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Marsh & McLennan Cos Inc (NYSE:MMC)
Q1 2021 Earnings Call
Apr 27, 2021, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to Marsh McLennan's Conference Call. Today's call is being recorded. First quarter 2021 financial results and supplemental information were issued earlier this morning. They are available on the company's website at mmc.com.

Please note that remarks made today may include forward-looking statements including certain expectations related to COVID-19 and other matters. 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 closely comparable GAAP measures, please refer to the schedule in today's earnings release.

I'll now turn this over to Dan Glaser, President and CEO of Marsh McLennan.

Dan Glaser -- President and Chief Executive Officer

Thank you. Good morning, and thank you for joining us to discuss our first quarter results reported earlier today. I'm Dan Glaser, President and CEO of Marsh McLennan. Joining me on the call today is Mark McGivney, our CFO, and the CEOs of our businesses; John Doyle of Marsh; Peter Hearn of Guy Carpenter; Martine Ferland of Mercer and Scott McDonald of Oliver Wyman. Also with us this morning is Sarah DeWitt, Head of Investor Relations.

Marsh McLennan had an outstanding start to 2021. Our first quarter results were excellent. And we are well positioned for a very good year. Even though the pandemic is ongoing, our underlying revenue growth of 6% is the highest in over 6 years and accelerated sequentially across every business. We also grew adjusted EPS by 21% and generated significant margin expansion.

Our business has proven resilient throughout the pandemic and with the global economy now beginning to turn the corner, we saw an acceleration in our growth. With 6% underlying growth to begin the year, we now expect full year 2021 underlying revenue growth to be at the high end of our 3% to 5% guidance range and possibly above. As we look ahead, the outlook for the U.S. and many of the countries we operate in is encouraging. However, many parts of the world continue to suffer with high levels of infection, and there is still a significant amount of uncertainty. GDP in the U.S. was close to flat in the first quarter and strong levels of growth are expected starting in the second quarter due to a rebound in demand as the impact of vaccines takes hold along favorable economic comparisons to a year ago.

Meanwhile, in India, Brazil and many other parts of the world, case counts continue to rise and broad levels of vaccination remain a long way off. Our proprietary Pandemic Navigator now forecast that the U.S. will achieve the herd immunity threshold by early to mid-summer, and we see a fairly similar timeline in the UK. These milestones bring hope for reopening and economic growth, although it will vary by country. We are also mindful that the risks exists and that there still are many unknowns such as variants of the virus, the efficacy of vaccines on the variants, the duration of immunity and vaccine hesitancy, but we are resilient and are confident we will be able to adapt to a wide range of scenarios, just as we have since the beginning of this crisis.

Our colleagues are our single largest competitive advantage. We have world-class talent that has delivered for clients and one another throughout the crisis. We continue to invest in hiring. We are an employer of choice for smart, hard-working talented individuals and are adding to what is already the deepest talent pool in the industry. We are also pressing ahead with acquisitions. MMA made a significant acquisition on April 1st, PayneWest. PayneWest was one of the largest independent agencies in the U.S. with more than 700 employees in 26 locations. The acquisition adds nicely to our geographic footprint in the middle market space and brings the Northwest hub.

Overall, we are on track for a very good year. Demand for our advice and solutions is strong. The economy is recovering. P&C insurance pricing remains firm, and we are benefiting from industry disruption. Although the outlook remains uncertain, we are more optimistic than we were when we started the year and our efforts are focused on resurgence rather than recovery.

At the end of the first quarter, Marsh McLennan released our inaugural Environmental Social & Governance report. Truly great companies must deliver both exceptional financial performance and be good employers and global citizens, and we are working on many fronts to advance the interests of all of our stakeholders. We believe that starts with transparency. Our report provides enhanced disclosure in a variety of ESG related areas from how we measure our own carbon footprint to how we use data to manage our workforce. For the first time, we provide gender, ethnic and racial diversity representation data at all levels of our organization and workforce maps to attract talent flows and inform how and where we build and recruit talent.

Our report highlights our commitment to a diverse and inclusive workplace. In 2020, we launched our Leading the Change initiative to underscore the need to continuously nurture our inclusive culture and serve the fundamental principles of human dignity, equality, community and mutual respect. We also strengthened our commitment to a better sustainable future through our pledge to be carbon-neutral this year along with the commitment to reduce our carbon emissions by 15% by 2025. ESG issues are among the most critical challenges facing our clients today. We are creating solutions for our clients related to complex business issues, such as climate change, diversity and inclusion, affordable healthcare, cyber security and responsible investing.

Marsh and Guy Carpenter are helping clients build resilience to flood risk and the documented increase in natural catastrophe perils witnessed in recent years. Marsh and Guy Carpenter's experience in the alternative energy space has sparked innovation and been a growth driver. Marsh designed in place the first of its kind policy for a European utility which set lower upfront premium payments based on the client's achievement of sustainability targets.

Oliver Wyman is actively advising its clients across sectors including banking, energy, industrials and transportation and managing the risks and capturing the opportunities associated with climate change and the transition to a low-carbon economy to a new climate and sustainability practice.

Away from climate risk, Mercer is helping address the gender pay gap, diversity and inclusion in the workplace, the workforce of the future and consulting on new normal strategies in the wake of the pandemic. Overall, we see significant growth potential in the areas of ESG as well as an opportunity to benefit our clients, colleagues and communities.

Let me spend a moment on current P&C insurance market conditions. The first quarter marks the 14th consecutive quarter of rate increases in the commercial P&C insurance marketplace. The Marsh Global Insurance Market Index showed price increases of 18% year-over-year versus 22% in the fourth quarter. The pace of price increases moderated sequentially in the first quarter after accelerating for 11 straight quarters. However, the 18% increase is still one of the highest since we started publishing the index in 2012. Global property insurance was up 15% and global financial and professional lines were up 40% while global casualty rates were up 6% on average and U.S. workers compensation rates were modestly negative. Keep in mind, our index skews to large account business. However, U.S. small and middle market insurance pricing continues to rise as well, although the magnitude of price increases is less than for large complex accounts.

Turning to reinsurance, the Guy Carpenter's Global Property Catastrophe Rate on Line index increased just under 5% at the January 1st reinsurance renewals. For the April 1st renewals, Japanese property catastrophe pricing increased for the third year in a row, but at a more moderate pace versus prior years. Meanwhile, pricing in terms and conditions in the U.S. on April 1st business were largely a continuation of the January 1st pricing environment. Capacity is more than adequate and demand remains high. However, reinsurance capacity remains constrained on certain lines of business, most notably for cyber risk.

Overall price increases continue to persist in both the P&C insurance and reinsurance markets. Low interest rates, elevated loss activity and continued uncertainty related to the pandemic present challenges for underwriters. Times of uncertainty underscore the need for our advice and solutions, and we are working hard to help our clients navigate these challenges.

Now let me turn to our first quarter financial performance, which represents an excellent start to 2021. We generated adjusted EPS of $1.99, which is up 21% versus a year ago, driven by a combination of strong growth and the continuation of the suppressed environment for travel and entertainment expenses as we continue to operate largely remotely.

Total revenue increased 9% versus a year ago, and rose 6% on an underlying basis. Underlying revenue grew 7% in IRS, and 3% in consulting. Marsh grew 8% in the quarter on an underlying basis, the highest quarterly underlying growth since 2003, and benefited from double-digit new business growth. Guy Carpenter grew 7% on an underlying basis in the quarter. Mercer underlying revenue was flat in the quarter, which showed sequential improvement from the fourth quarter. Oliver Wyman underlying revenue grew by 11% as demand accelerated. Overall, the first quarter saw adjusted operating income growth of 20%, and our adjusted operating margin expanded 250 basis points year-over-year, reflecting positive operating leverage and favorable expense comparisons.

As we look out for the remainder of 2021, we are well positioned, given the strong demand for our advice and solutions, and our expectation for an improving economic backdrop. As we mentioned, we now expect 2021 underlying revenue growth to be at the high end of our 3% to 5% range, and possibly above. We also expect to generate margin expansion and strong growth in adjusted EPS.

As we mentioned last quarter, 2021 represents the 150th anniversary of Marsh McLennan. As we look back on our storied history, once theme runs through it all. This company steps up in the moments that matter, at times of war and peace, in eras of transcending innovation,in serving the public good. In March, we changed our name from Marsh & McLennan Companies to Marsh McLennan. It was a small, but important change that better reflects the way that our company has come together. One company with 4 global businesses, united by a shared purpose to make a difference in the moments that matter. The challenges before us all our vast. It sower the possibilities, climate resilience, systemic risk, digital disruption, the protection gap, affordable healthcare, the future of work. As we face this new world together, one thing will never change. Marsh McLennan will be at our clients' side finding opportunity and navigating uncertainty in the areas of risk, strategy and people.

With that, let me turn it over to Mark for a more detailed review of our results.

Mark McGivney -- Chief Financial Officer

Thank you, Dan, and good morning. Our first quarter results were outstanding, and we are well-positioned for a very good 2021, despite the continued uncertainty associated with the pandemic.

Underlying growth accelerated across all of our businesses, and our margin expansion in earnings growth were impressive. Consolidated revenue increased 9% in the first quarter to $5.1 billion, reflecting underlying growth of 6%. Operating income and adjusted operating income were both approximately $1.4 billion. Our adjusted operating margin increased 260 basis points to 29.6%. GAAP EPS was $1.91, and adjusted EPS was $1.99, up 21% compared with the first quarter a year ago.

Looking at Risk & Insurance Services. First quarter revenue was $3.2 billion, up 11% compared with a year ago, or 7% on an underlying basis. It marks the highest level of underlying growth since 2012. Adjusted operating income increased 17% to $1.1 billion, and our adjusted operating margin expanded 210 basis points to 36.6%.

At Marsh, revenue in the quarter was $2.3 billion, up 13% compared with a year ago, or 8% on an underlying basis. This was Marsh's highest level of underlying growth in nearly 2 decades. Growth in the quarter was broad based, and driven by double-digit new business growth, and solid retention, and was impressive considering Marsh's strong growth in the first quarter of last year.

The U.S. and Canada division delivered another exceptional quarter with underlying revenue growth of 9%. This is the highest quarterly underlying growth U.S. and Canada has achieved since we began reporting their results. And they have now averaged 6% underlying growth over the last 12 quarters. In international, underlying growth was strong at 6%, marking the highest underlying growth since 2013. EMEA was up 6% with strong results in each region, including in the UK. Asia Pacific was up 8%, a strong rebound from the fourth quarter, and comes on top with 6% growth in the first quarter of 2020. And Latin America grew 6% on an underlying basis, continuing to show sequential improvement.

Guy Carpenter's revenue was $895 million, up 8% or 7% on an underlying basis, driven by strong growth in North America, EMEA, Global Specialties and Latin America treaty. Guy Carpenter has now achieved 5% or higher underlying growth in 12 of the last 14 quarters.

In the Consulting segment, revenue in the quarter was $1.9 billion, up 6% from a year ago, or 3% on an underlying basis. Adjusted operating income was $370 million, and the adjusted operating margin expanded by 330 basis points to 20.5%.

At Mercer, revenue in the quarter was $1.3 billion, which was flat on an underlying basis. Mercer's top line performance improved each month in the first quarter, and we expect Mercer to return to underlying growth in the second quarter. Wealth increased 1% on an underlying basis, reflecting strong growth in investment management, offset by a modest decline in defined benefits.

Our assets under delegated management grew to approximately $380 billion at the end of the first quarter, up 42% year-over-year, or 6% sequentially, benefiting from net new inflows and market gains. Health underlying revenue was flat in the quarter, but faced a tough comparison to 8% growth in the first quarter of last year. And Career grew 1% on an underlying basis, reflecting strong sequential improvement.

At Oliver Wyman, revenue in the quarter was $585 million, an increase of 11% on an underlying basis. First quarter results were a continuation of the momentum we started to see materializing in the fourth quarter. Adjusted corporate expense was $57 million in the quarter. Foreign exchange added approximately $0.06 to our adjusted EPS. Assuming exchange rates remain at current levels, we expect FX to be a slight benefit in the second quarter with limited impact thereafter.

Our other net benefit credit was $71 million in the quarter. For the full year 2021, we continue to expect our other net benefit credit will increase modestly year-over-year. Investment income was $11 million in the first quarter on a GAAP basis, or $10 million on an adjusted basis, and mainly reflects gains in our private equity portfolio.

Interest expense in the first quarter was $118 million compared to $127 million in the first quarter of 2020, reflecting lower debt levels in the period. Based on our current forecast, we expect approximately $114 million of interest expense in the second quarter.

Our effective adjusted tax rate in the first quarter was 24.3% compared to 23.2% in the first quarter of last year. Our tax rate benefited from favorable discrete items, the largest of which was the accounting for share-based compensation, similar to a year ago. Excluding discrete items, our effective adjusted tax rate was approximately 25.5%.

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., it is reasonable to assume a tax rate between 25% and 26% for 2021.

Our current outlook for 2021 assumes the global economy returns to growth in the second quarter, with a strong recovery in the U.S. Based on this outlook and our strong first quarter performance, we now expect underlying revenue growth to be at the high end of our 3% to 5% underlying growth guidance, and possibly above.

We currently expect we will deliver margin expansion for the full year. But as you think through the quarterly cadence, keep in mind, we have tough expense comparison in the second and third quarters. This view is based on our outlook today and it goes without saying that conditions could turn out materially different than our assumptions, which would affect our projection.

Turning to capital management and our balance sheet. So far this year, we have completed our JLT-related deleveraging, enhanced our short-term liquidity flexibility and seen S&P, Moody's and Fitch restore our rating outlook to stable. We ended the quarter with $11.3 billion of total debt, which was consistent with the level at December 31st. In April, we repaid $500 million of senior notes scheduled to mature in July, taking advantage of a prepayment option. This repayment brought our debt down to $10.8 billion and completed our planned deleveraging, marking an important milestone for us. Our next scheduled debt maturity is in January 2022 when $500 million of senior notes will mature.

Earlier this month, we entered into a new 5-year revolving credit agreement. Under this new facility, we increased the credit available to $2.8 billion from $1.8 billion. In addition, we increased the size of our commercial paper program and now have capacity to issue $2 billion, up from $1.5 billion previously. We view these changes as prudent steps that enhance our liquidity profile and provide additional flexibility.

In the first quarter, we resumed share repurchases, reflecting our strong financial position and outlook for cash generation. We repurchased 1 million shares of our stock for $112 million. We continue to expect to deploy approximately $3.5 billion of capital in 2021 across dividends, debt reduction, acquisitions and share repurchases. The ultimate level of share repurchases will depend on how the M&A pipeline develops. As we've consistently said, we favor attractive acquisitions over share repurchases as we view high quality acquisitions is the better value creator for shareholders and the company over the long term.

Now that our deleveraging is behind us, we are back to our normal focus for capital management. Our capital management strategy reflects balance and supports our consistent focus on delivering solid performance in the near term while investing for sustained growth over the long term. For the capital we generate and target to deploy, we prioritize reinvestment in the business, both through organic investments and acquisitions. However, we also recognize that returning capital to shareholders generate meaningful returns for investors over time, and each year we target raising our dividend and reducing our share count.

Our cash position at the end of the first quarter was $1.1 billion. Uses of cash in the quarter totaled $392 million and included $237 million for dividends, $112 million for share repurchases and $43 million for acquisitions. Overall, we had an outstanding first quarter positioning us well to deliver strong growth in both underlying revenue and adjusted earnings in 2021.

And with that, I'm happy to turn it back to Dan.

Dan Glaser -- President and Chief Executive Officer

Thanks, Mark. Operator, we are ready to begin Q&A.

Questions and Answers:

Operator

Thank you. In the interest of addressing questions from as many participants as possible, we ask the participants to limit themselves to one question and one follow-up question. [Operator Instructions] Our first question comes from Mike Zaremski with Credit Suisse. Your line is open.

Mike Zaremski -- Credit Suisse -- Analyst

Hey, great. Good morning. First question, thinking about some of your comments about organic growth. So this quarter clearly excellent 6%. I believe, Dan, you said that for the full year you could potentially be over the guide, and you also said you expected Mercer's organic growth levels to improve in 2Q. So, if I understood correctly, then I think it implies that there might be some deceleration in parts of the business in later quarters. So maybe just kind of curious, were there any kind of one-time items in nature or things we should be thinking about in the back half of the year that could could show less positive momentum?

Dan Glaser -- President and Chief Executive Officer

Sure. So why don't I take that to begin with and then I'll hand off to each of our business leaders, so they can talk a little bit about their growth prospects and how they looked at the quarter and what they're looking at going forward. I would just start by saying we've got real momentum right now. The U.S. economy is getting stronger, the JLT integration is well behind us and the combined organization is emerging from the pandemic, strong focus and on our front foot. New business generation was terrific across the business and in particular at Marsh and Oliver Wyman. So when Scott and John speak, they can talk to you a little bit about their new business, but overall retention was strong, growth was broad-based.

On the RIS side, pricing is a tailwind and we are benefiting from some disruption in flight to quality. That said, Mike, there is nothing one-off or unusual about our results. So we're not really going to get into, in coming quarters, do we expect a deceleration. Obviously, as Mark was saying, we start to get some easier comps on the line and some tougher comps on the expense line, but it will play itself out, and we expect to have a very strong year. But why don't we start with Marsh and John to just talk about growth a little bit. John?

John Q. Doyle -- President and Chief Executive Officer

Thanks, Dan. Mike, as Dan noted, nothing particularly one-off in nature about the growth in the quarter. I was very pleased with the start to the year. Mark gave a bit of an around the world view in his prepared remarks, but just a little bit more color. Specialty growth was particularly strong in the quarter, in FINPRO in our private equity practice, construction and energy also very, very strong results in the quarter. We had good growth in benefits, our MGA and Affinity operations also had a good quarter. So I was quite pleased with it. I think we executed well. For sure, Dan talked about our new business with the renewal line was strong as well. We're very, very focused and it's still a very difficult market for our clients, but I think we're positioned well and as Dan noted, the economy is picking up in some important markets for us. There's still obviously some uncertainty as Dan and Mark both noted in the macros, but I'm very, very pleased with the start to the year.

Dan Glaser -- President and Chief Executive Officer

Thanks, John. We want to go to Peter for a couple of minutes. Peter, Guy Carpenter has grown considerably and consistently over a number of years now, but Peter, what are you thinking about growth right now?

Peter Hearn -- Chief Executive Officer

Thanks, Dan. Mike, our model is consistent growth over a long period of time. I think we've demonstrated that as Dan said. We do benefit from the rate increases that are going on in the market, but the bulk of our income is coming from new business wins, and it's well balanced across all of our businesses from North America, Latin America, Middle East Asia-Pac, Global Specialties, all have recognized strong growth in the first quarter and we see the same holding true for Q2. Now Q3's and Q4 tend to be very small quarters for us, so there is more volatility inherent in them, but over the past few years, we've shown once again that even with smaller quarters based on the disciplined approach we have to new business and the approach of growing in any market condition, we've demonstrated our ability to grow.

Dan Glaser -- President and Chief Executive Officer

Thanks, Peter. Mike, you mentioned Mercer, so Martine you want to talk about growth at Mercer.

Martine Ferland -- President & CEO, Mercer Vice Chair

Yes, sure Dan. We're very pleased with our quarter 1, 2021 results, especially since we were facing a conversion of 5% growth, the same quarter last year, we've seen increased demand in our services, sequential revenue growth month-to-month during the quarter and return to growth actually in March. We know that during the pandemic, clients postponed discretionary work due to uncertainty and also employment levels have dropped, but now we expect tailwinds from economic and job growth. Partially offset, of course, by the continued structural decline in defined benefit, but clearly we see a return to growth for the rest of the year, starting with Q2.

In terms of demand, our investment business, investment management business in particular with lots of demand in the alternative space and ESG and D&I has seen the investment opportunity is strong. We started the year with strong inflow. Demand for digital solutions around the whole of business is also strong. Health has been resilient through the pandemic, and we see lots of demand in our Darwin health platform and global benefit management, and we've seen quite a good uptick in Career as well with demand for engagement surveys, transformation in the workplace, return to a new normal, the redefinition of the way to work. So overall, looks like a strong rest of the year for Mercer.

Dan Glaser -- President and Chief Executive Officer

Okay. Thanks, Martine. So, we've often said how Oliver Wyman is a bit more sensitive to business confidence, economic outlook, et cetera. And there is strong growth actually bodes very well for for the company overall. But Scott, you want to talk a little bit about Oliver Wyman, and how you see at least the quarter or the next couple of quarters?

Scott McDonald -- President & CEO, Oliver Wyman Group

Yes, happy to round out on growth for us. So we had a really strong quarter as you saw. I think that is driven by business confidence across really all of our sectors, particularly strong growth in the U.S. and Europe. And the growth was really widespread across all the types of business we did, whether that was a growth strategy, digital or technology transformation, some restructuring, and in new areas like climate and sustainability. So it felt really healthy. I think though, Mike, given the volatility in our business, it's just important to maintain a long-term perspective. And we continue to be able to think we can grow the business at mid to high single digits over the long-term. In the shorter term, with the current robust demand, the strong new sales combined with the weaker performance from last year, we may exceed that long-term target in any quarter, and possibly for the year overall.

Mike Zaremski -- Credit Suisse -- Analyst

Thanks, Scott.

Dan Glaser -- President and Chief Executive Officer

So, Mike, I know that was a lot, but I figure there'd be a lot of questions on growth. We might as well go around the horn and hear from our business leaders. So anything else, Mike?

Mike Zaremski -- Credit Suisse -- Analyst

Yes. That was great. And one last quick follow-up. I believe you -- Dan, you said the Marsh pricing index came in at 18%, down a little bit from 22% quarter-over-quarter. I think some investors may want to focus on that stat. So I just wanted to get maybe, potentially, some more color. Pricing clearly is a tailwind, I know you said that. But I believe the majority, and maybe vast majority of your revenues are on a fee basis. So I think the beta in terms of the sensitivity to pricing, it's not as influential as other brokers that are maybe more commission based. I'm trying to -- maybe, if you can give any color around how to think about the deceleration in pricing. Thanks.

Dan Glaser -- President and Chief Executive Officer

Sure. And let's just be clear, we are on the client side of the table. So these are, even at a 18% deceleration from 22% in the quarter sequentially, these are trying times for our clients. And Marsh brokers are working real hard to put together the best package, the best solutions in the circumstances. John, you want to talk a little bit about commission versus fee, and the impact of of the rating environment on your overall growth, just in general terms?

John Q. Doyle -- President and Chief Executive Officer

Sure, Mike about 60% of our revenue is commission-based, but about 50% of Marsh's total revenue is exposed to P&C pricing, right. So we have commission in the benefits side as well in some markets. So, as Dan noted, it's still a very, very difficult market for our clients, and obviously an uneven economy for so many of our clients. And so, our clients, of course, are adapting to that, Some in this market and certainly throughout 2020, we're choosing to retain some more risk, whether it's through higher retentions or lower limits. Our captive manager business is experiencing pretty strong growth as well, is an indicator of maybe how our clients are reacting to the market. But it's still a difficult market, the D&O market, the excess casualty market in the U.S., and the cyber markets, remain the most challenging.

On the other hand, the work comp pricing continues to be pretty favorable for our clients, and was modestly down, pricing was modestly down in that product area here in the United States. So the underwriting community is clearly concerned about elevated cat activity, it is obviously a busy cat quarter in the United States in the first quarter, that worried about loss cost inflation, lower interest rates. But my expectation is that we'll continue to see some moderation of price increases throughout the rest of the year. Again, I expect prices to be up year-over-year, but I do expect them to be up somewhat less than they have been up in recent quarters.

Dan Glaser -- President and Chief Executive Officer

Thanks, John. Next question please.

Operator

Our next question comes from Elyse Greenspan with Wells Fargo. Your line is open.

Elyse Greenspan -- Wells Fargo -- Analyst

Hi. Thanks. Good morning. My first question, digging into another topic on expenses. In your prepared remarks, you mentioned continued low T&E in the first quarter. You also mentioned some tougher comps year-over-year. And then obviously, once we get toward herd immunity, we could start to see somewhat of a pick up in T&E. But can you just help us think through the expenses, any sense of how we should think about run rate when we get through COVID in terms of what days you can guys potentially keep on an ongoing basis?

Dan Glaser -- President and Chief Executive Officer

Sure. So, Elyse, many companies, including Marsh McLennan reduced expenses significantly particularly in the second and third quarter. And as you know, last year we started coming back, and had positive expense growth in the fourth quarter because we did some hiring, and that sort of thing. The largest reductions were in T&E, and our view is that will be a gradual comeback. And we believe, people will travel with more purpose and more forethought than pre-pandemic, and we're certainly going to encourage that within the company. We're going to try to get away from the anytime anywhere hop on an airplane culture, and pause and say OK, there are important times where you go visit a client, or you go visit a market and that's absolutely to be sure. But we have proven that we can operate effectively remotely, and so, we want to create that little bit of pause to say, can I do this via a remote asset like the Zoom or a Teams et cetera.

And so, it also is important for us in terms of, as we manage our carbon footprint going forward, and it's important for other companies, I think, to act in a similar fashion. Now one thing let's not lose sight of, even though there may be some pressure as some expenses start to come back, as we go through the year, that's actually good news. That means that the world is recovering, the economy is recovering. That means business is getting back to normal. That has growth implications for us. And longer term, we've learned a lot during this pandemic period, and we believe we can be a leaner, more agile organization. And that has implications. That means that while the office is core to our culture, and is a central part of how we operate, we know we can operate with more flexibility and more agility than we have done in the past. And longer term, that has implications for our real estate expense, which are quite heavy. And so, I would expect that we'll be able to get some savings there over time.

Do you have another question, Elyse?

Elyse Greenspan -- Wells Fargo -- Analyst

Yes. Thank you. And then my second question on the capital side of things, you guys alluded to, right, you did one deal in the Q1. My sense is that seeing a little bit of a slowdown around some broker deals just as we, I think the expectation that we could see a pick up later on in the year, when there is certainty around tax reform. So, I guess, I wanted to see if you guys agreed with that and you were thinking through the capital plan for the year. And then did you say where we are in that $3.5 billion as of the end of the Q1?

Dan Glaser -- President and Chief Executive Officer

Sure. So a couple of things, and then I'll hand over to Mark. I mean, overall, just to bear in mind that PayneWest is April 1st. So that was not a first quarter item, it's beginning of the second quarter. But we wanted to call it out because it's an important acquisition for the company. We've been at it for 150 years, and we have been acquiring firms for that entire period of time. Let's not forget Henry Marsh and Donald McLennan came together and formed Marsh McLennan. And so, we don't pay much attention to what's happening to the tax rate or capital gains, or what interest rates are, no, because we're not looking for companies to combine with and to join us, who really are just playing the economics. We cultivate relationships over long stretches of time. We almost always for our important acquisitions are in exclusive discussions with the other company. And we're coming together because we see value on both sides. We can grow better together. We can serve clients better together, et cetera. And so, I don't believe that we don't have a budget around acquisitions. We go through our process and what happens, happens, as we go through, but ultimately, let me hand to Mark, I think he can talk about capital management more broadly, and what we have available for this year and our expectations of how we would likely use it. So Mark?

Mark McGivney -- Chief Financial Officer

Thanks, Dan. So let me just run you through, so we still expect as we said, roughly $3.5 billion of capital deployed this year, and I'll just run you through the math of how that breaks down, We've already spent the $0.5 billion that we had targeted on deleveraging. So as I mentioned earlier, we pulled forward our July debt repayment. Dividends will run around $1 billion and that leaves $2 billion of that $3.5 billion available for M&A and share repurchase. Dan mentioned that we closed PayneWest, which was a chunky deal and our M&A pipeline remains full. It's always hard to predict how much we'll actually do, but our hope is that we see a meaningful amount of M&A this year, but we also expect that we will see a meaningful amount of share repurchase, at least enough to see our share count go down this year.

Dan Glaser -- President and Chief Executive Officer

Thanks, Mark. Next question please.

Operator

Our next question comes from Phil Stefano with Deutsche Bank. Your line is open.

Phil Stefano -- Deutsche Bank -- Analyst

Yeah, thanks, good morning. In looking at the organic growth, I guess for international in particular, I was surprised at the strength just given how it feels like the vaccination rates and the impact of COVID is still a bit of a headwind there. I was hoping you could talk about the potential that the different regions have to the roll-out of the take-up rate of vaccinations and how we think about economic development and it might be trailing? Could there be slowdowns coming as we see fourth waves that we're fortunately not going to get in the U.S.?

Dan Glaser -- President and Chief Executive Officer

Yeah, we had good international growth overall in the company, both in Marsh, but also on OW and Guy Carpenter as well. I mean, Mercer had sequential growth, so overall. I would also bear in mind that over the last couple of years we've digested the biggest acquisition in our history and that had some headwind with us as well in terms of revenue growth and we've seen, and disruption. So we've seen a nice comeback in places like Latin America and also in Asia Pac, than what we've been experiencing for the last year or so. But the big winner in terms of turnaround was UK. John, you want to talk about your business in the UK. a little?

John Q. Doyle -- President and Chief Executive Officer

Sure, Dan. Phil, as you noted, there of course will be ups and downs on a global basis in any kind of normal economy and obviously we're still recovering and still in the pandemic. and as Dan noted in his prepared remarks earlier, but we are very, very pleased with our performance in the quarter in the UK. It's been a bit of a stress point for us over the last 18 months or so. Some of it related to just indigestion from coming together with JLT and some headwinds there, but but we saw a good growth, a lot of it from our middle market in UK business, but also in the specialty areas I noted before, and particularly strong growth in our financial lines business, the D&O market, as I said earlier is difficult for our clients, very, very meaningful cyber growth in the UK and construction and energy were off to a terrific start. Elsewhere in the world, I think just another bright spot to point out, we saw very, very good new business growth in Australia. So I was quite pleased with that. So yes, it was an improved performance by the international team and we expect continued good momentum.

Dan Glaser -- President and Chief Executive Officer

Anything else, Phil?

Phil Stefano -- Deutsche Bank -- Analyst

Yeah. Then a follow-up on the M&A discussion from earlier. Dan, you had mentioned when you buy things, you tend to be kind of the sole buyer at the table. I'm sure there is a political way to ask this, but I'm just going to be direct, so apologies. But Aon and Willis is going through a transaction and it feels like there is going to be some businesses that come out of this that ultimately need to be divested. As I think about your global position, can you be involved in the process, right, not whether or not you choose to be and anything is going to happen, but just given your size, is this a process you can be involved in. And can you take a look at kind of what's being shopped?

Dan Glaser -- President and Chief Executive Officer

I mean, I think the general idea of divestment would be to satisfy regulator's concerns about having enough competitors in the marketplace. So it would be unusual for them to look to us as a possible answer. We're open to all ideas, but ultimately, I think it's unlikely that we would be a participant in all the very small areas in that kind of vein.

Now having said that, there are plenty of very good high quality firms that we're in discussions with. And so when we look at our M&A pipeline, we look over the course of the years, not over the course of months and we've got a very rich pipeline of companies that we're having discussions with. So we feel very good about our ability to continue to add to the strength. And I would just use that as a backdrop to growth in general like, we generally feel that underlying growth is the most important measure to evaluate the health of the overall organization. So our focus is generally on underlying growth, but every once in a while, we have to look at GAAP. Once the company builds on an overall basis,and if I just look at RIS as an example, first quarter last year we grew a very big organization, on a GAAP basis 20% and follow-up in this first quarter by an 11% on top of the 20% on a GAAP basis. We are significantly growing the organization, and on the Consulting side, it was more like a 5% on GAAP last year, followed by a 6% this year on GAAP. So we're having good underlying performance, but we're also having a much larger organization and growing a much larger organization.

Next question please, Operator.

Operator

Our next question comes from Jimmy Bhullar with JP Morgan. Your line is open.

Jimmy Bhullar -- JP Morgan -- Analyst

Hi, good morning. Most of my questions were answered, but a couple of points. First, on the deal environment, can you talk about competition for deals especially sort of small and mid-sized deals. It seems like valuations have steadily gone up over the past few years. And then on pricing, you spoke about sort of a slowdown in reinsurance and a slowdown in overall in your index. Can you talk a little bit and a little bit more detail about lines where you've seen the most noticeable change over the past three months, up or down?

Dan Glaser -- President and Chief Executive Officer

Okay. So I'll talk about your M&A point and then I'll hand off to John and Peter Hearn, so they can talk a little bit about the rate environment in a little bit more depth, although it's really inside baseball. Ultimately, when we look at deals, as I mentioned before, we're not chasing any deals. Your conclusion that multiples has gone up over the last number of years is absolutely true. Multiples are higher, which means we should be more selective and it means that we should understand the pro forma calculations in a deep way, because most of these organizations are private. So the pro forma results are far different than the actual results over the previous years and and there can be a disconnect in terms of what expectations are versus the reality of a performing business.

Now, our goal is actually to buy high-quality firms, that's our primary goal. Firms that match our culture, and where there is good chemistry, and where the leaders plan to stay in the business and keep growing the business, and there are numbers. So, very fragmented market, and there are a number of small to mid-sized companies in which we're able to speak with and really recognize the value of Marsh McLennan. I mean, we can demonstrate the companies, the amount of additional mega producers that are developed post acquisition by Marsh McLennan that existed pre-acquisition. So joining Marsh McLennan is good for the production force of these companies and that's our unique selling proposition, the capabilities and resources of the organization broadly, enable producers to be more successful than they otherwise would be, but John, you want to talk about rating environment and what's been moving around the most. Yeah I'd keep at pretty high level and then we can move on to Peter on that.

John Q. Doyle -- President and Chief Executive Officer

Sure, Dan. Jimmy, I covered it before. What I would say is that in most geographies and in most major product lines, there was a slight moderation in the average price increase in the first quarter as compared to the fourth quarter. It was pretty consistent. I would say, it's probably the most notable thing when you look at it on a line-by-line basis and country-by-country basis. So prices on average again went from 22% to 18% as we've shared in the past this is, our index skews to large accounts, the middle market pricing is more modest than that. I think the most notable quarter-to-quarter change was in cyber where the average price increase actually doubled from the fourth quarter into the first quarter from high teens to mid '30s, and so, as you might expect given the exposure environment there, our cyber sales are growing quite rapidly at the moment.

Dan Glaser -- President and Chief Executive Officer

Thanks. Peter, do you have anything to add?

Peter Hearn -- Chief Executive Officer

No, I will reflect much of what John says, Jimmy. Reinsurance pricing has been reasonably consistent by line of business over the past several quarters, and I think it's capacity is adequate, demand is high. As John said, our lines of business like cyber have been more capacity constrained, but there's still capacity available at a price, and I think at the end of the day the reinsurer approach to our client base has been reasonable and this has been based on experience and exposure of the individual client. And so prices, I wouldn't say have gone down. I'd say prices have moderated, but that's based on capacity, but it's a function of exposure and experience by client, it is not a broad based across the board rate increase for everybody regardless of of how you performed.

Jimmy Bhullar -- JP Morgan -- Analyst

Thank you.

Dan Glaser -- President and Chief Executive Officer

Thank you. Next question please.

Operator

Our next question comes from David Motemaden with Evercore ISI. Your line is open.

David Motemaden -- Evercore ISI -- Analyst

Hi, good morning. I had a question just on some of the disruption that the Aon Willis deal could be having in the marketplace as you look at teams and hiring. Maybe you could just talk about how that's progressing. And Dan, I think you talked about adding 500 people in headcount last quarter in terms of strategic hires. I was just wondering maybe to give an update on that this quarter and how you see that progressing throughout the year.

Dan Glaser -- President and Chief Executive Officer

Yeah, I mean we expect to be a real employer of choice in the business and -- but we're a big company. We've got 76,000 people. So whether we lose a team of 20 people or hire 10 or 20 to 30 individuals, ultimately it's not a huge needle mover for us, but it's a way for us to build our strength, build on the mountain of talent that we already have. The 500 net headcount increase in the fourth quarter didn't all come from Aon and Willis, although the majority did, and I think in the first quarter we're up over 100 heads net from Aon and Willis, and I would expect that kind of thing to continue. This is a competitive environment, and I do believe working at Marsh McLennan is a choice, not just for companies going through consolidation, but for experts broadly within our industry.

David Motemaden -- Evercore ISI -- Analyst

Got it. That's helpful, thanks for that, Dan. And then I guess just another question, just taking a look at other operating expenses. Those were down quite a bit year-over-year. I think it was down 10.5% year-over-year versus basically flat last quarter, both against pre-COVID comps. I guess, I'm wondering, were there any timing or sort of delayed expenses this quarter outside of T&E or any sort of other sort of COVID-related expense reductions in the quarter?

Dan Glaser -- President and Chief Executive Officer

Yeah, I know. The comparison is a bit different. Things like meetings, for example, if you take the first quarter, what do you do when the year starts? You get together and you talk about growth. So that happened in 2020. It didn't happen in 2021, but so meetings, some advertising, some use of facilities, that sort of thing, but we're not really overly concerned about of the expense comparisons. We were always working to move our other operating expenses down. To me, the glory would be a nice solid chunky comp and ben ratio and a much lower other operating expense ratio. That's the kind of thing over time that we want to do and we have all kinds of initiatives in the firm to try to reduce other operating expenses as a way to deliver better margin, but also to deliver better comp and ben ratios as well, and as you'll know comp and ben ratios were up in the quarter, and so that to me is a pretty good thing. Other operating expenses down, comp and ben flat or up. Yeah, that's a pretty good result with delivering big margin expansion for our shareholders as well.

Next question please.

Operator

Our next question comes from Meyer Shields of KBW. Your line is open.

Meyer Shields -- KBW -- Analyst

It's a question for Peter. You've described, I think consistently high reinsurance demand and solid capacity. Does the Florida, the upcoming Florida reinsurance, does that look any different than what we've seen so far in 1-1-in for 1?

Dan Glaser -- President and Chief Executive Officer

Peter, I'll hand it over to you.

Peter Hearn -- Chief Executive Officer

Yeah. Thank you, Dan. Meyer, if we look through the rest of the year and obviously June, when is the next big renewal date, I think we have to separate Florida from the rest of our portfolio, because it's a different animal in a lot of different ways, not only from a regulatory environment, not only from a capital environment, not only from a capacity environment, not only from a legal environment. So, as we look out into the rest of the year, we anticipate that for the broad percentage of our portfolio that pricing will remain consistent. Again as I just said, it is based on individual client exposure and experience.

Florida, obviously has gone through quite a turbulent time not only from a loss standpoint, but an underlying erosion of capital due to heightened litigation. What that's resulted in is demand is actually going to be less because people are reunderwriting their books of business to deal with some of the spikes and exposure that they have. But overall, I'd say that there is more than enough capacity in Florida and for the non-frequency layers and more capacity layers, there'll be plenty of of capacity and for the lower down higher risk layers pricing will go up. We're still unsure as to what the dimensions are. We are expecting mid to high-single digits for loss experience, high loss experience, and it's still wait and see, but a lot of the capital in Florida comes from third-party capital, unlike the rest of our portfolio, say for our retrocessional business.

Meyer Shields -- KBW -- Analyst

Okay, that's tremendously helpful. Thank you. And I was looking to citing a question for John, when you look at the small account component of your domestic P&C business, can you talk about how that, whether pricing or underwriting appetite has changed over the last 3 to 6 months?

John Q. Doyle -- President and Chief Executive Officer

Sure, Meyer. Really, in most market cycles, middle market, the small commercial pricing just doesn't move with the same level of volatility that we see in the upper middle market and in large multinational accounts and that this market cycle, really in the last couple of years it's been quite consistent with that, with that observation. We saw most of last year small commercial and there is a bit of, not every insurer looks at the market kind of the same way, but small to the lower end of the middle market, we saw low single-digit price increases most of last year. It accelerated a bit in the fourth quarter to mid single-digit increases, and that's what we observed in the first quarter as well.

What I would note in that segment, where we do see more commission than we do in other parts of our business, work comp though is a huge part of our business there, and as I noted earlier, work comp pricing remains pretty favorable for our clients.

Operator

Thank you. I would now like to turn the call back over to Dan Glaser, President and CEO of Marsh McLennan for any closing remarks.

Dan Glaser -- President and Chief Executive Officer

Thank you. Thanks, everybody. I thank everybody for joining us on the call this morning. I want to thank our 76,000 colleagues for your perseverance under trying circumstances. These are the moments when our clients need us most. Thank you all very much, and I look forward to speaking with you next quarter.

Operator

[Operator Closing Remarks]

Duration: 62 minutes

Call participants:

Dan Glaser -- President and Chief Executive Officer

Mark McGivney -- Chief Financial Officer

John Q. Doyle -- President and Chief Executive Officer

Peter Hearn -- Chief Executive Officer

Martine Ferland -- President & CEO, Mercer Vice Chair

Scott McDonald -- President & CEO, Oliver Wyman Group

Mike Zaremski -- Credit Suisse -- Analyst

Elyse Greenspan -- Wells Fargo -- Analyst

Phil Stefano -- Deutsche Bank -- Analyst

Jimmy Bhullar -- JP Morgan -- Analyst

David Motemaden -- Evercore ISI -- Analyst

Meyer Shields -- KBW -- Analyst

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