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Marsh & McLennan Companies Inc
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Welcome to Marsh McLennan’s Earnings Conference Call. Today's call is being recorded. Second quarter 2023 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 risk 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 included in 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.
Joining me on the call is Mark McGivney, our CFO, and the CEOs of our businesses; Martin South of Marsh, Dean Klisura of Guy Carpenter, Martine Ferland of Mercer, and Nick Studer of Oliver Wyman. Also with us this morning is Sarah DeWitt, Head of Investor Relations.
Marsh McLennan second quarter results were excellent. We performed well across our businesses and geographies extended the best run of quarterly underlying revenue growth in over two decades and generated double-digit growth in adjusted EPS.
Top line momentum continued with 11% underlying revenue growth on top of 10% growth in the second quarter of last year. Adjusted operating income grew 17% versus a year ago.
Our adjusted operating margin expanded 100 basis points compared to the second quarter of 2022 and adjusted EPS grew 16%. We also raised our quarterly dividend by 20% to $0.71 and completed $300 million of share repurchases during the quarter.
I'm pleased with our performance, especially when viewed in the context of the current macroeconomic and geopolitical environment. While the U.S. and other major economies have been resilient, there remain significant uncertainty given persistent inflation, continued central bank tightening and geopolitical instability. However, we continue to perform well.
As we have discussed in the past, there are factors that are supportive of our growth. We also have a track record of resilience and believe we are well positioned to perform across economic cycles. We manage our business to grow revenues faster than expenses in both good and challenging periods.
We've made meaningful investments in market facing talent and improving sales operations and client engagement, which are contributing to our growth. And we continue to deliberately shift our business mix to faster growth areas.
So, while the macroeconomic and geopolitical environment remains volatile, we see opportunity to deliver greater value to clients through our leadership and capabilities in risk, strategy and people. A good example is Marsh McLennan's work to aid Ukraine's economy.
Our four businesses together are mobilizing our unique expertise to support their future recovery and reconstruction efforts. In June, I attended the Ukrainian recovery conference hosted by UK Prime Minister Rishi Sunak. We have the honor of hosting a delegation of Ukrainian and British officials at our London offices where we announced proposals to help with Ukraine's recovery. Some estimates suggest over $1 trillion may be required for this effort. Yet investment capital will not be forthcoming until investors can protect themselves from war risk. To this end, we propose to Ukraine and the G7, the creation of a war risk insurance pool that would ensure commercial insurance is available for reconstruction projects.
We also announced that we will partner with the Ukrainian government and insurers to create a data platform for the assessment of war risks. This project draws on Marsh McLennan's expertise and leverages data and information provided by the Ukrainians. By enabling effective and targeted risk modeling, it represents a critical first step for the industry to offer commercial insurance and unlock capital.
Our colleagues at Oliver Wyman also partnered with the Ukrainian government to develop a post war transformation strategy. This would reposition Ukraine's economy in a way that leverages national strengths to move beyond resilience to opportunity. At Marsh McLennan, we consider it a privilege to support these endeavors.
Now I'd like to take a moment to provide an update on the strategic initiatives we discussed last quarter. As a reminder, in the first quarter, we appointed new leaders for Marsh McLennan International and U.S. and Canada as well as region and country leaders. These leaders are driving client impact through enhanced collaboration, while at the same time maintaining the individual value propositions of the businesses.
We are bringing our collective capabilities where there is opportunity to provide greater value. This allows us to harness the benefits of our scale, data, insights and expertise to meet our client’s challenges and realize possibilities. This approach is already yielding benefits and improving the client and colleague experience. At the same time, we are also finding new ways to operate, reduce complexity and organize for impact. The actions we are taking aim to realign our workforce and skill sets with evolving needs, rationalized technology, and reduce our real estate footprint.
As we said last quarter, we expect roughly $300 million of total savings by 2024 with total cost to achieve these savings of $375 million to $400 million. Our go-to-market collaboration and restructuring actions are an opportunity to drive higher growth, enhance the colleague value proposition and be more efficient and connected.
Turning to insurance and reinsurance market conditions, primary insurance rate increases continued with the Marsh Global Insurance market index up 3% overall versus 4% in the first quarter. Property rates increased 10% the same as last quarter. Casualty pricing was up in the low single-digit range. Workers' compensation was down low single-digits and financial and professional liability insurance rates were down high single digits. Cyber insurance pricing stabilized after several years of increases. In reinsurance, challenging market conditions persisted at mid-year renewals.
Reinsurers were disciplined and rate increases remained significant, although the market showed more interest in deploying capacity than at January 1, given the firm pricing and improved terms.
Global property cat reinsurance risk adjusted rates increased about 30% on average with loss impacted clients seeing higher pricing. The impact of rate increases on ceded premiums was mitigated by higher retentions. On the casualty side, pricing pressure continued across most lines driven by prior year loss development and concerns about social and economic inflation. We continue to help clients manage these dynamic market conditions.
Now let me turn to our second quarter financial performance. We generated adjusted EPS of $2.20 which is up 16% from a year ago. On an underlying basis, revenue grew 11%. Underlying revenue grew 13% in RIS and 8% in consulting.
Marsh was up 10%, Guy Carpenter 11% versus 6% and Oliver Wyman grew 11%. Overall, the second quarter saw adjusted operating income growth of 17% and our adjusted operating margin expanded 100 basis points year-over-year.
For the six months, consolidated revenue grew 10% on an underlying basis. Adjusted operating income grew 15% and our adjusted operating margin expanded 130 basis points. Adjusted EPS was $4.74 up 13% from a year ago.
Turning to our outlook, we are well positioned for a strong year in 2023. In terms of revenue outlook, given our momentum, we expect full-year underlying revenue growth to be high single-digits. This reflects a continuation of current trends, but as we noted, the macro outlook remains uncertain and can turn out to be different than our assumptions. As for the bottom-line outlook, we continue to expect margin expansion for the full-year and strong growth in adjusted EPS.
Overall, I'm proud of our second quarter performance, which demonstrates our continued execution on strategic initiatives and momentum across our business despite an uncertain macro environment. I'm grateful to our colleagues for their focus and determination and the value they delivered 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 outstanding with continued momentum in underlying growth, mid-teens adjusted EPS growth and solid margin expansion.
Our consolidated revenue increased 9% to $5.9 billion with underlying growth of 11%. Operating income was $1.5 billion and adjusted operating income was also $1.5 billion up 17%. Our adjusted operating margin increased 100 basis points to 27.7% a good result given the headwinds from the talent investments we made in 2022, the timing of our annual raises and the continued rebound in expenses such as T&E that we mentioned last quarter.
GAAP EPS was $2.07 and adjusted EPS was $2.20 up 16% over last year. For the first six months of 2023, underlying revenue growth was 10%. Our adjusted operating income grew 15% to $3.3 billion. Our adjusted operating margin increased 130 basis points and our adjusted EPS increased 13% to $4.74.
Looking at risk and insurance services, second quarter revenue was $3.7 billion up 12% compared with a year ago, or 13% on an underlying basis. This result marks the ninth consecutive quarter of 8% or higher underlying growth in RIS and continues the best stretch of growth in nearly two decades.
Operating income increased 20% to $1.2 billon. Adjusted operating income increased 18% to $1.2 billion and our adjusted operating margin expanded 140 basis points to 34.2%.
For the first six months of the year, revenue in RIS was $7.6 billion with underlying growth of 12%. Adjusted operating income increased 17% to $2.6 billion and the margin increased 170 basis points to 36.4%.
At Marsh, revenue in the quarter was $3 billion up 9% from a year ago or 10% on an underlying basis. This comes on top of 9% growth in the second quarter of last year. Growth in the second quarter reflected strong new business and excellent retention.
In U.S. and Canada, underlying growth was 9% for the quarter. In international, underlying growth was 10% and comes on top of 9% in the second quarter of 2022. Latin America was up 17%, EMEA was up 11% and Asia Pacific grew 6%. For the first six months of the year, Marsh's revenue was $5.8 billion with underlying growth of 9%. U.S. and Canada grew 8% and international was up 10%.
Guy Carpenter's revenue was $576 million in the quarter, up 10% or 11% on an underlying basis driven by strong growth across all regions and global specialties. For the first six months of the year, Guy Carpenter generated $1.6 billion of revenue and 10% underlying growth.
In the Consulting segment, second quarter revenue was $2.2 billion up 4% from a year ago or 8% on an underlying basis. Consulting operating income was $388 million. Adjusted operating income increased 9% to $403 million. The adjusted operating margin was 19.2% compared to 19.3% in the second quarter of last year.
For the first six months of 2023, Consulting revenue was $4.2 billion representing underlying growth of 6% and adjusted operating income increased 5% to $809 million. Mercer's revenue was $1.4 billion in the quarter, up 6% on an underlying basis, representing the ninth consecutive quarter of 5% or higher underlying growth in Mercer. Wealth grew 3% driven by continued strength in defined benefits. Investment management also delivered modest growth.
Our assets under management were $393 billion at the end of the second quarter up 11% sequentially and 14% compared to the second quarter of last year. Growth was driven by a modest rebound in capital markets, positive net flows and our transaction with Westpac. Health underlying growth was 10% and reflected strength in all segments and regions.
Career revenue increased 6% on top of 17% growth in the second quarter of last year. We continue to see demand for rewards, talent strategy and workforce transformation advice and solutions. With first six months of the year, revenue at Mercer was $2.7 billion with 7% underlying growth.
Oliver Wyman's revenue in the quarter was $798 million, an increase of 11% on an underlying business and reflected continued strength in the Middle East and Europe and a rebound in the Americas. With first six months of the year, revenue at Oliver Wyman was $1.5 billion, an increase of 6% on an underlying basis.
Foreign exchange was a $0.02 headwind in the second quarter. Assuming exchange rates remain at current levels, we expect FX to be a $0.01 headwind in the third quarter and a $0.01 benefit in the fourth quarter. We reported $65 million of total restructuring costs in the quarter, approximately $50 million of which relates to the program we announced in the fourth quarter. These charges include costs related to severance, lease exits and streamlining our technology environment.
We continue to expect total charges under this program to be $375 million to $400 million. To date, we’ve incurred approximately $300 million of charges and currently expect to incur most of the remaining costs in 2023. We still expect to achieve total savings of roughly $300 million by 2024, and now expect to realize approximately $200 million in 2023.
Our other net benefit credit was $60 million in the quarter. For the full year 2023, we expect our other net benefit credit will be about $240 million. Investment income was $3 million in the second quarter on a GAAP basis and $2 million on an adjusted basis.
Interest expense in the second quarter was $146 million up from $140 million in the second quarter of 2022. This reflects an increase in long-term debt and higher interest rates on short term borrowings, which we use for efficient working capital management. Based on our current forecast, we expect approximately $142 million of interest expense in the third quarter and approximately $567 million for the full year.
Our effective adjusted tax rate in the second quarter was 24.2% compared with 23.7% in the second quarter of last year. Our tax rate in both periods benefited from favorable discrete items. The largest discrete item this quarter was the accounting for share-based compensation. Excluding discrete items, our effective adjusted tax rate was approximately 25.5%. 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, it is reasonable to assume a tax rate between 25% and 26% for 2023.
Turning to capital management and our balance sheet, we ended the quarter with total debt of $12.6 billion. Our next scheduled debt maturity is October 2023, when $250 million of senior notes mature. We continue to expect to deploy approximately $4 billion of capital in 2023 across dividends, acquisitions and share repurchases. The ultimate level of share repurchase will depend on how the M&A pipeline develops.
Last week, we raised our quarterly dividend by 20% marking our 14th consecutive year of dividend growth. This increase, the largest in 25 years reflects our strong earnings growth over the past couple of years, confidence in our outlook.
Our cash position at the end of the second quarter was $1.2 billion. Usage of cash in the quarter totaled $1 billion and included $295 million for dividends, $421 million for acquisitions and $300 million for share repurchases. The first six months, uses of cash totaled $1.9 billion and included $591 million for dividends, $701 million for acquisitions and $600 million for share repurchases.
Given our strong results in the first half, we now expect high-single-digit underlying revenue growth for the full year. We continue to expect margin expansion for the full year and strong growth in adjusted EPS. This guidance is based on our outlook today, but as John mentioned, there continues to be uncertainty in the environment looking forward. So outcomes could be different than our current assumptions. Overall, our excellent start leaves us well-positioned for another great year in 2023.
And with that, I'm happy to turn it back to, John.
Thank you, Mark. Operator, we're ready to begin Q&A.
Certainly, we will now begin the question-and-answer session. [Operator Instructions]. And our first question comes from the line of Elyse Greenspan with Wells Fargo.
Hi, thanks. Good morning. My first question, you guys updated your organic growth guidance for the full year to high-single-digits. You guys started-off the year pretty strong at 10% organic growth through the first six months. So, trying to get a sense, as you think about the back half, what businesses might you expect to see some kind of moderation in right to get the high-single-digits for the full year? And then embedded within that guide, what are you assuming for fiduciary investment income in the back half of the year?
Good morning, Elyse. Thanks for the question. Yes, we're -- as I said, I’m quite pleased with the growth year-to-date, and the macro environment although volatile remains supportive of good strong growth, inflation, pricing, tight labor markets, our tailwinds. But, as I pointed out in my prepared remarks, we've been shifting our mix of business to better growth markets. We've been investing in talent, sales operations, client engagement. We've sold some non-core businesses and recently announced the sale of a non-core business. So, we've been working very hard at the growth profile of the company. And, our outlook remains quite positive. So, we upped our guidance to high-single-digits, it’s again a terrific start of the year. I feel like we're well-positioned. Our team is executing very well in the marketplace, and in spite of the volatile macro environment, I think we'll have a good second half of growth as well. We're not going to give specific guidance on fiduciary income, but you saw what it looked like in the second quarter, obviously meaningful growth and we expect that to likely continue in the second half.
Thanks. And then my second question is on margin. You guys had pointed right that the Q2 would see lower improvement than the other quarters of the year. Does that still stand and when you expect margin improvement to pick up in the Q3 and the Q4, and with the higher expense savings now $200 million this year, does the higher savings in 2023, do those all come in the back half or was that spread throughout the year?
Yes, I'll ask Mark to talk about the restructuring program, but I was very pleased with the margin improvement in the quarter and year-to-date 100 bps in the second quarter, 130 bps year-to-date. And, just a reminder for everyone, margins and outcome for us, it's not the primary objective, but we do expect to grow revenue more than expense over time, and we're constantly trying to balance with delivering today and investing for the future. I think we're getting that balance right. Our growth in both topline and earnings shows that. We did guide to less improvement in the second quarter, Mark talked about in his prepared remarks some of the drivers behind that. But again, I'm quite pleased with where we are. We expect solid margin expansion again for the 16th year. And, Mark, maybe you can talk about the restructuring program.
Yes. Hi, Elyse, how are you? Elyse, you see that we did take up the outlook for this year to $200 million but left the overall at $300 million. It just reflects the fact that we're executing well, and we've just gotten added a little bit quicker. And as we said last quarter, wouldn't be a bad assumption just to assume the savings comes in ratably across the year. And, I would say the same thing. It's just that we've gotten at the savings a little bit quicker. So, I would just assume a ratable spreading over course of the year as opposed to all the increase coming in the back half.
And we do have a bit of better second half comps from the expense -- on the expense line. So, thank you, Elyse. Operator, next question?
Thank you. And our next question comes from the line of Jimmy Bhullar with J.P. Morgan.
Hey, good morning. First, just a question on revenues in the RIS business, you've grown at a pretty fast rate the last several quarters and I think generally better than some of your larger peers, and part of that might have been just the benefit from the hiring activity that you've done over the past couple of years. Is the tailwind from that fully reflected in your results and has it fully ramped up or is there sort of more to go there?
Yes. Thanks, Jimmy. As I said, we’re quite pleased with our growth, pick up one of your words just a benefit from some hiring. As I noted, we've been working quite hard at shifting the mix of business, bringing in talent, improving our sales operations, including -- investing in client engagement, we made terrific inorganic investments as well. And so, it's much more than some of the lateral hiring that's in the market.
Having said that, we were quite pleased with the hiring we did, and we've gotten good returns from those investments. And, as I pointed out in the past not just -- we've not just been pleased with the financial outcome. Culturally, we were very thoughtful about, who we brought into the organization and they're not only helping us grow, but they're making us better as well. So, we're quite pleased with those investments.
And then just you mentioned -- sorry, go ahead.
No, I'm sorry, do you have a follow-up?
Yes, I was just going to say you mentioned macro and geopolitical a bunch of times and geopolitical obviously is understandable. Macro, from the outside and it seems like most of the factors are tailwinds more than they’re headwinds, the equity market strong, inflation's high, GDP growth is held in. So, maybe you could just elaborate a little bit on what is it that on the macro side that you see as a negative and specifically on inflation, if it stays elevated, is that -- obviously, it's a positive on your growth, but is it a positive on your earnings as well overall or is the benefit offset by just higher expenses in your own business?
Yes, it's a good question. I was trying to thread the needle a bit, right? I mean, again, the economy has been quite resilient, but inflation remains persistent. You're obviously beginning to see it come down here in the United States, but not at the level that the central bank seems to be targeting, with their mission to reduce inflation, that's going to have an impact on not just the market here, but in other markets. And so, I think there is still a meaningful risk of recession. And in fact, where we do have exposure in other parts of the world we have economies, in recession currently. So -- but I think you had it right, I think nominal GDP is a better indicator of demand for us rather than real GDP and -- excuse me and inflation, overall, we do think is beneficial to the company. We're not again immune to some of the challenges that we confront from an inflationary environment in our expenses, but overall, it's a bit of a benefit. And I would say, well, while equity markets, you pointed out equity markets have improved year-over-year, we've had some headwinds in our investment business from a growth perspective. Although, we're pleased with what's an improving growth profile year-to-date in Mercer investments.
Thank you, Jimmy. Operator, next question?
Thank you. And our next question comes from the line of Michael Zaremski with BMO Capital Markets.
Hey, great. First question, maybe I'll try to ask the Jimmy's question differently. So, in the RIS segment specifically, organic growth much stronger than consensus expectations, which is great. Any way you can offer any thoughts on whether a material portion of that kind of excess growth was market share taking versus just the entire maybe overall market conditions for the entire industry were stronger than maybe some expected?
It's a mix of impacts, of course. So, it's difficult to say, with real precision, Mike. But again, you've started to see inflation come down here in the United States. You saw -- and in many markets you're seeing GDP growth slow, P&C pricing moderated a bit in the quarter as well, tight labor markets though remain a positive factor. And overall, at least compared to the 2010 to 2020 decade, it's certainly -- we have more tailwinds than headwinds. But again, we've been working quite aggressively to shift our mix and to improve the growth profile of the company and not just be a passive index candidly on GDP or for that matter P&C pricing.
So again, we're pleased -- I forgot to mention when, Jimmy asked the question too, I talked about the economy a bit, but the geopolitical environment remains a risk as well, right? So again, just trying to thread the needle between what's been obviously a terrific first half of the year and what we think is a terrific outlook for revenue growth in the second half, but there's macro risk as well.
Okay. That's helpful. My follow ups on -- if you look at cash flow from operations, net of CapEx, if I'm doing the math right, it looks like it's growing at a pretty big clip. Do you expect free cash flow at this point to grow faster than earnings and any comments, if that's the case, your cash flow conversion will take a step up this year?
It could be a bit lumpier than earnings growth as we pointed out in the past and have demonstrated in the past, but maybe I'll ask, Mark to talk about the outlook for free cash flow growth.
Yes, thanks Mike. I -- we've, as I consistently say, we really try not to emphasize focusing too much on free cash flow growth in any quarter or even a year, it can be really volatile. Yes, as you point out in the second quarter, free cash flow was up quite nicely. If there is, we have to be careful especially early in the year for us, because it’s a bit of a low base issue, with our cash flows tend to be lower early in the year, as you know then later in the year. But look, we've had a terrific run over a long period time of double digit free cash flow growth that has tracked pretty closely to our run of double-digit earnings growth last decade and as we've talked about, we're confident in our outlook for continued strong earnings growth and what we would expect that our free cash flow growth in the future would track that as well.
Thank you, Mike. Operator, next question?
Thank you. And our next question comes from the line of Robert Cox with Goldman Sachs.
Hey, thanks for taking my question. Just thinking about the Marsh business, and I realize growth has been strong both domestically and internationally. But, if you look at those domestically and internationally, if you look at those two areas over the next say, the next year and the next five years, which are you most excited about?
Well, we're not going to give revenue guidance past, what we've given today past this year. But as I said, we're performing well. We're well-positioned. I think we have the best talent in the market, and I do believe we are capturing share, but maybe I'll ask, Martin to talk a little bit about the growth, so far this year and what you see for the rest of the year. Martin?
Thanks, John. As we said, we had a great strong organic growth of 10% in the second quarter, which is on top of 9%, which we posted in the second quarter of ’22, and better than full year growth of 8%. As you said, great balance international was 10%, Latin America is 17%, EMEA 11%, APAC 6%, U.S. and Canada 9%. I'd say the growth has been, it’s a really nice balance across all the geographies. The specialties growth was strong. Credit specialties, construction, aviation, energy and power strong, our advisory business, part of the risk advisor of the future, very strong double-digit growth. MMB was strong. Renewal growth was strong. So, it's just a nice mix of business across the board, both new business and renewal.
Yes. Thanks, Martin. And again, the consistency of growth has been just outstanding in addition to the total. Do you have a follow-up, Rob?
Yes, thanks. And so maybe switching to Oliver Wyman, growth came in well above the levels you guys had guided from last quarter. And there have been a number of positive economic data points as of late, do you see the pipeline reflecting that? And is it looking like growth in the back half?
Yes, we're – thanks Rob. We’re very pleased with the growth at Oliver Wyman. I'll ask Nick to talk a bit more about in detail. Nick?
Yes, thank you, Robert. We still see a relatively wide range of possible future outcomes. When we gave guidance at the end of the first quarter. That was based on what we saw in our sales pipeline, which was ticking up nicely, but not aggressively. In the second quarter, we saw quite strong growth in sales. It's a, I would say, a reflection on places where Oliver Wyman’s being selected to support our clients really transformative moments led by our public sector practice, led by our banking practice, transportation and services and our telco teams.
And then also some of our other businesses, our economic research consulting nearer and our brand consulting business, Lippincott showing strong growth and our digital practice is showing strong growth. So, I wouldn't say yet that it's correlated with economic uptick.
Clients need to use this for that performance transformation as well as for their growth strategy. But sales in the second quarter have been better than we've expected and in the near term, I'm relatively optimistic. And the longer term, the economic outcomes are still fairly widely ranged.
Thank you, Nick. Operator, do we have a follow-up?
I'm sorry. Next question actually that was the follow-up.
Question comes from the line of David Motemaden with Evercore ISI.
Hey, thanks. Good morning. Just had another question on the increased outlook to high single-digit for the year. Just sort of high-level question. Was that improved outlook more function of the results you've achieved to-date or has your outlook improved at all going forward?
Thanks, David for the question. It’s really a function of both, right? We've had again a terrific start to the year, very, very pleased with the growth. And again, not just growth in parts of the business, just broad based, good execution and a lot of hard work by the team and really a reflection of the value that we're creating for clients. And so, we remain positive with that outlook. And again, geopolitical environment particularly but also the macroeconomic outlook or there's volatility there. So, we want to be mindful of that, but we feel very good about the second half.
Got it. Thanks. And maybe just a question on Mercer career. So, I saw that decelerated a little bit, the growth decelerated, and the compare wasn't that much harder than the first quarter. So, I'm just wondering is there anything that you're seeing there on the pipeline front or just anything that would indicate that any clouds on the horizon?
Yes, thanks David. We love what we're doing at Mercer careers. Let me ask Martine to talk about our results here to-date.
Yes. Thanks, David for the question. And you touched on it. The quarter growth this quarter was on top of challenging 17% comparable for the second quarter of last year. Our quarter at 6% in Q2 now has also been impacted by the delay of start of certain projects. But I would say that the fundamentals for the business remain very strong. We have 9% growth year-to-date. The demand for service continues, our clients still grapple with labor shortages, wage inflation, dealing with new ways of working, tech in the workplace. We discussed generative AI with the clients.
So, you're right, it's also a business that has the largest opponent the discretionary compliance for us at Mercer and we are always watching the macroeconomics. But I would say at this point, our sales, our pipeline, client sentiments, very strong. So it continues to give us good visibility into strength for the third quarter and beyond.
So, I’m confident that the rest of the year will be good for career.
Thanks, Martine. Thanks, David. Operator, next question please.
Thank you. And our next question comes from the line of Mike Ward with Citi.
Thanks. Good morning. You called out global specialty in Guy Carpenter. Just wondering if you can discuss some of those trends and maybe the runway and how significant those impacts are?
Sure. Thanks, Mike for the question. Maybe I'll ask Dean we're quite pleased with our execution of what's been a very, very challenging reinsurance market in the first half of this year. But Dean, maybe you can talk about the growth of GC.
Sure. Thanks, John. We're very pleased with our 11% underlying growth in the quarter, 10% for the first half of the year. As you call out, we've seen strong growth across all of our regions in particular internationally and global specialties. Global specialties plays deeply in the retrocession capital market based in London and globally and there's been some capital challenges. Despite that, we've seen some capital inflow into the marketplace. But despite market conditions, our global specialty team continues to grow and perform impressively.
New business across Guy Carpenter continues to accelerate. Some of that's from all the talent that we hired we're winning in the marketplace. We're seeing very strong demand in this marketplace for analytics platform. Which we think is the best in the marketplace. Demand for our advice and solutions remains strong. I mean our clients are really experiencing and seeing a flight to quality works in a challenging market environment where capital is still constrained where reinsurers are driving really challenging terms and conditions, you want to be with the best.
I think also Guy Carpenter securities is differentiating in the marketplace. We did over 20 cap bond deals in the first half of the year with some of that new ILS capital coming into the marketplace. We've done ILS structuring for key clients. And so, I think there's just kind of real momentum in the business kind of globally. And of course, the market continues to be a tailwind. There's not enough new capital in the marketplace to change the trajectory of the pricing environment.
Thank you, Dean. Martin, maybe you could talk a little bit about the growth in specialties?
Yes. Thank you, John. As I mentioned earlier, that where we've seen really good growth in specialty areas being in the credit specialties, maybe not surprising given what's happening in the environment. Construction has been very strong internationally. Aviation and energy and power as those go through transition there and aviation is bounced back. So, feeling very good about that a little so take it with the advisory business as well where we -- the two businesses hang together. We're advising clients increasingly on how to manage that lost cost had to drive growth during the energy transition and so forth. So, all of those specialty areas we're seeing really strong growth and momentum and that's how we go to market. That's how we differentiate ourselves through that lens.
And in a world where the cost of risk is continuing to escalate our efforts to on risk consulting are really important to our clients and driving a lot of value, Mike. I also want to point out, it's obviously been particularly on the reinsurance side of late. But after several years of pricing increases, of course, at Marsh as well. It's a difficult market. We take our role as a market maker quite seriously. And in the quarter, announced a couple of different things that I would point out a multiline facility in London that we call fast track for our clients at Marsh. And then we also created a reciprocal inside of our MGA operations at Victor, as well trying to bring new solutions to what is a difficult market for clients.
Do you have a follow-up, Mike?
Thank you. Yes, that was super helpful. Maybe last quarter you spoke a little bit about developing counter cyclical products in Oliver Wyman. I’m just wondering if you can share some examples on that.
Yes, Nick, you want to talk about some of the capabilities we've been building inside of Oliver Wyman?
Yes, I mean, there are various of our sectors which are perhaps less exposed to the cycles. So, last year you saw we acquired the excellent Avascent business, which is aerospace and defence specialist as an example. So, some of our sectors we've been trying to position ourselves carefully through the cycle. And then on the capabilities side, we do a very large amount of work now in performance transformation. And that's not solely a downturn-oriented solution but it's needed when clients are going through either margin squeeze on the top line or the bottom line.
And then a couple of years ago, we started to build a restructuring practice, it's still very nascent, but we've seen very strong growth in that area as well. So that's just a few different examples.
I think the final point I'd make is that really from the pandemic onwards, we've seen a reduction in the correlation between our different industries. Some have been in downturn for quite a long time, some are working through their own sort of mini crises, which sometimes requires advisory support. And then some are quite cyclical, but I'd note that our private equity private capital practice, which obviously slowed considerably over the last three or four quarters has started to pick up and we're seeing activity there both pre and post feel. So that's a sort of bit of a picture across the business.
Thank you, Nick. Thank you, Mike, for the questions. Operator, next question please?
Thank you. And our next question comes from the line of Brian Meredith with UBS.
This is Weston Bloomer on for Brian. My first question is a follow-up on Oliver Wyman, obviously strong growth there. And you highlighted a few subsectors that saw the growth. I'm curious within financial services and banking, was any of that growth driven by the banking turmoil that we saw earlier in the year or more one-off opportunities? I guess I'm going with that too. Is that something that you think could play out in the back half of this year or 2024 just given the turmoil earlier in the year?
Thanks, Weston. And good question. Nick, maybe you could talk a little bit about -- you mentioned banking being a strength to-date, but maybe you could talk about the outlook.
Yes, there were different puts and takes in our growth numbers, but perhaps 35% to 40% of our growth was driven by our banking practice. As you know, that is really a preeminent business for us. And at the beginnings of that, crisis. We felt that was just adding to uncertainty may lead to some pauses in decisions which may slow down the pipeline. In the second quarter, we did see some work coming through from it. It's hard to separate out exactly how much is driven by crisis response versus banks preparing to get ahead of capabilities that they now know they need given the very different interest rate environment. There are a lot of the core essentials of the banking system, our muscles that haven't had to be used in the very low-rate environment we've had for a very, very long time.
And so, there is work on liability management, interest rate risk management, deposit management, the value of the branch network. Not to mention tuning ourselves up for the new tech and AI capabilities that might be helpful. But yes, we have seen that be a driver of some business already and we continue to expect that over the coming quarters.
Thanks, Nick. -- Yes. Go ahead.
And you highlighted that 35% to 40% of growth was driven within financial services. Have you given a real thumb, I'd always assume that financial services was the largest subsector within OI? Just want to confirm that that's the case or if you've given a breakout there?
We don't give a breakout. I mean, it's one of our strongest practices. It's also one of the largest sectors in management consulting globally. But it's, yes, one of our strength areas.
Got it. And then just one more within Guy Carpenter. Can you talk about the dynamic versus treaty versus FAC placements? In the kind of the growth outlook that you're seeing there. Are there more opportunities within FAC given just changes in buying or buyer behaviour?
Thanks, Weston. We've seen good growth in fact over the course of the last couple of years, both seated and client driven FAC, Oliver Wyman and excuse me, Guy Carpenter and Marsh work quite closely together to capture that opportunity and to make sure we're bringing all the available capital all over the world to our clients to help again navigate what's been a very, very difficult marketplace. So, the growth has been quite strong in both FAC and in treaty as well.
Thank you, Weston. Operator, next question please?
Thank you. And our next question comes from the line of Paul Newsome with Piper Sandler.
Good morning. Thanks for squeeze me in. I didn't think I heard much of anything about the M&A environment. I think we're all sort of waiting things to change their versus the --because of the interest rate environment changes, but any updated thoughts on M&A and how you see new environment there for yourself?
Yes, sure, Paul. We remain quite active in the market and have a solid pipeline. We're, of course, we continue to look for businesses with solid growth fundamentals that are well led and terrific talent and not only will they make us better, but hopefully we think we can make them better as well. I'd say the pipeline is pretty broad from both an RAS and consulting perspective. We of course did a big deal in Mercer investments on the 1st of April, so we're excited about that in Australia. We were just in Australia as a team. So excited about the acquisition there and what it means to our investments.
The market obviously the number of deals was down. Some buyers, primarily financial buyers are sitting it out at the moment, but strategic players are still quite active. And what I would say, demand is strong. For higher quality businesses that are out there. And so, while obviously the cost of capital has increased quite a bit. Priced assets are still trading at a premium. So, but again, we're excited about what's possible there. We've worked very hard and have built a very strong reputation as a buyer in the market and that creates a lot of opportunity for us.
Do you have a follow-up, Paul?
Yes. As a follow-up, could you talk about the divestitures that you've made and how important or maybe not important they are to the margin improvements over the last quarter or last year. I mean, I know they're small in size.
Yes. No, thanks. Sorry to jump in on you there. They are relatively modest in size, but we are being thoughtful about the portfolio in that respect. And for the most part, they've happened at Mercer. Again, we recently announced the divestiture of what really is an admin business primarily or really entirely an admin business. And so not core, lower growth, capital intensive, operations and candidly, there are better owners of assets like that than us, others that can bring greater scale and technology and solutions.
So, we don't expect to do a lot of it, but where we see the opportunity and it makes us better and stronger and enables us to invest in our core, we'll take steps to do that.
Thank you, Paul. Operator. Next question.
Thank you. And our next question comes from the line of Jing Li with KBW.
Hi there. Thank you for taking my questions. Just a question on Asia Pacific business. Can you add some color on -- since I see that just a rate of some for this quarter? So, do you expect it to continue for the coming quarters?
Sure, Jing. Maybe I'll ask Martin to talk about it, but we're very excited about the possibility for growth in Asia and in the Pacific, not just that Marsh, but across our businesses as I mentioned as a leadership team, we're recently in Australia and we see lots of possibilities. But Martin, maybe you could talk a little bit about the quarter and your outlook.
Okay. I think the important thing when we look at international, we like to look at growth over longer periods of time. With regard to APAC 6% underlying growth in the quarter. It's 8% year-to-date. We think that's much more indicative of what the growth would be like over a longer period of time. Likewise, we probably have slightly elevated growth in Latin America, we'd expect that to normalize over a period of time as well. So, I just think it's something that we're not worried about. We have a great business in Asia Pac and feel very confident about the future.
Lots of opportunities. It's one of the parts of the world where there's a meaningful protection gap. So, Jing, do you have a follow-up?
Yes. So, for this quarter, 6% I guess. So, you mean you guys mean it's kind of like a one-time thing. So, continue to be a double-digit kind of going forward?
Sure. Yes, we're not going to give specific guidance on Asia Pacific underlying revenue growth, but we do think it's an area, a region that we're very well positioned for strong growth going forward as we speak. As Martin mentioned, we're well positioned in that market. We've got terrific distribution throughout most major countries throughout the region and we're excited about it. It's one of the ways in which JLT made us quite stronger.
So, thank you, Jing. Operator, are there any more questions?
I'm showing no questions at the moment. [Operator Instructions].
Operator, we can wrap up if there are no more questions.
I'm showing we do have a question, a follow-up.
Okay.
One moment, please. Our follow-up question comes from Robert Cox with Goldman Sachs.
Hey, just one follow-up on the M&A spec and capital markets activity. Can you give us a sense of whether that continued maybe just directionally if that was more or less of a headwind in this quarter versus the first quarter?
Sure. Maybe I'll ask Martine to unpack our growth at Mercer Investments a bit, Martine?
Yes, absolutely. I mean, our OCIO business is grown really rapidly over the last few years. But as you know, it's been impacted by capital markets over the last many quarters. Although it does benefit from net AUM inflows, some of that volatility does drive demand for the OCIO service, What we've seen in Q2 is still a small drag due to year-over-year capital market, but based on the value that we see at the end of the quarter, it bodes well for the rest of the year small accretive growth from capital markets for Q3 as far as we can see from levels today. So, this is a good business for us. It’s about diversified portfolio, the volatility in the equipment market has come down. On the bond market, it's still a little bit elevated. But all of that has contributed to lower need on the client side for advice regarding the volatility, the funding of their pension plans, etcetera. It's been good for us and for our clients have been finding new ways to deal with the environment.
Thank you, Martine, and thanks Rob for the follow-up. I want to thank you all for joining us on the call this morning. In closing, I want to thank our over 85,000 colleagues for their hard work and dedication. I also want to thank our clients for their continued support. So, thank you all very much and we look forward to speaking with you next quarter. Operator, thank you.
Ladies and gentlemen, this does conclude today's program. You may now disconnect.