions, and $300 million for share repurchases. For the first nine months, uses of cash totaled $3.3 billion, including $1.1 billion for dividends, $1.3 billion for acquisitions, and $900 million for share repurchases. I want to spend a minute on our plans to change how we report adjusted EPS. Starting next year, we will exclude the impact of acquisition-related amortization from adjusted EPS. We will also exclude the other net benefit credit, another non-cash item. These changes will improve the comparability of our results and give investors a better sense of our core earnings power. They will also conform our adjusted EPS reporting with how we report adjusted operating margins. 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, we are 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. With that, I'm happy to turn it back to John.

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

My first question is on the McGriff deal. When you say that you expect it to be accretive to earnings less intangibles, can you provide some insight into what your assumptions are for revenue growth relative to the $1.3 billion that you're taking on? Additionally, what are you assuming for margin? I guess my questions pertain to the year one guide, but any guidance regarding year two and beyond would be helpful as well.

I just want to reiterate how excited we are to bring McGriff into the family. Obviously, it is subject to regulatory approval, and they have a really strong culture. It's a competitive group, and they are very client-focused. I spoke to the talent in my prepared remarks, and they'll extend our reach into the vast and fragmented middle market. They have excellent specialty capabilities and industry focus. And working together with MMA, we know they can drive better outcomes for clients and help create new opportunities for their colleagues as well. We have shared the details that we're going to share about the business; like other MMA transactions, we don't disclose their margins when we acquire them or how they're growing, but we're excited about it. As I said, it'll be modestly accretive in year one, more so after that, and we expect to earn a good return on the investment over time. So there are synergies, of course, but we're conservative in our modeling and we're very excited about what the combination can mean.

And then my follow-up on U.S. and Canada growth was 6% again this quarter. Can you provide some sense of the dynamics you're seeing within that market? Additionally, with regards to IPOs and SPACs in that business, has there been any improvement this quarter?

Sure. I'd start, Elyse, by saying I'm very pleased with our underlying growth in the quarter. I thought we had a terrific quarter. Marsh, Guy Carpenter, and Mercer all had terrific growth, and it was widespread across all regions and practices, so we felt good about that. We obviously had a softer quarter of growth at Oliver Wyman. But overall, I thought the growth was good and we're well positioned. I mentioned the macro environment is shifting and changing, and interest rates have begun to come down in some major economies. This has led to new opportunities in SPACs and IPOs, and while not necessarily SPACs, the IPOs and M&A activity are starting to pick up a bit. But Martin, maybe you could talk a little about the U.S. marketplace and some of the opportunities we're seeing.

Sure, John. As you said, I'm very pleased with the underlying growth of 7%, which is kind of in line with 8% in Q3 '23 and Q3 '22. There's a very good balance of growth across international and in the U.S., but I'll delve a little into how the U.S. performed very well, 6% on top of 6% in Q3. We saw very good growth from MMA and Vector. In response to Elyse’s question, we did see double-digit growth in the capital markets and MMA products. Construction & Aviation performed well and globally, there was very strong growth in our benefits business as well. So overall, pleased with that good momentum and expect it to continue.

Double-digit growth in capital markets, of course, is off a lower base after a couple of years of a soft environment there. Thank you for your questions.

I just had a question following up on your comments regarding Milton and its impact on the market. Specifically on reinsurance. What are your expectations on how Milton affects renewals? Should one assume that prices could actually go up, or are they just going to go down given the high loss?

Yes. I think, Jimmy, at the end of the day, it's too early to know that at this point. There's a range of estimates out there, and the ranges are quite wide. There is still a lot for us to learn; many property owners are just getting to their facilities at this point. I spoke about the overall economic impact to the Southeast and what it means to those communities at a human level as well. It's going to be a challenging recovery that will extend for a period of time. Maybe I could ask Dean to comment a little about what we're expecting in advance of those storms and any thoughts he has on their impact. Dean?

Yes. Thanks, John. And Jimmy, as we entered the fall conference season ahead of Helene and Milton, I think our clients and we anticipated a very competitive market environment at the upcoming January 1 property cat renewal. Post-Milton, it's still early, but we see a flattening of pricing in the property cat market at the upcoming January 1 renewal. If you consider lower and mid-level layers and programs, we see risk-adjusted flattish at this point, and there may still be some softening and rate reductions in more remote risk layers and property cat towers. As John said, keep in mind, it's early. We're still in wind season, so there could be additional cat events that shape the market. It's several weeks before we can make accurate loss estimates and understand the impacts on clients, so we're relying on our cat modeling partners to provide some of those estimates. Summarizing, I would say, overall, property cat demand should increase around January 1 from our clients. We think capacity in the marketplace will be adequate, and we expect the renewals to be manageable for most clients. The market is well-capitalized to address client demand. Importantly, the major cat losses this year will be borne by clients given the high attachment points that were imposed after Hurricane Ian two years ago.

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

Yes. Just on Oliver Wyman. The comparison was tough, but you noted seeing weakness in some geographic regions. Was that a function of the economy? Or is there something else affecting the results in those areas?

Yes, sure. 1%, obviously, underlying was softer than we'd planned for. It was a tough comp, and we're up 5% year-to-date. I'd also mention that there's more volatility quarter-to-quarter at Oliver Wyman. We expect higher underlying revenue growth from Oliver Wyman over the medium- to long-term. But Nick, could you share some insights on what you're seeing in the market?

Thank you, Jimmy. We often say this is a mid- to high-single-digit business through the cycle, and I think it's fair to say we're at a low point in the cycle. We've talked for a few quarters now about the tough market, and we see that continuing. Maybe at a macro level, I'd note we're more than 50% larger than we were pre-pandemic and two-thirds larger than that pandemic year. We're consolidating those gains in a tough market. But for the quarter itself, no one likes a one after a three; we were at 12 and 11 comp last year. Looking at the year as a whole, we're up 5%, and I want to note that we're on the front foot inorganically because there are parts of our business where scale matters. So the business is 8% larger than in the same periods in the first three quarters of last year. Strong growth is seen in Asia and the Pacific region, bouncing back from a tougher period. Our India, Middle East, and Africa business continues to grow. Regional softness has been more in the Americas and in Europe, possibly linked to the economy, particularly in the U.S., where some clients may be waiting for the election. Sector-wise, our best growth has been in communications, media, and technology, with strong growth in our insurance and asset management practice, automotive and manufacturing doing well, and our large banking practice remaining robust. Overall, we view it as a relatively tough market, but we'll continue to work our way through it.

Thank you, Jimmy, for your questions.

For my first question, I'd like to focus on the free cash flow results. Operating cash flow through the nine months was down a little bit, not growing in line with revenue. Could you provide some color on that?

Yes, sure, Greg. As noted in the past, there will be more volatility in free cash flow growth, certainly than our earnings growth. But Mark, maybe you could provide some additional insights.

Yes, I'll repeat that, John. Free cash flow can be volatile quarter-to-quarter and year-to-year, so it's best looked at over long stretches of time. Our track record in free cash flow growth has been terrific; we've consistently achieved double-digit free cash flow growth for over a decade. This volatility is present in the year-to-date figures where free cash flow is down despite being up significantly last year and even up in the third quarter. The year-to-date decline is due to a number of factors causing period-to-period volatility, including higher variable compensation payouts in the first quarter following strong results last year, as well as an increase in receivables due to growth. There are some one-timers impacting the year-over-year comparison as well. Overall, we anticipate strong future growth aligned with our earnings growth and free cash flow growth trends.

Thanks, Mark. Greg, do you have a follow-up?

Yes. Mark, could you revisit your comments about fiduciary income and interest income? I believe you're framing it for the fourth quarter, and it would be helpful to frame it for next year as well.

Yes, sure. We had a lot in the script this quarter. We typically see fiduciary balances decline in the fourth quarter, especially in Guy Carpenter given the seasonality. We expect fiduciary income to decrease by around $30 million in the fourth quarter compared to the third quarter level. This reflects the recent rate cuts and the seasonal drop in fiduciary assets. Looking towards 2025, it heavily depends on the rate actions from here so we’ll avoid speculation. However, the math is straightforward: with roughly $11.5 billion of averages in fiduciary balances, one can perform sensitivity analysis on potential fiduciary income. There are offsets like variable compensation programs and less interest on short-term debt. But we'll need to see how further rate cuts impact us as we look into next year.

Greg, I would add that we're accustomed to operating in a lower rate environment. We'll adjust our plans accordingly. A lower rate environment might lead to increasing headwinds for us in 2025. We model various scenarios and address potential impacts.

Thanks for the update on the Marsh pricing index, which moved to negative 1 territory, I believe. Can you elaborate on how this index and pricing in the marketplace are impacting Marsh's organic growth? Is the index's deceleration over the last year having any material effects on Marsh's organic growth?

Look, first of all, Mike, the markets overall are stable on average. Insurers have picked up quite a bit of price over the last few years. So a decrease to minus one is a welcome relief for many clients at Marsh after a tough pricing environment. Price reflects the cost of risk over time. About half of our business at Marsh is sensitive to revenue tied to P&C pricing through commissions, while the rest is on a fee basis. It’s not a direct correlation; client buying habits may change with market softness. For example, we've observed growth in our captives business, where premiums are growing faster than the marketplace. If competition increases, that may shift. It’s also worth mentioning that our index skews toward large accounts, while middle market pricing appears more stable, increasing low to mid-single digits. I hope that's helpful. Do you have a follow-up?

Yes, a quick follow-up. Any insight on Mercer Health's strong growth? I believe you mentioned it was up 20%. Is there any dislocation in that marketplace, or is it moving to the E&S market?

Yes, Mike. In past discussions, I noted troubling signs in the U.S. liability market. Perhaps I’ll ask Martin to share insights on what we're seeing in that marketplace.

Yes, thank you, John. Overall, the composite rating index has increased about 1.5 times since 2012. The casualty book has risen 6% in North America with the excess book increasing 21%. Currently, we do not observe dislocations; we can meet client capacity requests, and we're finding ways to place quota share programs to avoid the compression of limits. The E&S market has seen significant growth and we're proficient in that space. There's agility and rate movement there as well. So we're positioned to assist clients navigating social inflation complexities. We offer a variety of services to help our clients in this market.

Thank you, Mike, and thank you, Martin.

Dean, regarding reinsurance, you mentioned that ample capacity exists in casualty lines. How do you think reinsurers will respond to the ongoing tort inflation in the marketplace at January 1? Do you anticipate tightening in terms and conditions, and what are you observing?

Yes, thanks, Brian. I'll pass it to Dean shortly, but I want to highlight that loss cost inflation in casualty lines is a significant challenge and we're concerned about it from our clients' perspectives. It’s been a prominent topic during the conference season ahead of Helene and Milton. Dean, any thoughts on casualty reinsurance?

Yes, thanks, John. And Brian, as noted, reinsurers are generally very concerned about the U.S. casualty reinsurance market, focusing on excess casualty due to several factors we've discussed. However, as we approach the January renewal season, we believe current market conditions will generally hold in the casualty market. There's likely to be downward pressure on ceding commissions for quota share deals averaging 100 basis points from last year, which denotes a rate increase. Excess of loss contracts might see more significant rate increases in the 5% to 25% range, and some structural changes will arise to finalize these deals. Adequate capacity is expected, though there may be limitations for excess loss deals. Thus far, while challenging, these deals are still getting done. The key for our clients will be the performance of their underlying portfolios and whether they’re securing underlying rate increases in their lines of coverage.

There are clear signs of inflation in loss costs and disrupted loss development patterns from the economy and the impact of the pandemic, so it's challenging for us all. We're committed to assisting clients with their navigation of the uncertainty.

One last question for you. I'm curious about the flow of business to the non-admitted market. Is this slowing, and how can Marsh mitigate this or recapture share? Does McGriff offer any potential advantages in the non-admitted area?

To clarify, we're not losing share due to the growth in the E&S market in the U.S. While there has been significant growth in wholesale broking due to that market, we have access to E&S markets and we'll utilize that capital when it's the right fit for clients. Generally, we prefer admitted solutions for clients because of the benefits they offer. Our strategy aims to leverage access to both the direct and E&S markets, allowing us to provide the best solutions for our clients. While we will use wholesale brokers when their niche expertise serves our clients' interests, our focus remains on accessing capital directly and efficiently.

I would like to ask a couple of cleanup questions regarding McGriff. Is there a possibility that you might provide some of the below-the-line impacts, such as how much you expect amortization to increase as a result of the transaction? Also, are there any transaction or integration expenses we should anticipate over the coming quarters?

No, we're not prepared to disclose that. As mentioned, it's typical MMA transaction policy, and we haven't disclosed margins or the underlying performance of the businesses. What I can say is that we're very impressed with McGriff's performance; it's shown strong underlying revenue growth and sales velocity.

Regarding the tax rate, it's a bit early to be looking at next year, but considering how the geographic mix of the business might shift due to the deal, is the original guide for this year of 25% to 26.5% still reasonable? Also, can you share your timeline for utilizing the DTA that you're acquiring?

We're not guiding for 2025. We’ll discuss that in January. Mark, is there anything else to share about taxes overall?

Regarding the deferred tax assets, the value I mentioned represents the present value of the future tax deduction stream, which extends over a long period.

It's impressive to see that this year is the largest for MMA in MMC's history. Have the prices you're paying for the top 100 brokers changed your thinking on capital deployment across different avenues?

You've heard us discuss our capital management approach. We prefer investing in the business over share buybacks and strive to increase our dividend each year. We have a responsibility to manage capital prudently. Although multiples have risen in recent years, we’re confident in our ability to generate returns exceeding our cost of capital. If market conditions change or a deal fails to meet our objectives, we will consider other avenues for capital deployment. We have a solid reputation as a buyer and carefully consider different scenarios from small to mid-sized acquisitions to larger transactions like McGriff, ensuring we’re well-positioned in the marketplace. Mark mentioned that even after McGriff, we maintain flexibility to enhance our business.

I wanted to ask about commission rates and fee rates in the brokerage operations. How have these take rates changed throughout the recent market conditions, and what’s driving their stability?

I don’t see the past several years strictly as a hard market. The challenging period for our retail clients was largely a necessary adjustment for insurers to catch up with escalating loss costs. Certain specific markets did experience challenges, like when ransomware spikes in the cyber sector caused rapid price adjustments, but those also settled quickly. Currently, the market is improving for our retail clients. Average commission rates at Marsh have been stable over time; while some product lines show movement, acquisition expenses largely remain consistent.

Your underlying growth in RIS is remarkable. Last year, it was double-digit growth, and now it has slowed to 6%. That's still excellent, but what gives you confidence that it will remain in this range, potentially even less, and won't decelerate further?

We always appreciate your questions, Andrew. As I mentioned, the macro environment continues to support growth, but we are facing an elevated risk environment with geopolitical tensions, frequency and severity of weather events, cyber events, and inflation—all of which create opportunities for us to support clients. While pricing has moderated, the markets have remained disciplined. We are focused on building our capabilities, with McGriff being a significant step in that direction. Our strategic investments, both organic and inorganic, shape the way we operate; we're seeing better collaborative efforts that provide real growth opportunities. Again, we'll provide guidance in January regarding 2025, but I believe we are executing well, and the elevated risk environment presents real growth potential.

You mentioned the faster growth in MMA. Can you share how much it outpaces the large corporate business?

We’re not ready to disclose segment growth figures, but MMA has demonstrated higher consistency in growth over time, albeit not every quarter or year relative to the upmarket growth at Marsh. What excites us about MMA is how we can offer scaled benefits to clients at a different level. McGriff is an excellent example with strong fundamentals, leadership, and exceptional talent throughout the operation. We’ve demonstrated through past acquisitions that we can bolster these businesses and enhance our capabilities to better serve clients, which we find very promising. Thank you, Andrew, for your questions. We will wrap up the call now as we’re facing a fire alarm in our building. Thank you all for joining us today. In closing, I want to express my gratitude to our colleagues for their hard work and commitment. I also want to thank our clients for their continued support. We look forward to speaking with you again next quarter.