威達信集團 (MMC) 2012 Q4 法說會逐字稿

Good day, everyone, and welcome to Marsh & McLennan Companies conference call.

Today's call is being recorded.

Fourth-quarter and full-year 2012 financial results and supplemental information were issued earlier this morning and they are available on the Company's 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 a variety of factors may cause actual results to differ materially from those contemplated by the forward-looking statements.

Please refer to the Company's most recent SEC filings 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 call over to Dan Glaser, President and CEO of Marsh & McLennan Companies.

Please go ahead.

Okay, thank you.

Good morning and thank you for joining us to discuss our fourth-quarter and full-year 2012 results as reported earlier today.

I am Dan Glaser, President and CEO of Marsh & McLennan Companies.

Joining me on the call today is Mike Bischoff, our CFO.

Also I would like to welcome our operating Company CEOs, Peter Zaffino of Marsh; Alex Moczarski of Guy Carpenter; Julio Portalatin of Mercer; and John Drzik of Oliver Wyman.

I am also very pleased to welcome Keith Walsh, our new Head of Investor Relations.

Keith joined us in December following many years of covering the insurance industry as an analyst at Citi.

Following my comments, Mike will discuss our financial results in more detail and then we will take your questions.

I feel truly honored to be leading this call, my first as President and CEO of Marsh & McLennan Companies.

My principal role as CEO of MMC will be to build on our success finding new ways to grow, invest, innovate and realize the full potential of our businesses.

As many of you know, I was previously Group President and COO of MMC for over a year and a half and CEO of Marsh for more than three years prior to that.

During my time as Group President I also briefly acted as the CEO of Mercer before Julio joined the executive team.

It was an invaluable experience for me to have run both Marsh and Mercer.

Along with the rest of the executive team, I was actively involved in developing our four-pillar strategy first articulated in 2010 -- growth in revenue and earnings per share, low capital requirements, high cash generation and managing the risk profile of the Company.

The best thing about our four-pillar strategy is that we are executing it well.

We have successfully generated both revenue and profitability growth over the last three years.

Further, we have maintained low capital requirements and generated strong free cash flow.

This gives us a high degree of flexibility to innovate and expand particularly in growth markets.

It also allows us to return capital to shareholders via a strong dividend and a meaningful share repurchase program.

The broad four-pillar strategic framework will continue to serve us well.

Our goal remains to produce at least 10% organic growth in operating income over the long term, effective capital management including disciplined deployment of excess cash into acquisitions and share repurchase should contribute to EPS growth approaching 13% and with our dividend, shareholder returns around 16%.

Moving onto our financials, I am pleased with our fourth-quarter results which reflected our ongoing strong performance over the course of 2012.

Reflecting on our performance for the year, we delivered underlying revenue growth of 4% with growth in each operating company for the third consecutive year.

Underlying expense growth was less than 3% which produced 12% growth in adjusted operating income and our overall margin increased 120 basis points to 15.6%, an excellent performance.

Risk and Insurance Services produced another outstanding year.

Underlying revenue growth was 5% with both Marsh and Guy Carpenter contributing.

Adjusted operating income rose 12% with margin expansion to 20.5%, an increase of 130 basis points.

This is the segment's highest annual margin since 2003.

To put this into perspective, over the last five years we have more than doubled the Risk and Insurance Services adjusted margin from less than 9% to over 20% despite lower fiduciary income, higher pension expense, significant investments in the business, and a challenging economic and pricing environment.

This speaks to the strength of our core earnings and underlines the operating leverage we have built into the business.

Marsh's underlying revenue rose 5% in 2012 with all geographies contributing.

Latin America was up 13%, Asia-Pacific increased 7%, EMEA grew 5%, and the US/Canada region increased 3%.

Marsh continued to generate strong levels of new business with $1.1 billion for the year, a new annual record.

Guy Carpenter produced 6% underlying revenue growth for the year.

This marks 16 consecutive quarters Carpenter has delivered underlying revenue growth.

Growth was driven by Carpenter's international operations particularly Global Specialties, Asia-Pacific, EMEA, Latin America and Global Facultative.

The Consulting segment also delivered solid underlying revenue growth in 2012 with both Mercer and Oliver Wyman contributing to the 4% increase.

And we have made substantial progress in the execution of our strategy to increase profitability.

Adjusted operating income increased 14% and the adjusted operating margin expanded 140 basis points to 13.2%, Consulting's highest annual margin since 2004.

Mercer had a strong year which represents an excellent start on their path to growing profitability and increasing margins.

Underlying revenue grew 4% reflecting higher revenue across all regions.

And every line of business contributed to this growth as Investments grew 8%, Health and Benefits increased 7%, Outsourcing rose 4%, and both Talent and Retirement grew 1%.

Since joining Mercer a year ago, Julio and his team have undertaken a comprehensive review of Mercer's operations.

Today Mercer has been reoriented around four core lines of business, Health, Retirement, Talent, and Investments.

As a result, beginning in the first quarter of 2013, Mercer will no longer report outsourcing as a stand-alone business.

These services, which generated over $700 million in revenue last year, will remain an important part of Mercer's capabilities.

One of Mercer's objectives is to build broader client relationships, more closely aligning administration services with Mercer's core business lines will help achieve this.

We also made the decision to transfer the Affinity and Voluntary Benefits businesses of Marsh's US Consumer division to Mercer in the first quarter of 2013.

We believe this business which had $225 million of annual revenue and growth consistent with the Marsh US/Canada region will be further enhanced as part of Mercer.

It has become clear to us that traditional and voluntary benefits are converging so aligning these businesses within Mercer enables us to concentrate our efforts and expertise.

Another important development at Mercer is the recent launch of its US Health Exchange known as Mercer Marketplace.

We are excited to add this new offering to an already robust set of products and solutions in Mercer's Health business.

At Oliver Wyman, underlying revenue gross for the year was 3%, which we believe to be a reasonable result given the macroeconomic environment and weakness in Europe.

This growth was driven by strong increases in the Health & Life Sciences and Communications practices complemented by steady growth in Financial services, Oliver Wyman's largest practice.

In closing, we are very pleased with MMC's operational and financial performance.

I believe we are well positioned to deliver on our long-term goals which should lead to superior returns for our shareholders.

With that let me turn it over to Mike to review our results in more detail.

Thank you, Dan, and good morning everyone.

In the fourth quarter consolidated revenue was [$3 billion] (corrected by company after the call), an increase of 3% on an underlying basis.

Adjusted operating income rose 10% to $450 million and the consolidated margin increased 90 basis points to 15%.

GAAP EPS was $0.47; adjusted EPS grew 13% to $0.52 from $0.46 in last year's fourth quarter.

Revenue at Risk and Insurance Services was $1.6 billion with underlying growth of 3% at both Marsh and Guy Carpenter.

By holding adjusted underlying expense growth to 1%, adjusted operating income rose 8% to $312 million.

Margins expanded by 80 basis points, reaching 19.2% in the quarter.

At Marsh, underlying revenue growth was led by a 5% increase in the International division.

This included 13% growth in Latin America and 3% for both EMEA and Asia-Pacific.

Overall Marsh's revenue growth was driven by record new business production of approximately $300 million.

Guy Carpenter continued its long-term trend of solid financial performance and underlying revenue growth.

Its 3% growth was led by Canada, US Facultative, Latin America, the UK, and certain Global Specialties.

Turning to our Consulting segment, revenue was $1.4 billion, reflecting underlying revenue growth of 3%.

Adjusted operating income rose 8% to $179 million and the margin expanded 70 basis points to 13%.

At Mercer, underlying revenue growth was 6%, its strongest quarter of the year.

Excellent growth was achieved at Investments, Health and Benefits and Outsourcing.

As you are aware, Oliver Wyman's 3% decline in underlying revenue in the quarter was anticipated due to the weak European economic environment and the timing of revenue recognition between the first and fourth quarters.

As was the case for the full year, we saw strong growth in the Health & Life Sciences and Communications practices.

MMC's consolidated underlying revenue growth for the year was 4%.

Adjusted operating income rose 12% to $1.9 billion and the margin grew 120 basis points to 15.6%.

For the year, GAAP EPS was $2.13; adjusted EPS increased 21% to $2.15.

Excluding the early extinguishment of debt in 2011, adjusted earnings growth was 16%.

We anticipate annual corporate expense this year will be lower than 2012.

Quarterly expenses should average -- I'm sorry, $45 million a quarter.

Investment income in the fourth quarter was $4 million.

Effective yesterday, Trident II divested its remaining position in AXIS.

As a result, MMC's investment income in the first quarter will approach $20 million.

Regarding our restructuring in the fourth quarter, the vast majority relates to Mercer.

As Dan indicated, this results from Mercer's repositioning as it implements its new long-term strategy.

A third of the $51 million expense was due to the sale of a small Canadian outsourcing business which was announced last October.

The balance of the expense included position eliminations, software write-offs and real estate rationalization.

We have greatly reduced noteworthy items that are excluded from adjusted operating income.

On an expense base of over $10 billion, net adjustments to GAAP for the past two years were only $22 million in 2011 and $35 million in 2012.

Taxes.

For the year, our adjusted tax rate was 30% and we feel this is a reasonable rate to use for financial modeling purposes in 2013.

Pension expense.

On December 31, interest rates for longer debt maturities used to measure pension liabilities were again lower than the prior year.

Based on the year-end measurement, our pension expense will increase this year by $30 million.

Moving to capital management, the largest use of our cash in the fourth quarter was $149 million for acquisitions, including five at Marsh & McLennan Agency.

Today MMA has annualized revenue of $450 million.

Also in the quarter, we used $128 million for dividends and repurchased 1.4 million shares of our common stock for $50 million.

Since instituting our share repurchase program two years ago, we have repurchased 22 million shares for almost $700 million.

For the year, the major uses of cash included approximately $500 million for dividends, $340 million for acquisitions, $230 million for share repurchase and $200 million for discretionary pension contributions.

The use of cash over the course of 2012 approaches $1.3 billion.

Additionally last month we made a $70 million discretionary contribution to one of our international pension plans.

We are prepared to make additional contributions if there is a long-term economic rationale and it can be accomplished in a tax efficient manner.

With that I am happy to turn it back to Dan.

Thank you, Mike, and operator we are ready to begin the Q&A.

(Operator Instructions).

Greg Locraft, Morgan Stanley.

Yes, hi, good morning.

I wanted to ask why is the organic growth in the P&C brokerage segment, it was one of the lowest in many quarters and also is now well below peers that have already reported.

Okay, so I think the best thing to do is to go to Peter and Alex on that so I will start with Peter.

Sure.

Greg, when you look at you know the variability that happens quarter to quarter, I would encourage us to focus on you know what happens in the year as well as looking year over year.

So when I look at US and Canada in 2011, the segment grew at 3% and in 2012, it grew at 3%.

When I look at the international growth in 2011, it was 6% and in 2012, it was 6%.

So it is challenging to take just a look at the quarter.

It is much better to look at what is the last four quarters and I think you can see we have had very consistent growth.

International has contributed more than the US and Canada.

We have had terrific performance from Latin America where they grew 13% during the year.

EMEA with all of its challenges and economic headwinds grew 5% for the year, as Asia-Pac grew 7% for the year.

So overall with the challenging headwinds, we are pleased with what has happened during the year.

If I could just comment for a second on what happened in the US and Canada because I am sure there is some curiosity as to why it is 0%.

Again we look at 2012 and are pleased with the performance.

There is always variability and nonrecurring items in quarters.

We have mentioned that before, both positive and negative, and having said that in the fourth-quarter, US and Canada did get hit with an abnormal amount of negative variability that impacted the growth in that segment.

So again I would encourage us to take a look at the year.

The key performance indicators for new business, as Dan mentioned, we had record new business in the year.

But we also had record new business in the quarter including in the US.

Retention absent the variability was consistent with prior quarters and our overall pipeline is quite strong.

So when you take a look at the quarter and the year I would encourage you to take a look more at the year and as we look to 2013, we don't give guidance but the year will reflect more of the growth than the quarter.

Okay, Alex?

Yes, I mean 3% underlying growth actually I think was a fairly decent quarter.

There is no doubt that last year it was a more benign year from the point of view of catastrophes and so there was some pressure on rates.

But all in all we actually did a little bit better than we expected in what is our smallest quarter.

So I really don't have much to add to that.

Also just one comment, Greg.

I think you have to be cautious when looking at peers or your comment with regard to underperformance versus peers.

We don't have many peers and so there may be some reporting which would be more equivalent to a smaller segment within our business but our RIS business is a $6.5 billion annual business and we are in every geography and every segment.

And so there may be -- we don't have many peers out there.

Okay.

So I guess to -- just very thorough answer.

What I am sort of taking away from it is that empirically you guys limped into year-end in the P&C Brokerage segment so that is just the way it is and it was actually centered in the US-Canada segment as you said which flies totally in the face of what we are seeing from the peers.

But you feel very, very good given where pricing is going in the US, given the trends you see that this quarter is not a quarter to be extrapolated into 2013 and beyond.

There is nothing in the core business that you see that you want to call out right now that we should be -- that should cause us frankly to all be lowering our organics in that segment going forward.

I think your summary is correct.

Okay, thank you.

Jay Gelb, Barclays.

Thanks and good morning.

The outlook for margin expansion seems to be a bit stronger in Consulting than in Risk and Insurance Services segment and that certainly was the case for the full-year 2012.

I was wondering if you could talk about that in relation to your long-term 13% EPS growth target as well?

Thanks.

Sure.

Let me just hand over to Mike.

Yes, this is Mike.

Just to correct, I would say that the margin improvement in Risk and Insurance Services was 130 basis points in 2012 and for Consulting 140.

So I would say that we saw a very significant margin improvement in both of our segments over the course of the year.

I just wanted to make sure that that was factually correct.

And Jay, when we look at the businesses of course, RIS started earlier in terms of really focusing on business disciplines and profit improvement and we really started getting going in Consulting with the arrival of Julio and Julio's leadership team at Mercer in forming strategies around improving profitability.

And so when we look at both segments where we stand today, I am actually quite optimistic that we have the ability over the next few years to continue to expand margins in each of our segments and I wouldn't really put an emphasis on larger margin expansion in Consulting versus RIS.

I think that there is capabilities in both to do that.

Of course it is subject to the overall environment, the GDP environment around the world, the macroeconomic environment, a little bit of the P&C pricing cycle but ultimately as long as we can achieve modest levels of revenue growth, we feel comfortable that we will be able to continue to expand our margins in both segments.

Okay.

And with regard to the organic expense growth, Mike, I think you talked about 3% underlying.

Is that something that can persist?

Certainly Jay, when we look at how we run the business, we have been continually investing in the business over the last several years and very much focused on creating mid- and long-term value for our shareholders.

And so when we look at the expense base, we have been wearing those investments, we have been wearing some higher pension costs etc.

and we believe we can continue to do that.

Thanks very much.

Meyer Shields, Stifel Nicolaus.

Thanks.

Dan, can you talk a little bit about changing the segment reporting within Mercer.

When you talk about including the Affinity stuff from Marsh, is that going to have a material margin impact?

No, it will not.

The margins of that business are relatively consistent with the overall margins of the Consulting segment.

Okay.

Can I infer from that that it will boost margins in Risk and Insurance a little bit?

If you want to cut a fine line to it, yes, the math works that way but it would be so small relative to the size of RIS that it would barely turn up.

Okay.

When you look at both segments, I am talking about the 2013 outlook, are you budgeting for or expecting any slowdown in consumer spending because of higher payroll taxes?

When we look at our business from a budgeting perspective we tend to look at where the business has been performing over the course of like a rolling four quarters basis and what the macro environment looks like on a rolling four quarters.

So we don't put any real optimism into our numbers based upon the fact that we feel that at least the sentiment seems to be improving a bit from where it was midyear last year.

And on the other hand, we don't put many pessimistic thoughts in there too as to the impacts of something like a payroll tax.

So ultimately our business should perform a little bit above GDP in most jurisdictions and so that is probably on a broad sense the more accurate thing to look at.

Okay.

Thank you very much.

Larry Greenberg, Langen McAlenney.

Good morning.

I am wondering if you could just talk about the underlying insurance pricing impact that you felt in 2012 for the year?

And I know it is incredibly early in 2013 but perhaps look into the crystal ball and see how the impact in '13 might compare with '12.

Okay, so I think that question as well, Larry, is probably best for Peter and for Alex.

So Peter, why don't we start with Marsh?

Sure.

Thanks, Larry, and let me start with the fourth quarter.

We measure what is called a Marsh Risk Management Global Insurance Index and that rose 1.2% on a global basis.

If you think about how our portfolio splits in the quarter, it is about 49% US, 51% international.

If I look back on the first, second quarter in the US we started to see a lot more probably modest increases in property, started to see more momentum in some of the more stressed casualty lines and I would say that has continued in the third and fourth quarter although modest increase when you compare quarter to quarter.

The international business again, a lot harder to just give a statement because they are in different geographies.

There is different lines of business.

But generally speaking that has been fairly flat.

Some lines of business have increased I would think more around peak zone properties so if you go into Asia, if you go into Pacific, parts of Latin America and then other segments why the business has been coming off.

So on average I would think for the year that the international has been flat and again with the US, we have had a little bit of an impact off Sandy, not much, and that started to fall off a little bit in the fourth quarter.

Okay, Alex?

Yes, on the reinsurance side, really certainly for the year was benign from the point of view of catastrophes compared certainly to the year prior and we saw some general softening.

Sandy probably strengthened the resolve of some underwriters to try and keep some pricing and if you had a portfolio that was affected by Sandy indeed, there were some price increases.

But we didn't see any tailwind from rating so far in the renewals for 2013.

Great.

And then just one house cleaning.

Mike, you know with Trident's sale of AXIS, is that going to effectively eliminate investment income post the first quarter?

Larry, that's a very good question.

We do have investments in a number of other private equity firms.

But the issue really that has caused running through our P&L is the accounting treatment for private equity firms when they hold a public company.

And essentially that was AXIS that Trident II held and so when they marked it to market for each quarter, we would have to realize that through our P&L in the subsequent quarter.

And so with Trident II essentially being closed down, it essentially then means that we would really not have after the first quarter much running through our investment income line.

Great, thanks.

Michael Nannizzi, Goldman Sachs.

Thanks.

Just wanted to expand if I could a little bit on the kind of pricing and market conditions commentary.

Where are you seeing the impact of firming market conditions in the US impacting your results whether on a revenue or margin basis?

And then just one follow-up.

Thanks.

Peter?

The pricing, if you translated it to our results again, we saw some changes in the market based on Sandy in the fourth quarter and I really put them into three categories.

One is pricing.

So if you had Northeast exposure, loss affected or flood exposed, you started to see pricing.

There has been as much focus on coverage -- I mean we saw a lot about storm surge -- is it in the wind or is it in flood -- deductibles increasing and then looking at capacity and how that is going to be impacted in the future.

The US, our business has been moving more to commission but we still have a split of fee and commission and then we also have business that is well populated with high deductibles or SIRs which will be less affected than a guaranteed cost than what you have perhaps seen in the market for what is happening with pricing.

So overall I think the pricing had a modest impact and in line with what we said for the Global Index which was in the 1% to 2% range.

Great.

So does the fact that you are securing better rate for your customers than the market overall, does that manifest in retention?

Does that -- like other than just pure margin, how do you see firming market conditions in the US impacting your business overall?

The firming conditions I think will have a couple of impacts.

One would be as you mentioned on the retention, so we will tend to retain more clients based on the service capabilities, our ability to execute on claims.

And I also believe that there is a flight to quality when there is a challenge in placing business and we have tremendous expertise in our infrastructure for line of business, for industries segments and we are well represented across the US in terms of how we trade with markets.

So our clients tend to want to stay and we have prospects that tend to want to come.

So I would expect to see that new business trend to be strong, retentions to be strong and for us to be able to grow as a result of it.

Great, thanks.

And then just you know Dan, if I could just on deployment, you have got $1.3 billion-ish to spend if our math is right.

Maybe half of that dividends and pension.

First question is is that still the right way to think about that?

And second is how do you think about the other half?

Are you biased towards building out MMA, the Agency platform or do you see more value on the buyback side?

Thanks.

Okay, so I do think that our dividend is pretty sacrosanct over the last 50 years and that is going to be a call on our free cash each year.

Pension, as Mike was saying in his script, will vary in terms of discretionary contributions to pension based upon the economic rationale and the tax efficiency of doing those sorts of things.

And that may vary over time.

In terms of the balance between acquisitions and share repurchase, I will tell you we are always focused on creating value for shareholders and so therefore you know we are looking at in making acquisitions what adds to the strength of Marsh & McLennan Companies, what creates additional value that we would be able to then achieve over the mid- and long-term?

And our own thought process is that as long as we acquire well, we should be able to build more value through acquisitions than any other means.

Having said that, acquisitions even when you have a reasonable pipeline you can't predict year-by-year of how much you are going to spend with acquisitions.

And so therefore, share repurchase remains a very viable and appropriate way for us to utilize excess cash.

Buying back around $700 million over the last two years has been pretty consistent and a significant sum.

We have a share repurchase authorization up to $1 billion.

Clearly authorizations are Board decisions but we would expect that our Board would consider that sort of thing in the future and certainly we think that share repurchase would be a good use of excess cash when we don't have acquisitions to make.

So acquisitions first then buybacks?

Correct.

I wouldn't say acquisitions, I would say good acquisitions, accretive acquisitions.

Got it.

Thank you.

Jay Cohen, Bank of America Merrill Lynch.

Yes, thanks.

Two questions.

The first in Mercer with the change in the presentation where you are I guess getting rid of outsourcing, I assume that will just be merged into the other businesses?

Julio?

Yes, thank you, Jay.

I want to make it clear that I certainly wouldn't qualify our change as getting rid of outsourcing.

We are very much committed to keeping our outsourcing business alive and well and a viable option for our clients.

We know that there are administrative support that are necessary in order for us to be able to drive the high-margin business and value proposition to our clients for core offerings like retirement, core offerings like H&B, our Health and Benefits and of course, Investments.

And so with that we will have the Outsourcing that supports those businesses be part of the P&L in those businesses and also part of the overall strategy to expand and broaden our client relationships.

So Outsourcing will exist inside the line of businesses that it supports.

Thank you.

And when I said get rid of I just meant from a financial reporting standpoint.

But thanks for that dimension.

And Julio, while you are on the phone there, can you talk about the exchange that you launched and what your outlook is and when do you think it could actually help from an earnings standpoint?

Thanks again, Jay.

As many are aware just a few weeks ago we announced the launch of Mercer Marketplace which is our active exchange for the US market and we are really excited about the new offering.

Mercer Marketplace is a private active benefits exchange designed to help employers and their employees more effectively manage their benefit costs while providing employees and their dependents with superior choice, flexibility and service.

So the employees of our clients will have access to a broad array of traditional as well as voluntary benefits from multiple insurance providers along with education tools which is very important to support and help employees customize their choices and to better fit their needs and make informed decisions.

Our exchange can be scaled for employees or employers with very few employees as well as the largest of employers with thousands of employees.

It goes live for enrollment for the 2014 enrollment period which means we will be up and going by the end of the year during the enrollment time.

So we are in discussions with several of our clients as you can imagine and there has been varied degrees of interest as we move forward.

I really want to focus on the fact that the whole exchange arena continues to be a developing type of market for us and various others and I think what is important now is to ensure that we have some sort of distinction in the way we are offering our exchange versus others.

So Mercer's Marketplace, as I said, it's going to be very scalable.

It will offer a complete set of solutions and products across a full scale ranging from medical, life, disability etc., etc.

and the platform accommodates both insured and self-insured plans.

I want to make that clear.

It accommodates both insured and self-insured plans.

And we will offer a lot of plan designs and support a broad defined contribution strategy for our Health and Welfare benefits.

So as you can see, it is going to be quite a launch for us as we move forward with this.

There will be some really good competitive advantage and we will continue to actually calibrate our investments for the Mercer Marketplace as we validate proof of concepts and testing that we will be doing along the way to ensure that it really appeals to our target audience.

That's great, Julio.

Thanks for that clarification.

Ray Iardella, Macquarie.

Thanks and good morning everyone.

Maybe just wanted to touch a little bit more on sort of the restructuring in the quarter and the reorientation within Mercer.

And I know kind of one of the beneficial points in the past is your ability to absorb some of the restructuring costs.

I'm just curious and I know Mike you gave some numbers around the adjustments to operating income but restructuring costs are up year over year so I'm just curious are you guys planning to change sort of your ability to absorb restructuring costs?

Kind of how should we think about potential restructuring or is sort of the operating platforms situated the way you guys would like at this point?

Okay, Ray, so it is Dan here.

There is no change in our philosophy with regard to restructuring and there is no thought in our minds that our ability to absorb normal course types of changes to the business and structures is any different than it has been over the last couple of years.

So I would look at this more along the lines of Julio and his team doing a kind of drains up review, comprehensive review of their business and usually a new CEO gets about one crack at that.

So well done, Julio, and we move on from here.

That is helpful.

And just I guess following up on cash on the balance sheet, how much cash you guys hold onshore versus offshore at year-end and maybe talk about how to get that cash offshore back into the US.

Mike, do you want to take that?

Sure, Dan.

I would be happy to.

Well actually we were very effective in bringing our cash onshore.

At the end of the year, we have $933 million of cash in the US out of the $2.3 billion.

Okay, that's helpful.

And then last quick if I can squeeze it in -- in terms of debt, you know you guys have a maturity coming I guess this month.

How should we think about debt given your debt-to-cap was around 30% and debt-to-EBITDA is around 1.3 times?

Mike?

Thank you, Dan.

You are absolutely right.

We have a $250 million debt maturity this month.

Let me first say that we have no plans to actively delever our balance sheet beyond where we are today.

We think with the growth in the earnings that we will see not just the last few years but we will see in the coming years, we will effectively continue to delever the balance sheet and improve our credit metrics which are important to us.

That said and the fact that we were very successful in bringing back quite a bit of cash into the US for a variety of uses, the timing of when we essentially will fund that debt maturity over the course of the year I think is still open.

So we will be very attentive to when we go back into the debt markets.

So it will be done this year but the timing of it is yet to be determined.

Okay, thanks again.

Josh Shanker, Deutsche Bank.

Good morning, coming back to a little bit on Greg's question earlier in the call, can you subdivide a little bit the growth rate for middle markets, upper middle markets and large case business so we can like sort of try and pace out what 2013 is going to look like?

No, we are not going to segment our business on growth rates because we feel if we did that we would then do it every quarter and it would create a lot of management time to create the information and vet it properly for external reporting.

Let me just say this.

You know, the small commercial business in the Marsh & McLennan Agency is probably the area that is most appropriately matched against the peer group that some of you have been thinking about.

And in our view the core brokerage business within Marsh & McLennan Agency is performing at our expectations and is consistent overall with what we would expect looking at their peer group.

Okay.

And -- which is a smaller peer group obviously.

Yes, that would be a smaller peer group.

And so in thinking about in terms of the opportunity going forward when you were looking at the pricing, I mean we have seen there is obviously the tailwind coming from the middle market segment.

What do you think is this time next year what will we be seeing for the large case business in terms of sort of the tailwind?

Do you think it will catch up to the smaller and middle market business in terms of pricing?

There is a couple of ways to approach that question, Joshua.

I think on an overall sense, and Peter's commentary or answer to the previous -- one of the previous questions, he was saying you should really look at the year of both top line for Marsh overall but also specifically with regard to the US/Canada division.

I think one interesting point which might be a little bit different which I will ask Peter to expand on is that Marsh has made significant progress over the last few years converting some of their book and growing the commissionable book in some of their offerings.

So Peter, do you want to expand on that?

Sure.

We have new business each year that represents around 15% to 20% of our revenue and we have been very conscientious of trying to convert the new business with as much commission versus fee.

And I think in the past we had said that we are around 50/50 fee versus commission and now when you look at the fourth quarter, the portfolio in its entirety, it is now around 40% fee, 60% commission.

And that is a positive because again one, it is more transparent with clients although certainly fees are transparent is that it is more aligned with the market in terms of when you perhaps see some pricing increases we may perhaps see less depending on again what geography, what line of business, what segment and what is happening at that point in time in those specific areas.

Does that make any changes in employee retention if you are higher commission rates?

I'm sorry?

If more of the business is coming from commission rather than fees, does that change employee retention characteristics at all?

When we look at revenue retention, any lift whether it is fee lift or commission lift would benefit revenue retention.

So clearly it doesn't do anything with account retention but with regard to revenue retention it would.

But we try to get higher fees as well when we talk year-over-year with our clients.

So it is really any lift in fees or commissions help revenue retention.

Okay, thank you all.

I will mull that stuff over.

I appreciate it.

Adam Klauber, William Blair.

Thanks, good morning.

In Consulting, it looked like both H&B and also outsourcing were pretty strong for the quarter.

I guess two questions.

One, was there any project revenue that helped either of those segments?

And would you say the outlook going into 2013 for both those areas is continuing strong or even getting better as we go into 2013?

Julio?

So thanks for the question.

Let me start off first by saying that we were pretty pleased with the overall results that we had at Mercer on the revenue side for the entire year and the fourth quarter as well.

You can see in the H&B line, that actually has been picking up quarter by quarter with this fourth quarter now being our strongest.

We continue to see a lot of benefit, a lot of consultancy work coming out of all the clarification that happened around the Affordable Care Act.

There was a significant amount of activity with both state consultancy that we are doing as well as client consultancy that we are doing.

And we continue to also see a lot of interest in understanding how to be able to control costs and bring extra choice to employees and thus a lot of interest in discussing and evaluating different options and approaches going forward.

I think that it is fair to say that the H&B business is going to continue to see that type of demand of our services and I think we are well-positioned for that and I would ask you to think about that more along the lines of what the annual growth rate was for H&B which was somewhere around 7% as opposed to the fourth-quarter growth rate.

I think it is more indicative to look at the full-year.

And as far as outsourcing is concerned, that was benefited by some let's say project work -- out of scope project work.

It continues to benefit from that.

We get -- outsourcing could be a little lumpy as the year goes on because of that very nature of project work that we get.

We saw that in the fourth quarter continue to be kind of lumpy and again I would point you to the annual growth rate for outsourcing of somewhere are around 4%.

Thank you.

And one follow-up on the Healthcare Exchange.

Do you have or at what point will you have I guess a full suite or adequate suite of health insurers as part of the that exchange?

And also how long do you think it will take you to be up to speed to handle a large national client?

We will be in the -- let me take the first part of the question first.

As you can imagine, we are in active discussions right now with carriers.

There is a lot of interest coming from them and I am sure that soon enough we will have an opportunity to discuss more specifically how many we will have on as we go into the 2014 enrollment period.

That of course will take place later on in 2013.

As far as going forward and where do we see it developing, I think as I mentioned earlier, there is a lot of moving parts in this not just for ourselves but for our competitors.

I think those who are going to win in this space are ones that can really understand the distinction and differentiation that will be necessary in order to be able to have the appeal that is needed in the marketplace and in the targets that we are going to be focusing on.

So stay tuned I guess is the best way to say how we are going to move forward and it will be development and we will continue to keep you abreast of them as they continue to develop throughout the year.

If I might just add to that for a second, I mean one of the reasons and there were many reasons of moving the US Consumer business to Mercer is Julio in particulars expertise and leadership roles that he has had in his career in consumer businesses.

And Julio, do you want to just expand a little bit on the call center operations that we are moving over?

There was a question earlier that talked -- asked a little bit about some of the reasoning perhaps for bringing the Consumer business of Marsh over.

And I think there is a lot of pretty obvious ones.

One is that you see the converging of the core and medical health benefits and voluntary benefits happening more and more as a blurring of the lines between those two offers.

We have a very expansive way to be able to handle that on the Mercer side and it just makes sense to put it together for the US in that fashion.

Also as importantly is that as we build an appropriate offering for our exchanges, it is an important element as Dan mentioned of the Consumer business that actually incorporates licensed agency call centers that allows us to obviously fulfill then more adequately the type of demands that we are going to see through the exchange.

And since Dan mentioned it, I guess I will mention it as well and that is that I have had extensive consumer market experience internationally and in the US over my previous lives prior to joining Mercer and certainly look forward to be able to bring more value out of that business for our organization as we go forward into the future.

So there is a lot of really good reasons for doing this and I think it does give us some sort of strength and differentiation in the way we will be going through exchanges as well as other aspects I mentioned on the voluntary and core Health and Benefits.

Thanks.

One quick follow-up.

As you further develop exchanges, will expenses -- will you need to ramp up expenses in the near term to do that?

You know, we are carefully assessing the investments that are necessary and the returns that we should get from that investment or those investments on a short-, medium- and long-term basis.

We are very disciplined about that, we will continue to calibrate that appropriately.

We don't want over invest early, don't want to under invest.

So I think it is really one of those things that we will continue to look at, we will continue to make sure it is properly aligned but the focus is and continues to be margin expansion at Mercer.

We have had it in this year.

We expect that we are going to continue down that path going forward and we believe that exchanges will be a part of being able to contribute to that margin expansion as time goes on.

Great.

Thank you very much.

Operator, we have had some terrific questions.

I think we have time for two more questions.

Okay, sounds good.

Paul Newsome, Sandler O'Neill.

Good morning.

Thank you for the call.

A little bit of a follow-up here.

Where exactly is housed this so critical smallish business basically the 50 (inaudible) and other (inaudible) businesses at Marsh?

I am guessing it is pretty small.

I know that Marsh Agency writes at least some of it but geographically where should we be looking for it when we get to that point where we need to see how things change?

If I can understand your question properly, I will just rephrase it and let me know if I have got it right.

You are looking to where we have essentially H&B business in the 50 lives or under category.

Right.

Because I think that is the business that is most likely to be changed one way or the other at the end of the year.

And you are right, we would have some of that business in Marsh & McLennan Agency and some of that business in Mercer.

But even if you put them together, it would not move the needle for us in either H&B or our overall revenue for Marsh or Mercer.

We just don't have a lot of that business.

Is that business in your view -- and I know it is small -- but maybe you have an opinion because I think it is a much bigger issue for others that you would like to voice.

Is that business going to increasingly a self-insurance model or do you think it will just all go to the exchanges?

I think ultimately because we are not large in that space, we read all the same commentary that you do.

I think you can be comfortable that we are not going to -- we don't have a strategy to drive into that space.

Terrific.

Thank you.

Thomas Mitchell, Miller Tabak.

In the risk side of things, the insurance brokerage business, I sort of try to work with what I think of as a classic model of exposures, growth in exposures times growth in rate times underlying inflation and the values of things that are being insured times whatever your average fee or commission is.

Now when I think along those lines and I am sure you follow this, you must think about it better than I do, the question that I come up with if we look at just from your perspective the difference between US and international with respect to the general trends in those four factors, is there something that emerges clearly?

Because there is a clear contrast between your 3% annual growth rate in the US and what underwriters were saying about the opportunities to write business that was available to them in the fourth quarter.

I'm wondering if you could spell it out a little more clearly?

I think for the last number of years, we have grown faster internationally than we have grown in the US/Canada division.

And the underlying factor that drives that is there is more growth in the world than there has been in the developed US/Canada division.

And so we have been grinding it out in US/Canada and in some other parts of the developed world with good organic growth strategies and we are pleased to be growing most often above GDP even in the developed world.

But we are -- in the RIS side, we are in 90 different countries and so when there is more growth in the world we are there to catch it.

Now some of that growth frankly comes from the developed world into the developing world and so our client relationships in US/Canada and in Europe to name two parts of the developed world, we capture in places like Latin America, Asia and Africa.

But I wouldn't read too much more into it.

There is more GDP growth outside US/Canada than there is inside and that is the main factor that you see a differential growth rate.

Okay, thanks very much.

Okay, thank you.

And thank you, operator.

Before ending this call, I would like to just reiterate how honored I am to lead Marsh & McLennan Companies.

I will keep a keen focus on three core constituencies, colleagues, clients, and shareholders.

This call is naturally oriented toward meeting our commitment to shareholders.

I also want to take this opportunity to express my appreciation for our 54,000 colleagues for their hard work and professionalism and to our tens of thousands of clients for their belief in Marsh & McLennan.

Thank you very much.

That does conclude today's teleconference.

Thank you all for joining.