Marsh & McLennan Cos. Inc. on Thursday reported a 2% drop in total revenue in the fourth quarter but a 7% increase on an underlying basis.
Net profit for the quarter fell 42% to $466 million, as the world’s largest brokerage took a $233 million charge related to restructuring activities, including property consolidation, and felt the impact of currency and capital market headwinds.
Full-year revenue rose 5% to $20.72 billion, up 9% on an underlying basis from 2021. Net income fell 3% to $3.01 billion.
The financial outlook is uncertain, senior Marsh McLennan executives said on an earnings call with analysts.
“Looking ahead to 2023, we see a mixed economic picture,”; said John Doyle, Marsh McLennan president and CEO.
While there is a risk of recession for major economies, there are many factors that remain supportive of business growth, Mr. Doyle.
“Softer real GDP growth is offset by elevated inflation, which drives higher insurance values and loss costs. Non-life insurance rates continue to increase,” he said.
The brokerage expects mid-single-digit or better underlying growth this year, based on its current outlook.
Fourth-quarter consolidated revenue was $5.0 billion, down 2% from the same period in 2021, and up 7% on an underlying basis, according to the brokerage’s earnings report released Thursday before markets opened.
Marsh LLC, its prime brokerage arm, reported $2.71 billion in revenue, down 6% from a year earlier and up 6% on an underlying basis.
Marsh’s US and Canada operations reported $1.53 billion in revenue, up 5% overall and 5% on an underlying basis. The U.S. business saw tough comparisons due to elevated SPAC and M&A activity in the fourth quarter of 2021, senior executives said.
Its Europe, Middle East and Africa operations reported $703 million in revenue, down 1% overall but up 7% on an underlying basis. Its Asia Pacific business reported $318 million in revenue, down 43% overall due to a gain related to the consolidation of Marsh India in the prior year, but up 12% on an underlying basis.
Reinsurance broker Guy Carpenter & Co. LLC reported $171 million in quarterly revenue, up 1% year-over-year and up 5% on an underlying basis.
Market conditions for reinsurance and commercial insurance remain difficult for buyers, senior executives at Marsh McLennan said.
At the Jan. 1 reinsurance renewals, global property tax reinsurance increases ranged from 25% to 60%, with loss-affected customers often seeing higher rates, Doyle said. In the U.S., the cat tax increase was the highest in 17 years, “typically in the 40% to 60% range,” he said.
“Commercial property/casualty rates continue to rise on average across many industries and geographies,” although the pace has continued to moderate, Doyle said, adding that the tight reinsurance market could have knock-on effects, particularly for property insurance rates. ,
Pricing and anchor points increased significantly for many customers, not just in the US but across all geographies on January 1st, said Dean Klisura, president and CEO of Guy Carpenter.
“Our clients were forced to take on more risk, more volatility in their balance sheets in terms of buying patterns,” Klisura said.
The Marsh Global Insurance Market Index showed rate increases of 4% in the fourth quarter, the 21st consecutive quarter of rate increases.
Accident rate increases leveled off at 3%, while real estate accelerated to 7% in the fourth quarter. “We expect that to continue in the first quarter of next year,” as the costs of catastrophe losses and reinsurance costs are absorbed, said Martin South, president and CEO of Marsh.
Liability increases for directors and officers moderated to 6% due to the decline in SPAC activity and new capacity entering the market. Cyber interest rose 28%, a slowdown from last year’s third quarter.
Marsh’s captive management business grew nearly double-digit for the quarter and for the year as clients retained more of their risk, Mr. South.