威達信集團 (MMC) 2012 Q2 法說會逐字稿

Welcome to the Marsh & McLennan Companies' conference call.

Today's call is being recorded.

Second-quarter 2012 financial results and supplemental information were issued earlier this morning.

They are available on Marsh & McLennan Companies' website at www.MMC.com.

Before we begin I would like to remind you that remarks made today may include statements relating to future events or results which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are subject to inherent risks and uncertainties, and particular references during this conference call to anticipated or expected results of operations for 2012 or subsequent periods are forward-looking statements, and Marsh & McLennan Companies' actual results may be affected by a variety of factors.

Please refer to Marsh & McLennan Companies' most recent SEC filings as well as the Companies earnings release, which are available on the Marsh & McLennan Companies' website, for additional information on factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today.

I will now turn this over to Brian Duperreault, President and CEO of Marsh & McLennan Companies.

Please go ahead, sir.

Good morning and thank you for joining us to discuss our results as reported earlier today.

I am Brian Duperreault, President and CEO of Marsh & McLennan Companies.

Joining me on the call today is Dan Glaser, Group President and COO, and Mike Bischoff, our CFO.

Also I would like to welcome our Operating Companies' CEOs -- Peter Zaffino of Marsh; Alex Moczarski of Guy Carpenter; Julio Portalatin of Mercer; and John Drzik of Oliver Wyman.

Following my comments, Dan and Mike will discuss our operating results and financial position in more detail.

Our second-quarter results were excellent and indicate our continuing progress in establishing Marsh & McLennan Companies as an elite enterprise.

Across all our Operating Companies we generated revenue growth and higher levels of profitability.

In the second quarter, underlying revenue growth was 5%.

Combined with ongoing control of expenses and effective capital management, we have produced growth in adjusted operating income of 13% and earnings per share of 22%, an outstanding performance.

Marsh produced another strong quarter; all major geographies contributed to revenue growth of 6%, driven primarily by new business development.

Guy Carpenter produced underlying revenue growth of 10%, led by its international operations.

The Consulting segment delivered strong underlying revenue growth in the second quarter.

Importantly, Consulting adjusted operating income increased 14%, reflecting strong performance of both Mercer and Oliver Wyman.

When we established our long-term performance targets two years ago, we understood the challenge and the level of commitment required, since very few companies our size have been able to produce double-digit earnings growth over the long term.

Since we announced these goals, Marsh & McLennan has been successfully meeting these long-term earnings targets.

While we may not achieve double-digit earnings growth every year, we remain confident that we can produce this level of growth over the long term.

We understand that to achieve these goals we need to continuously improve performance through investments in our business, our technology, and our colleagues, and to make decisions that will enhance long-term growth.

This assures that we will be conducting our business in a way that provides value to our clients, stimulates and reward our colleagues, and delivers consistently strong returns to our shareholders.

So in closing, we are very pleased with our second quarter and the results we have produced in the first half of this year.

With that, let me turn it over to Dan to review our second-quarter results.

Thank you, Brian, and good morning, everyone.

In the second quarter, Marsh & McLennan Companies continued to produce excellent financial results.

For the eighth consecutive quarter, we achieved underlying revenue growth at each of our Operating Companies.

Risk and Insurance Services revenue was up 5% with underlying growth of 6%.

Adjusted operating income rose 14%, and the adjusted operating margin improved 200 basis points.

The double-digit growth and profitability and the margin improvement reflect the exceptional performance of both Marsh and Guy Carpenter.

For the six months we achieved 110 basis points of margin improvement.

At the same time we produced these results, we continue to make significant investments to enhance client service, improve efficiencies, and strengthen our competitive position.

Marsh produced another strong quarter.

Underlying revenue rose 6% with all geographies contributing.

Latin America increased revenue 14%; Asia Pacific grew 10%; EMEA grew 5%; and the US-Canada division rose 4%.

Marsh's revenue growth reflects $281 million of new business in the second quarter.

This is the strongest quarter of new business in Marsh's history.

Guy Carpenter also produced strong results in the second quarter.

Revenue increased 7% and underlying revenue growth was 10%, driven by growth across its international operations including Global Specialties, Asia Pacific, EMEA, and Latin America.

This now extends the trend of Guy Carpenter producing underlying revenue growth for 14 consecutive quarters.

As we look at current conditions in the reinsurance marketplace, with July renewal pricing showing signs of stabilization for property catastrophe coverage, and risk retentions by several of Guy Carpenter's key clients increasing, we expect only modest revenue growth in the second half of the year for Guy Carpenter.

Turning to our Consulting segment, revenue was $1.3 billion with 4% underlying revenue growth.

Our second-quarter results show that we continue to make progress in increasing profitability as both Mercer and Oliver Wyman contributed to the segment's double-digit growth in earnings and a significantly higher operating margin.

Adjusted operating income rose 14% to $176 million, the highest level of quarterly Consulting earnings in our history.

The adjusted operating margin increased 140 basis points to 13.1%.

For the six months, adjusted operating income grew 18% and the adjusted margin rose 160 basis points to 12.7%.

Mercer's second-quarter underlying revenue growth was 3%.

Results reflect increased revenue across all regions, with strong growth in Asia and Latin America.

Looking at Mercer's underlying revenue by line of business, Investments grew 7%, Health & Benefits increased 6%, while Retirement, Outsourcing, and Talent, Rewards & Communications grew modestly.

Oliver Wyman's underlying revenue growth was 8% in the quarter, driven by double-digit growth in the North American region and the consumer and health and life sciences sectors.

Based upon current market conditions, Oliver Wyman expects only modest underlying revenue growth in the third quarter.

In conclusion, we are very pleased with the results our Operating Companies produced in the second quarter.

With that, let me turn it over to Mike.

Thank you, Dan, and good morning, everyone.

Consolidated revenue was $3 billion in the second quarter with an increase of 5% on an underlying basis.

Adjusted operating income rose 13%, and the adjusted operating margin increased 150 basis points to 17.3%.

Earnings per share from continuing operations increased 20% to $0.60 on a GAAP basis.

Adjusted earnings per share grew 22% to $0.61.

This is notable given weak economic conditions, low interest rates, foreign exchange headwinds, and the ongoing investments we are making and continue to make in our businesses.

Interest expense was $45 million in the second quarter compared with $49 million last year.

The only debt maturity we have over the next two years is the $250 million senior note in February 2013.

As we discussed last earnings call, our corporate expense this quarter is higher than normal.

This is primarily the result of accelerated amortization of senior exec equity awards.

This will not be an issue for the remainder of the year.

Investment income this quarter was $4 million compared with the loss of $6 million in last year's second quarter.

In the third quarter, we anticipate reporting an investment loss of approximately $5 million.

Now turning to capital management, our cash position at the end of June was $1.5 billion.

In deploying our excess cash this quarter, we used approximately $70 million for acquisitions and $100 million to repurchase 3.1 million shares, and this was primarily to offset the effects of equity grants.

Since December of 2010, we have repurchased 18.7 million shares for approximately $550 million, with $450 million remaining under our current Board authorization.

Another major use of cash in the quarter was $121 million for dividends.

With the continuing European financial crisis, we wanted to give you an idea of the magnitude of Marsh & McLennan's European revenue and how conditions are affecting the results of each of our Operating Companies.

As you are aware, we break down Marsh's revenue on a geographic basis, and you can see for both the second quarter and the year to date that Marsh's revenue growth on an underlying basis in EMEA was 5%.

But we wanted to give you a little richer detail with regard to our European position and revenue.

So in total, the Company generates about $12 billion of annual revenue, with approximately one-third of this coming from Europe.

Our UK operations, which represent approximately half of our European revenue, continue to perform well.

Now let's look at our recent results.

Of Marsh's $5.4 billion in annual revenue, approximately one-third is in Europe, with 45% coming from the United Kingdom.

Marsh's revenue in the UK rose 6% for the second quarter and the first half of the year.

New business production was particularly robust in the UK in the second quarter.

For Continental Europe, Marsh's revenue grew 4% in the quarter and 3% for the first half of this year.

About one-third of Guy Carpenter's $1.1 billion in annual revenue is generated in Europe, and the UK accounts for more than 75% of this revenue.

Guy Carpenter's UK revenue rose double digits for both the second quarter and the first half of this year, driven by its Global Specialties.

Continental European revenue growth was modest in the quarter and year to date for Carpenter.

Now turning to our Consulting segment, Mercer's European revenue over the past year was $1.1 billion or about 30% of Mercer's global revenue.

The UK represents just over half of Mercer's European revenue, with low single-digit growth for both the first and second quarters.

This was true as well for Mercer in Continental Europe.

So even though European economic conditions have been difficult, three of our four Operating Companies have continued to generate revenue growth in Europe.

Oliver Wyman has the greatest exposure to Europe, with approximately 40% of its revenue coming from European clients.

Over the past three quarters, Oliver Wyman has experienced modest revenue declines in this region.

But as you can see from our second-quarter earnings release, Oliver Wyman has produced excellent overall results in spite of the continuing weakness in Europe.

With that, I am happy to turn it back to Brian.

Thank you, Mike.

Operator, I think we can start our question-and-answer period.

(Operator Instructions) Keith Walsh, Citi.

Good morning, everybody.

Congrats on another strong quarter.

I guess the only thing if I wanted to nitpick the plus 4% in the US, which is down a little bit but still better than your peers, if maybe you could talk to that.

And in the context of your new business comment, either Dan or Peter, what are you guys doing?

Is it more how well your clients are recovering in the large case part of the market versus the smaller end of the market?

Or is it new-new business -- you're actually going out and winning accounts?

If you could talk to that, and then I have got a follow-up for Julio.

Well, okay.

So, Peter, do the 4% US.

Yes, overall -- again, when we report the US, there are several segments that are within the US and Canada division.

We are very pleased with the growth that we have seen in the core US brokerage business.

The trends have been very steady from quarter to quarter and expect that to continue through the rest of 2012.

To answer your question in terms of -- I think what you were asking, Keith, around the overall growth is, we've had very strong client retention across the world.

We've had very strong rollover from new business last year.

We have had record new business in the second quarter, which has grown around 10% year-over-year.

We are executing on our initiatives.

It's been less of a headwind in pricing; in 2011 in the second quarter, there were headwinds.

We are seeing some slight uptick, certainly in property and other lines of business that are a little bit distressed.

So I would look at excess casualty and some workers' compensation.

So that has affected the US.

And overall, as Dan said in his comments, we have grown in every part of the world, so we have a nice balance.

And when you have done all of those things together, you get good organic growth.

Okay?

Yes, I'm sorry.

Yes, okay.

Good.

Go ahead, Julio.

Yes, I was going to say for Julio, the improvement at Mercer, we can see it already.

You guys did a nice job giving us some of the European sensitivity there.

But can you just give us an idea?

What is the plan to protect margins against potential declines in Europe as we head into 2013?

Thanks.

Yes, sure, sure.

Thanks, Keith.

First, I want to say that I'm pretty optimistic about Mercer's profitable growth prospects moving forward.

Any business where you are in a mission to promote the health, wealth, and performance of companies' best assets, which is of course their employees, I think puts you in a good position for the future.

So, you add Mercer's global footprint, its innovative added-value solutions, and I think we're in good shape.

But as we look at calibrating and always looking at what our revenue growth is going to be across the world, we see opportunities that are popping up in different places.

Europe might be slowing down, but we have a good business in other places like in the emerging market world.

We want to obviously have even more footprint there as time goes on, and I think that is going to really give us some good uplift in the future.

Additionally, again keep in mind that we have some businesses that perform very well in down-times, and others that don't.

And 70% of our business is annuitized; 30%, of course, is program- or project-oriented business.

And as we continue to flip that and get more of the annuitized business and less of the project business I think you will see that we will be able to continue to calibrate growth pretty well in the future.

Now, that said, any time that we are looking to make sure that our margins continue to expand, we have to be very disciplined on the expense side.

We continue to do that, and we will always make sure that that is calibrated appropriately to what our revenue expectations are.

Okay, Keith?

Thanks.

Good.

Next question, please.

Dan Farrell, Sterne, Agee.

Hi, and good morning.

Could you speak generally to the impact of currency in the quarter two results?

And also do you happen to have the GAAP pension expenses running through results through in the quarter?

Mike?

Yes, thank you.

If you look at foreign exchange, you can see on our earnings release that the currency impact was about 3% negative with regard to revenue.

That indicates that we are converting most of our major currencies -- the pound, the euro, the Canadian dollar, the Australian dollar -- into a stronger dollar.

And as a result, not only did it have a negative impact on revenue, but it had a modest negative impact on our operating income shared equally between Insurance Services and Consulting.

There was a question on pensions?

With regards to pension expense, as we indicated at the beginning of the year, gross pension expense would be about $30 million higher for the entire year, and gross impact would be in the low to mid-20s.

And that, obviously, is equal over the course of the year.

So in this particular quarter, pension expense when we file our 10-Q, gross pension expense would show about $9 million more than it did in the second quarter of last year.

Okay, thanks.

Just one additional question with regard to Consulting margins, can you talk about how much Mercer versus Oliver Wyman is driving margin improvement?

Are both of those driving margin expansion?

Then on the Oliver Wyman piece, to the extent that you are seeing a revenue slowdown there, are there levers to continue to push margin improvement?

Hey, Dan.

I'll answer the first question, which is that both of the components of the Consulting segment are driving good margin improvement, so it's across the board.

But, John, you want to comment anything on Oliver Wyman?

Sure.

Well, on Oliver Wyman, margins I would divide your question into two parts.

One is if we experience revenue weakness in one geography, as we are for example in Europe now, it doesn't really affect our overall margin, because we run our capacity on a global basis.

So for example, in the first half of this year a lot of our people who are based in Europe would have been deployed in the United States or other geographies where growth was stronger.

So what really would affect our margin is aggregate global revenue weakness rather than weakness in any particular geography.

And we have levers to pull in those scenarios as well.

So as long as the revenue pattern is a modest decline, we have disciplined compensation programs in place that react with respect to revenue declines, so there shouldn't be a substantial margin decline.

Okay.

That's very helpful.

Thank you very much.

Good.

Next question, please.

Morgan Stanley, Greg Locraft.

Hi, good morning.

Thanks and congrats on the quarter.

Wanted to just go back to Europe, because it is a big concern in some subset of the investment community out there.

I guess what you have highlighted is that it is really 15% of revs that are at risk.

I guess, is there a decline in that 15% of the business that would jeopardize your double-digit operating income growth goal?

Well, let me try this, Greg.

I think when we outlined -- decided to outline Europe, we wanted to show that it is too simplistic to say a third of our business comes from Europe, because Europe is an interesting, diverse area and a large portion of that is coming out of the UK.

So you have to -- if you are trying to decide the impact, if you are -- you have to first understand how the business is spread around, and not just geographically but by component, by our Operating Companies and segments.

Because the Insurance business acts differently than Consulting, certainly in recession periods.

So there is much more continuing revenue that gives us a ballast against economic changes.

So, I wouldn't say it is 15% at risk.

I mean, everything is at risk.

But I think what we are trying to point out is we have, I think, the last 12 months or so been experiencing issues in Europe and still have been able to handle that.

We believe we can continue to handle that going forward.

And I think as John said, unless it is some overall, complete meltdown of the global economy we feel comfortable about our exposures.

I think Dan also wants to add something.

Yes, I would just add a couple of things.

One, even if you go back five years ago or so, Europe, Continental Europe was not a high-growth area for us.

So it was a low to mid single-digit growth area, and it has remained pretty much a low and single-digit growth area.

Our global network really benefits us quite a bit, because while European companies might not be doing all that well in Europe, they are doing as well as anybody else with their multinational footprint.

So we are working on French companies around the world, Spanish companies around the world.

And you often hear a refrain when you visit these companies about how they are not doing well in their local market but they're doing quite well outside of their local market.

Okay, Greg?

Okay, good.

Thanks.

Then any quick updates on the CFO search process that's underway?

Well, thanks for asking that question, because it gives me the opportunity to thank Mike, who has done a terrific job and continues to do a terrific job as our CFO.

So yes, we are still -- we are in the interview phase.

Things are progressing nicely.

I feel very good about the process, and I don't think I will say anything more than that.

Thank you.

Okay, great.

Thanks a lot.

Good.

Next question, please.

Jay Gelb, Barclays.

Hi, good morning.

How are you?

With total organic revenue growth in 2Q of 5% and the Company facing some comparison headwinds in Guy Carp and Oliver Wyman on the organic revenue growth front, what should we be thinking about in terms of overall organic revenue growth in the back half?

Well, what we have told you is two of the Operating Companies who had pretty good results, 7% and 10%, they are not going to have those numbers in the second half.

We are not saying anything about the other two.

And there is a balance to everything.

I don't live and die on the pure organic growth number.

It's managing your growth and your revenue and expense through the ups and downs.

There is cyclicality, seasonal cyclicality, where the third quarter isn't that strong for Marsh.

But we don't expect that we would have issues with respect to our bottom line, and we think we will close out the year well.

We have a goal of double-digit.

I firmly believe that that is a goal that we can achieve.

So we are not -- I am not just -- we're not talking about the rest of the organic growth, but the fact the we have a goal to make a bottom line and we believe we can do that.

Okay.

Then on the -- in the Consulting segment with the 13% margin in the second quarter, clearly an improvement versus a year ago.

Should we expect continued improvement in the second half on the Consulting margin?

Well, again, I want to reinforce that our goals have been a growth in our operating income, growth in earnings per share.

I don't -- so each of the Operating Companies, each of the segments, they have -- they know what they need to do.

They know the kind of growth requirements we have.

So with respect to Consulting, John and Julio know what is expected of them, and so we would expect that they will manage through this year and the next accordingly.

That may produce good margin improvements; but the important thing for us is they produce those double-digit growth in earnings.

Okay.

Then on share buybacks, that resumed in the second quarter, after I believe no buybacks for the prior two quarters.

What is your outlook there?

Well, our policy about that is that we will buy back shares through capital management if we don't have alternative uses of that cash, basically for acquisitions.

So, we would prefer acquisitions.

I would, anyway, because I think it is more accretive long-term.

We have as a minimum that we would buy back shares so that we don't dilute with our compensation issues.

But past that, I think it is more what opportunities present themselves, and actually I'd prefer that those opportunities come in the form of acquisitions.

But if not, then we would increase our share repurchasing.

Thank you.

Okay.

Meyer Shields, Stifel Nicolaus.

Thanks, good morning.

I would like to follow up on that if I can.

Sure.

Does the turmoil in Europe present any increased opportunity on the M&A front?

Well, yes, that's an interesting question, because that is usually the source of great opportunities when there are troubles.

So yes, I guess that's a possibility.

I am not signaling anything here, but yes, it's certainly a possibility.

But, you know, our acquisition approach has been more targeted to areas where we want to fill out, that we are not as robust as we need to be.

That could be geographically, also in capabilities.

So if those opportunities emerge in Europe, they will have to get in line and meet the criteria that the other ones are meeting or exceeding.

But yes, certainly that is a real possibility.

Okay.

Just to clarify something.

If you've got a Spanish client that is doing well in Latin America, would that revenue growth show up in EMEA or Latin America for you?

That would show up in Latin America.

Okay.

Thank you very much.

Next question, please.

Ray Iardella, Macquarie.

Thanks and good morning.

So, I guess maybe for Peter, thinking about the new business growth in Marsh and the record quarter that you guys had.

Is there anything in particular you guys are doing on that side to drive that growth?

Any new products or anything you can talk to?

Well, thanks, Ray, for the question.

Certainly the first and foremost is execution.

We have a very strong pipeline; strong coverage on our global sales.

We introduced years ago something called Marsh 3D, which is define, design, and deliver, and that really takes us through a thorough risk-management approach in making sure that we are assessing every opportunity.

We have had a strong focus on growing share of wallet, connecting our multinational network, and where we can grow market share from clients that we already have, and taking advantage of being a global organization.

We behave as one firm, and there's great opportunities to collaborate and bring the strength of the organization together.

The investments that have been made over the years in terms of industry and specialty expertise, there is a flight to quality when it is more difficult to place business in a very challenging market.

We have seen an uptick as a result of that.

And we are having more robust discussions around analytics and how we can be more thoughtful in terms of recommendations around volatility.

We expanded our own analytical platform to be able to do more stochastic modeling, do more cat modeling on the larger accounts.

So that has given us opportunities for growth as well.

Okay.

That's helpful.

Then, one quick numbers question, I guess for Mike.

Just to confirm; the operating income had a negative impact from FX in both segments?

That's correct.

Okay.

Thank you very much.

Next question.

Langen McAlenney, Larry Greenberg.

Good morning.

I was just wondering if you could quantify or give us some order of magnitude the impact of pricing, underlying commercial lines pricing, on your revenue growth?

Peter?

Yes, pricing -- again, it is a long answer if we went segment by segment.

I won't do that.

But you do have to look at geography, line of business, each of the segments, and then look at the year-over-year performance.

When you start to take a look at what is the line affected most, it is property.

So world peak zones, cat exposed, loss impacted business have seen the biggest rates.

In the US, property is the one that stands out; 60% of our clients saw a rate increase, but 40% saw either no increase or were modestly down.

You have to look at total insured values.

Those are starting to move -- again, very modestly.

Excess I mentioned before, excess umbrella, and lead D&O pricing is starting to move modestly; but the excess layers are still very competitive.

And then workers comp in the US, based on the pressure of the accident years, we have seen that go up in the mid single- digits.

You have to shift over, looking into the international.

EMEA and Asia-Pac generally speaking, if you take the peak zones out, pricing was flat to down; and feel the same way about Latin America where pricing conditions were predominantly slightly down.

When you take all of that together and look at the overall index that we have published with our top 20 countries, with the top lines of business that I just covered, we have seen around a 1.4% increase in price.

So I think it's had a modest impact in the overall 6%; but I'm not going to give a specific as to what that contributed.

But again I said in 2011, it was a headwind and it is a modest help in 2012.

Alex, do you want to -- that was a good answer, Peter, by the way.

Alex, do you want to add to that?

I won't be as expansive as Peter.

Essentially, we calculate the effects on our results were about 2 to 2.5 points in the second quarter.

And that effect is diminishing since it's a pretty benign year compared to the first six months of last year.

And obviously we're in the wind storm season, so we don't know how that will play out.

But we will take the points, and we will see what happens in the second half of the year.

Okay, Larry?

Great.

Thanks very much.

Okay.

Next question, please.

Mike Zaremski, Credit Suisse.

Good morning.

Could you touch on whether the operating strategy within Health & Benefits is evolving in light of the Supreme Court decision?

Including whether Marsh will move forward with the healthcare exchange initiative, as I believe some of your competitors appear to be doing.

Yes, Julio?

Thanks.

Thank you for the question.

We could talk for a long time about this topic, because it's obviously a very appropriate discussion these days.

But first, let me just level-set a little bit.

Healthcare reform requires that states set up their own health exchanges, or partner with or use the to-be-created federally facilitated exchange.

To date there has been about 16 states that have indicated that they will create their own exchanges.

Seven have said that they will not, and another 16 are still studying their options.

The remaining states appear to have taken kind of a let's wait and see or no significant activity approach.

States have to submit a blueprint to the federal government by mid-November if they want to move forward with an exchange by 2012.

Otherwise, the federal government steps in.

So establishing these exchanges is a very complex undertaking for the federal government, as well as it is for states, and they need a lot of help and assistance.

And that is where Mercer is coming in.

A lot of individual subsidies and employee penalties are subject, too, if in fact you don't move forward with the degree of pace as outlined in my earlier comment.

Our primary role in all of this has been to provide expertise and advise the states on developing their perspectives and helping design their strategies.

So far we have worked with several states, and we expect additional work with those and more over the coming months.

We are also spending a lot of time helping our corporate clients understand and prepare for these regulations.

We are working with our employer clients as they manage through the complex reform, providing advice and solutions.

And we are partnering with carriers as well on new products that can help employers lower the cost of healthcare through the use of high-quality networks and customized care management.

One offering in particular is the Mercer Health Advantage, which is getting good response in the market.

And we expect to have about 500,000 employees enrolled in this and similar plans for 2013.

So this whole area is evolving very quickly.

It's exciting.

I think Mercer is well positioned to play a leadership role in the evolution of it.

I also want to add one more note, that we launched most recently the Mercer/Marsh solution which brings both the added-value client-facing solutions for the markets of both Mercer and Marsh, and that is moving quite nicely as well.

Mike, I think you struck a chord with Julio there.

Thanks for the color, Julio.

Would you say to a certain extent that Marsh is taking a let's wait and see approach just because there is a lot changing?

In terms of exchanges you are referring to in particular?

Correct.

No, I wouldn't say wait and see.

I would say be part of the solution and move forward.

And that is the approach I would like to take with this.

I think we have to make sure that we calibrate the opportunity with the investment necessary to take advantage of the opportunity as time goes on.

And I think we are doing that quite well right now.

Okay, and lastly, a follow-up to Jay Gelb's earlier question.

Could we get an update on what type of M&A opportunities that Marsh is most focused on?

And Brian, I recall last quarter you mentioned adding components and capabilities that Marsh didn't have.

I would be interested in what those capabilities would be.

Thanks.

Well, first of all, the M&A activity I guess begins with the Marsh Agency.

We have been spending a lot of time on that, and I think we have about $70 million of spend in the quarter.

Some of that was Agency; some of that was continuing to spend for the African acquisition that we made.

So, Marsh is getting its fair share of this to expand both its capabilities in the US and geographically.

We didn't have anything else in the quarter for the other Operating Companies.

But what we have done typically is, say, in Oliver Wyman, finding a segment -- I mean, our Life Sciences segment, which is growing dramatically now, really started a few years ago with the acquisition.

So trying to find a group of people who have a capability in an area that we are not as strong in would be a typical acquisition in Oliver Wyman.

And I think you would continue to see that going forward.

In Julio's case, well, you know, I could pick a number of things.

We have got a number of segments that he has that -- whether it's Investments, where we've made investments in the past to fill that out.

Or it could be geography too.

It is hard to be specific, because if I had one I couldn't tell you about it.

So you just have to take the general comment that it is filling in areas that we feel we needed to fill in.

Okay, thank you.

Okay.

Next?

Jay Cohen, Bank of America Merrill Lynch.

Hi, good morning.

Two questions.

The first is -- I didn't quite catch this.

When you talked about Oliver Wyman in the second half having more modest growth, what was the rationale behind that?

John?

So, Jay, I think there's two reasons for it.

First, we're expecting the weaker economic conditions in Europe to continue.

So as we mentioned we are have been experiencing a revenue decline in Europe in the first half of the year, and we expect that weakness to continue into the second half.

Now in the first half of the year that was offset by very strong growth in the US market; and we're expecting that growth to taper a bit.

So therefore the overall growth rate would come down, say, from the 7% of the first half to something in the low single digits for the second half.

And it's principally that.

There is a second reason which has a modest effect, which is, in the Q1 call we explained that we have timing of revenue from contracts with acceptance provisions that occurred earlier this year, and this boosted our Q1 growth, but it will actually lower our second-half growth particularly in Q4.

So that is the second effect.

That's very helpful.

Thank you.

Then secondly, I guess related to Europe, my recollection is a lot of the European business -- as I recall I think it is in Marsh -- gets done early in the year.

And maybe that is true with Consulting as well; I'm not sure.

As you're looking out towards the first half of 2013, given the environment, which doesn't feel like it is getting much better over there, is that the bigger risk looking in the first half of the '13?

Let me start and then I think you guys could fill in.

But, yes, the Insurance is sort of front-end loaded in the year, early part of the year.

That is not the case in Consulting, which is spread much more evenly throughout the year.

We pointed out that Marsh had pretty good results, certainly in the first half of this year, both on the Continent and in the UK.

So I would say we are not overly concerned about the renewal season.

There is a few things.

There is a lot that goes into what organic revenue looks like an all geographies, but in particular in Europe.

So you would have to first start with -- okay, what is going on with GDP and is the economy growing, are exposure units growing?

And then you would say -- well, what is happening with regard to rate, what is happening with regard to client retention, what is happening with regard to negotiations with carriers over commission yields, and then what is going on with new business?

So there's a number of factors that are at work that you aggregate them together and come up with your organic growth number.

We think there are a few things, particularly on the Insurance side.

Companies in Europe will continue to buy insurance as of January 1, and that could be the announcement.

So Europe is -- while they are in difficult times, in some ways having insurance protection with quality carriers in a top-quality intermediary is more important than when times are buoyant.

Okay, Jay?

Yes, thanks for those thoughts; I appreciate it.

Good.

All right.

Next question.

Adam Klauber, William Blair.

Thanks, good morning.

Margin expansion in Risk and Insurance Services was better in the second quarter than it had been in the last couple quarters.

Is that partially attributable to strong growth at Guy Carpenter?

What else was driving that?

Dan, why don't you do that?

Sure.

Well, talking about margins in general, as Brian pointed out earlier, our first focus is growth -- and growth of actual profit, our earnings, and looking to do that on a double-digit basis in more years than we don't.

Then we also, obviously, look at margins.

So it is kind of like organic growth, earnings, and then margins.

And when we look at margins we start with both segments, not just the RIS segment.

And our expectation is over the next several years we will improve margins in both of our segments.

We will do that in a variety of different ways, but most specifically by calibrating expense growth with revenue growth and being very alive to what is happening on revenue week by week and month by month, and calibrating our expenses accordingly.

When we look at RIS, as we mentioned in the first quarter, we are making a lot of investments.

Those are not quarter by quarter as being perfectly timed, so say you see some level of ebb and flow on the cost of investments that roll through and the cost of strategic recruitment etc.

So that all is playing itself out.

Overall, we think our margins in RIS are strong; I think through six months may even be market-leading.

But on the basis we do believe we will improve them over time, but I wouldn't read into this quarter versus last quarter, because we don't manage our business that way.

As we have described about Consulting in the past, we expect more out of the margins in Consulting over time, because the margins in Consulting through the recession had gotten lower than they have historically been.

So we are on a path back to our historical performance.

Thanks.

One follow-up.

The growth in the UK was clearly strong, but the UK has been slowing down economically in the last six months or so.

Are you a bit worried about that?

Well, there's a couple things about the UK.

A very significant chunk of our business in the UK on the RIS side is global business that comes to the US -- to the UK for placement.

So it's really a global phenomenon as opposed to UK-only.

When you're looking at UK-only in specific you are really looking more often on the RIS side as Marsh's retail business, and that has actually been performing well.

You're very right to point out that the UK, like a lot of places in the world, are struggling with overall growth.

We have not seen that affect us to date; but we are very watchful and mindful of that.

Great.

Thank you very much.

Okay.

Why don't we take one last question?

Michael Nannizzi, Goldman Sachs.

Thanks for squeezing me in.

Appreciate it.

A couple questions.

Retirement, Health & Benefits were flat with the first quarter, but Outsourcing year-over-year slowed, and Talent slowed.

I'm just trying to understand what happened there and how we should think about that.

And just one follow-up.

Thank you.

On the Outsourcing front, you may have recalled in the last quarter I talked about us benefiting from some of the year-on-year comparisons in the first quarter, because of business that had been secured the year before.

I think in the second quarter we felt a more year-on-year likely comparison, I guess, between last year and this year.

We see Outsourcing continuing to be a support for our core businesses, and we will continue to manage it that way as we go forward.

I think what you see as far as a growth pattern is very much within expectations.

And then on the Talent side?

Talent is being impacted of course mostly from the discretionary side of the project work that we do.

There is a proportion of our business in the Talent world that obviously is project-oriented and very much related to how corporations and clients are spending and their spending behaviors.

And certainly, Europe would be one of those places where we have seen a bit of a slowdown on the discretionary projects.

On the opposite end of that, we have seen some good revenue growth in other parts of the world that is offsetting a bit of that challenge.

But that is some of the headwinds that we are seeing, and we hope that that will continue to recover as time and the year goes on.

Great.

Then just one -- I'm sorry, if I could, one more, Brian.

Is that okay?

Yes, please go ahead.

Yes, I was going to ask you to.

Thanks.

Then Oliver Wyman you talked about; it sounds like the driver of the expectations for slower growth in the back half of the year are not Europe actually, it's the US and what may be happening there.

I guess my question is -- what is happening outside of the US and Europe in terms of Oliver Wyman?

How is that part of the world and part of the business doing?

And within the US, what exactly drove, other than these contracts that you maybe talked about in the last Q and just mentioned briefly here, what else happened to cause that spike in activity?

Okay.

John?

Yes, so let me take the US part first.

The fastest growing segments we had in the business in the US and globally were our Healthcare business and Consumer business.

So that accounted for the spike.

Now, those businesses jumped up quite a bit in the first half of the year.

So it's not that we are projecting adverse conditions for the US.

It is more that we don't expect the growth to offset as much as it did the European growth.

So we still expect to grow in the US in the second half of the year, grow at quite a healthy pace; but probably not at quite the same rate as in the first half.

But it was driven by Healthcare and Consumer principally in the US.

In terms of outside the US and Europe, about 15% to 20% of our business falls into that category, and it's been a mix of different outcomes in different regions.

We've had -- our business isn't large enough in any one region to say decisively it's had -- certain regions have been growing faster over a long period of time.

If you look just at 2012, which is perhaps your question, we have been growing better in the Middle East, in Brazil, in Russia, and not as strongly in Asia.

So that has been this year's pattern.

But again, the businesses aren't large enough that the pattern changes from quarter to quarter and year to year.

Great.

Thank you so much for all your answers.

Really appreciate it.

Okay, thanks.

So let me close this by saying that we had, as I said earlier, an excellent quarter, and we couldn't have that without the hard work of our 53,000 colleagues.

So let me take this opportunity to thank them for their great work.

And also thank all of you on the phone for your interest in Marsh & McLennan.

Thank you very much.

Ladies and gentlemen, that does conclude today's conference.

We thank you for your participation.

Have a great day.