MMC - Marsh & McLennan Companies, Inc.

Operator: Hello, and welcome to Mark's Earnings Conference Call. Today's call is being recorded. Third quarter 26 financial results and supplemental information were issued earlier this morning. They are available on the company's website at marsh.com. Please note that remarks made today may include forward-looking statements. Forward-looking statements are subject to risks and uncertainties. A variety of factors may cause actual results to differ materially from those contemplated by such statements. For a more detailed discussion of those factors, please refer to our earnings release to this quarter and to our most recent SEC filings, including our most recent Form 10-K, all of which are available on the Mark website. During the call today, we may also discuss certain non GAAP financial measures. For a reconciliation of these measures to the most closely comparable GAAP measures, please refer to the schedule in today's earnings release. If you have a question, please press 11 on your touch tone phone. If you wish to be removed from the queue, please press 11 again. If you are using a speaker phone, you may need to pick up the handset before pressing the numbers. Once again, if you have a question, please press 11 on your touch tone phone. I will now turn this over to John Quinlan Doyle. President and CEO of Mark.
John Quinlan Doyle: Good morning, and thank you for joining us to discuss our third quarter results. I am John Quinlan Doyle, President and CEO of Mark. On the call with me is Mark Christopher McGivney, our COO and CFO and our business CEOs, Nick Studer from RISC Dean Klisura of Reinsurance, Patrick Tomlinson of People and Investments, and Ted Moynihan from Management Consulting. Also with us is Jay H. Gelb, head of investor relations. Let me start by commenting on the conditions confronting businesses today. We are clearly in a period of change and uncertainty in the world. This change is structural, not cyclical, and it is happening at pace and all at once. Wars, geoeconomics, extreme weather, and AI advances are challenging long established norms. Businesses require a new playbook. Better insights and perspectives, and the flexibility to adapt as never before. At the same time, access to information and technology as well as greater focus on resilience offers businesses great opportunity. it is why Mark and Bloomberg announced the competitive resilience coalition, As knowledge partner for the Bloomberg new economy, Mark will cochair the coalition and bring together business and government leaders to strengthen resilience and help organizations in an increasingly complex environment. Mark's vision and capabilities as a professional services firm across risk, strategy, people, and investments have us well positioned to help clients be more resilient, and to thrive in this moment. When it comes to AI, we believe it will be good for our company and the global economy. However, we need to deploy the technology responsibly to avoid potentially severe systemic, or irreversible risks. We are particularly concerned about the potential for heightened cyber exposure from AI. And we are working with governments, insurance companies, and businesses to create awareness and resilience to this risk. Responsible AI implementation begins with the developers. But businesses and governments have a role to play in ensuring safeguards are in place. Mark will be active in helping clients manage the risks, and capture the opportunities from AI. Turning to results. Mark had a strong quarter, reflecting our market leading positions, the value we deliver to clients and the commitment of our colleagues around the world. In our Consulting segment, growth was strong in People and investments and management consulting, In RIS, growth accelerated in our risk business. While reinsurance faced continued market headwinds but executed well. Overall, revenue grew 8% in the quarter. Underlying revenue growth was 5%, adjusted operating income grew 6%, and adjusted EPS grew 10%. And we repurchased $500 million of stock in the quarter bringing us to $2 billion year to date. We also made meaningful progress executing our program and successfully completed our brand transition. When we launched Thrive a year ago, we targeted $400 million in savings. We are now seeing greater opportunities coming from our Business and Client Services or BCS and advances in technology. As a result, we are increasing our Thrive savings target to $600 million. The expanded savings will create additional capacity to invest in sales, new capabilities, our brand, and technology. Let me touch on some of the progress from our reinvestments. Thrive has enabled us to invest in sales capacity. At a higher rate this quarter and year to date. And we are hiring producers and consultants in areas where we see the greatest opportunity for growth. Our colleague value proposition is strong, and we remain the destination for top talent in our business. I have been pleased with the strong positive reaction from colleagues and clients to our new brand strategy. The efficiencies we have captured from it, and our progress marketing marsh to prospective clients. As a result of very favorable market research, we accelerated the transition of Guy Carpenter and Mercer to Mark, several months ahead of schedule. We believe we can be the most impactful professional services firm in the world and we are investing in our new brand to reflect that ambition. Since its introduction last year, BCS has fundamentally changed how we work. An important part of the team's mission is to build shared services for greater including in areas such as client onboarding, data ingestion, commercial enablement, and operational excellence. BCS is also reengineering our processes and moving work to our capability centers which is generating additional savings. Overall, our execution of Thrive has been excellent to date, and we are excited about the investments in growth it is enabling. Turning to AI in our business. We are not thinking about it as something that will be a factor in our business. It already is a factor in our business. it is enhancing our client relationships, how we manage operations, and how colleagues work every day. We are focused currently on several areas where AI is driving growth, including building AI enabled products, consulting on AI transformation, serving the digital infrastructure ecosystem, and adding to capabilities and productivity for our producers and consultants. We have already deployed several AI enabled products for clients, that deliver valuable insights. These solutions tap into our large and expanding proprietary datasets in risk, health, and talent. Mark Risk Companion is a good example. This AI enabled analytics suite provides actionable insights for client risk programs. We can more easily model and optimize client risk scenarios with the new platform. This is leading to faster, more informed decision making, and reduced administrative burden for the client's risk management team. We are also advising clients on AI transformation. For example, Oliver Wyman's fastest growing practice Quotient, is working with private equity firms to serve their portfolio companies. They are engaging us on everything from agent to commerce and commercial effectiveness to cost reduction and technology transformation. Digital infrastructure continues to be a growth driver for Mark. More and more clients across broad sectors of the economy are asking for our help in risk, capital advisory, credit, and consulting in the wake of extensive growth in digital infrastructure. We are also working to bring the insurance capacity needed to support digital infrastructure. Mark recently launched the Stratus Exchange, which offers access up to $10 billion in property coverage for the ongoing operations of digital facilities. Stratus is a natural follow-up to Nimbus our $2.7 billion insurance facility for construction risks. We are also focused on growth from greater colleague productivity. Notably Broker Workbench, launched in Q3 for our UK wholesale business It uses our data and analytics to place a client's risk faster. Matching risk and capital more efficiently, In fact, 93% of our wholesale trading in London is now digital and the time to process placements is reduced from 2 to 4 weeks to a couple of hours with Workbench. Although it is early, and it is early, AI is making us better now. In delivering new perspectives and insights more efficiently and with greater impact for our clients. Now turning to market conditions, According to the 5% in Q3. This follows a 6% decline in the second quarter. As a reminder, our index skews to large accounts. Rates in The US decreased 1%. Canada, Europe, and Asia declined mid single digits. The UK, Latin America decreased in the high single digits. And the Pacific region had double digit decreases. Global property rates decreased 10%. Global financial and professional liability rates were down 3%, while cyber decreased 4%. Global casualty rates increased 1%, with US excess casualty up 13% reflecting inflationary pressure and loss costs. And workers' compensation decreased 5%. In reinsurance, market conditions led by short tail lines remain soft. Driven by abundant capacity from both traditional reinsurers alternative capital. Property cat reinsurance losses have been relatively benign this year. And capital is increasing. Adding to competitive market environment. We expect these conditions to persist through the January 1 renewal cycle. In casualty reinsurance, capacity is generally adequate. Reinsurance are focused on loss development and their differentiating terms based on claims experience, exposure data, and portfolio quality. Our clients continue to explore alternative options complement traditional strategies. Including greater use of third party capital solutions such as sidecar vehicles, for their liability portfolios. Mark conditions remain supportive of our insurance and reinsurance clients. Even as the cost of risk continues to rise. We are committed to helping clients optimize their risk financing and strengthen resilience in an uncertain environment. Now to our third quarter financial performance which Mark will cover in more detail. Consolidated revenue increased 8% to $6.9 billion or an increase of 5% on an underlying basis with 3% growth in RIS and 8% in Consulting. Risk was up 5%. Reinsurance declined 6%, People and investments increased 5%. And management consulting grew 14%. Adjusted operating income grew 6%, and adjusted EPS was $2.03 up 10% year over year. Looking ahead, we continue to expect underlying revenue growth in 2026 similar to last year. We also anticipate another year of margin expansion and solid adjusted EPS growth. Our outlook is based on current market conditions, but the economic and geopolitical environment could change materially from our assumptions. This is an exciting time for us. We have a new Mark brand and a business and client services team optimizing how we work. We have long standing trusted client relationships and the advantage of large proprietary datasets. We are upsizing the Thrive program to drive greater efficiency and investment. And we see new possibilities from AI to better serve clients who strive to manage risk, capitalize on the opportunity of this moment. With that, I will turn the discussion to Mark, for a more detailed review of our results. Mark?
Mark Christopher McGivney: Thank you, John. Good morning. We had a strong third quarter that showed continued momentum in underlying revenue growth and double digit EPS growth, reflecting our strong position and great execution. Consolidated revenue increased 8% to $6.9 billion with underlying growth of 5%. Operating income was 1.2 billion and adjusted operating income was $1.5 billion up 6%. Our adjusted operating margin was 22.7%, GAAP EPS was $1.69 and adjusted EPS was $2.3 up 10% over last year. For the first 9 months of 2026, underlying revenue growth was 5%, adjusted operating income grew 7% to 6.1 billion Our adjusted operating margin was 28.1% and adjusted EPS increased 9% to $8.29 As part of our previously announced brand change, we have updated several business descriptors in our earnings release. Guy Carpenter results are now reported as reinsurance, and Mercer results are reported as People and Investments. Within people and investments, wealth is reported as investments in retirement, health as health and benefits, and career as workforce and reward. Looking at risk and insurance services, third quarter revenue was $4.2 billion up 7% from a year ago, or 3% on an underlying basis. Operating income in RIS was $745 million Adjusted operating income was $1 billion up 4% over last year. And the adjusted operating margin was 24.6%. The first 9 months, revenue in RIS was $14.1 reflecting underlying growth of 3%, Adjusted operating income increased 5% to 4.6 billion and the adjusted operating margin was 33.2%. At risk, revenue in the quarter was $3.7 billion up 10% from a year ago, or 5% on an underlying basis. Despite the headwind from a soft pricing environment, sales and new business growth remained solid, in areas such as digital infrastructure, and transactional risk are creating demands. In U. S. And Canada, underlying growth was 4%. In international, underlying growth was 6%, with EMEA up 7%, Asia Pacific up 4%, and Latin America flat. The first 9 months of the year risk revenue was $11.5 billion with underlying growth of 4%. U. S. And Canada grew 4%, and international was up 5%. In Reinsurance, revenue in the quarter $374 million down 6% on both the reported and underlying basis. Q3 is a small quarter for reinsurance. And revenue was impacted by continued softness in property reinsurance rates as well as a tough comparison to a strong third quarter last year that benefited from non recurring items. Through 9 months, reinsurance is down 1% on an underlying basis which better reflects our top line performance this year. Significant rate pressure has more than offset strong new business growth and excellent client retention which remains in the high 9. In the consulting segment, third quarter revenue was $2.7 billion up 9% or 8% on an underlying basis. Operating income was $563 million and adjusted operating income $593 million up 9%. Our adjusted operating margin in consulting was 22 point 1 For the first 9 months, Consulting revenue was 7.8 billion reflecting underlying growth of 7% Adjusted operating income increased 11% to $1.7 billion The adjusted operating margin was 21.4%. People and Investments revenue was $1.7 billion in the quarter, up 6% or 5% on an underlying basis. Health and benefits grew 5%. Reflecting continued growth across our regions. Investments in Retirement was up 8%, led by our Investments business. Our assets under management were $843 billion at the end of the third quarter flat sequentially and up 23% from the third quarter last year. Year over year growth was driven by new business and the impact of capital markets. Workforce and Reward was down 1%. With growth in the U.S. and most of International offset by the impact of a challenging environment in the Middle East. For the first 9 months of the year, revenue at People and Investments was $4.9 billion with 5% underlying growth. Management Consulting generated revenue of 1 billion in the third quarter, up 14% on both a reported and underlying basis. This great result reflected strong demand and delivery across the business especially in AI related work. The quarter also benefited from favorable timing on success fees that we had expected in the fourth quarter. For the first 9 months of the year, revenue at Management Consulting was $2.9 billion an increase of 11% on an underlying basis. For the full year, management consulting is on pace for high single digit growth. Which would imply a roughly flat top line in Q4 due in part to the timing I mentioned. Fiduciary interest income was $100 million in the quarter, down $9 million from the third quarter last year. Looking ahead, we expect fiduciary interest income will be approximately $94 million in the fourth quarter. Foreign exchange was a $0.01 benefit in the third quarter. Based on current exchange rates, we expect FX will have an immaterial effect on earnings in the fourth quarter. Corporate expenses in the third quarter was $68 million on an adjusted basis compared to $71 million a year ago. Looking ahead to the fourth quarter, we expect adjusted corporate expense of approximately $80 million. Building on John's comments on Thrive, the program is going well, and our early success has resulted in us seeing more opportunities. We now expect to generate $600 million in savings with the vast majority of our actions taken by the end of 2028. And savings realized fairly evenly over the 3 years of the program. We expect costs associated with generating savings will be approximately $750 million So far, most of our savings have come from simplifying and streamlining our organization, right shoring actions, and efficiencies in DCS. We expect further savings in these areas. We are excited about our progress so far and the benefit we will get from the additional savings. Thrive is enabling us to accelerate investments that will help us sustain growth into the future while we continue to deliver solid results today. Total noteworthy items in the third quarter were $170 million, including $71 million of costs associated with Thrive. Noteworthy items this quarter also included $144 million relating to the GREG/SILL litigation. As disclosed in our 10 Q this morning, we have settled our involvement in this litigation. And do not expect any additional charges relating to the case. Note that total settlement payments and costs are reflected in our statement of cash flow. Interest expense in the third quarter was $248 million In our current forecast, we expect $255 million of interest expense in the fourth quarter. Our adjusted effective tax rate in the third quarter was 24.6%, compared to 24.8% in the third quarter last year, with both periods benefiting modestly from discrete items. When we give forward guidance around our tax rate, we do not project discrete items. Based on the current environment, we expect an adjusted effective tax rate of around 25% for 2026. Turning to capital management, our balance sheet, we ended the quarter with total debt of $20.5 billion We had $550 million of euro denominated senior notes mature in September and we intend to replace them with new euro denominated notes in the fourth quarter. Our cash position at the end of the third quarter was 1.8 billion Uses of cash in the quarter totaled $1.3 billion and included $476 million for dividends, dollars $288 million for acquisitions, and $500 million for share repurchases. For the first 9 months, uses of cash totaled $4 billion and included $1.4 billion for dividends, $607 million for acquisitions, and $2 billion for share repurchases. We continue to expect to deploy approximately $5.5 billion of capital in 2026 across dividends, acquisitions and share repurchases. The ultimate level of share repurchase will depend on how our M&A pipeline develops. For the full year, we continue to expect underlying revenue growth similar to the levels we generated in 2025, along with another year of margin expansion and solid adjusted EPS growth. With that, I am happy to turn it back to John.
John Quinlan Doyle: Thank you, Mark. Andrew, we are ready to begin the Q and A session.
Operator: Certainly. Will now begin the question and answer session. If you have a question, please press 11 on your touch tone phone. You wish to be removed from the queue, please press 11 again. If you are using a speaker phone, you may need to pick up the handset before pressing the numbers. Once again, if you have a question, please press 11 on your touch tone phone. And in the interest of addressing questions from as many participants as possible, we ask that participants limit themselves to 1 question and 1 follow-up question. 1 moment, please. And our first question comes from the line of Gregory Peters with Raymond James.
Greg Peters: Good morning, everyone. For the comments on the AI and the update on Thrive. A couple of your peers have given some detail on how they plan to deploy AI. To drive margin expansion. And I think that might be part of what is going on with your raising the Thrive target. But maybe you could give us some more details on what you are doing with technology and AI to drive the margin expansion.
John Quinlan Doyle: Good morning, Gregory, and thanks for the question. You spoke to it a bit in prepared remarks. We are you know, we are quite excited about what these new technologies can mean to our business. And it is not just margin expansion. I also want to reinforce the importance of it to how we serve our clients and what it can mean to our growth over time. I think that is you know, really a critical part of what we are thinking about and how we are investing against it. So, you know, we see clear benefits for our colleagues, for our clients, and earnings growth in it for our shareholders. We think we are well positioned. You know, I spoke about. I have spoken not just on this call, but on prior calls about long standing deeply trusted client relationships we have, the datasets, the proprietary datasets, the analytics we have, the modeling, and risk management. All of these things are fundamental to our you know, to our business model. This period of change is driving a lot of growth in our consulting businesses. So we are quite excited about how we are helping our clients as well. But, yes, it is helping drive some efficiency for us today. We are now not quite 3 years into BCS, We formed BCS almost 3 years ago. It was in the first quarter of 24. We are excited about the work that our team is doing there. Looking at leveraging the best tech, not just AI, I would point out, but automating processes challenging work flows all across the all across the company. And we had areas where we are doing things quite well. Now we are we are doing the. We are taking the best from each parts of those companies and so. And optimizing our operating model. So Paul Beswick leads all of that for us. he is doing an excellent job. His team is deep and strong. It also allows for a more efficient CapEx for us too. And so, yeah, we are. You know, we feel good about what it can mean to our margins. I am not gonna speak to 27 on this call. Gregory, I will talk about that in January. But between BCS and not just AI, right shoring, automation, and the early returns from, you know, from AI. Are all levers for us to drive future efficiency. So we feel good about that. Have a follow-up, Gregory?
Greg Peters: Of course. I am gonna pivot And it is on the M&A, and I know you are not gonna talk about your pipeline on a public call. But you know, Aon's done this very large transaction. And, there is some concern in the marketplace that you might feel the need to respond with a similar big transaction. So maybe you could spend a minute and tell us about you view your middle market presence and when you are looking at M&A, what kind of what kind of capabilities are you looking to bolt on to what you already have?
John Quinlan Doyle: Yeah. Yeah. Sure. Well, you know, look, let me be clear. Our interest in the market is not recent. Right? it is it is been there for quite a long time. Not following anyone. We have the best middle market business in the industry. I am incredibly proud of Mark Agency. it is been thoughtfully constructed over 15 years. Acquiring the best regional agencies all across the country. We have done over 130 deals since we began that strategy about 15 years ago. It cannot be replicated, and I would not change our business for any business in the market. And I remain very excited about the middle market. We have been bringing scale benefits to those customers. You know, helping them realize other value through our services and help position them. Help position our clients for better growth. it is not, of course, just P&C. it is it is health and benefits. And so it is a market we like quite a bit. We expect to continue to invest in that market, both organic I mean, inorganically. Our capital management strategy, Gregory, has not changed. It remains the same. We are going to be disciplined. Let me be clear. We will be disciplined and balanced in our approach. We do favor investing in the business. You know, our pipeline is good. there is there is no question about it. They are they are know, at least for some strategic buyers, there is a bit of a gap between, you know, bid and ask, at the moment. And so you know, we announced a deal on October 1. A Midwest agency, top 100 agency, in the Midwest that we are excited about. We closed on Astera earlier in the in the third quarter. So, we remain very active in the market. But, again, you know, we are gonna be disciplined about how we how we deploy our capital. In our prepared remarks, you know, both Mark and I touched on, you know, what we did in the quarter. We bought back a bit more stock. We are now at $2 billion kind of year to date. So hopefully, that is helpful. We have the capacity to do big deals, but you know, we are far more likely to do a string of pearls, continue that approach. Thank you, Gregory. Andrew, do we have a follow-up?
Operator: Our next question comes from the line of Mike Zaremski with BMO.
Mike Zaremski: Hey. Greg. Good morning. I guess I will start with Oliver Wyman in consulting. Know, we have as we have kind of dug into the excellent growth, we have heard some consultants have talked about AI making them much more efficient and then being able to work through their backlogs faster and kind of pull forward revenues. Just curious if that is a dynamic you think is contributing to Mark's excellent results.
John Quinlan Doyle: Yeah. Thanks. Thanks, Mike, and good morning. It is really terrific results. And, you know, as I mentioned on my prepared remarks, it is a great opportunity in this moment of change for us to help, you know, help our clients position themselves for greater success. it is not only driving growth for our business, but it is also changing the way we are doing business with you know, with our clients as well. And so, Ted, maybe you can talk more about that. Yeah.
Ted Moynihan: Mike, thank you. I mean, our. We had a great quarter. The performance was strong and pretty broad based across industries and capabilities and regions. it is certainly the case that our Quotient AI platform that helps our clients transform around AI was, you know, the strongest growing part of the portfolio and is really been contributing to, what is a good year for us.
Operator: I would say, you know, we are ourselves, in terms of your question about how we are actually delivering for clients, we have been on that journey for probably 3 years now, transforming how we deliver, for our clients.
John Quinlan Doyle: And, you know, we are using a very sophisticated range of tools. We have built a lot of agentic solutions ourselves that can create more value for our clients. We have built a lot of specialist capabilities, so across data analytics, forward deployed engineers that are blended into consulting teams. Increasingly, we partner with technology companies to be that frontier model companies, hyperscalers, cloud providers, and so on. And certainly, you know, as our you know, business has shifted from, you know, advice, you know, 10 years ago today really generating outcomes for our clients on their transformation journeys. You know, we started to increase the amount of, success pricing in our business. Our clients have been encouraging and willing to allow us to participate in the value that we are creating for them. And I think you know, Mark mentioned that in Q3, some of our performance was pulling forward some success fees that we might have seen in Q4 and so that certainly contributed to the level of growth you see in the numbers there. Thanks, Ted.
Mike Zaremski: Mike, do you have a follow-up? Yeah. A quick follow-up, maybe dovetailing on Gregory Peters' question on Thrive. You know, John, you talked about still early days of AI, you know, used cases impacting every employee's daily lives. You know, is it. Is it reasonable if we are thinking out into 2027 or 2028 that whether it is called Thrive or not, that there could be a much larger, broader program, that is impacting Mark when we are thinking about productivity gains?
John Quinlan Doyle: Yeah. Look. I would say, Mike, we are excited about the path that we are on as I you know, said, it is early. So I do not wanna get ahead of ourselves. Right? there is you know, a lot involved in you know, and the tools are changing and changing know, changing fairly rapidly. We will, you know, we will see whether they continue to change at you know, at the same pace. But it is you know, our colleagues are actively using these tools Our tech team, again, led by Paul Beswick, has done a terrific job. We have built a proprietary model that we call LENAI inside of our company, and we have introduced we introduce new tools literally every week to our colleagues. Now every 1 of those tools impacts different parts of our employee population, our colleague population, in different ways. I am very encouraged by the take up rate And so, yeah, we are, you know, we are transforming the way the way we operate, and we see certainly efficiency possibilities. Down the road, but, you know, more important than anything else, is how we serve our customer and what that can mean to our growth. Thanks, Mike. Andrew, next question, please.
Operator: Our next question comes from the line of Robert Cox with Goldman Sachs.
Rob Cox: Hey, good morning. Yes, my first question just on competition in the marketplace. So just thinking about levered private brokers right now, it seems like the softening pricing environment and higher interest rates combo could, you know, put some pressure on their business models right now, and it seems like could be some disruption going on. So I am just wondering if you think that could help Mark potentially win some more business in the open market, win on talent, or potentially make opportunistic m and a more attractive.
John Quinlan Doyle: Yeah. Thanks, Robert. You know, I wanna I wanna be careful because there is a you know, obviously a range of kind of PE owned or levered back kind of brokers out there. Some are you know, much smaller than others, and, of course, they serve kind of different markets. What I would say, though, is that we are we are certainly well capitalized. We have the ability to invest in our business again and I am talking about organic investment really here. What I am excited about is how scale is gonna matter through this period of transformation. Again, it is why I keep reinforcing the deep, long standing trusted client relationships, the proprietary datasets, the analytics we have, the modeling, all being improved with you know, with new technology. I do not think it is debatable. That scale matters. In this changing time. And so that has us incredibly well positioned. Think it will help us win business, of course, organically in the market. But it is also gonna help us probably know, as the M&A pipeline develops over time as well, where others will realize it will be difficult to invest at the same rate that you know, that we are investing. So I am excited about how we are positioned competitively. It starts with our people. Our people still matter. They are what deliver the insights to our clients, and we have the deepest, best talent. In the marketplace. Do you have a follow-up, Robert?
Rob Cox: Yeah. Thank you, and that is helpful. Just maybe on the you know, AI exclusion discussion. You know, I know there is been some media coverage about brokers being against broad AI exclusions and policies. And I was hoping you could unpack that view for us a little bit and any views you guys have on that.
John Quinlan Doyle: Yeah. And I will I will ask Nick to talk about it in a second. But you know, AI is embedded in most companies' workflows, and lots of different ways and processes and products. Right? So a broad based exclusion could create, you know, real confusion and uncertainty. We are not trying to poke insurers. We just are really trying to have a thoughtful discussion about how this might change exposures, very limited claim activity, to date, and really better understand how these risks aggregate. By the way, kudos to Nick and to Dean for you know, leading on this issue, really, for the broader marketplace. But Nick, maybe you could talk. We are just back from a conference, actually. Where we had a lot of engagement on this conversation.
Nicholas Studer: Yeah. I do want to emphasize that we see our role here as to advise our clients, look out for the best interests of our clients while working with carriers and with the reinsurance markets to make sure that the market is reflecting the risks that are there. And if I unpack it a little bit, you know, there are sort of 2. We certainly see 2 and there is probably over time a third. Category will emerge. The first category is just where AI is an elaboration or an evolution of an existing risk or peril. And, you know, it will be impossible to unbundle it from the causal pathways to whatever outcome may be. And that is really where we were focused on not excluding things which we think would lead to uncertainty to contention, to gaps in cover. There are places, the second category, where AI risks will require us to evolve established products or services because the AI exposes gaps or flaws in the existing marketplace. there is an evolutionary opportunity there. You know, we are not certain there is a third category. Whether something totally unique to AI that has never been previously contemplated in the insurance market. But we are open to the possibility. And in all 3 categories, we are working with our clients and looking to work with carriers to help the market evolve.
John Quinlan Doyle: Terrific. Thank you, Nick and thank you, Robert. Andrew, next question.
Operator: Our next question comes from the line of Meyer Shields with KBW.
Meyer Shields: Greg. Thanks so much and good morning. Mark, you mentioned the, I guess, pull forward acceleration of the success season at Oliver Wyman. I was hoping you could give us a sense as to maybe the revenue and earnings impact of that?
John Quinlan Doyle: Mark, do wanna take that?
Mark Christopher McGivney: Yeah. We wanted to point it out it is certainly not explaining the preponderance of growth. In management consulting even without that management consulting at a very strong growth quarter. But as Ted mentioned, success fees are becoming a big part. A bigger part of how we are structuring fees with clients. it is good for us to participate in gain sharing and so that was a factor, but management consulting had strong growth year to date. We just wanted to point that out.
Meyer Shields: Okay. Yep. Yeah. Just a quick 1. So if we take the commentary from the Mark index, so it looks like property got a little bit less bad at 10% down from 12 Are the books of business that renew in the second quarter comparable to the third?
John Quinlan Doyle: Yes. Good question. You called it less bad. I wanna point out it is very good for our clients. Right? So the you know, rate relief is. You know, we are we are we are trying to have efficient risk financing, right, for, you know, for our clients. But, of course, it does impact our growth. I would not over index on, you know, certainly on a quarter, but I would also say, Meyer, that even in Mark Risk, right, more of our property cat renewals exist in the first and second quarter. So, yes, there is a bit of a different mix of business here in the, in the third quarter. Hopefully, that helps. Thank you, Mark. Andrew, next question, please.
Operator: Our next question comes from the line of David Motemaden with Evercore ISI.
David Motemaden: Hey, thanks. Good morning. I know it is a it is a smaller reinsurance quarter, but the growth there over the last 3 quarters has been or at least over the prior 2 has been softer than your peers. And I hear your commentary on the pricing environment likely continuing to be a headwind into next year? Could you just unpack some of the moving pieces there between you know, net new and then the drag from pricing And if we should expect the same type of growth, as we have seen in the first 9 months 2027, given the pricing environment Sounds like it will continue.
John Quinlan Doyle: Sure, sure. Good morning, David. Thank you. You know, as Mark noted, we are minus 1 through 9 months, which, you know, we think is really kind of reflective of, you know, of where we are. Mark spoke, of course, about pricing and the impact of that. We are a bit overweight on property cat relative to some others. We are a bit overweight US, as well, compared to some others. And you know, we had a bit. It was a noisy quarter in the third quarter too, a small quarter, but a bit noisy with some nonrecurring items. We have been hit a little bit by some of the consolidation that is happened in the industry as well during the course of the year. But know, again, no excuses. You know, we are well positioned. We have we think the best reinsurance team in the market. I would also point out to you David, that some business that we do for the insurance industry and our companies and Oliver Wyman Actuary, Oliver Wyman, some business in Mark Risk as well. So it is a critical business to us. it is really important on so many levels. And so we feel like we are well positioned You know, Dean and the team see, you know, good growth in fact and m and a advisory, alternative capital, alternative structures, driving opportunities. So yep, we are facing some market headwinds. We have seen them before. We feel good about how we are positioned over the medium to long term. Have a follow-up, David?
David Motemaden: I do. Yes. Thanks for that, John. Just within the, management consulting business, it sounds like the growth there is being driven by Quotient, the AI transformation. It sounds like some of some competitors are passing through some of the AI efficiencies that they are getting in their business through, I guess, lowering price to improve volume in AI transformation engagements. Is that something that guys are doing? Is it something you are considering, just hoping for a little bit of color there. Thank you.
John Quinlan Doyle: Yeah. Yeah. Yeah. For. You know, I would I would I would first note, David, that you know, our growth is more broad based than Quotient. So. And maybe I will ask Patrick to talk about some of the impacts in a second. In people and investments as well. But, Ted, maybe you could talk about I mean, we are excited about AI driving kind of greater value of work that we are doing as opposed to it driving, you know, some pricing change. Ted, maybe you can start and Yeah. Pass it off to Patrick.
Ted Moynihan: Yeah. We just reiterate John's point that the growth was pretty broad based give you another example, we saw pretty good demand, for example, in our M&A business and our post merger integration over the last quarter as well. The nature of work is changing, and a lot of the AI transformation work that we are doing, you know, brings different skills in. The pricing structures change a little bit. As I mentioned, outcome based pricing is growing a little bit. But we are seeing our clients are really happy to pay value. 1 of the points that, John drew out in his comments was around the private equity companies that are increasingly bringing us in to look at their portfolio companies and do everything from AI strategy to cost transformation to you know, agentic commerce and so on. So, you know, it is really, I think we see a multiyear transformation for a lot of our client base around AI, and that is why we are very excited about the opportunities for Quotient for us and for our clients.
John Quinlan Doyle: Patrick?
Patrick Tomlinson: Yeah. Thanks for the question as well. And we are we are pleased with our overall growth across the people and investments business and across the various different practices. But on AI, we see that probably the most at this point inside of our workforce and rewards practice. And our overarching view on it is that the potential impact to the business, I would say, is gonna be. Is positive. Strengthening our opportunity with clients and the value we are delivering. We are seeing clients expecting us to use AI in our work. Right? And where I would say the biggest impact we are seeing is we are expecting them to. They are expecting faster time lines. They expect it to be used responsibly. They expect us to be able to protect their data. But they also expect increased speed to value. I think Ted was hitting on this. And increased speed to outcomes. And that is what we are really seeing the most. We have got proprietary datasets, as John has mentioned in his opening. Those differentiated datasets combined with our AI capabilities that we are building to be able to drive value for clients and with our consultants and recommendations. Is really allowing us to create more precision, more relevance for clients, and getting them the outcomes that they are looking for. Faster. I would say also that clients also understand from a-- the question was about cost. The clients also understand that AI is not free. They are all seeing it on their side as well, and they expect us to continue to invest in AI tools. And invest in the platform to be able to go ahead and deliver them these outcomes in a faster more consistent basis to where they can go ahead and capture speed to value.
John Quinlan Doyle: Thanks, Patrick. And David, I would add that as I mentioned, the Lens suite of tools that we are introducing to our colleagues are able to handle overwhelmingly the work that we do for our clients and how it is changed our processes internally. We do use frontier models, third party frontier models, when working with our clients, and we build that. Those costs into the pricing of the work that we are doing for our for our clients. Thank you, David. Andrew, next question, please.
Operator: Our next question comes from the line of Robert Cox with Morgan Stanley.
Analyst: Yes. Good morning. 1 thing I want to just maybe unpack a little is the. If we look at the EMEA business within risk and insurance service, not only had a strong quarter. In fact, EMEA had a really strong year. We think about the drivers here, can you maybe just help us a little bit more details in terms of how durable is this business? what is kind of driving it now? And then where are the drivers going from here?
John Quinlan Doyle: Right? What is driving the growth? So thank you for that. Yeah. Thanks, Rob. Yeah. We. Outstanding team, incredibly well positioned all throughout that region. And you know, I will I will ask Nick to unpack some of the drivers of growth there.
Nicholas Studer: Yes. I think very robust. Strong business, quite diversified in the geographic range of the region. We had really strong growth, very high single digit growth in new business, strong growth in specialties, And actually, so specialty wise growth in cyber, credit, marine, We saw growth in fax where we work very closely with Dean's teams. We saw growth in capturing some of what had previously been leakage to the wholesale market through our London wholesaler, through McGriff MMA London, growth in facilities, growth across the board.
John Quinlan Doyle: And know, I would add, Rob, that, obviously, there is a tremendous amount of disruption giving given the ongoing geopolitical conflict all, you know, all throughout the region. We have over 2.5 thousand colleagues in the Middle East. And we are incredibly proud of their resilience their focus on delivering for our clients. So I just wanna point out The Middle East part of that you know, of that territory as we reported, and growth has remained resilient. For us as a company. Do you have a follow-up, Rob? Yeah. No. I. Thank you for that. Really appreciate it. Yeah. My follow-up is a little bit more on consulting. I know we talked about AI workload, things of nature, but I wanna maybe focus a little bit on the traditional work. As we go into this year so far and going into next year, do you see any visible signs of maybe the traditional non AI related consulting work perhaps facing pressure or cannibalization from AI implementation it does not make sense that as AI becomes a bigger part of the business, that AI workload will start to cannibalize or become a bigger part of consulting going forward, if that makes sense. I am not sure I really understand your question. Would it. You know, maybe I will I will I will share a couple of thoughts that come to mind. Right? So, obviously, AI is driving you know, a lot of change inside of companies, you know, all around the world. And Ted spoke and Patrick both spoke about how driving some opportunity for us at the moment. What I would also, though, say in my prepared remarks, I talked about broader change. Right? Geopoliticalcom. Conflict geoeconomics. I did not talk much about extreme weather. it is been obviously you know, relatively modest year from a cat risk perspective. But all of these themes social issues, labor market challenges, all driving, you know, lots of change and uncertainty for clients All of those factors, not just AI, are driving demand for our services. Not just in consulting, but in risk as well. Right? And so 1 of the unique attributes about our firm is that we help clients understand their risks, develop a plan to mitigate those risks, help them finance some of those tail risks, when that is appropriate, and we do that in lots of different ways. But then we also help them capture the opportunity in this moment, and, you know, that is really why we are coming together on 1 unified brand and you know, why we are we are excited about not just helping companies build greater resilience in this time of change, but using that resilience as an offensive weapon that our clients can help grow and thrive in moments like this. Hopefully, that helps. Andrew, next question.
Operator: Our next question comes from the line of Elyse Greenspan with Wells Fargo.
Elyse Greenspan: Hi. Hi. Thanks. Good morning. My first question is on the margins guidance for the year. You guys pointed to margin improvement for 2026. I just wanted to clarify, do you guys expect margin improvement for the year in both segments or just on an overall basis?
John Quinlan Doyle: Yeah. We. Thanks, Lisa, and good morning. We do not guide by segment. But, you know, as Mark and I both noted in our prepared remarks, we do expect continued margin expansion for the year for the company. Again, we wanna balance margin expansion with continued investment in future growth. We wanna deliver growth in earnings for our company over the over the long term, of course. And so delivered solid growth and adjusted EPS in the quarter, and margins were flat, but we do expect drive margin expansion for the year for the company. Do you have a follow-up, Elyse?
Elyse Greenspan: Yes. Thanks. Then my second question, you guys had called out, I think, transactional oriented businesses and data centers as benefiting The U. S. And Canada organic growth in the quarter. Can you just give us a sense of the contribution in the Q3 and how that is compared to other quarters this year? And just and any sense of expectations going forward as well?
John Quinlan Doyle: Yeah. You know, we are not gonna give you know, exact revenue contribution from, you know, from those sectors and know, obviously, it is a dynamic economy. And we are continuing to invest in areas where we see growth. Right? So digital infrastructure has been an area where we have been investing. The active m and a environment has driven some growth for us there, and we continue to invest there. Healthcare continues to be a strong driver of demand. Private capital, Ted spoke about it, but it is more broad based than in our management consulting team. We are seeing real opportunities In energy, I think I. Did I mention energy? I cannot recall. Sorry. I mentioned energy. So you know, we are we are investing against kind of you know, the fast moving rivers, if you will, you know, that are out there and both transaction risk and know, we just wanted to call out how transaction risk and digital infrastructure continue to be good sources of growth for us. Do you have a follow-up, Elyse? Or was that the second 1? I cannot. I am sorry about That was before, really. Yeah. So thank you. Andrew, next question.
Operator: Our next question comes from the line of Alex Scott with Barclays.
Alex Scott: I just wanted to see if you could dig a little more into the transactional risk, construction, digital infrastructure, on how that impacted things this quarter? And you know, maybe what you are seeing in terms of little more real time. I think things have maybe slowed down in September and then October. So is that something on any of those fronts that we should be considering then to the end of the year?
John Quinlan Doyle: I am sorry, Alex. What slowed down in September and October? I did not hear that part. I think transactional risk and know, I do not know about construction, but rates are certainly up So I just wanted to see if there is any impact from some of those things. Nope. I mean, for our business, you know, demand remained pretty strong through the quarter. Our pipelines remain in both of those both segments of our business remain strong as well. You know, I. In digital infrastructure, of course, I mentioned in my in my prepared remarks that the Stratus Exchange that we put together you know, is these data centers transition to being, you know, operational risk and so, you know, really important transitions. So, you know, while there can be a nonrecurring aspect to some aspect, of construction or a heightened area of heightened period of risk, We do serve those clients through the operational phase of those facilities. You know, I mentioned also in my prepared remarks that there is kind of a broader wake there is broader investment that happens around data center construction. And so it is driving growth for us in Mark Agency and other parts of the company you know, as well as other investment happens. Know, kind of around this big capital infusion that happens in communities. So we are excited about how we are positioned there. You know, it is obviously you know, lots of politics around data center construction and you know, as I mentioned also in my prepared remarks, we. We are all for responsible AI deployment that includes the construction of data centers, and we are working with clients on community engagement and how to show up in you know, in the right way so that it can be a win for communities. Not just here in The United States, but in other parts of the world as well. Do have a Alex?
Alex Scott: Yeah. Maybe if I could do a follow-up on just hiring and you know, the saves that you are expecting related to some of the implementation of AI, the Thrive program, etcetera, You know, to what degree is that allowing you to begin investing more in hiring? And how do you balance that versus the margin improvement as we think in the next year?
John Quinlan Doyle: Yeah. And, you know, it is a good question, and it is a balance. Right? We are constantly trying to balance it. it is you know, connects back to my comments to Elyse about you know, about margin expand. Right? We wanna continue to drive growth in the business and while, really, margin expansions and outcome of the way we run the business, it is not really primary KPI. For us inside of the company. Again, we do expect to drive margin expansion you know, this year. I am very pleased with the state of our talent. We have the best talent in the market. Hands down. Our retention is strong. Our engagement scores are excellent. We work really hard on our colleague value We know we have to earn where we stand, in the market and earn the time and commitment of our colleagues to the work that, you know, that we do here. We have been our adding to market facing talent both laterally and from an early career point of view. We continue to hire early career at the same rate we have. Think it might be a little bit different than some others, not in our industry, but broadly. In the economy. But we continue to see really strong returns from hiring early career folks we have begun to harvest some attrition really in our mid and back office. So it is been part of the process improvement and cost improvement that our team in BCS and some of the automation and workflows. So you know, quarter to quarter, when you look at our total, you know, colleague you know, headcount, they are gonna be ins and outs with, you know, M&A and contractors. But so, you know, it. it is it is a dynamic time, obviously, for people. Right? And you know, what we tell our colleagues is that be good users of AI, and you are gonna become you know, more valuable to us, more valuable to our clients, and that will be a win for both our colleagues and for our business. Thank you, Alex. Andrew, Thank you.
Operator: I think that I would now like to turn the call back over to John Quinlan Doyle. President and CEO of Mark, for any closing remarks.
John Quinlan Doyle: Thanks so much, Andrew, and thank you all for joining us this morning. In an active quarter for our industry, I wanna recognize our colleagues for their focus and discipline and thank our clients for their continued trust and support. We remain confident in our strategy and energized about what is ahead. I look forward to speaking with you all again next quarter. Thanks, Andrew.
Operator: Thank you. Ladies and gentlemen, thank you for participating. This does conclude today's program. And you may now disconnect.