Highlights from the MMC earnings release and analyst call
Marsh & McLennan Companies (MMC), parent company of Marsh & McLennan Agency (MMA), the company’s middle market brokerage division, reported strong first quarter results this morning. MMA’s total revenue was up 5% (adjusted for the impact of acquisitions) to $2.1 billion, with strong growth in both domestic and international markets. Key takeaways related to COVID-19 included:
- While the first quarter results were described by management as “excellent,” it was largely unimpacted by the current pandemic due to timing. The company is just now starting to see early signs of COVID-19 related headwinds.
- Similar to what our clients have told us, the company expects that the next several months will be extremely challenging. Uncertainty was the major theme of the earnings call, with management quoted as saying “uncertainty is at an all-time high.”
- In response to the crisis, the company has shifted its focus to expense reductions, including eliminating non-essential expenses and capital expenditures. It was noted that employee headcount reductions and pay cuts have not been implemented at this time.
- During the first quarter, the Global Insurance Market index, MMC’s proprietary measure of global commercial insurance premium pricing change at renewal, saw property & casualty insurance pricing increase 14% 1Q20 versus 11% 4Q19. The company believes that, given impending losses from the pandemic, these price increases will continue, which will put additional pressure on cash strapped clients during a time when cash flow has, in many cases, ground to a halt.
- Management expects losses from the COVID-19 crisis across several lines of insurance, citing event cancellation, travel, directors & officers and workers compensation specifically.
- On a positive note, while the ability to forecast is extremely limited in the current environment, management believes there is still potential for modest revenue growth in 2020 at MMA but warned the second and third quarters will be challenging.
- In the midst of the pandemic, MMA closed on its acquisition of Schaumburg, IL-based Assurance Holdings, Inc. in early April, its third announced transaction in 2020. No additional impending merger & acquisition activity was discussed.
Overall, while the company had a better than expected first quarter, the impact of COVID-19 is just beginning to be felt and can be likened to the tip of an iceberg. With almost no ability to accurately forecast the ultimate impact of the pandemic, we would assess MMA’s management tone as very cautiously optimistic as the situation continues to evolve daily. We find it encouraging that, despite estimates for consolidated revenue to be down modestly in 2020, the company expects MMA’s revenue to be up modestly, a nod to the expected resiliency of the insurance brokerage business.
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This earnings summary has been prepared by Marsh, Berry & Co., Inc. and is not intended to provide investment recommendations on any company. It is not a research report, as such term is defined by applicable laws and regulations, and it does not contain sufficient information upon which to make an investment decision. It is not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any securities, financial instruments or to participate in any particular trading strategy. These materials are based solely on information contained in publicly available documents and Marsh, Berry & Co., Inc. has not independently attempted to investigate or to verify such information.
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