Marsh & McLennan Companies (MMC) Q4 2022 Earnings Call Transcript

Marsh & McLennan Companies (MMC -1.75%)
Q4 2022 Earnings Call
Jan 26, 2023, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to Marsh McLennan's earnings conference call. Today's call is being recorded. Fourth-quarter 2022 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 more detailed discussion of those factors, please refer to our earnings release for this quarter and to our most recent SEC filings included in 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 closely comparable GAAP measures, please refer to the schedule in today's earnings release. [Operator instructions] I'll now turn this over to John Doyle, president and CEO of Marsh McLennan.

John Doyle -- President and Chief Executive Officer

Good morning and thank you for joining us to discuss our fourth-quarter results reported earlier today. I'm John Doyle, president and CEO of Marsh McLennan. Joining me on the call today is Mark McGivney, our CFO, and the CEOs of our businesses. Martin South of Marsh, Dean Klisura of Guy Carpenter, Martine Ferland of Mercer, and Nick Studer of Oliver Wyman.

Also with us this morning is Sarah DeWitt, head of investor relations. I am excited to be leading this call today for the first time as president and CEO. Marsh McLennan is an outstanding company with unique capabilities in the critical areas of risk, strategy, and people. We help clients address their greatest challenges and find new possibilities as they navigate dynamic environments.

We have exceptional talent, a wide range of solutions, and a track record of execution and financial performance. Our leadership team is focused on delivering the full capabilities of Marsh McLennan to our clients, continuously improving the client and colleague experience, efficiently managing capital, and driving growth and value for shareholders. Over the past year, I've been meeting with colleagues and clients to exchange ideas about how we can accelerate impact for clients and enable their success. These conversations reinforce my conviction that we are in the right businesses with strong brands and deep client relationships.

I am confident that we have meaningful opportunity at the intersections of our businesses where, together, our scale, data, insights, and solutions are highly valued by clients. The strength of our unique value proposition has us well positioned for the years ahead. Today, we are focused, aligned, and succeeding together as our results demonstrate. 2022 was an outstanding year for Marsh McLennan.

We generated 9% underlying revenue growth, continuing our best period of growth in more than two decades, with each of our businesses delivering strong results. Our total revenue surpassed 20 billion, and adjusted operating income grew 11% to 4.8 billion. This was on top of 18% growth in 2021. We reported adjusted margin expansion for the 15th consecutive year.

Adjusted EPS growth was 11%. I am particularly pleased with this performance, as our results included costs related to our strategic investments in talent and the continued normalization of T&E. These results also came on top of 24% growth in 2021. And we delivered significant capital return to shareholders, raising our dividend by 10% and completing 1.9 billion of share repurchases, the largest annual amount in our history.

We also added to our talent and capabilities, both organically and through attractive acquisitions. MMA acquired two top-100 agencies in 2022 and has now surpassed 100 acquisitions since its inception in 2009. Oliver Wyman expanded its capabilities and geographic reach with the acquisitions of specialty consultant Avascent and Booz Allen Hamilton's MENA practice. And Mercer expects to close its transactions from Westpac in Australia in the first half of this year.

We overcame significant foreign exchange and capital market headwinds to generate these results through execution, growth, and exceptional client engagement. I'm particularly proud of these achievements amid a year of seamless leadership transitions at Marsh and Guy Carpenter. Our purpose and strategy underpin our performance. Marsh McLennan makes a difference in the moments that matter for our clients, colleagues, and our communities.

Turning purpose into practice, our strategy focuses on several core elements: promoting a culture that attracts and retains top talent in our business, investing to strengthen our capabilities organically and inorganically, positioning ourselves in segments and geographies with attractive fundamentals, leveraging data and insights to help clients become more resilient and find new opportunities, and delivering Marsh McLennan's full value proposition to enable client success. We complement our colleague- and client-facing strategy with our approach to expense and capital management. We focus on growing revenue faster than expenses, which contributes to annual margin expansion and adjusted EPS growth. And we manage capital allocation to balance performance in the near term with investing for the long term.

We are accelerating collaboration across our business to drive greater growth and efficiency. We are implementing new ways to operate, reduce complexity, and organize for impact. In this regard, we took actions in the fourth quarter to align our workforce and skill sets with evolving needs, rationalize technology and reduce our real estate footprint. Together, these actions resulted in approximately 230 million of charges.

Based on our outlook today, we expect they will drive 125 million to 150 million of savings in 2023. Overall, they reflect an opportunity to accelerate impact for clients, reinvest in our capabilities, and to be more efficient and connected. Now, let me provide an update on P&C insurance and reinsurance market conditions. The January 1 reinsurance renewals proved to be the most challenging in nearly two decades.

The property cat reinsurance market was stressed with pricing and attachment points increasing significantly, reflecting several years of higher-than-expected cat losses, macroeconomic factors, and supply and demand imbalances. Global property cat reinsurance rate increases range from 25% to 60%, with loss impacted clients often seeing higher pricing. In the US, property cat reinsurance rate increases were the highest in 17 years, generally, in a range of 40% to 60%. It is important to note that ceded premiums were tempered by higher retentions in most cases.

Meanwhile, commercial P&C insurance pricing continues to rise on average across many lines and geographies. While the pace of price increases continued to moderate after rising for 21 consecutive quarters, the tight reinsurance market could have knocked on effects, particularly for property insurance rates. We are focused on helping our clients navigate these difficult insurance and reinsurance markets and the evolving risk landscape. Now, let me turn to our fourth-quarter financial performance.

We generated adjusted EPS of $1.47, which is up 8% versus a year ago, or 12% excluding the impact of foreign exchange. On an underlying basis, revenue grew 7%. Underlying revenue grew 8% in RIS and 6% in consulting. Marsh grew 6%.

Guy Carpenter grew 5%. Mercer grew 5%. And Oliver Wyman grew 8%. Overall, the fourth quarter saw adjusted operating income growth of 13%, and our adjusted operating margin expanded 160 basis points year over year.

As we look ahead to 2023, we see a mixed economic picture. While there is a risk of recession for major economies, we also believe there are many factors that remain supportive of growth for our business. Softer, real GDP growth is offset by elevated inflation, which drives higher insured values and loss costs. P&C insurance rates continue to increase as insurers account for rising frequency and severity of catastrophe losses, the risks of social inflation, and higher reinsurance costs.

Health care costs continue to rise due to higher wages and labor shortages in the healthcare sector. The U.S. labor market continues to remain among the tightest employment environments of the past half century, with 3.5% unemployment and over 10 million unfilled jobs. And short-term interest rates are at the highest level since the financial crisis, increasing our fiduciary income.

When the world is volatile and uncertain, demand for our services typically rises. This year's Global Risks Report, which we just published in collaboration with the World Economic Forum, highlights that risks confronting our clients extend well beyond economic and insurance cycle concerns. The report identified the cost of living crisis, failure to mitigate and adapt to climate change, extreme weather, natural resource crises, the erosion of social cohesion, cybercrime, and geoeconomic confrontation among the top risks facing society over the near term and next decade. In these areas and many others, we are working with clients to meet these challenges, build resilience, and capture new opportunities.

Our colleagues are inspired by the opportunity to work on these critical issues and to make a difference in the moments that matter. Looking forward, we are well positioned for 2023 and beyond. We expect mid-single digit or better underlying revenue growth in 2023, another year of margin expansion, and strong growth in adjusted EPS. Our outlook assumes current macro conditions persist.

But meaningful uncertainty exists, and the economic backdrop could be materially different than our assumptions. However, we have a track record of resilience across economic cycles. In summary, 2022 was an outstanding year for Marsh McLennan, one in which all of our businesses delivered strong performance. We generated record revenues and earnings, saw the benefit of recent investments and growth, continue to execute on our acquisition strategy, and made record share repurchases.

We are proud of the focus and determination of our colleagues and the value they deliver to our clients and shareholders. We closed the year on a high note and look forward to another year of strong performance in 2023. With that, let me turn it over to Mark for a more detailed review of our results.

Mark McGivney -- Chief Financial Officer

 Thank you, John, and good morning. We are pleased with our strong fourth-quarter results, which capped another terrific year. We delivered strength on strength from a financial performance perspective and continued to invest organically and inorganically. These investments, combined with the actions we took in the fourth quarter, position us well for another good year in 2023.

Consolidated revenue decreased 2% in the fourth quarter to 5 billion. As a reminder, the fourth quarter last year included a large gain related to Marsh India. Foreign exchange was also a meaningful headwind to GAAP revenue growth. However, on an underlying basis, revenue increased 7%.

Operating income in the fourth quarter was 680 million. Adjusted operating income increased 13% to 1 billion. Our adjusted operating margin increased 160 basis points to 22%. GAAP EPS was $0.93, and adjusted EPS was $1.47.

Our full-year 2022 results were outstanding. Operating income for the year was 4.3 billion, and adjusted operating income was 4.8 billion, an increase of 11% over 2021. Adjusted EPS grew 11% to $6.85, and our adjusted operating margin expanded 80 basis points, marking our 15th consecutive year of reported margin expansion. 2022 was also a strong year for capital management.

We deployed 3.9 billion of capital, enhanced our short-term liquidity, raised our dividend 10%, and saw Moody's lift our rating outlook to positive. Looking at risk and insurance services. Fourth-quarter revenue decreased 3% to 2.9 billion. Note that our RIS and, specifically, Marsh is where the India gain affected our revenue comparisons.

On an underlying basis, revenue in RIS increased 8%. The strong results reflected the momentum in our business and our resilience in the face of macro headwinds and economic uncertainty. RIS operating income was 472 million in the fourth quarter. Adjusted operating income increased 23% to 685 million.

And the adjusted margin expanded 290 basis points to 25.6%. For the year, revenue in RIS was 12.6 billion, an increase of 5%, with underlying growth of 9%. Adjusted operating income growth for the year was impressive at 15%. And our adjusted operating margin in RIS increased 130 basis points to 29.8%.

At Marsh, revenue in the quarter decreased 6% to 2.7 billion, but was up 6% on an underlying basis. This comes on top of a tough comparison to the fourth quarter of last year, which saw strong M&A and SPAC-related activity. For the full year, revenue at Marsh was 10.5 billion, an increase of 3%, or 8% on an underlying basis. In U.S.

and Canada, underlying growth was 5% for the quarter, a solid result given the headwind from lower M&A and capital markets activity. We expect this headwind to persist into the first quarter but normalize as we enter the second quarter. For the full year, underlying growth in U.S. and Canada was excellent at 7%.

In international, underlying growth was 8% in the quarter, with Asia-Pacific up 12%, EMEA up 7%, and Latin America up 4%. For the full-year, underlying growth in international was strong at 10%. Guy Carpenter's revenue was 171 million, up 5% on an underlying basis. For the year, revenue was 2 billion, an increase of 8%, or 9% on an underlying basis.

Based on our current outlook, we expect Guy Carpenter's growth in 2023 to benefit from a tightening reinsurance market. In the consulting segment, fourth-quarter revenue was 2.1 billion, flat versus the prior year. Revenue grew 6% on an underlying basis. Consulting operating income was 336 million.

And adjusted operating income was 407 million, down 1%, reflecting continued foreign exchange and capital markets headwinds. The adjusted operating margin was 20% in the fourth quarter, a decrease of 20 basis points. For the full year, consulting revenue was 8.1 billion, an increase of 8% on an underlying basis. Adjusted operating income for the year increased 4% to 1.5 billion, while our adjusted operating margin decreased 10 basis points to 19.7%.

Mercer's revenue was 1.3 billion in the quarter, up 5% on an underlying basis. This is a good result considering the impact of capital markets on our investments business. Wealth was flat on an underlying basis due to year-over-year declines in both equity and fixed income markets. Solid growth and defined benefits helped mitigate the drop in investments.

Our assets under management were 345 billion at the end of the fourth quarter, up 9% sequentially, but down 17% from the fourth quarter of last year due to market declines and foreign exchange, which more than offset strong positive net flows. Health revenue grew 8% on an underlying basis in the fourth quarter, reflecting strength in employer and government segments and momentum across all regions. Career revenue increased 12% on an underlying basis, reflecting continued demand in rewards, talent strategy, and workforce transformation. For the year, revenue at Mercer was 5.3 billion, an increase of 6% on an underlying basis, the highest result since 2008.

Oliver Wyman's revenue in fourth quarter was 765 million, an increase of 8% on an underlying basis, a solid result considering a tough comparison to 22% growth in the fourth quarter of 2021. For the full year, Oliver Wyman's revenue was 2.8 billion, an increase of 13% on an underlying basis, building on a 21% growth in 2021. As we look to 2023, we expect growth at Oliver Wyman to slow given rising economic uncertainty. Adjusted corporate expense was 68 million in the quarter.

Foreign exchange was a $0.05 headwind in the fourth quarter, and for the full year, was a $0.12 hit. Assuming exchange rates remain at current levels, we expect FX to be a $0.03 headwind in 2023, with $0.05 in the first quarter and $0.02 in the second quarter, reversing to a modest tailwind in the second half. I want to spend a minute on the 344 million of noteworthy items in the quarter, the majority of which related to actions we initiated last year, as well as the final exit of JLT's headquarters in London. The largest category of noteworthy items in the quarter was 233 million relating to restructuring activities, which are focused on workforce actions, rationalizing technology, and reducing our overall real estate footprint.

The charges included severance associated with headcount reductions, as well as provisions related to real estate actions. Although we expect some reinvestment of the savings from these actions, the majority will flow to earnings. Based on our outlook today, we expect the benefit to earnings in 2023 could be 125 million to 150 million. We anticipate further actions under this program, which will continue through 2023 and possibly into 2024.

We're still refining estimates of future opportunities, but at this point, we don't see additional charges in 2023 or 2024 exceeding the amounts taken in 2022. As we typically do on our fourth-quarter calls, I will give a brief update on our global retirement plans. Our other net benefit credit was 57 million in the quarter and 235 million for the full year. For 2023, based on our current expectations, we anticipate our other net benefit credit will be about 235 million.

Cash contributions to our global defined benefit plans were 169 million in 2022. We expect cash contributions will be roughly 107 million in 2023. Investment income was a loss of 6 million in the fourth quarter on a GAAP basis, and a loss of 5 million on an adjusted basis, and mainly reflects losses in our private equity portfolio. Given current market conditions, we anticipate negligible investment income in the first quarter of 2023.

This compares to 17 million of investment income in the first quarter of 2022 on an adjusted basis. Interest expense in the fourth quarter was 127 million. Based on our current forecast, we expect interest expense for the full-year 2023 of approximately 565 million. This reflects an increase in long-term debt and higher interest rates on commercial paper, which we use for efficient working capital management.

Our adjusted effective tax rate in the fourth quarter was 22.9%. This compares with 20.6% in the fourth quarter last year. Both periods benefited from favorable discrete items. For the full-year 2022, our adjusted effective tax rate was 23.5%, compared with 23.6% in 2021.

Excluding discrete items, our adjusted effective tax rate for the full year was approximately 25%. 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, it is reasonable to assume a tax rate of 25% to 26% for 2023. Turning to capital management and our balance sheet.

We ended the year with total debt of 11.5 billion. This includes the 1 billion of senior notes we issued in October. We used the portion of the proceeds from this offering to redeem 350 million of senior notes that were scheduled to mature in March 2023. Our next scheduled debt maturity is in October 2023, when 250 million of senior notes mature.

Our cash position at the end of the fourth quarter was 1.4 billion. Uses of cash in the quarter totaled 1 billion and included 298 million for dividends, 395 million for acquisitions, and 350 million for share repurchases. For the year, uses of cash totaled 3.9 billion and included 1.1 billion for dividends, 806 million for acquisitions, and 1.9 billion for share repurchases. As a reminder, we have a balanced capital management strategy that supports our consistent focus on delivering solid performance in the near term while investing for sustained growth over the long term.

We prioritize reinvestment in the business, both through organic investments and acquisitions. We favor attractive acquisitions over share repurchases and believe they are the better value creator for shareholders and the company over the long term. However, we also recognize that returning capital to shareholders generates meaningful returns for investors over time. And each year, we target raising our dividend and reducing our share count.

Looking ahead to 2023, based on our outlook today, we expect to deploy approximately 4 billion of capital across dividends, acquisitions. and share repurchases. The ultimate level of share repurchase will depend on how the M&A pipeline develops. As John noted, there is significant uncertainty in the outlook for the global economy.

However, we feel good about our momentum and position, and despite the uncertainty, there are factors that remain supportive of growth in our business. Based on our outlook today, for 2023, we expect mid-single digit or better underlying revenue growth, margin expansion, and strong growth in adjusted EPS. And with that, I'm happy to turn it back to John.

John Doyle -- President and Chief Executive Officer

Thank you, Mark. Andrew, We are ready to begin Q&A.

Questions & Answers:

Operator

Certainly. We will now begin the question-and-answer session. [Operator instructions] In the interest of addressing questions from as many participants as possible, we ask that participants limit themselves to one question and one follow-up question. One moment, please.

And our first question comes from the line of David Motemaden with Evercore ISI.

David Motemaden -- Evercore ISI -- Analyst

Hi. Good morning. I had a question, first, just on the restructuring actions and sort of wanted to just take a step back and just ask, you know, is this a -- are you instituting a downturn playbook just based on something you are seeing in the revenue environment that, you know, hasn't shown up in results yet? But is that something that you're seeing and this is a defensive move? Or should I think of this as more of an offensive move, you know, just from from picking up some low-hanging fruit that you see, just sort of improving your efficiencies throughout the organization?

John Doyle -- President and Chief Executive Officer

Good morning, David. There's nothing defensive about the move. We took steps to align our workforce and skill sets with the evolving needs of our clients. You know, as I noted, when I outlined some of the highlights of the Global Risks Report, you know, those client challenges and opportunities are constantly evolving and dynamic.

And we've also identified some opportunities to create some greater efficiencies across our businesses, where we're working more closely together. We've rationalized some technology, reduced our real estate footprint. So, it's not an indication of what we think the economic outlook is.

David Motemaden -- Evercore ISI -- Analyst

Got it. Thanks. And then, maybe just -- if you could just talk about, you know, some of the three drivers that you spoke of. I guess it was real estate, technology and workforce.

Any way to size which --how much of that benefit is coming from each of those buckets? And how we should think about some of the future actions that you might be taking?

John Doyle -- President and Chief Executive Officer

Yeah, it's a mix. It's fairly balanced between, you know, the -- you know, the three different areas. I mean, you know, as Mark noted, you know, we're still doing some work and we see some further opportunities. However, I think it's, you know, it's likely that further charges would be less than, you know, what we took in the fourth quarter here.

But again, we're you know, we're challenging ourselves, looking at, you know, where we've got talent, how it comes together, matching that against evolving needs in the marketplace, and then, you know, pushing ourselves to operate in a different way, in a more efficient way.

David Motemaden -- Evercore ISI -- Analyst

Great. Thank you.

John Doyle -- President and Chief Executive Officer

Thanks, David. Operator, next question.

Operator

Thank you. And our next question comes from the line of Jimmy Bhullar with J.P. Morgan.

Jimmy Bhullar -- JPMorgan Chase and Company -- Analyst

Hey, good morning. 

John Doyle -- President and Chief Executive Officer

Hey, Jimmy.

Jimmy Bhullar -- JPMorgan Chase and Company -- Analyst

So, John, you mentioned a little bit in your comments on just the hard market in reinsurance and also the firm market in commercial lines. Can you talk a little bit more about what you're seeing -- if you're seeing any changes in client behavior, whether more sort of self-insurance or higher retention rates at both Marsh and Guy Carpenter?

John Doyle -- President and Chief Executive Officer

Sure. Thanks, Jimmy, for the question. You know, as I noted in my comments, it was a very challenging, you know, January 1st property cat renewal. We expected it to be a challenging, you know, renewal season prior to Ian.

And then, Ian, of course, you know, exacerbated it. You know, I did mention that, you know, some of the higher costs, you know, are offset a bit by higher retentions. My comments there were primarily about -- you know, primarily about reinsurance and not insurance. But I'll ask Dean and Martin to comment a bit in a second.

But, you know, what I would say -- you know, I commented on the higher cat losses over the last several years. Reinsurers, of course, now have a higher cost of capital, inflation, mark-to-market losses on the asset side of their balance sheet. You know, just -- FX as well, a number of the big reinsurers and a lot of the cat programs in the United States, you know, created some FX challenges as well. So, just a number of different factors led to, you know, a really reevaluation of, you know, pricing and capacity deployment from some of the bigger capital providers.

But, Dean, maybe you can go first and give an overview.

Dean Klisura -- President and Chief Executive Officer of Guy Carpenter

Yeah, sure. Thanks, John. I think, you know, in terms of client buying patterns -- you know, at January 1, in reinsurance, I mean, you mentioned increased retentions, attachment points. I mean, that was reinsurer driven, right? Attachment points were up substantially for many of our clients, not only in the United States, but in all geographies with January 1 cat renewals.

So, our clients were forced to take more risk, more volatility on their balance sheets. In terms of buying patterns, you know, that inflation-driven demand for additional limit, everybody talked about all fall didn't really materialize. Clients mostly bought the same amount of cat limit they bought last year, maybe up incrementally. Maybe our global clients bought a little bit more.

But in terms of limit, some of that limit that was eliminated at the bottom end of cat programs was put on top of programs, right? So, clients made that up. But in terms of buying more, I think, for many clients, it was cost prohibitive given the, you know, the rate increases that John outlined around property cat, very challenging terms and conditions. You know, really, you know, reinsurers had the -- you know, the upper hand in this marketplace around pricing, attachment point, and very challenging terms and conditions.

John Doyle -- President and Chief Executive Officer

Thanks, Dean. Martin, you want to share some observations about the insurance market?

Martin South -- President and Chief Executive Officer of Marsh

Yes. Thank you, John, and thanks, Dean. I'll just comment the -- you know, the rate increase which we've been measuring going back a number of years was still positive for the quarter when the 21st quarter of rate increases, about 4%, which is tough for our clients. And of course, that is going to impact their behaviors.

Casualties leveling off at 3%. Property accelerated slightly to 7% in the last quarter. We anticipate that that's going to continue through Q1 of next year as they absorb the cost of the higher cat losses, which -- and reinsurance costs that Dean described. D&O softened a little bit, and we saw that trend going down.

The overall D&O rates were down 6% as a combination of things, one, less SPAC activity, which tended to be higher rated. And new entrants into the marketplace, probably about 20 new carriers came into the market, deployed capital, which enabled some of our clients to increase their limits, actually, and take -- you know, take opportunities that they saw in that market. And the size of their rates continued to accelerate at 28%, although that is a deceleration in rate increase last -- in the last quarter, we saw 53%. You know, in terms of behavior, our clients, you know, are constantly looking at, you know, the optimization of their programs.

Our captive management business grew nearly double digits in the quarter, and for the year, as clients retained some more of their risk. And we have a wide range of value propositions to help our clients for the risks that they retain and they manage. And so, you know, we feel bullish that the changing market is not going to dampen our growth.

John Doyle -- President and Chief Executive Officer

So, Jimmy, it remains a dynamic and challenging market for our clients, higher cat losses, risks of core inflation, social inflation. So, you know, we continue to observe underwriting discipline, you know, broadly speaking, across across the market. Do you have a follow-up?

Jimmy Bhullar -- JPMorgan Chase and Company -- Analyst

Yeah, just for Mark on fiduciary investment income. It's obviously gone up a lot and even sequentially up over 50% from 3Q and 4Q. Do you expect -- should we expect a further increase in that over time, because what we've seen recently is, in some of the regions, rates are actually flattish over the past several months? So, is there more of sort of a lag effect of what's happened with rates in fiduciary investment income, or has the portfolio mostly reset higher?

Mark McGivney -- Chief Financial Officer

Thank, Jimmy. Good morning. We certainly see continued upside in fiduciary income as we look to this year. Rates really didn't start to move till the back half of the year, as you know.

And even though it seems like a little bit of slowdown in a lot of places, the expectation is rates have not peaked. And also, remember, even for the fourth quarter, that's an average rate over the course of the quarter, and rates moved even in the quarter. So, it is something that we expect to continue to give us benefit into this year.

Jimmy Bhullar -- JPMorgan Chase and Company -- Analyst

Thank you.

John Doyle -- President and Chief Executive Officer

Thanks, Jimmy. Andrew, can we have the next question, please?

Operator

Certainly. And our next question comes from the line of Elyse Greenspan with Wells Fargo.

Elyse Greenspan -- Wells Fargo Securities -- Analyst

Hi. Thanks. Good morning. My first question, I guess, combines on the expense program and some of your fiduciary investment income comments.

So, the expense program seems like it could be around 70 basis points tailwind to your margins in '23. And then, I would assume you would get incremental uplift from fiduciary investment income rising, per Mark's prior comments. So, should we think of those two components as, you know, a pretty good tailwind to your margin when we think about 2023 margin improvement?

John Doyle -- President and Chief Executive Officer

Yeah. You know, I'm not going to give margin guidance, you know, on the call at least. You know, thanks for your question. You know, again, I think we're well positioned.

We're in terrific businesses, just outstanding talent. And, you know, while there's some macro uncertainty, of course, that's -- you know, that's out there, we expect strong revenue growth this year, and we expect to increase our margins over the course of the year. You know, Mark and I both share that, you know, what we expect to flow to the bottom line from the program this year. But we expect to maintain that discipline -- that financial discipline that we've had for many years and to expand margin and have strong adjusted EPS growth this year.

Elyse Greenspan -- Wells Fargo Securities -- Analyst

Thanks. So, then, my second question, you know, you guys talked about some pretty robust reinsurance rate increases at January 1. Have you guys seen any changes on your commission structure, just given the strong pricing? Are you making any changes to help your clients in the face of that pricing? And then, Mark did say that you guys -- that Guy Carpenter would see, you know, pretty strong growth over the coming year. I mean, we've never heard -- we haven't been in an environment, right, with 40-plus percent price increases.

How does that triangulate into organic growth within Guy Carpenter?

John Doyle -- President and Chief Executive Officer

We have been in that environment before. We've been around a long time. But it's been -- you know, it's been close to 20 years since we've, you know, operated in that kind of environment. We expect a good year of revenue growth at Guy Carpenter.

You know, as I noted in my prepared remarks, ceded premiums won't track that rate increase, right, as our insurance company clients retain more risk or have their cat programs attached at a higher level. We work with our clients, of course, to manage our compensation, and we're very transparent about that. In some cases, there are capped commission agreements that we have with our clients. But again, we expect it to be a good year for Guy Carpenter.

Elyse Greenspan -- Wells Fargo Securities -- Analyst

And any change in the commission structure?

John Doyle -- President and Chief Executive Officer

As I said, you know, we work through that with our clients. We have agreements with them and a very transparent dialogue about how we're remunerated. Thank you.

Elyse Greenspan -- Wells Fargo Securities -- Analyst

Thank you.

John Doyle -- President and Chief Executive Officer

Andrew. Andrew, next question, please.

Operator

And our next question comes from the line of Mike Ward with Citi.

Mike Ward -- Citi -- Analyst

Thanks, guys. Good morning. I was wondering if you could give a sense maybe of how much more of a tailwind could be left from inflation or exposures, you know, that you can see as we sit here today.

John Doyle -- President and Chief Executive Officer

You know, thanks, Mike, for the question. You know, as I noted in my prepared remarks, you know, while we're not immune to the macro economy, of course, there are some real factors that, you know, support growth of Marsh McLennan. In the risk side of our business, inflation is -- you know, is one of those areas. So, you know, whether it's wage inflation, core inflation, you know, higher -- and, of course, inflation leads to higher losses and, you know, more discipline in -- you know, in the pricing environment.

All of those issues, you know, are supportive of growth. It's a client-by-client, you know, outcome, though, right? Some of our clients -- there are winners and losers in any economy, of course. And some of those distinctions might be more -- you know, more stark in an economy like we're in today. And so, some are operating from a position of strength, and others, of course, you know, will need to be more defensive.

So, we work through that with them, you know, client by client. But broadly speaking, inflation and nominal GDP is more indicative of demand for our revenue in our services than real GDP.

Mike Ward -- Citi -- Analyst

Awesome. Thank you.

John Doyle -- President and Chief Executive Officer

Do you have a follow-up, Mike?

Mike Ward -- Citi -- Analyst

Yeah, actually. Maybe on Oliver Wyman and Mercer career. I know you mentioned the possible slow dance -- slowdown in Wyman, but can you talk about the pipeline and whether you're seeing that slowdown or just kind of anticipating, you know, businesses reducing their consulting appetite?

John Doyle -- President and Chief Executive Officer

Sure, Mike. So, let me start by just saying that Oliver Wyman is just a really important part of our value proposition for our clients and a critical part of our company. They advise the C-suite on the critical issues, you know, of the day, and it really help us differentiate our value proposition. We had an outstanding year, a growth in 2022 on top of 21% growth in 2021.

And, you know, over the mid-term -- medium term, you know, we expect higher growth out of Oliver Wyman than our other businesses. So, having said that, we do expect some moderation of growth. So, Nick, maybe I'll ask you to share an outlook with Mike.

Nick Studer -- President and Chief Executive Officer of Oliver Wyman

Yeah. Thanks, John. Thank you, Mike. As John just started to do, let me put Oliver Wyman's context.

You know, we're very happy with a second consecutive year of double-digit growth. I think it's 15 years since we've achieved that. We've added over a third of the business in that time, and we're confident that we gain market share in what is a pretty fragmented market, and that growth is very well balanced. We grew across all our regions, across all of our capability practices, and across most of our industries in 2022.

But having said that, this is my seventh call and it's the first one that I've reported on. So, I think the low double-digit growth in the quarter, that 8%, does reflect two things. We're certainly lapping a high-growth quarter, but at the same time, we did see a slowing in the pipeline of our major clients and we pause and digest after several pretty turbulent years. We remain optimistic in the longer-term revenue plans.

Yeah, there was a pretty heavy surge in the last two years, but we'll likely revert closer to our medium-term expectations of mid to high single-digit underlying growth through the cycle.

John Doyle -- President and Chief Executive Officer

Thanks, Nick. Mike, maybe I'll ask Martine as well to comment on career, you know, Mercer. And, you know, I would point out Mercer had its best year of growth since 2008. So, we feel absolutely terrific about it.

Excellent growth in health, excellent growth in career. But Martine maybe could share a little bit more color.

Martine Ferland -- President and Chief Executive Officer of Mercer

Yeah. Well, thanks, John, and Mike as well, for the question. Yes, of course, and you're right to say that our career business is the one that has most discretionary projects. Of course, we are looking at all indicators in a cautionary way.

But what I want to say here is we've had a tremendous two years in career. Q4 was a 12% growth and whole of 2022 is 12 -- well it's 14% growth. The demand here is really related to change in the world of work. We've added to that, in '22, wages and high inflation.

We have the labor shortages issue. So, we're looking at reward strategies, workforce analytics, future of work, skills gap, talent engagement, assessment of skills. It's all on top of -- the top of our clients' agenda. So, overall, at this point, we've entered 2023 with very solid growth momentum, strong sales, strong pipeline.

And of course, you know, we were confident in this year. We are monitoring developments on sales pipeline and client sentiment given the macroeconomic conditions that are foreseen. But the question remains that, as the people agenda stays such an elevated point for our clients, that what we're seeing right now is that demand stays strong.

John Doyle -- President and Chief Executive Officer

Terrific. Thank you, Martine. Thanks, Mike. Andrew, can we have our next question, please?

Operator

Certainly. And our next question comes from the line of Robert Cox with Goldman Sachs.

Robert Cox -- Goldman Sachs -- Analyst

Hey, thanks for taking my question. I think, you know, previously, maybe not for a while, but you guys had talked about a 3% to 5% organic growth outlook, longer term. Just curious if your view on that has changed at all.

John Doyle -- President and Chief Executive Officer

Well, you know, as I shared, we expect mid-single digits underlying revenue growth or better, you know, for this year. That's, you know, the guidance we're, you know, we're sharing. You know, as I noted, Robert, in my prepared remarks, we're in terrific businesses. We're well positioned in those businesses, just have outstanding talent and a culture that, you know, makes us an employer of choice as well.

So, we feel good about our growth prospects for the near term.

Robert Cox -- Goldman Sachs -- Analyst

Got it. And maybe just a follow-up. Yeah. How big of a deal are wage pressures in the business today and into 2023? I think the consulting segment, perhaps, is a little bit more susceptible to that.

And, you know, we saw margins decline year over year. So, just wondering how big of an impact that is.

John Doyle -- President and Chief Executive Officer

Yeah. You know, it's been manageable for us, you know, for sure. You know, as I said, we work really, really hard on our culture and becoming an employer of choice in the markets that we operate in. You know, I think we attract outstanding talent because of that culture, because of the strength of the brands.

And it really enables talented individuals who want to devote their career in the areas of risk strategy and people to be their best when they work here. And that's how -- you know, how we think about it. And, you know, as I said earlier, it's a privilege to do the work that we do trying to tackle the issues of the day. And we're a collaborative environment, so you do it with some really talented people.

We're very, very focused on client impact. And our client engagement -- our colleague engagement, excuse me, remains very, very high. So, you know, we saw some elevated voluntary turnover in the early part of the year, but that moderated in the second half of the year. You know, I think that elevated turnover was, you know, really a bounce back from, you know, very abnormally low voluntary turnover.

But wage pressures been manageable for us. You know, we're being thoughtful about merit pools and -- you know, and how we allocate those pools. But we feel very, very well positioned from a talent perspective. Thank you, Robert.

Andrew, next question, please.

Operator

And our next question comes from the line of Meyer Shields with KBW.

Meyer Shields -- Keefe, Bruyette and Woods -- Analyst

Thanks. Good morning. A couple of quick questions. First, John, strategically, when you can anticipate higher fiduciary income, does that translate into more latitude for longer-term investments?

John Doyle -- President and Chief Executive Officer

You know, we're trying to balance, obviously, the near term and the midterm. You know, the growth in fiduciary income may or may not be correlated to, you know, client demand or opportunities, you know, that we see. It's obviously connected to other -- you know, other macro factors. But, you know, I think part of the steps -- you know, the steps that we took in the fourth quarter, the actions that -- you know, that we took in the fourth quarter, you know, create capacity for us to -- you know, to make investments and to become a stronger business going forward.

Meyer Shields -- Keefe, Bruyette and Woods -- Analyst

OK. That's helpful. Second question, when -- we've heard a lot of commentary, clearly accurate about the difficult reinsurance renewal season. Does that actually impact the expenses that Guy Carpenter incurs? I mean, obviously, it's a stressful period, but I'm wondering about the financial impact.

John Doyle -- President and Chief Executive Officer

It was a stressful period. Our colleagues were -- you know, were tested and, you know, and I would say I want to mitigate the impact on our insurance company clients. It was a -- you know, a challenging outcome. You know, again, we expected a difficult market as well.

But no, it doesn't impact, you know, our cost base in any meaningful way. And, you know, as I said, the overall outlook is supportive of a good growth environment for Guy Carpenter.

Meyer Shields -- Keefe, Bruyette and Woods -- Analyst

OK. [Inaudible]

John Doyle -- President and Chief Executive Officer

Andrew, next question, please.

Operator

Thank you. And our next question comes from the line of Andrew Kligerman with Credit Suisse.

Andrew Kligerman -- Credit Suisse -- Analyst

Hey, good morning. First question is around underlying revenue growth. Marsh up 6%. Guy Carpenter up 5%.

Given the strong exposure growth, the strong rate increases, if you netted that out, would the underlying growth being negative?

John Doyle -- President and Chief Executive Officer

No, it would not be negative, Andrew. But -- and thank you for your question. It was a very strong year of growth at both Marsh and at Guy Carpenter. You would, I would note, Guy Carpenter had a very, very small quarter.

And so, you know, we were quite pleased with the revenue growth. And as I've said a number of times this morning, Guy Carpenter is very well positioned for good, strong growth in 2023. At Marsh, it was an outstanding year, you know, 8% for the year, 6% in the quarter. You know, as we noted -- I mean, I'll ask Martin to comment on this in a second.

Marsh in the U.S. had some headwinds related to the capital markets. And so -- and Martin mentioned earlier the impact of pricing. You know, there are fewer M&A -- less M&A activity, less IPO activity.

So, you know, as Martin pointed out, that had an impact on pricing there, but it was more of a volume issue. We expected that entering into the fourth quarter. It's also a headwind for us into the first quarter as well. But we expect good growth here in 2023.

You know, Martin, maybe you could provide a little bit more color. And do it -- you know, share your thoughts on 2023 and our growth at the end of 2022.

Martin South -- President and Chief Executive Officer of Marsh

Yes, of course, the latter two. Thank you. As you said, we had growth of 6%. And of course, that is on top of 9% in the prior quarter of '21.

Strong balance of growth across the portfolio. International in the quarter grew 8%, APAC at 12%, EMEA at 7%, Latin America at 5% -- at 4%, I beg your pardon. You mentioned U.S. and Canada at 5%.

I'd say that the U.S. and Canada was actually impacted by headwinds in our business. So, we had tough comps in the prior year from elevated M&A and SPAC activity and capital markets activity in the back half of '21. We think that for that, you know, we would have been posting underlying growth in the region of 8% for the U.S.

and Canada. So, you know, very strong results there. And we feel bullish, as that normalizes in the first quarter of next year, we're going to see an uptick. You know, the full-year growth, international was 10%; APAC, 13%; Latin America, 12%, which is a much better representation of what they're like.

It's a -- it's the smallest part of international, Latin America. So, you should look at the full year as a better indicator rather than just a discrete quarter. EMEA was up 8%, and the U.S. and Canada up 7%.

And then, when we look at what's driven the growth and what we think are likely to grow, you know, in the future, construction growth was double digit; energy and power, dealing with the transition, up double percent; our credit business, up double digits. Our advisory business, which helps our clients mitigate changes in risk, grew double digits throughout the year. So, we feel very good about how we're positioned, about the geographies that we're in, about our position -- in the value proposition, and, you know, feeling good about growth.

John Doyle -- President and Chief Executive Officer

So, Andrew, you know, we're working our way through some headwinds in the capital markets but, again, feel terrific about the growth in 2022. And, you know, we believe we're well positioned in '23 as well. Do you have a follow up?

Andrew Kligerman -- Credit Suisse -- Analyst

Yeah. One quick follow-up. Just curious about the JLT integration costs of $91 million in the quarter, just given that it's been -- I think the deal was 2019. So, just curious what that was.

John Doyle -- President and Chief Executive Officer

It was 2019. Mark, maybe you can share with Andrew [Inaudible]

Mark McGivney -- Chief Financial Officer

And, Andrew, that pretty much was the final step of integration with JLT, and it related to, basically, the provisions for shutting down and abandoning their headquarters in London as we were able to finally consolidate all of our headcount into a -- into our location in Tower Place. You know, that is an action that was planned at the very early stages of the integration. It just took us that long to refit our place to accommodate all the headcount.

Andrew Kligerman -- Credit Suisse -- Analyst

Got it. Thanks so much.

John Doyle -- President and Chief Executive Officer

Thank you. Andrew, we're ready for our next question.

Operator

And our next question comes from the line of Yaron Kinar with Jefferies.

Yaron Kinar -- Jefferies -- Analyst

Good morning. First question, you know, you had talked about the potential for maybe some compensation structure changes just in light of this environment. Given that you've been in this market before, can you maybe give us some ideas or some reflections of how this played out in previous hard markets? How much compensation or commission rate changes in hard markets?

John Doyle -- President and Chief Executive Officer

You know, Yaron, our commission levels have been fairly constant for -- you know, for a number of years. You know, as I said, with some of our larger clients at Guy Carpenter, we've had capped commission agreements that have been in place for many, many years. And so, you know, we work with those clients to be fairly remunerated for the work that we do over the course of the year. And so, you know, we have good, healthy relationships with those clients and work our way through them.

So, I don't think there's really anything more to share than that.

Yaron Kinar -- Jefferies -- Analyst

OK. And my other question is with regards to the restructuring. So, the workforce action that you identified, does that implicate -- or impact any of the hires that you had back in 2021?

John Doyle -- President and Chief Executive Officer

No, we -- you know, we feel terrific about the strategic talent that we brought into the organization over the course of the last couple of years. We invested in talent last year as well. The returns on those investments have been absolutely terrific, and, you know, driving a meaningful amount of our growth in 2022, and we expect it to drive growth for us in '23 as well. So, you know, as I said, the actions that we took were more about aligning our workforce and skill sets, you know, with, you know, evolving needs.

And it also is connected, in some part, with how we challenge ourselves to operate, you know, more efficiently, more simply in bringing our businesses closer together.

Yaron Kinar -- Jefferies -- Analyst

Thanks. And [Inaudible]

John Doyle -- President and Chief Executive Officer

Thanks, Yaron. Appreciate it. Andrew, next question, please.

Operator

And our next question comes from the line of Brian Meredith with UBS.

Brian Meredith -- UBS -- Analyst

Yeah. Thanks. Two of me for you. First one, Mark, I'm just curious, the $4 billion of kind of planned capital deployment this year, how does that necessarily -- how does that relate to kind of what your expectations are on free cash flow? Because I think you actually had $4 billion of capital you expected to deploy last year.

Mark McGivney -- Chief Financial Officer

Sure. So, Brian, we do plan to deploy about 4 billion of capital. The largest source of that capital deployment will be free cash flow that we expect to generate. We also entered the -- if you saw our balance sheet, we entered the year with a little bit of cash from the debt raise we did late last year, so that will provide some additional capital as well.

Brian Meredith -- UBS -- Analyst

But I guess my point is you wouldn't expect free cash flow to be flat year over year, do you?

Mark McGivney -- Chief Financial Officer

Well, free cash flow for us has been a great story, as you know, over a long period of time and, over time, tends to track pretty well with our strong earnings growth. And our outlook is for solid earnings growth. But cash flow can be volatile. So, we generally stay away from predicting free cash flow with precision.

But as I said, the biggest source of capital underpinning our projected deployment is going to be the free cash flow we generate.

Brian Meredith -- UBS -- Analyst

Great. That's helpful. And then, John, I'm just curious, you know, a lot of big corporations out there are tightening belts right now in preparation for what they see as a challenging 2023. And, you know, and appreciate you're looking for still a pretty good strong, you know, 2023.

Maybe you can just remind us, you know, what's the lag effect that you see with your revenues vis-a-vis, you know, kind of a slowdown in business activity out there? I always remember there's, like, some lag effect.

John Doyle -- President and Chief Executive Officer

Well, you know, it's hard to talk about lag with any precision. And, you know, my comments earlier about the broader environment, you know, really carry the day. I mean, yes, it's an uncertain environment. You know, it's maybe modestly more positive when you think about the reopening of China and how Europe has, at least so far, successfully, you know, managed energy-related risks and the impact on the economy in Europe.

Having said that, there's still meaningful geopolitical risks out there. But for us, again, nominal GDP is more indicative, you know, than real GDP. And demand remains strong for us in our businesses. So, you know, as I said, we expect a bit of a moderation of demand at Oliver Wyman.

But broadly speaking, our businesses, overall, you know, including, you know, strong growth prospects for Guy Carpenter, remain quite healthy. And if things get more difficult, we know how to perform in a more challenging environment. You know, we have a playbook and, you know, we're ready to execute on that playbook. You know, we're a resilient business, and so, we'll navigate, you know, whatever comes in front of us.

Brian Meredith -- UBS -- Analyst

Great. Thanks for the answer.

John Doyle -- President and Chief Executive Officer

Thanks, Brian. Andrew?

Operator

And our next question comes from the line of Ryan Tunis of Autonomous Research.

Ryan Tunis -- Autonomous Research -- Analyst

Hey, good morning. First question, just looking at the margins this quarter. Fiduciary investment income was a pretty big contributor, it looked like, to the margin expansion. And the comp ratio actually looked relatively flat with 4Q '21.

I guess that just surprised me a bit given there was so much hiring a year ago with not much revenue attached to it. So, yeah, how should we be thinking about, I guess, the operating leverage or the lack thereof on that comp ratio in the fourth quarter?

John Doyle -- President and Chief Executive Officer

You know, thanks, Ryan, for the question. You know, as I said, last year was our 15th consecutive year of margin expansion, and we expect 2023 to be our 16th consecutive year. You know, I was pleased with the margin improvement, particularly in light of the investments that we've made in talent. So, it was a modest improvement, slight improvement in the comp and ben ratio.

But again, margins and outcome for us, you know, we're -- you know, we're focused on growing earnings, growing the free cash flow of the business. And, you know, we're going to invest where we think it makes sense, where we think it can make us stronger as a business and accelerate client impact. But at the same time, you know, what's not going to change here is our focus on continuous improvement and our commitment to excellent financial performance.

Ryan Tunis -- Autonomous Research -- Analyst

Got it. And then, I guess just to follow up, John. Obviously, early days in the new seat. I'm just curious, you know, what you've been focusing on or where you're spending your time.

John Doyle -- President and Chief Executive Officer

Sure. You know, my voice has been in our strategy for nearly seven years now. You know, as I said in my prepared remarks, we're in the right businesses. We've got market-leading brands.

We're well positioned. Just outstanding talent. It's a real privilege to get to work with the folks that I get to work with every day. You know, and as I said, our focus on continued continuous improvement and our commitment to excellent financial performance are not going to change here.

You know, having said that, I see some real opportunities at the intersections of our businesses. Client needs are dynamic, as we talked about. And those needs don't fit neatly into the boxes on our org chart. We're a big company, and we need to be organized in certain ways.

But those needs don't necessarily fit, again, against -- not all of them anyway, don't fit neatly into how we're organized. And so, we're going to be more deliberate about how we collaborate. We've got a unique collection of capabilities. We're going to go to market together where we think it makes sense.

And where it makes sense is where we can accelerate client impact and enable our client success. And our colleagues are passionate about client success and the work that they do on behalf of clients. So, they're excited about the possibilities. I'm excited about the possibilities.

We're also going to work more closely together to drive some efficiencies across our business. So, I see a lot of opportunity. Again, I think we're in terrific businesses and a terrific team here, and I'm excited about the days ahead. Thank you, Ryan.

Andrew, [Inaudible] wrap up now.

Operator

Thank you. I would now like to turn the call back over to John Doyle, president and CEO of Marsh McLennan, for any closing remarks.

John Doyle -- President and Chief Executive Officer

Thanks, Andrew, and thank you all for joining us on the call this morning. In closing, I want to thank our over 85,000 colleagues for their hard work and dedication in a challenging year. And I also want to thank our clients for their continued confidence in Marsh McLennan. Thank you all very much.

And I look forward to speaking with you next quarter.

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for participating, and you may now disconnect.

Duration: 0 minutes

Call participants:

John Doyle -- President and Chief Executive Officer

Mark McGivney -- Chief Financial Officer

David Motemaden -- Evercore ISI -- Analyst

Jimmy Bhullar -- JPMorgan Chase and Company -- Analyst

Dean Klisura -- President and Chief Executive Officer of Guy Carpenter

Martin South -- President and Chief Executive Officer of Marsh

Elyse Greenspan -- Wells Fargo Securities -- Analyst

Mike Ward -- Citi -- Analyst

Nick Studer -- President and Chief Executive Officer of Oliver Wyman

Martine Ferland -- President and Chief Executive Officer of Mercer

Robert Cox -- Goldman Sachs -- Analyst

Meyer Shields -- Keefe, Bruyette and Woods -- Analyst

Andrew Kligerman -- Credit Suisse -- Analyst

Yaron Kinar -- Jefferies -- Analyst

Brian Meredith -- UBS -- Analyst

Ryan Tunis -- Autonomous Research -- Analyst

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