威達信集團 (MMC) 2013 Q1 法說會逐字稿

Welcome to Marsh & McLennan Companies conference call.

Today's call is being recorded.

First quarter 2013 financial results and supplemental information were issued earlier this morning.

They are available in the Companies' website at www.mmc.com.

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

I'll now turn this over to Dan Glaser, President and CEO of Marsh & McLennan Companies.

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

I'm Dan Glaser, President and CEO of MMC.

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

Also I'd 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.

Also with us is Keith Walsh, head of Investor Relations.

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

We had an excellent first quarter which represents another step forward in our journey to be among the elite companies of the world.

We are successfully excluding the four-pillar strategy that has served us well.

It calls for us to produce long-term growth in revenue and earnings, maintain low capital requirements, generate high levels of cash, and manage the risk profile of the Company.

We remain committed to building on this foundation as we pursue new ways to grow, invest and realize the full potential of our businesses.

Marsh & McLennan's strong first quarter results demonstrate that we are performing well.

In the first quarter, growth in underlying revenue exceeded growth in underlying operating expenses as it has for 19 of the past 20 quarters.

In the quarter, this operating leverage produced 16% growth in adjusted operating income, and our consolidated margin increased 230 basis points to 19.7%.

Importantly, both operating segments delivered mid-teens growth in adjusted operating income, as well as substantial margin improvement.

Adjusted underlying expense growth was flat in the first quarter.

However, as we progress through the year, we expect to see modest expense growth, thus tempering margin expansion for the remainder of the year.

Risk and Insurance Services produced another outstanding quarter.

Underlying revenue growth at both Marsh and Guy Carpenter was 4%.

Adjusted operating income for this segment rose 14%, with margins expanding to 26.6%, an increase of 210 basis points.

This is the segment's highest quarterly margin since 2004, an impressive performance when you consider the headwinds we are facing such as lower fiduciary income, higher pension expense and a challenging economic environment in most developed countries.

At Marsh, revenue was $1.4 billion with all major geographies contributing to Marsh's 4% underlying revenue growth.

We are pleased with this performance since it comes on the heels of very strong growth in last year's first quarter.

The International division grew 5%, with Latin America up 13%, Asia-Pacific increasing in 6%, and EMEA growing 3%.

The US/Canada division increased 2%, a solid performance given the strong growth of 6% last year.

Marsh continued to generate high levels of new business with $256 million this quarter.

Guy Carpenter continued to produce impressive results with revenue of $375 million in the first quarter, or growth of 4% on an underlying basis.

We are especially pleased with this performance considering the 7% growth in last year's first quarter, higher risk retentions by clients, and softening pricing conditions.

Guy Carpenter's revenue growth reflects both higher revenue retention, as well as strong new business development.

Consistent with Carpenter's goal of broadening its geographic footprint, double-digit revenue growth was achieved in continental Europe and Latin America with solid gains in Global Specialties.

This excellent performance now extends the trend of Guy Carpenter's quarterly underlying revenue growth into the fifth consecutive year.

In our Consulting segment, we continue to focus on higher levels of profitability.

In the first quarter, revenue was $1.4 billion, flat on an underlying basis as growth at Mercer was offset by revenue declines at Oliver Wyman.

Importantly, the Consulting segment produced significant earnings growth of 15% to $189 million as adjusted underlying expenses decreased 2%.

As a result, the segment's margin expanded 190 basis points to 13.9%, driven primarily by Mercer.

At Oliver Wyman, underlying revenue in the first quarter decreased 9% as declines in North America and Europe more than offset expansion in Latin America and Asia Pacific.

In this difficult macroeconomic environment, John and his management team have taken steps to protect Oliver Wyman's profitability.

Mercer's revenue was $1 billion, an increase of 3% on both a reported and underlying basis.

On a geographic basis, Mercer grew revenue across each of its major regions.

Among its lines of business, strong revenue growth was achieved by Health and Investments.

These excellent results in the first quarter reflect a series of actions taken by Mercer's management to reposition the business to grow earnings.

In closing, we are very pleased with our overall performance in the first quarter.

With that, let me turn it over to Mike.

Thank you, Dan, and good morning, everyone.

In the first quarter, revenue was $3.1 billion, an increase of 2% on both a reported and underlying basis.

Adjusted operating income rose 16% to $615 million, our highest level of quarterly profitability in almost a decade.

And the consolidated margin increased 230 basis points to 19.7%, again, our highest level since 2004.

GAAP EPS rose 17% to $0.74, and adjusted EPS grew 16% to $0.73.

As we discussed last quarter, to assist in building broader client relationships, Mercer has aligned its benefit administration services, formerly described as Outsourcing, within its principal business lines, thus positioning Mercer's capabilities around Health, Retirement, Talent and Investments.

Also in the first quarter, a significant portion of Marsh's US Consumer business was transferred to Mercer.

Last year, this business had $231 million of revenue, operating income of $40 million and close to 1,000 colleagues.

Realigning these two businesses within Mercer enables us to concentrate our efforts and expertise in a rapidly shifting landscape, including the convergence between traditional benefits and voluntary benefits.

Mercer also will use the consumer call center operation to support Mercer Marketplace, its healthcare exchange.

The supplemental schedules in our press release provide quarterly revenue operating income and margins for the past three years reflecting the Consumer and Outsourcing reclassifications.

MMC is delivering excellent operating and financial results while continuing to invest for the future.

As an indication of this, our capital expenditures have grown substantially in recent years, from approximately $270 million in 2010 to $320 million last year.

And CapEx is expected to be approximately $350 million this year including over $120 million in the first quarter.

We are constantly investing in each of our businesses.

Throughout the Company we have been creating new products and tools to enhance client service, replacing legacy systems with next-generation technology, improving efficiencies and developing new operating platforms that increase our global capabilities.

Investment also includes recruiting and retaining the best talent in our industries.

We believe the investments we are making will continue to create significant shareholder value.

Investment income in the first quarter was $21 million due to the winding up of Trident II which accounted for the vast majority of our investments in private equity.

We expect only minimal income from our investment portfolio over the remainder of this year.

However, while we no longer have an investment in Trident III, we have retained performance fees related to the creation of this fund in 2003.

Recognition of these deferred fees will only occur as investments are harvested and the performance fees are no longer subject to claw back.

Timing of this is unknown and is not controlled by MMC.

Interest expense decreased to $44 million in the first quarter due to a reduction in debt, and our next debt maturity of $320 million is in July of next year.

Corporate expense declined to $45 million in the first quarter on an adjusted basis.

Although there is variability quarter-to-quarter, we believe this is a reasonable quarterly run rate.

Cash utilization.

As you know, our cash utilization is typically greatest in the first quarter primarily due to the payment of incentive compensation awards.

Additional uses of cash in the quarter included $320 million for discretionary pension contributions, $250 million for maturing debt, $125 million for dividends, and $100 million to repurchase 2.7 million shares of our common stock.

In fact, this represents the first time since 2004 that we've repurchased stock in the first quarter.

And since instituting the current share repurchase program in late 2010, we have repurchased 25 million shares.

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

Thank you, Mike.

Operator, we are ready to take questions.

Thank you, sir.

(Operator Instructions)

We will go first to Greg Locraft with Morgan Stanley.

Hi, good morning, and good start to the year.

Good morning.

Wanted to just ask about the operating margins, which were excellent in the quarter relative to what we were thinking.

And I think in your commentary you mentioned that we won't see the same level of increase for the rest of the year.

So can you first, maybe just talk a bit about how you did so well?

And then, number two, can you maybe clarify a bit on how we should think about that for the rest of the year?

Sure.

As we've shown over the past five years, we pretty much align expenses and revenue.

So when we saw and spoke with you in the back half of last year, or going into the back half of last year, we began to anticipate some revenue deceleration, which we saw not only in RIS, but more particularly in the discretionary spending areas of our Consulting businesses.

So we started -- we always actively manage expense, but we definitely keep a very watchful eye on expenses, particularly in this kind of macroenvironment, and so we started decelerating our expenses, as well.

And if you look even back to last year, the third quarter and the fourth quarter, we're decelerating, and obviously in this quarter where we're overall flat on the expense side.

We're feeling a little bit better looking at the future -- a little bit more optimistic on revenue.

But we just wanted to temper the big margin expansion so there's not an expectation because, obviously, we don't know what the top line is.

We are out there building our top line.

I won't say emphatically that we won't deliver that kind of margin expansion because I don't know what the top line is going to be.

But I can say that if we operate the top line like we do right now in that sort of 3% or 4% range, then we would not sustain the 230 basis points quarter after quarter.

Okay, that's great.

So you are really flexing the expenses to the revenue outlook, and you are feeling a bit better there from this point forward, obviously outside of Oliver Wyman, I would imagine?

No, even within Oliver Wyman, as well.

I'd be happy to hand it over to John to give you a little bit more color about Oliver Wyman, and what they feel their prospects are.

John?

Sure.

So if we look at Q1 before talking about the outlook, our weak performance in Q1 stemmed from the challenging business conditions we faced in Q4.

And then early Q1 this year, where in Europe we had a recessionary economic climate persisting.

And in the US, business confidence was weak, largely due to political uncertainties around the fiscal cliff, the sequestration, and sort of stopped a large part of discretionary spending reducing demand for Consulting.

So it was a weak sales environment for us in Q4 last year and early part of this year, and that translated into weak revenues, particularly in the early part of Q1 this year.

Now, we've seen our sales pick up during Q1, and our business performance has improved each month of the quarter -- March was our best month.

So looking ahead, we expect Q2 to be better than Q1 based on our current sales and pipeline activity, and expect to return to growth in the second half of the year.

That's great color.

Thank you.

And then last, just on the buybacks, it was nice to see the buybacks in the first quarter.

As you said, you hadn't done that for almost 10 years.

Can you talk a bit about your appetite for buybacks at the current levels, and what we should be expecting?

Sure.

We have increasing free cash flow over the last couple of years, and as we grow earnings, we expect that to continue.

So when we look at uses of cash, we fund some internal investments, but that's fairly rare to get those lumps because, frankly, we run most of our investments through our P&Ls anyway, so they don't appear in extra uses of cash.

Our dividend is really sacrosanct, and we maintain a strong dividend.

And then we've got an active pipeline, so we look at acquisitions really all over the world.

We don't do that many deals, but we certainly look at a lot of them, and we can't really time that out for you.

But share repurchase, to us -- we believe in the Company, so when we have available cash, we will buy back our own shares.

Okay, great, thanks, and congrats on the start to the year.

Okay, thank you.

Next question.

We will go next to Larry Greenberg with Langen McAlenney.

Hi, I was wondering if you could just elaborate a little bit of what you are seeing on the reinsurance side?

Dan, you referenced softening prices a little bit.

And then vis-a-vis capital market solutions, how you are positioning Carpenter to be a player in that?

Okay.

So Alex, over to you.

Okay.

In the first quarter, I wouldn't say that there was much effect from rates.

Obviously, accounts that we have that were affected by Sandy, we saw some stiffening of rates, and in general, rates had a benign effect on the quarter.

But, certainly, there's downward pressure as -- one, more capital; two, less CAT losses; and three, stronger balance sheets.

So we are expecting to see some downward pressure, but interestingly enough, if there's cheap alternative capital, you look at your capital, we have a tranching tool, and look at the cost of capital, actually we may be buying -- some of our clients actually buying more reinsurance than they bought before.

As regards, how do we deal with this new alternative capital coming in -- one, we've been fairly good at that in the past.

We've had a lot of success with our product -- our Quill product -- and two, we understand that we need to continue to expand our capabilities there.

We have a pipeline of hires who understand that business better, understand the appetites of the capital that is coming in.

So we certainly are focused on it; we want to embrace it.

And we think that our value to our clients is the advice we give, and we will continue to be valuable.

Great.

Thank you.

And then, just quickly -- Dan, you talked about buyback, but I'm just curious what drove the decision to repurchase shares in the first quarter?

Mike, you want to take that?

Yes, thank you, Dan.

Larry, as you know, we ended last year with $2.3 billion on our balance sheet in cash and cash equivalents.

So not only was it robust overall, but we were very effective over the course of the third, fourth quarter and early part of the first quarter of bringing back a lot of that cash into the US on a very tax-efficient basis.

So as an outcome of those activities, we had more flexibility in the first quarter, and even though we had a lot of uses for the cash, we felt very comfortable in repurchasing $100 million of shares in the quarter.

Great.

Thank you.

Thank you.

Next question.

We will go next to Brian Meredith with UBS.

Yes, good morning.

I'm wondering if you can give a little more color on what's going on with Mercer, particularly in the retirement area, and the talent area?

Sure.

Julio?

Sure.

Thanks for the question, Brian.

As you saw, and we've talked about in the past, in the talent area we have there the highest mix of project work consultancy in the globe, which is, of course, more sensitive to economic cycles and discretionary spending decisions of our clients.

And there's no question that you can see that those types of decisions by our clients are being very defensive in the days of the quarter, and probably for some days ahead, as well.

But what the strength of Mercer, though, is its diversification.

We have significant other businesses that, of course, have ancillary and absolutely repeatable revenue streams.

And those perform very well, as we mentioned already, in the health area, the investments area -- we saw some really good growth there.

That was even off of some very powerful growth that we had in the first quarter of 2012 in those areas.

So we are feeling pretty comfortable about our prospects to be able to maximize our diversification of our portfolio so we can continue to grow and also improve profitability.

Great.

And I wonder, can you give an update on how the healthcare exchange is going?

Yes, sure.

Absolutely.

Lots of activity to report there.

We recently announced a pretty impressive lineup of participating carriers for health, sponsored, ancillary and voluntary product choices, and are in active discussions with numerous firms who are considering Mercer Marketplace for their employees in 2014, and some in 2015.

So firms like Aetna, Cigna and UnitedHealthcare, Humana and Anthem have decided to participate in our core medical offering, while organizations like Allstate and Met and many others will offer voluntary benefits such as P&C products, ID, theft protection, legal coverage and of course, the always-offered dental and vision and much more.

So our goal was to have the most flexible and complete solution in the market for companies of virtually all sizes, and Mercer Marketplace has proven to be just that.

We can offer companies a wide range of benefits and carrier choices to offer to their employees.

And we offer employees an excellent buying experience, so we're pretty excited about the prospects.

Are you generating any revenues out of yet, and when do you expect to start seeing revenues?

No, this is -- the enrollment period for 2014 will start in the Fall, so any revenue will fall into '14, not '13.

Great.

Thank you.

Okay, thank you.

Next question, please.

We will go next to Dan Farrell with Sterne, Agee.

Hi, and good morning.

Good morning.

I just want to -- I wonder if you could talk a bit more about the margin improvement efforts within the Consulting business?

You've had some very nice success there over the past year, and I think, particularly impressive this quarter given the weaker organic growth.

What I'm wondering is -- how far along are you on all the stuff that you've wanted to do there?

How much more stuff do you have to do that is in your control?

So maybe just give us an overall update on that?

Okay.

I will start with that, and ultimately hand over to Julio to give you a little bit more color.

But we started, really, maybe 18 months ago talking about how we thought that the Consulting business could be improved on a profitability basis.

And that we could take some of the disciplines and approaches that we were using in the RIS side of the business, and apply them within Consulting.

We actually moved some people and we used some technology, changed the structure to where it was more aligned with both a geographic and a line-of-business matrix within Mercer.

Oliver Wyman stayed on a line-of-business basis because it is a different kind of structure and market.

We started the march, and we talked about that really from a couple of years ago, and our belief is that we can, similar to the RIS side, manage expenses aligned with what kind of revenue we are seeing, and achieve some significant gains in margin over a long period of time.

Now, Consulting is a little lumpier than RIS.

It has less recurring revenue than RIS, so it might not be quarter by quarter every single quarter, but over a long period of time, we expect those margins to continue to improve.

I will hand over to Julio to give you a little bit more color.

Thank you, Dan.

We're pretty pleased with the continued margin expansion that we are seeing in Mercer.

Our top-line growth combined with our focus on core discipline is really what's driving the results.

We are going to stay disciplined and a bit defensive in some places, and also continue to invest in others.

We have a significant amount of expansion that we expect in the years to come that will hopefully allow us to continue to calibrate our expenses to our growth on revenue.

Some of those you have heard me talk about before, whether it is expansion in the growth markets, whether it is expansion in our breadth of products that we have to offer, and our distribution points like Mercer Marketplace.

And other investments we're making in technology, client-facing technology especially, I think will pay dividends for us in the future, and allow us to continue to calibrate appropriately with our expenses So we will continue to be disciplined and defensive in some areas, invest in others.

And of course, we don't anticipate any additional restructuring, as you know, we announced on the fourth quarter of last year.

But we do expect that, as our year goes on, that we will continue to invest in those things that will give us the top-line and expense efficiency that we need.

Okay, thank you very much.

That's helpful.

Okay, next question, please.

We will go next to Ray Iardella with Macquarie.

Thanks, and good morning.

And, Dan, maybe just touching on your comment about Oliver Wyman making some moves to protect profitability.

Just curious if you can give me a little bit more color on those actions?

Okay.

I will address that a little bit, but I think it would be better for me to hand off to John, who could give you more details.

We run our businesses differently.

We have two segments, and we look at Consulting in a different way than we look at RIS.

So the models are a bit different.

And as we talked about, about a year ago when Oliver Wyman's growth started to come off, we were saying that that was going to be more of a revenue event than an earnings event.

And that Oliver Wyman had a more fungible business model, which is sort of best in front, and that they could fairly easily move people from one part of the world to another part of the world.

So it is not that they carry a lot of stranded cost on expense.

So let me just hand over to John to give you some more flavor.

So I think there are a few other factors behind us protecting our margin in the first quarter.

I think, first, given the weak conditions we saw in Q4 2012, we expected Q1 would be challenging from a revenue standpoint.

So we took actions to constrain our operating expenses in that environment.

I think the second point is that our compensation model is very performance-sensitive, and is a major part of our expense base, so that part of the expense base flexes naturally down with our weaker performance.

And then finally, I think coming into 2013, we expected our operating profitability of our business portfolio to be stronger.

So there were a number of expense investments, for example, that matured through the course of time.

So the combination of those factors enabled us to protect our margin, despite their revenue decline.

Okay, that's helpful.

And then maybe, I don't know if Peter or Dan, do you want to address this, but the new business in Marsh, how much of that is being generated out of the US versus internationally?

Is there any sort of flavor you can give in terms of that number?

Sure, thanks.

Let me hand over to Peter.

Sure, Ray.

It is actually quite balanced -- the new business -- and has been for the last year.

The two regions where we had the strongest new business in the first quarter were actually the US and Latin America.

So while we are seeing, from strategic investments, very strong growth in the emerging part of the world, we are also seeing very strong new business for the US.

And when you look at last year, as Dan opened up with, with tough comparables.

So to get stronger new business year over year really is a tribute to the pipeline and how we are executing.

Okay.

And last one, a numbers one, if I can squeeze it in, for Mike.

The CapEx you talked about for 2013, that was $350 million?

Is that correct?

That's absolutely correct, even including, I think, the $126 million in the first quarter.

We typically track around a $75 million to $80 million a quarter CapEx rate.

You can see in the first quarter of last year it was about $25 million below it, and in the first quarter it is above that.

But we think then, over the course of the next three quarters, it will track more like we normally would see, in the neighborhood of $75 million to $80 million, realizing it could be variable quarter to quarter.

Okay, thank you so much.

Thanks, Ray.

Next question, operator.

We will go next to Michael Nannizzi with Goldman Sachs.

Thanks.

Most of my questions were answered.

I guess one question -- could you talk a bit on the US organic, and just the renewal book there?

And what sort of trends you are seeing?

Appreciate some color, and just one quick follow-up.

Thanks.

Sure, Mike, I will hand it over to Peter.

And that's on the risk side, I should say.

Sure.

Sure.

For the US core business, as I said, the new business has been strong, but the biggest contributor is really the renewal retention, revenue retention.

So strong rollover from last year of new business -- very strong client retention.

I would say the third factor is modest pricing improvement, so when we look across the different segments within the US business, more of our clients are receiving rate increases than are receiving rate decreases.

The lines of business that probably are seeing the biggest increases are D&O, more on the financial lines, excess and umbrella, workers' compensation.

So we have seen some benefit, not much, but some benefit in the US, but it has been offset by the international where there's more headwinds.

So in that environment, does the size or scale -- how do you view the reasons behind the renewal book sort of improving in quality?

I think the biggest component, or lift, is really the strong retention that we have for client, and the strong rollover we have from the production pipeline.

So, again, strong new business last year, rollover, more clients, strong retention is really what the biggest contributor is.

Great, thanks.

And then, I just want one question, maybe, Dan.

Obviously, Berkshire has made a couple big announcements recently.

Can you just talk about how either of those either impact your business or how you perceive their impact on the market overall?

And thanks for all your answers.

Sure.

I'm not going to get into the weeds of what other companies are doing in the market.

I think it is fair to say that there's plenty of capital in the insurance industry, and that our clients are well-served, and we are good intermediaries to find that capital for them when they need it.

And so, at the end, the insurance business is pretty healthy.

Insurance companies have done pretty well, notwithstanding the big CATs of 2011.

And as you look at shareholder surplus and that sort of thing, it is an appealing business for many, and so capital is continuing to rise.

And on that basis, we will continue to work with our clients to access whatever capital they need.

Great, thank you.

Sure.

Next question, please.

We will go next to Adam Klauber with William Blair.

Thank you, good morning.

Good morning.

Within the risk P&C business, do supplemental payments, commissions, do they come in more in one quarter than another, or are they pretty evenly spread?

Peter?

They are pretty evenly spread.

There's no one quarter where we would benefit more than another for any fee or commissions from insurance carriers.

Okay, okay.

As far as Europe and the risk services, do you expect that business to flatten, or as the environment isn't getting better, the potential is that that just continues to drift off?

You are talking about our EMEA segment?

Yes.

Okay, Peter?

It has held up very well.

Certainly, we're very cautious, as Dan said, from last year looking into the economic conditions within Europe and other parts of the world.

But for us, most of our European countries within EMEA grew, albeit modest, and it has been a real steady performer.

And so there's no signs to suggest that it is going to fall off from its track over the last six quarters.

One thing to bear in mind -- some countries in continental Europe are sort of weighted toward renewals in the first quarter.

So a good start to the year usually signals a decent year for them.

Right, right.

Okay.

And one final question on the health exchanges.

I know it is early, but how is your pipeline looking for the 2014 enrollment?

Julio?

The pipeline is very strong.

As you can imagine, we have clients and prospects who are very interested in having deep discussions about the Mercer Marketplace alternative.

Many of these conversations are leading to work that may not be directly related to Mercer Marketplace, but thus, we help our consultancy with these prospects and clients, as well.

So the pipeline is strong.

Many are making decisions, and we are consulting them on whether or not 2014 is the right timing, or 2015 is the right timing for them.

So we will see over the coming months as to who comes on in 2014 and who comes on in 2015.

Thank you very much.

Okay, operator, I think it is time for two or three more questions.

So are there any other questions?

Yes, sir.

We will go next to Elyse Greenspan with Wells Fargo.

And Ms. Greenspan, if you would check your mute button, we cannot hear you at this time.

Oh, yes, sorry, thank you.

Most of my questions have been answered, but just in terms of more getting a flavor for the organic growth.

I know within Oliver Wyman, you had mentioned seeing trends pick up as we moved throughout the quarter.

And would you say maybe the same if you're looking in terms of RIS?

And also within Mercer, did you see trends kind of improve as we got later on in the quarter, or was it more consistent throughout the three months?

I think one thing when you think about RIS is, and about 70% of Mercer tends to be recurring revenue.

So the trends are rarely do you see acceleration; you basically look at year over year in terms of what the renewal date was in the previous year.

So I think that Oliver Wyman has often been a good canary for us in terms of determining where the macroenvironment is going, and Oliver Wyman is anticipating some better trends, particularly toward the back half of the year.

Okay.

Thank you.

And then also, in terms of the healthcare investment, from one of the questions earlier, you had said we would more see some of the revenue from those exchanges come up in 2014.

Do you anticipate, when we gear up towards the 2014 enrollment period later this year, seeing a little bit of a pick up in expenses there that might hit later in the year, and then see the revenue early next year?

Or should we see that maybe impacting margins a little bit later on this year?

Okay, so let me answer that a little bit, and then I will hand over to Julio.

I think one thing you have to bear mind, when there is such a change like we are seeing in healthcare reform, is that the initial waves are largely around existing clients making decisions.

And, certainly, we are talking to a number of prospects, but most of our time is serving customers, serving existing clients.

And so when you think about -- okay, if a client may elect to go onto the exchange, or they may elect to stay out of an exchange and buy their insurance in a traditional way.

So I think, at least in the early waves, you have to consider that these are different choices that a client would have.

And over a long period of time, what you will see on successful exchanges will be that they will be able to build some share because of the quality or breadth of their exchange.

Julio?

In the first couple years, we don't expect a significant impact on margins or expenses, quite frankly, as it relates to the exchange, and Mercer Marketplace in particular.

I would expect, obviously, to have margins that are more in line with what we are seeing today in the business as years out develop.

So I wouldn't expect any lumpiness in this period of time.

Okay, operator, I think we can take one more question.

And that final question will come from Charles Sebaski with BMO Capital Markets.

Good morning, thanks for fitting me in.

Good morning.

Had a question about Guy Carpenter, and some of the organic growth.

I was wondering if -- how much of the growth in the quarter came from one-time transactions, capital markets, alternative, as opposed to the traditional renewal book?

Okay, let me address this slightly, and then I will hand over to Alex.

I just want to make the point that Guy Carpenter grew 7% organically in last year's first quarter, so their comparable was a pretty high comparable, and they have done pretty well against that comparable.

Alex?

Clearly, at the beginning of the year on the CAT side, we will be oftentimes selling products which won't necessarily be renewed, but we've been able to do that well.

And the bulk of our business continues to be renewable business.

And what we've done is we have increased discipline around client service, improved advice, as well as a very focused new business approach.

I think we've been able to keep the momentum.

Okay.

I was just wondering if there's any large, one-time capital market events that happened?

No.

No?

Okay.

And just one follow-up -- I was wondering if there's any additional color on the MMA front, on the agency business, and how that's looking?

Sure.

Absolutely.

Peter?

Yes, the MMA platform is very exciting.

We are now approaching almost $500 million in annualized revenues.

The acquisition pipeline is quite strong and, again, we don't report in the segments, but they had a very good quarter in terms of growth and profitability and margin expansion.

So we are excited.

They are actually very focused on how we invest in driving organic growth, so it is not just the acquisitions that are going to drive value for MMA.

We tend to do less acquisitions, for a variety of reasons, in the first half of the year.

But, again, excited by the pipeline and the prospects for future growth.

Great.

I appreciate the color.

Okay, thank you very much.

I would like to just thank all of you for joining us on the call this morning.

I'd also like to thank our clients for their support of Marsh & McLennan Companies and, certainly, our colleagues for their hard work and dedication in delivering such fine results.

Have a good day.

And, again, that does conclude today's conference.

We do thank you for your participation.