Guy Carpenter revenues fall 20% in Q3

Marsh & McLennan’s (MMC’s) reinsurance unit Guy Carpenter has seen its revenues fall by 20 percent year on year in the third quarter of 2018 to $215 million.

At the same time its larger sister company Marsh has grown revenues by 10 percent year on year to $1.63 billion in the third quarter of 2018.

MMC has pointed out that on an underlying basis which uses consistent currency exchange rates, and excludes the impact of certain items that affect comparability such as acquisitions, dispositions, transfers among businesses, changes in estimate methodology and the impact of the new revenue standard, Guy Carpenter’s revenues increased 11 percent over the period.

Overall, MMC has increased revenues by 5 percent year on year to $3.5 billion. MMC also owns consulting firms Mercer and Oliver Wyman.

Nevertheless, net income attributable to the group declined to $276 million from $393 million over the period.

"We are pleased with our performance for the third quarter and first nine months of the year,” said CEO Dan Glaser. “In the quarter, we produced excellent underlying revenue growth of 5 percent in both Risk & Insurance Services and Consulting, and adjusted EPS (earnings per share) growth of 8 percent excluding the impact of the new revenue standard. For the first nine months of 2018, we achieved strong underlying revenue growth of 4 percent on a consolidated basis and 10 percent adjusted EPS growth excluding the impact of the new revenue standard. Given our solid performance in the first nine months of 2018, the company is well positioned to deliver full year underlying revenue growth in the 3 to 5 percent range, as well as margin expansion and strong growth in earnings per share," Glaser said.

"The highlight of the quarter was our agreement to acquire Jardine Lloyd Thompson Group. JLT is a premier organization in our industry that we have admired for a long time. The combination of Marsh & McLennan and JLT will create innovative solutions for our clients, career opportunities for our colleagues, and value for our shareholders,” Glaser added.

On Sept. 18, 2018, MMC announced an agreement to acquire re/insurance broker JLT for $6.4 billion.

Fitch Ratings has placed the ratings of Marsh & McLennan Companies (MMC) on Rating Watch Negative following the deal announcement, reflecting the expected increase in near-term debt and related increase to financial leverage as measured by debt to EBITDA, above levels acceptable for the current rating category, Fitch said.

Fitch warned about the inherent execution risk and longer-term integration risk associated with a transaction of this size, which is larger than what Fitch perceived to be MMC's acquisition appetite.

To shoulder the acquisition, MMC has committed to bridge financing from Goldman Sachs. The bridge loan agreement provides for commitments in the aggregate principal amount of £5.2 billion ($6.8 billion) and will mature within 364 days after the borrowing date.

Following an in-depth business and financial review, S&P Global Ratings believes MMC will likely be committed to and able to de-lever back to a range appropriate for the firm’s current rating despite a very significant increase in debt to fund its acquisition of insurance broker JLT.

The transaction is expected to close in spring of 2019. In order to protect the company from pound sterling exchange rate volatility between announcement and closing, MMC entered into a deal contingent forward foreign exchange contract. As a result of entering into this contract, the company recorded a charge of $100 million reflecting the fair value of the hedging instrument at the end of the quarter. This item is classified as noteworthy and excluded from MMC’s adjusted results.

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