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Marsh & McLennan expects ‘modest’ revenue decline in second half

Dan Glaser

Marsh & McLennan Cos. Inc. faces stiffer revenue headwinds in the second half of the year due to the economic fallout from COVID-19, the company’s top executives said Thursday during a second-quarter earnings call with analysts.

The New York-based brokerage continues to expect a “modest decline” in overall revenue for the year, but now anticipates “modest growth” in adjusted earnings per share for 2020, the executives said.

Revenues at Marsh LLC, the company’s insurance broking unit, have the potential for “modest growth” for the full year, but the back-half of 2020 will be challenging, they said.

On the call Dan Glaser, Marsh & McLennan’s president and CEO, said that while worst-case scenarios had been avoided, economic and health uncertainties from the pandemic could last a year or longer, challenging companies well into 2021.

As it navigated the first few months of the crisis, Marsh & McLennan maintained strong control over its expense base but also maintained jobs and proceeded with annual salary increases, he said.

Global property/casualty insurance and reinsurance markets remain challenging, with “accelerating price increases and narrowing terms and conditions,” Mr. Glaser said.

“Underwriters continue to push for higher rate increases, as a result of social inflation pressures, persistently low yields and a number of large insurance losses including COVID-19,” he said.

Marsh & McLennan reported consolidated revenue of $4.19 billion in the second quarter, a 2% decline on an underlying basis from the same period last year, offset by a 9% increase in revenue at reinsurance brokerage Guy Carpenter LLC.

The company recognized a $36 million reduction to previously recorded revenue in the quarter to reflect the estimated impact of the economic crisis on exposure units, according to its earnings statement.

Mark McGivney, Marsh & McLennan’s chief financial officer, said the estimated impact of the downturn in exposure units primarily impacted Marsh, the company’s insurance broking unit, but there was also a reduction at Mercer LLC, the company’s benefits consulting unit, in its health business.

Marsh LLC reported $2.16 billion in revenue for the second quarter, up 1% on an underlying basis, compared with the same period last year.

Overall growth is historically correlated to economic growth, John Doyle, president and CEO of Marsh, said during the call. “The second half will be a bit more challenging given the economic consequences of the pandemic,” Mr. Doyle said.

Guy Carpenter LLC reported “strong” second-quarter revenue of $433 million, up 9% on an underlying basis, compared with the same period last year.

The reinsurance business was buoyed by solid retention, strong demand for new business and a tailwind from pricing, Mr. Glaser said.

Marsh & McLennan reported a profit of $572 million for the quarter, compared with $332 million in the same period last year.

Mercer LLC  reported $1.15 billion in revenue for the quarter, down 3% on an underlying basis. Management consulting unit Oliver Wyman LLC reported revenue of $467 million, a decline of 13% on an underlying basis.

In the consulting segment the career business saw the biggest impact of lockdown, as expected, the executives said.

Even though COVID-19 will impact Marsh & McLennan’s results for the remainder of the year, the “strong” second-quarter performance is evidence that the business is resilient and can manage through the crisis, Mr. Glaser said.

Consolidated revenue was $8.84 billion for the first half, an increase of 5%, or 2% on an underlying basis, from the year-earlier period, according to the earnings statement.

Net income for the first half was $1.33 billion, compared with $1.05 billion in the same period last year, according to the statement.

More insurance and risk management news on the coronavirus crisis here.