Marsh & McLennan Executive Insights: Margins and Future
Keith Walsh – Citi: No question the top line looks exceptional, but I guess the question is, if I think about the organic the growth, the (indiscernible) expense growth is pretty substantial as well, and why is that, especially with higher margin, Guy Carpenter up. You are pretty much up across the board, especially in some of the international businesses, where it’s higher margin. I would have expected the margin to be a lot higher, if you could just talk to that? Thanks.
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Daniel S. Glaser – Group President and COO: First of all I’d start with the overall company and the overall company’s margin improved by 100 basis points in the quarter. So it’s a good quarter from a margin perspective. In RIS, we had over 9% growth in adjusted operating income and as you stated, margins were up 40 basis points. The important thing is, couple of things, we are confident that we will continue to improve margins, and that we are on a path over time to continue to improve RIS’s margins, as well as Consulting’s margins. You can always squeeze out a bit more margin in any one quarter, but our leadership team is very much focused on investing consistently, and really constantly to not only invest for the future, but deliver good results today. It’s important to remember though, that investing while as a constant, is not necessarily consistent quarter-to-quarter, it impacts us in different ways, and there is moving parts along there. I will just give you a little bit of a background on some of the things we are doing in the RIS segment. I mean, right off the back, we have been investing pretty actively in both Guy Carpenter and Marsh and strategic recruitment, over the past several years. In Marsh alone, since 2008, we have added almost 450 Senior Vice President’s and Managing Directors to the firm and 115 in 2011, so that is rolling in. Also we are laying the ground work in our RIS segment for some pretty strong operational improvement, which would help us improve client service while capturing some of our scale. So, we really do think that we are investing for better efficiency in the future. That will take multiple quarters really in two or three years before we fully manifest the benefits of that. We’ve created several centers of excellence for Marsh recently around analytics, so for cat modeling, risk economics, for benchmarking, some of the things that Peter really learned at Guy Carpenter and built at Guy Carpenter, while building some of the things within Marsh and obviously that cost the money.
Keith Walsh – Citi: Just the second question, the top line is just significantly higher than what they had in the model, and I would’ve thought, thinking about you guys as primarily a fee business, especially in the U.S. why are you seeing that kind of growth? Are you getting lift on fees that you’re charging customers, can you just give us a little more color around that because it seems like it’s a lot higher than I would’ve thought?
Daniel S. Glaser – Group President and COO: Okay. So, there’s really four factors that are generating our good growth in RIS and in Marsh in particular. So, the number one factor is improved client revenue retention, which as we mentioned in the script is at its highest level since 2003. Now client revenue retention, there’s a lot of things that go into client revenue retention including the outcome of fee discussions or commission discussions with carriers, that’s all in the revenue retention line and so that is the leading reason behind the growth. The second-leading reason is new business. New business was up 9% in Marsh. As we mentioned in the script Guy Carpenter had its highest new business first quarter since 2003. The third reason is pricing trends. So, pricing trends are complicated. We could probably spend the whole hour talking about pricing, so I don’t want to do that, but I would say that property rates are being impacted more than the casualty rates and if you look at the U.S. property workers’ comp, excess casualty are all up moderately. General liability and D&O are still a slightly down. If you look at the national brokered segment which is our upper middle market and middle market, it’s all up moderately across the board and international EMEA is flat to down, Asia Pacific was up in cat property and flat to down in non-cat and Latin America is flat to down excepting cat, so from the pricing standpoint, not a headwind, but I wouldn’t call it a tailwind either, you have to really look at what geography are you talking about, what line of business are you talking about. It’s very segmented and since we participate across all of those segments, it’s muted from a perspective. The fourth area that underpinned our strong growth and it’s in that sort of order in terms of the impact. The fourth area is exposure unit, so both from a total insurable value and from a payroll standpoint, both were mildly higher. So overall, talking about Marsh specifically for a second because I think it demonstrates the broad strength of the growth. It was very well distributed. Every region had a growth rate better than the fourth quarter and better than their run rate for the full year 2011. We have 22 countries with greater than 15% underlying growth and 30 countries with greater than 10% growth.
Larry Greenberg – Langen McAlenney: On the Consulting margin, my memory serves that you had been a bit more focused on improving the profitability in Europe that, that was a priority, is that perhaps what’s driving the bigger part of the Consulting margin improvement and then secondly, Dan, you mentioned the revenue associated with, I can’t remember exactly what you called it early acceptance is helping the Oliver Wyman number, is that something that’s going to negatively impact prospective quarters?
Daniel S. Glaser – Group President and COO: So in terms of as we mentioned before, we’re committed to improving the Consulting segment margins over the next two to three years, so from that standpoint it will very much align expense growth to be lower than revenue growth and in that way will improve the margin. I am not sure where the European focus came from, but it really doesn’t stand out as a particular area that we have to improve the Consulting margins, we’re generally looking to do that across the board. Many of our Consulting businesses run as much on a line of business global basis as they do on a geographic basis, so you can’t fix one without the other. So we are doing both at this time.
John P. Drzik – President and CEO, Oliver Wyman Group: So over the past few years procurement department’s Oliver Wyman’s larger clients have become more heavily involved in contract negotiations and it has led to general acceptance criteria being added into contracts for certain Oliver Wyman projects. These acceptance provisions create situations where revenue for work delivered in early parts of the year, were reported as revenue in later quarters, once those acceptance criteria were met. Based on the analysis of our experience with these acceptance provisions, we are now able to better align our reported revenue, with the timing of project delivery. So as Dan noted, our reported results for Q1, includes the impact of this improved alignment, which did result in higher year-over-year growth in the first quarter, and represents a little less than half of our underlying revenue growth in the quarter, and to your question Larry, it would then play out that the growth later in the year, would be lower because of the same effect, and probably most principally in the fourth quarter.