Marsh & Mclennan Companies, Inc. (MRSH) Q2 2024 Earnings Call Transcript

Welcome to Marsh McLennan's Earnings Conference Call. Today's call is being recorded. Second quarter 2024 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. Operator Instructions. I'll now turn this over to John Doyle, President and CEO of Marsh McLennan.

Good morning, and thank you for joining us to discuss our second-quarter results reported earlier today. I'm John Doyle, President and CEO of Marsh McLennan. On the call with me is Mark McGivney, our CFO; and the CEOs of our businesses, Martin South of Marsh; Dean Klisura of Guy Carpenter; Pat Tomlinson of Mercer; and Nick Studer of Oliver Wyman. Also with us this morning is Sarah DeWitt, Head of Investor Relations. Before I get into our results, I'd like to comment on the attempted assassination of former US President Donald Trump this past weekend. We're thankful that he is safe and our hearts go out to the victims and their loved ones. Violence has no place in our politics or our society. We condemn it and affirm our commitment to civil discussion, debate, and resolution. Our political process and democracy depend on all candidates having the ability to safely convey their visions for our country. We believe that each of us can help shape peaceful public discourse and advocate for a culture of respect and unity. Now, turning to the second quarter, Marsh McLennan delivered strong results across our businesses and geographies. We generated 6% underlying revenue growth on top of 11% in the second quarter of last year, reflecting strong execution in both RIS and Consulting. We grew adjusted operating income 11% from a year ago. Our adjusted operating margin expanded 130 basis points and adjusted EPS grew 10%. We also announced a 15% increase to our quarterly dividend to $0.815 and completed $300 million of share repurchases during the quarter. These results highlight our consistent focus on delivering in the near term while investing for sustained growth over the long term. We're benefiting from organic investments we've made in our talent and capabilities, and we also continue to make high-quality acquisitions that build on the scale and breadth of our business. In the second quarter, we announced several significant transactions. Mercer announced an agreement to acquire Cardano, a long-term savings specialist in the UK and Netherlands. With approximately $66 billion in AUM, Cardano operates the third-largest UK master trust platform and serves more than 2 million customers across 27,000 employers. This transaction builds on our leading position in OCIO, enhances our DC offerings, and adds important trading capabilities. Oliver Wyman agreed to acquire Veritas Total Solutions, an advisor in commodity and energy markets. And Marsh McLennan Agency completed three acquisitions in the quarter. Fisher Brown Bottrell, one of the five largest bank affiliate agencies in the United States, specializing in commercial P&C insurance and employee benefits, expands our presence across the Southeast. AC Risk Management builds on our scale in commercial P&C in the Northeast and Perkins Insurance Agencies adds to our commercial P&C business in Texas. Last week, MMA also announced the acquisition of Horton, a Top 100 broker with over $100 million in revenue, operating primarily in the Midwest. And we recently announced the acquisitions of AmeriStar, a commercial P&C high-net-worth agency based in Minnesota, and Hudson Shore, a public sector employee benefits agency in New Jersey. These acquisitions are great examples of our ability to attract the very best insurance agencies to our company. And along with high rates of sustained underlying growth, they've helped to make MMA a $3.5 billion annual revenue business. We also continue to help our clients thrive by investing in innovation. Drawing on our expertise, perspective, data and insights, we are creating new solutions for a complex environment. For example, Marsh continues to evolve Blue i, a digital suite of solutions for insurance strategy decisions that uses our data and analytics to generate insights for clients. This quarter, we added Blue i Risk Appetite Analytics to help clients define the amount and type of risk they're willing to retain. With customizable calculations, our insights help clients navigate a challenging landscape with greater confidence. Guy Carpenter launched CatStop+, a new solution to address the volatility of cyber risk using GC's proprietary analytics. CatStop+ offers clients protection against Cyber CAT losses. Mercer launched SelectRx, a technology solution in the US that creates competition amongst pharmacies for high-cost specialty medications. Leveraging Free Market Health's cloud-based platform, SelectRx lowers costs for employers and delivers savings to employees by directing prescriptions to a curated network of specialty pharmacies. And Oliver Wyman is helping our clients innovate in their own businesses with the launch of Quotient, which combines our expertise in AI implementation, deployment, and strategic advisory with our deep industry knowledge. Quotient moves clients beyond the hype surrounding AI to deliver real value and meaningful outcomes. Our approach to balancing near-term performance with investment and innovation delivers significant value to our clients. It also enables us to sustain growth over the long term and drive consistent exceptional performance for shareholders. Shifting to the macro picture, we continue to see significant opportunity to help clients navigate the complexity they're facing today. Beyond the shocking assassination attempt in the US, the geopolitical backdrop is unsettled with ongoing wars and areas of tension across the globe. Uncertainty also remains around the frequency of extreme weather, escalating cyber-attacks, and key variables in the economic outlook, like the persistence of inflation and the timing of changes to central bank policy. Despite this uncertainty, the environment remains supportive of growth in our business. In general, we see continued economic growth in most of our major markets. The cost of risk in healthcare continues to rise and labor markets remain tight. And the consensus probability of a near-term recession for major economies continues to decrease. We have performed well across economic cycles due to the resilience of our business, sustained demand for our advice and solutions, and consistent execution for our clients. Turning to insurance and reinsurance market conditions, the Marsh Global Insurance Market Index was flat overall in the second quarter versus a 1% increase in the first quarter. Generally, rates in the US, Europe, and Latin America continued to increase in the low to mid-single-digits, while the UK, Asia, and Pacific saw low to mid-single-digit decreases. Global property rates were flat versus up 3% in the first quarter. Casualty increased in the low-single digits with US excess casualty up 10% in the quarter, while workers' compensation decreased low single-digits. Financial and professional liability rates and cyber pricing were down 5% and 6%, respectively. Midyear reinsurance renewals reflected increased demand for property cat with easing rates after significant increases in 2023. The majority of property placements were completed at renewal with adequate capacity. The global property cat reinsurance rates were generally flat to down mid-single-digits with greater decreases for upper layers on accounts without losses. The cat bond market had the most active quarter on record with over 30 new bonds issued involving approximately $8 billion of limit. Casualty programs faced continued underwriting scrutiny, but there was adequate capacity in the market. Excess of loss programs with US exposure saw upward pricing pressure, while quota share ceding commissions were flat to down slightly. As always, we are helping our clients navigate these dynamic market conditions. Now, let me turn to our second-quarter financial performance. We generated adjusted EPS of $2.41, which is up 10% from a year ago. On an underlying basis, revenue grew 6%. Underlying revenue grew 7% in RIS and 4% in Consulting. Marsh was up 7%, Guy Carpenter 11%, Mercer 5%, and Oliver Wyman grew 3%. Overall, the second quarter saw adjusted operating income growth of 11% and our adjusted operating margin expanded 130 basis points year-over-year. Turning to our outlook, we are well-positioned for another great year in 2024. We continue to expect mid-single-digit or better underlying revenue growth, another year of margin expansion, and strong growth in adjusted EPS. Our outlook assumes current macro conditions persist. However, meaningful uncertainty remains and the economic backdrop could be materially different than our assumptions. Overall, I'm proud of our second-quarter performance, which demonstrates continued execution on key initiatives and momentum across our business. I'm grateful to our colleagues for their focus and determination, and the value they deliver to our clients, shareholders, and communities. With that, let me turn it over to Mark for a more detailed review of our results.

Thank you, John, and good morning. Our second-quarter results were strong with solid underlying growth, significant margin expansion, and 10% growth in adjusted EPS. Our consolidated revenue increased 6% to $6.2 billion with underlying growth of 6%. Operating income was $1.6 billion and adjusted operating income was $1.7 billion, up 11%. Our adjusted operating margin increased 130 basis points to 29%. GAAP EPS was $2.27 and adjusted EPS was $2.41. For the first six months of 2024, underlying revenue growth was 8%, our adjusted operating income grew 11% to $3.7 billion, our adjusted operating margin increased 100 basis points and our adjusted EPS increased 12% to $5.30. Looking at Risk and Insurance Services, second-quarter revenue was $4 billion, up 8% from a year ago or 7% on an underlying basis. This result marks the 14th consecutive quarter of 7% or higher underlying growth in RIS and continues the best stretch of growth in two decades. RIS operating income was $1.3 billion in the second quarter. Adjusted operating income was also $1.3 billion, up 12% over last year and our adjusted operating margin expanded 110 basis points to 35.3%. For the first six months of the year, revenue in RIS was $8.3 billion with underlying growth of 8%, adjusted operating income increased 12% to $2.9 billion and our margin increased 90 basis points to 37.3%. At Marsh, revenue in the quarter was $3.3 billion, up 8% from a year ago or 7% on an underlying basis. This strong growth came on top of 10% growth in the second quarter of last year. Growth in the second quarter reflected strong new business and solid renewals. In US and Canada, underlying growth was 6% for the quarter. International underlying growth was 7%. EMEA was up 7%, Asia-Pacific grew 7%, and Latin America was up 8%. For the first six months of the year, Marsh's revenue was $6.3 billion with underlying growth of 7%. US and Canada grew 7% and international was up 8%. Guy Carpenter's revenue was $632 million in the quarter, up 10% or 11% on an underlying basis. This terrific result came on top of 11% growth last year and was driven by double-digit growth across most geographies and specialties. For the first six months of the year, Guy Carpenter generated $1.8 billion of revenue and 9% underlying growth. In the Consulting segment, second quarter revenue was $2.2 billion, up 2% from a year ago or 4% on an underlying basis. Consulting operating income was $410 million and adjusted operating income was $426 million, up 6%. Our adjusted operating margin in Consulting was 19.8% in the second quarter, an increase of 60 basis points. For the first six months of 2024, Consulting revenue was $4.4 billion, reflecting underlying growth of 6%. Adjusted operating income increased 7% to $870 million and our margin increased 50 basis points to 20.3%. Mercer's revenue was $1.4 billion in the quarter, flat compared to a year ago, but up 5% on an underlying basis. This was Mercer's 13th straight quarter of 5% or higher underlying growth and continues the best run of growth in 15 years. Wealth grew 3%, driven by growth in both Investment Management and DB Consulting. Our assets under management were $492 billion at the end of the second quarter, up 1% sequentially and up 25% compared to the second quarter of last year. Year-over-year growth was driven by our transaction with Vanguard, impact of capital markets, and positive net flows. Health underlying growth remained strong at 9% and reflected growth across all regions. Career revenue increased 2%, continuing the trend of modest growth following a two-year stretch of strong growth in demand. For the first six months of the year, revenue at Mercer was $2.8 billion with 6% underlying growth. Oliver Wyman's revenue in the quarter was $837 million, an increase of 3% on an underlying basis. This comes on top of 11% growth a year ago. For the first six months of the year, revenue at Oliver Wyman was $1.6 billion, an increase of 8% on an underlying basis, up from 6% growth in the first half of last year. Foreign exchange was a $0.02 headwind in the second quarter. Assuming exchange rates remain at current levels, we expect FX to be a $0.02 headwind in the third quarter and $0.02 in the fourth quarter. Total noteworthy items in the quarter were $73 million. These included $44 million of restructuring costs, mostly related to the program we began in the fourth quarter of 2022 as well as some transaction-related expenses. Our other net benefit credit was $66 million in the quarter. For the full year, we continue to expect our other net benefit credit will be approximately $265 million. Interest expense in the second quarter was $156 million, up from $146 million in the second quarter last year, reflecting higher levels of debt and higher interest rates. Based on our current forecast, we expect approximately $154 million of interest expense in the third quarter and approximately $620 million for the full year. Our adjusted effective tax rate in the second quarter was 26.2% compared with 24.2% in the second quarter of last year. Our tax rate in both periods benefited from favorable discrete items. Excluding discrete items, our adjusted effective tax rate was approximately 26.5%. When we 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 continue to expect an adjusted effective tax rate of between 25.5% and 26.5% for 2024. Turning to capital management and our balance sheet. We ended the quarter with total debt of $13.5 billion. Our next scheduled debt maturity is in the first quarter of 2025 when $500 million of senior notes mature. We continue to expect to deploy approximately $4.5 billion of capital in 2024 across dividends, acquisitions, and share repurchases. The ultimate level of share repurchase will depend on how the M&A pipeline develops. Last week, we announced a 15% increase to our quarterly dividend, making this our 15th consecutive year of dividend growth. This comes on top of a 20% increase a year ago and reflects our strong earnings growth and confidence in our outlook. Our cash position at the end of the second quarter was $1.7 billion. Uses of cash in the quarter totaled $1.2 billion and included $352 million for dividends, $500 million for acquisitions, and $300 million for share repurchases. For the first six months, uses of cash totaled $2.2 billion and included $706 million for dividends, $847 million for acquisitions, and $600 million for share repurchases. While there continues to be uncertainty in the outlook for the global economy, we feel good about the momentum in our business and the current environment remains supportive of growth. Overall, our excellent first half leaves us well-positioned for another great year in 2024. Based on our outlook today, for the full year, we continue to expect mid-single-digit or better underlying growth, margin expansion, and strong growth in adjusted EPS. And with that, I'm happy to turn it back to John.

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

Operator Instructions. And our first question comes from the line of David Motemaden with Evercore ISI.

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

Good morning, David. Sure. So, yeah, let me first of all just say, I was pleased with our growth in the quarter. It was on top of a very big quarter a year ago at 11%. Marsh had good solid growth by region and practice on top of a tough comp. Guy Carpenter had an excellent quarter. Market improvements led to increased demand after a pretty volatile reinsurance market in 2023. Mercer again had another solid quarter of growth, as Mark noted in his comments, best stretch of growth in a long period of time. Health remains very strong. Wealth growth was solid and we actually saw an uptick in career growth from the first quarter. And Oliver Wyman had a very tough comp, but had good growth — has had good growth year-to-date. And as we pointed out in the past, we'll have more quarter-to-quarter volatility than our other businesses. What I would say is broadly speaking, the macros continue to be supportive of growth. It's a risky environment we're all operating in, but GDP, inflation, labor markets, the rising cost of risk, rising cost of healthcare, all supportive. And I feel very, very — I feel like we're very well-positioned. We have the best talent in the markets that we compete in. And so, we're positive on our outlook for the second half, that again remains a good market for us. And so we feel good about where we are.

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

You want to go ahead, Mark?

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

Thank you, David. Andrew, next question.

One moment please for our next question. Our next question comes from the line of Jimmy Bhullar with JPMorgan.

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

Yeah, Jimmy, thanks for the question. I'll hand it to Nick here. But it was a sum of both, right? It was a tough comp for sure, but we feel very good about the year-to-date growth. Nick, you want to add a little bit more depth?

Yeah. I think John is right, Jimmy, it's a little bit of both, but in the same way that I noted last quarter that our 13% was against a weak 0% comp, this 3% is against a tougher 11%. That 8% year-to-date, I think is bang in that zone of mid- to high-single-digit growth we expect to average through the cycle. And as you know, our quarters are always somewhat volatile. Mark kindly noted in his comments that the first half actually accelerated versus the first half last year. To give you a little bit of color on where we are seeing higher growth, regionally, both Asia and our India, Middle East, and Africa regions have continued on strong growth. From an industry perspective, our communications, media, and technology practice has been our fastest-growing year-to-date, but our very strong banking and insurance practices also in positive territory as is our public sector practice. And we have a wide array of capabilities. Our economic research business, NERA, is growing strongly. Our market-leading finance and risk practice, particularly in financial services, our pricing team, and importantly our people and organizational performance practice, which really works across our industries to help on big client transformative moments. But the market is a little bit uncertain. While the economy seems to be better, it's still a pressured environment for discretionary spending, some uncertainties as John and Mark have highlighted. And we do see some pricing pressure due to excess capacity as some of our competitors work through some of their headcount actions.

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

Yeah, just on fiduciary investment income. It was sort of flat on a sequential basis. So should we assume given where rates are that going forward, it's going to grow just with growth in the business or was the sequential flat result in Q2 more of a function of seasonality and balances or other factors?

Jimmy, there is seasonality in balances as we've talked about in the past. But I think the biggest driver from here is just the outlook for rates. As we've talked about and you saw on our balance sheet in the quarter, we've got about $11.5 billion of fiduciary balances and so I think just where we go from here is just going to be what the central banks do with short-term interest rates. And as you're modeling going forward, keep in mind that our balances do reflect the revenue mix of our business. So it's not just US rates that drive it — we've got balances because of the distributed nature of business all over the world. So as I said, the outlook really is going to be mostly a function of what the rate picture looks like.

Thank you, Jimmy. Andrew, next question?

And our next question comes from the line of Elyse Greenspan with Wells Fargo.

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

Expense savings, can you give me a sense? Okay. Sure. Sure. Thanks, Elyse. Mark?

Elyse, we're definitely seeing the benefit of it. We've stayed away from quantifying specifically how much is going to drop quarter-to-quarter. But you just even see the trend in expense growth quarter-to-quarter; that was definitely a factor. Our strong growth and the benefit of savings contributed to that 130 basis points of margin expansion. So we're — as I said, we haven't quantified the amount that we're seeing each quarter, but we are on track for the level of savings that we talked about and we're seeing the benefit of it.

Do you have a follow-up, Elyse?

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

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

Sure. Just to restate, 7% in the quarter, which is on top of 10% for the second quarter of 2023. Quite balanced growth, international at 7% and US and Canada at 6%. Our US business, MMA and Victor, continued to perform very well in the US. Canada had a weaker quarter; some macro factors affected that and pulled down a little bit. But across international, international was 7% on top of 10% in '23. Asia-Pacific accelerated from 7% on top of 6% in '23, and Latin America did 8% on top of 17% in the second quarter of '23 and EMEA did 7% on top of 11% in '23. The performance was driven really by very strong performance internationally in the benefits business. Construction, energy, and power all came off strong double-digit growth as well, repeating what happened last year. We're beginning to see some revitalization in the US capital markets, which has been a headwind for new business growth going back to '21. Renewal base growth was strong and solid, as was new business in both US and Canada and international. Our lost business improved slightly as we continue to build stickier relationships with clients as we engage more deeply, and we aspire to be the risk advisor of the future, talking to them well beyond conventional risk. We feel very well-positioned. Overall, the mix of premium in the US will be more weighted to casualty in broad terms and probably more balanced internationally for property and casualty.

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

Our next question comes from the line of Scott Heleniak with RBC Capital Markets.

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

No change to our philosophy. We continue to take a balanced approach to capital management. We have about $4.5 billion to deploy during the course of the year. Broadly speaking, we favor attractive investments in our business, whether it's organic or inorganic, over buybacks, but we're not going to let cash build up on the balance sheet either. As I noted earlier, we increased our dividend beginning in this quarter. We aspire to raise our dividend every year. We bought back $300 million of shares in the second quarter. We're pleased with what we've seen in the M&A market. It was an active quarter. We announced a couple of deals at the start of the second quarter. We're excited about those deals and we'll continue to be active in the market. But ultimately, the amount of share repurchase will depend on what's obviously a volatile M&A pipeline. You never know what the ultimate outcome will be, but we're seeing some good opportunities to invest in our business.

Yeah. Just one quick one, too. Just generally on Mercer, the Health organic growth really strong again, and 9% has been strong for quite a while. And Career and Wealth, I guess, is a little bit slower compared to Health, but just wondering if you can just kind of flesh out what you're seeing there, the strength in Health versus the other areas, if there's anything holding those areas back besides just the difficult comps?

Thanks, Scott, and I'll ask Pat to comment in a second. I mentioned rising healthcare costs in my opening remarks. It's a big pressure point for our clients in this economy, particularly given tight labor markets in most major economies. So it's really a terrific value we're delivering to our clients in a very tough marketplace there. Wealth will have some volatility and Career quarter-to-quarter, but Pat, could you talk about what we're seeing in the marketplace?

Sure. Thanks, and thanks so much for the question. First off, we're pleased with the Q2 underlying growth of 5%. As Mark highlighted, our 13th consecutive quarter with 5% or more growth and all the practices are contributing to growth. Certainly, health has been contributing at a higher rate. Quickly to go through the practices and what we're seeing: Health had an impressive quarter with 9% growth. The strong performance was broad-based, with double-digit growth across most regions. It comes predominantly from investments in hiring new talent, investments in thought leadership, including our Health on Demand survey, new digital tools, and a focus on client segmentation that's designed to match our clients' healthcare needs with our innovative and tailored solutions. We benefited from renewals and some new business growth, some insurer revenue, and medical cost inflation. We continue to see strong demand for digital solutions and innovative benefits underscoring the value of the breadth of advice and solutions we bring to clients. Wealth grew 3% in Q2, balanced between DC & DB administration and investment management services. DB plans' funded status continues to benefit from elevated interest rates, driving project work around risk transfers and certain regulatory requirements. We benefited in OCIO from the transaction with Vanguard and had some net new inflows; capital markets provided a revenue lift. It's important to note that our IMS offering is a portfolio of solutions, including advisory work and DC administration in addition to OCIO. Only our OCIO business is directly impacted by AUM. Our AUM is diversified with equities only making up about half of our exposure, and many clients having heavy fixed income exposure. So equity market moves are somewhat muted in IMS growth. Career had the most modest growth of 2%, which was up sequentially. It is following a long period of strong growth after the pandemic. We saw good momentum in talent and transformation; rewards was a bit more muted, reflecting lower wage inflation and reduced employee turnover, which is driving slightly lower demand for rewards projects. Importantly, Career is nearly 20% larger than it was pre-pandemic, so we feel strong about maintaining those levels in a project-based business. Overall, the conditions have us very positive about the outlook for Mercer.

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

Thank you. And our next question comes from the line of Michael Zaremski with BMO Capital Markets.

Okay. Great. Good morning. Focusing on the property cat pricing environment and competitive environment. John, I believe you said that Marsh index decelerated again to zero from one. Just curious, given Marsh does have a lot more small to mid-account business now too, it feels like there's two different tales, two different stories going on between the large account and the small-mid accounts. Do you agree with that, and if yes, any color on why we're seeing two different trends there on pricing?

Sure, Mike. Thanks for the question. I'll share some high-level thoughts and then ask Martin and Dean to add market observations. Typically, larger account pricing has more volatility attached to it; mid-market pricing has historically been more stable and less volatile. Our index is weighted towards large accounts where we have the best data. Insurance and reinsurance markets continue to settle after many years of increases. As I pointed out in my prepared remarks, cyber and FinPro prices have moderated. Some segments of the market are showing early signs of stress. US Excess Casualty, for example, prices were up 10% and loss cost inflation there remains quite challenging. Overall, the market is providing an opportunity for clients to revisit decisions about financing risk. Guy Carpenter saw increased demand in the second quarter as evidenced by strong growth. Martin, could you share some more color on pricing?

Sure. Just reminding ourselves, 26 quarters of rate increases which just turned flat now. Our index is geared more toward the larger account segment. The mid-market and smaller end have less volatility in pricing. By line of business, casualty in the US is up 3%, dominated by the 10% increase in the umbrella book which we've discussed earlier regarding volatility in claims inflation. Property is flat in most regions except for the Middle East and India where we're still seeing some increases, perhaps related to activity in the region. Core FinPro is contracting at about 5% with rate decline across the world, and cyber contracting 6% which is mostly consistent with Q1. Pricing trends are consistent with recent quarters; we're seeing slight increases in some geographies but overall more contraction than normal. As far as our business is concerned, much of our business is fee-based or controlled commission basis, and exposure growth has been significant over the last few years as well, which is a counterweight.

Thanks, John. A couple of headlines about the property cat reinsurance market: it's much more predictable and smooth than last year's hard market. Placements have been completed on time; there's been adequate capacity. There's increased reinsurer appetite in the market, driving improved returns given last year's rate increases and higher attachment points. We're seeing very strong ILS activity — record cat bond issuance in the quarter with 34 cat bonds and about $8 billion of limit. We're seeing moderating cat rates compared to 2023, but year-over-year premium spend for property cat and our rate online index is still up 1% year-over-year. The key takeaway is significant increased client demand for additional property cat limit: in the first half of the year, two-thirds of our US clients bought more property cat coverage, adding about $10 billion of limit. Clients are reinsuring by more retrocession coverage with improved pricing. There's caution in the property market given more than $50 billion of insured losses in the first half of the year from various events; we could be on track for another $100 billion year of insured losses, so there's continued caution around property and property debt.

Thanks, Dean. So, Mike, not a big shift from the first quarter, but a modestly evolving market more in favor of buyers, and that factors into the advice we give our clients. Do you have a follow-up?

Very quick follow-up. Just looking at total revenue growth and adjusted EBITDA, I think divestitures and a little FX is what perhaps consensus was off on a bit. Should we assume anything else? Is the company a net acquirer in M&A, or are there any chunky divestitures to consider in the near term?

No. At Mercer, we sold two administration businesses, one in the US and one in the UK, to Aptia. We sold them because they're relatively low-growth and lower-margin businesses and were capital-intensive. We think they have a better owner now and we feel good about that decision.

Our next question comes from the line of Gregory Peters with Raymond James.

Good morning. You mentioned Blue. Could you provide some more specific data around that? It's a data analytics capability; can you provide scope of how big it is inside the business since you called it out on the call?

Blue is not a standalone business. It's the brand for a suite of analytics tools we use to advise our clients at Marsh. Martin, some insight on the range of tools and how they're used would be helpful.

As John said, it's a suite of analytics to help clients across different product lines assess what risks to retain versus transfer and the economic cost. We help clients across multiple lines by providing exposure and total cost of risk scenarios. We analyze claims and the analytics tools help clients who self-insure identify losses to address early and how to settle them. It's real-time analytics built on our large data lake, which we view as a significant competitive advantage. Some of these analytics are deployed for clients who don't even buy insurance. We continue to invest in Blue i, adding capabilities like supply chain analytics, and it's the way clients expect to be engaged.

We use these tools to help clients understand risks and strategies to manage and mitigate them. We spend most of our time discussing the financing of risk when we go to market, but Bluei is an important part of our value proposition and an example of where our scale and data provide advantage. Do you have a follow-up, Greg?

Thanks for the color. Going through operating cash flow and free cash flow for the six months, it's down a little bit. It looks like changes in working capital — can you provide additional color on operating cash flow for the quarter and six-month basis?

Sure, Greg. Mark?

Thanks. We always caution against focusing too much on a quarter's results, especially for cash flows and free cash flow which are volatile due to timing of balance sheet items. In the first six months we saw higher compensation payouts in the first quarter, which is significant. Receivables are up because of growth in the business. But we have a long track record of double-digit growth in free cash flow aligned with earnings, which is what you'd expect in a capital-light business like ours.

Thank you, Mark, and thanks, Greg. Andrew, next question.

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

Good morning. I had a follow-up on margins. Last quarter you said you expected the margin to accelerate in the second half. From this morning's responses, can you confirm whether you still expect second-half margin expansion to be better than the first half? If there was any change, was it because the second-quarter margin expansion was greater than expected or are you expecting some softening in the back half?

We do expect margin expansion in the second half to be better than the first half. Sorry if there was any confusion earlier. Remember, margin is an outcome of how we run the business — managing investments and costs within revenue growth. We will continue to make attractive investments to support medium- to long-term growth. We also see opportunities in workflow and automation across our businesses and are testing AI at scale. That value creation won't be a major driver in 2024 or probably 2025, but we will continue to improve. In short, we expect second-half margin expansion to be stronger than the first half.

Thanks so much for the color and clarification.

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

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

I'm not sure I see a direct line between that specific case and the overall environment. What I would say is we've been focused on troublesome signs of loss cost inflation, particularly in the United States, including large or mega judgments and settlements. We spend a lot of time using our analytics suite to help clients think about a range of outcomes, what type of limits they should consider, and how they benchmark anonymously against peers. Those are important inputs and clients make decisions based on their ability to finance risk or to transfer it to insurers or capital markets.

That is helpful. One small-picture question: when we look at the two-year stacked organic growth in Career, it grew dramatically from the first quarter to this quarter. Is your outlook for Career slowing compared to what you thought at the end of the first quarter?

No, I don't think there's a real change from the first quarter. As Pat mentioned, some dynamics like less active labor markets and lower wage inflation are affecting demand for rewards projects. We didn't expect higher growth in Career during 2024 and we haven't seen anything in the first six months that changes that outlook.

Fantastic. Thank you very much.

Thank you. Andrew, time for maybe one more?

Certainly. And our final question comes from the line of Rob Cox with Goldman Sachs.

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

To be clear, we're not looking to build a third-party wholesale business. We want to bring the best solutions to our clients. E&S markets have moved quite a bit over the last several years reflecting a high-risk environment where insurers have more freedom to change rate and terms. Broadly, we want to manage our clients' outcomes directly where possible and not outsource that value. Wholesalers do good work and we'll continue to access them where it makes sense. But the majority of wholesale premium we access in E&S markets we do directly today. There has been some growth in intermediated wholesale premium over the last couple of years, and we are working to get as much direct access to market as we can.

Thanks. Second question: can you discuss the different economics Guy Carpenter gets from cat bonds versus traditional reinsurance placement, and how much that record cat bond quarter contributed to organic growth?

Yeah. The economics can be different and they vary treaty to treaty. We work with insurance company clients across big wholesale relationships where we effectively work on what amounts to a fee. As we talked about when the market was particularly tight last year, while commission and growing price were factors, our large relationships with insurers are often fee-based...

I would now like to turn the call back over to John Doyle, President and CEO of Marsh McLennan for any closing remarks.

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