Marsh & McLennan Companies Inc

NYSE:MMC

Earnings Call Transcript 2020-Q3

[Operator]

Welcome to the Marsh & McLennan Companies’ Conference Call. Today’s call is being recorded. Third quarter 2020 financial results and supplemental information were issued earlier this morning. They are available on the company’s website at www.mmc.com. Please note that remarks made today may include forward-looking statements, including certain expectations related to COVID-19 and other matters. Forward-looking statements are subject to risks and uncertainties and a variety of factors may cause actual results to differ materially from those contemplated by such statements. For a more detailed discussion of those factors, please refer to our earnings release for this quarter and to our most recent SEC filings, including our most recent Form 10-K, all of which are available on the MMC website. During the call today, we may also discuss certain non-GAAP financial measures. For a reconciliation of these measures to the most closely comparable GAAP measures. Please refer to the schedule in today’s earnings release. I’ll now turn this over to Dan Glaser, President and CEO of Marsh & McLennan Companies.

[Dan Glaser, President and Chief Executive Officer]

Thank you, Shannon. Good morning and thank you for joining us to discuss our third quarter results reported earlier today. I’m Dan Glaser, President and CEO of Marsh & McLennan. Joining me on the call today is Mark McGivney, our CFO; and the CEOs of our businesses, John Doyle of Marsh; Peter Hearn of Guy Carpenter; Martine Ferland of Mercer; and Scott McDonald of Oliver Wyman. Also with us this morning is Sarah DeWitt, Head of Investor Relations. We are pleased with our third quarter and year-to-date results, which demonstrate the continued strong execution and resilience of Marsh & McLennan in these challenging times. The economic impact of the pandemic continues to unfold. Governments swiftly provided necessary stimulus earlier this year and societies adapting as healthcare professionals continue to drive better health outcomes. Nevertheless, the consequences are likely to be with us for some time. This is not a sprint or even a 10-K. It is a marathon. Oliver Wyman’s pandemic navigator model and experts currently predict that even in the more optimistic scenarios, where a vaccine or therapeutics are developed and available, we are still unlikely to return to more normal conditions before the end of 2021. At Marsh & McLennan, we are prepared for the long-haul. The company has been resilient amidst the challenges of 2020. We are experiencing one of the worst recessions in history and our performance to-date is nothing short of outstanding in the circumstances. Times like these validate our purpose to make a difference in moments that matter. We’ve done just that by helping clients with issues of the day, including healthcare solutions, risk management, cyber, climate, enhanced resilience, digital transformation, diversity strategies among others. Our focus on risk, strategy and people is more critical than ever and our colleagues have demonstrated incredible dedication and agility. Supporting our colleagues is always a major priority and is even more critical during the pandemic. Just last week, we received the results of our most recent calling engagement survey. Our support has been validated by the results, which showed record engagement scores. Looking at our execution during this period, it’s been impressive. At Marsh, our year-to-date underlying growth is 3%. Guy Carpenter is having a strong year with 6% underlying growth for the first nine months. Consulting has experienced more of an adverse impact. We are pleased the effects are not as severe as we saw during the financial crisis. The expense discipline across the firm has allowed us to achieve strong margin expansion and 9% adjusted EPS growth year-to-date. Our solid earnings growth coupled with a firm-wide focused on working capital is driving significant free cash flow enabling us to increase our dividend complete acquisitions and remain largely on track with our de-leveraging plans. We achieved all this while at the same time, continuing to position the company for the long-term. We are pursuing strategic hires and seeing opportunity to benefit from industry consolidation. We continue to build out MMA through acquisition with 2020 seeing the most revenue acquired and capital deployed since we launched the business in 2009, and the pipeline is solid. In addition opportunities to benefit from new areas of growth, increase our penetration of existing markets, as well as achieve higher levels of efficiency. with the heavy lifting from the JLT integration, well behind us, we are connected, unified and focused on growth in all dimensions. We are executing well and I see opportunity to emerge from this period even stronger. The crisis proved that our workforce is agile and there was opportunity over the long-term to operate with greater flexibility, increase the use of technology, reduce travel, and shrink our real estate footprint. This will not only drive savings for shareholders, but increase colleague satisfaction and enhance our ability to bring the best of Marsh & McLennan to every client situation. In some ways, the crisis acted as a natural accelerant for collaboration and cross business activity. We are increasingly bringing together our businesses to help clients. For example, COVID-19 increased the cyber risk profile of nearly every firm and our businesses are working hand in hand to deliver holistic cyber advisory and insurance solutions to aid in mitigation, response and remediation. We are also bringing the businesses together to help clients address the climate risk. Marsh’s consulting, Oliver Wyman and Guy Carpenter came together recently held a major international bank, analyze and create a mitigation strategy on climate risk. Mercer, Oliver Wyman and Marsh’s consulting continue to come together to assist clients with return to office initiatives in the face of the global pandemic. By leveraging their combined data, we are providing clients with operational support, predictive models for reopening, financial planning, communication strategies, and overall benefit reviews. Underpinning these initiatives is the proprietary data and analytics from Oliver Wyman’s pandemic navigator model, which was recently recognized as one of the most accurate predictive models of COVID-19 cases and fatalities, and it’s utilized by the CVC. These are just some of the examples of the collaboration and innovation that support our continued growth potential. Let me spend a moment on current P&C insurance market conditions. The third quarter marks the 12th consecutive quarter of rate increases in the commercial P&C insurance marketplace. The Marsh Global Insurance Market Index increased 20% year-over-year versus 19% in the second quarter and 14% in the first quarter. Global property insurance was up 21%, and global financial and professional lines were up 40% while global casualty rates are up 6% on average and workers’ compensation pricing remain negative in the period. Keep in mind, our index used to large account business. However U.S. small and middle market insurance pricing continues to accelerate as well. Although the magnitude of price increases is less than for large complex accounts. Pricing continues to react to multiple external headwinds impacting insurer profitability and this is only exacerbated by COVID-19 losses, which continued to evolve. COVID-19 will be a law in complicated loss and the interpretation of various policyholder wordings will be determined in the courts over time. In reinsurance, price increases evidenced at the 4/1 Japan renewals and 6/1 Florida renewals continued into the 10/1 renewals. These were larger increases than at January 1, but primarily driven by loss impacted business. Guy Carpenter’s U.S. rate online index was up 12% year-over-year in July reflecting reduced alternative capital inflows, constrained retrocessional capacity and traditional reinsurers exercising caution regarding the amount of capital they are willing to expose in the face of wind, wildfire and developing COVID-19 losses. We are currently near the tail end of one of the most active hurricane seasons in U.S. history with a record level of named storms, making landfall while numerous aggregate losses were thankfully not as severe as they could have been. The P&C insurance and reinsurance markets overall are showing a heightened degree of scrutiny and risk selection with continue push for higher pricing. As the advocates for the client, we remain steadfast in our goal to deliver the highest quality coverage at the best possible terms. And these challenging market conditions highlight the value of the advice and services that Marsh & McLennan delivers. Now, let me turn to our third quarter financial performance. We delivered adjusted EPS growth of 6%, despite the global impact of COVID-19. Our EPS growth in the quarter reflects great execution on the part of our colleagues and continued expense discipline. Total revenue was unchanged versus a year ago at $4 billion and down 1% on an underlying basis. Underlying revenue grew 2% in RIS and declined 4% in consulting. In Risk and Insurance Services, third quarter revenue was $2.3 billion, an increase of 4%. Underlying revenue growth was up 2% in the quarter, reflecting solid growth of 3% in Marsh and flat at Guy Carpenter, which overcame a previously disclosed $17 million one-time benefit in the year-ago period. RIS adjusted operating income increased 24% to $388 million and the adjusted operating margin expanded 280 basis points versus a year ago. In Consulting, third quarter revenue was $1.7 billion. Underlying revenue declined by 4% for the quarter. Oliver Wyman immerses career business continue to feel the greatest impact from recessionary conditions. Consulting adjusted operating income declined by 5% and the adjusted margin expanded 20 basis points versus a year ago. Overall, adjusted operating income increased 9% versus a year ago to $638 million. Our adjusted operating margin increased 150 basis points to 18.4% adjusted earnings per share increased 6% versus a year ago to $0.82 per share. Even though the impact with COVID-19 may be far from over, our strong third quarter and year-to-date performance is evidence that we are executing well in this challenging environment. Given our excellent third quarter performance, our full-year outlook has improved. for the full-year 2020, we now expect underlying revenue to be roughly flat with growth in RIS offset by a decline in Consulting. In addition, we expect to generate mid single-digit growth in adjusted EPS for the full year. With that, let me turn it over to Mark for a more detailed review of our results.

[Mark McGivney, Chief Financial Officer]

Thank you, Dan and good morning. We’re pleased with our third quarter and year-to-date results, which demonstrate the resilience of our business as well as how well we are executing through the crisis. Despite a modest decline and underlying revenue in the quarter, we generated solid earnings growth, strong free cash flows and margin expansion in both segments. Overall revenue was flat in the third quarter and declined 1% on an underlying basis. Operating income in the quarter was $540 million, an increase of 15% over last year. adjusted operating income increased 9% to $638 million and our adjusted margin increased 150 basis points to 18.4%. GAAP EPS increased to $0.62 in the quarter and adjusted EPS increased 6% to $0.82. for the first nine months of 2020, total revenue growth was 3% with underlying growth of 1%. Our adjusted operating income grew 12%. Our adjusted operating margin increased 180 basis points to 23.8% and our adjusted EPS increased 9% to $3.77. in Risk and Insurance Services, third quarter revenue grew 4% to $2.3 billion with underlying growth of 2%. A decline in fiduciary interest income driven by lower interest rates served as 100 basis point drag on underlying growth in the third quarter and 60 basis point drag for the nine months. operating income increased 52% to $333 million. adjusted operating income increased 24% to $388 million and the adjusted margin increased 280 basis points to 20.2%. for the first nine months of the year, RIS revenue was $7.8 billion, representing growth of 8% and underlying growth of 3%. adjusted operating income for the first nine months of the year was up 20% to $2.1 billion. At Marsh, revenue in the quarter was $2 billion with underlying growth of 3% representing another solid quarter of growth considering the macroeconomic headwinds. U.S. and Canada grew 5% on an underlying basis in the quarter, led by strong growth in MMA. This marks the 13th consecutive quarter. The U.S. and Canada has delivered 3% or higher underlying growth. In international underlying growth was 2% with Asia Pacific up 4%, Latin America up 2% and EMEA flat. For the first nine months, revenue at Marsh was $6.2 billion with underlying growth of 3%. U.s. and Canada was up 4% while international was up 2%. Guy Carpenter continues to have a great year. Guy Carpenter’s revenue was $274 million in the quarter, which was flat on both the reported and underlying basis. As we disclosed previously, Guy Carpenter’s growth in the third quarter of last year benefited from the true-up of a multi-year contract. Excluding this item, underlying growth was 6% in the quarter and reflects continued solid results across the portfolio. For the first nine months of the year, Guy Carpenter’s revenue was $1.5 billion, 6% underlying growth. In Consulting, third quarter revenue was $1.7 billion. underlying revenue was down 4% in the quarter, reflecting the impact of the current crisis. adjusted operating income decreased 5% to $306 million while the adjusted margin increased 20 basis points to 18.9%. For the first nine months of the year, Consulting’s revenue was $5.1 billion, down 2% on an underlying basis and adjusted operating income declined 6% to $860 million. Mercer’s revenue was $1.2 billion in the quarter, down 3% on an underlying basis. Wealth underlying revenue decreased 3% led by a decline in DB. within wealth however, we continue to see growth in the outsourced CIO business and at the end of the quarter, our assets under management were approximately $321 billion. This 5% sequential increase was driven by strong new funding and marketing. health underlying growth is flat in the quarter and career underlying revenue was down 11%. Careers, where we have more discretionary projects business, which is seeing the most impact from the crisis. For the first nine months of the year, revenue at Mercer was $3.6 billion, down 1% on an underlying basis. Oliver Wyman’s revenue was $480 million in the quarter, a decline of 6% on an underlying basis. This marks an improvement from the pace of decline in the second quarter, and reflects stronger sales and continued solid delivery of projects. For the first nine months of the year, revenue at Oliver Wyman was $1.5 billion, a decline of 6% on an underlying basis. Turning to corporate. Adjusted corporate expense was $56 million in the quarter. Based on our current outlook, we expect approximately $58 million in the fourth quarter. We had $2 million of investment income on an adjusted basis in the quarter and we continue to expect the contribution from investment income for the balance of 2020 will be immaterial. On a GAAP basis, investment income was a loss of $14 million in the quarter, primarily reflecting a change in the market value of our remaining investment in Alexander Forbes. foreign exchange was a $0.02 headwind to adjusted EPS in the quarter. Assuming exchange rates remain at current levels, we expect FX to be a slight benefit in the fourth quarter. our adjusted effective tax rate in the third quarter was 26.5% compared with 25% in the third quarter last year. excluding discrete items, our adjusted effective tax rate was approximately 25.5%. Through the first nine months of the year, our adjusted effective tax rate was 24.6%, compared with 24.3% last year, and we expect the full-year rate to be between 25% and 26% due in part to an expected impact from discrete items in the fourth quarter. Turning to the JLT integration, I’m happy to report that the bulk of integration activity is largely behind this, and we have achieved the vast majority of the targeted savings, which is well ahead of schedule. We incurred $44 million of JLT integration and restructuring costs in the third quarter, bringing the total to-date to $516 million. The remaining work to be done consists primarily of ongoing technology application migrations and the further consolidation of real estate, which will continue through 2021. I want to take a minute and provide an update to our outlook for 2020. our 2020 outlook assumes recessionary conditions persist for the rest of the year. Despite this headwind, we expect RIS to generate underlying revenue growth for the full year offset by a decline in Consulting. at Marsh, we see underlying growth in the low single digits for Q4 and the full year, a solid result in the face of the pandemic. at Guy carpenter, we continue to expect mid single-digit underlying growth for the full year. Guy Carpenter’s fourth quarter could be impacted by difficult comparisons to last year although Q4 is a seasonally small quarter. We continue to expect Mercer’s underlying revenue will decline in the fourth quarter and be down modestly for the full year. Finally, revenue weakness in Oliver Wyman will persist through the fourth quarter. As we learn to live with the virus, we are progressively moving to a more normal course for business decisions. We expect fourth quarter adjusted earnings will be impacted by a sequential uptick in expenses due to a general loosening of spending restrictions, strategic hiring, and costs associated with employee related activity that would have taken place over the course of the year, but was delayed due to the pandemic. Despite this, we are raising our adjusted EPS outlook for the year to mid single-digit growth. In addition, based on this outlook, we expect our overall margin will increase, which would Mark our 13th consecutive year of reported margin expansion. We ended the quarter with $2.4 billion of cash, saw a sequential reduction in outstanding debt and have the entirety of our combined $2.8 billion of credit facilities available. We remain committed to deleveraging and we continue to expect to reduce overall debt this year. Total debt at the end of the third quarter was $12.7 billion, down from $13.2 billion at the end of the second quarter, reflecting the repayment of a $500 million one-year term loan ahead of its schedule maturity. Our next scheduled debt maturity is in December when 700 million of senior notes mature. Interest expense in the third quarter was $128 million. Based on our current forecast, we expect approximately $127 million of interest expense in the fourth quarter. While uncertainty remains high in the current environment, we feel the actions we have taken to secure additional flexibility along with our strong performance to-date positions us well to continue to navigate the crisis from a liquidity perspective. In line with our prior commentary, we did not repurchase any shares in the third quarter and do not plan to repurchase shares for the remainder of 2020. Uses of cash in the third quarter totaled $295 million and included $59 million for acquisitions, and $236 million for dividends. for the first nine months, uses of cash totaled $1.5 billion and included $753 million for acquisitions and $702 million for dividends. Overall, we are pleased with our third quarter and year-to-date results. We are on track to deliver a solid year, despite the ongoing global pandemic. our results reflect the strength and resilience of our company and our colleagues, and we remain focused on striking the right balance between delivering solid results today while continuing to invest for growth in the future. And with that, I’m happy to turn it back to Dan.

[Dan Glaser, President and Chief Executive Officer]

Thank you, Mark. and operator, we’re ready to go to the Q&A.

[Operator]

[Operator Instructions] Our first question comes from Mike Zaremski with Credit Suisse. Your line is open.

[Mike Zaremski, Credit Suisse]

Thanks. Good morning. I guess I’d love to hear more about parts of the consulting segment. That seems to be the area with a higher level of organic growth uncertainty, where we’re getting most of our questions incoming from investors. You’ll clearly improve margins there in the segment despite negative organic growth. Maybe, you can talk about some things that drove that the sustainability; is there more or less uncertainty in that segment going forward, given the pandemic seems to be causing some shutdowns again in Europe, so a broad question.

[Dan Glaser, President and Chief Executive Officer]

Yes. Sure, Mike. I’d start by saying; we’re we lucky to have a variety of businesses within Marsh & McLennan. With many consulting, as an example, we’d have businesses which have high degrees of recurring revenues, such as our health business and our investment business parts of our retirement actuarial business as an example. we have other parts of our consulting business like Marsh’s career business and Oliver Wyman, which are more project based. And then project-based work has an awful lot to do with general economic conditions and business confidence. So, it is a natural outcome for us to feel pressure on those businesses in times of recession or in times where there’s a high level of uncertainty, but we can navigate it as a total company and we understand that businesses. they are terrific businesses, market-leading fantastic businesses, and they make the overall company smarter as well. So, from our perspective, it’s the grouping together that matters the most and certainly, businesses that have less recurring revenue and more project work are under more pressure on times like these and that will continue, so that is – we felt it during the financial crisis and we’ll feel it now. Now, the bounce back can be very swift, because as soon as the turn happens and companies get back into business as usual, return to growth type of mode. Then that work picks up. I’m happy to say that both of those businesses are holding up better than during the financial crisis. because in the beginning of this crisis, we weren’t sure whether that would be the case or not and it has turned out that those businesses have proved to be more resilient than they were during the financial crisis. Anything else, Mike?

[Mike Zaremski, Credit Suisse]

Yes. I’ll switch gears to property and casualty insurance, rate increase momentum has accelerated. And I think a lot of your clients are seeing double-digit rate increases year-on-year now. for some of the carriers that doesn’t seem to be translating into as much top-line growth as we expected, even taking into account weak exposures. I mean, are you guys seeing more of your clients self-insure and just kind of – are you guys having to do more work there is that impacting your Marsh & McLennan at all? It feels like there’s – the market’s just so tough and challenging in certain places that corporates are – you’re having to help corporates to offset some of the pain per se.

[Dan Glaser, President and Chief Executive Officer]

Yes. It’s a great question and I’ll hand off to John in a second to address this, because it’s really Marsh question more than a Guy Carpenter one. The Marsh is tough and we’re on the side of the client, and we’re advocating for the client doing the best we can in the circumstances, in some ways, some level of the increases in certain parts of the business, are probably justified based upon loss levels and a soft market environment that has persisted for years. Although we don’t like the speed of the increases, ultimately, I don’t think that benefits the market or benefits our clients, when it snaps back in such a – in times harsh way. particularly, in this kind of environment, where clients, in certain industries, are really feeling a lot of pressure on revenue and survival, and then being hit with large levels of insurance increases, it’s a real tough environment and we’re doing our best for our clients in the circumstances. And John, do you want to add to that?

[John Doyle, Chief Executive Officer-Marsh]

Sure, Dan. Mike, I think obviously, every transaction’s got the mix of different factors that drive the outcome for our clients. That’s a very, very challenging market for them, especially given the atomic environment. So, we have putting aside the price and exposure aspect of what drives the ultimate premium that gets charged to the client. Some clients are being forced to retain more risk; it’s fewer, but whether it’s through higher retentions or in very, very few circumstances, where we can’t get the limit that we would like, or that our client would like, but with some level of frequency, clients are electing to retain more risks. So, it could be a higher retention. It could be bindless limit in certain cases, for example, in the D&O market, where there is a meaningful amount of stress in the U.S., UK and Australia, in particular, some clients are electing to buy A side only coverage; or where they do buy some B and C cover, they take down the limits, where they do by B and C. And so we obviously work with our clients very, very closely and are working hard to present their risks as best we can to drive the best possible outcome. And the other dynamic I would mention as well is we are seeing an increase in the number of captive formations as well. So, a lot of different strategies, obviously helping our clients navigate the market as best we can.

[Mike Zaremski, Credit Suisse]

Thank you. Nice quarter.

[John Doyle, Chief Executive Officer-Marsh]

Thank you.

[Dan Glaser, President and Chief Executive Officer]

Thank you. Next question, please.

[Operator]

Our next question comes from Elyse Greenspan with Wells Fargo. Your line is open.

[Elyse Greenspan, Wells Fargo]

Hi, thanks. Good morning. My first question, I guess starting on the revenue outlook within RIS and maybe, I’m zoning in, on Marsh strong results there, I guess, given on the backdrop that you alluded to Dan, in your opening remarks, how do we think about like, do you think the Q2 and the Q3 for that business specifically, I’m talking to Marsh represented the kind of the trough of the slowdown from COVID. I know there’s a lot of obviously uncertainty out there, but when we think about the fourth quarter and into 2021, I know you said that these conditions can persist into the end of 2021, but how should we think about that business specifically? It seems like it’s been pretty resilient and could the Q2 and Q3 be the trough and could we start thinking about things getting better just based off of what you know today?

[Dan Glaser, President and Chief Executive Officer]

Yes. Okay. So, it’s a terrific question. And I’ll start with it. and then I’ll hand off to John and also Peter, so they can address it in more depth. I’d start by saying we’re thrilled with RIS’s performance and yes, they have proved to be tremendously resilient market leading flight to quality types of attributes and I want to make one point, because fiduciary income is often ignored in the mix here and you just look at RIS’s underlying growth, 3% in the third quarter, rather than 2% and 4% year-to-date if I exclude fiduciary income. the reality is fiduciary income has dropped in half year-to-date, there was $80 million within RIS and now it’s $40 million. So, you look at our performance, not just top-line, but more specifically on the bottom line in overcoming the loss of that fiduciary income and growing through it, it was really an overall terrific performance. Now, getting to your real question is like is the worst over. I have to say it’s really impossible to say. We all want to say it, but it’s impossible to say that it’s only going to get better from here so much depends on COVID and the government response and the economic implications of any government response and so it’s really too early to say that we’re out of the woods. As we mentioned in our remarks, our experts within Oliver Wyman, who advised many governments, et cetera are really thinking that at the earliest, this model returned to what feels like normal, kind of this time next year. And so this is a long haul and we have to be prepared for the long haul. I think that one of the things that we can say, not only as Marsh & McLennan, but also as a society, we are resilient. We are learning. we are adapting and it should get better from here. 2021 should, in a macro basis, get better from here. And as you know, many of the prognosis on 2021 is that recession sometime, second, third quarter of 2021. And so it should be better, but it’s very difficult to call the trough. What I would say is we will grind through and power through any scenario. We will grow our revenue in almost all circumstances faster than we grow our expenses as we’ve done for 12 or 13 years in a row that will continue. But John, why don’t we start with you and then hand over to Peter?

[John Doyle, Chief Executive Officer-Marsh]

Yes. thanks, Dan. Look, I was pleased with our results. our team is highly focused and I’m very, very proud of them and what are very different circumstances for folks on a personal level, but also in a very, very difficult insurance market. Our U.S. business continues to grow well. Dan mentioned and Mark mentioned that the growth at MMA was very strong. Canada’s performing very well. Our MGA operations at Victor’s, we’re the largest MGA in the world performing quite nicely. internationally, I’m seeing good growth in Asia, in the middle East and Africa as well and a number of different specialties. Some are under pressure, of course, aviation and energy, as you might expect. But FINPRO is growing very well, construction actually, a good quarter for us. We grew nicely in credit lines as well. I mentioned earlier with Mike, some clients are deciding to buy a less insurance, one exception to that is in cyber. So, our cyber business is growing very, very well at the moment and we’re seeing particularly in the U.S. and in the UK, our clients elect to buy more limit there. So, as Dan pointed out, it’s difficult to project where things go, but I’m confident in our ability to perform relatively well. The other point I would make is just we’re as deep and as strong as we’ve ever been from a talent point of view. last year was a big year of change for us bringing JLT and Marsh together. We did a lot of work on our culture and becoming a team, and we weren’t doing it of course, in anticipation of a pandemic, but we really were coming together very, very nicely at a time when our clients need us the most. And so anyway, the teamwork there has been outstanding. Peter?

[Dan Glaser, President and Chief Executive Officer]

So Peter, I mean, it’s hard to talk about potential trough with you at 6% year-to-date, it is a – that’s a trough, I'll take it, but any comments Peter?

[Peter Hearn]

Yes. As I’ve said before, we built Guy Carpenter to produce consistent results regardless of the market conditions. And I think we’ve demonstrated that over the past three years, and while Q3 and Q4 tend to be seasonally small and by nature inherently volatile. I couldn’t be more pleased with our flat result given the fact that we had this one-time, multi-year true up from 2019 plus some negative timing. And on a normalized basis, we would have grown 6%. So, when I look at the year, when I look at the environment that we’re operating in, where there’s still a high degree of fear and uncertainty based on both prior years and the unknown relative to COVID-19. I think Guy Carpenter is well positioned. And then as I look at our new business growth for 2020, we’re on track for our fourth year of record, new business growth. So overall, I feel very good of how – where Guy Carpenter is positioned in the market.

[Dan Glaser, President and Chief Executive Officer]

Thanks. Elyse, any follow-ups?

[Elyse Greenspan, Wells Fargo]

Yes. thanks. That was very thorough. My next question is on the margin side, really good margin improvement, given the headwinds as well, 150 basis points in the third quarter overall, 180 year-to-date. Obviously, that’s a function of some JLT saves, some COVID-related savings that you guys have alluded to. I’m just trying to extrapolate this. So, 150 in the Q3, you guys have said margin improvement for the year. So that leaves a bit of a range for the – how the fourth quarter could turn out. just trying to think about the JLT saves, as well as some COVID saves that could persist, like how should we think about kind of the expense profile that there were some one-time items in the third quarter.

[Dan Glaser, President and Chief Executive Officer]

Yes. it’s another good question. And it’s a fair question, because we’re basically saying we’re at 9% growth of adjusted EPS growth year-to-date and will be mid single digit to the year, but for the year is not in our outlook? So, it sort of says, well, what’s happening in the fourth quarter? So, it’s a fair question. And I would just say, there was some loosening of expense controls in Q3 and we’re going, and that will increase in Q4. We are getting back progressively to a more normal pattern of our business and that will mean that there’ll be more hiring. Hiring is down this year. Our own level of turnover as a company is down relative to the years past. There’ll be some employee related actions as we position ourselves for 2021. And there’s some pent-up demand and some catch-ups that will happen in the fourth quarter, but if you take a step back from this, I just want to say that every company has sort of a natural cadence to both revenue and expense. And as we have demonstrated over many years, we understand that. And so therefore, in every single year, our revenue growth of upward down as we’ve seeded out our expense results. And when I look at our typical level of underlying expense growth, you look at the last five years, four of those five years, then there was 2% expense growth on an annual basis underlying, okay. Including 2% in 2019 and 2% in the first quarter of 2020 claims. So, 2% could be looked at as a natural sort of cadence of expense growth and that’s why we were having really good results over the last couple of years, because we were growing top line at 4% and we were having expense growth at 2% underlying as an overall company. In the second quarter of this year, we went from 2% growth on expense in the first quarter to minus five underlying expense growth in the second quarter. So clearly, we would hold back on discretionary expense and we set a high bar for what was actually necessary and required. in the third quarter, that became the minus four. So that’s going to continue. I’m not going to say whether it’s a minus three, minus two, minus one, it’s probably still going to be a minus, right. So, we are not going to grow expenses in the fourth quarter, year-over-year. But our expense growth will sequentially go up versus the third quarter, which also end up versus the – where we were in the second quarter. So, that’s sound, the right way to look at it from my perspective.

[Elyse Greenspan, Wells Fargo]

Next question, please.

[Operator]

Our next question comes from Phil Stefano with Deutsche Bank. Your line is open.

[Phil Stefano, Deutsche Bank]

Yes. Thanks. Good morning. So Dan, you had talked about in your – I think it was your prepared remarks, the potential for an uptake and expense actions that were delayed throughout the year and just thinking about all the uncertainties that we have in the world. And I think they’re totally understandable and warranted, but what gives you the confidence or the thought to start bringing back expenses and how do we think about the unfolding of catch-up over the next year or two, as we get to whatever normal is in that timeframe?

[Dan Glaser, President and Chief Executive Officer]

Yes. well, we all exist in the world, right. So at the end, our performance in part will reflect what’s happening with regard to the virus and what’s happening with regards to the general economic environment. I’m not saying that things with the virus are getting materially better. I do think that health outcomes are materially better than they were in the early stages of the virus, because doctors and healthcare professionals have adapted, they’ve learned. And so oftentimes, the results have been better. Hospitalizations are quite, not quite as severe and fatality globally are generally well down. It’s not the make line-up of any illness. I mean, an illness is an illness, but I think more importantly, the world is learning to live with the virus a bit. And so investment decisions are being made thoughts about next year and the year after are being made. The idea that the sun will rise in the future, that is the thought process within companies. And so our feeling is 2021 on a macro basis should be better. It may not be materially better, but it should be better than 2020. And then the other thing is we have now two quarters to look at where we were in this second of this crisis and look how our businesses performed. Our expectations were exceeded on both top and bottom line. Our consulting business held up it is non-recurring parts of it better than our expectations. Our RIS business, both in Marsh and Guy Carpenter have done phenomenally well in the circumstances. And our year-to-date result is very strong. So, that is our all learning from that and adaptability has given us the confidence to step out a little bit and say, okay, let’s – we won’t return fully to normal operations. And we’re still largely remote working, but progressively moving towards something that can feel a little bit more like normal. Like as an example we do performance appraisals every year, near the end of the year. We’re going to do that this year. We’ll do the same thing. And yes, maybe even be a little bit more awkward because it’s over Zoom and everything else like that in terms of having discussions. But it’s important for people to know, they’re either on track or off track doing a great job or not. And so we’re going to continue with that, the more – in more areas than the HR, but really across the piece digital transformation work, where I’m working on further integration activities. We find out this pressing ahead and going forward with some of the things that we delayed in the second and early parts of the third quarter.

[Phil Stefano, Deutsche Bank]

Got it. Thank you. And thinking about the out-performance at least based on our expectations for RIS and organic, I was hoping you could just help us think about, the economic benefit versus maybe what we feared a couple of months ago versus potential implications from two of your larger competitors going through a merger and any benefits that that may have?

[Dan Glaser, President and Chief Executive Officer]

Yes. I mean, in terms of, as I indicated in my initial remarks, our performance this year has been nothing short of outstanding. And that, and I’m saying that as a total company, RIS maybe in particular for total company, I mean, the protection of shareholders in the Consultant segment in a year where they’re challenged on the top line is remarkable and appreciated, and we’re continuing to execute well through Mercer and Oliver Wyman. So, I think as an overall company, like I said, it’s nothing short of outstanding. In terms of our competitors that we’re running our own, right. And we are focused on serving clients like never before they need us now, more than ever before, and supporting our colleagues in, standing up for each other. We wouldn’t trade our strategic positioning with anyone. And we believe that we will benefit from consolidation as clients and industry professionals consider their options in the future. Next question, please.

[Operator]

Our next question comes from Jimmy Bhullar with JPMorgan. Your line is open.

[Jimmy Bhullar, JPMorgan]

Hi, good morning. So, I have a couple of questions along the same lines of the discussion earlier. But any comments on the project pipeline at Mercer and Oliver Wyman? I think you mentioned you expect negative organic growth in 4Q, but based on what you’re seeing have these businesses bottomed already, or it’s hard to say given the uncertainty in the market?

[Dan Glaser, President and Chief Executive Officer]

That’s impossible to say in the uncertainty. I think we have to bear in mind that Mercer and Oliver Wyman are quite different in terms of their client segment. A part of Mercer and Martine can add more, more details to it. A part of Mercer in the career business is project related work, so in that way, similar to Oliver Wyman, which is almost all project related work. But a good chunk of Mercer has recurring revenue in a similar way to RIS and so it’s not quite as exposed to project work and the vagaries of the economic environment as Oliver Wyman is. So let me, let me hand off the first Martine, and then Scott, to talk a little bit about outlook and project pipeline, but I’ll start by saying we’re not highly uncertain environment. And so therefore, it’s impossible to say anything definitively at this stage in terms of trough or where we go from here, but Martine?

[Martine Ferland, Chief Executive-Mercer]

Yes. Thank you, Dan. Absolutely. So, as you said, career as for us is the unit that has the most discretionary project. So, we’ve seen a reduced demand there and some of the regular rewards and consulting work, but at the same time, we were able to help clients with their workforce model, their return to work, their reinvention, the transformation. It’s very exposed to the economic conditions though. So, we’re pleased to see that we had a better Q3, than Q2, but we cannot say whether the outcome what it will be because of course, it’s very related to the conditions out there and as we’re seeing lock downs continuing. If I pivot to health, for example, we’ve had aspects of our health business and has been super resilient. There’s been lots of demand for digital health, such as our Darwin platform solution voluntary benefit support from a health wellness and mental health issues and delights. But there’s a part of our health business, that’s also related to the head counts at our clients. And therefore, depending on the level of lay off that we say, we see some headwinds in that way. Although so far for 2020, it’s not been too severe. And finally on the wealth business, there’s a large part of the wealth business that is regulatory work that is recurring. So it can be resilient. We’ve had a little bit less of project work as the markets calmed down in Q3 versus the first half of the year, but the very bright spot is our OCIO business. So our implemented asset business we’ve seen improved capital market performance in Q3, but also very strong net inflows. And we had a very similar pattern during the global financial crisis where when you see volatility, uncertainty on the market, the client wants strong governance, agility and then transaction of assets, and a slight to quality. So, we’re seeing very strong inflows and very strong pipeline building in that business. So, that’s for Mercer.

[Dan Glaser, President and Chief Executive Officer]

Thank you. Thank you. Then in the financial crisis, Oliver Wyman decline six quarters in a row, including two quarters at 19%. So, at the end, this has been far more manageable than during the financial crisis, but Scott, you want to talk about your pipeline?

[Scott McDonald, Chief Executive Officer of Oliver Wyman Group]

Sure, I’ll try and give you some color, Jimmy. As you know, in the second quarter, we had a pretty severe contraction in revenues, not as bad as the financial crisis, but like most times of stress, it was really driven by our clients focusing on just immediate emergency issues as they dealt with the severity of the pandemic. But throughout, I’d say the back end of Q2 and Q3 we’ve shifted our portfolio to services to help clients manage the crisis. Think about the future, a strategic and operational challenges they’ve faced. And it’s been a really fruitful shift for us and recent sales have been very strong. We think, we’re improving our competitive position and we feel pretty good out there with our clients, but we do need the global economy to get back on track. We need business confidence to remain solid. And if that happens, there’s no reason we can’t get back to our historical growth rates sometime next year.

[Jimmy Bhullar, JPMorgan]

Okay. Thank you. And just on your reluctance on share buybacks this year. Not that you buy back a lot, but you have bought back some stock each of the last several years. So, what’s the reason – and the results have actually been better than expected this year. So, what’s the rationale or reasoning behind not buying back? Is it the macro stocks’ valuation like deals? Any insight into that.

[Dan Glaser, President and Chief Executive Officer]

Sure. Let, me hand over to Mark McGivney. So, Mark?

[Mark McGivney, Chief Financial Officer]

Sure. Hey Jimmy. I actually, the whole cash generation capital management story this year has been a great one for us. Remember back to some of the guidance we gave earlier in the year about capital deployment. We’re largely on track despite the pandemic with those plans. And if you remember coming into the year, the priority for dividend, acquisitions and the big chunk of the leveraging, and as I said, we’re largely on track with all of those. So, we raised our dividend. We’ve got a very active year for M&A, but despite the pandemic, as Dan said earlier, I think it’s actually remarkable as an M&A biggest year in terms of deal value and revenue acquired. So, we’ve been active on the M&A and a front, and we’re still committed to de-leveraging this was going to be a big year of debt paid down. And that’s really what you’re going to see in the fourth quarter. And we may actually see a little bit more M&A activity in the fourth quarter. So coming into the year, we didn’t say share repurchase was going to be that much in the cards and we’re coming in very consistent with the original plans coming into the year.

[Dan Glaser, President and Chief Executive Officer]

So that would bring us back into the future to our more balanced approach for capital management, where, as we’ve said to you before, dividends are priority dividend, relative to priority, we’ve put acquisitions ahead of share repurchase and we put share repurchase ahead of building cash on the balance sheet. So, 2021 may be a more normal pattern for us where you see more of a balanced approach.

[Jimmy Bhullar, JPMorgan]

Thank you.

[Dan Glaser, President and Chief Executive Officer]

Next question, please.

[Operator]

Our next question comes from Meyer Shields with KBW. Your line is open.

[Meyer Shields, KBW]

Thanks. Good morning. I don’t know if I’m overthinking this, but if you’re expecting full year organic growth to be flat overall, this might imply that the fourth quarter would have to be worse than the third quarter?

[Dan Glaser, President and Chief Executive Officer]

I mean, I think what we were giving you our outlook on that top line, we’re basically saying, Oliver Wyman will remain under pressure. The Mercer will have the amount of supplies for the year and probably the quarter. So Mercer is continuing in the category of around low single digit negative growth. And that Marsh and Guy Carpenter will grow in the fourth quarter. In total, the Carpenter would feel more pressure, but RIS as a segment would grow. So, I wouldn’t jump to the conclusion that the top line all that different than what we’ve been operating. What we did point to is that our significant levels of expense reduction that we’ve seen in the second quarter. And sequentially a little bit less expense reduction in the third quarter will be less expense reduction in the fourth quarter. And so our expenses will rise at a faster pace than, than what it has in the rest of the year, but we still expect our expense growth in the fourth quarter to be a negative number.

[Meyer Shields, KBW]

Okay. No, that’s helpful. Understood. One of the things Dan that you mentioned early in the call was strategic hires as an example of recovering expenses. And I was hoping it good talk about that a little bit, if in terms of the context of what, in terms of – I’m sorry, in terms of whether that will be something big enough for us to notice from our perspective on the outside.

[Dan Glaser, President and Chief Executive Officer]

It’s not going to be big enough to notice in our expense base. I mean, you look at it, we’ve got nearly 8,000 people around the world, and if you take a normal year, you’re probably looking at about 10% colleague turnover, which means that 8,000 people that are going to be coming into the organization in any given year. So, even if we have significant levels of strategic hiring, strategic recruitment we would absorb it in our regular expense space. So, you’re not going to see a pop and expenses as a result of that. I mean, in an odd quarter, you might, but over the course of a year, it wouldn’t turn up.

[Meyer Shields, KBW]

Okay. Perfect. Thanks so much.

[Operator]

Thank you. Our next question comes from Yaron Kinar with Goldman Sachs. Your line is now open.

[Yaron Kinar, Goldman Sachs]

Thank you, good morning, and thanks for squeezing me in here. I guess my first question is just trying to connect some of the dots, expenses are down nicely this year. It sounds like you still expect some revenue pressure in 2021. Just, as we’re still dealing with a COVID environment. I would think that would potentially create some expense pressure year-over-year into 2021. And clearly you’ve managed expenses very, very well over the years. So, I guess, how do you deal with that particular year-over-year pressure going on to next year?

[Dan Glaser, President and Chief Executive Officer]

I mean, all first of all, expense growth is a function of revenue growth. We expect our margins to be up in 2021 for the 14th consecutive year. We expect 2021 to be a decent year relative to 2020, because the general economic environment should be better and there should be better health outcomes as well. So, as I mentioned, were learning to live with the virus more. And from that perspective, time is our friend a little bit. So, I’m optimistic. I think we’re all optimistic about 2021, and performance and we’ll control our expense base, revenue within the overall company. We look at RIS is having large amounts of non-recurring revenue, great strategic positioning. At some point Consulting will come back strong, whether it’s 2021 or not, it’s too early get out. It’s certainly not going to be early in 2021 that we’ve see a massive bounce back because of the overall environment, but we’re optimistic. I mean, I look at this year, we’ve done better on the top line and bottom line than expected gives us a great foundation. We’re working now to position ourselves for a good 2021 and we’re ready to get to it.

[Yaron Kinar, Goldman Sachs]

Got it. And then my second question is specific to Marsh. If I look sequentially in first quarter, second quarter, third quarter, what are you seeing in terms of overall retention rates and overall new business generation? Are you seeing improvement of the new business, maybe improving retention rates any color you can offer on that would be helpful?

[Dan Glaser, President and Chief Executive Officer]

Sure. I’ll hand off to John. John, want to dig in there?

[John Doyle, Chief Executive Officer-Marsh]

Sure. Client retention is a very strong, it’s been, been strong throughout the entire year and it’s better than prior year. We had a very strong new business quarter in the first quarter. So, we got off to a very good start to the year, and in the second and third quarter new businesses down slightly year-over-year. But again, given the external environment very, very pleased with the outcome, and it’s not down across the board. So, for example, MMA grew its new business nicely in the third quarter. So, I’m encouraged by how we’re navigating the economic challenges.

[Yaron Kinar, Goldman Sachs]

And I guess specifically though on sequential changes, because I get that year-over-year, it’s going to be, you’re going to face some pressures, but I’m just curious as how it’s developing sequentially?

[John Doyle, Chief Executive Officer-Marsh]

I don’t have those numbers in front of me, but there – our quarters aren’t even throughout the course of the year. So, I do think the year-over-year is an important metric. Clearly, where we’ve seen more stress on the new business front is in a couple of areas, right? It’s – as you I’m sure would expect construction, infrastructure related things, transaction risk rep and warranty type business where the economic slowdown led to left lesser output and less opportunity for us. But again, I think there’s a flight to quality in the more recurring business. We’ve seen a pickup of late.

[Dan Glaser, President and Chief Executive Officer]

I also think the way to look at it Yaron is, that new business is relative to other companies, very soft. It’s just not as strong as it was last year, given the overall environment, but still the amount of new business that Marsh is winning is significant. I think that’s our…

[Operator]

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

[Dan Glaser, President and Chief Executive Officer]

So thank you for joining us on the call this morning. In closing, I want to thank our 76,000 colleagues for their hard work and dedication as we work through these challenging times. I also want to thank our clients for their continued support. I look forward to speaking with you all next quarter. Thank you.

[Operator]

Ladies and gentlemen, this concludes today’s conference. Thank you for your participation. You may now disconnect.