Marsh & McLennan Companies Earnings Call Nuggets: Low Growth in P&C Brokerage Segment and Outlook for Margin Expansion
Low Growth in P&C Brokerage Segment
Greg Locraft – Morgan Stanley: I wanted to ask why is the organic growth in the P&C brokerage segment, it was one of the lowest in many quarters and also is now well below peers that have already reported?
Daniel S. Glaser – President and CEO: So I think the best thing to do is to go to Peter and Alex on that, so I’ll start with Peter.
Peter Zaffino – President and CEO, Marsh: Greg, when you look at variability that happens quarter-to-quarter, I would encourage just to focus on what happens in the year as well as looking year-over-year, so when I look at U.S. and Canada in 2011, the segment grew 3% and in 2012 they grew at 3%. When I look at the international growth in 2011 it was 6% and in 2012 it was 6%, so it’s challenging to take just a look at the quarter, it’s much better to look at what is the last four quarters and I think you can see we’ve had very consistent growth. Internationals contributed more than the U.S. and Canada. We’ve had terrific performance from Latin America where they grew 13% during the year, EMEA with all of its challenges and economic headwinds grew 5% for the year, Asia Pac grew 7% for the year. So, overall with the challenging headwinds we’re pleased with what’s happened during the year. If I can just comment for a second on what happened in the U.S. and Canada because I’m sure some curiosity as to why it’s 0%. Again, we look at 2012 and are pleased with the performance; there is always variability and non-recurring items in quarters we’ve mentioned that before both positive and negative. Having said that in the fourth quarter U.S. and Canada did get hit with an abnormal amount of negative variability that impacted the growth in that segment. So again, I would encourage us to take a look at the year, the key performance indicators for new business. As Dan mentioned, we had record new business in the year. But we also had record new business in the quarter, including in the U.S. Retention, absent the variability, was consistent with prior quarters and our overall pipeline is quite strong. So when you take a look at the quarter and the year, I’d encourage you to take a look more at the year and as we look to 2013, we don’t give guidance, but the year will reflect more of the growth than the quarter.
Daniel S. Glaser – President and CEO: Alex?
Alexander S. Moczarski – President and CEO, Guy Carpenter: Yes. I mean, 3% underlying growth, actually I think it was a fairly decent quarter. There was no doubt that last year, it was a more benign year from the point of view of catastrophes. So there were some pressures on rates. But all in all, we actually did a little bit better than we expected to be in what is our smallest quarter. So I really don’t have much to add to that.
Daniel S. Glaser – President and CEO: Also just one comment, Greg. I think you have to be cautious when looking at peers or your comment with regard to underperformance versus peers. We don’t have many peers. So there may be some reporting, which would be more equivalent to a smaller segment within our business. But our RIS business is a $6.5 billion annual business, and we are in every geography and in every segment. So there may be – we don’t have many peers out there.
Greg Locraft – Morgan Stanley: So I guess, just a very thorough answer. What I’m sort of taking away from it is that empirically, you guys limped into year-end in the P&C Brokerage segment. So that’s just the way it is, and it was actually centered in the U.S./Canada segment as you said, which flies totally in the face of what we’re seeing from the peers. But you feel very, very good given where pricing is going in the U.S, given the trends you see that this quarter is not a quarter to be extrapolated into 2013 and beyond. There’s nothing in the core business that you see that you want to call out right now that should cause us frankly, that will be lowering our organics in that segment going forward.
Daniel S. Glaser – President and CEO: I think your summary is correct.
Outlook for Margin Expansion
Jay Gelb – Barclays Capital: The outlook for margin expansion seems to be a bit stronger in Consulting than in Risk and Insurance Services segment and that certainly was the case for the full year 2012. I was wondering, if you could talk about that in relation to your long-term 30% EPS growth target as well?
Daniel S. Glaser – President and CEO: Sure. Let me just hand over to Mike.
J. Michael Bischoff – CFO: Yeah, this is Mike. Just to correct, I would say the margin improvement in Risk and Insurance Services was 130 basis points in 2012 and for Consulting 140. So I would say that we saw a very significant margin improvement in both of our segments over the course of the year. I just wanted to make sure that that was actually correct.
Daniel S. Glaser – President and CEO: Jay, when we look at the businesses, of course, RIS started earlier in terms of really focusing on business disciplines and profit improvement and we really started getting going in Consulting with the arrival of Julio and Julio’s leadership team at Mercer and forming strategies around improving profitability. So when we look at all segments, where we stand today, I’m actually quite optimistic that we have the ability over the next few years to continue to expand margins in each of our segments and I would have really put an emphasis on larger margin expansion in Consulting versus RIS, I think that there is capabilities in both to do that. Of course to remain it’s subject to the overall environment, the GDP environment around the world, the macroeconomic environment, a little bit of the P&C pricing cycle, but ultimately as long as we achieve modest levels of revenue growth we feel comfortable that we will be able to continue to expand our margins in both segments.
Jay Gelb – Barclays Capital: With regard to the organic expense growth, Mike, I think you talked about 3% underlying. Is that something that can persist?
J. Michael Bischoff – CFO: Certainly Jay, when we look at how we run the business we have been continually investing in the business over the last several years and very much focused on creating mid and long-term value for our shareholders. So when we will look at expense base we’ve been wearing those investments, we’ve been wearing some higher pension costs et cetera, and we believe we can continue to do that.
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