威達信集團 (MMC) 2017 Q1 法說會逐字稿

Welcome to Marsh & McLennan Companies' Conference Call.

Today's call is being recorded.

First quarter 2017 financial results and supplemental information were issued early 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 risks and uncertainties, 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'll now turn this over to Dan Glaser, President and CEO of Marsh & McLennan Companies.

Thank you, Sylvia, and good morning, and thank you for joining us to discuss our first quarter results reported earlier today.

I'm 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 and Insurance Services; Julio Portalatin, CEO of Mercer; Scott McDonald, CEO of Oliver Wyman; and Keith Walsh of Investor Relations.

Kudos to Keith for 4 great years in IR.

He now moves to become the CFO of RIS.

So well done, Keith.

Before moving onto our results, I would like to spend a few moments on the changes the insurance industry is going through and will continue to experience.

As I talked about last quarter, we are living in a world of constant change and increasing complexity.

While change can be disruptive, it also provides opportunity.

The age of risk has only just begun.

Cybersecurity, rising geopolitical tensions, artificial intelligence, 3D printing, robotics, water scarcity, climate change and extreme weather events are all emerging risk categories, and we could go on and on.

In our view, insurance is not just about protection.

It's also about enablement.

Insurance plays a vital role in spurring economic growth, the taking of risk and innovation.

Insurance enables commerce to thrive.

Satellites are launched, sky scrapers are built, medicines are invented.

The insurance industry contributes meaningfully to the advancement of society by offering freedom for the pursuit of innovation, investment and the creation of value, along with freedom from the financial and emotional burdens of loss.

Our industry has a vital role to play in risk identification as well as assisting clients in determining which risks should be avoided entirely and, which ones can be appropriately managed.

We have great respect for the insurance industry and the role insurers and reinsurers play.

The winners in this dynamic environment, whether broker or carrier, will be the agile.

Those who focus on relentless innovation, finding the smarter way and improving the client experience.

Within MMC's risk business, we have made many changes over the last decade, pushing into new segments and geographies, building out specializations, increasing data and analytics capabilities, and hubbing our placement operations to negotiate better terms and conditions for clients, while creating efficiencies for carriers and ourselves.

At Marsh & McLennan, we exist to serve clients as their trusted adviser, around key risk issues.

We strive to obtain broad coverage at a competitive price while improving the client experience.

Over the last decade, we have seen the value of advisory services rising, where the demand for risk capital has been fairly constant, even in the face of increased supply.

As technology has improved, Marsh & McLennan has become more sophisticated around data and analytics, turning large amounts of information into insights to better serve clients.

The insights we derive from our data create opportunities to aggregate risks in different ways that can increase efficiencies in the market.

These efficiencies can come in the form of facility arrangements, contested panels, streamline policy issuance, a more quantitative risk discussion with clients and access to broader pools of capital -- all leading to a stronger value proposition.

For example, Marsh recently launched a new insurance solution called Alternus, which U.S. companies can access to cover risks in their global property portfolios.

This is the first dedicated commercial insurance solution for retail clients, backed by a combination of traditional and alternative capital and includes a 7.5% premium discount off of lead pricing for clients.

Developments in the industry can sometimes create areas of duplication between carriers and brokers, leading to friction along the value chain.

Who should issue the policy?

Who should adjudicate claims?

Who takes the first notice of loss?

Who does the engineering work?

Tension along the value chain has always been present in the industry.

Not just between brokers and carriers but amongst carriers themselves.

This dynamic is inevitable if we are doing our job properly to drive value for our clients.

Despite this, the relationship between carriers and brokers is strong.

There is a difference between a distributor and a trusted adviser.

A distributor is just a conduit that sits between a carrier and a client.

And the term distributor implies they work for the carrier.

In most cases, Marsh & McLennan acts as a broker, and our role is that of a trusted adviser.

As a broker, we do not work for the carrier.

We work for the client.

Our goal is to deliver broad coverage at competitive terms, and press the industry to meet rising client expectations for service and coverage.

Both, trusted advisers and carriers can be commoditized and disintermediated if they become complacent.

We all have to prove ourselves everyday by innovating and creating value.

Client demand for a better user experience will only rise over time.

The brokerage industry is at the front of the value chain and nobody is better positioned than Marsh & McLennan to deliver greater innovation and service for clients.

We get paid in a variety of ways for the value we create.

Regardless of whether we are paid by fees, commissions or some other method, it is important that our compensation is fair and transparent, and we believe it is.

Broker compensation levels in the aggregate have been remarkably stable over time.

Looking at U.S. property and casualty data from A.M. Best, commissions as a percent of premium, have held steady in the 10% to 12% range for the last 3 decades.

This is consistent with our recent results.

For full year 2016, Marsh placed roughly $55 billion of premium and generated revenues of $6 billion, for a yield of approximately 11%, which has been relatively stable over the past several years.

In a business as large and global as ours, we recognize, there will be situations where we don't always get it right.

And when we don't, we will act swiftly and decisively.

In our role as an advocate for clients, we will continue to push for value and market efficiency.

With change in the industry, there will be friction across the value chain at times.

However, our bond and relationship with carriers is strong.

We expect both intermediaries and carriers will be continually challenged to differentiate and add value.

These are exciting times, and we believe we are as well-positioned as any firm to continue to thrive as our industry evolves.

The world is changing fast, and we intend to be at the front of innovation in our industry.

Now let me turn to our first quarter performance.

MMC produced solid results in the quarter with underlying revenue growth across all 4 of our operating companies, margin expansion and 17% growth in adjusted earnings per share.

Total company revenue was $3.5 billion, the largest quarter in our company's history.

Consolidated underlying revenue growth was 4% with excellent growth and profitability.

Adjusted operating income grew 9% with 80 basis points of margin expansion.

In Risk and Insurance Services, first quarter revenue increased 6% or 5% on an underlying basis, with strong performance from both Marsh and Guy Carpenter.

Adjusted operating income increased 10% to $600 million, with the margin expanding 110 basis points to 30.2%.

Consulting revenue increased 3% on both the reported and underlying basis, with solid growth for both Mercer and Oliver Wyman.

Adjusted operating income rose 3% to $245 million and the margin declined 10 basis points to 16.1%.

While operating earnings and margin were impacted by recent M&A activity and foreign exchange, underlying results show margin expansion and earnings growth.

We anticipate improvement as the year progresses and expect consulting to deliver solid earnings growth and margin expansion for 2017.

I would also like to make a few comments about the recent news regarding the U.K. financial conduct authority.

Marsh Limited, our Marsh and Guy Carpenter operating subsidiary in the U.K., publicly disclosed last week that the FCA has launched a civil competition investigation into the aviation insurance and reinsurance sector.

Earlier this month, the FCA conducted an on-site inspection at Marsh Limited's office in London.

The FCA indicated that it had reasonable grounds for suspecting that Marsh Limited and others have been sharing competitively sensitive information within the aviation insurance and reinsurance sector.

We have pledged our full and complete cooperation to the FCA and are taking this matter seriously.

We are conducting our own review with the assistance of outside counsel and have asked David Batchelor, a Vice Chair of Marsh, to provide direct oversight of the aviation group.

The FCA provided a tentative time line indicating that its investigation would likely take a minimum of 9 months.

As the FCA's investigation is at an early stage, we do not intend to comment further at this time.

In summary, we are pleased with our strong start to the year.

In a changing and uncertain world, demand for our advice and services should continue to expand.

No other organization can match Marsh & McLennan's breadth of capabilities, depth of specialization and global reach in the areas of risk, strategy and people.

We continue to invest in our business for the future while at the same time, delivering consistently strong financial results.

We have a deep leadership team with a proven track record and the highest quality of colleagues at every level of our organization.

Looking at the remainder of 2017, we see the operating environment as broadly similar to last year, including modest global economic growth and political instability.

For the full year, we continue to expect underlying revenue growth in the 3% to 5% range, something that we have delivered for the past 7 years, margin expansion across both operating segments and strong growth in adjusted EPS.

With that, let me turn it over to Mark.

Thank you, Dan, and good morning.

In the first quarter, we delivered strong results, driven by underlying revenue growth across all of our operating companies and solid margin expansion.

Overall, revenue was up 5%, or 4% on an underlying basis.

Operating income in the quarter increased 10% while adjusted operating income was up 9%.

GAAP EPS rose 20% to $1.09 and adjusted EPS increased 17% to $1.08, including an $0.08 per share benefit from adopting the new accounting standard for share-based compensation.

Looking at Risk and Insurance Services.

First quarter revenue was $2 billion, with strong underlying growth of 5%.

Adjusted operating income increased 10% to $600 million, with our margin expanding 110 basis points to 30.2%.

At Marsh, revenue in the quarter was $1.6 billion, an increase of 7%, including contribution from the recent acquisitions of Bluefin and J. Smith Lanier.

On an underlying basis, Marsh's revenue increased 5%.

The International division underlying growth was 5%.

EMEA was up 3%, Asia Pacific rose 11% and Latin America grew 7%.

In U.S. and Canada, underlying growth was also 5%, the strongest level of growth since the first quarter of 2012.

Guy Carpenter's revenue was $385 million, an increase of 3% or 4% on an underlying basis, driven by growth in the U.S., Asia Pacific and specialty.

Guy Carpenter's strong performance continues its track record of growth in the face of industry headwinds.

Both Marsh and Guy Carpenter produced strong first quarter underlying growth, and we are pleased with the results.

As we've said in the past, it is best to look at performance over a full year as opposed to focusing too much on any one quarter.

You may recall in 2016, Marsh produced 3% underlying revenue growth with quarterly growth ranging from 2% to 5%, while Guy Carpenter delivered 2% growth for the year with quarterly growth ranging from 0 to 3%.

Given the better-than-expected first quarter top line results, we would not be surprised if growth was tempered in the second quarter, resulting in modest margin improvement in RIS in Q2.

Our outlook for the full year has not changed, and we continue to expect strong earnings growth and solid margin improvement in RIS for 2017.

In the Consulting segment, revenue of $1.5 billion was up 3% on both the reported and underlying basis.

Adjusted operating income increased 3% to $245 million while the margin declined 10 basis points to 16.1%.

As Dan stated, the near-term impact of recent acquisitions and foreign exchange with headwinds in consulting earnings growth and margins in the quarter.

Underlying trends in the business are good, and we continue to expect solid operating earnings growth and margin expansion in consulting for the full year, with momentum building through the second half of 2017.

Mercer's revenue increased 4% in the quarter to $1.1 billion and was up 3% on an underlying basis.

As part of the restructuring we discussed last quarter, Mercer established a Wealth business reflecting a unified client strategy for its former Retirement and Investments businesses.

Wealth is comprised of 2 primary practices: Defined Benefit Consulting & Administration, and Investment Management & Related Services.

Additionally, going forward, we are referring to the Talent business as Career; so Mercer will be oriented around 3 lines of business: Health, Wealth, and Career.

To help with your modeling, we provided additional information in the supplemental schedules of our press release.

Underlying growth in Mercer was solid across the board.

Wealth was up 3% in the quarter.

Within Wealth, Defined Benefit Consulting & Administration was flat.

Investment Management & Related Services increased 9%.

Our delegated asset management business continues to show strong growth with assets under management of $177 billion at quarter-end, an increase of 12% from year-end 2016.

Health increased 2% despite continued softness in the U.S. project work, related to uncertainty around the Affordable Care Act.

This was a nice improvement from the fourth quarter.

Career grew 7% with continued strong momentum in workday implementation, an area that has benefited from our acquisition last year of CPSG, a leading workday services partner.

This is just one example of how we are improving our business mix and growth profile through ongoing acquisitions and investments.

Oliver Wyman revenue increased 2% to $449 million.

Underlying growth was 4%, a solid result given the challenging comparison to 15% growth in the first quarter of 2016.

Investment income was de minimums in the first quarter compared with a loss of $3 million in the first quarter of last year.

We continue to expect a minimal contribution from investment income in 2017.

As we anticipated on last quarter's call, foreign exchange was a slight negative in the quarter.

Assuming exchange rates remain at current levels, we expect a slight FX headwind in the second quarter and minimal impact in the back half of the year.

Our adjusted tax rate in the first quarter was 23.3% compared with 28.5% in the first quarter of last year.

As I noted earlier, the tax provision in the first quarter of 2017 includes an $0.08 per share benefit from the change in accounting for share-based compensation.

We expect the impact of the accounting change will be felt primarily in the first quarter of each year, which is when most of our equity awards best.

Excluding this item, our adjusted tax rate was 29.1%, and we continue to expect the 29% tax rate for the remainder of 2017, excluding any impact from this accounting change or other discrete items that could have either a positive or negative impact.

Total debt at the end of the first quarter was $5.9 billion compared with $4.8 billion at year-end.

In January, we issued $1 billion of senior notes comprised of $500 million due in 2022 and $500 million due in 2047.

We repaid $250 million of senior notes on April 1. The term structure of our debt portfolio provides us flexibility with modest near-term repayment obligation.

Our next scheduled debt repayment is not until the fourth quarter of 2018, when we have $250 million of notes maturing.

Our cash position at the end of the first quarter was $930 million with approximately $142 million in the U.S. Uses of cash in the first quarter included $200 million per share repurchases, $175 million for dividends and $457 million for acquisitions.

For the full year 2017, we continued to expect to deploy capital in line with the level of 2016 across dividends, acquisitions and share repurchases.

We expect to deliver on our annual capital return commitments to reduce our share count and increase our dividends per share by double-digits.

Overall, the first quarter represents a strong start to the year, and we are on track to deliver a solid performance in 2017.

As Dan said, for the full year, we continue to expect underlying revenue growth in the 3% to 5% range, margin expansion in both segments and strong growth in adjusted EPS.

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

Thanks, Mark.

Operator, we are ready to begin Q&A.

(Operator Instructions) We will now take our first question from Elyse Greenspan from Wells Fargo.

I was hoping to get a little bit more color on what drove the growth really within RIS, in both Marsh and Guy Carpenter in the quarter.

If you could just talk to, what you're seeing in terms of the economy as well as new business growth in the quarter.

And I know you guys had commented that we would potentially see lower growth in the second quarter.

Was that due to some business, I guess, shifting between the 2 quarters?

Okay.

So good question, Elyse.

I'll take it to begin with, and then I'll hand over to Peter to give you some more detail.

On the macro factors first.

Not much has really changed, right?

The environment globally is still pretty tough, so we don't want to get ahead of ourselves.

We're actually doing very well in the environment that we see.

But there is still only modest levels of global economic growth I've seen some of the predictions that sort of said globally it might be more like a 3.5 as opposed to a 3. But there's an awful lot of political instability still out there and the lack of clarity in certain countries.

And so I think what it demonstrates in part is the resilience of the risk and insurance industry.

It's a requirement, right?

Companies at all levels, even governments, have to address the risk that they face, and we're well positioned to advise them on that.

So I would say on a macro basis, not much that helps us but where really these remain the grinded out years and Peter and his team and all the colleagues at RIS are doing a great job grinding out growth.

So this is 2 nice quarters in a row.

But we've cautioned, and we caution you about the second quarter is that, it's not -- in this business, it's better to look at rolling 4 years or full years as opposed to any individual quarter.

But Peter, what can you add to that?

Thanks, Dan.

Let me just talk a little bit about the first quarter.

We're really pleased with the results and how we started out the year.

It was, as you saw on the reported result, a real balanced growth throughout the full globe and U.S. and Canada division at 5%; international at 5%.

We're particularly happy to see strong results in continental Europe and Asia.

This is both their largest quarter of the year.

And I think that's a little bit of context as to why we don't see the run rate going in to the second quarter is that, seasonally CE and Asia had their biggest quarters and had really strong growth in the first quarter.

So we're pleased with that.

New business was exceptional.

And that was contributions across our international as well as the U.S. and Canada.

We saw strong contributions from the core U.S. brokerage business was strong, new business and MMA continued its very strong performance in terms of driving top line growth.

We had fewer headwinds in some of the geographies.

We've called out Canada in the past.

We called out Australia, New Zealand.

There were less headwinds in the quarter.

We saw some modest organic growth and so that was with the contribution.

Rate declines were very similar to what I said in prior quarters.

They tempered a bit but still were modest headwind.

But as Dan said, there was some exposure growth and we saw some economic growth to offset that a bit.

So overall, it was really a strong start to the year.

We're really pleased.

And again, the range that we've given in the past of 3% to 5% is what we expect for the full year.

Okay, great.

And then just a follow up.

In terms of Guy Carpenter, the growth there has been strong.

It picked up in the first quarter.

We've seen a lot of pricing headwinds in that business.

Do you guys have made some key hires over the past year or so.

Do you think -- are you guys taking share in the reinsurance space?

What are you specifically seeing within Guy Carpenter?

And how do you see the growth there as we think about the rest of 2017?

Yes.

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

In the overall sense of things, I would say over the last several years, it's undoubtable that Guy Carpenter has taken some share.

They have grown underlying revenue 24 out of the last 25 quarters.

And so that is a good comparison to the competitive set.

And the reinsurance business has expanded a great deal.

So it's not about a transaction anymore.

There's a lot more value that a reinsurance broker delivers to their client than ever before.

But Peter, do you want to describe that a little bit more?

Sure, Dan.

Guy Carpenter got off to a great start, really strong first quarter with 4% organic growth.

That's on top of 3% in the prior year in the first quarter.

Some really positive signs to start the year.

I'll start with its leader.

I mean Peter Hearn is relentless on client advocacy, value and making sure that we're trying to do everything we can to drive new business and keen focus on grabbing share.

When I look at some of the contributions within the quarter, the U.S. had a terrific start to the year.

New business expanding from current clients as well as really strong retention.

We called out Global Specialties and particularly, the retro unit had a really strong growth in new business, and we had good new business in contribution from Asia as well.

So it's really balanced.

Again, the core fundamentals are really strong.

Good new business, good retention in growing our share with our current clients.

So overall, really positive way to start the year.

And obviously, we're all pleased with it.

But I would reiterate that you should be looking at longer stretches of time than 1 or 2 quarters strung together when you evaluate this business.

Because the business itself is very geared toward global GDP, P&C pricing, et cetera.

So next question, please.

We'll now take our next question from Larry Greenberg from Janney.

So just following up on the strong Marsh growth, and in particular, U.S./Canada.

Would you characterize the relative contributions between agency and the core brokerage as any different in the quarter relative to recent quarters?

I'll hand off to Peter.

We don't go into details about MMA other than to say, in most circumstances, they have been outgrowing the core brokerage business of Marsh, which was our expectation when we started down this path in 2008.

I think it's fair to say that most of the cylinders with Marsh have been performing pretty well.

But Peter?

Yes.

I largely agree, Dan.

I mean MMA has had very strong consistent contribution to the U.S. and Canada division.

But as I said in my sort of broader remarks of Marsh, we saw a terrific new business in the core U.S. brokerage business.

Canada had strong new business.

They were contributors.

And we're also, while they're small portion of the total, we're seeing strong performance from Dovetail, Torrent, some of the seeds that we planted for strategic investments in the past, having double-digit growth.

And so our momentum in U.S. and Canada is encouraging.

Again, I would just caution, we're more in the sort of 3 to 5 range and feel like they just had a really strong start to the year.

Great.

And then maybe for Julio.

Under the new Wealth line, I mean is Defined Benefit Consulting & Administration, is that a business that could grow given the environment today?

Julio, do you want to...

Yes, sure.

Thank you, Larry.

Let me just take a step back and let me say a bit about the Wealth business, and then I'll get specific to your question on the Defined Benefit Consulting & Administration.

So creating a Wealth business reflects, very importantly, how our clients want to do business with us and that's why we did it.

And we simplified the business so that you can have ease of decision-making between the Retirement and the Investment business, which is basically managing the pension assets.

And of course, matching assets and liabilities over time.

And we see that as a whole value proposition.

And thus it's important to create this Wealth business in response to those demands of our clients.

We are breaking out the revenue.

As you mentioned, for Wealth, to provide a better insight into the underlying growth dynamics of the business.

So the more mature aspects of the business, meaning, the DB, the Consultancy and the Benefit Administration, as you mentioned, will be called Defined Benefit Consulting & Administration or DBA.

That business quiet frankly, is significantly part of what was previously the Retirement Actuarial business.

And we know that for many years now, we've been living in a world of plus or minus, flat in that business.

And I would expect that, that's the kind of world we'll continue to see as we move forward in that line.

Now of course, the Investment Management & Related Services business, or the IMS business, includes the faster and higher growth rate business, which is primarily in our Delegated Solutions, a Defined Contribution Related Investment Services and also Financial Wealth.

So while IMS can be seen as a proxy for our investing work, it also encompasses other business opportunities.

So you'll see that being somewhere aligned with what we saw in the Investment business before.

Thanks, Julio.

Next question please.

Our next question comes from Ryan Tunis from Credit Suisse.

My first question, I guess, just thinking about the EMEA organic.

If we were to just drill down to the U.K, has that been growing at a faster rate than overall EMEA or a slower rate?

We're not going to break out the U.K. relative to EMEA.

EMEA has grown consistently over a long stretch of time.

The U.K. obviously is a big chunk of that region.

But we can go down a rabbit hole, Ryan, if one say, we start talking about the individual breakouts, then really have to do it on a consistent basis and it's just not worth it.

So what's your other question?

So my other question was, I guess, is overall thinking about margins.

One thing I noticed was that it looks like depreciation and intangible asset amortization ticked up this quarter.

I'm wondering if that's a good run rate to use going forward because it looked like that might have had a somewhat of an impact on margins, especially consulting?

Sure.

Thanks, Ryan.

Mark, do you want to take that?

Yes, Ryan.

It did tick up.

And that's just a function of, we closed quite a number of transactions late last year and early this year.

That's a -- of course, it's uncertain.

It depends on activity we do this year.

But that's a decent run rate to use for the quarters for this year.

Our next question comes from Kai Pan from Morgan Stanley.

First, congrats to both Keith and Dan for their new roles.

I just want to follow up on that to say as a trust adviser, have you had a discussion with your clients and what's their view with the rising tension between the brokers and underwriters?

To begin with that, I really don't think that there's a rising tension between brokers and underwriters.

I think this is a symptom of a soft market environment and that we've lived through it for a while.

What I can say is that there's rising tensions between underwriters.

And so we helped manage through that.

In our major markets, we absolutely go beyond regulatory requirements in terms of our disclosure to clients.

I mean, we are quite adept at giving them the details for them to make determinations as to how we should be compensated and what level we are compensated.

Clients in terms of -- clients are largely the beneficiary and will continue to be the beneficiary of the super abundance of capital in the insurance marketplace.

And so what we're trying to do is, Marsh & McLennan, is to focus more on expanded coverage at competitive prices as opposed to a continual race to the bottom with narrow product, which is price-driven.

And so our view is that the insurance industry is overly focused on current risks and not focused enough in broadening our offerings.

That's not only on catastrophe exposures but other kinds of exposure.

So we should, as an industry, focus more on risk and solving risk questions as opposed to narrowly looking at insurance.

Great.

My follow-up is on the Oliver Wyman.

It looks like the first quarter organic growth is very strong, relatively to very tough comp in the first quarter of last year.

Maybe Scott, if you can comment on that?

Yes, sure.

I don't want to say, it surprised us as much as it surprised you.

But I know we've been talking about their terrific first quarter in 2016 a lot.

And we thought this quarter would be around flat.

But they did better.

So Scott, do you want to talk a little bit about that?

Sure, Dan.

Kai, we were pretty happy with the quarter, the 4% growth, especially in light of the 15% growth last year.

It was driven by pretty broad-based strength across the portfolio.

Regionally, North America was strong as we expected it to be.

International, particularly our Middle Eastern businesses were even stronger-than-expected and the performance there was great.

And the weakest part of our portfolio regionally is Europe, which is a little slower.

And then by industry, we saw real strength in Health, Public Sector, our Actuarial businesses, our Transportation businesses, our Manufacturing business.

And even our very large Financial Services business was also ahead of plan for the year and they had a spectacular first quarter last year.

So there's no change in our annual and medium-term target growth of mid-to high single digits.

We're still confident in that as a target.

And at the moment, we still continue to see demand across most sectors, most regions.

The demand feels reasonable.

It's supported by continued light economic growth across the world.

Although there's still a great deal of uncertainty out there.

Next question, please.

Our next question comes from Dave Styblo from Jefferies.

I wanted to come back to the margins and the RIS segment, especially those being up a 110 basis points.

I think that's about the fourth straight quarter where you guys are expanding over 100 basis points.

So getting a pretty good trend line there.

And I think that's perhaps above the maybe 50 to 100 basis points but it seems to be sustainable, which you guys have sort of talked about in the past.

But I'm curious if there's just any unusual benefits in the quarter or easier comps last year that we should be mindful of.

I know the pension savings is going to be a tailwind this year.

I'm not sure if that was sort of front-end loaded in the quarter.

So if you could elaborate on that?

As well as Guy Carpenter strength was obviously important in the quarter.

But does that help, I think that's your highest margin business.

But does that also help margins immediately or does that have a little bit longer tail effect, the way the bookings happen in that business?

I'll hand off to Peter to give you some specifics.

But I just want to reiterate that when we look at margins, we always advise people to look over longer stretches of time in all of our businesses.

1 quarter does not really arrive at any -- you shouldn't arrive at any conclusions for 1 quarter.

Certainly, when we're growing at a level like 4% and 5% as we did in Guy Carpenter and Marsh, margin expansion is more of a given than in shorter quarters.

But if you look over the last number of years in RIS, yes, last year was a very strong margin expansion year.

A year before that was 90 bps and the year before that was 30 bps.

The year before that was 150 bps.

So I wouldn't look at average and say, well that's what is going to be at all times.

It's going to move around a little bit.

We're focused on the long term.

We're not overly focused on margins in our business, we are more focused on growth of both revenue and earnings.

But Peter?

Thanks, Dan, and I think you have largely said how we think about the long term.

But if I go into the quarter, as you mentioned, we've expanded our margin 110 basis points.

There's a couple of things that went on.

As Dan has mentioned in the past and as I have in terms of what we do in terms of what we're driving within the business is focusing on an underlying organic top line growth being very disciplined as a management team on the expenses and driving earnings growth.

And therefore, the margin does improve.

So we had a little bit of outperformance on the top line.

And so that really was the biggest contributor to the margin expansion.

As I mentioned earlier, that in Europe, and in Asia, those are their seasonally largest quarters.

And so they had outperformance, while we had straight-line expense, we had a little bit more revenue pop from those regions that drove a little bit more expansion in the margin.

And we created a little bit of bandwidth for the first quarter and a lot of parts of 2016 that helped the run rate.

And so overall, I would look at really what Dan said is take a look at the long term.

This is not the run rate from the first quarter, but those variables really contributed to having strong margin expansion.

Thanks, Peter.

You have something else, Dave?

Yes.

Just on the follow-up.

So Dan, you had mentioned about the commission rates of, over the last 3 decades or so.

And then specifically, your performance hovering in that 10% to 12% range being stable.

I'm curious.

Are there ways or levers to nudge that up a little bit given the strong analytics and differentiated services and data that you provide to your customers where maybe you help them save a little bit more money than they could but you're able to generate a little bit higher commission for doing that?

And ultimately, it produces a higher yield.

I'm just thinking in this environment where data and analytics is so important, is that going to become increasingly a value that customers appreciate and perhaps allow you to nudge the commission rate a little bit higher over time.

Our view is creating additional value for clients.

That's what our focus is on.

And in doing that, as we create additional value and perform additional services, we will get remunerated more from clients on those kind of occasions.

We are -- we want to be fair and transparent with all parties.

Our objective is not to drive more commission volume out of insurance companies as a way for us to do better.

It's actually to increase our value to anything, as you mentioned, like data and analytics and other things where we create value, where we can get revenue streams from that additional value.

But we would rather be expanding the pie for the value we create than negotiating greater proportions of that pie from the insurance carriers.

Our next question comes from Sarah DeWitt from JPMorgan.

Thanks very much for the comments at the beginning of the call, and I appreciate you won't comment further on the FCA investigation.

But I was hoping maybe you could just help us understand.

Does the aviation business operate structurally different than other businesses?

Because we read in the press that insurers will know prices for all different layers in aviation.

But that's not the case in other businesses.

I don't know if you just help us understand if there's some structural difference there?

Thanks, Sarah.

And I do appreciate not digging in to try to get information from an investigation that is ongoing.

I mean, we really do want to respect the FCA's process and not comment further at this time.

So I'll give you a general comment with regard to the aviation market because it has been talked about quite expansively in the press.

It is a different market than other markets, particularly in London.

And one of the reasons that the aviation market is a pretty competitive market, is that it is what's called verticalized, which means typically a lead price is negotiated between the broker and the lead underwriter.

And then the broker goes to individual following markets who all bid for their share of the account, generally offering a discount against the lead price.

So that's how it's developed.

It's quite different than the subscription model in the rest of the property and casualty market where the lead develops terms and then the following markets write a share of those terms, but generally get the same terms as the lead.

So it is a structurally different market.

Our next question comes from Brian Meredith from UBS.

A couple of quick ones here.

First, I just want to follow up on Larry's question.

So Julio on the Benefit Consulting & Administration area.

I'm just curious with the, call it, very slow growth, how does the Benefits Administration business going to fit into the overall picture here if one of your peers is getting out of that business?

Does it make sense to be in that business?

How does it fit?

I'll comment a little bit, and then I'll hand off to Julio.

I mean, that is -- the Ben Admin business, number one, is not a separate business for us.

It is an integrated business that is linked with what we provide in terms of either the Retirement business or the Health and Benefit business.

So it's not separate and distinct.

And we haven't tried to grow it as a separate and distinct business.

So it's not a large business that we're managing.

It's part of a service that we offer as part of other higher-valued offerings.

So it's integrated.

But Julio, do you want to talk a little bit more?

Thanks, Dan.

That's pretty much right on.

In terms of how we manage the business, you might recall that several quarters ago, we actually made a decision to put that business strategically aligned with the business that it was supporting, whether it was Health or it was DB business in the Retirement business.

And thus, it is kind of integrated now in many ways.

But let me also say that we consistently evaluate our portfolio.

We've been doing that for years now.

We disinvest and have disinvested selectively in targeted offerings or different types of solutions over time, which do not meet our return goals.

And we've proven that time and time, again, you may recall that in a past, we repositioned our outsourcing, what was then called Outsourcing business, with a focus on profitable revenue growth and that's only on top line.

So we sold, for example, our Canadian Record-keeping business some time ago.

We most recently sold our U.S. DC Administration Record-keeping business as well.

And those are just examples of where we're continuously looking at where the business is going and how we want to invest and creating rooms to do that by just investing in some other things.

So they continued to support some of our businesses.

And as it does, we will continue to work through having it as part of the offering because we think our clients see it as being important.

But we always reserve the right in the disciplined fashion of disinvest to invest to be reviewing that business overtime.

Great.

And then my second quick question.

I found it really interesting when I saw the report about the formation of Alternus with the Nephila.

I'm just curious Dan and Peter, could you talk a little bit about what your view is with respect to alternative capital penetrating the primary insurance market?

And will that be something that continues to grow here, is it a growth area for you?

It seems like it's an attractive type of venture for Marsh.

Sure, sure.

Peter, do you want to take that?

Sure, Dan.

Thanks, Brian.

Dan mentioned, sort of the structure and what the launch was in his opening comments.

Let me just take a step back on this as to why we arrived at it is that, we think that bringing new insurance solutions being creative, being innovative of bringing high-rated traditional capital like Alliance, very well-respected insurance company combined with alternate capital, looking at Nephila, they've been in the business most in the reinsurance offer better part of the decade.

They understand the business really well.

The focus on U.S. property risks was bringing a solution and value to our clients.

So we have been making investments in a variety of different trends that we see in the business.

But in particular, I mentioned before around data distribution and capital.

The investments we made over the past 5 years in driving richer data, better analytic capabilities, enhancing the sophistication of the conversation we're having with the clients.

Not only in the global risk management space but also in the middle market, has been an evolution in terms of our value.

And our clients are looking for that in terms of more demand.

So thinking about packaging risk with this innovation, again, driving in more enablement for alternate capital gets to the primary market in a thoughtful way is something that we thought would be well received.

And most recently at RIMS, that was validated.

I think increasing efficiency for share to layer replacement at a discounted price, expanding towards the security, having more of a long-term nature for our clients are all things that they responded very favorable to.

So I mean I can't really predict how big it's going to be or how much it's going to expand.

But I know that the current discussions have been incredibly well received.

Our next question comes from Jay Gelb from Barclays.

It will be, I think helpful for us if you could give us any update you've received from the RIMS conference this week in Philadelphia, either market conditions or customer buying trends?

Okay.

I'll start with that.

Unfortunately, I probably have to do the whole answer because Mr. Zaffino was in London as opposed to RIMS at our request.

But ultimately, RIMS is a fantastic event.

It had something like 10,000 to 12,000 people attending this year.

I get very proud of the organization when I go into the Marsh Cafe, which is the size of about 2 or 3 football fields and it's filled up with between 300 and 900 people from 9:00 in the morning til 5:00 in the afternoon.

Most of the conversation at RIMS has to do with issues around the insurance market and where it's likely to go from here.

There is general consensus that there's a lot of capital.

So can that capital be used in ways that can provide benefits to where clients are looking or seeking additional coverages?

I think Cyber is a good example.

A decade ago and cyber exposure existed but it generally wasn't transferred and the market was very tentative around providing cyber coverage.

And now you look and there's a significant amount of cyber capacity and more and more clients are interested in looking at cyber or hiring brokers and underwriters not only to transfer risk but to help them evaluate their exposures and to give them some type of comparative commentary, because insurers see so many different programs, they can help evaluate best practices between companies.

And so the insurance industry is a tremendous value in managing risk and not just transferring it.

Another example, there was a lot of talk around M&A and the way the industry has increased its capability to essentially write warranty and reps types of insurance coverage.

It used to be the per view of only 2 or 3 carriers, now there's many carriers who are willing to consider that.

And so more and more companies now look to the insurance industry as a way to protect themselves against different views around M&A transactions.

So that's, that's just a couple of things.

But there wasn't a huge amount of new news at RIMS.

The market's pretty stable.

There is downward trends in terms of pricing and that was kind of it.

Anything else, Jay?

Yes.

There have been media reports suggesting that a key Marsh Mac executive could join AIG as next CEO in that company.

Would you have any comment in this issue, including MMC's executive succession planning process?

Yes.

There's a couple of things.

I mean that -- I think media reports is being kind, considering there was no named source within any of these so-called media reports.

I mean I think it tends to be rumor mongering that just goes around and feeds off of itself.

But as I look around at this table, we have the best leadership team in the industry, period.

So it doesn't surprise me at all that when there are senior level openings at other companies, there will always be speculation about people who are MMC executives.

It comes with the territory and I'm glad to take it because it's a small price to pay for having the best talent.

Next question.

Our next question comes from Josh Shanker from Deutsche Bank.

I would like to get a little more detail on the Wealth segment you're reporting.

Is there a plan different from the basic plan to improve margins through cost rationalization by combining these 2 businesses?

Or is it merely a reporting element that we're seeing?

I'll hand off to Julio in a second.

But it's definitely not just a reporting element.

The way we look at the business is our Retirement business advises on a dramatic level of pension funds and deals with essentially the liabilities that a company has with regard to their defined benefit pension programs.

And our Investment business largely deals with the assets and ways of helping clients make decisions about how they deal with the asset size and match up against those liabilities.

So it seems to us to be a natural progression to try to create more linkage between these businesses and more commonality in terms of management structure, et cetera.

But Julio, do you want to take that further?

Yes.

Thanks, Dan.

Part of our approach to discipline execution is to constantly challenge ourselves in how we best serve our clients.

And this is all about client centricity and being able to find further avenues of growth and improve profitability.

And we made a number of changes with regard to our structure to do that and one of them was creating a Wealth business by combining or by maximizing the strengths of our Retirement value proposition and our Investments.

And these are realities of how our clients want to do business with us, making decisions on managing and providing retirement benefits to employees in ways that cut across these 2 businesses.

So we've made it easier to do business with.

And more broadly, we want to provide a simplified and faster decision-making process.

So ultimately, we'd be able to, yes, promote growth.

Thanks.

Josh, do you have (inaudible)

Yes.

Just I guess I got one more.

Do we should expect this could possibly be a help to growth and in that case margins but there's no explicit margin anticipated improvement coming from this transition?

I mean, we will see how it continues to work through all of the different avenues of feedings.

Remember, as Dan mentioned, we have very large book of business that sits on the advisory side of the equation, which is on the retirement side.

And we've been moving it through the continuum to eventually be able to do investment consultancy and delegated solutions.

To the extent that, that might be easier to do, we might be able to promote more growth, time will tell if that happens.

And then question, we also would like to see profitability also benefit from that over time.

And then we'll see if that pans out as time goes on.

But it's fair to say the combination was done more around client delivery and the potential for growth in the future as opposed to expense synergy.

Our next question comes from Paul Newsome from Sandler O'Neill.

Just maybe a little M&A update.

What you bought in the quarter and where it sits?

And if there's been any change in your view on what you're looking to buy and sell?

Look, considering I'm looking at Mr. McGivney and he's been lonely on this call.

Mark, do you want to talk about that a little bit?

Thank you, Dan.

So we're off to a strong start for M&A.

If you remember, back at this time last year, we had pretty minimal spending in the first quarter.

So as I said, we deployed $457 million to acquisitions in the first quarter.

The largest -- we closed 4 transactions.

They were all in MMA.

The largest of which was J.Smith Lanier by far.

And as I said, we hope to continue to deploy capital in line with the level that we had in 2016 and our hope is that we'll see a nice balance and a nice healthy amount of M&A and so the pipeline continues to be good and no real change in our appetite.

Has the competition from private equity changed much?

I was looking at recent data that showed that there's just an enormous amount of money that's sort of impressive levels for money to be put to work in private equity in general.

But I don't know if they're -- the devil is in the details if it's truly more competitive market because of that or not in the brokers?

The answer, Paul, is yes.

I mean ultimately, private equity has been a participant, in particular, in the brokerage space for many years now, and has been successful.

Because it's actually a terrific business in terms of high-cash generation, generally low levels of risk through recurring revenue, et cetera.

So it really is a great business for all of us, including private equity.

So it's attracted other PE, and undoubtedly, over the last several years, 5 or 6 years, there has been multiple creep, which means that everyone's got a be a little more careful when they're looking at pro forma kind of tabulations, et cetera.

I think we're a little bit different.

We're a little bit different because we generally don't compete with private equity because in our build of Marsh & McLennan agencies, the focus is building the highest-quality agency in the United States and attract like-minded individuals who are -- who have the same dream in their minds as opposed to some companies that are looking to just optimize their cash payout and they're not really concerned what happens to their business or to their colleagues in the future because the one thing you know about private equity, they will -- it's not permanent capital.

Whereas, we're in a business to stay.

So generally, if we are talking to a company in the agency space and they have not decided whether they want to go with us or private equities.

Well, it's not a company for us.

So generally, our competitor in the space, more often than not, is whether they stay private not another competitor in the industry or private equity.

Our next question comes from Nick Mezick from KBW.

First, I want to congratulate you guys on the recent hire in Investor Relations.

Quick question.

In your prepared remarks, you said advisers and carriers can be commoditized and this intermediated.

Outside of QSG, can you expand on what technology changes Marsh is investing in?

And then I have a quick follow-up.

Yes.

I'll start with that.

I mean, we all have to recognize that digital disruption and disintermediation is roiling all industries, right?

And so the insurance industry is not going to be immune in any way towards having to step-up focus on digitization and innovation as a key way of going forward.

Now, I want our people to feel secure in their jobs with Marsh & McLennan, but insecure about our position in the marketplace.

We're constantly striving to find a smarter way to innovate, to create, to strive, to develop.

And we actually believe that our culture is geared toward creating additional client value, and we have a real history of innovating in order to do that.

But it's fair to say, and the reason I mentioned the potential for disintermediation of either party, because our industry remains inefficient in many parts of the customer value chain.

And that ranges from basic policy issuance to claims management, et cetera.

So we see great promise in technology and digital innovation as a way to address some of the challenges in our industry.

And it's not just, I want to say broadly, it's not just in Risk and Insurance Services.

In our Consulting division, we have a lot of activity around digital as well.

So we'll take this as the last call.

But let me go to Peter a little bit and then maybe to Julio and Scott just for some brief comments.

But I'm cognizant of the fact that we've run overtime a little bit.

So let's just give it 1 minute or so each.

Peter, do you want to start?

Sure, Dan.

Just to add to what you said.

Marsh really has a four-part digital strategy.

First, is enhancing the client experience; the second, is use of data and analytics; third, is an improved internal workflow; and then the last one, which you've seen with Dovetail is leading acceleration in the change of the small commercial market.

I mean, I won't go into detail in each but when you look at data and analytics, and the advancements we've made in terms of what I mentioned before.

Data capability and analytics of delivering superior value not only in analyzing risk but giving our clients a lot more insight in terms of how they should be thinking about risk.

We've launched advancements on iMAP, which is now mobile for us; PlaceMap, which helps our colleagues place business in the insurance market more efficiently.

And I'll give you 1 statistic, where we've used data and analytics as part of the process during the RFP, our win ratio, when using that methodology has increased 50% in terms of new business.

So I think that's a big contributor to why we're being able to drive more new business.

Thanks, Peter.

Julio?

Our business strategy is similar to how Peter mentioned it.

It's really centered around enhancing our client experience as much as we possibly can and bringing new solutions to our clients in ways that embraces and enhances the consultants differentiation with their clients as they look to do service and deliver.

We have several examples of that and the way we are developing new solutions whether it's in a partnership format with Mercer Wise 401(k) or it's an acquisition like Thomsons Online, which is really a digital global-based SaaS technology play that allows us to have a leading provider of global benefits management through their cloud-based technology platform.

And it allows to complement Mercer in the global benefits management space.

This market is evolving rapidly with clients that demanding a bundled broker solution and a digital solution, quite frankly that's global.

So that consultancy and technology, marrying of those 2 really gives us some competitive advantage as we go forward.

And you're going to see us, I think, in this space look at all whether it's partnerships or acquisitions to be able to enhance our digital experience with our clients and be able to grow in that space as time goes on.

Thanks, Julio.

And Scott, if you could just be brief and bring us home.

Very quickly for me.

At Oliver Wyman, we serve all the industries that are being disrupted.

So having a view, advice and tools to support them as they transform is essential.

So we're making big investments in our data capabilities, our analytics capabilities.

We do most of this through a business we call Oliver Wyman Labs, and we will continue to build and buy fairly aggressively to do that.

Thanks, Scott.

And I'm going to call it a day right now.

So I thank all of you for joining us on the call this morning.

I thank our clients for their support and our colleagues for their hard work and dedication in serving them.

Have a good day.

Thank you.

Once again, ladies and gentlemen, that will now conclude today's conference call.

Thank you very much for your participation today.

You may now disconnect.