Marsh & McLennan reports flat revenue, higher profit

Commercial insurance rate increases continue to accelerate in the pandemic, forcing some buyers to retain more risk, top executives at Marsh & McLennan Cos. Inc. said Thursday on a third-quarter earnings call with analysts.

Marsh & McLennan reported $3.97 billion in revenue for the quarter, unchanged from last year’s third quarter. Underlying or organic revenue declined by 1%, according to the company’s earnings statement.

Marsh LLC, the company’s insurance broking unit, reported $2.01 billion in revenue, up 3% on an underlying basis compared with the same period last year.

Guy Carpenter & Co. LLC, its reinsurance brokerage unit, reported third-quarter revenue of $274 million, flat on an underlying basis.

The firm’s consulting business, which comprises Mercer LLC and Oliver Wyman LLC, saw revenue of $1.70 billion, a decline of 4% on an underlying basis.

Marsh & McLennan reported a profit of $316 million for the quarter, up 4% from the year-earlier period.

“Even though the impacts of COVID-19 may be far from over, our strong third quarter and year-to-date performance is evidence that we are executing well in this challenging environment,” Dan Glaser, Marsh & McLennan’s president and CEO, said during the call.

Despite the recessionary economic conditions, the company’s outlook for the full year has now improved, and it expects underlying revenue to be “relatively flat,” with growth in its risk and insurance services business offset by a decline in consulting, he said.

Mark McGivney, Marsh & McLennan’s chief financial officer, said the company is raising its adjusted earnings per share outlook for the year to “mid-single-digit growth” and expects its overall margin to increase.

“As we learn to live with the virus, we are progressively moving to a more normal course for business conditions. We expect fourth-quarter adjusted earnings will be impacted by a sequential uptick in expenses, due to a general loosening of spending restrictions, strategic hiring, and costs associated with employee-related activity that would have taken place over the course of the year but was delayed due to pandemic,” Mr. McGivney said.

Meanwhile, commercial insurance property/casualty pricing continues to accelerate with the third quarter marking the 12th consecutive quarter of rate increases, Mr. Glaser said.

The Marsh global insurance market index, which skews to large accounts, increased 20% year over year, versus 19% in the second quarter and 14% in the first quarter of the year, he said.

Global property insurance was up 21%, global financial and professional lines were up 40%, and global casualty rates were up 6% on average, he said. Workers compensation pricing remained negative in the period.

U.S. small and mid-market insurance pricing continues to accelerate as well, although the magnitude of price increases is less than for large complex accounts, Mr. Glaser said

“Pricing continues to react to multiple external headwinds impacting insurer profitability, and this is only exacerbated by COVID-19 losses which continue to evolve,” he said.

COVID-19 will be a “long and complicated loss” and the interpretation of various policy wordings will be determined through the courts over time, he said.

In reinsurance, the price increases seen at April 1 and June 1 renewals continued into Oct. 1 with larger increases than at the Jan. 1 renewals, primarily driven by loss-impacted business.

Property/casualty insurance and reinsurance markets overall are showing a heightened degree of scrutiny and risk selection, as well as the continued push for higher prices, the company’s executives said.

While some of the rate increases in certain parts of the business are “probably justified” the speed of the increases doesn’t benefit the market and clients when it “snaps back in such a harsh way,” Mr. Glaser said.

Some clients are being forced to retain more risk, but there are “very few circumstances where we can’t get the limit that we or our client would like,” said John Doyle, president of Marsh LLC.

More frequently clients “are likely to retain more risk,” he said. “It could be a higher retention. It could be buying less limit.”

For example, in the directors and officers liability market that is stressed in the U.S., United Kingdom and Australia, some clients are electing to buy A-side coverage only, he said.

Marsh is also seeing an increase in the number of captive insurance formations.