威達信集團 (MMC) 2013 Q4 法說會逐字稿

Welcome to Marsh & McLennan Companies' conference call.

Today's call is being recorded.

Fourth-quarter and full-year 2013 financial results and supplemental information were issued earlier this morning; 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 MMC 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 the call over to Dan Glaser, President and CEO of Marsh & McLennan Companies.

Thanks, Sherlon.

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

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

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

I would also like to welcome our operating Company CEOs -- Peter Zaffino of Marsh; Alex Moczarski of Guy Carpenter; Julio Portalatin of Mercer; and Scott McDonald who was named CEO of Oliver Wyman group on January 1. Scott succeeds John Drzik, who has moved to Marsh to become President of Global Risk and Specialties, overseeing Marsh's Global Industries and Practices, Analytics and Technologies and the Insurer Consulting Group.

John has also been named Chairman of the newly formed MMC Global Risk Center, where he will strengthen collaboration on risk issues across the firm.

This exemplifies the depth of our senior management team and our successful efforts to move talent throughout the organization.

Also with us this morning is Keith Walsh, Head of Investor Relations.

I am very pleased with our fourth-quarter results which capped an excellent year for MMC.

Underlying revenue growth was 4%, exceeding the increase in underlying operating expenses, as it has for 22 of the past 23 quarters -- a record that stands out in the industry.

Our consolidated adjusted margin rose 130 basis points to 16.3%, our highest fourth-quarter margin in a decade.

In the Risk and Insurance Services segment, adjusted operating income grew 9% and the margin expanded 80 basis points to 20%.

Marsh had strong underlying revenue growth of 4% in the quarter -- the International operations rose 4% and the US/Canada division grew 3%.

Guy Carpenter generated underlying revenue growth of 6%, its best performance in 2013.

In the Consulting segment adjusted operating income grew 16% and the margin expanded 160 basis points to 14.9%.

Mercer grew underlying revenue 4% for the third consecutive quarter, driven by outstanding results in health and investments.

Oliver Wyman's 5% increase in underlying revenue was its strongest performance in the past six quarters, reflecting significant growth in Financial Services.

For the year, we delivered underlying revenue growth of 3% while managing underlying adjusted expense growth to 1%.

This produced strong operating leverage with 14% growth in adjusted operating income and an increase in the adjusted operating margin of 180 basis points to 17.4%.

Adjusted EPS increased 15%.

In 2013, each of our segments produced double-digit growth in adjusted operating income.

Notably this was the fourth consecutive year of double-digit growth in adjusted operating income and margin expansion in both segments.

In recent years we have made tremendous progress in improving productivity, capturing efficiencies and reducing risk.

This progress was driven in part by investments in our businesses.

One indicator of our level of investment is capital expenditures, which increased over 40% from two years ago.

We are well-positioned to deliver on our long-term goal of 13% annual EPS growth.

In Risk and Insurances Services, revenue for 2013 was $6.6 billion, with underlying revenue growth of 3% at Marsh and 5% at Guy Carpenter.

Adjusted operating income increased 11% to $1.5 billion.

This represents the sixth consecutive year of double-digit growth in adjusted operating income.

The adjusted margin rose 150 basis points to 22.1%, the highest in a decade.

To put the outstanding long-term performance of this segment into perspective, since 2007 adjusted operating income has more than tripled and the adjusted margin has expanded by more than 1,300 basis points.

At Marsh revenue was $5.4 billion in 2013 as all major geographic regions contributed to underlying revenue growth of 3%.

In the US/Canada division underlying growth was 2%.

The International division expanded 4%, as solid underlying revenue growth continued throughout Marsh's vast international footprint.

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

Last week Marsh & McLennan Agency announced the acquisition of San Diego-based Barney & Barney, the country's 34th-largest insurance brokerage firm with $100 million of annual revenue, 500 employees, strong leadership, and an outstanding record of growth.

Barney & Barney will be MMA's Western regional hub.

Marsh has also continued to expand its international footprint.

Recent acquisitions include the leading insurance advisors in Peru, the Dominican Republic, and most recently in Scotland where Marsh acquired Central Insurance Services.

Guy Carpenter produced record revenue of $1.1 billion in 2013, an increase of 5% on an underlying basis.

Three-quarters of this growth came from outside of Guy Carpenter's 25 largest clients, reflecting our strategy to broaden relationships by customer size and geography.

Revenue growth was broad-based across North America, International, Global Specialties and UK Facultative.

Guy Carpenter has grown organically for 20 straight quarters with average annual underlying revenue growth of 5%.

As a result of building headwinds, including record levels of capacity, higher risk retentions by clients, and significant rate reduction seen in January, we currently expect modest underlying revenue growth at Guy Carpenter in 2014.

In 2013, the Consulting segment continued to make substantial progress to increase profitability.

Revenue was $5.7 billion, up 2% on an underlying basis.

Focused expense management held underlying adjusted expenses flat, producing adjusted operating income of $847 million, an increase of $100 million or 13% from the prior year.

And the segment's margin increased 160 basis points to 14.9%.

Mercer had solid underlying revenue growth fueling record profitability.

Revenue was $4.2 billion, an underlying increase of 4% for the third consecutive year.

This was driven by Health and Investments, which led the way with increases of 6% and 9%, respectively.

Growth was spread across all geographic regions.

We have experienced success in the US healthcare exchange space with the launch of Mercer Marketplace which just last month became a standalone division within Mercer.

Mercer Marketplace has delivered a differentiated platform for both middle market and large clients.

Oliver Wyman's underlying revenue growth steadily improved throughout the year, culminating with strong fourth-quarter growth of 5%.

For the year, revenue was $1.5 billion, a modest decrease from 2012 as solid growth in Financial Services, Lippincott, NERA and the International regions was offset by declines in other practices.

In summary, MMC's excellent performance in the fourth-quarter and full-year represents the continuation of our strong earnings momentum.

We are especially proud of our record of generating consistent earnings growth.

Adjusted EPS rose 13% in 2011, 16% in 2012, and 15% this past year.

And over the three-year period, the adjusted operating margin improved 330 basis points.

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.

Thank you, Dan.

And good morning, everyone.

In the fourth-quarter, MMC's revenue was $3.1 billion, an increase of 4% on an underlying basis.

Adjusted operating income rose 13%.

The consolidated margin increased 130 basis points to 16.3%, and adjusted EPS grew to $0.57 from $0.52 in the prior year.

Both GAAP and adjusted EPS included $24 million of expense or $0.03 per share due to the early extinguishment of debt.

Full-year results -- MMCs revenue rose 3% on an underlying basis to a record $12.3 billion.

Adjusted operating income grew 14%, with the margin increasing 180 basis points, from 15.6% to 17.4%.

GAAP EPS increased 14% and adjusted EPS grew 15%.

Investment income was $11 million in the fourth quarter.

While difficult to forecast, we anticipate investment income could approach $10 million in the first quarter.

MMC's tax rate for the year was 30% on both a GAAP and adjusted basis, which is also appropriate to use for modeling purposes this year.

Interest expense in the fourth quarter decreased to $43 million, which reflects the debt funding that occurred last fall.

Most likely we will utilize the commercial paper market this quarter for the first time since 2007, and as we approach the July $320 million debt maturity, we will refine our thinking concerning the amount and term of the refinancing.

Now let's turn to MMC's pension plans.

We would like to update you on the funded status, cash contribution, changes to our UK pension plans, and pension expense for the year.

As the end of 2012 on a GAAP basis the net funded status of our global defined-benefit plans was a deficit of $1.5 billion.

At the end of 2013, this has moved to a surplus of approximately $100 million.

The significant improvement was due to strong market returns, cash contributions and an increase in the discount rate of 85 basis points in the US.

Last year we made total cash contributions to our defined-benefit plans of $650 million.

The anticipated funding this year is approximately $200 million.

Changes to our UK pension plans.

After an in-depth review of our UK retirement plans, we are implementing a new defined contribution plan effective in August.

We are moving from several diverse plans to one unified competitive DC offering for all UK colleagues.

We anticipate very modest impact on profitability from this change.

Based upon the year-end measurement, which takes into account such factors as the discount rate, asset returns, mortality, inflation, salary increases, and cash contributions, annual pension expense will decrease in 2014 for the first time since 2008.

We anticipate the year-over-year decline in pension expense, net of compensation considerations, will be approximately $0.10 per share.

The impact of foreign exchange on MMC's operations throughout the year could partially offset this benefit.

If exchange rates at the end of January hold for the remainder of the year, EPS will be reduced by $0.05 per share.

Less than half of this relates to our four major currencies, sterling, euro, Canadian dollar, and Australian dollar.

Unlike prior years, the currency impact from emerging markets could be meaningful.

We expect minimal impact in the first quarter from the foreign exchange, with the greatest impact coming in the second quarter.

In summary, we believe the net result of the pension benefit and the FX impact could increase EPS by $0.05 this year.

Moving on to cash.

Cash on the balance sheet at year-end was $2.3 billion, of which $940 million was in the United States.

These cash levels anticipate payments for variable compensation, several recent acquisitions -- the largest being Barney & Barney, and returning capital to shareholders.

Our cash utilization in the fourth quarter included $139 million for dividends and $150 million to repurchase 3.2 million shares, marking seven consecutive quarters of share buybacks.

For the year we bought back 13.2 million shares for $550 million.

We plan to continue our share repurchase program in the first quarter.

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

Thank you, Mike.

And, operator, we are ready to begin Q&A.

(Operator Instructions).

Gregory Locraft, Morgan Stanley.

Great quarter and great year, congratulations.

I wanted to ask a bit about the organic growth, specifically in Guy Carpenter.

I mean it was the best quarter of the year and your competitors are in some ways showing the same not quite as strong but still decent growth also.

What is the disconnect between the top-line performance in global reinsurance brokerage and the pricing declines that seem so widespread across the reinsurance marketplace.

And if you could tie that to why you think you will be able to grow the business this year as you stated in your outlook, that would be great.

Thanks, Greg, it's Dan, I will take the first part of that and then hand over to Alex to give a bit more detail.

I'd say a few things.

You have to really look at what has happened in reinsurance brokerage and advisory over the last number of years, five, six-year period.

There have been very few players who have been able to build out very strong advisory capabilities, and so it is not just a reinsurance transaction that drives results anymore, in many ways Guy Carpenter is far closer to their client -- their client base -- than any other advisor with those clients.

And so, the C-Suites of reinsurance companies come to rely very heavily on the advice and capabilities, analytic capabilities, relationships, of Guy Carpenter.

So it is a more balanced organization than it was in the past.

Having said that, obviously rating levels have an impact because they do participate in transactions but it may be more muted than it had been five or 10 years ago.

But, Alex, you want to give us a more detail?

Yes, sure.

The fourth quarter was a great quarter for us.

It is not a very big cat quarter and it is really in the cat space that prices have fallen so much.

First quarter is quite a strong cat quarter for us.

However, the reason why believe we will grow is, one, we have a very effective segmentation strategy which has allowed us to increase our penetration in the mutual markets, the excess and surplus markets, our international footprint continues to grow.

So we feel good that we can eke out some growth in this year.

One thing I would just like to say is that because January 1 is a big date and is a big transactional date, when we are looking at Guy Carpenter for the year, we're expecting to see modest growth.

And I am not quite sure what we will see in the first quarter.

So we are really looking at GC over the course of the year rather than in one individual quarter.

Okay, okay, great.

And then shifting gears entirely to just a capital deployment.

You guys bought back a lot of stock on the year, at least you bought back more than you have in many years.

Yet the share count still is not yet going down.

When do you expect the impact of the more aggressive share repo to impact the share count?

Okay, well, first of all, I am glad you noticed that we have been buying back more shares because that is certainly something that we are committed to and being really a consistent buyer of our own Company shares is something that this management team is very interested in.

Your specific question in terms of share count and bending the share count is important to us as well.

And, Mike, do you want to give us more flavor?

Yes, I would be more than happy to and thanks for the question, Greg.

And I apologize that it is going to be a little bit more detailed, but I think you need to have color in how we look at it.

As I talked on the third quarter call, if you go back to the end of 2009, the overhang on potential shares outstanding, because of colleague equity grants in previous years, was about 69 million shares.

That included stock options and restricted stock units at various times.

If you look at what that overhang has worked its way down to by the end of this year it was actually 28.6 million shares.

So what that meant, Greg, is that in the last two years we have seen a significant amount of stock option exercise from prior years is probably close to 13.5 million total shares, including restricted stock grants in 2012 and about 14.5 million in 2013.

So if you do the math, if 14.5 million shares were required for this overhang to work down in 2013 and we repurchased 13.2 million shares, the actual net change was 1.2 million.

So now to go to your heart of your question with that history and backdrop.

We think that overhang has been significantly worked down.

We can never totally know what the amount of stock option exercise would be in any given year, but in aggregate we are modeling for 2014, and most likely 2015, only half the levels that we saw in 2012 and 2013.

So as Dan and I have indicated, we plan to continue our share repurchase program, it is a balance with regard to other return of capital to shareholders, acquisitions, investing in the business, but we think that we will start to bend that curve down this year.

Thank you.

Do you have something else, Greg?

Well, if I may just to clarify.

Mike, that was incredibly detailed.

Just to -- so roughly half of what you have seen in terms of the exercises, that is roughly 7 million, you just bought back 13 million shares.

So we should be seeing -- I am just giving you the math back -- a 5-million-plus decrease in share count, all else being equal, if you were to do the same exact buyback activity this year as before.

Is that what you said?

That is what I said, but all else isn't equal.

The average stock price we would hope goes up this year but we can't control that factor.

That is perfect.

Great, thanks for the clarity.

Plus I imagine that sometime in the next month some of our colleagues will be expecting to receive some more shares.

Well, fortunately we took that into account (laughter).

Great year, guys, thanks.

Larry Greenberg, Janney Capital.

Mike, just a little bit on the pension.

Is there a big difference on the impact of financial markets on the US versus the UK.

And is there some negotiating or massaging that goes on on the UK side of things?

And then secondly, just looking for a little bit of an update on Marsh Agency and where things stand there.

Okay, so, Mike will handle the first part of that question, then we will pass over to Peter Zaffino who will give some more color around MMA, the Marsh & McLennan Agency.

So, Mike, pension.

Thank you, Dan and Larry, and let me talk to the point, Larry.

And if I don't specifically address your question, please come back to me before we go to Agency.

But if you look at our global plans, at the end of 2013 they're about $13.6 billion of assets and, as I indicated, about $13.5 billion of liabilities, which puts us in on a global basis a net surplus of $100 million.

If you size of the respective major geographies, the UK is our largest plan, very overfunded and assets on a GAAP -- I'm sorry, assets about $7.7 billion and liabilities on a GAAP basis about $6.8 billion.

The next question that you asked a think was with regard to the mix of the assets that are allocated where the portfolio is roughly in the US and the UK, and the UK and we have disclosed that in the 10-K.

But the UK is a little bit more geared towards bonds.

I think it is 50% of what they call Return Seeking Assets -- heavily geared towards equities, and 50% bonds, so the rate of return on those assets is typically a little bit lower than in the US.

Okay, thanks.

Just before I hand over to Peter.

So a couple of things just to round out pension, your comment about negotiations or in the UK it is probably just in the context of UK has a different format to where large companies have trustees.

And so, Mike and his team do work with the trustees to essentially plan for our fulfillment of our obligations under the pension plans in the UK and the UK trustees have their own specific responsibilities with regard to being a guardian of the UK pension plans.

So is it fair to say that in the UK it is not driven quite as much by the numbers that we tend to focus on here in the US?

I think in the UK, certainly the same sorts of issues in terms of what is the discount rate, what is the market return, what is the return on plan assets, what is the allocation between different categories of asset classes, mortality, are all similar factors.

The one difference is in the UK there is an independent group of trustees who take their own view and have their own advice in terms of what all of those variables mean and taken together.

The UK also has different types of rules and regulations and a different measurement system, where we clearly as a Company look at our plans on a GAAP basis around the world where we have DB plans.

And in the UK they look not only at a GAAP basis but also on what they call a technical provision basis.

Dan, let me just add one other thing is, Larry, as you can see, it is extremely complex looking at the plans not only in the US and the UK.

But I have to say we have fantastic advisors, teams on both sides of the Atlantic working with us literally almost on a daily basis and I'm pleased to report those teams are part of Mercer.

Okay, so turning to the Agency, I would just like to start by saying this has been a consistent strategy over really a five-year period that we started truly executing about four years ago.

So we will ultimately really reap the benefit of the Agency strategy.

And I just think that hats off to Peter and his team because the reality is in early stages as we build out platform hubs, and because we eat all of the deal costs and amortization and all of that, it actually hurts Marsh's overall NOI and the segment's NOI on a margin basis.

Clearly at some day when we reduce the level of amortization, which is still some years off, then it will be a big help for evermore.

But this is a clear strategy that the management team has been executing for a number of years.

And so, Peter.

Thanks, Dan.

And as you said, it has been a journey.

We have acquired 35 agencies since 2009 and our annualized revenue is approaching approximately $600 million.

As Dan had mentioned in his opening comments, we are really excited about the acquisition of Barney & Barney, which is going to be MMA's Western region hub, so we have much more of a balanced national platform now.

We also made two other acquisitions in January, so the momentum is quite strong.

I'm very pleased with the organic growth, certainly in-line of what our expectations are and in line with other middle market brokers within the US.

And believe that we are building a platform that is going to be the premier agency in the United States over time.

So we're going to stick to the strategy of attracting high-quality agencies and believe that the pipeline is strong and very optimistic on the future.

Do you have all your hubs in place now?

We don't have, Larry, a prescription of how many hubs we want for the national platform.

I would expect us to do a couple of other acquisitions for hubs.

But again, our geographical footprint is getting to be quite strong.

So the geographic areas where we want to expand are really in a couple parts of the US.

So I think we would do a couple more hubs, but again no rush.

The watchword for this is not really geography, it is quality.

So where there are quality agencies in the United States regardless of size, we are interested in acquiring quality.

Great, thank you.

Jay Gelb, Barclays.

For the Risk and Insurance Services segment, you mentioned that Guy Carpenter growth could be somewhat slower.

But I'm wondering if Marsh can continue to grow faster.

Even though primary pricing, reinsurance pricing, faces headwinds the economy is certainly recovering.

So does that net out to 3% or better going forward?

When we are looking at the RIS segment in total, we certainly -- we have been in a world of 3% to 5% over the last several years.

And we think we still live in that world, notwithstanding the headwinds that Guy Carpenter is facing.

Thanks, Dan.

And I believe in the past, you said within that range RIS can still generate margin expansion?

Yes, that is absolutely right.

Okay.

Can you give us a bit more color on the underlying expense growth?

I think 1% underlying growth is a pretty impressive achievement.

How are you able to keep it there?

And that 1% may be for the overall Company, right?

Yes, the 1% is for the overall Company.

In the fourth quarter RIS grew expenses 3%, and Consulting grew expenses 2%.

Corporate was negative 4% in the quarter.

When we look at it, obviously, there is a lot going on under the hood.

So our level of expenses is benefited by prior-year actions in terms of capturing efficiency, and rolling-forward actions that we have already done.

The short answer is that we are spending a fair amount of money not only on colleagues but on investing for future growth and on operational improvements.

The good news is our search for efficiencies doesn't end.

And each year we have been able to find significant areas in which we could improve the underlying performance of the Company.

And it actually masks our overall level of expense growth because generally, when we are finding those efficiencies we are letting them roll through.

To give you a couple of ideas, we have significantly reduced our real estate footprint over the past five years, and we use space a lot better than we ever have before.

Another item is that we have increased the headcount in our own service center in India by over 600 people since January of 2011.

We have centralized procurement, which obviously influences demand management but also gives us spend leverage.

So I could go on and on.

There are literally dozens of items that we have done to attack all other operating expenses.

And all you have to do is look at our compensation and benefits, which is a leading driver of expense.

And our comp and ben, as a percentage of revenue, we finished the year at 58.8% which is stable to what it has been in the past.

And so we are letting comp and ben flow to our colleagues.

And within our improvements and profitability, I'm very proud of the fact that we have had five consecutive years of increases to the total bonus pool.

So let me just add to what Dan said.

You can see that we are putting a lot of investments in the business.

We're putting a lot of CapEx, we're putting a lot of money into analytics.

But the other side of that is we have a goal as a management team to make MMC a great place to work.

And so as a result of that, we are not going to get the profit improvement on the backs of our colleagues.

As Dan said, compensation is up a great degree year after year after year.

We are looking at other things that can make the environment more attractive for our colleagues.

Even in the space reduction on real estate that Dan alluded to, our global real estate teams say it's not just an issue of densification because you can fit more people into square footage, but you end up with a not as hospitable work environment.

So we have adopted a smart office concept where we look at the needs and motivational surveys with regard to our staff to make the environment that they work in much more conducive to their lifestyles and work styles.

So overall, it is a combination of not only investing in the business but making MMC a great place for our colleagues as well.

I see, okay.

And then just switching gears, health exchange revenues for contracts signed this year all come in 2014, correct?

Julio?

They will come on as the continuation of payments come on.

So we recognize it throughout the year, there was no big bubble effect in any one quarter.

Okay.

But that would all be organic growth additionally in 2014, correct?

Well, keeping in mind that we have sold clients that were both with us, with Mercer, and we have sold some clients that are new-new to Mercer.

Of those clients that we have sold that were already H&B clients and Mercer clients, we do have an expansion average revenue because we are selling voluntary and ancillary products, so we do get that uplift.

And then those that are new-new of course you get that.

So it is not all new-new coming into Mercer.

Thank you.

Meyer Shields, KBW.

I guess I keep on hearing these reports of slowing economic growth in some emerging markets.

Is that something that could temper organic growth in Asia-Pacific and Latin America next year?

Well, we read the same reports.

And clearly there are issues in the emerging market.

You really have to look at country by country.

It is not that the emerging market is some monolithic area that all has the same characteristics.

In certain of the countries the issues are (technical difficulty) or anti-business practices, in other countries there are political elections.

I think in a number of countries in the emerging world there are elections within the next 12 months and that has created some level of activity and commentary.

Clearly when we look at our businesses, when you -- the emerging market is very important to us in all four of our op co's, but no more so than in Marsh and Mercer.

Having said that, if you look at just the size of our Company and where we get our revenue from, tell me how we are doing in the US and the UK, Australia, Canada, Germany and France and I put those countries together and I will tell you how you we did as a firm.

And so the emerging market largely can be additive to us.

The great thing about the emerging market is that you get not only the activity in the marketplace from an exposure growth standpoint, some mild levels in certain of the countries, and higher than mild in other countries, of inflation.

And so, you get the benefits of GDP growth, albeit that GDP growth in certain places may be slowing.

But you also get the benefit of increased penetration not only of insurance but also for Advisory Services that impact Oliver Wyman and Mercer and Guy Carpenter as well.

So when we look at the emerging market it can clearly have an impact on us from a growth standpoint, but we are not overly concerned with it.

We have been able to grow through good times and bad in our footprint around the world.

There is a lot less competition in some of the countries in terms of having the capability that a company like Marsh & McLennan has in some parts of the emerging world.

And so, there is a series of puts and takes, but overall we are not overly concerned.

Mike brought out in his commentary earlier how for the first time in a real long time the emerging markets weakness against the dollar could have an impact on us this year.

So thankfully we have got some tailwinds on pension that will offset that potential weakness in foreign exchange.

Okay, thanks.

That was very helpful.

And if I can change topics briefly.

If I look anecdotally at the deals announced by some of the acquisitive brokers in established markets.

There seems to be maybe an above average number of brokerages the size of Barney & Barney that are for sale.

Is that a legitimate observation?

And is that likely to benefit MMA as an acquirer of hubs or maybe additional hubs in current areas?

Well, I will take that initially and then I will hand over to Peter to give some more comment.

If you look at all of the major brokers, really they're a product of acquisitions over long periods of time.

And certainly when you look at Marsh & McLennan Companies all the way back to Henry Marsh and Donald McLennan, who came together and formed Marsh & McLennan, we have proven to be a very good acquirer over a long period of time.

And there are periods of time either through concerns about regulation, tax, compliance, etc., and there's also generational periods of time where certain agencies come up in different parts of the world.

I think clearly what we have done is built a company, not a franchise, but a company in Marsh & McLennan Companies which is attractive as a buyer.

And so, we don't jump into processes and buy something; we cultivate relationships over long periods of time.

And when we look at acquisitions, whether it is in the Risk and Insurance Services segment or any other segment, the first thing that we're thinking about is how does it make us better.

How does it give us capability that we don't currently possess?

What does it give us in terms of either geography or segment that we don't currently have?

And so that is our thought process.

And then after that is very much in terms of is there a chemistry between the teams and is there a cultural fit?

The terms and conditions are largely an afterthought of when everything else slots into place.

But, Peter, do you have any other views?

Yes, that was very comprehensive.

And so, I would just add that many of the acquisitions that we have made the agencies have not been for sale.

It is just really cultivating relationships over a period of time and making sure that they are aligned with the strategic intent of what we're trying to build.

So I will keep that in mind.

I mean our pipeline, as strong as I mentioned before, but, as Dan mentioned, it is really cultivating the relationships.

And we've been doing that over several years.

So I haven't seen any more activity in terms of assets for sale than we have over a period of time.

I just think we have been doing a much better job of proactively working with potential acquired assets and it is worked out quite well.

Okay, fantastic.

That was very helpful.

Elyse Greenspan, Wells Fargo.

I was hoping that we could talk more about what you guys are seeing in terms of the economic conditions within the US.

In particular any changes with exposure changes and how that impacted the organic revenue growth that did pick up in the quarter.

And also just in terms of what your expectations are for the US in 2014 as well.

Okay, so I will take the first part of that and then I will hand off to Scott McDonald to just talk about the macro issues a little bit in the US and even in other parts of the world if we might expand that out.

So economic conditions are clearly an impact because they drive exposure whether it is in -- really in all four of our operating companies.

You take a Marsh and clearly areas around construction or economic activity, drive some of the values that are used as the exposure base.

Payrolls could be rising, which certainly impacts workers comp as well as Mercer.

So when we look at GDP overall we have been bouncing along the bottom with -- and have been -- we have been in a phase which we've called the grind it out years, which is essentially low levels of GDP growth in the developed world including the United States, and a consciousness around expansion that we believe in a lot of ways still exists.

And so, clearly something that may have been a light headwind, might be a light tailwind, but it is certainly not buoyant out there and there's still a lot of concerns throughout the market.

And so, an awful lot of companies have cash on the balance sheet which they are not putting to work.

Having said all of that, exposure units is just one of several factors that drive our performance.

Whether our revenue retention and account retention -- very important; new business; as you mentioned, GDP growth; also interest rates; also P&C types of pricing.

And so there are a number of factors that drive our performance and the exposure units are just one of them.

But, Scott, do you want to give us a little bit more flavor from Oliver Wyman's perspective?

Sure.

Elyse, Oliver Wyman tends to be, or at least our pipeline tends to be a pretty good indicator of the economy.

And based on what we see across clients, across sectors and regions, what we are looking at for 2014 is continued growth and activity in the US.

I think this is supported by the really strong bounce-back we had in Q4 with our US business and that was pretty consistent and across industries.

We see continued stabilization in Europe and, as Dan highlighted earlier, some increased volatility in the developed market driven by a number of things including the tapering uncertainties around Chinese growth and the many idiosyncratic things that Dan mentioned earlier.

One point of caution on the US that I mentioned is that much of the work we did in the second half of 2013, even as our business improved, was driven by cost cutting, efficiency projects, and restructuring rather than projects focused on growth initiatives.

And that suggests to us that many companies, particularly in the US, are still cautious going into 2014, they are still holding cash and we may not be in a booming period yet.

Okay, thank you.

Very helpful.

And then just switching back to the healthcare exchanges quickly.

Following on the 2013 enrollment season how would you just kind of describe the growth trajectory and any initial comments I guess pointing towards 2014 from some conversations that you might have already had with either existing or potential new clients for your platforms?

Julio, do you want to take that?

Thank you.

Our pace of sales continues, and given our significant reach in both the mid-market and the large accounts we are seeing conversations beyond just traditional calendar year and that pace of conversations continues to increase.

Since our last update, as an example, on client counts and lives we have sold additional clients onto Mercer Marketplace.

To give you an idea, our last update I think was in our October call when we spoke about 220,000 lives.

We are up to 270,000 lives now and that includes retirees as well as active across 64 companies.

And we are pleased, we are really pleased with the progress.

I think you will see that that will continue to be the case.

Our pipeline looks strong, we will continue to have good consultative discussions as to timing with our clients.

We want to make sure we balance that well to their needs.

And we are seeing some really good uplift.

When everything is said and done we have always said and have always been clear that the impact on revenue in 2014 will be modest.

But over a long period of time we see this as being something that is going to really help in our ability to be able to grow and to satisfy our client needs.

Okay, thank you very much and congrats on a great quarter.

Jay Cohen, Bank of America.

A couple questions.

Barney & Barney, you talked about the revenue that they had.

Is there any seasonality there?

As we model this should we assume that comes in fairly evenly over the course of the year?

I'm not sure if we have that level of depth in this room on that.

I mean I -- we are talking about $100 million as part of $12.3 billion, so I am not sure it would be that impactful either way.

But do you have any flavor?

I think it is fairly even, but I would like to caution that we haven't dove into the details of each quarter, but I think there is no real seasonality from what we (multiple speakers).

And Marsh's quarterization is very interesting.

You've got really three quarters which have about 26% and the third quarter, which is their shortest quarter, is 23%.

So it is really even throughout the whole year quarter by quarter except for the third quarter.

Right, okay.

The other question was on corporate expenses were kind of well below the run rate from the first three quarters of the year.

Is this a new level that we should think about or should we think about more kind of full-year numbers as we -- as we look at 2014?

Okay, one, it is true that for the year corporate expenses are 8% lower than the prior year, that was driven largely by efficiency and also because we eliminated the group president position.

Mike, do you want to give us some more flavor?

And for very good reason.

Yes, thanks, Dan, thanks, Jay.

So corporate quarterly expenses, Jay, can move around quarter to quarter.

So you are really asking what is an appropriate run rate for the year.

I would peg our corporate expenses overall not much differently in 2014 than 2013.

So you could be looking at roughly $44 million to $45 million a quarter.

I would say that is the part that you would see.

There is a larger part on shared services that is allocated to the operating companies and speaking to what Dan alluded to earlier, our drive for efficiency to continue to find ways to reduce cost, we will continue to do that.

But with regard to corporate expenses in the neighborhood of $175 million to $180 million for the year is probably good for modeling purposes.

Great, thanks a lot.

I think we have time for one or two more questions.

So next question, please, operator.

Brian Meredith, UBS.

I will be quick here.

Mike, I am wondering if you could just chat a little bit about cash usage as you look into 2014, in particular, with savings from the pension, should we expect an increase in CapEx, is that going to go to share buyback acquisitions, kind of what are your thoughts there?

Mike?

Okay, thank you, Dan, thanks, Brian, and good morning.

So that, boy, just tees it up great because we are in a position of having an enormous amount of operating cash flow, a lot of questions with regard to cash utilization, capital structure, where is this balance and where do we seem to direct it.

And we really can't wait for you to have -- come and hear in more depth at Investor Day on March 11.

Thanks.

How was that?

Thanks.

All secrets of the temple will be revealed on March 11.

All right, eagerly awaiting.

Second question just quickly, I am curious -- you've kind of provided what your thoughts are in commercial lines pricing on a global basis with some of your recent releases.

Is it possible that kind of parse that out as far as what you are seeing at Marsh Agency versus kind of the global basis?

Are there kind of different commercial lines pricing dynamics going on in that business?

Why don't we have Peter address that a bit and then if I move it over to Alex Moczarski and he can talk from a reinsurance perspective.

And I only say that because after 30 years in the business oftentimes what you see in reinsurance you end up seeing in the primary markets within 12 months or so.

So, Peter, why don't we start with you.

Okay.

Yes, as a macro overview we have seen slight headwinds in the international and modest benefit in the US.

If you break that down into Agency, that would be consistent.

They have seen a modest tailwind.

The one line of business that seems to still be receiving rate increases every quarter has been workers compensation.

So that is the one that has sustained itself, and then some segments within professional liability.

So Agency has had a mild benefit in the quarter and in the year.

Thanks.

Alex.

Okay, so, clearly we have been talking about the new capital coming in to the cat space, some $40 billion of either private equity or pension capital tied together with stronger balance sheets from the insurance companies as the economies grew, tied together with centralized buying.

All indications are that prices are moving downwards rather than upwards.

We have seen that as a result of the cat pressure, the reinsurers have become more flexible on the offerings that they are providing around other lines of business, which are overlapped.

So it would indicate that there is no pressure to push prices up at this moment.

Okay, I think we have time for one more question please.

Paul Newsome, Sandler O'Neill.

Thank you and congratulations on the quarter.

Just a quick one.

On the exchanges, do the announcements that a lot of these insurance companies are going to lose money on their exchanges impact your position in that business in any way?

Julio?

You know there is -- one thing that you can count on is that it's going to continue to be evolving changes to how the ACA is going to impact both our clients and carriers.

And that is why I think any one thing is difficult to point to as far as what the impacts are going to be.

As an example we all know they've just announced that there's going to be some changes to the mandate laws, the medium-size companies 50 to 99 employees will have an extra year now until 2016 while large companies 99 plus will have to offer coverage up to 70% of employees instead of 95% which was prior to that.

And that is continuing to change.

So when you think about carriers, there was always an assessment that was made early on as far as where carrier rates should be on exchanges, on public exchanges we are talking about now, as opposed to private exchanges, much different -- two different sets of discussions.

But on the public exchanges and the assumption was that you would get an adequate distribution of risk.

And that distribution of risk has not materialized.

So whether or not it was a public exchange or just regular core medical, when distribution of risk do not materialize you have to review your rate levels, you have to make decisions as to what the right rates will be next year and so the impact will be what it is.

Whatever that impacted as a result of those changes in distributions between expected and reality.

Yes, so I think just to sum it up, the core point is there is a huge difference between public and private exchanges in the Mercer Marketplace, which is a private exchange.

Carriers know who their customers are going to be and can rate them appropriately.

And so the private exchanges, a lot of things that you are reading from insurance companies losing money on exchanges is their comments with regard to the public exchanges.

That's right.

And then if I just can add one more thing.

Also on the private exchanges, keep in mind that Mercer Marketplace in particular offers both a fully insured and self-insured option, which means it is wide open for people to consider private exchange Mercer Marketplace as an option.

Okay, does that answer your question, Paul?

It did indeed.

Thank you.

Congrats on the quarter.

Okay, thank you.

Thanks.

Okay, so I would like to thank everyone for joining us on the call this morning.

We look forward to seeing you at our Investor Day which will be held on March 11 as Mike mentioned at the Pierre Hotel in New York.

We will provide more insight into MMC's growth and financial strategies, including presentations from the CEOs of each operating Company.

Finally, I would like to thank our clients for their support and our colleagues for their hard work and dedication in serving them.

Have a good day.

That concludes today's conference.

Thank you for your participation.