UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(Mark One)
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| ☒ | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the fiscal year ended December 31, 20202023
OR
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| ☐ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission File No. 1-5998
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Marsh & McLennan Companies, Inc.
(Exact name of registrant as specified in its charter)
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| Delaware | | 36-2668272 |
(State or other jurisdiction of
incorporation or organization) | | (I.R.S. Employer Identification No.) |
1166 Avenue of the Americas
New York, New York 10036-2774
(Address of principal executive offices; Zip Code)
(212) 345-5000
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class | | Trading symbol(s) | | Name of each exchange on which registered |
| Common Stock, par value $1.00 per share | | MMC | | New York Stock Exchange |
| | | | Chicago Stock Exchange |
| | | | | London Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting Company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting Company" in Rule 12b-2 of the Exchange Act. (Check one):
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| Large Accelerated Filer | ☒ | | Accelerated Filer | ☐ |
| Non-Accelerated Filer | ☐ | | Smaller Reporting Company | ☐ |
| | | Emerging Growth Company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell Company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☒ No ¨
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ¨
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive- based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ¨
As of June 30, 2020,2023, the aggregate market value of the registrant's common stock held by non-affiliates of the registrant was approximately 53,818,358,381 $92,849,878,606 computed by reference to the closing price of such stock as reported on the New York Stock Exchange on June 30, 2020.2023.
As of February 12, 2021,8, 2024, there were outstanding 508,186,561 shares of491,656,196 shares of common stock, par value $1.00 per share, of the registrant.
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| Auditor Name: | Deloitte & Touche LLP | Auditor Location: | New York, New York | Auditor Firm ID: | 34 |
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Marsh & McLennan Companies, Inc.’s Notice of Annual Meeting and Proxy Statement for the 20212024 Annual Meeting of Stockholders (the "2021"2024 Proxy Statement") are incorporated by reference in Part III of this Form 10-K.
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains "forward-looking statements," as defined in the Private Securities Litigation Reform Act of 1995. These statements, which express management's current views concerning future events or results, use words like "anticipate," "assume," "believe," "continue," "estimate," "expect," "intend," "plan," "project" and similar terms, and future or conditional tense verbs like "could," "may," "might," "should," "will" and "would.""would".
Forward-looking statements are subject to inherent risks and uncertainties that could cause actual results to differ materially from those expressed or implied in our forward-looking statements. Factors that could materially affect our future results include, among other things:
•the financial and operational impact of COVID-19geopolitical or macroeconomic conditions on us, our revenueclients and ability to generate new business, our overall level of profitabilitythe countries and cash flow,industries in which we operate, including from multiple major wars, escalating conflict throughout the Middle East and our liquidity, includingrising tension in the timelinessSouth China Sea, slower GDP growth or recession, lower interest rates, capital markets volatility and collectability of our receivables;inflation;
•the impact from lawsuits other contingent liabilities and loss contingenciesor investigations arising from errors and omissions, breachbreaches of fiduciary duty or other claims against us in our capacity as a broker or investment advisor, including claims related to pandemic coverage;our investment business’ ability to execute timely trades;
•the impactincreasing prevalence of investigations, reviews,ransomware, supply chain and other forms of cyberattacks, and their potential to disrupt our operations or other activity by regulatorythe operations of our third party vendors, and result in the disclosure of confidential client or law enforcement authorities, including the ongoing U.K. FCA review of legacy JLT enhanced transfer value advice;company information;
•the financial and operational impact of complying with laws and regulations, where we operateincluding domestic and the risks of noncompliance with such laws, includinginternational sanctions regimes, anti-corruption laws such as the U.S. Foreign Corrupt Practices Act, U.K. Anti-BriberyAnti Bribery Act trade sanctions regimes and cybersecurity, and data privacy regulations such as the E.U.’s General Data Protection Regulation;and artificial intelligence regulations;
•our ability to maintain adequate safeguards to protect the security of our information systemsattract, retain and confidential, personal or proprietary information, particularly given the increased risk of supply chain attacks and other cybersecurity attacks or unauthorized dissemination of information caused by remote work arrangements;develop industry leading talent;
•our ability to compete effectively and adapt to changescompetitive pressures in the competitive environment,each of our businesses, including to respond tofrom disintermediation as well as technological change, disintermediation, digital disruption and other types of innovation;innovation such as artificial intelligence;
•our ability to manage risks associated with our investment management and related services business, particularly in the context of uncertain equity markets, including our ability to execute timely trades in light of increased trading volume and to manage potential conflicts of interest, between investment consulting and fiduciary management services;including where our services to a client conflict, or are perceived to conflict, with the interests of another client or our own interests;
•our ability to attractthe impact of changes in tax laws, guidance and retain industry leading talent;
•our ability to successfully recover if we experience a business continuity problem due to cyberattack, natural disaster, government unrestinterpretations, such as the implementation of the Organization for Economic Cooperation and Development international tax framework, or otherwise;the increasing number of disagreements with and challenges by tax authorities in the current global tax environment; and
•the regulatory, contractual and reputational risks that arise based on insurance placement activities and various insurer revenue streams; and
•the impact of changes in tax laws, guidance and interpretations, or disagreements with tax authorities, particularly due to the change in U.S. presidential administration.streams.
The factors identified above are not exhaustive. Further information concerning Marsh & McLennan Companies and its businesses, including information about factors that could materially affect our results of operations and financial condition, is contained in the Company's filings with the Securities and Exchange Commission, including the "Risk Factors" section in Part I, Item 1A of this report and the "Management’s Discussion and Analysis of Financial Condition and Results of Operations" section in Part II, Item 7 of this report. WeMarsh McLennan and its subsidiaries operate in a dynamic business environment in which new risks emerge frequently. Accordingly, we caution readers not to place undue reliance on any forward-looking statements, which are based only on information currently available to us and speak only as of the dates on which they are made. We undertakeThe Company undertakes no obligation to update or revise any forward-looking statement to reflect events or circumstances arising after the date on which it is made.
TABLE OF CONTENTS
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| Signatures | |
PART I
Item 1. Business.
References in this report to "we", "us" and "our" are to Marsh & McLennan Companies, Inc. and its consolidated subsidiaries (the "Company" or "Marsh McLennan"), unless the context otherwise requires.
GENERAL
The CompanyMarsh McLennan is a globalthe world's leading professional services firm offering clients advice in the areas of risk, strategy and people. The Company's 76,000We help clients build the confidence to thrive through the power of perspective of our four market-leading businesses. With annual revenue of $23 billion, we have more than 85,000 colleagues adviseadvising clients in over 130 countries. With annual revenue of $17 billion, the Company helps clients navigate an increasingly dynamic and complex environment through four market-leading businesses.
Marsh advises individualprovides data-driven risk advisory services and insurance solutions to commercial clients of all sizes on insurance broking and innovative risk management solutions.consumer clients. Guy Carpenter develops advanced risk, reinsurance and capital strategies that help clients grow profitably and pursue emerging opportunities. Mercer delivers advice and technology-driven solutions that help organizations redefine the world of work, reshape retirement and investment outcomes, and unlock health and wellbeingwell-being for a changing workforce. Oliver Wyman Group serves as a critical strategic, economic and brand advisor to private sector and governmental clients. Our four businesses also collaborate together to deliver new solutions to help clients manage complex and interconnected risks.
The Company conducts business through two segments:
•Risk and Insurance Services includes risk management activities (risk advice, risk transfer and risk control and mitigation solutions) as well as insurance and reinsurance broking and services. The Company conducts business in this segment through Marsh and Guy Carpenter.
•Consulting includes health, wealth and career servicesadvice, solutions and products, and specialized management, strategic, economic and brand consulting services. The Company conducts business in this segment through Mercer and Oliver Wyman Group.
We describe our current segments in further detail below. We provide financial information about our segments in our consolidated financial statements included under Part II, Item 8 of this report.
OUR BUSINESSES
RISK AND INSURANCE SERVICES
The Risk and Insurance Services segment generated approximately 60%62% of the Company's total revenue in 20202023 and employs approximately 44,100 colleaguesapproximately 49,300 colleagues worldwide. The Company conducts business in this segment through Marsh and Guy Carpenter.
MARSH
Marsh is the world's leading global insurance broker and risk advisor, serving companies, institutions and individuals. From its founding in 1871 to the present day, Marsh has demonstrated a commitment to thought leadership, innovation and insurance expertise to meet its clients’ needs. Marsh’s pioneering contributions include introducing the practice of client representation through brokerage, the discipline of risk management, the globalization of risk management services and the development of service platforms that identify, quantify, mitigate and transfer risk.
Currently, approximately 41,000approximately 45,800 Marsh colleagues provide risk management, insurance broking, insurance program management, services, risk consulting, analytical modeling and alternative risk financing services to a wide range of businesses, government entities, professional service organizations and individuals in more thanover 130 countries. Marsh generated approximately 50%51% of the Company's total revenue in 20202023.
Insurance Broking and Risk Advisory
In its core insurance broking and risk advisory business, Marsh employs a team approach to identify, quantify and address clients' risk management and insurance needs. Marsh’s product and service offerings include risk analysis, insurance program design and placement, insurance program support and administration, claims support and advocacy, alternative risk strategies and a wide array of risk analysis and risk management consulting services. Clients benefit from Marsh’s advanced analytics, deep technical expertise, specialty and industry knowledge, collaborative global culture and the ability to
develop innovative solutions and products. The firm’s resources also include nearly three dozen specialty and industry practices, including cyber, construction, renewable energy, healthcare, and financial and professional service practices, along with ESG products such as
a growingD&O insurance initiative recognizing U.S. based clients with superior ESG frameworks, and an established employee health & benefits business.
Marsh provides services to clients of all sizes, including large multinational companies ("Risk Management"), high growth middle-market businesses ("Corporate"), small commercial enterprises and high net-worth private clients, and affinity group members ("Commercial & Consumer"). Marsh's segments are designed to build stronger value propositions and operating models to optimize solutions and services for clients depending on their needs.
Risk Management. Marsh has an extensive global footprint and market-leading advisory and placement services that benefit large domestic and international companies and institutions facing complex risk exposures. These clients are also supported by Marsh’s robust analytics and a growing digital experience.
In addition, Marsh’s largest global clients are serviced by Marsh Multinational, Client Services, a dedicated team of colleagues from around the world focused on delivering service excellence and insurance solutions to clients wherever they are located. Marsh is digitizing the client experience through tools such as LINQ, Marsh’s account and service application; Blue[i], a suite of analytics tools for clients; and Bluestream, a digital brokerage platform that enables clients to provide insurance to their customers or suppliers in a B2B2C distribution model. Marsh provides global expertise and an intimate knowledge of local markets, helping clients navigate local regulatory environments to address the worldwide risk issues that confront them.
•Marsh JLT Specialty. Marsh’s specialty unit combined is an integrated and globally coordinated team of experts who provides clients in highly specialized industry and product areas with JLT Specialtydata driven insights, service, advice and access to form Marsh JLT Specialty as part of the 2019 acquisition of Jardine Lloyd Thompson Group plc ("JLT"). The new unit offers leading expertise, global serviceinsurance markets. These specialists support clients who require advice and data-driven insights to clientssupport across seven global specialties: aviation;aviation & space, credit specialties;specialties, construction, energy & power, financial & professional services;services (FINPRO), marine & cargo, and private equity, & mergers & acquisitions; construction; energy & power; and marine & cargo. These teams of specialist experts are globally committed to delivering consulting, placement, account management and claims solutions to clients who require specialist advice and support. Marsh JLT Specialty has bolstered Marsh’s leadership as a global specialty broker.acquisitions (PEMA).
Corporate. Middle market clients are served by Marsh’s brokerage operations globally and constitute a substantial majority of clients servedglobally; this segment is also serviced by Marsh & McLennan Agency (MMA) in the United States and large portions of Marsh’s international business.(U.S.).
•MMA Marsh McLennan Agency (MMA)offers a broad range of commercial property and casualty products and services, as well as solutions for provides business insurance, employee health and benefits, retirement and administration needswealth management, and a growing personal lines business in the United Statesprivate client insurance solutions to individuals and Canada. Since its first acquisition in 2009,mid-market organizations. MMA has acquired 82 agencies. MMA provides adviceadvises on insurance program structure and market dynamics, along with industry expertise and transactional capability. Since its first acquisition in 2009, MMA has acquired more than 100 agencies.
Commercial & Consumer. Clients in this market segment typically face less complex risks and are served by Marsh’s innovative product and placement offerings and growing capabilities in digitally enabled distribution.distribution and administration.
•Victor Insurance Holdings Managers (Victor)is one of the largest underwriting managers of professional liability, catastrophe, and other specialty insurance programs worldwide. In the United States,U.S., Victor Insurance Managers (US) and ICAT Managers deliver risk managementunderwrites, solicits, sells and insurance solutions to over 125,000 insuredsservices coverages through a national third-party distribution network of licensed brokers.brokers and agents. Through Dovetail Managing General Agency, a small businessits Victor Small Business platform, Victor Insurance Managers (US) deploys cloud-based technology to enable independent insurance agents, on behalf of their small business clients, to obtain online quotes from multiple insurance providers and bind property and casualty and workers compensation insurance policies in real time. Victor also manages Torrent Technologies, the nation’s largest service provider to the National Flood Insurance Program (NFIP), serving the NFIP both directly and through the NFIP’s Write Your Own (WYO) program. Victor Insurance Managers (Canada), a leading managing general agent in Canada, with over 43,000 insureds, delivers professional liability and construction insurance as well asand other P&C programs and administers group and retiree benefits programs and claims handling operations for individuals, organizations and businesses. Victor also has a growing business
in the UK, (where it was formerly known as Bluefin Underwriting) and in Europe, where new businesses have been launched in the Netherlands, Italy, Germany and Germany.Australia.
•Marsh Affinity focuses on insurance programs sold to insureds or vendors through a corporate sponsor using an affinity distribution model.
•High Net Worth (HNW). Individual high net worthclients and family offices areserviced by MMA in the U.S. and other Marsh personal lines businesses globally. These businesses provide a single-source solution for high net worth clients and are dedicated to sourcing protections across a broad spectrum of risk. Using a consultative approach, Marsh's HNW practices analyze exposures and customizescustomize programs to cover individual clients with complex asset portfolios.
Additional Services and Adjacent Businesses
In addition to insurance broking, Marsh provides certain other specialist advisory or placement services:
Marsh Advisory is a global practice comprising specialists who use data and analytics, including through Marsh’s Blue[i] digital analytics platform, toplatform. Marsh Advisory’s three main service areas (Consulting, Claims, and Analytics) advise clients abouton existing and emerging risk exposures, protecting critical business activities and risk practices and strategies. Marsh Advisory provides client services in four main areas: Consulting Solutions, Analytics Solutions, Claims Solutions, and Captive Solutions.developing strategies to optimize total cost of risk.
Marsh Captive Solutions serves more than 1,350, a prominent part of the Marsh Specialty and Global Placement practice, helps organizations of all sizes retain risks through comprehensive and innovative captive facilities, including single-parent captives, reinsurance pools and risk retention groups. The Captive Solutions practice operates in 53 captive domiciles and leverages the consulting expertise within Marsh’s brokerage offices worldwide. The practice includes the Captive Advisory Group, a consulting arm that performs captive feasibility studies and helps to structure and implement captive solutions; the Captive Management Group, an industry leader in managing captive facilities and in providing administrative, consultative and insurance-related services; and the Actuarial Services Group, whichsolutions. This team is comprised of credentialedcaptive consultants, actuaries and supporting actuarial analysts.
Torrent Technologiesis a service provider to Write Your Own (WYO) insurers participating in the National Flood Insurance Program (NFIP) in the United States. Torrent offers a comprehensive suite of both NFIP and private and excess flood insurance products and services to WYO companies and agents.captive management professionals which offer complete, end-to-end captive management services.
Bowring Marsh is an international placement broker primarilybroker. This unit’s core strategy is to modernize risk transfer advice and solutions for propertyclients. This is executed through a combination of data solutions, capacity creation vehicles, segmentation, placement platforms (on-shoring solutions within the network), and casualty risks.improved operational efficiency – all designed to yield a better client outcome and experience. The products Bowring Marsh uses placement expertiseplaces include property, casualty, terrorism, product recall, and special risks.
Mercer Marsh Benefits provides health benefits brokerage and consulting services to clients of all sizes in major international insurancenumerous countries across the globe, outside of the U.S. As described below, Mercer and Marsh go to market hubs, including Bermuda, Brazil, China, United Arab Emirates, Ireland, Spain, United Kingdom, the United States, Singapore, Japantogether to provide strategic advice and Switzerland,services to help clients minimize risk, optimize benefits structure, drive efficiencies and an integrated global network to secure advantageous terms and conditions for its clients throughout the world.maximize employee engagement.
Services for Insurers
Marsh'sInsurer Consulting Group (ICG) provides services to insurance carriers. Through Marsh's patented electronic platform, MarketConnect, and sophisticated data analysis, MarshICG provides insurers with individualized preference setting and risk identification capabilities, as well as detailed performance data and metrics. Insurer consulting teams review performance metrics and preferences with insurers and provide customized consulting services to insurers designed to improve business planning and strategy implementation. Marsh's Insurer ConsultingICG services are designed to improve the product offerings available to clients, assist insurers in identifying new opportunities and enhance insurers’ operational efficiency. The scope and nature of the services vary by insurer and by geography.
GUY CARPENTER
Guy Carpenter, the Company’s reinsurance intermediary and advisor, generated approximately 10%11% of the Company's total revenue in 2020.2023. Currently, approximately 3,100approximately 3,500 Guy CarpenterCarpenter colleagues provide clients with a combination of specialized reinsurance broking expertise, strategic advisory services and analytics solutions. Guy Carpenter creates and executes reinsurance and risk management solutions for clients worldwide through risk assessment analytics, actuarial services, highly-specialized product knowledge and trading relationships with reinsurance markets. Client services also include contract and claims management, reinsurance accounting and fiduciary accounting.services.
Acting as a broker or intermediary on all classes of reinsurance, Guy Carpenter places two main types of property casualty and life / health reinsurance: treaty reinsurance, which involves the transfer of a portfolio of risks; and facultative reinsurance, which involves the transfer of part or all of the coverage provided by a single insurance policy.
Guy Carpenter provides reinsurance services in a broad range of centers of excellence, segments and segments,specialties including: Automobile / Motor, Aviation, Captives, Crop/Agriculture, Cyber, D&O/Non-Medical Professional, Engineering / Construction, Environmental, GL & Umbrella,Financial Lines, InsurTech, Life / Accident / Health, Life, Marine and Energy, Medical Professional, Personal Lines, Mortgage, Political Risk & Trade Credit, Primary & Excess Casualty, Managing General Agents and Program Manager Solutions, Property, Public Sector, Regional / Mutual, Retrocessional Reinsurance, Surety, Terror, and Workers Compensation / Employer Liability.
Guy Carpenter also offers clients alternatives to traditional reinsurance, including industry loss warranties and, through its licensed affiliates, capital markets alternatives such as transferring catastrophe risk through the issuance of risk-linkedinsurance-linked securities. GC Securities, the Guy Carpenter division of MMC Securities LLC and MMC Securities (Europe) Limited, offersoffer corporate finance solutions, including mergers & acquisitions advice and private debt and equity capital raising, and capital markets-based risk transfer solutions that complement Guy Carpenter's strong industry relationships, analytical capabilities and reinsurance expertise.
Guy Carpenter also provides its clients with reinsurance-related services, including actuarial, enterprise risk management, financial and regulatory consulting, portfolio analysis and advice on the efficient use of capital. Guy Carpenter's Global Strategic Advisory ("GSA") unit helps clients better understand and quantify the uncertainties inherent in their businesses. Working in close partnership with Guy Carpenter account executives, GSA specialists help support clients' critical decisions in numerous areas, including reinsurance utilization, catastrophe exposure portfolio management, new product and market development, rating agency, regulatory and account impacts, loss reserve risk, capital adequacy and return on capital.
Compensation for Services in Risk and Insurance Services
Marsh and Guy Carpenter are compensated for brokerage and consulting services through commissions and fees. Commission rates and fees vary in amount and can depend on a number of factors, including the type of insurance or reinsurance coverage provided, the particular insurer or reinsurer selected, and the capacity in which the broker acts and negotiates with clients. In addition to compensation from its clients, Marsh also receives other compensation, separate from retail fees and commissions, from insurance companies. This other compensation includes, among other things, payments for consulting and analytics services provided to insurers; compensation for administrative and other services (including fees for underwriting services and services provided to or on behalf of insurers relating to the administration and management of quota shares, panels and other facilities in which insurers participate); and contingent commissions, which are paid by insurers based on factors such as volume or profitability of Marsh's placements, primarily driven by MMA and parts of Marsh's international operations.
Marsh and Guy Carpenter receive interest income on certain funds (such as premiums and claims proceeds) held in a fiduciary capacity for others. For a more detailed discussion of revenue sources and factors affecting revenue in our Risk and Insurance Services segment, seerefer to Part II, Item 7 ("Management's Discussion and Analysis of Financial Condition and Results of Operations") of this report.
CONSULTING
The Company's Consulting segment generated approximately 40%38% of the Company's total revenue in 20202023 and employs approximately 29,700 colleaguesapproximately 31,300 colleagues worldwide. The Company conducts business in this segment through Mercer and Oliver Wyman Group.
MERCER
Mercer deliversis a leading provider in delivering advice, solutions and digital solutionsproducts that help organizations meet the health, wealth and career needs of a changing workforce. Mercer has approximately 24,700approximately 24,500 colleagues based in 4348 countries. Clients include a majority of the companies in the Fortune 1000 and FTSE 100, as well as medium- and small-market organizations, public sector employeesentities and individual customers. Mercer generated approximately 28%24% of the Company's total revenue in 2020.2023.
Mercer operates in the following areas:
Health. Mercer assistshelps public and private sector employers in the design and management ofmanage employee health careand welfare programs; administration ofadminister health benefits and flexible benefits programs, including benefits outsourcing; employee engagementengage employees with their health benefits through a digital experience; complianceand comply with local benefits-related regulations; and the establishment of health and welfare benefits coverage for employees.regulations. Mercer provides a range of advice and solutions to clients, which, depending on the engagement, may include: total health and wellness management strategies; global health brokerage solutions; vendor performance and audit; life and disability management; and measurement of healthcare provider performance. These services are provided through traditional fee-based consulting as well as commission-based brokerage services in connection with the selection of insurance companies and healthcare providers. Mercer provides solutions for private active and retiree exchanges in the United States, as well as tools to enhance employee engagement with their health benefits through its DarwinSM platform across the world.
Mercer also provides consulting and actuarial services to U.S. state governments to support the purchase of healthcare through state Medicaid programs. In addition, Mercer provides consulting servicesoffers clients tools to insurance carriers to assist themenhance employee engagement with improving product offerings available to clients, identifying new opportunities and enhancing insurers’ operational efficiency.their health benefits through its DarwinSM platform.
Outside of the U.S., Mercer and Marsh go to market together for Health benefits brokerage and consulting under the Mercer Marsh BenefitsSM (MMB) brand.brand, as described above.
Wealth. Through its Wealth business, Mercer assists clients worldwide in the design, governance and risk management of defined benefit, defined contribution, and hybrid retirement plans. plans and other pools of assets, and with investment of those assets.
Mercer provides actuarial consulting, investment consulting, investment management and related services to the sponsors and trustees of pension plans, master trusts, foundations, endowments, andsovereign wealth funds, insurance companies as well as wealthand family offices. Mercer also provides investment consulting and investment management services to U.S. public sector clients, financial intermediaries and other financial intermediary firms.individuals. Mercer also provides retirement plan outsourcing, including administration and delivery of defined benefit and defined contribution retirement benefits.
Mercer's investment consulting and investment management services (also(investment management services may also be referred to as “investment"investment solutions,” “delegated" "delegated solutions,” “fiduciary management”" "fiduciary management" or “outsourced"outsourced Chief Investment Officer (OCIO) services”services") cover a range of stages of the investment process, from strategy,investment research (through its Mercer-Insight service), asset allocation and implementation of investment strategies to ongoing portfolio management services. Mercer provides these services primarily to institutional and other sophisticated investors including retirement plans (e.g., defined benefit and defined contribution), master trusts, endowments and foundations, sovereign wealth funds, U.S. public sector clients, insurance companies and family offices, as well as wealth managers and other financial intermediary firms,intermediaries, primarily through manager of manager strategies and funds sponsored and managed by Mercer. Mercer’s clients invest in both traditional asset classes (e.g., equities, fixed income and cash equivalents) and alternative or private market strategies (e.g., private equity, private debt, real estate, other real assets and hedge funds). As of December 31, 2020,2023, Mercer and its global affiliates had assets under management of approximately $357$420 billion worldwide.
Mercer also provides miscellaneous services to individual retail clients, including financial planning, high net worth risk solutions and other discretionary investment services.
Career. Mercer advises organizations on the engagement, skill assessment, management and reward of employees; the design of executive remuneration programs; people and workforce strategies during business transformation; improvement of human resource (HR) effectiveness; and the implementation of digital and cloud-based Human Resource Information Systems. In addition, through proprietary survey data and
decision support tools, Mercer provides clients with human capital information and analytical capabilities to improve strategic human capital decision making. Mercer’s Career products include solutions relating to rewards, mobility, engagement, workforce analytics and assessments. Mercer helps clients plan and implement HR programs and other organizational changes designed to maximize employee engagement, drive desired employee behaviorsengagement.
Mercer also provides advice relating to people and achieve improvementsbenefits-related issues to buyers and sellers in business performance.a variety of types of M&A transactions.
OLIVER WYMAN GROUP
With more than 5,000 than 6,800 professionals and offices in 31over 30 countries, Oliver Wyman Group delivers advisory services to clients through three operating units, each of which is a leader in its field: Oliver Wyman, Lippincott and NERA Economic Consulting. Oliver Wyman Group generated approximately 12%14% of the Company's total revenue in 2020.2023.
Oliver Wyman is a global leader in management consulting. Oliver Wymanconsulting and combines deep industry knowledge with specialized expertise in strategy, operations, risk management and organization transformation. The firm works with clients around the world to help optimize their business, improve their operations and risk profile, and accelerate their organizational performance to seize attractive opportunities. Industry groups include:
•Automotive
•Aviation, Aerospace & Defense
•Business Services and Manufacturing Industries
•Communications, Media & Technology
•Distribution & Wholesale
•Education
•Energy and Natural Resources
•Financial Services (including corporate and institutional banking, insurance, wealth and asset management, public policy, and retail and business banking)
•Health & Life SciencesInsurance and Asset Management
•Industrial ProductsHealth and Life Sciences
•Public Sector
•Retail & Consumer ProductsPrivate Capital
•Surface TransportationRetail & Consumer Goods
•Travel & LeisureTransportation Services (including aviation; aerospace and defense; rail; express, postal and third party logistics; services, including travel and leisure, environmental and facility management, and business and tech services; and CAVOK, which provides technical consulting and market forecasting services)
Oliver Wyman overlays its industry knowledge with expertise in the following functional specializations:
•Actuarial. Oliver Wyman’s Actuarial Practice uses mathematical and statistical modeling skills and qualitative assessment methodologies to assist clients in evaluating and addressing risk.
•Climate and Sustainability.Oliver Wyman assists clients in cutting through complex climate systems and solving for operational efficiencies. Oliver Wyman helps clients discover new business opportunities, create new pathways, and respond to climate risk, to make needed changes commercially compelling.
•Corporate Finance & Restructuring.and Risk. Oliver Wyman provides an arrayleading financial institutions with custom solutions and insights covering all aspects of capabilitiesrisk and finance functions, including credit risk, market risks, asset and liability management and liquidity risks, and non-financial risks, together with integrated risk management topics, such as aggregated risk analyses, business applications and culture and organization.
•Restructuring. Oliver Wyman offers a complete management solution and "one-stop-shop" approach to support investment decision making by private equity funds, hedge funds, sovereign wealth funds, investment banks, commercial banks, arrangers,turning around companies, providing strategic, investorsoperational, and insurers.financial restructuring advice.
•Digital. Oliver Wyman partners with clients to address their digital challenges, blending the power of digital with deep industry expertise. By building strong capabilities and culture, Oliver Wyman accelerates and embeds digital transformation, working collaboratively with clients’ leaders, employees, stakeholders, and customers to jointly define, design, and achieve lasting results.
•Operations. Oliver Wyman helps organizations leverage their operations for a competitive advantage using a comprehensive set of capabilities, including performance improvement, digital operations strategy, and risk management.
•People and Organizational Effectiveness.Performance. Oliver Wyman's People and Organizational EffectivenessPerformance capability brings together deep functional expertise and industry knowledge to enable the whole organization to work in service of its strategic vision and to address the most pressing organizational, people, and change issues.
•Payments. Oliver Wyman draws on years of industry-shaping work in the Financial Services and Retail industries, deep digital expertise, and renowned research partners in its Celent® business, to help clients - from banks/issuers, to payments providers, to retailers - to build growth strategies, form effective partnerships, optimize costs, and manage risk.
•Pricing, Sales, and Marketing. Oliver Wyman helps organizations drive top-line and margin growth through outstanding strategy and decision making on pricing, marketing optimization, and best practices on sales effectiveness.
•Risk Management. Oliver Wyman works with chief financial officers, chief risk officers, and other senior finance and risk management executives of corporations and financial institutions on risk management solutions. Oliver Wyman provides effective, customized solutions to the challenges presented by the evolving roles, needs and priorities of these individuals and organizations.
•StrategyCustomer First. Oliver Wyman is a leading provider of corporate strategy advicehelps bring together capabilities required to identify customer and solutions in the areas ofbusiness growth, strategy and corporate portfolio; non-organic growth and M&A; performance improvement;conduct detailed business design, build and innovation; corporate centerlaunch a business, and shared services;maintain a focus on realizing growth while de-risking delivery.
•Performance Transformation. Oliver Wyman helps clients to design, realize and strategic planning.sustain value growth via large-scale transformations.
Lippincott is a creative consultancy specializing in brand and innovation that shapes recognized brands and experiences for clients globally. Lippincott's designers have helped create some of the world's most recognized brands.
NERA Economic Consulting provides economic analysis and advice to public and private entities to achieve practical solutions to highly complex business and legal issues arising from competition, regulation, public policy, strategy, finance and litigation. NERA professionals operate worldwide assisting clients including corporations, governments, law firms, regulatory agencies, trade associations, and international agencies. NERA's specialized practice areas include: antitrust; securities; complex commercial litigation; energy; environmental economics; network industries; intellectual property; product liability and mass torts; and transfer pricing.
Compensation for Services in Consulting
Mercer and Oliver Wyman Group areis compensated for advice and services primarily through fees paid by clients. Mercer is compensated for advice and services through fees paid by clients, commissions and fees based on assets or members. In the majority of cases, Mercer's Health business is also compensated through commissions for the placement of insurance contracts and supplemental compensation from insurers based on such factors as volume, growth of accounts, and total retention of accounts placed by Mercer. Mercer may receive commissions in other parts of its business, such as its Private Client Services business and certain financial advice businesses. Mercer's investments business and certain of Mercer's administration services are compensated typically through fees based on assets under administration or management or fee per member. For a majority of the Mercer-managed investment funds, revenue received from Mercer's investment management clients as sub-advisor fees is reported in accordance with U.S. GAAP, on a gross basis rather than a net basis. For a more detailed discussion of revenue sources and factors affecting revenue in the Consulting segment, seerefer to Part II, Item 7 ("Management's Discussion and Analysis of Financial Condition and Results of Operations") of this report.
REGULATION
The Company's activities are subject to licensing requirements and extensive regulation under U.S. federal and state laws, as well as laws of other countries in which the Company's subsidiaries operate.Company operates. Across most jurisdictions, we are also subject to various data privacy and data protection laws and regulations that apply to personal information, belonging to our clients, their employees and third parties, as well as, our own colleagues.in certain jurisdictions, cybersecurity laws and regulations and emerging laws and regulations related to artificial intelligence ("AI"). In addition, we are subject to various financial crime laws and regulations through our activities, activities of associated persons, the products and services we provide and our business and client relationships. Such laws and regulations relate to, among other areas, sanctions and export control, anti-bribery, anti-corruption, anti-money-laundering and counter-terrorist financing. In certain circumstances, we are also required to maintain operating funds primarily related to regulatory requirements outside the U.S. See Part I, Item 1A
(" ("Risk Factors") below for a discussion of how actions by regulatory authorities or changes in legislation and regulation in the jurisdictions in which we operate may have an adverse effect on our businesses and for more information about the laws and regulations related to data privacy, data protection and cybersecurity and the associated risks to our businesses.
Risk and Insurance Services. While laws and regulations vary from location to location, every state of the United StatesU.S. and most foreign jurisdictions require insurance market intermediaries and related service providers (such as insurance brokers, agents and consultants, reinsurance brokers and managing general agents) to hold an individual or company license from a government agency or self-regulatory organization. Some jurisdictions issue licenses only to individual residents or locally-owned business entities; in those instances, if the Company has no licensed subsidiary, it may maintain arrangements with residents or business entities licensed to act in such jurisdiction. Such arrangements are subject to an internal review and approval process. Licensing of reinsurance intermediaries is generally less rigorous compared to that of insurance brokers, and most jurisdictions require only corporate reinsurance intermediary licenses.
In 2005, the Insurance Mediation Directive which, as from October 1, 2018 has been superseded by the Insurance Distribution Directive, was adopted by the United Kingdom, and 27 other European Union Member States. Its implementation gave powers toour business is regulated by the Financial ServicesConduct Authority ("FSA"FCA"), the United Kingdom regulator at the time, to expand its. The FCA’s responsibilities in line with the Financial Services and Markets Act (2000), the result of which was the regulationpowers include licensing of insurance and reinsurance intermediaries. The enhanced regulatory regime implemented in the United Kingdom created a licensing system based on an assessment of factors which includedintermediaries and related criteria such as professional competence, financial capacity and the requirement to hold professional indemnity insurance. In April 2013, the FSA was superseded by the Financial Conduct Authority ("FCA"). In April 2014, the FCA’s responsibilities were expanded further to include the regulation of credit activities for consumers. This includedinsurance, the broking of premium finance to consumers, who wished to spread the cost of their insurance. In April 2015, the FCA obtained concurrentand competition powers enablingthat enable it to enforce prohibitions on anti-competitive behavior in relation to financial services.
Insurance authorities in the United StatesU.S. and certain other jurisdictions in which the Company's subsidiaries do business, including the FCA in the United Kingdom, also have enacted laws and regulations governing the investment of funds, such as premiums and claims proceeds, held in a fiduciary capacity for others. These laws and regulations typically provide for segregation of these fiduciary funds and limit the types of investments that may be made with them, and generally apply to both the insurance and reinsurance business.
Certain of the Company's Risk and Insurance Services activities are governed by other regulatory bodies, such as investment, securities and futures licensing authorities. In the United States,U.S., Marsh and Guy Carpenter use the services of MMC Securities LLC, a SEC registered broker-dealer and introducing broker in the United States.U.S. MMC Securities LLC is a member of the Financial Industry Regulatory Authority ("FINRA"), the National Futures Association and the Securities Investor Protection Corporation ("SIPC"), primarily in connection with capital markets and other investment banking-related services relating to insurance-linked and alternative risk financing transactions. Also in the United States,U.S., Marsh uses the services of MMA Securities LLC, a SEC registered broker-dealer, investment adviser and member of FINRA and SIPC JSL Securities, Inc., a SEC registered broker-dealer
and member of FINRA, SIPC and the Municipal Securities Rulemaking Board ("MSRB"), and CenturionMMA Asset Management LLC, a SEC registered investment adviser, primarily in connection with retirement, executive compensation and benefits consulting and advisory services to qualified and non-qualified benefits plans, companies and executives and personal wealth management. In the United Kingdom, Marsh and Guy Carpenter use the expertise of MMC Securities (Europe) Limited, which is authorized and regulated by the FCA to provide advice on securities and investments, including mergers & acquisitions in the United Kingdom. In the European Union, Guy Carpenter uses MMC Securities (Ireland) Limited, which is authorized and regulated by the Central Bank of Ireland to place certain securities and investments in the European Union. MMC Securities LLC, MMC Securities (Europe)Limited, MMC Securities (Ireland) Limited, MMA Securities LLC, JSL Securities, Inc. and CenturionMMA Asset Management LLC are indirect, wholly-owned subsidiaries of Marsh & McLennan Companies, Inc.
Consulting. Mercer's retirement-related consulting and investment services are subject to pension law and financial regulation in many countries. Depending on the country, Mercer may rely on licensed colleagues or registered legal entities to engage in these services, or may utilize other MMCMarsh McLennan entities or external third parties. In addition, trustee services, investment services (including advice to persons, institutions and other entities on the investment of pension assets and assumption of discretionary
investment management responsibilities) and retirement and employee benefit program administrative services provided by Mercer and its subsidiaries and affiliates aremay also be subject to investment and securities regulations in various jurisdictions, including (but not limited to) regulations imposed or enforced by the SECSecurities and Exchange Commission (SEC) and the Department of Labor in the United States,U.S., the FCA in the United Kingdom, the Central Bank of Ireland and the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission. In the United States,U.S., Mercer provides investment services through Mercer Investments LLC, (formerly Mercer Investment Management, Inc.), an SEC-registered investment adviser, which consolidated the activities of each of Mercer’s affiliated investment adviser entities in the United StatesU.S. (including Mercer Investment Consulting LLC and Pavilion Advisory Group) in 2019. Mercer Trust Company, a limited purpose New Hampshire chartered trust bank, may also provide services for certain clients of Mercer’s investment management business in the United States.U.S. The benefits insurance consulting and brokerage services provided by Mercer and its subsidiaries and affiliates are subject to the same licensing requirements and regulatory oversight as the insurance market intermediaries described above regarding our Risk and Insurance Services businesses. Depending on the nature of the client and services performed, Mercer may also be subject to direct oversight by the Departments of Health and Human Services and other federal agencies in the U.S. Mercer provides annuity buy-out supportadvice that is subject to regulations (for example, in the U.S., state insurance licensing regulations and ERISA). Mercer uses the services of MMC Securities LLC to provide certain services, including executive benefit and compensation services and securities dealing services.
FATCA. Regulations promulgated by the U.S. Treasury Department pursuant to the Foreign Account Tax Compliance Act and related legislation (FATCA) require the Company to take various measures relating to non-U.S. funds, transactions and accounts. The regulations impose on Mercer and MMA certain client financial account tracking and disclosure obligations with respectrelating to non-U.S. financial institution and insurance clients.
COMPETITIVE CONDITIONS
The Company faces significant competition in all of its businesses from providers of similar products and services, including competition with regard to identifying and pursuing acquisition candidates. The Company also encounters strong competition throughout its businesses from both public corporations and private firms in attracting and retaining qualified employees. As the Company has clients across various geographies, industries and scale,sizes, the competitive landscape is complex and varies across these numerous markets. In addition to the discussion below, seerefer to "Risks Relating to the Company Generally — Competitive Risks," in Part I, Item 1A of this report.
Risk and Insurance Services. The Company's combined insurance and reinsurance services businesses are global in scope. Our insurance and reinsurance businesses compete principally on the sophistication, range, quality and cost of the services and products they offer to clients. The Company encounters strong competition from other insurance and reinsurance brokerage firms that operate on a global, regional, national or local scale from a large number of regional and local firms in the United States, the United Kingdom, the European Union and elsewhere,every geography in which it operates, from insurance and reinsurance companies that market, distribute and service their insurance and reinsurance products without the assistance of brokers or agents and from other businesses, including commercial and investment banks, accounting firms, consultants and online platforms, that provide risk-related services and products or alternatives to traditional insurance brokerage services. In addition, third party capital providers have entered the insurance and reinsurance risk transfer market offering products and capital
directly to the Company’s clients. Their presence in the market increases the competitive pressures that the Company faces.
Certain insureds and groups of insureds have established programs of self-insurance (including captive insurance companies) as a supplement or alternative to purchasing traditional third-party insurance, thereby reducing in some cases their need for third-party insurance placements. Certain insureds also obtain coverage directly from insurance providers. There are also many other providers of managing general agency,agents, affinity programs and private client services including specialized firms, insurance companies and other institutions.that compete with the Company's offerings.
Consulting. The Company's consulting businesses face strong competition from other privately and publicly held worldwide and national companies, as well as regional and local firms. These businesses generally compete on the basis of the range, quality and cost of the services and products they provide to clients. Competitors include independent consulting, broking and outsourcing firms, as well as consulting, broking and
outsourcing operations affiliated with larger accounting, information systems, technology and financial services firms. Mercer’s Health business faces additional competition from insurers and from non-traditional competitors seeking to enter or expand in the health benefits space (for example, payroll firms, large consumer businesses, and digitally oriented consultancies). Mercer's investments business faces competition from many sources, including investment consulting firms (many of which offer delegated services), investment management firms and other financial institutions. In some cases, clients have the option of handling the services provided by Mercer and Oliver Wyman Group internally, without assistance from outside advisors.
Segmentation of Activity by Type of Service and Geographic Area of Operation.
Financial information relating to the types of services provided by the Company and the geographic areas of its operations is incorporated herein by reference to Note 17, Segment Information, in the notes to the consolidated financial statements included under Part II, Item 8 of this report.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG))
Since 2008, Marsh McLennan has had a framework for overseeing and managing the company’s approach to environmental sustainability, human capital management and corporate governance. Our ESG Report provides more information about our ESG governance, goals and achievements. It also discloses against aspects of the Task Force on Climate-related Financial Disclosures, Sustainability Accounting Standards Board and Global Reporting Initiative standards and describes the six UN Sustainable Development Goals we have prioritized that most relate to our business. Our ESG Report, Pay Equity Statement, statement on Human Rights and related information is available on our website at marshmclennan.com/about/esg.html. These reports and our website are not deemed part of this report and are not incorporated by reference.
HUMAN CAPITAL
As a professional services firm, we believe the health of our business relies on the strength of our workforce. Our shared purpose is to make a difference in moments that matter, helping clients meet the challenges of our time. Measurement of our talent outcomes are, therefore, not just a human capital priority, but a business imperative.
For detailed information regarding our human capital management, we encourage investors to visit https://www.mmc.com/www.marshmclennan.com/about/esg.html for our consolidated environmental, social and governance ("ESG") report to be published in the first quarter 2021.ESG Report. The information on this website, and in the ESG report, does not constitute, and should not be viewed as, incorporation by reference of the information contained on, or available through, the website or the report and does not form part of this Form 10-K.
Our People. As of December 31, 2020,2023, the CompanyCompany and its consolidated subsidiaries employed 76,000more than 85,000 colleagues worldwide, including approximately 44,10049,300 in Risk and Insurance Services and 29,70031,300 in Consulting. Two-thirdsOne-third of our global workforce areis located in either North America or Europe. While these remain our largest work regions, we have also grown our presencethe U.S. & Canada, with approximately 15% in Asia-Pacificeach of the United Kingdom, Europe and theIMEA (India, Middle East, over& Africa), with the last several years.remainder in Latin America & Caribbean, Asia, and Pacific. Women comprise more than half of our global enterprise workforce, and approximately 30%33% of our senior leaders are women. In the United States,U.S., where we have the most complete data through workforce self-identification of race and ethnicity, approximately 1 in 4 U.S. colleagues and 14%18% of U.S. senior leaders identify as non-White.
Our Governance. The Chief People Officer is responsible for developing and executing our enterprise people strategy. This includes the attraction, recruitment, hiring, development and engagement of talent to deliver on our strategy and the design of colleague total rewards programs. The Chief People Officer and the Chief Inclusion & Diversity Officer areis also responsible for developing and integrating our diversityinclusion and inclusiondiversity approach into our strategy.
Our ESG Committee and Compensation Committee ofstrategy, supported by the board of directors have oversight of these initiatives. The Compensation Committee has responsibility to review certain key human resource strategic activities, including those relating to diversity, training and recruitment. The Compensation Committee coordinates with the ESG Committee on diversity initiatives and both committees receive reports at least annually on diversity and inclusion from the Company’s Chief People Officer. The Chief Executive Officer and Chief People Officer regularly update our board of directors, the ESG Committee and the Compensation Committee on the Company’s human capital trends and activities.
Diversity & Inclusion.Social Impact Officer.
Talent & Inclusion. Our Company’s greatest strength is the collective talent of our people. We believe the moreoffer programs globally, regionally and business-specific that are aimed at helping us attract, develop and retain a diverse our backgroundsworkforce. We provide resources to support colleagues in learning about diverse experiences, connecting with each other and experiences, the more we can achieve together working side by side. We seek capable, creative and fair-minded people who can help us enable client success, find smarter ways to do things and live our Code of Conduct, The Greater Good. We believe that inclusion means more than acceptance—it means belonging. Over the last year, we have taken several concrete actions to further goals, including the formation of a Race Advisory Council to advise our Executive Committee and help amplify diverse perspectives in decision-making. Other initiatives included the design of a new learning and sponsorship program to help underrepresented colleagues strengthen leadership skills, as well as the creation of various forums and networks to promote ongoing candid conversations within the organization.
Talent Development. We strive to create an environment where individuals and teams can perform to their highest potential and where career growth and mobility are encouraged and supported.positively impacting communities. We are committed to helping colleagues perform at their best by encouraging regular discussions about their
goals, performance, career aspirations and development opportunities. We offer programming to support their growth and activate a leadership mindset for all colleagues.
We also aim to build a learning culture and deliver a digital-first learning strategy, supplemented by formal programs for key groups. For example, our 2023 Learning Festival offered 31 live sessions in 8 languages with over 18,000 attendees. Top sessions included business briefings with our CEOs, the future of insurance, cyber resilience and AI.
We also recognize the importance of our 13,000nearly 18,000 people managers in their crucial roles for reviewingto our talent pipeline and have given them increased support and opportunities for promoting the professional and personal growth of their teams. In addition,2023 we offer more than 16,000 individual learningoffered 450 development workshops with courses as part of continuous learning to help our colleagues growcovering professional skills, people management and develop. In 2020, we published a set ofleadership development. Our People Manager Practices, centered around managing inclusively, that define what effectiveHub is a one-stop digital source for people management looks like. Managers alsomanagers globally. Through the Hub, people managers have access to our dedicated People Manager Hub, a one-stop source of informationsuggested learning, webinars and community for all people managers globally.resources to support development and provide guidance.
Colleague Engagement. Each year we ask our colleagues to share their views on working at Marsh & McLennan through a company-wide engagement survey. Developed internally by our Global Talent Development team, the survey methodology has been consistent since 2011, with updates to specific questions as necessary. In 2023, we expanded the survey with questions on technology and the company's strategy. A third-party administers our survey in order to maintain confidentiality of responses. In 2020, a record numberCollective survey outcomes allow us to monitor the evolution of colleagues completedour culture over time and identify opportunities to build on strengths and address challenges, all with the survey. As in the past, we continue to use the survey responses to help inform the ongoing developmentintention of a vibrant and inclusive culture.furthering our productivity through an engaged workforce.
Health and WellbeingWell-being. As a company, our success depends on the health and wellbeingwell-being of our colleagues—we want to support our colleagues with resources, protection and peace of mind to live healthy lives.colleagues. We offer comprehensive health insurance, including medical coverage and other core health benefits based on the market. We also prioritize our colleagues’ mental wellness, including 24/7 access to an Employee Assistance Program for confidential counselling on personal issues for over 80 percent99% of our colleagues and their eligible family members, and critical incident support in countries where a disaster has occurred. In addition, we offer competitive time-off benefits, including a paid day off each year to volunteer.
SupportingWe support our colleagues as they navigate the unprecedentedchanging circumstances—milestone life events, health and economic challenges, of COVID-19 has been our highest priority in 2020 and our teams have responded by working in innovative ways. Refer to "Recent Developments" included in Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations" for information on our response to the COVID-19 pandemic.new technologies.
Total Rewards. We recognize how important it is to be financially secure through employment, so we offer competitive rewards to help build colleagues’ personal wealth and improve their financial wellbeing.well-being. Base pay is just the start.one component. Through our annual bonus program, we encourage performance that aligns with the Company’s interests by providing eligible colleagues with discretionary awards. We also offer various incentives in certain circumstances, such as sales incentives and long-term incentives to people in roles that have a significant impact on our long-term performance designed to foster the Company’s long-termand success. Our robust offerings also include retirement benefits, savings and stock investment plans in certain jurisdictions.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers and executive officer appointees of the Company are appointed annually by the Company’s Board of Directors. The following individuals are the executive officers of the Company:
Peter J. Beshar, age 59, is Executive Vice President and General CounselCompany as of Marsh & McLennan Companies. In addition to managing the Company’s Legal, Compliance & Public Affairs groups, Mr. Beshar also oversees the Company’s Risk Management group. Before joining Marsh & McLennan Companies in November 2004, Mr. Beshar was a Litigation Partner in the law firm of Gibson, Dunn & Crutcher LLP. Mr. Beshar joined Gibson, Dunn & Crutcher in 1995 after serving as the Assistant Attorney General in charge of the New York Attorney General's Task Force on Illegal Firearms and as the Special Assistant to former U.S. Secretary of State Cyrus Vance in connection with the peace negotiations in the former Yugoslavia.February 12, 2024:
Paul Beswick, age 46,49, is Senior Vice President and Global Chief Information Officer (CIO) of Marsh & McLennan Companies.McLennan. In this role, he manages over 5,000 technologists supporting Marsh & McLennan’s global businesses. Prior to his appointment as Marsh & McLennan CIO in January 2021, Mr. Beswick was a Partner and Global Head of Oliver Wyman Labs and the Digital Practice at Oliver Wyman. During more than two decades with Oliver Wyman, he worked in various sectors, including retail, transportation, telecom, and consumer goods. Before this, Mr. Beswick headed Oliver Wyman's North American Retail Practice. Mr. Beswick holds an MA (first class) in chemical engineering from Cambridge University.
Dominic BurkeKatherine J. Brennan, age 62,45, is Senior Vice ChairPresident and General Counsel of Marsh &McLennan. In this role, she leads Marsh McLennan’s global legal, compliance and public affairs function, which supports the Company’s four businesses, Marsh, Guy Carpenter, Mercer and Oliver Wyman. She also leads the Company’s ESG efforts. Ms. Brennan has held several legal and compliance leadership roles at Marsh McLennan, Companies. He joined the firm in 2019 with the acquisition of Jardine Lloyd Thompson Group (JLT), after havingserving most recently as General Counsel, Marsh LLC. She also served as JLT’s GroupDeputy General Counsel, Corporate Secretary and Chief ExecutiveCompliance Officer for more than 13 years. He also serves as Chairman of Marsh JLT Specialty. Mr. Burke has more than three decades of experience in the insurance industry. PriorMcLennan from 2017 to serving as JLT’s Group Chief Executive, Mr. Burke held various roles at JLT including Group Chief Operating Officer2021, and prior to that, CEOas General Counsel of JLT’s U.K. Retail and Employee Benefits business. Mr. Burke joined JLT in 2000, when it acquiredGuy Carpenter. Ms. Brennan currently serves on the company he founded, Burke Ford Insurance Group. Mr. Burke serves asBoard of the ChairmanRed Cross of Newbury Racecourse plc and is a Director for the charity Injured Jockeys Fund in the U.K.Greater New York.
John Q. Doyle, age 57,60, is Vice Chair, Marsh & McLennan Companies and President and Chief Executive Officer of Marsh. He oversees all of Marsh’s businessesMarsh McLennan. Previously, from 2021 to 2022 he served as Group President and operations globally. Mr. Doyle was named CEOChief Operating Officer, responsible for the strategy and operational objectives of Marsh McLennan’s four global businesses. He joined the firm in July 2017, having joined Marsh & McLennan Companies2016 as President of Marsh, in April 2016. Priorthen led Marsh as President and CEO from 2017 to that, he was Chief Executive Officer2021. An industry veteran with more than 35 years of AIG’s commercial insurance businesses.management experience, Mr. Doyle began his career at AIG, in 1986 andwhere he held several senior executive positions, including Presidentpositions. He is a member of the Board of the New York Police and Chief Executive OfficerFire Widows’ and Children’s Benefit Fund, a Trustee of AIG propertythe Inner-City Scholarship Fund, a member of the Board of Overseers of the Maurice R. Greenberg School of Risk Management, Insurance and casualty inActuarial Science at St. John’s University and a former Director of the American Insurance Association. Mr. Doyle serves as the Chairman of the U.S., President and Chief Executive Officer of National Union Fire Insurance Company, and President of American Home Assurance Company. Federal Advisory Committee on Insurance.
Martine Ferland, age 59,62, is Vice Chair, Marsh & McLennan Companies and President and Chief Executive Officer of Mercer, aMercer. She also serves as Vice Chair of Marsh McLennan. Prior to assuming her current role she assumed in March 2019. Previously,2019, she was Mercer’s Group President, responsible for leading the firm’s regions and Global Business Solutions. She joined Mercer in 2011 as Retirement Business Leader for the Europe and Pacific region,EMEA, and has served as Europe and Pacific Region President and Co-President, Global Health. Ms. Ferland began her career as a pension actuary and consultant at Willis Towers Watson, where she spent 25 years and held various leadership positions in Montreal and New York. Ms. Ferland is a Fellow of the Society of Actuaries and of the Canadian Institute of Actuaries.Actuaries and a member of the Board of Trustees of the New York Academy of Medicine.
Carmen Fernandez, age 47,50, is Senior Vice President and Chief People Officer for Marsh & McLennan Companies.McLennan. Prior to her current role,appointment as Chief People Officer in January 2021, Ms. Fernandez held positions within Marsh & McLennan for 15 years, most recently Deputy CHRO, CHRO of Guy Carpenter, and HR leadership roles at Mercer, including North America HR Leader, Global HR Leader for the Career business and Chief of Staff in the Office of the CEO. Before joining Marsh & McLennan, Ms. Fernandez worked in investment banking at Bank of America and Goldman Sachs. She began her career as a consultant with Pricewaterhouse Coopers.PricewaterhouseCoopers.
, age 52, is Chief Marketing and Communications officer of Marsh McLennan. Previously, he served as Chief Marketing and Communications Officer of Marsh from 2018 to 2022. Mr. Jones joined Marsh in 2016 as senior vice president of Marsh’s business planning, leading strategic planning and global growth initiatives. Prior to that, Mr. Jones was senior vice president of commercial marketing and strategy for AIG and has more than 25 years of marketing, communications and strategy experience.Daniel S. GlaserDean Klisura, age 60, is President and Chief Executive Officer of Marsh & McLennan Companies. Prior to starting his current role in January 2013, Mr. Glaser served as Group President and Chief Operating Officer of the Company. He rejoined Marsh & McLennan Companies in December 2007 as Chairman and Chief Executive Officer of Marsh, returning to the firm where he had begun his career right out of university in 1982. Mr. Glaser is an insurance industry veteran who has held senior positions in commercial insurance and insurance brokerage, working in the United States, Europe and the Middle East. Mr. Glaser serves as the Chairman of the U.S. Federal Advisory Committee on Insurance (FACI). He is a member of: the Board of Trustees for The Institutes and the Board of Directors for the Partnership for New York City. He is also Co-Chair of the International Advisory Board for BritishAmerican Business.
Peter Hearn, age 65, is Vice Chair, Marsh & McLennan Companies and President and Chief Executive Officer of Guy Carpenter. Previously, he was Global Chairman of Willis Re from March 2011 to June 2015. Prior to that, Mr. Hearn servedCarpenter and serves as the company’s Global CEO from February 2005 to March 2011, during which time he was also a member of the Willis Group Executive Committee. Mr. Hearn began his reinsurance career in 1978 with Willis Faber and Dumas, working in the North American casualty, facultative, marine, and North American reinsurance divisions until 1981, when he joined Towers Perrin Forster and Crosby. Mr. Hearn joined Willis Re as a Senior Vice President in 1994.
Scott McDonald, age 54, is Vice Chair of Marsh & McLennan Companies and President and Chief Executive Officer of Oliver Wyman Group.McLennan. Prior to assuming this role in January 2014,2022, he was President of Guy Carpenter, overseeing the North America, International, Specialty and Global Strategic Advisory business units. Prior to joining Guy Carpenter, Mr. McDonaldKlisura was President of Marsh Global Placement and Advisory Services, leading property and casualty placement activities globally, as well as leading Bowring Marsh, the Insurer Consulting Group, and Marsh Advisory. He joined Marsh in 1993 and held several key global leadership roles including President of Oliver Wyman. Before becoming President of Oliver Wyman in 2012, Mr. McDonald was the Managing Partner of Oliver Wyman's Financial Services practice and has held a number of senior positions, including the Global head of the Corporate & Institutional Banking Practice. Before joining Oliver Wyman in 1995, he was an M&A investment banker with RBC Dominion Securities in Toronto.Specialties.
Mark McGivney, age 53,56, is Chief Financial Officer of Marsh & McLennan Companies.McLennan. Prior to assuming this role in January 2016, Mr. McGivney held a number of senior financial management positions since joining the Company in 2007. Most recently he was Senior Vice President, Corporate Finance of Marsh & McLennan, and was responsible for leading and directing the Company’s Corporate Development, Treasury and Investor Relations functions from 2014 until 2016. Prior to that, he served as Chief Financial Officer of Marsh, and Chief Financial Officer and Chief Operating Officer of Mercer. His prior experience includes senior positions at The Hanover Insurance Group, including serving as Senior Vice President of Finance, Treasurer, and Chief Financial Officer of the Property & Casualty business, as well as positions with Merrill Lynch and Price Waterhouse.PricewaterhouseCoopers.
AVAILABLE INFORMATIONMartin South, age 59, is President and Chief Executive Officer of Marsh, a position he assumed in January 2022, and oversees all of Marsh’s businesses and operations globally. He also serves as Vice Chair of Marsh McLennan. With more than 30 years in the insurance industry, Mr. South joined Marsh for the first time in 1985 with Bowring Marsh, a Marsh McLennan broking unit. His industry experience includes senior leadership roles at Zurich Financial Services, where he was a member of the Group Management Board, responsible for all of Zurich’s operations outside of North America and Europe, and CEO of Zurich’s London operations. Since rejoining Marsh in 2007, Mr. South has served as CEO of Marsh’s Asia-Pacific region, CEO of Marsh UK and Ireland, CEO of Marsh Europe and CEO of Marsh U.S. and Canada.
Nicholas Studer, age 50, is Chief Executive Officer of Oliver Wyman Group, a role he assumed in July of 2021. He also serves as Vice Chair of Marsh McLennan. From 2017 to 2021, Mr. Studer was the Managing Partner of the Consumer, Industrial and Services Practice Group, before becoming Managing Partner of Oliver Wyman in 2021. He has held many senior positions at Oliver Wyman including Managing Partner of the Financial Services Practice Group, Head of the European Finance and Risk Practice and Global head of the Corporate and Institutional Banking practice. He has over 25 years of experience consulting in the UK, Continental Europe, and North America.
The Company is subject to the information reporting requirements of the Securities Exchange Act of 1934. In accordance with the Exchange Act, the Company files with, or furnishes to, the SEC its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and proxy statement for its annual shareholders' meeting. The Company makes these reports and any amendments to these reports available free of charge through its website, www.mmc.comwww.marshmclennan.com, as soon as reasonably practicable after they are filed with or furnished to the SEC. The SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers, like the Company, that file electronically with the SEC.
The Company also posts on its website certain governance and other information for investors.
The Company encourages investors to visit these websites from time to time, as information is updated and new information is posted. Website references in this report are provided as a convenience and do not constitute, and should not be viewed as, incorporation by reference of the information contained on, or available through, the websites. Therefore, such information should not be considered part of this report.
Item 1A. Risk FactorsFactors.
You should consider the risks described below in conjunction with the other information presented in this report. These risks have the potential to materially adversely affect the Company's business, results of operations or financial condition.
SUMMARY RISK FACTORS
Some of the factors that could materially and adversely affect our business, financial condition, results of operations or prospects, include the following:
•The COVID-19 pandemic could have a material adverse effect on our business operations, results of operations, cash flows and financial position;
•Our results of operations and investments could be adversely affected by geopolitical or macroeconomic conditions, political events and market conditions;
•Our business performance and growth plans could be negatively affected if we are not able to develop and implement improvements in technology or respond effectively to the threat of digital disruption and other technological change;
•We could incur significant liability or our reputation could be damaged if our information systems are breached or we otherwise fail to protect client or Company data or information systems;
•The costs to comply with, or our failure to comply with, U.S. and foreign laws related to privacy, data security and data protection, such as the E.U. General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA), could adversely affect our financial condition, operating results and our reputation;
•We are subject to significant uninsured exposures arising from errors and omissions, breach of fiduciary duty and other claims;
•We cannot guarantee that we are or will be in compliance with all current and potentially applicable U.S. federal and state or foreign laws and regulations, and actions by regulatory authorities or changes in legislation and regulation in the jurisdictions in which we operate could have a material adverse effect on our business;
•OurOur business or reputation could be harmed by our reliance on third-party providers or introducers;
•We may not be able to effectively identify and manage actual and apparent conflicts of interest;
•We could incur significant liability or our reputation could be damaged if our information systems are breached or we otherwise fail to protect client or Company data or information systems;
•The costs to comply with, or our failure to comply with, U.S. and foreign laws related to privacy, data security and data protection, such as the EU's General Data Protection Regulation (GDPR) and the California Consumer Privacy Act, as amended by the California Privacy Rights Act, (CCPA), could adversely affect our financial condition, operating results and our reputation;
•Our business performance and growth plans could be negatively affected if we are not able to develop and implement improvements in technology or respond effectively to the threat of digital disruption and other technological change such as AI;
•The loss of members of our senior management team or other key colleagues, or if we are unsuccessful in our efforts to attract, retain and develop talent, could have a material adverse effect on our business;
•Failure to maintain our corporate culture, particularly in a hybrid work environment, could damage our reputation;
•Increasing scrutiny and changing laws and expectations from regulators, investors, clients and our colleagues with respect to our environmental, social and governance (ESG) practices and disclosure may impose additional costs on us or expose us to new or additional risks;
•We face significant competitive pressures in each of our businesses, including from disintermediation, as our competitive landscape continues to evolve;
•We rely on a large number of vendors and other third parties to perform key functions of our business operations and to provide services to our clients. These vendors and third parties may act or fail to act in ways that could harm our business;
•Our inability to successfully recover should we experience a disaster or other business continuity or data recovery problem could cause material financial loss, loss of human capital, regulatory actions, reputational harm or legal liability;
•We face risks when we acquire or dispose of businesses;
•If we are unable to collect our receivables, our results of operations and cash flows could be adversely affected;
•We may not be able to obtain sufficient financing on favorable terms;
•Our defined benefit pension plan obligations could cause the Company's financial position, earnings and cash flows to fluctuate;
•Our significant non-U.S. operations expose us to exchange rate fluctuations and various risks that could impact our business;
•Our quarterly revenues and profitability may fluctuate significantly;
•Credit rating downgrades would increase our financing costs and could subject us to operational risk;
•We have significantly increased ourOur current debt as a result of the JLT acquisition, whichlevel could adversely affect our financial flexibility;
•The current U.S. tax regime makeshas provisions which have unintended consequences and may also impact our results more difficult to predict;tax rate in varying degrees based on where our global income is earned;
•We are exposed to multiple risks associated with the global nature of our operations;
•Results in our Risk and Insurance Services segment may be adversely affected by a general decline in economic activity;
•Volatility or declines in premiums and other market trends may significantly impede our ability to grow revenues and profitability;
•Adverse legal developments and future regulations concerning how intermediaries are compensated by insurers or clients, as well as allegations of anti-competitive behavior or conflicts of interest, more broadly, could have a material adverse effect on Marsh’s business, results of operations and financial condition;
•Mercer’s InvestmentsWealth business is subject to a number of risks, including risks related to public and private capital market fluctuations, third-party investmentasset managers operational risk,and custodians, operations and technology risks, conflicts of interest, ESG and greenwashing, asset performance and regulatory compliance, that, if realized, could result in significant damage to our business;
•Revenues for the services provided by our Consulting segment may decline for various reasons, including as a result of changes in economic conditions, the value of equity, debt and other asset classes, our clients’ or an industry's financial condition or government regulation or an accelerated trend away from actively managed investments to passively managed investments;
•Factors affecting defined benefit pension plans and the services we provide relating to those plans could adversely affect Mercer; and
•The profitability of our Consulting segment may decline if we are unable to achieve or maintain adequate utilization and pricing rates for our consultants.
RISKS RELATING TO THE COMPANY GENERALLY
Macroeconomic Risks
The COVID-19 pandemic could have a material adverse effect on our business operations, results of operations, cash flows and financial position.
Global health concerns relating to the ongoing COVID-19 pandemic and related government actions taken to reduce the spread of the virus have had a dramatic impact on the macroeconomic environment, and the outbreak continues to materially increase economic uncertainty and reduce economic activity.
The outbreak has resulted in authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place or total lock-down orders and business limitations and shutdowns. Such measures have significantly contributed to decreased levels of business activity of our clients and the industries and markets that we serve. Governments around the globe have taken steps to mitigate some of the more severe anticipated economic effects of the virus, but there can be no assurance that such steps will be effective or achieve their desired results in a timely fashion.
The outbreak has adversely impacted and is likely to further adversely impact our workforce and operations and the operations of our clients, third-party vendors and business partners. The spread of COVID-19 has caused us to modify our business practices (including transitioning substantially all of our colleagues to a remote work environment, restricting colleague travel, developing social distancing plans for our colleagues and cancelling physical participation in meetings, events and conferences), and we
may take further actions as may be required by government authorities or as we determine are in the best interests of our colleagues, clients and business partners. There is no certainty how long such policies will remain in effect or that such measures will be sufficient to mitigate the risks posed by the virus or will otherwise be satisfactory to government authorities.
The ongoing impacts of COVID-19 may affect our ability to generate new business, our overall level of profitability and cash flow, and our liquidity due to a number of macroeconomic and operational factors. Such factors may include:
•in our Risk and Insurance Services segment, a reduction in demand, pricing and commission for specific lines of coverage most directly affected by COVID-19;
•in our Consulting segment, a reduction in fees or commission due to lower demand for our services as clients cut back on expenses; the impact on our business model for delivering services to clients due to restrictions on travel and movement, and guidance around social distancing; and the impact on profitability and margin of not achieving or maintaining adequate utilization and pricing rates;
•the timeliness and ultimate collectability of our receivables, including as a result of deferrals of premium payments directed by government authorities, which affects our ability to generate sufficient cash flows;
•the impact of disruption in the credit or financial markets, or changes to our credit ratings, which may impact our ability to access capital or repay our significant outstanding indebtedness on favorable terms and our compliance with the covenants contained in the agreements that govern our indebtedness;
•an increase in errors & omissions claims related to losses incurred by policyholders arising from the pandemic;
•the impact of financial market volatility, including our ability to execute timely trades in light of increased trading volume, which may reduce assets under management and revenue for Mercer’s Investments business;
•failure of third parties upon which we rely to meet their obligations to us, or significant disruptions in their ability to meet those obligations in a timely manner, which may be caused by their own financial or operational difficulties;
•the impact of an extended period of remote work arrangements on our business continuity plans, and our ability to continue to provide services to our clients;
•increased risk of phishing and other cybersecurity attacks or unauthorized dissemination of personal, confidential, proprietary or sensitive data caused by remote work arrangements; and
•the potential effects on our internal controls including those over financial reporting as a result of remote work arrangements that are applicable to our team members and business partners.
These factors may remain prevalent for a significant period of time and may continue to adversely affect our business, results of operations and financial condition even after the COVID-19 pandemic subsides. For the year ended December 31, 2020, the COVID-19 pandemic had an adverse impact to the Company’s revenue growth, primarily in our businesses that are discretionary in nature, which was partly mitigated through disciplined expense management by implementing restrictions on travel and other cost containment measures. However impacts from COVID-19 in 2020 may not be representative of future conditions. The extent to which the COVID-19 outbreak continues to impact our business, results of operations and financial condition will depend on future developments, which remain highly uncertain and are difficult to predict, including the duration and spread of the outbreak, its severity and strain mutations, the actions to contain the virus and the development and availability of effective treatments and vaccines, and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 outbreak subsides, we may continue to experience materially adverse impacts to our business as a result of the virus’s global economic impact, including the availability of credit, adverse impacts on our liquidity and any recession that has occurred or may occur in the future.
There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and, as a result, the ultimate impact of the outbreak is highly uncertain and
subject to change. We do not yet know the full extent of the impacts on our business, our operations or the global economy as a whole. However, the effects could have a material impact on our results of operations and heighten many of our known risks in this section.
Our results of operations and investments could be adversely affected by geopolitical or macroeconomic conditions.
Geopolitical and macroeconomic conditions, political eventsincluding from multiple major wars, escalating conflict throughout the Middle East and market conditions.
Macroeconomic conditions, political eventsrising tension in the South China Sea, slower GDP growth or recession, lower interest rates, capital markets volatility and other market conditions around the worldinflation affect our clients' businesses and the markets they serve. These conditions, including inflationary expense pressure with our clients, may reduce demand for our services or depress pricing for those services, which could have a material adverse effect on our results of operations.
For example, the war in Ukraine and the escalating conflict throughout the Middle East have resulted in worldwide geopolitical and macroeconomic uncertainty and may negatively impact other regional and global economic markets (including Europe, the Middle East and the U.S.), companies in other countries (particularly those that have done business with Russia or have substantial exposure to, or operations in, impacted countries) and various sectors, industries and markets for securities and commodities globally, such as oil and natural gas, and may increase financial market volatility and adversely impact regional and global economic markets, industries and companies. Moreover, the COVID-19 pandemic impacted businesses, including our clients, third-party vendors and business partners, globally in every geography in which we operate. In addition, the potentially divergent laws and regulations as a result of Brexit may continue to lead to economic and legal uncertainty, causing increased economic volatility or disrupting the markets and clients we serve.
Changes in macroeconomic and politicalgeopolitical conditions could also shift demand to services for which we do not have a competitive advantage, and this could negatively affect the amount of business that we are able to obtain. In particular, please see above for detailed risks related to the impact of COVID-19.
In addition, the United Kingdom’s withdrawal from the European Union, referred to as "Brexit," continues to create political and economic uncertainty, particularly in the United Kingdom and the European Union. While the British government and the E.U. negotiated terms of the withdrawal in December 2020, the agreement did not contain resolutions related to financial services. Accordingly, there remains inevitable uncertainty on the treatment of financial services and the impact of the other terms of the agreement generally on our businesses.
We have significant operations and a substantial workforce in the U.K. With 12,500 colleagues and approximately 16% of our revenue from the U.K., the uncertainty surrounding the implementation and effect of Brexit may cause increased economic volatility, affecting our operations and business. The effects of Brexit will depend on the agreements the U.K. makes to retain access to European Union markets and the systems put in place to facilitate future trade and economic relationships. The measures could potentially disrupt the markets we serve and may cause us to lose clients and colleagues. In addition, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the U.K. determines which European Union laws to replace or replicate. These developments may have a material adverse effect on global economic conditions and the stability of financial markets, both in the U.K. and globally. Any of these factors could affect the demand for our services. Furthermore, currency exchange rates in GBP and the Euro with respect to each other and the U.S. dollar have already been adversely affected by these developments. Should this foreign exchange volatility continue, it could cause volatility in our quarterly financial results.
More generally, our investments, including our minority investments in other companies as well as our cash investments and those held in a fiduciary capacity, are subject to general credit, liquidity, counterparty, foreign exchange, market and interest rate risks. For example, fluctuations in interest rates and foreign exchange rates between the U.S. dollar and foreign currencies may adversely affect our results of operations. Lower interest rates may lead to a decline in our fiduciary income.
These risks may be exacerbated by global macroeconomic conditions, market volatility and regulatory, financial and other difficulties affecting the companies in which we have invested or that may be faced by financial institution counterparties. During times of stress in the banking industry, counterparty risk can quickly escalate, potentially resulting in substantial trading and investment losses for corporate and other investors. In addition, we may incur investment losses as a result of unusual and unpredictable market developments, and we may continue to experience reduced investmentlower earnings if the yields on investments deemedbegin to be low risk remain at or near their current low levels.decline. If the banking system or the fixed income, interest rate, credit or equity markets deteriorate, the value and liquidity of our investments could be adversely affected. Finally, the value of the Company's assets held in other jurisdictions, including cash holdings, may decline due to foreign exchange fluctuations.
Technology, CybersecurityLegal and Data ProtectionRegulatory Risks
We are subject to significant uninsured exposures arising from errors and omissions, breach of fiduciary duty and other claims.
Our businesses provide numerous professional services, including the placement of insurance and the provision of consulting, investment advisory, investment management and actuarial services, to clients around the world. As a result, the Company and its subsidiaries are subject to a significant number of errors and omissions, breach of fiduciary duty, breach of contract and similar claims, which we refer to collectively as "E&O claims." In our Risk and Insurance Services segment, such claims include allegations of damages arising from our failure to assess clients’ risks, advise clients, place coverage, or notify insurers of potential claims on behalf of clients in accordance with our obligations to them. For example, these claims could include allegations related to losses from cyberattacks associated with policies where cyber risk was not specifically included or excluded in policies, commonly referred to as “silent cyber.” In our Consulting segment, where we increasingly act in a fiduciary capacity through our investments business, performancesuch claims could include allegations of damages arising from the provision of consulting, investment management (including, for example, from trading or other operational errors), actuarial, pension administration and growthother services. We may also be exposed to claims related to services or solutions offered by the Consulting segment in addition to consulting services. These Consulting segment services frequently involve complex calculations and services, including (i) making assumptions about, and preparing estimates concerning, contingent future events, (ii) drafting and interpreting complex documentation governing pension plans, could(iii) calculating benefits within complex pension structures, (iv) providing individual financial planning advice including investment advice and advice relating to cashing out of defined benefit pension plans, (v) providing investment advice, including guidance on asset allocation and investment strategy, and (vi) managing client assets, including the selection of investment managers and implementation of the client’s investment policy. We provide these services to a broad client base, including clients in the public sector. Matters may relate to services provided by the Company dating back many years. Such claims may subject us to significant liability for monetary damages, including punitive and treble damages, negative publicity and reputational harm, and may divert personnel and management resources. We may be negatively affected ifunable to effectively limit our potential liability in certain jurisdictions, including through insurance, or in connection with certain types of claims, particularly those concerning claims of a breach of fiduciary duty.
In establishing liabilities for E&O claims in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"), the Company uses case level reviews by inside and outside counsel, actuarial analysis by Oliver Wyman, a subsidiary of the Company, and other methods to estimate potential losses. A liability is established when a loss is both probable and reasonably estimable. The liability is assessed quarterly and adjusted as developments warrant. In many cases, the Company has not recorded a liability, other than for legal fees to defend a claim, because we are not ableunable, at the present time, to developmake a determination that a loss is both probable and implement improvementsreasonably estimable. Given the judgment involved in technology or respond effectively to the threat of digital disruptionestimating and other technological change.
We depend in large part on our technology systems for conducting business,establishing such liabilities, as well as for providing the dataunpredictability of E&O claims and analytics we use to manage our business. As a result, our business successthe litigation that can flow from them, it is dependent on maintaining the effectiveness of existing technology systems and on continuing to develop and enhance technology systemspossible that support our business processes and strategic initiativesan adverse outcome in a cost and resource efficient manner, particularly as our business processes become more digital.Weparticular matter could have a numbermaterial adverse effect on the Company's business, results of operations or financial condition.
strategic initiatives involving investmentsWe cannot guarantee that we are or will be in compliance with all current and potentially applicable U.S. federal and state or partnershipsforeign laws and regulations, and actions by regulatory authorities or changes in legislation and regulation in the jurisdictions in which we operate could have a material adverse effect on our business.
Our activities are subject to extensive regulation under the laws of the U.S. and its various states, the United Kingdom, the European Union and its member states, Australia and the other jurisdictions in which we operate. We are also subject to trade sanctions laws relating to countries such as Afghanistan, Belarus, Cuba, Iran, North Korea, Russia, Syria, Ukraine (Russia-controlled territories) and Venezuela, and anti-corruption laws such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act. We are subject to numerous other laws on matters as diverse as internal control over financial reporting and disclosure controls and procedures, securities regulation, data privacy and protection, cybersecurity, taxation, anti-trust and competition, immigration, wage-and-hour standards and employment and labor relations.
The U.S. and foreign laws and regulations that apply to our operations are complex and may change rapidly, and our efforts to comply and keep up with technology companiesthem require significant resources. In some cases, these laws and regulations may decrease the need for our services, increase our costs, negatively impact our revenues or impose operational limitations on our business, including on the products and services we may offer or on the amount or type of compensation we may collect. In addition, the financial and operational impact of complying with laws and regulations has increased in the current environment of increased regulatory activity and enforcement. Changes with respect to the applicable laws and regulations may impose additional and unforeseen costs on us or pose new or previously immaterial risks to us. There can be no assurance that current and future government regulations will not adversely affect our business, and we cannot predict new regulatory priorities, the form, content or timing of regulatory actions, and their impact on our business and operations. In addition, geopolitical conflict, such as partthe war in Ukraine and the escalating conflict throughout the Middle East, has resulted in, and may continue to result in, new and rapidly evolving trade sanctions, which may increase our costs, negatively impact our revenues or impose additional operational limitations on our businesses.
While we attempt to comply with applicable laws and regulations, there can be no assurance that we, our employees, our consultants and our contractors and other agents are in full compliance with such laws and regulations or interpretations at all times, or that we will be able to comply with any future laws or regulations. If we fail to comply or are accused of failing to comply with applicable laws and regulations, including those referred to above, or new and evolving regulations regarding cybersecurity, AI or environmental, social and governance matters, we may become subject to investigations, criminal penalties, civil remedies or other consequences, including fines, injunctions, loss of an operating license or approval, increased scrutiny or oversight by regulatory authorities, the suspension of individual employees, limitations on engaging in a particular business or redress to clients or other parties, and we may become exposed to negative publicity or reputational damage. Moreover, our failure to comply with laws or regulations in one jurisdiction may result in increased regulatory scrutiny by other regulatory agencies in that jurisdiction or regulatory agencies in other jurisdictions. These inquiries consume significant management attention, and the cost of compliance and the consequences of failing to be in compliance could therefore have a material adverse effect on our business.
In most jurisdictions, government regulatory authorities have the power to interpret and amend or repeal applicable laws and regulations, and have discretion to grant, renew and revoke the various licenses and approvals we need to conduct our activities. Such authorities may require the Company to incur substantial costs in order to comply with such laws and regulations. In some areas of our growth strategy, as well as investments in technology and infrastructure to supportbusinesses, we act on the basis of our own systems.
These investmentsor the industry's interpretations of applicable laws or regulations, which may conflict from state to state or country to country. In the event those interpretations eventually prove different from the interpretations of regulatory authorities, we may be costlypenalized or precluded from carrying on our previous activities. Moreover, the laws and require significant capital expenditures,regulations to which we are subject may conflict among the various jurisdictions and countries in which we operate, which increases the likelihood of our businesses being non-compliant in one or more jurisdictions.
In addition, we may be responsible for the legal and regulatory liabilities of companies that we acquire.
Additional information regarding certain ongoing investigations and certain other legal and regulatory proceedings is set forth in Note 16, Claims, Lawsuits and Other Contingencies, in the notes to the consolidated financial statements included under Part II, Item 8 of this report.
Our business or reputation could be harmed by our reliance on third-party providers or introducers.
We currently utilize the services of hundreds of third-party providers to meet the needs of our clients around the world.
There is a risk that our third-party providers or introducers engage in business practices that are prohibited by our internal policies or violate applicable laws and regulations, such as the U.S. Foreign Corrupt Practices Act and the U.K. Anti-Bribery Act.
We may not be profitable orable to effectively identify and manage actual and apparent conflicts of interest.
Given the significant volume of our engagements, potential conflicts of interest may be less profitable than whatarise across our businesses. There is a risk that we have experienced historically. In addition, investments in technology systems may not delivereffectively identify and manage potential conflicts of interest, including but not limited to where our services to a client conflict, or are perceived to conflict, with the interests of another client or our own interests, where we receive revenue or benefits or perform as expected, or may be replaced or become obsolete more quickly than expected, which could result in operational difficulties or additional costs. In some cases,from third-parties with whom we also depend on key vendorsconduct business (including but not limited to insurers, investment managers and partners to provide technologyvendors) and other support forwhere our strategic initiatives. If these vendors or partners fail to perform their obligations or otherwise cease to work with us, our ability to execute on our strategic initiatives could be adversely affected. If we do not keep up with technological changes or execute effectively on our strategic initiatives, our businesscolleagues have personal interests.
Cybersecurity, Data Protection and results of operations could be adversely impacted.
In addition, to remain competitive in many of our business areas, we must anticipate and respond effectively to the threat of digital disruption and other technological change. The threat comes from traditional players, such as insurers, through disintermediation as well as from new entrants, such as technology companies, "Insurtech" start-up companies and others. In the past few years, there has been a substantial increase in private equity investments into these Insurtech companies. These players are focused on using technology and innovation, including artificial intelligence (AI), digital platforms, data analytics, robotics and blockchain, to simplify and improve the client experience, increase efficiencies, alter business models and effect other potentially disruptive changes in the industries in which we operate.Technology Risks
We could incur significant liability or our reputation could be damaged if our information systems are breached or we otherwise fail to protect client or Company data or information systems.
In operating our business and providing services and solutions to clients, we collect, use, store, transmit and otherwise process certain electronic information, including personal, confidential, proprietary and sensitive data such as information related to financial records, health care, mergers and acquisitions and personal data of our clients, colleagues and vendors. We rely on the efficient, uninterrupted and secure operation of complex information technology systems and networks to operate our business and securely process, transmit and store electronic information. In the normal course of business, we also share electronic information with our vendors and other third parties. This electronic information comprises sensitive and confidential data, including information related to financial records, health care, mergers and acquisitions and clients’ personal data. Our information technology systems and safetyinformation security control systems, and those of our numerous third-party providers, as well as the control systems of critical infrastructure they rely on, such as power grids, and undersea cables, are potentially vulnerable to unauthorized access, damage or interruption from a variety of external threats, including software bugs, physical attack, cyberattacks, computer viruses and other malware, malicious or destructive code, ransomware, social engineering attacks (including phising and digital or telephonic impersonation), hacking, denial-of-service attacks and other types of data and systems-related modes of attack. The techniques used to achieve such unauthorized access, damage or interruption change frequently and new techniques may not be identified until they are launched against a target, and we may be unable to anticipate these techniques or implement adequate preventative or remedial measures, resulting in potential data loss, data unavailability, data corruption or other damage to information technology systems. In addition, remote and hybrid work arrangements have increased the risk of phishing and other cybersecurity attacks, unauthorized dissemination of personal, confidential, proprietary or sensitive data, and unauthorized access to company computing assets. Further, a disruption of physical infrastructure could impact our ability to conduct business and service clients. This may include deliberate or unintentional disruption of service to electrical systems, satellite communications, undersea or terrestrial cable systems, Internet services, or other systems our colleagues or third parties rely on us to conduct business in a multitude of jurisdictions across the globe. Disruptions may be the result of weather, natural disaster, war, terrorism, pandemic, or other natural or geopolitical events.Our systems are also subject to compromise from internal threats such as fraud, mistake, misconduct or other improper action by employees, vendors and other third parties with otherwise legitimate access to our systems. Moreover, we face the ongoing challenge of managing access controls in a complex environment. The latency of a compromise is often measured in months but could be years, and we may not be able to detect a compromise in a timely manner, and even if detected, there can be no assurance that we can mitigate or remediate such compromise in an adequate or timely manner. We could experience significant financial and reputational harm if our information systems are breached, sensitive client or Company data are compromised, surreptitiously modified, rendered inaccessible for any period of time or maliciously made public, or if we fail to make adequate or timely disclosures to the public, or law enforcement agencies or regulators following any such event, whether due to delayed discovery or a failure to follow existing protocols.
Cyberattacks are increasing in frequency and evolving in nature. We are at risk of attack by a variety of adversaries, including nation states, state-sponsored organizations, organized crime and hackers, or "hactivists" (activist hackers), through use of increasingly sophisticated methods of attack, including the deployment of artificial intelligenceAI to find and exploit vulnerabilities, such as “deep fakes”"deep fakes", and long-term, persistent attacks referred(referred to as advanced persistent threats) and the use of the IT supply chain to introduce malware through software updates or compromised suppliers accounts or hardware. In particular, the advance of AI and large language models has given rise to additional vulnerabilities and potential entry points for cyber threats. These techniques usedWith generative AI tools, threat actors may have additional tools to obtain unauthorized accessautomate breaches or sabotagepersistent attacks, evade detection, or generate sophisticated phishing emails or other forms of digital impersonation. In addition, increasing use of generative AI models in our internal systems include, among other things, computer viruses, malicious or destructive code, ransomware, social engineering attacks (including phishingmay create new attack methods for adversaries. Because generative AI is a new field, understanding of cybersecurity risks and impersonation), hackingprotection methods continues to develop, and denial-of-service attacks. Because these techniques change frequently and new techniques may not be identified until they are launched against a target, wefeatures that rely on generative AI, including in services provided to us by third parties, may be unablesusceptible to anticipate these techniques or implement adequate preventative measures, resulting in potential data loss, data unavailability, data corruption or
other damage to information technology systems. In addition, remote work arrangements in response to COVID-19 have increased the risk of phishingunanticipated cybersecurity threats from sophisticated adversaries and other cybersecurity attacksincidents. Further, we are at increased risk of a cyberattack during periods of heightened geopolitical conflict, such as the war in Ukraine and the escalating conflict throughout the Middle East, as diplomatic events and economic policies may trigger espionage or unauthorized disseminationretaliatory cyber incidents. Despite our efforts to comply with applicable cybersecurity requirements and mitigate risks of personal, confidential, proprietarycybersecurity threats, we cannot be certain that our security measures will definitively prevent, contain, detect, or sensitive data.remediate all cybersecurity threats or incidents or other instructions from malware currently in existence or developed in the future.
As the breadth and complexity of the technologies we use and the software and platforms we develop continue to grow, including as a result of the use of mobile devices, cloud services, "open source" software, social media tools and the increased reliance on devices connected to the Internet (known as the "Internet of Things"), the potential risk of security breaches and cyber-attacks also increases. Despite ongoing efforts to improve our ability to protect data from compromise, we may not be able to protect all of our data across our diverse systems. Our efforts to improve and protect data from compromise may also identify previously undiscovered instances of security breaches or other cyber incidents. Our policies, employee training (including phishing prevention training), procedures and technical safeguards may also be insufficient to prevent, detect or detectremediate improper access to confidential, personal or proprietary information. In addition, the competition for talent in the data privacy and cybersecurity space is intense, and we may also be unable to hire, develop or retain suitable talent capable of adequately detecting, mitigating or remediating these risks.
Should an attacker gain access to our network using compromised credentials of an authorized user, we are at risk that the attacker might successfully leverage that access to compromise additional systems and data. Certain measures that could increase the security of our systems, such as data encryption (including encryption of data at rest), heightened monitoring and logging, scanning for source code errors or deployment of multi-factor authentication, take significant time and resources to deploy broadly, and such measures may not be deployed in a timely manner or be effective against an attack. The inability to implement, maintain and upgrade adequate safeguards could have a material adverse effect on our business.
Our information systems must be continually updated, patched, and upgraded to protect against known vulnerabilities. The volume of new software vulnerabilities has increased markedly, as has the criticality of patches and other mitigation and remedial measures. In addition to mitigating and remediating newly identified vulnerabilities, previously identified vulnerabilities must also be continuously addressed. Accordingly, we are at risk that cyberattackers exploit these known vulnerabilities before they have been communicated by vendors or addressed. Due to the large number and age of the systems and platforms that we operate, the increased frequency at which vendors are issuing security patches to their products, the need to test patches and, in some cases coordinate with clients and vendors, before they can be deployed, we perpetually face the substantial risk that we cannot deploy patches in a timely manner. We are also dependent on third party vendors to keep their systems patched and secure in order to protect our data. Any failure related to these activities could have a material adverse effect on our business.
We have numerous vendors and other third parties who receive personal information from us in connection with the services we offer our clients.clients and our employees. We also use hundreds of IT vendors and software providers to maintain and secure our global information systems infrastructure. In addition, we have migrated certain data, and may increasingly migrate data, to the cloud where it is hosted by third-party providers. Some of these vendors and third parties also have direct access to our systems.systems or data. We are at risk of a cyberattack involving a vendor or other third party, which could result in a breakdown of such third party’s data protection processes or the cyberattackers gaining access to our infrastructure or data through a supply chain attack. For example, in December 2020, it was widely reported that hackers installed malware intoHighly publicized data
security breaches, such as the October 2023 attack on Okta may embolden malicious actors to target the IT supply chain and providers of business software updates provided by SolarWinds. The attack was widespread, affecting publicsoftware. Our control over and private organizations aroundability to monitor the world, including several U.S. government agencies. Whilecybersecurity practices of our third-party vendors and service providers, and other third parties with whom we do not believebusiness, remains limited, and there can be no assurance that we can prevent, mitigate, or remediate the risk of any compromise or failure in the cybersecurity infrastructure owned or controlled by such third parties. Additionally, any contractual protections with such third parties, including our operations were affected by this latest attack, it highlighted the vulnerability of IT supply chains.right to indemnification, if any, may be limited or insufficient to prevent a negative impact on our business from such compromise or failure.
We have a history of making acquisitions and investments, and in April 2019 we completed the acquisition of JLT.investments. The process of integrating the information systems of any businesses we acquire is complex and exposes us to additional risk. For instance, we may not adequately identify weaknesses and vulnerabilities in an acquired entity’s information systems, either before or after the acquisition, which could affect the value we are able to derive from the acquisition, expose us to unexpected liabilities or make our own systems more vulnerable to a cyberattack. In addition, if we discover a historical compromise, security breach or other cyber incident related to the target’s information systems following the close of the acquisition, we may be liable and exposed to significant costs and other unforeseen
liabilities. We may also be unable to integrate the systems of the businesses we acquire into our environment in a timely manner, which could further increase these risks until such integration takes place.
We have from time to time experienced data incidents and cybersecurity breaches, such as malware incursions (including computer viruses and ransomware), vulnerabilities in the software on which we rely, users exceeding their data access authorization, employee misconduct and incidents resulting from human error, such as emails sent to the wrong recipient, loss of portable and other data storage devices or misconfiguration of software or hardware resulting in inadvertent exposure of personal, sensitive, confidential or proprietary information. In April 2021, an unauthorized actor leveraged a vulnerability in a third party's software and gained access to a limited set of data in our environment.Like many companies, we are also subject to social engineering attacks such as WhatsApp scams and regular phishing email campaigns directed at our employees that can result in malware infections, fraud and data loss. Although these incidents have resulted in data loss and other damages, to date, they have not had a material adverse effect on our business or operations. In the future, these types of incidents could result in personal, sensitive, confidential or proprietary information, including client, employee or Company data, being lost or stolen, surreptitiously modified, rendered inaccessible for any period of time, or maliciously made public, including client, employee or Company data, which could have a material adverse effect on our business. In the event of a cyberattack, we might have to take our systems offline, which could interfere with services to our clients or damage our reputation. A cyberattack may also result in systems or data being encrypted or otherwise unavailable due to ransomware or other malware. We also may be unable to detect an incident, assess its severity or impact, or appropriately respond in a timely or adequate manner. In addition, our liability insurance, which includes cyber insurance, may not be sufficient in type or amount to cover us against claims related to security breaches, cyberattacks and other related data and system incidents. Further, we cannot be sure that our existing coverage will continue to be available on acceptable terms or at all or that our insurers will not deny coverage as to any future claim.
The costs to comply with, or our failure to comply with, U.S. and foreign laws related to privacy, data security and data protection, such as the E.U.EU's General Data Protection Regulation (GDPR) and the California Consumer Privacy Act, as amended by the California Privacy Rights Act, (CCPA), could adversely affect our financial condition, operating results and our reputation.
Improper collection, use, disclosure, cross border transfer, retention and other processing of confidential, personal, or proprietary data could result in regulatory scrutiny, legal and financial liability, or harm to our reputation. In operating our business and providing services and solutions to clients, particularly in our Consulting segment, we store and transfer sensitive employee and client data, including personal data, in and across multiple jurisdictions. We leverage systemscollect data from client and applications that are spreadindividuals located all over the world requiring usand leverage systems and teams to regularly move data across national borders.process it. As a result, we are subject to a variety of laws and regulations in the United States,U.S., Europe and around the world regarding privacy, data protection, data security and cyber-security.cyber security. These laws and regulations are continuously evolving and developing. Some of these laws and regulations are increasing the level of data handling restrictions, including rules on data localization, all of which could affect our operations and result in regulatory liability and high fines. In particular, high-profile securitydata breaches at major companies continue to be disclosed regularly, which is leading to even greater regulatory scrutiny and fines at the highest levels they have ever been.
These fines are not limited to data breaches and regulators are increasingly focusing on other data processing activities including those related to ad-tech and “data subject” rights. The scopenumber of laws that apply to us keeps increasing and the interpretation of thesuch laws that are or may be applicable to us areis often uncertain and may be conflicting. For
At the international level, we are subject to an increasing number of comprehensive privacy laws including, for example, those passed in Indonesia, the Kingdom of Saudi Arabia and India. Many of these laws, which are modeled after the GDPR, which became effective in May 2018,have greatly increased the European Commission’s jurisdictional reach of itsprivacy laws and added a broad array of requirements for handling personal data, such as the public disclosure of data breaches, privacydata protection impact assessments, data portability and the appointment of data protection officers in some cases. InFollowing the U.S.UK’s withdrawal from the EU, we are also subject to the UK General Data Protection Regulation (“UK GDPR”), the CCPA came into effect in January 2019 and introduced several new concepts to local privacy requirements, including increased transparency and rights such as access and deletion and an ability to opt outa version of the “sale” of personal information. Despite a proliferation of regulatory guidance papers, much remains unclear with respect to how to interpretGDPR as implemented into UK law, and implementthis law may not mirror the GDPR, thereby adding operational complexity and the CCPA, and that lack of clarity could result in potential liability for our failure to meet our obligations under the GDPR and the CCPA.legal risk. Given the breadth and depth of changes in data protection obligations, including classifying data and committing to a range of administrative, technical and physical controls to protect data and enable data transfers outside of the E.U.,across borders, our compliance with laws such as the GDPR and the CCPAlaws will continue to require time, resources and review of the technology and systems we use. Despite a proliferation of regulatory guidance papers, there remains uncertainty in key areas related to these laws, and that uncertainty could result in potential liability for our failure to meet our obligations, including the possibility of significant fines some of which can amount to 4% or more of our global revenue. Further, despite recent developments, including a new U.S.- EU Data Privacy Framework and the European Union CourtU.S.-UK Data Bridge, there remains a high level of Justice's "Schrems II" decision and Brexit have created uncertainty with regard toconcerning the future of the flow of personal information between the United KingdomU.S. and EU, between the U.S. and the E.U., respectively,UK and between the UK and the EU, and that uncertainty may impair our ability to offer our existing and planned products and services or increase our cost of doing business.
Following the implementation Some of the GDPR, other jurisdictions have sought to amend, or propose legislation to amend, their existing data protectionglobal laws to align with the requirements of the GDPR with
the aim of obtaining an adequate level of data protection to facilitate the transfer of personal data to most jurisdictions from the E.U. Accordingly, the challenges we faceenacted in the E.U. will likely also apply to other jurisdictions that adopt laws similar to the GDPR or regulatory frameworks of equivalent complexity. For example, Brazil has enacted its general data protection law, the Lei Geral de Proteção de Dados Pessoais, which came into effectrecent years, including those in August 2020, China has proposed a new comprehensive privacy law, India is considering a new privacy law, Canada is proposing significant changes to their federal privacy law and Japan has adopted sweeping changes to its privacy law. In some cases, including China and India, the lawsKingdom of Saudi Arabia, also include data localization elements that will require that certain personal data stay within their borders. These requirements are complex and our efforts to comply with them require significant resources, and we cannot guarantee we are or will be in full compliance with such laws at all times.
Looking atAt the U.S. followingfederal level, we are subject to various privacy laws and regulations, including those promulgated under the passageauthority of the U.S. Federal Trade Commission, which has the authority to regulate and enforce against unfair or deceptive acts or practices in or affecting commerce, including with respect to data privacy and cybersecurity. At the U.S. state level, we are subject to laws and regulations related to privacy, such as the CCPA California recently approvedwhich introduced concepts such as transparency and rights like access and deletion, that have been enacted by over a ballot measure that enactsdozen states with many more on the California Privacy Rights Act, making extensive modificationsverge of enacting such laws. These laws establish a privacy framework for covered businesses, including various obligations imposed on them related to the CCPA. Additionally, several other states have introducedpersonal information they collect and use, and offer various rights for their state residents. Some of these laws provide a private right of action for violations and in some cases damages may be significant. Many of these laws diverge from the CCPA and create their own set of rules and this proliferation of inconsistent state level privacy bills, some more comprehensive than the CCPA. There is also continued legislative interest in passing a federal privacy lawlaws will add operational complexity and increased risk of noncompliance or violations which is likely to accelerate under the new U.S. administration.could trigger enforcement action or litigation.
In addition to data protection and data privacy laws, foreign countries and U.S. states in the U.S. are enacting AI and cybersecurity laws and regulations. For example, in late 2023 the New York State Department of Financial Services (NYDFS) issued in 2017amendments to its previous cybersecurity regulations which imposed an arrayobligations on companies such as Marsh McLennan, including for example, requiring companies to provide evidence of detailedhow they are implementing their data retention, data governance and data classifications policies and procedures. A number of states have also adopted laws covering data collected by insurance licensees that include security measures on covered entities. These requirements were phased in and the last of them came into effect on March 1, 2019.breach notification requirements. All of these evolving compliance and operational requirements impose significant costs that are likely to increase over time, may divert resources from other initiatives and projects and could restrict the way services involving data are offered, all of which may adversely affect our results of operations.
Many statutory requirements, both in the United StatesU.S. and abroad, include obligations for companies to notify individuals of security breaches involving certain personal information, which could result from breaches experienced by us or our vendors. For example, laws in all 50 U.S. states generally require businesses to provide notice under certain circumstances to consumers whose personal information has been disclosed as a result of a breach. In addition to government regulation, our agreements with certain third parties may require us to notify them in the event of a security breach. Further, privacy advocates and industry groups have and may in the future propose self-regulatory standards from time to time.standards. These laws, rules and other industry standards may legally or contractually apply to us, or we may elect to comply with such standards.them. We expect that there will continue to be new proposed laws and regulations concerning data privacy and security, and we cannot yet determine the impact such future laws, regulations and standards may have on our business. Many of these laws and rules also include strict notification requirements for organizations related to confirmed or suspected breaches. This narrow notification window is often too short to
fully validate the facts, and there is an increased risk of reporting a false alarm or immaterial breach, which may lead to reputational damage despite there not being an actual data breach.
We post public privacy policies and other documentation regarding our collection, use, disclosure, cross-border transfer, retention, and other processing of personal information. Although we endeavor to comply with our published policies and other documentation, we may at times fail to do so or may be perceived to have failed to do so. Moreover, despite our efforts, we may not be successful in achieving compliance if our employees, contractors, service providers, vendors or other third parties with whom we do business fail to comply with our published policies and documentation. Such failures could carry similar consequences or subject us to potential enforcement actions or investigations if they are found to be deceptive, unfair or misrepresentative of our actual practices.
Furthermore, enforcement actions and investigations by regulatory authorities related to data security incidents and privacy violations, including a recentan ongoing focus on compliance related to website “cookies” compliance"cookies" and other online trackers, as well as the use of online session recording tools in some countries or U.S. states, continue to increase. Privacy violations, including unauthorized use disclosure or transfer of sensitive, personal or confidential client or Company data, whether through systems failure, employee negligence, fraud or misappropriation, by the Company, our vendors or other parties with whom we do business (if they fail to meet the standards we impose) could damage our reputation and subject us to significant litigation, monetary damages, regulatory enforcement actions, fines and criminal prosecution in one or more jurisdictions. Given the complexity of operationalizing the various privacy laws such as the GDPR and the CCPA,mentioned above, the maturity level of proposed compliance frameworks and the continued lack of claritycertainty on how to implement their requirements, we and our clients are at risk of enforcement actions taken by E.U. and other data protection authorities around the world or litigation from consumer advocacy groups acting on behalf of data subjects. We may not be able to respond quickly or effectively to regulatory, legislative and other developments, and these changes may in turn impair our ability to offer our existing or planned products and services and increase our cost of doing business.
Our business performance and growth plans could be negatively affected if we are not able to develop and implement improvements in technology or respond effectively to the threat of digital disruption and other technological change such as AI.
We depend in large part on our technology systems for conducting business, as well as for providing the data and analytics we use to manage our business. As a result, our business success is dependent on maintaining the effectiveness of existing technology systems and on continuing to develop and enhance technology systems that support our business processes and strategic initiatives in a cost and resource efficient manner, particularly as our business processes become more digital. LegalWe have a number of strategic initiatives involving investments in or partnerships with technology companies as part of our growth strategy, as well as investments in technology, including generative AI, and Regulatory Risksinfrastructure to support our own systems.
These investments may be costly and require significant capital expenditures, may not be profitable or may be less profitable than what we have experienced historically. In addition, investments in technology systems may not deliver the benefits or perform as expected, or may be replaced or become obsolete more quickly than expected, which could result in operational difficulties or additional costs. In some cases, we also depend on key vendors and partners to provide technology and other support for our strategic initiatives. If these vendors or partners fail to perform their obligations or otherwise cease to work with us, our ability to execute on our strategic initiatives could be adversely affected. If we do not keep up with technological changes or execute effectively on our strategic initiatives, our business and results of operations could be adversely impacted.
In addition, to remain competitive in many of our business areas, we must anticipate and respond effectively to the threat of digital disruption and other technological change such as generative AI. The threat comes from traditional players, such as insurers, through disintermediation as well as from new entrants, such as technology companies, "Insurtech" start-up companies and others. In the past few years, there has been a substantial increase in private equity investments into these Insurtech companies. These players are focused on using technology and innovation, including AI, digital platforms, data analytics, robotics and blockchain, to simplify and improve the client experience, increase efficiencies, alter business models and effect other potentially disruptive changes in the industries in which we operate.
We are subjectactively investing in generative AI tools. While our internal generative AI tool, LenAI, was designed to significant uninsured exposures arising from errorsmeet our standards for data security and omissions, breachto address and mitigate the risks associated with this new technology, our use of fiduciary dutygenerative AI in certain products and other claims.
Our businesses provide numerous professional services including the placement of insurancemay present risks and the provision of consulting, investment advisory and actuarial services,challenges that remain uncertain due to clients around the world. As a result, the Company and its subsidiaries are subject to a significant number of errors and omissions, breach of fiduciary duty and similar claims, which we refer to collectively as "E&O claims." In our Risk and Insurance Services segment, such claims include allegations of damages arising from our failure to assess clients’ risks, advise clients, place coverage or notify insurers of potential claims on behalf of clients in accordance with our obligations to them. For example, these claims may include allegations related to losses incurred by policyholders arising from the COVID-19 pandemic, or losses from
cyberattacks associated with policies where cyber risk was not specifically includedthe relative novelty of this technology. These risks may include enhanced governmental or excluded in policies, commonly referredregulatory scrutiny, litigation or ethical concerns. While we are implementing certain mitigation measures and governance to as “silent cyber.” In our Consulting segment, where we increasingly act in a fiduciary capacity through our investments business, such claims could include allegationsthe proliferation of damages arising from the provision of consulting, investments, actuarial, pension administration and other services. We may also be exposed to claims related to assets or solutions offered by the Consulting segment in complement to its traditional consulting services. These Consulting segment services frequently involve complex calculations and other analysis, including (i) making assumptions about, and preparing estimates concerning, contingent future events, (ii) drafting and interpreting complex documentation governing pension plans, (iii) calculating benefits within complex pension structures, (iv) providing individual financial planning advice including investment advice and advice relating to cashing out of defined benefit pension plans, (v) providing investment advice, including guidance on asset allocation and investment strategy, and (vi) managing client assets, including the selection of investment managers and implementation of the client’s investment policy. We provideAI tools, these services to a broad client base, including clients in the public sector for our investment services. Matters often relate to services provided by the Company dating back many years. Such claims may subject us to significant liability for monetary damages, including punitive and treble damages, negative publicity and reputational harm, and may divert personnel and management resources. Wemeasures may be unable to effectively limit our potential liability in certain jurisdictions, including through insurance,inadequate or in connection with certain typesmay not meet a growing number of claims, particularly those concerning claims of a breach of fiduciary duty.
In establishing liabilities for E&O claims under U.S. generally accepted accounting principles ("U.S. GAAP"), the Company uses case level reviews by inside and outside counsel, actuarial analysis by Oliver Wyman, a subsidiary of the Company, and other methods to estimate potential losses. A liability is established when a loss is both probable and reasonably estimable. The liability is assessed quarterly and adjusted as developments warrant. In many cases, the Company has not recorded a liability, other than for legal fees to defend the claim, because we are unable, at the present time, to make a determination that a loss is both probable and reasonably estimable. Given the judgment involved in estimating and establishing liabilities in accordance with U.S. GAAP, as well as the unpredictability of E&O claims and the litigation that can flow from them, it is possible that an adverse outcome in a particular matter could have a material adverse effect on the Company's business, results of operations or financial condition.
We cannot guarantee that we are or will be in compliance with all current and potentially applicable U.S. federal and state or foreign laws and regulations, and actions by regulatory authorities or changes in legislation and regulation in the jurisdictions in which we operate could have a material adverse effect on our business.
Our activities are subject to extensive regulation under the laws of the United States and its various states, the United Kingdom, the European Union and its member states, and the other jurisdictions in which we operate. For example, we are subject to regulation by agencies such as the Securities and Exchange Commission, FINRA and state insurance regulators in the United States, the FCA and the Competition and Markets Authority (CMA) in the United Kingdom, and the European Commission in the European Union, as further described above under Part I, Item 1 - Business (Regulation) of this report. We are also subject to trade sanctions laws relating to countries such as Cuba, Crimea, Iran, North Korea, Russia, Syria and Venezuela, and anti-corruption laws such as the U.S. Foreign Corrupt Practices Act and the U.K. Anti-Bribery Act. We are subject to numerous other laws on matters as diverse as internal control over financial reporting and disclosure controls and procedures, securities regulation, data privacy and protection, cybersecurity, taxation, anti-trust and competition, immigration, wage-and-hour standards and employment and labor relations.
The U.S. and foreign laws and regulations that apply to our operations are complex and may change rapidly, and our efforts to comply and keep up with them require significant resources. In some cases, these laws and regulations may decrease the need for our services, increase our costs, negatively impact our revenues or impose operational limitations on our business, including on the products and services we may offer or on the amount or type of compensation we may collect. In particular, changes at regulatory agencies in the U.S. occur through policy and personnel changes following elections, which often leads to changes involving the level of oversight and focus on businesses and certain industries, in particular financial services. Accordingly, the expectation is that there will be increased regulatory scrutiny and enforcement action under the new administration.
While we attempt to comply with applicable laws and regulations, there can be no assurance that we, our employees, our consultants and our contractors and other agents are in full compliance with such laws and regulations or interpretations at all times, or that we will be able to comply with any future laws or regulations. If we fail to comply or are accused of failing to comply with applicable laws and regulations, including those referred to above, we may become subject to investigations, criminal penalties, civil remedies or other consequences, including fines, injunctions, loss of an operating license or approval, increased scrutiny or oversight by regulatory authorities, the suspension of individual employees, limitations on engaging in a particular business or redress to clients or other parties, and we may become exposed to negative publicity or reputational damage. Moreover, our failure to comply with laws or regulations in one jurisdiction may result in increased regulatory scrutiny by other regulatory agencies in that jurisdiction or regulatory agencies in other jurisdictions. These inquiries consume significant management attention, and the cost of compliance and the consequences of failing to be in compliance could therefore have a material adverse effect on our business, results of operations and financial condition.
In addition, we may be responsible for the legal and regulatory liabilities of companies that we acquire. In particular, upon the consummation of the acquisition of JLT, the Company assumed the legal liabilities and became responsible for JLT’s litigation and regulatory exposures as of April 1, 2019. In the fourth quarter 2020, the Company recorded a $161 million provision for a legacy JLT matterrequirements related to an FCA review of the suitability of financial advice to individuals for defined benefit pension transfers. Additional information regarding certain ongoing investigations and certain other legal and regulatory proceedings is set forth in Note 16 to our consolidated financial statements included under Part II, Item 8 of this report.AI.
In most jurisdictions, government regulatory authorities have the power to interpret and amend or repeal applicable laws and regulations, and have discretion to grant, renew and revoke the various licenses and approvals we need to conduct our activities. Such authorities may require the Company to incur substantial costs in order to comply with such laws and regulations. In some areas of our businesses, we act on the basis of our own or the industry's interpretations of applicable laws or regulations, which may conflict from state to state or country to country. In the event those interpretations eventually prove different from the interpretations of regulatory authorities, we may be penalized or precluded from carrying on our previous activities. Moreover, the laws and regulations to which we are subject may conflict among the various jurisdictions and countries in which we operate, which increases the likelihood of our businesses being non-compliant in one or more jurisdictions.
Our business or reputation could be harmed by our reliance on third-party providers or introducers.
We currently utilize the services of hundreds of third-party providers to meet the needs of our clients around the world.
There is a risk that our third-party providers or introducers engage in business practices that are prohibited by our internal policies or violate applicable laws and regulations, such as the U.S. Foreign Corrupt Practices Act and the U.K. Anti-Bribery Act.
Competitive Risks
The loss of members of our senior management team or other key colleagues, or if we are unsuccessful in our efforts to attract, retain and develop talent, could have a material adverse effect on our business.
We rely upon the contributions of our senior management team to establish and implement our business strategy and to manage the future growth of our business. We may be unable to retain them, particularly if we do not offer employment terms that are competitive with the rest of the labor market. The loss of any of the senior management team could limit our ability to successfully execute our business strategy or adversely affect our ability to retain existing and attract new clients. Moreover, we could be adversely affected if we fail to adequately plan for the succession of members of our senior management team.team or if our succession plans do not operate effectively.
Across all of our businesses, our colleagues are critical to developing and retaining client relationships as well as performing the services on which our revenues are earned. It is therefore important for us to attract, incentivize and retain significant revenue-producing employees and the key managerial and other professionals who support them. We face numerous challenges in this regard, including the intense competition for talent, which has accelerated in recent years. Such challenges include the generalincreased mobility of colleagues in light of more flexible working models, market dislocation resulting from proposed and actual combinations in the industry, raids by competitors, and fostering aan inclusive and diverse and inclusive workplace.
Losing colleagues who manage or support substantial client relationships or possess substantial experience or expertise could adversely affect our ability to secure and complete client engagements, which could adversely affect our results of operations. And, subject to applicable enforceable restrictive covenants, ifIf a key employee were to join an existing competitor or form a competing company, some of our clients could choose to use the services of that competitor instead of our services. If a colleague joins us from a competitor and is subject to enforceable restrictive covenants, we may not be able to secure client engagements or maximize the colleague's potential. In addition, regulation or legislation impacting the workforce, such as the proposed U.S. Federal Trade Commission rule regarding noncompete clauses, may lead to increased uncertainty and competition for talent.
Failure to maintain our corporate culture, particularly in a hybrid work environment, could damage our reputation.
We strive to foster a culture in which our colleagues act with integrity and feel comfortable speaking up about potential misconduct. We are a people business, and our ability to attract and retain colleagues and clients is dependent upon our commitment to aan inclusive and diverse and inclusive workplace, trustworthiness, ethical business practices and other qualities. Our colleagues are the cornerstone of this culture, and acts of misconduct by any colleague, and particularly by senior management, could erode trust and confidence and damage our reputation among existing and potential clients and other stakeholders. Remote and hybrid work arrangements, particularly following the COVID-19 pandemic, may also negatively impact our ability to maintain and promote our culture, as we believe being together is integral to promoting our culture.
Increasing scrutiny and changing laws and expectations from regulators, investors, clients and our colleagues with respect to our environmental, social and governance (ESG) practices and disclosure may impose additional costs on us or expose us to new or additional risks.
There is increased focus, including from governmental organizations, regulators (including the SEC in the U.S.), investors, colleagues and clients, on ESG issues such as environmental stewardship, climate change, greenhouse gas emissions, inclusion and diversity, and inclusion,human rights, racial justice, pay equity, workplace conduct, cybersecurity and workplace conduct.data privacy. Negative public perception, adverse publicity or negative comments in social media could damage our reputation if we do not, or are not perceived to, adequately address these issues. Any harm to our reputation could impact colleague engagement and retention and the willingness of clients and our partners to do business with us.
Additionally, there has been increased regulatory focus on ESG and sustainability. For example, laws and regulations related to ESG issues continue to evolve, including in the U.S., the U.K., the EU and Australia, and these regulations may impose additional compliance or disclosure obligations on us. In particular, heightened
demand for, and scrutiny of, ESG and sustainable-related products, funds, investment strategies and advice has increased the risk that we could be perceived as, or accused of, making inaccurate or misleading statements, commonly referred to as "greenwashing" or that we have otherwise run afoul of regulation. Such perceptions or accusations could damage our reputation, result in litigation or regulatory enforcement actions, and adversely affect our business. Furthermore, perceptions of our efforts to achieve ESG goals or advance ESG and sustainable-related products, funds, investment strategies or advice may differ widely among stakeholders and could present risks to our reputation and business, including litigation risk. For example, in the U.S. there has been increased legal scrutiny on inclusion and diversity-related programs and initiatives.
Moreover, as we workESG reporting standards continue to alignevolve, including with guidance from the recommendations of the Financial Stability Board's Task Force on Climate-related Financial Disclosures, (TCFD), theInternational Sustainability Accounting Standards Board (SASB)(ISSB) and the European Sustainability Reporting Standards (ESRS) under the Corporate Sustainability Reporting Directive (CSRD), we continue to evaluate and our own ESG assessments and priorities, we expect to expandupdate our public disclosures in these areas, including providing additional metrics.refining our disclosure of metrics and goals in accordance with the guidance and our own ESG assessments and priorities. These disclosures, metrics whether it be the standards we set for ourselves or aand goals and any failure to meet these metrics,accurately report or comply with federal, state or international ESG laws and any failureregulations, or to achieve progress on our metrics and goals on a timely basis, or at all, may result in legal and regulatory proceedings against us and negatively impact our reputation andreputation.
Implementation of our business.ESG initiatives also depends in part on third-party performance or data that is outside the Company's control.
In addition, organizations that provide information to investors on corporate governance and related matters have developed ratings processes for evaluating companies on their approach to ESG matters, and unfavorable ratings of our company or our industries may lead to negative investor sentiment and the diversion of investment to other companies or industries.industries, exclusion of our stock from ESG-oriented indices or investment funds or harm our relationships with regulators and the communities in which we operate.
We face significant competitive pressures in each of our businesses, including from disintermediation, as our competitive landscape continues to evolve.
As a global professional services firm, the Company faces competition in each of its businesses, and the competitive landscape continues to change and evolve. Our ability to compete successfully depends on a variety of factors, including the quality and expertise of our colleagues, our geographic reach, the sophistication and quality of our services, our pricing relative to competitors, our clients’ ability to self-insure or use internal resources instead of consultants, and our ability to respond to changes in client demand and industry conditions. SomeAny failure by us to design and execute operating model changes that capture opportunities and efficiencies at the intersections of our businesses and maximize the value we deliver to clients and stakeholders could have an adverse impact on our business. Additionally, some of our competitors may have greater financial resources, or may be better positioned to respond to technological and other changes in the industries we serve, and they may be able to compete more effectively. If we are unableFurthermore, the competition for talent continues to respond successfully to the changing conditions we face, our businesses, results of operations and financial condition will be adversely impacted.accelerate.
Across our Risk and Insurance Services segment, we operate in a variety of markets and face different competitive landscapes. In addition to the challenges posed by capital market alternatives to traditional insurance and reinsurance, we compete against a wide range of other insurance and reinsurance brokerage and risk advisory firms that operate on a global, regional, national or local scale for both client business and employee talent. In recent years, private equity sponsors have invested tens of billions of dollars into the insurance brokerage sector, transforming existing players and creating new ones to compete with large brokers. We also compete with insurance and reinsurance companies that market and service their insurance products directly to consumers and reinsurance companies that market and service their products directly to insurance companies, in each case without the assistance of brokers or other market intermediaries, and with various other companies that provide risk-related services or alternatives
to traditional brokerage services, including those that rely almost exclusively on technological solutions or platforms. This competition is intensified by an often "syndicated" or "distributed" approach to the purchase of insurance and reinsurance brokerage services, where a client engages multiple brokers to service different portions of the client's account. In addition, third party capital providers have entered the insurance and reinsurance risk transfer market offering products and capital directly to our clients that serve as substitutes for traditional insurance.
In our Consulting segment, we compete for business with numerous consulting firms and similar organizations, many of whomwhich also provide, or are affiliated with firms that provide, accounting, information systems, technology and financial services. Such competitors may be able to offer more comprehensive products and services to
potential clients, which may give them a competitive advantage. Some of our competitors also may be able to invest more significant capital in technology and digital solutions. In certain sub-segments, we compete in highly fragmented markets or with start-ups that may be able to offer solutions at a lower price or on more favorable conditions.
In addition, companies in the industries that we serve may seek to achieve economies of scale and other synergies by combining with or acquiring other companies. If two or more of our current clients merge, or consolidate or combine their operations, it may decrease the amount of work that we perform for these clients.
We rely on a large number of vendors and other third parties to perform key functions of our business operations and to provide services to our clients. These vendors and third parties may act or fail to act in ways that could harm our business.
We rely on a large number of vendors and other third parties, and in some cases subcontractors, to provide services, data and information such as technology, information security, funds transfers, business process management, and administration and support functions that are critical to the operations of our business. These third parties include correspondents, agents and other brokers and intermediaries, insurance markets, data providers, plan trustees, payroll service providers, software and system vendors, health plan providers, investment managers, custodians, risk modeling providers, and providers of human resource functions, such as recruiters. Many of these providers are located outside the U.S., which exposes us to business disruptions and political risks inherent when conducting business outside of the U.S. As we do not fully control many of the actions of these third parties, we are subject to the risk that their decisions or operations may adversely impact us and replacing these service providers could create significant delay in services or operations and additional expense.
A failure by the third parties to (i) comply with service level agreements in a high quality and timely manner, particularly during periods of our peak demand for their services, (ii) maintain adequate internal controls that may impact our own financial reporting, or (iii) adequately maintain the confidentiality of any of our data or trade secrets or adequately protect or properly use other intellectual property to which they may have access, could result in economic and reputational harm to us. These third parties also face their own technology, operating, business and economic risks, and any significant failures by them, including the improper use or disclosure of our confidential client, employee, or Company information or failure to comply with applicable law, could cause harm to our reputation or otherwise expose us to liability. An interruption in or the cessation of service by any service provider as a result of systems failures, capacity constraints, non-compliance with legal, regulatory or contractual obligations, financial difficulties or for any other reason could disrupt our operations, impact our ability to offer certain products and services, and result in contractual or regulatory penalties, liability claims from clients or employees, damage to our reputation and harm to our business.
Business Resiliency Risks
Our inability to successfully recover should we experience a disaster or other business continuity or data recovery problem could cause material financial loss, loss of human capital, regulatory actions, reputational harm or legal liability.
If we experience a local or regional disaster or other business continuity event, such as an earthquake, hurricane, flood, terrorist attack, pandemic, war or other geopolitical tensions, protests or riots, security breach, cyberattack (including manipulating the control systems of critical infrastructure), power loss or telecommunications failure, our ability to operate will depend, in part, on the continued availability of our personnel, our office facilities and the proper functioning of our computer, telecommunication and other related systems and operations. In such an event, we could experience operational challenges that could have a material adverse effect on our business. The risk of business disruption is more pronounced in certain geographic areas, including major metropolitan centers, like New York or London, where we have significant operations and
approximately 3,300ly 3,700 and 5,0005,700 colleagues inin those respective locations, and in certain countries and regions in which we operate that are subject to higher potential threat of terrorist attacks or military conflicts.
Our operations depend in particular upon our ability to protect our technology infrastructure against damage. If a business continuity event occurs, we could lose client or Company data or experience interruptions to our operations or delivery of services to our clients, which could have a material adverse effect. Such risks have increased significantly due to extendedhybrid and remote work accommodations as a result of COVID-19.environments. A cyberattack or other business continuity event affecting us or a key vendor or other third party could result in a significant and extended disruption in the functioning of our information technology systems or operations or our ability to recover data, requiring us to incur significant expense to address and remediate or otherwise resolve such issues. For example, hackers have
increasingly targeted companies by attacking internet-connected industrial control and safety control systems. An extended outage could result in the loss of clients and a decline in our revenues. In the worst case, any manipulation of the control systems of critical infrastructure may even result in the loss of life.
We regularly assess and take steps to improve our existing business continuity, disaster recovery and data recovery plans and key management succession. However, a disaster or other continuity event on a significant scale or affecting certain of our key operating areas within or across regions, or our inability to successfully recover from such an event, could materially interrupt our business operations and result in material financial loss, loss of human capital, regulatory actions, reputational harm, damaged client relationships and legal liability. Our business disruption insurance may also not fully cover, in type or amount, the cost of a successful recovery in the event of such a disruption.
Acquisitions and Dispositions Risks
We face risks when we acquire or dispose of businesses.
We have a history of making acquisitions and investments, including a total of 13280 in the period from 20132019 to 2020.2023. We may not be able to successfully integrate the businesses that we acquire into our own business, or achieve any expected cost savings or synergies from the integration of such businesses. Subject to standard contractual protections, we may also be responsible for legacy liabilities of companies that we acquire. For example, upon the consummation of the acquisition of JLT, the Company assumed the legal liabilities and became responsible for JLT’s litigation and regulatory exposures as of April 1, 2019.
In addition, if in the future the performance of our reporting units or an acquired business varies from our projections or assumptions, or estimates about future profitability of our reporting units or an acquired business change, the estimated fair value of our reporting units or an acquired business could change materially and could result in an impairment of goodwill and other acquisition-related intangible assets recorded on our balance sheet or in adjustments in contingent payment amounts. Given the significant size of the Company's goodwill and intangible assets, an impairment could have a material adverse effect on our results of operations in any given period.
We expect that acquisitions will continue to be a key part of our business strategy. Our success in this regard will depend on our ability to identify and compete for appropriate acquisition candidates and to finance and complete the transactions we decide to pursue on favorable terms with positive results.
When we dispose of businesses, we may continue to be subject to certain liabilities of that business after its disposition relating to the prior period of our ownership and may not be able to negotiate for limitations on those liabilities. We are also subject to the risk that the sales price is less than the amount reflected on our balance sheet.
Financial Risks
If we are unable to collect our receivables, our results of operations and cash flows could be adversely affected.
Our business depends on our ability to obtain payment from our clients of the amounts they owe us for the work we perform. As of December 31, 2020,2023, our receivables for our commissions and fees were approximately $4.7$5.8 billion, or approximately one-quarter of our total annual revenues, and portions of our receivables are increasingly concentrated in certain businesses and geographies.
Macroeconomic or politicalgeopolitical conditions, such as a slower economic growth or recession, the impact from COVID-19,war in Ukraine and the escalating conflict throughout the Middle East, inflationary pressures or supply chain challenges, could result in financial difficulties for our clients, which could cause clients to delay payments to us, request modifications to their payment arrangements that could increase our receivables balance or default on their payment obligations to us.
We may not be able to obtain sufficient financing on favorable terms.
The maintenance and growth of our business, including our ability to finance acquisitions, the payment of dividends and our ability to make share repurchases rely on our access to capital, which depends in large part on cash flow generated by our business and the availability of equity and debt financing. Certain of our businesses such as GC Securities, a division of MMC Securities, LLC and MMC Securities (Europe) Limited also rely on financings by the Company to fund the underwriting of their client's debt and equity capital raising transactions. We incurred significant debt to finance the JLT Transaction, and thereThere can be no assurance that our operations will generate sufficient positive cash flow to finance all of our capital needs or that we will be able to obtain equity or debt financing on favorable terms.terms, particularly in an environment of rising interest rates. In addition, our ability to obtain financing will depend in part upon prevailing conditions in credit and capital markets, which are beyond our control.
Our defined benefit pension plan obligations could cause the Company's financial position, earnings and cash flows to fluctuate.
Our defined benefit pension obligations and the assets set aside to fund those obligations are sensitive to certain changes in the financial markets. Any such changes may result in increased pension expense or additional cash payments to fund these plans.
The Company has significant defined benefit pension obligations to its current and former employees, including obligations assumed as part of the JLT Transaction, totaling approximately $19.9$12.2 billion, and related plan assets of approximately $19.1$13.5 billion, at December 31, 20202023 on a U.S. GAAP basis. As part of the JLT Transaction, the Company assumed responsibility for a number of pension plans throughout the world, with $305 million of net pension liabilities as of December 31, 2020 ($1,124 million in liabilities and $819 million of plan assets as of December 31, 2020). The Company's policy for funding its defined benefit pension plans is to contribute amounts at least sufficient to meet the funding requirements set forth by law. In the United States,U.S., contributions to these plans are based on ERISA guidelines. Outside the United States, contributions are generally based on statutory requirements and local funding practices, which may differ from measurements underin accordance with U.S. GAAP. In the U.K., for example, the assumptions used to determine pension contributions are the result of legally-prescribed negotiations between the Company and the plans'plan trustees. Currently, the use of these assumptions results in a lower funded status than determined underin accordance with U.S. GAAP and may result in contributions irrespective of the U.S. GAAP funded status.
The financial calculations relating to our defined benefit pension plans are complex. Pension plan assets could decrease as the result of poor future asset performance. In addition, the estimated return on plan assets would likely be impacted by changes in the interest rate environment and other factors, including equity valuations, since these factors reflect the starting point used in the Company’s projection models. For example, a reduction in interest rates may result in a reduction in the estimated return on plan assets. Also, pension plan liabilities, periodic pension expense and future funding amounts could increase as a result of a decline in the interest rates we use to discount our pension liabilities, longer lifespans than those reflected in our mortality assumptions, changes in investment markets that result in lower expected returns on assets, actual investment return that is less than the expected return on assets, adverse changes in laws or regulations and other variables. Finally, changes in the aggregated, smoothed asset returns as future years replace prior years, has an impact on both the level and the volatility of pension expense.
While we have taken steps to mitigate the impact of pension volatility on our earnings and cash funding requirements, these strategies may not be successful. Accordingly, given the magnitude of our worldwide pension plans, variations in or reassessment of the preceding or other factors or potential miscalculations relating to our defined benefit pension plans could cause significant fluctuation from year to year in our earnings and cash flow, as well as our pension plan assets liabilities and equity,liabilities, and may result in increased levels of contributions to our pension plans.
Our significant non-U.S. operations expose us to exchange rate fluctuations and various risks that could impact our business.
Approximately 53% of our total revenue reported in 20202023 was from business outside of the United States.U.S. We are subject to exchange rate movement because we must translate the financial results of our foreign subsidiaries into U.S. dollars and also because some of our subsidiaries receive revenue other than in their functional currencies. Exchange rate movements may change over time, and they could have a material adverse impact on our financial results and cash flows reported in U.S. dollars. For additional discussion, see "Market Risk and Credit Risk-Foreign Currency Risk" in Part II, Item 7A ("Quantitative and Qualitative Disclosures about Market Risk") of this report.
Our quarterly revenues and profitability may fluctuate significantly.
Quarterly variations in revenues and operating results may occur due to several factors. These include:
•the number of client engagements during a quarter;
•the possibility that clients may decide to delay or terminate a current or anticipated project as a result of factors unrelated to our work product or progress;
•fluctuations in hiringcapacity and utilization rates and clients' ability to terminate engagements without penalty;
•our net colleague hires and related compensation and benefits expense;
•potential limitations on the clients or industries we serve resulting from increased regulation or changing stakeholder expectations on ESG issues;
•the impact of changes in accounting standards or in our accounting estimates or assumptions;
•the impact on us or our clients of changes in legislation, regulation and legal guidance or interpretations in the jurisdictions in which we operate, in particular in the U.S. as a result of the change in presidential administrations;increased regulatory activity and enforcement;
•seasonality due to the impact of regulatory deadlines, policy renewals and other timing factors to which our clients are subject;
•the success of our acquisitions or investments;
•macroeconomic factors such as changes in foreign exchange rates, interest rates and global securitiespublic and private capital markets, particularly in the case of Mercer, where fees in its investments business and certain other business lines are derived from the value of assets under management, advisement or administration; and
•general economic conditions, including factors beyond our control affecting economic conditions such as COVID-19 and other global health crisiscrises or pandemics, severe weather, climate change, geopolitical unrest such as the war in Ukraine and the escalating conflict throughout the Middle East, protests and riots or other catastrophic events, since our results of operations are directly affected by the levels of business activity of our clients, which in turn are affected by the level of economic activity in the industries and markets that they serve.
A significant portion of our total operating expenses is relatively fixed in the short term. Therefore, a variation in the number of client assignments or in the timing of the initiation or the completion of client assignments can cause significant variations in quarterly operating results for these businesses.
Credit rating downgrades would increase our financing costs and could subject us to operational risk.
Currently, the Company's senior debt is rated A- by S&P, A3 by Moody's and Baa1A- by Moody's. Fitch. The Company carries a Stable outlook with S&P, Moody's and a Negative outlook with Moody's.Fitch.
If we need to raise capital in the future (for example, in order to maintain adequate liquidity, fund maturing debt obligations or finance acquisitions or other initiatives), credit rating downgrades would increase our financing costs, and could limit our access to financing sources. We would also face the risk of a credit rating downgrade if we do not retire or refinance the debt to levels acceptable to the credit rating agencies in a timely manner. Further, aA downgrade to a rating below investment-grade could result in greater operational risks through increased operating costs and increased competitive pressures.
We have significantly increased ourOur current debt as a result of the JLT acquisition, whichlevel could adversely affect our financial flexibility.
As of December 31, 2020,2023, we had total consolidated debt outstanding of approximately $11.3$13.5 billion. In 2019 alone, we incurred $6.5 billion of additional debt to finance the JLT acquisition.
The level of debt outstanding could adversely affect our financial flexibility by reducing our cash flows and our ability to use cash from operations for other purposes, including working capital, dividends to shareholders, share repurchases, acquisitions, capital expenditures and general corporate purposes. In addition, we are subject to risks that, at the time any of our outstanding debt matures, we will not be able to retire or refinance the debt on terms that are acceptable to us.
The current U.S. tax regime makeshas provisions which have unintended consequences and may also impact our results more difficult to predict.tax rate in varying degrees based on where our global income is earned.
Our effective tax rate may fluctuate in the future as a result of the current U.S. tax regime enacted as part of the 2017 Tax Cuts and Jobs Act (the "TCJA") and the continuing issuance of interpretive guidance related to the TCJA. The TCJA includedoperations of U.S.-based multinational corporations. These include significant changesprovisions in U.S. income tax law that hasmay have a meaningful impact on our provision for income taxestax expense and requiresrequire significant judgments and estimates in interpretation and calculations. The enactedCurrent tax legislation included,includes, among other provisions, limitations on the deductibility of net interest expense, a minimum tax on most non-U.S. income called Global Intangible Low-Taxed Income ("GILTI"), and the Base Erosion and Anti-Abuse Tax ("BEAT"). In addition, a recently enacted book minimum tax could increase the impact of these provisions on our income tax expense. Given the significant complexity of the rules, and the potential for additional guidance from the U.S. Treasury, the Securities and Exchange Commission, the Financial Accounting Standards Board or other regulatory authorities, recognized impacts in future periods could be significantly different from our current estimates. Such uncertainty may also result in increased scrutiny from, or disagreements with, tax authorities. In addition, the change in the U.S. presidential administrations in January 2021 may increase the chance for legislative changes to the TCJA provisions. In particular, the Biden Administration has proposed changes to the U.S. statutory tax rate and GILTI which would increase the impact of the provision on our results.As a U.S.-domiciled company, any such increases would likely have a disproportionate impact on us compared to our foreign-based competitors.
Global Operations
We are exposed to multiple risks associated with the global nature of our operations.
We conduct business globally. In 2020,2023, approximately 53% of the Company's total revenue was generated from operations outside the United States,U.S., and over one-half of our employees were located outside the United States. The JLT Transaction significantly expandedU.S. In addition, we conduct our non-U.S. operations in jurisdictions such asthrough four separate businesses. Potential conflicts of interest may arise across our businesses given the U.K., Asia, South America and Australia, and we expect to expandsignificant volume of our non-U.S. operations further.engagements.
The geographic breadth of our activities also subjects us to significant legal, economic, operational, market, compliance and reputational risks. These include, among others, risks relating to:
•economic and political conditions in the countries in which we operate;
•client concentration in certain high-growth countries in which we operate;
•the length of payment cycles and potential difficulties in collecting accounts receivable;
•unexpected increases in taxes or changes in U.S. or foreign tax laws, rulings, policies or related legal and regulatory interpretations, including recent changes to the U.K. statutory rate;
•the implementation of the Organization for Economic Cooperation and Development (OECD) international tax framework, including the implementation of the Pillar 2 minimum tax regime by key jurisdictions in 2024 and the Pillar 1 profit reallocation regime, which could have an adverse effect on our effective tax rate, tax payments and results of operations;
•international initiatives to require multinational enterprises, like ours, to calculate and report profitability on a country-by-country basis, which could increase scrutiny by, or cause disagreements with, foreign tax authorities and the potential imposition of new global minimum tax;authorities;
•potential transfer pricing-related tax exposures that may result from the flow of funds among our subsidiaries and affiliates in the various jurisdictions in which we operate,operate;
or •unexpected reassessment by tax authorities of interpretations of existing rules which may require companies to defend previously accepted positions and may create both new and prior-year exposures;
•litigation arising from ongoing and future controversies with tax authorities;
•permanent establishments created due to colleagues traveling to and doing work in countries where the companyCompany has no presence, or living in such countries and working remotely post-pandemic, which are not properly compensated through transfer pricing;
•our ability to obtain dividends or repatriate funds from our non-U.S. subsidiaries, including as a result of the imposition of currency controls and other government restrictions on repatriation in the jurisdictions in which our subsidiaries operate, fluctuations in foreign exchange rates and the imposition of withholding and other taxes on such payments;
•potential conflicts of interest that may arisegeopolitical tensions, such as the war in Ukraine and the escalating conflict throughout the Middle East, in countries where we expand the scope of our businesses and our client base;
•operate, international hostilities, international trade disputes, terrorist activities, natural disasters, pandemics, and infrastructure disruptions;
•local investment or other financial restrictions that foreign governments may impose;
•potential lawsuits, investigations, market studies, reviews or other activity by foreign regulatory or law enforcement authorities or legislatively appointed commissions, which may result in potential modifications to our businesses, related private litigation or increased scrutiny from U.S. or other regulators;
•potential costs and difficulties in complying with a wide variety of foreign laws and regulations (including tax systems) administered by foreign government agencies, some of which may conflict with U.S. or other sources of law;
•potential costs and difficulties in complying, or monitoring compliance, with foreign and U.S. laws and regulations that are applicable to our operations abroad, including trade sanctions laws relating to countries such as Afghanistan, Belarus, Cuba, Crimea, Iran, North Korea, Russia, Syria, Ukraine (Russia-controlled territories) and Venezuela, and anti-corruption laws such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act 2010;
•limitations or restrictions that foreign or U.S. governments and regulators may impose on the products or services we sell, the methods by which we sell our products and services and the manner in which and the amounts we are compensated;
•potential limitations or difficulties in protecting our intellectual property in various foreign jurisdictions;
•limitations that foreign governments may impose on the conversion of currency or the payment of dividends or other remittances to us from our non-U.S. subsidiaries;
•engaging and relying on third parties to perform services on behalf of the Company; and
•potential difficulties in monitoring employees in geographically dispersed locations.
RISKS RELATING TO OUR RISK AND INSURANCE SERVICES SEGMENT
Our Risk and Insurance Services segment, conducted through Marsh and Guy Carpenter, represented 60%62% of the Company's total revenue in 2020.2023. Our business in this segment is subject to particular risks.
Results in our Risk and Insurance Services segment may be adverselyadversely affected by a general decline in economic activity.
Demand for many types of insurance and reinsurance generally rises or falls as economic growth expands or slows. This dynamic affects the level of commissions and fees generated by Marsh and Guy Carpenter. To the extent our clients become adversely affected by declining business conditions, they may choose to limit their purchases of risk services and insurance and reinsurance coverage, as applicable, which would inhibitadversely impact our ability to generate commission revenue and other revenue based on premiums placed and services provided by us. Also, the insurance they seek to obtain through us may be impacted by changes in their assets, property values, sales or number of employees, which may reduce our commission revenue, and they may decide not to purchase our risk advisory or other services, which would inhibit our ability to generate fee revenue. Moreover, insolvencies and combinations associated with an economic downturn, especially insolvencies and combinations in the insurance industry, could adversely affect our brokerage business through the loss of clients or by limiting our ability to place insurance and reinsurance business, as well as our revenues from insurers. Guy Carpenter is especially susceptible to this risk given the limited number of insurance company clients and reinsurers in the marketplace.
Volatility or declines in premiums and other market trends may significantly impede our ability to grow revenues and profitability.
A significant portion of our Risk and Insurance Services revenue consists of commissions paid to us out of the premiums that insurers and reinsurers charge our clients for coverage. We do not determine the insurance premiums on which our commissions are generally based. Our revenues and profitability are subject to change to the extent that premium rates fluctuate or trend in a particular direction. The potential
for changes in premium rates is significant, due to the normal cycles of pricing in the commercial insurance and reinsurance markets.
As traditional insurance companies continue to rely on non-affiliated brokers or agents to generate premium, those insurance companies may seek to reduce their expenses by lowering their commission rates. The reduction of these commission rates, along with general volatility or declines in premiums, may significantly affect our revenue and profitability. Because we do not determine the timing or extent of premium pricing changes, it is difficult to accurately forecast our commission revenues, including whether they will significantly decline. As a result, we may have to adjust our plans for future acquisitions, capital expenditures, dividend payments, loan repayments and other expenditures to account for unexpected changes in revenues, and any decreases in premium rates may adversely affect the results of our operations.
In addition to movements in premium rates, our (and Mercer's Health business's) ability to generate premium-based commission revenue may be challenged by disintermediation and the growing availability of alternative methods for clients to meet their risk-protection needs. This trend includes a greater willingness on the part of corporations to self-insure, the expanded use of captive insurers, and the presence of capital markets-based solutions for traditional insurance and reinsurance needs. Further, the profitability of our Risk and InsurancesInsurance Services segment depends in part on our ability to be compensated for the analytical services and other advice that we provide, including the consulting and analytics services that we provide to insurers. If we are unable to achieve and maintain adequate billing rates for all of our services, our margins and profitability could decline.
Adverse legal developments and future regulations concerning how intermediaries are compensated by insurers or clients, as well as allegations of anti-competitive behavior or conflicts of interest, more broadly, could have a material adverse effect on our business, results of operations and financial condition.
The ways in which insurance intermediaries are compensated receive scrutiny from regulators in part because of the potential for anti-competitive behavior and conflicts of interest. The vast majority of the compensation that Marsh receives is in the form of retail fees and commissions that are paid by the client or paid from premium that is paid by the client. The amount of other compensation that we receive from insurance companies, separate from retail fees and commissions, has increased in the last several years, both on an underlying basis and through acquisition andand represented approximately 5% 6% of Marsh's revenue in 2020.2023. This other compensation includes payment for (i) consulting and analytics services provided to insurers; (ii) administrative and other services provided to insurers (including underwriting services and services relating to the administration and management of quota shares, panels and other facilities); and (iii) contingent commissions, primarily at MMA and outside the U.S., paid by insurers based on factors such as volume or profitability. These other revenue streams present potential regulatory, litigation and reputational risks that may arise from alleged anti-competitive behavior or conflicts of interest, (including those arising from Guy Carpenter’s role as intermediary and advisor for insurance companies), and future changes in the regulatory environment may impact our ability to collect such revenue. Adverse regulatory, legal or other developments could have a material adverse effect on our business and expose the Company to negative publicity and reputational harm.
RISKS RELATING TO OUR CONSULTING SEGMENT
Our Consulting segment, conducted through Mercer and Oliver Wyman Group, represented 40%38% of our total revenue in 2020.2023. Our businesses in this segment are subject to particular risks.
Mercer’s InvestmentsWealth business is subject to a number of risks, including risks related to public and private capital market fluctuations, third-party investmentasset managers operational risk,and custodians, operations and technology risks, conflicts of interest, ESG and greenwashing, asset performanceperformance and regulatory compliance, that, if realized, could result in significant damage to our business.
Mercer’s InvestmentsInvestments business provides clients with digital tools, investment consulting and investment management services.As of December 31, 2020, Mercer and its global affiliates had assets under management of approximately $357 billion worldwide. In the investment consulting business, clients make and implement their own investment decisions based upon research prepared or advice provided by Mercer. In its investment management business, Mercer implements the client’s investment policy by engaging, overseeing and making changes to the third-party asset managers who determine which investments to
buy and sell. To effect implementation of a client’s investment policy, Mercer may utilize its "manager of managers" investment funds.
Mercer’s Investments business is subject to a number of risks, including risks related to litigation (both by clients and by plan participants, particularly as we increasingly act in a fiduciary capacity), liquidity and market volatility, an inability to obtain contractual limitations of liability for errors & omissions in certain jurisdictions or parts of our business, third-parties, our operations and technology (including the use of AI), trading errors, conflicts of interest, asset performance and regulatory compliance and scrutiny, which could arise in connection with these offerings. For example, Mercer’s manager research or due diligence on an asset manager may fail to uncover material deficiencies or fraud that could result in investment losses to a client. There is a risk that Mercer will fail to properly or timely implement a client’s investment policy or direction, which could cause an incorrect or untimely allocation of client assets among asset classes, asset managers, or strategies. Mercer may also be perceived as making inaccurate or misleading statements regarding the investment strategies of our offerings or investments with respect to ESG or sustainability, commonly referred to as “greenwashing,” or recommending certain asset managers to clients or offering delegated solutions to an investment consulting client, solely to enhance its own compensation.compensation or due to other perceived conflicts of interest. Asset classes may perform poorly, or asset managers may underperform their benchmarks, due to poor market performance, a downturn in the global equity markets, negligence or other reasons, resulting in poor returns or loss of client capital.assets. Changes in the value levels of equity, debt, currency, real assets,estate, commodities, foreign exchangealternatives or other asset markets,classes, in particular as a result of a downturn in the global markets, maycould cause ourthe value of assets under management revenueor advisement, and earningsthe fees earned by Mercer to decline. Mercer or its clients may be subject to claims or class action litigation relating to advice given or investment decisions made by plan sponsors and plan fiduciaries, particularly relating to 401(k) plans in the U.S. or pension schemes in the U.K. These risks, if realized, could result in significant liability and damage our business.
Revenues for the services provided by our Consulting segment may decline for various reasons, including as a result of changes in economic conditions, the value of equity, debt and other asset classes, our clients’ or an industry's financial condition or government regulation or an accelerated trend away from actively managed investments to passively managed investments.
Global economic conditions, particularly the impact of COVID-19including slower GDP growth or recession, inflationary pressure and foreign exchange rate volatility, may negatively impact businesses and financial institutions. Many of our clients, including
financial institutions, corporations, government entities and pension plans, have reduced expenses, including amounts spent on consulting services, and used internal resources instead of consultants during difficult economic periods. The evolving needs and financial circumstances of our clients may reduce demand for our consulting services and could adversely affect our revenues and profitability. If the economy or markets in which we operate experience weakness or deteriorate, our business, financial condition and results of operations could be materially and adversely affected. If our clients reduce their headcounts, they will have fewer employee lives covered under their health plans, which may reduce premiums and the commission or supplemental compensation Mercer may receive.
In addition, some of Mercer's Investments business generate fees based upon the value of the clients’ assets under management, advisement or advisement.administration. Changes in the value of equity, debt, currency, real estate, commodities, alternatives or other asset classes could cause the value of assetsassets under management, advisement or advisement,administration, and the fees received by Mercer, to decline. Such changes could also cause clients to withdraw funds from Mercer’s Investments business in favor of other investment service providers. In either case, our business, financial condition and results of operations could be materially and adversely affected. Mercer’s Investments business also could be adversely affected by an accelerated shift away from actively managed investments to passively managed investments with associated lower fees. Further, revenue received by Mercer as investment manager to the majority of the Mercer-managed investment funds is reported in accordance with U.S. GAAP on a gross basisbasis rather than a net basis, with sub-advisor fees reflected as an expense. Therefore, the reported revenue for these offerings does not fully reflect the amount of net revenue ultimately attributable to Mercer.
Demand for many of Mercer's benefits services is affected by government regulation and tax laws, rulings, policies and interpretations, which drive our clients' needs for benefits-related services. Significant changes in government regulations affecting the value, use or delivery of benefits and human resources programs, including changes in regulations relating to health and welfare plans, defined contribution plans or defined benefit plans, may adversely affect the demand for or profitability of Mercer's services.
Factors affecting defined benefit pension plans and the services we provide relating to those plans could adversely affect Mercer.
Mercer currently provides corporateplan sponsors, plan trustees, multi-employer and public entity clients with actuarial, consulting and administration services relating to defined benefit pension plans. The nature of our work is complex. Many clients, particularly in the public sector, have sizeable pension deficits and are subject to impact from volatility in the global stock markets and interest rate fluctuations. A number of Mercer's clients have frozen or curtailed their defined benefit plans and have moved to defined contribution plans resulting in reduced revenue for Mercer's retirement business. These developments, fee compression pressures, and a continued or accelerated
rate of decline in revenues for our defined benefit pension plans business could adversely affect Mercer's business and operating results. In addition, our actuarial services involve numerous assumptions and estimates regarding future and contingent events, including interest rates used to discount future liabilities, estimated rates of return for a plan's assets, healthcare cost trends, salary projections and participants' life expectancies. OurMercer's consulting services involve the drafting and interpretation of trust deeds and other complex documentation governing pension plans. OurMercer's administration services include calculating benefits within complicated pension plan structures. OurMercer's investments services include investment advice and management relating to defined benefit pension plan assets intended to fund present and future benefit obligations. Clients dissatisfied with our services have brought, and may bring, significant claims against us, particularly in the United StatesU.S. and the United Kingdom.
Additionally, a rapid rise in interest rates could result in higher defined benefit pension plan funding levels. In some markets, this could accelerate clients’ desire to conduct a buyout or third-party risk transfer. Such a transaction could result in additional short-term revenue for Mercer to the extent we advise the client on the transaction, but a loss in longer term recurring revenue related to the plan.
The profitability of our Consulting segment may decline if we are unable to achieve or maintain adequate utilization and pricing rates for our consultants.
The profitability of our Consulting businesses depends in part on ensuring that our consultants maintain adequate utilization rates (i.e., the percentage of our consultants' working hours devoted to billable activities). Our utilization rates are affected by a number of factors, including:
•general economic conditions;
•our ability to transition consultants promptly from completed projects to new assignments, and to engage newly-hired consultants quickly in revenue-generating activities;
•our ability to continually secure new business engagements, particularly because a portion of our work is project-based rather than recurring in nature;
•our ability to forecast demand for our services and thereby maintain appropriate headcount in each of our geographies and workforces;
•our ability to retain key colleagues and consulting professionals;
•unanticipated changes in the scope of client engagements;
•the potential for conflicts of interest that might require us to decline client engagements that we otherwise would have accepted;
•our need to devote time and resources to sales, training, professional development and other non-billable activities; and
•the potential disruptive impact of acquisitions and dispositions; and
•general economic conditions.dispositions.
If the utilization rate for our consulting professionals declines, our revenues, profit margin and profitability could decline.
In addition, the profitability of our Consulting businesses depends in part on the prices we are able to charge for our services. The prices we charge are affected by a number of factors, including:
•general economic conditions;
•clients' perception of our ability to add value through our services;
•market demand for the services we provide;
•our ability to develop new services and the introduction of new services by competitors;
•the pricing policies of our competitors; and
•the extent to which our clients develop in-house or other capabilities to perform the services that they might otherwise purchase from us; and
•general economic conditions.us.
If we are unable to achieve and maintain adequate billing rates for our services, our profit margin and profitability could decline.
Item 1B. Unresolved Staff Comments.
There are no unresolved comments to be reported pursuant to Item 1B.
Item 1C. Cybersecurity.
As a professional services firm that processes confidential and sensitive information, such as personal information, cybersecurity risk management is an integral part of our enterprise risk management strategy. Our cybersecurity risk management program has been designed based on industry standards, such as the National Institute of Standards and Technology Cybersecurity Framework and ISO/IEC:27001, and provides a framework for assessing cybersecurity risk and identifying and managing cybersecurity threats and incidents, including threats and incidents associated with our use of services, applications and products provided by third-party vendors and service providers.
Our cybersecurity risk management program is coordinated by cross-functional teams, including risk management, legal and compliance, business resiliency management and information security. These teams develop, implement and maintain our compliance policies, programs and training, business resiliency, disaster recovery and information security frameworks, solutions and procedures. They also work closely with our business, internal audit, finance and IT staff to identify, assess and mitigate risks, including those associated with our use of third-party vendors and service providers, and to monitor and take steps designed to prevent security incidents in our technology environment.
Our cybersecurity risk management framework includes (1) procedures designed to assess the data privacy and cybersecurity practices of third-party vendors and service providers (including risk assessments and contractual protections), (2) technical IT controls designed to manage risks associated with cybersecurity incidents (such as
Our Board of Directors has overall oversight responsibility for the Company’s risk management and receives updates from management throughout the year on cybersecurity matters and other material risks facing the Company. Additionally, the Audit Committee regularly reviews the Company’s policies and practices with respect to risk assessment and risk management, including cybersecurity risks, and reports to the full Board of Directors on a regular basis. The Audit Committee is responsible for overseeing the Company’s enterprise risk management policies and processes, including discussing with management the Company’s major risk exposures and the steps that have been taken to monitor and control such exposures, including those arising from cybersecurity risks.
Management is responsible for identifying, assessing and managing material cybersecurity risks on an ongoing basis. Management’s efforts include establishing processes designed to ensure that potential cybersecurity risks are monitored, putting in place mitigation and remedial measures and implementing and maintaining cybersecurity programs. Our cybersecurity programs are under the direction of our Chief Information Security Officer (CISO), who reports to our Chief Information Officer (CIO). Our CIO has significant expertise and over a decade of experience working in technology. Our CISO has over twenty years of experience working in cybersecurity and maintains a Certified Information Systems Security Professional certification. Our CISO and CIO receive reports from our cybersecurity team and monitor the prevention, detection, mitigation, and remediation of cybersecurity incidents. Our cybersecurity team is comprised of experienced information systems security professionals and information security managers with many years of experience and various security certifications.
Management, including the CIO and CISO, regularly reviews with the Board of Directors and the Audit Committee the Company’s cybersecurity programs, material cybersecurity risks and mitigation strategies and provides updates on notable developments in the cybersecurity threat landscape. Additionally, management follows a risk-based escalation process to notify the Audit Committee outside of the cycle of regular updates when an emerging risk or material issue is identified, such as a potentially significant cybersecurity threat or incident.
In 2023, we did not identify any cybersecurity threats or incidents that have materially affected or are reasonably likely to materially affect the Company, including with respect to our business strategy, results of operations, or financial condition. However, despite our efforts, we cannot eliminate all risks from cybersecurity threats or incidents, or provide assurances that we have not experienced an undetected cybersecurity threat or incident. For more information about these risks, please see “Risk Factors – Cybersecurity, Data Protection and Technology Risks” in this annual report on Form 10-K.
Item 2. Properties.
The Company maintains its corporate headquarters in New York City. We also maintain other offices around the world, primarily in leased space. In certain circumstances we may have space that we sublet to third parties, depending upon our needs in particular locations.
The Company and certain of its subsidiaries own, directly and indirectly through special purpose subsidiaries, a 58% condominium interest covering approximately 900,000 square feet of office space in a 44 story condominium in New York City. This real estate serves as the Company's headquarters and is occupied primarily by the Company and its subsidiaries for general corporate use. The condominium interests are financed by a 30-year mortgage loan that is non-recourse to the Company unless the Company (i) is downgraded below B (stable outlook) by S&P or Fitch or B2 (stable outlook) by Moody's and such downgrade is continuing or (ii) an event of default under the mortgage loan has occurred. The mortgage is secured by a first priority assignment of leases and rents, including the leases which the Company and certain of its subsidiaries entered into with their affiliated special purpose subsidiaries which own the mortgaged condominium interests. The net rent due under those leases in effect services the mortgage debt.
Item 3. Legal Proceedings.
We and our subsidiaries are party to a variety of other legal, administrative, regulatory and government proceedings, claims and inquiries arising in the normal course of business.
Additional information regarding certain legal proceedings and related matters is set forth in Note 16, Claims, Lawsuits and Other Contingencies, in the notes to the consolidated financial statements appearing under Part II, Item 8 ("Financial Statements and Supplementary Data") of this report.
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market for the Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
For information regarding dividends paid and the number of holders of the Company’s common stock, see the table entitled "Selected Quarterly Financial Data and Supplemental Information (Unaudited)" below on the last page of Part II, Item 8 ("Financial Statements and Other Supplementary Data") of this report.
The Company’s common stock is listed on the New York and Chicago andStock Exchanges. Effective as of November 27, 2023, the Company’s common stock was delisted from the London Stock Exchanges.Exchange. The following table indicates the high and low prices (NYSE composite quotations) of the Company’s common stock during 2020in 2023 and 20192022, and each quarterly period thereof:
| | | | | 2020
Stock Price Range | | 2019
Stock Price Range | | | 2023
Stock Price Range | | 2022
Stock Price Range |
| | | | High | | Low | | High | | Low | | | High | | Low | | High | | Low |
| First Quarter | First Quarter | | $119.88 | | $74.33 | | $94.96 | | $77.85 | First Quarter | | $176.85 | | $151.86 | | $173.34 | | $142.80 |
| Second Quarter | Second Quarter | | $111.99 | | $78.95 | | $100.20 | | $91.67 | Second Quarter | | $189.02 | | $165.86 | | $183.14 | | $143.33 |
| Third Quarter | Third Quarter | | $120.97 | | $106.83 | | $103.37 | | $94.81 | Third Quarter | | $199.20 | | $183.81 | | $174.23 | | $146.82 |
| Fourth Quarter | Fourth Quarter | | $119.31 | | $102.11 | | $113.94 | | $95.00 | Fourth Quarter | | $202.81 | | $184.02 | | $176.75 | | $148.14 |
| Full Year | Full Year | | $120.97 | | $74.33 | | $113.94 | | $77.85 | Full Year | | $202.81 | | $151.86 | | $183.14 | | $142.80 |
There were noThe Company has a share repurchases of the Company's common stock during 2020. In November 2019,program authorized by the Board of DirectorsDirectors.
The Company repurchased approximately 6.4 million shares of the Company authorized the Company to repurchase up to $2.5its common stock for $1.15 billion in shares of the Company's common stock, which superseded any prior authorizations. As of2023. At December 31, 2020,2023, the Company remained authorized to repurchase up to approximately $2.4$3.2 billion in shares of its common stock. There is no time limit on the authorization. The Company repurchased approximately 12.2 million shares of its common stock for $1.9 billion in 2022.
In March 2022, the Board of Directors of the Company authorized an additional $5 billion in share repurchases. This was in addition to the Company's existing share repurchase program, which had approximately $1.3 billion of remaining authorization at December 31, 2021. The following information relates to the Company's repurchases of equity securities during each month within the fourth quarter of the fiscal year covered by this report:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | |
Total Number
of Shares
(or Units)
Purchased | |
Average Price
Paid per Share
(or Unit) | |
Total Number of
Shares (or Units)
Purchased as
Part of Publicly
Announced Plans
or Programs | |
Maximum Number
(or Approximate Dollar Value)
of Shares (or Units) that May
Yet Be Purchased
Under the Plans or Programs |
| Oct 1-31, 2023 | | 239,503 | | | $ | 187.95 | | | 239,503 | | | $ | 3,369,049,645 | |
| Nov 1-30, 2023 | | 635,940 | | | $ | 197.13 | | | 635,940 | | | $ | 3,243,683,847 | |
| Dec 1-31, 2023 | | 410,498 | | | $ | 193.91 | | | 410,498 | | | $ | 3,164,084,989 | |
| Total | | 1,285,941 | | | $ | 194.39 | | | 1,285,941 | | | $ | 3,164,084,989 | |
Item 6. Selected Financial Data.
Marsh & McLennan Companies, Inc. and Subsidiaries
FIVE-YEAR STATISTICAL SUMMARY OF OPERATIONS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
For the Years Ended December 31, (In millions, except per share figures) | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | | | | |
| Revenue | $ | 17,224 | | | $ | 16,652 | | | $ | 14,950 | | | $ | 14,024 | | | $ | 13,211 | | | | | | |
| Expense: | | | | | | | | | | | | | | |
| Compensation and benefits | 10,129 | | | 9,734 | | | 8,605 | | | 8,085 | | | 7,694 | | | | | | |
| Other operating expenses | 4,029 | | | 4,241 | | | 3,584 | | | 3,284 | | | 3,086 | | | | | | |
| Operating expenses | 14,158 | | | 13,975 | | | 12,189 | | | 11,369 | | | 10,780 | | | | | | |
Operating income (a) | 3,066 | | | 2,677 | | | 2,761 | | | 2,655 | | | 2,431 | | | | | | |
| Other net benefits credits | 257 | | | 265 | | | 215 | | | 201 | | | 233 | | | | | | |
| Interest income | 7 | | | 39 | | | 11 | | | 9 | | | 5 | | | | | | |
| Interest expense | (515) | | | (524) | | | (290) | | | (237) | | | (189) | | | | | | |
| Cost of extinguishment of debt | — | | | (32) | | | — | | | — | | | — | | | | | | |
| Investment (loss) income | (22) | | | 22 | | | (12) | | | 15 | | | — | | | | | | |
| Acquisition related derivative contracts | — | | | (8) | | | (441) | | | — | | | — | | | | | | |
| Income before income taxes | 2,793 | | | 2,439 | | | 2,244 | | | 2,643 | | | 2,480 | | | | | | |
Income tax expense (b) | 747 | | | 666 | | | 574 | | | 1,133�� | | | 685 | | | | | | |
| Income from continuing operations | 2,046 | | | 1,773 | | | 1,670 | | | 1,510 | | | 1,795 | | | | | | |
| Discontinued operations, net of tax | — | | | — | | | — | | | 2 | | | — | | | | | | |
| Net income before non-controlling interests | 2,046 | | | 1,773 | | | 1,670 | | | 1,512 | | | 1,795 | | | | | | |
| Less: net income attributable to non-controlling interests | 30 | | | 31 | | | 20 | | | 20 | | | 27 | | | | | | |
| Net income attributable to the company | $ | 2,016 | | | $ | 1,742 | | | $ | 1,650 | | | $ | 1,492 | | | $ | 1,768 | | | | | | |
| Basic net income per share information: | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| Net income attributable to the company | $ | 3.98 | | | $ | 3.44 | | | $ | 3.26 | | | $ | 2.91 | | | $ | 3.41 | | | | | | |
| Average number of shares outstanding | 506 | | | 506 | | | 506 | | | 513 | | | 519 | | | | | | |
| Diluted income per share information: | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| Net income attributable to the company | $ | 3.94 | | | $ | 3.41 | | | $ | 3.23 | | | $ | 2.87 | | | $ | 3.38 | | | | | | |
| Average number of shares outstanding | 512 | | | 511 | | | 511 | | | 519 | | | 524 | | | | | | |
| Dividends paid per share | $ | 1.84 | | | $ | 1.74 | | | $ | 1.58 | | | $ | 1.43 | | | $ | 1.30 | | | | | | |
| Return on average equity | 23 | % | | 22 | % | | 22 | % | | 22 | % | | 27 | % | | | | | |
| Year-end financial position: | | | | | | | | | | | | | | |
| Working capital | $ | 1,599 | | | $ | 389 | | | $ | 1,010 | | | $ | 1,300 | | | $ | 802 | | | | | | |
| Total assets | $ | 33,049 | | | $ | 31,357 | | | $ | 21,578 | | | $ | 20,429 | | | $ | 18,190 | | | | | | |
| Long-term debt | $ | 10,796 | | | $ | 10,741 | | | $ | 5,510 | | | $ | 5,225 | | | $ | 4,495 | | | | | | |
| Total equity | $ | 9,260 | | | $ | 7,943 | | | $ | 7,584 | | | $ | 7,442 | | | $ | 6,272 | | | | | | |
| Total shares outstanding (net of treasury shares) | 508 | | | 504 | | | 504 | | | 509 | | | 514 | | | | | | |
| Other information: | | | | | | | | | | | | | | |
| Number of employees | 76,000 | | | 76,000 | | | 66,000 | | | 64,000 | | | 60,000 | | | | | | |
| Stock price ranges— | | | | | | | | | | | | | | |
| U.S. exchanges — High | $ | 120.97 | | | $ | 113.94 | | | $ | 89.59 | | | $ | 86.54 | | | $ | 69.77 | | | | | | |
| — Low | $ | 74.33 | | | $ | 77.85 | | | $ | 74.30 | | | $ | 66.75 | | | $ | 50.81 | | | | | | |
(a)Includes the impact of net restructuring costs of $89 million, $112 million, $161 million, $40 million, and $44 million in 2020, 2019, 2018, 2017 and 2016, respectively, and JLT integration, restructuring and acquisition related costs of $305 million, $485 million and $12 million in 2020, 2019 and 2018, respectively. 2020 also includes a $161 million JLT legacy E&O provision.
(b)Income tax expense in 2017 includes a $460 million provisional charge related to the enactment of U.S. tax reform.
See "Management’s Discussion and Analysis of Financial Condition and Results of Operations", appearing under Part II, Item 7 of this report, for discussion of significant items affecting the results of operations in 2020 and 2019.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsOperations.
General
Marsh & McLennan Companies Inc., and its consolidated subsidiaries (the "Company") is a global professional services firm offering clients advice in the areas of risk, strategy and people. The Company’s 76,000Company helps clients build the confidence to thrive through the power of perspective of its four market-leading businesses. With annual revenue of $23 billion, the Company has more than 85,000 colleagues adviseadvising clients in over 130 countries. With annual revenue over $17 billion, the Company helps clients navigate an increasingly dynamic
Marsh provides data-driven risk advisory services and complex environment through four market-leading businesses. Marsh advises individualinsurance solutions to commercial and commercial clients of all sizes on insurance broking and innovative risk management solutions.consumer clients. Guy Carpenter develops advanced risk, reinsurance and capital strategies that help clients grow profitably and pursue emerging opportunities. Mercer delivers advice and technology-driven solutions that help organizations redefine the world of work, reshape retirement and investment outcomes, and unlock health and well beingwell-being for a changing workforce. Oliver Wyman Group serves as a critical strategic, economic and brand advisor to private sector and governmental clients. The four businesses also collaborate together to deliver new solutions to help clients manage complex and interconnected risks.
The Company conducts business through two segments:
•Risk and Insurance Services includes risk management activities (risk advice, risk transfer and risk control and mitigation solutions) as well as insurance and reinsurance broking and services. The Company conducts business in this segment through Marsh and Guy Carpenter.
•Consulting includes health, wealth and career consulting servicesadvice, solutions and products, and specialized management, strategic, economic and brand consulting services. The Company conducts business in this segment through Mercer and Oliver Wyman Group.
The results of operations in the Management Discussion & Analysis ("MD&A") include an overview of the Company’s consolidated 2023 results compared to the 2022 results, and should be read in conjunction with the consolidated financial statements and notes. This section also includes a discussion of the key drivers impacting the Company’s financial results of operations both on a consolidated basis and by reportable segments.
We describe the primary sources of revenue and categories of expense for each segment below, in ourthe discussion of segment financial results. A reconciliation of segment operating income to total operating income is included in Note 17, Segment Information, in the notes to the consolidated financial statements included in Part II, Item 8, of this report.
For information and comparability of the Company's results of operations and liquidity and capital resources for fiscal year 2021, refer to "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of the Company's Form 10-K for the fiscal year ended December 31, 2022.
This MD&A contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Refer to "Information Concerning Forward-Looking Statements" at the outset of this report.
Non-GAAP Measures
The Company reports its financial results in accordance with accounting principles generally accepted in the United States (U.S.), referred to as in accordance with "GAAP" or "reported" results. The Company also refers to and presents a non-GAAP financial measure in non-GAAP revenue, within the meaning of Regulation G and Item 10(e) of Regulation S-K in accordance with the Securities Exchange Act of 1934. The Company has included a reconciliation of this non-GAAP financial measure to the most directly comparable financial measure calculated in accordance with GAAP as part of the consolidated revenue and expense discussion. Percentage changes, referred to as non-GAAP underlying revenue, are calculated by dividing the period over period change in non-GAAP revenue by the prior period non-GAAP revenue.
The Company believes this non-GAAP financial measure provides useful supplemental information that enables investors to better compare the Company’s performance across periods. Management also uses this measure internally to assess the operating performance of its businesses and to decide how to allocate resources. However, investors should not consider this non-GAAP measure in isolation from, or as a substitute for, the financial information that the Company reports in accordance with GAAP. The Company's non-GAAP measure includes adjustments that reflect how management views its businesses and may differ from similarly titled non-GAAP measures presented by other companies.
Financial Highlights
•Consolidated revenue in 2023 was $22.7 billion, an increase of 10%, or 9% on an underlying basis.
•Consolidated operating income increased $1.0 billion, or 23% to $5.3 billion in 2023, compared to 2022. Net income attributable to the Company was $3.8 billion. Earnings per share on a diluted basis increased to $7.53 from $6.04, or 25%, compared with 2022.
•Risk and Insurance Services revenue in 2023 was $14.1 billion, an increase of 11%, on a reported and underlying basis. Operating income was $3.9 billion and $3.1 billion in 2023 and 2022, respectively.
•Consulting revenue in 2023 was $8.7 billion, an increase of 7%, on a reported and underlying basis. Operating income was $1.7 billion and $1.6 billion in 2023 and 2022, respectively.
•The Company's results of operations in 2023 were impacted by restructuring activities of $301 million, primarily related to severance and lease exit charges for activities focused on workforce actions, technology rationalization and reductions in real estate.
•The Company completed 14 acquisitions in 2023, the largest being the acquisitions of Honan Insurance Group and Graham Company in the Risk and Insurance Services segment.
•In the Consulting segment, the Company completed the acquisition of Westpac Banking Corporation’s ("Westpac") financial advisory business, Advance Asset Management, and the transfer from Westpac of BT Financial Group's personal and corporate pension funds to the Mercer Super Trust managed by Mercer Australia (referred to collectively, as the "Westpac Transaction").
•In September 2023, the Company issued $600 million of 5.400% senior notes due 2033 and $1.0 billion of 5.700%% senior notes due 2053. In March 2023, the Company issued $600 million of 5.450% senior notes due 2053.
•On October 16, 2023, the Company repaid $250 million of senior notes that matured.
•In 2023, the Company repurchased 6.4 million shares for $1.15 billion.
The macroeconomic and geopolitical environment including multiple major wars, escalating conflict throughout the Middle East and rising tension in the South China Sea, slower GDP growth or recession, lower interest rates, capital markets volatility and inflation has and could continue to potentially impact our business, financial condition, results of operations and cash flows. For more information about these risks, please see “Risk Factors – Macroeconomic Risks” in this report.annual report on Form 10-K.
For additional details, refer to the Consolidated Results of Operations and Liquidity and Capital Resources sections in this MD&A.
Acquisitions and dispositions impacting the Risk and Insurance Services and Consulting segments are discussed in Note 5, Acquisitions and Dispositions, in the notes to the consolidated financial statements.
For information on fiscal 2018 results and similar comparisons, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Form 10-K for the fiscal year ended December 31, 2019.
This MD&A contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. See "Information Concerning Forward-Looking Statements" at the outset of this report.
Business Update Related To COVID-19
In March 2020, the World Health Organization declared the Coronavirus (COVID-19) a pandemic. The pandemic has impacted essentially every geography in which the Company operates. Governments implemented various restrictions around the world, including closure of non-essential businesses, travel, shelter-in-place requirements for citizens and other restrictions. The Company has taken a number of precautionary steps to safeguard its businesses and colleagues from COVID-19, including implementing travel restrictions, arranging work from home capabilities and flexible work policies.
In the second and third quarters of 2020, the Company began re-opening offices in various locations around the world, while ensuring that it continued to adhere to guidelines and orders issued by national, state and local governments. The timing of additional office re-openings will vary based on the conditions and restrictions in each location. In the fourth quarter, there was a surge in COVID-19 infections in many parts of the world, leading to renewed lock-downs and increased government restrictions. The safety and well-being of our colleagues continues to be our first priority. Several vaccines have been or are in various stages of approval. However, the speed of distribution and the impact on colleagues' ability to return to the office remains uncertain. The vast majority of the Company’s colleagues have continued and will continue working in a remote work environment for most of 2021. The Company expects it will continue its ability to service clients effectively while colleagues remain in a remote work environment.
For the year ended December 31, 2020, the COVID-19 pandemic had an adverse impact on the Company’s revenue growth, primarily in our businesses that are discretionary in nature, which was partly mitigated through disciplined expense management by implementing restrictions on travel and other cost containment measures. However, the ultimate extent of the COVID-19 impact to the Company will depend on numerous evolving factors and future developments that it is not able to predict. Factors that could adversely affect the Company’s financial statements related to the financial and operational impact of COVID-19 are outlined in the "Risk Factors” section of this report.
Acquisition of JLT
On April 1, 2019, the Company completed the acquisition (the "Transaction") of all of the outstanding shares of Jardine Lloyd Thompson Group plc ("JLT"), a public company organized under the laws of England and Wales. In accordance with the terms of the Transaction, JLT shareholders received £19.15 in cash for each JLT share, which valued JLT’s existing share capital at approximately £4.3 billion (or approximately $5.6 billion based on the exchange rate of U.S. $1.31:£1) on the Transaction closing date. As of December 31, 2020, the Company has substantially integrated JLT into all of its business operations.
After the acquisition of JLT, the Company assumed the legal liabilities of JLT’s litigation and regulatory exposures as of April 1, 2019. Please see the "Risk Factors" section of this Annual Report on Form 10-K for risks associated with the acquisition and Note 16 to the consolidated financial statements which discusses certain errors and omission matters related to the acquisition.
JLT's results of operations for the period April 1, 2019 through December 31, 2019 are included in the Company’s results of operations for 2019. In accordance with applicable accounting guidance, JLT's results of operations for the period January 1 through March 31, 2019 and for the year ended 2018 are not included in the Company's results of operations and therefore, affect comparability. The Company’s results for the years ended December 31, 2020 and 2019 were impacted by JLT related acquisition, restructuring and integration costs as well as legacy MMC restructuring programs as discussed in Note 14 to the consolidated financial statements.
Consolidated Results of Operations
| For the Years Ended December 31, (In millions, except per share figures) | 2020 | | 2019 | | 2018 |
For the Years Ended December 31, (In millions, except per share data) | | For the Years Ended December 31, (In millions, except per share data) | | 2023 | | 2022 | | 2021 |
| Revenue | Revenue | $ | 17,224 | | | $ | 16,652 | | | $ | 14,950 | |
| Expense | |
| Expense: | |
| Compensation and benefits | |
| Compensation and benefits | |
| Compensation and benefits | Compensation and benefits | 10,129 | | | 9,734 | | | 8,605 | |
| Other operating expenses | Other operating expenses | 4,029 | | | 4,241 | | | 3,584 | |
| Operating expenses | Operating expenses | 14,158 | | | 13,975 | | | 12,189 | |
| Operating income | Operating income | $ | 3,066 | | | $ | 2,677 | | | $ | 2,761 | |
| Income before income taxes | Income before income taxes | $ | 2,793 | | | $ | 2,439 | | | $ | 2,244 | |
| | Net income before non-controlling interests | Net income before non-controlling interests | $ | 2,046 | | | $ | 1,773 | | | $ | 1,670 | |
| | Net income before non-controlling interests | |
| | Net income before non-controlling interests | |
| Net income attributable to the Company | Net income attributable to the Company | $ | 2,016 | | | $ | 1,742 | | | $ | 1,650 | |
| Net income per share attributable to the Company | Net income per share attributable to the Company | |
| | – Basic | |
| | – Basic | |
| | – Basic | – Basic | $ | 3.98 | | | $ | 3.44 | | | $ | 3.26 | |
| | – Diluted | – Diluted | $ | 3.94 | | | $ | 3.41 | | | $ | 3.23 | |
| | Average number of shares outstanding | |
| – Diluted | |
| | – Diluted | |
| | Average number of shares outstanding: | |
| Average number of shares outstanding: | |
| Average number of shares outstanding: | |
| – Basic | |
| – Basic | |
| – Basic | – Basic | 506 | | | 506 | | | 506 | |
| – Diluted | – Diluted | 512 | | | 511 | | | 511 | |
| Shares outstanding at December 31, | Shares outstanding at December 31, | 508 | | | 504 | | | 504 | |
Consolidated operating income was $3.1increased $1.0 billion, or 23% to $5.3 billion in 20202023, compared with $2.7to $4.3 billion in 2019,the prior year, reflecting the impact of a 3%10% increase in revenue and ana 6% increase in expenses of 1%. On an underlying basis, revenue increased 1%, reflecting an increase of 3%expenses. Revenue growth was driven by increases in Risk & Insurance Services offset by a decrease in Consulting of 2%. On an underlying basis, expenses decreased 2%, reflecting a decrease in JLT
integration and restructuring and acquisition-related costs and savings realized from the completion of integration efforts to date. The expense decrease also reflects lower travel and entertainment, meeting costs and outside services resulting from the Company’s restrictions on travel and cost containment measures taken in light of COVID-19 and lower expenses recoverable from clients. These decreases were partly offset by higher incentive compensation, severance and a JLT legacy E&O provision of $161 million recorded in 2020, which is discussed in Note 16 of the consolidated financial statements.
Income before income taxes increased 14% to $2.8 billion as compared to $2.4 billion in 2019, reflecting the change in operating income discussed in the preceding paragraph, partially offset by lower investment income.
Diluted earnings per share increased 16% to $3.94 in 2020 compared with $3.41 in 2019. This increase is a result of the factors discussed above, and a lower effective tax rate in 2020.
Risk and Insurance Services operating income increased $513 million, or 28%and Consulting segments of 11% and 7%, in 2020 compared with 2019. Revenue increased 8%, reflecting increases of 3% on an underlying basis and 1% from acquisitions, partly offset by a 1% decrease from the impact of foreign currency translation. Expense increased 3% reflecting decreases of 2% on an underlying basis and 1% from the impact of foreign currency translation, partly offset by anrespectively.
The increase of 2% from acquisitions. The decrease in underlying expenses is primarily due to lower JLT integration, restructuring and acquisition related costs and savings realized from the completion of integration efforts to date. The decrease also reflects lower travel and entertainment and meeting costs resulting from the Company’s restrictions on travel and cost containment measures taken in light of COVID-19, partly offset by higher severance.
Consulting operating income decreased $216 million, or 18%, to $1.0 billion in 2020 compared with 2019, reflecting the impact of a decrease in revenue of 2%in 2023 reflects the continued demand for our advice and solutions, growth in new business and renewals, and investments in talent and capabilities. Results also benefited from growth in the global economy, inflation, higher insurance and reinsurance pricing, and an increase in expense of 1%. Revenue decreased 2% on an underlying basis and 1% from the impact of dispositions. On an underlying basis, expensefiduciary income due to higher interest rates.
Expenses increased 1%in 2023 primarily due to a JLT legacy E&O provision of $161 million recorded in 2020,compensation and benefits, driven by increased headcount, and higher JLT integrationbase salary and incentive compensation. Other operating expenses decreased due to lower restructuring relatedand facility costs, as well as higher severance, partlypartially offset by lower travel, entertainment and meeting costs resulting from the Company’s restrictions onhigher travel and cost containment measures takenentertainment costs compared to 2022. Expenses in light2023 also include $51 million of COVID-19insurance and lower expenses recoverable from clients.
The following chart summarizes the activity related to the restructuring and noteworthy items discussed in more detail below:
| | | | | | | | | | | | | | | | | | | | | |
| | | For the Years Ended December 31, |
| (In millions) | | | | | 2020 | | 2019 | | 2018 |
| Restructuring costs, excluding JLT | | | | | $ | 89 | | | $ | 112 | | | $ | 161 | |
| JLT integration and restructuring costs | | | | | 251 | | | 335 | | | — | |
| JLT acquisition related costs | | | | | 54 | | | 150 | | | 12 | |
| JLT legacy E&O provision | | | | | 161 | | | — | | | — | |
| Impact on operating income | | | | | 555 | | | 597 | | | 173 | |
| Change in fair value of acquisition related derivative contracts | | | | | — | | | 8 | | | 441 | |
| Pension settlement charges | | | | | 3 | | | 7 | | | 42 | |
| Early extinguishment of JLT debt | | | | | — | | | 32 | | | — | |
| JLT related interest income - pre-acquisition | | | | | — | | | (25) | | | — | |
| JLT related interest expense - pre-acquisition | | | | | — | | | 53 | | | 30 | |
| Investment and impairment loss | | | | | — | | | — | | | 83 | |
| Impact on income before taxes | | | | | $ | 558 | | | $ | 672 | | | $ | 769 | |
In 2020, 2019 and 2018, the Company’s results of operations and earnings per share were impacted by the following items:
•Restructuring costs, excluding JLT: Includes severance, adjustments to restructuring liabilities for future rent under non-cancellable leases and other real estate exit costs, and restructuring costs related to the integration of recent acquisitions. These costs are discussed in more detail in Note 14 of the consolidated financial statements.
•JLT integration and restructuring costs: Includes severance, lease related exit costs as well as consulting costs from the JLT Transaction. These costs are discussed in more detail in Note 14 of the consolidated financial statements.
•JLT acquisition related costs: Includes advisor fees and stamp duty taxes related to the closing of the JLT Transaction and retention costs. Also includes the loss on the sale of JLT's aerospace business, which is included in revenue.
•JLT legacy E&O provision: In 2020, reflects a provisionindemnity recoveries for a legacy JLT Jardine Lloyd Thompson Group plc ("JLT") Errors and Omissions ("E&O&O") matter relating to suitability of financial advice provided to individuals for defined benefit pension transfers. This provisiontransfers in the United Kingdom (U.K).
Diluted earnings per share increased to $7.53 from $6.04, or 25% from the prior year. The increase is discussedprimarily the result of higher operating income in more detail in Note 16 of the consolidated financial statements.
•Change in fair value of acquisition related derivatives: In connection with the JLT Transaction, to hedge the risk of appreciation of the GBP-denominated purchase price relative2023, compared to the U.S. dollar, in September 2018, the Company entered into a deal contingent foreign exchange contract (the "FX Contract") to, solely upon consummation of the JLT Transaction, purchase £5.2 billion and sell a corresponding amount of U.S. dollars at a contractedexchange rate. The FX Contract is discussed in Note 11 to the consolidated financial statements. An unrealized loss of $325 million related to the fair value changes to this derivative was recognized in the consolidated statement of income for the year ended December 31, 2018, largely due to the depreciation of the GBP from September 2018. In 2019, the Company recorded a gain of $31 million upon final settlement of the FX Contract.prior year.
In addition, to hedge the economic risk of increases in interest rates prior to its issuance of senior notes in January 2019, in the fourth quarter of 2018, the Company entered into treasury lock contracts related to $2 billion of the expected debt issuance. These economic hedges were not designated as accounting hedges. The Company recorded an unrealized loss of $116 million related to the changes in the fair value of these derivatives in the consolidated statement of income for the year ended December 31, 2018. In January 2019, upon issuance of the $5 billion of senior notes, the Company settled the treasury lock contracts and made a payment to its counter party for $122 million.
JLT also had a number of foreign exchange contracts to hedge the risk of foreign exchange movements between the U.S. dollar and the GBP, related to JLT’s U.S. dollar denominated revenue in the U.K. Prior to the acquisition, these derivative contracts were designated as cash flow hedges. Upon completion of the JLT Transaction, these derivative contracts were not re-designated as cash flow hedges by the Company. The contracts were settled in June 2019. The change in fair value between the acquisition date and the settlement date resulted in a charge of $26 million for the year ended December 31, 2019. The charge is recorded as a change in fair value of acquisition related derivative contracts in the consolidated statement of income.
•JLT related interest income and expense: To secure funding for the Transaction, the Company entered into a bridge loan agreement with aggregate commitments of £5.2 billion in September 2018. The Company paid the customary upfront fees related to the bridge loan, which were amortized as interest expense based on the period of time the facility was expected to be in effect. The Company recorded interest expense of approximately $30 million for the year ended December 31, 2018 related to the amortization of the bridge loan fees and an additional $6 million in 2019 upon termination of the bridge loan agreement in connection with the closing of the JLT Transaction. The Company recorded approximately $47 million of interest expense related to the senior notes issued in the first quarter of 2019 and $25 million of interest income from the investment of the proceeds prior to the closing of the JLT Transaction.
•Investment loss-Alexander Forbes ("AF"): The Company recorded an impairment charge of $83 million in the 2018 consolidated statement of income for an other than temporary decline in the value of the investment. During 2020, the Company sold approximately 242 million shares of the common stock of AF. Upon completion of the sales of these shares, the investment in AF was accounted at fair value, with investment gains and losses recorded as investment income (loss) in the consolidated statement of income.
•Pension settlement charge: The Defined Benefit Pension Plans in the U.K. and certain other countries allow participants an option for the payment of a lump sum distribution from plan assets before retirement in full satisfaction of the retirement benefits due to the participant as well as any survivor’s benefit. The Company’s policy in accordance with applicable U.S. GAAP is to treat these lump sum payments as a partial settlement of the plan liability if they exceed the sum of service cost plus interest cost components of net period pension cost of a plan for the year ("settlement thresholds"). The amount of lump sum payments in 2018 exceeded the settlement thresholds in two of the U.K. plans. The Company recorded non-cash settlement charges, primarily related to these plans of $42 million for the year ended December 31, 2018, of which approximately 90% impacted Risk and Insurance Services. In 2020 and 2019, the Company recorded $3 million and $7 million, respectively, of non-cash pension settlement charges related to certain of its non U.S. plans.
JLT Integration and Restructuring Costs
The Company is completing its integration of JLT, which is discussed in more detail in Note 14 to the consolidated financial statements. The costs incurred in connection with the integration and restructuring of the combined businesses, primarily related to severance, real estate rationalization and technology, consulting fees related to the management of the integration processes and legal fees related to the rationalization of legal entity structures. The Company incurred costs of $251 million in 2020 and $335 million in 2019 and expects the remaining costs of $139 million to be incurred in 2021 of which $134 million will be cash expenditures. Through December 31, 2020, the Company has exceeded the initial estimated savings of $350 million. The Company now expects approximately $425 million of annualized savings when the integration is completed in 2021.
Consolidated Revenue and Expense
Revenue -– Non-GAAP Revenue and Components of Change
The Company conducts businessadvises clients in manyover 130 countries. As a result, foreign exchange rate movements may impact period-to-periodperiod over period comparisons of revenue. Similarly, certain other items such as the revenue impact of acquisitions and dispositions, including transfers among businesses, may impact period-to-periodperiod over period comparisons of revenue. UnderlyingNon-GAAP revenue measures the change in revenue from one period to anotherthe next by isolating these impacts.impacts on an underlying revenue basis. Percentage changes, referred to as non-GAAP underlying revenue, are calculated by dividing the period over period change in non-GAAP revenue by the prior period non-GAAP revenue.
The calculation of underlyingnon-GAAP revenue growth formeasure is presented on a constant currency basis excluding the year ended December 31, 2020 as compared to 2019, is calculated as if MMC and JLT were a combined company as of January 1, 2019, but excludes the impact of currency and other acquisitions, dispositions, and transfers among businesses. Combined prior year revenue information for MMC and JLT for the year ended December 31, 2019 are presented below. The unaudited 2019 JLT revenue amounts in the "2019 including JLT" column reflect historical JLT revenue information following IFRS, adjusted to conform with U.S. GAAP and the Company's specific accounting policies, primarily related to development of constraints and subsequent release of those constraints related to the reinsurance business. The decrease in revenue due to the disposal of JLT's Aerospace business is reflected in the acquisitions/dispositions column beginning in June 2019, when the sale was completed. See the reconciliation of non-GAAP measures within MD&A. All other acquisitions/dispositions activity is included in the acquisitions/dispositions column. Underlying expense growth is calculated in a similar manner.
The impact of foreign currency fluctuations. The Company isolates the impact of foreign exchange fluctuations, acquisitions and dispositions, including transfers among businesses,rate movements period over period, by translating the current period foreign currency GAAP revenue into U.S. Dollars based on the Company’s operating revenues by segment are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | | | 2019 Including JLT | | % Change Including JLT in 2019 | | Components of Revenue Change Including JLT* |
| (In millions, except percentage figures) | 2020 | | 2019 | | % Change
GAAP
Revenue | | | | Currency Impact | | Acquisitions/
Dispositions/ Other Impact | | Underlying Revenue |
| Risk and Insurance Services | | | | | | | | | | | | | | | |
| Marsh | $ | 8,595 | | | $ | 8,014 | | | 7 | % | | $ | 8,246 | | | 4 | % | | (1) | % | | 2 | % | | 3 | % |
| Guy Carpenter | 1,696 | | | 1,480 | | | 15 | % | | 1,598 | | | 6 | % | | — | | | — | | | 6 | % |
| Subtotal | 10,291 | | | 9,494 | | | 8 | % | | 9,844 | | | 5 | % | | (1) | % | | 1 | % | | 4 | % |
| Fiduciary Interest Income | 46 | | | 105 | | | | | 110 | | | | | | | | | |
| Total Risk and Insurance Services | 10,337 | | | 9,599 | | | 8 | % | | 9,954 | | | 4 | % | | (1) | % | | 1 | % | | 3 | % |
| Consulting | | | | | | | | | | | | | | | |
| Mercer | 4,928 | | | 5,021 | | | (2) | % | | 5,094 | | | (3) | % | | — | | | (2) | % | | (1) | % |
| Oliver Wyman Group | 2,048 | | | 2,122 | | | (3) | % | | 2,122 | | | (3) | % | | — | | | — | | | (4) | % |
| Total Consulting | 6,976 | | | 7,143 | | | (2) | % | | 7,216 | | | (3) | % | | — | | | (1) | % | | (2) | % |
| Corporate/Eliminations | (89) | | | (90) | | | | | (90) | | | | | | | | | |
| Total Revenue | $ | 17,224 | | | $ | 16,652 | | | 3 | % | | $ | 17,080 | | | 1 | % | | — | | | — | | | 1 | % |
|
The percentage change for acquisitions, dispositions, and other includes the impact of current and prior year items excluded from the calculation of non-GAAP underlying revenue for comparability purposes. Details on these items are provided in the reconciliation of non-GAAP revenue to GAAP revenue tables.
The following tables present the Company's non-GAAP revenue for the years ended December 31, 2023 and 2022 and the related non-GAAP underlying revenue change:
| | | | | | | | | | | | | | | | | | | | | | | |
Year Ended December 31, (In millions, except percentages) | GAAP Revenue | % Change
GAAP
Revenue* | | Non-GAAP Revenue | Non-GAAP Underlying Revenue* |
| 2023 | 2022 | | 2023 | 2022 |
| Risk and Insurance Services | | | | | | | |
| Marsh | $ | 11,378 | | $ | 10,505 | | 8 | % | | $ | 11,339 | | $ | 10,510 | | 8 | % |
| Guy Carpenter | 2,258 | | 2,020 | | 12 | % | | 2,194 | | 2,001 | | 10 | % |
| Subtotal | 13,636 | | 12,525 | | 9 | % | | 13,533 | | 12,511 | | 8 | % |
| Fiduciary interest income | 453 | | 120 | | | | 454 | | 120 | | |
| Total Risk and Insurance Services | 14,089 | | 12,645 | | 11 | % | | 13,987 | | 12,631 | | 11 | % |
| Consulting | | | | | | | |
| Mercer | 5,587 | | 5,345 | | 5 | % | | 5,621 | | 5,277 | | 7 | % |
| Oliver Wyman Group | 3,122 | | 2,794 | | 12 | % | | 3,028 | | 2,805 | | 8 | % |
| Total Consulting | 8,709 | | 8,139 | | 7 | % | | 8,649 | | 8,082 | | 7 | % |
| Corporate Eliminations | (62) | | (64) | | | | (62) | | (64) | | |
| Total Revenue | $ | 22,736 | | $ | 20,720 | | 10 | % | | $ | 22,574 | | $ | 20,649 | | 9 | % |
The following table provides more detailed revenue information for certain of the components presented above:in the previous table:
| | Year Ended
December 31, | | | 2019 Including JLT | | % Change Including JLT in 2019 | | Components of Revenue Change Including JLT* |
| (In millions, except percentage figures) | 2020 | | 2019 | | % Change
GAAP
Revenue | | Currency Impact | | Acquisitions/ Dispositions/ Other | | Underlying Revenue |
Year Ended December 31, (In millions, except percentages) | | Year Ended December 31, (In millions, except percentages) | GAAP Revenue | % Change
GAAP
Revenue* | | Non-GAAP Revenue | Non-GAAP Underlying Revenue* |
| 2023 | 2022 | | 2023 | 2022 |
| Marsh: | Marsh: | |
| EMEA | $ | 2,575 | | | $ | 2,482 | | | 4 | % | | $ | 2,589 | | | (1) | % | | — | | | — | | | — | |
| Asia Pacific | 1,059 | | | 953 | | | 11 | % | | 1,019 | | | 4 | % | | — | | | — | | | 4 | % |
EMEA (a) | |
EMEA (a) | |
EMEA (a) | | $ | 3,262 | | $ | 2,997 | | 9 | % | | $ | 3,268 | | $ | 3,005 | | 9 | % |
Asia Pacific (a) | | Asia Pacific (a) | 1,295 | | 1,215 | | 7 | % | | 1,327 | | 1,215 | | 9 | % |
| Latin America | Latin America | 424 | | | 460 | | | (8) | % | | 483 | | | (12) | % | | (10) | % | | (5) | % | | 3 | % | Latin America | 559 | | 502 | 502 | | 11 | 11 | % | | 566 | | 502 | 502 | | 13 | 13 | % |
| Total International | Total International | 4,058 | | | 3,895 | | | 4 | % | | 4,091 | | | (1) | % | | (1) | % | | (1) | % | | 1 | % | Total International | 5,116 | | 4,714 | 4,714 | | 9 | 9 | % | | 5,161 | | 4,722 | 4,722 | | 9 | 9 | % |
| U.S./Canada | U.S./Canada | 4,537 | | | 4,119 | | | 10 | % | | 4,155 | | | 9 | % | | — | | | 4 | % | | 5 | % | U.S./Canada | 6,262 | | 5,791 | 5,791 | | 8 | 8 | % | | 6,178 | | 5,788 | 5,788 | | 7 | 7 | % |
| Total Marsh | Total Marsh | $ | 8,595 | | | $ | 8,014 | | | 7 | % | | $ | 8,246 | | | 4 | % | | (1) | % | | 2 | % | | 3 | % | Total Marsh | $ | 11,378 | | $ | 10,505 | | 8 | 8 | % | | $ | 11,339 | | $ | 10,510 | | 8 | 8 | % |
| Mercer: | Mercer: | | | | |
| | Wealth | |
| Wealth | |
| Wealth | Wealth | 2,348 | | | 2,369 | | | (1) | % | | 2,422 | | | (3) | % | | — | | | (2) | % | | (1) | % | $ | 2,507 | | $ | 2,366 | | 6 | 6 | % | | $ | 2,537 | | $ | 2,435 | | 4 | 4 | % |
| Health | Health | 1,793 | | | 1,796 | | | — | | | 1,815 | | | (1) | % | | (1) | % | | (2) | % | | 2 | % | Health | 2,061 | | 2,017 | 2,017 | | 2 | 2 | % | | 2,063 | | 1,880 | 1,880 | | 10 | 10 | % |
| Career | Career | 787 | | | 856 | | | (8) | % | | 857 | | | (8) | % | | — | | | — | | | (8) | % | Career | 1,019 | | 962 | 962 | | 6 | 6 | % | | 1,021 | | 962 | 962 | | 6 | 6 | % |
| Total Mercer | Total Mercer | $ | 4,928 | | | $ | 5,021 | | | (2) | % | | $ | 5,094 | | | (3) | % | | — | | | (2) | % | | (1) | % | Total Mercer | $ | 5,587 | | $ | 5,345 | | 5 | 5 | % | | $ | 5,621 | | $ | 5,277 | | 7 | 7 | % |
| * Components of revenue change may not add due to rounding. |
(a)In the first quarter of 2023, the Company began reporting the Marsh India operations in EMEA. Prior year results for India have been reclassified from Asia Pacific to EMEA for comparative purposes.
(*) Rounded to whole percentages.
Revenue – Reconciliation of Non-GAAP Measures
The following table provides the reconciliation of GAAP revenue to Non-GAAP revenue for the years ended December 31, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | 2022 |
Year Ended December 31, (In millions) | GAAP Revenue | | Currency Impact | | Acquisitions/
Dispositions/
Other Impact | | Non-GAAP Revenue | | GAAP Revenue | | Acquisitions/
Dispositions/
Other Impact | | Non-GAAP Revenue |
| Risk and Insurance Services | | | | | | | | | | | | | |
Marsh (a) | $ | 11,378 | | | $ | 70 | | | $ | (109) | | | $ | 11,339 | | | $ | 10,505 | | | $ | 5 | | | $ | 10,510 | |
Guy Carpenter (b) | 2,258 | | | 16 | | | (80) | | | 2,194 | | | 2,020 | | | (19) | | | 2,001 | |
| Subtotal | 13,636 | | | 86 | | | (189) | | | 13,533 | | | 12,525 | | | (14) | | | 12,511 | |
| Fiduciary interest income | 453 | | | 1 | | | — | | | 454 | | | 120 | | | — | | | 120 | |
| Total Risk and Insurance Services | 14,089 | | | 87 | | | (189) | | | 13,987 | | | 12,645 | | | (14) | | | 12,631 | |
| Consulting | | | | | | | | | | | | | |
Mercer (c) | 5,587 | | | 23 | | | 11 | | | 5,621 | | | 5,345 | | | (68) | | | 5,277 | |
Oliver Wyman Group (a) | 3,122 | | | (15) | | | (79) | | | 3,028 | | | 2,794 | | | 11 | | | 2,805 | |
| Total Consulting | 8,709 | | | 8 | | | (68) | | | 8,649 | | | 8,139 | | | (57) | | | 8,082 | |
| Corporate Eliminations | (62) | | | — | | | — | | | (62) | | | (64) | | | — | | | (64) | |
| Total Revenue | $ | 22,736 | | | $ | 95 | | | $ | (257) | | | $ | 22,574 | | | $ | 20,720 | | | $ | (71) | | | $ | 20,649 | |
The following table provides more detailed revenue information for certain of the components presented in the previous table:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | 2022 |
Year Ended December 31, (In millions) | GAAP Revenue | | Currency Impact | | Acquisitions/
Dispositions/
Other Impact | | Non-GAAP Revenue | | GAAP Revenue | | Acquisitions/
Dispositions/
Other Impact | | Non-GAAP Revenue |
| Marsh: | | | | | | | | | | | | | |
EMEA (a) (d) | $ | 3,262 | | | $ | 12 | | | $ | (6) | | | $ | 3,268 | | | $ | 2,997 | | | $ | 8 | | | $ | 3,005 | |
Asia Pacific (d) | 1,295 | | | 37 | | | (5) | | | 1,327 | | | 1,215 | | | — | | | 1,215 | |
| Latin America | 559 | | | 6 | | | 1 | | | 566 | | | 502 | | | — | | | 502 | |
| Total International | 5,116 | | | 55 | | | (10) | | | 5,161 | | | 4,714 | | | 8 | | | 4,722 | |
| U.S./Canada | 6,262 | | | 15 | | | (99) | | | 6,178 | | | 5,791 | | | (3) | | | 5,788 | |
| Total Marsh | $ | 11,378 | | | $ | 70 | | | $ | (109) | | | $ | 11,339 | | | $ | 10,505 | | | $ | 5 | | | $ | 10,510 | |
| Mercer: | | | | | | | | | | | | | |
Wealth (c) | $ | 2,507 | | | $ | 11 | | | $ | 19 | | | $ | 2,537 | | | $ | 2,366 | | | $ | 69 | | | $ | 2,435 | |
Health (c) | 2,061 | | | 4 | | | (2) | | | 2,063 | | | 2,017 | | | (137) | | | 1,880 | |
| Career | 1,019 | | | 8 | | | (6) | | | 1,021 | | | 962 | | | — | | | 962 | |
| Total Mercer | $ | 5,587 | | | $ | 23 | | | $ | 11 | | | $ | 5,621 | | | $ | 5,345 | | | $ | (68) | | | $ | 5,277 | |
| | | | | | | | | | | | | |
(a)Acquisitions, dispositions, and other in 2022 includes the loss on deconsolidation of the Company's Russian businesses at Marsh of $27 million and Oliver Wyman Group of $12 million. (b)Acquisitions, dispositions, and other in 2023 includes a gain from a legal settlement with a competitor of $58 million, excluding legal fees. (c)Acquisitions, dispositions, and other in 2022 includes revenue from the Westpac Transaction in Wealth and a gain from the sale of the Mercer U.S. affinity business of $112 million in Health. Results for 2023 in Wealth include the loss on sale of an individual financial advisory business in Canada of $17 million. (d)In the first quarter of 2023, the Company began reporting the Marsh India operations in EMEA. Prior year results for India have been reclassified from Asia Pacific to EMEA for comparative purposes. |
Consolidated Revenue
Consolidated revenue was $17increased $2.0 billion, or 10%, to $22.7 billion in 2020, an increase of 3%, or 1%2023, compared to $20.7 billion in 2022. Consolidated revenue increased 9% on an underlying basis. Revenuebasis and 1% from acquisitions. On an underlying basis, revenue increased 11% and 7% in 2023, in the Risk and Insurance Services segment increased 8%and Consulting segments, respectively.
Underlying revenue growth in 2020 compared with 2019, or 3% onthe Risk and Insurance Services and Consulting segments in 2023 reflect the continued demand for our advice and solutions. In Risk and Insurance Services, the increase in underlying revenue was primarily due to growth in new business and renewals. Results also benefited from growth in the global economy, inflation, higher insurance and reinsurance pricing, and an underlying basis. Revenue increased 3%increase in fiduciary income due to higher interest rates. In Consulting, revenue growth reflects continued demand for our health, wealth, and 6% on an underlying basis at Marshcareer solutions and Guy Carpenter, respectively, as compared with 2019. The Consulting segment's revenue decreased 2% compared with 2019, as well as on an underlying basis. Revenue decreased 1%products, and 4% on an underlying basis at Mercer and Oliver Wyman Group, respectively, as compared with 2019.consulting services.
Consolidated Operating ExpenseExpenses
Consolidated operating expenses increased 1%$1.0 billion, or 6%, to $17.5 billion in 20202023, compared to $16.4 billion in 2022. Expenses reflect a 2% increase from acquisitions. Expenses excluding the impact from acquisitions, increased 5% in 2023, with 2019. increases of 5% in both the Risk and Insurance Services and Consulting segments.
Expenses increased in 2023 primarily due to compensation and benefits driven by increased headcount, and higher base salary and incentive compensation. Other operating expenses decreased 2%due to lower restructuring and facility costs, partially offset by higher travel and entertainment costs compared to 2022. The Company incurred a total of $301 million for restructuring activities in 2023, compared to $427 million in 2022. Expenses in 2023 also include $51 million of insurance and indemnity recoveries for a legacy JLT E&O matter relating to suitability of advice provided to individuals for defined benefit pension transfers in the U.K.
Restructuring activities
In the fourth quarter of 2022, the Company initiated activities focused on an underlying basis, reflecting a decreaseworkforce actions, rationalization of technology and functional services, and reductions in real estate. The Company anticipates total charges related to these activities to be approximately $475 million. Through December 31, 2023, the Company has incurred $441 million of these restructuring costs, primarily related to severance and lease exit charges, of which $222 million were incurred in 2023. Any remaining costs are expected to be incurred by the end of 2024. Related estimated savings are expected to be approximately $400 million, with $230 million realized in 2023. The majority of the remaining savings are expected to be realized in 2024. The Company continues to refine its detailed plans for each business and location, which may change the expected timing, estimates of expected costs and related savings.
Restructuring activities also reflect JLT integration and restructuring and acquisition-related costs and savings realized fromin 2023 of $31 million, compared to $115 million in 2022, primarily related to lease exit charges for a legacy JLT U.K. location. For additional details, refer to Note 14, Restructuring Costs, in the completion of integration effortsnotes to date. The decrease also reflects lower travel and entertainment, meeting costs and outside services resulting from the Company’s restrictions on travel and cost containment measures taken in light of COVID-19 and lower expenses recoverable from clients. These decreases were partly offset by a JLT legacy E&O provision of $161 million recorded in 2020, higher incentive compensation and severance.consolidated financial statements.
Risk and Insurance Services
In the Risk and Insurance Services segment, the Company’s subsidiaries and other affiliated entities act as brokers, agents or consultants for insureds, insurance underwriters and other brokers in the areas of risk management, insurance broking, and insurance program management, risk consulting, analytical modeling and alternative risk financing services, primarily under the namebrand of Marsh;Marsh, and engage in specialized reinsurance broking catastrophe and financial modelingexpertise, strategic advisory services and related advisory functions,analytics solutions, primarily under the namebrand of Guy Carpenter.
Marsh and Guy Carpenter are compensated for brokerage and consulting services primarily through fees paid by clients or commissions paid out of premiums charged by insurance and reinsurance companies.fees. Commission rates and fees vary in amount depending uponand can depend on a number of factors, including the type of insurance or reinsurance coverage provided, the particular insurer or reinsurer selected,and the capacity in which the broker acts and negotiates with clients. Revenues can be affected by premium rate levels in the insurance/reinsurance markets, the amount of risk retained by insurance and reinsurance clients, themselves and by the value of the risks that have been insured since commission-based compensation is frequently related to the premiums paid by insureds and reinsureds. In many cases, fee compensation may be negotiated in advance, based on the type of risk, coverage required and service provided by the Company and ultimately, the extent of the risk placed into the insurance market or retained by the client. The trends and comparisons of revenue from one period to the next can be affected by changes in premium rate levels, fluctuations in client risk retention and increases or decreases
retention and increases or decreases in the value of risks that have been insured, as well as new and lost business, and the volume of business from new and existing clients.
In addition to compensation from its clients, Marsh also receives other compensation, from insurance companies, separate from retail fees and commissions.commissions, from insurance companies. Thisothercompensation includes, among other things, payment for consulting and analytics services provided to insurers; compensation for administrative and other services (including fees for underwritingservices and services provided to or on behalf of insurers (including services relating to the administration and management of quota share,shares, panels and other facilities in which insurers participate); and contingent commissions. commissions, which are paid by insurers based on factors such as volume or profitability of Marsh's placements, primarily driven by Marsh McLennan Agency ("MMA") and parts of Marsh's international operations.
Marsh and Guy Carpenter also receive interest income on certain funds (such as premiums and claims proceeds) held in a fiduciary capacity for others. The investment of fiduciary funds is regulated by state and other insurance authorities. These regulations typically require segregation of fiduciary funds and limit the types of investments that may be made with them.made. Interest income from these investments varies depending on the amount of funds invested and applicable interest rates, both of which vary from time to time. For presentation purposes, fiduciary interest income is segregated from the other revenues of Marsh and Guy Carpenter and separately presented within the segment, as shown in the previous revenue by segments charts presented earlier in this MD&A.tables.
The results of operations for the Risk and Insurance Services segment are presented below:as follows:
| | (In millions of dollars, except percentages) | 2020 | | 2019 | | 2018 |
| (In millions, except percentages) | | (In millions, except percentages) | | 2023 | | 2022 | | 2021 |
| Revenue | Revenue | $ | 10,337 | | | $ | 9,599 | | | $ | 8,228 | | Revenue | | $ | 14,089 | | $ | 12,645 | | $ | 12,085 |
| Compensation and benefits | 5,690 | | | 5,370 | | | 4,485 | |
| Other operating expenses | 2,301 | | | 2,396 | | | 1,879 | |
Compensation and benefits (a) | | Compensation and benefits (a) | | 7,702 | | 7,101 | | 6,656 |
Other operating expenses (a) | | Other operating expenses (a) | | 2,442 | | 2,455 | | 2,349 |
| Operating expenses | Operating expenses | 7,991 | | | 7,766 | | | 6,364 | | Operating expenses | | 10,144 | | 9,556 | | 9,005 |
| Operating income | Operating income | $ | 2,346 | | | $ | 1,833 | | | $ | 1,864 | | Operating income | | $ | 3,945 | | $ | 3,089 | | $ | 3,080 |
| Operating income margin | Operating income margin | 22.7 | % | | 19.1 | % | | 22.7 | % | Operating income margin | | 28.0 | % | | 24.4 | % | | 25.5 | % |
|
Revenue
Revenue in the Risk and Insurance Services segment increased 8%$1.4 billion, or 11%, to $14.1 billion in 20202023, compared with 2019.to $12.6 billion in 2022. Revenue grew 3%increased 11% on an underlying basis and 1% from the impact of acquisitions, partlypartially offset by a decrease of 1% decrease related tofrom the impact of foreign currency translation. Interest earned on fiduciary funds increased by $333 million to $453 million in 2023, compared to $120 million in the prior year.
In Marsh,The increase in revenue on an underlying basis in the Risk and Insurance Services segment in 2023 was primarily due to growth in new business and renewals. Results also benefited from growth in the global economy, inflation, higher insurance and reinsurance pricing, and an increase in fiduciary income due to higher interest rates.
Marsh's revenue increased 3%$873 million, or 8%, to $11.4 billion in 2023, compared to $10.5 billion in 2022. This reflects increases of 8% on an underlying basis and 2%1% from the impact of acquisitions, partlypartially offset by a decrease of 1% decrease from the impact of foreign currency translation. U.S./Canada hadrose 7% on an underlying basis. Total International operations produced underlying revenue growth of 5%. International operations 9%, reflecting growth of 13% in Latin America and 9% in each of EMEA and Asia Pacific.
Revenue in 2022also included a loss of $27 million related to the deconsolidation of the Company's Russian businesses.
Guy Carpenter's revenue increased 1%$238 million, or 12%, to $2.3 billion in 2023, compared to $2.0 billion in 2022. This reflects increases of 10% on an underlying basis reflecting increases of 4% in Asia Pacific and 3% in Latin America, while EMEA was flat compared to prior year.
Guy Carpenter’s revenue increased 15% to $1.7 billion in 2020 compared with 2019, or 6% on an underlying basis.
Fiduciary interest income was $46 million in 2020 compared with $105 million in 2019. The decrease in 2020 compared to 2019 reflects the impact of lower interest ratesfrom acquisitions, partially offset by a higher leveldecrease of average invested funds.1% from the impact of foreign currency translation. Revenue in 2023 also includes a gain from a legal settlement with a competitor for $58 million, excluding legal fees.
The Risk and Insurance Services segment completed seven9 acquisitions during 2020.in 2023. Information regarding thosethese acquisitions is included in Note 5, Acquisitions and Dispositions, in the notes to the consolidated financial statements.
ExpenseOperating Expenses
Expenses in the Risk and Insurance Services segment increased 3%$588 million, or 6%, to $10.1 billion in 20202023, compared with 2019, reflecting decreases of 2% on an underlying basisto $9.6 billion in 2022. Expenses reflect a 1% increase from acquisitions.
Expenses in 2023 increased primarily due to compensation and 1% from the impact of foreign currency, partlybenefits driven by increased headcount, and higher base salary and incentive compensation. Other operating expenses decreased due to lower restructuring and facility costs, partially offset by a 2% increase from acquisitions. The decrease in underlying expense reflects lower JLT integration, restructuring and acquisition related costs and savings realized from the completion of integration efforts to date. The decrease also reflects lowerhigher travel and entertainment costs compared to 2022. In 2023, the Company incurred a total of $177 million restructuring costs in Risk and meetingInsurance Services, compared to $254 million in 2022, primarily related to activities initiated in the fourth quarter of 2022, focused on workforce actions, rationalization of technology and functional services, and reductions in real estate and lease exit charges for a legacy JLT U.K. location. Expenses in 2022, also included settlement charges and legal costs resulting from the Company’s restrictions on travel and cost containment measures taken in lightrelated to strategic recruiting of COVID-19 and lower base salaries. These decreases are partly offset by higher incentive compensation and severance.$30 million.
Consulting
The Company conducts business in its Consulting segment through two main business groups, Mercer and Oliver Wyman Group. Mercer provides consulting expertise,delivers advice services and technology-driven solutions inthat help organizations redefine the areasworld of work, reshape retirement and investment outcomes, and unlock health wealth and career.well-being for a changing workforce. Oliver Wyman Group provides specialized management,serves as critical strategic, economic and brand consulting services.advisor to private sector and governmental clients.
The major component of revenue in the Consulting business is fees paid by clients for advice and services. Mercer, principally through its health line of business, also earns revenue in the form of commissions received from insurance companies for the placement of group (and occasionally individual) insurance contracts, primarily life, health and accident coverages. Revenue for Mercer’s investment management business and certain of Mercer’s defined benefit and contribution administration services consists principally of fees based on assets under management or administration. For a majority of the Mercer managed investment funds, revenue is recorded on a gross basis with sub-advisor fees included in other operating expenses.
Revenue in the Consulting segment is affected by, among other things, global economic conditions, including changes in clients’ particular industries and markets. Revenue is also affected by competition due to the introduction of new products and services, broad trends in employee demographics, including levels of employment and the effect of government policies and regulations, and fluctuations in interest and foreign exchange rates.regulations. Revenues from the provision of investment management services and retirement trust and administrative services are significantly affected by the level of assets under management or administration, which is impacted by securities market performance.
For the investment management business, revenues from the majority of funds are included on a gross basis in accordance with U.S. GAAP and include reimbursable expenses incurred by professional staff and sub-advisory fees, and the related expenses are included in other operating expenses.
The results of operations for the Consulting segment are presented below:as follows:
| | (In millions of dollars, except percentages) | 2020 | | 2019 | | 2018 |
| (In millions, except percentages) | | (In millions, except percentages) | 2023 | | 2022 | | 2021 |
| Revenue | Revenue | $ | 6,976 | | | $ | 7,143 | | | $ | 6,779 | | Revenue | $ | 8,709 | | $ | 8,139 | | $ | 7,789 |
| Compensation and benefits | 3,995 | | | 3,934 | | | 3,760 | |
| Other operating expenses | 1,987 | | | 1,999 | | | 1,920 | |
Compensation and benefits (a) | | Compensation and benefits (a) | 5,249 | | 4,827 | | 4,632 |
Other operating expenses (a) | | Other operating expenses (a) | 1,794 | | 1,759 | | 1,653 |
| Operating expenses | Operating expenses | 5,982 | | | 5,933 | | | 5,680 | | Operating expenses | 7,043 | | 6,586 | | 6,285 |
| Operating income | Operating income | $ | 994 | | | $ | 1,210 | | | $ | 1,099 | | Operating income | $ | 1,666 | | $ | 1,553 | | $ | 1,504 |
| Operating income margin | Operating income margin | 14.3 | % | | 16.9 | % | | 16.2 | % | Operating income margin | 19.1 | % | | 19.1 | % | | 19.3 | % |
|
On January 1, 2024, the Company sold its Mercer U.S. health and benefits and U.K. pension administration businesses for approximately $110 million. The Company expects the gain on sale and the impact on Consulting segment revenues and operating income not to be material.
Revenue
Consulting revenue increased $570 million, or 7%, to $8.7 billion in 2020 decreased 2%2023, compared with 2019, reflecting decreasesto $8.1 billion in 2022. This reflects an increase of 2%7% on an underlying basis.
Mercer's revenue increased $242 million, or 5%, to $5.6 billion in 2023, compared to $5.3 billion in 2022. This reflects an increase of 7% on an underlying basis, partially offset by a decrease of 1% primarily from the
disposition of businesses. On an underlying basis, revenue for Health, Career and Wealth increased 10%, 6%, and 4%, respectively, as compared to the prior year.
The increase in revenue on an underlying basis at Mercer in 2023 was primarily due to the continued demand for our health, wealth, and career solutions and products. Health continued to benefit from growth in new business, higher retention, increased enrolled lives, and medical inflation. The increase in Career products and services was due to continued demand in rewards and talent strategy. Revenue in Wealth on an underlying basis grew in defined benefit consulting and investment management fees due to the Westpac Transaction, a rebound in capital markets, and positive net flows.
Revenue in 2023 included a loss of $17 million related to the sale of an individual financial advisory business in Canada. Results in 2022 also included a gain of $112 million from the sale of the Mercer U.S. affinity business.
Oliver Wyman Group's revenue increased $328 million, or 12%, to $3.1 billion in 2023, compared to $2.8 billion in 2022. This reflects increases of 8% on an underlying basis, 3% from acquisitions, and 1% from the impact of dispositions.foreign currency translation.
Mercer's revenue in 2020 decreased 1% on an underlying basis and 2% from the impact of dispositions. The decrease in underlying revenue reflects decreases in both Career of 8% and Wealth of 1% partly offset by an increase in Health of 2%. Oliver Wyman Group’s revenue decreased 3% in 2020 compared with 2019, or 4% on an underlying basis.
Expense
Consulting expense in 2020 increased 1% compared with 2019. This reflects an increase of 1% on an underlying basis and a decrease of 1% from the impact of dispositions. The increase in underlying expenserevenue at Oliver Wyman Group in 2023 reflects broad-based growth across capabilities led by growth in the Middle East and Europe. Revenue in 2022 also included a JLT legacy E&O provisionloss of $161$12 million recordedrelated to the deconsolidation of the Company's Russian businesses.
The Consulting segment completed 5 acquisitions in 2020, higher JLT integration2023. Information regarding these acquisitions is included in Note 5, Acquisitions and restructuring costs as well asDispositions, in the notes to the consolidated financial statements.
Operating Expenses
Expenses in the Consulting segment increased $457 million, or 7%, to $7.0 billion in 2023, compared to $6.6 billion in 2022. Expenses reflect an increase of 2% from acquisitions.
Expenses in 2023 increased primarily due to compensation and benefits driven by increased headcount and higher base salaries, incentive compensation and severance. These increases were partlysalary. The increase in expenses is partially offset by lower travel, entertainment$51 million of insurance recoveries for a legacy JLT E&O matter relating to suitability of advice provided to individuals for defined pension transfers in the U.K.
In 2023, the Company incurred $62 million of total restructuring cost in the Consulting segment, compared to $77 million in the prior year, primarily related to the Company's activities initiated in the fourth quarter of 2022, focused on workforce actions, rationalization of technology and meetingfunctional services, and reductions in real estate.
Expenses also reflect acquisition and integration related costs resulting fromfor the Company’s restrictions on travel and cost containment measures takenWestpac Transaction of $39 million, compared to $21 million in light of COVID-19 and lower expenses recoverable from clients.2022.
Corporate and Other
Corporate expense in 2020 was $274expenses decreased $33 million, compared with $366or 9%, to $329 million in 2019. Expenses decreased 17% on an underlying basis due2023, compared to $362 million in 2022. The decrease in expenses reflects a 1% impact from foreign currency translation and lower acquisition, integrationfacility and restructuringequipment costs primarily relatedin the current year.
to the JLT Transaction and savings realized from the completion of integration efforts to date, partly offset by higher base salaries.
Other Corporate Items
Interest Income
Interest income earned onwas $78 million in 2023, compared to $15 million in 2022. Interest income increased $63 million in 2023, due to an increase in corporate funds amounted to $7and higher interest rates.
Interest Expense
Interest expense was $578 million in 20202023, compared with $39to $469 millionin 2022. Interest expense increased $109 million in 2019. During the first quarter of 2019, the Company issued approximately $6.5 billion of senior notes related to the JLT acquisition. The funds were held in escrow and released for payment in April 2019, when the acquisition was completed. The decrease in interest income from the prior year is2023, primarily due to an increase in long-term debt and higher interest earned on these funds in 2019. Interest expense in 2020 was $515 million compared with $524 million in 2019. The decrease in interest expense was primarily due to the impact of lower average interest rates on borrowings.rates.
Investment (Loss) Income
The caption "Investment (loss) income" in the consolidated statements of income comprises realized and unrealized gains and losses from investments. It includes, when applicable, other than temporary declines in the value of securities, mark-to-market increases or decreases in equity investments with readily determinable fair values and equity method gains or losses on its investments in private equity funds. The Company's investments may include direct investments in insurance, consulting or other strategically linked companies and investments in private equity funds.
The Company recorded a net investment loss of $22 million in 2020, primarily due to the loss from the sale of shares of AF during the second quarter of 2020. The Company recorded net investment income of $22$5 million in 2019 which included2023, compared to $21 million in 2022. The decrease in 2023 is primarily driven by lower mark-to-market gains of $10 million related to mark-to-market changes to equity securities and gains of $12 million related to investments infrom the Company's private equity funds and other investments.investments compared to the prior year.
Income Taxes
The Company completed the JLT Transaction on April 1, 2019. During 2020, the integration of this global organization required intercompany transfers of acquired entities into the Company's country structures and the combination of those entities within the equivalent Company businesses. The integration transactions were designed to be tax efficient. The Company's global effective tax rate on JLT's earnings was reduced compared to JLT's pre-acquisition tax rate by utilizing debt for the restructuring transactions to be capital efficient, and reducing the generation of post-acquisition tax losses by merging historically unprofitable JLT entities with profitable Company operations. Provisions for deferred taxes and uncertain tax positions were established as part of the purchase price allocation as of April 1, 2019.
The broader JLT organization is now held under the Company's legal entity structure, which makes it part of a U.S.-based multinational company and subjects it to full U.S. taxation.Other Taxes
The Company's consolidated effective tax rate for 2023 and 2022 was 26.7%24.3% and 24.4%, 27.3%, and 25.6% in 2020, 2019, and 2018, respectively. The rates in all periods reflect the effects of tax planning and the ongoing impact of the Tax Cuts and Jobs Act ("TCJA"), including regulatory and other guidance as it became available. The tax rate in 2020 includes a valuation allowance for certain tax credits, the impact of uncertain tax positions, and certain tax planning benefits. The 2019 rate reflects items related to the JLT acquisition, including non-deductible goodwill allocated to the sale of Aerospace and non-deductible expenses incurred in relation to the JLT acquisition. The 2018 rate includes the effect of a charge related to the Company’s investment in AF as discussed in Note 1.
The tax rates in all periodsboth years reflect the impact of discrete tax matters such as excess tax benefits related to share-based compensation, enacted tax legislation, and nontaxablechanges in uncertain tax positions, deferred tax adjustments, non-taxable adjustments related to contingent acquisition consideration.consideration for acquisitions, and valuation allowances for certain tax credits. The 2023 effective tax rate reflects the previously-enacted change in the U.K. corporate income tax rate from 19% to 25%, which was effective April 1, 2023. The blended U.K. statutory tax rate for 2023 is 23.5%. The 2022 effective tax rate also reflects tax benefits from planning that postponed the utilization of U.K. tax losses to future years when the U.K. statutory tax rate will be 25%.
In 2023, the Company released valuation allowances related to its non-U.S. operations. Management determined that there is sufficient positive evidence to conclude that it is more likely than not that deferred tax assets are realizable, primarily due to the sustained profitability of its operations. The valuation allowance release resulted in a decrease to tax expense of $94 million in the current year.
The effective tax rate may vary significantly from period to period for the foreseeable future.period. The effective tax rate is sensitive to the geographic mix of earnings and repatriation ofthe cost to repatriate the Company's earnings, which may result in higher or lower effective tax rates. ATherefore, a shift in the mix of profits among jurisdictions, or changes in the Company's repatriation strategy to access offshore cash, can also affect the effective tax rate. In 2020,2023, pre-tax income in the U.K., Canada, Barbados, Canada, Ireland, Australia,Bermuda, India, United Arab Emirates, Japan, and GermanyAustralia accounted for approximately 60%65% of the Company's total non-U.S. pre-tax income, with effective rates in those countries of 1%20.0%, 27%27.3%, 15%1.2%, 23%23.2%, 33.7%(18.8)%, 26.0%, 17.3%, 37.6%, and 32%26.0%, respectively.
In addition, losses in certain jurisdictions cannot be offset by earnings from other operations and may require valuation allowances that affect the rate in a particular period, depending on estimates of the value of associated deferred tax assets which can be realized. A valuation allowance was recorded to reduce deferred tax
assets to the amount that the Company believes is more likely than not to be realized. Details are provided in Note 7, ofIncome Taxes, in the notes to the consolidated financial statements. The effective tax rate is also sensitive to changes in unrecognized tax benefits, including the impact of settled tax audits and expired statutes of limitation.limitations.
Changes in tax laws, rulings, policies or related legal and regulatory interpretations occur frequently and may also have significant favorable or adverse impacts on our effective tax rate. In July 2023, the U.K. enacted legislation to implement Pillar 2 of the Organization for Economic Cooperation and Development's ("OECD") framework, effective from January 1, 2024. This minimum tax will be treated as a period cost in future years and does not impact operating results for 2023. Other countries in the European Union (E.U.) and elsewhere have similarly adopted legislation. The Company is continuing to monitor legislative developments, especially in the E.U. countries, and is in the process of evaluating the potential impact of the U.K. and other enacted legislation on its results of future operations. Currently, the Company does not expect the impact of Pillar 2 related legislation to be material in 2024.
On August 16, 2022, the Inflation Reduction Act of 2022 ("IRA") was enacted into law. The Company evaluated the provisions of the IRA, the most significant of which are the corporate alternative minimum tax and the share repurchase tax. The IRA was effective as of January 1, 2023, and does not have a significant impact on the Company's financial results of operations for the current year.
As a U.S. domiciledU.S.-domiciled parent holding company, the Company is the issuer of essentially all of the Company's external indebtedness, and incurs the related interest expense in the U.S. The Company’s interest expense deductions are not currently limited. Further, most senior executive and oversight functions are conducted in the U.S. and the associated costs are incurred primarily in the U.S. Some of these expenses may not be deductible in the U.S., which may impact the effective tax rate.
The quasi-territorialChanges to the U.S. tax regime provides an opportunity forlaw in recent years have allowed the Company to repatriate foreign earnings morewithout incurring additional U.S. federal income tax efficiently and therecosts as foreign income is less incentive for permanent reinvestment of these earnings.generally already taxed in the U.S. However, permanent reinvestment continues to be a component of the Company’sCompany's global capital strategy. The Company continues to evaluate its global investment and repatriation strategy in light of our capital requirements and potential costs of repatriation.repatriation, which are generally limited to local country withholding taxes.
The Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") was signed into law on March 27, 2020. The CARES Act provided over $2 trillion in economic relief to individuals, governmental agencies and companies, to deal with the public health and economic impacts of COVID-19. Pursuant to the CARES Act, payroll taxes due from March 27, 2020 through December 31, 2020 will be deferred until 2021 and 2022 (50% to be paid each year) without interest or penalties.
Liquidity and Capital Resources
The Company is organized as a legal entity separate and distinct from its operating subsidiaries. As the Company does not have significant operations of its own, the Company is dependent upon dividends and other payments from its operating subsidiaries to pay principal and interest on its outstanding debt obligations, pay dividends to stockholders,shareholders, repurchase its shares and pay corporate expenses. The Company can also provide financial support to its operating subsidiaries for acquisitions, investments and certain parts of their business that require liquidity, such as the capital markets business of Guy Carpenter. Other sources of liquidity include borrowing facilities in financing cash flows.
The Company derives a significant portion of its revenue and operating profit from operating subsidiaries located outside of the U.S. Funds from those operating subsidiaries are regularly repatriated to the U.S. out of annual earnings. At December 31, 2020,2023, the Company had approximately $789 million$1.2 billion of cash and cash equivalents in its foreign operations, which includes $249$462 million of operating funds required to be maintained for regulatory requirements or as collateral under certain captive insurance arrangements. The Company expects to continue its practice of repatriating available funds from its non-U.S. operating subsidiaries out of current annual earnings. Where appropriate, a portion of the current year earnings will continue to be permanently reinvested. With respect to repatriating 2018 and prior earnings, the Company has evaluated such factors as its short- and long-term capital needs, acquisition and borrowing strategies, and the availability of cash for repatriation for each of its subsidiaries. In general, the Company has determined that its permanent reinvestment assertions, in light of the enactment of the TCJA, should allow the Company to repatriate previously taxed earnings from the deemed repatriations as cash becomes available.
During 2020,In 2023, the Company recorded foreign currency translation adjustments whichwhich increased net equity by $559$274 million. Continued weakening of the U.S. dollar against foreign currencies would further increaseincrease the translated U.S. dollar value of the Company’s net investments in its non-U.S. subsidiaries, as well as the translated U.S. dollar value of cash repatriations from those subsidiaries. Conversely, strengthening subsidiarieof the U.S. dollar against foreign currencies would decrease the translated U.S. dollar value of the Company’s net investments in its non-U.S. subsidiaries,s, as well as the translated U.S. dollar value of cash repatriations from those subsidiaries.
Cash and cash equivalents on our consolidated balance sheets includes funds available for general corporate purposes. FundsFiduciary assets are shown separately in the consolidated balance sheets as cash and cash equivalents held on behalf of clients in a fiduciary capacity, are segregated and shown separatelywith a corresponding amount in the consolidated
balance sheets as an offset to fiduciarycurrent liabilities. Fiduciary fundsassets cannot be used for general corporate purposes, and should not be considered as a source of liquidity for the Company.
Operating Cash Flows
The Company generated $3.4provided $4.3 billion of cash from operations in 2020 and $2.42023, compared to $3.5 billion provided by operations in 2019.2022. These amounts reflect the net income of the Company during those periods, excluding gains or losses from investments, adjusted for non-cash charges and changes in working capital which relate primarily to the timing of paymentspayments of accrued liabilities, including incentive compensation, or receipts of assetsreceivables and pension contributions. The Company used cash of $271 million and $193 million related to its restructuring activities in 2023 and 2022, respectively.
Pension-RelatedPension Related Items
Contributions
During 2020,The Company's policy for funding its tax-qualified defined benefit plans is to contribute amounts at least sufficient to meet the funding requirements set forth in accordance with applicable law. In 2023, the Company contributed $65$33 million to its U.S. defined benefit pension plans and $78 million to its non-U.S. defined benefit pension plans. In 2022, the Company contributed $30 million to its U.S. defined benefit pension plans compared to contributions of $35and $139 million to U.S. plans and $87 million toits non-U.S. plans in 2019.defined benefit pension plans.
In the U.S., contributions to the tax-qualified defined benefit plans are based on ERISAEmployee Retirement Income Security Act ("ERISA") guidelines and the Company generally expects to maintain a funded status of 80% or more of the liability determined in accordance with the ERISA guidelines. In 2020,2023, the Company made $30contributions of $33 million of contributions to its non-qualified plans and $35 million to its qualified plans. The Company expects to contribute approximately $37$31 million in 2024. The Company was not required to and made no contributions to its U.S. qualified plans in 2023. In 2024, the Company is required to make contributions totaling $2 million to its U.S. pension plans in 2021, including $7 million to the U.S. qualified plans to meet ERISA funding requirements and $30 million to its non-qualified plans.
The Company contributed $34 million to its U.K. plans in 2020, including an expense allowance of approximately $5 million. The Company's contributions to its U.K. plans in 2021 are expected to be approximately $47 million, including an expense allowance of $16 million.
Outside the U.S., the Company has a large number of non-U.S. defined benefit pension plans, the largest of which are in the U.K., which comprise approximately 81%79% of non-U.S. plan assets at December 31, 2020.2023. Contribution rates for non-U.S. plans are generally basedbased on local funding practices and statutory requirements, which may differ significantly from measurements underin accordance with U.S. GAAP.
In the U.K., the assumptions used to determine pension contributions are the result of legally-prescribed negotiations between the Company and the plans' trustee that typically occur every three years in conjunction with the actuarial valuation of the plans. Currently, this results in a lower funded status compared to U.S. GAAP and may result in contributions irrespective of the U.S. GAAP funded status.
In 2021, the JLT Pension Scheme was merged into the MMC U.K. Pension Fund with a new segregated JLT section created (referred to as the "JLT section").
The Company contributed $42 million to its U.K. plans, including the JLT section, in 2023. The Company's contributions to its U.K. plans, including the JLT section, for 2024 are expected to be approximately $39 million. The Company made deficit contributions of $41 million to the JLT section in 2023, and is expected to make contributions totaling approximately $38 million in 2024.
For the MMC U.K. Pension Fund, a newexcluding the JLT section, an agreement was reached with the trustee in the fourth quarter of 20192022, based on the surplus funding position at December 31, 2018.2021. In accordance with the agreement, no deficit funding is required at the earliest until 2023.2026. The funding level will be re-assessed during 20222025 as part of the December 31, 2024 actuarial valuation to determine if contributions are required in 2023.2026. In order to have greater influence over asset allocation and overall investment decisions, in November 2019,December 2022, the Company renewed its agreement to support annual deficit contributions that may be required by the U.K. operating companies under certain circumstances, up to GBP 450£450 million (or $576 million) over a seven-year period.
In addition, in the U.K., This is part of an agreement which gives the Company assumed responsibility for JLT's Pension Scheme ("JLT U.K. plan"). We currently expect to pay $29 million of deficit funding in 2021, although we will also reach a new funding agreement with the trustee during 2021.greater influence over asset allocation and overall investment decisions.
In the aggregate, theThe Company expects to contribute approximately $87 $78 million to itsits non-U.S. defined benefit plans in 2021,2024, comprising approximately $40of $39 million to the U.K. plans and $39 million to plans outside of the U.K. and $47 million to the U.K. plans.
Changes to Pension Plans
As part of the JLT Transaction, the Company assumed responsibility for a number of pension plans throughout the world, the most significant of which is the JLT U.K. plan. The JLT U.K. plan has a defined benefit section which was frozen to future accrual in 2006 and a defined contribution section. The assets of the scheme are held in a trustee administered fund separate from the Company.
Changes in Funded Status and Expense
The year-over-year change in the funded status of the Company's pension plans is impacted by the
difference between actual and assumed results, particularly with regard to return on assets, and changes in the discount rate, as well as the amount of Company contributions, if any. Unrecognized actuarial losses as of December 31, 2023, were approximately $2.4approximately $1.3 billion and $3.5and $3.2 billion at December 31, 2020 for the U.S. plans and non-U.S. plans, respectively, compared with losses of $2.1$1.4 billion and $3.1$2.6 billion atas of December 31, 2019.2022. The increasesdecrease in both the U.S. and non-U.S. plans wasis primarily due to a decreasegreater than expected returns on plan assets. The increase in the non-U.S. plans is primarily due to decreases in the discount raterates used to measure plan liabilities, partly offset by an increase in asset values.lower than expected returns on plan assets and the impact of foreign exchange. In the past several years, the amount of unamortized losses has been significantly impacted, both positively and negatively, by actual asset performance and changes in discount rates.rates. The discount rate used to measure plan liabilities in 2020 and 2019 decreased infor the Company's U.S. and U.K. (the Company's largest plans) following increasesplans decreased in the U.S.2023 and the U.K.increased in 2018.2022 and 2021. An increase in the discount rate decreases the measured plan benefit obligation, resulting in actuarial gains, while a decrease in the discount rate increases the measured plan obligation, resulting in actuarial losses. During 2020,losses. In 2023, the Company's defined benefit pension plan assets had gains of 13.1% 9.3% and 12.0% 4.1% in the U.S. and U.K., respectively, as compared to gainslosses of 21.4%18.3% and 13.1%29.2% in the U.S. and U.K., respectively, in 2019. During 2018, the Company's defined benefit pension plan assets had losses of 7.4% in the U.S. and 1.0% in the U.K.2022.
Overall, based on the measurement at December 31, 2020, total2023, net benefit credits related to the Company’s defined benefit plans are not expected to be materially different in 2024, compared to 2023, for both the increase in 2021 by approximately $22 million compared to 2020, reflecting an increase inU.S. and non-U.S. plans of approximately $31 million, offset by a decrease in U.S. plans of $9 million.plans.
The Company’s accounting policies for its defined benefit pension plans, including the selection of and sensitivity to assumptions, are discussed below underin Management’s Discussion of Critical Accounting Policies.Estimates. For additional information regarding the Company’s retirement plans, seerefer to Note 1, Summary of Significant Accounting Policies, and Note 8, Retirement Benefits, in the notes to the consolidated financial statements.
Financing Cash Flows
Net cashcash used for financingfinancing activities was $1.9$1.1 billion in 20202023, compared with $3.3$1.0 billion providedused by financing activities in 2019.2022.
Credit Facilities
TheIn October 2023, the Company and certain ofincreased its foreign subsidiaries have a multi-currency unsecured five-year unsecured revolving credit facility of $1.8 billion.(the "Credit Facility") capacity to $3.5 billion from $2.8 billion and extended the expiration to October 2028. The interest rate on this facility isthe Credit Facility was initially based on LIBOR plus a fixed margin which varied with the Company's credit rating. In the second quarter of 2023, the Credit Facility was amended that borrowings under the Credit Facility bear interest at a rate per annum equal, at the Company's option, either at (a) SOFR benchmark rate for U.S. dollar borrowings, or (b) a currency specific benchmark rate, plus an applicable margin which varies with the Company's credit ratings. This facility expires in October 2023 and requires theThe Company is required to maintain certain coverage and leverage ratios for the Credit Facility, which are testedevaluated quarterly.
The Credit Facility includes provisions for determining a benchmark replacement rate in the event existing benchmark rates are no longer available or in certain other circumstances, in which an alternative rate may be required. At December 31, 2023 and 2022, the Company borrowed $1 billionhad no borrowings under this facility.
In October 2023, the Company terminated its one-year uncommitted revolving credit facility in the first quarter of 2020, which was repaid in full during the second quarter of 2020. ("Uncommitted Credit Facility"). There were no borrowings outstanding undunder the Uncommitted Credit Facility at er this facility at December 31, 2020.2022.
In January 2020, the Company entered into two new term loan facilities: a $500 million one-year facility and a $500 million two-year facility. In the first quarter of 2020, the Company borrowed $1 billion against these facilities. During the third quarter of 2020, the Company repaid $500 million of borrowings from its one-year facility. In December 2020, the Company repaid $500 million of borrowings from the two year facility. These two facilities were terminated as of December 31, 2020 after repayment of the initial draw down.
In April 2020, the Company entered into a new 364 day $1 billion unsecured revolving credit facility with a term out option after one year. The facility has similar coverage and leverage ratios as the multi-currency five-year unsecured revolving credit facility. The Company had no borrowings outstanding under this facility at December 31, 2020.
The Company also maintains other credit and overdraft facilities with various financial institutions aggregating $113 million at December 31, 2023, and $362 million at December 31, 2022. There were no outstanding borrowings under these facilities at December 31, 2023 and 2022.
The Company has outstanding guarantees and letters of credit with various banks aggregating $573$139 million and $152 million at December 31, 20202023 and $598 million at December 31, 2019. There were no outstanding borrowings under these facilities as of December 31, 2020 or as of December 31, 2019.2022, respectively.
Debt
TheIn November 2023, the Company has established aincreased its short-term debtcommercial paper financing program of up(the "Program") to $1.5$3.5 billion through the issuance of commercial paper. The proceeds from the issuance of commercial paper were used for general corporate purposes.$2.8 billion. The Company had nopreviously increased the Program's capacity in October 2022 to $2.8 billion from $2.0 billion. The Company did not have any commercial paper outstanding at December 31, 2020.
In December 2020,October 2023, the Company repaid $700$250 million of maturing Senior Notes and $300 million of floating rate4.05% senior notes with an original maturity of December 2021.that matured.
In May 2020,September 2023, the Company issued $750$600 million of 2.250% Senior Notes5.400% senior notes due 2030.2033 and $1 billion of 5.700% senior notes due 2053. In March 2023, the Company issued $600 million of 5.450% senior notes due 2053. The Company used the net proceeds from this offering to pay outstanding borrowings under the revolving credit facility.
In March 2020, the Company repaid $500 million of maturing Senior Notes.
In September 2019, the Company repaid $300 million of maturing Senior Notes.
During 2019, the Company issued approximately $6.5 billion of Senior Notes to primarily fund the acquisition of JLT, including the payment of related fees and expenses, and to repay certain JLT indebtedness, as well asthese issuances for general corporate purposes.
In connection with the closing of the JLT Transaction,October 2022, the Company assumed approximately $1 billionissued $500 million of historical JLT indebtedness, which it repaid during 2019.5.75% senior notes due 2032 and $500 million of 6.25% senior notes due 2052. The Company incurred debt extinguishment costsused the net proceeds from these issuances for general corporate purposes, and repaid $350 million of $32 million3.30% senior notes in regard to the repaymentNovember 2022, with an original maturity date of this debt.March 2023.
The Company's senior debt is currently rated A- by Standard & Poor's ("S&P"), A3 by Moody's, and Baa1A- by Moody's.Fitch. The Company's short-term debt is currently rated A-2 by Standard & Poor's andS&P, P-2 by Moody's.Moody's, and F-2 by Fitch. The Company carries a Stable outlook with S&P, Moody's and a Negative outlook with Moody's.Fitch.
Share Repurchases
TheIn 2023, the Company did not repurchase anyrepurchased 6.4 million shares of its common stock during 2020. In November 2019, the Board of Directors authorized an increase in the Company’s share repurchase program, which supersedes any prior authorization, allowing management to buy back up to $2.5 billion of the Company’s common stock. As offor $1.15 billion. At December 31, 2020,2023, the Company remained authorized to purchaserepurchase up to approximately $3.2 billion in shares of its common stock up to a value of approximately $2.4 billion.stock. There is no time limit on this authorization.
During 2019,authorization. In 2022, the Company repurchased 4.812.2 million shares of its common stock for total consideration$1.9 billion.
In March 2022, the Board of $485 millionDirectors of the Company authorized an additional $5 billion in share repurchases. This was in addition to the Company's existing share repurchase program, which had approximately $1.3 billion of remaining authorization at an average price per share of $100.48.December 31, 2021.
Dividends
The Company paid total dividends on its common stock shares of $943 million$1.3 billion ($2.60 per share) in 20202023, as compared with $1.1 billion ($1.842.25 per share), $890 million in 2019 ($1.742022.
In January 2024, the Board of Directors of the Company declared a quarterly dividend of $0.710 per share) and $807 millionshare on outstanding common stock, payable in 2018 ($1.58 per share).February 2024.
Contingent Payments Related To Acquisitions
During 2020, the Company paid $102 millionThe classification of contingent payments related to acquisitions made in prior years. These payments are split between financing and operating cash flowsconsideration in the consolidated statements of cash flows. Paymentsflows is dependent upon whether the receipt, payment or adjustment was part of $54 million relatedthe initial liability established on the acquisition date (financing) or an adjustment to the contingent considerationacquisition date liability that was recorded on the date of acquisition(operating).
The following amounts are reflected as financing cash flows. Payments related to increasesincluded in the contingent consideration liability subsequent to the dateconsolidated statements of acquisition of $48 million are reflectedcash flows as operating cash flows. Remaining estimated future contingent consideration payments of $243 million forand financing activities:
| | | | | | | | | | | | | | | | | | | | |
| For the Years Ended December 31, |
| (In millions) | | 2023 | | 2022 | | 2021 |
| Operating: | | | | | | |
| Contingent consideration payments for prior year acquisitions | | $ | (41) | | | $ | (38) | | | $ | (49) | |
| Receipt of contingent consideration for dispositions | | 1 | | | — | | | 19 | |
| Acquisition/disposition related net charges for adjustments | | 29 | | | 49 | | | 57 | |
| | | | | | |
| | | | | | |
| Adjustments and payments related to contingent consideration | | $ | (11) | | | $ | 11 | | | $ | 27 | |
| Financing: | | | | | | |
| Contingent consideration for prior year acquisitions | | $ | (135) | | | $ | (32) | | | $ | (28) | |
| Deferred consideration related to prior year acquisitions | | (67) | | | (126) | | | (89) | |
| Payments of deferred and contingent consideration for acquisitions | | $ | (202) | | | $ | (158) | | | $ | (117) | |
| | | | | | |
| Receipt of contingent consideration for dispositions | | $ | 2 | | | $ | 3 | | | $ | 71 | |
For acquisitions completed in 20202023, and in prior years, remaining estimated future contingent payments of $252 million and deferred consideration payments of $92 million, are includedrecorded in accounts payable and accrued liabilities or other liabilities in the consolidated balance sheetsheets at December 31, 2020. The Company paid deferred purchase consideration related to prior years' acquisitions of $68 million and $43 million for the years ended December 31, 2020 and 2019, respectively, that is reflected as financing cash flows. Remaining deferred cash payments of approximately $241 million are included in accounts payable and accrued liabilities or other liabilities in the consolidated balance sheet at December 31, 2020.
In 2019, the Company paid $63 million of contingent payments related to acquisitions made in prior periods, of which $22 million was reported as financing cash flows and $41 million as operating cash flows.2023.
Derivatives
- Net Investment Hedge
The Company has investments in various subsidiaries with Euro functional currencies. As a result, the Company is exposed to the risk of fluctuations between the Euro and U.S. dollar exchange rates. As part of its risk management program, to fund the JLT acquisition, the Company issued €1.1 billion Senior Notes,senior notes, and designated the debt instruments as a net investment hedge of its Euro denominated subsidiaries. The hedge is re-assessed each quarter to confirm that the designated equity balance at the
beginning of each period continues to equal or exceed 80% of the outstanding balance of the Euro debt instrument and that all the critical terms of the hedging instrument and the hedged net investment continue to match. If the hedge is highly effective, the change in the debt balance related to foreign exchange fluctuations will beis recorded in foreign currency translation gains (losses)accumulated other comprehensive loss in the consolidated balance sheet. sheets.
The U.S. dollar value of the Euro notesnotes increased by $124$54 million during 2020 relatedin 2023 due to the change in foreign exchange rates. The Company concluded that the hedge was highly effective and recorded an increase to accumulated other comprehensive loss for the year ended December 31, 2020.2023.
JLT Fair Value Debt Derivative ContractsPurchase of remaining non-controlling interest
Prior to the JLT Transaction closing, a significant portion of JLT's outstanding senior notes were denominated in U.S. dollars. In order to hedge its exposure against the risk of fluctuations between the British Pound ("GBP") and the U.S. dollar, JLT entered into foreign exchange and interest rate swaps, which were designated as fair value hedges. In June 2019, the Company redeemed these U.S. dollar denominated senior notes and settled the related derivative contracts. Both the change in fair value of the debt and the change in fair value of the derivative contracts were recorded in the consolidated statement of income in the second quarter of 2019. The2023, the Company received approximately $112 million upon settlement of these derivative contracts.
JLT Cash Flow Hedges
JLT also had a number of foreign exchange contracts to hedgepurchased the risk of foreign exchange movements between the U.S. dollar and the GBP, related to JLT’s U.S. dollar denominated revenue in the U.K. Prior to the acquisition, these derivative contracts were designated as cash flow hedges. Upon acquisition, the derivative contracts were not re-designated as cash flow hedges by the Company. The contracts were settled in June 2019. The change in fair value between the acquisition date and the settlement date resultedremaining interest in a charge of $26 million in the second quarter of 2019. The charge is recorded as a change in fair value of acquisition related derivative contractssubsidiary for $139 million.
Fiduciary Liabilities
Since fiduciary assets are not available for corporate use, fiduciary assets are shown separately in the consolidated statement of income.
Foreign Exchange Forward Contract
In connectionbalance sheets as cash and cash equivalents held in a fiduciary capacity, with the JLT Transaction, to hedge the risk of appreciation of the GBP-denominated purchase price relative to the U.S. dollar, on September 20, 2018, the Company entered into the FX Contract to, solely upon consummation of the Transaction, purchase £5.2 billion and sell a corresponding amount in current liabilities. Financing cash flows reflect an increase of U.S. dollars at a contracted$255 million and $1.7 billion in 2023 and exchange rate. 2022, respectively, related to fiduciary liabilities.
Investing Cash Flows
Net cash used for investing activities amounted to $1.4 billion in 2023, compared with $850 million used for investing activities in 2022.
The FX Contract, which did not qualifyCompany paid $976 million and $572 million, net of cash, cash equivalents and cash and cash equivalents held in a fiduciary capacity acquired, for hedge accounting treatment under applicable accounting guidance, is discussedacquisitions in Note 112023 and 2022, respectively. The outflow of funds in 2023 related primarily to the consolidated financial statements. Theacquisitions of Honan Insurance Group, Graham Company settled the FX Contract on April 1, 2019, recording a realized gain to the consolidated statement of income of approximately $31 million in 2019. The cash outflow related to the settlement of the FX Contract was approximately $294 million in 2019.
Foreign Exchange Contract on Euro Debt Issuance
In March 2019, the Company issued €1.1 billion of senior notes related to the JLT Transaction. See Note 13 for additional information related to the Euro senior note issuances. In connection with the senior note issuances of €1.1 billion, the Company entered into a forward exchange contract to hedge the economic risk of changes in foreign exchange rates from the issuance date to settlement date of the Euro senior notes. This forward exchange contract was settled in March 2019 and the Company recorded a charge of $7Westpac Transaction for $358 million, in the first quarter of 2019 related to the settlement of this contract.
Treasury Locks on Senior Notes$307 million, and $232 million, respectively.
In connection with the JLT Transaction and to hedge the riskdisposition of increasesMercer's U.S. affinity business in future interest rates prior to its issuance of senior notes,2022, the Company entered into treasury locks related to $2 billion of the expected debt in the fourth quarter of 2018. The fair value at December 31, 2018 was based on the published treasury rate plus forward premium as of December 31, 2018 comparedtransferred to the allbuyer an additional $24 million of cash and cash equivalents held in rate at the inception of the contract. The contracts were not designated as an accounting hedge. The Company recorded an unrealized loss of $116 million related to the changea fiduciary capacity in the fair value of these derivatives in the consolidated statement of income for the year ended December 31, 2018. In January 2019, upon issuance of the $5 billion of senior notes, the Company settled the treasury lock derivatives and made a payment to its counter party for $122 million.2023.
Investing Cash Flows
Net cash used for investing activities amounted to $814 million in 2020 compared with $5.7 billion used for investing activities in 2019.
The Company paid $668 million and $5.5 billion, net of cash acquired, for acquisitions it made during 2020 and 2019, respectively.
During 2020,In 2022, the Company sold certain businesses, primarily in theMercer's U.S., U.K. and Canada affinity business, for cash proceeds of approximately $98 million.$155 million, partially offset by $36 million primarily related to cash and cash equivalents held in a fiduciary capacity in the disposed businesses.
At December 31, 2019,In the third quarter of 2022, the Company owned approximately 443 million shares ofsold the remaining investment in the common stock of AF, a South African company listed on the Johannesburg Stock Exchange, which was accountedAlexander Forbes ("AF"), for under the equity method of accounting. In February 2020, the Company sold approximately 49 million shares, and in May 2020, sold an additional 193 million shares, leaving the Company with an investment of approximately 201 million shares of the common stock of AF at December 31, 2020. Upon completion of the sale of shares in May 2020, the investment in AF was accounted at fair value, with investment gains and losses recorded as investment income in the consolidated statement of income.
During the first quarter of 2019, the Company disposed of its investment in Benefitfocus for totalcash proceeds of approximately $132$62 million. The Company received $115 million in the first quarter of 2019 and $17 million in the second quarter of 2019 as final settlement on the sale.
During the second quarter of 2019, the Company disposed of its investment in Payscale and received proceeds of approximately $47 million. In January 2019, the Company increased its equity ownership in Marsh India from 26% to 49% for approximately $88 million. Marsh India is carried under the equity method.
The Company’s additions to fixed assets and capitalized software, which amounted to $348$416 million in 20202023 and $421$470 million in 2019,2022, related primarily related to computer equipment purchases,software development costs, the refurbishing and modernizing of office facilities, and software development costs.technology equipment purchases.
TheCash used for long-term investments in 2023 is due to investments in private equity funds. At December 31, 2023, the Company has commitments for potential future investments of approximately $46approximately $121 million in four private equity funds thatthat invest primarily in financial services companies.
Commitments and Obligations
The followingfollowing sets forth the Company’s future contractual obligations by the types identified in the table below as oftype at December 31, 2020:2023:
| | Payment due by Period |
Contractual Obligations (In millions of dollars) | Total | | Within
1 Year | | 1-3
Years | | 4-5
Years | | After 5
Years |
| | Payment due by Period | | | | Payment due by Period |
(In millions) | |
(In millions) | | Total | | Within 1 Year | | 1-3
Years | | 4-5
Years | | After 5
Years |
| | Current portion of long-term debt | Current portion of long-term debt | $ | 517 | | | $ | 517 | | | $ | — | | | $ | — | | | $ | — | |
| Current portion of long-term debt | |
| Current portion of long-term debt | |
| | Long-term debt | |
| Long-term debt | |
| Long-term debt | Long-term debt | 10,866 | | | — | | | 1,135 | | | 2,135 | | | 7,596 | |
| Interest on long-term debt | Interest on long-term debt | 5,454 | | | 461 | | | 821 | | | 674 | | | 3,498 | |
| Net operating leases | Net operating leases | 2,570 | | | 410 | | | 711 | | | 544 | | | 905 | |
| Service agreements | Service agreements | 344 | | | 197 | | | 101 | | | 36 | | | 10 | |
| Other long-term obligations | 558 | | | 182 | | | 329 | | | 47 | | | — | |
Other long-term obligations (a) | |
| | Total | Total | $ | 20,309 | | | $ | 1,767 | | | $ | 3,097 | | | $ | 3,436 | | | $ | 12,009 | |
| Total | |
| Total | |
(a) Primarily reflects future payments of deferred and contingent purchase consideration.
The abovetable does not include the liability for unrecognized tax benefits of $98$124 million as the Company is unable to reasonably predict the timing of settlement of these liabilities, other than approximately $20$49 million that may become payable during 2021.
within one year. The abovetable also does not include the remaining transitional tax payments related to the TCJATax Cuts and Jobs Act ("TCJA") of $64.5 million.$58 million, which will be paid in installments from 2024 through 2026.
Management’s Discussion of Critical Accounting PoliciesEstimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States ("GAAP") requires management to makeManagement makes estimates and judgments that affect reported amounts of assets, liabilities, revenue and expenses, and disclosure of contingent assets and liabilities. Management considers the following policies discussed below to be critical to understanding the Company’s
financial statements because their application places the most significant demands on management’s judgment, and requires management to make estimates about the effect of matters that are inherently uncertain. Actual results may differ from those estimates.
Revenue Recognition
In the Risk and Insurance Services segment, management makes judgments related to the amount of variable revenue consideration to ultimately be received on placement of quota share reinsurance treaties and contingent commission from insurers, which was previously recognized when the contingency was resolved, now requires significantinsurers. Management also makes judgments and estimates.estimates to measure the progress toward completing performance obligations and realization rates for consideration related to contracts as well as potential performance-based fees in the Consulting segment.
The Company capitalizes the incremental costs to obtain contracts primarily related to commissions or sales bonus payments. These deferred costs are amortized over the expected life of the underlying customer relationships. The Company also capitalizes certain pre-placement costs that are considered fulfillment costs that are amortized at a point in time when the associated revenue is recognized.
Management also makes significant judgments and estimatesRefer to measure the progress toward completing performance obligations and realization rates for consideration related to contracts as well as potential performance-based feesNote 2, Revenue, in the Consulting segment.
See Note 2notes to the consolidated financial statements for additional information.
Legal and Other Loss Contingencies
The Company and its subsidiaries are subject to numerous claims, lawsuits and proceedings including claims for errors and omissions ("E&O"). GAAP requires thatThe Company records a liability be recorded when a loss is both probable and reasonably estimable. Significantestimable which requires significant management judgment is required to apply this guidance.judgment. The Company utilizes case level reviews by inside and outside counsel, an internal actuarial analysis by Oliver Wyman Group, a subsidiary of the Company, and other methods to estimate potential losses. The liability is reviewed quarterly and adjusted as developments warrant.based on claims developments. In many cases, the Company has not recorded a liability, other than for legal fees to defend the claim, because we arethe Company is unable, at the present time, to make a determination that a loss is both probable and reasonably estimable. Given the unpredictability of E&O claims and of litigation that could flowarise from them,such claims, it is possible that an adverse outcome in a particular matter could have a material adverse effect on the Company’s businesses, results of operations, financial condition or cash flowflows in a given quarterly or annual period.
In addition, to the extent that insurance coverage is available, significant management judgment is required to determine the amount of recoveries that are probable of collection under the Company’s various insurance programs.
Retirement Benefits
The Company maintains qualified and non-qualified defined benefit pension and defined contribution plans for its eligible U.S. employees and a variety of defined benefit and defined contribution plans for its eligible non-U.S. employees. The Company’s policy for funding its tax-qualified defined benefit retirement plans is to contribute amounts at least sufficient to meet the funding requirements set forth in the U.S. and applicable foreign laws.
The Company recognizes the funded status of its over-funded defined benefit pension and retiree medical plans as a net benefit plan asset and its unfunded and underfunded plans as a net benefit plan liability. The gains or losses and prior service costs or credits that have not been recognized as components of net periodic costsbenefit (credit) cost are recorded as a component of Accumulated Other Comprehensive Income ("AOCI"), net of tax, in the Company’s consolidated balance sheets. The gains and losses that exceed specified corridors 10 percentin accordance with accounting guidance, of the greater of the projected benefit obligation or the market-related value of plan assets, are amortized prospectively out of AOCI over a period that approximates the remaining life expectancy of participants in plans where substantially all participants are inactive or the average remaining service period of active participants for plans with active participants. The vast majority of unrecognized losses relate to inactive plans and are amortized over the remaining life expectancy of the participants.
The determination of net periodic pensionbenefit (credit) cost is based on a number of assumptions, including an expected long-term rate of return on plan assets, the discount rate, mortality and assumed rate of salary increase. The assumptions used in the calculation of net periodic pension costsbenefit (credit) cost and pension liabilities are disclosed in Note 8, Retirement Benefits, in the notes to the consolidated financial statements.
disclosed in Note 8 to the consolidated financial statements. The assumptions for expected rate of return on plan assets and the discount rate are discussed in more detail below.
The long-term rate of return on plan assets assumption is determined for each plan based on the facts and circumstances that exist as of the measurement date, and the specific portfolio mix of each plan’s assets. The Company utilizes a model developed by Mercer, a subsidiary of the Company, to assist in the determination of this assumption. The model takes into account several factors, including: actual and target portfolio allocation;allocation, investment, administrative and trading expenses incurred directly by the plan trust;trust, historical portfolio performance;performance, relevant forward-looking economic analysis;analysis, and expected returns, variances and correlations for different asset classes. These measures are used to determine probabilities using standard statistical techniques to calculate a range of expected returns on the portfolio.
The target asset allocation for the U.S. plans is 64%50% equities and equity alternatives and 36%50% fixed income. At the end of 2020,2023, the actual allocation for the U.S. plans was 64%49% equities and equity alternatives and 36%51% fixed income. The target asset allocation for the U.K. plans, which comprise approximately 81%79% of non-U.S. plan assets, is 32%14% equities and equity alternatives and 68%86% fixed income. At the end of 2020,2023, the actual allocation for the U.K. plans was 33%13% equities and equity alternatives and 67%87% fixed income.
The discount rate selected for each U.S. plan is based on a model bond portfolio with coupons and redemptions that closely match the expected liability cash flows from the plan. Discount rates for non-U.S. plans are based on appropriate bond indices adjusted for duration; induration. In the U.K., the plan duration is reflected using the Mercer yield curve.
The following table below shows the weighted average assumed rate of return and the discount rate at the December 31, 20202023 measurement date (for measuringused to measure pension expense in 2021)2024 for the total Company, the U.S. and the Rest of World ("ROW").
| | | Total Company | | U.S. | | ROW |
| | Total Company | |
| | Total Company | |
| | Total Company | | | U.S. | | ROW |
| Assumed rate of return on plan assets | Assumed rate of return on plan assets | 4.72 | % | | 7.02 | % | | 3.89 | % | Assumed rate of return on plan assets | | 5.44 | % | | 6.49 | % | | 4.96 | % |
| Discount rate | Discount rate | 1.92 | % | | 2.73 | % | | 1.49 | % | Discount rate | | 4.95 | % | | 5.52 | % | | 4.59 | % |
Holding all other assumptions constant, a half-percentage0.5 percentage point change in the rate of return on plan assets and discount rate assumptions would affect net periodic pensionbenefit (credit) cost for the U.S. and U.K. plans, which together comprise approximately 85% 83%of total pension plan liabilities, as follows:
| | 0.5 Percentage
Point Increase | | 0.5 Percentage
Point Decrease |
| (In millions of dollars) | U.S. | | U.K. | | U.S. | | U.K. |
| | 0.5 Percentage
Point Increase | | | | 0.5 Percentage
Point Increase | | 0.5 Percentage
Point Decrease |
| (In millions) | | (In millions) | | U.S. | | U.K. | | U.S. | | U.K. |
| Assumed rate of return on plan assets | Assumed rate of return on plan assets | $ | (23) | | | $ | (51) | | | $ | 23 | | | $ | 51 | |
| Discount Rate | Discount Rate | $ | 3 | | | $ | 5 | | | $ | (4) | | | $ | (8) | |
The impact of discount rate changes shown above relates to the increase or decrease in actuarial gainsor losses being amortized through net periodic pensionbenefit (credit) cost, as well as the increase or decrease in interest expense, with all other facts and assumptions held constant. It does not contemplate nor include potential future impacts a change in the interest rate environment and discount rates might cause, such as the impact on the market value of the plans’ assets. In addition, the assumed return on plan assets would likely be impacted by changes in the interest rate environment and other factors, including equity valuations, since these factors reflect the starting point used in the Company’s projection models. For example, a reduction in interest rates may result in a reduction in the assumed return on plan assets. Changing the discount rate and leaving the other assumptions constant, may also may not be representative of the impact on expense, because the long-term rates of inflation and salary increases are often correlated with the discount rate. Changes in these assumptions will not necessarily have a linear impact on the net periodic pensionbenefit (credit) cost.
The Company contributes to certain health care and life insurance benefits provided to its retired employees. The cost of these post-retirement benefits for employees in the U.S. is accrued during the period up to the date employees are eligible to retire but is funded by the Company as incurred. The key assumptions and sensitivity to changes in the assumed health care cost trend rate are discussed in Note 8, Retirement Benefits, in the notes to the consolidated financial statements.
Income Taxes
Significant judgment is required in determining the annual effective tax rate and in evaluating uncertain tax positions. The Company reports a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. The evaluation of a tax position is a two-step process:
•First, the Company determines whether it is more likely than not thatmore-likely-than-not a tax position will be sustained upon tax examination, including resolution of any related appeals or litigation, based on only the technical merits of the position. If a tax position does not meet the more-likely-than-not recognition threshold, the benefit of that position is not recognized in the financial statements.
•The second step is measurement. A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50-percent50% likely of beingto be realized upon ultimate resolution with a taxing authority. Uncertain tax positions are evaluated based upon the facts and circumstances that exist at each reporting period and involve significant management judgment. Subsequent changes in judgment based upon new information may lead to changes in recognition, de-recognition, and measurement. Adjustments may result, for example, upon resolution of an issue with the taxing authorities, or expiration of a statute of limitations barring an assessment for an issue.
The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense. The Company’s accounting policy follows the portfolio approach that leaves stranded income tax effects in AOCI.accumulated other comprehensive income.
Certain items are included in the Company's tax returns at different times than the items are reflected in the financial statements. As a result, the annual tax expense reflected in the consolidated statements of income is different than that reported in the tax returns. Some of these differences are permanent, such as non-deductible expenses, and some differences are temporary and reverse over time, such as depreciation expense.
Temporary differences create deferred tax assets and liabilities, which are measured at existingusing the enacted tax rates.rates expected to apply to taxable income in the periods in which the deferred tax asset or liability is expected to be settled or realized. Deferred tax liabilities generally represent tax expense recognized in the financial statements for which payment hascash tax payments have been deferred, or expense for which a deduction has been taken already in the tax return but the expense has not yet been recognized in the financial statements. Deferred tax assets generally represent items that can be used as a tax deduction or credit in tax returns in future years for which a benefit has already been recorded in the financial statements.
The Company evaluates all significant available positive and negative evidence, including the existence of losses in recent years and its forecast of future taxable income by jurisdiction, in assessing the need for a valuation allowance.allowance against deferred tax assets. The Company also considers tax planning strategies that would result in realization of deferred tax assets, and the presence of taxable income in prior period tax filings in jurisdictions that allow for the carry back of tax attributes pursuant to the applicable tax law. The underlying assumptions the Company uses in forecasting future taxable income require significant judgment and take into account the Company's recent performance. The ultimate realization of deferred tax assets is dependent on the generation of future taxable income during the periods in which temporary differences or carry-forwards are deductible or creditable. Valuation allowances are established for deferred tax assets when it is estimated that it is more likely than notmore-likely-than-not that future taxable income will be insufficient to fully use a deduction or credit in that jurisdiction.
Fair Value Determinations
Goodwill Impairment Testing – The Company is required to assess goodwill and any indefinite-lived intangible assets for impairment annually, or more frequently if circumstances indicate impairment may have occurred. The Company performs the annual impairment assessment for each of its reporting units during the third quarter of each year. The reporting unit level is defined as the same level as the Company's operating segments. In accordance with applicable accounting guidance, a company can assess qualitative factors to determine whether it is necessary to perform a quantitative goodwill impairment test. Alternatively, the Company may elect to proceed directly to the quantitative goodwill impairment test.
In 2023, the Company performed a quantitative impairment assessment. Fair values for the reporting units were estimated using both an income and market valuation approach. Carrying values were based on balances at June 30, 2023 and included directly identified assets and liabilities, as well as an allocation of those assets and liabilities not recorded at the reporting unit level.
impairment test. In 2020,The Company completed its 2023 annual review in the Company elected to perform a qualitative impairment assessment. As part of its assessment, the Company considered numerous factors, including:
•third quarter and concluded that goodwill was not impaired, as the fair value of each reporting unit exceeds its carrying value by a substantial margin based on its most recent quantitative assessment in 2019;
•whether significant acquisitions or dispositions occurred which might alter the fair value of its reporting units;
•macroeconomic conditions and their potential impact on reporting unit fair values;
•actual performance compared with budget and prior projections used in its estimation of reporting unit fair values;
•industry and market conditions;
•and the year-over-year change in the Company’s share price.
The Company completed its qualitative assessment in the third quarter of 2020 and concluded that a quantitative goodwill impairment test was not required in 2020 and that goodwill was not impaired.
Share-Based Payment
The accounting guidance for share-based payments requires, among other things, that the estimated grant date fair value of stock options be charged to earnings. Significant management judgment is required to determine the appropriate assumptions for inputs such as volatility and expected term necessary to estimate option values. In addition, management judgment is required to analyze the terms of the plans and awards granted thereunder to determine if awards will be treated as equity awards or liability awards, as defined by the accounting guidance.
As of December 31, 2020, there was $17.5 million of unrecognized compensation cost related to stock option awards. The weighted-average period over which the costs are expected to be recognized is 1.23 years. Also as of December 31, 2020, there was $347.7 million of unrecognized compensation cost related to the Company’s restricted stock, restricted stock unit and performance stock unit awards. The weighted-average period over which that cost is expected to be recognized is approximately 1 year.
See Note 9 to the consolidated financial statements for additional information regarding accounting for share-based payments.
Investments and Derivatives
Although not directly recorded in the Company’s consolidated balance sheets, the Company's defined benefit pension plans hold investments of approximately $19.1 billion, which include private equity and other non-liquid investments. The fair value of the plan investments determines, in part, the over-or under-funded status of those plans, which is included in the Company’s consolidated balance sheets. The Company also has minority positions in certain equity securities (primarily Alexander Forbes), which are accounted for at fair value with gains or losses recorded as investment gains or losses in the consolidated statement of income. The Company also has approximately $111 million of investments in private equity funds accounted for using the equity method of accounting.
The Company reviewsexceeded the carrying value of its investments (both direct and held through its pension plans) to determine if any valuation adjustments are appropriate under the applicable accounting pronouncements. The Company bases its review on the facts and circumstances as they relate to each investment. In those instances where quoted market prices are not available, particularly for private equity funds, significant management judgment is required to determine the appropriate value of the Company’s investments. Fair value of investments in private equity funds is determined by the funds’ investment managers. Factors considered in determining the fair value of private equity investments include: implied valuation of recently completed financing rounds that included sophisticated outside investors; performance multiples of comparable public companies; restrictions on the sale or disposal of the investments; trading characteristics of the securities; and the relative size of the holdings in comparison to other private investors and the public market float.value.
In connection with the JLT Transaction, the Company entered into several derivative contracts, described in Note 11 to the consolidated financial statements. These derivative contracts are recorded at fair value at the end of each period, with the change in fair value recorded in the consolidated statements of
income. Prior to their settlement, determination of the fair value of these contracts, in particular the deal contingent foreign exchange contract, required significant management judgments or estimates about the potential closing dates of the transaction and remaining value of the deal contingency feature. All derivative contracts related to the JLT Transaction were settled during 2019.
Purchase Price Allocation
Assets acquired and liabilities assumed, including contingent consideration, as part of a business acquisition are generally recorded at their fair value at the date of acquisition. The excess of purchase price over the fair value of assets acquired and liabilities assumed is recorded as goodwill. Determining fair value of identifiable assets, particularly intangibles, and liabilities acquired also requires management to make estimates, which are based on all available information and in some cases assumptions with respect to the timing and amount of future revenues and expenses associated with an asset. These estimates directly impact the amount of identified intangible assets recognized and the related amortization expense in future periods.
New Accounting Pronouncements
Note 1, Summary of Significant Accounting Policies, in the notes to the consolidated financial statements contains a summary of the Company’s significant accounting policies, including a discussion of recently issued accounting pronouncements and their impact or potential future impact on the Company’s financial results, if determinable, under the sub-heading "New Accounting Pronouncements".
Reconciliation of Non-GAAP Measures
On April 1, 2019, the Company completed its acquisition of JLT. JLT's results of operations for the year ended December 31, 2020 are included in the Company’s results of operations. JLT's results of operations for the three months ending March 31, 2019 are not included in the Company's results of operations for the twelve month period ended December 31, 2019. Prior to being acquired by the Company, JLT operated in three segments, Specialty, Reinsurance and Employee Benefits. As of April 1, 2019, the historical JLT businesses were combined into MMC operations as follows: JLT Specialty is included by geography within Marsh, JLT Reinsurance is included within Guy Carpenter and the majority of the JLT Employee Benefits business is included in Mercer Health and Wealth.
The JLT Transaction had a significant impact on the Company’s results of operations in 2020. The Company believes that in addition to the change in reported GAAP revenue, a comparison of 2020 GAAP reported revenue to the combined 2019 revenue of MMC and JLT, as if the companies were combined on January 1, 2019, provides investors with meaningful information as to the Company’s year-over-year underlying operating results. Investors should not consider the comparison of these non-GAAP measures in isolation from, or as a substitute for, the financial information that the Company reports in accordance with GAAP.
The "2019 Including JLT" revenue information set forth in the table below presents revenue information as if the companies were combined on January 1, 2019 and is not necessarily indicative of what the results would have been had we operated the business since January 1, 2019.
The MMC revenue amounts are as previously reported by the Company in its annual filing of Form 10-K for the year ended December 31, 2019. JLT 2019 revenue information is derived using the same policies and adjustments as the "JLT Supplemental Information - Revenue Analysis" furnished to the SEC on June 6, 2019 on Form 8-K, which is not incorporated by reference in this Form 10-K, and includes the revenue from JLT’s aerospace business.Pronouncements."
| | | | | | | | | | | | | | | | | |
(In millions) | | | | | | | For the Year Ended December 31, 2019 | | | | |
MMC As Previously Reported | | | | | | | | | | | |
Risk & Insurance Services | | | | | | | | | | | |
Marsh | | | | | | | $ | 8,014 | | | | | |
Guy Carpenter | | | | | | | 1,480 | | | | | |
Subtotal | | | | | | | 9,494 | | | | | |
Fiduciary interest income | | | | | | | 105 | | | | | |
Total Risk & Insurance Services | | | | | | | 9,599 | | | | | |
Consulting | | | | | | | | | | | |
Mercer | | | | | | | 5,021 | | | | | |
Oliver Wyman Group | | | | | | | 2,122 | | | | | |
Total Consulting | | | | | | | 7,143 | | | | | |
Corporate eliminations | | | | | | | (90) | | | | | |
Total revenue | | | | | | | $ | 16,652 | | | | | |
JLT 2019 | | | | | | | | | | | |
Specialty (Marsh) | | | | | | | $ | 232 | | | | | |
Reinsurance (Guy Carpenter) | | | | | | | 118 | | | | | |
Employee Benefits (Mercer) | | | | | | | 73 | | | | | |
Subtotal | | | | | | | 423 | | | | | |
Fiduciary interest income | | | | | | | 5 | | | | | |
Total Revenue | | | | | | | $ | 428 | | | | | |
2019 including JLT | | | | | | | | | | | |
Marsh | | | | | | | $ | 8,246 | | | | | |
Guy Carpenter | | | | | | | 1,598 | | | | | |
Subtotal | | | | | | | 9,844 | | | | | |
Fiduciary interest income | | | | | | | 110 | | | | | |
Total Risk & Insurance Services | | | | | | | 9,954 | | | | | |
Consulting | | | | | | | | | | | |
Mercer | | | | | | | 5,094 | | | | | |
Oliver Wyman Group | | | | | | | 2,122 | | | | | |
Total Consulting | | | | | | | 7,216 | | | | | |
Corporate eliminations | | | | | | | (90) | | | | | |
Total revenue including JLT | | | | | | | $ | 17,080 | | | | | |
Item 7A. Quantitative and Qualitative Disclosures About Market RiskRisk.
Market Risk and Credit Risk
Certain of the Company’s revenues, expenses, assets and liabilities are exposed to the impact of interest rate changes and fluctuations in foreign currency exchange rates and equity markets.
Interest Rate Risk and Credit Risk
Interest income generated from the Company’s cash, investments as well as investedcash equivalents, and cash and cash equivalents held in a fiduciary fundscapacity will vary with the general level of interest rates.
The Company had the following investments subject to variable interest rates:
| | | | | |
(In millions of dollars) | December 31, 2020 |
Cash and cash equivalents invested in money market funds, certificates of deposit and time deposits | $ | 2,089 | |
Fiduciary cash and investments | $ | 8,585 | |
| | | | | | | | | | | | | | |
| For the Years Ended December 31, | | | | |
| (In millions) | | 2023 | | 2022 |
| Cash and cash equivalents | | $ | 3,358 | | | $ | 1,442 | |
| Cash and cash equivalents held in a fiduciary capacity | | $ | 10,794 | | | $ | 10,660 | |
Based on the above balances at December 31, 2023, if short-term interest rates increased or decreased by 10%, or 347 basis points overfor the full year 2024, annual interest income, including interest earned on cash and cash equivalents held in a fiduciary funds,capacity, would increase or decrease by approximately $2$66 million. At December 31, 2022, a change in short-term interest rates of 10%, or 25 basis points, would have increased or decreased interest income by approximately $30 million. The change in interest rate risk at December 31, 2023 is due to higher short-term interest rates compared to the prior year.
In addition to interest rate risk, our cash investments and fiduciary fundcash investments are subject to potential loss of value due to counter-party credit risk. To minimize this risk, the Company and its subsidiaries invest pursuant to a Board approved investment policy. The policy mandates the preservation of principal and liquidity and requires broad diversification with counter-party limits assigned based primarily on credit rating and type of investment. The Company carefully monitors its cash, cash equivalents, and cash and cash equivalents held in a fiduciary fund investmentscapacity, and will further restrict the portfolio as appropriate to market conditions. The majority of cash, cash equivalents. and cash and cash equivalents held in a fiduciary fund investmentscapacity are invested in short-term bank deposits and liquid money market funds.
Foreign Currency Risk
The translated values of revenue and expense from the Company’s international operations are subject to fluctuations due to changes in currency exchange rates. The non-U.S. based revenue that is exposed to foreign exchange fluctuations is approximately53% of total revenue. We periodically use forward contracts and options to limit foreign currency exchange rate exposure on net income and cash flows for specific, clearly defined transactions arising in the ordinary course of business. Although the Company has significant revenue generated in foreign locations which is subject to foreign exchange rate fluctuations, in most cases both the foreign currency revenue and expensesexpense are in the functional currency of the foreign location. As such, under normal circumstances, the U.S. dollar translation of both the revenuesrevenue and expenses,expense, as well as the potentially offsetting movements of various currencies against the U.S. dollar, generally tendstend to mitigate the impact on net operating income of foreign currency risk.
However, there have been periods where the impact was not mitigated due to external market factors, and external macroeconomic events may result in greater foreign exchange rate fluctuations in the future. If foreign exchange rates of major currencies (Euro, Sterling,British Pound, Australian dollar and Canadian dollar) moved 10% in the same direction against the U.S. dollar compared with the foreign exchange rates in 2020,2023, the Company estimates net operating income would increase or decrease by approximately $39 $80 million. The corresponding increase or decrease in net operating income in 2022 was estimated at $74 million.
The Company has exposure to approximately 80 foreignforeign currencies overall. In Continental Europe, the largest amount of revenue from renewals for the Risk &and Insurance Services segment occursoccurs in the first quarter.
Equity Price Risk
The Company holds investments in bothboth public and private companies as well as private equity funds, including investments of approximately $72$16 million that are valued using readily determinable fair values and approximately $33$20 million of investments without readily determinable fair values. The Company also has investments of approximately $280$266 million that are accountedaccounted for using the equity method. The Company's investments are subject to risk of decline in market value, which, if determined to be other than temporary, for assets without readily determinable fair values, could result in realized impairment losses. The
Company periodically reviews the carrying value of such investments to determine if any valuation adjustments are appropriate under the applicable accounting pronouncements.
At December 31, 2020, the Company owns approximately 14% of the common stock of AF, a South African company listed on the Johannesburg Stock Exchange. The investment in AF is accounted at fair value, with unrealized gains and losses recorded as investment income in the consolidated statement of income. The fair value of this investment at December 31, 2020 was approximately $54 million.
Other
A number of lawsuits and regulatory proceedings are pending. SeeRefer to Note 16, ("Claims, Lawsuits and Other Contingencies")Contingencies, in the notes to the consolidated financial statements included in this report.
Item 8. Financial Statements and Supplementary DataData.
MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
| | For the Years Ended December 31, | For the Years Ended December 31, | |
| (In millions, except per share figures) | | 2020 | | 2019 | | 2018 |
| (In millions, except per share data) | |
| (In millions, except per share data) | |
| (In millions, except per share data) | | | 2023 | | 2022 | | 2021 |
| Revenue | Revenue | | $ | 17,224 | | | $ | 16,652 | | | $ | 14,950 | |
| Expense: | Expense: | |
| Compensation and benefits | |
| Compensation and benefits | |
| Compensation and benefits | Compensation and benefits | | 10,129 | | | 9,734 | | | 8,605 | |
| Other operating expenses | Other operating expenses | | 4,029 | | | 4,241 | | | 3,584 | |
| Operating expenses | Operating expenses | | 14,158 | | | 13,975 | | | 12,189 | |
| Operating income | Operating income | | 3,066 | | | 2,677 | | | 2,761 | |
| Other net benefits credits | Other net benefits credits | | 257 | | | 265 | | | 215 | |
| Interest income | Interest income | | 7 | | | 39 | | | 11 | |
| Interest expense | Interest expense | | (515) | | | (524) | | | (290) | |
| Cost of extinguishment of debt | | 0 | | | (32) | | | 0 | |
| Investment (loss) income | | (22) | | | 22 | | | (12) | |
| Acquisition related derivative contracts | | 0 | | | (8) | | | (441) | |
| | Investment income | |
| Investment income | |
| Investment income | |
| | Income before income taxes | |
| Income before income taxes | |
| Income before income taxes | Income before income taxes | | 2,793 | | | 2,439 | | | 2,244 | |
| Income tax expense | Income tax expense | | 747 | | | 666 | | | 574 | |
| | | Net income before non-controlling interests | |
| | Net income before non-controlling interests | |
| | Net income before non-controlling interests | Net income before non-controlling interests | | 2,046 | | | 1,773 | | | 1,670 | |
| Less: Net income attributable to non-controlling interests | Less: Net income attributable to non-controlling interests | | 30 | | | 31 | | | 20 | |
| Net income attributable to the Company | Net income attributable to the Company | | $ | 2,016 | | | $ | 1,742 | | | $ | 1,650 | |
| Net income per share attributable to the Company | Net income per share attributable to the Company | |
| | – Basic | – Basic | | $ | 3.98 | | | $ | 3.44 | | | $ | 3.26 | |
| | – Basic | |
| | – Basic | |
| | – Diluted | |
| | – Diluted | |
| | – Diluted | – Diluted | | $ | 3.94 | | | $ | 3.41 | | | $ | 3.23 | |
| Average number of shares outstanding | Average number of shares outstanding | |
| – Basic | – Basic | | 506 | | | 506 | | | 506 | |
| – Basic | |
| – Basic | |
| – Diluted | – Diluted | | 512 | | | 511 | | | 511 | |
| Shares outstanding at December 31, | Shares outstanding at December 31, | | 508 | | | 504 | | | 504 | |
The accompanying notes are an integral part of these consolidated statements.
MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
For the Years Ended December 31, (In millions) | 2020 | | 2019 | | 2018 |
| Net income before non-controlling interests | $ | 2,046 | | | $ | 1,773 | | | $ | 1,670 | |
| Other comprehensive income (loss), before tax: | | | | | |
| Foreign currency translation adjustments | 559 | | | 148 | | | (529) | |
| Loss related to pension and post-retirement plans | (784) | | | (702) | | | (91) | |
| Other comprehensive loss, before tax | (225) | | | (554) | | | (620) | |
| Income tax credit on other comprehensive loss | (170) | | | (146) | | | (30) | |
| Other comprehensive loss, net of tax | (55) | | | (408) | | | (590) | |
| Comprehensive income | 1,991 | | | 1,365 | | | 1,080 | |
| Less: Comprehensive income attributable to non-controlling interests | 30 | | | 31 | | | 20 | |
| Comprehensive income attributable to the Company | $ | 1,961 | | | $ | 1,334 | | | $ | 1,060 | |
| | | | | | | | | | | | | | | | | |
For the Years Ended December 31, (In millions) | 2023 | | 2022 | | 2021 |
| Net income before non-controlling interests | $ | 3,802 | | | $ | 3,087 | | | $ | 3,174 | |
| Other comprehensive (loss) income, before tax: | | | | | |
| Foreign currency translation adjustments | 389 | | | (1,198) | | | (389) | |
(Loss) gain related to pension and post-retirement plans | (503) | | | 641 | | | 1,229 | |
| Other comprehensive (loss) income, before tax | (114) | | | (557) | | | 840 | |
| Income tax (credit) expense on other comprehensive (loss) income | (133) | | | 182 | | | 305 | |
| Other comprehensive income (loss), net of tax | 19 | | | (739) | | | 535 | |
| Comprehensive income | 3,821 | | | 2,348 | | | 3,709 | |
| Less: Comprehensive income attributable to non-controlling interests | 46 | | | 37 | | | 31 | |
| Comprehensive income attributable to the Company | $ | 3,775 | | | $ | 2,311 | | | $ | 3,678 | |
The accompanying notes are an integral part of these consolidated statements.
MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| | December 31, | December 31, | |
| (In millions, except share figures) | 2020 | | 2019 |
| (In millions, except share data) | |
| (In millions, except share data) | |
| (In millions, except share data) | | 2023 | | 2022 |
| ASSETS | ASSETS | |
| Current assets: | Current assets: | |
| Current assets: | |
| Current assets: | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 2,089 | | | $ | 1,155 | |
| Cash and cash equivalents | |
| Cash and cash equivalents | |
| Cash and cash equivalents held in a fiduciary capacity | |
| Receivables | Receivables | |
| Commissions and fees | |
| Commissions and fees | |
| Commissions and fees | Commissions and fees | 4,679 | | | 4,608 | |
| Advanced premiums and claims | Advanced premiums and claims | 112 | | | 123 | |
| | Other | Other | 677 | | | 645 | |
| 5,468 | | | 5,376 | |
| Less-allowance for credit losses | (142) | | | (140) | |
| Other | |
| Other | |
| 6,569 | |
| Less – allowance for credit losses | |
| Net receivables | Net receivables | 5,326 | | | 5,236 | |
| | Other current assets | |
| Other current assets | |
| Other current assets | Other current assets | 740 | | | 677 | |
| Total current assets | Total current assets | 8,155 | | | 7,068 | |
| Goodwill | Goodwill | 15,517 | | | 14,671 | |
| Other intangible assets | Other intangible assets | 2,699 | | | 2,774 | |
| Fixed assets, net | Fixed assets, net | 856 | | | 858 | |
| Pension related assets | Pension related assets | 1,768 | | | 1,632 | |
| Right of use assets | Right of use assets | 1,894 | | | 1,921 | |
| Deferred tax assets | Deferred tax assets | 702 | | | 676 | |
| Other assets | Other assets | 1,458 | | | 1,757 | |
| | | $ | 33,049 | | | $ | 31,357 | |
| LIABILITIES AND EQUITY | LIABILITIES AND EQUITY | |
| Current liabilities: | Current liabilities: | |
| Current liabilities: | |
| Current liabilities: | |
| Short-term debt | |
| Short-term debt | |
| Short-term debt | Short-term debt | $ | 517 | | | $ | 1,215 | |
| Accounts payable and accrued liabilities | Accounts payable and accrued liabilities | 3,050 | | | 2,746 | |
| Accrued compensation and employee benefits | Accrued compensation and employee benefits | 2,400 | | | 2,197 | |
| | Current lease liabilities | Current lease liabilities | 342 | | | 342 | |
| Current lease liabilities | |
| Current lease liabilities | |
| Accrued income taxes | Accrued income taxes | 247 | | | 179 | |
| | Fiduciary liabilities | |
| Fiduciary liabilities | |
| Fiduciary liabilities | |
| Total current liabilities | Total current liabilities | 6,556 | | | 6,679 | |
| Fiduciary liabilities | 8,585 | | | 7,344 | |
| Less – cash and investments held in a fiduciary capacity | (8,585) | | | (7,344) | |
| | 0 | | | 0 | |
| Long-term debt | Long-term debt | 10,796 | | | 10,741 | |
| Pension, postretirement and postemployment benefits | 2,662 | | | 2,336 | |
| Long-term debt | |
| Long-term debt | |
| Pension, post-retirement and post-employment benefits | |
| Long-term lease liabilities | Long-term lease liabilities | 1,924 | | | 1,926 | |
| Liability for errors and omissions | Liability for errors and omissions | 366 | | | 335 | |
| Other liabilities | Other liabilities | 1,485 | | | 1,397 | |
| Commitments and contingencies | Commitments and contingencies | 0 | | | 0 | |
| Equity: | Equity: | |
| Preferred stock, $1 par value, authorized 6,000,000 shares, NaN issued | 0 | | | 0 | |
| Common stock, $1 par value, authorized | |
| 1,600,000,000 shares, issued 560,641,640 shares at December 31, 2020 and December 31, 2019 | 561 | | | 561 | |
| Preferred stock, $1 par value, authorized 6,000,000 shares, none issued | |
| Preferred stock, $1 par value, authorized 6,000,000 shares, none issued | |
| Preferred stock, $1 par value, authorized 6,000,000 shares, none issued | |
| Common stock, $1 par value, authorized 1,600,000,000 shares, issued 560,641,640 shares at December 31, 2023 and 2022 | |
Common stock, $1 par value, authorized 1,600,000,000 shares, issued 560,641,640 shares at December 31, 2023 and 2022 | |
Common stock, $1 par value, authorized 1,600,000,000 shares, issued 560,641,640 shares at December 31, 2023 and 2022 | |
| Additional paid-in capital | Additional paid-in capital | 943 | | | 862 | |
| Retained earnings | Retained earnings | 16,272 | | | 15,199 | |
| Accumulated other comprehensive loss | Accumulated other comprehensive loss | (5,110) | | | (5,055) | |
| Non-controlling interests | Non-controlling interests | 156 | | | 150 | |
| 12,822 | | | 11,717 | |
| Less – treasury shares, at cost, 52,914,550 shares at December 31, 2020 and 57,013,097 shares at December 31, 2019 | (3,562) | | | (3,774) | |
| 19,446 | |
Less – treasury shares, at cost, 68,635,498 shares at December 31, 2023 and 65,855,914 shares at December 31, 2022 | |
| Total equity | Total equity | 9,260 | | | 7,943 | |
| | | $ | 33,049 | | | $ | 31,357 | |
MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS | | | | | | | | | | | | | | | | | |
| For the Years Ended December 31, | | | | | |
| (In millions) | 2023 | | 2022 | | 2021 |
| Operating cash flows: | | | | | |
| Net income before non-controlling interests | $ | 3,802 | | | $ | 3,087 | | | $ | 3,174 | |
| Adjustments to reconcile net income provided by operations: | | | | | |
| Depreciation and amortization of fixed assets and capitalized software | 370 | | | 381 | | | 382 | |
| Amortization of intangible assets | 343 | | | 338 | | | 365 | |
| | | | | |
| Non-cash lease expense | 288 | | | 404 | | | 327 | |
| Adjustments and payments related to contingent consideration assets and liabilities | (11) | | | 11 | | | 27 | |
| Deconsolidation of Russian businesses | — | | | 39 | | | — | |
| Gain on consolidation of entity | — | | | (2) | | | (267) | |
| | | | | |
| | | | | |
| Net (gain) on investments | (5) | | | (21) | | | (61) | |
| Net loss (gain) on disposition of assets | 16 | | | (127) | | | (33) | |
| Share-based compensation expense | 363 | | | 367 | | | 348 | |
| | | | | |
| Changes in assets and liabilities: | | | | | |
| Net receivables | (467) | | | (492) | | | (570) | |
| | | | | |
| Other assets | (154) | | | (122) | | | (354) | |
| | | | | |
| Accrued compensation and employee benefits | 195 | | | 171 | | | 574 | |
| Provision for taxes, net of payments and refunds | 105 | | | (54) | | | (33) | |
| Contributions to pension and other benefit plans in excess of current year credit | (335) | | | (385) | | | (372) | |
| Other liabilities | 64 | | | 193 | | | 358 | |
| Operating lease liabilities | (316) | | | (323) | | | (349) | |
| | | | | |
| Net cash provided by operations | 4,258 | | | 3,465 | | | 3,516 | |
| Financing cash flows: | | | | | |
| Purchase of treasury shares | (1,150) | | | (1,950) | | | (1,159) | |
| | | | | |
| | | | | |
| Issuance of commercial paper with maturity greater than 90 days | 146 | | | — | | | — | |
| Repayment of commercial paper with maturity greater than 90 days | (146) | | | — | | | — | |
| Proceeds from issuance of debt | 2,169 | | | 984 | | | 743 | |
| Repayments of debt | (266) | | | (365) | | | (1,016) | |
| | | | | |
| | | | | |
| Purchase of non-controlling interests | (139) | | | (7) | | | — | |
| | | | | |
| Shares withheld for taxes on vested units – treasury shares | (148) | | | (198) | | | (101) | |
| Issuance of common stock from treasury shares | 199 | | | 126 | | | 161 | |
| Payments of deferred and contingent consideration for acquisitions | (202) | | | (158) | | | (117) | |
| Receipts of contingent consideration for dispositions | 2 | | | 3 | | | 71 | |
| Distributions of non-controlling interests | (31) | | | (27) | | | (36) | |
| Dividends paid | (1,298) | | | (1,138) | | | (1,026) | |
| Change in fiduciary liabilities | (255) | | | 1,684 | | | 1,183 | |
| Net cash used for financing activities | (1,119) | | | (1,046) | | | (1,297) | |
| Investing cash flows: | | | | | |
| Capital expenditures | (416) | | | (470) | | | (406) | |
| | | | | |
| Purchases of long-term investments | (57) | | | (22) | | | (28) | |
| Sales of long-term investments | 38 | | | 86 | | | 41 | |
| | | | | |
| | | | | |
| Dispositions | (17) | | | 119 | | | 84 | |
| Acquisitions, net of cash and cash held in a fiduciary capacity acquired | (976) | | | (572) | | | (859) | |
| Other, net | 11 | | | 9 | | | 4 | |
| Net cash used for investing activities | (1,417) | | | (850) | | | (1,164) | |
| Effect of exchange rate changes on cash, cash equivalents, and cash and cash equivalents held in a fiduciary capacity | 328 | | | (841) | | | (355) | |
| Increase in cash, cash equivalents, and cash and cash equivalents held in a fiduciary capacity | 2,050 | | | 728 | | | 700 | |
| Cash, cash equivalents, and cash and cash equivalents held in a fiduciary capacity at beginning of year | 12,102 | | | 11,374 | | | 10,674 | |
| Cash, cash equivalents, and cash and cash equivalents held in a fiduciary capacity at end of year | $ | 14,152 | | | $ | 12,102 | | | $ | 11,374 | |
| | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | |
| For the Years Ended December 31, | | | | | |
| (In millions) | 2020 | | 2019 | | 2018 |
| Operating cash flows: | | | | | |
| Net income before non-controlling interests | $ | 2,046 | | | $ | 1,773 | | | $ | 1,670 | |
| Adjustments to reconcile net income to cash provided by operations: | | | | | |
| Depreciation and amortization of fixed assets and capitalized software | 390 | | | 333 | | | 311 | |
| Amortization of intangible assets | 351 | | | 314 | | | 183 | |
| | | | | |
| Non cash lease expense | 355 | | | 315 | | | 0 | |
| Adjustments and payments related to contingent consideration liability | (22) | | | 27 | | | (4) | |
| Loss on deconsolidation of entity | 0 | | | 0 | | | 11 | |
| Charge for early extinguishment of debt | 0 | | | 32 | | | 0 | |
| Provision (benefit) for deferred income taxes | 40 | | | 84 | | | (39) | |
| Loss (gain) on investments | 22 | | | (22) | | | 12 | |
| Loss (gain) on disposition of assets | 24 | | | 56 | | | (48) | |
| Share-based compensation expense | 290 | | | 252 | | | 193 | |
| Change in fair value of acquisition-related derivative contracts | 0 | | | 8 | | | 441 | |
| Changes in assets and liabilities: | | | | | |
| Net receivables | (75) | | | (130) | | | (78) | |
| Other current assets | (66) | | | (13) | | | 26 | |
| Other assets | 86 | | | (1) | | | (37) | |
| Accounts payable and accrued liabilities | 241 | | | 120 | | | 23 | |
| Accrued compensation and employee benefits | 207 | | | 154 | | | 68 | |
| Accrued income taxes | 60 | | | 42 | | | (40) | |
| Contributions to pension and other benefit plans and current year credit | (356) | | | (369) | | | (291) | |
| Other liabilities | 108 | | | (172) | | | 9 | |
| Operating lease liabilities | (351) | | | (327) | | | 0 | |
| Effect of exchange rate changes | 32 | | | (115) | | | 18 | |
| Net cash provided by operations | 3,382 | | | 2,361 | | | 2,428 | |
| Financing cash flows: | | | | | |
| Purchase of treasury shares | 0 | | | (485) | | | (675) | |
| | | | | |
| Net increase in short term borrowings | 1,000 | | | 300 | | | 0 | |
| Proceeds from issuance of debt | 737 | | | 6,459 | | | 591 | |
| Repayments of debt | (2,515) | | | (1,064) | | | (263) | |
| Payment of bridge loan fees | 0 | | | 0 | | | (35) | |
| Payments for early extinguishment of debt | 0 | | | (585) | | | 0 | |
| Purchase of non-controlling interests | (3) | | | (80) | | | 0 | |
| Acquisition-related derivative payments | 0 | | | (337) | | | 0 | |
| Shares withheld for taxes on vested units – treasury shares | (132) | | | (89) | | | (67) | |
| Issuance of common stock from treasury shares | 132 | | | 158 | | | 93 | |
| Payments of deferred and contingent consideration for acquisitions | (122) | | | (65) | | | (117) | |
| Distributions of non-controlling interests | (34) | | | (16) | | | (30) | |
| Dividends paid | (943) | | | (890) | | | (807) | |
| Net cash (used for) provided by financing activities | (1,880) | | | 3,306 | | | (1,310) | |
| Investing cash flows: | | | | | |
| Capital expenditures | (348) | | | (421) | | | (314) | |
| Net sales (purchases) of long-term investments | 107 | | | 183 | | | 4 | |
| Purchase of equity investment | 0 | | | (91) | | | 0 | |
| Proceeds from sales of fixed assets | 6 | | | 10 | | | 3 | |
| Dispositions | 98 | | | 229 | | | 110 | |
| Acquisitions | (668) | | | (5,505) | | | (884) | |
| Other, net | (9) | | | (76) | | | (8) | |
| Net cash used for investing activities | (814) | | | (5,671) | | | (1,089) | |
| Effect of exchange rate changes on cash and cash equivalents | 246 | | | 93 | | | (168) | |
| Increase (decrease) in cash and cash equivalents | 934 | | | 89 | | | (139) | |
| Cash and cash equivalents at beginning of year | 1,155 | | | 1,066 | | | 1,205 | |
| Cash and cash equivalents at end of year | $ | 2,089 | | | $ | 1,155 | | | $ | 1,066 | |
| | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | |
| Reconciliation of cash, cash equivalents, and cash and cash equivalents held in a fiduciary capacity to the Consolidated Balance Sheets |
| Balance at December 31, | 2023 | | 2022 | | 2021 |
| (In millions) | | | | | |
| Cash and cash equivalents | $ | 3,358 | | | $ | 1,442 | | | $ | 1,752 | |
| Cash and cash equivalents held in a fiduciary capacity | 10,794 | | | 10,660 | | | 9,622 | |
| Total cash, cash equivalents, and cash and cash equivalents held in a fiduciary capacity | $ | 14,152 | | | $ | 12,102 | | | $ | 11,374 | |
The accompanying notes are an integral part of these consolidated statements.
MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
| | For the Years Ended December 31, | For the Years Ended December 31, | |
| (In millions, except per share figures) | 2020 | | 2019 | | 2018 |
| (In millions, except per share data) | |
| (In millions, except per share data) | |
| (In millions, except per share data) | | 2023 | | 2022 | | 2021 |
| COMMON STOCK | COMMON STOCK | |
| Balance, beginning and end of year | |
| Balance, beginning and end of year | |
| Balance, beginning and end of year | Balance, beginning and end of year | $ | 561 | | | $ | 561 | | | $ | 561 | |
| ADDITIONAL PAID-IN CAPITAL | ADDITIONAL PAID-IN CAPITAL | |
| Balance, beginning of year | Balance, beginning of year | $ | 862 | | | $ | 817 | | | $ | 784 | |
| Balance, beginning of year | |
| Balance, beginning of year | |
| Change in accrued stock compensation costs | Change in accrued stock compensation costs | 75 | | | 89 | | | 66 | |
| Issuance of shares under stock compensation plans and employee stock purchase plans | Issuance of shares under stock compensation plans and employee stock purchase plans | 7 | | | (44) | | | (35) | |
| Purchase of non-controlling interest | |
| Other | Other | (1) | | | 0 | | | 2 | |
| | Balance, end of year | Balance, end of year | $ | 943 | | | $ | 862 | | | $ | 817 | |
| | Balance, end of year | |
| | Balance, end of year | |
| RETAINED EARNINGS | RETAINED EARNINGS | |
| Balance, beginning of year | Balance, beginning of year | $ | 15,199 | | | $ | 14,347 | | | $ | 13,140 | |
| Balance, beginning of year | |
| Balance, beginning of year | |
| Net income attributable to the Company | Net income attributable to the Company | 2,016 | | | 1,742 | | | 1,650 | |
| Cumulative effect of adoption of the revenue recognition standard (See Note 1) | — | | | — | | | 364 | |
| | Dividend equivalents declared and paid - (per share amounts: $1.84 in 2020, $1.74 in 2019, and $1.58 in 2018) | (11) | | | (10) | | | (7) | |
| Dividends declared and paid – (per share amounts: $1.84 in 2020, $1.74 in 2019, and $1.58 in 2018) | (932) | | | (880) | | | (800) | |
| | Dividend equivalents declared and paid – (per share amounts: $2.60 in 2023, $2.25 in 2022, and $2.00 in 2021) | |
| | Dividend equivalents declared and paid – (per share amounts: $2.60 in 2023, $2.25 in 2022, and $2.00 in 2021) | |
| | Dividend equivalents declared and paid – (per share amounts: $2.60 in 2023, $2.25 in 2022, and $2.00 in 2021) | |
| Dividends declared and paid – (per share amounts: $2.60 in 2023, $2.25 in 2022, and $2.00 in 2021) | |
| Balance, end of year | Balance, end of year | $ | 16,272 | | | $ | 15,199 | | | $ | 14,347 | |
| ACCUMULATED OTHER COMPREHENSIVE LOSS | ACCUMULATED OTHER COMPREHENSIVE LOSS | |
| Balance, beginning of year | Balance, beginning of year | $ | (5,055) | | | $ | (4,647) | | | $ | (4,043) | |
| Cumulative effect of adoption of the financial instruments standard (See Note 1) | — | | | — | | | (14) | |
| Balance, beginning of year | |
| Balance, beginning of year | |
| | Other comprehensive loss, net of tax | (55) | | | (408) | | | (590) | |
| | Other comprehensive income (loss), net of tax | |
| | Other comprehensive income (loss), net of tax | |
| | Other comprehensive income (loss), net of tax | |
| Balance, end of year | Balance, end of year | $ | (5,110) | | | $ | (5,055) | | | $ | (4,647) | |
| TREASURY SHARES | TREASURY SHARES | |
| Balance, beginning of year | |
| Balance, beginning of year | |
| Balance, beginning of year | Balance, beginning of year | $ | (3,774) | | | $ | (3,567) | | | $ | (3,083) | |
| Issuance of shares under stock compensation plans and employee stock purchase plans | Issuance of shares under stock compensation plans and employee stock purchase plans | 212 | | | 278 | | | 191 | |
| | Purchase of treasury shares | Purchase of treasury shares | 0 | | | (485) | | | (675) | |
| Purchase of treasury shares | |
| Purchase of treasury shares | |
| Balance, end of year | Balance, end of year | $ | (3,562) | | | $ | (3,774) | | | $ | (3,567) | |
| NON-CONTROLLING INTERESTS | NON-CONTROLLING INTERESTS | |
| Balance, beginning of year | Balance, beginning of year | $ | 150 | | | $ | 73 | | | $ | 83 | |
| Balance, beginning of year | |
| Balance, beginning of year | |
| Net income attributable to non-controlling interests | Net income attributable to non-controlling interests | 30 | | | 31 | | | 20 | |
| Net non-controlling interests (disposed) acquired | |
| Distributions and other changes | Distributions and other changes | (21) | | | (27) | | | (30) | |
| Net non-controlling interests acquired | (3) | | | 73 | | | 0 | |
| Balance, end of year | Balance, end of year | $ | 156 | | | $ | 150 | | | $ | 73 | |
| TOTAL EQUITY | TOTAL EQUITY | $ | 9,260 | | | $ | 7,943 | | | $ | 7,584 | |
|
The accompanying notes are an integral part of these consolidated statements.
MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Nature of Operations: Marsh & McLennan Companies, Inc., and its consolidated subsidiaries (the "Company"), a global professional services firm, is organized based on the different services that it offers. Under this structure, the Company’s 2two business segments are Risk and Insurance Services and Consulting.
The Risk and Insurance Services segment provides("RIS") includes risk management solutions, services,activities (risk advice, risk transfer and risk control and mitigation solutions) as well as insurance broking,and reinsurance broking and insurance program management services for businesses, public entities, insurance companies, associations, professional services organizations, and private clients. The Company conducts business in this segment through Marsh and Guy Carpenter. Marsh provides data-driven risk advisory services and insurance solutions to commercial and consumer clients. Guy Carpenter develops advanced risk, reinsurance and capital strategies that help clients grow profitably and pursue emerging opportunities.
The Consulting segment includes health, wealth and career advice, solutions and products, and specialized management, strategic, economic and brand consulting services. The Company conducts business in its Consultingthis segment through Mercer and Oliver Wyman Group. Mercer provides consulting expertise,delivers advice services and technology-driven solutions inthat help organizations redefine the areasfuture of work, reshape retirement and investment outcomes, and unlock health wealth and career consulting services and products.well-being for a changing workforce. Oliver Wyman Group provides specialized management andserves as a critical strategic, economic and brand consulting services.
Business Update Related To COVID-19
In March 2020, the World Health Organization declared the Coronavirus (COVID-19) a pandemic. The pandemic has impacted essentially every geography in which the Company operates. Governments implemented various restrictions around the world, including closure of non-essential businesses, travel, shelter-in-place requirements for citizensadvisor to private sector and other restrictions. The Company has taken a number of precautionary steps to safeguard its businesses and colleagues from COVID-19, including implementing travel restrictions, arranging work from home capabilities and flexible work policies. In the second and third quarters of 2020, the Company began re-opening offices in various locations around the world, while ensuring that it continued to adhere to guidelines and orders issued by national, state and local governments. The timing of additional office re-openings will vary based on the conditions and restrictions in each location. In the fourth quarter, there was a surge in COVID-19 infections in many parts of the world, leading to renewed lock-downs and increased government restrictions. The safety and well-being of our colleagues continues to be our first priority. Several vaccines have been or are in various stages of approval. However, the speed of distribution and the impact on colleagues' ability to return to the office remains uncertain. The vast majority of the Company’s colleagues have continued and will continue working in a remote work environment for most of 2021. The Company expects it will continue its ability to service clients effectively while colleagues remain in a remote work environment.
For the year ended December 31, 2020, the COVID-19 pandemic had an adverse impact on the Company’s revenue growth, primarily in our businesses that are discretionary in nature, which was partly mitigated through disciplined expense management by implementing restrictions on travel and other cost containment measures. However, the ultimate extent of the COVID-19 impact to the Company will depend on numerous evolving factors and future developments that it is not able to predict.
On April 1, 2019, the Company completed the acquisition (the "Transaction") of all of the outstanding shares of Jardine Lloyd Thompson Group plc ("JLT"), a public company organized under the laws of England and Wales. JLT's results of operations for the period April 1, 2019 through December 31, 2019 are included in the Company’s results of operations for 2019. JLT's results of operations for the period January 1 through March 31, 2019 and for the year ended 2018 are not included in the Company's results of operations and therefore, affect comparability. Prior to being acquired by the Company, JLT operated in 3 segments: Specialty, Reinsurance and Employee Benefits. JLT operated in 41 countries, with significant revenue in the United Kingdom, Pacific, Asia and the United States. As of April 1, 2019, the historical JLT businesses were combined into MMC operations as follows: JLT Specialty is included by geography within Marsh, JLT Reinsurance is included in Guy Carpenter and the majority of JLT's Employee Benefits business is included in Mercer Health and Wealth. As of December 31, 2020, the Company has substantially integrated JLT into all of its business operations.governmental clients.
Principles of Consolidation: The accompanyingaccompanied consolidated financial statements are prepared pursuant to the rules and regulations of the Securities and Exchange Commission and in accordance with accounting principles generally accepted in the United States (U.S.). The consolidated financial statements include all wholly-owned and majority-owned subsidiaries. All significant inter-company transactions and balances have been eliminated.
Revenue: The Company provides detailed discussion regarding its revenue policies in Note 2, to the consolidated financial statements.Revenue.
Cash and Cash Equivalents:Cash and cash equivalents primarily consist of certificates of deposit and time deposits, with original maturities of three months or less, and money market funds. The estimated fair value of the Company's cash and cash equivalents approximates their carrying value. The Company is required to maintain operating funds primarily related to regulatory requirements outside of the United StatesU.S. or as collateral under captive insurance arrangements. At December 31, 2020,2023, the Company maintained $270$486 million compared to $348 million at December 31, 2022 related to these regulatory requirements.
Fixed Assets:Fixed assets are stated at cost less accumulated depreciation and amortization. Expenditures for improvements are capitalized. Upon sale or retirement of an asset, the cost and related accumulated depreciation and amortization are removed from the accounts and any gain or loss is reflected in income. Expenditures for maintenance and repairs are charged to operations as incurred.
Depreciation of buildings,Buildings, building improvements, furniture, and equipment is providedare depreciated on a straight-line basis over the estimated useful lives of these assets. Furniture and equipment isare depreciated over periods ranging from three3 to ten10 years. Leasehold improvements are amortized on a straight-line basis over the periods covered by the applicable leases or the estimated useful life of the improvement, whichever is less. Buildings are depreciated over periods ranging from thirty30 to forty40 years. The Company periodically reviews long-lived assets for impairment whenever events or changes indicate that the carrying value of assets may not be recoverable.
The components of fixed assets are as follows:
| | December 31, | December 31, | |
| (In millions of dollars) | | 2020 | | 2019 |
| (In millions) | |
| (In millions) | |
| (In millions) | | | 2023 | | 2022 |
| Furniture and equipment | Furniture and equipment | | $ | 1,326 | | | $ | 1,268 | |
| Land and buildings | Land and buildings | | 379 | | | 377 | |
| Leasehold and building improvements | Leasehold and building improvements | | 1,310 | | | 1,214 | |
| 3,015 | | | 2,859 | |
| Less-accumulated depreciation and amortization | | (2,159) | | | (2,001) | |
| | | $ | 856 | | | $ | 858 | |
| | 2,444 | |
| Less: accumulated depreciation and amortization | |
| Fixed assets, net | |
Investments: The caption "Investment (loss) income" in the consolidated statements of income comprises realized and unrealized gains and losses from investments recognized in earnings. It includes, when applicable, other than temporary declines in the value of securities, mark-to-market increases or decreases in equity investments with readily determinable fair values and equity method gains or losses on the Company's investments in private equity funds.
The Company holds investments in certain private equity funds. Investments in private equity funds are accounted for underin accordance with the equity method of accounting using a consistently applied three-month lag period adjusted for any known significant changes from the lag period to the reporting date of the Company. The underlying private equity funds follow investment company accounting, where investments within the fund are carried at fair value. Investment gains or losses for its proportionate share of the change in fair value of the funds are recorded in earnings. Investments usingaccounted for in accordance with the equity method of accounting are included in "other assets"other assets in the consolidated balance sheets.
In 2020,2023, the Company recorded annet investment lossincome of $22$5 million, compared to investment income of $22$21 million in 20192022, and investment loss of $12$61 million in 2018. The net investment loss in 2020 is primarily due to the $23 million loss from the sale of shares of AF during the second quarter of 2020. The investment gain in 2019 includes gains of $10 million related to mark-to-market changes in equity securities and gains of $12 million related to investments in private equity funds and other investments. The investment loss in 2018 includes an impairment charge of $83 million related to its investment in AF. The net investment loss in 2018 also includes gains of $54 million related to mark-to-market changes in equity securities and gains of $17 million related to investments in private equity funds and other investments.
Goodwill and Other Intangible Assets: Goodwill represents acquisition costs in excess of the fair value of net assets acquired. Goodwill is assessed at least annually for impairment. The Company performs an annual impairment test for each of its reporting units during the third quarter of each year. In accordance with applicable accounting guidance, aA company can assess qualitative factors to determine whether it is necessary to perform a goodwill impairment test. Alternatively, a company may elect to proceed directly to the quantitative goodwill impairment test. When a quantitative test is performed, fair values of the reporting units are estimated using either a market approach or a discounted cash flow model. Carrying values for the reporting units are based on balances at the prior quarter-end and include directly identified assets and liabilities as well as an allocation of those assets and liabilities not recorded at the reporting unit level. As discussed in Note 6, Goodwill and Other Intangibles, the Company elected to perform a qualitativequantitative impairment assessment during 2020. in 2023.
Other intangible assets, which primarily consist of acquired customer lists that are not deemed to have an indefinite life, are amortized over their estimated lives, typically ranging from 10 to 15 years, and assessed for impairment upon the occurrence of certain triggering events in accordance with applicable accounting literature. The Company had 0no indefinite lived identified intangible assets at December 31, 20202023 and 2019.2022.
Retirement Benefits: The Company maintains qualified and non-qualified defined benefit pension plans for its U.S. and non-U.S. eligible employees. The Company’s policy for funding its tax qualified defined benefit retirement plans is to contribute amounts at least sufficient to meet the funding requirements set forth by U.S. law and the laws of the non-U.S. jurisdictions in which the Company offers defined benefit plans. The net benefit (credit) cost of the Company’s defined benefit plans is measured on an actuarial basis using various methods and assumptions.
The Company uses actuaries from Mercer, a subsidiary of the Company, to perform valuations of its pension plans. The long-term rate of return on plan assets assumption is determined for each plan based on the facts and circumstances that exist as of the measurement date, and the specific portfolio mix of each plan's assets. The Company utilizes a model developed by the Mercer actuaries to assist in the determination of this assumption. The model takes into account several factors, including: actual and target portfolio allocation; investment, administrative and trading expenses incurred directly by the plan trust; historical portfolio performance; relevant forward-looking economic analysis; and expected returns, variances and correlations for different asset classes. These measures are used to determine probabilities using standard statistical techniques to calculate a range of expected returns on the portfolio. Generally, the Company does not adjust the rate of return assumption from year to year if, at the measurement date, it is within the range between the 25th and 75th percentile of the expected long-term annual returns. Historical long-term average asset returns of the most significant plans are also reviewed to determine whether they are consistent and reasonable compared with the rate selected. The expected return on plan assets is determined by applying the assumed long-term rate of return to the market-related value of plan assets. This market-related value recognizes investment gains or losses over a five-year period from the year in which they occur. Investment gains or losses for this purpose are the difference between the expected return calculated using the market-related value of assets and the actual return based on the market value of assets. Since the market-related value of assets recognizes gains or losses over a five-year period, the future market-related value of the assets will be impacted as previously deferred gains or losses are reflected.
The Company reviews its actuarial assumptions on an annual basis and modifies these assumptions based on current rates and trends.
The funded status of the Company's pension plans is recorded in the consolidated balance sheets and provides for a delayed recognition of actuarial gains or losses arising from changes in the projected benefit obligation due to changes in the assumed discount rates, differences between the actual and expected value of plan assets and other assumption changes. The unrecognized pension plan actuarial gains or losses and prior service costs not yet recognized in net periodic benefit (credit) cost are recognized in Accumulated Other Comprehensive Income (Loss) ("AOCI"), net of tax. These gains and losses are amortized prospectively out of AOCI over a period that approximates the remaining life expectancy of participants in plans where substantially all participants are inactive, or the average remaining service period of active participants for plans with active participants. The vast majority of unrecognized losses relate to inactive plans and are amortized over the remaining life expectancy of the participants.
The discount rate selected for each U.S. plan is based on a model bond portfolio with coupons and redemptions that closely match the expected liability cash flows from the plan. Discount rates for non-U.S. plans are based on appropriate bond indices adjusted for duration. In the United Kingdom (U.K.), the plan duration is reflected using the Mercer yield curve.
Defined Benefit Pension Plans in the U.K. and certain other countries allow participants an option for the payment of a lump sum distribution from plan assets before retirement in full satisfaction of the retirement benefits due to the participant as well as any survivor’s benefit. The Company’s policy is to treat these lump sum payments as a partial settlement of the plan liability if they exceed the total of interest plus service costs.
Refer to Note 8, Retirement Benefits, for additional information.
Leases: A lease is defined as a party obtaining the right to use an asset legally owned by another party. The Company determines if an arrangement is a lease at inception. Right-of-use ("ROU") assets and lease liabilities are recorded at the lease commencement date. Lease liabilities are recognized at the present value of the contractual fixed lease payments. The Company uses discount rates to determine the present value of future lease payments. The Company primarily uses its incremental borrowing rate adjusted to reflect a secured rate, based on the information available for leases, including the lease term and interest rate environment in the country in which the lease exists. The lease terms used to calculate the ROU asset and lease liability may include options to extend or terminate when it is reasonably certain that the Company will exercise that option. ROU assets are recognized equal to lease liabilities, adjusted for prepaid lease payments, initial direct costs and lease incentives. Operating lease expense is recognized on a straight-line basis over the lease term, while variable lease payments are expensed as incurred.
Leases are negotiated with third-parties and, in some instances, contain renewal, expansion and termination options. The Company also subleases certain office facilities to third-parties when the Company no longer utilizes the space. In addition to the base rental costs, the Company's lease agreements generally provide for rent escalations resulting from increased assessments for real estate taxes and other charges. A portion of the Company's real estate lease portfolio contains base rents subject to annual changes in the Consumer Price Index ("CPI") as well as charges for operating expenses which are reimbursable to the landlord based on actual usage. Changes to the CPI and payments for such reimbursable operating expenses are considered variable and are recognized as variable lease costs in the period in which the obligation for those payments was incurred. Approximately 98% of the Company's lease obligations are for the use of office space. All of the Company's material leases are operating leases.
As a practical expedient, the Company has elected an accounting policy not to separate non-lease components from lease components and instead account as a single lease component. The Company has also elected not to recognize ROU assets and lease liabilities for leases that, at the commencement date, are for 12 months or less. Refer to Note 12, Leases for additional information.
Capitalized Software Costs: The Company capitalizes certain costs to develop, purchase or modify software for the internal use of the Company. These costs are amortized on a straight-line basis over periods ranging from 3 to 10 years. Costs incurred during the preliminary project stage and post implementation stage are expensed as incurred. Costs incurred during the application development stage are capitalized. Costs related to updates and enhancements are only capitalized if they will result in additional functionality. Capitalized computer software costs of $481$519 million and $496$492 million, net of accumulated amortization of $1.6$2.0 billion and $1.4$1.8 billion as ofat December 31, 20202023 and 2019,2022, respectively, are included in other assets in the consolidated balance sheets.
Legal and Other Loss Contingencies: The Company and its subsidiaries are subject to a significant number of claims, lawsuits and proceedings including claims for errors and omissions ("E&O"). The preparation of financial statements in conformity with accounting principles generally accepted in the United States ("GAAP") requires thatCompany records a liability be recorded when a loss is both probable and reasonably estimable. Significantestimable which requires significant management judgment is required to apply this guidance. judgment. Legal and other contingent liabilities recorded are not discounted.
The Company utilizes case level reviews by inside and outside counsel, an internal actuarial analysis by Oliver Wyman Group, a subsidiary of the Company, and other methods to estimate potential losses, including estimated legal costs. The liability is reviewed quarterly and adjusted as developments warrant. In many cases, the Company has not recorded a liability, other than for legal fees to defend the claim, because we arethe Company is unable, at the present time, to make a determination that a loss is both probable and reasonably estimable. Given the unpredictability of E&O claims and of litigation that could flowarise from them,such claims, it is possible that an adverse outcome in a particular matter could have a material adverse effect on the Company’sCompany's businesses, results of operations, financial condition or cash flowflows in a given quarterly or annual period.
As of At December 31, 2020,2023, the Company’s liability for errors and omissionsE&O was $639$385 million, compared to $484$419 million at December 31, 2019,2022, of which $271$71 million and $149$64 million, respectively, were current liabilities and included in accounts payable and accrued liabilities in the Consolidated Balance Sheets.
consolidated balance sheets. In addition, to the extent that insurance coverage is available, significant management judgment is required to determine the amount of recoveries that are probable of collection underin accordance with the Company’s various insurance programs.
The legal and other contingent liabilities described above are not discounted.
Income Taxes: The Company's effective tax rate reflects its income, statutory tax rates and tax planning in the various jurisdictions in which it operates. Significant judgment is required in determining the annual tax provision and in evaluating uncertain tax positions and the ability to realize deferred tax assets.
The Company reports a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. The evaluation of a tax position is a two-step process. The first step involves recognition. The Company determines whether it is more likely than notmore-likely-than-not that a tax position will be sustained upon tax examination, including resolution of any related appeals or litigation, based on only the technical merits of the position. The technical merits of a tax position derive from both statutory and judicial authority (legislation and statutes, legislative intent, regulations, rulings, and case law) and
their applicability to the facts and circumstances of the tax position. If a tax position does not meet the more-likely-than-not recognition threshold, the benefit of that position is not recognized in the financial statements. The second step is measurement. A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50 percent50% likely to be realized upon ultimate resolution with a taxing authority. Uncertain tax positions are evaluated based uponon the facts and circumstances that exist at each reporting period. Subsequent changes in judgment based uponon new information may lead to changes in recognition, de-recognition, and measurement. Adjustments may result, for example, upon resolution of an issue with the taxing authorities, or expiration of a statute of limitations barring an assessment for an issue. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.
Tax law may require items be included in the Company's tax returns at different times than the items are reflected in the financial statements. As a result, the annual tax expense reflected in the consolidated statements of income is different than that reported in the income tax returns. Some of these differences are permanent, such as expenses that are not deductible in the returns, and some differences are temporary and reverse over time, such as depreciation expense. Temporary differences create deferred tax assets and liabilities. Deferred tax assets generally represent items that can be used as a tax deduction or credit in tax returns in future years for which benefit has already been recorded in the financial statements. Valuation allowances are established for deferred tax assets when it is estimated that future taxable income will be insufficient to use a deduction or credit in that jurisdiction. Deferred tax liabilities generally represent tax expense recognized in the financial statements for which payment has been deferred, or expense for which a deduction has been taken already in the tax return but the expense has not yet been recognized in the financial statements.
IntegrationRestructuring Costs: Charges associated with restructuring activities are recognized in accordance with applicable accounting guidance which includes accounting for disposal or exit activities, guidance related to impairment of ROU assets related to real estate leases, as well as other costs resulting from accelerated depreciation or amortization of leasehold improvements and Restructuring Charges: other property and equipment.
Severance and related costs are recognized based on amounts due under established severance plans or estimates of one-time benefits that will be provided. Typically, severance benefits are recognized when the
impacted colleagues are notified of their expected termination and such termination is expected to occur within the legally required notification period. These costs are included in compensation and benefits in the consolidated statements of income.
Costs for real estate consolidation are recognized based on the type of cost and the expected future use of the facility. For locations where the Company does not expect to sub-lease the property, the amortization of any right-of-useROU asset is accelerated from the decision date to the cease use date. For locations where the Company expects to sub-lease the properties subsequent to its vacating the property, the right-of-useROU asset is reviewed for potential impairment at the earlier of the cease use date or the date a sub-lease is signed. To determine the amount of impairment, the fair value of the right-of-useROU asset is determined based on the present value of the estimated net cash flows related to the property. Contractual costs outside of the right-of-useROU asset are recognized based on the net present value of expected future cash outflows for which the Company will not receive any benefit. Such amounts are reliant on estimates of future sub-lease income to be received and future contractual costs to be incurred.
These costs are included in other operating expenses in the consolidated statements of income.
Other costs related to integration and restructuring, such as moving, legal or consulting costs, are recognized as incurred. These costs are included in other operating expenses in the consolidated statements of income.
Derivative Instruments: All derivatives, whether designated in hedging relationships or not, are recorded on the consolidated balance sheetsheets at fair value. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings. The fair value of the derivative is recorded in the consolidated balance sheetsheets in other receivables or accounts payable and accrued liabilities. If the derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive income and are recognized in the consolidated statements of income statement when the hedged item affects earnings. Changes in the fair value attributable to the ineffective portion of cash flow hedges are recognized in earnings. If a derivative is not designated as an accounting hedge, such as forward contracts periodically used by the Company to limit foreign currency exchange rate exposure on net income, the change in fair value is recorded in earnings.
Concentrations of Credit Risk: Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, commissions and fees receivable and insurance recoverables. The Company maintains a policy providing for the diversification of cash and cash equivalent investments and places its investments in a large number of high quality financial institutions to limit the amount of credit risk exposure. Concentrations of credit risk with respect to receivables are generally limited due to the large number of clients and markets in which the Company does business, as well as the dispersion across many geographic areas.
Per Share Data: Basic net income per share attributable to the Company is calculated by dividing the after-tax income attributable to the Company by the weighted average number of outstanding shares of the Company’s common stock.
Diluted net income per share attributable to the Company is calculated by dividing the after-tax income attributable to the Company by the weighted average number of outstanding shares of the Company’s common stock, which have been adjusted for the dilutive effect of potentially issuable common shares.
| | | | | | | | | | | | | | | | | |
| Basic and Diluted EPS Calculation |
| (In millions, except per share figures) | 2020 | | 2019 | | 2018 |
| Net income before non-controlling interests | $ | 2,046 | | | $ | 1,773 | | | $ | 1,670 | |
| Less: Net income attributable to non-controlling interests | 30 | | | 31 | | | 20 | |
| Net income attributable to the Company | $ | 2,016 | | | $ | 1,742 | | | $ | 1,650 | |
| Basic weighted average common shares outstanding | 506 | | | 506 | | | 506 | |
| Dilutive effect of potentially issuable common shares | 6 | | | 5 | | | 5 | |
| Diluted weighted average common shares outstanding | 512 | | | 511 | | | 511 | |
| Average stock price used to calculate common stock equivalents | $ | 109.12 | | | $ | 97.23 | | | $ | 83.13 | |
| | | | | | | | | | | | | | | | | |
| Basic and Diluted EPS Calculation |
| (In millions, except per share data) | 2023 | | 2022 | | 2021 |
| Net income before non-controlling interests | $ | 3,802 | | | $ | 3,087 | | | $ | 3,174 | |
| Less: Net income attributable to non-controlling interests | 46 | | | 37 | | | 31 | |
| Net income attributable to the Company | $ | 3,756 | | | $ | 3,050 | | | $ | 3,143 | |
| Basic weighted average common shares outstanding | 494 | | | 499 | | | 507 | |
| Dilutive effect of potentially issuable common shares | 5 | | | 6 | | | 6 | |
| Diluted weighted average common shares outstanding | 499 | | | 505 | | | 513 | |
| Average stock price used to calculate common stock equivalents | $ | 182.30 | | | $ | 160.39 | | | $ | 141.57 | |
Fiduciary Assets and Liabilities: InThe Company, in its capacity as an insurance broker or agent, generally the Company collects premiums from insureds and after deducting its commissions, remits the premiums to the respective insurance underwriters. The Company also collects claims or refunds from underwriters on behalf of insureds. Unremitted insurance premiumspremiums and claims proceeds are held by the Company in a fiduciary capacity. The Company's fiduciary assets primarily include bank or short-term time deposits and liquid money market funds, classified as cash and cash equivalents. Since cash and cash equivalents held in a fiduciary capacity are not available for corporate use, they are shown separately in the consolidated balance sheets as cash and cash equivalents held in a fiduciary capacity, with a corresponding amount in current liabilities.
Risk and Insurance Services revenue includes interest on fiduciary fundsassets of $46$453 million, $105$120 million and $65$15 million in 2020, 20192023, 2022 and 2018,2021, respectively. The Consulting segment recorded fiduciary interest income of $1 million, $4 million and $3 million in 2020, 2019 and 2018, respectively. Since fiduciary assets are not available for corporate use, they are shown in the consolidated balance sheets as an offset to fiduciary liabilities.
Net uncollected premiums and claims and the related payables were $11.2$13.8 billion and $8.9$13.0 billion at December 31, 20202023 and 2019,2022, respectively. The Company is not a principal to the contracts under which the right to receive premiums or the rightright to receive reimbursement of insured losses arises. Accordingly, net uncollected premiums and claims and the related payables are not assets and liabilities of the Company and are not included in the accompanying consolidated balance sheets.
In certain instances, the Company advances premiums, refunds or claims to insurance underwriters or insureds prior to collection. These advances are made from corporate funds and are reflected in the accompanying consolidated balance sheets as receivables.
Mercer managesReclassification of Fiduciary Assets and Liabilities
In the second quarter of 2023, the Company changed the presentation of fiduciary assets and liabilities on the consolidated balance sheets. Cash and cash equivalents held in trusts or funds for which Mercer’s management or trustee fee is not considered a variable interest, since the fees are commensuratefiduciary capacity was reclassified from an offset to fiduciary liabilities to current assets, with the levelcorresponding fiduciary liabilities reclassified to current liabilities. The reclassification had no impact on the Company’s total equity at December 31, 2022. The presentation in the December 31, 2022 consolidated balance sheet was conformed to the current presentation as follows:
| | | | | | | | | | | |
| (In millions) | As Reported | | As Reclassified |
| Total current assets | $ | 8,299 | | | $ | 18,959 | |
| Total assets | $ | 33,454 | | | $ | 44,114 | |
| Total current liabilities | $ | 7,172 | | | $ | 17,832 | |
As a result of effort requiredreclassifying cash and cash equivalents held in a fiduciary capacity, total RIS and Consulting assets at December 31, 2022 and 2021, were also conformed to provide those services. Mercer is not the primary beneficiarycurrent presentation for comparative purposes. Refer to Note 17, Segment Information, for the reclassified segment balances.
Foreign Currency: The financial statements of these trusts or funds. Mercer’s maximum exposureour international subsidiaries are translated from functional currency to lossU.S. dollars using month-end exchange rates for assets and liabilities, and average monthly exchange rates during the period for revenues and expenses. Translation adjustments are recorded in AOCI within the consolidated statements of its interests is, therefore, limitedequity. Foreign exchange transaction gains and losses resulting from the conversion of the transaction currency to collectionfunctional currency are included in operating income in the consolidated statements of its fees.income.
Estimates: TheThe preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expense during the reporting period.
On an ongoing basis, the Company evaluates its estimates, judgments and methodologies. The estimates are based on historical experience and on various other assumptions that the Company believes are reasonable.
Such matters include:
•the allowance for current expected credit losses on receivables,
•estimates of revenue,revenue;
•impairment assessments and charges,charges;
•recoverability of long-lived assets,assets;
•liabilities for errors and omissions,omissions;
•deferred tax assets, uncertain tax positions and income tax expense,expense;
•share-based and incentive compensation expense,expense;
•the allowance for current expected credit losses on receivables;
•useful lives assigned to long-lived assets, and depreciation and amortization,amortization; and
•fair value estimates of contingent consideration receivable or payable related to acquisitions or dispositionsdispositions.
The Company believes these estimates are reasonable based on information currently available at the time they are made. In most situations where estimates, fair values or recoverability of assets is dependent upon short or long term projections of cash flows, revenues or earnings before interest, taxes, depreciation and amortization ("EBITDA"), the Company has based its projections assuming the gradual lifting of global lockdowns during 2021. The Company has also considered the potential impactsimpact of macroeconomic factors including from the multiple major wars, escalating conflict throughout the Middle East and rising tension in the South China Sea, slower GDP growth or recession, lower interest rates, capital markets volatility and inflation to its customer base in various industries and geographies. The ultimate extentInsurance exposures subject to variable factors are subject to mid-term and end of term adjustments, as well as policy audits, which the COVID-19 pandemic will directly or indirectly impact the Company’s businesses, results of operationsmay reduce premiums and financial condition will dependcorresponding commissions. Estimates were updated based on future developments that are highly uncertain, including new information that may emerge concerning COVID-19internal and the actions taken to contain it or treat it, and theindustry specific economic impact on local, regional, national and international customers and markets.data. Actual results may differ from these estimates.estimates.
New Accounting Pronouncements
Recently Issued Accounting Pronouncements Not Yet Adopted Effective January 1, 2021
In January 2020,November 2023, the FASBFinancial Accounting Standards Board ("FASB") issued guidance that addressesan accounting standard update on segment reporting. The new guidance: (1) introduces a requirement to disclose significant segment expenses regularly provided to the chief operating decision maker ("CODM"), (2) extends certain annual disclosures to interim periods, (3) clarifies disclosure requirements for the transition intosingle reportable segment entities, (4) permits more than one measure of segment profit or loss to be reported under certain conditions, and out(5) requires disclosure of the equity methodtitle and measuring certain purchased options and forward contract to acquire investments.position of the CODM. The standard takes effectis effective for public business entities for fiscal years, and interim periods within those fiscal years beginning after December 15, 2020. The adoption of this standard did not have a material impact on the Company’s financial position or its results of operations.
In December 2019, the FASB issued guidance related to the accounting for income taxes. The standard removes specific exceptions in the current rules and eliminates the need for an organization to analyze whether the following apply in a given period: (a) exception to the incremental approach for intraperiod tax allocation; (b) exceptions to accounting for basis differences when there are ownership changes in foreign investments and (c) exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. The standard also is designed to improve financial statement preparers’ application of income tax-related guidance and simplify GAAP for (a) franchise taxes that are partially based on income; (b) transactions with a government that result in a step-up in the tax basis of goodwill; (c) separate financial statements of legal entities that are not subject to tax and (d) enacted changes in tax laws in interim periods. The standard takes effect for public business entities for fiscal years,2023, and interim periods within those fiscal years beginning after December 15, 2020.2024. Early adoption is permitted. The adoption of this standard did not have a materialguidance applies retrospectively to all periods presented in the financial statements. The Company is currently evaluating the guidance and expects it to only impact on the Company’s financial position or itsdisclosures with no impact to results of operations.operations, cash flows, or financial condition.
In December 2023, the FASB issued an accounting standard update on income tax disclosures, primarily related to the rate reconciliation and income taxes paid information. The new guidance requires public business entities, on an annual basis, disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. In addition, all entities are required to disclose on an annual basis the amount of income taxes paid, net of refunds received, disaggregated by federal, state and foreign taxes, and by individual jurisdictions if the amount is equal to or greater than 5% of total income taxes paid, net of refunds received. The guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. An entity should apply the amendments in the standard prospectively, even though retrospective application is permitted. The Company is currently evaluating the guidance and expects it to only impact disclosures with no impact to results of operations, cash flows, or financial condition.
New Accounting PronouncementsPronouncement Adopted Effective January 1, 2020:2022:
In August 2018,October 2021, the FASB issued new guidance that amends required fair value measurement disclosures. Thefor measuring contract assets and contract liabilities acquired in a business combination. In accordance with the new guidance, adds new requirements, eliminates some current disclosurescontract assets and modifies other required disclosures. The new disclosure requirements, alongcontract liabilities should be measured in accordance with modifications made to disclosures as a result of the change in requirements for narrative descriptions of measurement uncertainty, must be applied on a prospective basis. The effects of all other amendments included in the guidance must be applied retrospectively for all periods presented. The adoption of thisrevenue from contracts with customers as opposed to the guidance impacted disclosures only and did not have an impact on the Company's financial position or results of operations.
In August 2018, the FASB issued new guidance that amends disclosures related to Defined Benefit Plans. The guidance removes disclosures that no longer are considered cost-beneficial, clarifies the specific
requirements of certain disclosures, and adds disclosure requirements identified as relevant.for business combinations. The guidance must be applied on a retrospective basis.prospective basis, and is effective for fiscal years beginning after December 15, 2022, including interim periods therein. Early adoption is permitted. The Company elected to adopt this new standard effective January 1, 2022. Adoption of this guidance impacted disclosures only and did not have an impact on the Company's financial position or results of operations.
In January 2017, the FASB issued new guidance to simplify the test for goodwill impairment. The new guidance eliminates the second step in the current two-step goodwill impairment process, under which a goodwill impairment loss is measured by comparing the implied fair value of a reporting unit's goodwill with the carrying amount of that goodwill for that reporting unit. The new guidance requires a one-step impairment test, in which the goodwill impairment charge is based on the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The guidance should be applied on a prospective basis with the nature of and reason for the change in accounting principle disclosed upon transition. The adoption of this standard did not have an impact on the Company's financial position or results of operations.
In June 2016, the FASB issued new guidance on the impairment of financial instruments. The new guidance adds an allowance for credit losses ("CECL") impairment model that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of lifetime expected credit losses, which the FASB believes will result in more timely recognition of such losses. The new standard is also intended to reduce the complexity of U.S. GAAP by decreasing the number of credit impairment models that entities use to account for debt instruments. Further, the new standard makes targeted changes to the impairment model for available-for-sale debt securities. The adoption of this standard did not have a material impact on the Company's financial position or results of operations.
New Accounting Pronouncements Effective January 1, 2019:The following new accounting standard was adopted using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of January 1, 2019:
Leases
Effective January 1, 2019, the Company adopted new guidance intended to improve financial reporting for leases. Under the new guidance, a lessee is required to recognize assets and liabilities for leases. Consistent with legacy GAAP, the recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee will depend on the classification of the lease as financing or operating. However, unlike legacy GAAP, which requires that only capital leases are recognized on the balance sheet, the new guidance requires that both operating and financing leases be recognized on the balance sheet. The Company adopted this new standard using a modified retrospective method, applying the new guidance as of the beginning of the year of adoption, with a cumulative effect of initially applying the guidance recognized as an adjustment to retained earnings at January 1, 2019. Therefore, prior period information has not been restated. The Company has elected the package of practical expedients, which among other things, allows historical lease classifications to be carried forward. The Company did not elect the hindsight practical expedient in determining lease term and impairment of an entity's Right of Use Assets ("ROU assets"). On January 1, 2019, the Company recognized a lease liability of $1.9 billion and ROU asset of $1.7 billion, related to real estate operating leases. The ROU asset also reflected reclassification adjustments primarily from other liabilities related to existing deferred rent, unamortized lease incentives and restructuring liabilities of approximately $200 million upon adoption. There was no cumulative-effect adjustment required to be booked to retained earnings upon transition. The adoption of this standard did not have a material impact on our income statement as compared to prior periods.
The following new accounting standards were adopted prospectively as of January 1, 2019:
Derivatives and Hedging
Effective January 1, 2019, the Company adopted new guidance intended to refine and expand hedge accounting for both financial and commodity risks. The guidance creates more transparency around how economic results are presented in both the financial statements and the footnotes, as well as making targeted improvements to simplify the application of hedge accounting guidance. The adoption of this standard did not have an impact on the Company's financial position or results of operations.
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
Effective January 1, 2019, the Company adopted new guidance that allowed an entity to reclassify the stranded tax effects resulting from the Tax Cuts and Job Act (the "TCJA") from accumulated other comprehensive income ("AOCI") to retained earnings. The guidance is effective for the period beginning January 1, 2019. The Company elected not to reclassify the stranded income tax effects of the TCJA from AOCI to retained earnings. The adoption of this standard had no impact on the Company's financial position or results of operations. The Company’s accounting policy related to releasing income tax effects from AOCI follows the portfolio approach.
2. Revenue
The core principle of the revenue recognition guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve thatthis principle, the entity applies the following steps: identify the contract(s) with the customer, identify the performance obligations in the contract(s), determine the transaction price, allocate the transaction price to the performance obligations in the contract and recognize revenue when (or as) the entity satisfies a performance obligation. In accordance with the accounting guidance, a performance obligation is satisfied either at a “point"point in time”time" or “over time”"over time", depending on the nature of the product or service provided, and the specific terms of the contract with customers.
Other revenue included in the consolidated statements of income that is not from contracts with customers is less than 1% of total revenue and therefore is not presentedpresented as a separate line item.
Risk and Insurance Services
Risk and Insurance Services revenue reflects compensation for brokerage and consulting services through commissions and fees. Commission rates and fees vary in amount and can depend uponon a number of factors, including the type of insurance or reinsurance coverage provided, the particular insurer or reinsurer selected, and the capacity in which the broker acts and negotiates with clients. For the majority of the insurance and reinsurance brokerage arrangements, advice and services provided which culminate in the placement of an effective policy are considered a single performance obligation. Arrangements with clients may include the placement of a single policy, multiple policies or a combination of policy placements and other services. Consideration related to such "bundled arrangements" is allocated to the individual performance obligations based on their relative fair value. Revenue for policy placement is generally recognized on the policy effective date, at which point control over the services provided by the Company has transferred to the client and the client has accepted the services. In many cases, fee compensation may be negotiated in advance, based on the type of risk, coverage required and service provided by the Company and ultimately, the extent of the risk placed into the insurance market or retained by the client. The trends and comparisons of revenue from one period to the next can be affected by changes in premium rate levels, fluctuations in client risk retention and increases or decreases in the value of risks that have been insured, as well as new and lost business, and the volume of business from new and existing clients. For such arrangements, revenue is recognized using output measures, which correspond to the progress toward completing the performance obligation. Fees for non-risk transfer services provided to clients are recognized over time in the period the services are provided, using a proportional performance model, primarily based on input measures. These measures of progress provide a faithful depiction of the progress towards completion of the performance obligation.
Revenue related to reinsurance brokerage for excess of loss ("XOL") treaties is estimated based on contractually specified minimum or deposit premiums, and adjusted as additional evidence of the ultimate amount of brokerage is received. Revenue for quota share treaties is estimated based on indications of estimated premium income provided by the ceding insurer. The estimated brokerage revenue recognized for quota share treaties is constrained to an amount that is probable to not have a significant negative adjustment. The estimated revenue and the constraint are evaluated as additional evidence of the ultimate amount of underlying risks to be covered isand are received over the 12 to 18 months following the effective date of the placement.
In addition to commissions and feescompensation from its clients, the CompanyMarsh also receives other compensation, separate from retail fees and commissions, from insurance companies. This other insurer compensation includes, among other things, payments for consulting and analytics services provided to insurers, feesinsurers; compensation for administrative and other services (including fees for underwriting services and services provided to or on behalf of insurers (including services relating to the administration and management of quota shares, panels and other facilities in which insurers participate). The Company is also eligible for certain; and contingent commissions, fromwhich are paid by insurers based on the attainmentfactors such as volume or profitability of specified metrics (i.e., volume and loss ratio measures) relating to Marsh's placements particularlyprimarily in Marsh & McLennan Agency ("MMA") and in parts of Marsh's international operations. Revenue for contingent commissions from insurers is estimated based on historical evidence of the achievement of the respective contingent metrics and recorded as the underlying policies that contribute to the achievement of the metric are placed. Due to the uncertainty of the amount of contingent consideration that will be received, the estimated revenue is constrained to an amount that is probable to not have a significant negative adjustment. Contingent consideration is generally received in the first quarter of the subsequent year.
A significant majorityportion of the Company's Risk and Insurance Services revenue is commission revenue for performance obligationsbrokerage arrangements recognized at a point in time.time on the effective date of the underlying policy. Commission revenue is estimated using historical information about the risks to be covered over the policy period, some of which are dependent on variable factors such as number of employees covered, covered payroll, airline passenger miles flown, shipped tonnage of marine cargo and others. Marsh and Guy Carpenter also receive interest income on certain funds (such as premiums and claims proceeds) held in a fiduciary capacity for others.
Insurance brokerage commissions are generally invoiced on the policy effective date. Fee based arrangements generally include a percentage of the total fee due upon signing the arrangement, with additional fixed installments payable over the remainder of the year. Payment terms range from receipt of invoice up to 30 days from invoice date.
Reinsurance brokerage revenue is recognized on the effective date of the treaty. Payment terms depend on the type of reinsurance. For XOL treaties, brokerage revenue is typically collected in 4 installments during an annual treaty period based on a contractually specified minimum or deposit premium. For proportional or quota share treaties, brokerage is billed as underlying insured risks attach to the reinsurance treaty, generally over 12 to 18 months.
Consulting
The major component of revenue in the Consulting business is fees paid by clients for advice and services. Mercer, principally through its health line of business, also receivesearns revenue in the form of commissions received from insurance companies for the placement of group (and occasionally individual) insurance contracts, primarily health, life and accident coverages. Revenue for Mercer’s investment management business and certain of Mercer’s defined benefit and contribution administration services consists principally of fees based on assets under delegated management or administration. For a majority of the Mercer-managed investment funds, revenue received from Mercer's investment management clients as sub-advisor fees is reported in accordance with U.S. GAAP, on a gross basis rather than a net basis.
Consulting projects in Mercer’s wealth and career businesses, as well asand consulting projects in Oliver Wyman Group, typically consist of a single performance obligation, which is recognized over time as control is transferred continuously to customers. Typically,Therefore, revenue is typically recognized over time using an input measure of time expended to date relative to total estimated time to be incurred at project completion. Incurred hours represent services rendered and thereby faithfully depicts the transfer of control to the customer.
On a limited number of engagements, performance fees may also be earned for achieving certain prescribed performance criteria. Revenue for achievement is estimated and constrained to an amount that is probable to not have a significant negative adjustment.
A significant majority of fee revenues in the Consulting segment is recognized over time.
For consulting projects, Mercer generally invoices monthly in arrears with payment due within 30 days of the invoice date. Fees for delegated management services are either deducted from the net asset value of the fund or invoiced to the client on a monthly or quarterly basis in arrears. Oliver Wyman Group typically bills its clients 30-6030 to 60 days in arrears with payment due upon receipt of the invoice.
Health brokerage and consulting services are components of both Marsh, which includes MMA, and Mercer, with approximately 60%57% of such revenues reported in Mercer. Health contracts typically involve a series of distinct services that are treated as a single performance obligation. Revenue for these services is recognized over time based on the amount of remuneration the Company expects to be entitled in exchange for these services. Payments for health brokerage and consulting services are typically paid monthly in arrears from carriers based on insured lives under the contract.
The following scheduletable disaggregates various components of the Company's revenue:
| | For the Years Ended December 31, |
| 2020 | | 2019 | | 2018 |
| For the Years Ended December 31, | |
| (In millions) | |
| (In millions) | |
| (In millions) | | | 2023 | | 2022 | | 2021 |
| Marsh: | Marsh: | |
| EMEA | | $ | 2,575 | | | $ | 2,482 | | | $ | 2,132 | |
| Asia Pacific | | 1,059 | | | 953 | | | 683 | |
EMEA (a) (b) (f) | |
EMEA (a) (b) (f) | |
EMEA (a) (b) (f) | |
Asia Pacific (a) | |
| Latin America | Latin America | | 424 | | | 460 | | | 400 | |
| Total International | Total International | | 4,058 | | | 3,895 | | | 3,215 | |
| U.S./Canada | U.S./Canada | | 4,537 | | | 4,119 | | | 3,662 | |
| Total Marsh | Total Marsh | | 8,595 | | | 8,014 | | | 6,877 | |
| Guy Carpenter | | 1,696 | | | 1,480 | | | 1,286 | |
Guy Carpenter (c) | |
| Subtotal | Subtotal | | 10,291 | | | 9,494 | | | 8,163 | |
| Fiduciary interest income | Fiduciary interest income | | 46 | | | 105 | | | 65 | |
| Total Risk and Insurance Services | Total Risk and Insurance Services | | $ | 10,337 | | | $ | 9,599 | | | $ | 8,228 | |
| | Mercer: | Mercer: | |
| | Wealth | | $ | 2,348 | | | $ | 2,369 | | | $ | 2,185 | |
| Health | | 1,793 | | | 1,796 | | | 1,735 | |
| Mercer: | |
| Mercer: | |
Wealth (d) | |
Wealth (d) | |
Wealth (d) | |
Health (e) | |
| Career | Career | | 787 | | | 856 | | | 812 | |
| Total Mercer | Total Mercer | | 4,928 | | | 5,021 | | | 4,732 | |
| Oliver Wyman Group | | 2,048 | | | 2,122 | | | 2,047 | |
Oliver Wyman Group (b) | |
| Total Consulting | Total Consulting | | $ | 6,976 | | | $ | 7,143 | | | $ | 6,779 | |
(b)Revenue in 2022 includes the loss on deconsolidation of the Company's Russian businesses at Marsh and Oliver Wyman Group of $27 million and $12 million, respectively.
(c)Revenue in 2023 includes a gain from a legal settlement with a competitor of $58 million, excluding legal fees.
(d)Revenue in 2023 includes the loss on sale of an individual financial advisory business in Canada of $17 million.
(e)Revenue in 2022 includes a net gain from the sale of the Mercer U.S. affinity business of $112 million.
(f)Revenue in 2021 includes a net gain on the disposition of businesses of approximately $50 million.
The following scheduletable provides contract assets and contract liabilities information from contracts with customers.customers:
| | | | | | | | | | | | | | | | | | | | |
| (In millions) | | December 31, 2020 | | December 31, 2019 | | December 31, 2018 |
| Contract assets | | $ | 236 | | | $ | 207 | | | $ | 112 | |
| Contract liabilities | | $ | 676 | | | $ | 593 | | | $ | 545 | |
| | | | | | | | | | | | | | | | | | | | |
December 31, (In millions) | | 2023 | | 2022 | | 2021 |
| Contract assets | | $ | 357 | | | $ | 335 | | | $ | 290 | |
| Contract liabilities | | $ | 869 | | | $ | 837 | | | $ | 776 | |
The Company records accounts receivable when the right to consideration is unconditional, subject only to the passage of time. Contract assets primarily relate to quota share reinsurance brokerage and contingent insurer revenue. The Company does not have the right to bill and collect revenue for quota share brokerage until the underlying policies written by the ceding insurer attach to the treaty. Estimated revenue related to achievement of volume or loss ratio metrics cannot be billed or collected until all related policy placements are completed and the contingency is resolved. The change in contract assets from January 1, 2020 to December 31, 2020 is primarily due to $311 million of additions during the period, partly offset by $284 million transferred to accounts receivables, as the rights to bill and collect became unconditional. The change in contract assets from January 1, 2019 to December 31, 2019 is primarily due to $437 million of additions during the period offset by $342 million transferred to accounts receivables.
Contract assets are included in other current assets in the Company's consolidated balance sheets. Contract liabilities primarily relate to the advance consideration received from customers. Contract liabilitiesliabilities are included in current liabilities in the Company's consolidated balance sheets. The change in contract liabilities from January 1, 2020 to December 31, 2020 includes cash received for performance obligations not yet fulfilled of $615 million offset by revenue recognized in 2020 of $527 million that was included in the contract liability balance at the beginning of the year. The Company recognized revenue of $531 million in 2019 that was included in the contract liability balance at January 1, 2019.
The Company recognizes commission revenue from arrangements for a significant portion of its brokerage arrangements at a point in time at effective dateDetails of the underlying policy. Commission revenue is estimated using historical information aboutchange in Contract Assets and Contract Liabilities for 2023 and 2022 are as follows:
| | | | | | | | | | | | | | |
| For the Years Ended December 31, | | |
| (In millions) | | 2023 | | 2022 |
| Contract Assets | | | | |
| Balance at January 1, | | $ | 335 | | | $ | 290 | |
| Additions | | 825 | | | 661 | |
Transfers to accounts receivable (a) | | (805) | | | (614) | |
| Effect of foreign exchange rate changes | | 2 | | | (2) | |
| Balance at December 31, | | $ | 357 | | | $ | 335 | |
| | | | |
| Contract Liabilities | | | | |
| Balance at January 1, | | $ | 837 | | | $ | 776 | |
| Cash received for performance obligations not yet fulfilled | | 822 | | | 726 | |
| Revenue recognized | | (799) | | | (640) | |
| Effect of foreign exchange rate changes | | 9 | | | (25) | |
| Balance at December 31, | | $ | 869 | | | $ | 837 | |
(a) Amounts transferred to accounts receivable as the risksrights to be covered over the policy period, some of which are dependent on variable factors such as number of employees covered, covered payroll, airline passenger miles flown, shipped tonnage of marine cargobill and others. For the year ended December 31, 2020, the Company recorded a revenue reduction of $42 million for estimated commission revenue accounted for on a point in time basis. The reduction primarily relates to policy inception periods from the third quarter of 2019 through the second quarter of 2020.collect became unconditional.
The amount of revenue recognized in 20202023, 2022 and 20192021 from performance obligations satisfied in previous periods, mainly due to variable consideration from contracts with insurers, quota share business and consulting contracts previously considered constrained was $97$71 million, $83 million, and $79$84 million, respectively.
The Company applies the practical expedient and therefore does not disclose the value of unsatisfied performance obligations for (1) contracts with original contract terms of one year or less and (2) contracts where the Company has the right to invoice for services performed. The revenue expected to be recognized in future periods during the non-cancellable term of existing contracts greater than one year that is related to performance obligations that are unsatisfied or partially satisfied at the end of the reporting period is approximately $38 million for Marsh, $184 million for Mercer and $6 million for Oliver Wyman Group. The Company expects revenue in 2021, 2022, 2023, 2024 and 2025 and beyond of $135 million, $64 million, $22 million, $6 million and $1 million, respectively, related to these performance obligations.performed.
Costs to Obtain and Fulfill a Contract
The Company capitalizes the incremental costs to obtain contracts primarily related to commissions or sales bonus payments in both segments. These deferred costs are amortized over the expected life of the underlying customer relationships.
In Risk and Insurance Services, the Company capitalizes certain pre-placement costs that are considered fulfillment costs that meet the following criteria: these costs (1) relate directly to a contract, (2) enhance resources used to satisfy the Company’s performance obligation and (3) are expected to be recovered through revenue generated by the contract. These costs are amortized at a point in time when the associated revenue is recognized.
In Consulting, the Company incurs implementation costs necessary to facilitate the delivery of the contracted services. These costs are capitalized and amortized over the initial contract term plus expected renewal periods.
At December 31, 2020,2023, the Company’s capitalized assets related to deferred implementation costs, costs to obtain and costs to fulfill were $29$10 million, $253$362 million and $296$370 million, respectively. At December 31, 2019,2022, the Company's capitalized assets related to deferred implementation costs, costs to obtain and costs to fulfill were $30$19 million, $222$328 million and $262$320 million, respectively. Costs to obtain and deferred implementation costs are primarily included in other assets and costs to fulfill are primarily included in other current assets in the Company's consolidated balance sheets. The Company recorded amortization of compensation and benefits expense of $1.3$1.8 billion, $1.6 billion and $1.2$1.5 billion for the years ended December 31, 20202023, 2022 and 2019,2021, respectively, related to the amortization of these capitalized costs.assets.
A significant portion of deferred costs to fulfill in Risk and Insurance Services is amortized within three3 to six6 months. Therefore, the deferral of the cost and its amortization often occur in the same annual period.
The Company has elected to use the practical expedient and recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets is one year or less.
3. Supplemental Disclosures to the Consolidated Statements of Cash Flows
The following scheduletable provides additional information concerning acquisitions, interest and income taxes paid:
| | (In millions of dollars) | 2020 | | 2019 | | 2018 |
| Assets acquired, excluding cash | $ | 929 | | | $ | 8,655 | | | $ | 1,100 | |
| | For the Years Ended December 31, | | For the Years Ended December 31, |
| (In millions) | | (In millions) | | 2023 | | 2022 | | 2021 |
| Assets acquired, excluding cash, and cash and cash equivalents held in a fiduciary capacity | |
| Acquisition-related deposit | |
| Fiduciary liabilities assumed | |
| Liabilities assumed | Liabilities assumed | (78) | | | (2,804) | | | (83) | |
| Non-controlling interests assumed | Non-controlling interests assumed | 0 | | | (280) | | | 0 | |
| | Contingent and deferred purchase consideration | (183) | | | (66) | | | (133) | |
| Fair value of previously-held equity method investment | |
| Contingent/deferred purchase consideration | |
| | Net cash outflow for acquisitions | Net cash outflow for acquisitions | $ | 668 | | | $ | 5,505 | | | $ | 884 | |
| | Net cash outflow for acquisitions | |
| | Net cash outflow for acquisitions | |
| | (In millions of dollars) | 2020 | | 2019 | | 2018 |
| (In millions) | | (In millions) | | 2023 | | 2022 | | 2021 |
| Interest paid | Interest paid | $ | 481 | | | $ | 427 | | | $ | 264 | |
| Income taxes paid, net of refunds | Income taxes paid, net of refunds | $ | 673 | | | $ | 661 | | | $ | 632 | |
The classification of contingent consideration payments in the consolidated statementstatements of cash flows is dependent upon whether the receipt or payment was part of the initial liability established on the acquisition date (financing) or an adjustment to the acquisition date liability (operating).
The following amounts are included in the consolidated statements of cash flows as aoperating and financing activity. The Company paid deferred and contingent consideration of $122 million in the year ended December 31, 2020, consisting of deferred purchase consideration of $68 million and contingent purchase consideration of $54 million. In the year ended December 31, 2019, the Company paid deferred and contingent consideration of $65 million, consisting of deferred purchase consideration of $43 million and contingent consideration of $22 million, and in the year ended December 31, 2018 the Company paid deferred and contingent consideration of $117 million, consisting of deferred purchase consideration of $62 million and contingent consideration of $55 million.activities:
The following amounts are included in the operating section of the consolidated statements of cash flows. For the year ended December 31, 2020, the Company recorded a net charge for adjustments to acquisition related accounts of $26 million and contingent consideration payments of $48 million. For the year ended December 31, 2019, the Company recorded a net charge for adjustments to acquisition related accounts of $68 million and contingent consideration payments of $41 million, and for the year ended December 31, 2018 the Company recorded a net charge for adjustments to acquisition related accounts of $32 million and contingent consideration payments of $36 million. | | | | | | | | | | | | | | | | | | | | |
| For the Years Ended December 31, |
| (In millions) | | 2023 | | 2022 | | 2021 |
| Operating: | | | | | | |
| Contingent consideration payments for prior year acquisitions | | $ | (41) | | | $ | (38) | | | $ | (49) | |
| Receipt of contingent consideration for dispositions | | 1 | | | — | | | 19 | |
| Acquisition/disposition related net charges for adjustments | | 29 | | | 49 | | | 57 | |
| | | | | | |
| | | | | | |
| Adjustments and payments related to contingent consideration | | $ | (11) | | | $ | 11 | | | $ | 27 | |
| Financing: | | | | | | |
| Contingent consideration for prior year acquisitions | | $ | (135) | | | $ | (32) | | | $ | (28) | |
| Deferred consideration related to prior year acquisitions | | (67) | | | (126) | | | (89) | |
| Payments of deferred and contingent consideration for acquisitions | | $ | (202) | | | $ | (158) | | | $ | (117) | |
| | | | | | |
| Receipts of contingent consideration for dispositions | | $ | 2 | | | $ | 3 | | | $ | 71 | |
The Company had non-cash issuances of common stock under its share-based payment plan of $219$310 million $165, $372 million and $130$228 million for the years ended December 31, 2020, 2019in 2023, 2022 and 2018,2021, respectively.
The Company recorded share-based compensation expense related to restricted stock units, performance stock units and stock options of $290$363 million $252, $367 million and $193$348 million for the years ended December 31, 2020, 2019in 2023, 2022 and 2018,2021, respectively.
On January 1, 2019, the Company adopted the new accounting guidance related to leases, which requires a lessee to recognize assets and liabilities for its leases. Upon adoption of this accounting standard, the Company recorded a non-cash ROU asset of $1.7 billion and lease liability of $1.9 billion in the first quarter of 2019.
Allowance for Credit Losses on Accounts Receivable
On January 1, 2020, the Company adopted the new guidance on the impairment of financial instruments. The Company’s policy for providing an allowance for credit losses on its accounts receivable is based on a combination of factors, including historical write-offs, aging of balances, and other qualitative and quantitative analyses.
An analysis of the allowance for credit losses for the year ended December 31, 2020 is provided below. Prior periods analysis is based onbelow:
| | | | | | | | | | | | | | | | | | | | |
| For the Years Ended December 31, |
| (In millions) | | 2023 | | 2022 | | 2021 |
| Balance at January 1, | | $ | 160 | | | $ | 166 | | | $ | 142 | |
| Provision charged to operations | | 17 | | | 17 | | | 46 | |
| Accounts written-off, net of recoveries | | (20) | | | (17) | | | (16) | |
| Effect of exchange rate changes and other | | (6) | | | (6) | | | (6) | |
| Balance at December 31, | | $ | 151 | | | $ | 160 | | | $ | 166 | |
Other
In October 2023, the Company's allowanceCompany recorded a gain from a legal settlement with a competitor for doubtful accounts model prior$58 million, excluding legal fees of approximately $10 million. In 2022, the Company had incurred $30 million in settlement charges and legal costs related to adoption of the new accounting guidance discussed above:
| | | | | | | | | | | | | | | | | |
| For the Years Ended December 31, |
| (In millions of dollars) | 2020 | | 2019 | | 2018 |
| Balance at beginning of year | $ | 140 | | | $ | 112 | | | $ | 110 | |
| Provision charged to operations | 47 | | | 32 | | | 34 | |
| Accounts written-off, net of recoveries | (30) | | | (16) | | | (24) | |
| Effect of exchange rate changes and other | (15) | | | 12 | | | (8) | |
| Balance at end of year | $ | 142 | | | $ | 140 | | | $ | 112 | |
strategic recruiting.
4. Accumulated Other Comprehensive (Loss) Income (Loss)
The changes, net of tax, in the balances of each component of Accumulated Other Comprehensive Income ("AOCI")AOCI for the years ended December 31, 20202023 and 2019,2022, including amounts reclassified out of AOCI, are as follows:
| | | | | | | | | | | | | | | | | | | |
| (In millions of dollars) | | | Pension and Post-Retirement Plans Losses | | Foreign Currency Translation Adjustments | | Total |
| Balance as of January 1, 2020 | | | $ | (3,512) | | | $ | (1,543) | | | $ | (5,055) | |
| | | | | | | |
| Other comprehensive (loss) gain before reclassifications | | | (739) | | | 559 | | | (180) | |
| Amounts reclassified from accumulated other comprehensive income (loss) | | | 125 | | | 0 | | | 125 | |
| Net current period other comprehensive (loss) gain | | | (614) | | | 559 | | | (55) | |
| Balance as of December 31, 2020 | | | $ | (4,126) | | | $ | (984) | | | $ | (5,110) | |
| | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | | | | Pension/Post-Retirement Plans Gains (Losses) | | Foreign Currency Translation Adjustments | | Total |
| Balance at January 1, 2023 | | | | $ | (2,721) | | | $ | (2,593) | | | $ | (5,314) | |
| | | | | | | | |
| Other comprehensive (loss) income before reclassifications | | | | (394) | | | 399 | | | 5 | |
| Amounts reclassified from accumulated other comprehensive income | | | | 14 | | | — | | | 14 | |
| Net current period other comprehensive (loss) income | | | | (380) | | | 399 | | | 19 | |
| Balance at December 31, 2023 | | | | $ | (3,101) | | | $ | (2,194) | | | $ | (5,295) | |
| | | | | | | | | | | | | | | | | | | |
| (In millions of dollars) | | | Pension and Post-Retirement Plans Losses | | Foreign Currency Translation Adjustments | | Total |
| Balance as of January 1, 2019 | | | $ | (2,953) | | | $ | (1,694) | | | $ | (4,647) | |
| | | | | | | |
| Other comprehensive (loss) gain before reclassifications | | | (643) | | | 151 | | | (492) | |
| Amounts reclassified from accumulated other comprehensive income (loss) | | | 84 | | | 0 | | | 84 | |
| Net current period other comprehensive (loss) gain | | | (559) | | | 151 | | | (408) | |
| Balance as of December 31, 2019 | | | $ | (3,512) | | | $ | (1,543) | | | $ | (5,055) | |
| | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | | | | Pension/Post-Retirement Plans Gains (Losses) | | Foreign Currency Translation Adjustments | | Total |
| Balance at January 1, 2022 | | | | $ | (3,202) | | | $ | (1,373) | | | $ | (4,575) | |
| | | | | | | | |
| Other comprehensive income (loss) before reclassifications | | | | 371 | | | (1,220) | | | (849) | |
| Amounts reclassified from accumulated other comprehensive income | | | | 110 | | | — | | | 110 | |
| Net current period other comprehensive income (loss) | | | | 481 | | | (1,220) | | | (739) | |
| Balance at December 31, 2022 | | | | $ | (2,721) | | | $ | (2,593) | | | $ | (5,314) | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
The components of other comprehensive (loss) income for the years ended December 31, 2023, 2022 and 2021 are as follows:
| | | | | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, | | 2023 |
| | |
| (In millions) | | Pre-Tax | | Tax
(Credit) | | Net
of Tax |
| Foreign currency translation adjustments | | $ | 389 | | | $ | (10) | | | $ | 399 | |
| | | | | | |
| Pension/post-retirement plans: | | | | | | |
| Amortization of (gains) losses included in net benefit (credit) cost: | | | | | | |
Prior service credits (a) | | (2) | | | — | | | (2) | |
Net actuarial losses (a) | | 20 | | | 5 | | | 15 | |
| | | | | | |
Effect of settlement (a) | | 2 | | | 1 | | | 1 | |
| | | | | | |
| | | | | | |
| Subtotal | | 20 | | | 6 | | | 14 | |
| Net losses arising during period | | (349) | | | (85) | | | (264) | |
| Foreign currency translation adjustments | | (167) | | | (42) | | | (125) | |
| Other adjustments | | (7) | | | (2) | | | (5) | |
| Pension/post-retirement plans loss | | (503) | | | (123) | | | (380) | |
| Other comprehensive (loss) income | | $ | (114) | | | $ | (133) | | | $ | 19 | |
(a) Included in other net benefit credits in the consolidated statements of income. Income tax expense on net actuarial losses are included in income tax expense.
The components | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, | | 2022 |
| (In millions) | | Pre-Tax | | Tax
(Credit) | | Net
of Tax |
| Foreign currency translation adjustments | | $ | (1,198) | | | $ | 22 | | | $ | (1,220) | |
| | | | | | |
| Pension/post-retirement plans: | | | | | | |
| Amortization of (gains) losses included in net benefit (credit) cost: | | | | | | |
Prior service credits (a) | | (2) | | | — | | | (2) | |
Net actuarial losses (a) | | 150 | | | 38 | | | 112 | |
| | | | | | |
| | | | | | |
Effect of settlement (a) | | 2 | | | — | | | 2 | |
| Subtotal | | 150 | | | 38 | | | 112 | |
| | | | | | |
| Net gains arising during period | | 203 | | | 51 | | | 152 | |
| Foreign currency translation adjustments | | 285 | | | 71 | | | 214 | |
| Other adjustments | | 3 | | | — | | | 3 | |
| Pension/post-retirement plans gains | | 641 | | | 160 | | | 481 | |
| Other comprehensive (loss) income | | $ | (557) | | | $ | 182 | | | $ | (739) | |
(a) Included in other net benefit credits in the consolidated statements of income. Income tax expense on net actuarial losses are included in income tax expense.
| | | | | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, | | 2021 |
| | |
| (In millions) | | Pre-Tax | | Tax
(Credit) | | Net
of Tax |
| Foreign currency translation adjustments | | $ | (389) | | | $ | — | | | $ | (389) | |
| | | | | | |
| Pension/post-retirement plans: | | | | | | |
| Amortization of (gains) losses included in net benefit (credit) cost: | | | | | | |
Prior service credits (a) | | (2) | | | — | | | (2) | |
Net actuarial losses (a) | | 208 | | | 52 | | | 156 | |
| | | | | | |
Effect of curtailment (a) | | 2 | | | 1 | | | 1 | |
Effect of settlement (a) | | 5 | | | 1 | | | 4 | |
| | | | | | |
| Subtotal | | 213 | | | 54 | | | 159 | |
| Net gains arising during period | | 1,003 | | | 249 | | | 754 | |
| Foreign currency translation adjustments | | 19 | | | 4 | | | 15 | |
| Other adjustments | | (6) | | | (2) | | | (4) | |
| Pension/post-retirement plans gains | | 1,229 | | | 305 | | | 924 | |
| Other comprehensive income | | $ | 840 | | | $ | 305 | | | $ | 535 | |
(a) Included in other comprehensivenet benefit credits in the consolidated statements of income. Income tax expense on net actuarial losses are included in income (loss) for the years ended December 31, 2020, 2019 and 2018 are as follows:
| | | | | | | | | | | |
| For the Year Ended December 31, | 2020 |
| |
| (In millions of dollars) | Pre-Tax | Tax (Credit) | Net of Tax |
| Foreign currency translation adjustments | $ | 559 | | $ | 0 | | $ | 559 | |
| | | |
| Pension/post-retirement plans: | | | |
| Amortization of (gains) losses included in net periodic pension cost: | | | |
| Prior service credits (a) | (2) | | (1) | | (1) | |
| Net actuarial losses (a) | 161 | | 37 | | 124 | |
| | | |
| Effect of settlement (a) | 3 | | 1 | | 2 | |
| | | |
| | | |
| Subtotal | 162 | | 37 | | 125 | |
| Net losses arising during period | (772) | | (177) | | (595) | |
| Foreign currency translation adjustments | (163) | | (28) | | (135) | |
| Other adjustments | (11) | | (2) | | (9) | |
| Pension/post-retirement plans losses | (784) | | (170) | | (614) | |
| Other comprehensive loss | $ | (225) | | $ | (170) | | $ | (55) | |
| (a) Components of net periodic pension cost are included in other net benefit credits in the consolidated statements of income. Income tax expense on net actuarial losses are included in income tax expense. |
| | | | | | | | | | | |
| For the Year Ended December 31, | 2019 |
| (In millions of dollars) | Pre-Tax | Tax (Credit) | Net of Tax |
| Foreign currency translation adjustments | $ | 148 | | $ | (3) | | $ | 151 | |
| | | |
| Pension/post-retirement plans: | | | |
| Amortization of (gains) losses included in net periodic pension cost: | | | |
| Prior service credits (a) | (2) | | (1) | | (1) | |
| Net actuarial losses (a) | 102 | | 22 | | 80 | |
| | | |
| | | |
| Effect of settlement (a) | 6 | | 1 | | 5 | |
| Subtotal | 106 | | 22 | | 84 | |
| | | |
| Net losses arising during period | (758) | | (154) | | (604) | |
| Foreign currency translation adjustments | (50) | | (11) | | (39) | |
| | | |
| Pension/post-retirement plans losses | (702) | | (143) | | (559) | |
| Other comprehensive loss | $ | (554) | | $ | (146) | | $ | (408) | |
| (a) Components of net periodic pension cost are included in other net benefit credits in the consolidated statements of income. Income tax expense on net actuarial losses are included in income tax expense. |
| | | | | | | | | | | |
| For the Year Ended December 31, | 2018 |
| |
| (In millions of dollars) | Pre-Tax | Tax (Credit) | Net of Tax |
| Foreign currency translation adjustments | $ | (529) | | $ | 0 | | $ | (529) | |
| | | |
| Pension/post-retirement plans: | | | |
| Amortization of (gains) losses included in net periodic pension cost: | | | |
| Prior service credits (a) | (4) | | (1) | | (3) | |
| Net actuarial losses (a) | 145 | | 32 | | 113 | |
| | | |
| | | |
| Effect of settlement (a) | 42 | | 8 | | 34 | |
| | | |
| Subtotal | 183 | | 39 | | 144 | |
| Net gains arising during period | (374) | | (88) | | (286) | |
| Foreign currency translation adjustments | 141 | | 25 | | 116 | |
| Other adjustments | (41) | | (6) | | (35) | |
| Pension/post-retirement plans losses | (91) | | (30) | | (61) | |
| Other comprehensive loss | $ | (620) | | $ | (30) | | $ | (590) | |
(a) Components of net periodic pension cost are included in other net benefit credits in the consolidated statements of income. Income tax expense on net actuarial losses are included in income tax expense.
|
The components of accumulated other comprehensive income (loss)loss are as follows:
| | | | | | | | | | | |
| (In millions of dollars) | December 31, 2020 | | December 31, 2019 |
| Foreign currency translation adjustments (net of deferred tax asset of $11 in 2020 and $14 in 2019, respectively) | $ | (984) | | | $ | (1,543) | |
| | | |
| Net charges related to pension/post-retirement plans (net of deferred tax asset of $1,805 and $1,635 in 2020 and 2019, respectively) | (4,126) | | | (3,512) | |
| | $ | (5,110) | | | $ | (5,055) | |
| | | | | | | | | | | | | | |
| (In millions) | | December 31, 2023 | | December 31, 2022 |
| Foreign currency translation adjustments (net of deferred tax asset of $2 in 2023 and deferred tax liability of $8 in 2022, respectively) | | $ | (2,194) | | | $ | (2,593) | |
| | | | |
| Net charges related to pension/post-retirement plans (net of deferred tax asset of $1,463 and $1,340 in 2023 and 2022, respectively) | | (3,101) | | | (2,721) | |
| Total | | $ | (5,295) | | | $ | (5,314) | |
5. Acquisitions and Dispositions
The Company’s acquisitions have been accounted for as business combinations. Net assets and results of operations are included in the Company’s consolidated financial statements commencing at the respective purchase closing dates. In connection with acquisitions, the Company records the estimated values of the net tangible assets and the identifiable intangible assets purchased, which typically consist of customer relationships, developed technology, trademarks and non-compete agreements. The valuation of purchased intangible assets involves significant estimates and assumptions. The Company estimates the fair value of purchased intangible assets, primarily using the income approach, by determining the present value of future cash flows over the remaining economic life of the respective assets. The significant estimates and assumptions used in this approach include the determination of the discount rate, economic life, future revenue growth rates, expected account attrition rates and earnings margins. Refinement and completion of final valuation of net assets acquired could affect the carrying value of tangible assets, goodwill and identifiable intangible assets.
The Risk and Insurance Services segment completed 7 acquisitions during 2020.9 acquisitions in 2023:
•JanuaryMay – Marsh acquired Austral Insurance Brokers Pty Ltd, an Australia-based insurance broker that provides risk advice services and business insurance solutions in the labor hire, mining services, transport, manufacturing, agribusiness, retail and professional services sectors.
•June – Guy Carpenter acquired Re Solutions, an Israel-based reinsurance broker with actuarial and analytics capabilities and solutions, including an extensive facultative reinsurance offering, and Marsh & McLennan Agency ("MMA") acquired Momentous Insurance BrokerageSOLV Risk Solutions, LLC, a Texas-based risk management advisory services firm.
•July – MMA acquired Integrity HR, Inc., a California-based full-serviceKentucky-based human resources consulting firm and Trideo Systems, an Illinois-based risk management information systems provider for health care organizations; and Marsh acquired Asprose Corredora de Seguros, a Costa Rica-based insurance broker that provides insurance brokerage and risk advisory services to commercial organizations.
•August – MMA acquired Graham Company, a Pennsylvania-based risk management consultancy and insurance and employee benefits firmbroker, specializing in high net worth private clientconstruction, real estate, manufacturing and distribution, health and human services and professional services.
•September – MMA acquired Blue Water Insurance LLC, a Kentucky-based employee health and benefits insurance solutions forbroker.
•November - Marsh acquired HIG Australia Holdco Pty Ltd ("Honan Insurance Group"), an Australia-based insurance broker in the entertainment industry, and Ironwood Insurance Services, LLC, an Atlanta-based broker that provides commercial property/casualty insurance,areas of corporate risk, employee benefits, and private clientstrata and real estate insurance.
The Consulting segment completed 5 acquisitions in 2023:
•March – Mercer acquired Leapgen LLC, a Minnesota-based human resources consulting technology advisory firm focused on digital strategy and transformation, workforce solutions, to mid-size businesses and individuals across the U.S.improving employee experience.
•April – MMAMercer acquired Assurance Holdings,Westpac Banking Corporation’s ("Westpac") financial advisory business, Advance Asset Management, and completed the transfer from Westpac of BT Financial Group's personal and corporate pension funds to the Mercer Super Trust managed by Mercer Australia (referred to collectively, as the "Westpac Transaction"). Oliver Wyman Group acquired the business of Gorman Actuarial, Inc., an Illinois-based full service brokerage providing business insurance, employee benefits, private client insurance,a Massachusetts-based life and retirement services to businesses and individuals across the U.S.health actuarial consultant business.
•JuneJuly – MMAOliver Wyman Group acquired Nico Insurance Services,the actuarial consulting business of ISC Strategies Consulting, Inc., a California-based agency providing employee benefits solutions to groupsFlorida-based life insurance and individuals.actuarial consulting firm.
•DecemberOctober – MMAMercer acquired Heritage Insurance Services, Inc., a Kentucky-based full service brokerBT Financial Group's Private Portfolio Management, an Australia-based wealth management business that provides commercial propertyinvestment solutions to not-for-profit organizations, high-net worth clients and casualty and personal lines primarily in the trucking and transportation industry, Inspro Insurance, Inc., a Nebraska-based full service broker that provides commercial property and casualty insurance, personal lines and employee benefits services, and Compass Financial Partners, LLC, a North Carolina-based retirement consulting and investment advisory firm.their financial advisers.
Total purchase consideration for acquisitions made during 20202023 was approximately $877 million,$1.2 billion, which consisted of cash paid of $694 million$1.1 billion, and deferred purchase and estimated contingent purchase consideration of $183$41 million. Contingent consideration arrangements are generally based primarily on earnings before interest, tax, depreciation and amortization ("EBITDA") or revenue targets over a period of two2 to four4 years. During 2020,The fair value of the contingent consideration was based on projected revenue and earnings of the acquired entities.
In 2023, the Company also paid $68$67 million of deferred purchase consideration and $102$176 million of contingent purchase consideration related to acquisitions made in prior years. Estimated fair values of assets acquired and liabilities assumed are subject to adjustment whenuntil purchase accounting is finalized.
The following table presents the preliminary allocation of purchase consideration to the assets acquired and liabilities assumed during 2020in 2023, based on the estimated fair values for the acquisitions as of their respective acquisition dates:
dates. Amounts in the table primarily reflect the impact of Honan Insurance Group, Graham Company and the Westpac Transaction. | | | | | | | | |
Acquisitions for the Year-EndedYear Ended December 31, 20202023 | | |
| (In millions) | | |
| Cash | | $ | 6941,140 | |
| Estimated fair value of deferred/contingent consideration | | 18341 | |
| | |
| Total consideration | | $ | 8771,181 | |
| Allocation of purchase price: | | |
| Cash and cash equivalents | | $ | 2648 | |
Accounts receivable, netCash and cash equivalents held in a fiduciary capacity | | 2993 | |
| Net receivables | | 46 | |
| Other current assets | | 9 | |
| Goodwill | | 813 | |
| Other intangible assets | | 427 | |
| Fixed assets, net | | 163 | |
| | |
Other intangibleRight of use assets | | 27817 | |
| Goodwill | 593 |
| |
| |
| |
Other assets | 13 | |
| Total assets acquired | | 9551,456 | |
| Current liabilities | | 2568 | |
| Fiduciary liabilities | | 93 | |
| | |
| | |
| | |
| | |
| | |
| Other liabilities | | 53114 | |
| Total liabilities assumed | | 78275 | |
| | |
| Net assets acquired | | $ | 8771,181 | |
The purchase price allocation abovefor assets acquired and liabilities assumed is based on estimates that are preliminary in nature and subject to adjustments, which could be material. Any necessary adjustments must be finalized during the measurement period, which for a particular asset, liability, or non-controlling instrumentinterest ends once the acquirer determines that either (1) the necessary information has been obtained or (2) the information is not available. However, the measurement period for all items is limited to one year from the acquisition date.
Items subject to change include:
•Amountsamounts of intangible assets, fixed assets, capitalized software assets and right-of-use assets, subject to finalization of valuation efforts;
•Amountsamounts for contingencies, pending the finalization of the Company’s assessment of the portfolio of contingencies;
•Amountsamounts for deferred tax assets and liabilities pending the finalization of valuations of the assets acquired, liabilities assumed and associated goodwill discussed below; and
•Amountsamounts for income tax assets, receivables and liabilities, pending the filing of the acquired companies' pre-acquisition income tax returns and receipt of information from taxing authorities which may change certain estimates and assumptions used.
The estimation of fair value requires numerous judgments, assumptions and estimates about future events and uncertainties, which could materially impact these values, and the related amortization, where applicable, in the Company’s results of operations.
The following charttable provides information about other intangible assets acquired during 2020:in 2023:
| | | | | | | | | | | | | | |
IntangibleOther intangible assets through December 31, 20202023
(In millions) | | Amount | | Weighted Average Amortization Period |
| Customer relationships | | $ | 255407 | | | 13.712.8 years |
| Other | | 2320 | | | 4.34.0 years |
| Total other intangible assets | | $ | 278427 | | | |
The consolidated statements of income include the results of operations of acquired companies since their respective acquisition dates. The consolidated statement of income for 20202023 includes approximately $169$152 million of revenue and $24 million of operating income of $11 million related to acquisitions made during 2020.in 2023. The consolidated statement of income for 20192022 includes approximately $1.2 billion$58 million of revenue and $40$5 million of operating loss related to acquisitions made during 2019,in 2022, and the consolidated statement of income for 20182021 includes approximately $120$114 million of revenue and $2$3 million of operating income related to acquisitions made during 2018.in 2021.
In 2020, the Company incurred acquisition-related2023 and 2022, acquisition and integration related costs of $3were $45 million primarily related to legal fees. In 2019, the Company incurred acquisition-related costs, primarily related to legal, investment banking and U.K. stamp duty tax of $125$29 million, primarilyrespectively. These included $39 million and $21 million in 2023 and 2022, respectively, related to the acquisition of JLT. Acquisition-related costs incurred in 2018 were $7 million. TheseWestpac Transaction, primarily for technology, consulting, legal and people related costs. Acquisition and integrations costs are included in other operating expenses in the Company's consolidated statementstatements of income.
Dispositions
During 2020,On January 1, 2024, the Company sold certainits Mercer U.S. health and benefits and U.K pension administration businesses for approximately $110 million. The Company expects the gain on sale not to be material. The Company reclassified $70 million of related net assets as assets held for sale, primarily in the U.S., U.K.goodwill and Canada for cash proceeds of approximately $98 million.
At December 31, 2019, the Company owned approximately 443 million shares of the common stock of Alexander Forbes ("AF"), a South African company listed on the Johannesburg Stock Exchange, which was accounted for under the equity method of accounting. In February 2020, the Company sold approximately 49 million shares of the common stock of AF, and in May 2020, sold an additional 193 million sharesintangible assets, to third parties, leaving the Company with an investment of approximately 201 million shares of the common stock of AFother current assets at December 31, 2020. Upon completion2023.
In January 2023, the Company entered into an agreement for the sale of an individual financial advisory business in Canada which was completed in May 2023. As a result, the Company recorded a loss of $17 million in 2023, primarily related to the write-down of the May transaction, the investmentcustomer relationship intangible assets. The loss is included in AF is accounted at fair value, with unrealized gains and losses recorded as investment (loss) incomerevenue in the consolidated statementstatements of income.
In connection with the disposition of the Mercer U.S. affinity business in 2022, the Company transferred to the buyer an additional $24 million of cash and cash equivalents held in a fiduciary capacity in 2023.
Prior year acquisitions
On April 1, 2019, the Company completed the JLT Transaction and purchased all of the outstanding shares of JLT. Under the terms of the Transaction, JLT shareholders received £19.15 in cash for each JLT share, which valued JLT’s existing issued and to be issued share capital at approximately £4.3 billion (or approximately $5.6 billion based on an exchange rate of U.S. $1.31:£1). The Company also assumed existing JLT long-term indebtedness of approximately $1 billion. The Company implemented the Transaction by way of a scheme of arrangement under Part 26 of the United Kingdom Companies Act 2006, as amended.
The Transaction strengthened MMC’s leadership position in insurance and reinsurance broking and health and retirement. The addition of over 10,000 colleagues provided deeper industry expertise in almost every part of the Company. The Transaction also builds on MMC’s efforts to expand in faster-growing geographies and market segments, and facilitates investment in data and analytics.
During 2019, the Risk and Insurance Services segment completed 5 other acquisitions.completed 16 acquisitions in 2022:
•FebruaryJanuary – MMA acquired BouchardHeil & Kay Insurance Agency Inc., a Florida-based full service agencyan Illinois-based full-service broker providing business insurance, employee health benefits services and Employee Benefits Group, Inc., a Maryland-based independent insurance agency.personal lines insurance.
•April – Marsh acquired the business of Regional Treaty Services Corporation, a Rhode Island-based managing general underwriter, which manages reinsurance facilities for small to midsize U.S.-based insurers primarily writing personal lines, small agriculture, and main street commercial business.
•June – MMA acquired Lovitt & Touche,Clark Insurance, a Maine-based full-service broker providing business insurance, employee health and benefits and private client services to businesses and individuals across the region.
•July – MMA acquired CS Insurance Strategies, Inc., an Arizona-basedIllinois-based full-service broker providing employee health and benefits, business insurance, agency and The Centurion Group,risk management consulting services to organizations of all sizes across the U.S. and Suchanek Partners LLC, an Ohio-based employee benefits insurance broker.
•August – Marsh acquired Best Insurance Co. Ltd, a Pennsylvania-based retirement consulting, asset managementJapan-based insurance broker that provides affinity type schemes, general and personal lines insurance.
•September – MMA acquired Steinberg & Associates, Inc., a South Carolina-based insurance broker that primarily offers employee health benefit plan advisory firm.services to group clients and Leykell, Inc., a Texas-based full-service broker that provides specialty insurance focused on trade credit.
•October – MMA acquired Benefits ReportsGalbraith Group, a Texas-based employee health and benefits insurance broker.
•November – MMA acquired Focus Insurance and Financial Services, a Texas-based personal insurance broker and Bradley Insurance Agency, a commercial insurance broker in Knoxville, Tennessee, with
expertise serving the hospitality and construction industries. Marsh increased its ownership interest in Beassur SARL, a Morocco-based multi-line insurance broker, from 35% to 70%.
•December – MMA acquired McDonald-Zaring Insurance, Inc., a Washington-based full-service broker focused on agribusiness, wineries, crops and contractors, Chartwell Insurance Brokers, Inc., a Massachusetts-based independentfull-service broker that specializes in commercial Property & Casualty insurance agency.in the technology, financial services and non-profit space, and HMS Insurance Associates, Inc., a Maryland-based full-service broker providing commercial, surety, employee benefits, and personal lines insurance. Marsh acquired BHM Consultores S.A., d/b/a Grupo Mesos, a leading auto affinity insurance broker specialist in Chile that has extensive distribution partnerships with car dealerships, original equipment manufacturers and auto finance companies.
The Consulting segment completed 4 acquisitions in 2022:
•February – Oliver Wyman acquired Azure Consulting, an Australia-based management consulting firm with expertise in strategy development, organizational design and operations in the industrials, energy and natural resources sectors.
•March – Mercer acquired GeFi Assurances, a France-based brokerage and consulting firm specializing in collective corporate social protection.
•September – Oliver Wyman acquired Booz Allen Hamilton's strategy consulting business serving the Middle East and North Africa.
•November – Oliver Wyman acquired the Avascent Group Ltd, an aerospace and defense management consulting firm focused on the corporate and private equity sectors based in the U.S., U.K., Canada and France.
Total purchase consideration for acquisitions made during 2019in 2022 was approximately $5,927$705 million, which consisted of cash paid of $5,861$579 million and deferred purchase and estimated contingent purchase consideration of $66$120 million and the fair value of a previously held equity method investment of $6 million. Contingent consideration arrangements are generally based primarily on EBITDA and/or revenue targets over periods of two2 to four4 years. The fair value of the contingent consideration was based on projected revenue and earnings of the acquired entities. In 2022, the Company also paid $126 million of deferred purchase consideration and $70 million of contingent purchase consideration related to acquisitions made in prior years. Estimated fair values of assets acquired and liabilities assumed are subject to adjustment when purchase accounting is finalized. During 2019,
In December 2021, in connection with its increased investment in Marsh India, the Company also paid $43recorded a gain of $267 million of deferred purchase consideration and $63 million of contingent consideration related to acquisitions madethe re-measurement and consolidation of its previously held equity method investment to fair value. The fair value of the pre-existing equity method investment was calculated using an average of applying an income approach based on discounted future cash flows and market approach.
Prior year dispositions
In April 2022, Mercer sold its U.S. affinity business that provided insurance marketing, brokerage and administration to association and affinity groups for cash proceeds of approximately $140 million and recorded a net gain of $112 million which is included in prior years.revenue in the consolidated statements of income.
In addition, in 2022, the Company sold certain businesses in the U.K., the Czech Republic, Brazil and Belgium for cash proceeds of approximately $15 million and recorded a net gain of $15 million.
The cash proceeds received were partially offset by $36 million primarily related to cash and cash equivalents held in a fiduciary capacity in the disposed businesses.
Deconsolidation of Russia
In the first quarter of 2022, the Company concluded that it did not meet the accounting criteria for control over its wholly-owned Russian subsidiaries due to the evolving trade and economic sanctions against Russia and the related Russian counter sanctions. These sanctions included restrictions on payments to and from Russian companies and reduced currency access through official exchange markets that have significantly impacted the Company's ability to effectively manage and operate its Russian businesses.
SubsequentAs a result, the Company deconsolidated its Russian businesses effective as of the end of the first quarter of 2022, and recorded a loss of $39 million included in revenue in the consolidated statements of income. The loss consisted of the reclassification of cumulative translation losses from AOCI and a charge for the write-off of the Russia businesses' net assets.
In June 2022, the Company entered into a definitive agreement to exit its businesses in Russia and transfer ownership to local management, pending regulatory approvals.
Purchase of remaining non-controlling interest
In the JLT acquisition,second quarter of 2023, the Company purchased the outstanding non-controlling interests of several JLT subsidiariesremaining interest in a subsidiary for cash payments of approximately $79$139 million.
In January 2019, Marsh increased its equity ownership in Marsh India from 26% to 49%. Marsh India is accounted for under the equity method.
Prior year dispositions
During the third quarter of 2019, the Company completed the sale of a U.S. Specialty business at Marsh and a U.S. large market health and defined benefit business at Mercer for cash proceeds of approximately $60 million. Also, on June 1, 2019, the Company completed its disposition of JLT’s global aerospace business for cash proceeds of $165 million and contingent consideration receivable of approximately $65 million, based on the aerospace business achieving certain revenue milestones in 2020. The aerospace business was divested as part of the European Commission's approval of the JLT Transaction.
Pro-Forma Information
The following unaudited pro-forma financial data gives effect to the acquisitions made by the Company during 2020, 2019in 2023, 2022 and 2018.2021. In accordance with accounting guidance related to pro-forma disclosures, the information presented for current year acquisitions is as if they occurred on January 1, 20192022 and reflects acquisitions made in 20192022 as if they occurred on January 1, 2018.2021. The 20182021 information includes 20182021 acquisitions as if they occurred on January 1, 2017.2020. The unaudited pro-forma information includes the effects of amortization of acquired intangibles in all years and additional interest expense related to the issuance of debt related to the JLT Transaction in the 2018 pro-forma.years. The unaudited pro-formapro-forma financial data is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have been achieved if such acquisitions had occurred on the dates indicated, nor is it necessarily indicative of future consolidated results.
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (In millions, except per share data) | 2020 | | 2019 | | 2018 |
| Revenue | $ | 17,301 | | | $ | 17,323 | | | $ | 17,106 | |
| | | | | |
| Net income attributable to the Company | $ | 2,021 | | | $ | 1,877 | | | $ | 1,302 | |
| | | | | |
| | | | | |
| Basic net income per share attributable to the Company | $ | 3.99 | | | $ | 3.71 | | | $ | 2.58 | |
| | | | | |
| | | | | |
| Diluted net income per share attributable to the Company | $ | 3.95 | | | $ | 3.67 | | | $ | 2.55 | |
The unaudited pro-forma information presented in the table above includes adjustments for acquisition related costs, the change in fair value of JLT acquisition related derivatives, bridge financing costs and the early extinguishment of debt, including $207 million of costs incurred in 2019 that were reflected in the 2018 pro-forma results presented above. | | | | | | | | | | | | | | | | | | | | |
| For the Years Ended December 31, | | |
| (In millions, except per share data) | | 2023 | | 2022 | | 2021 |
| Revenue | | $ | 22,904 | | | $ | 21,238 | | | $ | 20,220 | |
| | | | | | |
| Net income attributable to the Company | | $ | 3,807 | | | $ | 3,058 | | | $ | 3,177 | |
| | | | | | |
| | | | | | |
| Basic net income per share attributable to the Company | | $ | 7.71 | | | $ | 6.12 | | | $ | 6.27 | |
| | | | | | |
| | | | | | |
| Diluted net income per share attributable to the Company | | $ | 7.63 | | | $ | 6.06 | | | $ | 6.20 | |
6. Goodwill and Other Intangibles
The Company is required to assess goodwill and any indefinite-lived intangible assets for impairment annually, or more frequently if circumstances indicate an impairment may have occurred. The Company performs the annual impairment assessment for each of its reporting units during the third quarter of each year. The reporting unit level is defined as the same level as the Company's operating segments. In accordance with applicable accounting guidance, a company can assess qualitative factors to determine whether it is necessary to perform a quantitative goodwill impairment test. Alternatively, the Company may elect to proceed directly to the quantitative goodwill impairment test.
In 2020,2023, the Company elected to performperformed a qualitativequantitative goodwill impairment assessment. As partFair values for the reporting units were estimated using both an income and market valuation approach. The carrying values were based on balances at June 30, 2023 and included directly identified assets and liabilities, as well as an allocation of its assessment,those assets and liabilities not recorded at the reporting unit level. The Company considered numerous factors, including:
•concluded that goodwill was not impaired, as the fair value of each reporting unit exceeds itsexceeded the carrying value by a substantial margin based on its most recent quantitative assessment in 2019;
•whether significant acquisitions or dispositions occurred which might alter the fair value of its reporting units;
•macroeconomic conditions and their potential impact on reporting unit fair values;
•actual performance compared with budget and prior projections used in its estimation of reporting unit fair values;
•industry and market conditions;
•and the year-over-year change in the Company’s share price.
The Company completed its qualitative assessment in the third quarter of 2020 and concluded that goodwill was not impaired.value.
Other intangible assets that are not deemed to have an indefinite life are amortized over their estimated lives and assessed for impairment upon the occurrence of certain triggering events in accordance with applicable accounting literature. Based on its assessment, the Company concluded that other intangible assets were not impaired. The Company does not have anyhad no indefinite lived identified intangible assets.assets at December 31, 2023 and 2022.
Changes in the carrying amount of goodwill are as follows:
| | | | | | | | | | | |
| (In millions of dollars) | 2020 | | 2019 |
| Balance as of January 1, as reported | $ | 14,671 | | | $ | 9,599 | |
| Goodwill acquired (a) | 593 | | | 5,124 | |
| Other adjustments (b) | 253 | | | (52) | |
| Balance at December 31, | $ | 15,517 | | | $ | 14,671 | |
| | | | | | | | | | | | | | |
| (In millions) | | 2023 | | 2022 |
| Balance at January 1, | | $ | 16,251 | | | $ | 16,317 | |
| Goodwill acquired | | 813 | | | 460 | |
Other adjustments (a) | | 167 | | | (526) | |
| Balance at December 31, | | $ | 17,231 | | | $ | 16,251 | |
(a) Includes $4.9 billion from the acquisition of JLT in 2019.
(b) Primarily reflects the impact of foreign exchangeexchange.
The goodwill arising from acquisitions in 2023 and dispositions.2022 consists largely of the synergies and economies of scale expected from combining the operations of the Company and the acquired entities and the trained assembled workforce acquired.
The goodwill acquired in 2020 and 20192023 included approximately $179$230 million and $213$12 million in the Risk and Insurance Services and Consulting segments, respectively, which is deductible for tax purposes, primarily related topurposes. The goodwill acquired in 2022 included approximately $348 million and $64 million in the Risk and Insurance Services segment.Service and Consulting segments, respectively, which is deductible for tax purposes.
Goodwill allocable to the Company’s reportable segments at December 31, 2023, is as follows:$13.2 billion for Risk and Insurance Services $11.7and $4.0 billion and Consulting, $3.8 billion.for Consulting.
The gross cost and accumulated amortization of other intangible assets at December 31, 20202023 and 20192022 are as follows:
| | (In millions of dollars) | 2020 | | 2019 |
| (In millions) | | (In millions) | | 2023 | | 2022 |
|
| Gross
Cost | | Accumulated
Amortization | | Net
Carrying
Amount | | Gross
Cost | | Accumulated
Amortization | | Net
Carrying
Amount |
| | Gross
Cost | | Accumulated
Amortization | | Net
Carrying
Amount | | Gross
Cost | | Accumulated
Amortization | | Net
Carrying
Amount |
| Customer relationships | Customer relationships | $ | 3,713 | | | $ | 1,170 | | | $ | 2,543 | | | $ | 3,494 | | | $ | 897 | | | $ | 2,597 | |
| Other (a) | Other (a) | 386 | | | 230 | | | 156 | | | 380 | | | 203 | | | 177 | |
| Amortized intangibles | $ | 4,099 | | | $ | 1,400 | | | $ | 2,699 | | | $ | 3,874 | | | $ | 1,100 | | | $ | 2,774 | |
| Other intangible assets | |
(a) Primarily non-compete agreements, trade names and developed technology.
Aggregate amortization expenseexpense was $351$343 million, $338 million, and $365 million for the yearyears ended December 31, 2020, $314 million for the year ended December 31, 20192023, 2022 and $183 million for the year ended December 31, 2018.2021, respectively. The estimated future aggregate amortization expense is as follows:
| | | | | |
| For the Years Ending December 31, | |
| (In millions of dollars) | |
| 2021 | $ | 356 | |
| 2022 | 327 | |
| 2023 | 300 | |
| 2024 | 285 | |
| 2025 | 275 | |
| Subsequent years | 1,156 | |
| | $ | 2,699 | |
| | | | | | | | |
| For the Years Ended December 31, | | |
| (In millions) | | Estimated Expense |
| 2024 | | $ | 351 | |
| 2025 | | 309 | |
| 2026 | | 287 | |
| 2027 | | 278 | |
| 2028 | | 270 | |
| Subsequent years | | 1,135 | |
| Total future amortization | | $ | 2,630 | |
7. Income Taxes
For financial reporting purposes, income before income taxes includes the following components:
| | For the Years Ended December 31, | For the Years Ended December 31, | For the Years Ended December 31, |
| (In millions of dollars) | 2020 | | 2019 | | 2018 |
| (In millions) | | (In millions) | | 2023 | | 2022 | | 2021 |
| Income before income taxes: | Income before income taxes: | |
| U.S. | |
| U.S. | |
| U.S. | U.S. | $ | 1,075 | | | $ | 657 | | | $ | 460 | |
| Other | Other | 1,718 | | | 1,782 | | | 1,784 | |
| | | $ | 2,793 | | | $ | 2,439 | | | $ | 2,244 | |
| | The expense (benefit) for income taxes is comprised of: | The expense (benefit) for income taxes is comprised of: | |
| The expense (benefit) for income taxes is comprised of: | |
| The expense (benefit) for income taxes is comprised of: | |
| | Current – | Current – | |
| | Current – | |
| | Current – | |
| U.S. Federal | |
| U.S. Federal | |
| U.S. Federal | U.S. Federal | $ | 172 | | | $ | 70 | | | $ | 82 | |
| Other national governments | Other national governments | 456 | | | 455 | | | 449 | |
| U.S. state and local | U.S. state and local | 79 | | | 57 | | | 82 | |
| | | 707 | | | 582 | | | 613 | |
| Deferred – | Deferred – | |
| U.S. Federal | U.S. Federal | 40 | | | 69 | | | (30) | |
| U.S. Federal | |
| U.S. Federal | |
| Other national governments | Other national governments | (14) | | | (16) | | | (1) | |
| U.S. state and local | U.S. state and local | 14 | | | 31 | | | (8) | |
| | | 40 | | | 84 | | | (39) | |
| Total income taxes | Total income taxes | $ | 747 | | | $ | 666 | | | $ | 574 | |
The significant components of deferred income tax assets and liabilities and their balance sheet classifications are as follows:
| | December 31, | December 31, | December 31, |
| (In millions of dollars) | 2020 | | 2019 |
| (In millions) | | (In millions) | | 2023 | | 2022 |
| Deferred tax assets: | Deferred tax assets: | |
| Accrued expenses not currently deductible | $ | 547 | | | $ | 492 | |
Differences related to non-U.S. operations (a) | 294 | | | 324 | |
Accrued expenses not currently deductible (a) | |
Accrued expenses not currently deductible (a) | |
Accrued expenses not currently deductible (a) | |
Differences related to non-U.S. operations (b) | |
| | Accrued U.S. retirement benefits | Accrued U.S. retirement benefits | 494 | | | 438 | |
Net operating losses (b) | 60 | | | 70 | |
| Accrued U.S. retirement benefits | |
| Accrued U.S. retirement benefits | |
Net operating losses (c) | |
| Income currently recognized for tax | Income currently recognized for tax | 25 | | | 19 | |
| | Other | Other | 43 | | | 27 | |
| Other | |
| Other | |
| | | $ | 1,463 | | | $ | 1,370 | |
| | Deferred tax liabilities: | Deferred tax liabilities: | | | | Deferred tax liabilities: | | |
| | Differences related to non-U.S. operations | Differences related to non-U.S. operations | $ | 569 | | | $ | 400 | |
| Differences related to non-U.S. operations | |
| Differences related to non-U.S. operations | |
| Depreciation and amortization | Depreciation and amortization | 491 | | | 594 | |
| Accrued retirement & postretirement benefits - non-U.S. operations | 143 | | | 151 | |
| Accrued retirement & post-retirement benefits – non-U.S. operations | |
| Capitalized expenses currently recognized for tax | Capitalized expenses currently recognized for tax | 87 | | | 77 | |
| Other | Other | 32 | | | 37 | |
| | | $ | 1,322 | | | $ | 1,259 | |
(a)Net of valuation allowances of $123$3 million in 20202023 and $54$5 millionin 2019.2022.
(b)Net of valuation allowances of $75$53 million in 20202023 and $72$160 millionin 2022.
(c) Net of valuation allowances of $69 million in 2019.2023 and 2022.
| | | | | | | | | | | |
| December 31, |
| (In millions of dollars) | 2020 | | 2019 |
| Balance sheet classifications: | | | |
| | | |
| | | |
| | | |
| Deferred tax assets | $ | 702 | | | $ | 676 | |
| Other liabilities | $ | 561 | | | $ | 565 | |
| | | | | | | | | | | | | | |
| December 31, |
| (In millions) | | 2023 | | 2022 |
| Balance sheet classifications: | | | | |
| | | | |
| | | | |
| | | | |
| Deferred tax assets | | $ | 357 | | | $ | 358 | |
| Other liabilities | | $ | 543 | | | $ | 522 | |
The amount of cumulative undistributed earnings that are indefinitely reinvested in non-U.S. subsidiaries is approximately $700$830 million as ofat December 31, 2020.2023. While no additional U.S. federal income tax would be required if such earnings were repatriated, additional state and withholding taxes would apply. The amount of these additional taxes is estimated to be approximately $60$80 million.
Future U.S. federal tax costs related to basis differences in Non-U.S.non-U.S. subsidiaries would primarily be realized through the U.S. GILTIGlobal Intangible Low-Taxed Income ("GILTI") minimum tax regime. The Company elected to recognize GILTI tax costs as a period cost and therefore, has not provided deferred tax liabilities on these basis differences.
A reconciliation from the U.S. Federalfederal statutory income tax rate to the Company’s effective income tax rate is shown below:as follows:
| | For the Years Ended December 31, | For the Years Ended December 31, | 2020 | | 2019 | | 2018 | For the Years Ended December 31, | | 2023 | | 2022 | | 2021 |
| U.S. Federal statutory rate | U.S. Federal statutory rate | 21.0 | % | | 21.0 | % | | 21.0 | % | U.S. Federal statutory rate | | 21.0 | % | | 21.0 | % | | 21.0 | % |
| U.S. state and local income taxes—net of U.S. Federal income tax benefit | 2.5 | | | 3.0 | | | 2.3 | |
| U.S. state and local income taxes — net of U.S. Federal income tax benefit | |
| Differences related to non-U.S. operations | Differences related to non-U.S. operations | 2.3 | | | 3.0 | | | 3.3 | |
| U.S. Tax Reform | 0 | | | 0 | | | (0.3) | |
| Change in valuation allowance | |
| U.K. statutory rate change | |
| Gain on consolidation of business | |
| Equity compensation | Equity compensation | (1.4) | | | (1.3) | | | (1.0) | |
| Uncertain Tax Positions | 1.1 | | | 0 | | | 0 | |
| Uncertain tax positions | |
| Other | Other | 1.2 | | | 1.6 | | | 0.3 | |
| Effective tax rate | Effective tax rate | 26.7 | % | | 27.3 | % | | 25.6 | % | Effective tax rate | | 24.3 | % | | 24.4 | % | | 24.6 | % |
The Company’s consolidated effective tax rate was 26.7%, 27.3% and 25.6% in 2020, 2019 and 2018, respectively. The rates in all periods reflect the effects of tax planning and the ongoing impact of the Tax Cuts and Jobs Act ("TCJA"), including regulatory and other guidance as it became available. The tax raterates in 2020 includesall periods include a valuation allowance for certain tax credits, the impact of uncertain tax positions, and certain tax planning benefits. The 2019tax rate includes certain tax costs related to JLT integration and restructuring activity. The 2018 ratein 2023 includes the effect of a chargerelease of valuation allowances on deferred tax assets related to the Company’s non-U.S. operations, due to sustained profitability. The tax rate in 2021 also included the effect of a statutory rate change in the U.K. and the tax effect of a gain from the fair value re-measurement of the Company’s previously held equity method investment in Alexander Forbes.Marsh India when the Company increased its ownership interest from 49% to 92%. The Company does not intend to dispose the business and has indefinitely reinvested this gain.
A valuation allowance was recorded to adjust deferred tax assets to the amount that the Company believes is more likely than not to be realized. Valuation allowances had a net increasesdecrease of $72 million, $60$110 million and $1 million in 2023 and 2022, respectively, and an increase of $36 million in 2020, 2019 and 2018, respectively.2021. Adjustments of the beginning of the year balances of valuation allowances decreased income tax expense by $14$94 million during 2020. There was 0 change to income tax expense as a result of adjustmentsin 2023. Adjustments of the beginning of the year valuation allowances in 2019, while in 2018 changes to the beginning of year valuation allowance increaseddecreased income tax expense by $1 million.$5 million in 2022 and increased tax expense by $2 million in 2021. Approximately 58%10% of the Company’s net operating loss carryforwards expire from 20212023 through 2037,2038, and othersthe remaining 90% are unlimited. The gross deferred tax assets of the potential tax benefit from net operating loss carryforwards at the end of 20202023 comprised of federal, state and local, and non-U.S. tax benefits of $24$1 million, $25$4 million, and $94$363 million, respectively, before reductionrespectively.
Changes in tax laws, rulings, policies or related legal and regulatory interpretations occur frequently and may also have significant favorable or adverse impacts on our effective tax rate. In July 2023, the U.K. enacted legislation to implement Pillar 2 of the Organization for valuation allowances.
countries, and is in the process of evaluating the potential impact of the U.K. and other enacted legislation on its results of future operations.
On August 16, 2022, the Inflation Reduction Act of 2022 ("IRA") was enacted into law. The Company evaluated the provisions of the IRA, the most significant of which are the corporate alternative minimum tax and the share repurchase tax. The IRA was effective as of January 1, 2023, and does not have a significant impact on the Company's financial results of operations for the current year.
Following is a reconciliation of the Company’s total gross unrecognized tax benefits for the years ended December 31, 2020, 20192023, 2022 and 2018:2021:
| | | | | | | | | | | | | | | | | |
| (In millions of dollars) | 2020 | | 2019 | | 2018 |
| Balance at January 1, | $ | 86 | | | $ | 78 | | | $ | 71 | |
| Additions, based on tax positions related to current year | 9 | | | 8 | | | 6 | |
| Additions for tax positions of prior years | 25 | | | 15 | | | 6 | |
| Reductions for tax positions of prior years | (9) | | | (1) | | | 0 | |
| | | | | |
| Settlements | (4) | | | (1) | | | (2) | |
| Lapses in statutes of limitation | (9) | | | (13) | | | (3) | |
| Balance at December 31, | $ | 98 | | | $ | 86 | | | $ | 78 | |
| | | | | | | | | | | | | | | | | | | | |
| (In millions) | | 2023 | | 2022 | | 2021 |
| Balance at January 1, | | $ | 97 | | | $ | 94 | | | $ | 98 | |
| Additions, based on tax positions related to current year | | 6 | | | 1 | | | 2 | |
| Additions for tax positions of prior years | | 44 | | | 15 | | | 11 | |
| Reductions for tax positions of prior years | | (8) | | | (2) | | | (1) | |
| | | | | | |
| Settlements | | (8) | | | (2) | | | (1) | |
| Lapses in statutes of limitations | | (7) | | | (9) | | | (15) | |
| Balance at December 31, | | $ | 124 | | | $ | 97 | | | $ | 94 | |
Of the total unrecognized tax benefits at December 31, 2020, 20192023, 2022, and 2018, $902021, $122 million, $75$94 million and $64$87 million, respectively, represent the amount that, if recognized, would favorably affect the effective tax rate in any future periods. The total gross amount of accrued interest and penalties, at December 31, 2020, 2019 and 2018, before any applicable federal benefit, was $40$48 million $31at December 31, 2023 and 2022, and $45 million and $15 million, respectively.at December 31, 2021.
The Company is routinely examined by the jurisdictions in which it has significant operations. In the U.S. federal jurisdiction, the Company participates in the Internal Revenue Service’s (IRS)("IRS") Compliance Assurance Process (CAP)("CAP"), which is structured to be, in effect, a real-time audit. TheIn 2021, the IRS is currently examiningconcluded its examination of the Company’s 2017, 2018, and 2019 tax returns. The Company was accepted into the Bridge phase of the CAP processprogram for tax years 2020 and 2021, and generally will not be audited by the IRS for those years. The IRS CAP Maintenance Audit for tax year 2020.
2022 is ongoing. In 2023, the IRS began its pre-filing examination of the Company's 2023 tax year. New York is a significant tax jurisdiction for the Company. During 2019, New York State initiated an audit for the 2015 tax year; and during 2020 included the 2016 tax year. During 2020, New York City initiated an audit for tax years 2016 through 2018. During 2018, New York State and New York City closed the examination of tax years 2007 through 2009. In addition, New York State and New York City have continuing examinations underway in 2023 for various entities covering the years 20102015 through 2014.2019. In 2023, the New York State audits for 2013-2014 and the New York City audits for 2010-2014 were finalized. The New York State audits for 2010-2012 were finalized in 2022.
We conduct business through multiple legal entities in significant jurisdictions outside the U.S. Separate audits for individual entities within a jurisdiction may open or close within a particular year. The status of audits for significant jurisdictions outside the United StatesU.S. are summarized in the table below:
| | | | | | | | | | | | | | | | | | |
| Tax Audit (Years) | | | | | | |
| Jurisdiction: | Initiated in 2020 | | Ongoing | | Concluded | |
| Canada | 2017, 2019-2020 | | 2018 | | 2013-2016 during 2019 | |
| France | | | 2017-2018 | | 2011, 2012 during 2018 | |
| Germany | 2015-2018 | | 2013-2016 | | 2009-2012 during 2018 | |
| Italy | 2017 | | 2015-2016 | | | |
| Singapore | 2018 | | 2018 | | 2016, 2017 during 2020 | |
| United Kingdom | 2018 | | 2016-2017 | | 2014, 2015 during 2018 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Tax Audit (Years) | | | | | | | |
| Jurisdiction: | | Initiated in 2023 | | Ongoing | | Concluded in 2023 | |
| Germany | | 2017 - 2020 | | 2013 - 2016 | | | |
| Italy | | 2017 | | 2015, 2016 | | | |
| Singapore | | 2019, 2020 | | 2017 - 2021 | | 2020 | |
| United Kingdom | | 2021 | | 2016 - 2020 | | | |
| Mexico | | 2017 | | | | | |
| Canada | | 2019 - 2021 | | | | | |
| India | | 2021 | | 2007 - 2020 | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
The Company has established liabilities for uncertain tax positions in relation to potential assessments in the jurisdictions in which it operates. The Company believes the resolution of tax matters will not have a material effect on the consolidated financial position of the Company, although aCompany. However, an adverse resolution of tax matters from current or future audits or tax litigation could have a material impact on the Company's net income or cash flows and on its effective tax rate in a particular future period. It is reasonably possible that the total amount of unrecognized tax benefits willcould decrease between 0 andup to approximately $33$58 million withinwithin the next twelve12 months due to settlement of audits and expiration of statutes of limitation.limitations.
8. Retirement Benefits
The Company maintains qualified and non-qualified defined benefit pension plans for its U.S. and non-U.S. eligible employees. The Company’s policy for funding its tax qualified defined benefit retirement plans is to contribute amounts at least sufficient to meet the funding requirements set forth by U.S. law and the laws of the non-U.S. jurisdictions in which the Company offers defined benefit plans.
Combined U.S. and Non-U.S. Plans
The weighted average actuarial assumptions utilized for the U.S. and significant non-U.S. defined benefit plans and post-retirement benefit plans are as follows:
| | Pension
Benefits | | Post-retirement
Benefits |
| | Pension
Benefits | | | | Pension
Benefits | | Post-retirement
Benefits |
| | | 2020 | | 2019 | | 2020 | | 2019 | | | 2023 | | 2022 | | 2023 | | 2022 |
| Weighted average assumptions: | Weighted average assumptions: | |
| Discount rate (for expense) | Discount rate (for expense) | 2.57 | % | | 3.48 | % | | 2.72 | % | | 3.65 | % |
| Discount rate (for expense) | |
| Discount rate (for expense) | | | 5.16 | % | | 2.28 | % | | 4.92 | % | | 2.36 | % |
| Expected return on plan assets | Expected return on plan assets | 5.31 | % | | 5.74 | % | | 0 | | | 0 | |
| Rate of compensation increase (for expense)* | 1.76 | % | | 1.74 | % | | 0 | | | 0 | |
| Rate of compensation increase (for expense) * | |
| Discount rate (for benefit obligation) | Discount rate (for benefit obligation) | 1.92 | % | | 2.57 | % | | 2.42 | % | | 2.72 | % | Discount rate (for benefit obligation) | | 4.95 | % | | 5.16 | % | | 5.26 | % | | 4.92 | % |
| Rate of compensation increase (for benefit obligation)* | 1.85 | % | | 1.76 | % | | 0 | | | 0 | |
| Rate of compensation increase (for benefit obligation) * | |
*Rate(*)There are no rate of compensation increase assumptions do not include a rate of compensation increase for the U.S. defined benefitbenefit plans since future benefit accruals were discontinued for those plans after December 31, 2016 and earned benefits are not subject to final salary level adjustments.
The Company uses actuaries from Mercer, a subsidiary of the Company, to perform valuations of its pension plans. The long-term rate of return on plan assets assumption is determined for each plan based on the facts and circumstances that exist as of the measurement date, and the specific portfolio mix of each plan’s assets. The Company utilizes a model developed by the Mercer actuaries to assist in the determination of this assumption. The model takes into account several factors, including: actual and target portfolio allocation; investment, administrative and trading expenses incurred directly by the plan trust; historical portfolio performance; relevant forward-looking economic analysis; and expected returns, variances and correlations for different asset classes. These measures are used to determine probabilities using standard statistical techniques to calculate a range of expected returns on the portfolio. Generally, the Company does not adjust the rate of return assumption from year to year if, at the measurement date, it is within the range between the 25th and 75th percentile of the expected long-term annual returns. Historical long-term average asset returns of the most significant plans are also reviewed to determine whether they are consistent and reasonable compared with the rate selected. The expected return on plan assets is determined by applying the assumed long-term rate of return to the market-related value of plan assets. This market-related value recognizes investment gains or losses over a five-year period from the year in which they occur. Investment gains or losses for this purpose are the difference between the expected return calculated using the market-related value of assets and the actual return based on the market value of assets. Since the market-related value of assets recognizes gains or losses over a five-year period, the future market-related value of the assets will be impacted as previously deferred gains or losses are reflected.
The target asset allocation for the U.S. plans is 64%50% equities and equity alternatives and 36%50% fixed income. At the end of 2020,December 31, 2023, the actual allocation for the U.S. plans was 64%49% equities and equity alternatives and 36%51% fixed income. The target asset allocation for the U.K. plans, which comprise approximately 81%79% of non-U.S. plan assets, is 32%14% equities and equity alternatives and 68%86% fixed income. At the end of 2020,December 31, 2023, the actual allocation for the U.K. plans was 33%13% equities and equity alternatives and 67%87% fixed income. The assets of the Company's defined benefit plans are diversified and are managed in accordance with applicable laws and with the goal of maximizing the plans' real return within acceptable risk parameters. The Company uses threshold-based portfolio re-balancing to ensure the actual portfolio remains consistent with target asset allocation ranges.
The discount rate selectednet benefit (credit) or cost of the Company's defined benefit and other post-retirement plans is measured on an actuarial basis using various methods and assumptions. The components of the net benefit (credit) or cost for each U.S. plan is based on a model bond portfolio with couponsthe years 2023, 2022 and redemptions that closely match the expected liability cash flows from the plan. Discount rates for non-U.S. plans2021 are based on appropriate bond indices adjusted for duration; in the U.K., the plan duration is reflected using the Mercer yield curve.as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Combined U.S. and significant non-U.S. Plans | | Pension | | Post-retirement |
| For the Years Ended December 31, | | Benefits | | Benefits |
| (In millions) | | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 |
| Service cost | | $ | 23 | | | $ | 28 | | | $ | 38 | | | $ | — | | | $ | — | | | $ | 1 | |
| Interest cost | | 599 | | | 389 | | | 341 | | | 3 | | | 3 | | | 2 | |
| Expected return on plan assets | | (860) | | | (778) | | | (832) | | | — | | | — | | | — | |
| Amortization of prior service | | — | | | 1 | | | — | | | (2) | | | (2) | | | (2) | |
| Recognized actuarial loss (gain) | | 22 | | | 149 | | | 206 | | | (3) | | | 1 | | | 1 | |
| Net periodic benefit (credit) cost | | (216) | | | (211) | | | (247) | | | (2) | | | 2 | | | 2 | |
| Curtailment loss | | — | | | — | | | 2 | | | — | | | — | | | — | |
| | | | | | | | | | | | |
| Settlement loss | | 2 | | | 2 | | | 5 | | | — | | | — | | | — | |
| Net benefit (credit) cost | | $ | (214) | | | $ | (209) | | | $ | (240) | | | $ | (2) | | | $ | 2 | | | $ | 2 | |
Changes to Pension Plans
As part of the JLT Transaction, the Company assumed responsibility for a number of pension plans throughout the world, the most significant of which is the JLT U.K. plan. The JLT U.K. plan has a defined benefit section which was frozen to future accrual in 2006 and a defined contribution section. The assets of the scheme are held in a trustee administered fund separate from the Company.
The components of the net periodic benefit cost for defined benefit and other post-retirement plans are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Combined U.S. and significant non-U.S. Plans | Pension | | Post-retirement |
| For the Years Ended December 31, | Benefits | | Benefits |
| (In millions) | 2020 | | 2019 | | 2018 | | 2020 | | 2019 | | 2018 |
| Service cost | $ | 36 | | | $ | 31 | | | $ | 34 | | | $ | 0 | | | $ | 0 | | | $ | 1 | |
| Interest cost | 421 | | | 487 | | | 463 | | | 3 | | | 3 | | | 3 | |
| Expected return on plan assets | (844) | | | (863) | | | (864) | | | 0 | | | 0 | | | 0 | |
| Amortization of prior service (credit) | — | | | — | | | (2) | | | (2) | | | (2) | | | (2) | |
| Recognized actuarial loss (gain) | 161 | | | 104 | | | 146 | | | 0 | | | (1) | | | (1) | |
| Net periodic benefit (credit) cost | $ | (226) | | | $ | (241) | | | $ | (223) | | | $ | 1 | | | $ | 0 | | | $ | 1 | |
| | | | | | | | | | | |
| Plan termination | 1 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Settlement loss | 3 | | | 7 | | | 42 | | | 0 | | | 0 | | | 0 | |
| Total (credit) cost | $ | (222) | | | $ | (234) | | | $ | (181) | | | $ | 1 | | | $ | 0 | | | $ | 1 | |
The following charttable provides the amounts reported in the consolidated statements of income:
| | Combined U.S. and significant non-U.S. Plans | Combined U.S. and significant non-U.S. Plans | Pension
Benefits | | Post-retirement
Benefits | Combined U.S. and significant non-U.S. Plans | | Pension
Benefits | | Post-retirement
Benefits |
| For the Years Ended December 31, | For the Years Ended December 31, | |
| (In millions) | (In millions) | 2020 | | 2019 | 2018 | | 2020 | | 2019 | 2018 |
| Compensation and benefits expense (Operating income) | $ | 36 | | | $ | 31 | | $ | 34 | | | $ | 0 | | | $ | 0 | | $ | 1 | |
| (In millions) | |
| (In millions) | | | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 |
| Compensation and benefits expense | |
| Other net benefit (credit) cost | Other net benefit (credit) cost | (258) | | | (265) | | (215) | | | 1 | | | 0 | | 0 | |
| Total (credit) cost | $ | (222) | | | $ | (234) | | $ | (181) | | | $ | 1 | | | $ | 0 | | $ | 1 | |
| Net benefit (credit) cost | |
Pension Settlement Charge
Defined Benefit Pension Plans in the U.K. and certain other countries allow participants an option for the payment of a lump sum distribution from plan assets before retirement in full satisfaction of the retirement benefits due to the participant as well as any survivor’s benefit. The Company’s policy under applicable U.S. GAAP is to treat these lump sum payments as a partial settlement of the plan liability if they exceed the total of interest plus service costs ("settlement thresholds"). Based on the amount of lump sum payments through December 31, 2018, the lump sum payments exceeded the settlement thresholds in 2 of the U.K. plans. The Company recorded non-cash settlement charges of $42 million in the consolidated statements of income for the year ended December 31, 2018, primarily related to these plans. The Company recorded $3 million and $7 million of non-cash settlement charges for the years ended December 31, 2020 and 2019, respectively, related to other non-U.S. plans.
Plan Assets
For the U.S. plans, investment allocation decisions are made by a fiduciary committee composed of senior executives appointed by the Company’s Chief Executive Officer. For the non-U.S. plans, investment allocation decisions are made by local fiduciaries, in consultation with the Company for the larger plans. Plan assets are invested in a manner consistent with the fiduciary standards set forth in all relevant laws relating to pensions and trusts in each country. Primary investment objectives are (1) to achieve an investment return that, in combination with current and future contributions, will provide sufficient funds to pay benefits as they become due, and (2) to minimize the risk of large losses. The investment allocations are designed to meet these objectives by broadly diversifying plan assets among numerous asset classes with differing expected returns, volatilities, and correlations.
The major categories of plan assets include equity securities, equity alternative investments, and fixed income securities. For the U.S. plan, the category ranges are 59-69%46%-54% for both equities and equity alternatives, and 31-41% for fixed income. For the U.K. plans, the category ranges are 29-35%11%-17% for equities and equity alternatives, and 65-71%83%-89% for fixed income. Asset allocation is frequently monitored frequently and re-balancing actions are taken as appropriate.
Plan investments are exposed to stock market, interest rate, and credit risk. Concentrations of these risks are generally limited duedue to diversification by investment style within each asset class, diversification by investment manager, diversification by industry sectors and issuers, and the dispersion of investments across many geographic areas.
Unrecognized Actuarial Gains/Losses
In accordance with applicable accounting guidance, the funded status of the Company's pension plans is recorded in the consolidated balance sheets and provides for a delayed recognition of actuarial gains or losses arising from changes in the projected benefit obligation due to changes in the assumed discount rates, differences between the actual and expected value of plan assets and other assumption changes. The unrecognized pension plan actuarial gains or losses and prior service costs not yet recognized in net periodic pension cost are recognized in AOCI, net of tax. These gains and losses are amortized prospectively out of AOCI over a period that approximates the remaining life expectancy of participants in plans where substantially all participants are inactive, or the average remaining service period of active participants for plans with active participants. The vast majority of unrecognized losses relate to inactive plans and are amortized over the remaining life expectancy of the participants.
U.S. Plans
The following schedulestables provide information concerning the Company’s U.S. defined benefit pension plans and post-retirement benefit plans:
| | U.S. Pension
Benefits | | U.S. Post-retirement
Benefits |
| | U.S. Pension
Benefits | | | | U.S. Pension
Benefits | | U.S. Post-retirement
Benefits |
| (In millions) | (In millions) | 2020 | | 2019 | | 2020 | | 2019 | (In millions) | | 2023 | | 2022 | | 2023 | | 2022 |
| Change in benefit obligation: | Change in benefit obligation: | |
| Benefit obligation at beginning of year | Benefit obligation at beginning of year | $ | 6,322 | | | $ | 5,529 | | | $ | 31 | | | $ | 32 | |
| Benefit obligation at beginning of year | |
| Benefit obligation at beginning of year | |
| | Interest cost | |
| Interest cost | |
| Interest cost | Interest cost | 213 | | | 241 | | | 1 | | | 1 | |
| Employee contributions | Employee contributions | 0 | | | 0 | | | 4 | | | 4 | |
| | Plan combination | 0 | | | 64 | | | 0 | | | 0 | |
| | Actuarial (gain) loss | |
| | Actuarial (gain) loss | |
| | | Actuarial (gain) loss | Actuarial (gain) loss | 650 | | | 753 | | | 1 | | | 1 | |
| | Benefits paid | Benefits paid | (271) | | | (265) | | | (6) | | | (7) | |
| Benefits paid | |
| Benefits paid | |
| | Benefit obligation, December 31 | |
| Benefit obligation, December 31 | |
| Benefit obligation, December 31 | Benefit obligation, December 31 | $ | 6,914 | | | $ | 6,322 | | | $ | 31 | | | $ | 31 | |
| Change in plan assets: | Change in plan assets: | |
| Fair value of plan assets at beginning of year | Fair value of plan assets at beginning of year | $ | 4,715 | | | $ | 4,062 | | | $ | 2 | | | $ | 1 | |
| Fair value of plan assets at beginning of year | |
| Fair value of plan assets at beginning of year | |
| | Actual return on plan assets | |
| Actual return on plan assets | |
| Actual return on plan assets | Actual return on plan assets | 591 | | | 834 | | | 0 | | | 0 | |
| Employer contributions | Employer contributions | 65 | | | 35 | | | 3 | | | 4 | |
| Employee contributions | Employee contributions | 0 | | | 0 | | | 4 | | | 4 | |
| | Benefits paid | Benefits paid | (271) | | | (265) | | | (6) | | | (7) | |
| Other | 0 | | | 49 | | | (1) | | | 0 | |
| Benefits paid | |
| Benefits paid | |
| | Fair value of plan assets, December 31 | |
| Fair value of plan assets, December 31 | |
| Fair value of plan assets, December 31 | Fair value of plan assets, December 31 | $ | 5,100 | | | $ | 4,715 | | | $ | 2 | | | $ | 2 | |
| Net funded status, December 31 | Net funded status, December 31 | $ | (1,814) | | | $ | (1,607) | | | $ | (29) | | | $ | (29) | |
| Amounts recognized in the consolidated balance sheets: | Amounts recognized in the consolidated balance sheets: | |
| Current liabilities | Current liabilities | $ | (30) | | | $ | (29) | | | $ | (1) | | | $ | (1) | |
| Current liabilities | |
| Current liabilities | |
| Non-current liabilities | Non-current liabilities | (1,784) | | | (1,578) | | | (28) | | | (28) | |
| Net liability recognized, December 31 | Net liability recognized, December 31 | $ | (1,814) | | | $ | (1,607) | | | $ | (29) | | | $ | (29) | |
| Amounts recognized in other comprehensive income (loss): | Amounts recognized in other comprehensive income (loss): | |
| | Prior service (cost) | |
| Prior service (cost) | |
| Prior service (cost) | |
| Net actuarial (loss) gain | Net actuarial (loss) gain | (2,446) | | | (2,114) | | | 3 | | | 4 | |
| Total recognized accumulated other comprehensive (loss) income, December 31 | Total recognized accumulated other comprehensive (loss) income, December 31 | $ | (2,446) | | | $ | (2,114) | | | $ | 3 | | | $ | 4 | |
| Cumulative employer contributions in excess of (less than) net periodic cost | 632 | | | 507 | | | (32) | | | (33) | |
| Cumulative employer contributions in excess of (less than) net benefit (credit) cost | |
| Net amount recognized in consolidated balance sheet | Net amount recognized in consolidated balance sheet | $ | (1,814) | | | $ | (1,607) | | | $ | (29) | | | $ | (29) | |
| Accumulated benefit obligation at December 31 | $ | 6,914 | | | $ | 6,322 | | | $ | 0 | | | $ | 0 | |
| Accumulated benefit obligation, December 31 | |
| | U.S. Pension
Benefits | | U.S. Post-retirement
Benefits |
| | U.S. Pension
Benefits | | | | U.S. Pension
Benefits | | U.S. Post-retirement
Benefits |
| (In millions) | (In millions) | 2020 | | 2019 | | 2020 | | 2019 | (In millions) | | 2023 | | 2022 | | 2023 | | 2022 |
| Reconciliation of net actuarial (loss) gain recognized in accumulated other comprehensive income (loss): | Reconciliation of net actuarial (loss) gain recognized in accumulated other comprehensive income (loss): | |
| Beginning balance | Beginning balance | $ | (2,114) | | | $ | (1,896) | | | $ | 4 | | | $ | 6 | |
| Recognized as component of net periodic benefit cost (credit) | 72 | | | 44 | | | 0 | | | (1) | |
| Beginning balance | |
| Beginning balance | |
| Recognized as component of net benefit cost (credit) | |
| Changes in plan assets and benefit obligations recognized in other comprehensive income (loss): | Changes in plan assets and benefit obligations recognized in other comprehensive income (loss): | |
| | Other | |
| | Other | |
| | Other | |
| Liability experience | Liability experience | (650) | | | (753) | | | (1) | | | (1) | |
| Asset experience | Asset experience | 246 | | | 491 | | | 0 | | | 0 | |
| Total loss recognized as change in plan assets and benefit obligations | (404) | | | (262) | | | (1) | | | (1) | |
| Total gain recognized as change in plan assets and benefit obligations | |
| Net actuarial (loss) gain, December 31 | Net actuarial (loss) gain, December 31 | $ | (2,446) | | | $ | (2,114) | | | $ | 3 | | | $ | 4 | |
| | For the Years Ended December 31, | For the Years Ended December 31, | U.S. Pension
Benefits | | U.S. Post-retirement
Benefits | For the Years Ended December 31, | | U.S. Pension
Benefits | | U.S. Post-retirement
Benefits |
| (In millions) | (In millions) | 2020 | | 2019 | | 2018 | | 2020 | | 2019 | | 2018 | (In millions) | | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 |
| Total recognized in net periodic benefit cost and other comprehensive loss | $ | 272 | | | $ | 160 | | | $ | 63 | | | $ | 2 | | | $ | 2 | | | $ | 0 | |
| Total recognized in net benefit (credit) cost and other comprehensive (income) loss | |
The weighted average actuarial assumptions utilized in determining expense during the year and benefit obligation at the end of the year for the U.S. defined benefit and other U.S. post-retirement plans are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| U.S. Pension
Benefits | | U.S. Post-retirement Benefits |
| 2020 | | 2019 | | 2020 | | 2019 |
| Weighted average assumptions: | | | | | | | |
| Discount rate (for expense) | 3.44 | % | | 4.45 | % | | 3.10 | % | | 4.24 | % |
| Expected return on plan assets | 7.82 | % | | 7.95 | % | | 0 | | | 0 | |
| | | | | | | |
| Discount rate (for benefit obligation) | 2.73 | % | | 3.44 | % | | 2.18 | % | | 3.10 | % |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | U.S. Pension
Benefits | | U.S. Post-retirement Benefits |
| | 2023 | | 2022 | | 2023 | | 2022 |
| Weighted average assumptions: | | | | | | | | |
| Discount rate (for expense) | | 5.53 | % | | 3.00 | % | | 5.31 | % | | 2.56 | % |
| Expected return on plan assets | | 6.49 | % | | 6.88 | % | | — | | | — | |
| | | | | | | | |
| Discount rate (for benefit obligation) | | 5.52 | % | | 5.53 | % | | 5.34 | % | | 5.31 | % |
| | | | | | | | |
The accumulated benefit obligation and aggregate fair value of plan assets for U.S. pension plans with accumulated benefit obligations in excess of plan assets were $6.94.7 billion and $4.2 billion, respectively, at December 31, 2023 and $4.9 billion and $5.1$4.3 billion, respectively, as ofat December 31, 2020 and $6.3 billion and $4.7 billion, respectively, as of December 31, 2019.2022.
The projected benefit obligation and fair value of plan assets for U.S. pension plans with projected benefit obligations in excess of plan assets was $6.9$4.7 billion and $4.2 billion, respectively, at December 31, 2023 and $4.9 billion and $5.1$4.3 billion, respectively, as ofat December 31, 2020 and $6.3 billion and $4.7 billion, respectively, as of2022.
At December 31, 2019. The increase in the benefit obligation in 2020 compared to 2019 reflects the decrease in discount rates used to measure plan liabilities.
As of December 31, 2020,2023, the U.S. qualified plan holds 21 million shares of the Company’s common stock which were contributed to the qualified plan by the Company in 2005. This represented approximately 4.6%4.5% of that plan's assets as ofat December 31, 2020.2023.
The components of the net periodic benefit (credit) cost (credit) for the U.S. defined benefit and other post-retirement benefit plans are as follows:
| | U.S. Plans only | U.S. Plans only | Pension
Benefits | | Post-retirement
Benefits | U.S. Plans only | | Pension
Benefits | | Post-retirement
Benefits |
| For the Years Ended December 31, | For the Years Ended December 31, | |
| (In millions) | (In millions) | 2020 | | 2019 | | 2018 | | 2020 | | 2019 | | 2018 |
| (In millions) | |
| (In millions) | | | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 |
| | Interest cost | |
| Interest cost | |
| Interest cost | Interest cost | 213 | | | 241 | | | 235 | | | 1 | | | 1 | | | 1 | |
| Expected return on plan assets | Expected return on plan assets | (345) | | | (343) | | | (357) | | | 0 | | | 0 | | | 0 | |
| | Recognized actuarial loss (gain) | Recognized actuarial loss (gain) | 72 | | | 44 | | | 55 | | | 0 | | | (1) | | | (1) | |
| Net periodic benefit (credit) cost | $ | (60) | | | $ | (58) | | | $ | (67) | | | $ | 1 | | | $ | 0 | | | $ | 0 | |
| Recognized actuarial loss (gain) | |
| Recognized actuarial loss (gain) | |
| Net benefit (credit) cost | |
|
The assumed health care cost trend rate for Medicare eligibles and non-Medicare eligibles is approximately 5.8%6.1% in 2020,2023, gradually declining to 4.5%4.0% in 2039.2046. Assumed health care cost trend rates have a small effect on the amounts reported for the U.S. health care plans because the CompanyCompany caps its share of health care trend at 5%5.0%.
Estimated Future Contributions
The Company expects to contribute approximately $37$31 million to its non-qualified U.S. plans in 2021.2024. The Company’s policy for funding its tax-qualified defined benefit retirement plans is to contribute amounts at least sufficient to meet the funding requirements set forth in the U.S. and applicable foreign law.The Company was not required to and made no contributions to its U.S. qualified plans in 2023. In 2024, the Company is required to make contributions totaling $2 million to its U.S. qualified plans.
Non-U.S. Plans
The following schedulestables provide information concerning the Company’s non-U.S. defined benefit pension plans and non-U.S. post-retirement benefit plans:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Non-U.S. Pension Benefits | | Non-U.S.
Post-retirement Benefits |
| (In millions) | | 2023 | | 2022 | | 2023 | | 2022 |
| Change in benefit obligation: | | | | | | | | |
| Benefit obligation at beginning of year | | $ | 6,886 | | | $ | 12,057 | | | $ | 48 | | | $ | 68 | |
| Service cost | | 23 | | | 28 | | | — | | | — | |
| Interest cost | | 339 | | | 196 | | | 2 | | | 2 | |
| Employee contributions | | 3 | | | 3 | | | — | | | — | |
| Plan combination | | — | | | 2 | | | — | | | — | |
| Actuarial loss (gain) | | 226 | | | (3,953) | | | (10) | | | (14) | |
| | | | | | | | |
| Effect of settlement | | (15) | | | (22) | | | — | | | — | |
| | | | | | | | |
| | | | | | | | |
| Benefits paid | | (352) | | | (342) | | | (2) | | | (2) | |
| Foreign currency changes | | 411 | | | (1,083) | | | 2 | | | (6) | |
| | | | | | | | |
| Benefit obligation, December 31 | | $ | 7,521 | | | $ | 6,886 | | | $ | 40 | | | $ | 48 | |
| Change in plan assets: | | | | | | | | |
| Fair value of plan assets at beginning of year | | $ | 8,764 | | | $ | 13,855 | | | $ | — | | | $ | — | |
| Plan combination | | — | | | 1 | | | — | | | — | |
| Actual return on plan assets | | 358 | | | (3,609) | | | — | | | — | |
| Effect of settlement | | (15) | | | (22) | | | — | | | — | |
| Company contributions | | 78 | | | 139 | | | 2 | | | 2 | |
| Employee contributions | | 3 | | | 3 | | | — | | | — | |
| Benefits paid | | (352) | | | (342) | | | (2) | | | (2) | |
| Foreign currency changes | | 472 | | | (1,261) | | | — | | | — | |
| | | | | | | | |
| | | | | | | | |
| Fair value of plan assets, December 31 | | $ | 9,308 | | | $ | 8,764 | | | $ | — | | | $ | — | |
| Net funded status, December 31 | | $ | 1,787 | | | $ | 1,878 | | | $ | (40) | | | $ | (48) | |
| Amounts recognized in the consolidated balance sheets: | | | | | | | | |
| Non-current assets | | $ | 2,050 | | | $ | 2,127 | | | $ | — | | | $ | — | |
| Current liabilities | | (7) | | | (6) | | | (3) | | | (3) | |
| Non-current liabilities | | (256) | | | (243) | | | (37) | | | (45) | |
| Net asset (liability) recognized, December 31 | | $ | 1,787 | | | $ | 1,878 | | | $ | (40) | | | $ | (48) | |
| Amounts recognized in other comprehensive loss: | | | | | | | | |
| Prior service (cost) credit | | $ | (17) | | | $ | (16) | | | $ | 3 | | | $ | 5 | |
| Net actuarial (loss) gain | | (3,219) | | | (2,610) | | | 17 | | | 6 | |
| Total recognized accumulated other comprehensive (loss) income, December 31 | | $ | (3,236) | | | $ | (2,626) | | | $ | 20 | | | $ | 11 | |
| Cumulative employer contributions in excess of (less than) net benefit (credit) cost | | 5,023 | | | 4,504 | | | (60) | | | (59) | |
| Net asset (liability) recognized in consolidated balance sheets, December 31 | | $ | 1,787 | | | $ | 1,878 | | | $ | (40) | | | $ | (48) | |
| Accumulated benefit obligation, December 31 | | $ | 7,396 | | | $ | 6,776 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Non-U.S. Pension
Benefits | | Non-U.S.
Post-retirement Benefits |
| (In millions) | 2020 | | 2019 | | 2020 | | 2019 |
| Change in benefit obligation: | | | | | | | |
| Benefit obligation at beginning of year | $ | 11,321 | | | $ | 8,969 | | | $ | 61 | | | $ | 57 | |
| Service cost | 36 | | | 31 | | | 0 | | | 0 | |
| Interest cost | 208 | | | 246 | | | 2 | | | 2 | |
| Employee contributions | 2 | | | 2 | | | 0 | | | 0 | |
| Plan combination | 0 | | | 915 | | | 0 | | | 0 | |
| Actuarial loss | 1,273 | | | 1,339 | | | 10 | | | 3 | |
| Plan amendments | 11 | | | (1) | | | 0 | | | 0 | |
| Effect of settlement | (13) | | | (25) | | | 0 | | | 0 | |
| | | | | | | |
| Special termination benefits | 1 | | | 0 | | | 0 | | | 0 | |
| Benefits paid | (402) | | | (364) | | | (2) | | | (3) | |
| Foreign currency changes | 561 | | | 209 | | | 2 | | | 2 | |
| | | | | | | |
| Benefit obligation, December 31 | $ | 12,998 | | | $ | 11,321 | | | $ | 73 | | | $ | 61 | |
| Change in plan assets: | | | | | | | |
| Fair value of plan assets at beginning of year | $ | 12,313 | | | $ | 10,306 | | | $ | 0 | | | $ | 0 | |
| Plan combination | 0 | | | 683 | | | 0 | | | 0 | |
| Actual return on plan assets | 1,415 | | | 1,367 | | | 0 | | | 0 | |
| Effect of settlement | (13) | | | (25) | | | 0 | | | 0 | |
| Company contributions | 78 | | | 87 | | | 2 | | | 3 | |
| Employee contributions | 2 | | | 2 | | | 0 | | | 0 | |
| Benefits paid | (402) | | | (364) | | | (2) | | | (3) | |
| Foreign currency changes | 635 | | | 257 | | | 0 | | | 0 | |
| | | | | | | |
| | | | | | | |
| Fair value of plan assets, December 31 | $ | 14,028 | | | $ | 12,313 | | | $ | 0 | | | $ | 0 | |
| Net funded status, December 31 | $ | 1,030 | | | $ | 992 | | | $ | (73) | | | $ | (61) | |
| Amounts recognized in the consolidated balance sheets: | | | | | | | |
| Non-current assets | $ | 1,764 | | | $ | 1,632 | | | $ | 0 | | | $ | 0 | |
| Current liabilities | (7) | | | (6) | | | (3) | | | (3) | |
| Non-current liabilities | (727) | | | (634) | | | (70) | | | (58) | |
| Net asset (liability) recognized, December 31 | $ | 1,030 | | | $ | 992 | | | $ | (73) | | | $ | (61) | |
| Amounts recognized in other comprehensive (loss) income: | | | | | | | |
| Prior service credit | $ | (13) | | | $ | (2) | | | $ | 9 | | | $ | 11 | |
| Net actuarial loss | (3,467) | | | (3,055) | | | (16) | | | (5) | |
| Total recognized accumulated other comprehensive (loss) income, December 31 | $ | (3,480) | | | $ | (3,057) | | | $ | (7) | | | $ | 6 | |
| Cumulative employer contributions in excess of (less than) net periodic cost | 4,510 | | | 4,049 | | | (66) | | | (67) | |
| Net asset (liability) recognized in consolidated balance sheets, December 31 | $ | 1,030 | | | $ | 992 | | | $ | (73) | | | $ | (61) | |
| Accumulated benefit obligation, December 31 | $ | 12,736 | | | $ | 11,079 | | | $ | 0 | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Non-U.S. Pension
Benefits | | Non-U.S.
Post-retirement Benefits |
| (In millions) | | 2023 | | 2022 | | 2023 | | 2022 |
| Reconciliation of prior service (cost) credit recognized in accumulated other comprehensive income (loss): | | | | | | | | |
| Beginning balance | | $ | (16) | | | $ | (18) | | | $ | 5 | | | $ | 7 | |
| Recognized as component of net benefit (credit) cost: | | | | | | | | |
| Amortization of prior service credit | | — | | | — | | | (2) | | | (2) | |
| | | | | | | | |
| Total recognized as component of net benefit (credit) cost | | — | | | — | | | (2) | | | (2) | |
| Changes in plan assets and benefit obligations recognized in other comprehensive income: | | | | | | | | |
| | | | | | | | |
| Exchange rate adjustments | | (1) | | | 2 | | | — | | | — | |
| Prior service (cost) credit, December 31 | | $ | (17) | | | $ | (16) | | | $ | 3 | | | $ | 5 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Non-U.S. Pension
Benefits | | Non-U.S.
Post-retirement Benefits |
| (In millions) | | 2023 | | 2022 | | 2023 | | 2022 |
| Reconciliation of net actuarial (loss) gain recognized in accumulated other comprehensive (loss) income: | | | | | | | | |
| Beginning balance | | $ | (2,610) | | | $ | (2,904) | | | $ | 6 | | | $ | (10) | |
| Recognized as component of net benefit (credit) cost: | | | | | | | | |
| Amortization of net loss (gain) | | 3 | | | 75 | | | (1) | | | 1 | |
| Effect of settlement | | 2 | | | 2 | | | — | | | — | |
| Total recognized as component of net benefit cost (credit) | | 5 | | | 77 | | | (1) | | | 1 | |
| Changes in plan assets and benefit obligations recognized in other comprehensive income (loss): | | | | | | | | |
| Liability experience | | (226) | | | 3,953 | | | 10 | | | 14 | |
| Asset experience | | (191) | | | (4,051) | | | — | | | — | |
| | | | | | | | |
| | | | | | | | |
| Total amount recognized as change in plan assets and benefit obligations | | (417) | | | (98) | | | 10 | | | 14 | |
| Exchange rate adjustments | | (197) | | | 315 | | | 2 | | | 1 | |
| Net actuarial (loss) gain, December 31 | | $ | (3,219) | | | $ | (2,610) | | | $ | 17 | | | $ | 6 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Years Ended December 31, | | Non-U.S. Pension
Benefits | | Non-U.S.
Post-retirement Benefits |
| (In millions) | | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 |
| Total recognized in net benefit (credit) cost and other comprehensive (income) loss | | $ | 429 | | | $ | (436) | | | $ | (745) | | | $ | (9) | | | $ | (13) | | | $ | (2) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Non-U.S. Pension
Benefits | | Non-U.S.
Post-retirement Benefits |
| (In millions) | 2020 | | 2019 | | 2020 | | 2019 |
| Reconciliation of prior service (cost) credit recognized in accumulated other comprehensive income (loss): | | | | | | | |
| Beginning balance | $ | (2) | | | $ | (2) | | | $ | 11 | | | $ | 12 | |
| Recognized as component of net periodic benefit credit: | | | | | | | |
| Amortization of prior service credit | 0 | | | 0 | | | (2) | | | (2) | |
| | | | | | | |
| Total recognized as component of net periodic benefit credit | 0 | | | 0 | | | (2) | | | (2) | |
| Changes in plan assets and benefit obligations recognized in other comprehensive income: | | | | | | | |
| Plan amendments | (11) | | | 1 | | | 0 | | | 0 | |
| Exchange rate adjustments | 0 | | | (1) | | | 0 | | | 1 | |
| Prior service (cost) credit, December 31 | $ | (13) | | | $ | (2) | | | $ | 9 | | | $ | 11 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Non-U.S. Pension
Benefits | | Non-U.S.
Post-retirement Benefits |
| (In millions) | 2020 | | 2019 | | 2020 | | 2019 |
| Reconciliation of net actuarial (loss) gain recognized in accumulated other comprehensive (loss) income: | | | | | | | |
| Beginning balance | $ | (3,055) | | | $ | (2,568) | | | $ | (5) | | | $ | (1) | |
| Recognized as component of net periodic benefit cost: | | | | | | | |
| Amortization of net loss | 89 | | | 60 | | | 0 | | | 0 | |
| Effect of settlement | 3 | | | 7 | | | 0 | | | 0 | |
| Total recognized as component of net periodic benefit credit | 92 | | | 67 | | | 0 | | | 0 | |
| Changes in plan assets and benefit obligations recognized in other comprehensive income (loss): | | | | | | | |
| Liability experience | (1,273) | | | (1,339) | | | (10) | | | (3) | |
| Asset experience | 916 | | | 847 | | | 0 | | | 0 | |
| | | | | | | |
| | | | | | | |
| Total amount recognized as change in plan assets and benefit obligations | (357) | | | (492) | | | (10) | | | (3) | |
| Exchange rate adjustments | (147) | | | (62) | | | (1) | | | (1) | |
| Net actuarial loss, December 31 | $ | (3,467) | | | $ | (3,055) | | | $ | (16) | | | $ | (5) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Years Ended December 31, | Non-U.S. Pension
Benefits | | Non-U.S. Post-retirement
Benefits |
| (In millions) | 2020 | | 2019 | | 2018 | | 2020 | | 2019 | | 2018 |
| Total recognized in net periodic benefit cost and other comprehensive loss (income) | $ | 261 | | | $ | 311 | | | $ | (147) | | | $ | 13 | | | $ | 5 | | | $ | (5) | |
The weighted average actuarial assumptions utilized in determining expense during the year and benefit obligation at the end of the year for the non-U.S. defined benefit and post-retirement plans are as follows:
| | Non-U.S. Pension
Benefits | | Non-U.S.
Post-retirement Benefits |
| 2020 | | 2019 | | 2020 | | 2019 |
| | Non-U.S. Pension
Benefits | | | | Non-U.S. Pension
Benefits | | Non-U.S.
Post-retirement Benefits |
| | 2023 | | | | 2023 | | 2022 | | 2023 | | 2022 |
| Weighted average assumptions: | Weighted average assumptions: | |
| Discount rate (for expense) | |
| Discount rate (for expense) | |
| Discount rate (for expense) | Discount rate (for expense) | 2.09 | % | | 2.89 | % | | 2.53 | % | | 3.32 | % | | 4.89 | % | | 1.89 | % | | 4.73 | % | | 2.28 | % |
| Expected return on plan assets | Expected return on plan assets | 4.35 | % | | 4.87 | % | | 0 | | | 0 | |
| Rate of compensation increase (for expense) | Rate of compensation increase (for expense) | 2.75 | % | | 2.82 | % | | 0 | | | 0 | |
| Discount rate (for benefit obligation) | Discount rate (for benefit obligation) | 1.49 | % | | 2.09 | % | | 1.96 | % | | 2.53 | % | Discount rate (for benefit obligation) | | 4.59 | % | | 4.89 | % | | 5.22 | % | | 4.73 | % |
| Rate of compensation increase (for benefit obligation) | Rate of compensation increase (for benefit obligation) | 2.84 | % | | 2.75 | % | | 0 | | | 0 | |
The accumulated benefit obligation and fair value of plan assets for the non-U.S. pension plans with accumulated benefitbenefit obligations in excess of plan assets were$427 million and $3.1 billion and $2.5 billion,210 million, respectively, as ofat December 31, 20202023 and $2.7 billion$935 million and $2.2 billion,$718 million, respectively, as ofat December 31, 2019.2022.
The projected benefit obligation and fair value of plan assets for non-U.S. pension plans with projected benefit obligations in excess of plan assets was $3.3$1.3 billion and $1.0 billion, respectively, at December 31, 2023 and $1.0 billion and $2.6 billion,$723 million, respectively, as ofat December 31, 2020 and $3.0 billion and $2.3 billion, respectively, as of December 31, 2019.
The increase in the benefit obligation in 2020 compared to 2019 reflects an actuarial loss primarily due to the decrease in discount rates used to measure plan liabilities.2022.
Components of Net Periodic Benefits CostsBenefit (Credit) or Cost
The components of the net periodic benefit (credit) or cost for the non-U.S. defined benefit and other post-retirement benefit plans and the curtailment, settlement and termination expenses are as follows:
| | For the Years Ended December 31, | For the Years Ended December 31, | Non-U.S. Pension
Benefits | | Non-U.S. Post-retirement
Benefits | For the Years Ended December 31, | | Non-U.S. Pension
Benefits | | Non-U.S.
Post-retirement Benefits |
| (In millions) | (In millions) | 2020 | | 2019 | | 2018 | | 2020 | | 2019 | | 2018 | (In millions) | | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 |
| Service cost | Service cost | $ | 36 | | | $ | 31 | | | $ | 34 | | | $ | — | | | $ | 0 | | | $ | 1 | |
| Interest cost | Interest cost | 208 | | | 246 | | | 228 | | | 2 | | | 2 | | | 2 | |
| Expected return on plan assets | Expected return on plan assets | (499) | | | (520) | | | (507) | | | 0 | | | 0 | | | 0 | |
| Amortization of prior service credit | Amortization of prior service credit | 0 | | | 0 | | | (2) | | | (2) | | | (2) | | | (2) | |
| Recognized actuarial loss | Recognized actuarial loss | 89 | | | 60 | | | 91 | | | 0 | | | 0 | | | 0 | |
| Net periodic benefit (credit) cost | Net periodic benefit (credit) cost | (166) | | | (183) | | | (156) | | | 0 | | | 0 | | | 1 | |
| Settlement loss | Settlement loss | 3 | | | 7 | | | 42 | | | 0 | | | 0 | | | 0 | |
| Curtailment loss | |
| | Special termination benefits | 1 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Total (credit) cost | $ | (162) | | | $ | (176) | | | $ | (114) | | | $ | 0 | | | $ | 0 | | | $ | 1 | |
| Net benefit (credit) cost | |
| Net benefit (credit) cost | |
| Net benefit (credit) cost | |
The assumedassumed health care cost trend rate was approximately 4.93%8.87% in 2020,2023, gradually declining to 4.22%4.46% in 2040.2040. Assumed health care cost trend rates can have a significant effect on the amounts reported for the non-U.S.non-U.S. health care plans.
Estimated Future Contributions
The Company expects to contributecontribute approximately $87$78 million to its non-U.S. pension plans in 2021.2024. Funding requirements for non-U.S. plans vary by country. Contribution rates are generally based on local funding practices and requirements, which may differ significantly from measurements under U.S. GAAP. Funding amounts may be influenced by future asset performance, the level of discount rates and other variables impacting the assets and/or liabilities of the plan. Discretionary contributions may also be affected by alternative uses of the Company’s cash flows, including dividends, investments and share repurchases.
In the U.K., the assumptions used to determine pension contributions are the result of legally-prescribedlegally prescribed negotiations between the Company and the plans' trustee that typically occurs every three3 years in conjunction with the actuarial valuation of the plans. Currently, this results in a lower funded status than under U.S. GAAP and may result in contributions irrespective of the U.S. GAAP funded status. For thestatus.
In 2021, following the acquisition of Jardine Lloyd Thompson Group plc ("JLT"), the JLT Pension Scheme was merged into the MMC UKU.K. Pension Fund with a new segregated JLT section created. The Company made deficit contributions of $41 million to the JLT section in November 2016,2023 and is expected to make contributions totaling approximately $38 million in 2024.
For the Company andMMC U.K. Pension Fund, excluding the trustee agreed to a funding deficit recovery plan for the U.K. defined benefit pension plans. A newJLT section, an agreement was reached with the trustee in the fourth quarter of 20192022 based on the surplus funding position at December 31, 2018. Under2021. In accordance with the agreement no deficit funding is required the earliest until 2023.2026. The funding level will be re-assessed during 20222025, as part of the December 31, 2024 actuarial valuation, to determine if contributions are required in 2023. As part of a long-term strategy, which depends on having greater influence over asset allocation and overall investment decisions, in November 20192026. In December 2022, the Company renewed its agreement to support annual deficit contributions by the U.K. operating companies under certain circumstances, up to GBP 450£450 million (or $576 million) over a seven-year period.
In addition, in the U.K., This is part of an agreement which gives the Company assumed responsibility for JLT's Pension Scheme (JLT U.K. plan). We currently expect to pay $29 million of deficit funding in 2021, although we will also reach a new funding agreement with the trustee during 2021.greater influence over asset allocation and overall investment decisions.
Estimated Future Benefit Payments
The estimated future benefit payments for the Company's pension and post-retirement benefit plans are as follows:
| | For the Years Ended December 31, | For the Years Ended December 31, | Pension
Benefits | | Post-retirement
Benefits | For the Years Ended December 31, | | Pension
Benefits | | Post-retirement
Benefits |
| (In millions) | (In millions) | U.S. | | Non-U.S. | | U.S. | | Non-U.S. | (In millions) | | U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
| 2021 | $ | 291 | | | $ | 344 | | | $ | 4 | | | $ | 3 | |
| 2022 | $ | 302 | | | $ | 353 | | | $ | 3 | | | $ | 3 | |
| 2023 | $ | 315 | | | $ | 373 | | | $ | 3 | | | $ | 3 | |
| 2024 | 2024 | $ | 321 | | | $ | 382 | | | $ | 3 | | | $ | 3 | |
| 2025 | 2025 | $ | 327 | | | $ | 394 | | | $ | 3 | | | $ | 3 | |
| 2026-2030 | $ | 1,701 | | | $ | 2,160 | | | $ | 10 | | | $ | 15 | |
| 2026 | |
| 2027 | |
| 2028 | |
| 2029-2033 | |
Defined Benefit Plans Fair Value Disclosures
The U.S. and non-U.S. plan investments are classified into into:
•Level 1, which refers to investments valued using quoted prices from active markets for identical assets;
•Level 2, which refers to investments not traded on an active market but for which observable market inputs are readily available;
•Level 3, which refers to investments valued based on significant unobservable inputs; and NAV, which refers to investments
•Investments valued using net asset value ("NAV") as a practical expedient.
Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. SeeRefer to Note 10, Fair Value Measurements, for further description of the fair value hierarchy leveling.hierarchy.
The following table sets forth, by level within the fair value hierarchy, a summary of the U.S. and non-U.S. plans' investments measured at fair value on a recurring basis at December 31, 20202023 and 2019:2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value Measurements at December 31, 2023 |
Assets (In millions) | | Quoted Prices in
Active Markets
for Identical
Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) | | NAV | | Total |
| Common/collective trusts | | $ | 43 | | | $ | — | | | $ | — | | | $ | 3,535 | | | $ | 3,578 | |
| Corporate obligations | | — | | | 2,806 | | | — | | | — | | | 2,806 | |
| Corporate stocks | | 227 | | | 37 | | | 1 | | | — | | | 265 | |
| Private equity/partnerships | | — | | | — | | | — | | | 1,444 | | | 1,444 | |
| Government securities | | 23 | | | 5,077 | | | — | | | — | | | 5,100 | |
| Real estate | | — | | | — | | | — | | | 63 | | | 63 | |
| Short-term investment funds | | 488 | | | — | | | — | | | — | | | 488 | |
| Company common stock | | 189 | | | — | | | — | | | — | | | 189 | |
| Other investments | | 7 | | | 14 | | | 302 | | | — | | | 323 | |
| Total investments | | $ | 977 | | | $ | 7,934 | | | $ | 303 | | | $ | 5,042 | | | $ | 14,256 | |
| Net derivative liabilities | | — | | | (804) | | | — | | | — | | | (804) | |
| Net investments | | $ | 977 | | | $ | 7,130 | | | $ | 303 | | | $ | 5,042 | | | $ | 13,452 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value Measurements at December 31, 2022 |
Assets (In millions) | | Quoted Prices in
Active Markets
for Identical
Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) | | NAV | | Total |
| Common/collective trusts | | $ | 43 | | | $ | — | | | $ | — | | | $ | 3,995 | | | $ | 4,038 | |
| Corporate obligations | | — | | | 2,402 | | | — | | | — | | | 2,402 | |
| Corporate stocks | | 527 | | | 36 | | | 1 | | | — | | | 564 | |
| Private equity/partnerships | | — | | | — | | | — | | | 1,433 | | | 1,433 | |
| Government securities | | 15 | | | 4,662 | | | — | | | — | | | 4,677 | |
| Real estate | | — | | | — | | | — | | | 261 | | | 261 | |
| Short-term investment funds | | 609 | | | 3 | | | — | | | — | | | 612 | |
| Company common stock | | 331 | | | — | | | — | | | — | | | 331 | |
| Other investments | | 10 | | | 11 | | | 308 | | | — | | | 329 | |
| Total investments | | $ | 1,535 | | | $ | 7,114 | | | $ | 309 | | | $ | 5,689 | | | $ | 14,647 | |
| Net derivative liabilities | | — | | | (1,605) | | | — | | | — | | | (1,605) | |
| Net investments | | $ | 1,535 | | | $ | 5,509 | | | $ | 309 | | | $ | 5,689 | | | $ | 13,042 | |
The above tables do not include receivables or payables related to securities at December 31, 2023 and 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements at December 31, 2020 |
Assets (In millions) | Quoted Prices in
Active Markets
for Identical
Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) | | NAV | | Total |
| Common/collective trusts | $ | 561 | | | $ | 0 | | | $ | 0 | | | $ | 4,298 | | | $ | 4,859 | |
| Corporate obligations | 0 | | | 4,707 | | | 2 | | | — | | | 4,709 | |
| Corporate stocks | 2,737 | | | 39 | | | 1 | | | — | | | 2,777 | |
| Private equity/partnerships | — | | | — | | | — | | | 1,353 | | | 1,353 | |
| Government securities | 15 | | | 4,331 | | | 0 | | | — | | | 4,346 | |
| Real estate | — | | | — | | | — | | | 487 | | | 487 | |
| Short-term investment funds | 1,040 | | | 0 | | | 0 | | | — | | | 1,040 | |
| Company common stock | 234 | | | 0 | | | 0 | | | — | | | 234 | |
| Other investments | 13 | | | 7 | | | 771 | | | 0 | | | 791 | |
| Total investments | $ | 4,600 | | | $ | 9,084 | | | $ | 774 | | | $ | 6,138 | | | $ | 20,596 | |
| Net derivative liabilities | 0 | | | (1,522) | | | 0 | | | — | | | (1,522) | |
| Net Investments | $ | 4,600 | | | $ | 7,562 | | | $ | 774 | | | $ | 6,138 | | | $ | 19,074 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements at December 31, 2019 |
Assets (In millions) | Quoted Prices in
Active Markets
for Identical
Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) | | NAV | | Total |
| Common/collective trusts | $ | 492 | | | $ | 0 | | | $ | 0 | | | $ | 5,959 | | | $ | 6,451 | |
| Corporate obligations | 0 | | | 4,063 | | | 0 | | | — | | | 4,063 | |
| Corporate stocks | 2,871 | | | 34 | | | 1 | | | — | | | 2,906 | |
| Private equity/partnerships | — | | | — | | | — | | | 1,055 | | | 1,055 | |
| Government securities | 20 | | | 679 | | | 0 | | | — | | | 699 | |
| Real estate | — | | | — | | | — | | | 660 | | | 660 | |
| Short-term investment funds | 309 | | | 3 | | | 0 | | | — | | | 312 | |
| Company common stock | 223 | | | 0 | | | 0 | | | — | | | 223 | |
| Other investments | 15 | | | 17 | | | 682 | | | 2 | | | 716 | |
| Total investments | $ | 3,930 | | | $ | 4,796 | | | $ | 683 | | | $ | 7,676 | | | $ | 17,085 | |
The tables below set forth a summary of changes in the fair value of the plans’ Level 3 assets for the years ended December 31, 20202023 and December 31, 2019:2022:
| Assets (In millions) | Assets (In millions) | Fair Value,
January 1, 2020 | | Purchases | | Sales | | Unrealized
Gain/
(Loss) | | Realized
Gain/
(Loss) | | Exchange
Rate
Impact | | Transfers
in/(out)
and
Other | | Fair
Value, December 31, 2020 | Assets (In millions) | | Fair Value,
January 1, 2023 | | Purchases | | Sales | | Unrealized
Gain/
(Loss) | | Realized
Gain/
(Loss) | | Exchange
Rate
Impact | | Transfers
in/(out)
and
Other | | Fair
Value, December 31, 2023 |
| | Other investments | Other investments | $ | 682 | | | $ | 20 | | | $ | (12) | | | $ | 25 | | | $ | 1 | | | $ | 55 | | | $ | 2 | | | $ | 773 | |
| | Other investments | |
| | Other investments | |
| | Corporate stocks | |
| | Corporate stocks | |
| | Corporate stocks | Corporate stocks | 1 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 1 | |
| | Total assets | Total assets | $ | 683 | | | $ | 20 | | | $ | (12) | | | $ | 25 | | | $ | 1 | | | $ | 55 | | | $ | 2 | | | $ | 774 | |
| | Total assets | |
| | Total assets | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Assets (In millions) | Fair Value,
January 1, 2019 | | Purchases | | Sales | | Unrealized
Gain/
(Loss) | | Realized
Gain/
(Loss) | | Exchange
Rate
Impact | | Transfers
in/(out)
and
Other (a) | | Fair
Value, December 31, 2019 |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Other investments | $ | 333 | | | $ | 17 | | | $ | (14) | | | $ | 72 | | | $ | 1 | | | $ | (9) | | | $ | 282 | | | $ | 682 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Corporate stocks | 1 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 1 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Total assets | $ | 334 | | | $ | 17 | | | $ | (14) | | | $ | 72 | | | $ | 1 | | | $ | (9) | | | $ | 282 | | | $ | 683 | |
(a) Transfers in during 2019 are primarily related to the inclusion of JLT plan assets. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Assets (In millions) | | Fair Value,
January 1, 2022 | | Purchases | | Sales | | Unrealized
Gain/
(Loss) | | Realized
Gain/
(Loss) | | Exchange
Rate
Impact | | Transfers
in/(out)
and
Other | | Fair
Value, December 31, 2022 |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Other investments | | $ | 662 | | | $ | 18 | | | $ | (19) | | | $ | (302) | | | $ | — | | | $ | (51) | | | $ | — | | | $ | 308 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Corporate stocks | | 1 | | | — | | | — | | | — | | | — | | | — | | | — | | | 1 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Total assets | | $ | 663 | | | $ | 18 | | | $ | (19) | | | $ | (302) | | | $ | — | | | $ | (51) | | | $ | — | | | $ | 309 | |
The following is a description of the valuation methodologies used for assets measured at fair value:
Company common stock: Valued at the closing price reported on the New York Stock Exchange.
Common stocks, preferred stocks, convertible equity securities, rights/warrants and real estate investment trusts (included in Corporate stocks): Valued at the closing price reported on the primary exchange.
Corporate bonds (included in Corporate obligations): The fair value of corporate bonds is estimated using recently executed transactions, market price quotations (where observable) and bond spreads. The spread data used are for the same maturity as the bond. If the spread data does not reference the issuer, then data that references a comparable issuer are used. When observable price quotations are not available, fair value is determined based on cash flow models.
Commercial mortgage-backed and asset-backed securities (included in Corporate obligations): Fair value is determined using discounted cash flow models. Observable inputs are based on trade and quote activity of bonds with similar features including issuer vintage, purpose of underlying loan (first or second lien), prepayment speeds and credit ratings. The discount rate is the combination of the appropriate rate from the benchmark yield curve and the discount margin based on quoted prices.
Common/Collective trusts: ValuedTrust assets include mutual funds that are valued based on readily determinable market values and other assets valued at the net asset value of units of a bank collective trust. The net asset value as provided by the trustee, is used as a practical expedient to estimate fair value. The net asset value is based on the fair value of the underlying investments held by the fund less its liabilities. This practical expedient is not used when it is determined to be probable that the fund will sell the investment for an amount different than the reported net asset value.
U.S. government bonds (included in Government securities): The fair value of U.S. government bonds is estimated by pricing models that utilize observable market data including quotes, spreads and data points for yield curves.
U.S. agency securities (included in Government securities): U.S. agency securities are comprised of two main categories consisting of agency issued debt and mortgage pass-throughs. Agency issued debt securities are valued by benchmarking market-derived prices to quoted market prices and trade data for identical or comparable securities. Mortgage pass-throughs include certain "To-be-announced" (TBA) securities and mortgage pass-through pools. TBA securities are generally valued using quoted market prices or are benchmarked thereto. Fair value of mortgage pass-through pools are model driven with respect to spreads of the comparable TBA security.
Private equity and real estate partnerships: Investments in private equity and real estate partnerships are valued based on the fair value reported by the manager of the corresponding partnership and reported on a one quarter lag. The managers provide unaudited quarterly financial statements and audited annual financial statements which set forth the value of the fund. The valuations obtained from the managers are based on various analyses on the underlying holdings in each partnership, including financial valuation models and projections, comparable valuations from the public markets, and precedent private market transactions. Investments are valued in the
accompanying financial statements based on the Plan’s beneficial interest in the underlying net assets of the partnership as determined by the partnership agreement.
Insurance group annuity contracts:contracts (included in Other investments): The fair values for these investments are based on the current market value of the aggregate accumulated contributions plus interest earned.
Net derivative liabilities: Includes interest rate swaps, inflation swaps, total return swaps, repurchase agreements and equity based derivatives, primarily related to the U.K. plans. These derivatives are structured to hedge interest rate, inflation and equity exposure in the U.K. plans. Fair values for interest rate, inflation and equity based derivatives are calculated using a discounted cash flow pricing model. These models use observable market data such as contractual fixed rate, spot equity price or index value and dividend data.
In the prior year, the invested assets and hedging derivatives in the U.K. plans were structured as a pooled fund and disclosed in the leveling chart in the common/collective trust category and measured at fair value based on NAV. In the fourth quarter of 2020, the Company restructured the U.K. plans' investment portfolio to segregate its asset and hedging instruments by specific investment categories.
Short-term investment funds: Primarily high-grade money market instruments valued at net asset value at year-end.a readily determinable price.
Registered investment companies: Valued at the closing price reported on the primary exchange.
Defined Contribution Plans
The Company maintains certain defined contribution plans for its employees, including the Marsh & McLennan Companies 401(k) Savings & Investment Plan ("MMC 401(k) Plan") and the Marsh & McLennan Agency Savings and Investment Plan (collectively, the "401(k) Plans"), that are qualified under U.S. tax laws. For the 401(k) Plans, eligible employees may contribute a percentage of their base salary, subject to certain limitations, and the Company matches a fixed portion of the employees’ contributions. In addition, the Company also amended the MMC 401(k) Plan for most of its U.S. employees to add an automatic Company contribution equal to 4% of eligible base pay beginning on January 1, 2017. The 401(k) Plans contain an Employee Stock Ownership Plan feature under U.S. tax law. Approximately $537Approximately $726 million of the 401(k) Plans' assets at December 31, 20202023 and $556$677 million at December 31, 20192022 were invested in the Company’s common stock. If a participant does not choose an investment direction for his or hertheir future contributions, they are automatically invested in a BlackRock LifePath Portfolio that most closely matches the participant’s expected retirement year. The cost of these defined contribution plans was $145was $173 million in 2023, $161 million in 2020, $1392022 and $150 million in 2019 and $133 million in 2018.2021. In addition, the Company has significant defined contribution plans in the U.K. As noted above, effectiveEffective August 1, 2014, a newly formed defined contribution plan replaced the existing defined contribution and defined benefit plans with regard to future service. In addition, the Company has assumed responsibility for the defined contribution section of the JLT U.K. plan. Members of the JLT U.K. plan defined contribution section transferred to the MMC U.K. Pension Fund defined contribution section in 2021. The cost of the U.K. defined contribution plan was $121$158 million $100, $140 million and $80$141 million in 2020, 20192023, 2022 and 2018,2021, respectively.
9. Stock Benefit Plans
The Company maintains multiple stock-based payment arrangements under which employees may be awarded restricted stock units, stock options and other forms of stock-based benefits.
Marsh & McLennan Companies, Inc. Incentive and Stock Award Plans
On May 21, 2020, the Marsh & McLennan Companies, Inc. 2020 Incentive and Stock Award Plan (the "2020 Plan") was approved by the Company's stockholders. The 2020 Plan replaced the Company's previous equity incentive plan, (2011the 2011 Incentive and Stock Award Plan).Plan.
The types of awards permitted under the 2020 Plan include stock options, restricted stock units payable in Company common stock or cash, and other stock-based awards. Performance-based restricted stock units are referred to as performance stock units. The 2020 Plan contains a provision which, in the event of a change in control of the Company, may accelerate the vesting of awards. This provision requires both a change in control of the Company and a subsequent specified termination of employment for vesting to be accelerated. There are 20 million shares availableapproved for issuance under the 2020 plan. The total number of shares issued in connection with full-value awards may not exceed 12.5 million shares. Full-value awards include awards such as restricted stock units and performance stock units but exclude stock options.
The Company's current practice is to grant non-qualified stock options, restricted stock units ("RSUs") and/or performance stock units ("PSUs") on an annual basis to senior executives and a limited number of
othercertain employees as part of their annual total compensation. Senior executives are granted options and PSU awards. In addition, a small group of other employees are granted options, PSU and RSU awards and a larger group of other employees are granted RSU awards. RSU awards are also granted to new hires or as retention awards for certain employees.
Stock Options: The Company currently grants non-qualified stock options under the 2020 Plan. The Compensation Committee determines when the options vest and may be exercised and under what terms the options are forfeited. Options are generally granted with an exercise price equal to the market value of the Company's common stock on the date of grant. These optionOption awards generally vest 25% per year and have a contractual term of 10 years.
The estimated fair value of options granted is calculated using the Black-Scholes option pricing valuation model. This model takes into accountconsiders several factors and assumptions. The expected dividend yield assumption is based on expectedanticipated dividends forover the expected life of the stock options.
The assumptions used in the Black-Scholes option pricing valuation model for options granted by the Company in 2020, 20192023, 2022 and 20182021 are as follows:
| | 2020 | | 2019 | | 2018 |
| | 2023 | | | | 2023 | | 2022 | | 2021 |
| Risk-free interest rate | Risk-free interest rate | 1.44 | % | | 2.51 | % | | 2.73 | % | Risk-free interest rate | | 4.11 | % | | 1.88 | % | | 0.79 | % |
| Expected life (in years) | Expected life (in years) | 6.0 | | 6.0 | | 6.0 | Expected life (in years) | | 5.8 | | 5.8 | | 6.0 |
| Expected volatility | Expected volatility | 20.33 | % | | 20.93 | % | | 23.23 | % | Expected volatility | | 22.59 | % | | 22.58 | % | | 23.45 | % |
| Expected dividend yield | Expected dividend yield | 1.53 | % | | 1.82 | % | | 1.81 | % | Expected dividend yield | | 1.44 | % | | 1.41 | % | | 1.58 | % |
A summary of the status of the Company’s stock option awards as ofat December 31, 20202023 and changes during the year then ended isare presented below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Shares | | Weighted
Average Exercise
Price | | Weighted
Average
Remaining
Contractual
Term | | Aggregate
Intrinsic Value
($000) |
| Balance at January 1, 2020 | 8,859,128 | | | $ | 64.69 | | | | | |
| Granted | 1,326,790 | | | $ | 118.87 | | | | | |
| Exercised | (2,348,898) | | | $ | 44.72 | | | | | |
| | | | | | | |
| Forfeited | (67,125) | | | $ | 96.09 | | | | | |
| | | | | | | |
| Balance at December 31, 2020 | 7,769,895 | | | $ | 79.71 | | | 6.5 years | | $ | 285,520 | |
| Options vested or expected to vest at December 31, 2020 | 7,645,454 | | | $ | 79.45 | | | 6.5 years | | $ | 282,844 | |
| Options exercisable at December 31, 2020 | 4,299,859 | | | $ | 64.71 | | | 5.2 years | | $ | 220,402 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Shares | | Weighted
Average
Exercise
Price | | Weighted
Average
Remaining
Contractual
Term | | Aggregate
Intrinsic Value
($000) |
| Balance at January 1, 2023 | | 7,533,045 | | | $ | 99.18 | | | | | |
| Granted | | 699,662 | | | $ | 164.15 | | | | | |
| Exercised | | (1,537,473) | | | $ | 75.59 | | | | | |
| | | | | | | | |
| Forfeited | | (99,472) | | | $ | 143.89 | | | | | |
| | | | | | | | |
| Balance at December 31, 2023 | | 6,595,762 | | | $ | 110.90 | | | 5.2 years | | $ | 514,853 | |
| Options vested or expected to vest at December 31, 2023 | | 6,542,158 | | | $ | 110.66 | | | 5.2 years | | $ | 512,214 | |
| Options exercisable at December 31, 2023 | | 4,320,314 | | | $ | 94.59 | | | 4.2 years | | $ | 407,683 | |
In the above table, forfeited options are unvested options whose requisite service period has not been met. Expired options are vested options that were not exercised. The weighted-average grant-date fair value of the Company's option awards granted during the years ended December 31, 2020, 2019in 2023, 2022 and 2018 2021 was $21.09, $17.87$41.92, $31.38 and $18.29,$22.25, respectively. The total intrinsic value of options exercised during the same periods was $159.3$164 million $136.7, $56 million and $72.9$138 million, respectively.
As ofAt December 31, 2020,2023, there was $17.5 $30 million of unrecognized compensation cost related to the Company's option awards. The weighted-average period over which that cost is expected to be recognized is approximately 1.231.38 years. Cash received from the exercise of stock options for the years ended December 31, 2020, 2019in 2023, 2022 and 2018 was $72.02021 was $116 million, $106.5$50 million and $46.7$103 million, respectively.
The Company's policy is to issue treasury shares upon option exercises or share unit conversion. The Company intends to issue treasury shares as long as an adequate number of those shares is available.
Restricted Stock Units and Performance Stock Units: The Company currently grants RSU and PSU awards under the 2020 Plan. The Compensation Committee determines the restrictions on such units, when the restrictions lapse, when the units vest and are paid, and under what terms the units are forfeited. The cost of these awards is amortized over the vesting period, which is generally three3 years. Dividend equivalents are not paid out unless and until such time that the award vests and shares are distributed.
distributed. For PSU's granted prior to 2020,The payout for PSU awards is based on the achievement of the Company's performance measures, based on adjusted EPS growth as modified for executive compensation purposes and a relative total stockholder return ("TSR") modifier versus the S&P 500 constituents, both measured on a three-year annualizedbasis. The number of shares earned at the end of the three-year vesting period varies from 0% to 200% of the number of PSUs granted depending on adjusted EPS growth basis, and relative TSR performance. PSU awards are paid out generally overat the end of February after the three-year performance period. period is completed.
The Company accounts for thesePSU awards as performance condition restricted stock units. The adjusted EPS-related performance condition is not considered in the determination of grant date fair value of such awards. Compensation cost is recognized over the performance period based on management’smanagement's estimate of the number of units expected to vest and shares to be paid in connection with adjusted EPS growth and is adjusted to reflect the actual number of shares paid out at the end of the three-year performance period.period for such performance.
The payout for PSU awards granted in 2020 is based on the achievement of the Company's adjusted EPS growth as well as a relative total stockholder return ("TSR") modifier versus the S&P 500 companies.The TSR modifier is a market condition with the grant-date fair value determined using a Monte Carlo simulation model. The Monte Carlo model takes into accountconsiders several factors and assumptions including the risk-free interest rate, historical volatility of and correlations between the stock prices of the Company and the S&P 500 companies,constituents, and the Company’sCompany's relative TSR versus S&P 500 companiesconstituents for the brief portion of the three-year performance period prior to the grant date. The number of shares actually earned at the end of the three-year period will vary, based on actual Company financial performance, and for 2020 PSU awards, relative TSR, from 0% to 200%% of the number of performance share units granted.
The assumptions used in the Monte Carlo simulation model for PSU'sPSU awards granted with the TSR modifier by the Company in 20202023 include:
| | | | | | | | |
| | 20202023 |
| Risk-Free Interest Rate | | 1.394.44 | % |
| Dividend Yield | | 1.81.4 | % |
| Volatility | | 16.028.0 | % |
| Initial TSR | | 7.9 (2.6) | % |
A summary of the status of the Company's RSU and PSU awards as ofat December 31, 20202023 and changes during the period then ended isare presented below:
| | Restricted Stock Units | | Performance Stock Units |
| Shares | Weighted Average
Grant Date
Fair Value | | Shares | Weighted Average Grant Date Fair Value |
| Non-vested balance at January 1, 2020 | 5,957,737 | | $ | 87.80 | | | 650,547 | | $ | 82.75 | |
| Restricted Stock Units | | | Restricted Stock Units | | Performance Stock Units |
| Shares | | | Shares | | Weighted Average Grant Date Fair Value | | Shares | | Weighted Average Grant Date Fair Value |
| Non-vested balance at January 1, 2023 | |
| Granted | Granted | 2,156,602 | | $ | 118.20 | | | 235,432 | $ | 127.71 | |
| Vested | Vested | (2,291,265) | | $ | 82.96 | | | (210,950) | | $ | 73.20 | |
| Forfeited | Forfeited | (309,393) | | $ | 96.28 | | | (18,347) | | $ | 97.02 | |
| | Non-vested balance at December 31, 2020 | 5,513,681 | | $ | 101.22 | | | 656,682 | $ | 101.54 | |
| Non-vested balance at December 31, 2023 | |
| Non-vested balance at December 31, 2023 | |
| Non-vested balance at December 31, 2023 | |
The weighted-average grant-date fair value of the Company's RSU awards granted during the years ended December 31, 2019in 2022 and 20182021 was $92.50$152.34 and $83.05,$120.19, respectively. The weighted average grant dateweighted-average grant-date fair value of the Company's PSU awards granted during the years ended December 31, 2019in 2022 and 20182021 was $91.17$151.00 and $83.05,$122.77, respectively. The total fair value of the shares distributed during the years ended December 31, 2020, 2019in 2023, 2022 and 20182021 in connection with the Company's non-option equity awards was $290.0$398 million, $211.9$560 million and $170.3$278 million, respectively.
The payout of shares in 20202023 with respect to the PSU awards granted in 20172020 was 168%200% of target based on performance for the three-year performance period. In aggregate, 354,452413,160 shares became distributable in respect to PSUs vested in 2020.2023.
As ofAt December 31, 2020,2023, there was $347.7was $368 million of unrecognized compensation cost related to the Company's RSU and PSU awards.awards. The weighted-average period over which that cost is expected to be recognized is approximately 1one year.
Marsh & McLennan Companies Stock Purchase Plans
In May 1999, the Company's stockholders approved an employee stock purchase plan (the "1999 Plan") to replace the 1994 Employee Stock Purchase Plan (the "1994 Plan"), which terminated on September 30, 1999 following its fifth annual offering. UnderIn accordance with the current terms of the 1999 Plan, shares are purchased 4 times during the plan year at a price that is 95% of the average market price on each quarterly purchase date. UnderIn accordance with the 1999 Plan, after including the available remaining unused shares in the 1994 Plan and reducing the shares available by 10,000,000 consistent with the Company's Board of Directors' action in March 2007 and the addition of 4,750,000 shares due to a shareholder action in May 2018, no more than 40,350,000 shares of the Company's common stock may be sold. Employees purchased 394,419331,017 shares during the year ended December 31, 2020in 2023 and at December 31, 2020, 4,878,2882023, 3,862,742 shares were available for issuance underfor the 1999 Plan. Under
In accordance with the 1995 Company Stock Purchase Plan for International Employees (the "International Plan"), after reflecting the additional 5,000,000 shares of common stock for issuance approved by the Company's Board of Directors in July 2002, the addition of 4,000,000 shares due to a shareholder action in May 2007 and reducing the shares available by 1,000,000 consistent with the Company's Board of Directors' action in March 2018, no more than 11,000,000 shares of the Company's common stock may be sold. Employees purchased 115,199116,578 shares during the year ended December 31, 2020in 2023 and there were 1,156,014804,211 shares available for issuance at December 31, 2020 under2023 for the International Plan. The plans are considered non-compensatory.
10. Fair Value Measurements
Fair Value Hierarchy
The Company has categorized its assets and liabilities that are valued at fair value on a recurring basis into a three-level fair value hierarchy as defined by the FASB.hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets and liabilities (Level 1) and lowest priority to unobservable inputs (Level 3). In some cases, the inputs used to measure fair value might fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy, for disclosure purposes, is determined based on the lowest level input that is significant to the fair value measurement. Assets and liabilities recorded in the consolidated balance sheets at fair value are categorized based on the inputs in the valuation techniques as follows:
Level 1.Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market (examples include active exchange-traded equity securities and exchange-traded money market mutual funds).
Assets and liabilities measured using Level 1 inputs include exchange-traded equity securities, exchange-traded mutual funds and money market funds.
Level 2.Assets and liabilities whose values are based on the following:
a)Quotedquoted prices for similar assets or liabilities in active markets;
b)Quotedquoted prices for identical or similar assets or liabilities in non-active markets (examples include corporate and municipal bonds, which trade infrequently);
c)Pricingpricing models whose inputs are observable for substantially the full term of the asset or liability (examples include most over-the-counter derivatives, including interest rate and currency swaps); and
d)Pricingpricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full asset or liability (for example, certain mortgage loans).
Assets and liabilities using Level 2 inputs are related to an equity security.
Level 3.Assets and liabilities whose values are based on prices, or valuation techniques that require inputs that are both unobservable and significant to the overall fair value
measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.
Assets and liabilities measured using Level 3 inputs relate to assets and liabilities for contingent purchase consideration.
Valuation Techniques
Equity Securities, Money Market Mutual Funds and Mutual Funds - Level 1
Investments for which market quotations are readily available are valued at the sale price on their principal exchange or, for certain markets, official closing bid price. Money market mutual funds are valued usingat a valuation technique that results in price per share at $1.00.readily determinable price.
Contingent Purchase Consideration Assets and LiabilityLiabilities - Level 3
Purchase consideration for some acquisitions and dispositions made by the Company includeincludes contingent consideration arrangements. Contingent consideration arrangements are based primarily on EBITDA or revenue targets over a period of two2 to four4 years. The fair value of the contingent purchase consideration asset and liability is estimated as the present value of future cash flows to be paid, based on projections of revenue and earnings and related targets of the acquired and disposed entities.
The following fair value hierarchy table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis as ofat December 31, 20202023 and 2019:2022:
| | (In millions of dollars) | Identical Assets
(Level 1) | | Observable Inputs
(Level 2) | | Unobservable
Inputs
(Level 3) | | Total |
| 12/31/20 | | 12/31/19 | | 12/31/20 | | 12/31/19 | | 12/31/20 | | 12/31/19 | | 12/31/20 | | 12/31/19 |
| (In millions) | | (In millions) | | Identical Assets
(Level 1) | | Observable Inputs
(Level 2) | | Unobservable Inputs
(Level 3) | | Total |
| | 12/31/23 | | | | 12/31/23 | | 12/31/22 | | 12/31/23 | | 12/31/22 | | 12/31/23 | | 12/31/22 | | 12/31/23 | | 12/31/22 |
| Assets: | Assets: | |
| Financial instruments owned: | Financial instruments owned: | |
| Financial instruments owned: | |
| Financial instruments owned: | |
Exchange traded equity securities (a) | |
Exchange traded equity securities (a) | |
Exchange traded equity securities (a) | Exchange traded equity securities (a) | $ | 59 | | | $ | 4 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 59 | | | $ | 4 | |
Mutual funds(a) | Mutual funds(a) | 186 | | | 166 | | | 0 | | | 0 | | | 0 | | | 0 | | | 186 | | | 166 | |
Money market funds(b) | Money market funds(b) | 587 | | | 55 | | | 0 | | | 0 | | | 0 | | | 0 | | | 587 | | | 55 | |
Other equity investment(a) | Other equity investment(a) | 0 | | | 0 | | | 8 | | | 8 | | | 0 | | | 0 | | | 8 | | | 8 | |
Contingent purchase consideration asset(c) | Contingent purchase consideration asset(c) | 0 | | | 0 | | | 0 | | | 0 | | | 68 | | | 84 | | | 68 | | | 84 | |
| | Total assets measured at fair value | Total assets measured at fair value | $ | 832 | | | $ | 225 | | | $ | 8 | | | $ | 8 | | | $ | 68 | | | $ | 84 | | | $ | 908 | | | $ | 317 | |
| Total assets measured at fair value | |
| Total assets measured at fair value | |
| Fiduciary Assets: | Fiduciary Assets: | |
| | | Money market funds | Money market funds | $ | 173 | | | $ | 360 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 173 | | | $ | 360 | |
| U.S. Treasury Bills | 150 | | | 40 | | | 0 | | | 0 | | | 0 | | | 0 | | | 150 | | | 40 | |
| | Money market funds | |
| | Money market funds | |
| | Total fiduciary assets measured at fair value | |
| Total fiduciary assets measured at fair value | |
| Total fiduciary assets measured at fair value | Total fiduciary assets measured at fair value | $ | 323 | | | $ | 400 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 323 | | | $ | 400 | |
| Liabilities: | Liabilities: | |
Contingent purchase consideration liability(d) | Contingent purchase consideration liability(d) | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 243 | | | $ | 225 | | | $ | 243 | | | $ | 225 | |
| Acquisition related derivative contracts | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Contingent purchase consideration liability (d) | |
Contingent purchase consideration liability (d) | |
| | Total liabilities measured at fair value | Total liabilities measured at fair value | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 243 | | | $ | 225 | | | $ | 243 | | | $ | 225 | |
| Total liabilities measured at fair value | |
| Total liabilities measured at fair value | |
(a) Included in other assets in the consolidated balance sheets.
(b) Included in cash and cash equivalents in the consolidated balance sheets.
(c) Included in other receivables at December 31, 2020 and other assets at December 31, 2019 in the consolidated balance sheets.
(d)Included in accounts payable and accrued liabilities and other liabilities in the consolidated balance sheets.
The Level 3 assets in the above charttable reflect contingent purchase consideration from the sale of businesses during 2019.businesses. The change in the assetcontingent purchase consideration assets from December 31, 20192022 is driven primarily due to the net impact of accretion and adjustments to the fair value of the acquisition related assetby cash receipts of approximately $15 million. A 5% increase or decrease in the projections used to estimate the contingent consideration would result in a corresponding increase or decrease of the asset of approximately $7$3 million.
During the year ended December 31, 2020,In 2023 and 2022, there were no assets or liabilities that were transferred between any of the levels.
The following table below sets forth a summary of the changes in fair value of the Company’s Level 3 liabilities for the years ended December 31, 20202023 and December 31, 2019.2022.
| | (In millions) | (In millions) | 2020 | | 2019 | (In millions) | | 2023 | | 2022 |
| Balance at January 1, | Balance at January 1, | $ | 225 | | | $ | 508 | |
| Net additions | Net additions | 107 | | | 36 | |
| Payments | Payments | (102) | | | (63) | |
| Revaluation impact | Revaluation impact | 11 | | | 70 | |
| Change in fair value of the FX contract | 0 | | | (325) | |
Other (a) | 2 | | | (1) | |
| | Balance at December 31, | Balance at December 31, | $ | 243 | | | $ | 225 | |
| | Balance at December 31, | |
| | Balance at December 31, | |
(a) Primarily reflects the impact of foreign exchange.
As set forth in the table above, based on the Company's ongoing assessment of the fair value of contingent consideration, the Company recorded a net increase in the estimated fair value of such liabilities for prior period acquisitions of $11 million for the year ended December 31, 2020. A 5% increase in the projections used to estimate the contingent consideration would increase the liability by approximately $12 million. A 5% decrease would decrease the liability by approximately $21 million.
Long-Term Investments
The Company holds investments in public and private companies as well as certain private equity investments and private companies that are accounted for using the equity method of accounting. The carrying value of these investments was $280$266 million and $434$215 million at December 31, 20202023 and 2019,2022, respectively.
Investments in Public and Private Companies
The Company has other investments in private insurance and consulting companies with a carrying value of $169$63 million and $183$56 million at December 31, 20202023 and December 31, 2019,2022, respectively. The Company’s equity investment in insurance and consulting companiesThese investments are accounted for using the equity method of accounting, the results of which are included in revenue in the consolidated statements of income and the carrying value of which is included in other assets in the consolidated balance sheets. The Company records its share of income or loss on its equity method investments, some of which are on a one quarter lag basis. In December 2021, the Company increased its ownership in Marsh India from 49% to 92%. Prior to the increase in ownership, the Company accounted for the investment under the equity method of accounting.
Private Equity Investments
The Company's investments in private equity funds were $111$203 million and $107$159 million at December 31, 20202023 and December 31, 2019,2022, respectively. The carrying values of these private equity investments approximates fair value. The underlying private equity funds follow investment company accounting, where investments within the fund are carried at fair value. The Company records in earnings its proportionate share of the change in fair value of the funds onin the investment income (loss) line in the consolidated statementstatements of income. These investments are included in other assets in the consolidated balance sheets. The Company recorded net investment income of $3 million and $13 millionincome from these investments for the years ended of $7 million, $18 million and $56 million in 2023, 2022 and 2021, respectively.
At December 31, 2020 and 2019, respectively.2023, the Company has commitments for potential future investments of approximately $121 million in private equity funds that invest primarily in financial services companies.
Other Investments
At December 31, 2020 and December 31, 2019 theThe Company held certain equity investments with readily determinable market values at December 31, 2023 and 2022, of $72$16 million and $19$17 million, respectively. In 2020 and 2019,2023, the Company recorded investment lossesa mark-to-market loss on these investments of $27$1 million, and mark-to-market gains of $10$11 million and $5 million in 2022 and 2021, respectively.
The Company also held investments without readily determinable market values of $33$20 million and $67$42 million at December 31, 20202023 and 2019,2022, respectively. TheIn 2023, the Company recorded a net gainloss of $1 million on these investments. In 2022, the Company sold certain of these investments for cash proceeds of approximately $2$62 million, including its remaining investment in 2020the common stock of Alexander Forbes, and recorded a net loss of approximately $1 million in 2019 on these investments.
At December 31, 2019, the Company owned approximately 443 million shares of the common stock of AF, a South African company listed on the Johannesburg Stock Exchange, which was accounted for
under the equity method of accounting. In February 2020, the Company sold approximately 49 million shares of the common stock of AF, and in May 2020, sold an additional 193 million shares to third parties, leaving the Company with an investment of approximately 201 million shares of the common stock of AF at December 31, 2020. Upon completion of the May transaction, the investment in AF was accounted at fair value, with investment gains and losses recorded as investment income (loss) in the consolidated statement of income. The fair value of AF at December 31, 2020 was $54$4 million.
In March 2019, the Company disposed of its investment in BenefitFocus for total proceeds of approximately $132 million. The Company received $115 million in the first quarter of 2019 and $17 million in April 2019. During the second quarter of 2019, the Company disposed of its investment in Payscale and received approximately $47 million.
11. Derivatives
Net Investment Hedge
The Company has investments in various subsidiaries with Euro functional currencies. As a result, the Company is exposed to the risk of fluctuations between the Euro and U.S. dollar exchange rates. The Company designated its €1.1 billion senior note debt instruments ("euroEuro notes") as a net investment hedge (the "hedge") of its Euro denominated subsidiaries. The hedge effectiveness is re-assessed each quarter to confirm that the designated equity balance at the beginning of each period continues to equal or exceed 80% of the outstanding balance of the Euro debt instrument and that all the critical terms of the hedging instrument and the hedged net investment continue to match. If the Company concludes that the hedge is highly effective, the change in the debt balance related to foreign exchange fluctuations is recorded in foreign currency translation gains (losses)accumulated other comprehensive loss in the consolidated balance sheet. sheets.
The Company concluded that the hedge continues to be highly effective as of December 31, 2020. During 2020, the U.S. dollar value of the euro notesthe Euro notes increased $124by $54 million through December 31, 2020 duein 2023 related to the impact ofchange in foreign exchange rates, with a correspondingrates. The Company concluded that the hedge was highly effective and recorded an increase to accumulated other comprehensive loss.
JLT Acquisition Related Derivatives
On September 20, 2018, the Company entered into the FX contract to purchase £5.2 billion at a contracted exchange rate, to hedge the risk of appreciation of the GBP-denominated purchase price of JLT, which was settled on April 1, 2019 upon the closing of the JLT Transaction. The FX contract did not qualify for hedge accounting treatment under applicable accounting guidance, which required the Company to record the change in the fair value of the FX contract on each reporting date to the statement of income. The Company recorded a gain of $31 million in the consolidated statement of incomeloss for the year ended December 31, 2019, related to the settlement of the FX Contract. An unrealized loss of $325 million related to the change in fair value of the FX contract was recorded in the consolidated statement of income during 2018.
In connection with the JLT Transaction, to hedge the economic risk of changes in future interest rates prior to its issuance of fixed rate debt, in the fourth quarter of 2018, the Company entered into treasury locks related to $2 billion of senior notes issued in January 2019. The fair value of the treasury locks at December 31, 2018 was based on the published treasury rate plus the forward premium as of December 31, 2018 compared to the all in rate at the inception of the contract. The contracts were not designated as an accounting hedge. The Company recorded an unrealized loss of $116 million related to the change in the fair value of this derivative in the consolidated statement of income for the twelve months ended December 31, 2018. In January 2019, upon issuance of the $5 billion of senior notes, the Company settled the treasury lock derivatives and made a payment to its counter party for $122 million. A charge of $6 million was recorded in the first quarter of 2019 related to the settlement of the treasury lock derivatives.
In March 2019, the Company issued €1.1 billion of senior notes related to the JLT Transaction. See Note 13 for additional information related to the Euro senior note issuances. In connection with the senior note issuances, the Company entered into a forward exchange contract to hedge the economic risk of changes in foreign exchange rates from the issuance date to settlement date of the Euro senior notes. The Company recorded a charge of $7.3 million in the consolidated statement of income for the year ended December 31, 2019, related to the settlement of this contract.
JLT Derivatives and Hedging Activity
A significant portion of JLT's outstanding senior notes at the time of completion of the JLT Transaction were denominated in U.S. dollars. In order to hedge its exposure against the risk of fluctuations between the British pound and the U.S. dollar, JLT entered into foreign exchange contracts as well as interest rate swaps to protect against the risk of changes in interest rates, which were designated as fair value hedges. In June, 2019, the Company redeemed these U.S. dollar denominated senior notes and settled the related derivative contracts. The offsetting changes in fair value of the debt and the change in fair value of the derivative contracts were recorded in the consolidated statement of income for the year ended December 31, 2019.
JLT also had a number of foreign exchange contracts to hedge the risk of foreign exchange movements between the U.S. dollar and the British pound, related to JLT’s U.S. dollar denominated revenue in the U.K. Prior to the acquisition, these derivative contracts were designated as cash flow hedges. Upon completion of the JLT Transaction, these derivative contracts were not re-designated as cash flow hedges by the Company. The contracts were settled in June 2019. The change in fair value between the acquisition date and the settlement date resulted in a charge of $26 million for the year ended December 31, 2019. The charge is recorded as a change in fair value of acquisition related derivative contracts in the consolidated statement of income.
12. Leases
Effective January 1, 2019 (the "implementation date"), the Company adopted new guidance intended to improve financial reporting for leases. A lease is defined as a party obtaining the right to use an asset legally owned by another party. The Company determines if an arrangement is a lease at inception. For operating leases entered into prior to January 1, 2019, the Right-of-Use ("ROU") assets and operating lease liabilities were recognized in the balance sheet on the implementation date based on the present value of the remaining future minimum payments over the lease term from the implementation date. This ROU asset was adjusted for unamortized lease incentives and restructuring liabilities that existed on the implementation date. For leases entered into subsequent to January 1, 2019, the operating lease ROU asset and operating lease liabilities are based on the present value of minimum payments over the lease term at the commencement date of the lease.
The Company uses discount rates to determine the present value of future lease payments. The Company primarily uses its incremental borrowing rate adjusted to reflect a secured rate, based on the information available for leases, including the lease term and interest rate environment in the country in which the lease exists. The lease terms used to calculate the ROU asset and lease liability may include options to extend or terminate when it is reasonably certain that the Company will exercise that option.
The Company leases office facilities under non-cancelable operating leases with terms generally ranging between 10 and 25 years. The Company utilizes these leased office facilities for use by its employees in countries in which the Company conducts its business. Leases are negotiated with third-parties and, in some instances contain renewal, expansion and termination options. The Company also subleases certain office facilities to third-parties when the Company no longer utilizes the space. None of the Company’s leases restricthave no restrictions on the payment of dividends, or the incurrenceacquisition of debt or additional lease obligations, or entering into additional lease obligations. The leases also do not contain significant purchase options. In addition to the base rental costs, the Company's lease agreements generally provide for rent escalations resulting from increased assessments for real estate taxes and other charges. A portion of our real estate lease portfolio contains base rents subject to annual changes in the Consumer Price Index ("CPI") as well as charges for operating expenses which are reimbursable to the landlord based on actual usage. Changes to the CPI and payments for such reimbursable operating expenses are considered variable and
Operating leases are recognized as variable lease costs inon the period in which the obligation for those payments was incurred. Approximately 99% of the Company's lease obligations are for the use of office space. All of the Company's material leases are operating leases.
As a practical expedient, the Company has elected an accounting policy not to separate non-lease components from lease components and instead accountconsolidated balance sheets as a single lease component. The Company
has also elected not to recognize ROU assets and operating lease liabilities for leases that,based on the present value of the remaining future minimum payments over the lease term at the commencement date are for 12 months or less.of the lease.
TheIn 2023 and 2022, the Company determined that $28$27 million and $9$118 million of its ROU assets, respectively, were impaired and therefore, recorded a charge to the consolidated statementstatements of income for the year ended December 31, 2020 and 2019, respectively, with an offsetting reduction to the ROU assets.
The following charttable provides additional information about the Company’s property leases:
| For the Year Ended December 31, (In millions) | | 2020 | 2019 |
For the Years Ended December 31, (In millions, except weighted average data) | | For the Years Ended December 31, (In millions, except weighted average data) | | 2023 | | 2022 |
| Lease Cost: | Lease Cost: | | |
Operating lease cost (a) | |
Operating lease cost (a) | |
| Operating lease cost (a) | Operating lease cost (a) | | $ | 396 | | $ | 371 | | | $ | 324 | | $ | 343 |
| Short-term lease cost | Short-term lease cost | | 3 | | 8 | | Short-term lease cost | | 5 | | 4 |
| Variable lease cost | Variable lease cost | | 138 | | 150 | | Variable lease cost | | 122 | | 133 |
| Sublease income | Sublease income | | (19) | | (18) | | Sublease income | | (11) | | (17) |
| Net lease cost | Net lease cost | | $ | 518 | | $ | 511 | | Net lease cost | | $ | 440 | | $ | 463 |
| Other information: | Other information: | | |
| Operating cash outflows from operating leases | Operating cash outflows from operating leases | | $ | 420 | | $ | 392 | |
| Operating cash outflows from operating leases | |
| Operating cash outflows from operating leases | | | $ | 379 | | $ | 380 |
| Right of use assets obtained in exchange for new operating lease liabilities | Right of use assets obtained in exchange for new operating lease liabilities | | $ | 261 | | $ | 140 | | Right of use assets obtained in exchange for new operating lease liabilities | | $ | 224 | | $ | 196 |
| Weighted-average remaining lease term – real estate | | 8.42 years | 8.78 years |
| Weighted average remaining lease term – real estate | | Weighted average remaining lease term – real estate | | 7.98 years | | 8.37 years |
| | Weighted-average discount rate – real estate leases | | 2.94 | % | 3.10 | % |
| Weighted average discount rate – real estate leases | |
| Weighted average discount rate – real estate leases | |
| Weighted average discount rate – real estate leases | | | 3.35 | % | | 2.90 | % |
|
(a) Excludes ROU asset impairment charges.
Future minimum lease payments for the Company’s operating leases as ofat December 31, 20202023 are as follows:
| Payment Dates (In millions) | Real Estate Leases |
| | 2021 | $ | 410 | |
| 2022 | 380 | |
| 2023 | 331 | |
| (In millions) | | (In millions) | | Real Estate Leases |
| 2024 | 2024 | 288 | |
| 2025 | 2025 | 256 | |
| 2026 | |
| 2027 | |
| 2028 | |
| Subsequent years | Subsequent years | 905 | |
| Total future lease payments | Total future lease payments | 2,570 | |
| Less: Imputed interest | (304) | |
| Less: imputed interest | |
| Total | Total | 2,266 | |
| Current lease liabilities | Current lease liabilities | 342 | |
| Long-term lease liabilities | Long-term lease liabilities | 1,924 | |
| Total lease liabilities | Total lease liabilities | $ | 2,266 | |
Note: TableThe above table excludes obligations for leases with original terms of 12 months or less which have not been recognized as a right to useROU asset or liability in the consolidated balance sheets.
As ofAt December 31, 2020,2023, the Company had additional operating real estate leases that had not yet commenccomedmenced of $3 million. These$62 million. These operating leases will commence over the next 12 months.
The consolidated statement of income in 2018 included operating lease costs of $383 million, net of subleases.
13. Debt
The Company’s outstanding debt is as follows:
| | December 31, | December 31, | |
| (In millions) | |
| (In millions) | |
| (In millions) | (In millions) | 2020 | | 2019 | | 2023 | | 2022 |
| Short-term: | Short-term: | |
| | Current portion of long-term debt | Current portion of long-term debt | $ | 517 | | | $ | 1,215 | |
| | 517 | | | 1,215 | |
| | Current portion of long-term debt | |
| | Current portion of long-term debt | |
| | 1,619 | |
| Long-term: | Long-term: | |
| | Senior notes – 2.35% due 2020 | 0 | | | 500 | |
| Senior notes – 3.50% due 2020 | 0 | | | 698 | |
| Senior notes – 4.80% due 2021 | 500 | | | 499 | |
| Senior notes – Floating rate due 2021 | 0 | | | 298 | |
| Senior notes – 2.75% due 2022 | 499 | | | 498 | |
| Senior notes – 3.30% due 2023 | 349 | | | 349 | |
| | Senior notes – 4.05% due 2023 | |
| | Senior notes – 4.05% due 2023 | |
| | Senior notes – 4.05% due 2023 | Senior notes – 4.05% due 2023 | 249 | | | 249 | |
| Senior notes – 3.50% due 2024 | Senior notes – 3.50% due 2024 | 598 | | | 597 | |
| Senior notes – 3.875% due 2024 | Senior notes – 3.875% due 2024 | 995 | | | 994 | |
| Senior notes – 3.50% due 2025 | Senior notes – 3.50% due 2025 | 498 | | | 497 | |
| Senior notes – 1.349% due 2026 | Senior notes – 1.349% due 2026 | 677 | | | 609 | |
| Senior notes – 3.75% due 2026 | Senior notes – 3.75% due 2026 | 597 | | | 597 | |
| Senior notes – 4.375% due 2029 | Senior notes – 4.375% due 2029 | 1,499 | | | 1,499 | |
| Senior notes – 1.979% due 2030 | Senior notes – 1.979% due 2030 | 664 | | | 607 | |
| Senior notes – 2.25% due 2030 | Senior notes – 2.25% due 2030 | 737 | | | 0 | |
| Senior notes – 2.375% due 2031 | |
| Senior notes – 5.750% due 2032 | |
| Senior notes – 5.875% due 2033 | Senior notes – 5.875% due 2033 | 298 | | | 298 | |
| Senior notes – 5.400% due 2033 | |
| Senior notes – 4.75% due 2039 | Senior notes – 4.75% due 2039 | 495 | | | 494 | |
| Senior notes – 4.35% due 2047 | Senior notes – 4.35% due 2047 | 493 | | | 492 | |
| Senior notes – 4.20% due 2048 | Senior notes – 4.20% due 2048 | 592 | | | 592 | |
| Senior notes – 4.90% due 2049 | Senior notes – 4.90% due 2049 | 1,237 | | | 1,237 | |
| Senior notes – 2.90% due 2051 | |
| Senior notes – 6.25% due 2052 | |
| Senior notes – 5.450% due 2053 | |
| Senior notes – 5.700% due 2053 | |
| Mortgage – 5.70% due 2035 | Mortgage – 5.70% due 2035 | 331 | | | 345 | |
| | Other | Other | 5 | | | 7 | |
| 11,313 | | | 11,956 | |
| Other | |
| Other | |
| | 13,463 | |
| Less current portion | Less current portion | 517 | | | 1,215 | |
| | | $ | 10,796 | | | $ | 10,741 | |
The senior notes in the table above are registered by the Company with the Securities and Exchange Commission and are not guaranteed.
In November 2023, the Company increased its short-term commercial paper financing program (the "Program") to $3.5 billion from $2.8 billion. The Company has established a short-term debt financing program of uphad previously increased the Program's capacity in October 2022 to $1.5$2.8 billion through the issuance of commercial paper. The proceeds from the issuance of commercial paper are used for general corporate purposes.$2.0 billion. The Company had 0 commercial did not have any commercial paper outstanding at December 31, 2020.2023 and 2022.
Credit Facilities
In October 2023, the Company increased its multi-currency unsecured five-year credit facility (the "Credit Facility") capacity to $3.5 billion from $2.8 billion and extended the expiration to October 2028. The interest rate on the Credit Facility was initially based on LIBOR plus a fixed margin which varied with the Company's credit rating. In the second quarter of 2023, the Credit Facility was amended that borrowings under the Credit Facility bear interest at a rate per annum equal, at the Company's option, either at (a) SOFR benchmark rate for U.S. dollar borrowings, or (b) a currency specific benchmark rate, plus an applicable margin which varies with the Company's
credit ratings. The Company is required to maintain certain coverage and leverage ratios for the Credit Facility, which are evaluated quarterly.
The Credit Facility includes provisions for determining a benchmark replacement rate in the event existing benchmark rates are no longer available or in certain other circumstances, in which an alternative rate may be required. At December 31, 2023 and 2022, the Company had no borrowings under this facility.
In October 2023, the Company terminated its one-year uncommitted revolving credit facility ("Uncommitted Credit Facility"). There were no borrowings outstanding under the Uncommitted Credit Facility at December 31, 2022.
The Company also maintains other credit and overdraft facilities with various financial institutions aggregating $113 million at December 31, 2023 and $362 million at December 31, 2022. There were no outstanding borrowings under these facilities at December 31, 2023 and 2022.
The Company has outstanding guarantees and letters of credit with various banks aggregating $139 million and $152 million at December 31, 2023 and 2022, respectively.
Senior Notes
In December 2020,October 2023, the Company repaid $700$250 million of maturing Senior Notes. The Company also prepaid $300 million of floating rate4.05% senior notes with an original maturity of December 2021.
In May 2020,September 2023, the Company issued $750$600 million of 2.250% Senior Notes5.400% senior notes due 2030.2033 and $1 billion of 5.700% senior notes due 2053. In March 2023, the Company issued $600 million of 5.450% senior notes due 2053. The Company intends to use the net proceeds from these issuances for general corporate purposes.
In October 2022, the Company issued $500 million of 5.75% senior notes due 2032 and $500 million of 6.25% senior notes due 2052. The Company used the net proceeds from this offering to pay outstanding borrowings under the revolving credit facility discussed above.
In March 2020, the Company repaid $500 million of maturing Senior Notes.
In September 2019, the Company repaid $300 million of maturing senior notes.
During 2019, the Company issued approximately $6.5 billion of Senior Notes to primarily fund the acquisition of JLT, including the payment of related fees and expenses, and to repay certain JLT indebtedness, as well asthese issuances for general corporate purposes.
In connection with the closing of the JLT Transaction, the Company assumed approximately $1 billion of historical JLT indebtedness, which itpurposes, and repaid during 2019. The Company incurred debt extinguishment costs of $32 million in regard to the repayment of this debt.
Other Credit Facilities
In January 2020, the Company closed on $500 million one-year and $500 million two-year term loan facilities. In the first quarter of 2020 the Company borrowed $1 billion against these facilities. During the third quarter of 2020, the Company repaid $500 million of borrowings from its one-year facility. In December 2020, the Company repaid $500$350 million of borrowings from the two year facility. These two facilities were terminated as3.30% senior notes in November 2022, with an original maturity date of December 31, 2020 after repayment of the initial draw down.March 2023.
In October 2018, the Company and certain of its foreign subsidiaries increased its multi-currency five-year unsecured revolving credit facility from $1.5 billion to $1.8 billion. The interest rate on this facility is based on LIBOR plus a fixed margin which varies with the Company's credit ratings. This facility expires in October 2023 and requires the Company to maintain certain coverage and leverage ratios which are tested quarterly. There were 0 borrowings outstanding under this facility at December 31, 2020. The facility includes a provision for determining a LIBOR successor rate in the event LIBOR reference rates are no longer available. In such case, the rate would be determined using an alternate reference rate that has been broadly accepted by the syndicated loan market in the United States in lieu of LIBOR (the “LIBOR successor rate”). If no LIBOR successor rate has been determined, the rate will be based on the higher of the rate announced publicly by Citibank, New York, NY, as its base rate or the fed funds rate plus a fixed margin.
In April 2020, the Company entered into a new 364 day $1 billion unsecured revolving credit facility with a term out option after one year. The facility has similar coverage and leverage ratios as the multi-currency five-year unsecured revolving credit facility. The Company had 0 borrowings outstanding under these facilities at December 31, 2020.
Additional credit facilities, guarantees and letters of credit are maintained with various banks, primarily related to operations located outside the United States, aggregating $573 million at December 31, 2020 and $598 million at December 31, 2019. There were 0 outstanding borrowings under these facilities at December 31, 2020 and December 31, 2019.
Scheduled repayments of long-term debt in 20212024 and in the four4 succeeding years are $517 million, $516 million, $619 million, $1.6 billion, $518 million, $1.2 billion, $21 millionand $518$21 million, respectively.
Fair valueValue of Short-term and Long-term Debt
The estimated fair value of the Company’s short-term and long-term debt is provided below. Certain estimates and judgments were required to develop the fair value amounts. The fair value amounts shown below are not necessarily indicative of the amounts that the Company would realize upon disposition, nor do they indicate the Company’s intent or need to dispose of the financial instrument.
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| (In millions of dollars) | Carrying
Amount | | Fair
Value | | Carrying
Amount | | Fair
Value |
| | | | | | | |
| | | | | | | |
| Short-term debt | $ | 517 | | | $ | 523 | | | $ | 1,215 | | | $ | 1,229 | |
| Long-term debt | $ | 10,796 | | | $ | 12,858 | | | $ | 10,741 | | | $ | 11,953 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2023 | | December 31, 2022 |
| (In millions) | | Carrying
Amount | | Fair
Value | | Carrying
Amount | | Fair
Value |
| | | | | | | | |
| | | | | | | | |
| Short-term debt | | $ | 1,619 | | | $ | 1,610 | | | $ | 268 | | | $ | 265 | |
| Long-term debt | | $ | 11,844 | | | $ | 11,723 | | | $ | 11,227 | | | $ | 10,544 | |
The fair value of the Company’s short-term debt consists primarily of term debt maturing within the next year and its fair value approximates its carrying value. The estimated fair value of a primary portion of the Company's long-term debt is based on discounted future cash flows using current interest rates available for debt with similar terms and remaining maturities. Short- and long-term debt would be classified as Level 2 in the fair value hierarchy.
14. Integration and Restructuring Costs
JLT Related Integration and Restructuring
The Company is completing its integration of JLT, which involves combining business practices and co-locating colleagues in most geographies, rationalization of real estate leases around the world, realization of synergies and migration of legacy JLT systems onto the Company's information technology environment and security protocols. The Company also incurred costs for consulting fees related to integration management processes and legal fees related to the rationalizing legal entity structures to reduce costs, mitigate risks and improve operational transparency.
Costs recognized are based on applicable accounting guidance which includes accounting for disposal or exit activities, guidance related to impairment of long lived assets (for right of use assets related to real estate leases), as well as other costs resulting from accelerated depreciation or amortization of leasehold improvements and other property and equipment. The Company has incurred $251 million in 2020 and $335 million in 2019.
In connection with the JLT integration and restructuring, for the year ended December 31, 2020, the Company incurred costs of $251 million: $171 million in RIS, $51 million in Consulting, $29 million in Corporate. The severance and related costs were included in compensation and benefits and the other costs were included in other operating expenses in the consolidated statement of income.
Details of the JLT integration and restructuring activity from January 1, 2019 through December 31, 2020, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | Severance | | Real Estate Related Costs (a) | | Information Technology (a) | | Consulting and Other Outside Services (b) | | Total |
| Liability at 1/1/19 | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| 2019 charges | 154 | | | 38 | | | 45 | | | 98 | | | 335 | |
| Cash payments | (112) | | | (14) | | | (45) | | | (94) | | | (265) | |
| Non-cash charges | 0 | | | (19) | | | 0 | | | (4) | | | (23) | |
| | | | | | | | | |
| Liability at 12/31/19 | $ | 42 | | | $ | 5 | | | $ | 0 | | | $ | 0 | | | $ | 47 | |
| 2020 charges | 43 | | | 69 | | | 62 | | | 77 | | | 251 | |
| Cash payments | (69) | | | (25) | | | (55) | | | (77) | | | (226) | |
| Non-cash charges | 0 | | | (42) | | | (5) | | | 0 | | | (47) | |
| | | | | | | | | |
| Liability at 12/31/20 | $ | 16 | | | $ | 7 | | | $ | 2 | | | $ | 0 | | | $ | 25 | |
(a) Includes ROU asset impairments, data center contract termination costs and temporary infrastructure leasing costs.
(b) Includes consulting fees related to the management of the integration processes and legal fees related to the rationalization of legal entity structures.
Other Restructuring
During the fourth quarter of 2018, Mercer initiated a program to restructure its business to further optimize the way Mercer operates, setting up2022, the Company for a more fluidinitiated activities focused on workforce actions, rationalization of technology and nimble structurefunctional services, and operating model for the future.reductions in real estate. The Company completed this initiative andanticipates total charges related to these activities to be approximately $475 million. Through December 31, 2023, the Company has incurred $441 million of restructuring costs, primarily related to severance and consultinglease exit charges, of which $222 million were incurred in 2023. Any remaining costs are expected to be incurred by the end of $54 million2024. The Company continues to refine its detailed plans for each business and location, which may change the year ended December 31, 2020expected timing, estimates of expected costs and related savings.
Restructuring activities also include charges related to this initiative.
In additionimproving the Company's global information technology function and improving efficiencies and client services related to the changes discussed above, the Company incurred costs of $32 million at Corporate for the year ended December 31, 2020 that reflects costs to modernize the Company's informationMarsh operational excellence program.
technology systemsIn 2022, costs also included charges related to the remaining JLT integration, including additional lease related exit charges of $89 million in the Risk and security protocols, consultingInsurance services segments for a legacy JLT U.K. location.
The Company incurred costs related to the restructurethese initiatives as follows:
| | | | | | | | | | | | | | |
For the Years Ended December 31, (In millions) | | 2023 | | 2022 |
| Risk and Insurance Services | | $ | 177 | | | $ | 254 | |
| Consulting | | 62 | | | 77 | |
| Corporate | | 62 | | | 96 | |
| Total | | $ | 301 | | | $ | 427 | |
Details of the Global HR functionrestructuring activity from January 1, 2022 through December 31, 2023, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | | Severance | | Real Estate Related Costs (a) | | Information Technology | | Consulting and Other Outside Services | | Total |
| Liability at January 1, 2022 | | $ | 35 | | | $ | 34 | | | $ | — | | | $ | — | | | $ | 69 | |
| 2022 charges | | 111 | | | 195 | | | 15 | | | 106 | | | 427 | |
| Cash payments | | (58) | | | (25) | | | (6) | | | (104) | | | (193) | |
| Non-cash charges | | — | | | (148) | | | (9) | | | — | | | (157) | |
| | | | | | | | | | |
| Liability at December 31, 2022 | | $ | 88 | | | $ | 56 | | | $ | — | | | $ | 2 | | | $ | 146 | |
| 2023 charges | | 148 | | | 96 | | | 15 | | | 42 | | | 301 | |
| Cash payments | | (147) | | | (69) | | | (13) | | | (42) | | | (271) | |
| Non-cash charges | | — | | | (44) | | | (2) | | | — | | | (46) | |
| | | | | | | | | | |
| Liability at December 31, 2023 | | $ | 89 | | | $ | 39 | | | $ | — | | | $ | 2 | | | $ | 130 | |
(a)Includes ROU and adjustments to restructuring liabilities for future rent under non-cancellable leases.
The following details thefixed asset impairments and other restructuring liabilities for actions initiated during 2020 and prior:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | Liability at
1/1/19 | | Amounts
Accrued | | Cash
Paid | | Non-Cash/Other | | Liability at
12/31/19 | | Amounts
Accrued | | Cash
Paid | | Non-Cash/Other | | Liability at
12/31/20 |
| Severance | $ | 73 | | | $ | 73 | | | $ | (91) | | | $ | (4) | | | $ | 51 | | | $ | 39 | | | $ | (54) | | | $ | — | | | $ | 36 | |
| Future rent under non-cancelable leases and other costs | 39 | | | 39 | | | (21) | | | (6) | | | 51 | | | 50 | | | (46) | | | (10) | | | 45 | |
| Total | $ | 112 | | | $ | 112 | | | $ | (112) | | | $ | (10) | | | $ | 102 | | | $ | 89 | | | $ | (100) | | | $ | (10) | | | $ | 81 | |
The expenses associated with the abovethese initiatives are included in compensation and benefits and other operating expenses in the consolidated statements of income. The liabilities associated with these initiatives are classified on the consolidated balance sheets as accounts payable and accrued liabilities, other liabilities or accrued compensation and employee benefits, depending on the nature of the items.
15. Common Stock
The Company did 0t repurchase anyhas a share repurchases program authorized by the Board of its common stock during 2020. During 2019,Directors.
In 2023, the Company repurchased 4.86.4 million shares of its common stock for total consideration$1.15 billion. At December 31, 2023, the Company remained authorized to repurchase up to approximately $3.2 billion in shares of $485 million.its common stock. There is no time limit on the authorization. In November 2019,2022, the Company repurchased 12.2 million shares of its common stock for $1.9 billion.
In March 2022, the Board of Directors of the Company authorized an additional $5 billion in share repurchases. This was in addition to the Company toCompany's existing share repurchase up to $2.5program, which had approximately $1.3 billion of the Company's common stock, which superseded any prior authorizations. The Company remains authorized to purchase additional shares of its common stock up to a value of approximately $2.4 billion. There is no time limit on the authorization.remaining authorization at December 31, 2021.
The Company issued approximately 4.1approximately 3.6 million and 4.6and 3.5 million shares related to stock compensation and employee stock purchase plans during the years ended December 31, 20202023 and 2019,2022, respectively.
In January 2024, the Board of Directors of the Company declared a quarterly dividend of $0.710 per share on outstanding common stock, payable in February 2024.
16. Claims, Lawsuits and Other Contingencies
AcquisitionNature of Jardine Lloyd Thompson Group plc
On April 1, 2019, the Company completed its previously announced acquisition of all of the outstanding shares of JLT. See Note 5 to the consolidated financial statements for additional information. Upon the consummation of the acquisition of JLT, the Company assumed the legal liabilities and became responsible for JLT’s litigation and regulatory exposures as of April 1, 2019.
Legal MattersContingencies
The Company and its subsidiaries are subject to a significant number of claims, lawsuits and proceedings in the ordinary course of our business. Such claims and lawsuits consist principally of alleged errors and omissions in connection with the performance of professional services, including the placement of insurance, the provision of actuarial services for corporate and public sector clients, the provision of investment advice and investment management services to pension plans, the provision of advice relating to pension buy-out transactions and the provision of consulting services relating to the drafting and interpretation of trust deeds and other documentation governing pension plans. These claims mayoften seek damages, including punitive and treble damages, in amounts that could be significant. In establishing liabilities for errors and omissions claims, in accordance with FASB guidance on Contingencies - Loss Contingencies, the Company usesutilizes case level reviews by inside and outside counsel, and internal actuarial analysis by Oliver Wyman Group, a subsidiary of the Company, and other methods to estimate potential losses. A liability is established when a loss is both probable and reasonably estimable. The liability is reviewed quarterly and adjusted as developments warrant. In many cases, the Company has not recorded a liability, other than for legal fees to defend the claim, because we are unable, at the present time, to make a determination that a loss is both probable and reasonably estimable. To the extent that expected losses exceed our deductible in any policy year, the Company also records an asset for the amount that we expect to recover under any available third-party insurance programs. The Company has varying levels of third-party insurance coverage, with policy limits and coverage terms varying significantly by policy year.
Governmental Inquiries and Enforcement Matters
Our activities are regulated under the laws of the United StatesU.S. and its various states, the European UnionU.K., the E.U. and its member states, and the many other jurisdictions in which the Company operates. The Company also receives subpoenas in the ordinary course of business, and from time to time requests for information in connection with government investigations.
Current Matters
Risk and Insurance Services Segment
•In April 2017, the Financial Conduct Authority in the United Kingdom (the "FCA") commenced a civil competition investigation into the aviation insurance and reinsurance sector. In connection with that investigation, the FCA carried out an on-site inspection at the London offices of Marsh Limited, our Marsh and Guy Carpenter operating subsidiary in the United Kingdom, and JLT Specialty Ltd., JLT's U.K. operating subsidiary. The FCA indicated that it had reasonable grounds for suspecting that Marsh Limited, JLT Specialty Ltd. and other participants in the market had been sharing competitively sensitive information within the aviation insurance and reinsurance broking sector.
In October 2017, the Company received a notice that the Directorate-General for Competition of the European Commission had commenced a civil investigation of a number of insurance brokers, including both Marsh and JLT, regarding "the exchange of commercially sensitive information between competitors in relation to aviation and aerospace insurance and reinsurance broking products and services in the European Economic Area ("EEA"), as well as possible coordination between competitors." In light of the action taken by the European Commission, the FCA informed Marsh Limited and JLT Specialty Ltd. that it had discontinued its investigation under U.K. competition law. In May 2018, the FCA advised that it would not be taking any further action with Marsh Limited or JLT Specialty Ltd. in connection with this matter.
In November 2020, the Company received a notice that the European Commission adopted a decision to close this investigation without taking any action.
In January 2019, the Company received a notice that the Administrative Council for Economic Defense anti-trust agency in Brazil had commenced an administrative proceeding against a number of insurance brokers, including both Marsh and JLT, and insurers “to"to investigate an alleged sharing of sensitive commercial and competitive confidential information" in the aviation insurance and reinsurance sector.
•In 2017, JLT identified payments to a third-party introducer that had been directed to unapproved bank accounts. These payments related to reinsurance placements made on behalf of an Ecuadorian state-owned insurer betweenFrom 2014, and 2017. In early 2018, JLT voluntarily reported this matter to law enforcement authorities. In February and March 2020, money laundering charges were filed in the United States against a former employee of JLT, the principals of the third-party introducer and a former official of the state-owned insurer. Three of these individuals, including the former JLT employee, have since pleaded guilty to criminal charges. We are cooperating with all ongoing investigations related to this matter.
At this time, we are unable to predict the likely timing, outcome or ultimate impact of the foregoing investigations or any related matters. Adverse determinations in one or more of these matters could have a material impact on the Company's consolidated results of operations, financial condition or cash flows in a future period.
Consulting Segment
In 2014, the FCA conducted an industry-wide review of the suitability of financial advice provided to individualsMarsh Ltd. was engaged by Greensill Capital (UK) Limited as its insurance broker. Marsh Ltd. placed a number of companies,trade credit insurance policies for Greensill. On March 1, 2021, Greensill filed an action against certain of its trade credit insurers in Australia seeking a mandatory injunction compelling these insurers to renew coverage under expiring policies. Later that day, the Australian court denied Greensill’s application. Since then, a number of Greensill entities have filed for, or been subject to, insolvency proceedings, and several litigations and investigations have been commenced in the U.K., Australia, Germany, Switzerland and the U.S., including JLT, relatingclaims brought by Greensill's administrators and loss payees under Greensill's trade credit insurance policies. In June 2023, White Oak, one such loss payee, filed a claim in the High Court of Justice in London against Marsh Ltd., related to enhanced transfer value ("ETV") defined benefit pension transfers.White Oak’s purchase of accounts receivable from Greensill. In January 2015, the FCA notified JLT that it was commissioningNovember 2023, Credit Suisse, another loss payee, added Marsh Ltd. as a Skilled Person review of ETV pension transfer advice given by JLT and a business acquired by JLT in 2012. Following the Skilled Person review which took place between 2015 and 2018, JLT engaged a compliance consulting firm to conduct an analysis of approximately 14,000 individual files to assess the suitability of the advice provided and, where appropriate, the amount of redress to be paid. In February 2019, priorparty to the completion ofomnibus trade credit insurance policy litigation among Greensill and its acquisitioninsurers and loss payees in Australia. The claims by both loss payees allege that Marsh Ltd., which was not the Company, JLT recorded a gross liability of £59 million (or $77 million). This preliminary estimate by JLT, which reflected the projected redress amounts
insurance broker for either White Oak or Credit Suisse,
contained failed to take required steps to make complete and accurate representations to them in the Skilled Person report, was based on a review of a limited number of files. Thereafter, the FCA expanded the scope of the thematic review. As of December 31, 2020, the updated redress liability, including the projected costs of completing the review, increased to £155 million (or $210 million) resulting from the expansion in the scope of the review, and the significant progress made in completing the individual suitability reviews. We expect to finalize the suitability review of the limited number of files that remain outstanding and calculate all redress amounts by the end of the second quarter of 2021. We anticipate this gross liability will be partially offset by a contractual indemnity and insurance recoveries from third-party E&O insurers.their respective capacities as loss payees.
Other Contingencies-Guarantees
In connection with its acquisition of U.K.-based Sedgwick Group in 1998, the Company acquired several insurance underwriting businesses that were already in run-off, including River Thames Insurance Company Limited ("River Thames"), which the Company sold in 2001. Sedgwick guaranteed payment of claims on certain policies underwritten through the Institute of London Underwriters (the "ILU") by River Thames. The policies covered by this guarantee wereare partly reinsured up to £40 million by a related party of River Thames. Payment of claims under the reinsurance agreement is collateralized by segregated assets held in a trust. As of December 31, 2020,funds withheld by River Thames from the reinsurance coverage exceeded the best estimate of the projected liability of the policies covered by the guarantee.reinsurer. To the extent River Thames or the reinsurer is unable to meet its obligations under those policies, a claimant may seek to recover from the Company under the guarantee.
From 1980 to 1983, the Company owned indirectly the English & American Insurance Company ("E&A"), which was a member of the ILU. The ILU required the Company to guarantee a portion of E&A's obligations. After E&A became insolvent in 1993, the ILU agreed to discharge the guarantee in exchange for the Company's agreement to post an evergreen letter of credit that is available to pay claims by policyholders on certain E&A policies issued through the ILU and incepting between July 3, 1980 and October 6, 1983. Certain claims have been paid under the letter of credit and the Company anticipates that additional claimants may seek to recover against the letter of credit.
* * * *
The pending proceedings described above and other matters not explicitly described in this Note 16 on Claims, Lawsuits and Other Contingencies may expose the Company or its subsidiaries to liability for significant monetary damages, fines, penalties or other forms of relief. Where a loss is both probable and reasonably estimable, the Company establishes liabilities in accordance with the FASB guidance on Contingencies - Loss Contingencies. Except as described above, the
The Company is not able at this time to provide a reasonable estimate of the range of possible loss attributable to these matters or the impact they may have on the Company's consolidated results of operations, financial position or cash flows. This is primarily because these matters are still developing and involve complex issues subject to inherent uncertainty. Adverse determinations in one or more of these matters could have a material impact on the Company's consolidated results of operations, financial condition or cash flows in a future period.
17. Segment Information
The Company is organized based on the types of services provided. Under this structure, the Company’s segments are:
▪Risk and Insurance Services, comprising insurance services (Marsh) and reinsurance services (Guy Carpenter); and
▪Consulting, comprising Mercer and Oliver Wyman GroupGroup.
The accounting policies of the segments are the same as those used for the consolidated financial statements described in Note 1.1, Summary of Significant Accounting Policies. Segment performance is evaluated based on segment operating income, which includes directly related expenses, and charges or credits related to integration and restructuring but not the Company’s corporate-level expenses. Revenues are attributed to geographic areas on the basis of where the services are performed.
Prior to being acquired by the Company, JLT operated in 3 segments: Specialty, Reinsurance and Employee Benefits. JLT operated in 41 countries, with significant revenue in the United Kingdom, Pacific, Asia and the United States. As of April 1, 2019, the historical JLT businesses were combined into MMC
operations as follows: JLT Specialty is included by geography within Marsh, JLT Reinsurance is included in Guy Carpenter and the majority of JLT's Employee Benefits business was included in Mercer Health and Wealth.
Selected information about the Company’s segments and geographic areas of operation are as follows:
| For the Year Ended December 31, (In millions of dollars) | Revenue | | Operating
Income
(Loss) | | Total
Assets | | Depreciation
and
Amortization | | Capital
Expenditures |
| 2020 – | |
For the Years Ended December 31, (In millions) | | For the Years Ended December 31, (In millions) | | Revenue | | Operating
Income
(Loss) | | Total
Assets | | Depreciation
and
Amortization | | Capital
Expenditures |
| 2023 – | |
| Risk and Insurance Services | |
| Risk and Insurance Services | |
| Risk and Insurance Services | Risk and Insurance Services | $ | 10,337 | | (a) | $ | 2,346 | | | $ | 20,612 | | (d) | $ | 500 | | | $ | 170 | |
| Consulting | Consulting | 6,976 | | (b) | 994 | | | 9,571 | | (e) | 174 | | | 107 | |
| Total Segments | Total Segments | 17,313 | | | 3,340 | | | 30,183 | | | 674 | | | 277 | |
| Corporate/Eliminations | Corporate/Eliminations | (89) | | | (274) | | | 2,866 | | (c) | 67 | | | 71 | |
| Total Consolidated | Total Consolidated | $ | 17,224 | | | $ | 3,066 | | | $ | 33,049 | | | $ | 741 | | | $ | 348 | |
| 2019 – | |
| 2022 – | |
| Risk and Insurance Services | |
| Risk and Insurance Services | |
| Risk and Insurance Services | Risk and Insurance Services | $ | 9,599 | | (a) | $ | 1,833 | | | $ | 26,098 | | (d) | $ | 416 | | | $ | 184 | |
| Consulting | Consulting | 7,143 | | (b) | 1,210 | | | 9,722 | | (e) | 156 | | | 150 | |
| Total Segments | Total Segments | 16,742 | | | 3,043 | | | 35,820 | | | 572 | | | 334 | |
| Corporate/Eliminations | Corporate/Eliminations | (90) | | | (366) | | | (4,463) | | (c) | 75 | | | 87 | |
| Total Consolidated | Total Consolidated | $ | 16,652 | | | $ | 2,677 | | | $ | 31,357 | | | $ | 647 | | | $ | 421 | |
| 2018 – | |
| 2021 – | |
| Risk and Insurance Services | |
| Risk and Insurance Services | |
| Risk and Insurance Services | Risk and Insurance Services | $ | 8,228 | | (a) | $ | 1,864 | | | $ | 15,868 | | (d) | $ | 290 | | | $ | 158 | |
| Consulting | Consulting | 6,779 | | (b) | 1,099 | | | 8,003 | | (e) | 130 | | | 97 | |
| Total Segments | Total Segments | 15,007 | | | 2,963 | | | 23,871 | | | 420 | | | 255 | |
| Corporate/Eliminations | Corporate/Eliminations | (57) | | | (202) | | | (2,293) | | (c) | 74 | | | 59 | |
| Total Consolidated | Total Consolidated | $ | 14,950 | | | $ | 2,761 | | | $ | 21,578 | | | $ | 494 | | | $ | 314 | |
(a)Includes inter-segment revenue of $5 million, $8 million and $6 million in 2020, 20192023, and 2018, respectively,$5 million in 2022 and 2021, interest income on fiduciary funds of $46$453 million, $105$120 million and $65$15 million in 2020, 20192023, 2022 and 2018,2021, respectively, and equity method income of $27$18 million, $25$12 million and $13$31 million in 2020, 20192023, 2022 and 20182021, respectively. Revenue in 2023 includes a gain from a legal settlement with a competitor of $58 million, excluding legal fees. Revenue in 2022 includes the loss on deconsolidation of the Russian businesses of $27 million. Revenue in 2021 includes the gain on the consolidation of Marsh India of $267 million and $40 million related to the salea net gain on disposition of business in 2018.of approximately $50 million.
(b)Includes inter-segment revenue of $84$56 million, $82$59 million and $51$49 million in 2020, 20192023, 2022 and 2018, respectively, interest income on fiduciary funds of $1 million, $4 million and $3 million in 2020, 2019 and 2018,2021, respectively, and equity method income of $5$1 million $16in 2022. Revenue in 2023 includes the loss on sale of an individual financial advisory business in Canada of $17 million. Revenue in 2022 includes a net gain on the sale of the Mercer U.S. affinity business of $112 million, partially offset by the loss on deconsolidation of the Russian businesses of $12 million.
(c)Includes equity method investments of $57 million, $50 million and $8$53 million in 2020, 2019at December 31, 2023, 2022 and 2018,2021, respectively.
(c)(d)Includes equity method investments of $6 million at December 31, 2023 and 2022, and $5 millionat December 31, 2021.
(e)Corporate assets primarily include insuranceinsurance recoverables, pension related assets, the owned portion of the Company headquarters building and intercompany eliminations.
(d)Includes equity method investments of $165 million, $179 million and $57 million at December 31, 2020, 2019 and 2018, respectively.
(e)Includes equity method investments of $5 million, $149 million and $148 million at December 31, 2020, 2019 and 2018, respectively.
Details of operating segment revenue are as follows:
| | For the Years Ended December 31, | For the Years Ended December 31, | For the Years Ended December 31, |
| (In millions of dollars) | 2020 | | 2019 | | 2018 |
| (In millions) | | (In millions) | | 2023 | | 2022 | | 2021 |
| Risk and Insurance Services | Risk and Insurance Services | |
| Marsh | |
| Marsh | |
| Marsh | Marsh | $ | 8,628 | | | $ | 8,085 | | | $ | 6,923 | |
| Guy Carpenter | Guy Carpenter | 1,709 | | | 1,514 | | | 1,305 | |
| Total Risk and Insurance Services | Total Risk and Insurance Services | 10,337 | | | 9,599 | | | 8,228 | |
| Consulting | Consulting | | | | | | Consulting | | | | |
| Mercer | Mercer | 4,928 | | | 5,021 | | | 4,732 | |
| Oliver Wyman Group | Oliver Wyman Group | 2,048 | | | 2,122 | | | 2,047 | |
| Total Consulting | Total Consulting | 6,976 | | | 7,143 | | | 6,779 | |
| Total Segments | Total Segments | 17,313 | | | 16,742 | | | 15,007 | |
| Corporate/Eliminations | Corporate/Eliminations | (89) | | | (90) | | | (57) | |
| Total | Total | $ | 17,224 | | | $ | 16,652 | | | $ | 14,950 | |
|
Information by geographic area is as follows:
| | | | | | | | | | | | | | | | | |
| For the Years Ended December 31, |
| (In millions of dollars) | 2020 | | 2019 | | 2018 |
| Revenue | | | | | |
| United States | $ | 8,168 | | | $ | 7,840 | | | $ | 7,219 | |
| United Kingdom | 2,818 | | | 2,679 | | | 2,243 | |
| Continental Europe | 2,881 | | | 2,837 | | | 2,694 | |
| Asia Pacific | 2,093 | | | 2,001 | | | 1,616 | |
| Other | 1,353 | | | 1,385 | | | 1,235 | |
| 17,313 | | | 16,742 | | | 15,007 | |
| Corporate/Eliminations | (89) | | | (90) | | | (57) | |
| Total | $ | 17,224 | | | $ | 16,652 | | | $ | 14,950 | |
| | | | | | | | | | | | | | | | | | | | |
| For the Years Ended December 31, |
| (In millions) | | 2023 | | 2022 | | 2021 |
| Revenue | | | | | | |
United States (a) | | $ | 10,924 | | | $ | 10,215 | |
| $ | 9,343 | |
United Kingdom (b) | | 3,555 | |
| 3,114 | | | 3,130 | |
| | | | | | |
| | | | | | |
Other (c) | | 8,319 | |
| 7,455 | |
| 7,401 | |
| | 22,798 | | | 20,784 | | | 19,874 | |
| Corporate/Eliminations | | (62) | | | (64) | | | (54) | |
| Total | | $ | 22,736 | | | $ | 20,720 | | | $ | 19,820 | |
| | | | | | | | | | | | | | | | | |
| For the Years Ended December 31, |
| (In millions of dollars) | 2020 | | 2019 | | 2018 |
| Fixed Assets, Net | | | | | |
| United States | $ | 492 | | | $ | 462 | | | $ | 403 | |
| United Kingdom | 115 | | | 149 | | | 91 | |
| Continental Europe | 74 | | | 68 | | | 59 | |
| Asia Pacific | 105 | | | 101 | | | 74 | |
| Other | 70 | | | 78 | | | 74 | |
| Total | $ | 856 | | | $ | 858 | | | $ | 701 | |
| | | | | | | | | | | | | | | | | | | | |
| For the Years Ended December 31, |
| (In millions) | | 2023 | | 2022 | | 2021 |
| Fixed Assets, Net | | | | | | |
| United States | | $ | 468 | | | $ | 473 | | | $ | 484 | |
| United Kingdom | | 168 | | | 166 | | | 116 | |
| | | | | | |
| | | | | | |
| Other | | 246 | | | 232 | | | 247 | |
| Total | | $ | 882 | | | $ | 871 | | | $ | 847 | |
In 2023, the Company reclassified revenues and fixed assets for certain geographic regions into Other. Prior years' amounts have been reclassified for comparative purposes.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Marsh & McLennan Companies, Inc.
Opinion onREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Financial Statements
We have auditedShareholders and the accompanying consolidated balance sheetsBoard of Directors of Marsh & McLennan Companies, Inc. and subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, cash flows, and equity for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 17, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Liability for Errors and Omissions — Refer to Notes 1 and 16 to the financial statements
Critical Audit Matter Description
The Company is subject to a significant number of claims, lawsuits and proceedings in the ordinary course of business. Such claims and lawsuits consist principally of alleged errors and omissions (“E&O”) in connection with the performance of professional services. These claims may seek damages, including punitive and treble damages, in amounts that could be significant. The Company uses case level reviews performed by inside and outside counsel, internal actuarial analysis and other methods to estimate potential losses resulting from reported and unreported claims.
Given that the determination of the liability for E&O requires management to make significant estimates and assumptions in projecting ultimate settlement values of reported and unreported claims, performing audit procedures to evaluate the reasonableness of such estimates and assumptions required a high degree of auditor judgment, including the need to involve our actuarial specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the determination of the liability for E&O included the following, among others:
•We tested the effectiveness of internal controls related to the determination of the liability for E&O, including controls over the projection of ultimate settlement values of reported and unreported claims determined through internal actuarial analyses, management’s review of the appropriateness of the assumptions used and calculation of case loss estimates, and management’s independent review of case level estimates provided by inside and outside counsel, as applicable.
•For selected E&O matters, we evaluated the reasonableness of management’s case loss estimates and, as applicable, made inquiries of the Company’s inside and outside counsel regarding the status of these matters and likelihood of settlement.
•We compared total incurred losses and current case estimates as of the balance sheet date to amounts reported in prior periods to evaluate trends and developments in reported cases.
•With the assistance of our actuarial specialists, we evaluated the reasonableness of the assumptions and methodologies involved in the development of the liability for E&O by:
–Testing the underlying data that served as the basis for the actuarial analysis, including historical claims and case loss estimates, to evaluate whether the inputs to the actuarial estimate were reasonable.
–Comparing management’s prior-year assumptions of expected development and ultimate loss to actual amounts incurred during the current year to identify potential bias in the determination of the liability for E&O.
–Developing a range of independent estimates and comparing those to the liability for E&O recorded by the Company.
/s/ Deloitte & Touche LLP
New York, New York
February 17, 2021
We have served as the Company’s auditor since 1989.
Marsh & McLennan Companies, Inc. and Subsidiaries
SELECTED QUARTERLY FINANCIAL DATA AND
SUPPLEMENTAL INFORMATION (UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | |
| First
Quarter | | Second
Quarter | | Third
Quarter | | Fourth
Quarter |
| (In millions, except per share figures) | |
| 2020: | | | | | | | |
| Revenue | $ | 4,651 | | | $ | 4,189 | | | $ | 3,968 | | | $ | 4,416 | |
| Operating income | $ | 1,070 | | | $ | 885 | | | $ | 540 | | | $ | 571 | |
| Net income before non-controlling interests | $ | 767 | | | $ | 580 | | | $ | 320 | | | $ | 379 | |
| | | | | | | |
| Net income attributable to the Company | $ | 754 | | | $ | 572 | | | $ | 316 | | | $ | 374 | |
| Basic Per Share Data: | | | | | | | |
| | | | | | | |
| | | | | | | |
| Net income attributable to the Company | $ | 1.49 | | | $ | 1.13 | | | $ | 0.62 | | | $ | 0.74 | |
| Diluted Per Share Data: | | | | | | | |
| | | | | | | |
| | | | | | | |
| Net income attributable to the Company | $ | 1.48 | | | $ | 1.12 | | | $ | 0.62 | | | $ | 0.73 | |
| Dividends Paid Per Share | $ | 0.455 | | | $ | 0.455 | | | $ | 0.465 | | | $ | 0.465 | |
| 2019: | | | | | | | |
| Revenue | $ | 4,071 | | | $ | 4,349 | | | $ | 3,968 | | | $ | 4,264 | |
| Operating income | $ | 938 | | | $ | 680 | | | $ | 467 | | | $ | 592 | |
| Net income before non-controlling interests | $ | 727 | | | $ | 344 | | | $ | 306 | | | $ | 396 | |
| | | | | | | |
| Net income attributable to the Company | $ | 716 | | | $ | 332 | | | $ | 303 | | | $ | 391 | |
| Basic Per Share Data: | | | | | | | |
| | | | | | | |
| | | | | | | |
| Net income attributable to the Company | $ | 1.42 | | | $ | 0.66 | | | $ | 0.60 | | | $ | 0.77 | |
| Diluted Per Share Data: | | | | | | | |
| | | | | | | |
| | | | | | | |
| Net income attributable to the Company | $ | 1.40 | | | $ | 0.65 | | | $ | 0.59 | | | $ | 0.76 | |
| Dividends Paid Per Share | $ | 0.415 | | | $ | 0.415 | | | $ | 0.455 | | | $ | 0.455 | |
As of February 12, 2021, there were 4,602 stockholders of record.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures. Based on their evaluation, as of the end of the period covered by this annual report on Form 10-K, the Company’s chief executive officer and chief financial officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934) are effective.
Internal Control over Financial Reporting.
(a)Management’s Annual Report on Internal Control Over Financial Reporting
MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Marsh & McLennan Companies, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
The Company’s internal control over financial reporting includes those policies and procedures relating to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; the recording of all necessary transactions to permit the preparation of the Company’s consolidated financial statements in accordance with generally accepted accounting principles; the proper authorization of receipts and expenditures in accordance with authorizations of the Company’s management and directors; and the prevention or timely detection of the unauthorized acquisition, use or disposition of assets that could have a material effect on the Company’s consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management evaluated the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020 under the supervision and with the participation of the Company’s principal executive and principal financial officers. In making this evaluation, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework issued in 2013. Based on its evaluation, management determined that the Company maintained effective internal control over financial reporting as of December 31, 2020.
Deloitte & Touche LLP, the Independent Registered Public Accounting Firm that audited and reported on the Company’s consolidated financial statements included in this annual report on Form 10-K, also issued an audit report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020.
(b)Audit Report of the Registered Public Accounting Firm.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Marsh & McLennan Companies, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Marsh & McLennan Companies, Inc. and subsidiaries (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, cash flows, and equity for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 12, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Liability for Errors and Omissions — Refer to Notes 1 and 16 to the financial statements
Critical Audit Matter Description
The Company is subject to a significant number of claims, lawsuits and proceedings in the ordinary course of business. Such claims and lawsuits consist principally of alleged errors and omissions ("E&O") in connection with the performance of professional services. These claims may seek damages, including punitive and treble damages, in amounts that could be significant. The Company uses case level reviews performed by inside and outside counsel, internal actuarial analysis and other methods to estimate potential losses resulting from reported and unreported claims.
Given that the determination of the liability for E&O requires management to make significant estimates and assumptions in projecting ultimate settlement values of reported and unreported claims, performing audit procedures to evaluate the reasonableness of such estimates and assumptions required a high degree of auditor judgment, including the need to involve our actuarial specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the determination of the liability for E&O included the following, among others:
•We tested the effectiveness of internal controls related to the determination of the liability for E&O, including controls over the projection of ultimate settlement values of reported and unreported claims determined through internal actuarial analyses, management’s review of the appropriateness of the assumptions used and calculation of case loss estimates, and management’s independent review of case level estimates provided by inside and outside counsel, as applicable.
•For selected E&O matters, we evaluated the reasonableness of management’s case loss estimates and, as applicable, made inquiries of the Company’s inside and outside counsel regarding the status of these matters and likelihood of settlement.
•We compared total incurred losses and current case estimates as of the balance sheet date to amounts reported in prior periods to evaluate trends and developments in reported cases.
•With the assistance of our actuarial specialists, we evaluated the reasonableness of the assumptions and methodologies involved in the development of the liability for E&O by:
–Testing the underlying data that served as the basis for the actuarial analysis, including historical claims and case loss estimates, to evaluate whether the inputs to the actuarial estimate were reasonable.
–Comparing management’s prior-year assumptions of expected development and ultimate loss to actual amounts incurred during the current year to identify potential bias in the determination of the liability for E&O.
–Developing a range of independent estimates and comparing those to the liability for E&O recorded by the Company.
/s/ Deloitte & Touche LLP
New York, New York
February 12, 2024
We have served as the Company’s auditor since 1989.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures. Based on their evaluation, as of the end of the period covered by this annual report on Form 10-K, the Company’s chief executive officer and chief financial officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934) are effective.
Internal Control over Financial Reporting.
(a)Management’s Annual Report on Internal Control Over Financial Reporting
MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Marsh & McLennan Companies, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
The Company’s internal control over financial reporting includes those policies and procedures relating to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; the recording of all necessary transactions to permit the preparation of the Company’s consolidated financial statements in accordance with generally accepted accounting principles; the proper authorization of receipts and expenditures in accordance with authorizations of the Company’s management and directors; and the prevention or timely detection of the unauthorized acquisition, use or disposition of assets that could have a material effect on the Company’s consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management evaluated the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023 under the supervision and with the participation of the Company’s principal executive and principal financial officers. In making this evaluation, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework issued in 2013. Based on its evaluation, management determined that the Company maintained effective internal control over financial reporting as of December 31, 2023.
Deloitte & Touche LLP, the Independent Registered Public Accounting Firm that audited and reported on the Company’s consolidated financial statements included in this annual report on Form 10-K, also issued an audit report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023.
(b)Audit Report of the Registered Public Accounting Firm.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Marsh & McLennan Companies, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Marsh & McLennan Companies, Inc. and subsidiaries (the “Company”"Company") as of December 31, 2020,2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020,2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2020,2023, of the Company and our report dated February 17, 2021,12, 2024, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
New York, New York
February 17, 202112, 2024
(c)Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) or 15d-15(d) under the Securities Exchange Act of 1934 that occurred during the quarter ended December 31, 20202023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information.
None.Rule 10b5-1 Trading Plans
The following Section 16 officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted, modified or terminated "Rule 10b5-1 trading arrangements" (as defined in Item 408 under Regulation S-K of the Exchange Act):
•Mark McGivney, our Chief Financial Officer, adopted a new trading plan on December 4, 2023. The plan’s maximum length is until December 3, 2024, and first trades will not occur until March 4, 2024, at the earliest. The trading plan is intended to permit Mr. McGivney to (1) sell up to 25,526 shares subject to PSUs and (2) exercise and sell 66,393 stock options.
•Stacy Mills, our Vice President and Controller, adopted a new trading plan on December 13, 2023. The plan’s maximum length is until December 12, 2024, and first trades will not occur until March 13, 2024, at the earliest. The trading plan is intended to permit Ms. Mills to (1) sell up to 1,702 shares subject to PSUs, (2) sell 1,572 shares subject to RSUs and (3) exercise and sell 4,101 stock options.
The actual number of shares subject to PSUs that may be sold pursuant to each plan described above is subject to satisfaction of the applicable performance conditions and may vary from the number above.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Information as to the directors and nominees for the board of directors of the Company is incorporated herein by reference to the material set forth under the heading "Item 1: Election of Directors" in the 20212024 Proxy Statement.
The executive officers and executive officer appointees of the Company are Peter J. Beshar, Paul Beswick, Dominic Burke,Katherine J. Brennan, John Q. Doyle, Martine Ferland, Carmen Fernandez, Daniel S. Glaser, Peter Hearn, Scott McDonald andJohn Jones, Dean Klisura, Mark C. McGivney.McGivney, Martin South and Nick Studer. Information with respect to these individuals is provided in Part I, Item 1 above under the heading "Executive Officers of the Company".
The information set forth in the 20212024 Proxy Statement in the sections "Corporate Governance—Codes of Conduct", "Board of Directors and Committees—Committees—Audit Committee" and "Additional Information—Transactions with Management and Others" is incorporated herein by reference.
Item 11. Executive Compensation.
The information set forth in the sections "Additional Information—Director Compensation" and "Executive Compensation—Compensation of Executive Officers" in the 20212024 Proxy Statement is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information set forth in the sections "Additional Information—Stock Ownership of Directors, Management and Certain Beneficial Owners" and "Additional Information—Equity Compensation Plan Information" in the 20212024 Proxy Statement is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information set forth in the sections "Corporate Governance—Director Independence", "Corporate Governance—Review of Related-Person Transactions" and "Additional Information—Transactions with Management and Others" in the 20212024 Proxy Statement is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services.
The information set forth under the heading "Item 3: Ratification of Selection of Independent Registered Public Accounting Firm—Fees of Independent Registered Public Accounting Firm" in the 20212024 Proxy Statement is incorporated herein by reference.
PART IV
Item 15. Exhibits and Financial Statement Schedules. †
The following documents are filed as a part of this report:
(1)Consolidated Financial Statements:
Consolidated Statements of Income for each of the three years in the period ended December 31, 20202023
Consolidated Statements of Comprehensive Income for each of the three years in the period ended December 31, 20202023
Consolidated Balance Sheets as of December 31, 20202023 and 20192022
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 20202023
Consolidated Statements of Shareholders Equity for each of the three years in the period ended December 31, 20202023
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Other:
Selected Quarterly Financial Data and Supplemental Information (Unaudited) for fiscal years 2020 and 2019
Five-Year Statistical Summary of Operations
(2)All required Financial Statement Schedules are included in the Consolidated Financial Statements or the Notes to Consolidated Financial Statements.
(3)The following exhibits are filed as a part of this report:
†As permitted by Item 601(b)(4)(iii)(A) of Regulation S-K, the Company has not filed with this Form 10-K certain instruments defining the rights of holders of long-term debt of the Company and its subsidiaries becaucebecause the total amount of securities authorized under any of such instruments does not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis. The Company agrees to furnish a copy of any such agreement to the Commission upon request.
*Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(b) of Form 10-K.
*Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(b) of Form 10-K.
*Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(b) of Form 10-K.
*Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(b) of Form 10-K.
*Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(b) of Form 10-K.
*Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(b) of Form 10-K.
(10.21)
*Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(b) of Form 10-K.
*Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(b) of Form 10-K.
(10.49)
*Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(b) of Form 10-K.
*Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(b) of Form 10-K.
*Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(b) of Form 10-K.
*Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(b) of Form 10-K.
(10.60)
*Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(b) of Form 10-K.
*Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(b) of Form 10-K.
(10.69)
*Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(b) of Form 10-K.
*Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(b) of Form 10-K.
*Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(b) of Form 10-K.
*Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(b) of Form 10-K.
*Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(b) of Form 10-K.
*Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(b) of Form 10-K.
*Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(b) of Form 10-K.
(24.1)Power of Attorney (included on signature page)
101.INSXBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema
101.CALXBRL Taxonomy Extension Calculation Linkbase
101.DEFXBRL Taxonomy Extension Definition Linkbase
101.LABXBRL Taxonomy Extension Label Linkbase
101.PREXBRL Taxonomy Extension Presentation Linkbase
104.Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
*Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(b) of Form 10-K.
Item 16. Form 10-K SummarySummary.
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | | | | | | | |
| | MARSH & McLENNAN COMPANIES, INC. |
| | | |
| Dated: | February 17, 202112, 2024 | By | | /S/ DANIEL S. GLASERJOHN Q. DOYLE |
| | | | Daniel S. GlaserJohn Q. Doyle
President and Chief Executive Officer |
Each person whose signature appears below hereby constitutes and appoints Katherine J. BrennanCourtenay Birchler and Connor Kuratek, and each of them singly, such person’s lawful attorneys-in-fact and agents, with full power to them and each of them to sign for such person, in the capacity indicated below, any and all amendments to this Annual Report on Form 10-K filed with the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated this 17th12th day of February, 2021.2024.
| | | | | | | | | | | | | | |
| Name | | Title | | Date |
| | |
/S/ JOHN Q. DANIEL S. GLASEROYLE Daniel S. GlaserJohn Q. Doyle
| | Director, President &
Chief Executive Officer | | February 17, 202112, 2024 |
| | |
/S/ MARK C. MCGIVNEY Mark C. McGivney | | Chief Financial Officer | | February 17, 202112, 2024 |
| | |
/S/ STACY M. MILLS Stacy M. Mills | | Vice President & Controller
(Chief Accounting Officer) | | February 17, 202112, 2024 |
| | |
/S/ ANTHONY K. ANDERSON Anthony K. Anderson | | Director | | February 17, 202112, 2024 |
| | |
/S/ OSCAR FANJUL Oscar Fanjul | | Director | | February 17, 202112, 2024 |
| | |
/S/ H. EDWARD HANWAY H. Edward Hanway | | Director | | February 12, 2024 |
| | | | |
/S/ JUDITH HARTMANN Judith Hartmann | | Director | | February 17, 202112, 2024 |
| | |
/S/ DEBORAH C. HOPKINS Deborah C. Hopkins | | Director | | February 17, 202112, 2024 |
| | | | |
/S/ TAMARA INGRAM Tamara Ingram | | Director | | February 17, 202112, 2024 |
| | | | |
/S/ JaneJANE H. LuteLUTE Jane H. Lute | | Director | | February 17, 202112, 2024 |
| | | | |
/S/ STEVEN A. MILLS Steven A. Mills | | Director | | February 17, 202112, 2024 |
| | | | |
/S/ BRUCE P. NOLOP Bruce P. Nolop | | Director | | February 17, 202112, 2024 |
| | | | |
/S/ MARC D. OKEN
Marc D. Oken
| | Director | | February 17, 2021 |
| | | | |
/S/ MORTON O. SCHAPIRO Morton O. Schapiro | | Director | | February 17, 202112, 2024 |
| | | | |
/S/ LLOYD M. YATES Lloyd M. Yates | | Director | | February 17, 202112, 2024 |
| | | | |
/S/ RR. DAVIDAY G. YOSTOUNG R. David YostRay G. Young
| | Director | | February 17, 202112, 2024 |
