威達信集團 (MMC) 2019 Q1 法說會逐字稿

Welcome to the Marsh & McLennan Companies conference call. Today's call is being recorded. First quarter 2019 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 risks and uncertainties, and a variety of factors may cause actual results to differ materially for 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 most closely comparable GAAP measures, please refer to the schedule in today's earnings.

I'll now turn over to Dan Glaser, President and CEO of Marsh & McLennan Companies. Please go ahead.

Thank you, Klyna. 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. Joining me on the call today is Mark McGivney, our CFO; and the CEOs of our businesses: John Doyle of Marsh; Peter Hearn of Guy Carpenter; Martine Ferland of Mercer; and Scott McDonald of Oliver Wyman. Also with us this morning is Sarah Dewitt, Head of Investor Relations.

Our first quarter represents a great start to the year. Before I get into the results, I would like to say how delighted we are to have completed the JLT acquisition earlier this month. There's tremendous energy and optimism around the benefits this combination brings to clients, colleagues and shareholders. We welcomed over 10,000 talented colleagues into the organization, providing us with more capabilities to serve clients. And this is the real power in this combination.

The need for specialist advice has never been greater as clients deal with the increasing size, complexity and range of business challenges. Simply put, we are stronger together. We are the leading global professional services firm in the areas of risk, strategy and people.

On a combined basis, we place over $100 billion of P&C insurance and reinsurance premiums globally. Our reach extends to more than 130 countries. We are #1 in insurance brokerage, including specialty lines, the #1 health and benefits broker. We are neck and neck in reinsurance. We are #1 HR consulting firm. And we have leading specialist industry capabilities in management consulting.

Size and scale are increasingly important, but size isn't everything. Quality and capability are what really matter to clients, and on that score, we are second to none. Creating what is Marsh & McLennan today was no small undertaking. It took decades of steady execution and courageous decisions. I am deeply grateful to the prior leaders of Marsh & McLennan for their significant contributions to our current success. We will continue to build and improve the reach and capabilities of MMC.

With regard to JLT, we worked tirelessly to obtain all regulatory and shareholder approvals so that we could close the deal on April 1. At the beginning of March, we announced the agreement to divest JLT's aerospace business. And during the first quarter, we secured $6.5 billion in debt financing at favorable rates, including our first ever eurobond issuance.

With the benefit of the in-house expertise of Oliver Wyman, we moved quickly to establish transition teams to plan the integration. We made several leadership announcements across the organization and named JLT executives to nearly all of our executive committees. We selected leaders without regard to which organization they came from.

JLT brings us an influx of talent with complementary capabilities, giving us more depth in almost every part of the organization. We are co-locating our colleagues to enhance opportunities for collaboration. We are working hard to keep our organization focused and are encouraged by the strong finish for 2018 at both JLT and Marsh & McLennan and our strong start to 2019.

Growth requires hard work and execution. And I have every confidence we will be stronger and better positioned than either firm was before. To be clear, we are not promising perfection. There will be bumps and we could see an impact on growth during the integration process. That's fine. We will sort it out and press forward as we work to build something special.

In addition to JLT, we will continue to execute our broader growth strategies. We will not let up on innovating, pressing into new growth areas and investing. For example, we continue to expand in middle-market commercial insurance through Marsh & McLennan Agency. When we first announced the JLT acquisition, we committed to continue to provide MMA financial flexibility to pursue further acquisitions. We have stayed true to this plan.

Since the start of the year, MMA acquired Bouchard Insurance and Lovitt & Touch?, both top 100 U.S. insurance brokers. The combination of strong organic growth and adding high-quality agencies through acquisitions has resulted in MMA's annualized revenues exceeding $1.5 billion. And we still see significant runway.

There is meaningful growth potential in the small commercial segment across our businesses, where we are focused on digital initiatives. We see opportunities to help simplify the client experience and add value at every turn in this large and fragmented market.

Major challenges facing society also present opportunities to grow and help our clients. In many markets, actual losses from cyber, floods and other natural perils far exceed insurance coverage. Filling this gap is a growth opportunity for us that also serves the greater good. Retirement security is a major challenge for society, as much of the world is falling short of what today's aging population will need. Mercer is a leader in the space where actuarial, investment and fintech specialties meet. In health, the need for advice in the face of health care complexities is significant, and we are well positioned given the strength of our capabilities across Marsh, Mercer and Oliver Wyman.

Let me spend a moment on current P&C insurance pricing trend. Overall pricing is modestly higher. The Marsh Global Insurance Market Index saw an increase of 3% in the first quarter, up from 2% in the fourth quarter of 2018, and 1% in the first quarter of 2018. Global property lines continue to see price increases. Casualty price declines have slowed, while professional lines pricing increased approximately 6% in the quarter.

Turning to reinsurance. Guy Carpenter's Global Property Catastrophe Rate-On-Line Index increased 1% for the January 1, 2019 renewals. More recently, the pricing data coming out of the April 1 renewals, which are primarily focused on Japan, were off for loss-impacted programs. We are starting to see upward rate pressure in the market in certain pockets and geographies although capital remains abundant.

Now let me turn to our first quarter financial performance. Marsh & McLennan had a strong start to the year. We generated consolidated underlying revenue growth across both Risk & Insurance Services and Consulting. Consolidated revenue was $4.1 billion, up 2%, or 4% on an underlying basis. Adjusted operating income grew 11% to $1 billion, and the adjusted operating margin expanded 210 basis points in the quarter. Adjusted earnings per share grew 10% to $1.52.

In Risk & Insurance Services, first quarter revenue was $2.4 billion, an increase of 3%. Underlying revenue growth was 5% in the quarter, the fourth consecutive quarter of underlying growth of 5% or more in RIS. Marsh had another strong quarter with underlying growth of 5%. Guy Carpenter's underlying growth was impressive at 6% given the tough comparable of 7% growth in first quarter 2018. Adjusted operating income increased 7% to $775 million, and the adjusted operating margin expanded 110 basis points versus a year ago.

In Consulting, first quarter revenue was $1.7 billion, in line with the year-ago. Underlying revenue was up 2% for the quarter driven by strong underlying growth at Oliver Wyman of 7%, partially offset by Mercer, which was flat. Nevertheless, we had strong growth in Consulting adjusted operating income of 18% and saw a 270 basis points of adjusted margin expansion.

Martine took over as CEO of Mercer March 1. While Mercer's underlying growth was soft in the quarter, Martine has a firm grasp on the business, and we are confident in Mercer's long-term growth outlook. Based on the slow start, full year underlying revenue growth in Mercer could be muted. However, full year earnings growth will benefit from Mercer's recent restructuring initiatives.

In summary, we are pleased with our strong start to the year. For 2019, we expect underlying revenue growth in the 3% to 5% range, margin expansion and solid growth in adjusted EPS. Although with respect to underlying revenue, we are mindful of potential impact from the integration of JLT.

With that, let me turn it over to Mark for a more detailed review of our results.

Thank you, Dan. Good morning. Our first quarter represented a strong start to the year. Overall revenue was up 2% or 4% on an underlying basis. Operating income in the quarter increased 3%, while adjusted operating income was up 11% to a record $1 billion.

Our adjusted operating margin increased 210 basis points to 26.2% and included strong margin expansion in both RIS and Consulting. GAAP EPS rose 4% to $1.40, and adjusted EPS increased 10% to $1.52.

Looking at Risk & Insurance Services. First quarter revenue was $2.4 billion, up 3% compared with a year ago and 5% on an underlying basis. This is a continuation of the strong growth we generated in the fourth quarter. Adjusted operating income increased 7% to $775 million, and our adjusted operating margin expanded 110 basis points to 33.6%.

In Marsh, revenue in the quarter was $1.7 billion with underlying growth of 5%. Growth in the quarter was broad-based and helped by strong new business. The U.S. and Canada division continued its trend of strong growth with 5% underlying revenue growth. In International, underlying growth was also 5%, with EMEA up 3%, Asia Pacific up 8% and Latin America up 11%.

Guy Carpenter's revenue was $663 million, up 6% on an underlying basis, driven by strong growth in the U.S, Asia Pacific and Latin America. Guy Carpenter's strong first quarter performance builds on the outstanding results delivered in 2018.

In the Consulting segment, revenue in the quarter was $1.7 billion, which is flat versus a year ago and up 2% on an underlying basis, reflecting strong growth at Oliver Wyman, offset by softness at Mercer. Adjusted operating income grew 18% to $291 million, and the adjusted operating margin expanded 270 basis points to 18%.

Mercer's revenue in the quarter was $1.2 billion with flat underlying revenue growth, due in part to a tough year-over-year comparison to the 5% underlying growth we reported in the first quarter of last year. Results this quarter reflected growth in Health and Career, offset by a decline in Wealth.

Wealth underlying revenue fell 3% in the quarter, reflecting a mid-single-digit decline in defined benefits, partially offset by continued growth in investment management. Our assets under delegated management continue to grow and were approximately $265 billion at the end of the quarter. In the early 2017, we established the Wealth business by bringing together our retirement and investments businesses. This change aligned more closely with how we serve clients and was designed to simplify the organization and reduce layers. At this point, given the evolution of these businesses, we will now report Wealth as one combined business.

Health underlying revenue increased 3% in the quarter despite a tough comparison of 7% growth in the first quarter of last year, and Career grew 2%.

Mercer incurred $11 million of charges in the quarter related to its ongoing restructuring program, which we expect to be completed by the end of the second quarter. The benefits of the program contributed to the strong earnings growth and margin expansion in Consulting. As Dan mentioned, we expect this program will benefit full year earnings in Consulting, although we will see moderation in margin expansion from the level in the first quarter as we move through the balance of the year.

Oliver Wyman had a great start to the year, with first quarter revenue of $518 million, representing growth of 7% on an underlying basis. Results were strong across most of the portfolio.

As you know, we closed our acquisition of JLT on April 1. Due to strict rules regarding sharing of competitively sensitive information prior to closing, we are in the process of reviewing the details of JLT's 2019 budget, converting their results to U.S. GAAP by quarter and developing a firmer perspective on some of our modeling assumptions. As a result, we expect to update the elements of our previous guidance on our next call. We continue to expect the JLT acquisition to be modestly dilutive to adjusted GAAP EPS in year 1, breakeven in year 2 and accretive in year 3.

In order to help the investment community better assess the combined business, before our next earnings call, we plan to provide JLT's 2018 results by quarter under U.S. GAAP. In addition, we will file the SEC-required pro forma disclosures, showing 2018 pro forma earnings for the combined company.

As contemplated in our financing plans, we raised a total of $6.5 billion of senior notes across 8 tranches of debt at various maturities. In addition to $5.25 billion of U.S. debt, we also completed our first eurobond offering in March, raising an additional EUR 1.1 billion. We began incurring interest expense and generating interest income on proceeds from this debt as of January 15, and our GAAP income statement includes $47 million of interest expense and $25 million of interest income as a result. As we indicated on our last call, both of these items were excluded from adjusted earnings in the first quarter.

Following the close of the transaction, we now expect second quarter interest expense will be about $140 million. We also incurred $7 million of interest expense in the quarter, representing the amortization of fees related to our bridge facility. The $7 million is included in interest expense in our GAAP income statement.

In the first quarter, we recorded a net gain of $29 million relating to the hedge instruments we put in place as part of the transaction. All of these costs associated with the JLT acquisition have been treated as noteworthy items. With the transaction now completed, our hedge position and our bridge facility have been settled and closed.

Turning to investment income. On a GAAP basis, investment income was $5 million, or $1 million on an adjusted basis in the quarter. For 2019, we continue to expect only modest investment income on an adjusted basis. Foreign exchange was a $0.03 per share headwind to EPS in the quarter. Assuming exchange rates remain at current levels, we expect FX to be a $0.01 to $0.02 headwind to adjusted EPS in each of the second and third quarters.

Our effective adjusted tax rate in the first quarter was 22.6% compared to 23.5% in the first quarter last year. Our tax rate benefited from favorable discrete items, the largest of which was the accounting for share-based compensation similar to a year ago. We expect that most of the tax benefit from equity awards will be recognized in the first quarter of each year, which is when most of our equity awards best. Excluding discrete items, our effective adjusted tax rate was approximately 26%. Based on the current environment, it's reasonable to assume a tax rate between 25% and 26% for 2019, excluding discrete items and any impact from JLT.

In the first quarter, we implemented a new lease accounting standard. This resulted in a minimal impact to operating income but did result in an increase in liabilities on our balance sheet of $1.9 billion, which is largely offset by a corresponding increase in assets.

In the first quarter, we did not repurchase any stock, in line with our guidance that we would not repurchase stock ahead of the close of the JLT acquisition. However, we continue to anticipate repurchasing enough stock in 2019 to satisfy our commitment to reduce our share count each year.

Total debt at the end of the first quarter was $13 billion, or $12.3 billion excluding commercial paper. This compares with $5.8 billion at the end of 2018. Total debt includes the $6.5 billion of debt issued in the first quarter to fund the acquisition of JLT.

At closing, JLT had $1 billion of debt outstanding, $450 million of which was repaid shortly after closing, leaving $550 million of JLT debt that is still outstanding. We will likely refinance this debt over the course of the next several months. Post closing, our total debt, excluding commercial paper, stood at $12.8 billion.

Our next debt maturity is in September 2019, when $300 million of senior notes will mature. At this point, our expectation is that we will retire the September notes with cash on hand, in line with our planned deleveraging over the next couple of years.

Our cash position at the end of the first quarter was $1.1 billion. Note that the cash proceeds from our debt issuance in the quarter were held in escrow as reflected on our balance sheet as opposed to on the cash line.

Uses of cash in the first quarter included $210 million for dividends and $288 million for acquisition. While deleveraging will be a priority over the next couple of years, we've provided for the flexibility to continue to pursue selective acquisitions, and MMA will be the primary focus given the significant success of this strategy over the last decade.

For the full year 2019, we continue to expect to deliver on our annual capital return commitments to reduce our share count and increase our dividends per share by double digits. As noted on our last call, starting this quarter, we have changed our calculation of adjusted operating margins to exclude transaction amortization so investors can get a better sense of core margin performance following the JLT acquisition. This change had no meaningful impact on the increase in margin in Q1 compared with the year ago.

Our press release includes supplemental information that recaps our margins in 2017 and 2018 by quarter to exclude transaction amortization.

Overall, we're pleased with our strong start to the year. And with that, I'm happy to turn it back to Dan.

Thanks, Mark. Klyna, we're ready to begin Q&A.

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

My first question, Dan, a couple of times in your remarks, you alluded to the fact that there could be an impact on growth during the integration of JLT. I mean, I know you guys are only a month into the deal, but could you just expand some comments on that? What part of your businesses you expect you could see some headwinds?

And then kind of as a supplement to that question, are you guys going to include JLT within the acquired revenue line? Or is it going to be part of organic revenue starting in the second quarter?

Thanks, Elyse. And okay, so MMC's underlying growth has been in the range of 3% to 5% for the past decade. And I certainly anticipate that sort of range or better over time. So I'm not -- any comment I make is really in near term as opposed to thinking about midterm or long term. And the reality is we expect some near-term choppiness as we go through the integration process. I mean some revenue loss dis-synergy was modeled in our base case. Not that we're not going to fight every fight, but we're realistic about what big integrations mean in people businesses. And so let's see how this will play out. There will be some short-term noise, but that's all it is. It's noise.

The combination of Marsh & McLennan and JLT will prove to be spectacular. The greatest collection of talent and capabilities in our space, improved geographic positioning, higher capacity to invest in the future, things like data and analytics and digital and our data and analytics flywheel that I've talked about before. I mean the combination will give us more clients. More clients will create more data. More data will allow us to use analytics to create additional insights and gain more clients. And so in that way, it's self-perpetuating. So very positive overall.

In terms of your follow-up, Mark, it's -- why don't you handle that?

So Elyse, yes, on smaller acquisitions, our convention has been to exclude them from underlying growth for the first year after a deal. But we won't do that in this case. When we report underlying growth going forward, it will be combined MMC and JLT.

Yes. We want to get to -- just so we're clear, we don't want to be sitting here internally months from now talking about, well, how did Marsh & McLennan do in Asia in the month of July and then how did JLT do. There is no JLT. There is no Marsh & McLennan. There's a combined organization, and we are one. So we want to look at the organization and the results on a combined basis.

Okay, great. And I agree. That will be more helpful to analyze. My second question, on the margin side. I wasn't sure if there was anything one-off within Consulting. Your other operating expenses declined significantly in the quarter relative to what we've seen in the past. I wasn't sure if there was something that was driving that or if it's just less investments. And like you said in some of your prepared remarks, you're reaping some of the benefits on the restructuring actions there.

Yes. No, that's exactly right. I mean as we've said before, I wouldn't look at any one quarter as indicative in terms of the margin trajectory. And I would also reiterate that, for us, margin expansion is an outcome of the way we run the business. Almost always, revenue growth exceeds expense growth. And we're more focused on top line revenue and earnings growth than we are on margin expansion, but we expect continued margin expansion because of the way we run the business. And 2019, in our view, will be our 12th straight year of margin expansion.

Our next question comes from Michael Phillips from Morgan Stanley.

I just wanted to dive in deeper a little bit more on the Oliver Wyman. Nice momentum in Oliver Wyman in the quarter. It's kind of continued for the last couple of quarters. And so maybe you can kind of talk about where you're seeing that and the expectation going forward.

Sure, sure. And as we've said before, Oliver Wyman, over long stretches of time, will probably be our highest growth operating company but with more volatility because of the nature of the business and the lack of recurring revenue.

But Scott, you want to add to the comments?

Sure, Mike. Despite, I think, what are pretty regular warnings of doom and gloom from economists in the press these days, we see little evidence across almost all sectors and regions that there's a slowdown in the initiatives businesses are pursuing. Most of the business we worked with are still focused heavily on growth or transformation or technology. And Dan has talked about, I think, many times on this call just how complex the world is becoming. It's more global, more political, more technology-changed, more challenges with data and analytics, more challenges around the workforce. And all this bodes pretty well for high-end strategy consulting. So our predictions have remained the same. We continue to target mid- to high single-digit revenue growth over time. I think you will have seen over the last few years, our revenue can be pretty volatile. But over any long period, that's what we think we can achieve.

Anything else, Mike?

No. I appreciate that. That's good.

The next question comes from Ryan Tunis from Autonomous Research.

First question, just -- so there's a $0.03 per share headwind from FX. On a year-over-year basis, what was the impact that had on the margin?

Mark, you want to take that?

Ryan, it was a modest benefit to margins but not anything terribly significant. The biggest driver of margin expansion was the operating performance in the quarter.

Okay. And then I actually wanted to ask about the whole Medicare for All theme, and I'm curious in markets where the impact that, that might have on the health care consulting business. So maybe if you could just give us some perspective in countries where there are single-payer systems, Canada, U.K. I guess, are you able to have a presence in health care consulting when you have that type of system?

I'll take the question broadly and then I'll hand it over to Martine to talk a little bit about what we see in markets like Canada and the U.K, et cetera. But I'll just start by saying health is a great business for us. In fact, it's our largest line of business. We've got almost $2.5 billion of revenue, and almost half of that is in the United States. And clearly Medicare for All is a hot topic, but what that means and what form that could conceivably take really depends on who's talking about it. And for consultants and trusted advisers, uncertainty generally creates opportunities as we -- as clients seek advice. And so we don't see this in the short term as any significant headwind or a negative. I mean just to level set for a second, over 180 million Americans receive health care benefits through employer-sponsored plans. And generally speaking, those plans are highly subsidized by employers. So more than half of the U.S. population is being served by their employers in that way. And significant changes, if any, and I would stress, if any, would be unlikely until 2021, 2022. And that's really unclear whether there would be any kind of significant change. But in the meantime, we're certainly going to work diligently to improve the availability and affordability to our clients. And for us, I would stress that it's a global business, and we're successful globally.

So Martine, you want to add something to that?

Yes, certainly. Thank you. First, let me say I'm excited to have taken the helm, and I'm delighted to be here for the first time with you all. So from a health perspective, and you were referring to U.K. and U.S. in your question. Actually, I'm very familiar with those, being Canadian and having lived in the U.K. last 8 years. We have thriving health businesses in these 2 countries and in many countries around the world. Even with universal systems, what is we see is there's a need for employer-provided plans where there's supplementary plans, supplementary cover that is being provided. We're also very active in providing wellness advice, health advice and helping employers manage the cost curve in every country and also helping individuals manage the health care system. These are, very often, complex systems. People will need them at the moment that matters for them, really need help. So as health becomes more consumerized, we see also opportunities for us to help employees, retirees, individuals manage cost and access the best care they can at the best price.

The next question comes from Mike Zaremski from Cr?dit Suisse.

First question is regarding the U.K.'s Financial Conduct Authority. They published their final report this past February about the wholesale insurance marketplace. I'm curious if the closure of that study changes Marsh's game plan at all or maybe the study had changed the game plan prior, maybe perhaps speed up moving into more of those types of facilities. Any color there would be great.

Sure. I mean, overall, we were pleased with the outcome only really as a result of -- any time that there's a level of uncertainty because a big review is taking place, we're watching it closely. And our view was it was largely business as usual. Market is functioning. It's very competitive. There is new capital formation. There's great client outcomes.

But I'll hand it over to John to talk about if it influences Marsh's strategy at all. John?

Thanks, Dan. No, I don't see a change in our strategy going forward at all. We have governance in place and guidelines and philosophy statements around how we get paid, how much we get paid and what that fee income is related to. As Dan said, we were pleased with the outcome. Facilities that we used to place business in the London market make up a small, really, fraction of our overall placement strategy around the world, although we do think it's a way for us to drive value to our clients ultimately. As we come together with JLT, we're learning a little bit more about their approach to it and philosophy to it as well. So we see an opportunity for greater use of facilities, but it won't be a dominant part of our placement strategy.

Anything else, Mike?

Yes. One last follow-up, Dan, to your comments about P&C pricing moving a little bit north. You mentioned abundant capital, curious if you guys have any theories on what's causing the move up in rates. I guess the million-dollar question for all of investors is whether rates are just moving up as result of increase in loss inflation or is something else going on in terms of the competitive dynamics.

Well, pricing is always a lagging indicator and it is geared toward losses. Ultimately, it's really a supply-and-demand market. The higher the losses that underwriters suffer, the more that they actually underwrite, reduce their exposures. And that creates some level of supply crunch, which raises rating levels and pricing. And so we're not in a soft market, and we are not in a hard market. We're sort of in a shoulder market.

But I'll hand off to the experts, both John and Peter, to add a little bit more color to the pricing commentary. So John, what do you see on the primary side?

Okay. So as Dan noted earlier, pricing on average is up 3% in the quarter versus 2% in the fourth quarter. In most regions around the world, prices were up 1% to 2%. So as Dan just said, it's not what I would define as a hard market by any stretch. Australia is probably the one exception where prices are up on average in the low double-digit range across various lines of business. Financial lines pricing was up about 6% in the first quarter, just shy of 6%. Probably P&L pricing really driving that.

And to your question about why there's been an increase in frequency and severity around securities claims, right, that's persisted over the last several years. So underwriters are obviously responding to that and trying to push price.

Property pricing, largely driven by cat-exposed risks. And we all know about the cat loss environment the last couple of years, up about 5% in the quarter. Casualty remains pretty risk -- pretty mixed, excuse me. As you know, it's a longer tail. Work comp pricing remains down, about 5% on average in the U.S. General liability, down about 2%, but excess liability pricing is moving up a bit. That was up 3% in the quarter. Auto pricing, up 5% in the quarter.

What I would say is that the market is more challenging for buyers than it's been in some time. It's definitely different than it was 3 months ago and 6 months ago. Again, having said that, the average isn't moving all that much. As Dan said, capital remains abundant. And while capacity remains stable, the risk appetite for some underwriters is changing. So at times, we're seeing lower limits being offered, higher attachment points. In some cases, underwriters are exiting certain classes of business. Again, on average, we're getting things done for our clients in the right way, and I don't see a broad-based hard market in front of us. Over time, some risk classes will get mispriced for various reasons. And so I think we'll see some micro cycles, or a correction will happen over a short period of time.

Thanks, John. So turning to the reinsurance side for some commentary on that. Peter, you want to tell us what's happening on the reinsurance market?

Sure, Dan. Mike, a lot of the comments that John said pertained to reinsurance as well. I mean you had $200 billion of losses in '17 and '18. And they continue to grow. I think that many of those losses were quantitatively different from those that investors expected. And they included deterioration in the 2017 loss and the loss creep we've seen from Irma in particular; losses for unmodeled or under-modeled perils, such as wildfire; and then losses from human causes, such as the assignment of benefits issue that we've seen in Florida.

So to John's point, the market has been orderly at [1.1] and [4.1]. Yes, we've seen increases, whether it's been loss-impacted business, whether it be Japanese wind. We're now starting to see the advent of the Florida renewals. Where there has been loss-impacted layers, there has been a rate increase. But I would say, overall, the market is transitioning. It's not a hard market by definition most people use for hard, but it is certainly transitioning on those lines of business where there had been losses.

Next question comes from Meyer Shields from KBW.

I had 2 quick questions for Martine. First, obviously, there's a restructuring plan going on. And Dan mentioned the potential for distraction associated with the JLT merger. Is the restructuring itself responsible for some of the weakness in Mercer in the first quarter?

Yes. So let me talk about that a little bit and then I'll hand it over to Martine. I mean, I think in general, and as you've seen in the past -- throughout our company, there are periodic periods where we believe, as a very large global organization, we have to look at our structure. And we have to approach it in a way to always be looking to simplify, de-layer, focus more on the client because large companies, by their very nature, grow infrastructure and other accoutrements. And so that, in my view, was more of a normal course type of restructuring effort. And whether that has an impact on short-term growth is unlikely. I think the reality is Mercer grew 5% in the first quarter of last year. They had some tough comps, and that's probably at the heart of it.

I made the muted comments in my script because, frankly, Martine just got the job. And the last thing I want is for her and her key team to be focused on the next few quarters and delivering some -- what I want them to do is look at the business, [drains out] like any new executive team, come up with plans on how to drive sustainable, profitable growth over multiple years. And that's really the task at hand.

And in terms of the JLT, I wouldn't call it a distraction in any way in terms of integration, whether that's about RIS or Mercer. I think it's more a recognition that there's some areas of the business that might have some revenue breakage. And the employee benefit side is probably not one of them.

But Martine, do you have anything to add? I didn't give you much room, but...

No, thanks for the question though. Well, as Dan just said, I took the helm about 2 months ago. I'm very excited about it. I think Mercer has unmatched global platform and capabilities. The areas in which we play, Health, Wealth, Career, really they address topical issues for our society, for enterprises, clients, individuals. Our expertise is very strong, recognized. Our brand is strong, and we're leaders in all the countries where we operate. What we offer is needed and valued by our clients. So I do see growth.

And many of our business areas are growing well. As Dan and Mark said, we had tough comparables in some places, Health in particular. Some are delegated solution, really strong market a quarter, a year ago. We had a strong -- we had good market movement this quarter but less so than a quarter ago. Really, it's -- as you all know, the actuarial design benefit business within Wealth is one area that is in structural decline. And that said, I believe we can perform better in this area than we have done recently. And I've come from this business. I have previous experience in it. And we're in the process of implementing changes there in terms of roles, incentives, technology that will enhance retention and also reinvigorate our sales on the market.

And as you know, we're very strong on the delegated solutions side. It is absolutely interlinked with our pension business. We had closed $265 billion of assets under management at the end of the quarter, by far the leading market leader in that space.

Thanks. The more I think -- yes, thanks. So I think -- any follow-up? I'll count your restructuring and JLT distraction stated together as one query. Do you have anything else?

Just a quick one in terms of whether there's any useful rule of thumb relating the Mercer restructuring expenses and the anticipated annualized savings.

No. I mean, ultimately, a lot of the savings will drop to the bottom line. But we're always looking to invest in the business and we'll continue to do that. And so -- and there is no rule of thumb associated with that.

The next question comes from Larry Greenberg from Janney Montgomery Scott.

My questions were really answered. But I guess, maybe I'll just dig or throw one more out on JLT. I mean, Dan, it seems to me that other large acquisitions in the space, the dis-synergies tend to come from people leaving, deciding for whatever reason that they don't want to continue to be part of the big team and choose to do something else. Is that mostly what we're talking about here?

To me, that is a part of it but a small part of it. I mean we're getting over 10,000 talented colleagues. And yes, sure, we'll lose some who've decided they'd rather work in a different environment. But in my view, we're the employer of choice in our industry. And our leadership team, part of their principal job is to create a culture and environment that attracts and retains the top talented people in our space. And so I have no doubt that we have a collection of individuals that will form teams that are very solid in the marketplace and really on a top talent basis.

When I look over any kind of stretch of time, I imagine -- when you think about a mid- to long-term time horizon, anything we're talking about potential revenue breakage will largely be meaningless in the overall scheme of things. But it could create a headwind in the short term. I'll just give you a couple of easy examples. You might have a retail client within Marsh and JLT where the clients themselves always had 2 brokers. And they want 2 brokers. Okay. Some clients choose to do that. Other clients want the heft and strength of a very strategic organization-to-organization relationship. But if you add a client that wants 2 brokers, and one of those brokers is JLT and one of those brokers is Marsh, right now, well, then there's going to be some activity there.

Or you might have some wholesale business where a U.S. third-party broker that use JLT in London because they didn't that view JLT as a competitor in the U.S. All of a sudden, they view Marsh as a competitor in the U.S. And so maybe they'll have some challenge about whether, "Okay, how are you guys going to run the business to where you can still service our needs?" And we're going to do the best we can, best endeavors to try to do that and keep things separate and run businesses in a way that we always put our clients' interest first, even when that client might actually be a competitor in some other part of our organization. But we are really -- like I said, ultimately, I think that this will be a meaningless number when we look over the course of a few years. Ultimately, clients choose best talent. The best talent and capabilities will win, not about any -- what badges or name is on the building.

The next question comes from Yaron Kinar from Goldman Sachs.

I know you guys have shied away from giving any targets around cost saves and the like. But just given the meaningful impact that we're seeing here in Consulting on the margin front, is there anything you could say about the cost saves from the current restructuring?

I mean the overall restructuring is in that $70 million to maybe $80 million level. Most of it has already been done so what you're seeing is some roll forward on that. It would be natural to have more savings early after a restructuring than later because the level of investments you're not having are not necessarily occurring simultaneously with the restructuring.

But ultimately, this was not a large restructuring in the overall scheme of things. There will be savings which drop to the bottom line. As we've always done that, we've been very disciplined about that. What I would overall focus on is the fact that our margin has expanded dramatically over many years. I mean the company's margin is up something like 700 bps in the last 5 years. And so we have continual margin expansion as we run the business properly. And we see margin expansion in 2019, as we said in the script.

That's helpful. And then if we switch over to RIS. I think MMA now accounts for about 1/3 of your U.S. revenues in Marsh. I'm guessing that's going to get diluted a little bit through JLT. But is there a number or a portion of the business that you would like it to be or that you would not want it to cross?

A couple of things. One, JLT is quite modest in the U.S. so it won't have a real overall impact on the various percentages. And no, we want MMA to continue to grow. We think that there's -- it's still a very fragmented space. It's the largest part of the market. When you look at the vast middle market, however you define it, it's a terrific sweet spot for the company. We've built what we believe is the finest national platform in the middle market, and we will continue to look at that. There is no end in sight. And we certainly wouldn't create a constraint on MMA in order to create some percentage between large accounts and national brokerage and MMA. It's like we will go wherever the market will bear.

And it's not just in the United States, I mean, Marsh -- John and his team and Peter before that, have done a very good job of maintaining our position and growing our positioning in the large accounts space while growing faster in the vast middle market in many countries around the world. And so Marsh is becoming much more like a pyramid as opposed to top-heavy with regard to just in risk management.

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

I wanted to touch base a little bit more on the potential [rockiness] for JLT. Is it fair to say that the places that you're most likely to see some organic growth slow are the places with the most combined market share? And if maybe you could -- if that's the case, maybe you could sort of give us some thoughts on where we might see it or not see if all things go well?

Yes. I think you guys are all sort of overstating it as an issue. As I just said, over the course of any kind of midterm basis, we're looking at something which would be a meaningless type of number. And we've modeled it within our deal cost anyway. I mean, I think the obvious thing would be if you look at RIS. That's where most of JLT exists. That's where most of the integration takes place. But we're not looking at big numbers. And by the way, we didn't model any revenue synergy into this deal, and we've expressed before the notion that we absolutely expect some revenue synergy as JLT clients -- existing JLT clients, have access to things like Oliver Wyman, Mercer Investments, Mercer Career and some of the digital capabilities and data and analytic capabilities within Marsh. But we're a conservative company. The deal model stood on its own, and so therefore, we didn't model it. But we've been surprised positively about many of the things we have seen within JLT. And I'd start with the idea that the quality of people is very high. And our view about how we go forward is we're a people business. And the greatest degree of high-quality, talented, creative, diligent, hard-working people working as a team creates more value for our clients and ultimately for our colleagues and career path and our shareholders as well.

There's a few things that we've been happy about that we did not expect. As an example, Mercer has extensive operations in India which support their business. This is much less so in Marsh and Guy Carpenter. But interestingly, JLT actually has a pretty high degree of integration in their operating model in India. And that gives us mid-term possibility for Marsh and Guy Carpenter that would be easier to capture than if we just did this on our own. And other things that we have seen, while obviously compensation is always different in organizations, the -- and in people business, it's vitality important, the methodology in how we look at compensation and the team-based way of how we look at client service and profitability is very similar between the 2 organizations. And that contrasts with certain other organizations that put the individual producer and the individual production at the top of the compensation model. In our company, that's different. And I'm happy to say that JLT was as well. So I would just say there's tremendous optimism and energy within Marsh & McLennan right now to welcome our JLT colleagues. And we will deliver. As I said, we're not promising perfection. These are big companies coming together. But any noise will be short-term. And we certainly expect, over time, that, that 3% to 5% growth or higher will be delivered. We just wanted to be upfront and say -- but don't forget, and that's what we are doing right now.

So next question, please?

No, I -- that makes sense. Obviously, you have a great track record with big acquisitions. Also similarly, as you go through the process, are there any pieces that might end up being divested or slowed down or that might also affect the revenue as we look forward with the combined company?

No. I mean when we -- I wouldn't say -- like I said, there is no JLT anymore. What there is, is a combined organization that is coming together and forming a new organization. We're the largest start-up in the world. And so when I look at it, we always look at parts of our business, our entire business, in a way of saying, "Where are the loan growth, low margin businesses?" And we always create challenges to whether those businesses are acquired or not. And we would do that across our entire organization, the broader organization, which is both Marsh & McLennan and legacy JLT, put them all altogether, and we create quadrants, as you know: high-growth, high-margin; high-growth, low-margin; low-margin, low-growth and et cetera. And so ultimately, that's a continual process. And you've seen us over the years, every once in a while, divest an asset. And almost always, it's in that low-growth or low-margin category. And you will see us continue to do that as we go forward.

The next question comes from Jay Cohen from Bank of America Merrill Lynch.

Maybe questions for Mark, some modeling questions. Mark, you've given us the interest expense for the 2Q. Can you talk about the corresponding investment income from the proceeds that you should expect to see?

And Jay, as I said, we had $25 million of interest income on the cash that was sitting around in escrow. But at this point, it's all been deployed. And so going forward, I'd expect minimal amount of interest income, sort of what we've seen in the past on whatever corporate cash we're holding.

Got it. That makes sense. Quarterly amortization expense post deal, can you give us a sense of that?

As I said in my script, Jay, that, along with a number of other elements of our model, we're really in the process of updating our perspective on. So the last guidance we've given is $180 million on a post-tax basis. And for now, that's where the numbers stand. But as we -- between now and the second quarter, as I said, you'll see some pro forma information come out as a required -- on June 11, we'll be required to file a pro forma that will have us and JLT for 2019 -- '18 with pro forma adjustments. Purchase accounting will be one of them. So you'll get a little bit more information when that's filed. And then on our next call, I'd expect to update those elements of guidance that we've given in the past.

The next question comes from Dave Styblo from Jefferies.

Congrats on the quarter. I wanted to just come back to JLT for a second. And I appreciate the prudently cautious comments about just bumps and being forward about that. I guess I'm more curious about how the customer experience is and engagement has been about opportunities. You touched on a couple of them and started to go down that path. But I would like to hear more about what the customer response had been and some of the opportunities that you guys would have to cross-sell and provide more services as the deeper share of wallet within the customer base.

Sure. I mean it's a great question. And actually, the initial client response since the deal announcement has been incredibly positive.

And RIMS is coming up, so why don't I ask John to go into that in a little bit more detail. So what are you seeing, John? What are you hearing?

Sure. Initial feedback has been quite positive. I have spoken myself to a couple of dozen clients in the last couple of weeks, including a few yesterday, and the feedback has been quite positive. Many of these relationships, of course, overlap so it wasn't a first time introduction for me with a number of the clients that I engaged with. Obviously, we were competitors just three weeks ago, right? So we're still just sorting out how the value proposition will change. But our real opportunities is for cross-sell, right? JLT, in a lot of ways, although a big company, operated like a specialty boutique. And we had kind of a broader view of the client relationship. And so those relationships are often fitting together quite nicely.

And as Dan pointed out earlier, I want to make sure their teams will be in place, right? The people they've hired in the past will continue to serve them. So I was in London on day 1 and for the first week, and Lucy Clarke who comes from JLT and now leads Marsh's Specialty operations and Marsh-JLT Specialty, she and I were together most of the week. We're also really quite encouraged. Literally on the first day, we had teams in the market together working on accounts. There's nothing more than those kind of experience to accelerate kind of the socialization that needs to happen between the 2 teams.

And then as Dan said, RIMS starts on Sunday. And so the masses will descend upon Boston. We'll bring a bit of an army ourselves. It's a great opportunity for us to spend some time with our colleagues -- new colleagues from JLT. But we have 1,500 client meetings scheduled from Monday through the end of day, Wednesday. And it's a great opportunity for us to get feedback, so we've got some systematic ways of doing that, and then, of course, more informal feedback. But at the end of next week, we'll have much more data on it. But we're off to a good start.

Great. And then real quick, I know these are smaller business within Marsh geographically. But Latin America, Asia Pacific, the organic growth was really quite strong there. I think Latin America, the 11% was the first time it's been double digits for a couple of years. So curious to hear about anything in particular driving that, broad-based products or services. So -- [anything you could comment].

Yes. I mean Latin America -- Yes. I mean within Marsh, Latin America has been the highest growth region in the aggregate for the last decade.

But John, anything in particular?

Sure. Look, I was pleased with the start to the year for sure. I do think we're getting a little bit of lift from pricing, to be clear. But some of the leadership changes that we've made are taking hold in some parts of the world, so I've been pleased with that. As you all know, we underwent a simplification effort a year ago and moved some talent to faster-growing areas. I think that's contributing to increased growth. But I'm pleased with the execution of our strategy and the focus on client segmentation. New business is improving in most of the world. Loss rate is improving. Some of the faster-growing comps: specialties, if you will, or transaction risks, cyber. We had a very good quarter in aviation. Our energy business performed well in the first quarter, as did our credit specialties. Our MGA business is also growing nicely as well. So it's pretty broad-based, good start to the year. Latin America and Asia, I do expect over time to grow faster than the rest of Marsh.

That will conclude today's question-and-answer session. I'd now like to turn the call back to your host, Mr. Glaser, for any additional or closing remarks.

I'd like to thank everybody for joining the call this morning. And particularly, I'd like to welcome more than 10,000 JLT colleagues to Marsh & McLennan. I'd like to thank our clients for their support and our colleagues for their hard work and dedication in serving them. I hope all of you have a great day. Thank you very much.

That will conclude today's call. Thanks for your participation. Ladies and gentlemen, you may now disconnect.