Welcome to the Marsh & McLennan Companies conference call. Today's call is being recorded. Third quarter 2011 financial results and supplemental information were issued earlier this morning. They're available on Marsh & McLennan Companies' 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. In particular, references during this conference call to anticipated or expected results of operations for 2011 or subsequent periods are forward-looking statements, and Marsh & McLennan Companies' actual results may be affected by a variety of factors.
Please refer to Marsh & McLennan Companies' most recent SEC filings, as well as the company's earnings release, 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 call over to Brian Duperreault, President and CEO of Marsh & McLennan Companies. Please go ahead.
Good morning. Thank you for joining us to discuss our third quarter results, as reported earlier today. I'm Brian Duperreault, President and CEO of Marsh & McLennan Companies. Joining me on the call today is Dan Glaser, Group President and COO, and Vanessa Wittman, our CFO. I'd like to welcome our operating company CEOs, Peter Zaffino of Marsh, Alex Moczarski of Guy Carpenter, and John Drzik of Oliver Wyman. Also with us is Mike Bischoff. Following my comments, Dan will discuss our operating results in more detail. Vanessa will update you on our financial position. Before we begin our discussions of the third quarter, I'd like to take a moment to recognize and thank Michele Burns for her many contributions to our company over the last five years.
Michele became Mercer's CEO in 2006 and led Mercer through a period of growth despite severe turbulence in the global economy. Last month, we announced that Michele has accepted a new role to build and lead a retirement policy center. I believe this center has the potential of making a major contribution toward finding solutions that address the retirement issues facing the U.S. I'm excited that Michele has agreed to take on the challenge of leading this effort. We are now searching for a new CEO of Mercer, and until a successor is named, Dan will be overseeing Mercer's operations. Let's move to our third quarter results, which reflect our ongoing strong performance. We generated revenue growth of 11%. On an underlying basis, revenue growth was 5%. We continued to achieve this growth while maintaining effective control over our operating expenses.
This led to an increase in operating income of 30% and growth in adjusted operating income of 18%. Let's turn to our operating companies. The positive momentum at Marsh continued this quarter with underlying revenue growth across all geographies, driven by higher client revenue retention rates and new business development. Guy Carpenter also generated impressive results, continuing its trend of producing quarterly underlying revenue growth, which has extended over the past three years. Mercer produced underlying revenue growth of mid-single digits as it has over the past year. Oliver Wyman's strong revenue growth continued reflecting broad-based growth across its major industry sectors. Throughout Marsh & McLennan Companies, we've seen revenue increases and higher levels of profitability. This record of performance is very much in keeping with the goals we articulated at Investor Day in September of 2010.
It's now been more than a year since then, I think it's appropriate to step back and look at the progress the company has made. We are implementing our plan to establish Marsh & McLennan Companies as an elite global growth company, valued by clients, our colleagues, and shareholders. We articulated a strategy focusing on four pillars, growth in revenue and earnings per share, low capital requirements, high cash generation, and reducing the risk profile of the company. As you look at our performance since Investor Day, the achievements are evident. Over the last four quarters, the company has produced underlying revenue growth of 5%, and I'm pleased that each of the operating companies contributed to that achievement. Marsh grew by 5%, Carpenter 5%, Mercer 4%, and Oliver Wyman grew 9%.
Our goal is to produce underlying revenue growth while maintaining expense discipline, thereby generating at least 10% organic growth in adjusted operating income over the long term. I'm pleased to report that we are achieving our goals. We have produced revenue growth across the entire enterprise. We have continued to make investments for future growth, and we've done this while limiting our adjusted underlying expense growth to 4%. As a result, I am very pleased that over the last four quarters, Marsh & McLennan Companies generated organic growth in adjusted operating income of 13%, an outstanding performance. This earnings growth, combined with our dividend yield of 3%, is a very attractive result for our investors and in keeping with the goals we articulated at Investor Day more than a year ago. We've continued to maintain low capital requirements and generate high levels of cash.
Operational changes throughout the organization, we believe, have lowered the company's risk profile. Our financial position has strengthened during this period as well, which Vanessa will discuss in a few minutes. We move forward, we remain committed to focusing on profitable growth and prudent redeployment of our excess cash flow in order to produce outstanding long-term returns for our shareholders. With that, let me turn it over to Dan to review our third quarter results in more detail.
Thank you, Brian, and good morning, everyone. Marsh & McLennan Companies continued its strong performance in the third quarter. We generated underlying revenue growth at a pace consistent with prior periods, with impressive growth in both operating income and adjusted operating income. Let me go into a little more detail on our operating results. In the third quarter, we achieved revenue growth and increased adjusted operating income at each of our operating companies, as we have for each quarter over the past year. In the quarter, revenue rose 11% to $2.8 billion, while underlying revenue growth was 5%. Adjusted operating income increased 18%. Risk and insurance services revenue was up 11% to $1.5 billion, with underlying revenue growth of 5%. With ongoing effective expense management, adjusted operating income increased 13% to $186 million.
The adjusted operating margin increased 20 basis points, reflecting slightly higher margins at both Marsh and Guy Carpenter. This is also indicative of the segment's performance year-to-date, where the margin has increased to 19.5% despite the effects of higher pension expense. Marsh had another strong quarter. Revenue increased 12% to $1.2 billion. Underlying revenue rose 6%. Marsh's high client revenue retention rates and new business development produced underlying revenue growth across all geographies, led by strong growth in Asia-Pacific and Latin America of 13%. In the U.S.-Canada division, underlying revenue growth was 3% for the fifth consecutive quarter. Marsh has maintained its disciplined expense control while still being able to invest in the future, refine its operating model, and absorb higher severance and pension expense. As a result, Marsh produced double-digit growth in adjusted operating income, not just for the quarter, but the year-to-date as well.
In August, we announced a significant expansion of our South African operations with the signing of an agreement to acquire the insurance broking business of Alexander Forbes. The transaction is scheduled to close by year-end. Turning to reinsurance broking, Guy Carpenter continued to produce strong results. Revenue increased 8% to $251 million with underlying growth of 3%. This growth was led by its international operations, reflecting the successful execution of its long-term business strategy. Over the last three years, Carpenter has consistently produced quarterly underlying revenue growth. It has been able to accomplish this through strong new business development and high client retention. In summary, both Marsh & Guy Carpenter produced strong financial results, not only in the third quarter, but for the nine months as well. Turning to our consulting segment, our operations continued to generate strong revenue growth.
In the third quarter, revenue rose 11% to $1.3 billion, with underlying growth of 6%. Growth in adjusted underlying expenses was 5%, which resulted in a 50-basis-point increase in the adjusted operating margin for the quarter. Growth in adjusted operating income was 17%, not only for the third quarter, but for the year as well, with both Mercer and Oliver Wyman contributing to this strong growth. Mercer continued the solid performance we have seen over the past year. Revenue in the third quarter increased 11% to $975 million, and underlying revenue growth was 4%, with all geographic regions contributing to this growth. Consistent with the revenue trends we have seen in Mercer's lines of business over the past year, retirement saw underlying revenue decline modestly. Health and benefits had a fine performance with an underlying increase of 7%, driven by strong growth in the U.S. and Asia-Pacific.
Rewards, talent, and communications produced double-digit underlying revenue growth for the fifth consecutive quarter. Outsourcing generated underlying growth of 1%, reflecting growth in Asia-Pacific, partially offset by a decline in the United States. Investment consulting and management produced underlying growth of 10%, with strong growth in the U.S. and EMEA. Oliver Wyman also had a good quarter, with an increase in revenue of 13%. Underlying revenue growth was 9%. This growth was diversified, with the strongest growth coming from the healthcare and consumer industry sectors. Oliver Wyman's expense management also contributed to a solid increase in adjusted operating income. In summary, we are very pleased with the excellent performance of each of our operating companies, not only this quarter, but throughout the entire year, both from a revenue and earnings growth standpoint.
Now, let me make several comments regarding how the increased economic uncertainty that developed in mid-summer, particularly in Europe, may impact our near-term results. Oliver Wyman is our most economically sensitive operating company. We have seen some clients in the financial services sector defer decisions on new engagements, thus making it difficult for Oliver Wyman to generate growth in the fourth quarter, resulting in a modest impact on the segment's profitability. Currently, overall client interest remains high and the pipeline going into 2012 looks encouraging. However, there is a higher degree of uncertainty. That's OW. At Mercer, all signs indicate that the positive trends experienced in the first nine months of the year are continuing, and we feel that any near-term economic uncertainty is not impacting our risk and insurance services segment.
Notwithstanding near-term economic issues, we believe we are on target to have a very successful year and remain optimistic as we develop our strategy and business plans for 2012. With that, let me turn it over to Vanessa.
Thank you, Dan, good morning, everyone. As you have heard, the strong financial performance of Marsh & McLennan Companies continued in the third quarter. On a GAAP basis, net income was $130 million, or $0.24 per share. Adjusted earnings per share was also $0.24. Costs of $72 million related to the early extinguishment of debt from the tender offer are highlighted on a separate line in this quarter's income statement. This expense is reflected in both our GAAP EPS and our adjusted EPS. I should also note that our GAAP and adjusted earnings are almost identical for the nine-month period as well. Operating income totaled $1.247 billion, and adjusted operating income was $1.252 billion. As a result, GAAP earnings per share from continuing operations year to date was $1.30, and adjusted earnings per share also totaled $1.30.
Let me add some color regarding other items, including our recent financing activities. In the third quarter, interest expense decreased to $49 million from $60 million a year ago. This level of quarterly interest expense is a reasonable indicator of the run rate we expect going forward. Several actions taken over the past 12 months substantially reduced our interest expense. First was the payment of a $550 million debt obligation in September 2010. In July of this year, we took advantage of the interest rate environment through a tender refinancing effort to extend our maturity ladder and reduce our aggregate interest expense. We had $1.4 billion of debt coming due in 2014 and 2015, and we successfully tendered for $600 million of these bonds. We funded the tender with $100 million of cash and a new 10-year note for $500 million with a coupon of 4.8%.
We are very pleased with these transactions, which allowed us to opportunistically refine our capital structure, lower our refinancing risk in the intermediate term, extend maturities of our debt portfolio at a very attractive interest rate, and de-lever our balance sheet. In total, the actions taken over the past year reduce our annual interest expense by $45 million. Turning to investment income. In the third quarter, investment income was essentially zero, compared with a $2 million loss in last year's third quarter. Due to a decline in the equity markets in the third quarter, we anticipate reporting an investment loss of approximately $10 million in the fourth quarter. Moving on to share repurchase.
Since beginning our share repurchase program in last year's fourth quarter, the company has repurchased a total of 15.6 million shares at a cost of $447 million, including 4.4 million shares that were purchased in the third quarter. In August, our board of directors authorized an increase in the share repurchase program to $1 billion from $500 million. Looking at taxes, our adjusted tax rate this quarter increased to 32.7%. This compares with 30.4% in last year's third quarter. A drop in the U.K. statutory tax rate reduced the value of our U.K. net deferred tax assets, which was fully reflected this quarter. This change in the U.K. tax law put upward pressure on our adjusted tax rate in the third quarter, but will slightly benefit our overall tax position going forward.
The higher tax rate in the current quarter also reflects a slight shift in the geographic mix of earnings. While there may be volatility in our tax rate from quarter to quarter, we still feel that for modeling purposes, it is reasonable to assume a tax rate of approximately 31% over the next year. Due to our high cash generation, we were able to redeploy our cash in the third quarter in a number of ways, including $126 million for share repurchase, $123 million for dividends, $100 million to reduce long-term debt, $72 million for the early debt repayment, and $21 million for acquisitions. This effective redeployment of capital will also contribute to our future growth in earnings per share. Despite all of these actions, our cash position increased $55 million during the third quarter. Debt at the end of the third quarter was $2.9 billion.
We have a $250 million note due March 15, 2012, which is our only debt coming due in 2012. Last month, we took advantage of favorable conditions in the credit market and were able to close a new $1 billion, five-year revolving credit facility to replace our existing $1 billion, three-year credit facility that was due to expire next year. We are very pleased with the increased financial flexibility and reduced uncertainty resulting from the new facility's extended duration. With that, I'll turn the call back to Brian.
Thank you. We're ready for your questions.
Ladies and gentlemen, if you'd like to ask a question today, please press star followed by the digit one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that is star and then one to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal. We'll take our first question from Keith Walsh from Citi.
Hey, good morning, everybody. I guess first question for Dan, just around consulting. When I think about your comments about Oliver Wyman, going into the fourth quarter may be a little bit tougher it seems. Maybe if you could talk about that in the context of the margin, it seems Oliver Wyman probably has a lot higher margin with the revenue per head being, I think, double what Mercer is. If you can also talk in the broader context of just Mercer margins in general, what do you think you can take that to, over the next couple of years? It seems your competitors have some much higher targets out there, although they seem to be going backwards at this point. If you could talk to that. Thanks.
Thanks, Keith. I'll talk for a while, and then John will probably have some comments specific to Oliver Wyman. In general, we don't disclose margins for individual operating companies. We talk about the segment overall, and let me just start there. For both Oliver Wyman and Mercer, we believe that over time, we will be able to expand margins. We're very much focused on creating the business disciplines that are necessary in order to be able to commit to that. That's number one. I'll leave it to John, in a second to talk about Oliver Wyman specifically and what he's seeing in the market. In terms of Mercer, I'd start by saying Mercer is a really strong company. It's large, it's growing, it's globally coordinated, it's profitable, it's got some great people, it's got a great client list.
I've spent a good part of my time in the last five months really digging into Mercer, and a lot of what I see I'm pleased with. My goal is to work with the Mercer leadership team to take all of this and make it better. We can be more global, we can be more profitable with better margins, and we can be more innovative. That will be the focus of the leadership team and I over the coming months and years.
Keith, just to expand a bit on what Dan said in his comments about Oliver Wyman. In August and September, when we were in a period there of heightened economic uncertainty and more market volatility, it resulted in a slowdown in new sales for Oliver Wyman. While our third quarter results were strong with 9% growth, that will impact our fourth quarter, and fourth quarter will be weaker. In particular, the financial services sector, especially the banking sector, was where we were experiencing the weakness. As Dan said, it'll make Q4 a challenging one for us. It'll be challenging for us to grow in Q4. Looking at what recent events mean, in October, our sales picked up back to a normal pace as the market seemed to stabilize. Our client pipeline is encouraging at this point.
Obviously, events of this week suggest there could be an extended period of uncertainty, and we could see that coming back in. I think, looking at the medium term, I'd say we're very confident that Oliver Wyman is an attractive growth business and will generate margin growth, as Dan said, over that period. But quarter to quarter, we could fluctuate somewhat based on the economic outlook and uncertainty, and obviously, that's, I think, what we'll experience in the fourth quarter this year.
Okay. For my second question for Vanessa. Maybe if you could just remind us, regarding pension expense, what was the change in the discount rate last year that led to the $12 million quarterly headwind we're seeing now?
Keith, I believe last year the aggregate because remember, you've got to look across both the U.S. and the U.K., and on a blended basis, it was about a 40 basis point change, but that's blended and you've got plans in the U.S., the U.K., and the rest of the world, where those are individual calcs. That would have led to our change, which has been about a $12 million per quarter impact over the course of the year.
Just taking that, you've got about a 50 basis point discount rate reduction year to date we're looking at in both the U.S. and the U.K., I would assume the impact in 2012 potentially would be of a similar magnitude ballpark.
As we have said in the past, I know it's tempting at this point in the year and with the volatility that we see in the markets for us to make a call and give you a prediction, as we've also done in the past, we're not going to give you a prediction. We are very keenly focused on the changes, but it's just not ripe for a public dialogue. What you can count on, Keith, is that as we've done to date, we're watching it, we're monitoring it, and we'll continue to manage the business through next year to deliver on our commitments to our shareholders.
Okay, thanks.
Good. Next question, please.
Moving on, we will take our next question from Brian Meredith from UBS.
Yeah, good morning. Two questions here. First, Vanessa, I wonder, with the cash position you have right now, is it possible to give us a sense of what's U.S. versus international? Basically what I'm trying to get at is, how much cash is available right now for repurchases?
Let me take that two ways. The first is that we don't break out our U.S. and international cash, but I think that from our profitability, you could probably safely assume that the bulk of that cash is offshore. From a repurchase estimation perspective, we've been pretty consistent in saying that our number one priority is investing in the business with, one, A, doing accretive acquisitions. As you're looking out over the course of a year, we've committed to absorbing in our repurchase what we are issuing from an equities perspective to our colleagues. I think you should count on the accretive acquisitions and investments in the business first. We do have an acquisition in the fourth quarter that we expect to close the bulk of that Alexander Forbes acquisition.
Great. Second question. Dan and Peter, I wonder if you could elaborate a little bit on the rate environment out there right now, what y'all are seeing.
Sure. This is Peter, Brian. The rate environment, you need to take it into geographic locations as well as segments of business. What we've seen in the third quarter is less of a headwind. I would say it's been flat to slightly down in our overall portfolio. Peak zones, as well as property, is starting to firm a little bit more, but I would say it's low to mid-single digits. We've seen in the U.S. some modest increase in workers' compensation. Having said that, excess casualty and professional lines, we still see rate decreases year-over-year. When we look across the world in other parts of Europe, it still remains flat to down. Again, other peak zones, perhaps like New Zealand and Japan, we've seen some price increases on property.
It's less of a headwind for us than it was a year ago today. Still, I would say it's flat to moderate.
Great. Thank you.
Maybe Alex, you want to comment on the reinsurance side?
Pretty similar to what Peter said. Essentially, it varies by geography. It varies by cat zone. We've seen the U.S., Canada, probably cat somewhere up between 5% and 10%. Obviously, in Japan, some major increases on the cat side. The rest pretty flat. Still excess capital in the market, despite the sort of different influences from modeling and interest rates and macroeconomic inflation and so on. We're not advocates of increased rates. We try and get the best deals for our clients. We still feel that it's hard to gauge, predict the impact going forward.
Thank you.
Okay. Next question, please.
We'll take our next question from Larry Greenberg from Langen McAlenney .
Good morning. Just wondering if you might be able to help us with the impact of foreign exchange on the risk and insurance services margin. I think Dan mentioned that you had some severance in there as well, if it's possible to give us some color on that.
Sure. Hi, Larry. First on the foreign exchange. Foreign exchange was neutral on our NOI in the risk and insurance services. Just mathematically, if it's neutral at your NOI line, it's going to have a drag on your margins. We don't want to really give you any more color than that. On the severance front, we're not going to break out what the drag on the margins was, but I think that the performance and the margin expansion in that segment is pretty impressive with bearing the FX, the severance, and the pension expense.
Okay, fair enough. Just on the rate environment. Appreciated the comments on just the pricing piece of it. Is there any more color you might be able to provide on what's going on, if anything, with terms and conditions? We've heard from some that the excess and surplus lines market is seeing changes with higher retentions, lower limits, some of the standard guys moving away. Any color perhaps, Peter, that you could provide on that?
Sure. There's not a trend, per se, on whether it's the E&S market or other terms and conditions getting significantly tighter. I think we've seen through the third quarter releases from insurance companies that we have seen probably a little bit more discipline in the market in terms of looking at, again, each segment and each line of business and where they think they need rates. There's different perspectives on loss costs and what's happening with inflation, and I think you're seeing more of a reaction to that than tighter terms and conditions in the E&S markets. I think there really is no specific trend that we saw in the third quarter or that we see really happening in the beginning of the fourth quarter.
Okay.
Thank you.
Good. Next question, please.
We'll take our next question from Meyer Shields from Stifel Nicolaus.
Thanks. Let me start with a couple of numerical questions, if I can. We saw both investment income on fiduciary funds and corporate expenses improve sequentially, and I was wondering if there's anything unusual in that or whether third quarter is a good run rate.
Vanessa?
Sure. Let me take them in pieces. Investment income is separate from fiduciary funds. In the investment income, we report that on a lag, Meyer, and that is invested by a third party. We don't have good insight into We've given you the fourth quarter indication based on the third quarter as reported, but we don't have good insight into where that heads from a run rate perspective.
Right. I'm sorry, go ahead.
No, go ahead. Sorry.
No, just to say that I'm focused more on the fiduciary funds.
On the fiduciary funds, it did improve this quarter, and those are funds we manage on behalf of clients. We've been in this bizarre near zero interest rate environment, and we do invest those funds within a very narrow and strict policy range to make sure that they're highly liquid, et cetera. It did improve, but I think your best indicator there is tracking the overall global interest rate. We had some volatility in the Third Quarter that actually benefited us, but rates are back down. Corporate spreads are up a little bit, which you saw the benefit in the Third Quarter. Kind of similar to our pension discussion, calling interest rates is not what we want to do. I would use your best views as the run rate percentage there.
The last part on corporate expenses, you asked for a run rate there, and if you look, there are fluctuations quarter to quarter based on investments that we're making, and particularly, we had some changes in the second quarter with welcoming Dan to the corporate center. I think if you look over the last several years, we have been at about $40 million a quarter for corporate expenses, and that's a decent run rate to use.
Okay, Meyer. Good.
If I can follow up real quickly. I know you got permission in 2010 to recollect contingents, and I was wondering whether that itself should play a role in 2012 compared to 2011, or is everything already fully up and running?
Dan, you want to take that?
Sure. I would think broadly about carrier revenue streams. When we look at revenue in general, we're looking at negotiating fee increases where we can with our client base. When we look at the value that we're adding to carriers, we negotiate where we can higher commission levels, what we call yield. We look at areas of fee for services or enhanced commission based upon helping carriers become more efficient. We have that minor bit of contingent income, which is largely in the Marsh & McLennan Agency and in some parts of our business where we're actually an MGA. Overall, the negotiation that we have with carriers about levels of income we might receive is about the value that we're providing them, and so that's a continual discussion. It's not something that will stop. That's an every year thing.
We're building up our capabilities to add more and more value. We think that we will be able to drive more carrier revenue over time on a multi-year basis.
Okay.
Okay, thank you.
Good. Next question, please.
We'll take our next question from Michael Nannizzi from Goldman Sachs.
Thank you. First question, can you talk a little bit about progress within MMC Agency and initiatives there this quarter? I just have one follow-up. Thanks.
Peter?
Sure. With Marsh & McLennan Agency, we talked about this last quarter as well. Feel very comfortable where we are, about $300 million of revenue in the Marsh & McLennan Agency. Very strong pipeline as we continue to expand out our strategy. There's no timeframe in terms of when we want to build it out, but looking at high-quality assets to add in to our organization. We think we're probably underweight a little bit in the middle market space, so we think there's a lot of opportunity to expand. From a financial standpoint, we're on target in terms of growth and earnings and believe it'll be accretive in the second year, which is a threshold we set for our acquisition. Overall, we're very pleased.
Great.
Okay. You had a follow-up?
Yeah, I did have a follow-up. I guess, just mentioning 10% operating earnings growth and the expectation there, I know, Vanessa, you mentioned you wouldn't talk about rates and the impact on pension expense, just kind of given where we are now, is that a goal that you feel like in this rate environment is still attainable in the near term?
Well, it's a long-term goal. Long-term goals, you don't get there without going through the near term. The answer is yeah, we believe it's attainable.
Okay, great. Thank you.
You're welcome.
Next question.
We'll take our next question from Jay Gelb from Barclays Capital.
Thanks. I have two questions for you. First, in terms of the potential for margin expansion, I realize there's a number of sort of non-core drag items on margin improvement. Given the strong organic growth profile on revenues, when do you think we'll start seeing it come through in risk and insurance services?
Okay. Well, let me talk about this segment overall. Again, I think margin expansion, profit growth, and margin expansion is both what we're focused on. When we look at it, and we're in the height of budget season right now and planning for next year and looking at our plans over a number of years, management's drive is how do we create profitable growth for the organization? We're very comfortable with our strategic positioning. The quality of colleagues, we believe in the industry leads the insurance business in the risk and insurance segment. When we look at it, we look at it as each year, we would expect to be able to expand our margins and have profitable growth.
Now, the fact that we have some headwinds, we've already forgotten in some ways about the fiduciary income headwind, since it came up earlier in the call, I mean, that is a significant amount of money that will eventually someday roll back into RIS and in particular into Marsh. We've been managing well through those headwinds, and we will continue to do that. We will operate our business. As long as we can keep expense growth underneath the revenue growth, we will be able to grow profit and improve our margins.
Okay. For Brian, on the pricing side, I'm trying to get your perspective on whether you see the current pace of price improvement, particularly in the U.S. Is this similar to a 1999 and early 2000 level where you saw positive rates of improvement in rates over time and just continued to build momentum?
Boy, I tell you, it's always tough to make these calls. I've been through a few of these cycles, not too many, because we don't have too many. Hardening markets, the strange things, they're all different. They all start out for different reasons, going in different directions. It is very hard to say, "Yeah, this is exactly like '99." Things are so much different than they were in '99 today, I mean, economically, globally, all that. I would say that, yeah, one of the issues with that period was just kind of an exhaustion that took place. It's the word I've been using, there was just nowhere else to go with rates except to go back up. That is the real question, have we reached that point?
I think you've heard from Peter and from Dan and from Alex that there isn't a real pattern necessarily forming yet here. Some up, some down, some sideways, nothing dramatic either way. I think this is going to have its own characteristics, and your call is as good as mine on when this all changes.
All right. Thanks, Brian. Well, I'll keep asking the question.
Please keep asking. Anyway, one day we'll have the answer to it. That's what's great about it. All right, next question, please.
We'll take a question from Adam Klauber, from William Blair.
Thanks. Good morning.
Morning.
EMEA was clearly a strong point for the quarter. At some point, does that get impacted by weakness in Europe?
Dan?
Okay. Well, it really looks at what segment you're looking at. I think that the segment or the area that we would have the most exposure is in consulting and specifically within Oliver Wyman and in the FS space. That would be where that would most likely come from. We are not seeing right now impacts with regard to turmoil in Europe in either our risk and insurance services segment or in Mercer. Logic would tell that that's probably where we would see it first, but we are not seeing that now.
Great. One follow-up. Mercer also had strong underlying revenue growth. Is that coming more from new clients or more work at existing clients?
The answer to that is it's always a mixture. Mercer has actually very strong new business development over the past couple of years, that's certainly a big part of their growth, particularly in areas where we have invested around the world, such as health and benefits. If you look at Mercer piece by piece, the most significant areas of growth have been in rewards, talent, and communications, health and benefits, and the investment space. All of those areas are actually doing quite well. If I just take a moment on rewards, talent, and communications, because they've had the fifth consecutive quarter of double-digit growth. Really, the core bread-and-butter rewards business is very strong across all regions, and that includes consulting and data.
The compensation survey business, again, demand is up across all regions, and there's high demand for talent management, specifically leadership development and skills assessment in emerging markets. We're very well-positioned to capture that trend. I think at this stage, five quarters in a row, you would see that as a trend.
Thank you very much.
Thanks. Next question.
Our final question comes from Thomas Mitchell from Miller Tabak.
Noticing that the cost of living seems to be rising while interest rates have stayed very low. I'm wondering if this environment is creating challenges for companies that would create new opportunities for your retirement and employee benefits business. This is more of a broad picture, looking out over the next 3-5 years. Do these factors make a difference or not?
They absolutely make a difference because clients need advice. When you see changes in the macro environment, when you see a legislative change, that heightens the need for advice. When we look at our business, whether it's healthcare legislation or healthcare delivery changes around the world, retirement as an issue. We don't accept that retirement is a declining business. We know that the revenue has been in decline for the last number of quarters last year and this year. Fundamentally, we believe clients need solutions and that we are very well-positioned to invent solutions and innovate for our clients. We're working hard at doing that now.
Okay, well, let me ask you just on a slightly different issue. Life insurance companies who, to some extent, at least compete with your products in some ways, and in other ways are suppliers of products, have been in a relatively difficult period with respect to various kinds of guaranteed contracts, including guarantees that are associated with the variable annuity contracts. Does that drive a number of customer inquiries about changing their plans, or is what I'm really referring to much more of a purchased by individual market?
I think, one, our business is generally a B2B and also B2B2C. We're not really in the B2C direct space on things like annuities or life insurance sales. We're talking to companies. Our dialogue with life insurance companies is around, we all believe that annuities provide part of the answer, and perhaps even annuities linked with long-term care are interesting products. We all are surprised at the lack of take-up. There's a lot of interest around creating product in an annuity kind of format and for companies to look at how they can support that for their colleague base, particularly if they've moved from DB to DC. The life insurance companies themselves would say it has not been a tremendously active market.
I see. Thank you very much.
You're welcome. Let me close by thanking our 52,000 employees. They've delivered another outstanding quarter, and I'm grateful to you for all that you do, your dedication and commitment to driving the company forward, and I'm honored to serve as your CEO. Thank you, everybody, and goodbye.
Once again, ladies and gentlemen, that concludes today's conference. We appreciate your participation today.