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Marsh & McLennan Cos. Inc. enjoyed another profitable year in 2015 despite a challenging economy.
Even though 2015 brokerage revenue dipped a bit — less than 1% — from the previous year to just over $12.91 billion, it was still enough to keep Marsh & McLennan atop the Business Insurance ranking of both the world's largest brokers and the U.S.' largest brokers.
Meanwhile, gross revenue fell less than 1% to just under $12.91 billion. Internal services between Marsh & McLennan units, which generates revenue that is eliminated from its consolidated revenue, accounts for brokerage revenue being higher than gross revenue.
“Marsh has been performing well in 2015 and 2016,” said Julie Herman, director of financial services ratings at Standard & Poor's Corp. in New York. “They continued to demonstrate single-digit positive organic growth of 4% in 2015 and in the first quarter of 2016.”
“The company had a slight total revenue decline,” she added, “but that was due to foreign exchange rates. In terms of the core fundamentals, it was a solid performance.”
Other analysts agreed.
The company is “just a very attractive name to own, particularly when there's a high degree of market volatility,” because of factors that include its organic growth and attractive capital management, said Quentin McMillan, New York-based director of equity research at Keefe, Bruyette & Woods Inc.
The company has “done very well, largely sticking to its knitting,” said J. Paul Newsome, managing director at Sandler O'Neill & Partners L.P. in Chicago. “It's mostly been a process of trying to maximize earnings through improvements in profit margins.”
“In this increasingly dynamic and uncertain environment, our areas of strength — risk, strategy and people — have never been more relevant to our clients,” Daniel Glaser, president and CEO of Marsh & McLennan, said in an email. “Building on six consecutive years of strong performance, Marsh & McLennan delivered another year of robust financial results in 2015.”
“I was really pleased with what we accomplished in 2015 as an organization,” said Peter Zaffino, CEO of Marsh L.L.C., the company's brokerage operation, and chairman of the risk and insurance services segment of Marsh & McLennan, which comprises Marsh L.L.C. and Guy Carpenter & Co. L.L.C., the company's reinsurance brokerage operation.
Citing the hiring of former American International Group Inc. executive John Doyle as president of Marsh L.L.C. and former Willis Re Inc. executive Peter Hearn as CEO of Guy Carpenter, Mr. Zaffino noted the additions say “a lot about the caliber of leadership talent we are able to attract.”
Marsh & McLennan's employee count rose to 60,000 in 2015 from 57,000 in 2014.
Acquisitions also played a key role in the company's growth, and it has a “set of clear guideposts” for potential targets, he said.
“First, is there geographic expansion opportunity? Second, does it fit with our middle-market and (small and midsize enterprises) strategy? Finally, is it an opportunity that is adjacent to our core business?” Mr. Zaffino said.
Marsh continues to “invest heavily” in its people as well as “to innovate and develop new products ... In 2015, we completed several significant acquisitions to enhance the range of services we offer clients,” he said.
Marsh & McLennan completed 21 acquisitions in 2015 for a total of approximately $1.2 billion. Thirteen deals were in the risk and insurance services segment, and eight were in the consulting segment, according to the firm's stock market filings.
Among its notable acquisitions were Jelf Group P.L.C., an independent British insurance broker and consultant, and SMEi Group Ltd., a Leeds, England, independent broker providing specialist commercial insurance to small and midsize firms.
The company continued to expand its Marsh & McLennan Agency L.L.C. operation, which serves middle-market clients, with six acquisitions.
“Our strategy is to buy and hold,” Mr. Zaffino said.
The Marsh & McLennan Agency platform “has grown to close to $1 billion” since its 2008 launch, said S&P's Ms. Herman.
One of its most significant agency acquisitions was Dallas-based MHBT Inc. with revenue of $76 million, expanding Marsh & McLennan Agency's footprint in the Southwest.
Marsh also launched several cyber-related products, Mr. Zaffino said.
They include Marsh's Cyber ECHO, a global excess cyber risk facility with up to $50 million in coverage for clients in any industry sector. Another product, Cyber IDEAL, models the financial impact of cyber events on an organization, while the new cyber Risk Self-Assessment Tool is designed to help organizations measure the consequences of a cyber event, he said.
Marsh has grown despite market challenges.
“There's ample capacity across the world, and there have also been pricing decreases over the past couple of years, primarily driven by property,” Mr. Zaffino said. “Economic growth has been encouraging — we're starting to see recovery in some of the developing parts of the world, more infrastructure investment — so we're cautiously optimistic.”
Private equity-backed buyers again dominated the insurance brokerage merger and acquisition landscape during the first half of 2016, but their share declined slightly amid increased activity by privately held and bank-owned brokers.