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Marsh & McLennan Q1 profits rise, near-term growth tests seen


Marsh & McLennan Cos. Inc. reported higher profits in the first quarter of the year, although company officials warned of near-term growth challenges following completion of its $5.6 billion acquisition of Jardine Lloyd Thompson Group PLC.

The New York-based brokerage’s consolidated revenue in the first quarter of 2019 was $4.1 billion, a 1.8% increase over first-quarter 2018, the company said in its first-quarter earnings report on Thursday.

Net income in the first quarter of 2019 rose 3.8% to $716 million, according to the company’s earnings release.

Marsh & McLennan was “delighted to have completed the JLT acquisition earlier this month” and welcome more than 10,000 “talented colleagues,” Dan Glaser, president and CEO, said in a conference call on Thursday morning.

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

“The reality is, we expect some near-time choppiness as we go through the integration process,” Mr. Glaser said in response to analyst questions. “Some revenue loss dis-synergy was modeled in our base case. Not that we’re not going to fight every fight, but we’re realistic about what big integrations mean in people businesses. Let’s see how this will play out. There will be some short-term noise, but that’s all it is – it’s noise.”

Due to “strict rules regarding sharing of competitively sensitive information prior to closing,” Marsh & McLennan is in the process of reviewing JLT’s 2019 budget, converting its results to U.S. GAAP accounting measures by quarter and “developing a firmer perspective on some of our modeling assumptions” and will update its previous guidance on the acquisition on its next conference call, Chief Financial Officer Mark McGivney said during the call.

“We continue to expect the JLT acquisition to be modestly dilutive to adjusted GAAP EPS in year one, break even in year two and accretive in year three,” he said, adding that underlying growth going forward will account for the combined Marsh & McLennan and JLT entity.

Risk and insurance services revenue rose 3.3% to $2.42 billion in the first quarter of the year. Marsh LLC’s revenue in the first quarter was $1.74 billion, a 2.5% increase, while revenue for the Guy Carpenter & Co. LLC reinsurance brokerage unit rose 4.1% to $663 million in the quarter, according to the earnings report.

Current property/casualty insurance pricing is “modestly higher,” Mr. Glaser said, citing a 3% increase seen in the Marsh Global Insurance Market Index in the first quarter of 2019 compared with a 2% increase in the fourth quarter of 2018 and 1% in the first quarter of 2018. “Global property lines continue to see price increases. Casualty price declines have slowed while professional lines pricing increased approximately 6% in the quarter.”

Pricing in the public D&O sector drove much of that rise in professional lines pricing amid an increase in frequency and severity of securities claims that has persisted over the last several years as “underwriters are obviously responding to that and trying to push price,” John Doyle, president and CEO of Marsh LLC, said during the conference call.

Property pricing is largely catastrophe-driven, he said.

“The market is more challenging for buyers than it’s been in some time,” Mr. Doyle said. “It’s definitely different than it was three months ago and six months ago. Having said that, the average isn’t moving all that much. Capital remains abundant and while capacity remains stable, the risk appetite for some underwriters is changing. At times, we’re seeing lower limits being offered, higher attachment points. In some cases, underwriters are exiting certain classes of business. I don’t see a broad-based hard market in front of us.” 

Guy Carpenter’s Global Property Catastrophe Rate-On-Line Index increased 1% for the Jan. 1 renewals, Mr. Glaser said. “More recently, the pricing data coming out of the April 1 renewals, which are primarily focused on Japan, were up for loss-impacted programs,” he said. “We’re starting to see upward rate pressure in the market in certain pockets and geographies although capital remains abundant.”

Consulting revenues, meanwhile, were nearly flat as Oliver Wyman Group’s revenues rose 4.2% to $518 million while Mercer’s revenue declined 1.4% to $1.16 billion. Martine Ferland was appointed to the role of president and chief executive officer of Mercer effective March 1.

“While Mercer’s underlying growth was soft in the quarter, Martine has a firm grasp on the business and we are confident in Mercer’s long-term growth,” Mr. Glaser said, adding that the “last thing” he wants is for her and her team to be focused on results for the next few quarters. “Based on the slow start, full year underlying revenue growth in Mercer could be muted. However, full-year earnings growth will benefit from Mercer’s recent restructuring initiatives.”

In March, the European Commission approved the JLT acquisition, clearing a final regulatory hurdle. JLT had agreed to sell its aerospace practice to Arthur J. Gallagher & Co. last month to address a potential overlap and smooth the path for the acquisition.

The acquisition announced in 2018 was yet another reminder that merger and acquisition activity is likely to persist in the industry, but raised important questions about what insurer and broker consolidations mean for risk managers, particularly with regard to the ability to pay claims, offer new products and services and the potential pricing impact, insurers and brokers say.

“Obviously, we were competitors just three weeks ago so we’re still sorting out just how the value proposition will change, but there are real opportunities for cross selling,” Mr. Doyle said. “JLT in a lot of ways, although a big company, operated like a specialty boutique and we added kind of a broader view of the client relationship.”

Risk managers “want to make sure their teams are in place,” he added.

Marsh & McLennan has about 1,500 client meetings scheduled for the Risk & Insurance Management Society Inc. next week, Mr. Doyle said.

“The masses will descend upon Boston,” he said. “We’ll bring a bit of an army ourselves. It’s a great opportunity for us to spend some time with our new colleagues from JLT. It’s a great opportunity for us to get feedback.” 






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