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Welcome to Marsh McLennan's Earnings Conference Call. Today's call is being recorded. Third quarter 2024 financial results and supplemental information were issued earlier this morning. They are available on the company's website at marshmclennan.com. Please note that remarks made today may include forward-looking statements. Forward-looking statements are subject to risks and uncertainties and 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 for this quarter and to our most recent SEC filings, including our most recent Form 10-K, all of which are available on the Marsh McLennan website. During the call today, we may also discuss certain non-GAAP financial measures. For a reconciliation of these measures to the most recently comparable GAAP measures, please refer to the schedule in today's earnings release. Operator Instructions: I'll now turn the call over to John Doyle, President and CEO of Marsh McLennan.
Good morning, and thank you for joining us to discuss our third quarter results reported earlier today. I'm John Doyle, President and CEO of Marsh McLennan. On the call with me is Mark McGivney, our CFO; and the CEOs of our businesses, Martin South of Marsh; Dean Klisura of Guy Carpenter; Pat Tomlinson of Mercer; and Nick Studer of Oliver Wyman. Also with us this morning for her last quarter as Head of Investor Relations is Sarah DeWitt. We'd like to congratulate Sarah on her new role as Chief Financial Officer of Marsh. Before I get into our results, I'd like to take a moment to comment on Hurricane Helene and Milton, which have devastated communities in Florida and the Southeast United States. These events are first and foremost a human tragedy and our thoughts are with all of those impacted by the storms. Our primary concern has been the wellbeing of our colleagues and their families as well as our clients and we're actively working to assist in their recovery.
While the ultimate insured loss won't be known for some time, the impact of these storms will be significant and given their wide paths of destruction and close timing they will put enormous pressure on resources available for recovery. Both hurricanes also highlight the meaningful disparity between economic loss and insured loss. According to some estimates, Helene may have the largest multiple of economic to insured loss of any U.S. storm. This protection gap imposes a meaningful burden on the economy, makes near-term recovery more challenging and undercuts resilience. In addition, rising frequency and severity of extreme weather events, higher property values and increased development in catastrophe-prone areas are driving the need for greater protection. We and the insurance industry help communities, businesses and governments build resilience to manage these perils. But as these storms highlight, there is opportunity to do more through risk mitigation, event preparedness and alternative solutions such as community-based parametric products.
Turning to our results, the third quarter marked another milestone for Marsh McLennan. We continue to perform well across our business and we were thrilled to announce the acquisition of McGriff Insurance Services. In the quarter, we generated 5% underlying revenue growth following 10% in the third quarter of last year, reflecting solid execution in RIS and Consulting. We grew adjusted operating income 12%. Our adjusted operating margin expanded 110 basis points, adjusted EPS grew 4% or 11% excluding a discrete tax benefit in Q3 of last year and we completed $300 million of share repurchases in the quarter. Turning to McGriff, it is a leading provider of insurance broking and risk management services in the U.S. with approximately $1.3 billion in revenue. I have long admired McGriff. They have excellent leadership, talented colleagues and a track record of strong growth. Their deep specialty and industry capabilities will strengthen the value proposition and expand the reach of Marsh McLennan Agency in the vast and growing middle market segment.
McGriff's client focus, culture of collaboration and commitment to excellence and integrity mirror our own. Together, McGriff and MMA will create new opportunities for colleagues to be their best and help deliver even greater value to clients. The $7.75 billion transaction will be funded by cash on hand and debt financing. We expect to close by year end, subject to regulatory approval. We would also expect the transaction to be modestly accretive to adjusted EPS, excluding amortization in year one and become more meaningfully accretive in year two and beyond. We have a terrific track record of acquiring and integrating businesses and we are excited to welcome McGriff's over 3,500 colleagues to the company when the deal closes. McGriff has added to what is already an active year for M&A across our business. We are on track for the largest M&A year in Marsh McLennan's history, with nearly $10 billion of capital committed to acquisitions year to date, including McGriff, Vanguard's U.S. OCIO business, Cardano, Horton and FBBI.
These acquisitions highlight our strategy to deploy capital to faster growing segments of our business. As we have said before, we consistently focus on delivering in the near-term, while investing for sustained growth over the long-term. Shifting to the macro environment, the overall backdrop remains supportive of growth despite what continues to be a complex and volatile landscape. Central banks have begun a cycle of easing and consensus views of the likelihood of near-term recession for most major economies are well below where they were coming into the year. We continue to see economic growth across most of our major markets. Inflation remains elevated, but declining. Labor markets remain healthy and the cost of risk in healthcare continues to rise. That said, uncertainty remains with rising geopolitical tensions and continuing conflicts in Ukraine and the Middle East. Clients across the world continue to assess the implications of technology advances in AI, the ever-persistent threat from cyber-attacks, supply chain risk and the impact of increasing frequency and severity of extreme weather events on their businesses.
Our talent, expertise and solutions help clients manage challenges and accelerate opportunities to thrive, so we remain positive in our outlook for growth. We are well positioned and have a track record of performing across economic cycles due to the enduring value we bring to clients and the resilience of our business. Turning to insurance and reinsurance market conditions, the Marsh Global Insurance Market Index was down 1% overall in the third quarter versus flat in the second quarter. Rates in the U.S. and Latin America were up low-single-digits. Europe was flat, and in the UK, Asia and Pacific rates were down mid-single-digits. Global property rates were down 2% versus flat in the second quarter, however, global casualty rates increased 6% with U.S. excess casualty up approximately 20% in the quarter. Workers' compensation decreased low-single-digits. Global financial and professional liability rates were down 7%, while cyber decreased 6%.
In reinsurance, demand continued to rise and capacity remained adequate in the quarter. While it is too early to know the ultimate insured losses from hurricanes Helene and Milton, we expect there to be an impact on 2025 property insurance and reinsurance pricing. Cat bonds, which posted record volume in the first half, remain likely to have elevated issuance activity through year end, driven by a heavy maturity schedule and capacity for casualty programs is expected to be adequate despite concerns over the pace of loss cost inflation. As always, we are helping clients navigate these dynamic market conditions. Now, let me turn to our third quarter financial performance. We generated adjusted EPS of $1.63, which is up 4% from a year ago or 11% excluding a $0.10 discrete tax benefit in the third quarter of last year. On an underlying basis, revenue grew 5%. Underlying revenue grew 6% in RIS and 4% in Consulting.
Marsh was up 7%. Guy Carpenter 7%, Mercer 5% and Oliver Wyman grew 1%. Overall in the third quarter, adjusted operating income grew 12% and our adjusted operating margin expanded 110 basis points year-over-year. For the nine months, consolidated revenue grew 7% on an underlying basis. Adjusted operating income grew 12%, and our adjusted operating margin expanded 110 basis points. Adjusted EPS was $6.93, up 10% from a year ago. Turning to our outlook, we are well positioned for another great year in 2024. We continue to expect mid-single-digit or better underlying revenue growth, another year of margin expansion and strong growth in adjusted EPS. Our outlook assumes current macro conditions persist. However, the environment remains uncertain and the economic backdrop could be materially different than our assumptions. Overall, I'm pleased with our Q3 performance, which demonstrates execution of our strategy and continued momentum across our business.
I'm grateful to our colleagues for their focus and determination and the value they deliver to our clients, shareholders and communities. With that, let me turn it over to Mark for a more detailed review of our results.
Thank you, John, and good morning. Our momentum continued in Q3, with solid underlying revenue growth, significant margin expansion and 4% growth in adjusted EPS or 11% excluding a large discrete tax benefit last year. Our consolidated revenue increased 6% to $5.7 billion with underlying growth of 5%. Operating income was $1.1 billion and adjusted operating income was $1.2 billion, up 12%. Our adjusted operating margin increased 110 basis points to 22.4%. GAAP EPS was $1.51 and adjusted EPS was $1.63. For the first nine months, underlying revenue growth was 7%, adjusted operating income grew 12% to $4.9 billion. Our adjusted operating margin increased 110 basis points to 28% and adjusted EPS increased 10% to $6.93. Looking at Risk and Insurance Services, third quarter revenue was $3.5 billion, up 8% from a year ago or 6% on an underlying basis. This result marks the 15th consecutive quarter of 6% or higher underlying growth in RIS and continues the best stretch of growth in two decades.
Note that fiduciary income was $138 million in the quarter and looking ahead to Q4, we expect to see this amount decline by approximately $30 million reflecting recent rate cuts and a seasonal drop in fiduciary assets. Operating income in RIS increased 15% to $733 million. Adjusted operating income increased 16% to $775 million and our adjusted operating margin expanded 130 basis points to 24.7%. For the first nine months, revenue in RIS was $11.7 billion with underlying growth of 8%. Adjusted operating income increased 12% to $3.7 billion and margin increased 100 basis points to 33.6%. At Marsh, revenue in the quarter was $2.9 billion, up 9% from a year ago or 7% on an underlying basis. This comes on top of 8% growth in Q3 of last year. Growth in Q3 was broad based and reflected solid retention and new business growth. In U.S. and Canada, underlying growth was 6% for the quarter led by strong growth in MMA and in Victor, our MGA business.
In international, underlying growth was 7% and comes on top of 10% in Q3 of last year. Latin America was up 8%, EMEA was up 7% and Asia Pacific was up 5%. For the first nine months of the year, Marsh's revenue was $9.2 billion with underlying growth of 7%. U.S. and Canada grew 7% and international was up 7%. Guy Carpenter's revenue was $381 million in the quarter, up 6% or 7% on an underlying basis, driven by strong growth in international including global specialties. For the first nine months of the year, Guy Carpenter generated $2.2 billion of revenue and 8% underlying growth. In the consulting segment, third quarter revenue was $2.3 billion, up 3% from a year ago or 4% on an underlying basis. Consulting operating income was $462 million and adjusted operating income was $478 million, up 7%. Our adjusted operating margin in consulting was 21.7% in the third quarter, an increase of 90 basis points.
The first nine months of the year, consulting revenue was $6.7 billion with underlying growth of 5%. Adjusted operating income increased 7% to $1.3 billion and our adjusted operating margin increased 60 basis points to 20.7%. Mercer's revenue was $1.5 billion in the quarter, up 5% on an underlying basis. This was Mercer's 14th consecutive quarter of 5% or higher underlying growth. Health underlying growth remains strong at 8% and reflected growth across all regions. Career grew 5%, where we saw strong growth in rewards and talent strategy. Wealth grew 4% driven by continued demand in defined benefit consulting and growth in investment management. Our assets under management at the end of the third quarter rose to $548 billion, up significantly from the third quarter of last year and up 11% sequentially. Year-over-year growth was driven by the impact of capital markets, our transaction with Vanguard and positive net flows.
For the first nine months of the year, revenue at Mercer was $4.3 billion with 6% underlying growth. Oliver Wyman's revenue in the quarter was $810 million, up 1% on an underlying basis. This reflects a tough comparison to 12% growth in the third quarter of last year and softness in certain geographies. We currently see this trend extending into the fourth quarter. The first nine months of the year revenue at Oliver Wyman was $2.4 billion, an increase of 5% on an underlying basis. Foreign exchange had very little impact on earnings in the third quarter; assuming exchange rates remain at current levels we also expect minimal FX impact in the fourth quarter. Total noteworthy items in the quarter were $78 million. These included $54 million of restructuring costs mostly related to the program we began in the fourth quarter of 2022, as well as some transaction-related charges. Our other net benefit credit was $68 million in the quarter.
For the full year 2024 we expect our other net benefit credit will be about $270 million. Interest expense in the third quarter was $154 million, up from $145 million in the third quarter of 2023, reflecting higher levels of debt and higher interest rates. Based on our current forecast, we expect approximately $151 million of interest expense in the fourth quarter, excluding any amounts related to the McGriff transaction. Our adjusted effective tax rate in the third quarter was 26.7% compared with 20.5% in the third quarter of last year. Our tax rate last year included the release of an evaluation allowance on foreign deferred tax assets. Excluding discrete items our adjusted effective tax rate was approximately 26.5%. When we give forward guidance around our tax rate, we do not project discrete items which can be positive or negative. Based on the current environment, we expect an adjusted effective tax rate of approximately 26.5% for 2024.
Turning to our McGriff transaction. McGriff is a terrific company with excellent leadership, a culture similar to MMA's, a diversified business mix, presence in faster growing U.S. markets and a strong track record of performance. We will be paying $7.75 billion in cash consideration, funded by a combination of cash on hand and new debt and we expect to close by year end subject to regulatory approval. As part of the transaction, we expect to assume a deferred tax asset valued at approximately $500 million. As we've noted in the past, we maintain considerable balance sheet flexibility to position us for this type of opportunity. We've secured a committed bridge loan facility for the full amount of the purchase price and currently plan to replace these commitments with permanent financing in Q4 as we get closer to closing. Based on our outlook today, we expect to raise $7.25 billion in new debt to fund the transaction.
We value our high quality ratings and we were pleased that all three rating agencies recently affirmed our current ratings with no changes in outlook. The financial and capital management plan contemplated in the transaction is not only consistent with maintaining our current ratings, but we also expect to have meaningful flexibility for capital deployment next year. Although initially our leverage ratios will increase, the substantial cash flow we expect to generate as well as increased debt capacity through earnings growth will enable us to bring our leverage ratios back in line with levels necessary to maintain a strong ratings profile. As a result, while we intend to pause share repurchases in the fourth quarter, as we think about capital management into next year, we expect we will maintain our balanced approach that includes increasing our dividend and reducing our share count each year as well as continuing to fund high quality acquisitions.
We will obviously have more guidance around our outlook for capital deployment in 2025 on our Q4 earnings call early next year. As John noted, we expect the transaction will be modestly accretive to adjusted EPS excluding amortization in year one becoming more meaningfully accretive in year two and beyond. This transaction is a great reflection of several elements of our capital management strategy: maintaining flexibility to take advantage of opportunities, a bias to reinvest capital for growth and delivering in the near-term, while challenging ourselves to invest to sustain growth into the future. On earnings, capital management and our balance sheet, we ended the quarter with total debt of $12.8 billion. Our next scheduled debt maturity is in the first quarter of 2025, when $500 million of senior notes mature. We currently expect to deploy approximately $4.2 billion of capital in 2024 across dividends, acquisitions and share repurchases excluding the McGriff transaction.
Our cash position at the end of the third quarter was $1.8 billion. Uses of cash in the quarter totaled $1.1 billion and included $404 million for dividends, $435 million for acquisitions and $300 million for share repurchases. For the first nine months, uses of cash totaled $3.3 billion included $1.1 billion for dividends, $1.3 billion for acquisitions and $900 million for share repurchases. I want to spend a minute on our plans to change how we report adjusted EPS. Starting next year, we will exclude the impact of acquisition-related amortization from adjusted EPS. We will also exclude the other net benefit credit, another non-cash item. These changes will improve the comparability of our results and give investors a better sense of our core earnings power. They will also conform our adjusted EPS reporting with how we report adjusted operating margins. While there continues to be uncertainty in the outlook for the global economy, we feel good about the momentum in our business and the current environment remains supportive of growth.
Overall, we are well positioned for another great year in 2024. Based on our outlook today for the full year, we continue to expect mid-single-digit or better underlying growth, margin expansion and strong growth in adjusted EPS. With that, I'm happy to turn it back to John.
Thank you, Mark. Andrew, we're ready to begin Q&A.
分析師問答
Operator Instructions: One moment for our first question. And our first question comes from the line of Elyse Greenspan with Wells Fargo.
My first question is on the McGriff deal. When you say that you expect it to be accretive to earnings less intangibles, can you give us some color on what your assumptions are for revenue growth relative to the $1.3 billion that you're taking on? And then also what are you assuming for margin? Any guide you can give us for year one and any guide for year two and beyond would be helpful as well.
I just want to reiterate how excited we are to welcome McGriff into the family. Obviously, it is subject to regulatory approval, they have a really strong culture. It's a competitive group; they're very client focused. I spoke to the talent in my prepared remarks and they'll extend our reach into the vast and fragmented middle market. They have excellent specialty capabilities and industry focus. Working together with MMA, we know they can drive better outcomes for clients and we can create new opportunities for their colleagues as well. We're excited about all that. We've shared the details that we're going to share about the business; like other MMA transactions, we don't disclose their margins when we acquire them or for that matter how they're growing. But we're excited about it. As I said, it'll be modestly accretive in year one and more so after that, and we expect to earn a good return on the investment over time. There are synergies, of course, but we're conservative in our modeling and we're very excited about what the combination can mean.
Sure, John. As you said, very pleased with underlying growth of 7%, which is in line with 8% in Q3 '23 and Q3 '22, very good balance of growth across international and in the U.S., but I'll double-click a little bit on the U.S., which performed very well at 6% on top of 6% in Q3. We saw very good growth from MMA and Victor. To Elyse’s question, we did see double-digit growth in the capital markets and MMA products. Construction & Aviation performed well and globally, very strong growth in our benefits business as well. So overall, pleased with that good momentum and expect that to continue.
Double-digit growth at least in capital markets is off a lower base after a couple of years of a soft environment there. Thank you for your questions.
Our next question comes from the line of Jimmy Bhullar with JPMorgan.
First, I have a question following up on your comments on Milton and its impact on the market. Specifically on reinsurance, what are your expectations on how Milton affects renewals? Should one assume that prices could actually go up or will they just go down given the high loss?
At the end of the day, it's too early to know that at this point. There's a range of estimates out there and the ranges are quite wide. Many property owners are just getting to their facilities at this point. I spoke about the overall economic impact to the Southeast and what it means to those communities at a human level as well. It's going to be a challenging recovery and it's going to extend for a period of time. Dean, could you comment a little about where we're expecting in advance of those storms and any thoughts on the impact it might have?
Yes. Thanks, John. Jimmy, as we entered the fall conference season ahead of Helene and Milton, I think our clients and we anticipated a very competitive market environment at the upcoming January 1 property cat renewal. I think post-Milton, it's still early, but we see a flattening of pricing in the property cat market at the upcoming January 1 renewal. If you think about lower and mid-level layers and programs, we see risk-adjusted flattish outcomes at this point without all the data in, and you could still see some softening, some rate reductions in more remote risk layers and property cat towers. Keep in mind, it's early. We're still in wind season. There could be additional cat events over the next several weeks that would shape the market. It will be several weeks before we have sufficient claims data to make accurate loss estimates and assess impacts on our clients. Right now, we're relying on all of our cat modeling partners to come up with some of those estimates.
To sum it up, overall property cat demand should increase at January 1 from our clients. We think capacity in the marketplace will be adequate. We think the renewal will be manageable for most of our clients. The market is well capitalized to trade forward and meets client demand. Keep in mind, the majority of the cat losses this year will be borne by our clients given the high attachment points that were imposed on that after Hurricane Ian two years ago.
Thank you, Dean. Jimmy, do you have a follow-up?
Just on Oliver Wyman. Obviously, the comps were tough as well, but you noted seeing weakness in some geographic regions. Was that a function of the economy? Or is there something else that's affecting results in the areas that you mentioned?
Oliver Wyman's 1% underlying was softer than we'd planned for. It was a tough comp and we're up 5% year-to-date. There's going to be more volatility quarter-to-quarter at Oliver Wyman. We do expect higher underlying revenue growth from Oliver Wyman over the medium to long term. Nick, could you share some insights on what you're seeing in the market?
Thank you, Jimmy. We often say this is a mid- to high-single-digit business through the cycle. I think it's fair to say we're at a low point in the cycle. We've talked for a few quarters now about that being a tough market and we do see that continuing. At a macro level, we're more than 50% larger than we were pre-pandemic and two-thirds larger than the pandemic year. We're consolidating those gains in that tough market. For the quarter itself, no one likes a one following a three; those were tough comparisons. When we look at the year as a whole, we're five percent year-to-date. We're on the front foot inorganically as well because parts of our business benefit from scale. The business is 8% larger than in the first three quarters of last year and that represents progress. We've seen very strong growth in Asia Pacific as it bounces back from a tougher period. Our India, Middle East and Africa business continues to grow.
The regional softness has been more in the Americas and in Europe. Some of that is linked to the economy and corporate buying habits given uncertainty, particularly some waiting for the election in the U.S. Sector-wise, our best growth has been in communications, media and technology. Our insurance and asset management practice is growing strongly. Automotive and manufacturing are doing well and our large banking practice continues to be robust. Overall, we see a relatively tough market which we'll continue to work our way through.
Thank you, Jimmy, for your questions.
Our next question comes from the line of Greg Peters with Raymond James.
For my first question, I'd like to focus on the free cash flow results. I was looking in the statement of cash flows; operating cash flow through the nine months is down a little bit, not growing in line with revenue. I'm sure there are some puts and takes. Some color there would be helpful.
As we've noted in the past, there's going to be more volatility to free cash flow growth than our earnings growth. Mark, could you share some color?
Yes. Free cash flow is volatile quarter-to-quarter and year-to-year, so it's best looked at over long stretches of time. Our track record in free cash flow growth has been strong; we've delivered double-digit free cash flow growth for a decade-plus. That's what you'd expect for a company that's grown its EPS double-digits given our high cash generation capital light model. There's no particular story in the results year-to-date — free cash flow is down relative to a very strong period last year. What you're seeing period-to-period is driven by a number of factors that cause volatility: higher variable compensation payouts earlier in the year because of strong results last year, receivables are up because of growth and it's a bit of business mix and timing. There are a handful of one-time items in last year's period that don't repeat this period. Overall, our outlook is for continued strong growth in earnings and therefore free cash flow growth should be strong into the future.
Thanks Mark. Greg, do you have a follow-up?
Mark, in your comments I think you mentioned something about fiduciary income and interest income and you provided some guidance. Could you revisit those comments and frame it for the fourth quarter and maybe for next year or two?
Yes. We had a lot in the script this quarter so to repeat: we typically see fiduciary balances fall off in the fourth quarter given seasonality and activity, especially in Guy Carpenter. We expect fiduciary income to be about $30 million lower in Q4 compared with Q3, due to recent rate cuts and the seasonal drop in fiduciary balances. Looking into 2025, it depends on future rate actions. We won't speculate, but to give a math reference: we have roughly $11.5 billion of balances on average these days, which you can use for sensitivity analysis. There would be offsets: some interplay with variable compensation programs and paying less interest on short-term debt. We'll have to wait and see what happens with further cuts as we look into next year.
We're accustomed to operating in a lower rate environment and we'll adjust our plans accordingly. A lower rate environment will likely be a headwind into 2025 and we model various scenarios for such headwinds. There are many ins and outs — lower rates could also impact other parts of the business, including transaction activity, Mercer Wealth, and our cost of capital. We'll work through all those issues.
Next question comes from the line of Mike Zaremski with BMO Capital Markets.
First question on the Marsh pricing index, which moved to negative 1 territory. Can you help tease out how this index and pricing in the marketplace is impacting Marsh's organic growth? I know there's an element of fees and then commissions as well. Has the deceleration in the index over the last year had any material impact on Marsh's rate of organic growth?
What I would say is that markets overall are, on average, stable. Insurers have picked up quite a bit of price over the last several years, so minus 1 provided some relief for many of our clients after a tough pricing environment. Price ultimately reflects the cost of risk over time, and the cost of risk continues to escalate. About half of our business at Marsh is sensitive to P&C pricing through commissions. The rest is fee-based. It's not a direct one-for-one line: buying habits change as markets soften and clients may retain different risk. For example, our captives business premium has been growing faster than the premiums we see into the marketplace. If the market becomes more competitive, that may change. Our index is skewed to large accounts; middle market pricing is more stable and up low to mid-single digits. I hope that's helpful. Do you have a follow-up?
A quick follow-up on pricing commentary and Mercer Health being strong. You mentioned U.S. was up 20% in a prior call I think; that's a big number. Is there dislocation in that marketplace? What's going on and could this move to the E&S market? Anything you can add would be helpful.
On liability markets in the U.S., there have been troubling signs. Martin, could you share some insights on what we're seeing?
Overall, the composite rating index is up about 1.5x since 2012. The casualty book is up 6% in North America with the excess book up 21%. At the moment, we're not seeing supply dislocations: the capacity clients request can generally be placed, though insurers are offering smaller limits and we're structuring quota share programs to avoid compression of limits. We don't see anything sinister in supply at this point. There has been movement to the E&S market and we're big players there; that segment has grown significantly. There's more agility and rate movement in those areas and we're well positioned to help clients navigate social inflation and other market dynamics. We'll continue to wrap additional services around clients to help them manage this market.
Thank you, Mike, and thank you, Martin.
Our next question comes from the line of Brian Meredith with UBS.
First one for Dean on the reinsurance side. You mentioned that you expect ample capacity in the casualty lines. How do you think reinsurers will react to tort inflation at 1/1? Will we see a lot of tightening in terms and conditions? What are you hearing?
Loss cost inflation in casualty lines remains a real challenge for the marketplace and was a major topic during conference season ahead of Helene and Milton. Dean, could you share your perspective on reinsurance casualty?
Reinsurers continue to express significant concern about the U.S. casualty reinsurance market, particularly excess casualty, for all the factors we've been discussing. As we head to the 1/1 renewal season, we think current market conditions will largely prevail in the casualty market. We continue to see downward pressure on ceding commissions for quota share deals, averaging around 100 basis points. Excess of loss contracts are seeing more robust rate increases, in the 5% to 25% range, and many structural changes are occurring to get those deals across the line. We expect adequate capacity in the marketplace, though it may be more limited for certain XLL deals. So far, these deals are challenging but getting done. The key for our clients is the performance of their underlying portfolios: are they getting underlying rate increases and managing limits in excess casualty? That's the key formula for successful renewal. Casualty is challenging, but we think it's stable and most deals will get done.
Clear signs of loss cost inflation and disrupted loss development patterns have created uncertainty. We're doing our best to help clients navigate that. Brian, do you have a follow-up?
We've talked about business flowing to the non-admitted market. Do you think that trend is slowing? How can Marsh react to mitigate or recapture share? Does McGriff help in the non-admitted area?
We're not losing share due to growth in the E&S market in the U.S. Wholesale broking has experienced outsized growth, but we have access to those markets and will use them when it's the right solution for clients. We generally prefer admitted solutions for clients given their advantages. Our strategy is to access as much of the market directly, including E&S insurers, as possible. Overwhelmingly, the E&S premium we place today we place directly. We will continue to use wholesale brokers where they provide niche expertise that serves clients well. That's how we see it.
Our next question comes from the line of Grace Carter with Bank of America.
A couple of cleanup questions regarding McGriff. Is there any possibility you might provide some below-the-line impacts, like how much you think amortization might increase associated with the deal and any transaction or integration expenses we should expect over the next few quarters?
No, we're not prepared to do that. As I said, like other MMA transactions, we haven't disclosed margins or the underlying performance of the businesses, other than to say we're very impressed with McGriff's performance. It's had strong underlying revenue growth and good sales velocity, very similar to the performance of MMA.
On the tax rate, I know it's early to look at next year, but considering how the geographic mix might be impacted by the deal, is the 25% to 26.5% guide for this year still fair to assume? And related, can you help us think about the timing for utilizing the deferred tax asset you're getting?
We're not going to guide to 2025 today. We'll discuss that in January on the Q4 call.
Just to your question on the deferred tax assets: the value I described is the present value of the future tax deduction stream that we expect to realize and that will be recognized over a long period of time.
Our next question comes from the line of Rob Cox with Goldman Sachs.
Given this is the largest MMA year in MMC's history, I'm curious if the price you're paying for top 100 brokers has changed your thought process on relative capital deployment across different avenues.
We've talked about our approach to capital management: we favor investing in the business over buybacks and we aspire to raise our dividend each year. We have a responsibility to be good stewards of capital. Although multiples have increased over recent years, we have confidence in our ability to earn a return well in excess of our cost of capital. Should that change or should we see a deal that doesn't accomplish those objectives, we'll deploy capital elsewhere. We have a strong reputation as a buyer in the marketplace. We spend a lot of time planning various scenarios from tuck-ins to more material deals and we're well positioned. Even after McGriff, we maintain flexibility to make the company bigger and better. Mark noted that post-transaction we expect to maintain a strong ratings profile and meaningful flexibility for future capital deployment.
A follow-up on commission rates and fee rates in brokerage operations. Is there anything you can tell us about how these take rates have changed over the course of the hard market in recent years? If not, what's driving the stability?
I wouldn't characterize the last several years as a hard market. What we've seen is insurers catching up with accelerating loss cost. Some pockets of the market were challenging, for example when ransomware surged in cyber underwriting, but those markets often settled. On average, our commission rates at Marsh have remained fairly stable over an extended period. There are product-specific movements, but average acquisition expense through Marsh has been pretty constant.
Our next question comes from the line of Andrew Kligerman with TD Cowen.
Your underlying growth in RIS is outstanding. We looked last year at double-digit underlying growth and this year it decelerated to 6%, which is still excellent. You guide to mid-single-digit or better underlying growth across businesses. What gives you confidence that growth will hold in this zone and not decelerate further?
As I mentioned in my prepared remarks, the macro environment remains supportive of growth overall, but we are in an elevated risk environment with geopolitical risk, frequent extreme weather, cyber events and loss cost inflation — all of which create opportunities for us to help clients. Pricing has moderated but markets remain disciplined. We've been focused on building and adding capabilities, both organically and inorganically, and deploying capital to faster-growing segments like the middle market. We're reshaping our mix of business and are working together better across our firms, which is driving growth opportunities. We'll guide on 2025 in January, but we feel we're executing well and are well positioned to continue driving good growth.
You touched on faster growth in MMA. Any color on how much it outpaces large corporate business?
We're not going to disclose specific segment growth differentials, but MMA is a higher-growth and more consistent business over time. It hasn't outpaced upmarket growth every quarter or year, but it's a more consistent growth engine and we can bring scale benefits to middle-market clients. McGriff is a great example of a business that will strengthen MMA and extend capabilities to those clients. Thank you all. I appreciate the questions. We will wrap up the call at this point as there is a fire alarm in our building. In closing, I want to thank our colleagues for their hard work and dedication. I also want to thank our clients for their continued support. Thank you all and we look forward to speaking with you again next quarter.
Ladies and gentlemen, thank you for participating. This does conclude today's program, and you may now disconnect.