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10: EX-10.11 Form of Stock Option Award - 2020 Incentive and HTML 92K
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3: EX-10.4 Dean Klisura Letter Agreement Amendment HTML 34K
4: EX-10.5 Dean Klisura Letter Agreement HTML 62K
5: EX-10.6 Dean Klisura Non-Compete Non-Solicit HTML 60K
6: EX-10.7 Form of Deferred Stock Unit Award - Cliff Vesting HTML 82K
7: EX-10.8 Form of Deferred Stock Unit Award - Ratable HTML 84K
Vesting
8: EX-10.9 Form of Restricted Stock Unit Award - 2020 HTML 111K
Incentive and Stock Award Plan
11: EX-31.1 Rule 13A-14(A)/15D-14(A) Certification of Chief HTML 32K
Executive Officer
12: EX-31.2 Rule 13A-14(A)/15D-14(A) Certification of Chief HTML 32K
Financial Officer
13: EX-32.1 Section 1350 Certifications HTML 30K
19: R1 Cover Page HTML 84K
20: R2 Consolidated Statements of Income (Unaudited) HTML 114K
21: R3 Consolidated Statements of Comprehensive Income HTML 73K
(Unaudited)
22: R4 Consolidated Balance Sheets HTML 167K
23: R5 Consolidated Balance Sheets (Parenthetical) HTML 46K
24: R6 Consolidated Statements of Cash Flows (Unaudited) HTML 138K
25: R7 Consolidated Statements of Equity (Unaudited) HTML 84K
26: R8 Nature of Operations HTML 32K
27: R9 Principles of Consolidation and Other Matters HTML 49K
28: R10 Revenue HTML 66K
29: R11 Fiduciary Assets and Liabilities HTML 31K
30: R12 Per Share Data HTML 43K
31: R13 Supplemental Disclosures to the Consolidated HTML 60K
Statements of Cash Flows
32: R14 Other Comprehensive (Loss) Income HTML 82K
33: R15 Acquisitions and Dispositions HTML 84K
34: R16 Goodwill and Other Intangibles HTML 63K
35: R17 Fair Value Measurements HTML 110K
36: R18 Derivatives HTML 31K
37: R19 Leases HTML 58K
38: R20 Retirement Benefits HTML 82K
39: R21 Debt HTML 88K
40: R22 Restructuring Costs HTML 69K
41: R23 Common Stock HTML 35K
42: R24 Claims, Lawsuits And Other Contingencies HTML 39K
43: R25 Segment Information HTML 72K
44: R26 New Accounting Pronouncements HTML 41K
45: R27 Principles of Consolidation and Other Matters HTML 72K
(Policies)
46: R28 Revenue (Tables) HTML 62K
47: R29 Per Share Data (Tables) HTML 42K
48: R30 Supplemental Disclosures to the Consolidated HTML 58K
Statements of Cash Flows (Tables)
49: R31 Other Comprehensive (Loss) Income (Tables) HTML 84K
50: R32 Acquisitions and Dispositions (Tables) HTML 69K
51: R33 Goodwill and Other Intangibles (Tables) HTML 67K
52: R34 Fair Value Measurements (Tables) HTML 101K
53: R35 Leases (Tables) HTML 59K
54: R36 Retirement Benefits (Tables) HTML 78K
55: R37 Debt (Tables) HTML 83K
56: R38 Restructuring Costs (Tables) HTML 70K
57: R39 Segment Information (Tables) HTML 69K
58: R40 Nature of Operations (Details) HTML 30K
59: R41 Principles of Consolidation And Other Matters HTML 44K
(Details)
60: R42 Revenue - Narrative (Details) HTML 34K
61: R43 Revenue - Disaggregation of Revenue (Details) HTML 72K
62: R44 Revenue - Contract Assets and Liabilities HTML 32K
(Details)
63: R45 Fiduciary Assets and Liabilities (Details) HTML 34K
64: R46 Per Share Data (Details) HTML 65K
65: R47 Supplemental Disclosures to the Consolidated HTML 45K
Statements of Cash Flows (Additional Information
Concerning Acquisitions, Interest And Income Taxes
Paid) (Details)
66: R48 Supplemental Disclosures (Supplemental Operating HTML 44K
and Financing Cash Flow Items) (Details)
67: R49 Supplemental Disclosures to the Consolidated HTML 32K
Statements of Cash Flows (Narrative) (Details)
68: R50 Other Comprehensive (Loss) Income (Schedule of HTML 67K
Accumulated Other Comprehensive (Loss) Income)
(Details)
69: R51 Other Comprehensive (Loss) Income (Schedule Of HTML 76K
Components Of Comprehensive (Loss) Income)
(Details)
70: R52 Acquisitions and Dispositions (Narrative) HTML 90K
(Details)
71: R53 Acquisitions and Dispositions (Allocation Of HTML 75K
Acquisition Costs) (Details)
72: R54 Acquisitions and Dispositions (Acquired HTML 36K
Finite-Lived Intangible Assets) (Details)
73: R55 Acquisitions and Dispositions (Pro-Forma HTML 38K
Information) (Details)
74: R56 Goodwill and Other Intangibles (Narrative) HTML 44K
(Details)
75: R57 Goodwill and Other Intangibles (Changes in the HTML 36K
Carrying Amount of Goodwill) (Details)
76: R58 Goodwill and Other Intangibles (Amortized HTML 40K
Intangible Assets) (Details)
77: R59 Goodwill And Other Intangibles (Estimated Future HTML 43K
Aggregate Amortization Expense) (Details)
78: R60 Fair Value Measurements (Narrative) (Details) HTML 56K
79: R61 Fair Value Measurements (Assets And Liabilities HTML 85K
Measured At Fair Value On A Recurring Basis)
(Details)
80: R62 Fair Value Measurements (Changes In Fair Value Of HTML 41K
Level 3 Liabilities Representing Acquisition
Related Contingent Consideration) (Details)
81: R63 Derivatives (Details) HTML 37K
82: R64 Leases (Narrative) (Details) HTML 37K
83: R65 Leases (Lease Cost and Additional Information) HTML 48K
(Details)
84: R66 Leases (Future Minimum Payments for Operating HTML 53K
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85: R67 Retirement Benefits (Schedule of Weighted Average HTML 40K
Actuarial Assumptions Utilized to Calculate the
Net Periodic Benefit Costs) (Details)
86: R68 Retirement Benefits (Narrative) (Details) HTML 60K
87: R69 Retirement Benefits (Schedule Of Defined Benefit HTML 52K
Plan Net Periodic Benefit Cost Combined U.S. and
Significant Non-U.S. Plans) (Details)
88: R70 Retirement Benefits (Schedule Of Defined Benefit HTML 38K
Plan Net Periodic Benefit Cost Amounts Recorded in
Consolidated Statement of Income) (Details)
89: R71 Debt (Schedule Of Outstanding Debt) (Details) HTML 117K
90: R72 Debt (Narrative) (Details) HTML 110K
91: R73 Debt (Estimated Fair Value of Significant HTML 36K
Financial Instruments) (Details)
92: R74 Restructuring Costs (Narrative) (Details) HTML 34K
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94: R76 Restructuring Costs (Restructuring Activities) HTML 55K
(Details)
95: R77 Common Stock (Details) HTML 44K
96: R78 Segment Information (Selected Information And HTML 59K
Details For MMC's Operating Segments) (Details)
97: R79 Segment Information (Details of Operating Segment HTML 50K
Revenue) (Details)
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
symbol(s)
Name of exchange on which registered
iCommon Stock, par value $1.00 per share
iMMC
iNew
York Stock Exchange
iChicago Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYesý No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). iYesý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer,""accelerated filer,""smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
iLarge
Accelerated Filer
☒
Accelerated Filer
☐
Non-Accelerated Filer
☐ (Do not check if a smaller reporting company)
Smaller Reporting Company
i☐
Emerging
Growth Company
i☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes i☐ No ý
As of April 15, 2024, there were outstanding i492,724,025 shares of common
stock, par value $1.00 per share, of the registrant.
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains "forward-looking statements," as defined in the Private Securities Litigation Reform Act of 1995. These statements, which express management's current views concerning future events or results, use
words like "anticipate,""assume,""believe,""continue,""estimate,""expect,""intend,""plan,""project" and similar terms, and future or conditional tense verbs like "could,""may,""might,""should,""will" and "would".
Forward-looking statements are subject to inherent risks and uncertainties that could cause actual results to differ materially from those expressed or implied in our forward-looking statements. Factors that could materially affect our future results include, among other things:
•the impact of geopolitical or macroeconomic conditions on us, our clients and the countries and industries in which we operate, including from multiple major wars, escalating conflict throughout the Middle East and rising tension in the South China Sea, slower
GDP growth or recession, lower interest rates, capital markets volatility and inflation;
•the increasing prevalence of ransomware, supply chain and other forms of cyber attacks, and their potential to disrupt our operations, or the operations of our third party vendors, and result in the disclosure of confidential client or company information;
•the impact from lawsuits or investigations arising from errors and omissions, breaches of fiduciary duty or other claims against us in our capacity as a broker or investment advisor, including claims related to our investment business’ ability to execute timely trades;
•the financial and operational impact of complying with laws and regulations, including domestic and international
sanctions regimes, anti-corruption laws such as the U.S. Foreign Corrupt Practices Act, U.K. Anti Bribery Act and cybersecurity, data privacy and artificial intelligence regulations;
•our ability to attract, retain and develop industry leading talent;
•our ability to compete effectively and adapt to competitive pressures in each of our businesses, including from disintermediation as well as technological change, digital disruption and other types of innovation such as artificial intelligence;
•our ability to manage potential conflicts of interest, including where our services to a client conflict, or are perceived to conflict, with the interests of another client or our own interests;
•the impact
of changes in tax laws, guidance and interpretations, such as the implementation of the Organization for Economic Cooperation and Development international tax framework, or the increasing number of disagreements with and challenges by tax authorities in the current global tax environment; and
•the regulatory, contractual and reputational risks that arise based on insurance placement activities and insurer revenue streams.
The factors identified above are not exhaustive. Marsh & McLennan Companies, Inc., and its consolidated subsidiaries (the "Company") operate in a dynamic business environment in which new risks emerge frequently. Accordingly, we caution readers not to place undue reliance on any forward-looking statements, which are based only on information
currently available to us and speak only as of the dates on which they are made. The Company undertakes no obligation to update or revise any forward-looking statement to reflect events or circumstances arising after the date on which it is made.
Further information concerning the Company, including information about factors that could materially affect our results of operations and financial condition, is contained in the Company's filings with the Securities and Exchange Commission, including the "Risk Factors" section and the "Management’s Discussion and Analysis of Financial Condition and Results of Operations" section of this Quarterly Report on Form 10-Q and
our most recently filed Annual Report on Form 10-K.
Marsh & McLennan Companies, Inc., and its consolidated subsidiaries (the "Company"), a global professional services firm, is organized based on the different services that it offers. Under this structure, the Company’s itwo business segments are Risk and Insurance Services and Consulting.
The Risk and Insurance Services segment
("RIS") includes risk management activities (risk advice, risk transfer, and risk control and mitigation solutions) as well as insurance and reinsurance broking and services for businesses, public entities, insurance companies, associations, professional services organizations, and private clients. The Company conducts business in this segment through Marsh and Guy Carpenter. Marsh provides data-driven risk advisory services and insurance solutions to commercial and consumer clients. Guy Carpenter develops advanced risk, reinsurance and capital strategies that help clients grow profitably and pursue emerging opportunities.
The Consulting segment includes health, wealth and career advice, solutions and products, and specialized management, strategic, economic and brand consulting services. The
Company conducts business in this segment through Mercer and Oliver Wyman Group. Mercer delivers advice and technology-driven solutions that help organizations redefine the future of work, reshape retirement and investment outcomes, and unlock health and well-being for a changing workforce. Oliver Wyman Group serves as a critical strategic, economic and brand advisor to private sector and governmental clients.
2. iPrinciples
of Consolidation and Other Matters
The Company prepared the consolidated financial statements included herein pursuant to the rules and regulations of the Securities and Exchange Commission. For interim filings, certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (U.S.) have been omitted pursuant to such rules and regulations. The Company believes that the information and disclosures presented are adequate to make such information and disclosures not misleading. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the
Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the "2023 Form 10-K").
The accompanied consolidated financial statements include all wholly-owned and majority owned subsidiaries. All significant inter-company transactions and balances have been eliminated.
The financial information contained herein reflects all normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the Company’s consolidated financial statements as of and for the three months ended March 31, 2024 and 2023.
The
preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expense during the reporting period.
On an ongoing basis, the Company evaluates its estimates, judgments and methodologies. The estimates are based on historical experience and on various other assumptions that the Company believes are reasonable.
Such matters include:
•estimates of revenue;
•impairment
assessments and charges;
•recoverability of long-lived assets;
•liabilities for errors and omissions;
•deferred tax assets, uncertain tax positions and income tax expense;
•share-based and incentive compensation expense;
•the allowance for current expected credit losses on receivables;
10
•useful lives assigned to long-lived assets, and depreciation and amortization; and
•fair
value estimates of contingent consideration receivable or payable related to acquisitions or dispositions.
The Company believes these estimates are reasonable based on information currently available at the time they are made. The Company also considered the potential impact of macroeconomic factors including from the multiple major wars, escalating conflict throughout the Middle East and rising tension in the South China Sea, slower GDP growth or recession, lower interest rates, capital markets volatility and inflation to its customer base in various industries and geographies. Insurance exposures subject to variable factors are subject to mid-term and end-of-term adjustments, as well as policy audits, which may reduce premiums and corresponding commissions.
Estimates were updated based on internal and industry specific economic data. Actual results may differ from these estimates.
i
Cash and Cash Equivalents
Cash and cash equivalents primarily consist of certificates of deposit and time deposits, with original maturities of three months or less, and money market funds. The estimated fair value of the Company's cash and cash equivalents approximates their carrying value. The
Company is required to maintain operating funds primarily related to regulatory requirements outside of the U.S. or as collateral under captive insurance arrangements. At March 31, 2024, the Company maintained $i480 million compared to $i486
million at December 31, 2023 related to these regulatory requirements.
i
Allowance for Credit Losses on Accounts Receivable
The Company’s policy for providing an allowance for credit losses on its accounts receivable is based on a combination of factors, including historical write-offs, aging of balances, and other qualitative and quantitative analyses. The charge related to expected credit losses was not
material to the consolidated statements of income for the three months ended March 31, 2024 and 2023, respectively.
i
Investments
The caption "Investment income" in the consolidated statements of income comprises realized and unrealized gains and losses from investments recognized in earnings. It includes, when applicable, other than temporary declines in the value of securities, mark-to-market increases or decreases in equity investments with readily determinable fair values and
equity method gains or losses on the Company's investments in private equity funds.
The Company holds investments in certain private equity funds. Investments in private equity funds are accounted for in accordance with the equity method of accounting using a consistently applied ithree-month lag period adjusted for any known significant changes from the lag period to the reporting date of the
Company. The underlying private equity funds follow investment company accounting, where investments within the fund are carried at fair value. Investment gains or losses for its proportionate share of the change in fair value of the funds are recorded in earnings. Investments accounted for in accordance with the equity method of accounting are included in other assets in the consolidated balance sheets.
The Company recorded net investment income of $i1 million and $i2
million for the three months ended March 31, 2024 and 2023, respectively.
i
Income Taxes
The Company's effective tax rate for the three months ended March 31, 2024 was i23.9%,
compared with i24.7% for the corresponding quarter of 2023.
The tax rate in each period reflects the impact of discrete tax items such as excess tax benefits related to share-based compensation, enacted tax legislation, changes in uncertain tax positions, deferred tax adjustments, non-taxable adjustments related to contingent consideration for acquisitions, and valuation allowances for certain tax credits and attributes. The rate for the three months ended March 31, 2024 reflects the previously enacted change in the United
Kingdom (U.K.) corporate income tax rate from 19% to 25%, which was effective April 1, 2023. The blended U.K. statutory tax rate for 2023 was 23.5%.
The excess tax benefit related to share-based payments is the most significant discrete item in both periods, reducing the effective tax rate by i2.3% and i1.3%
for the three months ended March 31, 2024 and 2023, respectively.
/
11
The Company's tax rate reflects its income, statutory tax rates, and tax planning in the various jurisdictions in which it operates. Significant judgment is required in determining the annual effective tax rate and in evaluating uncertain tax positions.
Losses in one jurisdiction, generally, cannot offset
earnings in another, and within certain jurisdictions profits and losses may not offset between entities. Consequently, losses in certain jurisdictions may require valuation allowances affecting the effective tax rate, depending on estimates of the realizability of associated deferred tax assets. The tax rate is also sensitive to changes in unrecognized tax benefits, including the impact of settled tax audits and expired statutes of limitations.
The Company reports a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in tax returns. The Company's gross unrecognized tax benefits were $i127 million
at March 31, 2024, and $i124 million at December 31, 2023. It is reasonably possible that the total amount of unrecognized tax benefits could decrease up to approximately $i66 million
within the next twelve months due to settlement of audits and expirations of statutes of limitations.
Changes in tax laws, rulings, policies, or related legal and regulatory interpretations occur frequently and may have significant favorable or adverse impacts on our effective tax rate. In 2021, the Organization for Economic Cooperation and Development ("OECD") released model rules for a 15% global minimum tax, known as Pillar Two. Pillar Two has now been enacted by approximately 30 countries, including the U.K. and Ireland. This minimum tax is treated as a period cost beginning in 2024 and does not have a material impact on the Company's financial results of operations for the current period. The Company is monitoring legislative developments, as well
as additional guidance from countries that have enacted legislation. We anticipate further legislative activity and administrative guidance in 2024.
i
Restructuring Costs
Charges associated with restructuring activities are recognized in accordance with applicable accounting guidance which includes accounting for disposal or exit activities, guidance related to impairment of right-of-use ("ROU") assets related to real estate leases, as well as other costs resulting from accelerated depreciation or
amortization of leasehold improvements and other property and equipment.
Severance and related costs are recognized based on amounts due under established severance plans or estimates of one-time benefits that will be provided. Typically, severance benefits are recognized when the impacted colleagues are notified of their expected termination and such termination is expected to occur within the legally required notification period. These costs are included in compensation and benefits in the consolidated statements of income.
Costs for real estate consolidation are recognized based on the type of cost, and the expected future use of the facility. For locations where the Company does not expect to sub-lease the property, the amortization of any ROU asset is accelerated from the decision date to the
cease use date. For locations where the Company expects to sub-lease the properties subsequent to its vacating the property, the ROU asset is reviewed for potential impairment at the earlier of the cease use date or the date a sub-lease is signed. To determine the amount of impairment, the fair value of the ROU asset is determined based on the present value of the estimated net cash flows related to the property. Contractual costs outside of the ROU asset are recognized based on the net present value of expected future cash outflows for which the Company will not receive any benefit. Such amounts are reliant on estimates of future sub-lease income to be received and future contractual costs to be incurred. These costs are included in other operating expenses in the consolidated statements of income. Other
costs related to restructuring, such as moving, legal or consulting costs are recognized as incurred. These costs are included in other operating expenses in the consolidated statements of income.
i
Foreign Currency
The financial statements of our international subsidiaries are translated from functional currency to U.S. dollars using month-end exchange rates for assets and liabilities, and average monthly exchange rates
during the period for revenues and expenses. Translation adjustments are recorded in accumulated other comprehensive income (loss) ("AOCI") within the consolidated statements of equity. Foreign exchange transaction gains and losses resulting from the conversion of the transaction currency to functional currency are included in operating income in the consolidated statements of income.
12
3. iRevenue
The
core principle of the revenue recognition guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
To achieve this principle, the entity applies the following steps: identify the contract(s) with the customer, identify the performance obligations in the contract(s), determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) the entity satisfies a performance obligation. In accordance
with the accounting guidance, a performance obligation is satisfied either at a "point in time" or "over time", depending on the nature of the product or service provided, and the specific terms of the contract with customers.
Other revenue included in the consolidated statements of income that is not from contracts with customers is less than i1%
of total revenue and is not presented as a separate line item.
The Company's revenue policies are provided in more detail in Note 2, Revenue, in the 2023 Form 10-K.
i
The following table disaggregates various components of the Company's revenue:
Three
Months Ended March 31,
(In millions)
2024
2023
Marsh:
EMEA
$
i1,025
$
i932
Asia
Pacific
i336
i312
Latin
America
i125
i115
Total
International
i1,486
i1,359
U.S./Canada
i1,517
i1,385
Total
Marsh
i3,003
i2,744
Guy
Carpenter
i1,148
i1,071
Subtotal
i4,151
i3,815
Fiduciary
interest income
i122
i91
Total
Risk and Insurance Services
$
i4,273
$
i3,906
Mercer:
Wealth
$
i672
$
i581
Health
i538
i545
Career
i215
i218
Total
Mercer
i1,425
i1,344
Oliver
Wyman Group
i789
i687
Total
Consulting
$
i2,214
$
i2,031
/i
The
following table provides contract assets and contract liabilities information from contracts with customers:
The
Company records accounts receivable when the right to consideration is unconditional, subject only to the passage of time. Contract assets primarily relate to quota share reinsurance brokerage and contingent insurer revenue. The Company does not have the right to bill and collect revenue for quota share brokerage until the underlying policies written by the ceding insurer attach to the treaty. Estimated revenue related to the achievement of volume or loss ratio metrics cannot be billed or collected until all related policy placements are completed and the contingency is resolved.
13
Contract
assets are included in other current assets in the Company's consolidated balance sheets. Contract liabilities primarily relate to the advance consideration received from customers. Contract liabilities are included in current liabilities in the Company's consolidated balance sheets. Revenue recognized for the three months ended March 31, 2024 and 2023 that was included in the contract liability balance at the beginning of each of those periods
was $i315 million and $i293 million, respectively.
The amount of revenue recognized for the three months ended March 31,
2024 and 2023 from performance obligations satisfied in previous periods, mainly due to variable consideration from contracts with insurers, quota share business and consulting contracts previously considered constrained was $i14 million and $i17
million, respectively.
The Company applies the practical expedient and does not disclose the value of unsatisfied performance obligations for (1) contracts with original contract terms of one year or less and (2) contracts where the Company has the right to invoice for services performed.
4. iFiduciary
Assets and Liabilities
The Company, in its capacity as an insurance broker or agent, generally collects premiums from insureds and after deducting its commissions, remits the premiums to the respective insurance underwriters. The Company also collects claims or refunds from underwriters on behalf of insureds. Unremitted insurance premiums and claims proceeds are held by the Company in a fiduciary capacity. The Company's fiduciary assets primarily include bank or short-term time deposits and liquid money market funds, classified as cash and cash equivalents. Since cash and cash equivalents held
in a fiduciary capacity are not available for corporate use, they are shown separately in the consolidated balance sheets as cash and cash equivalents held in a fiduciary capacity, with a corresponding amount in current liabilities.
Risk and Insurance Services revenue includes interest on fiduciary assets of $i122 million and $i91
million for the three months ended March 31, 2024 and 2023, respectively.
Net uncollected premiums and claims and the related payables were $i15.2 billion at March 31, 2024, and $i13.8
billion at December 31, 2023. The Company is not a principal to the contracts under which the right to receive premiums or the right to receive reimbursement of insured losses arises. Accordingly, net uncollected premiums and claims and the related payables are not assets and liabilities of the Company and are not included in the accompanying consolidated balance sheets.
In certain instances, the Company advances premiums, refunds or claims to insurance underwriters or insureds prior to collection. These advances are made from corporate funds
and are reflected in the accompanying consolidated balance sheets as receivables.
5. iPer Share Data
Basic net income per share attributable to the Company is calculated by dividing the after-tax income attributable to the Company by the weighted average number of outstanding shares of the
Company’s common stock.
Diluted net income per share attributable to the Company is calculated by dividing the after-tax income attributable to the Company by the weighted average number of outstanding shares of the Company’s common stock, which have been adjusted for the dilutive effect of potentially issuable common shares.
i
Basic
and Diluted EPS Calculation
Three Months Ended March 31,
(In millions, except per share data)
2024
2023
Net income before non-controlling interests
$
i1,424
$
i1,252
Less:
Net income attributable to non-controlling interests
Dilutive
effect of potentially issuable common shares
i5
i5
Diluted
weighted average common shares outstanding
i497
i500
Average
stock price used to calculate common stock equivalents
$
i199.39
$
i166.93
/
14
6. iSupplemental
Disclosures to the Consolidated Statements of Cash Flows
i
The following table provides additional information concerning acquisitions, interest and income taxes paid for the three months ended March 31, 2024 and 2023:
(In
millions)
2024
2023
Assets acquired, excluding cash, cash equivalents, and cash and cash equivalents held in a fiduciary capacity
$
i372
$
i17
Acquisition-related
deposit
i—
i252
Fiduciary
liabilities assumed
(i5)
i—
Liabilities
assumed
(i15)
(i2)
Contingent/deferred
purchase consideration
(i51)
(i4)
Net
cash outflow for acquisitions
$
i301
$
i263
(In
millions)
2024
2023
Interest paid
$
i225
$
i165
Income
taxes paid, net of refunds
$
i239
$
i223
/
The
classification of contingent consideration in the consolidated statements of cash flows is dependent upon whether the receipt or payment was part of the initial liability established on the acquisition date (financing) or an adjustment to the acquisition date liability (operating).
The following amounts are included in the consolidated statements of cash flows as operating and financing activities:
For the Three Months Ended March 31,
(In millions)
2024
2023
Operating:
Contingent
consideration payments for prior year acquisitions
$
(i14)
$
i—
Receipt
of contingent consideration for dispositions
i—
i1
Acquisition/disposition
related net charges for adjustments
i6
i7
Adjustments
and payments related to contingent consideration
$
(i8)
$
i8
Financing:
Contingent
consideration for prior year acquisitions
$
(i12)
$
(i1)
Deferred
consideration related to prior year acquisitions
(i3)
(i12)
Payments
of deferred and contingent consideration for acquisitions
$
(i15)
$
(i13)
Receipts
of contingent consideration for dispositions
$
i—
$
i2
The
Company had non-cash issuances of common stock in accordance with its share-based payment plan of $i309 million and $i290 million for the three months ended March 31, 2024 and 2023, respectively.
The
Company recorded share-based compensation expense related to restricted stock units, performance stock units and stock options of $i103 million and $i99 million for the three months ended March 31,
2024 and 2023, respectively.
15
7. iOther Comprehensive (Loss) Income
i
The
changes, net of tax, in the balances of each component of AOCI for the three months ended March 31, 2024 and 2023, including amounts reclassified out of AOCI, are as follows:
(a)At
March 31, 2024 and 2023, balances are net of deferred tax assets in pension and post-retirement plans gains (losses) of $i1.5 billion and $i1.4 billion,
respectively.
/i
The components of other comprehensive (loss) income for the three months ended March 31, 2024 and 2023 are as follows:
Amortization of (gains) losses included in net benefit (credit) cost:
Net actuarial losses (a)
i6
i2
i4
i5
i2
i3
Subtotal
i6
i2
i4
i5
i2
i3
Foreign
currency translation adjustments
i44
i11
i33
(i63)
(i15)
(i48)
Pension/post-retirement
plans gains (losses)
i50
i13
i37
(i58)
(i13)
(i45)
Other
comprehensive (loss) income
$
(i194)
$
i20
$
(i214)
$
i61
$
(i19)
$
i80
(a)Included in other net benefit credits in the consolidated statements of income. Income tax expense on net actuarial losses are included in income tax expense.
/
16
8. iAcquisitions
and Dispositions
The Company’s acquisitions have been accounted for as business combinations. Net assets and results of operations are included in the Company’s consolidated financial statements commencing at the respective purchase closing dates. In connection with acquisitions, the Company records the estimated values of the net tangible assets and the identifiable intangible assets purchased, which typically consist of customer relationships, developed technology, trademarks and non-compete agreements. The valuation of purchased intangible assets involves significant estimates and assumptions. The
Company estimates the fair value of purchased intangible assets, primarily using the income approach, by determining the present value of future cash flows over the remaining economic life of the respective assets. The significant estimates and assumptions used in this approach include the determination of the discount rate, economic life, future revenue growth rates, expected account attrition rates and earnings margins. Refinement and completion of final valuation of net assets acquired could affect the carrying value of tangible assets, goodwill and identifiable intangible assets.
The Risk and Insurance Services segment completed i2
acquisitions for the three months ended March 31, 2024:
•January – Marsh acquired NOSCO Insurance Service Company Ltd., a Japan-based insurance broker that provides affinity type schemes, corporate and personal lines insurance.
•March – Marsh & McLennan Agency ("MMA") acquired Lousiana-based insurance brokers, Querbes & Nelson ("Q&N") and Louisiana Companies. Q&N offers business insurance, employee benefits, and alternative risk financing consulting to a variety of businesses with specific expertise in energy services, commercial contractors, and transportation. Louisiana Companies provides business and personal lines insurance to businesses and individuals with specific expertise in the construction, manufacturing, distributor, healthcare, and hospitality
industries.
The Consulting segment completed i4 acquisitions for the three months ended March 31, 2024:
•February – Oliver Wyman Group acquired SeaTec Consulting Inc., a Georgia-based firm that provides consulting, engineering, and digital expertise across the aviation, aerospace and defense, and transportation industries.
•March – Mercer acquired Vanguard's Institutional Advisory Services business unit, a Pennsylvania-based
outsourced chief investment officer ("OCIO") business, that provides investment management services for not-for-profit organizations and other institutional investors in the U.S. Mercer also acquired The Talent Enterprise, a United Arab Emirates-based psychometric and talent assessment technology company, that provides talent assessment tools and talent capability development solutions. Oliver Wyman Group acquired Innopay NL B.V., a Netherlands-based consultancy firm that delivers strategy, scheme development, and execution in the domain of digital payments, open finance, digital identity and data sharing.
Total purchase consideration for acquisitions made for the three months ended March 31, 2024 was $i359
million, which consisted of cash paid of $i308 million and deferred and estimated contingent purchase consideration of $i51 million. Contingent purchase consideration arrangements are generally based
on earnings before interest, tax, depreciation and amortization ("EBITDA") or revenue targets over a period of i2 to i4 years. The fair value of contingent purchase consideration was based on projected revenue
and earnings of the acquired entities.
For the three months ended March 31, 2024, the Company also paid $i3 million of deferred purchase consideration and $i26
million of contingent purchase consideration related to acquisitions made in prior years. Estimated fair values of assets acquired and liabilities assumed are subject to adjustment until purchase accounting is finalized.
17
i
The
following table presents the preliminary allocation of purchase consideration to the assets acquired and liabilities assumed in 2024, based on the estimated fair values for the acquisitions as of their respective acquisition dates.
Estimated
fair value of deferred/contingent purchase consideration
i51
Total consideration
$
i359
Allocation
of purchase price:
Cash and cash equivalents
$
i2
Cash and cash equivalents held in a fiduciary capacity
i5
Net
receivables
i35
Goodwill
i216
Other
intangible assets
i115
Fixed assets, net
i3
Right
of use assets
i1
Other assets
i2
Total
assets acquired
i379
Current liabilities
i6
Fiduciary
liabilities
i5
Other
liabilities
i9
Total liabilities assumed
i20
Net
assets acquired
$
i359
/
The purchase price allocation for assets acquired
and liabilities assumed is based on estimates that are preliminary in nature and subject to adjustments, which could be material. Any necessary adjustments must be finalized during the measurement period, which for a particular asset, liability, or non-controlling interest ends once the acquirer determines that either (1) the necessary information has been obtained or (2) the information is not available. However, the measurement period for all items is limited to 1 year from the acquisition date.
Items subject to change include:
•amounts of intangible assets, fixed assets, capitalized software assets and right-of-use assets, subject to finalization of valuation efforts;
•amounts for contingencies, pending the finalization of the
Company’s assessment of the portfolio of contingencies;
•amounts for deferred tax assets and liabilities, pending the finalization of valuations of the assets acquired, liabilities assumed and associated goodwill discussed below; and
•amounts for income tax assets, receivables and liabilities, pending the filing of the acquired companies' pre-acquisition income tax returns and receipt of information from taxing authorities which may change certain estimates and assumptions used.
The estimation of fair value requires numerous judgments, assumptions and estimates about future events and uncertainties, which could materially impact these values, and the related amortization, where applicable, in the Company’s
results of operations.
18
i
The following table provides information about other intangible assets acquired in 2024:
The consolidated statements of income include the results of operations of acquired companies since their respective acquisition dates. The consolidated statements of income for the
three months ended March 31, 2024, include revenue of approximately $i14 million and an operating loss of $i6 million
for acquisitions made in 2024.
The Company incurred approximately $i3 million and $i17
million of integration expenses for the three months ended March 31, 2024 and 2023, respectively, for the Westpac Transaction, primarily for technology, consulting, legal and people related costs. Acquisition and integration costs are included in other operating expenses in the Company's consolidated statements of income.
Dispositions
On January 1, 2024, the Company sold its Mercer U.K pension administration and U.S. health and benefits administration businesses for approximately $i114
million and recorded a net gain of $i21 million, which is included in revenue in the consolidated statements of income.
As part of the disposition of the businesses, the Company incurred exit costs of $i18 million.
These costs are included in expenses in the Company's consolidated statements of income.
Prior year acquisitions
The Risk and Insurance Services segment completed i9 acquisitions in 2023:
•May – Marsh acquired Austral Insurance Brokers Pty Ltd, an Australia-based insurance broker that provides risk advice services and business insurance solutions in the labor hire, mining services, transport, manufacturing,
agribusiness, retail and professional services sectors.
•June – Guy Carpenter acquired Re Solutions, an Israel-based reinsurance broker with actuarial and analytics capabilities and solutions, including an extensive facultative reinsurance offering, and MMA acquired SOLV Risk Solutions, LLC, a Texas-based risk management advisory services firm.
•July – MMA acquired Integrity HR, Inc., a Kentucky-based human resources consulting firm and Trideo Systems, an Illinois-based risk management information systems provider for health care organizations, and Marsh acquired Asprose Corredora de Seguros, a Costa Rica-based insurance broker that provides insurance brokerage and risk advisory services to commercial organizations.
•August – MMA acquired Graham Company, a Pennsylvania-based
risk management consultancy and insurance and employee benefits broker, specializing in construction, real estate, manufacturing and distribution, health and human services and professional services.
•September – MMA acquired Blue Water Insurance LLC, a Kentucky-based employee health and benefits insurance broker.
•November – Marsh acquired HIG Australia Holdco Pty Ltd ("Honan Insurance Group"), an Australia-based insurance broker in the areas of corporate risk, employee benefits, and strata and real estate insurance.
The Consulting segment completed i5
acquisitions in 2023:
•March – Mercer acquired Leapgen LLC, a Minnesota-based human resources consulting technology advisory firm focused on digital strategy and transformation, workforce solutions, and improving employee experience.
•April – Mercer acquired Westpac Banking Corporation’s ("Westpac") financial advisory business, Advance Asset Management, and completed the transfer from Westpac of BT Financial Group's personal and corporate pension funds to the Mercer Super Trust managed by Mercer Australia (referred to collectively, as the "Westpac Transaction"). Oliver Wyman Group acquired the business of Gorman Actuarial, Inc., a Massachusetts-based life and health actuarial consultant business.
19
•July
– Oliver Wyman Group acquired the actuarial consulting business of ISC Strategies Consulting, Inc., a Florida-based life insurance and actuarial consulting firm.
•October – Mercer acquired BT Financial Group's Private Portfolio Management, an Australia-based wealth management business that provides investment solutions to not-for-profit organizations, high-net worth clients and their financial advisers.
Total purchase consideration for acquisitions made for the three months ended March 31, 2023 was approximately $i15
million, which consisted of cash paid of $i11 million and deferred and estimated contingent purchase consideration of $i4 million. Contingent purchase consideration arrangements are generally based primarily
on EBITDA or revenue targets over a period of i2 to i4 years.
For the first three months of 2023, the
Company also paid $i12 million of deferred purchase consideration and $i1 million of contingent purchase consideration related to acquisitions made in prior
years. Estimated fair values of assets acquired and liabilities assumed are subject to adjustment when purchase accounting is finalized.
Prior year dispositions
In January 2023, the Company entered into an agreement for the sale of an individual financial advisory business in Canada which was completed in May 2023. As a result, the Company recorded a loss of $i19
million for the three months ended March 31, 2023, primarily related to the write-down of the customer relationship intangible assets. The loss is included in revenue in the consolidated statements of income.
In connection with the disposition of the Mercer U.S. affinity business in 2022, the Company transferred to the buyer an additional $i20 million of cash and cash equivalents
held in a fiduciary capacity in the first quarter of 2023.
Purchase of remaining non-controlling interest
In the second quarter of 2023, the Company purchased the remaining interest in a subsidiary for $i139 million.
Pro-Forma Information
i
The
following unaudited pro-forma financial data gives effect to the acquisitions made by the Company in 2024 and 2023. In accordance with accounting guidance related to pro-forma disclosures, the information presented for acquisitions made in 2024 is as if they occurred on January 1, 2023, and reflects acquisitions made in 2023, as if they occurred on January 1, 2022.
The unaudited pro-forma information includes the effects of amortization of acquired intangibles in all years. The unaudited pro-forma financial data is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have been achieved if such acquisitions had occurred on the dates indicated, nor is it necessarily indicative of future
consolidated results.
Basic
net income per share attributable to the Company
$
i2.86
$
i2.57
Diluted
net income per share attributable to the Company
$
i2.84
$
i2.55
/
20
9. iGoodwill
and Other Intangibles
The Company is required to assess goodwill and any indefinite-lived intangible assets for impairment annually, or more frequently if circumstances indicate an impairment may have occurred. The Company performs the annual impairment assessment for each of its reporting units during the third quarter of each year. The reporting unit level is defined as the same level as the Company's operating segments. In accordance with applicable accounting guidance, a company can assess qualitative factors to determine whether it is necessary to perform a quantitative goodwill impairment test. Alternatively, the
Company may elect to proceed directly to the quantitative goodwill impairment test.
In 2023, the Company performed a quantitative goodwill impairment assessment. Fair values for the reporting units were estimated using both an income and market valuation approach. The carrying values were based on balances at June 30, 2023 and included directly identified assets and liabilities, as well as an allocation of those assets and liabilities not recorded at the reporting unit level. The Company concluded that goodwill was not impaired, as the fair value of each reporting unit exceeded the carrying value.
Other intangible assets that are not deemed to have an indefinite
life are amortized over their estimated lives and assessed for impairment upon the occurrence of certain triggering events in accordance with applicable accounting literature. Based on its assessment, the Company concluded that other intangible assets were not impaired. The Company had iino/
indefinite lived intangible assets at March 31, 2024 and December 31, 2023.
i
Changes in the carrying amount of goodwill are as follows:
(In millions)
2024
2023
Balance
at January 1,
$
i17,231
$
i16,251
Goodwill
acquired
i216
i11
Other adjustments (a)
(i133)
i38
Balance
at March 31,
$
i17,314
$
i16,300
(a)
Primarily reflects the impact of foreign exchange.
/
The goodwill from acquisitions in 2024 and 2023 consists largely of the synergies and economies of scale expected from combining the operations of the Company and the acquired entities and the trained and assembled workforce acquired.
The goodwill acquired in 2024 included approximately $i38
million and $i81 million in the Risk and Insurance Services and Consulting segments, respectively, which is deductible for tax purposes.
Goodwill allocated to the Company’s reportable segments at March 31, 2024, is $i13.2
billion for Risk and Insurance Services and $i4.1 billion for Consulting.
i
The gross cost and accumulated amortization of other identified intangible assets at March 31, 2024 and December 31,
2023 are as follows:
The Company has categorized its assets and liabilities that are valued at fair value on a recurring basis
into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets and liabilities (Level 1) and lowest priority to unobservable inputs (Level 3). In some cases, the inputs used to measure fair value might fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy, for disclosure purposes, is determined based on the lowest level input that is significant to the fair value measurement. Assets and liabilities recorded in the consolidated balance sheets at fair value are categorized based on the inputs in the valuation techniques as follows:
Level 1.Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market (examples include active exchange-traded equity securities and exchange-traded money market mutual
funds).
Assets and liabilities measured using Level 1 inputs include exchange-traded equity securities, exchange-traded mutual funds and money market funds.
Level 2.Assets and liabilities whose values are based on the following:
a)quoted prices for similar assets or liabilities in active markets;
b)quoted prices for identical or similar assets or liabilities in non-active markets (examples include corporate and municipal bonds, which trade infrequently);
c)pricing models whose inputs are observable for substantially the full term of the asset or liability (examples include most over-the-counter derivatives, including interest rate and currency swaps); and
d)pricing
models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full asset or liability (for example, certain mortgage loans).
Level 3.Assets and liabilities whose values are based on prices, or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.
Assets and liabilities measured using Level 3 inputs relate to assets and liabilities for contingent purchase consideration.
Investments
for which market quotations are readily available are valued at the sale price on their principal exchange or, for certain markets, official closing bid price. Money market funds are valued at a readily determinable price.
22
Contingent Purchase Consideration Assets and Liabilities – Level 3
Purchase consideration for some acquisitions and dispositions made by the Company include contingent consideration arrangements. Contingent consideration arrangements are based primarily on EBITDA or revenue targets over a period of i2
to i4 years. The fair value of the contingent purchase consideration asset and liability is estimated as the present value of future cash flows to be paid, based on projections of revenue and earnings and related targets of the acquired and disposed entities.
i
The
following fair value hierarchy table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis at March 31, 2024 and December 31, 2023:
Identical
Assets (Level 1)
Observable Inputs (Level 2)
Unobservable Inputs (Level 3)
Total
(In millions)
03/31/24
12/31/23
03/31/24
12/31/23
03/31/24
12/31/23
03/31/24
12/31/23
Assets:
Financial
instruments owned:
Exchange traded equity securities (a)
$
i7
$
i5
$
i—
$
i—
$
i—
$
i—
$
i7
$
i5
Mutual
funds (a)
i183
i178
i—
i—
i—
i—
i183
i178
Money
market funds (b)
i321
i606
i—
i—
i—
i—
i321
i606
Contingent
purchase consideration assets (c)
i—
i—
i—
i—
i1
i1
i1
i1
Total
assets measured at fair value
$
i511
$
i789
$
i—
$
i—
$
i1
$
i1
$
i512
$
i790
Fiduciary
Assets:
Money
market funds
$
i76
$
i180
$
i—
$
i—
$
i—
$
i—
$
i76
$
i180
Total
fiduciary assets measured at fair value
$
i76
$
i180
$
i—
$
i—
$
i—
$
i—
$
i76
$
i180
Liabilities:
Contingent
purchase
consideration liabilities (d)
$
i—
$
i—
$
i—
$
i—
$
i242
$
i252
$
i242
$
i252
Total
liabilities measured at fair value
$
i—
$
i—
$
i—
$
i—
$
i242
$
i252
$
i242
$
i252
(a)
Included in other assets in the consolidated balance sheets.
(b) Included in cash and cash equivalents in the consolidated balance sheets.
(c) Included in other receivables in the consolidated balance sheets.
(d) Included in accounts payable and accrued liabilities and other liabilities in the consolidated balance sheets.
/
The Level 3 assets in the table reflect contingent purchase consideration from the sale of businesses.
For the three months ended March 31,
2024 and 2023, there were no assets or liabilities that were transferred between levels.
i
The following table sets forth a summary of the changes in fair value of the Company’s Level 3 liabilities for the three months ended March 31, 2024 and 2023:
Three
Months Ended March 31,
(In millions)
2024
2023
Balance at January 1,
$
i252
$
i377
Net
additions
i13
i—
Payments
(i26)
(i1)
Revaluation
impact
i6
i7
Other
(i3)
i—
Balance
at March 31,
$
i242
$
i383
/
23
Long-Term
Investments
The Company has investments in public and private companies as well as certain private equity investments that are accounted for using the equity method of accounting. The carrying value of these investments was $i272 million and $i266
million at March 31, 2024 and December 31, 2023, respectively.
Investments in Public and Private Companies
The Company has investments in private insurance and consulting companies with a carrying value of $i64 million and $i63
million at March 31, 2024 and December 31, 2023, respectively. These investments are accounted for using the equity method of accounting, the results of which are included in revenue in the consolidated statements of income and the carrying value of which is included in other assets in the consolidated balance sheets. The Company records its share of income or loss on its equity method investments, some of which are on a one quarter lag basis.
Private Equity Investments
The Company's investments in private equity funds were $i208
million and $i203 million at March 31, 2024 and December 31, 2023, respectively. The carrying values of these private equity investments approximate fair value. The underlying private equity funds follow investment company accounting, where investments within the fund are carried at fair value. The Company records in earnings its proportionate share of the change in fair value of the funds on the investment income line in the consolidated statements
of income. These investments are included in other assets in the consolidated balance sheets. The Company recorded net investment losses from these investments of $i1 million for the three months ended March 31, 2024 and investment gains of $i3
million for the three months ended March 31, 2023.
At March 31, 2024, the Company has commitments of potential future investments of approximately $i109 million in private equity funds that invest primarily in financial services companies.
Other Investments
The
Company held equity investments with readily determinable market values at March 31, 2024 and December 31, 2023, of $i18 million and $i16 million, respectively. For the three months
ended March 31, 2024, the Company recorded mark-to-market investment gains on these investments of $i2 million. For the three months ended March 31, 2023, the Company recorded mark-to-market losses on these investments of $i1
million.
The Company has investments in various subsidiaries
with Euro functional currencies. As a result, the Company is exposed to the risk of fluctuations between the Euro and U.S. dollar exchange rates. The Company designated its €i1.1 billion senior note debt instruments ("Euro notes") as a net investment hedge (the "hedge") of its Euro denominated subsidiaries. The hedge effectiveness is re-assessed each quarter
to confirm that the designated equity balance at the beginning of each period continues to equal or exceed i80% of the outstanding balance of the Euro debt instrument and that all the critical terms of the hedging instrument and the hedged net investment continue to match. If the hedge is highly effective, the change in the debt balance related to foreign exchange fluctuations is recorded in accumulated other comprehensive loss in the consolidated balance sheets.
The U.S. dollar value of the Euro notes decreased by $i31 million
through March 31, 2024, related to the change in foreign exchange rates. The Company concluded that the hedge was highly effective and recorded a decrease to accumulated other comprehensive loss for the three months ended March 31, 2024.
24
12. iLeases
The Company leases office facilities under non-cancelable operating leases with terms generally ranging between i10 and i25 years. The Company utilizes
these leased office facilities for use by its employees in countries in which the Company conducts its business. The Company’s leases have no restrictions on the payment of dividends, the acquisition of debt or additional lease obligations, or entering into additional lease obligations. The leases also do not contain significant purchase options.
Operating leases are recognized on the consolidated balance sheets as ROU assets and operating lease liabilities based on the present value of the remaining future minimum payments over the lease term at commencement date of the lease. The Company determined that $i1 million
and $i8 million of its ROU assets were impaired and recordeda charge to the consolidated statements of income for the three months ended March 31, 2024 and 2023, respectively, with an offsetting reduction to ROU assets.
i
The
following table provides additional information about the Company’s property leases:
Three Months Ended March 31,
(In millions)
2024
2023
Lease
Cost:
Operating lease cost (a)
$
i82
$
i80
Short-term
lease cost
i1
i1
Variable lease cost
i26
i37
Sublease
income
(i3)
(i4)
Net lease cost
$
i106
$
i114
Other
information:
Operating cash outflows from operating leases
$
i93
$
i94
Right
of use assets obtained in exchange for new operating lease liabilities
$
i36
$
i76
Weighted
average remaining lease term – real estate
i7.8 years
i8.4 years
Weighted
average discount rate – real estate leases
i3.44
%
i3.12
%
(a)
Excludes ROU asset impairment charges.
/i
Future minimum lease payments for the Company’s operating leases as of March 31, 2024 are as follows:
Note: The above table excludes obligations for leases with original terms of 12 months or less which have not been recognized as a ROU asset or liability in the consolidated balance sheets.
/
At March 31,
2024, the Company had additional operating real estate leases that had not yet commenced of $i55 million. These operating leases will commence over the next 12 months.
25
13. iRetirement
Benefits
The Company maintains qualified and non-qualified defined benefit pension plans for its U.S. and non-U.S. eligible employees. The Company’s policy for funding its tax-qualified defined benefit retirement plans is to contribute amounts at least sufficient to meet the funding requirements set forth by U.S. law and the laws of the non-U.S. jurisdictions in which the Company offers defined benefit plans.
i
The
weighted average actuarial assumptions utilized to calculate the net periodic benefit costs for the U.S. and significant non-U.S. defined benefit plans are as follows:
(*)
There are iino/
rate of compensation increase assumptions for the U.S. defined benefit plans since future benefit accruals were discontinued for those plans after December 31, 2016 and earned benefits are not subject to final salary level adjustments.
/
The target asset allocation for the U.S. plans is i50% equities and equity alternatives and i50%
fixed income. At March 31, 2024, the actual allocation for the U.S. plans was i51% equities and equity alternatives, and i49% fixed income. The target allocation for the U.K.
plans at March 31, 2024 is i14% equities and equity alternatives and i86% fixed income. At March 31,
2024, the actual allocation for the U.K. plans was i14% equities and equity alternatives and i86% fixed income. The Company's U.K. plans comprised
approximately i79% of non-U.S. plan assets at December 31, 2023. The assets of the Company's defined benefit plans are diversified and are managed in accordance with applicable laws and with the goal of maximizing the plans' real return within acceptable risk parameters. The Company uses threshold-based portfolio re-balancing to ensure the actual portfolio remains consistent with target asset allocation ranges.
The
net benefit cost or credit of the Company's defined benefit plans is measured on an actuarial basis using various methods and assumptions. iThe components of the net benefit credit for defined benefit plans are as follows:
Combined U.S. and significant non-U.S.
Plans
For the Three Months Ended March 31,
Pension Benefits
(In millions)
2024
2023
Service cost
$
i6
$
ii6/
Interest
cost
i144
ii148/
Expected
return on plan assets
(i219)
(ii212/)
Recognized
actuarial loss
i8
ii6/
Net
benefit credit
$
(i61)
$
(i52)
The
following table provides the amounts reported in the consolidated statements of income:
Combined U.S. and significant non-U.S. Plans
For the Three Months Ended March 31,
Pension Benefits
(In millions)
2024
2023
Compensation
and benefits expense
$
i6
$
i6
Other
net benefit credits
(i67)
(i58)
Net
benefit credit
$
(i61)
$
(i52)
26
U.S.
Plans only
For the Three Months Ended March 31,
Pension Benefits
(In millions)
2024
2023
Interest cost
$
i62
$
i65
Expected
return on plan assets
(i76)
(i78)
Recognized
actuarial loss
i5
i5
Net
benefit credit
$
(i9)
$
(i8)
Significant
non-U.S. Plans only
For the Three Months Ended March 31,
Pension Benefits
(In millions)
2024
2023
Service cost
$
i6
$
i6
Interest
cost
i82
i83
Expected
return on plan assets
(i143)
(i134)
Recognized
actuarial loss
i3
i1
Net
benefit credit
$
(i52)
$
(i44)
The
Company made contributions to its U.S. and non-U.S. defined benefit pension plans for the three months ended March 31, 2024 of approximately $i24 million compared to contributions of $i21
million for the corresponding quarter in the prior year. The Company expects to contribute approximately $i69 million to its U.S. and non-U.S. defined benefit pension plans during the remainder of 2024.
Defined Contribution Plans
The Company maintains defined
contribution plans ("DC Plans") for its employees, the most significant being in the U.S. and the U.K. The cost of the U.S. DC Plans was $i49 million and $i44 million for the three months ended March 31,
2024 and 2023, respectively. The cost of the U.K. DC Plans was $i52 million and $i43 million for the three months ended March 31,
2024 and 2023, respectively.
The
senior notes in the table are registered by the Company with the Securities and Exchange Commission and are not guaranteed.
In November 2023, the Company increased its short-term commercial paper financing program (the "Program") to $i3.5 billion from $i2.8
billion. The Company had previously increased the Program's capacity in October 2022 to $i2.8 billion from $i2.0 billion.
In October 2023, the Company increased its multi-currency unsecured ifive-year
credit facility (the "Credit Facility") capacity to $i3.5 billion from $i2.8 billion and extended the expiration to October 2028. The interest rate on the Credit Facility
was initially based on LIBOR plus a fixed margin which varied with the Company's credit rating.
In the second quarter of 2023, the Credit Facility was amended so that that borrowings under the Credit Facility bear interest at a rate per annum, equal, at the Company's option, either at (a) SOFR benchmark rate for U.S. dollar borrowings, or (b) a currency specific benchmark rate, plus an applicable margin which varies with the Company's credit ratings. The Company is required to maintain certain coverage and leverage ratios for the Credit Facility, which are evaluated quarterly.
The
Credit Facility includes provisions for determining a benchmark replacement rate in the event existing benchmark rates are no longer available, or in certain other circumstances, in which an alternative rate may be required. At March 31, 2024 and December 31, 2023, the Company had iino/
borrowings under this facility.
In October 2023, the Company terminated its ione-year uncommitted revolving credit facility ("Uncommitted Credit Facility"). At March 31, 2023, the Company had $i250 million
borrowings outstanding under this facility with a weighted average interest rate of i5.19%.
The Company also maintains other credit and overdraft facilities with various financial institutions aggregating $i114
million and $i113 million, at March 31, 2024 and December 31, 2023, respectively. There were iino/
outstanding borrowings under these facilities at March 31, 2024 and December 31, 2023.
The Company also has outstanding guarantees and letters of credit with various banks aggregating $i128 million and $i139
million, at March 31, 2024 and December 31, 2023, respectively.
Senior Notes
In March 2024, the Company repaid $i1 billion of i3.875%
senior notes at maturity.
In February 2024, the Company issued $i500 million of i5.150% senior notes due 2034 and $i500 million
of i5.450% senior notes due 2054. The Company intends to use the net proceeds from these issuances for general corporate purposes.
In October 2023, the Company repaid $i250
million of i4.05% senior notes at maturity.
In September 2023, the Company issued $i600 million of i5.400%
senior notes due 2033 and $i1 billion of i5.700% senior notes due 2053. In March 2023, the Company issued $i600
million of i5.450% senior notes due 2053. The Company used the net proceeds from this issuance for general corporate purposes.
Fair Value of Short-term and Long-term Debt
The estimated fair value of the Company's short-term and long-term debt is provided below. Certain estimates and judgments were required to develop the fair value amounts. iThe
fair value amounts shown below are not necessarily indicative of the amounts that the Company would realize upon disposition, nor do they indicate the Company’s intent or need to dispose of the financial instrument.
The
fair value of the Company's short-term debt consists primarily of commercial paper and term debt maturing within the next year and its fair value approximates its carrying value. The estimated fair value of a primary portion of the Company's long-term debt is based on discounted future cash flows using current interest rates available for debt with similar terms and remaining maturities. Short-term and long-term debt would be classified as Level 2 in the fair value hierarchy.
29
15. iRestructuring
Costs
In the fourth quarter of 2022, the Company initiated activities focused on workforce actions, rationalization of technology and functional services, and reductions in real estate. For the three months ended March 31, 2024, the Company has incurred $i30 million of restructuring costs related to these activities, primarily severance. Any remaining costs are expected
to be incurred by the end of 2024.
The Company incurred a total of $i42 million for restructuring activities for the three months ended March 31, 2024, compared to $i53
million for the corresponding quarter in the prior year. iThe Company incurred costs related to these initiatives as follows:
(a)
Includes ROU and fixed asset impairments and other real estate related costs.
/
The expenses associated with these initiatives are included in compensation and benefits and other operating expenses in the consolidated statements of income. The liabilities associated with these initiatives are classified on the consolidated balance sheets as accounts payable and accrued liabilities, other liabilities or accrued compensation and employee benefits, depending on the nature of the items.
16. iCommon
Stock
The Company has a share repurchases program authorized by the Board of Directors. During the first three months of 2024, the Company repurchased i1.5 million shares of its common stock for $i300
million.
At March 31, 2024, the Company remained authorized to repurchase up to approximately $i2.9 billion in shares of its common stock. There is no time limit on the authorization. During the first three months of 2023, the Company repurchased i1.8
million shares of its common stock for $i300 million.
The Company issued approximately i2.3
million and i1.8 million shares related to stock compensation and employee stock purchase plans during the first three months of 2024 and 2023, respectively.
In March 2024, the Board of Directors of the Company declared a quarterly dividend of $i0.71
per share on outstanding common stock, payable in May 2024. In February 2024, the Company paid the quarterly dividend declared in January 2024 by the Company's Board of Directors of $i0.71 per share on outstanding common stock.
30
17. iClaims,
Lawsuits and Other Contingencies
Nature of Contingencies
The Company and its subsidiaries are subject to a significant number of claims, lawsuits and proceedings in the course of our business. Such claims and lawsuits consist principally of alleged errors and omissions in connection with the performance of professional services, including the placement of insurance, the provision of actuarial services for corporate and public sector clients, the provision of investment advice and investment management services to pension plans, the provision of advice relating to pension buy-out transactions and the provision of consulting services relating to the drafting and interpretation of trust deeds and other documentation
governing pension plans. These claims often seek damages, including punitive and treble damages, in amounts that could be significant. In establishing liabilities for errors and omissions claims, the Company utilizes case level reviews by inside and outside counsel, and internal actuarial analysis by Oliver Wyman Group, a subsidiary of the Company, and other methods to estimate potential losses. A liability is established when a loss is both probable and reasonably estimable. The liability is reviewed quarterly and adjusted as developments warrant. In many cases, the Company has not recorded a liability, other than for legal fees to defend the claim, because we are unable, at the present time, to make a determination that
a loss is both probable and reasonably estimable. To the extent that expected losses exceed our deductible in any policy year, the Company also records an asset for the amount that we expect to recover under any available third-party insurance programs. The Company has varying levels of third-party insurance coverage, with policy limits and coverage terms varying significantly by policy year.
Our activities are regulated under the laws of the U.S. and its various states, the U.K., the European Union (E.U.) and its member states, and the many other jurisdictions in which the Company operates. The Company
also receives subpoenas in the ordinary course of business, and from time to time requests for information in connection with government investigations.
Current Matters
Risk and Insurance Services Segment
•In January 2019, the Company received a notice that the Administrative Council for Economic Defense anti-trust agency in Brazil had commenced an administrative proceeding against a number of insurance brokers, including both Marsh and JLT, and insurers "to investigate an alleged sharing of sensitive commercial and competitive confidential information" in the aviation insurance and reinsurance sector.
•From 2014, Marsh Ltd. was engaged by Greensill Capital
(UK) Limited as its insurance broker. Marsh Ltd. placed a number of trade credit insurance policies for Greensill. On March 1, 2021, Greensill filed an action against certain of its trade credit insurers in Australia seeking a mandatory injunction compelling these insurers to renew coverage under expiring policies. Later that day, the Australian court denied Greensill’s application. Since then, a number of Greensill entities have filed for, or been subject to, insolvency proceedings, and several litigations and investigations have been commenced in the U.K., Australia, Germany, Switzerland and the U.S., including claims brought by Greensill's administrators and loss payees under Greensill's trade credit insurance policies. In June 2023, White Oak, one such loss payee, filed a claim in the High Court of Justice in London against Marsh Ltd., related to White Oak’s purchase of accounts receivable
from Greensill. In November 2023, Credit Suisse, another loss payee, added Marsh Ltd. as a party to the omnibus trade credit insurance policy litigation among Greensill and its insurers and loss payees in Australia. The claims by both loss payees allege that Marsh Ltd., which was not the insurance broker for either White Oak or Credit Suisse, failed to take required steps to make complete and accurate representations to them in their respective capacities as loss payees.
Other Contingencies-Guarantees
In connection with its acquisition of U.K.-based Sedgwick Group in 1998, the Company acquired several insurance underwriting businesses that were already in run-off, including River Thames Insurance Company Limited ("River Thames"), which the
Company sold in 2001. Sedgwick guaranteed payment of claims on certain policies underwritten through the Institute of London Underwriters (the "ILU") by River Thames. The policies covered by this guarantee are partly reinsured by a related party of River Thames. Payment of claims under the reinsurance agreement is collateralized by funds withheld by River Thames from the reinsurer. To the extent River Thames or the reinsurer is unable to meet its obligations under those policies, a claimant may seek to recover from the Company under the guarantee.
31
From 1980 to 1983, the Company owned indirectly
the English & American Insurance Company ("E&A"), which was a member of the ILU. The ILU required the Company to guarantee a portion of E&A's obligations. After E&A became insolvent in 1993, the ILU agreed to discharge the guarantee in exchange for the Company's agreement to post an evergreen letter of credit that is available to pay claims by policyholders on certain E&A policies issued through the ILU and incepting between July 3, 1980 and October 6, 1983. Certain claims have been paid under the letter of credit and the Company anticipates that additional claimants may seek to recover against the letter of credit.
* * * * *
The
pending proceedings described above and other matters not explicitly described in this Note 17 on Claims, Lawsuits and Other Contingencies may expose the Company or its subsidiaries to liability for significant monetary damages, fines, penalties or other forms of relief. Where a loss is both probable and reasonably estimable, the Company establishes liabilities in accordance with the Financial Accounting Standards Board ("FASB") guidance on Contingencies - Loss Contingencies.
The Company is not able at this time to provide a reasonable estimate of the range of possible loss attributable
to these matters or the impact they may have on the Company's consolidated results of operations, financial position or cash flows. This is primarily because these matters are still developing and involve complex issues subject to inherent uncertainty. Adverse determinations in one or more of these matters could have a material impact on the Company's consolidated results of operations, financial condition or cash flows in a future period.
18. iSegment
Information
The Company is organized based on the types of services provided. Under this structure, the Company’s segments are:
•Risk and Insurance Services, comprising insurance services (Marsh) and reinsurance services (Guy Carpenter); and
•Consulting, comprising Mercer and Oliver Wyman Group.
The accounting policies of the segments are the same as those used for the consolidated financial statements described in Note 1, Summary of Significant Accounting Policies, in the
Company’s 2023 Form 10-K. Segment performance is evaluated based on segment operating income, which includes directly related expenses, and charges or credits related to restructuring but not the Company’s corporate-level expenses. Revenues are attributed to geographic areas on the basis of where the services are performed.
(a)Includes
interest income on fiduciary funds of $i122 million and $i91 million in 2024 and 2023, respectively.
/
(b)Includes
inter-segment revenue of $ii13/
million in 2024 and 2023. Revenue in 2024 also includes a net gain of $i21 million from the sale of Mercer's U.K. pension administration and U.S. health and benefits administration businesses.
32
i
Details
of operating segment revenue for the three months ended March 31, 2024 and 2023 are as follows:
Three Months Ended March 31,
(In millions)
2024
2023
Risk
and Insurance Services
Marsh
$
i3,081
$
i2,800
Guy
Carpenter
i1,192
i1,106
Total
Risk and Insurance Services
i4,273
i3,906
Consulting
Mercer
i1,425
i1,344
Oliver
Wyman Group
i789
i687
Total
Consulting
i2,214
i2,031
Total
Segments
i6,487
i5,937
Corporate
Eliminations
(i14)
(i13)
Total
$
i6,473
$
i5,924
/
19. iiNew
Accounting Pronouncements/
Recently Issued Accounting Pronouncements Not Yet Adopted
In December 2023, the FASB issued an accounting standard update on income tax disclosures, primarily related to the rate reconciliation and income taxes paid information. The new guidance requires that public business entities, on an annual basis, disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. In addition, all entities are required to disclose on an annual basis the amount of income taxes paid, net of refunds received, disaggregated by federal, state and foreign taxes, and by individual jurisdictions if the amount is equal to or greater
than 5% of total income taxes paid, net of refunds received. The guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. An entity should apply the amendments in the standard prospectively, even though retrospective application is permitted. The Company is currently evaluating the guidance and expects it to only impact disclosures with no impact to results of operations, cash flows, or financial condition.
In November 2023, the FASB issued an accounting standard update on segment reporting. The new guidance: (1) introduces a requirement to disclose significant segment expenses regularly provided to the chief operating decision maker ("CODM"), (2) extends certain annual disclosures to interim periods, (3) clarifies disclosure requirements
for single reportable segment entities, (4) permits more than one measure of segment profit or loss to be reported under certain conditions, and (5) requires disclosure of the title and position of the CODM. The standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The guidance applies retrospectively to all periods presented in the financial statements. The Company is currently evaluating the guidance and expects it to only impact disclosures with no impact to results of operations, cash flows, or financial condition.
33
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
General
Marsh & McLennan Companies, Inc., and its consolidated subsidiaries (the "Company") is a global professional services firm in the areas of risk, strategy and people. The Company helps clients build the confidence to thrive through the power of perspective of its four market-leading businesses. With annual revenue of $23 billion, the Company has more than 85,000 colleagues advising clients in over 130 countries.
Marsh
provides data-driven risk advisory services and insurance solutions to commercial and consumer clients. Guy Carpenter develops advanced risk, reinsurance and capital strategies that help clients grow profitably and pursue emerging opportunities. Mercer delivers advice and technology-driven solutions that help organizations redefine the world of work, shape retirement and investment outcomes, and unlock health and well-being for a changing workforce. Oliver Wyman Group serves as a critical strategic, economic and brand advisor to private sector and governmental clients. The four businesses also collaborate together to deliver new solutions to help clients manage complex and interconnected risks.
The Company conducts business through two segments:
•Risk and Insurance Services
includes risk management activities (risk advice, risk transfer and risk control and mitigation solutions) as well as insurance and reinsurance broking and services. The Company conducts business in this segment through Marsh and Guy Carpenter.
•Consulting includes health, wealth and career advice, solutions and products, and specialized management, strategic, economic and brand consulting services. The Company conducts business in this segment through Mercer and Oliver Wyman Group.
The results of operations in the Management Discussion & Analysis ("MD&A") include an overview of the
Company's consolidated results for the three months ended March 31, 2024, compared to the corresponding period in 2023, and should be read in conjunction with the consolidated financial statements and notes. This section also includes a discussion of the key drivers impacting the Company's financial results of operations both on a consolidated basis and by reportable segments.
We describe the primary sources of revenue and categories of expense for each segment in the discussion of segment financial results. A reconciliation of segment operating income to total operating income is included in Note 18, Segment Information, in the notes to the consolidated financial statements included in Part I, Item 1, of this report.
For information and comparability
of the Company's results of operations and liquidity and capital resources for the three months ended March 31, 2023, refer to "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" of the Company's Form 10-Q for the quarter ended March 31, 2023.
This MD&A contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Refer to "Information Concerning Forward-Looking Statements" at the outset of this report.
Non-GAAP measures
The
Company reports its financial results in accordance with accounting principles generally accepted in the United States (U.S.), referred to as in accordance with "GAAP" or "reported" results. The Company also refers to and presents a non-GAAP financial measure in non-GAAP revenue, within the meaning of Regulation G and Item 10(e) of Regulation S-K in accordance with the Securities Exchange Act of 1934. The Company has included a reconciliation of this non-GAAP financial measure to the most directly comparable financial measure calculated in accordance with GAAP as part of the consolidated revenue and expense discussion. Percentage changes, referred to as non-GAAP underlying revenue, are calculated by dividing the period over period change in non-GAAP revenue by the prior period non-GAAP
revenue.
The Company believes this non-GAAP financial measure provides useful supplemental information that enables investors to better compare the Company’s performance across periods. Management also uses this measure internally to assess the operating performance of its businesses and to decide how to allocate resources. However, investors should not consider this non-GAAP measure in isolation from, or as a substitute for, the financial information that the Company reports in accordance with GAAP. The Company's non-GAAP measure includes adjustments that reflect how management
views its businesses and may differ from similarly titled non-GAAP measures presented by other companies.
34
Financial Highlights
•Consolidated revenue for the three months ended March 31, 2024 was $6.5 billion, an increase of 9%, on a reported and underlying basis.
•Consolidated operating income increased $199 million, or 12% to $1.9 billion for the three months ended March 31, 2024, compared to the corresponding quarter in the prior year. Net income attributable to the
Company was $1.4 billion. Earnings per share on a diluted basis increased to $2.82 from $2.47, or 14%, compared to the corresponding quarter in the prior year.
•Risk and Insurance Services revenue for the three months ended March 31, 2024 was $4.3 billion, an increase of 9%, on a reported and underlying basis. Operating income was $1.6 billion, compared with $1.4 billion for the corresponding quarter in the prior year.
•Consulting revenue for the three months ended March 31, 2024 was $2.2 billion, an increase of 9%, on a reported and underlying basis. Operating income was $432 million, compared with $411 million for the corresponding quarter in the prior year.
•The
Company completed 6 acquisitions in the first quarter of 2024, the largest being the acquisition of Vanguard's Institutional Advisory Services business unit ("Vanguard") in the Consulting segment and the acquisition of Louisiana-based insurance brokers, Querbes & Nelson and Louisiana Companies in the Risk and Insurance Services segment.
•On January 1, 2024, the Company completed the sale of its Mercer U.K. pension administration and U.S. health and benefits administration businesses for approximately $114 million, and recorded a net gain of $21 million.
•In February 2024, the Company issued $500 million
of 5.150% senior notes due 2034 and $500 million of 5.450% senior notes due 2054.
•In March 2024, the Company repaid $1 billion of 3.875% senior notes at maturity.
•In the first quarter of 2024, the Company repurchased 1.5 million shares of stock for $300 million.
•In March 2024, the Board of Directors of the Company declared a dividend of $0.71 per share on outstanding common stock, payable in May of 2024.
The macroeconomic and geopolitical environment including multiple major
wars, escalating conflict throughout the Middle East and rising tension in the South China Sea, slower GDP growth or recession, lower interest rates, capital markets volatility and inflation could impact our business, financial condition, results of operations and cash flows. For more information about these risks, please see "Part I, Item 1A. Risk Factors" in our annual Report on Form 10-K for the year ended December 31, 2023.
For additional details, refer to the Consolidated Results of Operations and Liquidity and Capital Resources sections in this MD&A.
Acquisitions and dispositions impacting the Risk and Insurance Services and Consulting segments are discussed in Note 8, Acquisitions and Dispositions, in the notes to the consolidated financial statements.
Consolidated operating income increased $199 million, or 12% to $1.9 billion for the three months ended March 31, 2024, compared to $1.7 billion for the corresponding quarter in the prior year, reflecting a 9% increase in revenue and an 8% increase in expenses. Revenue growth was driven by increases in both the Risk and Insurance Services and Consulting segments of 9%.
The increase in revenue for the three months ended March 31, 2024 reflects
the continued demand for our advice and solutions, and growth in new business and renewals. Results also continued to benefit from growth in the global economy, inflation, higher insurance and reinsurance pricing, and an increase in fiduciary income due to higher funds and interest rates. In Consulting, revenue growth reflects the continued demand for our health and wealth solutions, and consulting services.
Expenses increased for the three months ended March 31, 2024 primarily due to compensation and benefits, driven by higher base salary and incentive compensation. Expenses in 2023 also included $51 million of insurance and indemnity recoveries for a legacy Jardine Lloyd Thompson Group plc ("JLT") errors and omissions ("E&O") matter relating to suitability of advice provided to individuals
for defined benefit pension transfers in the United Kingdom (U.K).
Diluted earnings per share increased to $2.82 from $2.47, or 14% for the three months ended March 31, 2024, compared to corresponding quarter in the prior year. The increase is primarily the result of higher operating income for the three months ended March 31, 2024, compared to the corresponding quarter in the prior year.
36
Consolidated Revenue and Expense
Revenue – Non-GAAP Revenue and Components
of Change
The Company advises clients in over 130 countries. As a result, foreign exchange rate movements may impact period over period comparisons of revenue. Similarly, certain other items such as acquisitions and dispositions, including transfers among businesses, may impact period over period comparisons of revenue. Non-GAAP revenue measures the change in revenue from one period to the next by isolating these impacts on an underlying revenue basis. Percentage changes, referred to as non-GAAP underlying revenue, are calculated by dividing the period over period change in non-GAAP revenue by the prior period non-GAAP revenue.
The non-GAAP revenue measure is presented on a constant currency basis excluding the impact of foreign currency fluctuations. The
Company isolates the impact of foreign exchange rate movements period over period, by translating the current period foreign currency GAAP revenue into U.S. Dollars based on the difference in the current and corresponding prior period exchange rates.
The percentage change for acquisitions, dispositions, and other includes the impact of current and prior year items excluded from the calculation of non-GAAP underlying revenue for comparability purposes. Details on these items are provided in the reconciliation of non-GAAP revenue to GAAP revenue tables.
The following tables present the Company's non-GAAP revenue for the three months ended March 31, 2024 and 2023 and the related non-GAAP underlying
revenue change:
Three Months Ended March 31,
(In millions, except percentages)
GAAP Revenue
% Change GAAP Revenue*
Non-GAAP Revenue
Non-GAAP Underlying
Revenue*
2024
2023
2024
2023
Risk and Insurance Services
Marsh
$
3,003
$
2,744
9
%
$
2,970
$
2,744
8
%
Guy
Carpenter
1,148
1,071
7
%
1,143
1,059
8
%
Subtotal
4,151
3,815
9
%
4,113
3,803
8
%
Fiduciary
interest income
122
91
121
91
Total Risk and Insurance Services
4,273
3,906
9
%
4,234
3,894
9
%
Consulting
Mercer
1,425
1,344
6
%
1,405
1,320
6
%
Oliver
Wyman Group
789
687
15
%
775
686
13
%
Total Consulting
2,214
2,031
9
%
2,180
2,006
9
%
Corporate
Eliminations
(14)
(13)
(14)
(13)
Total Revenue
$
6,473
$
5,924
9
%
$
6,400
$
5,887
9
%
The
following table provides more detailed revenue information for certain of the components presented in the previous table:
Three Months Ended March 31,
(In millions, except percentages)
GAAP Revenue
% Change GAAP Revenue*
Non-GAAP
Revenue
Non-GAAP Underlying Revenue*
2024
2023
2024
2023
Marsh:
EMEA
$
1,025
$
932
10
%
$
1,014
$
932
9
%
Asia
Pacific
336
312
8
%
330
312
6
%
Latin America
125
115
8
%
124
115
8
%
Total
International
1,486
1,359
9
%
1,468
1,359
8
%
U.S./Canada
1,517
1,385
10
%
1,502
1,385
8
%
Total
Marsh
$
3,003
$
2,744
9
%
$
2,970
$
2,744
8
%
Mercer:
Wealth
$
672
$
581
16
%
$
612
$
582
5
%
Health
538
545
(1)
%
572
520
10
%
Career
215
218
(1)
%
221
218
1
%
Total
Mercer
$
1,425
$
1,344
6
%
$
1,405
$
1,320
6
%
(*) Rounded to whole percentages.
37
Revenue
– Reconciliation of Non-GAAP Measures
The following tables provide the reconciliation of GAAP revenue to Non-GAAP revenue for the three months ended March 31, 2024 and 2023:
2024
2023
Three
Months Ended March 31,
(In millions)
GAAP Revenue
Currency Impact
Acquisitions/ Dispositions/ Other Impact
Non-GAAP Revenue
GAAP Revenue
Acquisitions/ Dispositions/ Other Impact
Non-GAAP Revenue
Risk and Insurance Services
Marsh
$
3,003
$
6
$
(39)
$
2,970
$
2,744
$
—
$
2,744
Guy
Carpenter
1,148
(2)
(3)
1,143
1,071
(12)
1,059
Subtotal
4,151
4
(42)
4,113
3,815
(12)
3,803
Fiduciary
interest income
122
—
(1)
121
91
—
91
Total Risk and Insurance Services
4,273
4
(43)
4,234
3,906
(12)
3,894
Consulting
Mercer
(a)
1,425
8
(28)
1,405
1,344
(24)
1,320
Oliver Wyman Group
789
(4)
(10)
775
687
(1)
686
Total
Consulting
2,214
4
(38)
2,180
2,031
(25)
2,006
Corporate Eliminations
(14)
—
—
(14)
(13)
—
(13)
Total
Revenue
$
6,473
$
8
$
(81)
$
6,400
$
5,924
$
(37)
$
5,887
The
following table provides more detailed revenue information for certain of the components presented in the previous table:
2024
2023
Three
Months Ended March 31,
(In millions)
GAAP Revenue
Currency Impact
Acquisitions/ Dispositions/ Other Impact
Non-GAAP Revenue
GAAP Revenue
Acquisitions/ Dispositions/ Other Impact
Non-GAAP Revenue
Marsh:
EMEA
$
1,025
$
(10)
$
(1)
$
1,014
$
932
$
—
$
932
Asia
Pacific
336
13
(19)
330
312
—
312
Latin America
125
3
(4)
124
115
—
115
Total
International
1,486
6
(24)
1,468
1,359
—
1,359
U.S./Canada
1,517
—
(15)
1,502
1,385
—
1,385
Total
Marsh
$
3,003
$
6
$
(39)
$
2,970
$
2,744
$
—
$
2,744
Mercer:
Wealth
(a)
$
672
$
2
$
(62)
$
612
$
581
$
1
$
582
Health
(a)
538
2
32
572
545
(25)
520
Career
215
4
2
221
218
—
218
Total
Mercer
$
1,425
$
8
$
(28)
$
1,405
$
1,344
$
(24)
$
1,320
(a)
Acquisitions, dispositions and other in 2024 includes a net gain of $21 million from the sale of the U.K. pension administration and U.S. health and benefits administration businesses, that comprised of a $66 million gain in Wealth, offset by a $45 million loss in Health.
38
Consolidated Revenue
Consolidated revenue increased $549 million, or 9% to $6.5 billion for the three months ended March 31, 2024, compared to $5.9 billion for the three months ended March 31, 2023. Consolidated revenue increased 9% on an
underlying basis and 1% from acquisitions. On an underlying basis, revenue increased 9% for the three months ended March 31, 2024 in both the Risk and Insurance Services and Consulting segments.
Underlying revenue growth in the Risk and Insurance Services and Consulting segments for the three months ended March 31, 2024 reflects the continued demand for our advice and solutions. In Risk and Insurance Services, the increase in underlying revenue was primarily due to strong growth in new business and solid renewals. Results also continued to benefit from growth in the global economy, inflation, higher insurance and reinsurance pricing, and an increase in fiduciary income due to higher funds and interest rates. In Consulting, revenue growth reflects the continued demand for our health and wealth solutions, and consulting services.
Consolidated
Operating Expenses
Consolidated operating expenses increased $350 million, or 8% to $4.5 billion for the three months ended March 31, 2024, compared to $4.2 billion for the three months ended March 31, 2023. Expenses reflect a 1% increase from acquisitions. Expenses, excluding the impact from acquisitions, increased 8% for the three months ended March 31, 2024, with increases of 6% and 11% in the Risk and Insurance Services and Consulting segments, respectively.
Expenses increased for the three months ended March 31, 2024 primarily due to compensation and benefits driven by higher base salaries and incentive compensation. Expenses in 2023 also included $51 millionof insurance and indemnity recoveries for a legacy JLT E&O matter relating to suitability of advice provided to individuals for defined benefit pension transfers in the U.K.
Restructuring activities
The Company incurred a total of $42 million for restructuring activities for the three months ended March 31, 2024, compared to $53 million for the corresponding quarter in the prior year.
In the fourth quarter of 2022, the Company initiated activities focused on workforce actions, rationalization of technology and functional services, and reductions in real estate. For the three months ended March 31,
2024, the Company has incurred $30 million of restructuring costs related to these activities, primarily severance. Any remaining costs are expected to be incurred by the end of 2024.
39
Risk and Insurance Services
In the Risk and Insurance Services segment, the Company’s subsidiaries and other affiliated entities act as brokers, agents or consultants
for insureds, insurance underwriters and other brokers in the areas of risk management, insurance broking, insurance program management, risk consulting, analytical modeling and alternative risk financing services, primarily under the brand of Marsh, and engage in specialized reinsurance broking expertise, strategic advisory services and analytics solutions, primarily under the brand of Guy Carpenter.
The results of operations for the Risk and Insurance Services segment are as follows:
Three
Months Ended March 31,
(In millions, except percentages)
2024
2023
Revenue
$
4,273
$
3,906
Compensation and benefits (a)
2,118
1,931
Other
operating expenses (a)
590
580
Operating expenses
2,708
2,511
Operating income
$
1,565
$
1,395
Operating
income margin
36.6
%
35.7
%
(a)The Company reclassified certain prior period amounts between Compensation and benefits and Other operating expenses for each reporting segment for comparability purposes. The reclassification had no impact on consolidated or reporting segment total expenses.
Revenue
Revenue in the Risk and Insurance Services segment increased $367 million,
or 9% to $4.3 billion for the three months ended March 31, 2024, compared to $3.9 billion for the three months ended March 31, 2023. Revenue increased 9% on an underlying basis and 1% from acquisitions. Interest earned on fiduciary funds increased by $31 million to $122 million for the three months ended March 31, 2024, compared to $91 million for the corresponding quarter in the prior year.
The increase in revenue on an underlying basis in the Risk and Insurance Services segment for the three months ended March 31, 2024 was primarily due to strong growth in new business and solid renewals. Results also continued to benefit from growth in the global economy, inflation, higher insurance and reinsurance pricing, and an increase
in fiduciary income due to higher funds and interest rates compared to the corresponding period in the prior year.
Marsh's revenue increased $259 million, or 9% to $3.0 billion for the three months ended March 31, 2024,compared to $2.7 billion for the three months ended March 31, 2023. This reflects increases of 8% on an underlying basis and 1% from acquisitions. U.S./Canada rose 8% on an underlying basis. Total International operations produced underlying revenue growth of 8%, reflecting growth of 9% in EMEA, 8% in Latin America, and 6% in Asia Pacific.
Guy Carpenter's revenue increased $77 million, or 7% to $1.1 billion for the three months ended March 31, 2024, compared to the corresponding
quarter in the prior year. This reflects an increase of 8% on an underlying basis, partially offset by a decrease of 1% from acquisitions.
The Risk and Insurance Services segment completed 2 acquisitions for the three months ended March 31, 2024. Information regarding these acquisitions is included in Note 8, Acquisitions and Dispositions, in the notes to the consolidated financial statements.
Operating Expenses
Expenses in the Risk and Insurance Services segment increased $197 million, or 8% to $2.7 billion for the three months ended March 31, 2024, compared to $2.5 billion for the three months ended March 31, 2023. Expenses reflect a 2% increase from acquisitions.
Expenses
for the three months ended March 31, 2024 increased primarily due to compensation and benefits driven by increased headcount, and higher base salary and incentive compensation.
40
Consulting
The Company conducts business in its Consulting segment through Mercer and Oliver Wyman Group. Mercer delivers advice and technology-driven solutions that help organizations redefine the world of work, reshape retirement and investment outcomes, and unlock health and well-being for a changing
workforce. Oliver Wyman Group serves as critical strategic, economic and brand advisor to private sector and governmental clients.
The results of operations for the Consulting segment are as follows:
Three Months Ended March 31,
(In millions, except percentages)
2024
2023
Revenue
$
2,214
$
2,031
Compensation
and benefits (a)
1,314
1,235
Other operating expenses (a)
468
385
Operating expenses
1,782
1,620
Operating
income
$
432
$
411
Operating income margin
19.5
%
20.2
%
(a)The Company reclassified
certain prior period amounts between Compensation and benefits and Other operating expenses for each reporting segment for comparability purposes. The reclassification had no impact on consolidated or reporting segment total expenses.
Revenue
Consulting revenue increased $183 million, or 9% to $2.2 billion for the three months ended March 31, 2024, compared to $2.0 billion for the three months ended March 31, 2023. This reflects an increase of 9% on an underlying basis and 1% primarily from the disposition of businesses.
Mercer's revenue increased $81 million, or 6% to $1.4 billion for the three months ended March 31, 2024, compared to $1.3 billion for the three months ended March 31,
2023. This reflects an increase of 6% on an underlying basis, partially offset by a decrease of 1% from the impact of foreign currency translation. On an underlying basis, revenue for Health, Wealth and Career increased 10%, 5%, and 1%, respectively, as compared to the corresponding quarter in the prior year.
The increase in revenue on an underlying basis at Mercer for the three months ended March 31, 2024 was primarily due to the continued demand for our health and wealth solutions. Health continued to benefit from growth in new business, strong retention, enrolled lives, and medical inflation. Revenue in Wealth on an underlying basis was driven by defined benefit consulting and investment management. The increase in investment management was primarily due to higher assets under management as a result of the Westpac and Vanguard acquisitions, a rebound in capital markets,
and positive net flows.
Revenue for the three months ended March 31, 2024, includes a net gain of $21 million from the sale of the Mercer U.K. pension administration and U.S. health and benefits administration businesses. Results for 2023 include the loss on sale of an individual financial advisory business in Canada of $19 million.
Oliver Wyman Group's revenue increased $102 million, or 15% to $789 million for the three months ended March 31, 2024, compared to $687 million for the three months ended March 31, 2023. This reflects an increase of 13% on an underlying basis and 1% from both acquisitions and the impact of foreign currency translation.
The increase in underlying revenue at Oliver
Wyman Group for the three months ended March 31, 2024 was driven by growth across all regions.
The Consulting segment completed 4 acquisitions for the three months ended March 31, 2024. Information regarding these acquisitions are included in Note 8, Acquisitions and Dispositions, in the notes to the consolidated financial statements.
Operating Expenses
Expenses in the Consulting segment increased $162 million, or 10% to $1.8 billion for the three months ended March 31, 2024, compared to $1.6 billion for the threemonths endedMarch 31, 2023. Expenses
reflect a 1% decrease from dispositions.
41
Expenses for the three months ended March 31, 2024 increased primarily due to compensation and benefits driven by higher base salaries and incentive compensation. Expenses in 2023 also included $51 million of insurance and indemnity recoveries for a legacy JLT E&O matter relating to suitability of advice provided to individuals for defined benefit pension transfers in the U.K.
For the three months ended March 31, 2024, expenses also reflect acquisition and disposition costs of $21 million, primarily related to exit costs for the disposition of the Mercer U.K. pension administration
and U.S. health benefits administration businesses in 2024. For the three months ended March 31, 2023, the Company incurred integration costs of $17 million, related to the Westpac Transaction.
Corporate and Other
Corporate expenses decreased $8 million, or 9% to $72 million for the three months ended March 31, 2024, compared to $80 million for the three months ended March 31, 2023.
Interest
Income
Interest income was $37 million for the three months ended March 31, 2024, compared to $14 million for the three months ended March 31, 2023. Interest income increased $23 million due to higher corporate funds and interest rates compared to the corresponding quarter in the prior year.
Interest Expense
Interest expense was $159 million for the three months ended March 31, 2024, compared to $136 million for the three months ended March 31, 2023.
Interest expense for the three months ended March 31, 2024, increased $23 million, due to an increase
in long term debt and higher interest rates.
Investment Income
The caption "Investment income" in the consolidated statements of income comprises realized and unrealized gains and losses from investments. It includes, when applicable, other than temporary declines in the value of securities, mark-to-market increases or decreases in equity investments with readily determinable fair values and equity method gains or losses on its investments in private equity funds. The Company's investments may include direct investments in insurance, consulting or other strategically linked companies and investments in private equity funds.
The
Company recorded net investment income of $1 million for the three months ended March 31, 2024, compared to net investment income of $2 million, for the corresponding quarter in the prior year.
Income and Other Taxes
The Company's effective tax rate for the three months ended March 31, 2024 was 23.9%, compared with 24.7% for the corresponding quarter of 2023.
The tax rate in each period reflects the impact of discrete tax items such as excess tax benefits related to share-based compensation, enacted tax legislation, changes in uncertain
tax positions, deferred tax adjustments, non-taxable adjustments related to contingent consideration for acquisitions, and valuation allowances for certain tax credits and attributes. The rate for the three months ended March 31, 2024 reflects the previously enacted change in the U.K. corporate income tax rate from 19% to 25%, which was effective April 1, 2023. The blended U.K. statutory tax rate for 2023 was 23.5%.
The excess tax benefit related to share-based payments is the most significant discrete item in both periods, reducing the effective tax rate by 2.3% and 1.3% for the three months ended March 31, 2024 and 2023, respectively.
The effective tax rate may vary significantly
from period to period. The effective tax rate is sensitive to the geographic mix and repatriation of the Company's earnings, which may result in higher or lower effective tax rates. Therefore, a shift in the mix of profits among jurisdictions, or changes in the Company's repatriation strategy to access offshore cash, can affect the effective tax rate.
In addition, losses in certain jurisdictions cannot be offset by earnings from other operations and may require valuation allowances that affect the rate in a particular period, depending on estimates of the value of associated deferred tax assets which can be realized. A valuation allowance was recorded to reduce deferred tax assets to
42
the
amount that the Company believes is more likely than not to be realized. The effective tax rate is also sensitive to changes in unrecognized tax benefits, including the impact of settled tax audits and expired statutes of limitations.
The Company has established liabilities for uncertain tax positions in relation to potential assessments in the jurisdictions in which it operates. The Company believes the resolution of tax matters will not have a material effect on the consolidated financial position of the Company, although a resolution of tax matters could have a material impact on the
Company's net income or cash flows and on its effective tax rate in a particular future period. It is reasonably possible that the total amount of unrecognized tax benefits could decrease up to approximately $66 million within the next twelve months due to settlement of audits and expiration of statutes of limitations.
Changes in tax laws, rulings, policies, or related legal and regulatory interpretations occur frequently and may have significant favorable or adverse impacts on our effective tax rate. In 2021, the Organization for Economic Cooperation and Development ("OECD") released model rules for a 15% global minimum tax, known as Pillar Two. Pillar Two has now been enacted by approximately 30 countries, including the U.K. and Ireland. This minimum tax is treated as a period cost beginning in 2024 and does not have a material impact on the
Company's financial results of operations for the current period. The Company is monitoring legislative developments, as well as additional guidance from countries that have enacted legislation. We anticipate further legislative activity and administrative guidance in 2024.
As a U.S. domiciled parent holding company, the Company is the issuer of essentially all the Company's external indebtedness, and incurs the related interest expense in the U.S. The Company’s interest expense deductions are not currently limited. However, the
Company may not be able to fully deduct intercompany interest on loans used to finance the Company's foreign operations. Further, most senior executive and oversight functions are conducted in the U.S. and the associated costs are incurred primarily in the U.S. Some of these expenses may not be deductible in the U.S., which may impact the effective tax rate.
Changes to the U.S. tax law in recent years have allowed the Company to repatriate foreign earnings without incurring additional U.S. federal income tax costs as foreign income is generally already taxed in the U.S. However, permanent reinvestment continues to be a component of the Company's global capital strategy. The
Company continues to evaluate its global investment and repatriation strategy in light of our capital requirements and potential costs of repatriation, which are generally limited to local country withholding taxes.
43
Liquidity and Capital Resources
The Company is organized as a legal entity separate and distinct from its operating subsidiaries. As the
Company does not have significant operations of its own, the Company is dependent upon dividends and other payments from its operating subsidiaries to pay principal and interest on its outstanding debt obligations, pay dividends to stockholders, repurchase its shares and pay corporate expenses. The Company can also provide financial support to its operating subsidiaries for acquisitions, investments and certain parts of their business that require liquidity, such as the capital markets business of Guy Carpenter. Other sources of liquidity include borrowing facilities discussed in financing cash flows.
The
Company derives a significant portion of its revenue and operating profit from operating subsidiaries located outside of the U.S. Funds from those operating subsidiaries are regularly repatriated to the U.S. out of annual earnings. At March 31, 2024, the Company had approximately $1.2 billion of cash and cash equivalents in its foreign operations, which includes $456 million of operating funds required to be maintained for regulatory requirements or as collateral under certain captive insurance arrangements. The Company expects to continue its practice of repatriating available
funds from its non-U.S. operating subsidiaries out of current annual earnings. Where appropriate, a portion of the current year earnings will continue to be permanently reinvested.
For the three months ended March 31, 2024, the Company recorded foreign currency translation adjustments which decreased net equity by $218 million. Continued strengthening of the U.S. dollar against foreign currencies would further decrease the translated U.S. dollar value of the Company’s net investments in its non-U.S. subsidiaries,
as well as the translated U.S. dollar value of cash repatriations from those subsidiaries.
Cash and cash equivalents on our consolidated balance sheets includes funds available for general corporate purposes. Fiduciary assets are shown separately in the consolidated balance sheets as cash and cash equivalents held in a fiduciary capacity, with a corresponding amount in current liabilities. Fiduciary assets cannot be used for general corporate purposes, and should not be considered as a source of liquidity for the Company.
Operating Cash Flows
The
Company used $781 million of cash from operations for the three months ended March 31, 2024, compared to $819 million used for operations in the first three months of 2023. These amounts reflect the net income of the Company during those periods, excluding gains or losses from investments, adjusted for non-cash charges and changes in working capital which relate primarily to the timing of payments of accrued liabilities, including incentive compensation, or receipts of receivables and pension plan contributions. The Company used cash of $88 million and $79 million related to its restructuring activities for the three months ended March 31, 2024 and 2023,
respectively.
Pension Related Items
Contributions
The Company's policy for funding its tax-qualified defined benefit plans is to contribute amounts at least sufficient to meet the funding requirements set forth in accordance with applicable law. During the first three months ended March 31, 2024, the Company contributed $8 million to its U.S. defined benefit pension plans and $16 million to its non-U.S. defined benefit pension plans. For the three months ended March 31, 2023, the Company contributed $8
million to its U.S. defined benefit pension plans and $13 million to its non-U.S. defined benefit pension plans.
In the U.S., contributions to the tax-qualified defined benefit plans are based on Employee Retirement Income Security Act ("ERISA") guidelines and the Company generally expects to maintain a funded status of 80% or more of the liability determined in accordance with the ERISA guidelines. During the three months ended March 31, 2024, the Company made $8 million of contributions to its non-qualified plans and expects to contribute approximately an additional $23 million over the remainder of 2024. The Company is
also required to make $2 million of contributions to its U.S. qualified plans in 2024.
Outside the U.S., the Company has a large number of non-U.S. defined benefit pension plans, the largest of which are in the U.K., which comprise approximately 79% of non-U.S. plan assets at December 31, 2023. Contribution rates for non-U.S. plans are generally based on local funding practices and statutory requirements, which may differ significantly from measurements in accordance with U.S. GAAP.
In the U.K., the assumptions used to determine pension contributions are the result of legally-prescribed negotiations between the Company and the plans' trustee that typically occur every
3 years in conjunction with the
44
actuarial valuation of the plans. Currently, this results in a lower funded status compared to U.S. GAAP and may result in contributions irrespective of the U.S. GAAP funded status.
In 2021, the JLT Pension Scheme was merged into the MMC U.K. Pension Fund with a new segregated JLT section created (referred to as the "JLT section"). For the first three months of 2024, the Company made deficit contributions of $10 million to the JLT section of its U.K. plans, and is expected to make $10 million of contributions in the remainder of 2024.
For the MMC U.K. Pension
Fund, excluding the JLT section, an agreement was reached with the trustee in the fourth quarter of 2022, based on the surplus funding position at December 31, 2021. In accordance with the agreement, no deficit funding is required at the earliest until 2026. The funding level will be re-assessed during 2025 as part of the December 31, 2024 actuarial valuation to determine if contributions are required in 2026. In December 2022, the Company renewed its agreement to support annual deficit contributions that may be required by the U.K. operating companies under certain circumstances, up to £450 million (or $569 million) over a seven year period. This is part of an agreement which gives the Company greater influence
over asset allocation and overall investment decisions.
The Company expects to fund an additional $44 million to its non-U.S. defined benefit plans over the remainder of 2024, comprising approximately $10 million to the U.K. plans and $34 million to plans outside of the U.K.
Financing Cash Flows
Net cash provided by financing activities was $135 million for the three months ended March 31, 2024, compared with $773 million provided by financing activities for the corresponding period in 2023.
Credit Facilities
In
October 2023, the Company increased its multi-currency unsecured $2.8 billion five-year revolving credit facility (the "Credit Facility") capacity to $3.5 billion and extended the expiration to October 2028. The interest rate on the Credit Facility was initially based on LIBOR plus a fixed margin which varied with the Company's credit rating. In the second quarter of 2023, the Credit Facility was amended that borrowings under the Credit Facility bear interest at a rate per annum, equal, at the Company's option, either at (a) SOFR benchmark rate for U.S. dollar borrowings, or (b) a currency specific benchmark rate, plus an applicable margin which varies with the
Company's credit ratings. The Company is required to maintain certain coverage and leverage ratios for the Credit Facility, which are evaluated quarterly.
The Credit Facility includes provisions for determining a benchmark replacement rate in the event existing benchmark rates are no longer available or in certain other circumstances, in which an alternative rate may be required. At March 31, 2024 and December 31, 2023, the Company had no borrowings under this facility.
In October 2023, the Company terminated its one-year uncommitted
revolving credit facility ("Uncommitted Credit Facility"). At March 31, 2023, the Company had $250 million borrowings outstanding under this facility with a
weighted average interest rate of 5.19%.
The Company also maintains other credit and overdraft facilities with various financial institutions aggregating $114 million and $113 million, at March 31, 2024 and December 31, 2023, respectively. There were no outstanding borrowings under these facilities at March 31, 2024 and December
31, 2023.
The Company also has outstanding guarantees and letters of credit with various banks aggregating $128 million and $139 million, at March 31, 2024 and December 31, 2023, respectively.
Debt
The Company had $50 million of commercial paper outstanding at March 31, 2024, at an average effective interest rate of 5.450%.
In March 2024, the Company repaid $1 billion of 3.875% senior notes
at maturity.
In February 2024, the Company issued $500 million of 5.150% senior notes due 2034 and $500 million of 5.450% senior notes due 2054. The Company intends to use the net proceeds from these issuances for general corporate purposes.
In October 2023, the Company repaid $250 million of 4.05% senior notes at maturity.
45
In September 2023, the Company
issued $600 million of 5.400% senior notes due 2033 and $1 billion of 5.700% senior notes due 2053. In March 2023, the Company issued $600 million of 5.450% senior notes due 2053. The Company used the net proceeds from this issuance for general corporate purposes.
The Company's senior debt is currently rated A- by Standard & Poor's ("S&P"), A3 by Moody's and A- by Fitch. The Company's short-term debt is currently rated A-2 by S&P, P-2 by Moody's and F-2 by Fitch. The Company carries a Stable outlook
with S&P, Moody's and Fitch.
Share Repurchases
During the first three months of 2024, the Company repurchased 1.5 million shares of its common stock for $300 million. At March 31, 2024, the Company remained authorized to repurchase up to approximately $2.9 billion in shares of its common stock. There is no time limit on the authorization. During the first three months of 2023, the Company repurchased 1.8 million shares of its common stock for $300 million.
Dividends
The
Company paid dividends on its common stock shares of $354 million ($0.71 per share) during the first three months of 2024, as compared with $296 million ($0.59 per share) during the first three months of 2023.
In March 2024, the Board of Directors of the Company declared a quarterly dividend of $0.71 per share on outstanding common stock, payable in May 2024. In February 2024, the Company paid the quarterly dividend declared in January 2024 by the Company's Board of Directors of $0.71 per share on outstanding common stock.
Contingent and Deferred Payments Related to Acquisitions
The classification
of contingent consideration in the consolidated statements of cash flows is dependent upon whether the receipt, payment, or adjustment was part of the initial liability established on the acquisition date (financing) or an adjustment to the acquisition date liability (operating).
The following amounts are included in the consolidated statements of cash flows as operating and financing activities:
For the Three Months Ended March 31,
(In millions)
2024
2023
Operating:
Contingent
consideration payments for prior year acquisitions
$
(14)
$
—
Receipt of contingent consideration for dispositions
—
1
Acquisition/disposition related net charges for adjustments
6
7
Adjustments
and payments related to contingent consideration
$
(8)
$
8
Financing:
Contingent consideration for prior year acquisitions
$
(12)
$
(1)
Deferred consideration related to prior year acquisitions
(3)
(12)
Payments
of deferred and contingent consideration for acquisitions
$
(15)
$
(13)
Receipt of contingent consideration for dispositions
$
—
$
2
For acquisitions completed during the first three months of 2024 and in prior years, remaining estimated
future contingent payments of $242 million and deferred consideration payments of $125 million, are recorded in accounts payable and accrued liabilities or other liabilities in the consolidated balance sheet at March 31, 2024.
46
Derivatives - Net Investment Hedge
The Company has investments in various subsidiaries
with Euro functional currencies. As a result, the Company is exposed to the risk of fluctuations between the Euro and U.S. dollar exchange rates. As part of its risk management program, the Company issued €1.1 billion senior notes, and designated the debt instruments as a net investment hedge of its Euro denominated subsidiaries. The hedge is re-assessed each quarter to confirm that the designated equity balance at the beginning of each period continues to equal or exceed 80% of the outstanding balance of the Euro debt instrument and that all the critical terms of the hedging instrument and the hedged net investment continue to match. If the hedge is highly effective, the change in the debt balance related to foreign
exchange fluctuations is recorded in accumulated other comprehensive loss in the consolidated balance sheets.
The U.S. dollar value of the Euro notes decreased by $31 million through March 31, 2024, related to the change in foreign exchange rates. The Company concluded that the hedge was highly effective and recorded a decrease to accumulated other comprehensive loss for the three months ended March 31, 2024.
Purchase of remaining non-controlling interest
In the second quarter of 2023, the Company purchased the remaining interest in a subsidiary for $139 million.
Fiduciary
Liabilities
Since fiduciary assets are not available for corporate use, they are shown separately in the consolidated balance sheets as cash and cash equivalents held in a fiduciary capacity, with a corresponding amount in current liabilities. Financing cash flows reflect an increase of $829 million and $48 million for the three months ended March 31, 2024 and 2023, respectively, related to fiduciary liabilities.
Investing Cash Flows
Net cash used for investing activities amounted to $368 million for the first three months of
2024, compared with $368 million used for investing activities for the corresponding period in 2023.
The Company paid $301 million and $263 million, net of cash, cash equivalents and cash and cash equivalents held in a fiduciary capacity acquired, for acquisitions it made during the first three months of 2024 and 2023, respectively.
On April 1, 2023, the Company completed the acquisition of Westpac Banking Corporation’s ("Westpac") financial advisory business, Advance Asset Management, and the transfer from Westpac of BT Financial Group's personal
and corporate pension funds to the Mercer Super Trust managed by Mercer Australia (referred to collectively, as the "Transaction"). In consideration for the Transaction, on March 30, 2023, the Company transferred $252 million to a Westpac separate trust account in advance of the completion of the Transaction. The consideration transferred is included as a cash outflow in acquisitions, net of cash and cash equivalents held in a fiduciary capacity acquired, in the consolidated statements of cash flows.
On January 1, 2024, the Company sold its Mercer U.K pension administration and U.S. health and benefits administration businesses for approximately $114 million,
comprising of cash proceeds of $30 million and deferred consideration of $84 million.
In connection with the disposition of Mercer's U.S. affinity business in 2022, the Company transferred to the buyer an additional $20 million of cash and cash equivalents held in a fiduciary capacity during the first quarter of 2023.
The Company's additions to fixed assets and capitalized software, which amounted to $87 million for the first three months of 2024, and $84 million for the first three months of 2023, related primarily to software development costs, the refurbishing and modernizing of office facilities, and technology equipment purchases.
Cash used for long-term investments
in the first three months of 2024 is due to investments in private equity funds. At March 31, 2024, the Company has commitments for potential future investments of approximately $109 million in private equity funds that invest primarily in financial services companies.
47
Commitments and Obligations
The following sets forth the Company’s future contractual obligations by the type at March 31,
2024:
Payment due by Period
(In millions)
Total
Within 1 Year
1-3 Years
4-5 Years
After 5 Years
Commercial
paper
$
50
$
50
$
—
$
—
$
—
Current
portion of long-term debt
1,120
1,120
—
—
—
Long-term debt
12,406
—
1,236
1,543
9,627
Interest
on long-term debt
9,419
576
1,064
1,021
6,758
Net operating leases
2,170
371
654
456
689
Service
agreements
558
271
213
74
—
Other long-term obligations (a)
437
219
184
30
4
Total
$
26,160
$
2,607
$
3,351
$
3,124
$
17,078
(a)Primarily
reflects the future payments of deferred and contingent purchase consideration.
The table does not include the liability for unrecognized tax benefits of $127 million as the Company is unable to reasonably predict the timing of settlement of these liabilities, other than approximately $54 million that may become payable within one year. The table also does not include the remaining transitional tax payments related to the Tax Cuts and Jobs Act (the "TCJA") of $58 million, which will be paid in installments from 2024 through 2026.
Management’s Discussion of Critical Accounting Policies and Estimates
The
Company’s discussion of critical accounting policies and estimates that place the most significant demands on management’s judgment and requires management to make significant estimates about matters that are inherently uncertain are discussed in the MD&A in the 2023 Form 10-K.
New Accounting Pronouncements
Note 19, New Accounting Pronouncements, in the notes to the consolidated financial statements in this report, contains a discussion of recently issued accounting guidance and their impact or potential future impact on the Company’s financial results, if determinable.
48
Item
3.Quantitative and Qualitative Disclosures About Market Risk.
Market Risk and Credit Risk
Certain of the Company’s revenues, expenses, assets and liabilities are exposed to the impact of interest rate changes and fluctuations in foreign currency exchange rates and equity markets.
Interest Rate Risk and Credit Risk
Interest income generated from the Company's cash, cash equivalents, and cash and cash equivalents held in a fiduciary capacity will vary with the general level of interest rates.
The
Company had the following investments subject to variable interest rates:
Cash
and cash equivalents held in a fiduciary capacity
$
11,458
$
10,794
Based on the above balances at March 31, 2024, if short-term interest rates increased or decreased by 10%, or 52 basis points, for the year, annual interest income, including interest earned on cash and cash equivalents held in a fiduciary capacity, would increase or decrease by approximately $49 million.
Changes in interest rates can also affect the discount rate and assumed rate of return on plan assets, two of the assumptions among several others used to measure net periodic pension expense.
The assumptions used to measure plan assets and liabilities are typically assessed at the end of each year, and determine the expense for the subsequent year. Assumptions used to determine net periodic cost for 2024are discussed in Note 8, Retirement Benefits, in the notes to the consolidated financial statements included in our most recently filed Annual Report on Form 10-K. For a discussion on pension expense sensitivity to changes in these rates, see the "Management’s Discussion and Analysis of Financial Condition and Results of Operations - Management’s Discussion of Critical Accounting Policies and Estimates - Retirement Benefits" section of our most recently filed Annual Report on Form 10-K.
In addition to interest rate risk, our cash investments and fiduciary cash investments are subject to potential loss of value due to counter-party credit risk. To minimize this
risk, the Company and its subsidiaries invest pursuant to a Board-approved investment policy. The policy mandates the preservation of principal and liquidity and requires broad diversification with counter-party limits assigned based primarily on credit rating and type of investment. The Company carefully monitors its cash, cash equivalents, and cash and cash equivalents held in a fiduciary capacity, and will further restrict the portfolio as appropriate to market conditions. The majority of cash, cash equivalents, and cash and cash equivalents held in a fiduciary capacity are invested in bank or short-term time deposits and liquid money market funds.
Foreign Currency Risk
The
translated values of revenue and expense from the Company’s international operations are subject to fluctuations due to changes in currency exchange rates. The non-U.S. based revenue that is exposed to foreign exchange fluctuations is approximately 53% of total revenue. We periodically use forward contracts and options to limit foreign currency exchange rate exposure on net income and cash flows for specific, clearly defined transactions arising in the ordinary course of business. Although the Company has significant revenue generated in foreign locations which is subject to foreign exchange rate fluctuations, in most cases both the foreign currency revenue and expense are in the functional currency of the foreign location.
As such, under normal circumstances, the U.S. dollar translation of both the revenue and expense, as well as the potentially offsetting movements of various currencies against the U.S. dollar, generally tend to mitigate the impact on net operating income of foreign currency risk.
However, there have been periods where the impact was not mitigated due to external market factors, and external macroeconomic events may result in greater foreign exchange rate fluctuations in the future. If foreign exchange rates of major currencies (Euro, British Pound, Australian dollar and Canadian dollar) moved 10% in the same direction against the U.S. dollar that held constant over the course of the year, the Company estimates that full year net operating income would increase or decrease by approximately $85 million. The
Company has exposure to over 80 foreign currencies. If exchange rates at March 31, 2024, hold constant for the rest of 2023, the Company estimates the year-over-year impact from the conversion of foreign currency earnings will decrease full year net operating income by approximately $25 million.
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In Continental Europe, the largest amount of revenue from renewals for the Risk and Insurance Services segment occurs in the first quarter.
Equity Price Risk
The Company
holds investments at March 31, 2024 in both public and private companies as well as private equity funds, including investments of approximately $18 million that are valued using readily determinable fair values and approximately $19 million of investments without readily determinable fair values. The Company also has investments of approximately $272 million that are accounted for using the equity method. The investments are subject to risk of decline in market value, which, if determined to be other than temporary for assets without readily determinable fair values, could result in realized impairment losses. The Company periodically reviews the carrying value of such investments to determine if any valuation adjustments are appropriate under the applicable
accounting pronouncements.
Other
A number of lawsuits and regulatory proceedings are pending. See Note 17, Claims, Lawsuits and Other Contingencies, in the notes to the consolidated financial statements included in this report.
Item 4. Controls & Procedures.
a. Evaluation of Disclosure Controls and Procedures
Based on their evaluation, as of the end of the period covered by this report, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the
Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934) are effective.
b. Changes in Internal Control
There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) or 15d-15(d) under the Securities Exchange Act of 1934 that occurred during the Company’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART
II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Company and its subsidiaries are also party to a variety of other legal, administrative, regulatory and government proceedings, claims and inquiries arising in the normal course of business. Additional information regarding certain legal proceedings and related matters as set forth in Note 17, Claims, Lawsuits and Other Contingencies, in the notes to the consolidated financial statements provided in Part I of this report is incorporated herein by reference.
Item
1A. Risk Factors.
The Company and its subsidiaries face a number of risks and uncertainties. In addition to the other information in this report and our other filings with the SEC, readers should consider carefully the risk factors discussed in "Part I, Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2023.
If any of the risks described in our Annual Report on Form 10-K or such other risks actually occur, our business, results of operations or financial condition could be materially adversely affected.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Repurchases of Equity Securities
For the three months ended March 31, 2024, the Company repurchased 1.5 million shares of its common stock for $300 million. At March 31, 2024, the Company remained authorized to repurchase up to approximately $2.9 billion in shares of its common stock. There is no time limit on the authorization.
Period
(a) Total Number
of Shares (or Units) Purchased
(b) Average Price Paid per Share (or Unit)
(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs
(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Dates Referenced Herein and Documents Incorporated by Reference