Marsh & McLennan Companies Q4 2021 Earnings Call Transcript

Presentation

[Operator]

Welcome to Marsh McLennan's Conference Call. Today's call is being recorded. Fourth Quarter and Full Year 2021 Financial Results and Supplemental Information were issued earlier this morning. They are available on the company's website at marshmclennan.com.

Please note that remarks made today may include forward-looking statements. Forward-looking statements are subject to risks and uncertainties and a variety of factors may cause actual results to differ materially from those contemplated by such statements. For a more detailed discussion of those factors, please refer to our earnings release for this quarter and to our most recent SEC filings, including our most recent Form 10-K, all of which are available on the Marsh McLennan website.

During the call today, we may also discuss certain non-GAAP financial measures. For a reconciliation of these measures to the most closely comparable GAAP measures, please refer to the schedule in today's earnings release.

I'll now turn this over to Dan Glaser, President and CEO of Marsh McLennan.

[Dan Glaser, President and Chief Executive Officer at Marsh & McLennan Companies]

Thanks, Andrew. Good morning and thank you for joining us to discuss our fourth quarter results reported earlier today. I'm Dan Glaser, President and CEO of Marsh McLennan. Joining me on the call today is John Doyle, our Group President and COO; Mark McGivney, our CFO; and the CEOs of our businesses, Martin South of Marsh; Dean Klisura of Guy Carpenter; Martine Ferland of Mercer; and Nick Studer of Oliver Wyman. Also with us this morning is Sarah DeWitt, Head of Investor Relations.

John Doyle assumed his new role on January 1, and I am pleased to be working alongside him. During John's five years as CEO of Marsh, the business thrived under his leadership, experiencing accelerated revenue growth and record new business. He also inspired an even stronger culture of colleague engagement, inclusion and diversity. I look forward to unlocking the greater potential of Marsh McLennan together.

I'd also like to welcome Martin South and Dean Klisura, who assume their new roles on January 1. Martin, who succeeded John as CEO of Marsh, has worked in Marsh for 27 years. Most recently, Martin served as CEO of Marsh US and Canada, where he produced a superior track record of growth. Dean Klisura, who succeeds Peter Hearn as CEO of Guy Carpenter, has been with Marsh McLennan for nearly 30 years. During his time at Marsh McLennan, Dean has served in executive leadership roles in Marsh's Global specialties and placement before joining Guy Carpenter last year as President. Dean brings deep knowledge and broad industry relationships to his new role. I look forward to seeing Marsh and Guy Carpenter continue to thrive and grow under their leadership.

These moves represent further examples of the extraordinary talent in Marsh McLennan and the seamless process we have built to manage orderly succession. On behalf of the entire company, I want to express my deep gratitude to Peter Hearn for his exceptional leadership of Guy Carpenter. During Peter's tenure, Guy Carpenter achieved record financial performance and cultivated a culture where colleagues professional success and personal fulfillment is a consistent priority. We look forward to the contributions he will continue to make as Vice Chair of Marsh McLennan.

I'd also like to thank Dominic Burke for his many contributions following our acquisition of JLT and wish him the best in his retirement. His leadership ensured our combination with JLT, the largest acquisition in our history, was a win for our clients, for our company and for our colleagues.

2021 was a banner year for Marsh McLennan. We generated the strongest underlying revenue growth in over two decades, with each of our businesses contributing meaningfully. Adjusted EPS growth was 24%, the highest in over two decades. We reported adjusted margin expansion for the 14th consecutive year. We invested meaningfully in our talent and capabilities both organically and through attractive acquisitions. And we completed our deleveraging and resumed significant share repurchases.

Across the firm, 2021 was a year of extraordinary growth and achievement. Consistent with our philosophy of balancing near-term financial results while also investing for the future, we capitalized on available opportunities to make significant investments. This is reflected in an organic increase of nearly 6,000 colleagues on a net basis, the highest level in our history. Our new colleagues not only add scale in client-facing roles, but critical capabilities, the capacity to streamline operations, drive efficiency, enhance client service outcomes and expand the bandwidth of our market-facing operations.

We pursued attractive acquisitions. MMA broadened its geographic footprint in the key middle market segment with the addition of PayneWest. Oliver Wyman deepened our health care expertise and client service capabilities with the acquisition of Huron's life sciences business, and Marsh enhanced its market-leading position in India with an increase in the ownership stake in our Indian brokerage business from 49% to 92%.

Portfolio optimization efforts continued as well, including the sale of Marsh's UK networks, Marsh's pension administration business in Brazil and Marsh's US associations business. Across the organization, we took steps to accelerate productivity, gain efficiency and enhance client experience with initiatives like Marsh's Operational Excellence program, our build-out of our India and other centers of excellence and improving our technology and HR functions.

2021 was also a year in which we accelerated impact for clients through innovation in areas of pressing concern. Marsh McLennan provided thought leadership on key global issues in partnership with the World Economic Forum. For the 17th consecutive year, we collaborated in the production of the Annual Global Risk Report, which was issued earlier this month. This year's report identifies climate action failure and extreme weather, the decline of social cohesion, infectious diseases, cybersecurity failure, mental health deterioration, and digital inequality among the top 10 risk-facing society.

Marsh McLennan's business is to help clients adapt to this evolving risk landscape and to plot a course through longer-term secular challenges. In areas like cyber risk, climate resilience, digitization, diversity and inclusion, healthy societies, and new ways of working, we brought forward creative solutions for our clients in 2021.

All of this is consistent with our legacy as an innovator for the past 150 years. Since the founding of our company in 1871, we have been at our client sides, finding opportunities and navigating uncertainty in the areas of risk, strategy and people. This approach has translated to significant value creation for our shareholders over time.

Since our IPO in 1962, our consolidated revenue has grown from $52 million to nearly $20 billion. Our adjusted EPS has increased from $0.02 per share to over $6 a share. And our head count has risen from 3,000 colleagues to nearly 83,000 today. This translates to an average of 11% revenue growth, 10% adjusted EPS growth and 6% head count growth each year over this period. And we exit this first century-and-a-half on a high note with terrific 2021 results.

Now let me provide an update on current P&C insurance market conditions. Rate increases continued to persist, reflecting losses, low returns, concerns about inflation and affirming reinsurance market. The Marsh Global Insurance Market Index showed price increases of 13% year-over-year. This marks the 17th consecutive quarter of rate increases in the commercial P&C insurance marketplace.

Looking at pricing by line, the March Market Index showed global property insurance was up 8%. Global financial and professional lines were up 31%, driven in part by cyber rates more than doubling in some geographies. And global casualty rates were up mid-single-digits on average. As a reminder, our index skews to large account business. However, small and middle-market insurance rates continue to rise as well, although less than for large complex accounts. At the January renewals, capacity in most areas was available, although insurers pushed for price increases and, in some cases, coverage changes in tighter terms and conditions.

Turning to reinsurance. The January 1 reinsurance renewals reflected an evolving market. Capacity was adequate, but reinsurers adjusted their risk appetite and pricing thresholds for certain sectors. This was in response to ongoing and emerging challenges such as the frequency and severity of catastrophe losses, climate change, core inflation, social inflation and underlying rate increases. The overall Guy Carpenter Global Property Catastrophe Rate-on-Line Index increased 10.8% with non-loss impacted clients being generally flat to up 7% and loss impacted up from 10% to over 30%. Marsh McLennan remains focused on helping our clients navigate challenging P&C rates and the evolving risk environment.

As we look ahead to 2022, we continue to see a good runway for growth given the outlook for above-average GDP growth, sustained firm P&C pricing conditions, the inflationary impact on exposures, further opportunities from disruption in the brokerage sector and the benefit of our recent organic investments. Taking a longer view, we believe demand for our solutions will remain strong given rising levels of complexity, volatility and uncertainty across the economic landscape supporting growth in years ahead.

The global macroeconomic outlook remains positive even as there continues to be uncertainty due to the Omicron variant, geopolitical pressures, supply chain challenges, inflation and tightening monetary conditions. In 2021, we broke out of the 3% to 5% underlying growth range of recent years. We believe we will sustain that momentum driving mid-single-digit or better growth in 2022. We also expect to continue our track record of annual margin expansion and solid EPS growth.

With that, let me turn it over to John for his comments on the quarter and other business trends.

[John Q. Doyle, Group President, Chief Operating Officer and Vice Chair at Marsh & McLennan Companies]

Thanks, Dan. And good morning, everyone. I'm excited about the new role and the opportunity to work with Dan and the Executive Committee on Marsh McLennan's overall strategic and operational objectives. I'm also excited for the leadership that Martin and Dean bring to Marsh and Guy Carpenter and to support them in their new roles.

Since I joined Marsh McLennan almost six years ago, I continue to be impressed by the strength and depth of our talent and capabilities across the areas of risk, strategy and people. I've also been impressed by the unwavering commitment of our colleagues to clients, to one another and to the communities where we live and work. I am meeting with our colleagues, clients and business leaders to identify areas where we can have greater impact and accelerate growth.

As Dan noted, our clients are operating in a volatile environment where emerging issues are creating both challenges and opportunities. Our expertise, scale, data and insights position us well to meet their needs. I believe we have meaningful runway to harness the power of Marsh McLennan across our businesses and find the intersections where we can have outsized client impact. Together, we can accelerate innovation, deliver critical solutions and drive growth and value for shareholders.

Marsh McLennan has tremendous momentum as evidenced by our strong fourth quarter results. Highlights include continued double-digit underlying revenue growth and record adjusted operating income. We closed out a fantastic year with fourth quarter underlying revenue growth of 10%, the third consecutive quarter of double-digit growth and the longest stretch of double-digit quarterly growth in over two decades.

Looking at risk and insurance services, fourth quarter revenue was $3 billion, up 20% compared with a year ago or 9% on an underlying basis. Adjusted operating income increased 6% to $557 million. While our adjusted operating margin declined 80 basis points to 22.7%, reflecting investments made in the business. For the year, revenue was a record $12.1 billion, with underlying growth of 10%.

Adjusted operating income for the year increased 17% to a record $3 billion with a margin of 28.5%, up 50 basis points from the same period a year ago. At Marsh, revenue in the quarter was $2.9 billion, up 22% compared with the year ago. Revenue growth was 9% on an ongoing basis. US and Canada delivered another exceptional quarter with underlying revenue growth in the double-digits for the third consecutive quarter at 11%. In international, underlying revenue growth was 7%. Latin America grew 14%, Asia-Pacific was up 10% and EMEA was up 5%.

For the year, Marsh's revenue was $10.2 billion, with underlying growth of 11%. US and Canada underlying revenue growth was 13% and international was up 9%, the highest since we began reporting these regions in 2008. Guy Carpenter's fourth quarter revenue was $170 million, up 5% on an underlying basis. For the year, Guy Carpenter generated $1.9 billion of revenue and 9% underlying growth.

In the Consulting segment, revenue of $2.1 billion was a fourth quarter record, up 10% from a year ago or 11% on an underlying basis, the third consecutive quarter of double-digit growth. Adjusted operating income increased 6% to $410 million. The adjusted operating margin was 20.2%, down 120 basis points versus a year ago, reflecting investments in the business. Consulting generated revenue of $7.8 billion for the year, representing underlying growth of 10%, the highest in nearly 15 years. Adjusted operating income for the year increased 19% to $1.5 billion and the adjusted operating margin expanded 100 basis points to 19.8%.

Mercer's revenue was $1.4 billion in the quarter, up 6% on an underlying basis. Career grew 15% on an underlying basis. This is the third straight quarter of double-digit growth in the Career business. We are seeing strong demand for solutions linked to new ways of working, skills gaps, workforce transformation and D&I issues like pay equity. Wealth increased 4% on an underlying basis, reflecting growth in both investment management and defined benefit. Our assets under management grew to $415 billion at the end of the fourth quarter, up 16% year-over-year, benefiting from net new inflows and market gains.

Health underlying revenue growth was 4% in the quarter. For the year, revenue at Mercer was $5.3 billion, an increase of 5% on an underlying basis, the highest in over a decade. Oliver Wyman's revenue in the quarter was $722 million, an increase of 22% on an ongoing basis. This represents the fourth consecutive quarter of double-digit growth and reflects continued strong demand across geographies and practices. For the year, revenue at Oliver Wyman was $2.5 billion, an increase of 21% on an underlying basis.

Overall, our strong fourth quarter and full year 2021 performance as well as the investments we made in the year sets us up for success in 2022 and beyond.

Now, I'll turn the call over to Mark for further detail in our financial results and a discussion of our initial outlook for 2022.

[Mark McGivney, Chief Financial Officer at Marsh & McLennan Companies]

Thank you, John. Good morning. As Dan and John mentioned, our financial performance in the fourth quarter was strong, capping an outstanding year. We saw another quarter of double-digit underlying revenue growth and meaningful earnings growth despite substantial investments that position us for continued success.

We generated GAAP EPS of $1.57 in the quarter and adjusted EPS of $1.36, up 14% versus a year ago. Operating income was $986 million and adjusted operating income was $905 million, a fourth quarter record. Our adjusted operating margin decreased 90 basis points in the fourth quarter to 20.4%, reflecting significant investments in the business. As we noted on our third quarter call, while we are excited about the future benefits these investments will deliver, they come with upfront costs we absorb in the short-term.

Our full year 2021 results were outstanding. Our adjusted EPS was $6.17, an increase of 24%, the highest in over two decades. Full year operating income was $4.3 billion and our adjusted operating income was also $4.3 billion. Finally, our adjusted operating margin expanded to 70 basis points, marking our 14th consecutive year of margin expansion.

2021 was also a strong year for capital management. We completed our JLT related deleveraging, enhanced our short-term liquidity flexibility and saw S&P, Moody's and Fitch restore our rating outlooks to stable. Through solid operating performance and our focus on working capital efficiency, we also exceeded our plans for capital deployment. This included a 15% increase in our dividend and $1.2 billion of share repurchases. This was the highest level of share repurchases since 2015, resulting in a meaningful reduction in our share count.

John covered our business operating results, so I'll cover some of the other aspects of our performance and outlook. Adjusted corporate expense was $62 million in the fourth quarter. As we had expected, foreign exchange was a modest headwind. Assuming exchange rates remain at current levels, we expect FX to be a $0.07 cent headwind in 2022, most of which will affect the first half of the year.

As we typically do on our fourth quarter calls, we'll give a brief update on our global retirement plan. Our other net benefit credit was $66 million on a GAAP basis in the quarter and $277 million for the full year. For 2022, based on our current expectations, we anticipate our other net benefit credit will be about $255 million. Cash contributions to our global defined benefit plans were $129 million in 2021 compared with $143 million in 2020. We expect cash contributions in 2022 will be roughly $180 million.

Investment income was $18 million in the fourth quarter on a GAAP basis and $14 million on an adjusted basis. For the full year 2021, our investment income was $61 million on a GAAP basis and $55 million on an adjusted basis. Interest expense in the fourth quarter was $109 million. Based on our current forecast, we expect a similar level of quarterly interest expense in 2022.

Our adjusted effective tax rate in the fourth quarter was 20.6% compared with 24% in the fourth quarter last year and reflected some discrete benefits we realized in the quarter. For the full year 2021, our adjusted effective tax rate was 23.6% compared to 24.4% for the full year 2020. Excluding discrete items, our adjusted effective tax rate for the full year was approximately 25%. When we give forward guidance around our tax rate, we do not project discrete items, which can be positive or negative. Based on the current environment, it is reasonable to assume an adjusted effective tax rate of around 25% for 2022.

Turning to capital management on our balance sheet. We ended the year with total debt of $11 billion, including the proceeds from the $750 million of senior notes we issued in December. We used a portion of the proceeds to redeem $500 million of senior notes that were scheduled to mature in January. Our next scheduled debt maturity isn't until March of 2023.

Our cash position at the end of the fourth quarter was $1.8 billion. Uses of cash in the quarter totaled $1.2 billion and included $276 million for dividends, $494 million for acquisitions and $425 million for share repurchases. For the year, uses of cash totaled $3.7 billion and included $1 billion for dividends, $1.1 billion for acquisitions, $1.2 billion for share repurchases and $500 million for debt repayment.

Now that we have completed our post JLT deleveraging, we expect the return to our strategy of balanced capital management, which supports our consistent focus on delivering solid performance in the near-term, while investing for sustained growth over the long-term. We prioritize reinvestment in the business, both through organic investments and acquisitions.

In 2011, our revenues were $11.5 billion. Today, we stand at nearly $20 billion and acquired revenues have accounted for roughly half of this growth. These acquisitions have added critical capabilities, talent, greater scale, expanded insight and have driven significant value for clients and shareholders. We have consistently said that we prefer acquisitions to share repurchases. We view high quality acquisitions as better at creating value for shareholders and the company over the long-term. However, we also recognize that returning capital to shareholders generates meaningful returns for investors over time. And each year, we target raising our dividend and reducing our share count.

Looking ahead to 2022, the combination of our available cash and expected cash generation set us up for another year of significant capital deployment. Based on our outlook today, we currently expect to deploy approximately $4 billion of capital in 2022 across dividends, acquisitions and share repurchases. The ultimate level of share repurchase will depend on how the M&A pipeline develop. As we look to 2022, we are well-positioned, given the strong momentum across our businesses as well as a largely favorable macroeconomic and P&C pricing backdrop.

Based on our outlook today, for the full year 2022, we expect to deliver underlying revenue growth of mid-single digit or better margin expansion and solid growth in adjusted EPS. Keep in mind, 2021 benefited from several items such as significant investment income and favorable discrete tax benefit that can fluctuate considerably from year-to-year. Also, if you consider the phasing of expenses in 2022, recognized that we made significant investments in talent in 2021 and don't begin to last the full impact of these costs until the second half of the year.

In summary, 2021 was a remarkable year, one in which all of our businesses delivered outstanding performance. We made substantial organic investments in the business, continued to execute on our acquisition strategy, completed our deleveraging and resumed meaningful share repurchases. We're proud of the focus and determination of our colleagues and the value they deliver to our clients and shareholders. We close the year on a high note and look forward to another year of strong performance in 2022.

And with that, I'm happy to turn it back to Dan.

[Dan Glaser, President and Chief Executive Officer at Marsh & McLennan Companies]

Thanks, Mark. And operator, we're ready to begin Q&A.

Questions and Answers

[Dan Glaser, President and Chief Executive Officer at Marsh & McLennan Companies]

Certainly. [Operator Instructions] And our first question comes from the line of Elyse Greenspan with Wells Fargo.

[Elyse Greenspan, Analyst at Wells Fargo Securities]

Hi. Thanks. Good morning. My first question is specifically on RIS. So, if I look at the adjusted comp and benefits as a percent of revenue, it was pretty close to flat year-over-year in the fourth quarter. And I thought we would have seen a jump there just due to all the new hires that you'd been referencing. So, I guess my question is, are the cost of the hire is fully reflected and what perhaps would have been some of the offsets to keep that ratio flat? And then, would you repeat that upward pressure next year, meaning 2022, just given the hires and wage inflation in the system?

[Dan Glaser, President and Chief Executive Officer at Marsh & McLennan Companies]

Thanks, Elyse. And it's a good question. I'll start with it. I mean, we've said in the past how we look at our business and we manage comp and ben ratios. We actually consider it. And yes, not only in RIS, but the total company. Our comp and ben ratio in 2021 is almost identical to the comp and ben ratio in 2020. And the big factor that's causing that is our revenue growth. So, comp and ben is based -- the ratios are based upon revenue growth. So, the significant 10% revenue growth that we had in the year underlying, plus the momentum we had where we had 10% in the fourth quarter as well, gave us the room to absorb some of this hiring strategy and is one of the reasons why we point to 2021 is, in our view, our best year ever in 150 years. I mean, it's a year where we had tremendous financial performance and dramatic organic investments.

But when you think about the hiring in RIS in general, John, you have anything to add to that?

[John Q. Doyle, Group President, Chief Operating Officer and Vice Chair at Marsh & McLennan Companies]

Yeah, Elyse, what I would add is that the hiring was principally in three different areas, right? So we try to be quite strategic and wanted to focus on some of the disruption in the marketplace. And so we made strategic hires at Marsh, Guy Carpenter and Mercer. They have onboarded, right? So you asked that question. They joined us mostly in the second half of the year, some on the 1st of January, but largely in the second half of the year.

The second area of hiring, and this was mostly at Marsh, was around the operational excellence program that Dan spoke to. We're standing up centers of excellence in support of segregation of duties, moving back office work to lower-cost environments, lead to better client and colleague -- better client outcomes, better colleague experience. But it also will increase over time the capacity of our market-facing colleagues. So we're excited about that investment.

And then, the third area was in early-career. We paused in 2020 at the height of the pandemic, but we got back at it last year and onboarded some early career colleagues. So, we're quite bullish on the hiring that we did. And we're in a period now of, again, onboarding these colleagues and getting them to a productive status as quickly as possible.

[Dan Glaser, President and Chief Executive Officer at Marsh & McLennan Companies]

So, basically Elyse, there's not a surge of expense coming with regard to the hiring. We've been absorbing the additional expense as we go. And we're very happy that we were able to put up an adjusted EPS growth of 14% despite all the investments that we made in the second and third quarter.

[Elyse Greenspan, Analyst at Wells Fargo Securities]

Thanks. And then, my follow-up would be on the other side of this, the revenue benefits that you guys can see from this incremental hiring. You guys laid out a mid-single digit or better organic growth outlook for 2022. Can you help us think about the revenue benefit embedded within that from the hires that you brought on throughout 2021?

[Dan Glaser, President and Chief Executive Officer at Marsh & McLennan Companies]

Yeah. I mean, I think there's a few things. One, we're a capability company. We're a content company. When we're hiring somebody, it's not like, okay, what's your book of business and how much do we have to pay you? And how long is it going to take you to pull that book? It's really what's your capability? What do you specialize in? What segments are you an expert in? And our focus over years has been on building that level of capability. And Mark was stating that a bit in the script where we've gone from an $11.5 billion company to nearly $20 billion and half of that is acquisition-related. That's based upon capability, not somebody who can pull an account or two.

And so, the way I would look at it would be, we do expect to grow more over time based upon our hiring strategy. That's absolutely true. We think it could take two or three years before people are operating at their optimum, whether that is a producer, a client-facing colleague or somebody who's working in our service areas, ultimately it takes some time for people to embed into a new company, a new culture, a new team, and so we give them that time.

But when we talk about mid-single-digit or better for 2022, it's really looking at a number of factors, better global GDP growth than on average, strong P&C market, the organic hiring strategy that we've done and the capabilities that we've built. And so, our goal is now that we broke out of that 3% to 5% world is to stay above that, and not just in 2022 and beyond -- and it's beyond that. And therefore, we think that the hiring strategy has a lot to do with how we're going to perform in 2023 and 2024 as well. It is a permanent capability added to the firm.

Next question, please.

[Operator]

Your next question comes from the line of Jimmy Bhullar with JPMorgan.

[Jimmy Bhullar, Analyst at JPMorgan Chase & Co.]

Hey, good morning. So, first, I had a question on what you think about the acquisition pipeline, and just comment on competition for deals and how you're seeing multiples for potential targets. Obviously the public brokers are all trading at fairly high multiples versus historically. Are you seeing that in the private market as well? And just any comments on the pipeline.

[Dan Glaser, President and Chief Executive Officer at Marsh & McLennan Companies]

Yeah. I'll take that a little bit and then I'll hand off to John to talk about the business more broadly on the M&A front. I would say, first of all, we referenced that we've been around for 150 years and that the firm was founded via a combination of Donald McLennan and Henry Marsh and their agencies, so we have been active in acquisitions for 150 years and we intend to do so. Having said that, we have no budget on acquisitions. We're not particularly opportunistic, we're strategic. We build the pipeline over years and we're patient. So when you talk about things like competition around acquisitions, that's not us.

We're talking to companies that ultimately they have their ability to sell to anybody. They choose to want to be part of Marsh McLennan. They want to be part of the A-team and they believe that they can grow and they can offer their colleagues an opportunity to grow within Marsh McLennan, which is beyond what they would be able to do with any other firm. So, when you hear about all this competition and froth, we're usually not engaged in that. There's many times where we don't even pick up the deck or the teaser, because there's a process.

Now having said that, multiples over a number of years have increased. I don't think particularly in recent times they've increased much, but it's fair to say that over the last couple of years, they're higher than they were five or six years ago. And so you have to be really careful and make sure when you're going through a pro forma, because most of these acquisitions are private companies, to make sure that you understand how the P&L works, because the actual and the pro forma is often quite different.

And so, I would say in general, our pipeline looks good and that we're not on any timetable or budget and we'll just see how it goes. We will deploy that capital. So as Mark was saying, if we don't use it in acquisitions, which we favor, we will use it in share repurchase. And either way, we probably have a reasonable amount of both acquisition and share repurchase.

But John, what can you see in the pipeline and what do you see in the market in general on the acquisition front?

[John Q. Doyle, Group President, Chief Operating Officer and Vice Chair at Marsh & McLennan Companies]

Sure. We remain active in the market, Jimmy, for sure. As Dan noted, we have a good solid pipeline. We did seven deals in the fourth quarter, three at MMA, modest deals at MMA, we did three deals at Marsh as well, one quite small but India, of course, was quite important and very strategic for us. We also acquired an Affinity broker in France. So we're excited about what that can do for our business there. And then, of course, we did Huron, as Dan mentioned in his prepared remarks earlier.

We're looking for strong performing businesses that are well led, that make us better in some way -- they're either fitter market that we're not serving at the moment or particularly strong in, or in a geography maybe that we don't cover all that well. An example of that was last year with the acquisition of PayneWest, which was a high performing business, outstanding leadership team, performing well, and they're just a terrific cultural fit and it fit perfectly for us in the upper northwest of MMA's operations here in the United States.

We'll continue to be active, and maybe one thing just to add on the multiple side, we've seen some MGAs that I think -- certainly some very, very high multiples in the MGA market. I think many of them are kind of trading under the insuretech label and so driving some interest there. We haven't been particularly active in that market. We keep a close eye on it and we serve many of them as clients through Guy Carpenter, but outside of that we've earned a terrific reputation in the market. And so, we end up with good, high quality conversations before things go to market.

[Dan Glaser, President and Chief Executive Officer at Marsh & McLennan Companies]

Yeah. Just one other thing. I mean, just adding -- OW has been a tremendous acquisition for the company from back to, whenever -- 2003 or 2004. It's now a $2.5 billion management consulting company with all kinds of capability and it was good to see OW out there acquiring Huron's life sciences business, which again adds capability to the firm and will help us grow more into the future.

Jimmy, do you have a follow-up?

[Jimmy Bhullar, Analyst at JPMorgan Chase & Co.]

Yes, and it's partly on OW. Overall, if you think about organic growth, obviously it's benefited in a number of your businesses from the economic recovery, and especially at Oliver Wyman. But with omicron picking up in December and into January, should we assume a little bit of an impact on some of your businesses or not much across the enterprise?

[Dan Glaser, President and Chief Executive Officer at Marsh & McLennan Companies]

I'll hand off to both Nick and Martine to give a little comment about whether they're seeing an omicron impact. But my overall feeling is the world has become pretty resilient and has learned to adapt. And so, therefore GDP projections, while they've come down a bit in our major countries, they're still relatively strong compared to four or five years ago. But why don't we do to you first, Nick, and then to Martine about whether you're seeing any impact of omicron on your business.

[Nick Studer, President and Chief Executive Officer, Oliver Wyman and Vice Chair at Marsh & McLennan Companies]

Thanks very much, Dan. Thanks Jimmy for the question.

You're right, our business does tend to prosper when the economy is really healthy, but I think we also see that when our clients' questions change, they often need more support, and the short answer is we're not seeing any slowdown in the business in the first quarter. Our pipeline is strong, and really over the last 12 months and still well into the first quarter, we're optimistic because the growth is very broad-based across almost every single one of our industry areas and the vast majority of our capabilities, whether it's payments or private equity, whether it's climate or digital, whether it's growth strategy or cost management and restructuring. It is broad-based growth, and we're not seeing an omicron effect.

[Dan Glaser, President and Chief Executive Officer at Marsh & McLennan Companies]

Thanks. Martine?

[Martine Ferland, President and Chief Executive Officer, Mercer & Vice Chair at Marsh & McLennan Companies]

Yes. Very similarly to Nick -- and thanks for the question, Jimmy, I will focus a bit on Career here because that's the part of Mercer that is more connected to the economy. And similarly, we've come into the year with good momentum, strong sales, and what we've been busy with for the last part of '21 has not gone away -- if anything, it's continuing to accelerate, whether it's a talent war, labor shortage, skill gaps, redefining the way that we work, the return to work that has been in and out, in and out in many countries. That's keeping the team busy.

So for now, we're not seeing much of an impact. And if anything, commenting on health a little bit, that has also been impacted. We have seen enrolled lives come up. We don't see this going away, at least not in the near future and some medical inflation returning as well, impacting premiums because the non-COVID medical treatment has picked up. So we might see a little bit of a gap there due to Omicron, but I don't think it will last.

[Jimmy Bhullar, Analyst at JPMorgan Chase & Co.]

Thank you.

[Dan Glaser, President and Chief Executive Officer at Marsh & McLennan Companies]

Thank you. Next question, please.

[Operator]

Our next question comes from the line of Mike Zaremski with Wolfe Research.

[Mike Zaremski, Analyst at Wolfe Research]

Great. Good morning. Maybe switching gears to the property and casualty insurance marketplace. I think, in the comments in the outlook, you talked about a strong P&C market. From the prepared remarks, I think you cited the Marsh index, it seems like pricing had decelerated a couple points but still at kind of high absolute levels. Are you seeing a deceleration in pricing amongst your clients?

[Dan Glaser, President and Chief Executive Officer at Marsh & McLennan Companies]

So, John, you want to take that?

[John Q. Doyle, Group President, Chief Operating Officer and Vice Chair at Marsh & McLennan Companies]

Sure. Sure, Mike. As Dan noted, it was the 17th consecutive quarter of price increases. So this market obviously has had some legs, at least compared to the time that I've been in it, which is a long time. There was some moderation in the fourth quarter compared to the third quarter. I think cyber is probably the biggest outlier in all this. Maybe Mark and Dean can talk about their observations in a second, but the underwriting community in cyber of course is still reacting to frequency and severity of ransomware claims. And they're worried about systemic events as well, but I think the market reaction right now is more driven by ransomware losses.

The market remains challenging for our clients. And broadly speaking, the underwriting community is worried about property cat losses, the impact of inflation on loss cost and, as I mentioned earlier, cyber related claims. Martin, you want to share some thoughts about the market?

[Martin South, President and Chief Executive Officer, Marsh and Vice Chair at Marsh & McLennan Companies]

Yes, John, thank you. As you said, there's a slight deceleration of the global rate index. It's down by a couple of points from 15 to 13. You've seen deceleration in most of the geographies. An interesting outlier in Latin America where rate increases continues to be strong.

If I turn to cat lines and more cat-exposed areas, still strength there. You put out of [Phonetic] casualty, which is still showing some deceleration. There's still strength in the umbrella area in the property book. Those that are multi-line and multilayer insurers are double what you see for single carriers, so where there are cat exposures, you're still seeing price increases. And that's a trend you're seeing across the board. As you said, John, on cyber, very strong, almost double in Europe and over 100% in North America for cyber, so still strength.

[John Q. Doyle, Group President, Chief Operating Officer and Vice Chair at Marsh & McLennan Companies]

Got it. Got it. Thanks, Martin. Dean, we just had a big reinsurance renewal late in January 1. What's happening in the reinsurance market?

[Dean Klisura, President and Chief Executive Officer, Guy Carpenter and Vice Chair at Marsh & McLennan Companies]

Thank you, John. As discussed, the reinsurance market at January 1, the renewal was very late. However, overall, placements were very orderly and everything got completed. Clearly reinsurers differentiated among individual risks. Pricing has been bifurcated between loss impacted and non-loss impacted accounts. As Dan mentioned earlier, the Guy Carpenter Global Property Catastrophe Rate-on-Line Index increased to 10.8%, the largest increase in 15 years. Capacity is ample across most lines of business, but certainly more constrained in the catastrophe property market that John mentioned, the cyber market, particularly the cyber aggregate market and certainly the retrocession market.

[John Q. Doyle, Group President, Chief Operating Officer and Vice Chair at Marsh & McLennan Companies]

Got it. Thank you, Dean. Another question, Mike?

[Mike Zaremski, Analyst at Wolfe Research]

Yeah, a quick follow-up. This might be for Mark McGivney. If short-term interest rates do indeed move higher over the coming year or years, would Marsh get a slight benefit from fiduciary investment income levels?

[Dan Glaser, President and Chief Executive Officer at Marsh & McLennan Companies]

Mark, do you want to handle that?

[Mark McGivney, Chief Financial Officer at Marsh & McLennan Companies]

Yeah. Mike, we would. Fiduciary interest income in 2021, I hope bottomed out at $15 million. If you look back just two years ago, it was $105 million. So the pandemic and the impact on short-term rates really took the wind out of that line item. And so, if rates climb, that certainly is a source of opportunity for us. Just keep in mind as you think about 2022, it's a function of not only how rates move, when they move and where they move. We've got fiduciary balances outside of the US obviously. But certainly if rates go up over the next couple of years, that's opportunity for us.

[Dan Glaser, President and Chief Executive Officer at Marsh & McLennan Companies]

Thank you. Next question, please.

[Operator]

Our next question comes from the line of Yaron Kinar with Jefferies.

[Yaron Kinar, Analyst at Jefferies Financial Group]

Thank you very much. Good morning.

[Dan Glaser, President and Chief Executive Officer at Marsh & McLennan Companies]

Good morning.

[Yaron Kinar, Analyst at Jefferies Financial Group]

My first question goes back to, I think, some of the comments you made regarding the previous question, which was around wage inflation and its potential impact on revenues, both in RIS and in consulting. How do you see that playing out? Is it more of a headwind, more of a tailwind for '22?

[Dan Glaser, President and Chief Executive Officer at Marsh & McLennan Companies]

Well, I would say, wage inflation in general would -- well, let's take it broader. Inflation in general would be a bit of a tailwind for us because when we look at past cycles, Marsh McLennan tends to do a bit better in inflationary periods than what preceded them. So writ large, probably a mild benefit because of exposure unit growth principally.

Now wage inflation in particular, it's hard to see how that would be more than a negative for our clients and for ourselves. But when you think about it, some of the rating factors that are utilized to figure out, say, some casualty and some medical benefits, etc., are based upon headcount and also sometimes on payroll. So if payroll is rising, well, that means the exposure unit's rising, so it's pretty moderate.

Now, we're very wary, of course, like everybody else, about wage inflation, but I start from the basis of what I was saying to Elyse earlier. Our comp and ben ratios have been very consistent over time. We have shared the growth of the company with our colleagues and it's not a one-year wonder, it's for multiple years. It's not all about pay, it's also about what kind of company you are, what kind of caring employer, how you treat your colleagues, etc. And so we create an environment at Marsh McLennan we really strive to make it a great place to work, and we'll continue to do that.

And so, while we're watchful about wage inflation, we haven't really seen much of that, and it would be masked in any event by our variable comp, which is based upon net operating income. And so that has risen pretty significantly over a number of years.

[Yaron Kinar, Analyst at Jefferies Financial Group]

Thank you for the comments. And then a follow-up on cyber. Just curious as to how clients view this line item. Is this a non-discretionary item for most of them? What I'm trying to get at is, with no real slowdown in the rate increases we're seeing there, is there risk that clients ultimately start buying down or not buying cyber coverage?

[Dan Glaser, President and Chief Executive Officer at Marsh & McLennan Companies]

John?

[John Q. Doyle, Group President, Chief Operating Officer and Vice Chair at Marsh & McLennan Companies]

Look, at some time -- at some point would that become the case? Sure, that's a potential, but I don't think we're running into that risk at the moment. And by the way, is it discretionary? Yes, it's discretionary. I would say, about 50% of our clients in the United States, only 50% of them buy standalone cyber coverage and about 25% of our clients outside of the United States buy standalone cyber coverage. So, the market is finding an equilibrium, it's sorting out how to deal with ransomware.

When Martin talked about the price increases, that doesn't all manifest itself in premium growth or increased premiums for our clients. Underwriters are insisting on higher attachment points, co-insurance for ransomware, sub-limits, for example, that all gets factored into the rate change that we talk about. So we work with our clients and we work with the markets to try to find the best way to finance the risk. And it's not just financing risk after the fact, of course. We're actively working across the entire firm, Marsh, Guy Carpenter, Oliver Wyman, Mercer, to help our clients better understand the risk and take steps to mitigate the risk upfront, but also the impact of an event once it happens.

[Dan Glaser, President and Chief Executive Officer at Marsh & McLennan Companies]

Yeah. So, Yiron, cyber is going to be a tremendous growth market for us. We're nowhere close to saturation, where clients will start not buying cyber because of the price. But you have to bear in mind that this is a significant governance issue for most boards. It's like an ESG issue. And so you'd have to be a pretty brave company to decide to not buy cyber if it's presented to you at a board level.

Next question, please.

[Operator]

Our next question comes from the line of Meyer Shields with KBW.

[Meyer Shields, Analyst at KBW]

Thanks. I wanted to start with, I guess, the question on risk and insurance services. We've had other operating expenses up $139 million on a year-over-year basis. And I'm trying to figure out how much of that was adjusted out. Maybe just give a sense of the underlying increase in other operating expenses.

[Dan Glaser, President and Chief Executive Officer at Marsh & McLennan Companies]

Yeah. I mean, if you look at all other expenses other than comp and ben for the year, all other expenses in 2021 was up 1%, and that's across the firm. So really this has been, if you look at our underlying expense growth for the year, comp and ben is 85% of that growth and variable comp and ben is two-thirds of that 85%. So this is really about the opportunity we saw and the strategy we put in place to increase the size of the firm through a concerted effort around organic hiring. It doesn't have to do with all other expenses.

It's fair to say that certain all other expenses that are more discretionary in the fourth quarter, like T&E and meetings, marketing, increased over 2020's fourth quarter, but still relative to the entire year, they were only up 1%.

[Meyer Shields, Analyst at KBW]

Okay, perfect. That's fantastic. And then a question for Dean. I think you had commented -- and I'm going to get the quote wrong, but you said that basically reinsurance placements got done at 1/1. We certainly heard some commentary on difficulty accessing aggregate programs and retro. I was just hoping you could talk about those components specifically.

[Dan Glaser, President and Chief Executive Officer at Marsh & McLennan Companies]

Dean?

[Dean Klisura, President and Chief Executive Officer, Guy Carpenter and Vice Chair at Marsh & McLennan Companies]

Sure. Those components of the market were clearly challenging at 1/1. I mentioned cyber aggregates programs. Reinsurers definitely pulled back some capacity there around cyber aggregate capacity. Just like property catastrophe, capacity was certainly pulled back by key reinsurers. And probably the most challenging part of the market on 1/1 was the retrocession market, where we saw several ILS funds based in Bermuda really kind of pull back, right. You had investors pulling capital out, redemption, catastrophic losses right from climate change and other cat losses impacting their results. So clearly that was the most challenging part of the market on the January 1 renewal.

[Dan Glaser, President and Chief Executive Officer at Marsh & McLennan Companies]

Thanks, Dean. Next question, please.

[Operator]

Our next question comes from the line of David Motemaden with Evercore ISI.

[David Motemaden, Analyst at Evercore ISI]

Hi, thanks. Good morning. Dan, you spoke about absorbing some of the expenses in 2021 just due to the hiring. Could you just help us think about how much the hiring activity dragged or impacted margins in 2021, because I'm thinking that as we go through 2022 and those producers start to ramp up, that could be less of a drag, so I'm just trying to quantify that just as I think about comparing margins in '22 versus '21.

[Dan Glaser, President and Chief Executive Officer at Marsh & McLennan Companies]

Sure. I mean, certainly the hiring will be less of a drag in 2022, particularly in the back half of the year when we start to lap the decisions we've made and the on-boarding that we've done. We don't overly focus on margins within the company. We focus on growing the firm and earnings, so both underlying revenue and earnings. Margins are an outcome of how we run the business. Revenue growth exceeds expense growth in almost every quarter and certainly every year as it's done for 14 years. We expect to grow margins in 2022 and we think that our margins should be viewed over long stretches of time, certainly not a quarter or two.

We're very happy with 2021 because, as I was mentioning earlier, we had a tremendous financial performance and we invested heavily in the business. And when I say heavily, invested heavily -- more heavily in hiring in 2021 than in any time in our 150-year history. And so, it positions us very well, and we look at 2021, we grew margins in 2021 despite all of the organic investments that we've made. Our margin was up 70 bps in RIS -- or 70 bps overall, 50 in RIS, and consulting was up 100 bps, so overall I think we're ticking the box on margin. We expect margin expansion. We expect strong adjusted EPS growth. And we expect to grow mid-single digits or higher, so 2022 for us is going to be another terrific year.

Now, it's pretty hard to have two banner years in a row. I'm not going to sit here and say, it's not a tough comp when you grow adjusted EPS 24%. But having said that, we expect strong adjusted EPS growth in 2022.

[David Motemaden, Analyst at Evercore ISI]

Great. That makes sense. And then, maybe just on that, obviously 6,000 producers added in 2021...

[Dan Glaser, President and Chief Executive Officer at Marsh & McLennan Companies]

Well, I kind of wish that they were 6,000 producers there, David, but they're not 6,000 producers. It is a portion of that is production-related talent, but it also gave us the opportunity to build service capability. There's an old adage about more sales doesn't equal better service, better service always equals more sales. So we invested in service as much as we did in sales.

[David Motemaden, Analyst at Evercore ISI]

Right. Thanks for that clarification. I guess, you did mention there is disruption still and opportunities still. I guess -- I'm just wondering on the hiring pipeline, I'm assuming has this disruption started to stabilize maybe a little bit less or are you still seeing the opportunities to add talent?

[Dan Glaser, President and Chief Executive Officer at Marsh & McLennan Companies]

Well, I'm going to hand off to John, but I'll start by just saying, this is a professional service firm issue, not an issue particularly within RIS. On balance, we have smart, high talent, creative, hard-working people, as does a lot of professional services firms. Each of our employees, each of our colleagues has all kinds of opportunities. Our job is to make us an ideal place for them to give their careers. And so, there is a -- it almost became a cliche in terms of the war for talent when you go back four years ago, five years ago. It's not a cliche anymore. There is a significant amount of talent movement that occurred at the latter stages of the pandemic and that probably will continue. And so we're in that, so it's not necessarily disruption because of issues within the RIS segment. There's disruption in society around where people choose to work and how they work.

John, can you add to that?

[John Q. Doyle, Group President, Chief Operating Officer and Vice Chair at Marsh & McLennan Companies]

Sure. David, we have an excellent brand as an employer, I think, as evidenced by the amount of talent we were able to attract last year. We've got purpose-driven culture, our colleagues are highly engaged. We do impactful work, are we're a collaborative place to work. You feel like you're part of a team when you work at Marsh McLennan. It's also a place where you can learn and develop, as Dan noted before, and we pay well too. Pay is not everything, of course, but it's important.

We took the opportunity last year to strengthen the team. I talked about the three different areas earlier, strat hires, service centers, and in early career. I think we started 2021 with the best team on the field and we're starting 2022 even stronger. Our focus is on onboarding and getting those colleagues productive, but we will be active in the market and take advantage of our brand at times, but we won't have the same level of organic hiring in 2022.

[Operator]

Thank you. I would now like to turn the call back over to Dan Glaser, President and CEO of Marsh McLennan, for any closing remarks.

[Dan Glaser, President and Chief Executive Officer at Marsh & McLennan Companies]

Sure. Thank you. I thank everybody for joining us on the call this morning. 2021 may have been our best ever, a year of tremendous financial performance and dramatic organic investment. Our competitive position has never been stronger and we enhanced our leading position this year. People use the term fortress balance sheet to describe the strength of their firm. We are an ideas company, a people business, and I would say that Marsh McLennan has a fortress talent base that got even stronger this year. I want to thank our 83,000 colleagues for their commitment, hard work and dedication to Marsh McLennan.

Thank you all very much and I look forward to speaking with you next quarter.

Participants

Corporate Executives

• Dan Glaser, President and Chief Executive Officer
• John Q. Doyle, Group President, Chief Operating Officer and Vice Chair
• Mark McGivney, Chief Financial Officer
• Nick Studer, President and Chief Executive Officer, Oliver Wyman and Vice Chair
• Martine Ferland, President and Chief Executive Officer, Mercer & Vice Chair
• Martin South, President and Chief Executive Officer, Marsh and Vice Chair
• Dean Klisura, President and Chief Executive Officer, Guy Carpenter and Vice Chair

Analysts

• Elyse Greenspan, Wells Fargo Securities
• Jimmy Bhullar, JPMorgan Chase & Co.
• Mike Zaremski, Wolfe Research
• Yaron Kinar, Jefferies Financial Group Inc.
• Meyer Shields, KBW
• David Motemaden, Evercore ISI