Good day everyone, 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, 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, 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. I'd like to welcome our Operating Company CEOs, Peter Zaffino of Marsh, Alex Moczarski of Guy Carpenter, Julio of Mercer, and John Drzik of Oliver Wyman. With us is Keith Walsh, Head of Investor Relations. Following my comments, Mike will discuss our financial results in more detail, 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 four 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 & Insurance Services, variable compensation has almost doubled in the last five 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 five years. In addition to the consistency and strength of our earnings, we expect to see continued growth in cash flows. An increasing portion of our cash flow will be available for dividends, acquisitions, and share repurchase. We believe a balanced approach to deployment of capital will contribute to long-term earnings growth and maximize total return to shareholders. Looking at our second quarter results in more detail, underlying revenue growth again exceeded growth in underlying operating expenses as it has for 20 of the past 21 quarters. In the second quarter, this revenue growth, combined with operating leverage, produced 13% growth in adjusted operating income. Our consolidated margin increased 190 basis points, 19.2%, the highest second quarter margin in nine years.
Importantly, both Risk and Insurance Services and Consulting delivered double-digit growth in adjusted operating income, as well as excellent margin improvement. Risk and Insurance Services produced another excellent quarter. Underlying revenue increased 3% at Marsh and 5% at Guy Carpenter. Adjusted operating income for the segment rose 10%, with the margin expanding to 25.6%, an increase of 170 basis points. This is the segment's highest second quarter margin since 2004. At Marsh, revenue was $1.4 billion, with all major geographic regions contributing to 3% underlying revenue growth. A solid performance considering it follows a 6% increase in last year's second quarter. New business was $273 million in the quarter. The international division expanded 3%, led by 10% growth in Latin America. This is the fourth consecutive year of double-digit underlying revenue growth in Latin America in the second quarter. We continue to expand our international operations.
In the second quarter, Marsh acquired the leading insurance brokers in Peru and the Dominican Republic. Asia Pacific and EMEA also contributed to Marsh's underlying revenue growth in the quarter. In the U.S. and Canada Division, 2% underlying growth was the same as the first quarter. This is on top of 5% growth in the first half of last year. Guy Carpenter also had strong performance led by its U.S. and international operations. This continues the long-term trend of underlying revenue growth, now at 18 consecutive quarters. Revenue was $285 million in the second quarter, up 5% on an underlying basis. This is even more impressive considering the 10% growth in last year's second quarter, higher risk retentions by clients, and softening pricing conditions. Guy Carpenter's revenue growth reflects both high revenue retention rates as well as new business development.
Double-digit revenue gains were achieved in continental Europe and the U.K., consistent with Carpenter's goal of increasing its share outside the U.S. Double-digit increases were also achieved at Carpenter's U.S. and U.K. facultative practices and its Marine global specialty practice. The consulting segment also produced strong results. In the second quarter, revenue was $1.4 billion, reflecting a rise of 2% on an underlying basis, including growth of 4% at Mercer and a revenue decline at Oliver Wyman. Adjusted underlying expenses were flat, which produced adjusted operating income of $205 million, an increase of 10%. As a result, the segment's margin expanded 120 basis points to 14.6%, which is consulting's highest second quarter margin since 2004. At Oliver Wyman, underlying revenue in the second quarter decreased 4% to $366 million, an improvement from the first quarter. Oliver Wyman continued to protect its profitability despite the revenue decline.
For the balance of the year, we expect to see continued sequential revenue improvement. Mercer posted strong revenue of $1 billion, an increase of 4% on an underlying basis. Growth was achieved across all geographic regions. Health and investments continued to lead the way with growth of 6% and 9% respectively. Retirement saw an increase in project work, resulting in 2% growth. The development of Mercer Marketplace, the private U.S. health insurance exchange launched in January, continues. In July, Mercer announced an initial group of five employers that will offer 2014 benefits through Mercer Marketplace. Since making this announcement three weeks ago, Mercer has added additional clients to the platform. Whether looking at revenue, margin, or earnings, Mercer had an excellent quarter and first six months of the year. In summary, MMC's overall performance in the second quarter and first half of the year was exceptional.
These results show that our company's strong earnings growth continues. With that, let me turn it over to Mike.
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. This is on top of a strong second quarter last year when adjusted EPS rose 22%. For the first six 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 of $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 billion-dollar 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. Operator, we're ready to turn to the Q&A.
Thank you, sir. If you would like to ask a question at this time, please signal by pressing star one on your telephone keypad. If you are using a speakerphone today, please make sure your mute function has been turned off or pick up your handset to ensure that our equipment can hear your signal.
If you do find that your question has already been asked and answered, you may remove yourself from queue by pressing star two. Again, that is star one at this time for any questions. We'll take our first question from Greg Locraft with Morgan Stanley.
Hi, good morning. Another good quarter. Congrats.
Good morning. Thank you.
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. 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%-5% growth organic. 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. Peter?
Thanks, Dan. Mentioning pricing, let me talk about overall Marsh and then specifically highlight the U.S. Overall, we saw a bit of slowdown when we compare the prior quarter in 2012, about 40 basis points. The U.S. was the only major region that we saw increases in pricing, albeit modest. 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. 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. Generally speaking, it's modest increases for us in terms of pricing.
Thanks, Peter. Alex?
Yeah. 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 news, solid new business. Our blend of broking analytics and strategic advisory is working well. 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.
Yeah. 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. Thanks. 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 of that that I think is behind is maybe I feel like back then you mentioned that capital deployment will be contributing 300 basis points to the plan. I'm sort of wondering, where do you think capital deployment will be from here? It seems like it's picking up. 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. I would say when you look at capital deployment, to begin with, our feeling is that we have rising free cash flow. Number one, that's a good news story. 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. You'd likely see us improving our dividend as we improve our earnings. We look at acquisitions, and we don't budget for acquisitions. We look at a lot of things, and ultimately, that's a variable. Share repurchase, we're committed to share repurchase, and if you look at the last five quarters, we've had five quarters in a row of share repurchase.
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. Mike, you want to add some color to that?
Yeah. Thank you, Dan. 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. 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.
As Dan said, we look at the deployment of our capital in a balanced fashion going forward, and we feel very good about it.
Okay, great. Thanks. Again, congrats on another good quarter.
Thank you.
We'll take our next question from Dan Farrell with Sterne Agee.
Thank you and good morning.
Morning.
I was wondering if you could update us on your efforts in the health exchange. I know you had some announcements on that, maybe talk a little bit more detail about what's going on there, then also how we should think about maybe revenue and earnings impact as we head through the rest of the year.
Sure. Your question, Dan, on revenue and earnings impact, is that specific to the health exchange or-?
Yeah. How to think about how that will play through the rest of the year.
Okay, terrific. Julio.
Thank you, Dan. Both Dans. Appreciate it. I wanted 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 have five companies, employers now already signed up to Mercer Marketplace. Since then, we've signed an additional nine employers, there are significant amount of potential opportunities for both 2014 and 2015 still pending. Those nine employers represent about 35,000 lives. 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.
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. 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 2014 and 2015. 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 first, 2014 and beyond. Then, of course, 2015, we'll see how that develops. Thus the earnings will be the same. There will be no significant impact on earnings in 2013.
Now, in the earlier years, as you can think about this, we of course will continue to invest, but we would 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. It'll be very consistent.
Julio, just to confirm, you've got nine companies signed up now?
Nine companies signed up for about 35,000 lives.
Okay. Thank you.
Just to follow up, there is some expense flowing through now that's already being absorbed within your margins, correct?
That is correct. We are taking all expense right to the operating results for the Mercer Marketplace.
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, just one thing.
Sorry.
Yeah. 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 specifically around the health exchange because of the investments. However, we're selling more product and typically companies are now buying up additional product, like voluntary products, through Mercer Marketplace. It looks pretty much the same to us from a margin perspective. Mike, you want to take the question on FX?
Yeah. Dan, you're absolutely right. Not only in this quarter, in almost every quarter over the last six 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. It's been something that we've been able to absorb in every quarter, including this one.
Okay. Thank you very much, guys.
Okay, next question, operator.
I'm going to go next to Meyer Shields with KBW.
Thanks. Good morning.
Morning.
I wanted to start with a question for Alex. As we start to see, or not start to see, because we see significant downward pressure on property cat reinsurance rates, does it move the needle at all in terms of clients no longer retaining more and maybe taking advantage of some reinsurance arbitrage opportunities?
Alex, you want to take that?
Actually, we have seen that if your cost of your own capital is more expensive than the contingent capital out there, companies are buying more reinsurance. 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 more sense to retain more, there are others that are taking advantage of the cheap capacity that's available.
Okay, in the aggregate, not a dramatic change.
To date, no. 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, we look at their programs in a holistic manner. Actually, we're quite excited by what's going on.
Okay, fantastic. For Mike, is there a good run rate for the number of shares that Marsh expects to issue this year for compensation and other purposes?
Mike?
Thank you. That's a very good question. As you know, for a number of years we've had essentially performance-based awards tied to the overall growth of the operating income. Meyer, we, every period, look and see whether there should be some additional accruals in that. 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 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. That's one of the reasons why we've been doing meaningful share repurchase. In fact, over the last five quarters, I think we did about $480 million, so approaching almost half a billion in share repurchase.
To your specific question, it's really hard to tell because it varies quarter to quarter.
Okay, understood. Thanks so much.
Thank you. Next question.
We'll go next to Brian Meredith with UBS.
Hey, good morning. A couple of questions here. First, I was hoping you could talk about what the pipeline looks like right now at Oliver Wyman, particularly with respect to continental Europe.
Okay.
Sure. Oliver Wyman's business, as you know, is affected by macroeconomic conditions, and conditions are still relatively weak in our major markets, including Europe. Looking ahead, though, our recent sales and current pipeline have been strengthening to some extent. As Dan said, based on what we're seeing, we expect sequential improvement in the revenue growth rate over the next couple of quarters, and that'll come more from North America than Europe, but I think we're seeing improvement in both.
Great.
Brian.
Yeah.
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. From that standpoint, it's not going to be a big provider of revenue growth for us. The direction of John and his team are to protect earnings. 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. 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 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?
Yeah. I'll take that and then hand over to the expert in Mike. Ultimately, the way I would first look at this is what we would call a high-class problem. From that standpoint, we're a conservative company, and we're looking to make sure 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. I do think with enough of our increasing cash flow, we will have meaningful share repurchase in future quarters and in future years. 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.
Mike, you want to add to that?
Yeah, I think it's well said, Dan. Starting from this premise that you look at your entire capital structure, Brian, you also look at your cash on hand, and you look at where it is and how you can deploy that. Before we're thinking of going to the capital markets, we want to make sure that we're effectively using our capital. 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. We could do, along the lines of what you're saying, repurchase our stock. We did $100 million in the first quarter this year, the first time in many, many years that we repurchased in the first quarter. That was really utilizing our own cash on a global basis.
The second thing then we look at, 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. Really reinvesting back into the business, either direct capital investments or acquisitions is a primary goal. Conversely, returning capital to shareholders in the form of dividends and share repurchase is very important. It's a blend. The last thing, as Dan said, we have a journey to elite. When we look at companies around the world that are generally viewed as elite companies, their credit metrics typically have an A in it. 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. We think that the balanced approach is really a good guideline for analysts and investors.
Great. Thank you.
Sure. Next question, please.
We'll take our next question from Michael Nannizzi with Goldman Sachs.
Thanks. Could 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?
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. Clearly, there was an effect on the Florida renewals. It's essentially, as you know, focused on cat. The question is, some of it is pension money, some of it's private equity money. The pension money tends to stay for a long time, we'll see what the effect will be on that. We've had good activity on the catastrophe 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. We're good for that activity as well.
If you look at it, Mike, we're an intermediary. 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 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. There could be opportunities between Guy Carpenter and Marsh on the retail side. Peter, you want to talk a little bit about the recent MTA transaction?
Sure. Thanks, Dan. We're very excited we did our first catastrophe bond for one of our clients, as Dan mentioned, the MTA. It's a $200 million catastrophe bond, and it's a real strong example of when we can bring the power of MMC together by using two operating companies to deliver a solution for our clients. We're actually starting to develop a pipeline that 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.
Next question.
Great. Thank you.
Sure.
Thank you very much.
Thank you.
I'll take our next question from Michael Zaremski with Credit Suisse.
Hi, thanks. Quick follow-up on free cash flow expectations in 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 that interest rates and equity markets have been moving north?
Sure. Mike, you want to take that?
Yeah. 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. 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 two 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. 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 pre-funding 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 the total funding for this year will be in the neighborhood of $650 million. Having said that the U.K. funding, that the $250 included pre-funding, it was pre-funding of some of our obligations in the U.K. that would affect 2014, 2015, and perhaps 2016. We think that based upon all of that, there will be a market decrease with regard to the levels of our pension obligations and the funding going forward in 2014, 2015, and most likely beyond.
Got it. That's great color. My last question is in regards to the business climate in Europe. Some economists are cautiously optimistic, saying GDP has troughed. What's Marsh seeing on that front? Thank you.
Okay. Why don't we do two things? Well, I'll address it overall, and then if we just 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 insurance specifically might be a lagging indicator and consulting may be a forward indicator in terms of activity. 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.
Why don't we go around the horn, starting with John Drzik of Oliver Wyman.
As I said earlier, I think European conditions for us are showing a slight uptick. We're seeing a little bit of improvement. I'd say on the whole, conditions are still relatively weak. Our clients are still relatively cautious in terms of their discretionary spending, and we're not seeing a major change. I would say the directional indicators we see in our pipeline and from our business leadership is that things are modestly improving in Europe.
Peter?
Yes. 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. Nothing that I would be concerned about trending forward. There's always timing in the quarter. Overall, we're cautiously optimistic and expect to see continued organic growth.
Alex?
Reinsurance is, we're not really sure if that's correlated with economic conditions. If you've seen over the last three years, we've grown at a nice lick there. It's more really about capacity and about losses. We continue to look for growth.
Julio, the view about Europe?
Yeah. Our year-to-date growth in Europe continues to be positive. We certainly can't control the external environment, but we try hard to make sure that pipeline and opportunities that present themselves, we're very prepared and very well-positioned to take advantage of it. We've had some situations, of course, of restructuring taking place there from some of our clients, and we certainly are well positioned for that. Our productized services and some of our survey business continue to be in high demand in that part of the world. We think that the top line, while a little bit softer than prior years, continues to be positive and is tracking pretty well.
Yeah. 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. 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. 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.
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. That's our view on that.
Very thorough. Thank you.
Next question, please.
We'll go next to Jay Gelb with Barclays.
Thank you. 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. Alex, how much is traditional growth and how much are you being supplemented by all this alternative capacity?
I think traditional growth will be about 98% of the reason. The fact is that Carpenter has been investing well. I think we're the employer of choice. Good people have been joining us. Our accounts are 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. 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, thank you. For Mike, on the Trident III, that benefit 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?
Mike?
Jay, that's a very good question. 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. We know it's very difficult, certainly when Trident II was liquidating over a three or four-year period. The question that you have specifically gets to Trident III. 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 started to liquidate its position. I think its portfolio, which I have not tracked as closely as Trident II, but I think the portfolio is well over a billion dollars.
As Trident III, L.P. gets liquidated, which could occur over three or four years, we do not control it, we do not manage it, we'll just have to see how it comes through. 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's no clawback capability, which means that if the rest of the portfolio went to zero, we would still be entitled to what we booked through our income. Sorry, I can't give you more specifics other than it could go a number of years as we work our way through it. It's a nice story, and it will be additional cash to us and additional earnings. Obviously, it's investment income, it's not operating, and that's why we try to isolate it.
That's helpful. Thank you. 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?
I would say, very strong. We've done a series of acquisitions. If you look in total over the last five and a half or six 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 of geography? What's the management team like? Are they committed to working, not only over the long term, but also working in a bigger organization like us?
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 and 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. We become a very good alternative. I can tell you around the world, we don't jump opportunistically at everything 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.
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.
Right. Okay. Yeah, we understand there's a big pipeline there. Excellent. Thank you.
Okay. Thanks, Jay. Next question, please.
We'll take our next question from Thomas Mitchell with Miller Tabak.
I'm sure that you've done a very good job on handling expenses overall 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?
Yeah, no, Tom, it's a great question. Let me just take it first by saying our goal is to achieve double-digit earnings growth in most years over the long term. 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, and our colleagues. 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. 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. The cover's not there.
We're still achieving additional efficiency gains. We definitely feel that we'll be able to manage expenses. While 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.
Okay. That's a good answer. 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 earn-outs on acquisitions. Many of the acquisitions that we do have an earn-out component. When a firm that we acquire underperforms our expectations of what we have within the earn-out, then you would see a negative on that line. When one of our acquired companies actually outperforms the earn-out calculation, then we'll put additional money against the contingent consideration. Mike, do you have anything?
Yeah, Tom, I would just say it's also a mechanism that we use to bridge perhaps the differences between the future outlooks of the sellers and ourselves. Whereas sellers may be absolutely more optimistic and rosy about the outlook, and we're more conservative. Instead of giving the consideration upfront, we basically have an agreement to say that if the optimism manifests itself, we'll all be happy. 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 five 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.
Going forward, though, I'm just assuming that if you continue to make acquisitions every year, 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. 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. 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.
Right. Okay, thanks very much.
Absolutely, Tom.
Next question, please.
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. 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. Thank you very much.
Again, that does conclude today's conference. We do thank you for your participation. Please have a great day.