威達信集團 (MMC) 2014 Q4 法說會逐字稿

Welcome to the Marsh & McLennan Companies conference call.

Today's call is being recorded.

Fourth-quarter and full-year 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 will now turn the call over to Dan Glaser, President and CEO of Marsh & McLennan Companies.

Please go ahead, sir.

Thank you, Matt.

Good morning and thank you for joining us to discuss our fourth-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, and our operating company CEOs: Peter Zaffino of Marsh; Alex Moczarski of Guy Carpenter; Julio Portalatin of Mercer; and Scott McDonald of Oliver Wyman.

Also with us is Keith Walsh of Investor Relations.

We had another year of outstanding performance in 2014, capped by a strong fourth quarter.

We are a global growth Company with many enduring qualities: talented colleagues; deep client relationships; a vast global footprint; depth of intellectual capital; a collaborative culture which seeks to harness our collective intelligence; a proven leadership team known for keeping its commitments and delivering results.

At Marsh & McLennan, we do important work, enabling our clients' success by helping them address the challenges and opportunities of our time.

The current global landscape is one bristling with increasing risks but also opportunities: cyber security; political and economic uncertainty in the Eurozone; slowing economic growth in developing economies; plunging oil prices; historically low interest rates; a strong US dollar.

All of these trends have gained momentum in the past six months, illustrating not only the issues governments, multinational corporations, and most organizations face, but how the speed of change presents its own set of challenges.

In an increasingly complex and dynamic world, the C-suite needs answers.

And Marsh & McLennan Companies is ready to provide solutions around the globe.

We make a distinctly positive impact on the businesses, people, and societies we serve by providing guidance and support during critical moments.

Our competitive positioning as a trusted advisor to our clients has never been stronger.

We are at the forefront of industry innovation and thought leadership around important issues such as: advising an aging population how to save for retirement; managing global healthcare costs; developing and supporting client growth strategies; assisting our clients in anticipating and managing risk; navigating a new regulatory landscape in financial services; and helping our clients capture opportunities in this world of risk.

Moving to our financial results, we had an excellent fourth quarter, posting our strongest organic revenue growth of the year at 6% and adjusted EPS growth of 16%.

The RIS margin rose 100 basis points to 21%, and the Consulting margin increased 120 basis points to 16.1%.

We are proud of our strong financial and operating performance in recent years, including our record of consistently higher earnings per share.

Over the past five years we have grown adjusted EPS at a 14.5% CAGR, and our consolidated adjusted operating margin improved almost 500 basis points.

Let's spend a minute on our strong performance in 2014.

Adjusted EPS increased 14%.

Adjusted operating income rose by double-digits for the seventh consecutive year.

And underlying revenue grew 5%, with contributions from each operating company.

Margin expansion occurred in both the RIS and Consulting segments, reflecting the broad-based nature of our growth.

This marks the fifth straight year margins have expanded in both segments.

At Risk and Insurance Services, the margin rose 30 basis points, in line with what we communicated throughout the year.

Consulting's growth was robust; the margin increased 160 basis points and resulted in record Consulting segment operating income approaching $1 billion.

It's a powerful story, and there is more to this story than financial performance.

We continue to enhance the value of Marsh & McLennan for our clients and our colleagues.

We encourage innovation, creativity, and challenge the status quo.

We believe in the search to find the smarter way.

Our culture is vibrant.

We are constantly building our talent with ongoing development programs, nurturing leadership capabilities, and attracting the best and brightest to Marsh & McLennan.

Fundamentally, our people are what set us apart.

The progress we have made not just in 2014 but over many years is a direct result of our investments for growth.

Since 2009, we have invested nearly $5 billion for growth and efficiencies.

This includes CapEx of $1.9 billion; 85 acquisitions totaling $3 billion; and an increase in our headcount of over 7,600 colleagues.

Our acquisition strategy is focused on growth markets, not only geographically but by segment, by line of business, and by capability.

We were active last year, completing 22 acquisitions and spending approximately $945 million, and our pipeline remains robust.

We expanded our international operations with acquisitions in Australia, Belgium, Scotland, Canada, Chile, and Panama, as well as in South Africa with our investment in Alexander Forbes.

Marsh & McLennan Agency had an excellent year, highlighted by the acquisition of Barney & Barney, which established the Agency's West Coast hub, as well as eight other high-quality agencies throughout the country.

We were pleased to hold an Investor Day last March where we updated investors on MMC's long-term operating strategies as well as capital management initiatives.

We are delivering on the commitments we made at Investor Day:

We committed to long-term EPS growth of 13%, and delivered 14% in 2014.

We committed to double-digit dividend growth, and delivered 10.4%.

We committed to reducing our share count, and reduced shares outstanding by 7 million.

We committed to allocate $2.1 billion for dividends, acquisitions, and share repurchases, and utilized $2.3 billion.

For more than 140 years we have been anticipating the changing needs of our clients.

As the scope of challenges around risk, strategy, and people grows and changes, the demand for our services should increase.

We fully expect to continue to deliver on our long-term goals, although this will not be without challenges.

Over the past five years, we have faced a variety of macro pressures, including low interest rates, weak global GDP growth, and FX volatility, just to name a few.

We delivered each year for shareholders underlying revenue growth, margin expansion, and EPS growth.

In 2015, we face even more significant headwinds from the impact of low interest rates and a strong US dollar.

Again, we expect to deliver underlying revenue growth, margin expansion, and EPS growth.

Although our EPS growth in 2015 will be below what we achieved in 2014, we remain confident in our ability to grow EPS at a 13% CAGR over the long term.

With that, let me turn it over to Mike.

Thank you, Dan, and good morning, everyone.

In the fourth quarter, MMC delivered its 14th consecutive quarter of double-digit growth in adjusted earnings per share, an outstanding record of sustained performance.

Revenue growth exceeded the increase in underlying operating expenses for the 17th consecutive quarter.

In the quarter, GAAP EPS was $0.54, and adjusted EPS rose 16%.

Risk and Insurance Services had a strong finish to the year, as revenue increased to $1.7 billion, rising 4% on an underlying basis.

Adjusted operating income rose 9% to $355 million.

The adjusted operating margin expanded 100 basis points to 21%, the segment's highest fourth-quarter margin since 2003.

Marsh's revenue was $1.5 billion, increasing 4% on an underlying basis.

The International division was up 5% and the US/Canada division rose 3%.

Marsh's revenue growth was driven by record new business, exceeding $300 million in the quarter.

New business was strong in the US, Canada, the UK, Peru, and Africa.

In a difficult operating environment, Guy Carpenter delivered 3% underlying revenue growth, reflecting strong new business.

On a geographic basis, growth was led by the US, UK Facultative, Asia, Aviation, and Marine.

Turning to our Consulting segment, revenue was $1.6 billion with excellent underlying growth of 8%.

Adjusted operating income increased 13% to $251 million, and the segment's margin expanded 120 basis points to 16.1%.

Mercer's revenue increased 5% on an underlying basis to $1.1 billion, with all major geographies contributing.

Investments had 12% underlying revenue growth.

Retirement grew 5%, Health 4%, and Talent 2%.

Oliver Wyman's revenue reached $460 million.

Underlying revenue growth of 15% was exceptional, exceeding even our own expectations.

All industry sectors contributed to growth in the quarter, with geographic strength in North America and Europe.

In summary, MMC produced another strong quarter both from a revenue growth and earnings standpoint.

And the results for the year were excellent as well, with strong underlying revenue growth, substantial margin improvement, and adjusted EPS growth of 14%.

As expected, investment income was de minimis in the fourth quarter.

It should also be de minimis in the first quarter.

As we highlighted on our last two earnings calls, investment income in the last half of 2014 was expected to be offset by corporate initiatives.

Additional corporate spending in the third quarter of $13 million and $11 million in the fourth quarter essentially offset investment income over the second half of the year.

Going forward, we anticipate the quarterly corporate expense should approximate $45 million.

We issued $800 million of debt in September and used the proceeds in October to fund $630 million of debt obligations and costs for the early extinguishment of this debt.

We successfully utilized excess cash in 2014.

This resulted in cash decreasing from $2.3 billion to $1.95 billion at year-end, with $1.3 billion held internationally.

$332 million for nine acquisitions and investments was the cash utilized in the fourth quarter, also including $166 million for the second tranche of Mercer's investments in Alexander Forbes.

Returning capital to shareholders remains a priority.

In the fourth quarter, we utilized $154 million for dividends and $200 million to repurchase 3.7 million shares.

And for the year, cash deployed included $945 million for 22 acquisitions and investments; $800 million to repurchase 15.5 million shares; and $583 million for dividends.

Annual dividends paid per share increased 10.4% last year.

Looking ahead, we remain optimistic about the underlying operating performance of our businesses and our ability to deliver strong financial results over the long term.

This year our results will be affected by macroeconomic headwinds that have grown substantially in the last several months -- specifically, the continuing decline in interest rates, thus impacting our GAAP pension expense, and a strengthening of the US dollar.

Let me make a few observations regarding our global retirement plans.

Pension accounting considers many factors.

In addition to the effect of discount rates and asset returns, GAAP pension expense reflects projected salary increases, mortality rates, demographics, inflation, and contributions.

Cash contributions to our global pension plans, which were $181 million in 2014, should be approximately $190 million in 2015.

At the end of 2014, average interest rates used to measure our pension liabilities declined from the prior year by approximately 100 basis points not only in the US but throughout the world.

We expect retirement expenses for MMC overall, including both defined benefit and defined contribution plans, to increase by approximately $125 million in 2015.

We are currently implementing actions to mitigate all of this expense increase.

The planned action with the greatest impact, representing a substantial portion of our mitigation efforts, will affect the post-65 retiree medical reimbursement program in the United States.

This benefit was eliminated for most colleagues in 2005.

As a global multinational Company, we are used to dealing with foreign exchange volatility.

For example, FX headwinds in each of the last three years negatively impacted EPS by $0.04 to $0.05 each year.

As seen from our strong financial performance over this period, we absorbed this foreign exchange headwind.

The significant strengthening of the US dollar in recent months relative to the rest of the world's currencies will have a greater impact on us this year.

We recently updated our foreign exchange forecast, which covers more than 60 currencies, including the pound, euro, Canadian dollar, and the Australian dollar.

If the dollar remains where it is today, operating income will be negatively impacted by approximately $120 million or $0.15 per share, well beyond what we absorbed over the past three years.

We anticipate that the magnitude of the pension and foreign exchange headwinds on a year-over-year basis is by far the greatest in the first quarter.

Our efforts to offset these two macro headwinds should be the most impactful in the first quarter as well.

In conclusion, even though EPS growth this year will be below the growth for the past several years, we remain confident in our ability to achieve our 13% EPS growth target over the long term.

And with our growing cash flow, we expect to deliver double-digit dividend growth and to reduce the share count this year.

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

Thanks, Mike.

Matt, we're ready to go to Q&A.

(Operator Instructions) Jay Gelb, Barclays.

Thanks.

First, just wanted to follow up with Mike on the two major headwinds you outlined for 2015, retirement expense and impact of a strong dollar.

Are you saying that the full impact that you outlined, $125 million retirement expense and $0.15 headwinds from a stronger dollar, that there will be mitigating factors to those in 2015?

So it's not that full impact that will hit the bottom line?

Yes, I'll take that, Jay; it's Dan.

What we tried to outline in our script was saying to you that in terms of the pension expense, that we are having planned actions to mitigate all of the pension expense headwind.

So that's something that you don't have to consider as having an impact on us.

But we did point out that foreign exchange, and the dollar in particular strengthening, has much more of an impact than it would typically have in a given year.

When we look at FX, as Mike was saying, over the last three years, it's been $0.04 or $0.05 negative per year.

The reality is over a 10-year period it's an absolute wash, and so it has no impact either way.

As a US multinational that's dollar-based and operates in 130 different countries, clearly we are going to always -- FX is always going to be a part of our results.

But this is a higher level than we would seek to mitigate by taking operating actions.

So we do expect foreign exchange ultimately to have a negative impact on our EPS for 2015.

All right.

Thank you for clarifying that.

Now, to follow up to that, understanding that you're saying MMC is unlikely to generate the type of 14% adjusted operating EPS growth that was delivered in 2014, but you're still committed to 13% long-term -- so in terms of what that means for 2015, do you still think you can do double-digit adjusted EPS growth this year?

I mean, at the end, we don't give EPS guidance, and so I really don't want to go down that path.

The only guidance we've given, which we outlined on Investor Day last year, was that we believe over a long period of time that we would deliver a CAGR of 13% a year.

And we still believe that.

So any shareholder that is a shareholder of a long period of time, we are committing to a 13% CAGR on EPS.

There is a lot of moving parts with respect to what generates EPS.

It's way too early in the year for me to even have a view on that.

A lot has to do with top-line growth, etc.

I would want to point out, though, that on a constant-currency basis, if you looked at our business on that basis, we'd still be comfortable with saying that in 2015 we would deliver something akin to our long-term commitment of 13%.

That's helpful.

Thanks, Dan.

Larry Greenberg, Janney Capital.

The recent government budget proposal had some corporate tax rate suggestions.

I'm just wondering what you're thinking about the tax rate prospectively.

Obviously, if some of these proposals were to become law, it would certainly help.

But maybe along the spectrum of where we are today to some of these potential positives coming to fruition, how you are thinking about the tax rate going forward.

Thanks; I'll start with that and then I will hand over to Mike.

I do think that -- we've been watching the news in Washington, and I guess we start from the basis of, well, it doesn't appear that our tax situation can get worse as a country, so therefore we can only get better from here.

So we are optimistic that that could apply.

For a number of years now we've actually been achieving double-digit adjusted EPS growth by actually improving our core business.

And one of the reasons we are so focused on that, not just because our leadership team is driven to achieve double-digit growth in adjusted EPS and over the long term, but we also have ground to make up against many of our competitors who have tax positions which are superior to ours.

So we have to develop the same kind of levels of cash flow working through operations, because the US tax code is not a help.

Specifically, with regard to the US tax code, our overarching view is that it needs to be competitive in order -- it needs to be reformed in order to be competitive with the rest of the world.

And currently it is not.

So Mike, do you have anything to add to that?

Yes, thank you, Dan.

Obviously, with regard to corporate tax rate in the US, we would be very pleased to see a lower overall corporate tax rate.

However, the other thing that's very difficult for us as a US multinational company is bringing our international earnings back into the United States for investments and returning capital to shareholders.

So anything that can be done to alleviate that, and help us make US investments and return capital to our shareholders, we would certainly be in favor of.

We do not count on reform until it's implemented.

So in looking at your question on forward guidance, I would just make a few observations, point out a few things.

First, our overall tax rate has averaged 30% over the last five years on an adjusted basis, and that's probably a fairly good number to model for 2015 until some legislative change occurs.

I would just as an aside point out, in the fourth quarter it's lower on an adjusted basis; it's about 29.5%, and on a GAAP basis 27.7%.

On the GAAP basis, that's really due to the US tax treatment for the debt extinguishment.

So, on a more normalized basis, probably around 30%.

Thanks.

Thank you.

Then I know you gave your exchange enrollee numbers after the third-quarter report.

But I'm just wondering if Julio might just bring us up to date on how things were looking more towards year-end, beginning of the year, and just what's going on there.

Yes, Larry, we're only going to give a formal update on the numbers once a year.

But having said that, I'm sure Julio has some color that he can add to the exchange.

So, Julio?

Thanks.

Appreciate it.

As we reported back in October we were very pleased with the progress that we are making in our exchange strategy.

We reported north of 1 million lives that have signed up, between active and Medicare.

And that continues to be robust in terms of pipeline that's building.

Many of the clients that we had, as you know, are in the middle-market space.

But more importantly even for us, in the 5,000 and above number of lives we actually doubled the amount of clients that came to us this year.

Last year it was about 6%; this year it's about 14%.

So we are beginning to see the edging up, let's say, of the type of clients that have more volume in terms of employees.

Now, it can be said also that if you compare that to middle-market, the larger-market clients, jumbo clients, have been a bit slower to make the transition over; but we are beginning to see some of it move over into higher classes of employees.

That's important because middle-market clients, while they continue to increase, we certainly want to have our share of also the jumbo market as that continues.

So the pipeline is robust.

It's looking good for 2015.

All of the numbers that we have projected in terms of number of lives per employee have come in right about what we expected.

All of the savings that we also projected, up to 15%, so coming in right around what we expected.

So, so far so good.

We are very excited about the prospects and continuing to invest in our marketplace strategy for short-, medium-, and long-term success.

Thanks, Julio.

Next question, please.

Kai Pan, Morgan Stanley.

Good morning.

Thank you.

First question, Dan, you mentioned that the 2014 capital management plan, that $2.3 billion exceeded the original plan, $2.1 billion.

Do you have an update for 2015?

Yes, Kai.

I would say that the $2.3 billion that we committed to and utilized in 2014, it will be at least that amount in 2015.

So in term of breakdown between, like, return to shareholders and acquisition, would that -- similar to what is seen in 2014?

Acquisitions, we don't budget for acquisitions.

We have a pipeline, and we work the pipeline.

There could be a lot of variability with respect to acquisitions.

So it's a hard thing to peg right now.

I do -- I would say and put it in the context of we are committed to reducing our share count each year, and we are committed to double-digit increases in our dividend.

So on that basis, you can pretty much take what we did last year and extrapolate from there.

That's great.

Then follow-up on the acquisition front.

The recent press release that you might be interested in a UK broker, I understand you couldn't comment specifically on specific deals.

But could you talk about your acquisition strategy as part of your global growth strategy, and which markets or particularly the markets or geographic areas are to the most of your interest?

Thanks.

Yes, sure.

I'm glad you recognize that we can't comment on any specific deal or any speculation that can be out there from time to time.

So I'll talk a little bit about acquisitions; and if Peter, Julio, Alex, or Scott want to add anything, then feel free.

First of all, we have a philosophy, right?

And our philosophy means that there is no budget or timetable to acquisitions.

We're focused on quality above every other factor.

We prefer companies that are growing faster than we are; that trade at a multiple below us; and where we can see that we can improve their business, or they can help us by adding some capability or geography that we currently don't have.

So somehow that they are going to make us better.

And generally, we develop relationships with people, highly talented people, over time.

That's why it's a slow, gestating pipeline as opposed to something that's rapid.

We're always, as I mentioned, looking at quality, cultural fit, consistent with our overall four-pillar strategy, focused on what kind of talent would be coming into the organization and how it makes us better.

And when all those things align, usually the economics work out.

We rarely participate in auctions.

We've been a disciplined acquirer, and that may be one of the reasons why we don't acquire all that many things compared to the numbers that we look at, because we are disciplined about our approach.

We are not limited by geography.

As you can see we've committed over the last several years -- most of our acquisition capital has been in the United States, as we have followed through on our agency strategy in the US.

But fundamentally, we are very interested in international acquisitions.

We're looking for -- both from a geographic basis, from a line of business, from a capability basis, all kinds of different types of companies.

So I would say that our pipeline is robust.

And, folks, do you have anything to add?

Peter, you want to add to that?

Well, it's very consistent with what you just said, Dan.

It's quality; it's companies that have a track record of growth; ones that have geographical complements.

And then we also are very disciplined on our segmentation strategy.

We like to be patient.

I think that's evidenced in how we pursued agencies in Marsh & McLennan Agency.

We're now entering our sixth year in the journey, but we feel very proud of the high-quality agencies that we've been able to acquire.

We integrate a group of best practices; and so not only do we grow through acquisition, we've been growing organically and have a very strong pipeline.

And we always are very committed to investing in businesses after we acquire them.

We like the SME space; I can see us expanding across the world over time.

But again, we will be patient and try to right fit.

Julio, you have anything to add to that?

Yes, thank you, Dan.

Again, very supportive of Dan's comments in terms of what our umbrella is as we go after acquisitions.

But you can -- you probably took notice that in 2014 we had an increase of acquisition opportunities that came Mercer's way, of course starting with the Alexander Forbes investment that we made, just north of $300 million.

In addition to that we've made the Jeitosa Group acquisition, which is significantly important to us for workday implementations in both Europe and the US.

And we've made the strategic acquisition for SCM, which is an alternative investment space that we want to expand because we see opportunity there.

And I'm sure you see the numbers; that investment management business is really growing for us.

So we're going to continue to concentrate on where the growth areas are and where the opportunity for growth is.

And that is our number-one objective right now.

When all the cultural issues are taken care of, etc., we are looking for expansion of growth opportunities geographically and within segments.

Perfect.

Next question, please.

Thank you very much.

Dan Farrell, Sterne Agee.

Hi, good morning.

A question on the pension costs and then the offset in the medical costs that you said.

Is the medical cost offset a cash benefit?

The reason I'm asking is your cash pension costs really aren't moving much at all.

So it's really only on a GAAP basis that pension is moving.

But I'm wondering if the offset that's helping the GAAP is a true cash benefit.

No, it's accounting in both ways.

So both the pension headwind and the offset are both accounting items.

Okay.

Then just switching over to your comments at the beginning, where you really talked a lot about the difficult and challenging environment we're in globally and how that's creating a lot of work and projects for you.

I am wondering with regard to the Consulting segment, particularly in Oliver Wyman.

Very good organic results; tougher comparisons.

But do you see an environment where you're getting increasing flow of projects and other revenues that could keep overall Consulting organic growth at a healthy level?

Scott, you want to take that?

Yes, I'll talk a little bit about Oliver Wyman; but keep in context, this is the smaller part of our Consulting segment.

We had a good fourth quarter, finishing off a strong year overall, and that was driven by pretty robust demand across sectors and across regions.

In fact a little more robust than we'd expected.

But we do expect Consulting demand across the world to grow slightly faster than GDP in the years to come, as the world remains pretty complex.

And we think the successful top-tier firms will grow faster than that as they take share from others.

We're squarely in that group, so we expect to grow faster than that.

I think the numbers we grew out in 2014, again we wouldn't expect to see that in 2015.

The best guidance I can give there is still mid- to high-single-digit growth rates for our business.

Okay, thanks.

Elyse Greenspan, Wells Fargo.

Hi, good morning.

I was hoping to spend a little bit more time just going back to the capital plan and your outlook.

Does that assume -- take into account potentially taking on any more leverage during the year?

And then can you just update us on your view on just more long-term how much leverage you would potentially look to add?

Sure, I'll start with that and then I'll hand over to Mike.

Clearly -- and as we discussed at Investor Day and after Investor Day -- our view over time is to reduce the cash on the balance sheet somewhat and increase our overall level of leverage as well, and put that extra amount of money to work.

So if you look at year-end 2014 versus year-end 2013, we increased our debt by $433 million and we reduced our cash by $362 million.

That's part of a strategy, and so I think you'll see that on an ongoing basis: an emphasis on reducing cash on the balance sheet and increasing our overall level of leverage.

But, Mike, what would you add to that?

Yes, Dan, I probably can't add too much to it.

But just to start with the premise, it's nice that we have four operating companies that generate increasing amounts of not only revenue and earnings but cash flows.

So it's a very nice position to be in, as the Chief Financial Officer, to work with my colleagues in these operations.

So the first premise is that we expect our operating cash flow to go up in that regard.

Dan, I would completely agree with you: we used about $350 million of excess cash that was on our balance sheet.

We're certainly going to try and do that probably in the same magnitude this year -- limited a bit to what international acquisitions we may see and our ability, as I mentioned earlier, to bring international cash back into the US in a tax-efficient manner.

So in that regard, we're looking at a fairly robust year in 2015, above what we did in 2014.

Any other question, Elyse?

Yes, thank you.

If we could also just flip and talk a little bit about what you are seeing at Guy Carpenter.

I know the growth has been steady towards the end of the year.

We've continued to see growth there even while we continue to talk about headwinds in the reinsurance pricing environment, which we've heard intensified during the January 1 renewals.

If you can just comment on what you are seeing there, and just a little bit about your outlook for 2015.

Thank you.

Thanks.

Sure.

Alex, why don't you take that?

Thank you very much.

Yes, we're really pleased with the year, pleased with the fourth quarter.

But also, considering that we were flat in the first quarter, to be able to end up with 2% underlying growth for the year is good.

But it's now been six years where we haven't had a single quarter that's been negative: just one flat, and the rest growth.

So we lean forward, and I'm really proud of the team and what they do in that respect.

The fourth quarter from a point of view of rating, not terribly important because we don't have a lot of renewals there.

We had high retention and good new business.

And our outlook for 2015 is somewhere between slight and moderate growth as we continue to have a good pipeline of new business.

And our retention rates are high due to, I believe, good service and innovation.

Thanks, Alex.

Next question, operator.

Meyer Shields, KBW.

Thanks.

Good morning.

I'm to follow up on that topic.

Is there any direct or indirect benefit from the recently increased amount of consolidation that we are seeing in insurance and reinsurance?

Yes, I'll just take that.

At the end of the day, the consolidation in both insurance, reinsurance, and insurance broking is really a 25-year story.

There's been new capital formation; there's been consolidation; and that kind of story continues.

We exist to serve our clients.

So having a robust competitive market with a lot of choices is good for our clients and good for both Marsh and Guy Carpenter.

Even with the recent consolidations and announced consolidations, there is significant levels of competition in the insurance industry at multiple levels and on multiple fronts.

So I don't think there's been any direct or indirect impact on our business as a result, nor do we plan for there to be impacts as a result of consolidation in the insurance sector.

Okay.

I was hoping to get a little bit more color on the Risk and Insurance organic growth rate in Latin America.

Sure.

First of all, it's really a Marsh question as opposed to a broader Risk and Insurance Services question, because we don't specifically outline Carpenter on a Latin America basis.

Latin America is one of our strongest growth regions and has been for quite a period of time as a Company, as a full Company.

One of the reasons why, if you look at our acquisition strategy and just look at 2014, we made acquisitions in Peru, Panama, and the Dominican Republic.

So we are absolutely committed to Latin America as a region and we see it as having tremendous growth potentials in the future.

But, Peter, you want to take this specific question?

Yes, sure.

Thanks, Dan.

We had underlying growth of 3%, and it certainly is not reflecting its historic growth rates on a quarter-to-quarter basis.

But there's a few things that happened in the quarter, so I'll try to give a little bit more detail.

One is we had a challenging comparable from the prior fourth quarter, which had 13% growth.

We had some one-time items from prior-year acquisitions that didn't repeat in the fourth quarter of 2014.

We had significant nonrecurring business; so some of the really strong new business we saw in 2013 did not reoccur.

And we are seeing some impact from the economic slowdown.

But as Dan said, if you take a look at the full year, we had 10% growth.

It's going to be lumpy from time to time.

If you look at even our International, we had 5% organic growth; and if you look at each quarter, there have been different parts of international that have contributed.

We are in 130 countries, and so we think it is very well balanced.

It's a major contributor to us in terms of top-line organic growth as a percentage basis.

But just put in context, it's about 7% of Marsh's total revenue.

Okay, thanks.

That's very helpful.

Cliff Gallant, Nomura.

Thanks for taking the questions.

Mike, I was wondering; you mentioned, I believe, in talking about the pension calculations, that globally you're assuming an interest rate that's down 100 basis points now.

I was wondering on an absolute basis what that number is today.

Mike?

Okay, thank you.

Yes, we are not assuming it.

It's actually based upon where interest rates are at the end of 2014, which is used for the measurement for pension going forward.

Just as an example, the discount rate was roughly 5.3% at the end of 2013 in the US; it was 4.3% at the end of 2014.

In the UK, it was 4.6% at the end of 2013 and about 3.65% at the end of 2014.

Those are our two largest plans.

But as we looked at it throughout the world, it was unusual that in almost every geography we dealt in -- whether it was Canada, Ireland, or what have you -- interest rates across the maturity ladder that you use for pensions, which is more mid- to longer-term, were down 100 basis points.

Okay.

That makes sense.

The second question I had was just on the -- when I look at the brokerage margin for the full year, the 22.4% -- very good number and improvement over the year.

If we were to set aside the impact of some of the macro things like interest rates and foreign exchange, I was curious: how would mix change affect that number as we go forward?

In terms of where you're growing, where you're not, and so forth.

Let me just take the question broadly as a margin question.

As we've said a couple of times before, where margins improve in our organization as an outcome of us growing revenue at a faster rate than we grow expense, we are most focused on revenue growth -- and organic revenue growth in particular -- and increasing our earnings.

And the margin improvement comes a little bit further down on the Hit Parade.

Having said that, for both RIS in the quarter, up 100 bps, and Consulting up 120 bps, and MMC for the quarter being up 70 bps and for the year being up 70 bps, we're very pleased with that performance.

We think it's strong margin performance, and our seventh straight year of margin improvements, and the fifth straight year that our margins were up in both segments.

So we feel very good about our margins.

And I just want to say that on a going-forward basis, and in particular for 2015, we believe we can improve our margins, notwithstanding the headwinds that we are facing.

We believe that we will improve our margins in 2015 in both segments.

Okay, that's great.

Thank you very much.

Vinay Misquith, Evercore ISI.

Hi, good morning.

The first question is on pensions.

Just wanted to clarify that there is no impact on cash paid for pensions.

Yes, it's very limited impact on cash; not material to the organization.

I think -- what?

Like $9 million or $10 million?

Yes, I indicated in 2014 our contributions into the pension plans were roughly $180 million, and we are expecting this year for it to be roughly $190 million.

Okay.

What level of interest rates should we see that would take the contributions higher?

Well, I think we are going to deal with the pension issue one year at a time.

I'm hoping that it's sort of biblical: that you have seven years of famine and seven years of feast.

Because I'm ready for my interest rate feast at some point.

Because bear in mind, generally when something's a headwind for you and it's macro, it can turn around and become a tailwind and it could last for a long period of time.

So obviously, many analysts who are much more expert than I for several years have been predicting movement toward higher interest rates; and there's been a significant amount of macro factors that have inhibited that move.

But ultimately, we feel over time that interest rates over several years are more likely to be higher than lower.

But Mike, you have anything to add?

Yes.

Dan, I would start with the same premise that you did, which is we will only deal with it year by year.

But as I said, there's many factors that go into the issues with regard to not only pension expense but with regard to funding requirements.

One of the main things is our assets, and how have our assets done.

The nice thing is that our asset performance last year was very substantial, growing not only in the US but very strongly in the UK and around the world.

So we had very good asset performance.

So notwithstanding that, what happens is the liability goes up with regard to interest rates measured at the end of the year, which we think to some extent is transitory.

Of course, many firms, now six years into a very low interest rate environment, would use the word transitory and wonder what the duration of that would be.

But that said, it's really with regard to the asset levels and the performance.

But based upon what we're seeing today, we are not anticipating a marked change in our cash contributions into the pension plans.

But as Dan said, we'll take it year by year.

Thanks.

Next question, operator.

Thomas Mitchell, Miller Tabak.

My first question is -- I think it would probably be for Scott.

And that is, there's been a tremendous amount of turmoil in the European banking sector over the last number of years but more recently -- the Italians are apparently going to reorganize totally and so forth.

Is that something that either represents an opportunity or has already represented a significant opportunity for the Consulting side?

And if it has, how does it look from here?

Well, you're right, Tom, that is probably on the Consulting side geared more to Scott than to Julio.

So, Scott, you want to take that question?

Yes, I guess I'd just make a couple points, Tom.

The first is I think there will be continued restructuring of the European banking sector.

And hopefully as they strengthen each of the domestic and overall regional banking markets that will help support some growth in Europe in the future.

I think it has already represented a significant opportunity for us, because we do work with the private and public sectors there and we've been heavily involved in the restructuring of the industry.

And it will continue to represent a significant opportunity for us in the future.

I don't expect that to change for a number of years.

This is going to take a long time to restructure the sector.

Okay.

Thank you.

That's very helpful.

Then a separate kind of follow-up is that -- is there something not similar to that at all, but separately are you seeing interest in the US banking sector -- either coming from foreign interest or domestic -- that would indicate an increase in either restructuring or M&A activity?

The US is a little different than Europe in the sense that they restructured earlier in the crisis.

And it's a more stable system now, I think, with less solvency and capital issues.

But it's a sector that has, as most of you on the call know, enormous growth challenges in the year ahead.

So I think there will be -- it won't be what's necessary in Europe, which is wholesale restructuring of the banking sector.

But here there's got to be refinements to the banking model, and that could involve people from outside the US or from inside the US.

But it also represents a pretty big opportunity for us.

Paul Newsome, Sandler O'Neill.

Good morning and congratulations on the quarter.

I wanted to know if we've seen any changes in the structure of contingent commissions recently, under the thesis that typically when you start to see a softer market those structures change in terms of what they reward, whether it be profit-sharing versus growth versus new products.

Any changes that you've seen yet?

Yes, I'll speak broadly and then hand over to Peter.

I would look at the subject more broadly as carrier revenue streams, and there's only certain parts of our Company where we actually earn contingent commission.

But clearly there's carrier revenue streams for all brokers in multiple countries.

The most important thing around carrier revenue streams are the principles around them of putting clients' interests first and being transparent.

Peter, do you have something to add?

Yes, Dan, there has not been much change in terms of the question on contingents or insurer revenue.

As you said, we have been working very hard at Marsh to lead the industry in transparency and disclosure, and avoid business practices that have conflicts of interest.

So we have not seen any increases or demands of changing how insurer revenue remunerates brokers.

Thanks.

Paul, any other question?

Almost an accounting question.

Does it matter financially with any of your debt covenants or anything in regard the book value impact of pension and FX that runs through, versus the cash and the GAAP EPS impact?

We will follow it up -- to make sure we give you a precise answer -- with Keith.

But nothing that I'm aware of.

Okay, thanks.

Michael Nannizzi, Goldman Sachs.

Thank you.

Just one question; most of my questions were answered.

But the Investments Consulting business within Mercer, that's been growing, underlying double digit for some time now.

Can you talk about: what is your expectation there?

What's driving that?

Is it some of the pension items, or something else that we just generally see in the market?

How should we be thinking about that line?

Thanks.

Sure.

Julio?

Thank you.

Growth this quarter for Investments was driven by new money from client wins and market performance.

As for -- greater regulatory oversight and governance requirements has also led to increased demand for de-risking advice, insurance company buyout solutions, and implementation advice.

So we did cross the $100 billion mark of assets under management in the third quarter, and we ended the year over $115 billion in assets under management.

The equity markets obviously also help us, as some of that is on a fee-based in relation to the performance.

But I will also say that we monitor that very carefully so we can control volatility, and much of our growth also comes on a fixed-fee basis.

We have a pretty robust Investment business across the globe.

It's not just in the US, right?

About one-third of actually ends up being our financial services business in Australia; about one-third of it is investment consultancy, which is mostly in the US and Europe; and then we have the investment management business, which you were referring to under the assets under management.

So we continue to have a pretty robust growth trajectory there, good mix in business, growing, with great ambition for the future.

We'll continue to invest as well.

Thanks, Julio.

Mike, any other question?

Thanks.

Yes, so just one follow-up, Dan, I guess, on the capital management front.

The one thing I remember you mentioned from Investor Day -- I thought it was a very earnest comment about you're an operator, you've come into the role of CEO, and thinking about deployment and managing capital and using earnings, buybacks relative to earnings.

Now the one thing where Marsh is very different than others is very high interest coverage, very, very low leverage.

That clearly is a lever.

Is that something that may be an evolution as well, as you think about managing for optimization?

Maybe, at what point -- and maybe you are already; I'm sure the conversation is happening.

But just trying to get an understanding of that.

Because it certainly is an outlier relative to others.

Thanks.

Yes, sure.

Most leaders are outliers on one basis or another.

You don't get to be great by following a path, and so we do set our own path at Marsh & McLennan.

Part of that path is we're a balanced organization.

When you look at our return of capital to shareholders, it's via acquisitions and growing our Company for the betterment of shareholders and clients and colleagues over time, through repurchases and through dividends.

So you will see us deploying more levels of capital.

As Mike indicated, the $2.3 billion that we did last year will almost certainly be higher in 2015 than it was in 2014.

So we're very much committed to returning capital to shareholders.

But also a very balanced organization in terms of our strategy and our thinking of the ways that we return that capital.

I hope that answers your question, Mike.

Sure, thank you.

Okay.

Operator, I think that might actually do it.

Unless -- yes, we could take one more question, I think.

Other than that I think the call is virtually over.

Larry Greenberg, Janney Capital.

Thanks for the color, just on the FX being most impactful in the first quarter.

It seems intuitive that it would almost be like a straight-line projection downward in terms of how impactful it will be over the course of 2015.

Is that a fair assumption?

No, it's not, because it really is a mix of business issue.

As an example, if you look at RIS, some of the European renewals happen in January; January 1 is the biggest date of the year in Continental Europe.

June 30 is the biggest date of the year in Australia.

So it does vary on that basis, although the largest portion of the impact would happen in the first quarter.

But, Mike, do you have something to add?

Yes, just to add additional color, as Dan said, approximately half of the impact will be felt in the first quarter for the reasons that Dan articulated.

Then as you look out over the course of the entire year, whereas Risk and Insurance Services will feel it most dramatically in the first quarter, over the course of an entire year Consulting will feel it a little bit more than Risk and Insurance Services.

So we'll get through the big year-over-year headwind in the first quarter, and then it will tail off a bit.

But it will still be fairly robust against us.

But like I said, about half of it in the first quarter.

Great, thanks.

Okay, thanks.

Operator, and all those on the call, thank you for joining us on the call this morning.

I just want to reaffirm that I'm tremendously optimistic about our future.

Our core operations are very strong.

I feel privileged to lead this great Company, and I would like to thank our clients for their support and our colleagues for their hard work and dedication in serving them.

Thank you.

That does conclude today's conference call.

We do thank you for your participation.

Have a good day.