Marsh & McLennan Companies Inc

NYSE:MMC

Earnings Call Transcript 2019-Q4

[Operator]

Welcome to Marsh & McLennan’s Companies Conference Call. Today’s conference is being recorded. Fourth quarter 2019 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. Forward-looking statements are subject to risk and uncertainties and a variety of factors may cause actual results to differ materially from those contemplated by such statements.

For a more detailed discussion of those factors, please refer to our Earnings Release for this quarter and to our most recent SEC filings, 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 those measures to the most closely comparable GAAP measures, please refer to the schedule in today’s earnings release.

I will now turn the conference over to Dan Glaser, President and CEO of Marsh & McLennan Companies. Please go ahead.

[Dan Glaser, President and Chief Executive Officer]

Thanks, Holly. Good morning and thank you for joining us to discuss our fourth 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.

2019 was a remarkable year for Marsh & McLennan. We completed the acquisition of JLT. The largest deal in our history, while delivering strong financial results and managing the global integration. MMC is well positioned. Our talent capabilities, expertise and leadership have never been stronger. In addition of world class talented JLT compliments our best in class teams at Marsh & McLennan, and while we still have work to do, we feel good about how the cultures are coming together.

Nearly all our teams are now sitting together and more and more we are in the market working as one. We finished the year with revenue of $16.7 billion, up 11%. This represents our highest annual topline growth in 20 years and it is a step change for us. On a run rate basis, we now have over $17 billion of annual revenue. We had an excellent year and I’m pleased that in the midst of the integration we generated underlying growth of 4%.

The tenth year in a row where our underlying growth was in the 3% to 5% range. 14% adjusted NOI growth. 110 basis points of adjusted margin expansion and 7% adjusted EPS growth consistent with our guidance of modest dilution in the first year of the deal. We met our capital management objectives to reduce our share count and increase our dividend by double digits. And we are running ahead of schedule on acquisition related cost savings. We now expect run rate savings of at least 350 million and we will continue to drive for additional operating efficiencies.

Overall, I am pleased with our performance in 2019. We consistently challenge ourselves to balance delivering for today, while positioning for sustained growth in the future even in an exceptional year like 2019. We continue to invest in Marsh & McLennan Agency, our fast-growing U.S. middle market brokers business completing five acquisitions in 2019, resulting in current run rate revenue of 1.7 billion and we have a robust pipeline for 2020.

We made additional investments in digital, technology and analytics. We see further opportunity to leverage technology, to expand in small commercial, as well as streamline and automate our business. We also see increasing opportunity to leverage the collective strength, expertise in relationships across our business to deliver enhanced value to clients and drive growth.

Lastly, 2019 saw the seamless transition of leadership at Mercer with Martine taking over as CEO. Martine was critical to install new leaderships in key areas, energized the workforce and implement changes that streamline the operating model, create more efficiency and enables better execution. As we conclude 2019, we emerge a stronger firm than we started out the year with record revenue record adjusted operating income and record adjusted earnings per share.

As we look into the future, there is significant uncertainty in the world given current global issues by geopolitical risk, negative interest rates, trade friction, extreme weather and climate change, pandemic risk, and cyber risk. We come to the four in these dynamic times by providing trusted support to our clients in the areas of risk, strategy, and people.

Marsh & McLennan provided thought leadership on key global issues at the World Economic Forum in Davos. This was the 15th consecutive year we produced the annual global risk report together with the World Economic Forum. The report ranked some top global risk and this year climate and weather-related risk created the greatest concern. Climate change was the most prominent issues discussed at Davos, and there is glowing recognition of the urgency at both mitigation and adaptation.

We are engaged with our client across all of our businesses on helping them assess the impact of a change in climate. Mercer and Oliver Wyman had session on general quality, longevity, responsible investment, and AI readiness. Despite all the uncertainty in the world, I am optimistic. Business leader continued to push for growth and investment despite near term risk and fears about the longer-term implications of climate change.

The perspectives and insights we provide on these topics are a reminder of the uniqueness of MMC and the value we bring to our clients. Let me spend a moment on current P&C insurance pricing trends. Pricing is firming across a wide range of geographies and lines. The Marsh Global Insurance Market index saw an increase of nearly 11% in the fourth quarter, compared with 8% in the third quarter, 6% in the second, and 3% in the first.

Global property insurance and financial and professional lines saw the highest average renewal rate increases at 13% and 18% respectively. Casualty rates are up 3% on average, up slightly versus the third quarter. Commercial auto and excess cash we continue to see rates rising while workers comp continues to see rates decline. Note that the Marsh index skews to larger risks, which are seeing higher increases, although middle-market and small commercial insurance rates are up in certain geographies.

Turning to reinsurance, the Guy Carpenter global property catastrophe radar line index rose by 5% at the January 1 renewals. All those dedicated reinsurance capital increased by approximately 2% at year-end. Although renewal outcomes vary widely across individual programs, capacity is tightened in some stress classes like commercial auto, D&O, medical professional, and general liability.

The retrocessional market continues to see meaningful increases in rate at January 1, driven in part by track capital, a lack of new alternative capital entrants and continued redemption from third party investors. The overall global P&C insurance market is challenging and we continue to work hard to deliver the best solutions for our clients. In times like these where our expertise and capabilities shine.

Turning to the fourth quarter, we are pleased with our results. Our overall revenue growth in the quarter was 15%. Underlying revenue grew 3% with growth in both segments. Marsh grew 3% in the quarter on an underlying basis, which is solid, but slower than the prior quarter as expected due to a peak headwind on new business and a tough comparison for the fourth quarter of 2018.

Guy Carpenter finished the year strong with 10% underlying revenue growth in the quarter. Mercer delivered 4% underlying revenue growth in the quarter with strongest growth since the first quarter of 2018, and Oliver Wyman declined by 2% as we expected. The overall fourth quarter saw strong adjusted operating margin expansion of 100 basis points and adjusted operating income growth of 17%.

As we consistently say, it is important not to over emphasize a single quarter and rather look at performance over longer periods of time. Looking at the full-year, we are pleased with our results. We generated strong overall revenue growth of 11% for the full-year with 4% underlying growth. We demonstrated topline strength across our businesses, while achieving the initial benefits of the integration.

On an underlying basis, Marsh delivered solid growth of 4% for the second consecutive year. Guy Carpenter had a strong year with 5% growth. Mercer had 2% growth and Oliver Wyman grew 6% for the year, despite the pull back in the fourth quarter. Our adjusted NOI grew 14% with overall margin expansion of 110 basis points for the year, marking the 12th consecutive year we have reported margin expansion. Adjusted EPS grew 7% or 8% on a constant currency basis consistent with our guidance of modest adjusted EPS dilution in the first year of the JLT acquisition.

In sum, 2019 was an example of strong overall execution on multiple levels. As we look at 2020 and beyond, our future is bright. The addition of JLT enhances our competitive position. We are increasingly bringing our collective strength to clients and we expect to see benefits from our investments in digital and technology. In 2020, we expect underlying revenue growth in the 3% to 5% range. Margin expansion and strong adjusted EPS growth.

With that, let me turn it over to Mark for a more detailed review of our results.

[Mark McGivney, Chief Financial Officer]

Thank Dan. Good morning. We are pleased that our fourth quarter results, which capped a strong year in 2019. Consolidated revenue increased 15% in the quarter to $4.3 billion, reflecting underlying growth of 3% and the continued contribution from JLT. Operating income was $592 million, while adjusted operating income rose 17% to $856 million. Our adjusted operating margin increased 100 basis points to 21.9%. GAAP EPS rose to $0.76 and adjusted EPS increased 90% to $1.19.

Looking at risk and insurance services, fourth quarter revenue grew 24% to 2.4 billion and was up 3% on an underlying basis. Good result considering the tough comparison Marsh faced to its strong fourth quarter in 2018 and the fact that Q4 was JLT’s seasonally largest quarter. Adjusted operating income increased 31% to $550 million, and the adjusted margin expanded 200 basis points to 25.7%.

For the year, revenue was $9.6 billion, an increase of 17% and solid underlying growth of 4%. Adjusted operating income for the year was up an impressive 17% and our adjusted operating margin in RIS increased 60 basis points to 26.3%. At Marsh, revenue in the quarter rose 23% to $2.2 billion increasing 3% on an underlying basis. The U.S. Canada division underlined growth of 4% for the quarter and 5% for the full-year. This marks the seventh consecutive quarter of 4% or higher underlying growth for U.S. Canada.

In the quarter, the international division had underlying growth of 1% with Asia Pacific up 7%, Latin America up 2%, and EMEA down 1%. For the full-year, revenue at Marsh was $8 billion, an increase of 17% or 4% on an underlying basis. Guy Carpenter’s revenue was 152 million, an increase of 10% on an underlying basis for the quarter, representing an outstanding finish to a strong year. The growth in the quarter benefited from strong results in North America, as well as growth in retrocessional and an active quarter for GC Security. For the year revenue was $1.5 billion, an increase of 15% or 5% on an underlying basis.

In the Consulting segment, fourth quarter revenue increased 4% to 1.9 billion with underlying growth of 2%. Consulting adjusted operating income was flat year-over-year at 359 million and the adjusted operating margin of 19.7% declined 60 basis points versus a year ago, but looking to full-year margin expansion is solid. For the year, revenue was 7.1 billion, an increase of 5% with underlying growth of 3%.

Adjusted operating income for the year was up 9% to 1.3 billion and our adjusted operating margin increased 90 basis points to 18.6%. Mercer’s revenue increased 8% in the quarter to 1.3 billion with underlying growth of 4%. Wealth increased 2% on an underlying basis with investment management up high single digits and define benefits download single digits.

Our overall access under management continue to grow. At year-end, exceeded 305 billion, up 5% sequentially and 26% year-over-year. Health revenue grew 6% on an underlying basis in the fourth quarter, reflecting strong growth in both international and in the U.S., Career grew 4% on an underlying basis with strong growth in serving products and digital implementation.

For the year, revenue at Mercer was $5 billion, an increase of 6% or 2% on an underlying basis. Oliver Wyman’s revenue in the fourth quarter was $559 million, a decline of 2% on an

underlying basis. As we said on our last call, we expected a full backing in the fourth quarter. For the full year, Oliver Wyman produced strong underlying revenue growth of 6%. We made great progress in 2019 on the JLT integration and are on plan or ahead of schedule on key milestones.

We continue to expect the transaction when we modestly diluted to adjusted EPS in the first quarter, mutual in year two, and accretive in year three. We are ahead of schedule on cost savings and restructuring actions. We now estimate run rate savings of at least 350 million. We expect to incur approximately $625 million of cash cost to generate those statements.

In addition, there will be approximately 75 million of non-cash charges, mostly property-related cost as we consolidate our real estate foot print. We achieved approximately 125 million of savings from year-end 2019 and expect to achieve the balance by the end of 2021. We also encouraged 335 million of JLT integration and restructuring cost in 2019 to achieve these savings.

It is our expectation that the bulk of the remaining costs will be incurred in 2020 with a more modest amount extending into 2021. This update reflects the plans we have today, and as we continue to get deeper into the integration there is a possibility for more savings opportunities to emerge. As we look to the first quarter of 2020, keep in mind that the last quarter were our year-over-year comparison is impacted by JLT. Remembering RIS the first quarter is seasonally small for JLT.

In addition, JLT’s employee benefits margins are relatively low in the first quarter and we expect this along with some quarterly volatility will result in decline in first quarter Consulting margin. However, for the full year, as Dan mentioned, we expect strong earnings growth consolidated adjusted operating margin expansion.

Turning back to the fourth quarter, adjusted corporate expense was 53 million in the quarter. Fourth quarter, we recorded 264 million of noteworthy items. The majority of which are related to the JLT acquisition. Included in this total are 143 million of JLT integration cost, largest categories which is severance, 17 million of JLT acquisition-related costs, 56 million of other restricting costs, and 42 million of earnout true-ups relating to prior acquisition.

As we typically do on our fourth quarter call, we will give a brief update on our global retirement plan. Cash contributions to our global defined benefit plans were 122 million in 2019, up slightly from the 112 million in 2018. We expect cash contribution in 2020 will be roughly 160 million. For 2020, we anticipate our other net benefit credit to be slightly lower than in 2019. Based on current expectations we would assume roughly 264 million for this item in 2020.

Investment income was 2 million in the fourth quarter for both GAAP and adjusted results. For the full-year 2019, our GAAP investment income was 22 million and adjusted investment income was approximately 12 million. For 2020, we expect only modest investment income on an adjusted basis. Foreign exchange was a slight headwind for adjusted EPS in the quarter and is up $0.05 per share negative impact for the full year 2029.

[Assuming] exchange rates remain at current levels; we expect FX to be at slight headwind from adjusted EPS for 2020. Our effective adjusted tax rate in the fourth quarter was 23.4%, compared with 23.6% in the fourth quarter last year. For the full-year 2019, our adjusted tax rate was 24.1%. Excluding discrete items, our adjusted tax rate for the full-year was approximately 26%.

When we give forward guidance and have our tax rate, we do not project discrete items, which can be positive or negative. Based on the current environment it is reasonable to assume a tax rate between 25% and 26% for 2020. In the fourth quarter, we repurchased 1.8 million shares of our stock for 185 million. For the full year 2019, we repurchased 4.8 million shares for 485 million.

Total debt at the end of 2019 was 12 billion, compared to 12.6 billion at the end of the third quarter. Net debt maturities in March 2020, 500 million of senior notes will mature. During the fourth quarter, we incurred 130 million or interest expense, we expect approximately the same amount in the first quarter of 2020.

As we look to 2020, the frame work for capital management we discussed in the early stages of JLT is still on track. This year, we currently expect to deploy approximately 2.6 billion to 2.9 billion of capital across three broad categories. Debt reduction, dividends in line with our objective of double digit increases annually, and a combination of acquisitions in share repurchases.

Directionally, we currently expect the amount of capital deployed to be roughly equivalent across these three categories. This plan allows us to maintain our dividend growth objective and meet the commitments for deleveraging we laid out when we announced JLT. We also provide flexibility for M&A. We’ve consistently stated that we favor attractive acquisitions over share repurchases as we view high quality acquisitions as the better value creator for shareholders and the company over the long-term.

Our track record is good, as evident by our return on invested capital of nearly 20% over the last three years. Given our deleveraging plan and our acquisition pipeline, we currently do not expect any share repurchases in the first half of 2020. Ultimately, share repurchases later in the year would depend on how the M&A pipeline developed. Our deleveraging should be largely complete by the end of this year and we expect to have substantial flexibility in terms of capital deployment in 2021 and beyond.

Our cash position at the end of the four quarter was $1.2 billion. Uses of cash in the fourth quarter totaled $444 million and included $24 million for acquisitions, $235 million for dividends and $185 million for share repurchases. For the full year 2019, uses of cash totaled $7.5 billion, and included $6.1 billion for acquisitions, $890 million for dividends and $485 million for share repurchases.

In summary, we are proud of what we’ve accomplished in 2019. We’re very much on track with the objectives we set when we announced the JLT acquisition. And if you look forward to 2020, our outlook is for another year of strong performance.

With that, I’m happy to turn it back to Dan.

[Dan Glaser, President and Chief Executive Officer]

Thanks Mark. Operator we are ready to begin Q&A.

[Operator]

Thank you. [Operator Instructions] We will take our first question today from Elyse Greenspan of Wells Fargo. Please go ahead.

[Elyse Greenspan, Wells Fargo]

Hi, thanks. Good morning. So, my first question, you guys updated the savings program for JLT toady. It also seems like intangibles are coming in a good amount lower than when you guys had announced this deal. So, I’m just trying to, I guess get from that that you have these two tailwinds to your numbers and you still are, you know, reaffirming I guess that the deal will be breakeven in 2020 and accretive in 2021. So, what's the offset relative to your initial expectations that this deal, might not be accretive sooner than you had expected?

[Dan Glaser, President and Chief Executive Officer]

Thanks. Well, you know, actually it’s going to be at least accretive consistent with our original expectations. And so, a deal of this size has always a number of puts and takes. And as you mentioned, we think the cost savings are higher, we think the amortization in lower, and then we also needed to divest some businesses, principally aerospace, but also some minority interest in other businesses like CRP here in the U.S., which we did not anticipate, you know, going into the transaction. And we also have some revenue headwinds that we had described before whether that was from new business pipeline issues or some staff inspections. Those are things that we're grappling with.

So, you put it all together and the deal is tracking in line with our original expectations, and our original expectations, I’ll just remind everybody, were really good. That was going to be a good solid financial transaction. It was also very strategic in nature for Marsh & McLennan as a company. And when we talk about things like accretion and dilution, you know, it’s always a level of how we’re growing, you know, so it’s – we expect 2020 to be a strong year in adjusted EPS growth, you know, and that’s what breakeven means to us.

[Elyse Greenspan, Wells Fargo]

Okay, that’s helpful. And then my second question, on last quarter’s call, you guys had alluded to the overall margin for the company expanding more than the year-to-date level. It seems like the fourth quarter came in a little bit below your expectations. Was that just may be, you know, a little bit weaker consulting margin? Just trying to understand what happened in the fourth quarter as we kind of think about the level of margin improvement going forward.

[Dan Glaser, President and Chief Executive Officer]

We focused very much on earnings growth and topline growth much more than we do on margin and we certainly don't really pay much attention to any one single quarter. We were satisfied for the year with the 110 bips and the fourth quarter was pretty consistent for the year. There’s always a lot going in all of our businesses, and so, you know, it’s not that we look at one versus the other as in any way coming up short of what our expectations were.

I mean when I look at margins in general for the company, 2019 is going to be our 12th consecutive year of margin expansion and nearly significant levels of margin expansion. When you go back a decade and we’re up by 1300 bips, you go back five years, we’re up, you know, 450 bips plus in both segments and as a company, and so, you know, but just to go back, I wouldn’t look at any one quarter as being indicative, you need to look at longer periods of time.

And margin expansion for us is an outcome of how we run the business, which is revenue growth almost always exceed expense growth and that will give us margin expansion over time. And the only areas that we were really driving for some margin this year was in RIS in parts of the portfolio, particularly, in Guy Carpenter that we felt we needed to adjust JLT to more similar margin levels in what we had normally been operating within as Marsh & McLennan. Next question please.

[Operator]

Our next question comes from Mike Zaremski of Credit Suisse. Please go ahead, your line is open.

[Mike Zaremski, Credit Suisse]

Good morning. First question regarding the Risk and Insurance segment, looking at the EMEA segment, you know, growth there has been, let’s call it, a very, very low-single digits for the past couple years. Is that a pace that we should kind of – you know any color, is [that a patient], maybe, we should expect thinking about it into this year? and then, I guess also LatAm growth also just of a little bit weaker in the second half of the year, anything going on there and just sort of thinking out till 2020?

[Dan Glaser, President and Chief Executive Officer]

Yes, I’ll take you to a little bit and then I'll hand over to John. You know overall, believe we’re set up well in both EMEA and Latin America for the future growth not even in – not only in 2020, but beyond. Honestly, EMEA includes UK, which has been our biggest area of overlap with JLT where we knew it was going to be a bit choppy for a while. And so, that’s essentially when we look at the business, we unpack the different component parts of EMEA. But, John, do you want to add more to that?

[John Doyle, Chief Executive Officer, Marsh]

Sure, Dan, thanks. Big picture, 23% GAAP growth in the quarter, you know, very, very big growth. 17% for the full year, 4% underlying growth for the full year, so I was pleased with the results. As Dan noted, and as we expected, in the UK the underlying growth was impacted by integration related headwinds and some first quarter challenges remain, but, you know, I will say, I’m encouraged by improvements in the underlying performance in the UK.

We made some leadership changes now about 18 months ago in the UK, and they're really setting the foundation for stronger growth going forward. And in Latin America, as I noted in the last call, as Dan, integration related challenges will persist through the first quarter, but Latin America remains a high growth region for us. So, for the second quarter on, I expect improved results there. And again, I want to say, I’m pleased overall with the growth. I’m quite proud of the team.

We managed through a lot of change throughout all of 2019 and we maintained our focus on serving our clients in what's an increasingly challenging market as well. And you know as Dan noted, we’re a stronger team entering 2020 and JLT is obviously a big part of that, but, you know, we also had more in late 2018 and did a lot of work on integration of more than last year. And we added two Top 100 firms in the United States through the M&A as well. So, I’m quite excited about the team and how we’re positioned as we enter 2020.

[Dan Glaser, President and Chief Executive Officer]

You have another one, Mike.

[Mike Zaremski, Credit Suisse]

That’s helpful, that’s helpful. Yes. Lastly sticking on the brokerage space, you know, Dan, in your prepared remarks you – I think you said it was a challenging marketplace. I assume you’re referring to what’s, you know, maybe ‘a hard market’ and you can correct me if I’m wrong. Just curious does the – does this challenging market also put a little bit pressure on Marsh’s expense space given, you know, your employees are working, you know, potentially even harder to represent their clients in this marketplace?

[Dan Glaser, President and Chief Executive Officer]

But we are built to operate well across cycles. And, you know, I mean, the – I wouldn't necessarily classify the entire market as a hard market, its certainly hard in pockets and its certainly true as you noted that Marsh and Guy Carpenter brokers have to run a lot harder to get things done and had to work, you know really hard and creatively in order to serve clients in challenging market conditions. And so, we recognize that.

We don’t believe that that puts any over pressure on our expense levels, you know, more than the fact that we recognized that our people are working harder than ever before and we appreciate that and we reward them for it, you know, but our teams, you know, are driven by serving client, and so, that’s what their focus is. You know, so they're out there hustling, not in the belief that somehow their compensation or anything else is going to change. It’s actually that they’re focused on delivering for their clients.

Next question please.

[Operator]

Our next question today comes from Ryan Tunis of Autonomous Research. Please go ahead.

[Ryan Tunis, Autonomous Research]

Yes, thanks. Good morning. Dan, I guess I was hoping maybe you might be able to quantify perhaps the total drags that you think right now the organic revenue growth rate is failing because of, I want to say, disruption, but because of the JLT integration process. And is that – you know was that worse this quarter than in the third quarter? Is it still getting worse? Or, you know, is the magnitude of that lessening going forward?

[Dan Glaser, President and Chief Executive Officer]

Well, let me talk about that broadly because I think it’s a good question. First of all, I’d start with the basis, when I look at our underlying growth, I’m pleased with 3% in the quarter, and I'm nearly pleased with 4% for the year, relative to the quarter and Carpenter had a terrific quarter and a strong year, top and bottom line. Oliver Wyman, as expected, they had a tough quarter with 6% for the year. Mercer, 4%, solid for the fourth quarter and sequentially improving throughout the year. And again Marsh, I'm pleased with the 3% given, as we told you, there were some tough comps both from Marsh’s performance last year in the fourth quarter, but also JLT’s performance in the fourth quarter. And then, the new business hurdle, which was a very big new business quarter for JLT last year.

We had talked to about the pipeline issues throughout the year. And so, you know, in the context of the largest acquisition in our history, I’m quite happy with the underlying growth levels. Although I – I just like to take another minute to talk about growth a little bit more because I understand the way you're looking at, it’s not the way I look at it. You know from my perspective; we have had a tremendous growth year on multiple levels and we have significantly outgrown our competitors. We've outgrown our competitors and capabilities. In talent, our headcount is up 10,000 people from this time last year. We’ve outgrown our competitors in revenue and the number of clients and it all starts with GAAP.

You know there is certain time where GAAP is more important than underlying and I think this year was one of those times and our total revenue is up 11% in 2019 and 15% in the fourth quarter. If you look at RIS, RIS grew 24% in the fourth quarter. We've been at it for [148 years], and to grow 24% in the quarter and a firm like ours is something, and as John was alluding to before, we grew specifically in Marsh. Latin America was up 15% in the year, Asia-Pacific 39%, EMEA 16% all in 2019 to allow our base and our trajectory will be better for years and years to come as a result of the remarkable year we had in 2019 on a growth basis. Do you have something else, Ryan?

[Ryan Tunis, Autonomous Research]

Yes. just – I guess just on U.S. Canada organic, a little bit of deceleration there. And I'm just curious for your perspective into 2020. I’m thinking about the market conditions like those have seem to be a tailwind. You know, how are you thinking about how all that comes together?

[Dan Glaser, President and Chief Executive Officer]

Yes. I mean U.S. Canada performance has been terrific the last couple of years, but, John, do you want to talk about that a little more?

[John Doyle, Chief Executive Officer, Marsh]

Yes, I’m quite pleased with our team, Ryan, in the U.S. and Canada because we had a terrific year this year. I would also remind you that we had 7% organic growth last year in, you know, the underlying growth in the fourth quarter. Both MMA and Marsh had terrific years. We also had a very good finish to the year in Canada and quite a strong year there as well. Our MGA operations in the U.S. are performing quite well as well. Our private client business did quite well from a growth perspective. And on the specialty front, we had good growth in our credit specialty in the private business, aviation did well and the transaction risk in cyber, are a couple of products that are going nicely as well.

[Dan Glaser, President and Chief Executive Officer]

Thank you. Next question please.

[Operator]

The next question comes from Mike Phillips with Morgan Stanley. Please go ahead.

[Mike Phillips, Morgan Stanley]

Yes, thank you. Good morning everybody. I was just curious, Dan, on your thoughts on how much, I guess at a very high level, how much do think there’s more room to go on the legs of the PNC overall price environment? I mean is that going to peak? Do you say I guess maybe a peak time for maybe the end of this year? Or how much more room do you think there is to grow on the overall environment for pricing?

[Dan Glaser, President and Chief Executive Officer]

That’s a $64 question. I mean at the end you’ve got different things that work, I think you’ve got many insurance companies who are just satisfied with the results they have achieved financially over the last several years. And so, there was a factor impact in many companies at the same time then they’ve got a little blood in the eye and they're looking to get back to a better position. You also have the, you know thoughts around social inflation and how real that is and how it's impacting their prior book as it will slower.

You have pressures on the reinsurance side, then I’ll go to John and Peter in a minute to give a little bit more, but, you know, there’s pressure on the reinsurance side, which may build throughout the year. This will put some pressure on primary carriers. And so, you know, ultimately, it’s a matter of what’s the loss activity and the premium levels will over time reflect, you know, it’s a benign environment or whether it's a harsh one.

I mean certainly when I think about this year, I look at the level of catastrophe potential, and you know, if it’s a tough cat year, earlier, we’re into a quite a ride. If it’s a benign year, in the Southeast, particularly, well, maybe some of the window is out of the cell, but I don’t think a lot has to do with how casualty develops, but why don’t we start with the primary in John and then we’ll go to reinsurance just to talk more broadly about market conditions and maybe if we have any prognosis, but John?

[John Doyle, Chief Executive Officer, Marsh]

For me, it is an earnings driven market change for sure. Dan talked about some of the trends continuing into the first quarter, but there continues to be a very wide range of outcomes in markets built around the world. I don’t consider it a hard market although it certainly becomes more challenging for our clients. You know, and geography base is Australia, U.S., UK wholesale are seeing the largest increases. In the U.S., it’s about 10% and going for the high teens average rate increase in Australia. In Asia, Continental Europe, Middle East, Latin America, UK retail more mid-single digit price increases.

You look at it from product perspective, Dan, their property is up 13% globally. Financial line is up 17%, meaningful increases there. Causality up 3% where we see a real mix, you know, where comp continues to be down. Excess liability, though, particularly in certain classes of business are quite stressed at the moment. And public P&L, particularly in the United States and Australia, are a couple classes that are the most challenging. You know, I would note, Dan is going to talk about this again, but our index skews the large accounts.

The middle market is flat to low single-digit in many markets, most markets throughout the world, but, you know, we're continuing to hear from underwriters. They're concerned about rising loss cost, as Dan noted social inflation or the impact of litigation funding on the claim environment. You know, we’re also observing and working with our clients through some challenging verdicts in large settlements in pharma and chemicals and commercial auto and in P&L. So, you know, there’s no question. There’s some stress, you know, in the loss environment and its difficult to predict where – you know, where markets will head, but the there are some storms on the underwriting.

[Dan Glaser, President and Chief Executive Officer]

Peter?

[Peter Hearn, Chief Executive Officer, Guy Carpenter]

Thank you. I think from a reinsurance standpoint, the market is responding – very responsible, and it's really been a function at 1-1. The pricing and the renewals were largely shaped by, you know, a couple of factors, deterioration loss experience, a lack of new alternative capital and increasing challenges in the environment with regard to primary insurance and retrocessional markets. You know, there’s a wide spend of pricing, some was flat to down in certain geographies, in others it was down significantly.

In the retrocessional market, we saw increases of between 15% and 20%, but I don't believe the market – the reinsurance business is hard. I think it’s more expensive, but it certainly isn’t a hard market, which we define as at any price, you can't generate traction.

[Mike Phillips, Morgan Stanley]

Thanks.

[Dan Glaser, President and Chief Executive Officer]

Mike, do you have follow-up?

[Mike Phillips, Morgan Stanley]

No. thank you all for your thoughts. I appreciate the color.

[Dan Glaser, President and Chief Executive Officer]

Okay. Thank you. Next question please.

[Operator]

Our next question comes from Meyer Shields of KBW. Please go ahead.

[Meyer Shields, KBW]

Great, thanks. Dan you've been very upfront about the fact that when you worked on the merger, you anticipated some level of producer and client outflow and I’m wondering if you look forward to 2020 is there any margin pressure because in 2019, overly simplistically, you had revenues associated with people that had left the firm?

[Dan Glaser, President and Chief Executive Officer]

Yes, it’s a good question, but, you know, our anticipation – I mean as I mentioned it before, there’s always a lot puts and takes in a transaction of this size and geographic breadth, and as we look to 2020, we expect to expand margins as Marsh & McLennan. You know, and so, we think that it will be our 13th consecutive year of margin expansion and we think we’re on the strong year in adjusted EPS. You know, I would say, look, when we went into the transaction, you know, big people business combination, we expected some level of defections. And so, when I – when we sit here today and we look to where we are, even though there are some people who left the firm who we would have preferred not leave the firm, we’re in good shape.

You know, where we’ve had the most significant levels of levers would be, you know, let’s say in London, in the UK market in London, well, we are strong in London. We were strong and we are stronger today and more people by a very, very wide majority stayed rather than left. And so, we're in great shape from that perspective. And so, I mentioned 10,000 additional headcount, you know, and these are smart, hard-working talented people, which will deliver a lot of value for us into the future, and our ability in a place like London to regenerate ourselves using our existing capability, the JLT addition, and then going into the market to the place and people who have left, our ability of regenerating half of the [talents in] London is amongst the highest places in the world. And so, they – you know, it’s not something that’s anything more than short-term.

[John Doyle, Chief Executive Officer, Marsh]

And I would also note that the voluntary turnover rate at legacy Marsh was the best it's been. Since we collected data. So, from that perspective, you know, it’s quite stable year from talent perspective.

[Dan Glaser, President and Chief Executive Officer]

Meyer, do you have a follow-up?

[Meyer Shields, KBW]

Yes, just a quick one. So, in the break down by segment, there was an 8%, I guess hit to Guy Carpenter’s revenues from a divesture. Is that going to persist for the next few quarters?

[Dan Glaser, President and Chief Executive Officer]

Mark, why don’t you take that?

[Mark McGivney, Chief Financial Officer]

Meyer, on that schedule, you'll see that column heading, it's acquisitions and positions and others. So, from time-to-time, we’ll have to do changes in mapping the businesses or other things that we use that column to adjust for expenditure, the year-over-year comparison are, you know, apples-to-apples. There was no divestiture in Guy Carpenter. It really was just comparability adjustments and the fact that Guy Carpenter is revenue base was so small in the quarter, it just magnified that. There should be no ongoing impact from them.

[Dan Glaser, President and Chief Executive Officer]

Next question please.

[Operator]

Our next question is coming from Jimmy Bhullar of JP Morgan. Please go ahead.

[Jimmy Bhullar, JP Morgan]

Hi, good morning. So, just a question first on Oliver Wyman and the weakness there, I think, organic growth slowed the last couple of quarters, how much of that is just normal volatility in the business versus maybe shifts in spending on the part of your clients?

[Dan Glaser, President and Chief Executive Officer]

Yes. So, a couple of things. I've mentioned in the past that Oliver Wyman has more volatility on the topline than our other business because they have less recurring revenue, but the – they actually had a strong year through nine months and they had anticipated some slowdown in the fourth quarter, but Scott do you want to give more detail?

[Scott McDonald, Chief Executive Officer, Oliver Wyman]

Sure. We definitely had a weak Q4, but there was really nothing significant that happened and the result was driven by three things. The first was the project movement from quarter-to-quarter, which regularly happens with us and drive some volatility. We could see that coming in Q4 and we signaled a little bit of a pull back on our last call. The second thing was we did have a solid Q4 last year where we grew 7% and the third thing was, we did see a modest, but what feels very much like a temporary slowdown in a couple of markets in Q4.

So broadly, the business was strong across sectors, but both Europe and Asia showed some weakness, primarily in the financial services business, but it feels like it was temporary, and that the Q4 results they haven’t changed on medium term expectations. We continue to plan for mid-to-high single-digit revenue growth over time. And for the time being, as said, we demand for consulting purposes feels solid across sectors and across regions.

[Jimmy Bhullar, JP Morgan]

Thanks, and [indiscernible] on Guy Carpenter and the second – each of the past couple of quarters, you’ve had double digit growth and those are obviously the lowest quarters of the year in terms of the base. How much of this is driven just by this base versus maybe better momentum in the business that could potentially carry into this year?

[Dan Glaser, President and Chief Executive Officer]

Thanks. Peter, do you want to…

[Peter Hearn, Chief Executive Officer, Guy Carpenter]

Jim, it is really a combination of both. They are smaller quarters for us, but they are also being driven by good new growth. We’ve had our third year of record new business wins in the United States in our retrocession business and our Asia-Pacific business. Our facultative business, which we very rarely talk about, has grown significantly. All of those can impact a small quarter as you’ve seen in Q’s 3 and 4, but it’s more a function of phasing than it is anything else and a very disciplined approach to sales and growth.

[Dan Glaser, President and Chief Executive Officer]

We were very pleased with the progress and growth for the year. Next question please.

[Operator]

Our next question comes from Yaron Kinar of Goldman Sachs. Please go ahead.

[Yaron Kinar, Goldman Sachs]

Hi, good morning. My first question is on the cost initiatives from the integration programs, do you have any sense how much of that 350 million or greater will actually fall to the bottom line versus reinvested back in the platform?

[Dan Glaser, President and Chief Executive Officer]

I mean, general sense is that the majority of it will fall right through the bottom line and that is how we projected when we originally put things together. Obviously, earnings will go well. So, some of them will go into bonus pools and that sort of thing, but a lot of the efficiency gains that we have developed is because of the investments that Marsh & McLennan made over a number of years. You know, when you think about things like financial systems where Oracle 12, everywhere in the world. HR systems, we’re Workday everywhere in the world.

We use sales force extensively throughout the world and so we are able to take an organization by JLT and integrate our systems and controls and functions reasonably seamlessly without adding to a lot of our existing cost base in order to do that, and that gives us a lot of benefit and really I should not impact the frontline client facing people all that much. So – and that’s one of the reasons why most of it will drop.

[Yaron Kinar, Goldman Sachs]

Okay, understood. And then going back to some of the questions around growth, from this 3% to 5% organic growth target there could be talked about in the past. Just looking one of your peers have been kind of talking about – kind of mid-single digit or better or with long-term and I’m just trying to square the 3 to 5 to that other guidance, are there structural differences between the two organizations or is it just more conservative guidance on your part? Are there just near-term headwinds just with the integration now that maybe once you got through those you do that to a higher – a step-up in that organic growth number?

[Dan Glaser, President and Chief Executive Officer]

I mean, I’m one of those people who are like, you are with your results, say you are from the last 10 years we’ve been in the 3% to 5% organic growth range. I do not believe that we had many competitors. We’re a pretty unique company across the breadth of the things we do. Clearly, we have certainly formidable competitors and parts of our business, but across all of the things that we do including Oliver Wyman and some of the strong businesses we have within Mercer.

We don’t have many direct competitors, but when I look at the competitive landscape, I absolutely believe I wouldn’t change our strategic positioning with anybody, I wouldn’t exchange our capabilities with anybody or our culture and there is no reason under the sun to where our revenue growth performance would not be as good or better than any of our competitors over time. Next question please.

[Operator]

Our next question comes from Larry Greenberg of Janney. Please go ahead.

[Larry Greenberg, Janney]

Thank you. Not much left to ask, but I guess this is for Mark. Just wondering if maybe the trajectory of expense saves has accelerated a bit from earlier from when you initially gave your guidance on that? I mean, it looked like you, you know what you saved in 2019 as a percentage of what you now think of the total is a little bit higher than how you initially walked into this period and so I am just wondering if that is correct?

[Mark McGivney, Chief Financial Officer]

I guess Larry just that a little bit further on savings, as I said, we expect to take most of the actions to generate the full 350 by the end of this year, just what I said with the charges, maybe a little bit is going to 2021. Then the remainder of the savings have come in over the two years. Probably more in 2020 than 2021, but as I said earlier, we expect to realize the full impact of the savings by the end of 2021.

[Larry Greenberg, Janney]

Thanks. That’s it.

[Mark McGivney, Chief Financial Officer]

Thank you.

[Operator]

Thank you. Our next question comes from David Styblo of Jefferies. Please go ahead.

[David Styblo, Jefferies]

Hi there. Thanks for the questions. Just want to ask a little bit about capital deployment after 2020, I think you guys are pretty much done with your debt paydown plans, curious how that effects your thinking for M&A after this year? Does that open up on that, possibly doing something a little bit larger or are you guys inclined just to keep things on a more modest basis as you continue to integrate JLT?

[Dan Glaser, President and Chief Executive Officer]

We have acquisitions that are a core part of our long-term strategy. We’ve done something like 175 plus acquisitions since January 1, 2009 and we tend to be a balance company. When we look about – we put out our dividend first. It's sacrosanct. We want to grow it double digit every year and that is going to be for the sake of argument looking at the number of circle $1 billion for that, which should leave in most years 2021 and beyond, roughly a couple of billion dollars to deploy between acquisitions and share repurchase.

And as we’ve said in the past, we favor acquisition over share repurchase for the very reason we’re building a great company and our focus as we have showed over time we’ve been able to do that, you look at Marsh & McLennan Agency in 2009 with zero revenue and no position and now we’ve got a terrific platform, $1.7 billion growing well, good EBITDA margin etcetera. We’re in a business that we otherwise would not have been. That was called building a company and we are committed to continuing to do that with all kinds of opportunities across the enterprise not just in Marsh, but across the firm in order to acquire our way to be a better strong more formidable company in the future.

And so, when you look at that 2 billion and our debt to EBITDA at that level will probably be in the [low 2’s] and so we would have the ability to flex as we needed to. So, there is certainly nothing that we’re finding for in terms of a larger or mega acquisition we will see how this strategy develops over time. It’s certainly having, you know $3 billion to deploy year after year after year is going to make us you know one of the great companies of the world.

[David Styblo, Jefferies]

Alright, got it. And just a quick house-keeping, I think I heard for the first quarter given the business mix and so forth, the consulting margins were expected to be down year-over-year, I don’t know if I heard a comment about RIS?

[Dan Glaser, President and Chief Executive Officer]

Yes. We did make a comment specifically about RIS. We wanted to point out consulting because of our visibility to it and we recognize that consulting has its own attributes. You know RIS is a different kind of business and so as you know the consulting margins declined in the fourth quarter, even though we had a 90 bips improvement for consulting for the year and so we just wanted to give a heads-up that our expectation is for a decline in the first quarter for a variety of different reasons which our view is temporary and when we look at the full-year 2020, we expect it to be our 13th year of consolidated margin expansion for the entire firm.

[Operator]

Our next question comes from Brian Meredith of UBS. Please go ahead.

[Brian Meredith, UBS]

Hi, thanks. Two quick ones here. First, just curious on the EMEA organic revenue growth, the slow down we had in the fourth quarter, I know explained it, should we expect that it kind of continued into the first half of 2020 is from this leadership changes go on?

[Dan Glaser, President and Chief Executive Officer]

John, you want to take that?

[John Doyle, Chief Executive Officer, Marsh]

Yes, I think, Brian there is still some headwinds in the first quarter for sure, but as I noted earlier I think that underlying performance works the way through or cut through some of the integration level with headwinds, I think we will see improved performance drop for the rest of the year. By the way, in the middle east, terrific growth year on last year, good solid results in continental Europe as well.

So, obviously it was somewhat hopeful that the U.K. economy will continue to pick up now there is more certainty around Brexit, so a number of different factors that will ultimately determine where we are and I’m quite encouraged by our team leading through all this change.

[Dan Glaser, President and Chief Executive Officer]

And also, just to bear in mind, the new leader in UK, he was a Marsh veteran. You know, he has worked for the firm for more than 30 years and ran Canada for us, had another big job, so it is not like somebody coming in and having to learn the roles. He knows the business very well and that – as we mentioned in previous calls, when we think about the short and mid-term, we are optimistic about Britain.

Britain has sort of been through the radar over the last couple of years, but there is now clarity around Brexit and we have got new leadership in the UK where we are in many different businesses from large account and third to small commercial and we believe it is going to be a great business for us over a stretch of time.

[Brian Meredith, UBS]

Great. And then my second question, just hopefully just a quick one here. Could the coronavirus have any impact in your growth in the fourth quarter in your Asia Pacific business you think at all?

[Dan Glaser, President and Chief Executive Officer]

Yes. I mean we’re monitoring the situation closely like I’m sure everybody is and our primary concern is definitely the health of our colleagues and their families and we are doing everything we can to assist clients as they think through possible scenarios that can impact their business, but it’s just too early to see that as to whether there is going to be any impact on our business, Asia or otherwise. You know, we just have to see how this plays out in the coming weeks.

[Operator]

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

[Dan Glaser, President and Chief Executive Officer]

I like to thank everybody for joining us on the call this morning and certainly thank our colleagues for their hard work and dedication, as well as our clients for their support. Hope everybody has a good day. Thank you very much.

[Operator]

Thank you. That will now conclude today’s conference call. Thank you for your participation ladies and gentlemen, you may now disconnect.