Marsh & McLennan Reports Q2 Revenue Growth

July 27, 2017

Marsh & McLennan Companies reported revenue increases across all of its four operating units, along with margin expansion in insurance and consulting businesses, in its financial results for the second quarter.

Insurance and risk revenue grew 2 percent while consulting realized 4 percent growth.

“With a strong first half of 2017, we believe the company is well positioned to deliver underlying revenue growth, margin expansion in both segments, and strong earnings per share growth this year,” said Dan Glaser, president and chief executive officer, in prepared remarks.

In speaking with analysts, he noted that while expanding margins is easier when top line growth is greater, MMC has managed to expand margins even in slow growth periods and has done so for 10 years straight.

“Clearly we are finding ways to operate more efficiently,” he commented.

Consolidated revenue in the second quarter of 2017 was $3.5 billion, an increase of 3 percent on an underlying basis compared with the second quarter of 2016. Operating income was $764 million, an increase of 5 percent from the prior year.

For the six months ended June 30, 2017, consolidated revenue was $7.0 billion, an increase of 3 percent on an underlying basis. Net income increased 12 percent to $1.1 billion.

Insurance

Total risk and insurance services revenue was $1.9 billion in the second quarter, an increase of 2 percent on an underlying basis. Operating income was $528 million, an increase of 7 percent, and adjusted operating income rose 9 percent to $535 million. For the six months ended June 30, 2017, revenue was $3.9 billion or 3 percent on an underlying basis. Operating income rose 11 percent to $1.1 billion and adjusted operating income rose 10% to $1.1 billion.

Insurance broker Marsh’s revenue in the second quarter was $1.6 billion, an increase of 2 percent on an underlying basis. International operations produced underlying revenue growth of 1 percent, reflecting flat underlying revenue in EMEA, 3 percent growth in Asia Pacific, and 4 percent in Latin America. In U.S./Canada, underlying revenue rose 2 percent. For the six months ended June 30, 2017, Marsh’s underlying revenue growth was 3 percent.

Reinsurance broker Guy Carpenter’s revenue in the second quarter was $293 million, an increase of 4 percent on an underlying basis for both the second quarter and first six months.

Call with Analysts

On a call with analysts, Glaser said the slower growth of 2 percent for the insurance and risk segment reflected the continuing competitive market and is not a “new normal” any more than last quarter’s 5 percent growth was.

“Once in a while, we’re going to have a quarter like that,” he said.

Glaser drew attention to MMC’s investments in innovation including its partnering with Aquiline Capital Partners, which this week closed a new technology and insurtech growth fund after raising $190 million in commitments, and the appointment of Sastry Durvasula to the newly-created role of chief digital officer and chief data and analytics officer.

Glaser said companies will need to be digital “on some basis” in the future to be successful. “I don’t believe this is a ‘next year thing.’ We are positioning for the future,” he said.

He said the pressure to innovate using technology is not necessarily coming from clients but that MMC keeps clients in mind when deciding what to do. He said the firm has been hiring more data scientists.

Glaser also said the firm’s pipeline for acquisitions in insurance and consulting “looks good” for the rest of this year and into 2018.

Marsh President and CEO John Doyle said on the analysts’ call that there was “no meaningful” change in prices in the market in the second quarter and he expects the market to remain competitive overall.

Doyle, who joined Marsh in 2016 to be president of Marsh after 20 years at American International Group (AIG), was also named CEO of Marsh in July, replacing Peter Zaffino who left to join AIG.

Glaser downplayed a suggestion that Marsh might consider re-entering the wholesale insurance business, which it exited in 2005 with the sale of Crump. He said he believes that there are some very good specialty companies and that wholesalers are doing a good job.

Consulting

Total consulting revenue in the second quarter was $1.6 billion, an increase of 4 percent on an underlying basis. Operating income decreased 1 percent to $283 million and adjusted operating income increased 3 percent to $298 million. For the first six months of 2017, revenue was $3.1 billion, an increase of 4 percent on an underlying basis. Operating income of $524 million declined 1 percent and adjusted operating income increased 3 percent to $543 million compared with $526 million in 2016.

Mercer’s revenue was $1.1 billion in the second quarter, an increase of 3 percent on an underlying basis.

Oliver Wyman Group’s revenue was $483 million in the second quarter, an increase of 7 percent on an underlying basis. For the first six months Oliver Wyman Group’s revenue increased to $932 million, up 6% on an underlying basis.

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