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Inside in Full: Marsh McLennan: Outgrowing Aon, the Glaser-Doyle handover and ESG revenues

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Topics: ESG Financial Results

Marsh McLennan’s results dispelled the prospect – raised briefly by Truist Insurance – that Q1 was going to uniformly be a quarter of rapid deceleration, pointing to the final rounds of the party for the brokers...

Instead, the company showed its insurance businesses are still on a tear. Organic growth for Marsh and Guy Carpenter combined sped up sequentially from 9% to 11% - crushing the 7% consensus – as its non-US segments put up big numbers and US stayed flat at +10%.

Organic growth at the public retail brokers



Source: Company reports, Inside P&C

We will have to wait for subsequent reporters to get a clearer view of the broker landscape, but at least in part it clearly matters who is riding the (super)cycle. Truist has a pretty different business mix to Marsh McLennan, and it is working hard right now on retail broker McGriff following the exit of CEO Rick Ulmer last year.

With strong growth dynamics continuing from recent quarters, and margins nudging up surprisingly, rather than asking as we might have expected “what has started to go wrong”, instead it makes sense to ask more broadly “what comes next” for Marsh McLennan?

Four areas to watch were suggested by the conference call.


First, a crucial part of the story of the next couple of years will be whether Marsh McLennan’s 2021 hiring bulge translates to outperformance on organic growth.

Last year, the company made a big bet on hiring, adding a net ~7,000 staff to headcount as it sought to capitalize on the one-time opportunity presented by dislocation resulting from the Aon-Willis saga.



Success will be judged on whether the hiring supports a clear organic growth delta vs. Aon to justify the margin that is surrendered.

The company said that it was seeing the first signs of growth from these teams, particularly from within Guy Carp, without providing details. We don’t know about quarterly timing, but sources have pointed to significant wins for Tony Phillips’ LatAm team, and major accounts like lawyers mutual Alas and the Aviva cat deal.

Marsh McLennan said that the hiring bulge should be judged on a two to three-year timetable. Typically, a team hire takes three years to pay back the costs of hiring and any legal settlement costs, so from a pure growth perspective the story should be clearer by the two-year mark.

It is hard to argue with the strategic decision-making. Franchise-building at the expense of temporarily weak competitors through the sacrifice of near-term margin makes sense as a general principle, particularly coming off what now looks like permanent Covid-driven margin improvement.

But execution will be crucial. Marsh McLennan could, of course, have chosen the wrong talent, overpaid for this or that team, or unsettled existing talent by bringing in outsiders. This is hard to judge from the outside.

Timing is also crucial – and the move could run into a recession or adverse cycle turn.

It is understood that the hiring approach has transitioned and is now broadly just to replace attrition.

Second, the bet on hiring comes backed by the Glaser Guarantee that the company will expand its margins every year.

The call made clear that Marsh McLennan management is highly confident that it can extend its long track record of annual margin expansion despite a) the hiring bulge; b) the inflation of margins through 2020 and 2021 by reduced T&E expenses during Covid.  



Hanging in the background was the implicit promise that the Guarantee will stand up in the face of the recession that all well-run companies are preparing for.

Group CEO Dan Glaser said: “We have a tremendous capability of managing that expense base in both good times and tough times.”

Management did not explicitly address it in discussing resilience, but the company has a huge bonus pool and in a recession it could just lever that down to deliver on margins and EPS growth, relying on a lack of opportunities elsewhere to cap turnover.

Glaser also made some bold statements around its ability to manage down non-staff costs over time, with economies of scale.

While stressing the importance of having compensation and benefits as a “healthy” proportion of revenues, he said the firm should be able to use “some of our scale advantages to get some economies” over time.

“So I don’t think you’re going to see a lot of the growth in the “all other expense” category. In fact, over time, you’ll see reductions there.” (Emphasis added.)

Other operating expenses are at $1.0bn in Q1, equivalent to 18.1% of revenues and flat as a proportion of revenues year-on-year despite rebounding business travel.

Third, John Doyle’s centrality to the call makes clear the succession preparations are quite advanced, and we would now point to a base case of Glaser handing over the reins at year end.

Formerly CEO of Marsh, Doyle was named group president, COO and vice chairman in November. The reporting lines of the CEOs of the four Marsh McLennan subsidiaries were also moved from Glaser to him, effectively making him heir apparent.

Doyle was not quite the star of the show on the earnings call, but he wasn’t far behind, speaking two-thirds as much as Glaser, answering questions on group areas like M&A and ESG, and throwing questions to other members of the executive team.

Triangulating between the presentation on the call, source information and intelligent surmise suggests that any idea of a multi-year handover from president to CEO is mis-founded. Glaser himself waited around 18 months for an announcement he would succeed Brian Duperreault, and the tempo here feels faster.

Given the way these things work, there probably isn’t a timeline set in stone, but any time from the Fall an announcement a quarter out from the change seems likely, and it is hard to see it being stretched out beyond the 2023 annual general meeting.

Doyle is already a driving force behind the scenes, but a major question for Marsh McLennan over the next couple of years is how he chooses to put his stamp on the strategy and culture of the firm.



Fourth, Marsh McLennan is determined to emerge as a winner from the ESG Awakening and, as well as its inward-focused work, will look to establish ESG as a major profit center.

At points, it wasn’t clear if we were on an earnings call, or if we had stumbled into an ESG seminar. (Marsh also has one of those on April 19 for those that are interested – part 2 of a series, in fact...).

There was a massive amount of airtime from Marsh McLennan for its own commitments, touching on its purpose, values and concrete initiatives. (“At Marsh McLennan, advancing good in the world is important to us…”)

This suggests the firm is looking to position itself as a mission-driven business, and one that can attract talent (and potentially ultimately clients) by emphasizing its social purpose.  

A healthy degree of journalistic skepticism is warranted around ESG rhetoric, although allowing yourself to be seen as a laggard is just poor management at this stage. But there can be no skepticism about the fact that, with every company of scale having to formulate an ESG strategy, there is a significant market opportunity for advisory firms that can support that work.

The consultancy businesses probably have the biggest opportunity, with Oliver Wyman advising firms on the climate transition and ESG strategy, and Mercer helping its client base with sustainable investing.

“So you can see... we're all over the ESG space and expect it to underpin our growth in future years,” Glaser said.

It is hard to see that there is not a multi-hundred million dollar revenue opportunity over time for an advisory firm that gets this right, unless the ESG Awakening goes into sharp reverse.


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