Marsh & Mclennan Companies, Inc. Q2 FY2025 Earnings Call

Welcome to Marsh & McLennan's earnings conference call. Today's call is being recorded. We issued our second quarter 2025 financial results and supplemental information earlier this morning, which you can find on our website. Please remember that today's remarks may contain forward-looking statements, which are subject to risks and uncertainties that could lead to actual results differing significantly from those projected. For more information about these factors, please refer to our earnings release and our latest SEC filings, including our most recent Form 10-K, all available on our website. We might also discuss certain non-GAAP financial measures during the call. For a reconciliation of these measures to the closest GAAP measures, please check the schedule in today's earnings release. I will 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 Jay Gelb, Head of Investor Relations. Marsh & McLennan had a solid second quarter. As we said coming into the year, we anticipated impacts from a changing macro environment, and our performance continues to track well with our expectations. Overall, we grew revenue 12% in the quarter, reflecting continued momentum in our business and contributions from an active year of acquisitions in 2024. Underlying revenue increased 4% for the quarter. I was pleased with our execution, especially given the impact of lower fiduciary interest income, declining P&C pricing and market uncertainty affecting our clients, especially here in the U.S. Adjusted operating income increased 14% from a year ago. Our adjusted operating margin increased 50 basis points compared to the second quarter of 2024, and adjusted EPS grew 11%. Turning to the macro environment. The global economic outlook remains uncertain as we move into the second half of the year. Ground wars, culture wars, trade wars, extreme weather and the opportunities and risks from the rapid development of AI are creating complex operating conditions. Oliver Wyman recently teamed up with the New York Stock Exchange to see how CEOs are thinking about and responding to the challenges they face. 165 CEOs responded on topics ranging from managing geopolitical instability and supply chain disruption to capturing value from AI. In all, 89% of CEOs rated geopolitics along with trade and industrial policies as a risk to their company, up 20 percentage points from 2024. CEOs are focused on extracting growth in a slowing economy and a more complex geopolitical environment while tightly managing costs and spending more time on near-term issues. While the environment presents challenges for our clients, it also provides Marsh & McLennan with an opportunity to support them. We're advising clients on near- and long-term strategies and guiding them on growth and building resilience during this dynamic period. This includes analyzing supply chain risks and helping them consider the impacts of AI on their workforce. Together, we can transform these challenges into opportunities. I also want to take a moment to address the current litigation environment in the U.S. Excessive litigation and the abuse of our legal system are effectively imposing a tax on our economy and causing a surge in U.S. liability insurance costs. The U.S. already has the highest liability insurance rates in the world, and escalating costs will only make it harder for companies to decide to invest and grow here. And for those that do, they will ultimately have to pass along these increased costs to consumers. Our tort system is intended to provide fair compensation to injured parties who have been wronged. But too often, we see tort litigation backed by a vast and growing industry with outside investors. The result in many cases is that agreed parties see less than half of the settlement awards. Our clients are feeling the effects of this growing problem. Consider the rise of so-called nuclear verdicts; cases exceeding $100 million have grown 400% over the past decade according to the U.S. Chamber of Commerce. This trend is encouraging more lawsuits and blockbuster verdicts, which drive up insurance costs. In fact, in 2024, U.S. liability insurance experienced the most severe adverse reserve development of any single line of coverage since the 2008 global financial crisis. This was more than double the amount from the previous year. And over the past decade, U.S. excess casualty insurance rates have increased by a cumulative 150%. Addressing these tort abuses will be challenging and take time. We are committed to working with the business community and policymakers to tackle this challenge. Now turning to insurance market conditions. Overall rates continue to decrease, particularly in property insurance and property cat reinsurance. According to the Marsh Global Insurance Market Index, commercial insurance rates decreased 4% in the second quarter, driven by property despite a surge in cat losses in the first 6 months of the year. This follows a 3% decline in the first quarter of 2025. As a reminder, our index skews to large account business. Overall, rates in the U.S. were flat. Latin America, Europe, U.K. and Asia were all down mid-single digits and Pacific was down double digits. Global casualty rates increased 4% with U.S. excess casualty up 18%, reflecting the previously mentioned liability environment. Workers' compensation decreased by 4%. Global property rates decreased by 7% year-over-year compared to a 6% decrease last quarter. Global Financial and Professional liability rates were down 4% while cyber decreased 7%. In Reinsurance, midyear renewal rates decreased by 5% to 15% for non-loss impacted programs. A moderate increase in client demand was offset by reinsurers' increasing capacity as well as increased ceded cat bond issuance. The cat bond market is on pace for a record year of issuance with over 50 new bonds in the first half, involving approximately $17 billion of limit. In U.S. Casualty Reinsurance, renewals were largely stable with sufficient capacity reflecting the underwriting actions of primary carriers. As always, we continue to help our clients navigate a range of market conditions. Now let me turn to our second quarter financial performance and outlook, which Mark will cover in more detail. Consolidated revenue increased 12% to $7 billion and grew 4% on an underlying basis, with 4% growth in RIS and 3% growth in Consulting. Marsh was up 5%; Guy Carpenter grew 5%; Mercer, 3%; and Oliver Wyman was up 3%. We had adjusted operating income growth of 14%, and we generated adjusted EPS in the quarter of $2.72, which is up 11% from a year ago. We also announced a 10% increase to our quarterly dividend to $0.90 and completed $300 million of share repurchases during the quarter. Turning to our outlook for 2025. We continue to expect to deliver mid-single-digit underlying revenue growth, solid growth in adjusted EPS and our 18th consecutive year of reported margin expansion. Of course, this outlook is based on conditions today and the economic backdrop could turn out to be materially different than our assumptions. In summary, we are pleased with our first half performance in a complex and dynamic macro environment. We're confident that the enduring value we provide to clients makes our business resilient even during times of economic uncertainty. Our collection of capabilities is unique, and there is strong client demand around the world for our advice and solutions. We believe we are the best positioned company in our markets, and we've earned our leadership position through 154 years of innovation and growth. Our discipline to invest for the future while delivering consistent results is not new. It's a fundamental philosophy that guides our planning and capital allocation. 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 solid, reflecting our strong position and execution despite a more challenging environment. Consolidated revenue increased 12% to $7 billion with underlying growth of 4%. Operating income was $1.8 billion, and adjusted operating income was $2.1 billion, up 14%. Our adjusted operating margin increased 50 basis points to 29.5%. GAAP EPS was $2.45, and adjusted EPS was $2.72, up 11% over last year. For the first 6 months of 2025, underlying revenue growth was 4%. Adjusted operating income grew 11% to $4.3 billion. Our adjusted operating margin increased 20 basis points and adjusted EPS increased 8% to $5.78. Looking at Risk and Insurance Services, second quarter revenue was $4.6 billion, up 15% from a year ago or 4% on an underlying basis. Operating income in RIS was $1.4 billion. Adjusted operating income was $1.6 billion, up 16% over last year, and the adjusted operating margin expanded 30 basis points to 35.6%. For the first 6 months of the year, revenue in RIS was $9.4 billion with underlying growth of 4%. Adjusted operating income increased 12% to $3.5 billion, and adjusted operating margin was 36.9%. At Marsh, revenue in the quarter was $3.8 billion, up 18% from a year ago or 5% on an underlying basis. This follows 7% underlying growth in the second quarter of last year. This was a good result given the softening rate environment in property and uncertainty in the economic outlook, especially in the U.S. In the U.S. and Canada, underlying growth was 4%. In International, underlying growth remained strong at 7%, with EMEA up 8%, Asia Pacific up 4%, and Latin America up 3%. For the first 6 months of the year, Marsh's revenue was $7.3 billion with underlying growth of 5%. U.S. and Canada grew 4% and international was up 6%. Guy Carpenter's revenue in the quarter was $677 million, up 7% from a year ago or 5% on an underlying basis. Growth remains solid despite softer reinsurance market conditions, building on 11% underlying growth in the second quarter of last year. For the first 6 months of the year, Guy Carpenter generated $1.9 billion in revenue and 5% underlying growth. In the Consulting segment, second quarter revenue was $2.4 billion, up 7% or 3% on an underlying basis. Consulting operating income was $456 million, and adjusted operating income was $479 million, up 9%. Our adjusted operating margin in Consulting was 20.2%, up 40 basis points from a year ago. For the first 6 months, Consulting revenue was $4.7 billion, reflecting underlying growth of 4%. Adjusted operating income increased 9% to $970 million, and the adjusted operating margin increased 40 basis points to 20.7%. Mercer's revenue was $1.5 billion in the quarter, up 9% or 3% on an underlying basis. Health grew 7%, showing continued solid growth across all regions. Wealth was up 2%, led by investment management. Our assets under management were $670 billion at the end of the second quarter, up 9% sequentially and up 36% year-over-year. This growth was driven by our acquisitions of Cardano and SECOR, positive net flows, and the impact of capital markets and foreign exchange. Career was down 5% in the quarter due to continued softness in project-related work in the U.S. and Canada. For the first 6 months of the year, revenue at Mercer was $3 billion with 3% underlying growth. Oliver Wyman's revenue in the second quarter was $873 million, up 5% or 3% on an underlying basis, led by solid growth in the U.S. For the first 6 months of the year, revenue at Oliver Wyman was $1.7 billion, a 4% increase on an underlying basis. Fiduciary interest income was $99 million in the quarter, down $26 million compared to the second quarter last year due to lower interest rates. Looking ahead to the third quarter, we expect fiduciary interest income to be around $105 million. Foreign exchange had a minimal effect on adjusted EPS in the second quarter. Exchange rates have been volatile, making it hard to predict their impact going forward. However, based on current rates, we anticipate FX will have a minimal impact on adjusted EPS in the third quarter and a slight benefit in the fourth quarter. Regarding our McGriff transaction, the integration is progressing well, and we are pleased with McGriff's performance year-to-date. We expect that McGriff will be modestly accretive to adjusted EPS for the full year 2025, becoming more significantly accretive in 2026 and beyond. Noteworthy charges related to McGriff are expected to total approximately $450 million to $500 million through 2027, primarily for retention incentives established by the seller. As is our standard practice, McGriff is excluded from our underlying growth calculations for the first year. Noteworthy items in the second quarter totaled $88 million, mostly related to acquisition costs. Interest expense in the second quarter was $243 million, up from $156 million in the second quarter of 2024, reflecting increased debt from the McGriff transaction. Based on current projections, we expect interest expense to be about $240 million in the third quarter. Our adjusted effective tax rate for the second quarter was 25.3%, compared to 26.2% in the same period last year. Excluding discrete items, our adjusted effective tax rate was around 25.5%. We continue to anticipate an adjusted effective tax rate between 25% and 26% in 2025, excluding discrete items. Turning to capital management and our balance sheet, we ended the quarter with total debt of $19.7 billion. Our next scheduled debt maturity occurs in the first quarter of 2026, when $600 million in senior notes mature. Our cash position at the end of the second quarter was $1.7 billion. Total cash uses in the quarter were $776 million, comprising $405 million for dividends, $71 million for acquisitions, and $300 million for share repurchases. For the first 6 months, cash uses totaled $1.6 billion, including $810 million for dividends, $166 million for acquisitions, and $600 million for share repurchases. We continue to expect to deploy about $4.5 billion of capital in 2025 across dividends, acquisitions, and share repurchases. The exact level of share repurchase will depend on our M&A pipeline. Last week, we announced a 10% increase in our quarterly dividend, marking our 16th consecutive year of dividend increases, which reflects our solid earnings growth and confidence in our outlook. Overall, we are pleased with our second quarter results. For the full year, we continue to expect mid-single-digit underlying revenue growth, margin expansion, and solid growth in adjusted EPS. However, as John mentioned, this outlook is based on current conditions, and the economic backdrop, especially regarding ongoing uncertainty around global trade policies, could change significantly. With that, I'm happy to turn it back to John.

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

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

So my first question, in your comments, John, you talked about the pricing index being down 4% in the second quarter on top of being down 3% in the first quarter. Are you seeing anywhere in the system upward pressure on pricing? Or if we would look forward over the next 12 to 18 months, are we going to continually see these low-single-digit rate decreases in the broader market?

Yes, Greg, thank you for your question. The insurance and reinsurance markets are generally softening a bit in the second quarter. I've previously mentioned that the reinsurance market has shown consistent price decreases during the first half of the year, mainly driven by property, where we also see more rate pressure on the retail side. A notable exception is in excess casualty, which is partly why I emphasize the U.S. litigation environment. The cost of risk in the United States is high, influenced by the liability environment and the fact that a significant portion of our economy and population is increasingly exposed to extreme weather events, disrupting our economy. Additionally, healthcare-related risk continues to rise significantly, making it among the most costly in the world. As our country invests in infrastructure and technology, these are substantial costs for our clients, which we also experience in our business. This is why I believe it's crucial to discuss these factors. The concerns about liability were partially driven by recent legislation in the significant bill. There was a proposed amendment by Senator Tillis to adjust tax policy concerning litigation financing. Currently, many injured parties receive less than 50% of a settlement's outcome and are subject to ordinary income tax in the U.S., while a litigation funder pays capital gains tax, and a foreign investor pays no tax. This represents a missed opportunity. There are other necessary changes we are focusing on for our clients. I anticipate that casualty pricing will remain pressured, leading to continued rate increases. I also mentioned the active start to the year with catastrophes. While prices are down now, over time, pricing will align with the increasing cost of risk in the U.S. While predicting over a 6 or 12-month period is challenging, I firmly believe we are in a rising cost of risk environment in the United States. Do you have a follow-up?

Yes, I do, of course. I'm going to pivot to the Mercer segment. And I just wanted to pick apart or have you provide more detail on the wealth and career components of organic. I guess I was listening to Mark's comments about AUM being up. I think he said 36% year-over-year in wealth, yet we're only seeing 2% organic revenue growth. So I'm trying to understand the connection there. And then on Career, I think that's probably a little bit more of your economically sensitive business, but maybe you could speak to the outlook for both of those businesses, please?

Yes, sure, Greg. Thanks for the question. Overall, we had a great quarter of growth, achieving 12% on a consolidated basis, with solid underlying performance at Marsh and GC. Some areas of our Consulting business, particularly in Career and certain aspects of Oliver Wyman, such as branding, have been more affected by discretionary spending and the current economic uncertainty, as many large companies in the U.S. are adopting a cautious approach. However, we also experienced significant growth in health at Mercer. Pat, could you share your insights on what you're observing in both the career and investment sectors?

Thank you, John, and thanks for your question, Greg. I'll begin by discussing the wealth segment, as it aligns with your inquiry. It’s essential to understand that our wealth business encompasses a variety of services, including defined benefits, pension consulting, investment advisory, and OCIO. Regarding AUM, only the OCIO segment generates revenue based on AUM, which is the primary driver for this aspect. Overall, as Mark indicated, wealth grew 2% in Q2, primarily due to growth in our Investments business, particularly the OCIO segment, which is tied to AUM. However, we faced challenges from more difficult comparisons in DB pension consulting. Although we previously noted that the defined benefits pension market is in structural decline, we have recently seen an uptick in demand for project-based consulting, driven by improved plan funded statuses due to rising interest rates, along with increased regulatory requirements in various regions. Yet, this year, the demand for such projects is beginning to slow, especially in the U.S. and U.K., as clients are postponing discretionary projects due to shifting macro priorities. There is also reduced demand for the regulatory work discussed earlier. Conversely, demand for defined contribution solutions, such as Master Trusts in Australia and the U.K. or 401(k)s in the U.S., continues to increase. We are advancing our investment advice and OCIO solutions for diverse asset owners, including insurers, endowments, foundations, family offices, and wealth management firms. The OCIO segment has been a consistent growth driver for Mercer over the years, and we have experienced significant net inflows, both organic and inorganic. The 36% growth Mark referenced encompasses both inorganic and organic growth, which we exclude from the 9% sequential increase. Despite some volatility in capital markets in 2025, we still enjoyed a year-over-year tailwind in Q2. Overall, we believe our capabilities and the value we provide to clients will continue to support growth in this segment. The variance between the 36% and the 9% is mainly due to the organic and inorganic components of AUM growth. Regarding the Career segment, it’s important to provide context to respond to your question. Career comprises a range of offerings, from project-based consulting assignments to more product-oriented services like compensation benchmarking surveys and employee engagement assessments, which are more recurring. Additionally, Career tends to experience seasonality and peaks around the annual compensation and rewards cycle during Q3 and Q4. In this quarter, Mark mentioned that Career contracted by 5%, mainly due to a decline in project demand in the U.S., where we face market dynamics that are more acute than internationally. The current economic uncertainty is making clients hesitant to commit to substantial long-term HR technology projects, which are more common in the U.S. Furthermore, demand for talent and rewards projects is typically higher in inflationary periods, where salary pressures and employee turnover create urgency for these initiatives. However, the current employment market is witnessing low voluntary turnover, which diminishes the urgency for such projects. This contraction in the U.S. and Canada is partially balanced by growth we experienced internationally, with positive results across all three major areas of our business: talent, rewards, and transformation. We are confident in our position as a leading rewards consultancy worldwide, boasting strong capabilities, expertise, and geographical reach. The business has performed well for us over recent years and continues to grow internationally, reinforcing our confidence in the long-term growth potential of our career segment and the value we will deliver to clients.

Thanks, Pat. So well positioned in both of our businesses, obviously exposed to some of the uncertainty in the U.S. in our Career business. And then in our investment business, some structural issues with defined benefit growth in prior years. So thank you, Greg. Andrew, next question please.

And our next question comes from the line of Mike Zaremski with BMO.

Question kind of maybe related to the first question, specifically on the RIS segment. So I just want to make sure we're thinking about things correctly. So when we kind of think from a macro level about total organic growth in the RIS segment. Usually, we think nominal GDP is kind of the biggest corollary and very secondary kind of would be pricing power levels since a lot of this is more fee-based too. Would you agree with that kind of high-level statement because I'm trying to kind of think out the we can kind of have a view on pricing? You've helped us with a view on pricing. The nominal GDP decline is slighter. Just want to see if I'm missing anything maybe in terms of just talent hiring in the past or now or other factors...

No. Thanks for the question. No, I don't have any argument with the way you characterized it. I feel good about our execution. I feel good about how we're positioned. Our international growth was quite strong. What we're seeing here is in the United States, particularly upmarket and more of our large account segment, if you will, you're seeing businesses defer project work, right? We're seeing a slowdown in construction activity, M&A activity, IPOs, hiring has obviously slowed, all those on some level are inputs. So we have a macro environment, it is what it is. We power through it and continue to deliver solid results, but declining P&C pricing, slowing economic growth, interest rate headwinds with fiduciary interest income and moderating inflation as well, at least up until now. Obviously, that's a hot debate in the world. But Marsh and GC 5% ex fid, given some of those headwinds. I feel good about that.

Got it. And my quick follow-up, and I feel like you started off the call, John saying performance track is kind of in line with the expectations overall. I feel like the beauty of Marsh historically and currently is that you guys have had good line of sight into your reps, so you've been able to pull the expense levers accordingly. It sounds like from everything you're saying is there's obviously a lot of uncertainty, but you still feel like there's uncertainties at a level where you feel comfortable being able to manage the profit margin piece of the business. Is that fair?

Yes. Thanks, Mike. I appreciate that. I think there was a compliment in there. I think there was a bit of debate about our guidance about the top line coming into the year. We didn't obviously know exactly what would unfold during the course of the year, but we did expect lower interest rates, lower P&C pricing, slightly slowing economy. Probably more uncertainty has persisted that's impacted some of the more discretionary parts of our business. But I feel good about the work we've done to again manage expense growth in a tighter environment. And we do a lot of scenario planning around tighter conditions. And by the way, we do scenario planning around more positive environments too where how we're going to allocate capital if growth is above what our expectations are. I expect these conditions to persist in the second half. We'll see obviously what unfolds. And 2026 will be a new year, right? A lot that's going to happen around trade and geopolitics over the course of the next 6 months. And then we'll see what the environment looks like as we head into next year. But I feel good about how we're positioned. I feel good about how we're executing. We're continuing to invest. It gets a little tighter, obviously, at moments like this. And but we've consistently not only delivered margin expansion but invested in our business over time. And we try to get that balance right.

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

John, regarding your comments on the slowdown in IPOs and M&A, it seems that capital markets activity has reached a low point. While next month could bring changes, it appears that IPOs and M&A are starting to regain momentum. Are you experiencing this trend in your business as well? Should we expect your growth to be near its lowest point, or is there still considerable uncertainty ahead?

M&A and IPOs are just part of a more complicated macro picture. We continue to expect mid-single-digit underlying revenue growth, margin expansion in the 18th year, and solid growth in adjusted EPS, and we feel positive about that outlook. As we move forward, we notice a more defensive stance in U.S. businesses trying to find stability. It's always uncertain, and that uncertainty has been tough for many of our clients. We are working to help them navigate these challenges, which presents an opportunity. However, it's too soon to determine if we'll see a significant increase in M&A activity, IPOs, or construction. Do you have a follow-up?

And then, yes, related to Guy Carpenter. The growth was fairly strong considering the tough comparisons. Is that primarily because of the low base, or is the momentum in your business better than what the pricing would indicate in reinsurance?

I'll ask Dean just to talk about the growth in the quarter, but I think we have the best team on the field, the best analytics in the business. And ultimately, it's a reflection of the confidence that our clients have in our ability to deliver value. But Dean, maybe you can talk a little bit about growth in the quarter for Jimmy.

Thank you, John. Jimmy, we are happy with our 5% growth this quarter, following an 11% growth in the second quarter of 2024, which was a record for new business. This quarter, we experienced robust growth across our international platform, with exceptional performance in Latin America and EMEA, as well as strong growth in the U.K. and Asia, despite some pricing challenges in Japan and China during the April 1 renewal. New business remains strong and well-balanced across our platform. There has been significant ILS activity, with record cat bond growth this quarter, as Guy Carpenter took part in 14 cat bond issuances this quarter and 23 year-to-date, marking a record for us. We continue to find new opportunities in our capital and advisory practice, having secured several mandates to raise third-party capital for various clients in the U.S. and London, particularly among notable MGAs. Additionally, we are winning M&A mandates and providing advisory support for these clients. Lastly, property cat demand showed some easing at the midyear renewal, but we successfully sold an extra $5 billion in property cat limits, boosting our top line. We are also proud of our talent acquisition, as we are attracting top talent in the market, and we have a well-rounded organization. We feel optimistic about our future prospects.

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

I'm curious if you could discuss the strength within Marsh and International as a whole and how sustainable you believe it is. I understand that pricing has been negative in many regions, yet growth remains strong. How long do you think this can continue?

Yes, thanks, David. I'll let Martin discuss growth a bit more. Overall, I was pleased with Marsh's growth this quarter. While you mentioned pricing challenges and some other macro factors, I am confident in our execution in this environment. We are navigating multiple markets in various ways and enhancing our capabilities in the middle market globally. This contributes to our growth, and we have strong leadership outside of the U.S. Martin, could you share more about the growth in this quarter?

Thank you, John. Yes, very pleased with our international growth in the quarter, 7% on top of 7% in 2Q '24, really strong new business growth across the whole business. EMEA was up 8% on top of 7% in the second quarter '24; Asia Pacific, up 4% on top of 7% in the second quarter '24; Latin America, 3% on top of 8%. So very strong geographic growth. And I'll dig into some of the capabilities as well. We had a really good quarter in construction activity around the business. Our credit specialties grew. Cyber, despite rate decreases, saw strong growth and penetration to our clients as people, particularly internationally realized the risk posed by cyber. Our FinPro business grew and Capital Markets business across international was stronger than in North America. But really, one of the standouts was our benefits business, which continues to show real strength and momentum. And then geographically, really pleasing in some of the areas where we've allocated capital and feel we're really well positioned. Japan, India, United Arab Emirates, Brazil, Italy, Spain, China, all showing really strong growth. So we feel we have a great momentum. The capabilities that we have across international really differentiate ourselves against any of the local players, and we have the best and the strongest network that is also able to serve the U.S. business and other international businesses that we have. So we feel really good about it.

Thanks, Martin. David, do you have a follow-up?

Yes. I was just more of a big picture question, and you sort of talked about this in a few of the different segments, just the difference between some of the trends that you're seeing in some of the more discretionary and project-based parts of the business compared to the more durable, more renewal-oriented businesses. Could you just level set us the business mix has changed for a while? How much of the revenue base at Marsh is exposed to that more discretionary or project-based spend?

Yes, David, that's a difficult question to answer. I believe all $25 billion is somewhat influenced by last year's economic figures. Our business is fundamentally defensive and resilient, and demand remains quite strong. Pat mentioned certain aspects of our career business that are more vulnerable to economic fluctuations than others. When we analyze it, around 15% to 20% of our revenue is more sensitive to weaker economic periods. We find ourselves in an interesting situation; the economy is stable, not in a recession, yet we are experiencing softer conditions in specific segments due to the uncertain environment, prompting a defensive approach from some clients. It might be helpful to have Nick discuss our overall growth in Oliver Wyman this quarter, particularly where we observe resilience in the softer areas of the OW offerings.

Yes, absolutely. Thank you, and Pat touched on the career business, maybe a sort of complement to that. We always guide that Oliver Wyman will be a mid- to high-single-digit growth business through the cycle. And you all know that it has probably a wider range of growth as you go through that cycle. And I think we're extremely happy with how we've executed in a slower market. There were some timing and other idiosyncratic effects that slightly dampened Q2. But what we're seeing, there are many different drivers to our business. We're seeing positive trends like John talked at the beginning about the hunt for growth at the same time as efficiency and the need to invest in resilience. Many companies are finding that challenging. We're supporting many clients as they explore their AI strategies and what that does for their business, changes in supply chain, the challenges of the energy transition, these are all positive trends supporting growth in the business. That's balanced at the moment. Back to Jimmy's question, we have seen lower M&A. So some of our private capital work, some of the work we do in economic consulting is affected by that. And we are seeing client uncertainty. I don't want to further overuse John's word. But when lots of things change, there's a need for strategic advice. When people are not sure if things are going to change, they wait for a little while. And then we are seeing some of that as well. We also see on the supply side, continued excess capacity working its way out of some parts of the consulting industry. But as a whole, we're happy with the execution. As Mark noted, the Americas grew strongly. That was our fastest-growing region. Europe has done a good job of replacing some very large cloud programs, which have rolled off. The Middle East has done a great job of diversifying what has been a slowdown in the Saudi Arabian market but we're very broad across that region. On the industry side, insurance and asset management and our actuarial practice grew, again, well-diversified businesses. We have actuarial consulting in life in P&C and in health, all of which grew strongly. Our consumer telecoms and tech practices and our transportation and advanced industrial practices grew. So in the past, you may have heard me talking about other parts of Oliver Wyman. It's a very diversified business. And maybe just to echo some of the comments that Dean and Martin and Pat have all made, our pipeline of sales remains solid. We're very comfortable in our ability to manage the cost base. And we continue to find ourselves being an incredibly attractive home for established top talent in the industry who are eager to help build a new leader in strategy consulting, unincumbent by some of the challenges of previous models.

And our next question comes from the line of Alex Scott with Barclays.

First one I had for you is on just some of the rising medical costs that we're hearing about out there. I think a few companies have kind of cited it and changed guidance in the health insurance world. And just was interested if you could take us through some of the ways that impacts your business from a pricing standpoint and so forth.

Thanks, Alex, and good morning to you as well. I mean health care overall is an important part of our business. The biggest component of that, overwhelmingly, the component of our business is really helping our clients secure employee-sponsored health insurance and that enables them, of course, to compete for talent. Medical inflation is a stress point. There's on the one hand, extraordinary medical innovation happening, specialty pharma is an important part of the medical inflation calculation right now. So it's great innovation, but it's creating stress for our clients. We see it again in our own business, rising healthcare costs, particularly here in the United States. We also, at both Mercer and Oliver Wyman consult to the healthcare industry and helping them sort through some of the innovation, some of the challenges and complexities of the marketplace, some of the challenges around pharmacy benefit management as an example. So all are important parts of our business. Much of the employee-sponsored business that we support operates more on a fee or fee-like basis. So we're obviously thoughtful and transparent about how we get paid with our clients in a challenging environment. Pat, do you have anything to add to that?

No, I think you've made a good point, John. The important thing to note is that around the world, we have different fee and commission structures. In the U.S., which is a significant part of our business, we primarily operate on a fixed fee basis. This means we don't experience the full effects of inflation. However, medical inflation does increase demand for our services since it's a major concern for our clients. As a result, they are likely to initiate more projects and focus on planned design work to manage these costs. However, you cannot easily link medical inflation rates of 5.8%, 7.2%, or 10% to commissions for most of our client base. While some clients do operate on a commission basis, the majority in the U.S. are on a fixed fee structure.

Thank you, Alex, for your question. This is a significant aspect of our business and has seen substantial growth over the past couple of years. I believe this reflects the capabilities we offer our clients in the current inflationary environment. Do you have a follow-up?

Yes. So separate follow-up. I wanted to ask you about just technology, implementation of AI, et cetera. I mean, I know some of the stuff is probably still in reasonably early phase, but it seems like this could have a pretty big impact over the next year, especially on businesses that are more service-oriented. I just wanted to see where your head was at on it. I mean how big of a change do you think it will be? What are the impacts that you'd expect us to actually be able to see in the financials and so forth? And what would change the industry and your point of view from a consolidation standpoint?

I'm excited about the possibilities, Alex. We're starting to understand more clearly what some of those possibilities are. I've mentioned before the importance of moving quickly, creating efficiency, and gaining better insights. I believe our technology team has excelled in providing us with the tools to learn and experiment. Our tech team, along with our colleagues and the people function, has developed comprehensive training and support for our staff. I'm encouraged by how our culture has responded to these tools. We have a learning culture in our professional services firm, which is crucial, and I think this reflects that. Our team is embracing the tools, and we're beginning to see early signs and breakthroughs. One of the recent changes in analytics is worth discussing, and maybe I can ask our business leaders to briefly share some of what we've done. Pat, I'll start with you. We are making progress on an internal tool from earlier this week. How is this impacting analytics and what do you see in terms of our offerings to clients today and how that's changing?

Yes. I think the biggest area where it's impacting is, first off, we think it's going to create demand, especially on some of our career product side. And I would think we would enhance it into the other areas from a product perspective. We're introducing agentic AI interfaces into our product offerings that are going to allow clients to interact with the data and the products in an enhanced way. It will allow them to make it easier to get more value. We expect that this would increase demand. A specific example that we've got is we're adding an agentic AI interface that we call AIDA on our Talent All Access portal, which is something that we have out with more than 20,000 users out in the client world. So it's really where they're going to have access to our worldwide benefit and employment guideline database. It's going to update the user experience and really clients to query the database live versus use it in a more traditional way that they've typically had access to it. So we're really optimistic about the benefits that we'll bring to clients.

Yes. I mean, 25% to 30% of our work rests on advanced analytics and AI. We've been doing that for a very long time, and GenAI has obviously turbocharged that further and then Oliver Wyman has incredibly strong capabilities to support clients on their own AI journey. I think 95% of our clients see it as opportunity rather than threat. So everything from supporting governments in their national AI program offices through to helping clients build new businesses through to reengineering processes like the ones you described. And you mentioned consolidation. I do think in the advisory business, scale helps it and the fact that Oliver Wyman is part of Marsh & McLennan has access to our fantastic set of tools and buying power and so on is a real advantage for us compared to midsized consulting firms.

Building on that point, one of our significant analytics rollouts last year was our Centrist portal, which was developed extensively using AI to analyze company supply chains. We had a strong quarter launching that. Our clients are very enthusiastic about it, especially considering the tariff disruptions and various challenges like weather, climate, and geopolitics. Providing clients with visibility and productivity tools is transformative for us, and we are in a unique position to offer that. All of our Blue Suite of analytics is built on exclusive data. We have analyzed $1.12 trillion of premium, and our databases contain over $100 billion in claims, which gives us exceptional insights. Recently, we introduced an AI tool that overlays an agentic feature on our claims database, enabling clients to delve into it. We can compare how different insurance companies handle claims in various sectors, which helps us negotiate favorable terms for our clients. We can identify the latest claims trends and correlate that with premium data. This is a powerful tool. We not only possess excellent tools but also robust underlying data. We believe this creates a significant barrier against competition from startups with technology, positioning us very favorably. This approach is central to how we engage clients regarding risk management and the future of risk in a broader context. We aim to shift the focus from simply being linked to GDP, as we see risk as evolving and requiring real insights from our tools, and across our operations, we are exceptionally well-equipped with what we have.

Yes. Alex, certainly, Guy Carpenter's analytics platform might be the most important thing we do for clients, bringing value to our clients beyond the reinsurance transaction, and we really think our analytics platform is what differentiates us in our clients' eyes as they spend all their focus, managing volatility in this environment, thinking about profitable growth and maximizing capital efficiency. I think the greatest application for AI in our sector will be managing the impact of client change. Our clients want to know and they want us to help them manage catastrophe risk moving forward, looking at their portfolios, providing advice, helping them model future climate change impact, building proprietary models using AI. That will be the true differentiator for Guy Carpenter as we try to support our clients.

Thanks, Dean. So Alex, I'm encouraged, but it is still early to be clear. But our unique data sets, our capacity to invest and the progress we've made so far, I'm encouraged and I feel good about how we're positioned.

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

Two quick questions, if I can. First, John, you talked obviously about the pressure on the litigation system. Do clients appreciate that in terms of seeking additional cover? I know they're paying more for what they're getting. But is there more demand for protection?

Yes, it's a great question, Meyer. I think in this economic environment, and I talked about the work Oliver Wyman has done with the New York Stock Exchange. Many businesses here in the U.S. are trying to grind out earnings growth in a slower top line growth environment, right? So we're not seeing big take-up. What I can tell you we're saying to our clients, though, is that you can't buy enough excess liability insurance in this environment. Of course, not all clients are the same. Many are more exposed to this than others. And so there are some real challenges that many are confronting. And when we talk to them about whether it's nuclear verdicts or even outside of nuclear verdicts and just the rising frequency and severity in kind of more standard areas of risk, it's an eye-opening discussion. The nuclear verdict thing, many will maybe try to say, 'Hey, it's not us couldn't happen here kind of thing.' But our concern when we look at our portfolio is that it's just happening with too much for frequency across our economy here in the U.S. Do you have a follow-up here?

That's very helpful. Yes. Just a quick one. So Latin America organic growth slowed a little bit. I'm wondering, is that uncertainty? Or is it that the flip side of tariffs translating into deflation in markets in the U.S., is there any way of distinguishing that?

We encountered some unique challenges in Latin America, but year-to-date growth there is strong, and we feel confident about our positioning. Therefore, I wouldn’t make any significant conclusions based on the current macroeconomic environment. There exists a considerable protection gap in Latin America, presenting a significant opportunity for our risk business. This was just one quarter, and I wouldn’t jump to major conclusions from it. We have outstanding teams across all the major economies in Latin America, and we are very optimistic about our future there. I’d like to conclude the call now and express my gratitude to everyone who participated this morning. I also want to acknowledge our colleagues for their hard work and commitment, as well as our clients for their ongoing support and trust in our team. Thank you all, and I look forward to our next conversation next quarter.