Marsh & McLennan Companies Inc

NYSE:MMC

Earnings Call Transcript 2022-Q3

[Operator]

Welcome to Marsh McLennan's Earnings Conference Call. Today's call is being recorded. Fourth quarter 2022 financial results and supplemental information were issued earlier this morning. They are available on the company's website at marshmclennan.com.

Please note that remarks made today may include forward-looking statements. Forward-looking statements are subject to risks and uncertainties, and a variety of factors may cause actual results to differ materially from those contemplated by such statements. For a more detailed discussion of those factors, please refer to our earnings release for this quarter and to our most recent SEC filings, including our most recent Form 10-K, all of which are available on the Marsh McLennan website. During the call today, we may also discuss certain non-GAAP financial measures. For a reconciliation of these measures to the most closely comparable GAAP measures, please refer to the schedule in today's earnings release. [Operator Instructions]. I'll now turn this over to Dan Glaser, President and CEO of Marsh McLennan.

[Daniel S. Glaser, President and CEO]

Thank you, Andrew. 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 John Doyle, our Group President and COO; 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.

Today is my 60th earnings call at Marsh McLennan, and 40th as CEO. After 10 years as President and CEO, I will be retiring from Marsh McLennan at the end of the year. Leading this firm over the past decade has been the honor of a lifetime. Before I jump into our results, I'd like to say how pleased I am about the leadership succession we announced. The appointment of John Doyle as President and Chief Executive Officer, effective January 1st continues to underscore Marsh McLennan's deep trove of industry-leading talent. During John's tenure as President and CEO of Marsh, he drove exceptional revenue and earnings growth. And as Group President and COO, John is finding new ways to harness the capabilities of Marsh McLennan across our business, accelerating impact for clients, colleagues and communities. John has been an indispensable partner to me and the other members of our Executive Committee in shaping and executing our strategy. He knows our business well and is focused on delivering outstanding performance for clients and shareholders. I am confident that our extraordinary success will continue under John's leadership.

Marsh McLennan's third quarter results demonstrated strength on strength. Top line momentum continued across our business, extending the best run of quarterly underlying growth in over two decades. We generated strong top and bottom line results despite difficult year-over-year comparison. Underlying growth of 8% in the quarter reflects considerable strength across our organization. It represents the sixth consecutive quarter of 8% or higher top line growth, building on 13% growth a year ago. Adjusted operating income of $851 million was a third quarter record, and grew 12% on top of 19% in the third quarter of 2021. Adjusted EPS growth of 9% is excellent, especially given costs related to our strategic talent investments, the rebound of T&E, and 32% growth in the third quarter of 2021. We completed 500 million of share repurchases in the third quarter, bringing year-to-date repurchases to 1.6 billion, which is higher than any full year level of repurchases in our history.

While the economic and geopolitical backdrop is uncertain, we have a proven track record of being resilient through cycles and are well positioned. Overall, our third quarter performance highlights the strength of Marsh McLennan, a critical nature of what we do for our clients and the unmatched expertise of our colleagues. With that let me turn it over to John.

[John Q. Doyle, Group President and COO]

Thanks Dan and good morning everyone. I am honored to become Marsh McLennan’s next President and CEO, and grateful for the trust and confidence Dan and the Board have placed in me to lead this exceptional company. I'm eager to work with our colleagues in realizing new possibilities to serve our clients, create value for our shareholders, and support our communities.

I'm pleased with our third quarter results. We delivered strong growth despite a macro backdrop that is becoming more uncertain. We are delivering solutions to help clients navigate volatile economic, geopolitical, and risk landscape. As we discussed last quarter, there are aspects of the current environment that remains supportive of our growth. Higher inflation offsets lower real GDP growth, rising interest rates, boost our fiduciary income, and the challenging insurance market drives a flight to quality. We also have a track record of success and being resilient through cycles, and I believe Marsh McLennan is well positioned to perform.

I would like to take a moment to discuss Hurricane Ian, that’s had a devastating impact on the people and communities in Florida. Ian has the potential to be the costliest insured event in Florida's history and the second most damaging insured loss of all time. We are working with insurers to help our clients receive much-needed support. Insurance has a critical role to play in building homes and restoring shuttered businesses. Our work reinforces Marsh McLennan's purpose to be there in the moments that matter for our clients and communities.

Ian's Category 4 strength, incredible size, and slow pace resulted in tremendous damage. The cost of which is exacerbated by the effects of coastal development, the escalation of property values, general inflation, and persistent supply chain challenges. While the ultimate insured loss won't be known for some time, the impact on an already stressed property market will be significant. At mid-year reinsurance renewals, property market is already exhibiting strains. Following Ian, the property cat market is likely to tighten even further and perhaps see a significant supply-demand imbalance. We are harnessing our collective expertise, scale and capabilities to bring solutions to help our clients navigate this complex risk environment.

Turning to our third quarter financial performance, we generated strong results. Adjusted EPS of $1.18 is up 9% versus a year ago, which is impressive on top of 32% growth in the third quarter of 2021. Total revenue increased 4% versus a year ago and rose 8% on an underlying basis, with 9% in RIS and 8% in Consulting. This is a terrific result, especially considering the prior year third quarter underlying growth of 13%. Marsh had an excellent quarter. Growth was 8%, reflecting new business and strong renewal growth. Guy Carpenter grew 7% [ph] in the quarter, continuing its string of terrific results. Mercer grew 5% in the quarter despite capital market headwinds, and Oliver Wyman grew 13%, the seventh consecutive quarter of double-digit growth.

The third quarter saw adjusted operating income growth of 12% and our adjusted operating margin expanded 110 basis points year-over-year. Overall, I am proud of our third quarter performance, which demonstrates the strength and resilience of our business. Given our strong third quarter and year-to-date performance, we are on track for an outstanding year. We expect to generate high single-digit growth, underlying revenue, solid growth adjusted EPS and to report margin expansion for the 15th consecutive year. We are focused, aligned and succeeding together, as our results demonstrate.

Before I turn it over to Mark, I'd like to say a few words about Dan. During Dan's tenure at the helm of Marsh McLennan, the company has been transformed. Our revenue has nearly doubled, our adjusted EPS has more than tripled, and our market cap has quadrupled. Our scale and capabilities have been enhanced, and our talent is unmatched. Dan led our expansion into new client segments and launched Marsh McLennan Agency, which has grown to $2.5 billion of annual revenue, closed 100 acquisitions at just over a decade. Dan also successfully led the company's $5.6 billion acquisition, JLT in 2019, the largest in our history.

Most importantly, Dan has led our firm with vision, courage and integrity. Faced with the consequences of the pandemic, his values-first leadership ensured that the tough choices were made to safeguard our colleagues, to protect jobs and incomes, deliver for clients, bolster liquidity, and still produce significant growth. His decision were an inspiration to our colleagues and an example to the broader business community. Our financial performance speaks for itself, with Marsh McLennan's total shareholder return more than doubling the S&P 500 during Dan's stewardship as CEO. Less visible but even more significant is the sense of pride and the culture that Dan has instilled in the firm. Under his leadership, we are not only a great stock but a great company. We owe him our gratitude. So on behalf of our 86,000 colleagues, I thank Dan for his leadership. And with that, I'll turn the call over to Mark for further detail on our financial results and a discussion of our outlook for the rest of 2022.

[Mark McGivney, CFO]

Thank you, John and good morning. As Dan and John mentioned, our performance in the third quarter reflects continued momentum across our business. We saw another quarter of strong underlying revenue growth, meaningful earnings growth despite tough revenue and expense comparisons. Consolidated revenue increased 4% to $4.8 billion and reflected underlying growth of 8%. Operating income was 791 million, adjusted operating income was 851 million. Our adjusted operating margin was 19.6%, up 110 [ph] basis points from last year. The increase was driven by modest operating leverage and a benefit from foreign exchange. We generated GAAP EPS of $1.08 in the quarter, adjusted EPS of $1.18 up 9% yearly [ph]. For the first nine months of 2022, underlying revenue growth was 9%, our adjusted operating income rose 11% to $3.7 billion, our adjusted operating margin increased 60 basis points to 25.6%, and our adjusted EPS increased 12% to $5.38.

Looking at Risk & Insurance Services, third quarter revenue was $2.8 billion, up 6% compared with the year ago or 9% on an underlying basis. Operating income increased 32% to 529 million. Adjusted operating income increased 20% to 562 million, and our adjusted operating margin expanded 200 basis points to 22.4%. For the first nine months of the year, revenue was 9.7 billion, underlying growth 10%. Adjusted operating income for the first nine months increased 13% to $2.8 billion, with a margin of 31.1%, up 80 basis points from the same period in 2021.

At Marsh, revenue in the quarter was $2.5 billion, 5% from a year ago. Revenue growth of 8% on an underlying basis supported by strong retention and [Technical Difficulty]. U.S. and Canada had 5% underlying growth, a solid result considering a 16% growth in the third quarter of 2021 that included the benefit of significant M&A and SPAC-related activity. International underlying growth was 11%. Latin America grew 15%, Asia Pacific was up 14%, EMEA was up 9%. First nine months of the year, Marsh's revenue was 7.8 billion, underlying growth of 9%. U.S. and Canada was up 8%, International grew 10%.

Guy Carpenter's third quarter revenue was 328 million [ph], up 7% on an underlying basis, reflecting solid production and retention. Guy Carpenter has now achieved underlying revenue growth of 7% or higher in six of the last seven quarters. For the first nine months of the year, Guy Partner generated 1.8 billion of revenue and 10% underlying growth [ph]. In the Consulting segment, revenue of 2 billion was up 1% from a year ago or 8% on an underlying basis, building on 12% in the third quarter of 2021. Operating income decreased 14% to 350 million, reflecting a one-time noteworthy benefit a year ago. Adjusted operating income increased 3% to 362 million, where solid earnings growth was masked by a drag from foreign exchange. The adjusted operating margin expanded 20 basis points to 19.1%. Consulting generated revenue of 6 billion for the first nine months of 2022, an underlying growth of 9%. Adjusted operating income for the first nine months of the year increased 5% to 1.1 billion, the adjusted operating margin was 19.6%, flat versus the third quarter of 2021.

Mercer's revenue was $1.3 billion in the third quarter, up 5% on an underlying basis, which is impressive given the impact of market declines on our investments. Career grew 15% on an underlying basis, a sixth consecutive quarter of mid to high-teens growth. We continue to see strong demand for solutions in workforce transformation as well as compensation and rewards. Health underlying growth was also excellent at 10% in the quarter, reflecting strength across all geographies. Wealth decreased 1% on an underlying basis due to declines in both equity and fixed income markets. This market impact represented a 2% headwind to Mercer's overall growth for the quarter. However, solid demand and defined benefits helped mitigate [indiscernible]. Our assets under management was $318 billion at the end of the third quarter, down 8% sequentially and 20% from the third quarter of last year, due entirely to market declines and foreign exchange. For the first nine months of the year, revenue at Mercer was $4 billion, up 6% from underlying growth.

Oliver Wyman's strong momentum continued. Revenue in the third quarter was $667 million, an increase of 13% on an underlying growth. This comes on top of 25% of the third quarter last year and reflects continued strong demand across most geographies against solutions. For the first nine months of the year, revenue at Oliver Wyman was 2 billion, increase of 15% on underlying growth. Adjusted corporate expense was 73 million in the third quarter. Based on our current outlook, we expect approximately 80 million for the fourth quarter. Foreign exchange had an immaterial effect on our adjusted EPS in the third quarter, although year-to-date, you can assess a headwind of 7% [ph]. Assuming exchange rates remain at current levels, we expect FX to be a headwind of $0.07 in the fourth quarter. Our other net benefit credit was 57 billion. For the full year 2022, we expect our other net benefit credit be around 230 million [ph].

We reported an investment loss of 1 million in the third quarter on a GAAP basis. On an adjusted basis, we had investment income of $3 million [ph]. Interest expense in the third quarter was 118 million compared to 107 million in the third quarter of 2021. Based on our current forecast, we expect interest expense of 121 million in the fourth quarter. Our adjusted effective tax rate in the third quarter was 24.6% compared with 24.4% in the third quarter of last year, included a modest net benefit of discrete items [ph]. Excluding discrete items, our adjusted effective tax rate was 25% for the quarter. When we give forward guidance around our tax rate, not project discrete items, which is positive or negative. Based on the current environment, reasonable to assume an adjusted effective tax rate of 25% for the full year 2022.

Turning to capital management and our balance sheet, we ended the quarter with total debt of 11.4 billion. Our next scheduled debt maturity March of 2023 with 350 million of senior notes. Our cash position at the end of the third quarter was 802 million. Uses of cash in the quarter totaled 931 million, included 293 million of dividends, 138 million for acquisitions, 500 million for share repurchases. For the first nine months, uses of cash totaled 2.9 billion, included 840 million for dividends, 411 million for acquisitions, 1.6 billion of share repurchase. We continue to expect to deploy approximately 4 billion of cap in 2022 plus dividends, acquisitions and share repurchases.

Overall, we remain on track for a terrific 2022. For the full year, we expect to generate high single-digit growth in underlying revenue, solid growth in adjusted EPS, and to report margin expansion for 15th consecutive year. And with that, I'm happy to turn it back.

[Daniel S. Glaser, President and CEO]

Thank you, Mark. Before we open up the call for Q&A, I just want to say it has been a great privilege to lead this firm and work side-by-side with smart, creative and dedicated people. I am immensely proud of our colleagues and what we have accomplished. Together, we've grown, innovated and persevered. We launched and built MMA, expanded our capabilities in combination with JLT, and demonstrated resilience in the face of a financial crisis and global pandemic. We emerged as a better and stronger firm by relying on each other, living our values, supporting our communities, and staying focused on clients. I have always believed the greatness of our companies is in how we deliver in the big moments and the small. Under John's leadership, I know Marsh McLennan will continue to thrive and prosper, to make a difference in the moments that matter. There is no one I trust more with the company we've built together, and with the important work ahead.

I'd like to thank our clients for choosing to do business with us, our shareholders for their continued confidence, most importantly our colleagues. All that we have achieved is due to their efforts. With that, operator, we are ready to begin Q&A.

[Operator]

[Operator Instructions]. And our first question comes from the line of Elyse Greenspan with Wells Fargo.

[Elyse Greenspan, Wells Fargo Securities]

Hi, thanks. Good morning. First, Dan my congrats to you on your upcoming retirement. It's been great working with you through the years. My first question is on U.S. and Canada within RIS in the quarter. The growth did slow from where you guys have been trending. I know we've had some good and bad quarters as we've gone through the pandemic and came out. Was there anything specific going on in the third quarter that you want to point out within that business?

[Daniel S. Glaser, President and CEO]

Thanks, Elyse and I appreciate your comments. So thank you very much, and I hope to keep in touch with you. So let me just start out. I'll hand off to Martin in a second. Obviously, Marsh has been doing fantastically well, and U.S., Canada has done well as well. So I would just start by saying that the comparable was pretty tough at 16% growth in U.S., Canada last year. But Martin, do you want to dig in and give a little bit more color?

[Martin South, President and CEO, Marsh]

Thank you, Dan. Yes. Just to start, we are very pleased with the strong organic growth of 8% in the quarter, which is on top of 13% in the prior quarter 2021. Our growth is strong across all the geographies. EMEA was up 9%, Asia Pac, 14%, LAC was up 15% -- 5%, as you noted in the U.S. Overall, good year-to-date growth of 9%. And whilst the 5% is a slowdown, it was 16% in Q3 of 2021. When we look at the U.S. over a longer period, the U.S. and Canada is 8% year-to-date and 13% in the full year of 2021. Canada is doing extremely well, and the U.S. growth last year in the back half of the year, there was exceptional performance in M&A, SPAC, and capital markets activity, and we don't see that repeating in the volatility of the markets going forward. We made fantastic investments last year in producers that are focused on recurring business, so we feel we're very well positioned in the U.S. going forward.

[Daniel S. Glaser, President and CEO]

So basically, a lot of activity last year in M&A particularly in the back half of last year, which is not repeating and so that's a bit of a headwind overall. So nothing concerning. Do you have a follow-up, Elyse?

[Elyse Greenspan, Wells Fargo Securities]

Yes, thanks. My follow-up question is on the outlook for Guy Carpenter. You guys mentioned the loss that we saw from Hurricane Ian. From what we've been hearing, it really has the potential to turn on the catastrophe reinsurance market significantly next year. So what are you guys seeing there and can you just talk about how Guy Carpenter could benefit from a pretty hard reinsurance market in 2023?

[Daniel S. Glaser, President and CEO]

So why don't we start with John just to talk a little bit about the overall market, primary and reinsurance, and then we'll go to Dean. But John?

[John Q. Doyle, Group President and COO]

Sure. Thanks, Dan. So Elyse, the insurance markets remained challenging in the third quarter for our clients. Prices continued to rise in the quarter, although moderating slightly overall from where we were in the second quarter. Reinsurance markets though, are a different -- really a different matter. The property cat market in particular was tightening in advance of Ian. And then as I noted in my prepared remarks, we're likely headed to a much more challenging January 1 reinsurance renewal. So with that, maybe I'll ask Dean to jump in on some of the details of what we're seeing in the market today.

[Dean Klisura, President and CEO, Guy Carpenter]

Thanks, John. As we look forward, demand for our advice and solutions remains very strong, and we feel we're very well positioned to continue to create value for clients and grow our business moving forward. Demand for reinsurance, including cat properties, is expected to remain very strong as our clients manage volatility and continue to address systemic risk, including cyber and the impacts of climate change and the emerging perils we're seeing around flood, wildfire, and convective storms around the world continue to accelerate and concern our clients. The impact of Ian will certainly create challenging market conditions at January 1 in the property cat space. But as John noted, a tightening cat market could be a tailwind for Guy Carpenter, but we have a track record of strong growth in any market conditions.

[John Q. Doyle, Group President and COO]

Terrific. Martin, maybe you could talk a little bit about what we're starting to see in terms of the impact of Ian on the property markets, if -- that Marsh operates in, and then just probably what's happening in pricing in the marketplace?

[Martin South, President and CEO, Marsh]

Yes. Thanks, John. Well, we're into this -- into the 20th consecutive quarter of rate increases across the Board. We'll be announcing our rate survey at the end of -- in a couple of weeks' time. It will show 6% year-to-date in quarterly results in the property area. No question, there's going to be a strain in the property market, particularly for clients that have high cat exposures. We would have thought by now at this point in the cycle, after such consistent growth in property, that we have started to see some easing off. The reverse is going to be true, sadly, for our clients, going through for the back end of the year.

Across the Board, though, rates, so I'll just -- I'll give you some color on those, John. The composite rate is 6%, which is down a little bit from the last quarter. Casualty is up 4% still, as I mentioned, property is 6%. FinPro [ph] lines are down 1%. They were heavily weighted in the prior year from -- and in the prior quarter from D&O SPACs and cyber. And we've broken out -- we will be breaking out cyber especially this year, which is showing rate increases of 53%, and that's down a little bit from rate increases in the prior quarter, but still very strong rate increases. And some of the activity we've seen there is slowing down a little bit. But it's a healthy market. But of course, we're worried about our clients. And as we said, we're going to be looking for solutions to plan them and we see that as a potential demand driver as well.

[Daniel S. Glaser, President and CEO]

Next question please.

[Operator]

Thank you. Our next question comes from the line of Jimmy Bhullar with J.P. Morgan.

[Jamminder Bhullar, J.P. Morgan Chase]

Hey, good morning. I just had a question first on Oliver Wyman. I think there's concerns that if the economy slows down, that's a business that might be vulnerable to slower organic growth, but you've obviously had very strong results for the last several quarters. So if you could talk about what you're seeing in terms of pipeline and just what your expectations are for the business?

[Daniel S. Glaser, President and CEO]

Sure. As we've mentioned before, Oliver Wyman and Mercer's Career business are probably the most sensitive to the economic cycle, and it represents about 17% of our business. And both have been performing remarkably well over a long stretch of time. I mean, Mercer, as we mentioned earlier, Mercer's Career is up 15%, and it's their sixth quarter of double-digit growth in a row. And Oliver Wyman has had seven quarters of double-digit growth in a row. So if there are cloud somewhere in the future, we're not seeing them right today. But Nick, you want to give us more on Oliver Wyman?

[Nick Studer, President and CEO, Oliver Wyman]

Thank you Jimmy, yes. It is true that our market tends to prosper when the economy is healthy. But at the same time, when all the questions change, our clients need nuances. And I will say we're not seeing any reversal in our business and our pipeline continues to be robust. As Dan and Martin both mentioned, the M&A and SPAC cycle, we have seen slower pace on the businesses that thrive on M&A activity, and I suspect we won't be immune to some of the tough elements in the cycle. But our client offerings are less pro-cyclical than they were perhaps five years ago. We have a strong capability in risk management, a lot of work in performance improvement, both top line and bottom line. We've established a restructuring practice, so -- and I'd add, it's actually been an incredibly tough environment for quite a few years now in several of the sectors we serve with the effects of the pandemic. So for now, the pipeline remains strong.

[Daniel S. Glaser, President and CEO]

Yes. And the other thing about it is that even though the Career business and Oliver Wyman are more sensitive, they actually bounced back a lot quicker post a down cycle. So they're great businesses, we're glad we're in them. And overall, they provide us with leading growth over long stretches of time, and we're not overly concerned with short first. Do you have a follow-up, Jimmy?

[Jamminder Bhullar, J.P. Morgan Chase]

Yes. Just on fiduciary investment income. It's up, I think, around 10 times what it was a year ago and almost three times the sequential quarter. So obviously, there's a benefit there from higher interest rates, but wondering if that's all it is? And should we assume that it goes up further as rates have gone even higher since the end of the quarter or was there any sort of discrete items that benefited the 3Q results?

[Daniel S. Glaser, President and CEO]

Well, it's nice to say it was up 10 times. It started from a very -- Mark, do you want to talk about fiduciary income?

[Mark McGivney, CFO]

Jimmy, there was nothing unusual or one-time in the results. So as you noted, we have $4 million a year ago in the third quarter, it was 40 million in this third quarter and it just reflects the rise in global rates, so it's definitely a source of upside for us. Obviously, we have balances all over the world, and so we're dependent on rates moving in different jurisdictions, but there's generally a trend up. And just remember, we've got over 10 billion of fiduciary balances on any given day, so 100 basis points equals 100 million of income.

[Jamminder Bhullar, J.P. Morgan Chase]

Noted. And good luck, and congratulations.

[Daniel S. Glaser, President and CEO]

Thank you very much, Jimmy. Next question please.

[Operator]

Thank you. And our next question comes from the line of David Motemaden with Evercore ISI.

[David Motemaden, Evercore ISI]

Hi, thanks, good morning. And Dan, congrats on the retirement. It's been quite a ride. Congrats.

[Daniel S. Glaser, President and CEO]

Thanks, David.

[David Motemaden, Evercore ISI]

Just had a question on the hiring activity that's been picking up. Obviously, the tough comp in the U.S. just on the M&A side in Marsh makes it a little tough to see any impact. But I was just wondering if you could just comment on how much this quarter benefited from some of the strategic hires that you've made over the last year and half, two years? And maybe give us a sense of how much that should ramp as we head into 2023?

[Daniel S. Glaser, President and CEO]

Yes. So why don't we start with John, and maybe we'll go deeper. But John, why don't you take that?

[John Q. Doyle, Group President and COO]

Sure, Dan. David, we're very, very pleased. We continue to be just absolutely pleased with the strat hiring that we did last year. Not only are they producing, but we did a lot of work as we are hiring these folks to make sure that they're a right cultural fit, and that's proven to be the case as well. So we started with world-class talent. We think the best talent in the markets that we serve, and these folks have made us better. We serve our clients and teams, and they've fit in very, very nicely at both Marsh and Guy Carpenter, where we did most of it. We did some of the hiring in Mercer as well. But Martin, maybe you could just talk about the productivity to the -- of the hires.

[Martin South, President and CEO, Marsh]

John, thank you. And as you said, very, very happy with the investments that we made last year. We -- the cultural accretion to us has been significant. They've brought new skills, new insights to the firm, and they've spread it out like wildfire. We focus very heavily on the investments, as you know, in areas where we thought there was high recurring revenue growth to the point the question was, yes, we see these ramping up. Everything is penciling out exactly as we thought it would. In some areas, we're actually ahead of plan, so we continue to see this as a continuing add to our revenue or growth and our capabilities. Couldn't be happier.

[John Q. Doyle, Group President and COO]

So as you know, David, it's two to three years before they are fully productive. But we couldn't be more pleased with the progress to date.

[Daniel S. Glaser, President and CEO]

I don't want to sound like a Hollywood agent, but it is about the talent. We're a people business. It's the smart, dedicated, creative people attract other smart, dedicated and creative people. So we've got a mountain of talent within the company, and we would continue to build upon that. Do you have a follow-up, David?

[David Motemaden, Evercore ISI]

I do, yes. And just on the property cat market on the reinsurance side, it sounds like that's spilling over a bit into cat exposed primary. I'm wondering if you're seeing that at all starting to spill over into non-property lines at all or if you expect that to happen?

[John Q. Doyle, Group President and COO]

David, not at this point, and I would say I wouldn't expect that to happen. Of course, things are -- haven't even yet begun to settle, so there's a lot for us to learn. But as I noted in my prepared comments, this is a major, major loss, and so it will impact both the insurance and reinsurance markets, but principally in property.

[David Motemaden, Evercore ISI]

Understood, thank you.

[Daniel S. Glaser, President and CEO]

Next question please.

[Operator]

Thank you. And our next question comes from the line of Yaron Kinar with Jefferies.

[Yaron Kinar, Jefferies]

Thank you very much. Good morning everybody and I also want to congratulate Dan on a phenomenal career, and good luck in retirement. And good luck to John as well. Tough act to follow. I guess first question, going back to the reinsurance market and maybe the dislocation we're seeing in Florida, and more broadly in property cat. So I think I understand the rate environment, but at the same time, we're also hearing about maybe a dearth of capital, private reinsurance pulling out of the market, maybe public markets looking to take on some of that bucket, if you will. I guess, how are you envisioning the supply issue and how much of an impact could that have on overall growth next year? And related to that, I would think that a lot of your colleagues have actually never experienced a real hard market and certainly in Guy Carpenter. So how are you preparing them to address this new environment?

[Daniel S. Glaser, President and CEO]

Yes, that's a good series of questions, and it's certainly something that's been at the executive team table as we think through how to serve clients in this kind of environment. We've been in tough markets before, but your basic point about supply and demand, yes. Demand will outstrip supply. It's already outstripping supply, so it's just an extent of how quickly the market can adapt to that. Dean, do you want to give us more?

[Dean Klisura, President and CEO, Guy Carpenter]

Sure. Maybe I'll give you a little more color. Thanks, Dan. As John noted earlier, Ian's impact on already strapped property market could be significant. Prior to Ian, right, there seemed like there was increased demand from clients to absorb inflation and recent losses in the market, so we're already starting to feel that one-one stress. And as John noted, following Ian, we're really starting to see the property cat market tighten particularly in the U.S., with potential supply and balances in the marketplace. As you know, it's the third year in a row of $100 billion of cat losses in the market. And I would say it's going to be more, potentially more than just rate increases for U.S. cat exposed clients, right. Increased retentions, changes in coverage in terms, reduced capacity from individual players, and also the impact from the retrocession market, which could be significantly impacted as well. Some are discussing 25% of the retrocession capital being trapped by Ian and the market, and not replenished for January 1. So certainly, we've got some stresses there. However, I would say we're working very closely with our clients, leveraging our deep expertise in the market to work closely with clients to deliver successful incomes, and we're investigating new capacity in the marketplace. We've been working for several months with players around the world to bring more capital, more interest into the cat market on behalf of our clients.

[Daniel S. Glaser, President and CEO]

Yes, absolutely. And so it's one of those things, very tough markets really, in some ways, it's the period where Marsh McLennan shines the most. And so Guy Carpenter will do well but in any time where there's supply and demand imbalances you could have short-term pressures of something not being able to be placed, because there's not enough capital providers willing to write a particular line of business. But solutions will be found, and we're actively working for our clients in that area.

Any follow-up Yaron, although you asked about four questions. Give me another one, if you have one at the ready.

[Yaron Kinar, Jefferies]

I have one more, hopefully, shorter. Cyber, you mentioned very strong rate increases. I think that's also a continuation of a couple of years of strong rate improvement. That said, my understanding is that 2022 is starting to -- the loss experience is starting to moderate. How are you envisioning 2023 as far as rate increases and maybe increased demand, if rate increases are slower?

[Daniel S. Glaser, President and CEO]

John?

[John Q. Doyle, Group President and COO]

Yes, Yaron, I'm going to forecast the pricing environment for cyber. Price increases are moderating. I think you used the word improving, but I'm not sure our clients would -- at Marsh, would consider it an improving rate environment. We've had a lot of rate on rate. It's been a difficult market. What I would also note about cyber, well, ransomware, to some extent, I think, reflective of the reduction in ransomware in recent quarters. Underwriters have also responded to ransomware through higher retentions, lower limits, for example. Longer term, though, the cyber market is not near maturity. And so we're still working to bring more capital to the market, better solutions to the marketplace. But the cyber insurance market should be an area of growth for us for some time as we help our clients navigate the risks of a digital economy.

[Daniel S. Glaser, President and CEO]

Absolutely. Next question please.

[Operator]

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

[Meyer Shields, Keefe, Bruyette, & Woods]

Thanks, good morning, and I want to add my congratulations to Dan. I remember where Marsh was when you first came on board. You've done an absolutely phenomenal job.

[Daniel S. Glaser, President and CEO]

I had your headline from November of 2007, what else could go wrong? A statement, not a question. That was on my bulletin board for about five years there.

[Meyer Shields, Keefe, Bruyette, & Woods]

Well yes. Anyhow, quick question. Look, I'm trying to decipher how much politics is real. But a fair amount of opposition brewing in some parts of the country to ESG, and I'm wondering how that's impacting demand for ESG-related consulting?

[Daniel S. Glaser, President and CEO]

Sure. It's a great question. We're reading the same reports. Why don't we go first to Martine to talk a little bit about the Mercer investment side of the business and other areas of Mercer that are impacted, or that markets in ESG? And then we'll hand over to Nick Studer as well. But Martine?

[Martine Ferland, President and CEO, Mercer]

Yes, for sure. And thanks, Meyer, for the question. For us at Mercer in terms of environmental and social and governance, actually, we can work with clients on all three fronts; low-carbon economy, the transitions, sustainable investment. We help clients wherever they are in their philosophy of investment and their objectives to look at the market and the best risk and rewards [ph]. So our clients invest for the long run, and they look at the risk elements of their investment. And it's with that length that we're looking at the ESG factors with them. We don't see that kind of demand and necessity to look at risk. I mean, all through the Q&A today, we have talked about climate risk, for example. So we need to figure -- factor these risks in when we look at investment in all our clients get the returns that they're looking for.

Other elements, of course, CE&I, social minimum standards of benefit across the world, so we pay equity. We have a lot of work there with our clients that are focused very much on building diverse workforces and the whole governance elements around it. Whether it goes from executive compensation, to the way that they manage and govern their investment. Actually coming back to investment, it's been quite a rough year on the capital market this new year. But we've been working with clients and actually, we've been very busy on the -- consulting side of the house, in particular, to help client navigate that very intense headwinds and volatility in capital markets.

[Daniel S. Glaser, President and CEO]

Thanks. Nick?

[Nick Studer, President and CEO, Oliver Wyman]

Yes. I mean, and Meyer, in Oliver Wyman, the main focus of the three would be around the climate transition, and I think that backlash that you're seeing in some places is something we've expected for quite a while. There is a delicate balance to strike in -- especially the carbon transition between security and affordability, and the transition itself. But ultimately, when many sectors are trying to reverse engineer 200 years since Industrial Revolution in 20 years, there'll be actions which overshoot, there will be actions which take on greater resistance. But as it affects our business, our climate of sustainability practice is one of the fastest-growing areas of Oliver Wyman, most investment we've made over the last three or four years, and it continues to grow in the very high double digits. We're not seeing any reduction in demand. We are seeing that the questions are getting more...

[Daniel S. Glaser, President and CEO]

Yes. Thank you. Any follow-up?

[Meyer Shields, Keefe, Bruyette, & Woods]

Yes, just a brief one, maybe this is for Mark. I was hoping you could talk us through capital deployment plans as the cost of capital is reflected in the risk-free rate rises?

[Mark McGivney, CFO]

Yes. Meyer, I don't -- even though interest rates have come up and obviously, the weighted average cost of capital for the firm has come up as a result, we tend to value balance and consistency in our approaches, and they've served us well over a long period of time. So even though things have gotten a little more expensive in economic terms, it isn't enough to make us change our fundamental views on capital allocation, capital structure, things like that. When it comes to M&A, we've held ourselves to much higher return standards than our weighted average cost of capital consistently, and we'll continue to do that. But I don't think there's anything about the current environment that makes us change our basic strategy.

[Meyer Shields, Keefe, Bruyette, & Woods]

Thanks.

[Daniel S. Glaser, President and CEO]

Okay, next question please.

[Operator]

Thank you. Our next question comes from the line of Robert Cox with Goldman Sachs.

[Robert Cox, Goldman Sachs]

Hey, thanks for taking my question. So Latin America and Asia Pacific have been particularly strong. I was wondering if we could get a little more color on what's driving that relative to the U.S., is it higher inflation, higher pricing, market share gains, anything -- any color on that would be great?

[Daniel S. Glaser, President and CEO]

Sure. We'll begin with Martin in a second. I mean, in general, what we've seen in -- over, really, the last couple of decades is that you not only have regular higher levels of growth and a bit more inflation sometimes over long stretches of time in places like Asia and Latin America, but you also have increased insurance penetration. As the economy develops insurance becomes the underpinning for development, and so that has always been a benefit to us as well. Martin, do you want to give us more?

[Martin South, President and CEO, Marsh]

Yes. Thank you. And look, for the last few years as well, you've seen international has been slightly weaker than the U.S. That's rebounding, and we best to balance things so strong in our portfolio, so we're really pleased with the overall balance in our business. As Dan said, for Asia Pacific, very strong growth of 14%. We have a terrific franchise in Asia Pacific, pretty well unrivaled positions in almost all the markets there. So you could not buy what we have in that market. It's a mixture of in Japan, maturities and us having been there for such a long period of time and building the trust with the local community, and the carriers and doing more indigenous business. It's the protection gap that you see across Southeast Asia that's giving us share, it's strength in our benefits business across Asia, and the same for Latin America. We have an unbelievable franchise there, very strong businesses in all the big geographies in all the big markets in Latin America. There's some great strength there, but it's been relatively modest for a while. It's really a question of just getting market share and strength and a terrific leadership team.

[John Q. Doyle, Group President and COO]

And Dan, I would add that JLT made us stronger in both regions as well. Absolutely.

[Daniel S. Glaser, President and CEO]

Any follow-up, Robert?

[Robert Cox, Goldman Sachs]

Yes. Thanks, that's very helpful. And I just had a follow-up on Career. So there's been some favorable trends in Career driven by some of the changing dynamics in the labor market. How sustainable are those trends if unemployment rises a couple of points, could you still see strong growth given those underlying changes, or is that too optimistic?

[Daniel S. Glaser, President and CEO]

Martine?

[Martine Ferland, President and CEO, Mercer]

Yes. Thank you for the question, Robert. No, it's a good question. There's no doubt that coming out of the pandemic, the world of work has completely changed, and that has driven demand. But you look at all that's currently playing out, whether it's high inflation, it's labor shortage, it's emerging new skills that we have to help clients gravitate to reorganizing the way that you work. So we have talked before about the impact that recession has had in the past on the Career Services business. There's also the Career Product business, about half and half of revenue in that space. Career Product is actually more resilient through recessions. And Career Services, given the fundamentals that we see in the market today, we currently don't see any slowdown. Clients are really needing help to navigate all of the changes. We're not immune to a change in economic pace, but we rebound quickly, and we've -- we'll carry through. So, so far, so good.

[Daniel S. Glaser, President and CEO]

Thank you. Next question please.

[Operator]

Thank you. And our next question comes from the line of Brian Meredith with UBS.

[Brian Meredith, UBS]

Yes, thanks. And also just want to congratulate to Dan, and I want to echo Meyer's comments. It's an absolute pleasure watching you lead this organization for the last decade. Question for you first, M&A. What does the pipeline look like right now and particularly, as we kind of look at M&A here with private equity may be cooling off a little bit here, becoming a little more challenging, are you seeing a better pipeline here? And I'm assuming that John wants to outdo you on JLT here pretty quickly?

[Daniel S. Glaser, President and CEO]

Yes. Looking at his chops over there. No, the M&A pipeline is good. We -- as we've said a few times before in the past, we cultivate relationships over long stretches of time. We're less interested in the call from a banker saying, hey, something's going to market, we're inviting 10 people. You want to participate? And so for us, pipeline development and meeting as a core executive team on a regular cadence to review the pipeline and talk to potential prospects in the future, that's just a part of how we go about the business. As you know, we favor building our business through acquisition over share repurchase, but they sort of go in tandem. When we have a lighter year in M&A, we'll have more share repurchase sort of like this year when we have a heavy year in M&A, we'd have less share repurchase because our dividend is -- comes first and is sacrosanct. So when we look at the pipeline, the pipeline is good. We have a transaction that we've mentioned to you before in BT Westpac [ph] which won't close until next year. But still when we're thinking about the utilization of our capital, we're pretty much thinking that it's kind of well, it's partly this year and its partly next year regardless of when the cash goes out the door. And as you know, we've sort of average, if you exclude JLT, we've sort of averaged about $1 billion a year on acquisitions, and that's likely to continue.

[Brian Meredith, UBS]

Makes sense. Thanks. And then a quick follow-up here for Mark. Mark, any initial kind of thoughts on what the net benefit from pension could look like in 2023, given the big rise we've seen -- interest rates?

[Mark McGivney, CFO]

Brian, it's just really too early to tell. There's so much that goes into that that calculation of the other net benefit credit. It's really not until we see, with Mercer's great help, of course, the outlook for expected returns and our year-end valuation that we really formulate a view on that. So I think when we were back together in January, I'll have a perspective then.

[Brian Meredith, UBS]

Great, thank you.

[Daniel S. Glaser, President and CEO]

Thank you, take care. Next question please.

[Operator]

Thank you. And our next question comes from the line of Michael Phillips with Morgan Stanley.

[Michael Phillips, Morgan Stanley]

Thanks, good morning. First question is still back on the theme of property cat reinsurance, guys. How much of a real risk has it been that some business just simply is not going to get placed at the beginning of the year? And then how material could that be?

[Daniel S. Glaser, President and CEO]

John, do you want to start with that?

[John Q. Doyle, Group President and COO]

Yes, Mike, happy to jump back in on this. Again, it's still quite early, and so I think most reinsurers and insurers are planning and trying to decide how to best deploy capital going forward. As we, Dean and Dan and I have all discussed, we expect some level of disruption. It's going to be a challenging market. But again, we're using the capabilities of our entire firm to bring solutions to the market. Data and analytics, new investors, new facilities. And in some cases, it may mean clients retaining more risk, both insurers but also our retail clients as well. And we're the global leader in managing captives on behalf of our clients, and so it's an example. Now some of our clients may be pushed by the market to do that, and some may choose just given what might be elevated pricing, may more elect themselves to retain more risk. So we're going to work with them to help all of our clients accomplish their risk management goals.

[Michael Phillips, Morgan Stanley]

Okay, thank you. And then as you said, the property cat market was certainly hardening a bit before Ian, I think we were here in kind of low single digits -- I'm sorry, double-digit, but now we're hearing pretty massive increases. The question is, is that strict -- are those levels that we're hearing, pick a number, 30%, 40%, 50%, I don't care the number you would pick, but is that strictly just Florida or do you see such levels as well outside of Florida around the world?

[John Q. Doyle, Group President and COO]

Well, Mike, I think what you've seen over the last several years is cat losses have exceeded modeled estimates. So the market is underpriced, insurers and reinsurers broadly have underpriced the risk over that period of time, right. You can look at an extended period of time and, of course, get different outcomes. So the market is reacting to that. So you've also had an escalation of values that's happened in many cat-exposed markets as well. And then broadly speaking, inflation, creating some challenges.

So as I noted in my prepared remarks, we're heading to meaningful rate change prior to Ian in the 20%, 25% plus of range to cover inflation and against just the elevated weather-related events over the last several years. Now it's likely to, of course, be higher than that. And so in talking to reinsurers and insurers they're thinking about, again, about how to best deploy their capital going forward. They're in the business of taking these risks and will ultimately make choices about where to best deploy that capital. And what they're saying today is they want to reserve it for their best clients. On the reinsurance side, that might mean clients that they also support them in casualty and other lines as an example. And so thinking about Marsh for a second, it's an interesting market. We have a high net worth personal lines support inside of M&A, important business to us. This loss is going to be more of a small business and personal line loss, and so it won't impact our major accounts and really as much as other events have.

[Michael Phillips, Morgan Stanley]

Okay, thank you for the color. I appreciate it.

[Daniel S. Glaser, President and CEO]

Thank you.

[Operator]

Thank you. And our next question comes from the line of Ryan Tunis with Autonomous Research.

[Ryan Tunis, Bernstein Autonomous]

Hey guys, good morning. Just a follow-up on the fiduciary investment income. So we've had a number of years of really strong margin expansion where that hasn't played a role at all. Is it right, am I thinking about this right that this should be a kind of a separate and distinct margin tailwind on top of the type of margin expansion that we've seen over the past decade or is there investment potentially against some of that investment income?

[Daniel S. Glaser, President and CEO]

I mean, you're basically right in that fiduciary income, we didn't have. A lot of it is -- drops to the bottom line. So a lot of it is profit, and that will help margins in the future.

[Ryan Tunis, Bernstein Autonomous]

Perfect. And then a follow-up, I guess, for Martine, just in wealth, is there -- is there any way you can quantify with markets rolling over the type of impact that's having on organic growth?

[Daniel S. Glaser, President and CEO]

Please.

[Martine Ferland, President and CEO, Mercer]

Yes. No, thanks, Ryan. It has an impact. We commented on it, and as you can imagine, it's our what we call our OCIO business where we are paid in this point of the assets under management. It has been a very good business to us. It's been growing rapidly, but it is exposed to short-term volatility from capital markets. And based on the market value that we see at the end of Q3, we do expect a drag from capital markets to continue in the fourth quarter, as a reference, and I think we alluded to that in our script. In Q3, this has cost us about two points of margin at Mercer, four points on Wealth. [Multiple Speakers].

[Daniel S. Glaser, President and CEO]

So Mercer would have been more like a 7 instead of a 5, not 4.

[Martine Ferland, President and CEO, Mercer]

Yes. And we had 15% in Career and 10% in health, rounding this up. And also, it does help us on the DB [ph] consulting side where we consult with client when there's such impact on the capital market. Our portfolio is diversified, so that helps. We had also a great net -- coming to our funds, which will [Technical Difficulty].

[Daniel S. Glaser, President and CEO]

Okay. So it's a terrific business, Ryan. As we noted, the assets under delegated management are down about 20% year-over-year. But having said that, if you look over the decade -- over a decade, the CAGR on assets under delegated management is about a 20% number on a CAGR basis. So it's a great business. We're glad we're in it. But obviously, it's a headwind in the short term. Hopefully, in the short term.

[Operator]

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

[Daniel S. Glaser, President and CEO]

Thank you, and thank you for joining us on the call this morning. I want to thank our 86,000 colleagues for their commitment, hard work, and dedication to Marsh McLennan. And from the bottom of my heart, thank you for the trust you have put in me. Serving as CEO of Marsh McLennan has been an honor. Thank you.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating, and you may now disconnect.