威達信集團 (MMC) 2014 Q3 法說會逐字稿

Welcome to Marsh & McLennan Companies' conference call.

Today's call is being recorded.

Third-quarter 2014 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'll now turn this over to Dan Glaser, President and CEO of Marsh & McLennan Companies.

Thank you, Jamie and good morning.

Thank you for joining us to discuss our third-quarter 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'd also like to welcome our operating companies' CEOs -- Peter Zaffino of Marsh, Alex Moczarski of Guy Carpenter, Julio Portalatin of Mercer, and Scott McDonald of Oliver Wyman Group.

Also with us is Keith Walsh of Investor Relations.

We live in an age of risk and uncertainty.

Two years ago, the world was reading about the euro zone crisis, escalating tensions in the Middle East, the possible effects of climate change and the Northeast US was bracing for Superstorm Sandy.

Today, recent headlines include cyber security, ebola fears, healthcare costs and pension volatility to name a few.

Our clients face greater challenges than ever before as they try to anticipate and react to what lies ahead.

Across the spectrum of global companies, we believe Marsh & McLennan is uniquely positioned to advise clients around the issues of risk, strategy and people.

We have many positive attributes, including a tremendous depth of talent in our colleague base, a collaborative and cohesive culture, market-leading positions and a proven management team.

In this uncertain environment, there should continue to be strong demand for our services and capabilities, which we believe will produce sustained growth in revenue and earnings while we continue to reinvest in our businesses.

We also have balance sheet flexibility and believe we are well-positioned to profit from a variety of market conditions.

Moving to our results, in the third quarter, the Company delivered its 13th consecutive quarter of double-digit growth in adjusted earnings per share.

MMC's revenue growth was 7% with all operating companies contributing.

This performance was achieved both organically and through our strategy of executing on quality acquisitions.

On an underlying basis, revenue expanded 5%.

This growth exceeded the increase in underlying operating expenses for the 16th consecutive quarter.

This ongoing record of consistent performance drove our adjusted margin up 50 basis points to 14.6%, our highest third-quarter margin in more than a decade.

Adjusted operating income rose 11% while adjusted EPS grew 22%, extending our record of double-digit EPS growth to 13 quarters.

Looking at Risk & Insurance Services, revenue increased 7% to $1.6 billion, or 4% on an underlying basis.

Adjusted operating income increased 6% to $242 million, notwithstanding the impact of increased hiring at Guy Carpenter and the negative effects of foreign exchange, both of which we highlighted last quarter.

Marsh's revenue increased 8% to $1.3 billion, or 5% on an underlying basis.

This was an outstanding performance reflecting balanced growth across geographies.

The international division increased 5%, matching its strong average annual growth rate over the past five years.

Latin America, with growth of 11%, reported its eighth consecutive quarter of double-digit growth.

Asia-Pacific rose 5% and EMEA grew 4%.

Underlying growth in the US/Canada division was 4%.

Marsh's revenue growth was driven by strong new business, particularly in countries such as the US, Canada, UK, Brazil and Peru.

Guy Carpenter delivered 3% underlying revenue growth in the third quarter, its highest of the year.

This is a good performance considering the ongoing rate reductions in many lines and increased retentions of risk by clients.

Solid new business and penetration beyond our larger clients produced higher revenue in the quarter.

Revenue growth was driven by the U.S., Continental Europe, U.K. facultative and global specialties such as marine and aviation.

In Consulting, revenue increased 7% to $1.5 billion, or 6% on an underlying basis.

Adjusted operating income reached $274 million, up 19% from the prior year.

And the segment's margin expanded 180 basis points to 17.8%, the best in over 30 years.

Mercer's revenue increased 4% to $1.1 billion, or 3% on an underlying basis with all major geographies contributing.

When viewed by line of business, growth continues to be driven by Investments, which expanded 10% and by Health, up 4%.

Two weeks ago, we provided an update on the excellent progress of Mercer Marketplace.

Over 240 companies have chosen our exchange for their active and retiree solutions with approximately 40 new clients to Mercer Health and Benefits.

These relationships cover 500,000 employees and retirees and provide exchange access for a total of more than 1 million lives.

This represents nearly 5 times the reach of Mercer Marketplace when compared with last year.

Oliver Wyman continued to deliver outstanding results in the third quarter with revenue expanding 18% to $429 million.

This reflects excellent underlying growth of 16%, which exceeded our expectations for the quarter.

We anticipate that Oliver Wyman's growth will moderate in the fourth quarter.

The growth in the third quarter was driven by balanced performance across industry groups with particular strength in Financial Services and geographic strength in North America and Europe.

In summary, we produced outstanding third-quarter results and we remain well-positioned to deliver on the long-term goals we committed to at Investor Day in March -- growth in revenue, long-term EPS growth of 13%, increasing cash flows and return of capital to shareholders through reducing the share count and double-digit dividend growth.

With that, let me turn it over to Mike.

Thank you, Dan and good morning, everyone.

In the third quarter, Marsh & McLennan's revenue increased 7% to $3.1 billion or 5% on an underlying basis.

Adjusted operating income grew 11% to $458 million.

And the adjusted margin rose 50 basis points to 14.6%.

GAAP EPS increased 20% to $0.54 and adjusted EPS rose 22% to $0.56.

So, another outstanding quarter both from a revenue growth and earnings standpoint.

Investment income.

Investment income was $26 million in the third quarter, including $24 million of carried interest in Trident III.

We expect that investment income in the fourth quarter should be de minimis.

We had highlighted on our second-quarter earnings call that any investment income that may occur in the last half of the year would most likely be offset by corporate initiatives, including strengthening our cyber security protections, expenses related to strategic investments and transformation efforts primarily within HR and Finance.

Approximately half of the investment income in the third quarter was offset by these initiatives, bringing third-quarter corporate expense to $58 million.

The level of spending in the fourth quarter for corporate initiatives should be similar to the amount spent this quarter.

Foreign exchange.

As expected, the negative effects of foreign exchange on Risk & Insurance Services continued in the third quarter and most likely, foreign exchange will negatively impact the fourth quarter as well.

Mercer completed its investment in Alexander Forbes in early October.

As previously announced, Mercer's investment of approximately $300 million consists of two tranches -- 15% last July when Alexander Forbes completed its initial public offering and approximately 19% in early October following the completion of customary regulatory approvals.

This transaction will be accounted for under the equity method and reported on a one-quarter lag basis.

Accordingly, in the fourth quarter, we will include the initial 15% share of Alexander Forbes' earnings net of tax and amortization.

Beginning in the first quarter of next year, the full 34% ownership will be reflected as net revenue in Mercer's operating results.

Debt.

In early September, we issued $800 million of debt, including $300 million of 2.35% five-year senior notes and $500 million of 3.5%, 10.5-year senior notes.

In early October, we used the proceeds to pay down $630 million of future debt obligations, including $230 million that was due to mature next September and $400 million due in 2019.

Expenses of $135 million for the early extinguishment of this debt, or approximately $0.17 per share, will be shown as a discrete item on our fourth-quarter income statement.

This expense will be excluded from our adjusted results in the fourth quarter.

The recent debt refinancing allowed us to take advantage of low interest rates, extended the maturity of our overall debt portfolio, lowered our annual interest expense and reduced future refinancing risk as our next bond maturity of $250 million is not due until April 2017.

We have now completed the reshaping of our debt maturity ladder that began three years ago.

At the end of last year, debt on our balance sheet was $3 billion with an average interest rate of 5.1%.

Today, our debt outstanding is $3.4 billion with an average interest rate of 3.9%.

Cash utilization.

Cash was $2.65 billion at the end of the third quarter, including the $800 million debt financing in September.

Approximately $1.8 billion was held internationally.

As I just discussed, $765 million was used to pay down the two debt maturities in early October.

Cash utilized in the third quarter included $154 million for dividends, $173 million for acquisitions and investments, including Mercer's initial investment in Alexander Forbes of $137 million and $250 million to repurchase 4.8 million shares.

This marks the 10th consecutive quarter of share buybacks.

Through nine months, cash deployed included $612 million for acquisitions and investments, $600 million to repurchase 11.8 million shares and $429 million for dividends.

In total, we have utilized more than $1.6 billion for dividends, acquisitions and share repurchase this year.

This certainly has us on track to reach our target of $2.1 billion for the year.

At the end of the third quarter, shares outstanding declined to 542 million from 547 million at the end of last year.

In the third quarter, the quarterly dividend increased 12%.

With the Board having authorized the fourth-quarter dividend of $0.28, annual dividends per share this year will grow 10.4%.

Clearly, we are delivering on our Investor Day commitments to reduce the share count every year and increase dividends by double-digits on an annual basis.

Lastly, I would like to reiterate what Dan said earlier.

Our results in the third quarter were outstanding, continuing the excellent performance we have achieved throughout the first nine months of this year.

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).

Elyse Greenspan, Wells Fargo.

Hi, good morning.

I was hoping to start off by spending I guess a little more time on what you're seeing within Marsh specifically on the organic revenue growth side.

It picked up in the US and Canada in this quarter.

Can you just comment a little bit more about what's driving that and also what you're seeing in terms of the pricing environment on the primary side and just your expectations I guess for the organic growth there in Q4 and maybe looking forward, some initial indications for 2015?

Thanks, Elyse; it's Dan.

Let me just start by talking about the overall Company for a little bit.

Clearly, we're happy with the growth.

The quarter was 5% for Marsh & McLennan Companies and year-to-date it is also 5%.

Within this and as we've said before, each opco is different.

Some have more headwinds than others.

If I look at both Marsh, Marsh is 4% year-to-date; Mercer is 3% year-to-date; Guy Carpenter at 1%; and Oliver Wyman at 15% and that mix taken together gives us our 5%.

I would still bracket us though in a 3% to 5% organic growth world.

I think that's really where the performance has been and there's a lot of uncertainty out there.

So generally when we're looking at our planning cycle and how we run the business and how we prepare for investments, etc.

it's anticipating that we're still in a 3% to 5% organic growth world.

But, Peter, do you want to talk about Marsh specifically?

Sure, Dan.

Thanks, Elyse, for the question.

Let me start by just giving you an overview on what happened in the quarter for Marsh.

Again, the 5% underlying revenue growth, really proud of.

It's the 18th consecutive quarter for us of organic growth.

It was very balanced across the world, so we had all major geographies from international contributing and as you mentioned, US and Canada did quite well too with 4%.

What drove that really was a lot of fundamentals.

We had improved renewal revenue retention, as well as client retention, so that contributed.

More in international than in the US and Canada because the US and Canada had 1% growth this time last year.

But in the United States and Canada, we had terrific new business in the quarter.

We had 13% growth year-over-year in new business.

All the businesses that are in the US and Canada division did contribute to the top line.

So when I look across the world, really pleased and proud of the performance, but it really was the fundamentals and executing across the world, which generated the revenue growth.

Any other question, Elyse?

Yes.

Just in terms of Mercer Marketplace and the healthcare exchange enrollment, I know you mentioned the 500,000 employees that you have on your exchange this year.

How would you in terms of describe I guess the hit rate in terms of just the number of companies I guess that you spoke to and those that chose to join your exchange and maybe was there a difference what you saw this year versus last year.

Also if there were some companies I guess that chose to wait and make -- wait and not join your exchange this year.

Was that more that they were just holding off on their decision for another year or people just decided not to pursue a private healthcare exchange entirely?

And one last question, just based on the enrollment figures that you saw this year and the strong growth, do you expect to start to generate positive earnings from your healthcare exchange when we look out to 2015?

Thank you.

Thanks, Elyse, that's a hell of a question.

So let me start by first giving some kudos to Julio and the team.

We're very pleased with the early results of Mercer Marketplace.

Julio and the Mercer leadership team recognized the opportunity and they created a strategy to develop a comprehensive exchange capability that is user-friendly, dynamic and flexible.

They're now executing on that strategy and we expect this to be a big business for us some day and eventually a solid contributor to the results of Mercer's US H&B business.

However, from an MMC perspective, let me just say we really aren't counting on any meaningful contribution to MMC's overall earnings for the foreseeable future.

But, Julio, a little bit more detail, please?

Thank you.

Thanks for the question.

I really want to set it in context first by talking a little bit about Mercer and where we've come and then leading into the Mercer Marketplace and the questions that you asked.

We're really pretty pleased with Mercer's third-quarter performance.

We were able to once again deliver a solid step forward in financial performance while making good progress on execution of our key strategic priorities and objectives.

We produced another solid quarter of earnings growth and margin expansion.

Our top line came in, as Dan mentioned earlier, 4% and then 3% on an underlying basis, up from our growth rate last quarter.

We continue to be very actively involved in managing our cost base and investing in new opportunities while being disciplined across the board.

Last quarter, we discussed our strategic investment in Alexander Forbes and crossing the $100 billion assets under management mark in our investments business.

This quarter, we are really pleased that we are able to report significant growth and progress in our exchange solution, Mercer Marketplace.

Whether it is the roughly fivefold increase in employees on our active exchange, the growth in our retiree exchange or the lives that we have access to through delivery of voluntary benefits and individual insurance, Mercer Marketplace exchange platform on any measure has had a really good sales year and I'm very proud of the team for the work that they have done in this regard.

Now as we position Mercer Marketplace today and into the future, we continue to look at current trends and how and why our clients are being attracted to what we're offering.

But the reality is that we are finding that our exchange solution has a number of key attributes that are very attractive to our client base and prospects.

First, we span the market and our exchange is available to companies with as few as 100 employees and with no real upper limit.

Second, we have built in flexibility that many companies find to be of value -- insured, or self-insured medical, defined contribution or traditional funding, as well as an array of voluntary benefits.

Third, we have a single solution that spans every segment of an employer's population from benefit ineligibles to sponsored group plans to Medicare retirees.

And finally, we've seen very strong early proof of concept, including cost savings and high employee appreciation of the support they receive from our benefit counselors.

So when you speak about why people are so attracted, those are some of the reasons we have seen and we've heard from our clients as being the case and it's a full spectrum attraction.

And yes, there might be some early movers that are more likely to be considered in that middle-market space, but we already are seeing for 2016 early adopters on the large market space and that's been a lot of conversation most recently as well.

This is an evolving platform, it's an evolving business and we continue to lead and we expect to continue being in that leading position for a long time to come.

Thank you, Julio.

That answer certainly matched the question.

Next question please, operator.

Kai Pan, Morgan Stanley.

Good morning and thank you for taking my call.

So first question on the Guy Carpenter, the reinsurance brokerage actually, the organic growth 3% is very strong relative to the market condition.

So on that, I just wonder your thoughts on -- in the near term, what do you see the upcoming January renewal pricing and what could potentially impact on your business?

And then on longer term if you think the change in the marketplace to see if there's more alternative capital and the primary company probably either ceding less to reinsurance market.

So what's your -- how do you adapt to the changing market there?

Thanks, Kai Pan.

So Alex, first off, comments about your growth and then looking a little bit further, what's the potential impact of alternative capital?

So we were really pleased about the third quarter.

3% underlying growth is pretty good given the circumstances on top of 5% growth the same quarter last year.

How are we doing it?

I think we're executing -- I believe we're executing our strategic plan well.

Our book of business has improved from the point of view of its robustness.

We have less reliance on the very, very large clients that we still have, but we would rely on a lot going back five years.

Bear in mind actually this is now -- I think it's 23 quarters where we haven't gone backwards organically.

Only one quarter we were flat; the rest have shown organic growth.

So we do lean forward, which I think is good.

Our book of business has moved to being more of a recurring book of business as we've done less transactional business in like Quill and other one-off products, as well as moving into our segments such as the mutuals, the excess and surplus where they are slightly smaller clients or often times much smaller clients, but they need us.

And so I feel pretty good about our book.

I feel pretty good about the way we're focusing on growth areas such as accident and health, cyber and also around innovation.

Innovation is really how Guy Carpenter was founded, the base on which Guy Carpenter was founded and we continue to innovate and I'm pretty happy about the pipeline of new services and new client-facing technology that we'll be coming out with over the coming year.

So we continue to lean forward.

We've got I believe the best team in the business.

We listen, we learn, we provide advice, we have insights and we look after our clients and I think, without being arrogant and complacent, if we continue to do that, we will maintain our relevance and therefore our value.

Going forward around pricing, it's mixed.

You kind of hear every now and then we're bouncing along the bottom and then you get surprised by further reductions in pricing.

We will see.

We will see.

We've had adverse winds for a long time and we continue to be able to eke out growth and we hope to be able to do so going forward.

That's certainly within our plans.

And really that's it.

As far as alternative capital is concerned, we're agnostic to capital.

We need to understand it.

We need to make sure that our clients have the access to the best advice as regards where to go, who to rely on and that's what we're working on.

There will be -- there's some talk every now and then about disintermediation.

I think as long as there are lots of options and we're on our game, we stand to be in good stead.

Thanks, Alex.

Thank you, Kai Pan.

Next question, operator.

Larry Greenberg, Janney Capital.

Good morning and thank you.

I'm just wondering if we could turn back to the exchange and Julio, can you just elaborate a little bit on your strategy in the retiree market?

I know you had decent growth there, but it seems like it's moving more slowly certainly than the employee numbers.

And so I'm just wondering where you see yourself positioned relative to the competition there and any other comments you might have on that.

Thank you.

So Julio, specific comments on the retiree exchange and our capability for retirees.

Okay, thanks, Larry.

From the beginning, our exchange strategy has been to use the strength of our organization and creativity to put together the most flexible and comprehensive offering in the market and we're well-positioned to continue to do that.

It's obvious that the largest piece of the opportunity lies in the active space where there's 165 million employees who are receiving their medical benefits through their employers and if you were to prioritize where you want to spend a lot of your early time, certainly there and positioning yourself not just early, but for this long marathon run, you certainly want to do it there and that's where we focus.

Now having said that, as you know, we did make an acquisition with Transition Assist.

We do have a continued investment in the call center capabilities and the technology capabilities for that sector and we will get our fair share of that business as we continue to grow.

And as always, you have to continue to prioritize and reprioritize as the opportunity presents itself and we'll continue to invest.

That's a great answer.

So our priority initially has been on the active space.

We're still in the retiree market and we're in there swinging, but our focus has been more on actives than on retirees at this stage.

Any other question, Larry?

Yes, just a numbers question.

I know the number of your Marsh employees that were included in actives.

Were there any Marsh retirees in the retiree bucket?

The answer is yes there were Marsh retirees and it's about 2600.

Great, thanks very much.

There's about 20,000 on the active side.

No, no.

2,600 -- that's correct.

No, yes, so 20,000 on the active side for Marsh & McLennan Companies.

Yes, it's about 20,000 on the active side.

He asked on the retiree side and that's 2,600 retirees for Marsh.

Perfect.

And McLennan.

Great, thank you.

Dan Farrell, Sterne Agee.

Hi and good morning.

Just a free cash and sort of near-term cash flow question.

The debt paydown in the fourth quarter would seem to be using a lot of the US cash and I'm wondering if that means anything from a short-term perspective on buyback.

Okay.

So Mike, do you want to handle that question?

Yes and good morning, Dan.

Thank you for the question.

You're absolutely right.

As we manage our cash needs across the year, we have to take into account the seasonality of the needs, any acquisitions, obviously the dividend payments that we make, but then the appetite we have for share repurchase.

And as you know from our Investor Day in March of this year, we are anticipating a fairly significant amount and level of share repurchase throughout the entire year.

I think it was $600 million through the first three quarters and we certainly are planning to continue to do that through the fourth quarter.

Specifically though to your question, the US cash and the international cash, we typically build our cash positions throughout the Company in the second half of the year and work them up towards our bonus payments that occur at the end of February of the following year.

So looking at it this year, we basically utilized our cash in the first quarter and then we began to build it up.

And that will continue to build up through the fourth quarter.

But specifically on repatriation, we have not done that much repatriation of our international excess funds into the US through the first three quarters.

We are planning to begin to do that more so in the fourth quarter, as well as in the first quarter in anticipation of the bonus payments, as I said, at the end of February of 2015.

Thanks, Mike.

Dan, any other question?

Just one quick one on reinsurance.

You guys have made a lot of hires and investments in the reinsurance business this year.

Have you seen any benefit from those hires yet in the revenues or is that something that could be coming through down the road?

Thanks.

So a couple of things on that.

First of all, most of the hiring was last year as opposed to this year, but we're still very alive to the opportunity that Guy Carpenter has as a premier provider in this space to hire more people now or in the future.

And in terms of -- I always shy away from those types of questions and answers that I hear across the space about production, people and production talent and what they would generally produce.

We're a content company.

Our job is to build the skills and capabilities of the organization and when we hire people, we're largely hiring them to serve existing clients and we expect that our great service of existing clients will lead to more opportunities on that business and on prospective business on new clients in the future.

But it's never a calculation for us as to we're hiring these people and we're hoping they create revenue this amount this year, a certain amount the following year after that.

So we're building capabilities as opposed to sales capacity per se.

It's sales based upon content capability.

Okay, that's helpful.

Thank you very much.

Okay, next question please.

Jay Gelb, Barclays.

Thank you.

On the Risk & Insurance Services segment, for the year-to-date, it's 3% organic revenue growth and 5% operating profit growth.

I'm trying to get a sense of whether at some point we should expect that profit growth to accelerate and if there are any headwinds currently, if you can outline those, that would be helpful too.

Thanks.

Jay, this is Mike.

I think on an adjusted basis, it was 6% year-to-date.

I just want to make sure that, in operating income growth, make sure everyone has the correct facts.

But your question is still right considering that we've been delivering across MMC double-digit adjusted operating income growth for quite a period of time now.

I think that we're in our sixth straight year of double-digit adjusted operating income growth for the Company.

When we look at -- what we've said before, that 3% organic growth is sort of the sweet spot for the Company and then when we grow above 3%, it's easier for us to not only drive adjusted operating income growth, but also margin as well.

And clearly, when you look on a year-to-date basis, Guy Carpenter year-to-date has grown 1%, which basically means we are not looking for any margin expansion from Guy Carpenter and in fact, we'll spend any amount of money to protect the franchise and build the franchise for the future.

So underneath the covers, you can pretty much imagine that Guy Carpenter is having a year where we're treading water at best on a margin basis and Marsh is still rocketing forward and that overall arrives at a result.

So when we look forward into the future, we live, as we were mentioning earlier, in a tremendously uncertain environment with a lot of moving parts, but I don't think there is a finer Risk & Insurance Services organization in the world, nor a finer Risk & Insurance Services leadership team.

So I would bet on us in terms of being able to optimize whatever value is available in the world with respect to Risk & Insurance Services.

Okay.

And then on a separate topic, there were a number of changes announced in the financial function across the Company.

I was wondering if you could touch on those in terms of how we should be thinking about that.

Sure.

Well, I mean we've had a number of changes on the colleague front across the organization and within Marsh, Mercer specifically.

We've had a number of announcements of management moves and management changes and clearly, you've seen some things that we've done on the function side where we've announced that both Marsh and Mercer are getting new CFOs and Mark McGivney has moved from Mercer into a corporate function.

We have a very strong finance function and we're just positioning ourselves to optimize that financial function for the benefit of the overall firm.

Generally, when we're making these moves, finance or otherwise, it shows the health of the organization and I was very excited to see, particularly in Marsh and Mercer recently with several of the announcements that have been made, giving high quality people who are a big part of our future new opportunities to hone and test and develop their skills.

Okay, so it's all being done from a position of strength?

Absolutely.

All right.

Thanks, Dan.

Cheers.

Meyer Shields, KBW.

Thanks, good morning.

Dan, can you talk a little bit about whether you are seeing signs of I guess -- what signs you're seeing of a possible global economic slowdown?

Sure.

Well, why don't I start with that and then I'll move it around the table so each of the operating company CEOs can give some commentary on it.

But as I had mentioned in the script, I really do believe we're living in unprecedented times, essentially an age of risk and uncertainty.

It's also an age of relentless acceleration.

Opportunities and challenges develop faster than at any point that I've seen in my career.

Over the past few years, the world has seemingly traded a set of financial concerns, whether that's global growth, financial stability, unemployment, for a new set of financial and economic concerns, which is less about stability and less about unemployment and more about growth.

So you're reading now a lot of growth concerns, whether that's with regard to Continental Europe, the developing market, particularly China, etc.

and the looming potential threat of recession or even deflation in certain economies.

Added to all of that economic bucket is a set of political and geopolitical concerns that we just haven't seen really until the last couple of years.

And so -- then I guess you could add to the mix discrete items such as ebola or cyber attacks and it creates quite a mixture of concern for us.

From our perspective, being so well-positioned around the world and in 130 different countries, the issue on an economic basis, if you're talking macro, really is about Continental Europe more than any other factor because, as we had mentioned before, if we look at Europe including the UK, it's about a third of our business.

UK is about a half of that.

So you're still talking about Continental Europe representing 16%, 17% of our business.

If you'll recall in mid-2013, so not too long ago, about a year ago, most economists became cautiously optimistic about European prospects and believing that GDP had troughed.

We still seem to be bouncing around the bottom as far as we're concerned and when we look at the data points month to month, it's very in consistent.

It's one step forward, two steps back, two steps forward, one step back, particularly in Continental Europe.

It's clear that relative to the U.S. and the U.K., Continental Europe is choppier and has a more uncertain economic environment.

In the past, Insurance has acted kind of as a lagging indicator and Consulting has pretty much been a forward indicator in terms of business activity and confidence, but why don't I stop there and just move it around the table and get some commentary?

Scott, do you want to kick us off?

Good morning, Meyer.

I'll try and give you a little bit of insight from what we're seeing on the demand for the Consulting piece, which, as Dan said, sometimes at least is a leading indicator.

In the U.S., there's nothing surprising.

The U.S. economy remains relatively slow, but there is growth.

There's still business confidence there and we've got a very robust demand for Consulting across almost all sectors of the economy.

So that hasn't changed.

In Europe, you all have the data and clearly there's an enormous slowdown in Europe on the economic side.

We still don't see that though on the Consulting side of the business at least in Oliver Wyman where we've got -- it isn't as robust as in the U.S., but it's still strong demand and again, it's across all sectors ranging from manufacturing to financial services.

So it's not focused on a specific part of the economy.

I think that must be a lag because the economy has slowed down so much there; I would expect that to have some impact on our demand.

It's hard to imagine how it couldn't.

One bit of good news on Europe I'm sure you're all aware of is the ECB completed their asset quality review and stress tests over the weekend.

Oliver Wyman supported them with that work and we do hope that will now provide some more confidence in the banking system and may provide some impetus for growth in Europe.

We'll see.

And then outside North America and Europe, it's mixed across the world.

We're definitely seeing some weaker growth everywhere, but nothing severe and again, it hasn't fed through into Consulting demand, which remains strong in almost all markets with maybe the possible exception of Latin America.

Thank you, Scott.

We'll just stay in the Consulting segment for now and Julio, give us some commentary, please.

Yes, a lot of what Scott mentioned certainly applies to some of our business for sure.

I mean, in general, we're pretty bullish on the U.S. in terms of our value proposition solutions, pipelines look good.

We are continuing to see demand for our very broad set of solutions.

A little bit tempered just about everywhere else give or take.

We see a certain market slowdown in Europe.

Now in our case, about 50% of our European business is out of the U.K. The U.K. is faring slightly better than the rest of the continent, but, of course, it's not going to be immune if the continent continues to slow down.

But we are seeing demand for our services and pipeline improvement in the U.K. It's kind of stabilization of pipeline in Germany, a little bit of an improvement in some other parts of the continent.

We'll see if that actually results in revenue increasing, but when everything is said and done, even if we do see a bit of a softer side on the revenue side, we are seeing earnings growth this year and we expect that we'll be able to position ourselves for continued earnings growth even in a slowing revenue environment.

Thanks, Julio.

Peter?

Yes, trying not to be repetitive, I think the economic factors that really drive insurance in terms of growth, total insured value, sales, payroll, employee count are all growing, growing modestly across the world, so it's fairly balanced and a little bit of a tailwind that's offsetting some of the pricing.

As Dan highlighted, if we look at Continental Europe, again, we are cautiously optimistic that we're in a stable environment, but if I look at our revenue growth in the quarter, we had 33 countries that generated more than 10% organic growth.

11 of those came from Continental Europe, so a third of our growth.

So it's encouraging.

I want to be cautiously optimistic, but we're in a fairly stable environment.

So overall, don't see a material impact in that contributing to the slowdown.

Thanks.

Alex, do you have anything to add?

Just to say that you mentioned the ebola and cyber.

Ebola, we've brushed off our SARS files and we're looking -- we were leaders at the time when SARS came out and so we have a working party on that.

So I view that as a sad opportunity.

Cyber, we are certainly seeing opportunity there.

As it gets tougher to grow, we are seeing more demand for our strategic advisory help.

So in general, we are still I believe underweight internationally and I think given that, there's opportunity for growth.

So I remain cautiously optimistic.

So Meyer, I hope that wasn't too much for you, but that's our take on the macro question.

No, that was outstanding.

If I could just throw one numbers question to Mike.

Do we have a sense yet of corporate expenses in terms of a run rate for 2015?

Yes, I'll just take that.

Our expectation would be our corporate expense in 2015 would revert back to something akin to the $45 million or so per quarter.

Okay, perfect.

Thank you so much.

Josh Shanker, Deutsche Bank.

Yes, good morning, everyone.

If I look at the pledged capital deployment to shareholders for 2014, you guys talked about $2.1 billion and said it probably wouldn't be lower than that for 2015.

Obviously net operating profits are lower than that right now and they will be for a few years I assume.

I'm not asking for a long-term capital deployment plan, but when you guys think about your strategy, are you going to grow into that $2.1 billion number over multi-years or do you think the capital returned to shareholders is inflated over the near term?

Well, I'll absolutely -- I'll start with that and then hand it to Mike.

We absolutely believe that we will continue to grow our adjusted operating income and our cash flow will grow even faster is our expectation over the course of our three or four-year planning cycle.

And when we spoke at Investor Day and made a commitment to $2.1 billion or thereabouts for 2014 and felt that 2015 would be similar to that, our position on that has not changed.

And then I'll hand over to Mike who will fill you in on some of the details on how we would arrive on that kind of number for 2015.

Well, thank you, Dan.

And Josh, excellent question and as Dan indicated, there is a number of premises with regard to our commitment to investors.

The first premise, and something that we've shared with investors, is, for many years, our free cash flow was basically diverted into other activities.

But starting several years ago and currently and going forward, that free cash flow is available for reinvestment in the business, acquisitions, capital expenditures and return of capital to shareholders in the form of share repurchase and dividends.

So when we looked at 2014, we had a few things going on.

First, we had a very high level of cash going into the year, more than just on a seasonal basis and our intent was to utilize our excess cash over the course of 2014, which we have been doing and will continue to do.

Then the second thing, which is one premise of your question then is, well, is that all there is and what does it mean for the implications going forward.

Well, as Dan indicated and we would like to anticipate, we plan on very healthy increases in our free cash flow going into next year and continuing.

The third thing has to do with debt capacity and we came into this year with $3 billion of debt on our balance sheet and we have $3.4 billion as it stands today.

We feel our credit metrics have improved over the last three, four years and in fact, we think that the credit metrics will continue to improve over the next two to four years.

However, it also means that within that improvement of credit metrics basically because of earnings growth, we feel we have a little bit more capacity to grow our debt.

So overall, it's a combination of utilizing our excess cash, a little bit higher debt levels, but mainly in the core of it is very strong operating earnings, very strong cash flow and the growth of that cash flow.

Any other question, Josh?

Yes, just a quick one.

On the last conference call, you said we might want to expect there could be some investment income from Trident coming through but generally that would probably be offset by incremental corporate initiative expenses.

Did we see the corporate initiative expenses this quarter?

Does that mean that margins are slightly depressed or that didn't happen?

Mike, do you want to take that?

Yes, thank you, Josh.

And I'm sorry if we weren't clear on that.

We did say on the second-quarter earnings call that for all intents and purposes investment income over the last six months of this year would be offset by corporate initiatives.

There's many smaller corporate initiatives, but three larger ones that we spoke to.

So when we looked at the third quarter, we had some idea of what investment income would be, but we had very little idea of what fourth quarter would be.

Now sitting here at the end of October, we have a fairly clear idea that investment income over the course of the last six months would be in that neighborhood of $26 million.

That said, the corporate initiatives over the last six months of the year or the additional corporate initiatives will absorb that.

About half of it in the third quarter and about half in the fourth quarter.

And will those corporate initiatives continue into 2015 or is there some sort of inflation of corporate spend right now going on?

Yes, there's higher levels of corporate spend, which we believe to last on a temporary basis and we don't expect much of it to continue into 2015.

And you will see that all in our corporate line as you did this quarter with corporate expenses being $58 million.

As Dan indicated, our normal run rate of corporate expenses is around $45 million.

So you saw it very clearly in this quarter and you'll see it most likely to the same extent in the next quarter.

Thank you and congratulations on the quarter.

Thank you.

Next question, operator.

Vinay Misquith, Evercore.

Hi, good morning.

The first question is on the pace of margin expansion in Consulting.

So it seems that Oliver Wyman is probably driving a lot of the pace of the margin expansion given the growth.

I was curious if that's true and should we see a slowdown in the pace of growth there because of a global slowdown?

Should we expect the pace of margin expansion to also slow?

Okay, so let me address that.

We don't break out the margins in either segment between the operating companies.

We would say that, as a leadership team, several years ago, we identified Consulting's margins as an issue for us to address as a leadership team and to get underneath because we thought that with greater levels of financial discipline and sales capability that we could actually drive Consulting margins far higher than what they were.

So this is not a one-year story at all.

If you look at it in terms of -- in 2012, Consulting was up 150 basis points.

In 2013, Consulting was up 160 basis points and year-to-date, Consulting is up 170 basis points.

So we have had three years of dramatic change in Consulting's margins.

We're right in the middle of our budgeting and planning cycle for the next several years and so it's really too early for us to tell.

I mean, clearly, from a margin expansion, we will work in both segments to expand margins with higher levels.

When we have higher levels of organic growth, we will seek to do that.

And we expect in both segments over the course of the next three to five years that there is tremendous opportunity that we have to go out there and execute on, which would help our margins.

But also as we've said many times, we're not driven by -- we don't have a margin issue in the Company.

We're not driven by margin expansion.

We're focused much more on revenue growth, earnings growth and margin expansion is an outcome of having our revenue almost always exceed our expense growth.

And so that's our position with regard to margins.

Any other question?

Yes, just on Mercer, what percentage of your business is recurring versus the Consulting revenue?

Mercer?

Okay, so just to clarify, of the Consulting segment, just keep in mind that Mercer makes up about three-quarters of the revenue of the Consulting segment.

So when you make assessments or some estimates about improvements, it would have to be a lot on that side in order for it to happen.

So let me clarify that point.

The second point is that when everything is said and done, we continue to work hard to improve over long term our results and we have a sustainable strategy to be able to do that and we will continue to do that as we go forward.

Now what was the --?

The recurring revenue, how much (multiple speakers).

It depends on (technical difficulty), but overall for Mercer, it's about 70% recurring and 30% project-oriented business.

Thank you.

I think we have time for one more question.

Michael Nannizzi, Goldman Sachs.

Thank you, just a quick one here on exchanges.

Most of my questions were answered.

It seems like the investments in exchange are going to potentially offset the margin benefit in the near term.

Is there a level of enrollment where margin contribution would outpace the potential for expenses or do you expect that you'll continue to manage the business that way until you reach scale?

So let me address that.

First of all, as we've said a couple of times, we are in the very early stage of a new business, a business that has a dramatic amount of potential for us, but we are also cautious because we're in such an early stage and we don't necessarily think that every competitor that could be in this segment is already in the segment today.

I mean at the end of the day, business attracts competition and so it's very hard for us to make any kind of long-term assessment.

What I would say is that we really aren't expecting any earnings contribution and that we will invest whatever money is necessary to position Mercer as one of the leaders eventually in this exchange segment.

So on that basis, it's not a situation that we're seeking earnings from the exchange segment.

We will be recycling any benefits that we get and any kind of short or mid-term back into the business as we grow and position ourselves to be one of the leaders.

Okay, so I mean if you think about those investments as you recycle those dollars, I'm guessing that either the ROI or something about investing in the exchange makes that an attractive place to put dollars to work.

How about operating margins?

If we clear out the infrastructure expenses or investments, is there a way to think about that even relative to your baseline benefits business?

Yes, Julio, do you want to take that without getting into details about the margin?

Thank you.

I mean our exchange business has the potential to be a big business for us.

We've said that before.

In the near term, we're not expecting significant contributions to earnings, as Dan said.

Longer term, we expect margins on the exchange, as we said at the investor meetings that we had back in March, we expect margins on the exchange to be roughly in line with our margins in our health and brokerage business today, which is one of our highest margin businesses that we have in the Company.

So investment in the rapidly growing business drives significant rampup in administration and that's why we have -- and servicing and that's why you have some early moderation as far as impact on earnings on the positive sense and if sales pace continues, modest dilution will happen, of course, in the early years.

But as we've said in 2014, we've managed to invest and still deliver great margin and great earnings improvement for the segment, meaning the Consulting segment for MMC.

Does that take care of it, Mike?

Sure, thanks.

Okay, thank you.

Okay, so I'd like to thank everyone for joining us on the call this morning and in particular, I'd like to thank our clients for their support and our colleagues for their hard work and dedication in serving them.

Have a good day, everybody.

Again, that does conclude today's conference.

We do thank you for your participation.