威達信集團 (MMC) 2016 Q3 法說會逐字稿

Welcome to Marsh & McLennan Companies conference call. Today's call is being recorded. Third quarter 2016 financial results and supplemental information were issued earlier this morning. They are available on the Company's website at www.mmc.com.

Please note that remarks made today may include forward-looking statements. Forward-looking statements are subject to risk and uncertainty and a variety of factors may cause actual results to differ materially from those contemplated by such statements.

For a more detailed discussion of those factors please refer to our earnings release for this quarter and to our most recent SEC filings, including our most recent Form 10-K, all of which are available on the MMC website.

During the call today we may also discuss certain non-GAAP financial measures. For a reconciliation of these measures to the most closely comparable GAAP measures please refer to the schedule in today's earnings release. I will now turn this over to Dan Glaser, President and CEO of Marsh & McLennan Companies.

Thank you, good morning and thank you for joining us to discuss our third-quarter results reported earlier today. I am Dan Glaser, President and CEO of Marsh & McLennan Companies. Joining me on the call today is our CFO, Mark McGivney; Peter Zaffino, the Chairman of Risk & Insurance Services; Julio Portalatin, CEO of Mercer; Scott McDonald, CEO of Oliver Wyman; and Keith Walsh, Head of Investor Relations.

I will begin with a discussion of our third-quarter and nine-month results and then address our outlook for growth. MMC produced another strong quarter delivering double-digit growth in adjusted EPS with margin expansion in both Risk & Insurance Services and Consulting. Underlying revenue growth was 1%, driven by a decline at Oliver Wyman. Operating income rose 24% or 16% on an adjusted basis.

We have positioned the Firm to deliver strong EPS growth in a variety of market environments as we actively manage expenses while investing for the future. Our ability to consistently grow earnings is a testament to our culture of execution and accountability throughout the Firm.

Looking at Risk & Insurance Services, third-quarter underlying revenue rose 2%. Adjusted operating income increased double-digits with the adjusted margin expanding to 18.5%.

In Consulting underlying revenue growth of 3% at Mercer was offset by a 9% decline at Oliver Wyman. Earnings growth was strong with adjusted operating income rising 8% bringing the adjusted margin to 20.4%, the highest level in over 30 years.

Through nine months we produced consolidated underlying revenue growth of 3%. The adjusted operating margin of the Company and both operating segments expanded 100 basis points. Growth in earnings per share was 12% with 8% growth in adjusted earnings per share.

We are pleased with our year-to-date performance and are on track for a strong 2016. Over the last couple of years we've seen volatility around commodity prices and foreign-exchange, declining interest rates, weak global GDP growth, political instability and lower P&C insurance pricing. Despite this backdrop we have produced significantly higher earnings growth than the S&P 500.

In the current macro environment, where there may be a tendency to hunker down or become short-term focused, we remain focused on the mid- to long-term. I remain positive about our prospects and want to share with you what we are doing to position MMC for continued growth.

We aspire to be recognized among the elite global growth companies; our goal is to continue to produce higher returns at lower risk than the overall market. We continue to position the Company for long-term revenue growth. Our optimism is driven by three factors: we are in growth businesses; we have consistently invested for growth; and we are harnessing the talent and power of Marsh & McLennan Companies.

First, we are well-positioned in growth businesses. We are a trusted advisor helping our clients not only address the critical issues of the day but prepare for the issues of the future relating to risk, strategy and people. Our existing businesses are part of an expanding global pie that should drive greater demand for our advice and services over time.

The strategic positioning of MMC has never been stronger. We firmly believe our businesses will continue to expand. The world is becoming more complex and our clients are grappling with a number of issues relating to risk, strategy and people.

In many markets there is limited penetration of insurance broking and consulting that will grow over time. And in many parts of the world governments have taken on too much risk that could be more efficiently placed in the private market and this carries beyond P&C insurance to include healthcare and retirement savings. We have the people, expertise and infrastructure to capitalize on these global trends across all of our operating companies.

We have also made significant investments for growth over many years both organic and through acquisitions. Since 2009 we've invested over $7 billion for growth and efficiencies. This includes over 120 acquisitions approaching $5 billion, capital expenditures of $2.4 billion, and the addition of over 10,000 colleagues.

Our investments fall into three broad categories: geographic expansion; segmentation; and new capabilities and innovations. We expect these faster growing businesses will become a larger proportion of the overall Company over time, enhancing our long-term revenue growth.

Starting with geographic expansion, we have made substantial investments throughout Latin America and Africa as well as increased our presence in Asia and other emerging economies. These regions have been underserved by professional services and have higher long-term growth prospects relative to the developed world.

Another area of growth is developing new segments and specializations within existing businesses. At Marsh we have had success with the midmarket strategy in the US with our MMA platform, and more recently in the UK with the acquisition of Jelf.

Mercer has created growth segments in key areas including investment management and its global Health and Benefits platforms. Guy Carpenter has grown specialist practices in areas such as mutuals, agriculture, medical and strategic advisory. And Oliver Wyman continues to invest in industry verticals where we see potential, such as the public sector, healthcare and financial services.

Many of our investments include new capabilities and innovations. Our data and analytics platforms continue to differentiate in the market across all of our operating companies. Consulting has generated strong growth from OW Labs with its market-leading use of predictive analytics.

Mercer has expanded its capabilities to include its workday implementation business, the pension risk exchange for pension buyouts and is developing an array of digital and mobile solutions to serve clients.

Turning to RIS, flood, cyber and digital distribution are just a few of the areas that could represent faster growth for this segment.

Lastly I want to touch on harnessing the power of MMC. We are a unique Firm built around risk, strategy and people. There is no single Company we compete against that matches the collective capabilities of our four operating companies. We view this as an enduring competitive advantage.

We have made great strides in connecting the strengths of our operating companies in how we manage MMC; generate cost efficiencies and how we deliver value to clients.

Over the last several years we've taken a significant number of structural steps to bring together the collective strength of MMC for clients. Some examples include forming MercerMarsh Benefits which brings the best of Mercer and Marsh together in driving global benefit solutions outside the United States; Bringing leadership of the RIS segment under Peter Zaffino; a more unified Oliver Wyman which enhances the intellectual capital of MMC; promoting colleague mobility, in fact, in the past three years approximately 3,000 colleagues have moved within the Company; the formation of our Strategic Solutions Group to deliver the full capabilities of MMC; and the establishment of chief country officers that help drive in country collaboration.

Taken together, these actions better position us for sustainable growth and profitability. No matter what the environment we are always thinking about the mid- and long-term. And I believe MMC is better positioned today than at any time in its history.

In summary, we produced strong earnings growth in the third quarter and are on track to deliver another year of excellent financial performance in 2016. For the full year we continue to expect underlying revenue growth, meaningful margin expansion in both segments and strong EPS growth. All this while continuing to invest in our future and return capital to shareholders through dividends and substantial share repurchase.

With that let me turn it over to Mark to review our third-quarter results in more detail.

Thank you, Dan, and good morning, everyone. In the third quarter MMC delivered strong earnings producing double-digit growth in both GAAP and adjusted earnings per share. Consolidated revenue increased 1% on both a reported and underlying basis. Operating income increased 24% while adjusted operating income rose 16%. GAAP EPS rose 20% to $0.73 with adjusted EPS increasing 10% to $0.69. And our adjusted margin rose 240 basis points to 18%.

As we stated on last quarter's call, you get a better sense of our underlying performance looking at margins and margin improvement on a year-to-date basis. Through nine months adjusted margins expanded 100 basis points overall and in each operating segment.

Looking at Risk & Insurance Services, third-quarter revenue rose 3% to $1.6 billion with underlying growth of 2%. Adjusted operating income increased 22% to $302 million and the margin expanded 280 basis points to 18.5%.

At Marsh revenue in the quarter was $1.4 billion, an increase of 4%. This solid growth reflects recent acquisitions such as Jelf in the UK and ongoing activity in Marsh & McLennan Agency. On an underlying basis revenue rose 2%. In the US/Canada division underlying growth was 3% driven primarily by strong new business in the US. In the International division underlying growth was 2%. EMEA was flat with growth in the UK offset by Europe and the Middle East. Asia-Pacific was up 2% and Latin America had strong growth of 9% which came on top of 6% growth in last year's third quarter.

Guy Carpenter's revenue was $260 million, flat on both a reported and underlying basis. EMEA and Global Specialties, led by Marine, had positive trends in the quarter. Year-to-date underlying revenue growth was 2%.

In the Consulting segment underlying revenue was flat reflecting growth at Mercer offset by a decline in Oliver Wyman. As we have discussed on prior calls, we have built a model where Oliver Wyman's compensation is performance sensitive. So their expense base, which is largely compensation and benefits, naturally flexes with their revenue. Whether up or down, Oliver Wyman has much more of a revenue impact on MMC than an earnings impact. Consulting's adjusted operating income increased 8% to $309 million, which represents the highest level of profitability for any quarter in Consulting's history. The adjusted operating margin expanded 190 basis points to 20.4%.

Mercer's underlying revenue increased 3% to $1.1 billion. Solid performance in the quarter continues to reflect the benefits of the diversified portfolio. Investments and Talent both rose 7%, Health increased 2% and Retirement was flat. On a geographic basis revenue increased in all major reasons for both the third quarter and nine months. In our Mercer Marketplace 365 benefits platform we are providing access for approximately 1.5 million lives, flat with last year. We have consistently talked about how Mercer Marketplace is not a material contributor to our overall results. We don't expect it will be in the near term. However, we remain positive regarding the long-term growth potential of our Health and Benefits business.

As we anticipated on last quarter's call, Oliver Wyman had a decline in underlying revenue in the third quarter. This was driven by comparisons to very strong growth in the financial services practice last year, as well as global growth concerns exacerbated by Brexit uncertainty.

Oliver Wyman's revenue was $404 million, a decline of 9% on an underlying basis. In the fourth quarter we expect Oliver Wyman's revenue growth to be relatively flat with last year. As we look ahead to the first quarter of next year recall that Oliver Wyman generated 15% growth in the first quarter of this year.

Overall we continue to expect that for 2016 MMC will generate underlying revenue growth, increased operating margins in both segments and strong growth in earnings per share.

Next I would like to update you on changes we will be making to our US retirement plan. We recently decided to close our US defined-benefit plans effective December 31, 2016 and freeze future benefit accruals. In their place we will implement an enhanced defined contribution plan effective January 2017. These actions are consistent with our global benefits philosophy of providing competitive benefits and a preference for DC over DB. This represents the latest of several actions we've taken around retirement benefits in the last three years. With the closing of the US DB plan we will have capped the growth of benefit accruals for the vast majority of our global pension liabilities, which reduces risk and volatility. The timing and nature of this announcement requires that we revisit the assumptions used at yearend 2015 and re-measure our US pension liabilities in the fourth quarter. Based on current assumptions, including lower interest rates, we expect to incur incremental pension expense of a penny or so in the fourth quarter. This additional expense will be included in our adjusted EPS. Last quarter I mentioned that although the decline in global interest rates could mean higher pension expense in 2017, we were planning for this risk and expected we would be able to effectively mitigate any increase. Based on the environment today we continue to believe we will be able to mitigate any pension expense volatility in 2017.

Moving to foreign exchange, in the third quarter the effect of foreign exchange on adjusted EPS was a slight positive. Assuming exchange rates remain at their current level, we expect FX to be immaterial in the fourth quarter resulting in a de minimis impact for the full year.

We have seen continued volatility in the British pound, but, as we discussed last quarter, a weakening pound generally has a minimal overall impact to MMC over the course of a year. This is because RIS has a natural hedge created by US dollar placements in London. While the impact of a weakening pound to MMC in total is not significant, there is a benefit to RIS offset by an adverse impact to Consulting.

Investment income was negligible in the third quarter and was down $34 million, or about $0.04 per share, from last year. For the full year 2016 we expect investment income to be immaterial compared with $38 million in 2015. As you may remember, we have a substantially smaller private equity portfolio following the liquidation of Trident III in 2015. As a result we expect to generate only modest investment income going forward.

Our adjusted tax rate in the third quarter was 28.7% compared with 28.4% in last year's third quarter. Through the first nine months of 2016 our adjusted tax rate was 28.8% compared with 28.5% for the same period last year. Based on the current landscape it is reasonable to assume a tax rate of 29% for the remainder of 2016.

Corporate debt at September 30 was $4.8 billion, unchanged from the end of June. Our next debt maturity is $250 million of notes due next April.

In the third quarter we repurchased 3 million shares of our stock for $200 million. Through nine months we used $625 million to buy back 10 million shares. Third-quarter marks the 18th consecutive quarter we have bought back our stock and we have reduced shares outstanding 10 quarters in a row. Since announcing our commitment to reduce our annual share count at Investor Day in March 2014, shares outstanding have declined by 33 million or 6%.

Our cash position at the end of the third quarter was $1.4 billion of which approximately $400 million was in the US. Uses of cash in the third quarter totaled $440 million and included $200 million for share repurchases, $178 million for dividends and $62 million for acquisitions. For the nine months uses of cash totaled $1.4 billion and included $625 million for share repurchases, $504 million for dividends and $229 million for acquisitions. For the full year 2016 we continue to expect to deploy roughly $2.3 billion of capital through dividends, share repurchases and acquisitions. We also expect to deliver on our annual capital return commitments to reduce our share count and increase our dividends per share by double digits. With that I'm happy to turn it back to Dan.

Okay, thank you, Mark. Operator, we are ready to begin Q&A.

(Operator Instructions). Quentin McMillan, KBW.

I just wanted to dig into the underlying margin expansion. Obviously a very strong number that you guys had put up. But with what was a slightly weaker organic quarter I think that the question that is on top of people's minds is how are you able to achieve that level of margin expansion at a 1% organic and is that sustainable going forward? Thanks.

Sure, thanks, Quentin. As we have said before, margin expansion is an outcome of our running the business properly. We grow revenues faster than expenses virtually all the time and when that is not the case it is purposeful and it is planned for. We have said before that you shouldn't really look at margin expansion in an individual quarter, it is more important and more meaningful to look at it over a longer stretch of time, year-to-date basis or rolling four quarters, something like that. If you look on a year-to-date basis of the Company overall is up 100 basis points against 3% overall growth for the Company. And each of the segments is also up 100 basis points. And I think that is more indicative of where our margin expansion really is. I wouldn't take the dramatic expansion in the third quarter as the new reality going forward.

Okay, great, thanks. And then just switching to Marsh, and this may be for Dan or Peter, but you guys had recently made a management change in the North American segment as Martin South was named the head of US and Canada. And it seems like you guys had a nice quarter there, bouncing back from flat organic to a plus 3 in this quarter. Can you talk about just any impact of the leadership change or any other strategic shifts in North America and Canada that might have benefited that organic and what we might expect to benefit going forward?

Sure, sure, Peter, do you want to take that?

Sure. Quentin, first let me start with core fundamentals of what happened in the US and Canada in the third quarter. We are very pleased with the growth of 3%, the US had a very strong new business quarter as well as contribution from strong client and revenue retention. MMA continues to be a strong contributor, the core US was a strong contributor and Canada was less of a headwind.

In terms of leadership I will start with John Doyle. John has had a material impact since he has arrived at Marsh. There is no executive that I am aware of that knows more of our clients and has been heavily engaged in working with clients, working with our colleagues and focusing on top-line growth.

Martin South has been with Marsh for many years and is a very established leader. His most positive attributes are how he grows businesses and his innovation. And he has a positive impact on the US and Canada division as well. It is early days for him, but expect the combination of John's arrival and Martin's arrival in the United States is going to have a really positive impact for our ability to grow the business in the future.

And I think it is important for you to recognize that our leadership moves are done out of strength. Most of them are internal, but we also look externally to always build our capabilities. And if you just look at RIS and in the last year alone adding people like John Doyle, Peter Hearn, Chris Schaper, I mean it is pretty incredible injection of talent on a leadership basis into the business. And so, it is a great mixture of home grown and then looking into the marketplace and getting the best available athlete at any point in time. Next question, please.

Michael Nanizzi, Goldman Sachs.

Just a couple quick ones here. Just thinking about margins in the fourth quarter and relative to last year and third quarter here relative to last year. I mean typically when we look sequentially you get a big lift in the fourth quarter. So I'm just trying to understand, like given the big lift that we saw here in the third quarter, how should we be thinking about sequential -- obviously that is not the way the business runs. But just trying to get an idea just given -- especially in RIS, the big lift in third-quarter margins that we saw.

So, hi, Mike. I would say again look at the year to date and look at the rolling 12 months or rolling four quarters as more indicative of what our expectation of margin expansion is. I mean if you look at -- you mentioned RIS. If you look at RIS over the last five years they have increased about 660 basis points in terms of -- yes, about 600 basis points actually over that period of time.

So they have had around a 500, 510, 520 bps margin expansion over -- on a CAGR basis over that period of time. So I think that is the way you should look at that.

Okay. And then -- thank you for that. And then, Mark, you sort of mentioned Oliver Wyman and the way that that business is structured and that the revenue impact tends to be outsized relative to the margin impact. Just trying to think about how the breakup of revenues in the quarter, assuming that Mercer margins are higher than Oliver Wyman's, how much of a tailwind did that have in terms of the margin expansion, so the greater share of Mercer versus Oliver Wyman in the quarter?

It was a couple of things and I think I will hand over to Mark in a second and maybe even to Scott to comment a little bit about Oliver Wyman. But as we said before, Oliver Wyman's main competition, main competitors are private companies. And so, we have structured Oliver Wyman differently in terms of our expectations to match them up more with their competitive set and not necessarily with public companies, which essentially means over time we expect Oliver Wyman will outgrow the other three OpCo's over stretches of time. But that higher level of growth will come with volatility because Oliver Wyman's business by its very nature has much, much less recurring revenue than the other three operating companies.

And so when we look at actual earnings performance for the segment based upon size and also just its structure of recurring revenue, Mercer is generally the driver of earnings performance within that segment in most circumstances. But, Mark, do you have anything to add to that?

Maybe just a little bit, Dan. As I said earlier, Oliver Wyman tends to be more of a top-line issue than a bottom-line issue just the way their comp is geared. And also remember, we signaled this weakness coming. And Scott and Oliver Wyman did a great job in the quarter knowing that it was going to be a little bit of soft managing very defensively. They were able to put up a pretty good result in the context of that tough top line. And as Dan said, the proportion of Oliver Wyman -- the contribution of Oliver Wyman to the overall Consulting segment, this segment is dominated by Mercer and Mercer did pretty well. So they had strong -- relatively strong growth in the quarter and good underlying earnings growth.

Next question, please.

Kai Pan, Morgan Stanley.

Just follow up on the -- drill down a little bit more detail on the expense side. If you look at the Consulting down 6% year over year in dollar amount, assuming most of that is Oliver Wyman. And then on the risk solutions, Risk & Insurance Services, the other operating expense is down 9% year-over-year. Just wonder any particular driver behind that?

When we look at our overall expense growth as a Company it was minus 1% in the quarter on an underlying basis, so I think you have to look more at underlying, get the FX out of there.

And so, when we look at the year to date for the Company we have grown revenue 3% year to date as a Company and our expenses are up 2% year to date.

In the quarter obviously underlying revenue was 1% and our expense growth in the quarter was minus 1% on an underlying basis. I think that is more accurate way of looking at it.

Okay. And then a follow up. You have this quarter sounds like in adjustments you have $30 million reduction in terms of like a change in earn-out from acquisitions. What is behind that? Is that signals the growth in the acquisition is -- was below expectation or anything else on that. Thanks.

Okay, Mark, why don't you give us a little bit of a history of that contingent consideration and then what it is doing this quarter?

Yes. So, Kai, we did have one adjustment this quarter that was actually a downward revision of an expected earn-out payment as you said. And just a couple of things on that. Generally these earn-outs, they probably average three years but they can range from two to four. And that is a relatively short period of time to make a call on the fundamental success of an acquisition over a long period of time. And the other thing, this was a pretty unusual adjustment actually because, if you look over the last 15 quarters, this is the first quarter in the last 15 where we've had an adjustment go this way. So whether we are talking about this specific acquisition or the vast majority of all the deals we have done over the last several years, we are very happy with the way they are performing and this one in particular.

Thank you very much.

Thanks. Next question please.

Elyse Greenspan, Wells Fargo.

First on Guy Carpenter, we saw a slowdown in the growth there this quarter. How do you think I guess about the fourth quarter and going forward on that business and anything to (inaudible) the slowdown on sequentially in the third quarter?

Okay, well first of all, I mean I will say a couple things and then hand over to Peter. I think Guy Carpenter has been more than holding its own through some pretty difficult markets. And so if you look at nine months they have grown 2%, which is compared to nine months growth of 1% the year before. So, in a difficult environment they are doing pretty well. But we have had some leadership change and we have had some injection of talent. So our expectations are high for Guy Carpenter going forward. But, Peter, do you want to add to that?

Sure, Dan. Elyse, in the third quarter certainly zero is a disappointing result but, as Dan said, it is better to look at the year to date and the year-to-date underlying organic growth is 2%. The third quarter is a much smaller quarter when compared to the first and second and actually only about 20% of the revenue in the third quarter incepts in that particular quarter so it is just susceptible to more adjustments than perhaps the earlier part of the year. I feel very good about our new business which is a key metric within Guy Carpenter, they had a terrific new business quarter in terms of winning accounts. And I am really encouraged by Peter Hearn's arrival. He is a relentless leader on growth. He has been very focused on our global business, meeting with clients, meeting with colleagues. Our pipeline for new opportunities is as strong as it has been in the recent past and the pipeline to acquire talent is very strong. So I am really encouraged by what we see. And as Dan said, Guy Carpenter has really performed well in a challenging market environment.

Anything else, Elyse?

Yes. In terms of the capital return plan, you guys probably have about $900 million or so for the fourth quarter to get to that $2.3 billion for the full year. If you adjust for your dividend probably a little over $700 million between acquisitions and share repurchase. If you could just -- any commentary on how you see deal flow in terms of acquisitions flowing through in the fourth quarter and how you think about the breakdown between potential acquisitions and share repurchase.

Well, it is kind of interesting because our -- as you know, we don't have a budget at all for acquisitions, but we run a global pipeline. And similarly to last year our pipeline in the first half of the year was a little softer than typical. But, boy it has picked up and the pipeline is pretty full. So we are considering a number of different things. And so it is impossible to say right now how that is likely to fall between acquisitions and share repurchases as we continue our conversations. What we can say is the $2.3 billion is the kind of the number that in a balanced way we intend to return that capital to shareholders. It is unlikely to be less than that and it may even be a little bit more than that. But that is where we are right now.

Okay, great. Thank you very much.

Sarah DeWitt, JPMorgan.

In Risk & Insurance Services the trailing 12-month margin is almost back to the highest level in your history. How much more can that expand? And is there a natural ceiling on that number?

Okay, I am going to hand off to Peter in a second, but I -- we have said a couple of times before, Peter and I have talked about this a lot. We don't really believe in margin targets in general. We would much rather have growth targets, NOI targets but margin seems a little bit false. We want the organization all the time to figure out ways of delivering more capability at lower cost. We are in a more for less business. And so, our efforts to find efficiency, improve our effectiveness, reduce the cost of delivery of greater levels of capability and value to clients -- that is a journey that never ends and so we would rather not say and this is the margin and at that level nothing else can be done. I mean, obviously the higher the margin goes the more we just want to grow at that higher margin without looking to have a big spread between revenue growth and expense growth. So it will naturally tighten, but we could have easily have called that turn three or four years ago and we would have been absolutely wrong. So we like to let it just run for a while. But, Peter, do you have some comments on that?

Sure, Dan. I want to reiterate that it really is best to look at the year-to-date margin expansion. I mentioned in the first quarter that in the medium- to long-term if you are growing at 2% to 3% it is probably more challenging to expand margin at the pace that we have. Having said that, we've been very disciplined in terms of how we anticipate the growth and what the expense growth can be within the quarters and the years. And we have invested and planted a lot of seeds for not only growth but also operational efficiency and we believe that is starting to pay off. We have been able to expand margin despite wearing the amortization for all of the acquisitions that we have done over a period of time. And we are optimistic that we can continue to grow the top line greater than our expense.

Great, thank you.

Anything else, Sarah?

No, thank you.

Okay, thank you very much. Next question, please.

Charles Sebaski, BMO Capital Markets.

First on the US DB plan closure the end of this year, do you think that there is any risk that there could be greater turnover in your employee base next year as you kind of -- you were the last standing on offering the DB program for US employees? Do you think there is -- maybe that was helping keeping people in seats?

Yes, I mean it is a good question. I would start by saying that we are a Company that cares deeply for our colleagues, so we don't take pension decisions lightly. Several years ago we adopted a general philosophy that favors DC plans over DB. And we actually wrote a document and published it within our HR department. And that philosophy had more to do with risk and volatility than with P&L or cash contribution considerations. You may recall that in 2014 we closed and froze our UK plan. The UK plans were our highest, largest plans and they represented about 50% of our overall global plan liabilities. And so, we really over the course of the last 18 months or so confronted ourselves as a global Firm and basically said that we had an obligation to follow the same philosophy which was favoring DC in the US as we do in the rest of the world. So it was more to do with being a global firm, not a US multinational, that we made this decision.

Okay. And I guess then on the growth side, curious if you'd give any color on whether -- not just maybe this quarter but this year -- if the growth you guys are seeing in either of the businesses, but more particularly on the RIS, is due to some of the new initiatives that you had previously mentioned.

I guess I am trying to get some color on is your growth coming from traditional just account wins in traditional P&C businesses? Or is it being led by data and analytics or cyber or other initiatives that you guys have come -- introduced over the last couple of years? Thanks.

Yes, so it is a good question. I think I will handle it a little bit and then walk around with our OpCo's and have them talk a little bit about their feelings about growth. Because I really do think that is the core issue.

Now clearly macro factors have been challenging for a number of years. But we have managed to grow underlying revenue in the 3% to 5% range for the past six years. 3% to 5% is the likely outcome for us in 2016 as well, with 3% through nine months. But being 3% through nine months we would look at it as we are likely on the lower end of that range for the year. But there is a lot going on underneath it. So why don't we start with Peter and then I will move to Julio and then Scott just to talk about their growth outlook a little bit. So, Peter.

Okay, yes, just adding, Dan, to what I had said in terms of a narrative for the quarter and the year to date. The first part of growth is looking at how you are retaining your clients and we have had terrific retention on clients.

The next is certainly are you winning new business in the market. And when I look at our new business growth I am really pleased with what we see across the world, many contributions from many countries and we have been able to grow the business quite well.

When we look at -- again, there has definitely been some headwinds in the market with global macroeconomic issues as well as insurance pricing, they have largely been headwinds. But then I look -- we have been able to grow in 26 consecutive quarters of underlying organic growth. So the business is built to drive underlying organic growth.

You had mentioned a couple of places where we are growing, they are not material to the overall today but we are excited about it. Cyber is a big part of our innovation. We have developed programs in the London market which prearrange $50 million of capacity for clients across the world.

We have launched for smaller commercial clients capability through our MGA and through nine months we have had over 4,000 quotes with a take up of around 15%. We are planting seeds in flood. We have a digital capability that will expand and position us differently in the small end of commercial.

And so, I think when Dan references the investments that we are making it is about focusing on growth and efficiencies in order to enable us to invest more in growth over time. We feel like the Company is really well-positioned to do that.

Thanks, Peter. Julio, do you want to talk a little bit?

Yes, thank you. The Mercer portfolio, as you know, is a very global portfolio that is diversified, very balanced by geography, line of business and client segments across the globe. In any given quarter you can have some puts and takes along the way, but consistently we have been able to deliver growth and margin expansion and profitability growth. And we continue to invest to ensure that our growth is solid, whether you talk about expanding our solutions in Talent with our purchase in the workday space, implementation space, Benefitfocus, CPSG, our also investment in executive remuneration by our acquisition of Kepler.

And expanding our geographic presence capabilities through investments and improving footprint in places like Africa, expanding our investment management capabilities with alternatives in Switzerland under SCM acquisition. Or strengthening our presence in Asia with HRBS, and Brazil with GAMA.

And across new solutions, new organic solutions that we are pressing on with. The Pension Risk Exchange in the US, UK and Canada have now been launched. And Mercer MAP investing research offerings and also LifetimePlus in Australia market, Mercer Match, PeoplePro. All these things that are digitally oriented in many cases are really to be able to expand our capabilities, to ensure that we are reaching the full breadth of client segments and their demand in a growing world that has different demands along that continuum. So the needs are changing, we are ahead of those needs, we are continuing to invest and it is truly a global growth story.

Thanks, Julio. Scott. Why don't we just finish up with Scott talking about Oliver Wyman a little bit and on the growth side, Charles?

Okay, sure, Dan. Despite our pretty weak Q3, I mean we remain very confident in the outlook for Oliver Wyman. We can already see a rebound in Q4, although we have some pretty tough comparables in Q4 and Q1 next year. And our growth is coming from some very traditional spots.

First of all we are expanding into new sectors like health, public sector, retail, transportation, that is all going well. Secondly, our growth markets in Asia, Middle East, Latin America are all growing very strongly. Third, we are expanding into new areas for us or building areas like data, analytics, a lot more around digital solutions, functional capabilities, operations, organization, things like that.

And then two other areas, I mean we are expanding the size of our relationships, the length and size of projects through a lot of work around client management and development of our senior teams.

And then finally the Oliver Wyman brand is just growing in strength, the franchise is getting stronger. We think that will give us a boost over the years to come.

Thanks, Scott. And sorry, Charles, but I thought growth is the key issue in a 1% underlying growth quarter. So I wanted to make sure that we treated it fully.

Thank you very much for all the answers.

Okay. Next question, please.

Dave Styblo, Jefferies.

Maybe I will just dovetail on the response there. Thanks for all that color on around the world trip of growth there. I am curious, again it is little bit hard from the outside perspective to see where some of these opportunities are versus what the run rate of investments are. Is there any situations here where you really think the expenses or investments that you put forth to fuel this growth might be higher and might be higher than the revenue for a shorter period of time? I know sometimes you do that as you say in a purposeful way. And I am curious if we should expect that to be coming up in the next couple of quarters as you pursue this growth?

Look at a couple of things -- one, clearly when you are buying back shares you have a more immediate EPS impact, forgetting about revenue growth, but really just focusing on short-term delivery to shareholders. And acquisitions are more about building a Company for the mid- and long-term and oftentimes have a negative impact in the short-term on EPS either through amortization or restructuring charges or anything -- integration types of issues.

We are absolutely focused when we look at building our Company through acquisition on getting better. Either that is getting better by geography, by segment, by capability. We look at things which are growing at least as fast as we are and preferably faster than we are and companies that we can acquire at our multiple or lower. Now clearly, and you have heard it from many people before, the multiples have risen over the last five or six years. And so there is a tighter frame around execution and you have to make sure that the perfume of an acquisition does not entice you to do something that shouldn't be done.

But we are a very disciplined Company and, as you can see by not only our revenue growth but also our earnings growth over a number of years across 120 acquisitions, that most of them are performing at or better than what our expectations have been.

That is helpful, great. And then just on the M&A, you did talk a little bit about the pipeline picking up it seems to be stronger than it has been in the first half. I am sure you don't want to comment about the rumors out there from (inaudible) and so forth.

But beyond that can you pinpoint a little bit more what sort of opportunities are coming to fruition that are in the pipeline, if they are more on the RIS side, consulting side. Any of that color would be really helpful.

I don't think it's a good idea to speculate about what we could be looking at in real-time. So I will bring it back a little bit and say in general we are prepared to invest as a Company in both the RIS segment and the Consulting segment. We are pursuing growth, we want to acquire things that make us better. And so from that standpoint we have got a broad platform in which to explore not only businesses within our core but also adjacencies as well. And we are a global Company so we will look everywhere in the world. Although as you have seen in terms of the actual deals that we have done, we have favored the US and UK over other jurisdictions just based on a number of factors, but that is where most of our money has landed over the last five years. But next question, please.

Ryan Tunis, Credit Suisse.

I just had a follow up on Charles Sebaski's question on closing the US defined benefit plans. I think it is more on the financial side than the people side, so maybe it is a question for Mark. But just I guess thinking about the timing of doing that, the decision to do it now. And I wanted to make sure I am thinking about that right because it seems like to me you are effectively locking in a higher level of pension expense kind of commensurate with sub 2% interest rates going forward. But you will be eliminating the interest rate volatility like going forward. And I just wanted to make sure I am thinking about the risk/reward of that correctly.

And then more specifically I was curious if this has any impact next year on the cash flow statement. So we have talked about the income statement; you should be able to mitigate it. But does the move into more DC mean more cash pension expense? Thanks.

Please, Mark, that sounds like you.

Thank you very much. Just a couple of things to your question. Think of the timing more as what Dan said earlier, this is just part of a multi-year strategy. So we as opposed to taking a one size fits all or one shot approach to this we have over the last several years been addressing risk in that part of our business. And the US is the latest step in that in that line and it's linked to our philosophy. Really we should think about this as addressing long-term risk and volatility as opposed to anything that will -- have a meaningful impact on earnings or cash flow in the near-term. And so I think if you think about it that way that is the right way to approach it.

Okay. And (multiple speakers).

(Multiple speakers)?

Yes, yes, just real quick as a follow up. I guess in the near-term -- I know this year pension has helped margins. Is it too early to tell next year whether or not any of these changes to pensions are going to produce a net tailwind or a headwind? Thanks.

As we said in the second quarter and I just reiterated earlier, our outlook at this point is that we will be able to effectively mitigate any retirement expense volatility. So as we sit here today I just wouldn't expect -- as we're sitting here today wouldn't expect any positive or negative.

Okay, thank you.

Next question, please.

Thank you, take care.

Jay Gelb, Barclays.

On the national flood risk that government entity could be looking to shift more of that exposure to the private market. Could you discuss the opportunity there kind of long-term since Guy Carpenter was named in the document as the broker?

Sure. I will start by broadly talking about governments in general not just in the United States. I think that there is a large opportunity in areas of property and casualty and also in healthcare and retirement savings for governments -- indebted governments to look at ways to where the private market can be more instructive and be utilized in a greater way. I think that there is in P&C a protection gap and a bit of moral hazard in certain countries in terms of the government programs that are providing certain coverage that doesn't have risk management associated with it. So I think the insurance market writ large has a big role to play. But, Peter, do you want to talk about the US flood program specifically?

Sure. I mean I'm going to go into too much detail, but you are right, we were awarded the first reinsurance agreement for FEMA. We are very active on the Marsh side as well in terms of the National Flood Insurance Program. I think you will see a trend continue that there is more of a private and public balance in terms of solution for flood. Guy Carpenter has built tremendous capabilities in its ability to model, assess and be very creative in solutions for flood and expect them to add tremendous value in helping assemble a program that is going to work.

Any other questions, Jay?

Yes, I guess this is for Julio. I heard something and the prepared remarks about 1.5 million lives in the Mercer Marketplace. I didn't know if that was for the 2017 enrollment year that would imply flat growth, because that would be down from like 43% growth last year.

So, Julio, do you want to take that one?

All right, thanks, Jay. Mercer has always been balanced and measured about the exchange space, as you know. The Mercer Marketplace 365 journey has and continues to be an innovation that is full of learnings along the way of anything else that we invest. It also continues to be small in the full scheme of things whether at the global health level or the Mercer level or even more so on the MMC level. For 2016 selling season we did have softer conversion rates on sales, something that I mentioned during our last call in fact. And additionally we had decision delays that were seen particularly in the large market segment. And there was also some attrition as you would expect, now three years in, inclusive of one client in particular that accounted for a large portion of the last results. So these dynamics, as I just mentioned, resulted in the number of lives being flat year on year at approximately 1.5 million.

Thanks, Jay. Next, please.

Josh Shanker, Deutsche Bank.

In your opening remarks you mentioned lots of opportunity for growth in newer markets like Latin America and Asia. Some of your competitors boast growth in areas like Russia or China and maybe you can talk a little bit about the risks regulatory wise and legal wise of growing in emerging markets and whether that is profitable growth in how you think about that?

There is a couple of things. It's a very good question and that is why companies like ours have big controls and systems around managing growth in different places around the world. You can't look at growth in the developing world in exactly the same way as you look at it in the developed world. We actually believe we have opportunities for growth throughout the developed and developing world. And in fact some of our strongest areas of growth over the last year or so has come from pretty traditional countries like Japan and Germany. So we are open to the ability of more brokerage penetration in even parts of the developed world.

In taking your question, if we were growing super strong in certain countries we would -- you can grow too fast in certain places too. The good things about intermediaries versus some capital providers in some of these territories, it's pretty inexpensive for us to plant a flag and have people on the ground and provide good levels of service. So our margins in the developing world are not that dissimilar to our margins in places where we have a lot more infrastructure. But we do look at the risks associated with growth. In fact, if you look at our executive team we essentially work on four categories of issues: growth strategies, financial performance, people issues and risk issues. That occupies almost all of the time of the executive committee. And so risk is always on the table when we are looking at growth. Any other question?

[I will take it], thank you very much.

Any other question, operator?

Jay Cohen, Bank of America.

A couple of things. One, you talked about Europe offsetting some of the growth in the UK. Can you give us an update what is happening in Europe?

Okay, so that is a specific question in RIS and maybe even more specifically to Marsh. So without going country by country, Peter, why don't you just talk about EMEA a little bit and specifically continental Europe.

Okay. As we said, we had good growth in the UK, it was offset by continental Europe and the Middle East. There were a few discrete items, insurance pricing and macro conditions were a factor, had actually solid new business. And the one thing just to keep in mind is it is the seasonally smallest quarter for continental Europe by a fairly wide margin. And so sometimes those discrete items can have an impact in a particular quarter. But we have had macro headwinds and insurance pricing headwinds in that part of the world for the better part of a few years now.

Okay. And then my other area, it looked like there was kind of a slowdown from the recent trend was in Health and Benefits. I don't know how much of that is Mercer Marketplace or is there something else going on that resulted in that slowdown within Mercer?

Yes, I wouldn't call it a slowdown. I will hand off to Julio. But I believe H&B is up like 5% on a year-to-date basis. Is that right, Julio?

Yes, that is right, Dan, thanks. As I mentioned, the overall Mercer portfolio is really diversified and balanced geographically across the globe. So it is really a global picture that you had to take a look at when you think about overall growth. And you break it down by line of business portfolio and client segment. There can be some puts and takes, as you know, across the portfolio in any given quarter, including tough comparisons versus prior year, etc. But as Dan mentioned, feeling fairly good about our year-to-date health growth at 5%.

We will focus on that then.

Thanks, Jay.

Paul Newsome, Sandler O'Neil.

You've covered most of the topic quite well and I was hoping you could maybe take a step back and partially in line with the pension issue but to look at the relationship between earnings and cash flow prospectively, how that may or may not change. Should we basically expect those things to move in lockstep given the lack of restructuring charges that you have had in the distant past?

Yes, I mean our earnings -- and, Mark, you can add a little bit more -- but generally over the last several years there is a very tight relationship between our GAAP results and our adjusted results. And generally our earnings and our cash flow are very similar because there is not a lot of noise that is working through the system.

Having said that, every time we bring in new leadership we try to get them to -- I know Peter and I in particular and Julio as well, we are open to the idea of looking at our businesses with fresh eyes, particularly when we bring new executive talent in to try to figure out ways of being more efficient and to make decisions that would reduce our cost and improve our capabilities.

But I never want to say that we'll never dip into that sort of thing where we have a restructuring charge or something. But ultimately I would say that for a number of years we are much tighter than the S&P 500 in terms of the relationship between GAAP results and adjusted results. But, Mark, do you have something to add to that?

Yes. Just specifically -- just to build on what Dan said specifically to cash flow. If we look year-to-year there can be disconnects between earnings and cash flow. But when we look back over reasonably a couple years, two, three, four year periods of time, the relationship between our adjusted net income and our free cash flow is pretty tight and we expect both to grow.

Great, thank you very much.

Sure. I think, operator, we are about out; maybe we can take one more question.

Brian Meredith, UBS.

The first one, just could you give us, Mark, what the year-over-year benefit to margins was from pension expense? How much was the benefit on a year-over-year basis third quarter?

Mark, do you want to take that?

Yes. Very similar to what we saw in the second quarter. If you take the pieces you think about the $125 million credit we had last year that was one time and how we talked about this year expense going down to replace that, and overall for the year retirement expense being down about $30 million. So you take that full package, it gives you sort of the underlying drop in pension expense for the year. That is a good baseline, as we've talked about, and it happens pretty ratably over the course of the year. So I think with those pieces you can get at the rough impact to the quarter. But as we said earlier, even if you take out the benefit in the quarter, the underlying performance of the business was very strong. And so, even without any retirement benefits, both segments had strong performance in the quarter.

Got you. And then just quickly any thoughts on some additional -- put some additional leverage on the balance sheet?

We are always open to it. As we've said before, it would be unlikely for us to add leverage to the balance sheet just to buy back shares unless there was a severe market downturn and the opportunity just couldn't be resisted. But generally if it was acquisition-based, then we would be open to increasing our leverage on the balance sheet perhaps even permanently. So we are not zealots with regard to guarding our 1.6 corporate debt-to-EBITDA ratio.

Great. Thank you.

Thank you. I think, operator, that pretty much covers the call. I would like to thank everybody for joining us this morning. I just want to reiterate that I am very pleased with the third quarter and I am looking forward to a strong close of the year.

I'd like to thank our clients for their support and our colleagues for their hard work and dedication in serving them. I hope everyone has a good day. Thank you very much.

That does conclude today's conference. Thank you for your participation.