MITRE MINING CORPORATION LTD (MMC) — Q4 2024 Earnings Call Transcript

Good morning, and thank you for joining us to discuss our fourth quarter and full year results reported earlier today. I'm John Doyle, President and CEO of Marsh McLennan. On the call with me are Mark McGivney, our CFO, as well as the CEOs of our businesses, Martin South of Marsh, Dean Klisura of Guy Carpenter, Pat Tomlinson of Mercer, and Nick Studer of Oliver Wyman. We also have Jay Gelb, our new Head of Investor Relations, who many of you may know from his previous role as an equity analyst covering the insurance industry. Before we delve into our results, I want to take a moment to address the California wildfires, which represent a significant tragedy. Lives have been lost, and many people have been left homeless and in distress. Among those affected are our colleagues and clients in the Los Angeles area, and our company is dedicated to providing support during this challenging time. The wildfires are expected to result in insured losses surpassing $30 billion, making them one of the top 10 largest natural disasters in history based on insured losses. The increasing frequency and intensity of natural disasters, combined with rising property values and ongoing development in at-risk areas, highlight the importance of enhanced resilience and risk mitigation strategies. Marsh McLennan remains committed to collaborating with stakeholders, including individuals, businesses, the insurance sector, and governments, to foster resilience, reduce the destructive impact of these events, and facilitate recovery. Now, turning to our results, 2024 was a landmark year for Marsh McLennan. We successfully executed our strategic goals, achieved impressive financial performance, and experienced the largest year of acquisitions in our history. Total revenue increased by 8% to $24.5 billion, with 7% underlying revenue growth marking our best growth period in more than two decades, thanks to strong results in both risk and insurance services and consulting. Our adjusted operating income rose by 11% to $6.2 billion, following a 17% increase in 2023. Our adjusted operating margin improved by 80 basis points, representing the 17th consecutive year of reported margin expansion, and our adjusted EPS grew by 10%. Alongside another year of remarkable financial performance, we continued to advance our key priorities, culminating in a record year of M&A with $9.4 billion invested in acquisitions, including the $7.75 billion acquisition of McGriff. We also provided significant capital returns to our shareholders by raising our dividend by 15% and completing $900 million in share repurchases. Furthermore, we wrapped up our restructuring program, achieving our goals from two years ago, which included increasing client impact, reinvesting in our capabilities, enhancing efficiency, and boosting collaboration across the firm. Regarding our acquisition of McGriff, which closed on November 15th, I am enthusiastic about the momentum they bring to Marsh McLennan Agency. Our integration is on track, and although it’s early in the process, our optimistic outlook remains unchanged. As previously stated, McGriff boasts excellent leadership, exceptional talent, and a strong growth record. This acquisition also strengthens our position and capabilities in the expanding middle market, making MMA the fifth largest broker in the United States if considered independently. In addition to McGriff, we completed several significant acquisitions, including two top 100 agencies in MMA, as well as Vanguard's OCIO Business and Cardano in Mercer. As we approach the New Year, I'd like to share updates on our strategy. We see ourselves as a growth company, strategically positioned in market-leading businesses with substantial opportunities for expansion. We aim for excellent short-term results while also investing in our long-term performance. We consistently reinvest a large portion of our cash flow into organic initiatives, particularly in talent, technology, and capabilities. Innovations like Sentrisk, Blue[i], LenAI, and other digital tools illustrate our commitment to delivering value for our colleagues and clients. By investing in data and insights, we enable ourselves to work more efficiently on behalf of our clients, helping them achieve their goals. Our capital management approach remains balanced, as we aim to keep financial flexibility and manage the efficiency of our capital structure. While we prefer to reinvest the capital we generate into high-quality acquisitions, we recognize that returning capital to shareholders also provides significant long-term value. Each year, we target increases in our dividend and aim to repurchase enough stock to lower our share count. Pursuing high-quality acquisitions plays an integral role in our growth strategy. In the past decade, we have invested around $24 billion in over 200 transactions that have facilitated growth and delivered attractive returns. These acquisitions expand our reach, enhance our capabilities, and boost our scale, while the growth initiatives of our businesses remain central to our strategy. We're also collaborating more effectively than ever to seize opportunities where our businesses intersect, constantly striving for greater operational efficiency. In the last decade, we have increased our operating margin by over 900 basis points, with nearly a 500 basis point improvement in the last five years alone, achieved mainly through enhanced efficiencies while growing our talent base. Despite these advancements, we still see areas for further enhancement. Our strategy, grounded in growth, discipline, and balanced investment, continues to evolve to provide greater value to our clients and stakeholders. Now, looking at insurance market conditions, the global insurance and reinsurance market remains dynamic. In 2024, insured natural catastrophe losses exceeded $100 billion for the fifth consecutive year, totaling nearly $130 billion. Despite a heightened risk environment, the Marsh global insurance market index decreased by 2% in the fourth quarter, following a 1% drop in the third quarter. It's important to note that our index is skewed toward large accounts. Overall, US rates remained flat, while Latin America saw low single-digit increases. In contrast, Europe, the UK, and Asia experienced low to mid-single-digit declines, with the Pacific region down by high single digits. Global property rates fell by 3%, compared to a 2% decline in the third quarter, while global casualty rates increased by 4%, with US excess casualty up approximately 15% during the quarter. Workers' compensation rates decreased in the mid-single digits. Global financial and professional liability rates were down by 6%, and cyber rates dropped by 7%. The discipline in underwriting persisted in reinsurance, especially regarding program retentions, with an increase in capacity outpacing client demand. In global property, cat reinsurance accounts unaffected by losses observed risk-adjusted rates falling between 5% and 15%, while those impacted saw rates remaining flat to increasing by 30%. Casualty renewals displayed diverse outcomes, with excessive loss placements under continued pressure on treaty terms and quota shares more stable with sufficient capacity. Seeding commissions remained flat to slightly down. Examining health trends, our surveys project a global increase in medical costs of 11% in 2025, marking the fifth consecutive year of at least a 10% rise. Regionally, the expected increase is 8% in North America, 9% in the Pacific region, 10% in both Europe and Latin America, 11% in the Middle East and Africa, and 13% in Asia. For employee-sponsored health plans in the US, the average total health benefit cost per employee is projected to grow by 5.8% in 2025 after planned cost-reduction measures. This represents the third consecutive year of about 5% cost growth. Our ongoing focus is to assist our clients in navigating these fluctuating market conditions. Now, let me shift to our fourth quarter financial performance, which Mark will elaborate on in detail. We are pleased with our solid fourth quarter results, where growth remained strong, culminating another successful year. Revenue grew by 7% on an underlying basis, with 8% growth in RIS and 6% in consulting. Our adjusted operating income increased by 9%, and we achieved adjusted EPS of $1.87 for the quarter, reflecting an 11% increase from the previous year. Looking ahead to 2025, we are well-set for another robust year. We anticipate mid-single-digit underlying revenue growth, considering a headwind from fiduciary income, as well as continued margin expansion and steady adjusted EPS growth. Our outlook assumes that current macroeconomic conditions will persist, though the environment remains unpredictable, and the economic landscape could differ significantly from our assumptions. In summary, we are satisfied with our accomplishments in 2024, having met our strategic objectives and maintained our history of delivering solid results. With that, I will turn it over to Mark for a closer review of our results.

Thank you, John, and good morning. Our solid fourth quarter results reflected continued momentum and capped an excellent year with strong underlying revenue growth, double-digit growth in adjusted EPS. Our consolidated revenue increased 9% in the fourth quarter to $6.1 billion with underlying growth of 7%. Operating income was $1.1 billion and adjusted operating income was $1.3 billion, up 9%. Our adjusted operating margin was 23.3%. GAAP EPS was $1.59. Adjusted EPS increased 11% to $1.87 and included a $0.05 benefit from favorable discrete tax items and a $0.02 headwind from foreign exchange. For the full year, underlying revenue growth was 7%. Adjusted operating income grew 11% to $6.2 billion; adjusted EPS grew 10% to $8.80; and our adjusted operating margin expanded 80 basis points to 26.8%, marking our 17th consecutive year of reported margin expansion. 2024 was also a record year for capital deployment. We invested $9.4 billion in acquisitions, the largest year in our history. We also raised our quarterly dividend 15% and bought back $900 million of our stock. Looking at risk and insurance services. Fourth quarter revenue was $3.6 billion, up 11% or 8% on an underlying basis. Operating income in RIS increased 2% to $770 million. Adjusted operating income increased 13% to $893 million, and our adjusted margin was 27%. For the full year, revenue in RIS was $15.4 billion with underlying growth of 8%. Adjusted operating income increased 13% to $4.6 billion, and our adjusted operating margin increased 70 basis points to 32%. At Marsh, revenue in the quarter was $3.3 billion, up 15% from a year ago or 8% on an underlying basis, reflecting continued growth across our regions as well as a rebound in transaction risk products and claims activity in our Torrent flood business. This result marks the 16th consecutive quarter of 6% or higher underlying growth at Marsh. In the US and Canada, underlying growth was 8% for the quarter. In international, underlying growth was 9%, with Latin America up 13%, EMEA up 9%, and Asia-Pacific up 6%. For the full year, Marsh's revenue was $12.5 billion with underlying growth of 7%. The US and Canada was up 7% and international grew 8%. Guy Carpenter's revenue in the quarter was $201 million, up 7% on an underlying basis, driven by growth across our regions and global specialties. For the year, revenue was $2.4 billion, representing 8% underlying growth, and Guy Carpenter's fourth consecutive year of 8% or higher underlying growth. In the Consulting segment, fourth quarter revenue was $2.4 billion, up 6% on both a GAAP and underlying basis. Consulting operating income was $466 million, and adjusted operating income was $484 million, up 1%. Our adjusted operating margin in consulting was 20.7% compared to 21.3% a year ago, reflecting seasonality in the impact of acquisitions and dispositions. For the full year, consulting revenue was $9.1 billion with underlying growth of 6%. Adjusted operating income increased 6% to $1.8 billion, and our adjusted operating margin increased 30 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 15th consecutive quarter of 5% or higher underlying growth and continues the best run of growth in over 15 years. Health underlying growth was 5% in the quarter, reflecting growth across all regions. Wealth was up 4%, led by growth in investment management. Our assets under management were $617 billion at the end of the fourth quarter, up 13% sequentially and up 47% compared to the fourth quarter of last year. Year-over-year growth was driven by our transactions with Cardano and Vanguard. Positive net flows and the impact of capital markets. Career increased 7%, driven by growth in talent and rewards, surveys, and products. For the year, revenue at Mercer was $5.7 billion, an increase of 5% on an underlying basis. The fourth straight year of 5% or higher underlying growth. Oliver Wyman's revenue in the fourth quarter was $954 million, an increase of 7% on an underlying basis. This reflects growth across all regions and businesses and was achieved despite a tough comparison to 9% growth in the fourth quarter of last year. For the full year, Oliver Wyman's revenue was $3.4 billion, reflecting underlying growth of 6%. Fiduciary income was $112 million in the quarter, a decline of $26 million from the third quarter, reflecting lower interest rates. Looking ahead to the first quarter of 2025, we expect fiduciary income will be approximately $100 million. Foreign exchange was a $0.02 headwind in the fourth quarter and a $0.05 headwind for the full year. Assuming exchange rates remain at current levels, we expect FX will be a headwind of $0.04 in the first quarter and $0.09 for all of 2025. Turning to our McGriff transaction, we closed the deal in mid-November, and as John mentioned, the integration is going well. McGriff is a terrific business, and we're excited about what they bring to MMA. In November, we issued $7.25 billion of senior notes to fund the transaction. The first quarter is McGriff's seasonally smallest from a revenue perspective, so for Q1, we expect McGriff will be modestly dilutive to adjusted EPS. However, I want to emphasize that we continue to expect McGriff will be modestly accretive to adjusted EPS for the full year 2025, becoming more meaningfully accretive in 2026 and beyond. We expect noteworthy charges associated with McGriff of approximately $450 million to $500 million in total over the next three years, with the vast majority of these costs associated with retention incentives, a significant portion of which was put in place by the seller. These costs flow to our financial statements, but were funded by the seller through a purchase price adjustment. Also note that we will exclude McGriff from our underlying growth calculations for the first year as is our convention. Total noteworthy items in the quarter were $154 million, including $136 million of restructuring costs, primarily related to the program we began in the fourth quarter of 2022. Interest expense in the fourth quarter was $231 million, up from $151 million in the fourth quarter of 2023. This increase reflects higher levels of debt as well as $26 million of bridge financing fees associated with the McGriff transaction. Based on our current forecast, we expect interest expense in the first quarter 2025 of approximately $246 million. Our adjusted effective tax rate in the fourth quarter was 21.1% compared with 25.5% in the fourth quarter last year. For the full year 2024, our adjusted effective tax rate was 24.5% compared with 24% in 2023. Excluding discrete items, our adjusted effective tax rate in 2024 was 25.8% compared with 25% in 2023. 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 between 25% and 26% in 2025. Turning to capital management. Our balance sheet, we ended the year with total debt of $19.9 billion. Our next scheduled debt maturity is in the first quarter of 2025, when 500 million of senior notes mature. Our cash position at the end of the fourth quarter was $2.4 billion. Uses of cash in the quarter totaled $8.5 billion and included $403 million for dividends and $8.1 billion for acquisitions, including McGriff. For the year, uses of cash totaled $11.8 billion, which included $1.5 billion for dividends, $9.4 billion for acquisitions, and $900 million for share repurchase. Looking to 2025, based on our outlook today, we expect to deploy approximately $4.5 billion of capital across dividends, acquisitions, and share repurchases. The ultimate level of share repurchase will depend on how the M&A pipeline develops. As we discussed last quarter, beginning in the first quarter of 2025, we will exclude the impact of acquisition-related intangible amortization and the other net benefit credit from adjusted EPS. We provided tables in our fourth quarter earnings release that recast adjusted operating income and adjusted EPS for the past eight quarters on this basis. Turning to 2025. As John noted, we remain positive in our outlook for growth. For 2025, we currently expect mid-single-digit underlying revenue growth, margin expansion, and solid growth in adjusted EPS. This outlook contemplates anticipated headwinds from short-term interest rate declines, foreign exchange, and favorable discrete tax items in 2024. We expect these headwinds will have a more significant impact in the first quarter, which will also reflect a difficult revenue growth comparison versus a year ago. Overall, we are pleased with our performance in 2024. We have momentum across our business and are well-positioned for another strong year in 2025. 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 on margin. So, the margin was flat overall right in the fourth quarter. But earlier in the year, you guys had pointed to second half margin improvement being greater than the first half, which didn't transpire. So, I'm just trying to get a sense of what went on with the margins in the second half relative to prior expectations and also specifically the fourth quarter.

Yeah. Good morning, Elyse. I was pleased with our margin expansion for the year. 80 basis points of margin expansion, our 17th consecutive year. As we've talked about in the past, from quarter to quarter, there'll be different outcomes and really, 17 consecutive years is just a reflection of our disciplined approach to the way we run our business and it's not a primary objective. Margins are an outcome of the way we run the business, and we're going to continue to make attractive investments that will drive medium to long-term growth in the company as well. The fourth quarter was impacted by FX. It was also impacted by acquisitions and divestitures, but it wasn't a disappointment. It was a good strong year of margin expansion. And as we guided to for 2025, we expect it to be our 18th consecutive year of margin expansion. We've got opportunities to continue to focus on the shared infrastructure across the company. We have some opportunities in operations. We've got important workflow optimization efforts happening at Marsh, Mercer, and Guy Carpenter, and, of course, automation is an important lever for us too. And as we learn and continue to test and experiment around AI, we see possibilities there as well, so we're quite optimistic about the possibilities looking forward. And we were pleased with the outcome in 2024. Do you have a follow-up?

Yeah. My second question is on free cash flow. I know you guys typically haven't provided annual guidance, but the growth there was 4% in 2024. I think when I look at the CAGR over the past few years it was around 7%. So, both below double-digits. So, I'm not sure if there was anything in 2024 that was impacted by McGriff, but anything you could provide just in terms of what impacted free cash flow in 2024 and how we should think about growth headwinds and tailwinds in free cash flow in 2025?

Yeah. I don't have a three-year CAGR in front of me, but I know we had north of 20% free cash flow growth in 2023 and 4% I believe in 2024. It's obviously not going to attract as a straight line or as consistently with earnings growth, but over time it will. Mark, do you have anything to add there?

Yeah. Free cash flow, we were really pleased with 4%. As John mentioned, we were up 28% last year. So, kind of holding that and growing a little bit is not bad. If you look over the last five years, we've doubled free cash flow since 2019. So that has been a very good story for us given the nature of our business. As we've talked about, you would expect free cash flow would track our earnings growth over time and it certainly has over a long stretch we've had double-digit growth in free cash flow. And as you pointed out, we don't typically give guidance because it can be volatile period to period, year to year, but over time it will track and should track in line with our earnings growth as our guidance suggests, we have an outlook for earnings growth into the future.

Thank you, Elyse. Andrew, next question please.

Good morning. I have a question for Mark. You mentioned expecting organic growth of mid-single digits in 2025, whereas previously, you indicated it could be mid to high single digits or better. Am I interpreting your comments correctly, or is there a change in any part of your business that is prompting this slight adjustment in language?

Hey Jimmy, it's John. Let me jump in front of Mark. First of all, I just want to talk about our strong finish to the year. 7% in the fourth quarter underlying revenue growth. Terrific full-year revenue growth as well. And the strength was really broad-based in the quarter. Marsh 8%. Guy Carpenter had a seasonally small quarter but put in a really good finish to what was an excellent year at Guy Carpenter. Mercer above 5% underlying growth again and a better finishing career where, as you know, growth has been a bit soft over the course of the last year or so. Oliver Wyman had a strong finish too, where we're starting to see some demand pick up. The macros remain largely supportive of growth. Fiduciary income, as we mentioned, is the one real exception to it. But economic growth in most major markets remains resilient. Strong labor markets in most of the economies that we're exposed to. Of course, there are a lot of risks out there, big geopolitical risks, uncertainty around tariffs and potential trade wars. As I talked about, the frequency of extreme weather impacts economies around the world as well. And then, risks around technology and other areas. But those are areas that we help our clients and give them advice so that they can invest with a level of confidence. So, we're optimistic about growth for 2025. I wouldn't read much into it. We feel like we're well-positioned. We continue to invest and shape the mix of our business. McGriff coming in and the admin businesses at Mercer going out in 2024 would be a good example of our focus there. And so, our team's highly engaged and we're executing well. So, we feel good entering 2025.

And just on McGriff, should we assume that it actually is a positive for your organic growth beyond '25, just given their market focus and the fact that they'll be part of a larger platform? So maybe they could do a little bit better than they might have done in the past, or should we not expect much of an impact on their or your growth as a result?

We're excited about McGriff. As Mark noted, from an earnings point of view, it'll be slightly dilutive to us or modestly dilutive to us early in the year but accretive over the full year and more so in '26 and beyond. I talked about it, so far so good in terms of the integration. Culturally, things seem to be going well. McGriff's a business that we've admired for a long time as a competitor. We knew there were going to be a few big assets in the market in 2024, and McGriff was the business that we wanted. And it doesn't just make us bigger; they make us better. They've got terrific talent and leadership. As I talked about, they got some real specialty capabilities, and it extends our reach into the middle market where we're quite focused on bringing scale benefits to that segment of the market. So, we're excited about McGriff.

Thank you.

Thank you, Jimmy. Andrew, next question, please.

Hey, good morning. First one I have for you is on Marsh. I just want to see if you could help us unpack the strong organic growth. I mean, just with rates in the US being more flattish, I'm guessing most of that came from growth in the book and was just interested if you had any comments on new business versus retention. Maybe just helping us understand the underlying dynamics where you're winning.

Sure. Alex, again, really strong finish. I'll ask Martin to comment in a second here. We're really well-positioned. In terms of rates, I would say, we're most exposed to pricing through commission in the middle market. So, it's a subset of our business overall. So, it's an impact. It does have an impact. Of course, pricing does, but we have a lot of fee-based business as well. Mark commented on the notable pickup in M&A activity in the quarter that certainly helped with growth in the quarter, and we see a more positive environment there going forward as well. But Martin, maybe you could share a little bit more color on the broad-based growth we had at Marsh in the quarter.

Of course, John. So, we had a great year in '24, 7% on top of 8% in '23. Good balance of growth throughout the globe with International at 8% and US and Canada at 7%. Looking at Q4, revenue was 8%, which is a reacceleration from Q3. That signifies the 16th consecutive quarter of 6% or better underlying growth. The US and Canada had a very good year with growth of 7% consistent with the full year underlying growth at '22 and '23, and for the fourth quarter 8%, which is supported by improvement in retention and loss as well as a better balance of recurring business. The US business is also beginning to see some green shoots from deal activity from capital markets. However, we continue to see rate pressure on financial lines to offset that. International had a terrific year with underlying growth of 8%, 4% in the quarter and consistently strong growth for EMEA and Latin America for both the full year and the quarter. APEC continues to show some signs of moderation with solid growth at 5%. We've got great talent in all the markets; we've been investing well, and we're extremely well positioned for the future. So, we feel very good about that.

Perfect. Thank you. It was a strong finish. Alex, do you have a follow-up?

Yeah, I do. The other question I wanted to ask you all is on the potential for M&A, IPOs, etc., to have the environment, improve more activity. As I think across your businesses, can you help us think through the different ways that that benefits you? And is there any way you can help us frame the kind of impact that that would have on organic growth if we do have a return of that kind of activity?

Yeah. We're not going to report out separately on M&A or IPO activity, but we have important capabilities across the firm. At Marsh, Mercer, and Oliver Wyman in particular, of course, Guy Carpenter's almost entirely focused on the insurance industry, but we help with different levels of due diligence. We have a suite of products that can help facilitate transactions when there might be some terms that need to be settled between buyer and seller. So, it's an important capability set that we bring to our clients. And it's obviously an important moment when a company is selling itself or divesting of a business. And then, of course, on the buy side, meaningfully investing. So, those are important moments where we can really distinguish ourselves and show the overall strength of our company. So, it's an important capability. As we noted, we saw a pickup in M&A activity in the fourth quarter. We'll see what 2025 brings. I know a couple of IPOs have been out in the market; not sure we're ready to declare some giant IPO year in 2025, but we'll see. It's an important capability. We distribute through a range of investors. We stay close to our corporate clients, of course, and spend a lot of time with law firms as well, again, to support our clients' efforts to invest. Thank you, Alex. Andrew, next question please.

Hey, thanks. Good morning. I had just a question more prospectively just on the market and obviously the wildfires still very early days. But I'm wondering if you guys are seeing any impact on both the primary and reinsurance property markets and what your outlook is there given an over $30 billion insured loss.

Yeah. Thanks, David. Maybe I'll make a couple of comments, and then I'll ask Dean and Martin to talk about what they're seeing in the market, which I think highlights is not a lot in terms of market impact at this point. But as I noted in my prepared remarks, just absolutely devastating events in Southern California. Our focus is on helping our colleagues and our clients recover. It's going to be a long road back, and we're going to support them along the way. We're helping with relocation of families, beginning to think about claims prep and filing claims with insurers and then the rebuilding effort. I would say that our exposure as a business is primarily as an advisor to high-net-worth homeowners. So, it's a limited view in that perspective and not overall that impactful to Marsh McLennan from a financial perspective. But as a major risk advisor, we certainly have something to say about the future and efforts to build back with greater resilience. I would say reading lots of comments about how to support the fair plan or how to create subsidies for insurance. Candidly, it's the wrong conversation. The conversation we should be having really is about building greater resilience into these communities rather than trying to find ways to subsidize insurance that will lead to happier homeowners and residents of Southern California and other catastrophe-prone areas over time. And, of course, that conversation isn't limited to Southern California. So important steps need to be taken so that we're not in the same place, this sad and devastating place again sometime soon. But with that, Dean, maybe you could talk about what you're seeing so far in the reinsurance market and then we'll have Martin comment on the insurance market.

Thanks, John. David, from a reinsurance perspective, as John noted, we're first and foremost committed to supporting our clients as they navigate the complexity of this loss. Guy Carpenter has formed a dedicated wildfire taskforce comprised of our best meteorologists, cat modelers, analytics, claims, colleagues, and brokers. We're fully engaging with our clients to give them insights so they can better assess the magnitude of the loss. It's clear that many of our reinsurance clients will have losses resulting in claims to the reinsurance programs. As John noted, we've seen industry estimates expect the loss to exceed $30 billion, although we saw bigger numbers than that in the market yesterday being reported. The impact on the reinsurance market is uncertain at this time and will certainly depend on the ultimate magnitude of the reinsurance loss. But I would say, David, at this stage, the risk-adjusted rate reductions that we witnessed at January 1st could certainly be tempered moving forward as we go into the April 1st renewal season.

Thanks, Dean. Martin, any thoughts?

Yeah. The overall rates came down 2% in the fourth quarter. You have to put that in context. It's focused on a large account segment, and it's gone up one and a half times since 2012. We did see some rate decreases in the property book in the last quarter and slowdown across the world. It's really too early to say what this impact is going to have. It's not a big commercial event for our clients. I think we're going to have to wait and see. Our focus is really on making sure that our colleagues and clients are provided with the right advice for our high-net-worth clients as they think about resilience and building forward. So not market hysteria, that's for sure.

David, as you know, the California homeowners market was under real stress before these events. This underscores just the critical need to build better resilience into these communities. Do you have a follow-up?

I do, yeah. And thanks for that answer. So, just switching gears to consulting and the health business within Mercer. Could you help me think through the underlying growth deceleration? I know the comp got a little bit more difficult, but I was surprised to see the 5% growth. I think it's the lowest it's been since 2021. And I know John, you mentioned health costs still increasing. I think it was 11% was the expectation in '25. So, could you help me think through the deceleration there and how you guys are thinking about growth as we go into '25?

Sure, David. I'll ask Pat to comment in a second. I would say we're not necessarily exposed directly to those cost increases that I spoke about in my prepared remarks. So, it was mostly raising those issues just around the critical nature of the advice that we provide to employers where you have employer-sponsored care or maybe supplemental care in other markets around the world outside of the United States. Obviously, inflation and broader cost increases are a real source of stress for employers around the world and for economies as well. And so, again, it just underscores the critical nature of the advice we provide. So Pat, maybe you could talk about the results in '24 and a little bit of our outlook in health.

Sure, and thanks for the question. Listen overall for Mercer, I just want to start by saying that we're pleased with our Q4 underlying growth of 5%. It's our 15th consecutive quarter with 5% or more growth and also really pleased that all the practices are contributing to that growth. Full-year results of 5% highlight the resilience and the consistency of our business during uncertain and volatile times, and it really underscores the continued relevance that we have in our solutions in helping our clients. Now specifically on health, health grew 5% in the fourth quarter as you highlighted, 8% for the full year. I would say the performance was broad-based across regions and it comes from a few different things. Our continued hiring of new talent, our focus on thought leadership, John highlighted a few of the pieces during his opening around our national survey of employer-sponsored health plans, our 2025 health trends report, our people risk survey. We've also been expanding the digital tools. We're now in 102 countries with those digital tools and we've got a real focus on client segmentation to go ahead and make sure that we can match client healthcare needs with the innovative and tailored solutions we have based on large market, mid-market global multinationals. We think we continue to see some tailwinds from continued high employment rates, regulatory changes, and then, obviously, medical cost inflation. All of which drives clients' focus on affordability and access to quality healthcare for their employees. I think collaboration, as we've talked about before across the firm, continues to support our growth momentum. Now from the quarter, I would say we can have some variability in any given quarter including one-offs in timing, but we believe our full-year growth is much more reflective of our performance, right, which was the 8% that I talked about. I think we maintain a positive outlook and anticipate our growth momentum will continue due to the strong value proposition we offer clients and that we have the thought leadership, the strong ongoing demand. John mentioned the various different pieces of our business in his tee-up just now. Absolutely. Higher medical inflation drives up health and benefits costs for employers, right? So, absolutely. Employers are facing elevated prices combined with structural industry obstacles such as labor shortages, like health system consolidation. We definitely see continued demand for health expertise. But globally, our health revenue does have a balance of fixed fee and commission work. So, I would say generally speaking, we don't directly see the full impact of inflation and that medical inflation that John was talking about on our revenue either when it's in periods of high, like it's been in the last couple of years, or in periods of low. But at the same point, while not necessarily directly through higher commissions, higher medical costs and higher medical inflation absolutely drives client demand as we think about how we have to do fee-based plan design work and projects to try and help clients mitigate that cost escalation and the impact on their clients and on their colleagues.

Thanks, Pat. And I would note that Oliver Wyman does a lot of important work in the industry as well. So, thank you, David, for the questions. Andrew, next question please.

Good morning, everyone. Can I go back to the comments on McGriff? I think you mentioned $450 million to $500 million in total retention incentives that are going to be somehow flowing through or recaptured. I guess the reason why I'm triggered by this is I look at your income statement, I see the $60 million of acquisition retention related costs that go into the adjustments. So, just trying to map out what I should think about in terms of the adjustments as I think about '25.

Yeah. Sure, Greg. I'll ask Mark to jump in for a second. But, of course, retention is a critical part of any acquisitions we do. We had a meaningful seller-funded retention plan that was put in place to help our transaction work here. But Mark, maybe you could talk on the cost specifics.

We anticipate noteworthy charges totaling between $450 million and $500 million over the next three years. While retention is important, it won't be the primary factor contributing to these charges. In the fourth quarter, we reported $26 million in bridge financing costs, along with the initial amortization of the retentions. It's essential to note that a significant portion of that retention was established by the seller and financed through a purchase price adjustment. However, it must be amortized and reflected in our financial statements, which is why we consider it noteworthy.

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

I do. Staying on the topic of adjustments, for the full year, I believe you recorded $148 million in restructuring charges, with a total of 276 related to risk and insurance. Are the restructuring charges we anticipate for 2025 going to be separate from what's happening with McGriff, and what do you expect in terms of those charges in 2025?

Sure. In 2024, as Mark mentioned, we completed our restructuring program. I touched on it a bit as well. Mark, could you provide the outlook for 2025?

We are very pleased with the progress of the restructuring program we initiated in 2022, which has significantly contributed to our margin expansion and earnings growth. That program is essentially complete at this point, with the last charges recorded in the fourth quarter. Looking ahead, we anticipate that the most significant items will be related to McGriff. Occasionally, there may be adjustments to earnouts and other minor items that will appear, but for now, McGriff is the primary focus of any major programs.

Thank you.

Thanks, Greg. Appreciate the questions. Andrew, we're ready for our next question, please.

Good morning. Referring back to the comment about organic growth in the mid-single digits that you mentioned, John, during your prepared remarks. I understood your response to Jimmy was not to read too much into it, but as analysts, we tend to look deeper. In previous years, you mentioned mid-single-digit growth or higher. Has there been a change in the planning for 2025 that we might see in a proxy? Additionally, you indicated that the Marsh pricing index is also down, so I'm assuming this may impact your revenues, given the current softer market in the large account sector. This could be influencing your prepared remarks.

Thank you, Mike, for the question. Our main exposure to property and casualty pricing is in the middle market, and this segment typically experiences more stability in pricing. I don't believe this is a significant concern. The key issue is the final investment decision, which presents an uncertain outlook. Mark provided some insights on what we expect regarding headwinds in the first quarter. We'll monitor the situation moving forward. Inflation has proven to be more persistent than most central banks would prefer, especially in the United States. Additionally, there's potential volatility due to the actions the new administration is taking concerning trade and tariffs. We'll see how that affects us, but the final investment decision is really the main factor at play.

Got it. And a quick follow-up probably for Mark on capital. So, the $4.5 billion deployment guidance for '25 remains unchanged year-over-year. I'm assuming most of that is just due to charges to integrate McGriff, or are there other significant factors we should consider?

So, the outlook for capital deployment, I think is what you're asking about $4.5 billion. We're really happy with that outlook. If you think back to last year, we spent close to $12 billion, and we had built up a significant amount of flexibility, and that was certainly a lot more than we had planned coming into the year. But to be looking at a year, having done all of that and be looking at a year in 2025, that's a normal year of capital deployment and have still a lot of flexibility to do M&A, pay dividends, and buy back stock is just a great position to be in. So, we feel really good about where we are.

Largest deal in our history in McGriff, two top 100 agencies, Cardano, Vanguard's OCIO business. We've got $4.5 billion to deploy. So, yeah, I mean it speaks to the cash flow generation of the company and the strength of our franchise. I would add that we're quite active in the market too, the M&A market, I mean, and we have a great brand and reputation in that market and that's important in people businesses. Of course, we do have the ability to do bigger deals if the right deal presents itself. I think we're more likely to continue our string of pearls strategy that's served us so well, and we're likely to bring our leverage back down. But Mark and I both talked about we want to retain the flexibility to strike when it makes sense. Thank you, Mike. Andrew, next question, please.

Great. Thanks, and good morning. John, I want to follow up on the point that you just made. Does the effort required to integrate McGriff impede the ability to do big deals in the United States, either overall or with an MMA.

I'm not sure I understand. Impede for what reason? What do you mean?

Just management effort in the integration process.

These are people-centric businesses, so social issues hold significant importance. That's why I emphasized our strong reputation for fulfilling our commitments when we engage with businesses and explore potential collaborations. There will always be some limitations regarding management's time and focus, and we aim to avoid major missteps. We have a long history of successful consolidation over more than 150 years. While we are likely to pursue our strategy of small, strategic acquisitions, we also have the capability to undertake larger deals. Dave and his team at MMA possess considerable experience in this area. Additionally, it's important to note that we are not meeting these target firms for the first time; we have been working on these deals for many years. Do you have a follow-up question?

Yeah. Just a quick one. Mark mentioned that there was a difficult organic growth comp coming up, and I just wanted to dig in a little bit. I know other brokers have talked about that as well. Was there something in last year's first quarter revenues that were less recurring than the typical book?

No, we have some unusual challenges in the first quarter, including foreign exchange and taxes. There's also some seasonality affecting McGriff's revenue, which tends to be lower in the first quarter. Additionally, we are facing some headwinds from FID, which we expect to continue throughout the year. So, nothing out of the ordinary about the first quarter of last year. We are facing these factors along with a tougher comparison in the first quarter.

Okay, perfect. Thank you.

Thank you, Meyer. Andrew, another question please.

Hey, thanks. Good morning. My first question was a bit of a bigger picture question for you, John. A large insurer recently highlighted a secular shift in the small and middle market where more premiums are flowing to a smaller number of middle market insurers, kind of based on their scale and data and analytics advantages. I'm curious if you agree with that trend and if you could talk about what that trend means for Marsh growth opportunities.

I'm not completely familiar with those comments, so I want to be cautious about discussing what someone else might say regarding the middle market. Do I believe scale is important? Yes, I believe scale is significant in our business. It matters to intermediaries and underwriters alike. There’s no doubt that data is crucial. The ability to generate broader insights is essential. Additionally, having a diversified risk portfolio on both the asset and liability sides of a balance sheet is important. We stand out through Marsh; if your question was about the middle market in the United States, we originate more risk than almost anyone else, particularly on a global scale. As we mentioned, in the middle market, MMA will be the fifth largest broker operating independently. Our capability to interact with some of the larger insurers is strong, and they provide innovative solutions to the middle market. I noted this in the context of McGriff. One aspect we find appealing about the middle market is our capacity to offer scale benefits to that segment, which is valuable for that customer base. Therefore, if an insurer can also provide similar scale advantages, it indeed holds significance. Do you have a follow-up, Rob?

Yeah. And just for clarification, I mean, I think the comments were meant to imply that more market share is going to larger insurers. And I would think that that might be a benefit for Marsh as you have relationships with those larger insurers.

Got it, got it. Thank you. Do you have a follow-up, Rob?

Yeah. The follow-up, appreciate no specific guidance on McGriff margins, but I was hoping you could give us some rough insight into whether you expect the acquisition to be directionally additive or dilutive to margins in 2025, and if you think there's an above-average opportunity to expand those McGriff margins over time.

Yeah. I think we mentioned this in last quarter. McGriff really was a carve-out of a carve-out. So, the possibilities around McGriff are not built around meaningful expense synergies, just to be clear. But as I mentioned earlier, scale matters not just to our clients, it matters for our colleagues because we can give them tools, data, insights, and technology that others can't. It matters to our shareholders as well. So, we expect to bring scale benefits to all three, and we're excited about what McGriff will mean to adjusted EPS later in '25 and into '26 and '27. So, thank you, Rob. With that, Andrew, we've got to wrap up. We're past the bottom of the hour. Thank you. I want to thank everyone for joining us on the call this morning. I also want to thank our colleagues for their hard work and their dedication. I also want to thank all of our clients for their continued support and confidence in Marsh McLennan. Thanks again to everyone, and we look forward to speaking with you all again next quarter. Thank you, Andrew.