Marsh & McLennan Companies, Inc. (MRSH) Q2 2013 Earnings Report, Transcript and Summary

Daniel S. Glaser - Chief Executive Officer, President, Director, Member of Executive Committee and Member of Finance Committee J. Michael Bischoff - Chief Financial Officer Peter Zaffino - Chief Executive Officer of Marsh Inc and President of Marsh Inc Alexander S. Moczarski - Chairman of Marsh & Mclennan Cos International, Chief Executive Officer of Guy Carpenter and President of Guy Carpenter Julio A. Portalatin - Chief Executive Officer of Mercer and President of Mercer John P. Drzik - Chief Executive Officer of Oliver Wyman Group and President of Oliver Wyman Group

Gregory Locraft - Morgan Stanley, Research Division Dan Farrell - Sterne Agee & Leach Inc., Research Division Meyer Shields - Keefe, Bruyette, & Woods, Inc., Research Division Brian Meredith - UBS Investment Bank, Research Division Michael Nannizzi - Goldman Sachs Group Inc., Research Division Michael Zaremski - Crédit Suisse AG, Research Division Jay Gelb - Barclays Capital, Research Division Thomas Spikes Mitchell - Miller Tabak + Co., LLC, Research Division

Good day, everyone, and welcome to the Marsh & McLennan Companies Conference Call. Today's call is being recorded. Second quarter 2013 financial results and supplemental information were issued earlier this morning. They are available on the company's website at www.mmc.com. Before we begin, I would like to remind you that remarks made today may include statements relating to future events or results, which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to inherent risks and uncertainties, and a variety of factors may cause actual results to differ materially from those contemplated by the forward-looking statements. Please refer to the company's most recent SEC filings, which are available on the Marsh & McLennan Companies website, for additional information on factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. I'll now turn this over to Dan Glaser, President and CEO of Marsh & McLennan Companies.

Thanks, Jamie. Good morning, and thank you for joining us to discuss our second quarter results, as reported earlier today. I'm Dan Glaser, President and CEO of MMC. Joining me on the call today is Mike Bischoff, our CFO. Also, I'd like to welcome our operating companies' CEOs: Peter Zaffino of Marsh; Alex Moczarski of Guy Carpenter; Julio Portalatin of Mercer; and John Drzik of Oliver Wyman. Also with us is Keith Walsh, Head of Investor Relations. Following my comments, Mike will discuss our financial results in more detail, and then we'll take your questions. Marsh & McLennan Companies produced another quarter of excellent financial results, generating adjusted operating income growth of 13%. This comes on top of 14% growth in the second quarter of last year. Our performance in the quarter represents another step forward in our journey to be an elite company. We continue to successfully execute the 4-pillar strategy we first outlined in 2010, which is designed to create sustainable shareholder value. As a global growth company, the first pillar of our strategy is to grow revenue and earnings. Despite challenging macro conditions, we have consistently delivered underlying revenue growth and produced adjusted EPS growth of 13% in 2011, 16% last year and 17% year-to-date. Over the last few years, we have been relentlessly pursuing efficiency gains, which have funded investments in new technologies, improved data and analytics and client capabilities. Significantly improved operating performance also has allowed us to increase salaries and performance-based compensation. For example, in Risk and Insurance Services, variable compensation has almost doubled in the last 5 years. This includes productivity gains, evidenced by the fact that headcount has increased modestly in RIS, while revenue growth has approached $1 billion over the last 5 years. In addition to the consistency and strength of…

Well, thank you, Dan, and good morning, everyone. It's nice to report another strong quarter. Revenue in the quarter was $3.1 billion, an increase of 3% on an underlying basis. Adjusted operating income rose 13% to $591 million and the consolidated margin increased 190 basis points to 19.2%. GAAP EPS rose 17% to $0.69, and adjusted EPS grew 18% to $0.72. And this is on top of a strong second quarter last year, when adjusted EPS rose 22%. For the first 6 months of this year, revenue was $6.2 billion, an increase of 2% on an underlying basis. Adjusted operating income rose 14% to $1.2 billion, and the consolidated margin increased 200 basis points to 19.4%. GAAP EPS for the first half of the year rose 18% to $1.44, and adjusted EPS grew 17% to $1.45. Investment income in the second quarter was $23 million compared with $4 million a year ago. As I discussed on last quarter's call, we retained carried interest in Trident III, a private equity fund MMC created in 2003. In 2006, we contributed our limited partner interest at $200 million to our U.K. pension plan but retained our share of the general partner interest. Recognition of carried interest is deferred until it is no longer subject to clawback. This quarter is the first time the carried interest from Trident III has been recognized, totaling $21 million, which added $0.02 to EPS. In the third quarter, we anticipate $5 million in investment income, primarily related to Trident III. Interest expense in the quarter decreased from $45 million last year to $40 million in this quarter. Our next debt maturity of $320 million is in July of next year. Both S&P and Moody's recently upgraded their outlook on MMC, reflecting our strengthening financial position. Corporate expense declined to $46 million in the quarter from $45 million last year on an adjusted basis. In May, the board authorized a $1 billion share repurchase program and increased the quarterly dividend by 9%, from $0.23 to $0.25 per share, effective in the third quarter. Our cash utilization in the second quarter included $150 million to repurchase 3.7 million shares of stock, $128 million for dividends and $100 million for acquisitions. In the first half of this year, we have bought back 6.4 million shares for $250 million. We remain committed to meaningful share repurchase. With that, I am happy to turn it back to Dan.

Thank you, Mike. And operator, we're ready to turn to the Q&A.

[Operator Instructions] And we'll take our first question from Greg Locraft with Morgan Stanley.

I wanted to ask about the U.S. growth, the organic there. What are the trends you're seeing in the U.S. risk business at this point in time, maybe from a units and pricing perspective? And how do you think that the organic there will look going forward from here?

Sure. I mean, first, I would just say that, from an overall basis, if you look at how Marsh has performed over the last several quarters, they've generally been in an area of somewhere like 4%, 5% and 3% growth, so call it 3% to 5% growth organic. And Guy Carpenter has pretty much been a 5%, 6% and a 5%, so call it more around a 5% growth over the last several quarters. Why don't I turn to both Peter and Alex to give you some specific commentary as to how they see the P&C environment in both retail and reinsurance? So, Peter?

Thanks, Dan. Mentioning pricing, let me talk about overall margin, and specifically, I'll highlight the U.S. Overall, we saw a bit of slowdown when we compare the prior quarter in 2012, about 40 basis points. U.S. was the only major region that we saw increases in pricing, albeit modest. So when I compare year-over-year, the casualty lines, more of our clients saw rate increases than the prior year, but the average was a little bit less. And the one segment that did not see as much in terms of price increasing was the property. So I feel that it's a very stable environment. There's a couple of peaks that are being, as I said, mentioned in public D&O, workers' compensation, some excess umbrella, but generally speaking, it's modest increases for us in terms of pricing.

Thanks, Peter. Alex?

Yes, so we were pleased with the growth in the U.S. Clearly, there's no tailwinds coming from rates, so it's really about just doing things better. It's about higher retentions. We've had good new -- solid new business. Our blend of broking, analytics and strategic advisory is working well. So, no help from the rates but just doing things better, concentrating on what we need to do to keep our clients. And essentially, that's it.

Yes, so in summary, I would say you look at the U.S., and on the reinsurance side, there'd be more downward pressure on rates, so more softening activity on reinsurance. On the retail side, it's more flattish, but relative to the rest of the world, a bit better than the rest of the world in the U.S. We've been at this game a long time, and in years past, when you see softening in reinsurance, unless you have loss activity, it's pretty hard to prevent that from shifting into primary 6 months, 12 months, 18 months down the road.

Okay. Okay, great. Very thorough. One other one is just on capital deployment. Good to see the buybacks and the higher dividend. If I was to step back, though, and go back to the 2010 Investor Day, when you sort of laid out the game plan for the corporation, you guys have actually beat your guidance and beat your numbers since then. The only component to that, that I think is behind this maybe I feel that, back then, you mentioned that capital deployment were contributing 300 basis points to the plan. I'm sort of wondering, has capital -- where do you think capital deployment will be from here? It seems like it's picking up. So can you sort of compare what you were thinking back in 2010 to where you're at today? There's a lot of optionality there.

Sure. Sure. I would say when you look at capital deployment, to begin with, our feeling is that we have rising free cash flow. So number one, that's a good-news story. And then when we look at how we would deploy that cash, we would probably look at dividends first. And we would look from here to keep our payout ratios in a similar area to where they are today. So you'd likely see us improving our dividend as we improve our earnings. Then we look at acquisitions, and we don't budget for acquisitions. We look at a lot of things and, ultimately, that's a variable. And share repurchase, we're committed to share repurchase. And if you look at the last 5 quarters, we've had 5 quarters in a row of share repurchase. So I think as you go forward, you'll see us both looking at a balanced basis in terms of deployment, dividend, acquisitions and share repurchase. But, Mike, do you want to add some color to that?

Yes, thank you, Dan. And Greg, you're absolutely spot on looking at us historically. Not only have we been reinvesting in our business, but we've really been paying down our debt and, essentially, deleveraging our balance sheet. In addition to that, we had pension obligations that we've put quite a bit of our cash flow into pension obligations. So that's historic. If you look going forward, we do not plan to delever our balance sheet actively. We think the natural earnings that you're seeing, not just this quarter but the past few years, will naturally deleverage our balance sheet. So we don't have to do any more debt pay-down, and we feel that the bulk of our contributions to our global pension plans are behind us. So, as Dan said, we look at the deployment of our capital on a balanced fashion going forward, and we feel very good about it.

And we'll take our next question from Dan Farrell with Sterne Agee. Dan Farrell - Sterne Agee & Leach Inc., Research Division: I was wondering if you could update us on your efforts in the health exchange. I know you had some announcements on that. And maybe talk a little bit more detail about what's going on there, and then also how we should think about maybe revenue and earnings impact as we head through the rest of the year.

Sure, and your question, Dan, on revenue and earnings impact, is that specific to the health exchange or throughout the whole company? Dan Farrell - Sterne Agee & Leach Inc., Research Division: Yes, how to think about how that will play through the rest of the year.

Okay, terrific. So, Julio?

Thank you, Dan -- both Dans. I appreciate it. I want to put some light on what we consider to be a pretty good milestone for us in the quarter as it relates to Mercer Marketplace. You saw the press release came out announcing that we had 5 companies -- employers now already signed up to Mercer Marketplace. Since then, we've signed an additional 9 employers, and there are a significant amount of potential opportunities for both 2014 and 2015 still pending. Those 9 employers represent about 35,000 lives. And why we think it's such a milestone is because it really validates several key things about Mercer Marketplace. One is that it's very attractive to a lot of additional across-the-board industries and employers from as little as a couple of hundred employees to several thousand. And that's been something that we've seen as a distinction based on our offer, and it's beginning to hold true. While we've always been kind of cautious about what 2014 was going to give us, and we still are, we certainly are seeing a lot of activity. So it demonstrates that we have a very viable option for our clients. In addition to that, we continue to see activity, we continue to see more interest, and we'll see how that builds for '14 and '15. As far as revenue is concerned, as we have stated in the past, there'll be no material revenue recognized in 2013. This is for enrollment for those that are effective on January 1, 2014, and beyond. And then, of course, through '15, we'll see how that develops. And thus, the earnings will be the same, will be no significant impact on earnings in 2013. Now in the early years, as you can think about this, we, of course, will continue to invest. And I believe we'll see that, as this thing pans out, the earnings will be similar to the type of business that we have that's not in the Mercer Marketplace. So it'll be very consistent.

So, Julio, just to confirm, you've got 9 companies signed up now?

Nine companies signed up for about 35,000 lives.

Okay. Thank you. Dan Farrell - Sterne Agee & Leach Inc., Research Division: Just a follow-up, there is some expense flowing through now that's already being absorbed within your margins, correct?

That is correct. I mean, we are taking all expense right to the operating results for the Mercer Marketplace. Dan Farrell - Sterne Agee & Leach Inc., Research Division: Okay. One other quick question. The revenues had some modest FX headwind. Was there any meaningful or any FX impact to earnings in the quarter?

Okay. So just one thing in terms of the expenses that we're rolling through on the health exchange, one of the ways you have to look at that is, with regard to health, there may be some downward margin pressure on -- specifically around the health exchange because of the investments. However, we're selling more product, and so there are -- typically, companies are now buying up additional product like voluntary products through Mercer Marketplace. And so it looks pretty much the same to us from a margin perspective. So, Mike, do you want to take the question on FX?

Yes, Dan, you're absolutely right. Not only in this quarter but in almost every quarter over the last 6 quarters, foreign exchange has worked against us from the standpoint of profitability because of the strengthening of the dollar against most of our -- not all, but most of our major currencies, but it's been something that we've been able to absorb in every quarter, including this one.

And we'll go next to Meyer Shields with KBW. Meyer Shields - Keefe, Bruyette, & Woods, Inc., Research Division: I want to start with a question for Alex. As we start to see -- or not start to see -- as we see significant downward pressure on property cap reinsurance rates, does it move the needle at all in terms of clients no longer retaining more and maybe taking advantage of some of the reinsurance arbitrage opportunities?

So, Alex, do you want to take that?

Yes, actually, we have seen the -- if your -- if the cost of your own capital is more expensive than the contingent capital out there, companies are buying more reinsurance. So it really depends on the company. There are companies, obviously, that have strong balance sheets, and their relative cost of capital for their different tranches makes it -- makes more sense to retain more. And there are others that are taking advantage of the cheap capacity that's available. Meyer Shields - Keefe, Bruyette, & Woods, Inc., Research Division: Okay. So in the aggregate, not a dramatic change?

We are -- to date, no. But we're obviously looking at it. And what's great for us is that we can provide advice to our clients because now there's so many alternatives that they face, and we look at their programs in a holistic manner. So actually, we're quite excited about what's going on. Meyer Shields - Keefe, Bruyette, & Woods, Inc., Research Division: Okay, fantastic. And for Mike, is there a good run rate for the number of shares that Marsh expects to issue this year, for computation and other purposes?

Mike?

Thank you. That's a very good question. And as you know, for a number of years, we've had essentially performance-based awards tied to the overall growth of the operating income. And so there we, every period, look and see whether there should be some additional accruals in that. So it's hard to basically give you a calibration of the run rate because it's tied to our performance. One of the things that I would say, though, is for our goal, over not just this year but many years, is to try to offset the potential dilution of any and all awards, including stock options, and that's one of the reasons why we've been doing meaningful share repurchase. In fact, over the last 5 quarters, I think we did about $480 million, so approaching almost $0.5 billion in share repurchase. But to your specific question, it's really hard to tell because it varies quarter-to-quarter.

And we'll go next to Brian Meredith with UBS.

A couple questions here. First, I was hoping you could talk about what the pipeline looks like right now with Oliver Wyman, particularly with respect to continental Europe?

Okay.

Sure. All of one's business, as you know, is affected by macroeconomic conditions, and conditions are still relatively weak in our major markets, including Europe. Looking ahead, our recent sales and current pipeline have been strengthening to some extent. So, as Dan said, based on what we're seeing, we expect sequential improvement in revenue growth rate over the next couple of quarters, and that will come more from North America than Europe, but I think we're seeing improvement in both.

And, Brian, just the way we look at it on an overall management team basis, Oliver Wyman, in many quarters and in many years actually, ends up outgrowing all the other OpCos. This year is obviously a tough year. And so from that standpoint, it's not going to be a big provider of revenue growth for us, so the direction of John and his team are to protect earnings. And they've been doing a really good job of making sure that the revenue shortfalls is not really an earnings event for us.

Absolutely. Great. And then next question, I guess, is for both Dan and Mike. When I look at your capital management and I look at your debt-to-capital ratios and I look at your debt-to-EBITDA, you're sitting here near historical lows. I guess my question is, is there a need to continue to let leverage decline? Why can't you take advantage of some of the low interest rates right now and actually lever up a little bit to buy back some stock at attractive levels?

And so I'll take that and then hand over to the expert in Mike. But ultimately, the way I would first look at this is this is what we would call a high-class problem. And so from that standpoint, we're a conservative company, and we're looking to make sure -- I mean, when I look at things personally, it would be hard for me to think that we should lever up, specifically, to buy back stock. We could certainly lever up to make acquisitions if they became available to us or -- but I do think with enough of our increasing cash flow, we will have meaningful share repurchase in future quarters and in future years. And so the notion of levering up, even though it may have a slight appeal at this moment in time, just strikes us as not being in the philosophy of this conservative firm. But, Mike, do you want to add to that?

Yes, I think it's well said, Dan. Starting from this premise that you look at your entire capital structure and, Brian, you also look at your cash on hand, and you look at where it is and how you can deploy that. And so before we're thinking of going to the capital markets, we want to make sure that we're effectively using our capital. And I know you follow us closely so that you're aware that over the last year we were very effective in not only utilizing our international cash but bringing it back into the U.S. And so we could do, along the lines of what you're saying, repurchase our stock. We did 100 million in the first -- $100 million in the first quarter of this year, the first time in many, many years that we repurchased in the first quarter. So that was really utilizing our own cash on a global basis. The second thing then we look at, and as Dan and I have talked about on this call, is that we take a balanced approach. We want to put our capital deployment to dividends, acquisitions and share repurchase. So really, reinvesting back into the business, either direct capital investments or acquisitions, is a primary goal, but conversely, returning capital to the shareholders in the form of dividends and share repurchase is very important, so it's a blend. And then the last thing, as Dan said, we have a journey to elite. And when we've looked at companies around the world that are generally viewed as elite companies, their credit metrics typically have an A in it. So it's important to us. The last thing that would do is it gives us a cushion with regard to any future negative consequences that we may see in the macro environment or, as Dan said, opportunities that we may see going forward. So we think that the balanced approach is really a good guideline for analysts and investors.

And we'll take our next question from Michael Nannizzi with Goldman Sachs.

Can you elaborate a bit on the reinsurance side in terms of capital markets activity that you're seeing participating in and whether or not that's been a contributor or you saw that in 2Q results and whether or not you expect that to be a bigger piece of the pie going forward?

Okay, sure. Alex?

So we reckon there's about $45 billion of convergent capital in the market. Not all of it is being deployed or can't find a place to be deployed. But clearly, there was an effect on the Florida renewals. It's essentially, as you know, focused on cat. Yes, I -- the question is -- some of it is pension money, some of it is private equity money. The pension money tends to stay for a long time, so we'll see what the effect will be on that. But we've had good activity on the cat bond side. I think there's been about $4.2 billion issued, more or less, and we've been involved in about $2.2 billion. So we're geared for that activity as well.

And if you look at it, Mike, we're an intermediary, and so we can -- we're always looking at ways of creating value for clients. When we look for our clients having many sources of capital, both traditional and alternative, is a good thing. And our clients need advice. They would need somebody to evaluate the alternative forms and negotiate terms and conditions, et cetera. We've had some interesting work between Guy Carpenter and Marsh of late, which gives an example of the type of thing that could happen, where there may be some pressure in certain areas of Guy Carpenter on the cat side, but then there could be opportunities between Guy Carpenter and Marsh on the retail side. So, Peter, do you want to talk a little bit about the recent MTA transaction?

Sure. Thanks, Dan. We're very excited. We did our first cat bond for one of our clients. As Dan mentioned the MTA, so it's a $200 million cat bond, and it's a real strong example of when we can bring the power of MMC together by using 2 operating companies to deliver a solution for our clients. We're actually starting to develop a pipeline. It tends to be very industry-specific. Don't think it'll replace any traditional capital that's being deployed for our clients, but it's very complementary and one that we expect to see more demand over time.

We'll take our next question from Mike Zaremski with Crédit Suisse. Michael Zaremski - Crédit Suisse AG, Research Division: A quick follow-up on free cash flow expectations and the earlier comment about the pension contribution falling. Could you put some figures around how much lower the pension contribution run rate could fall, especially given the interest rates and equity markets have been moving north?

Sure, Mike. Mike, do you want to take that?

Yes, the one thing, Mike, that we've learned many, many years is because the remeasurement of our pension obligations occurs at the end of the year. And where interest rates are at the end of the year, even though things look favorable today, we have to wait till the end of the year. But that said, let me give you a little bit more color with regard to the pension obligations that we've been dealing with. Over the last 2 years, our committed funding levels in 2012 and 2013 were in the neighborhood of $320 million. In 2012, on top of that $320 million, we put $100 million of discretionary contribution into our U.K. plan. It was using our excess capital. We were able to do it on a tax-efficient basis. And obviously, it helped the funding ratios in the U.K. As we went into this year, on top of roughly the $320 million of obligations that we had, we thought that it was very prudent to basically do prefunding in the U.K. of about $250 million, once again, tax-efficient basis, utilizing our international cash, and about $70 million into our Canadian plans. As a result of that, we're anticipating that total funding for this year will be in the neighborhood of $650 million. So having said that the U.K. funding, that the $250 million included prefunding, it was prefunding of some of our obligations in the U.K. that would affect 2014, '15 and, perhaps, '16. And so we think that, based upon all of that, there will be a market decrease with regard to the levels or our pension obligations and the funding going forward in '14, '15 and, most likely, beyond. Michael Zaremski - Crédit Suisse AG, Research Division: Got it. That's great color. The last question is in regards to the business climate in Europe. Some economists are cautiously optimistic, saying GDP has troughed. What is Marsh seeing on that front?

Okay. Why don't we do 2 things. Well, I'll address it overall, and then if we just kind of quickly go around the horn and have each of our operating companies give you a little bit of color of how they're viewing things in Europe these days. We've read some of the same material and, of course, oftentimes, the insurance, specifically, might be a lagging indicator and consulting may be a forward indicator in terms of activity. So we often look to OW as sort of our canary in the coal mine to try to get a view as to what's business sentiment like and whether discretionary spending is picking up. Bearing in mind, in terms of insurance, contracts tend to be annual, and Europe, at least in certain countries, is weighted toward January 1, so you don't see really any pickup until the following January 1 period. But why don't we go around the horn, starting with John Drzik of Oliver Wyman?

So as I said earlier, I think the conditions for us are showing a slight uptick, so we're seeing a little bit of improvement. So -- but I'd say, on the whole, conditions are still relatively weak. Our clients are still relatively cautious in terms of their discretionary spending, and so we're not seeing a major change. But I would say the directional indicators we see in our pipeline and from our business leadership that things are modestly improving in Europe.

Peter?

Yes, so as Dan said, sometimes we're a trailing indicator. I wouldn't read into our quarter in terms of underlying growth in EMEA as one that would look similar in the future, meaning that we had really challenging comparables in the prior years. We had very strong growth in both the U.K. and Continental Europe. We have a really strong pipeline of new business. We had good new business growth in the quarter. There's some modest economic headwinds that are combined with pricing, so we see a little bit of headwind in the exposure in pricing but nothing that I would be concerned about trending forward. And there's always timing in the quarter. So overall, we're cautiously optimistic and expect to see continued organic growth.

Alex?

So, reinsurance isn't -- whether reinsurance, is that correlated with economic conditions? If you've seen over the last 3 years, we've grown at a nice lick there, so it's more really about capacity and about losses. So we continue to look for growth.

Julio, your view about Europe?

Yes, I mean, our year-to-date growth in Europe continues to be positive. We certainly can't control the external environment, but we're trying hard to make sure that pipeline and opportunities that present themselves, we are very prepared and very well positioned to take advantage of it. So given some -- we've had some situations or some restructuring taking place there for some of our clients, and we certainly are well positioned for that. And our product side, services and some of our survey business continues to be in high demand in that part of the world. So we think that the top line, while a little bit softer than prior years, continues to be positive and is tracking pretty well.

Yes, and just to add a little bit of overall flavor, Mike, in sort of tying together the comment that I had made earlier, I think in response to Brian's question about whether we should lever up and buy back shares, and my comment that we're a conservative company and that we would always look at making sure that we have enough powder dry for acquisitions if opportunities presented themselves. The way we look at the world is we're pretty much in an age of uncertainty. And I don't think anybody with their hand on heart can really give you a clear prognosis about macro conditions in Europe, what could conceivably happen in China, what could conceivably happen in the Middle East. I mean, there's a lot of flux. And being a conservative company and having the capability to be able to act quickly if certain opportunities presented themselves. So the way we look at it is if the world recovers, we're in great shape. If the world doesn't and actually turns downward, we're in good shape too. So that's our view on that.

And we'll go next to Jay Gelb with Barclays.

I was hoping to drill down a bit on Guy Carpenter. The 5% organic revenue growth despite the impact of downward pressure on reinsurance pricing. I was hoping you can deconstruct that a bit and, essentially, how much of that is driven outside of increased issuance in alternative facilities.

Sure. So, Alex, how much is traditional growth and how much are you being supplemented by all this alternative capacity?

I think traditional growth would be about 98% of what we -- of the reason. The fact is that Carpenter has been investing well. We are -- I think we're the employer of choice. Good people have been joining us. Our accounts, our large accounts are pristine prestige accounts, and they've been growing too, and we've been growing with them. We have a good blend of broking and strategic advisory and analytics. And it's really about value. And it's also about making sure that you see a client on a regular basis, you do all the blocking and tackling and retention is high and new business is good.

Okay. For Mike, on the Trident III that benefited from the additional investment income, is there any way to think about how much more could flow through in future quarters, so we can calibrate models?

So, Mike?

Jay, that's a very good question. And as you know, on investment income, we really try to help analysts look to what the next quarter may be. And that's why we gave you an indication of about $5 million, including Trident III, because we know it's very difficult, certainly, when Trident II was liquidating over a 3- or 4-year period. So the question that you have specifically gets to Trident III, and as we said, this is the first quarter that we've actually booked carried interest because it's really the first time period that Trident III has started to liquidate its position. But I think its portfolio, which I have not tracked as closely as Trident II, but I think the portfolio is well over $1 billion. And so as Trident III gets liquidated, which could occur over 3 or 4 years, we do not control it, we do not manage it, and so we'll just have to see how it comes through. Now there's an additional hurdle with regard to the carried interest because the way that we book it for accounting, it has to be to a point where there is no clawback capability, which means that if the rest of the portfolio went to 0, we would still be entitled to what we booked through our income. So sorry I can't give you more specifics other than it could go a number of years as we work our way through it. But it's a nice story, and it will be additional cash to us and additional earnings. But obviously, it's investment income, it's not operating, and that's why we try to isolate it.

That's helpful. And then finally for Dan, can you tell us a bit more about your appetite for bolt-on acquisitions, both in RIS and Consulting, since there seems to be a continued interest level in that area?

Yes, and I would say very strong. I mean, we've done a series of acquisitions. I mean, if you look in total over the last 5.5 or 6 years, we've done about 60 acquisitions. Most of them have been in RIS, and clearly, MMA has been a core strategy to that. When we look at acquisitions, we look at a lot of factors. The first factor is, generally, does it make us better? Does it give us something that we don't have? Does it expand a capability, a segment, a geography? And then what's the management team like, and are they committed to working not only over the long term, but also working at a bigger organization like us? And we feel that there's an awful lot of companies out there that, when they look at the world today and the macro uncertainty and the higher degrees of regulation and risk in compliance activities and just the sheer level of items that management teams have to deal with, many of these smaller companies come to the realization that they're spending too much time on running this business and not enough time on chasing new accounts and servicing existing accounts. And so we become a very good alternative. Now I can tell you around the world, we don't jump opportunistically at every thing that presents itself because our own feeling is this is more like a courtship that generally takes several years to develop to make sure that there's an affinity between the acquirer and the company being acquired. And so we have a pretty rich pipeline, but no schedule in order to execute that pipeline. There are certain acquisitions that we have done that, literally, we have cultivated for years. Okay?

Yes, we understand there's a big pipeline there.

And we'll take our next question from Thomas Mitchell with Miller Tabak. Thomas Spikes Mitchell - Miller Tabak + Co., LLC, Research Division: I'm sure that you've done a very good job on handling expenses overall in the -- on the Consulting side. I'm just wondering, in a sense, in terms of year-over-year comparisons, can we continue to expect to see expenses decline while revenues are up a little bit going forward?

Yes, no, Tom, it's a great question. So let me just take it first by saying our goal is to achieve double-digit earnings growth in most years over the long term. And we fully understand in order to achieve a goal like that, we need to continuously improve performance and continuously invest in our business, our technologies, our -- and our colleagues. And so I want to assure you that even though you're seeing flat expenses now, we are spending money. We're spending money on colleagues, we're spending money on investing for future growth, and we are harvesting operational improvements that we have developed over the last several years and that we are continuing to develop. So I would say that a lot's going on under the hood, and that the fact is we're benefiting on some roll-forward of prior actions and efficiency gains, but we don't -- the cupboard's not bare. We're still achieving additional efficiency gains, so we definitely feel that we'll be able to manage expenses. Whether we manage them at a flat or we manage them at low single digits, we'll still be containing our expenses for the foreseeable future. Thomas Spikes Mitchell - Miller Tabak + Co., LLC, Research Division: That's a good answer. And on a more very mundane basis, the accounting item -- adjustments to acquisition-related accounts, contingent consideration related to acquisitions, just reading that, it sounds to me like if you made a good acquisition, that's a number that would grow in the future. Do I have that right or wrong?

No, basically, this is related to the earnouts on acquisitions. Many of the acquisitions that we do have an earnout component. When a firm that we acquire underperforms our expectations of what we have within the earnout, then you would see a negative on that line. And when a -- one of our acquired companies actually outperforms the earnout calculation, then we'll put additional money against the contingent consideration. Mike, do you have anything?

Yes, Tom, I would just say it's also a mechanism that we use to bridge the future -- perhaps, the differences between the future outlooks of the sellers and ourselves, and whereas sellers may be absolutely more optimistic and rosy about the outlook, and we're more conservative. And so instead of giving the consideration upfront, we basically have an agreement to say that if the optimism manifests itself, we'll all be happy. So essentially, the way we would view it, we paid a little bit more for an acquisition, but the results were much better than we thought. Conversely, it's a protection for our shareholders if the results, as Dan said, don't perform based upon the expectations of the seller. The nice thing is, I think, over the last 5 years, where we've done about, what, $1.5 billion, $1.7 billion of acquisitions value in total, the actual contingent consideration has been very modest. Thomas Spikes Mitchell - Miller Tabak + Co., LLC, Research Division: And so going forward, though, I'm just assuming that if you continue to make acquisitions every year then -- and you're conservative in your assumptions, you will, in fact, have an item like this, more or less, continuously?

Tom, you're absolutely right. I mean, that account changes every quarter. We have additions, we have payments made out, we have revaluation impact. At the end of the quarter, it was in the neighborhood of $80 million. But it will be continuous with regard to how we do the structure of the deal. As a result of that, we view it just as purchase or acquisition accounting, which is why we do not include it in our adjusted earnings and why we exclude it.

And at this time, there are no further questions. I'd like to go ahead and turn the call back to you, Mr. Glaser, for any additional or closing remarks.

Okay, perfect. Thank you, Jamie. I want to thank all of you for joining us on the call this morning. I mean, this call is naturally oriented toward shareholders, but I also want to take this opportunity to express my appreciation to our 54,000 colleagues for their hard work and dedication in delivering such fine results and to our tens of thousands of clients for their belief in Marsh & McLennan Companies. So thank you very much.

And again, that does conclude today's conference. We do thank you for your participation. Please have a great day.