Welcome to Marsh & McLennan Companies conference call. Third quarter 2018 financial results and supplemental information were issued earlier this morning. They are available on the company's website at www.mmc.com. Please be advised that the call is being recorded. Please note that remarks made today may include forward-looking statements. Forward-looking statements are subject to risks and uncertainties, and a variety of factors may cause actual results to differ materially from those contemplated by such statements. For a more detailed discussion of such 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 MMC 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 Companies.
Thank you, and good morning. Thank you for joining us to discuss our third quarter results reported earlier today. I'm Dan Glaser, President and CEO of Marsh & McLennan Companies. 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, who is dialing in from London, Julio Portalatin of Mercer, and Scott McDonald of Oliver Wyman. Also with us this morning is Dan Farrell, Head of Investor Relations. The third quarter was eventful for Marsh & McLennan. I am pleased with our overall financial results for the quarter, and I will talk about them a bit later. Without a doubt, the major highlight of the third quarter was our agreement to acquire Jardine Lloyd Thompson Group. We are progressing with the regulatory and shareholder approval process.
In the U.S., we recently received antitrust regulatory approval from the U.S. Federal Trade Commission, concluding the competition review of both the FTC and Department of Justice. JLT has announced it will hold a general meeting of shareholders on November 7th for the purpose of obtaining shareholder approval. We move forward, the transaction remains subject to additional antitrust and regulatory approvals. At this point, we expect closing sometime in the spring of next year. Our executive committee spent last week in London getting to know the senior leadership of JLT better, as well as addressing the broader JLT colleague base through a large town hall meeting. There is tremendous energy and optimism on both sides around the benefits this acquisition will bring to clients, colleagues, and shareholders. Following these meetings, I'm even more excited about the strategic potential for our combined organization.
The process of planning our future together has begun in earnest. Teams of leaders from both organizations are involved in this effort. Decisions will be made from the perspective of bringing the best of both. While JLT is a large transaction for us, we have a strong track record of M&A, having executed nearly 160 transactions since the beginning of 2009. Over that time, we have had success in retaining key talent and maintaining the unique qualities of the organizations we acquire. While no integration is seamless, the combined leadership team has the depth of experience and industry knowledge to grasp the challenges ahead and execute successfully. As I have said previously, this is a combination out of strength on both sides. It is about one thing: growth. Growth in talent, capabilities, revenues, margins, and earnings.
Dominic Burke and the JLT management team have built a terrific organization that is highly skilled with a strong track record of growth. Together, we'll deliver even more value for clients. It further solidifies our position as the leading global professional services firm, providing advice and solutions in the areas of risk, strategy, and people. We will have the broadest and deepest talent in the industry. Marsh & McLennan will be the single best place to work, the employer of choice, and the organization where creative and highly skilled people will optimize their talent. We will have a relentless focus on clients and improving the client experience. The strength of our combined organization and the unmatched capabilities we bring will be the driving force for client and colleague satisfaction.
We will have deeper industry expertise, stronger geographic positioning, and greater capacity for investments in digital, data, and analytical capabilities, which will benefit our clients. We will be out in front of their greatest challenges with innovation and thought leadership. In addition to the JLT news, we had an active M&A quarter on other fronts. During the quarter, Mercer announced the acquisitions of Pavilion Financial Group and Summit Strategies Group within the wealth division. These transactions, which represent approximately $90 million of combined revenues, will strengthen Mercer's investment consulting position in the endowment, healthcare, and insurance sectors, while adding capabilities in alternative investments. Both firms bring high-quality talent, as evidenced by their strong scores in the Greenwich Associates Quality Index for investment consulting. In early October, Marsh McLennan Agency acquired Eustis Insurance & Benefits, a Louisiana-based agency with $17 million of revenue.
While de-leveraging the balance sheet will be a priority over the next couple of years, we have provided for the flexibility to continue to pursue selective acquisitions. MMA will be the primary focus given the significant success of this strategy over the last decade. With MMA, we have built the highest quality middle-market brokerage business in the industry, and we will continue to support their development. I would also like to highlight some leadership changes in Mercer. Martine Ferland was recently named to the newly created position of Group President, reporting to Julio. Martine brings more than 30 years of experience in consulting, leadership strategy, and delivering client value, having run businesses in Canada, Europe, Pacific, Asia, and the U.S. Under Martine, we will be further simplifying and combining Mercer's three geographic regions into two: U.S./Canada and International.
This aligns more closely with the regional structures in place across the other businesses of MMC. As part of this change, we also announced that David Anderson will lead the newly established International region, and that Louis Gagnon will be the new leader for U.S./Canada. Both David and Louis will report to Martine. Now, let me give some highlights of our performance for the third quarter and first nine months of 2018. Revenue growth in the quarter was strong. Consolidated revenue was $3.5 billion, up 5%, or 7%, excluding the impact of the new revenue recognition standard. Underlying revenue growth in the quarter was 5%, with 5% growth in both RIS and consulting, the first time that both segments have had 5% or better underlying growth since the third quarter of 2011.
Marsh had 3% underlying revenue growth, driven by strong growth of 5% in U.S./Canada, a continuation of the momentum we saw in the first half of the year. In Guy Carpenter, we saw 11% underlying revenue growth in the quarter, bringing them to 7% underlying growth year to date. This reflected strong performance across the business. Mercer's 3% underlying revenue growth was driven by continued strength in investments, health, and career. Oliver Wyman grew underlying revenue 11%, which was better than our expectations going into the quarter. As for our bottom line results, adjusted operating income grew 3%, and adjusted earnings per share increased 8% in the quarter, excluding the impact of the new revenue standard. NOI growth and margin expansion in RIS were strong, offset by expected softness in consulting, which was driven by the difficult expense comparison to 2017 that we mentioned last quarter.
More than nine months, our consolidated underlying revenue growth stands at 4%, and adjusted EPS increased 10%, excluding the impact of the new revenue standard. In the aggregate, our results for the first nine months position us well to deliver another solid year. For the full year, we expect underlying revenue growth in the 3%-5% range, margin expansion, and strong adjusted EPS growth. With that, let me turn it over to Mark for a more detailed review of our results.
Thank you, Danny. Good morning. In the third quarter, we delivered 5% underlying revenue growth, highlighted by underlying growth of 5% in both RIS and consulting. Overall revenue was up 5%, or 7%, excluding the impact of the new revenue standard, ASC 606. For the first nine months of the year, underlying revenue growth was a solid 4%. Operating income in the quarter was $541 million, while adjusted operating income decreased 5% to $535 million. Excluding the impact of the new revenue standard, adjusted operating income increased 3%. Overall, our adjusted operating margin declined by 30 basis points, excluding the impact of the new revenue standard. GAAP EPS declined to $0.54. Adjusted EPS declined 1% to $0.78. Excluding a $0.07 per share reduction from adopting the new revenue standard, adjusted EPS grew 8%.
For the first nine months of 2018, GAAP EPS increased 4%, while our adjusted EPS increased 14% to $3.26. Excluding a $0.10 per share benefit from adopting the new revenue standard, adjusted EPS was up 10%. In Risk and Insurance Services, third quarter revenue was $1.9 billion, an increase of 6%, or 9%, excluding the impact of the new revenue standard. Underlying revenue growth was 5%. Adjusted operating income for the quarter decreased 3% to $283 million. Excluding the impact of the new revenue standard, adjusted operating income grew 13%, and adjusted margin rose 110 basis points. For the nine months, revenue was $6.3 billion, an increase of 11%, or 9%, excluding the impact of the new revenue standard. Underlying revenue growth was 4%. Adjusted operating income for the first nine months of the year was up 15%.
Excluding the impact of the new revenue standard, adjusted operating income increased 10%, and our adjusted operating margin increased 30 basis points to 23.9%. At Marsh, revenue in the quarter was $1.6 billion, with overall growth of 10% and underlying growth of 3%. The U.S. and Canada division continued its trend of strong growth, delivering 5% underlying revenue growth in the quarter. International was up 2%. For the first nine months, revenue at Marsh was $5.1 billion, up 8%, or 3% on an underlying basis. Marsh incurred restructuring charges of $29 million in the quarter and $87 million through the first nine months of the year. We now expect ultimate charges to be toward the high end of our previous $80 million-$100 million range. Also, adjusted operating results exclude a $46 million gain in the quarter on the sale of our risk management software and services business in Marsh.
Guy Carpenter's revenue was $215 million in the quarter, with underlying growth of 11%. This is the seventh quarter in a row of 4% or higher underlying revenue growth for Guy Carpenter, and the highest underlying growth since the second quarter of 2009. For the first nine months of the year, revenue was $1.2 billion, with 7% underlying growth. Year to date, Guy Carpenter's performance is strong, and they are on track to deliver a terrific year. We anticipate their results will temper in the fourth quarter, given the benefit from the significant reinstatement and backup activity we saw in the fourth quarter of last year. Consulting quarter revenue was $1.7 billion, up 4% both including and excluding the impact of the new revenue standard. Underlying revenue growth was 5%. Adjusted operating income decreased 6% to $293 million.
Excluding the impact of the new revenue standard, adjusted operating income declined 6%, and the adjusted margin declined by 210 basis points. This decline was expected due to a tough expense comparison, primarily driven by variable compensation adjustments at Mercer in the third quarter last year. Consulting's underlying revenue growth for the first nine months of 2018 was 4%, with consolidated revenue of $5 billion. For the first nine months, adjusted operating income was down 2%. Excluding the impact of the new revenue standard, adjusted operating income decreased 1%. Mercer's revenue was $1.2 billion in the quarter, with underlying growth of 3%. Wealth grew 2% on an underlying basis, with investment management and related services up 9%, and defined benefit consulting and administration down 3%. Our delegated asset management business continues to show strong growth with assets under delegated management of $248 billion at quarter end.
Health increased 4% on an underlying basis in the quarter. Career grew 5%. For the first nine months of the year, revenue at Mercer was $3.5 billion, with 3% underlying growth. Oliver Wyman's revenue was $481 million in the quarter, with underlying increase of 11%. This result was solid and reflects strength in most practices, offsetting continued softness in bank regulatory work. For the first nine months of the year, revenue was $1.5 billion, with 5% underlying growth. Given the performance of Oliver Wyman in the third quarter, our outlook for revenue growth has improved a bit. We now expect modest growth in Oliver Wyman for the second half of 2018, as opposed to our previous guidance of flat. This would imply a decline in fourth quarter revenue in Oliver Wyman on an underlying basis.
As Dan mentioned, we've begun integration planning for JLT and are progressing with the regulatory and shareholder approval process. On balance, the key elements of guidance we provided on our investor call on September 18th have not changed. I want to reiterate some of the highlights. We expect the deal will be accretive to adjusted EPS in year one, excluding intangible amortization, and will produce a double-digit IRR. Transaction is expected to be modestly dilutive to adjusted GAAP EPS in year one, neutral in year two, and accretive in year three. This is an all-cash transaction that will be funded primarily with debt. The amount of incremental debt will be based on the equity purchase price of $5.6 billion, the amount of JLT debt outstanding, and fees and other costs associated with the transaction.
We continue to estimate annual after-tax intangible amortization of $180 million, or $240 million on a pre-tax basis. From a capital management perspective, we have carefully planned the financing in order to maintain our long-standing capital return commitments and maintain a strong ratings profile. The third quarter also included a couple of noteworthy items related to the JLT acquisition. In order to protect us from exchange rate volatility between announcement and closing, we entered into a deal-contingent foreign exchange hedging contract. As a result of entering into this contract, we recorded a non-cash charge of $100 million, reflecting the change in the fair value of the hedge instrument at the end of the quarter. The amount of this item will change as we progress to closing, as well as due to exchange rate volatility.
Despite the volatility we will see from fair value accounting under GAAP, the full cost of this hedge was contemplated in our estimate of overall transaction costs. We also incurred $3 million of expense from the amortization of fees related to our bridge facilities. This $3 million is included in the interest expense in our GAAP income statement. Lastly, we are pleased that subsequent to our announcement, both Moody's and S&P affirmed our current ratings, albeit with a change in outlook that was expected. Turning to investment income. On an adjusted basis, we had $4 million in the quarter. We continue to expect the contribution from investment income in the fourth quarter will be immaterial.
On a GAAP basis, investment income was a loss of $52 million in the quarter and included an $81 million write-down of the value of our investment in Alexander Forbes in order to bring our carrying value in line with the current trading value of their shares. This adjustment was partially offset by mark-to-market gains on other equity investments as required by recent accounting changes. It is important to note that the adjustment to our carrying value of Alexander Forbes was non-cash and purely due to their stock's trading value. Because we do not view the volatility caused by these adjustments as reflective of our underlying performance, we have excluded them from our adjusted results and shown them as noteworthy items. Foreign exchange in the quarter was a slight drag to both revenue and overall NOI.
Assuming exchange rates remain at current levels, we expect FX to be a slight headwind to revenue and NOI for the fourth quarter. Our effective adjusted tax rate in the third quarter was 25.3%, compared with 26.6% in the third quarter of last year. Our adjusted tax rate included a net benefit of $4 million from discrete items. Excluding discrete items, our effective adjusted tax rate was approximately 26%. Through the first nine months of the year, our adjusted tax rate was 24.5%, compared with 26.1% last year. For the remainder of the year, we expect our effective tax rate, excluding discrete items, will be approximately 26%, consistent with the underlying rate we have seen through the first nine months of the year. Total debt at the end of the third quarter was $6.2 billion, compared with $5.5 billion at the end of 2017.
During the quarter, we amended and extended our committed credit facility for a new five-year period. As part of the renewal, the facility was increased by $300 million to a total of $1.8 billion. Subsequent to the end of the quarter, we also repaid $250 million of senior notes that were due in October. Our next scheduled debt maturity is $300 million of senior notes due in September 2019. In the third quarter, we repurchased 2.1 million shares of stock for $175 million. Through nine months, we have repurchased 8.2 million shares for $675 million. As part of our capital planning related to the JLT acquisition, it is unlikely we will repurchase any stock for the remainder of 2018 and into the early part of 2019. In 2019, however, we do anticipate repurchasing enough stock to meet our commitment to reduce our share count each year.
Our cash position at the end of the third quarter was $1 billion. Uses of cash in the third quarter totaled $820 million and included $175 million for share repurchases, $211 million for dividends, and $434 million for acquisitions. For the first nine months, uses of cash totaled $2 billion and included $675 million for share repurchases, $594 million for dividends, and $691 million for acquisitions. As you heard in Dan's remarks, 2018 has been another active year for acquisitions. As a result, we expect to deploy $2.6 billion of capital in 2018 across dividends, acquisitions, and share repurchases. With that, I'm happy to turn it back to Dan.
Thanks, Mark. Operator, we're ready to begin the Q&A.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press the star or asterisk key, followed by the digit 1 on your keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, please press star 1 to ask a question. In the interest of addressing questions from as many participants as possible, we would ask that all participants limit themselves to one question and one follow-up question. We will pause for just a moment to allow everyone an opportunity to signal for questions. We will take our first question today from Morgan Stanley, Kai Pan. Please go ahead. Your line is open.
Thank you, and good morning. My first question on JLT. Dan, I just follow up on your comments. You have spoken with the clients and employees over the last months, and I just wondered, can you give some example to see your comfort levels about potential revenue opportunity or decent synergy, if there's any risk, as well as the $250 million cost-saving target? Also, if you can discuss if you're going to report cash EPS going forward after the deal close?
Okay. Let me take the first part of that question, and then I'll take the second part and hand it over to Mark. Our entire MMC executive team, leadership team, spent last week in London, and we met with many people at JLT, and then we had a town hall which had around 1,500 people. It was a great display on both sides of talking about the industry and the business. We didn't get into a lot of specifics in anything. We're still in a period where there's a shareholder vote November 7th. We're still working through regulatory approval, so it's fairly high level. Of course, we're not reaching out, as Marsh & McLennan, to any JLT clients.
We've obviously been contacted by some of our clients. We view on an overall basis, clients make decisions based upon capabilities, not based upon individuals, not based upon what badge the company is carrying. It is the capabilities of the firm. That gives me a lot of comfort in thinking that the capabilities of the combined firm will be stronger than how we operate as individual companies. I did get a real sense from the JLT leadership team and the extended leadership team as to what kind of esprit de corps they have and the camaraderie and the chemistry. I'm really looking for JLT to be a jolt of energy within Marsh & McLennan. As I said on the initial call last month, both organizations are operating in a position of strength right now.
We are both stronger than we were three years ago. Bringing us together at this moment in time is really powerful, and I think, more than anything else, will deliver increased value to clients. Obviously, we're not going to know until things go on for many more months and even years about the puts and takes of any large acquisition. We're confident that this will work out for both firms and certainly for our clients, our colleagues, and our shareholders. As I said in the first call, Kai, we're a conservative company, so we didn't model this thing in a way that creates a lot of strain in terms of will we get this kind of expense synergy, will we get this kind of revenue dissynergy, what will happen over a longer stretch in time on the revenue side?
Time and time again, we went the conservative route. The math still worked. From that standpoint, I'm quite comfortable that this will turn out to be somewhere between a very good and a spectacular acquisition for Marsh & McLennan.
Dan, do you want me to take the cash EPS question?
Yeah, sure. Why don't you take the cash EPS question?
Hi, Kai. How you doing?
Good.
JLT's obviously a large transaction, and it's going to have a lot of financial reporting implications, not the least of which, as you intimate, there's going to be a lot of non-cash intangible amortization coming through our P&L. It's actually common in a lot of large transactions where companies will make a switch to exclude that from their adjusted results. All of that said, this is a large transaction. We're still working through all of the reporting implications. We haven't reached any conclusions on that or other implications for how we report. I would expect on our fourth quarter call, we'll have a lot more perspective.
That's very good.
Anything else, Kai?
Yes. My follow-up is on the margin side. You have a full year guidance on the full year margin expansion. If you look at first nine months, you're probably 30 basis points below last year on old accounting basis, which imply you might have to improve margin by about 100 basis points in the fourth quarter to make it up. I just wonder what give you comfort that you can see a big margin expansion in the fourth quarter, as well as can you confirm that margin expansion year-over-year is on old accounting basis? What about on new accounting basis compared with a year ago?
Yeah. Certainly the margin expansion that we're talking about is on the old accounting basis and is comparable to the way that we've always reported to you in the past. I would like to say, yeah, we're anticipating a pretty good fourth quarter, at least on the bottom line side of things. I'm comfortable saying that we believe 2018 will be our 11th consecutive year of margin expansion for the overall company, notwithstanding the fact that through nine months, we're at 30 basis points of contraction. I would just say on a broader basis, and I've said this many times before, while we do see continued opportunity for operating leverage in both segments, you have to understand that our focus as a leadership team is more on earnings growth than on margin expansion.
We believe that margin expansion is an outcome of running a business properly where revenue growth exceeds expense growth. It's very infrequently that we get upside down. We recognize that the consulting division has been upside down. We don't expect it to stay upside down. Yes, it's been upside down thus far this year. When we look at this year in general, it's a bit of an odd year. If another question from somebody else wants us to get back into the details of the things that we talked about last quarter that we would, we'll do that. I answered your question on the old accounting basis. Mark, do you have any comments?
Yeah. Kai, when we make the statement about margin expansion for the year, it is on the old basis of accounting. Remember, we didn't restate last year, we're not really projecting externally that way. Although you'd expect, given that there shouldn't be much year-over-year difference, you'd expect margin lift in either case.
Great. Well, thank you so much for all the answers.
Sure. Next question, please.
Thank you. We'll now take our next question from Elyse Greenspan of Wells Fargo. Please go ahead.
Hi, thanks. Good morning. My first question is on Guy Carpenter. Pretty strong organic growth, 11% in the quarter. In your opening comments, you guys pointed to kind of broad-based growth throughout. If we can just get some more details there. Reinsurance is typically a very high margin business. Was that the driver of the margin improvement within RIS in the quarter? Or was there some margin improvement also coming from Marsh which did see 3% growth? If we can also just get a little bit of an initial view for January 1 renewals next year. I know you're a little tempered for fourth quarter given reinstatements last year, but how's the reinsurance business looking in your minds as we think about 2019?
Okay. Before I hand off to Peter, I would just say that we report margins on a segment basis. We don't want to fall into the trap of talking about individual operating businesses and what their margins are. You know a lot about our business, more than most. I'll just leave it at that. The overall margin on the segment has been pretty good this year. We expect that to continue into the fourth quarter. Peter, you want to talk about Guy Carpenter and the growth and how you see things going into January 1st?
Sure. Thank you, Dan. Elyse, the growth in Q3 was well-balanced across all three of our treaty businesses and our facultative business as well. We saw particularly strong results from the U.S. and our specialty businesses driven by growth on our held book and good new business growth as well. As I've stated before, and I'll state again, we don't make pronouncements on where the market is headed because it will find its own equilibrium. We believe capital is still abundant, and demand, while not fundamentally increasing, has increased 2018 over 2017.
Okay, thanks. Elyse, do you have another question?
Yeah. My second question, in terms of margins, just to follow up to Kai's question. You said consulting should get better over time. Would you expect to see some margin improvement there in the fourth quarter? My second question, since we're modeling on revenue recognition adjusted, it does seem that the impact to EPS on a year-to-date basis was more positive than you would have laid out in your 8-K earlier this year. Is there going to be a give back of about that $0.10 in the fourth quarter? Or should we think about there being maybe a positive impact on full-year numbers just because we're modeling off of that adjusted last year? I just want to make sure we're all setting our expectations correctly.
Okay. Let me take the margin question, and then I'll hand off to Mark to talk about the accounting nature. Your comment about margins, do we expect margins in the consulting segment to go up in the fourth quarter? Yes, that is our expectation. Do we expect margins in the consulting segment to be able to go up in the future or will they remain upside down? Looking at Scott and Julio and knowing them and their leadership teams, it's not an expectation. It's knowledge. We will not stay upside down in consulting. We will improve the business, and we will grow revenues at a faster pace than we grow expenses. Mark, do you want to take the accounting question?
Sure. Elyse, on rev rec, I'll say a few things because it's a dense topic. The first thing I'd say is this is a major implementation of the standard across the firm, and all the assumptions in that implementation and the approaches we had are all performing as designed. Any variances you're seeing from the pro formas to actual this year, it's a reflection of underlying business performance. If you think about the impact the standard had, the part of our business that was most significantly impacted was Guy Carpenter, and they're up significantly year-over-year. We're happy with the way our implementation has gone. Just remember the directional guidance that those pro formas represent, it's really the standard applied at a high level to our 2017 results, and obviously 2018 is turning out a little bit better.
To your direct point, if you had just used that pattern of EPS adjustments across the quarters, we are seeing year-to-date more lift than those pro formas would have suggested. Again, it's primarily as a result of the outperformance in Guy Carpenter. It's real performance. I would expect to give back a little bit more. I think the pro formas in Q4 called for $0.05 of give back in Q4. That's likely to be a penny or two higher. At this point, there's probably a modest amount of year-over-year lift, but we will give back more in the fourth quarter than we had anticipated. That full-year-to-date benefit you're seeing, we don't expect that'll be the year-to-date benefit for the full-year.
Elyse, I'd like to just take a moment because I made a clear statement that we expect over time our consulting business not to be upside down, and considering I have the two leaders right in front of me, why don't I hand off to Julio to see whether he agrees with that, and then we'll go to Scott. Julio.
Thanks, Dan. I appreciate the handoff on this. We have certainly continued to manage our businesses with a high degree of discipline, looking for opportunities with disinvestment so that we can invest in other things with higher growth. Some of that is certainly on display when you think about the inorganic and organic investments that we've made over the last quarters. To remind you of a few, of course, our Mercer Marketplace 365 organic investment management business. We've built a terrific investment management business, delegated solutions over many years, investing organically, absorbing it into the P&L, and continuing to see great results. Our colleagues have done a terrific job there. Our Mercer Pension Risk Exchange is really taking off.
Of course, on the inorganic side, some of the more notable investments have been around Thomsons Online and continued investments in Workday and CPSG in the digital front, PayScale partnership, and of course, Pavilion, Summit, and most recently, our alliance with Morningstar. All of those things, of course, are things that we are investing for short, medium, and long-term benefit to continue to be able to drive top-line profitable growth over a long period of time.
Thank you. Scott?
All I'd add, Elyse, is that like the rest of the MMC businesses, we also have a strong discipline around growing revenues greater than costs over time. We will continue to do that. We continue to see really strong growth prospects ahead, and that should be possible.
Thanks, Scott. Elyse, anything else?
No, I'm all set. Thank you very much. I appreciate the color.
Perfect. Next question, please.
Thank you. We now take our next question from Mike Zaremski of Credit Suisse. Please go ahead.
Hey, thanks. Within Mercer, between the recent acquisitions you mentioned in the prepared remarks and organic growth trends, it looks like investment management will eventually be a larger revenue contributor than defined benefit consulting. I'd love to know if those businesses have similar margins, I doubt you want to go down that path. Maybe you can help us size up how you would view the long-term growth rate for investment management. Maybe how we can better size up the growth, which has been phenomenal there.
Julio?
Yeah. Thanks. Thank you for that. First, I want to take my hats off to our colleagues in the investment and our wealth business who have built a terrific business, quite frankly, quarter after quarter, continuing to outperform and be industry leading and the value proposition really resonating with clients. I certainly want to start off there. It's a business where we have been able to build a great brand in this space, where we continue to invest organically and continue to invest inorganically, as mentioned earlier, with Pavilion and Summit and Morningstar. We'll continue to see great strength there. From time to time, just like anything else, you have a quarter that does one thing or the other.
Over the long term, this is a business that we're pretty bullish on, and we're going to continue to invest in and see great prospects for the future.
One of the things, just we won't go down the path, Mike, of your margin question, broadly speaking, I mentioned it on last quarter's call, the DB business, the defined benefit business, is a very high margin business, which as we have said before, is in a structural long-term decline based upon no new DB formations. Mercer has done a really wonderful job building other businesses which will ultimately replace that revenue. At this moment in time, as I said last quarter, those businesses don't aggregate to the same level of margin. You do have this headwind against you as DB is declining and the other businesses are growing. Some of those businesses we expect to have similar margins in the future. Not all of those businesses, but some of them. Next question.
Okay.
Mike, do you have a follow-up?
Yeah, one quick follow-up. Maybe you can quickly just touch directionally on the P&C pricing environment, property and casualty pricing environment. Also, some insurance carriers have been talking about a pickup in claims inflation being a trend. Just curious if any of your data can see that as well. Thanks.
Okay. Well, I'll have both John and Peter comment. John first. John, the P&C environment.
Sure. Price changes in the quarter were pretty consistent with what we observed in the second quarter. Prices were up a little bit more than 1%, about 1.4% overall. Casualty pricing was down almost 2%, largely driven by work comp pricing pressure here in the U.S. Property was up about 3%, a little bit more than what we observed in the second quarter. Financial lines pricing, primarily D&O driven up over 3% in the quarter, roughly the same as what we observed in the second quarter. Not a lot changed really in the second quarter. On a regional basis, Asia and Continental Europe rates overall were down slightly. Other regions were flat to up slightly. Australia is the one outlier where price increases are north of 10% on average, and we've seen that over the course of 2018.
Insurers are talking about loss cost inflation, particularly on longer tail lines. It's early to say whether we see that from our data across the board, but we are seeing some evidence of that for sure. I would add the industry remains very well capitalized, and with interest rates rising as well, I expect the market to continue to be stable.
Thanks. Peter, you want to comment on the market from a reinsurance perspective?
Sure, Dan, thank you. Mike, if I look at it and I bifurcate the rates between loss-impacted and non-loss impacted business. On loss impacted business, on the property side, rates are anywhere between flat and up double digits. On non-loss impacted property business, they're negative 5 to +5. On casualty business, same thing. Loss impacted is anywhere between 2.5 and 5, and non-loss impacted is anywhere from negative 3 to +5. I think it's fair to say that even with $100 billion of loss last year, reinsurance rates have not moved appreciably in 2018.
Thank you.
Thanks. All right, next question please, operator.
Thank you. We'd now like to move to Ryan Tunis of Autonomous Research. Please go ahead.
Hey, thanks. I guess my first question, just trying to put 2018 in context as a margin year. 2016 and 2017, it looks like we had less organic revenue growth. In 2016, there was 140 basis points of margin expansion. Last year, there was 70 basis points. This year it looks like we're running around 4%, and we're just trying to get to some margin expansion, and there's a restructuring going on. I'm just trying to understand, is 4% kind of the new bogey, in terms of being able to expand margins going forward? Or is there something special from an investment standpoint that's just made it more challenging this year?
Yeah. I would start by saying that we're focused more on earnings growth than anything else. If I look at earnings growth for the year, NOI year to date within RIS is up about 10%. Consulting's having an off year for reasons that we had talked about before. I don't believe 4% is a new bogey and is replacing 3%, because our expenses on a continuum are not growing at any faster pace than they were growing over the last couple of years. We still believe that fundamentally around 3%, we should be able to expand margins when we're at that level. This is a bit of an odd year, and we signaled it not just last quarter, but even the quarter before that.
If you look at the second quarter of this year, RIS had a really tough comp since the expense growth was zero in the second quarter of 2017. We always knew that the third quarter was going to be an issue for consulting, since Mercer made an adjustment to its variable comp pool in the third quarter of last year, which resulted in them being down -2% in expense growth. Obviously, that was a really tough expense comparison, and that explains virtually all of the drops in the third quarter of 2018 as it relates to the consulting division. In this room, we're all looking forward to the fourth quarter, and we're all looking forward to 2019.
Got it. Understood.
Yeah.
Just a quick follow-up from Mark. The pension credit year to date, I think that was flat with last year. Any indication of what that's going to be in 2019 relative to this year?
Mark, you want to take that?
Ryan, it's too early to tell. I mean, really whether it comes to cash funding or the expense or credit looking forward, those things really depend on our year-end valuation, and that's part of what we're doing now. We would typically comment on that in our fourth quarter call early next year.
All right. I'll wait.
It's fair to say that over the last several years, we have materially de-risked pension as a P&L type of issue for the company. The next question, please.
Thank you. We take our next question from Meyer Shields of KBW. Please go ahead.
Great. Thanks. I think you've touched on this, but I want to dig in a little bit more. Given the overall, I guess, U.S. employment situation, should we expect a higher drift upward in salary and benefits expense, excluding major acquisitions in 2019?
Obviously in a consulting brokerage firm, compensation and benefits is the largest cost of operating the business. We watch it. We're a good payer, and we believe that we attract and retain very high-quality colleagues. We look at across not only our industry but other industries in terms of attracting people in. Our goal is not necessarily to drive our comp and ben as a % of revenue ratios lower. Having said that, we watch them very carefully, and when we look at a rolling 12-month basis over the last couple of years, it's relatively consistent. If anything, it's slightly lower than higher. We don't feel any inflation pressure with regard to higher levels of employment in the U.S. driving higher costs for us. I think the reality is, Meyer, for the last several years, the unemployment rate in the U.S.
for skilled positions in the areas in which we operate was zero. From that standpoint, this situation has existed for a long period of time. On the positive front, higher levels of employment should create higher levels of business confidence, higher levels of payroll, higher levels of exposure units on things like workers' comp and casualty. Time will tell on that as we move forward.
Okay. No, that's helpful. Yeah, hard to get a worse impact than zero. Mark, you touched on the FX impact overall in the quarter. Was there any observable impact on the individual segment margins from foreign currency?
No, the impact on margins wasn't terribly significant.
Okay, great. Thanks a lot.
Thanks. Sure. Next question, please.
Thank you. Our next question is from Brian Meredith of UBS. Please go ahead.
Yeah, thank you. A couple quick questions here for you. First one, is there any way you can quantify what the benefits to kind of the expenses are in the RIS from the restructuring program that's going on, or margins? What kind of benefits are you seeing?
Yeah, at the end, it's mild. As we said on the call when we talked about the restructuring the first time, we weren't going to quantify the number of bottom-line savings. We believe some of the restructuring will drop to the bottom line. That would probably be more impactful next year than this year. The other thing would be, we are going to be reinvesting some of the savings in areas that we believe we can accelerate in digitization, data, and analytics, where we've been investing as we go. In fact, obviously, it's a margin headwind as we build capabilities in those areas. We're not really getting much revenue in those areas now, but we are certainly picking up the expense. Ultimately, we believe revenue will come from that. As we've done in the past, we've said in the past, we're sort of a pay-as-you-go investment company.
We've had pretty consistent CapEx over a number of years. We don't build up levels of investment, but where we see an opportunity, between digital analytics, AI, ML, RPA, there's a lot going on in the world, and we've got to participate. We've got to take some risks. We've got to innovate. Some of that costs money. We want to free up some money to do that without overly impacting our expense rates. That's one of the reasons why we're dropping some of the restructuring into reinvestment as opposed to all to the bottom line.
Makes sense. Makes sense. Just quickly, a question on JLT. Of the cost saves you guys anticipated, $250, does that include or anticipate any type of retention packages you're going to have to have for kind of key producers and executives?
Yeah, there's a couple of things. One, I never believe you can buy people's loyalty. People work for a company. When they're highly skilled, they have choices. They can work at a lot of different firms. We want them to choose the combined company. We want on both sides, Marsh & McLennan people and JLT people. So we have to create the environment as a combined leadership team that essentially fuses the culture and preserves and celebrates those parts of JLT's culture which are different from Marsh & McLennan and makes them so unique and special. I think that's the single most important factor. Now, having said that, within our deal model, on a go-forward basis, we're certainly going to develop some level of appropriate retention mechanism for a select group of very key individuals, but it would not be widely applied.
Great. Thank you.
Sure.
Thank you.
Next question.
I will now turn back to Mr. Dan Glaser, President and CEO of Marsh & McLennan Companies.
Thank you, operator. I'd like to thank everybody for joining us on the call this morning. Thank our clients for their support and our colleagues for their hard work and dedication in serving them. Hope everybody has a good day. Thank you very much.
Thank you. Ladies and gentlemen, that will conclude today's conference call. Thank you for your participation. You may now disconnect.