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Welcome to Marsh & McLennan's Conference Call. Today's call is being recorded. Third quarter 2021 financial results and supplemental information were issued earlier this morning. They are available on the company's website at marshmclennan.com. Please note that remarks made today may include forward-looking statements. Forward-looking statements are subject to risks and uncertainties, and a variety of factors may cause actual results to differ materially from those contemplated by such statements. For a more detailed discussion of those factors, please refer to our earnings release for this quarter and to our most recent SEC filings, including our most recent Form 10-K, all of which are available on the Marsh & McLennan website.
During the call today, we may also discuss certain non-GAAP financial measures. For a reconciliation of these measures to the most closely comparable GAAP measures, please refer to the schedule in today's earnings release. I'll now turn this over to Dan Glaser, President and CEO of Marsh & McLennan.
Thank you. Good morning and thank you for joining us to discuss our third quarter results reported earlier today. I am Dan Glaser, President and CEO of Marsh & McLennan. Joining me on the call today is Mark McGivney, our CFO; and the CEOs of our businesses, John Doyle of Marsh; Peter Hearn of Guy Carpenter; Martine Ferland of Mercer; and Nick Studer, of Oliver Wyman. Also with us this morning is Sarah Dewitt, Head of Investor Relations.
Marsh & McLennan had another outstanding quarter. Our third quarter results reflects strong momentum across all of our businesses. Our continued strength represents a combination of the current environment as well as impressive day-to-day execution across the firm. Although there continues to be uncertainty and volatility in the macroeconomic and geopolitical environment, we are seeing solid demand for our differentiated advice and solutions. Even as COVID-19 continues to pose risk in many parts of the world, vaccine rollouts are having a positive impact. We are taking advantage of opportunities to add to our deep bench of world class talent. At the core of our business is a focus on our colleagues and we are dedicated to Marsh & McLennan being an exciting and dynamic place to work for outstanding people. And we continue to innovate and leverage the collective strengths of our organization to help clients address their most pressing concerns including climate, diversity and inclusion, the future of work, cyber, and digital strategies.
As we have discussed 2021 represents Marsh & McLennan’s 158th year and success over such a long period of time requires constant innovation and investment to deliver sustained growth and profitability. I'd like to discuss just a few recent examples of how we are innovating to develop new unique client solutions. Nick Studer leads our firm wide climate initiative. We view climate as a significant opportunity and we are well positioned to help clients with this critical issue. In October Oliver Wyman launched the climate action navigator drawing on insights from across the company. This product helps public and private sector leaders plot a path through climate science, identifying emissions at the industry and regional level, and quantifying the effects of multiple different carbon reduction technologies and actions. We believe these tools will give business and government leaders vital insights to achieve their long-term climate goals and be a significant enabler of the transition to low carbon climate resilient investments in the corporate sector.
Mercer recently launched Skills-Edge, an innovative platform allowing employers to determine the most important skills for their future and design a talent strategy to assess, acquire, and retain them. Skills-Edge provides quantitative insight into the demand and value of skills that supports both employees and organizations and rapidly re-skilling for the future of work. And just last week under the leadership of John Doyle we launched our Cyber Risk Analytics Center, this brings together cyber risk data and analytics expertise across our firm and provides clients with a comprehensive assessment of their cyber threats existing in future controls and the potential economic impact. We are one enterprise and these are just a few recent examples of how we bring together and leverage knowledge and capabilities across the firm to offer comprehensive solutions to our clients and address their most pressing concerns.
We are a growth company as demonstrated by our track record. Growth doesn't just happen, it takes consistent vision, alignment, commitment, and execution. Since closing our acquisition of JLT we've grown our total consolidated revenue by 27%, our adjusted EPS by 34%, and our colleague base by 22%. Achieving and sustaining growth requires consistent reinvestment in the business. We always strive to balance delivering results in the short-term while investing for the long-term. In 2021 we generated year-to-date adjusted EPS growth that is higher than any annual period in over three decades while at the same time investing for the future and making a significant press on hiring. We grew our headcount year-to-date by nearly 5000 or around 7% mostly organic adds with an emphasis on client facing roles. We expect this influx of talent will drive growth, add to our capabilities, and enhance our ability to serve clients.
Now let me provide an update on current PNC insurance market conditions. Many of the factors that drove the market to harden over the last few years continue suggesting an inflection to a soft market is unlikely in the near-term. The Marsh Global Insurance market index showed price increases of 15% year-over-year consistent with the second quarter. This marks the 16th consecutive quarter of rate increases in the commercial PNC insurance market place. Looking at pricing by line the Marsh market index showed global property insurance was up 9%, global financial and professional lines were up 32% driven in part by a near doubling in cyber rates, and global casually rates were up high single digits on average. As a reminder our index skews to large account business. However small and middle market insurance rates continued to rise as well although less than for large complex accounts.
Turning to reinsurance, measured and moderate rate increases in global property catastrophe reinsurance witnessed in the first half of 2021 could persist throughout the remainder of the year reflecting adequate capacity offset by elevated global catastrophes, concerns around real end social inflation, and a continuation of large individual risk losses. 2021 marks another year of significant catastrophe losses. Hurricane Ida generated material losses in both the Southeast and Northeast. This is in addition to a record level of flood losses in Europe, flooding in China, and the continuation of wildfire losses in many parts of the world. Marsh & McLennan remains focused on helping our clients navigate these challenging market conditions and making a difference for them in the moments that matter.
Now let me turn to our terrific third quarter financial performance. We generated adjusted EPS of $1.08 which is up 32% versus a year ago driven by strong top line growth and continued low levels of T&E. Total revenue increased 16% versus a year ago and rose 13% on an underlying basis. The second consecutive quarter of record underlying growth in over two decades. Underlying revenue grew 13% in RIS and 12% in consulting. Marsh grew 13% in the quarter on an underlying basis and benefited from strong new business and renewal growth. Guy Carpenter grew 15% on an underlying basis in the quarter, continuing its string of excellent results. Mercer underlying revenue grew 7% in the quarter the highest in over a decade. Oliver Wyman grew underlying revenue 25%, the second consecutive quarter in excess of 20%. Overall the third quarter saw adjusted operating income growth of 19% and our adjusted operating margin expanded 10 basis points year-over-year.
Given our excellent third quarter and year-to-date performance we are on track for a terrific year. We expect to generate the best underlying revenue and adjusted EPS growth in over two decades and expand margins for the 14th consecutive year. Our entire organization is on its front foot, focused and aligned and this is evident in our excellent results. With that let me turn it over to Mark for a more detailed review of our results.
Thank you Dan and good morning. Our results were outstanding with record third quarter revenue, second consecutive quarter of double-digit underlying growth, margin expansion, and significant earnings growth. Highlights from our third quarter performance included the second straight quarter of 13% underlying growth in RIS with 13% at Marsh and 15% in Guy Carpenter and the second consecutive quarter of 12% underlying growth in consulting with 7% at Mercer and 25% at Oliver Wyman. Growth and adjusted earnings per share exceeded 30% for the second quarter in a row. Consolidated revenue increased 16% in the third quarter to 4.6 billion reflecting underlying growth of 13%.
Operating income in the quarter was 740 million, an increase of 37%. Adjusted operating income increased 19% to 759 million and our adjusted operating margin increased 10 basis points to 18.5%. GAAP EPS was $1.05 in the quarter and adjusted EPS increased 32% to $1.08. For the first nine months of 2021, underlying revenue growth was 10%, our adjusted operating income grew 21% to 3.4 billion, our adjusted operating margin increased 120 basis points, and our adjusted EPS increased 28% to $4.82.
Looking at risk and insurance services, third quarter revenue was 2.7 billion up 17% compared with the year ago or 13% on an underlying basis. Operating income increased 21% to 403 million. Adjusted operating income also increased 21% to 469 million and our adjusted operating margin expanded 20 basis points to 20.4%. For the first nine months of the year, revenue was 9 billion with underlying growth of 11%. Adjusted operating income for the first nine months of the year increased 20% to 2.5 billion with a margin of 30.3% up 80 basis points from the same period a year ago.
At Marsh revenue in the quarter was 2.4 billion, up 17% compared with the year ago or 13% on an underlying basis. Growth in the quarter was broad based and driven by nearly 40% new business growth and solid retention. U.S. and Canada delivered another exceptional quarter with underlying revenue growth of 16%. In international underlying growth was 9%, Latin America grew 12%, it’s the best growth since the fourth quarter of 2015, Asia Pacific was up 9%, and EMEA was up 8%. For the first nine months of the year Marsh's revenue was 7.3 billion with underlying growth of 12%. U.S. and Canada underlying growth was 14% and international was up 9%.
Guy Carpenter’s third quarter revenue was 314 million up 15% compared with the year ago on both the GAAP and underlying basis. Growth was broad based across geographies and specialties. Guy Carpenter has now achieved 7% or higher underlying growth in seven of the last nine quarters. In the first nine months of the year, Guy Carpenter generated 1.7 billion of revenue and 10% underlying growth.
In the consulting segment revenue in the quarter was 1.9 billion up 13% from a year ago or 12% on an underlying basis. Operating income increased 45% to 404 million. Adjusted operating income increased 15% to 350 million. The adjusted operating margin was 18.9% in line with the margin in the third quarter of 2020. Consulting generated revenue of 5.7 billion for the first nine months of 2021 representing underlying growth of 9%. Adjusted operating income for the first nine months of the year increased 25% to 1.1 billion and the adjusted operating margin expanded 180 basis points to 19.6%.
Mercer’s revenue was 1.3 billion in the quarter up 7% on an underlying basis, the highest result in over a decade. Career grew 13% on an underlying basis reflecting the continuing rebound in the global economy and business confidence. Wealth increased 6% on an underlying basis reflecting strong growth in investment management and modest growth in defined benefit. Our assets under delegated management grew to nearly 400 billion at the end of the third quarter up 24% year-over-year benefiting from net new inflows and market gains. Help underlying revenue growth was 4% in the quarter driven by growth outside the U.S.
Oliver Wyman’s revenue in the quarter was 610 million, an increase of 25% on an underlying basis. This represents the second consecutive quarter of more than 20% growth as demand remains strong across most geographies and practices. For the first nine months of the year, revenue at Oliver Wyman was 1.8 billion, an increase of 21% on an underlying basis. Adjusted corporate expense was 60 million in the third quarter. Foreign exchange had a negligible impact on earnings in Q3. Assuming exchange rates remain at current levels we expect FX to be a modest headwind in the fourth quarter. Our other net benefit credit was 69 million in the quarter and we expect it will remain at this level in the fourth quarter. Investment income was 13 million in the quarter on a GAAP basis and 12 million on an adjusted basis and mainly reflects gains on our private equity portfolio.
Interest expense in the third quarter was 107 million compared with 128 million in the third quarter of 2020 reflecting lower debt levels in the period. Based on our current forecast we expect interest expense in the fourth quarter to be similar to the amount in the third quarter. Our adjusted effective tax rate in the third quarter was 24.4% compared with 26.5% in the third quarter last year. Our GAAP tax rate was 24.2% in the third quarter down from 30.3% in the third quarter of 2020 which was impacted by some unusual items. Through the first nine months of the year, our adjusted effective tax rate was 24.4% compared with 24.6% last year. Based on the current environment we continue to expect an adjusted effective tax rate between 25% and 26% for 2021 excluding discrete items.
Given our year-to-date performance we are on track for an outstanding year. Looking specifically at the fourth quarter keep in mind that comparisons become more challenging given the rebound in growth in the fourth quarter of 2020. We also continue to build for the long-term by investing and hiring. While we are excited about the future benefit these investments will deliver, they come with upfront costs we absorb in the short-term. That said, we have consistently demonstrated our ability to deliver exceptional results today while investing for the future and expect we will continue to do so.
Turning to capital management and our balance sheet. We ended the quarter with 10.7 billion of total debt. Our next scheduled debt maturity is in January of 2022 when 500 million of senior notes mature. We continue to expect to deploy at least 3.5 billion of capital in 2021 of which at least 3 billion will be deployed across dividends, acquisition, and share repurchases. The ultimate level of share repurchases will depend on how the M&A pipeline develops.
Our cash position at the end of the third quarter was 1.4 billion. Uses of cash in the quarter totaled 665 million and included 272 million for dividends, 93 million for acquisitions, and 300 million for share repurchases. For the first nine months uses of cash totaled 2.6 billion and included 750 million for dividends, 566 million for acquisitions, 734 million for share repurchases, and 500 million for debt repayment. We had a remarkable third quarter positioning us well to deliver strong growth in both revenue and adjusted earnings in 2021 and with that I'm happy to turn it back to Dan.
Thanks Mark. And operator we are ready to begin Q&A.
Thank you. [Operator Instructions]. Our first question comes from the line of Elyse Greenspan with Wells Fargo.
Hi, good morning. My first question goes back to the hiring that you guys have done, it seems continued in the third quarter. I was hoping to get more color on the impact you're seeing to both margin and top line growth. I think you alluded to some of that coming through on the expense and margin side from the hiring. But I'm hoping to get a sense of just the potential growth that could come from these hires given [indiscernible] as well as potential RFPs on renewals coming in 2022?
Yeah, thanks Elyse. We've been at it for 150 years so things like gardening leaves don't bother us all that much. Yeah we're definitely in it for the long haul. As we mentioned in the script, our head count growth year-to-date is up nearly 5000 across the firm and the highest percentage growth by far is in Marsh and Guy Carpenter and of course the majority of the hiring that we've done is in client facing roles. And so we may not be like other firms and that we generally hire to grow capability and talent rather than direct short-term revenue production. But having said that, we are a people business, our colleagues are our engine of growth, and undoubtedly our increased hiring in 2021 will benefit next year and beyond. Sometimes it takes a bit of time to get all the hires fully integrated into the firm and producing levels in terms of their own capacity at an optimal level but we're very comfortable with that. And of course there's a cost factor with that, we are not shy to face sophisticated talent is expensive. But it's worth it and that's why we pursue it. And I don't want anyone to worry out there about our long-term expense base, why all of this hiring. We know how to run the business. Our comp and ben ratio if I look at Q3 on a rolling four quarter basis and then go back five years and locate Q3 on a rolling four quarter basis is virtually identical. So, over time we're building the company, we're doing it through organic and we're doing it through acquisition. Next question.
Thank and then my follow-up.
Go ahead Elyse.
Our next question comes from the line of Jimmy Bhullar with J.P. Morgan.
Thanks, and Andrew maybe later we go back to Elyse because she did not get a chance to ask her follow-up.
Hi, good morning. So I just had a question on pricing and if you could talk about what's going in primary commercial as well as reinsurance and then how much of a pushback are you seeing from clients now that they're facing sort of price on price because rates have been going up for a while now?
That's a very good question Jimmy. And it is a tough market out there. Why don't we start with John and then we'll go to Peter afterwards and we will address the primary markets in reinsurance. So John?
Sure, good morning Jimmy. As you noted the PNC market conditions remain pretty challenging for our clients, prices were up about 15% on average in the quarter which was consistent with the second quarter. The property market was plus 9 versus plus 12 in the second quarter. It was obviously quite an active cat quarter, flood and wind and wildfire related losses but secondary perils are getting a lot of attention from the underwriting community in the market. Cat was up about 6 although up closer to double-digit globally when you exclude the work comp market in the United States where things remained pretty competitive. The excess market remained particularly challenging here in the United States, the underwriting community worried about our lost cost inflation, social inflation really as courts reopened from being largely closed during the pandemic. The financial lines market I think on average is the most difficult market for the moment for our clients although having said that public D&O pricing is still up but it's up about 10 points versus 15 points in the second quarter and that pricing -- that price increase, that rate of increase is the lowest it's been in the last ten quarter. So starting to see a little bit of settling on that work. Without question the market that is most challenging at the moment is the cyber market where prices were up more than 90% on average driven by material growth in ransom wear plans I'm sure you're familiar with, as well as concerns about systemic events. We have had a few events that maybe modest compared to what potentially could happen but underwriters remain concerned about that. You asked about clients, certainly frustrated by it for sure and some are retaining more risk, we've been a pretty active in creating new captives and there's a premium growth in the captives that we manage as well. Some are also electing to retain more risk and then in some cases of course the market is forcing some of our clients to retain more risk. So, it's client by client and exposure by exposure. As Dan said we are aggressively working to help our clients navigate the market. I will add that although on average the price was -- the average increase was the same globally, most markets did see great moderation. The United States was really the one exception when you look at it on a global basis.
Thanks John. Peter?
Thank you Dan. Jimmy, a lot of my comments reflect from a reinsurance perspective what John has said on insurance perspective. You have had market share in dealing with real and social inflation. They're dealing with low interest rate environment and on top of that we're facing something approaching $100 billion of global capacity losses in 2021. So I think it's safe to say that prospect of that will influence property reinsurance pricing at 1/1/22. But you have to look at the market through various lunges because there's a property market that has been affected by $300 billion plus losses over the last five years, of capacity losses. If you look at the cash market, the significant underlying rate lift has stabilized and improved significantly. Property reinsurance, -- casualty reinsurance contracts and so I would say the casualty market has been more stable. As John says and the same is true in reinsurance, if I would suggest, there is one hard element of our market right now it is cyber. I think reinsurers are looking at cyber capacity the same way they look at property catastrophe capacity with it allocated certain amount of aggregate and once they hit that aggregate that’s it. So, I would say as you know we don't opine on 1/1 pricing or any significant quarter pricing we believe the market finds its own equilibrium and as a result of that we are preparing our clients based on exposure and experience for what they might expect at 1/1. But certainly the property market given the fact this is now the fifth year that reinsurers have had losses is going to be challenging.
Thanks Peter and Jimmy do you have a follow-up.
Maybe I will ask just one on expenses and obviously in the near-term I'm assuming T&E is going to stay depressed but as you think about your expenses longer term, are there things that you're going to change resulting from the pandemic whether it's a lower real estate footprint or whatever else that you think provides you more of a long term benefit?
Yeah, I mean when we look at the impact of the pandemic, I think one of the biggest features is that most organizations will -- of our size and scale will adapt some sort of hybrid model. I think the days of 9 to 5 or 8 to 6, five days a week in the office are over for most companies. And so that will have an impact. It's a longer-term impact because in the short-term you've got your leases established and we want some social distancing in the office and we're not sure how this will develop over time. So we're going to be deliberate and flexible. We're not going to move that quickly on it. I mean we've had efforts over many years to become more efficient in our use of space and we've accomplished that quite a bit and that continues. But that certainly is our view. We also think that T&E won’t come back quickly and may not reach the level of 2019 for quite a while. And I know in Marsh & McLennan our view is yes, we look forward to a day where we are going to visit clients in markets in their location. But we will travel with more purpose, we will probably travel with less people on various trips. And we will be more deliberate about it and I think that our clients will have that expectation as well.
So that hop on a plane anytime anywhere culture probably takes quite a long time to come back if ever. And so both of those things have expense implications for us that will be positive for shareholders in the long-term. And I would say the other thing is we are constantly seeking efficiency gains and we're working throughout the firm in order to drive efficiency gains and to become better at operations. So, why don’t I turn it to John for a second, so we can talk a little bit because -- about some of our head count growth was in OPEX in the effort to drive some efficiency within the Marsh operation. And it's in its early stages but there was a pretty significant increase in headcount in that area. So, John you want to talk about that a second.
Sure Dan. We have the largest ever organic hiring in our history this year and we're quite excited about it. Dan touched on the market facing talent that we brought in a bit earlier. I will say it starts with the team, we began the year with -- our teams are deeper and strong as it's ever been. We worked really hard to come together with the team at JLT. We worked on purpose and culture and our colleagues are highly engaged and focused. But one of the things we are working on has been investing aggressively in our client service operations as well. We have a broad program called OPEX, short for operational excellence to improve efficiency, to improve client service outcomes but also to increase the capacity of our market facing colleagues as well. So a fair amount of hiring came in service centers around the world and of course it is not just talent, we're supporting that talent with investments in technologies. We try to automate more and more of our processes.
Thanks John. Next question please.
And we have a follow-up question from Elyse Greenspan with Wells Fargo.
Hi, thanks for taking me back.
Welcome back Elyse.
You guys reported 10% organic growth so far this year, we'll see how the Q4 shakes out. So put you within the range of double-digit for the year. Typically, you guys talked to a 3% to 5% view. Obviously we've been better this year to have all this hiring that seems like it'll be incremental to revenue next year as well. So could you give us an initial view, I know you guys typically wait till the fourth quarter, but just some initial thoughts that you could share with us when we think about the organic growth outlook for 2022?
Sure, sure. And I'll just start with the idea that fourth quarter the top line becomes a little bit more challenging, right. Because Marsh grew 4% in the fourth quarter of last year, Carpenter grew 5%, OW grew 4%, and Mercer was down 3%. So across the piece, a little bit tougher, but we've got good momentum in the business, and we feel good about this year. We also feel good about next year, and the year after. I mean, we have been fundamentally improving the company over the last decade. We are getting stronger on our capabilities, our geographic breadth, our ability to serve. I mean, all of those areas have really dramatically improved and we believe we are in fundamental growth markets, I mean the areas of risk, strategy, and people. I don't care what organization you are and what size, whether you're a large account or a midsize account, you have to address those on a strategic basis. And it is incredibly relevant to the C suite of those companies and organizations to address broadly risk strategy and people. And I think we have enduring competitive advantages as well. I mean, as we were talking before, nothing happens here without our colleagues. I mean, the quality of our organization, the talents that we have, the culture that we have, the broad capabilities, the global footprint, are all enduring competitive advantages. We also continue to acquire talent in the market and acquire businesses which improve us and improve our capabilities. In particular, in middle market, on the brokerage side.
So, there's a lot of growth opportunities, and then just to touch as well on expansion opportunities, I mean we're still weighted into upper middle market and large account, we've gotten better in the mid middle market, we're going to continue to get better, we're going to continue to broaden into the lower middle market and small commercial consumer. You'll see us in all of those areas in the future. Now, it's not going to be from one year to the next, seeing some just massive change but this is inevitable in terms of how we build out our business. We're leveraging the combined strength of our organization as one enterprise like never before, in areas of healthy societies, cyber protection gaps, climate. I mean all of those areas we were going to market and addressing our client’s issues with them on a broad basis, not on a narrow basis. And so our opportunities for revenue growth, in my view are significant. I won't give you a number right now for 2022 but, I think that having not only broken out of the 3% to 5%, but actually tremendously exceeded the 5% level. I think this company can be a real growth firm and that we will prove that over time. We like to do and then say rather than the opposite, so I think it'll be exciting times at Marsh & McLennan. Next question, please.
Our next question comes from the line of David Motemaden with Evercore ISI.
Hi, thanks. Good morning. I just had a question on the headcount adds and so I just -- looking back you added 500 of new headcount in the fourth quarter of 2020 and then 2000 in the first half of 2021. I'm just wondering, did that have any impact on the organic growth this quarter at all or is that still on the come?
Yeah, it's negligible. We are seeing some revenue benefit from hiring that we've done at the end of last year and into this year. But most of it's on the comp. So tends to be -- you get the expenses right away and you get the revenue a bit later.
Got it, thanks. And just to follow-up on that last point, Dan. Just on -- it's sounds like really big hiring quarter this quarter, 3000 new headcount, if I sort of take the 5000, that you said you've hired year-to-date, is there any rule of thumb just to think about or maybe any sort of number you can give me and just how much that weighed on the operating margins in this quarter specifically?
Yeah, I'm not going to get into the expense that we're bearing now as a result. I think the -- one of the reasons that we have been pressing on hiring is twofold. One, we are growing very well on the top line and that was our anticipation, and also market opportunity. And so we are in our view an employer of choice in this space, and we are pressing our advantage at this moment in time. The hiring spurt is not going to last forever, but ultimately we saw an opportunity in the market through dislocation and other factors and we really pressed on that level. At the end, our expenses are relatively high compared to historical type of expense growth for us, but our expense growth is essentially driven by sales compensated -- by compensation and benefit but it's very hard sales compensation due to much higher levels of new business, variable compensation due to much higher levels of profitability and hiring. So comp and ben is driving most of our sales, most of our expense growth in the quarter and will ease itself out. But it's matching well with current levels of revenue growth. So we feel that this was a tremendously opportune time to build capabilities within the firm on an organic basis.
Got it, great, makes sense. Thank you.
Next question, please.
Our next question comes from the line of Meyer Shields with KBW.
Great, thanks. Two quick questions. We saw sort of a bit of a fall-off in organic revenue growth in EMEA and an acceleration in Latin America. And I was hoping you could talk about what's going on in those individual markets?
Sure Meyer, John do you want take that.
Hey Meyer, it is really nothing all that extraordinary that happened in any of the region. Quarter-to-quarter, obviously, you can see some variation. We did have a bit of non-recurring issues and tougher comps in EMEA in the quarter, but they weren't material either. I am pleased with the growth in both regions and I expect us to continue to perform in both territories going forward.
Okay, thanks. And then more broadly, obviously, the organic growth is phenomenal. I'm wondering, is there any element of the growth that is specific to like a post pandemic era that wouldn't recur?
It's a good question. We're going to find out over time. I think the one issue to just bear in mind is the awareness around issues is higher. And I say that because risk awareness is far higher, I think people awareness is far higher. There's whole categories of opportunity in the world for us and others in areas such as ESG, which was not, which is always considered by companies and organizations, but not nearly to the extent it is today. And so when you think about just what's going on in the world, with regard to climate or D&I, responsible investing, etc., these are all new areas of growth for us. You think about things like climate, which was probably not even considered by us 10 years ago and we think it is one of our major growth opportunities as a firm on a going forward basis. And so, I would just say we want to be a leader on ESG and we look at the addressable market in ESG as being enormous and right now it's kind of the developed world public companies. It's going to be all companies everywhere. And so from that standpoint, the addressable market is going to be quite large and we will be a significant player in it.
Okay, thank you very much.
Next question, please.
Our next question comes from the line of Mike Zaremski with Wolfe Research.
Hey great, good morning. I guess a follow-up to Meyer’s question and maybe Elyse's, too. So, you're talking about -- you've been talking a while about broadening Marsh's capabilities, new categories which are exciting, I'm just curious if this kind of changes your views on M&A into new areas or technologies over time, or is it really just kind of what we should be thinking about this kind of same sandboxes -- M&A sandboxes you're in currently?
You know, our M&A sandbox is very broad, and maybe our M&A that we've actually executed on is narrower than what we actually look at. But the sandbox is quite broad and I think you'd be surprised at some of the adjacencies and areas we look at. I mean, we -- I think, as I was mentioning earlier, the areas of risk strategy and people have all kinds of elements to them, that would enable us to continue to build capabilities with acquiring firms. We like firms that have recurring revenue, we like firms that are advisory based with transactions. Doesn't mean that all of our acquisitions will fit that criteria but that's a lot of them. And then we also like firms where we can see the business benefit, the financial benefit to us even if it's a bit out there, we can see it. And some of the things we look at, frankly, and the amount of liquidity and money that's being generated in the world and available, we just look at it and say we can’t -- we like the company, and it's interesting, but boy, we don't have 30 years to figure out whether it worked or not. And so we're a disciplined acquirer and we want to acquire things that not only build our capabilities, but also help us financially as well, even if only on an incremental basis. So, I would say we have a very broad sandbox, but our level of execution has been relatively narrow over the last 5 or 10 years and that probably continues on that basis. We look at a lot of things and we execute on things that we're really committed to.
Okay, great. I guess my follow-up and not to harp on it too much but -- because excellent -- your results were excellent. But, it sounds like you're saying that some of the margins were impacted by new hires. Is that the main influence, are there other items we should be thinking about? And I guess, just hiring spurt should be expected to continue in the near term and so we should be kind of thinking about that as we project margins and then maybe, I guess, when hiring slows, you have maybe easier comps in outer years?
Yeah, I mean, first of all, I wouldn't fret about the margins in the quarter. Ultimately, we've said many times, you have to look about margin expansion over longer stretches of time. We have improved our margins for 14 consecutive years and the results are really remarkable from a basis point improvement. Our margin is up 120 bps year-to-date and that's on top of 120 bps in 2020, and 110 bps in 2019. So it another role in our margins and I would expect that our margins next year are going to be better than they are this year, and so that's the way we operate the business, but it's an outcome. Now, we don't sit around the table figuring out how we're going to drive margin, what we do is we figure out how we're going to drive the underlying growth and earnings. That's the focus of the firm and the outcome of margin expansion is how we run the firm, where we think not every quarter but certainly every year revenue growth needs to exceed expense growth. And that's what we do and we've done it consistently. And so, we're thrilled about where we are. What I mentioned earlier is that, a lot of the expense growth right now is being driven by compensation around sales, and around increased profitability. And so I got really good place to be in and our earnings growth is very strong, remarkably strong. And so I hope that answers your question. Next question, please.
Our next question comes from the line of Brian Meredith with UBS.
Hey, thanks. Couple questions. First, just curious, free cash flow down year-over-year, is that simply just due to the hires that you're having right now and should we expect to see free cash flow, let's start some good growth with earnings here, production 2022?
Thanks, Brian. I am going to hand it off to Mark for that.
Thank you, Brian. Actually, we're really happy with free cash flow. Year-to-date, I think you have to be careful. There's a lot that can happen and cause volatility in a quarter with the cash flow statement even across the year. But free cash flow growth for us has been a great story over a long period of time and you go back over a decade. We've generated double-digit growth in free cash flow and we're up -- if you look year-to-date this year, we are up 5% and that's on top of 56% growth in free cash flow last year. So I think any growth above a big stair up last year is pretty good. So I think overall, our cash generation this year is strong and that's what's enabling us to deploy so much capital.
Great. It's really helpful. And then second question, Dan more just a broad based question here, inflation has been obviously a hot topic, just across the markets. Just give us your perspective on kind of what's going on with inflation right now and particularly as it relates to some of the kind of commercial lines, insurance market, are you seeing any inflationary pressures when you started handle claims for clients and stuff or not at this point?
Yeah. Why don't I take that and then I'll hand to John and Martine to just say, are you seeing inflation in any way in the conversations with clients and what we're hearing from markets. I mean, historically we've done some work and we tend to do as a company better in inflationary periods. I mean, elements of our revenue base react to inflation, such as higher insured values, and we've proven that we can manage our expense base and so sometimes the revenue runs a little bit because of inflation, and we're still managing our expense base. So when we've looked back to inflationary periods over the last 25 years, we've tended to outperform and do pretty well. And, overall, I'll just mention on the economic environment, not just inflation. I mean, there's a lot of positive features about the economic environment, particularly in the United States. I mean, sales are up, consumer spending is up, business confidence is positive. But there are a lot of potential risks and inflation is probably the biggest one of them. But you also have the supply chain issues that we've all been reading about, the return to office that we're all going to be navigating over the coming months, concerns around COVID variants, so it is a tremendously difficult time to look forward, say, four quarters or so and get a real bead on what the economic performance is. Although I do note that most GDP forecast for next year in that kind of 4% and 5% range, so not bad. But starting with John, what are you hearing from markets and clients around inflation, and then we'll go to Martine.
I am certainly hearing concerns on multiple levels, maybe I'll start just on the claim side for a second. And Peter mentioned earlier that more than $100 billion were the cat losses. Of course, we're typically accustomed to demand surge related kind of temporary inflation, if you will, around cat losses. But it's further, those issues are further exacerbated by the supply chain challenges that we're seeing in markets. So there's some level of concern there in terms of what it'll mean, ultimately, the lost costs around cats. I mentioned earlier, the impact of social inflation around liability claims and particularly here in the United States and a couple of other jurisdictions as courts reopen after the pandemic, and we're seeing some evidence of that, although broad based evidences is really yet to show itself. Of course, payrolls and employment levels are important from a demand perspective around commercial insurance and work comp in particular. And so there is concern about wage inflation from some of our clients and the impact on growing costs there. And maybe with that, you -- I will hand it to Martine to talk maybe more about the benefits side of the business.
Yeah, thanks John and indeed, wage inflation and inflation in general usually we do well in these times; one, because our clients really need help in managing these increased costs. So, how do they manage through medical inflation, which we believe is coming back now that regular care will resume which is intended to keep premium a bit low during COVID. The same thing on wage inflation looking at federating transformation program with clients to address the pyramid and the profiles of their workforce. And in terms of pension plans as well, I mean we have to watch on that. And as soon as there's pressures in the economy and system, governance spike up in terms of helping clients manage the asset side of their pension funds more tightly and therefore, that's usually good for the OCIO business in our investment management solutions. And lastly, from a management of our business, most if not all of our multi-year assignments would have a dramatic adjustment to inflation so we've seen that movie before, some years ago.
Thank you.
Thank you. Appreciate it. Next question, please.
Our next question comes from the line of Michael Phillips with Morgan Stanley.
Thanks, good morning. First question on -- have you seen as a higher level any impact of tax reform on M&A activities at industry level, either it's changing the timing of it, of M&A or deals pay the multiples paid, any impact there at all?
Yeah, there's been in -- there's a lot of deals out there but that has been pretty consistent over the last several years. And whether there is some marginal impact of people trying to get ahead of whatever could happen in the U.S. tax environment, it would be on the edges. It's not driving like a more significant level than what we have seen. There's been a lot of sellers out there. I think there's a lot of sellers out there, mainly because there's a lot of capital out there, valuations are pretty strong, that is probably the biggest factor as to what's driving M&A activity.
Okay, thanks. And then just a quick follow-up on the last couple comments on inflation. You talked a lot about, a lot of questions on hiring and possible impacts on your margins there. But I guess specifically to you guys on wage inflation, any impacts there, you have seen and you felt and current margin where you expect to impact that in your margins, pretty specifically?
Yeah, I'll hand off to Martine and then to Nick to just talk about whether they're seeing in the client base and in fact, in our own firm any pressures around wage inflation. We're watching it very closely, obviously. You know, we're all reading about inflation in general and also in the dynamic between employers and employees, across many industries. The employees seem to be in charge right now and so I think that not only wages and benefits, but more broadly, environment of how companies operate, the attractiveness of their work environment, etc., are key factors in terms of the ability to retain people and the ability to attract high quality people. But why don't we start with Martine and see what you're seeing and then we'll go to Nick?
Yeah, from a wage inflation point of view in the market, what we're seeing is that there's more pressure at the lower end of the wage spectrum, where there's a lot of movement there to attract people to jobs, that have been really hard hit during the pandemic. At the higher end of white collar professional, what we're seeing is a little bit of a musical chair, I would say. So there's a great resignation, there's quite a people have moved, people are looking for different careers. And we need to help our clients manage through these pressures and demand. But I think this element of it will be temporary and will settle itself over time. I mean, as clients look at -- as I said earlier, transforming, focusing on the skills they need rather than jobs and roles, we see a very important trend there. Dan has spoken earlier about our Skills-Edge platform that helped client migrate to that. These are all techniques that will help clients get through this change that we're seeing right now.
So let me hand over to Nick with a bit of a shout out for Oliver Wyman, because two quarters in a row of 20% plus organic growth, not bad, not bad, and I'm looking forward to finalizing the budget conversation with you later on today. Nick are you seeing some wage inflations, are you hearing it from clients as well?
Yeah, thanks Dan. Thank you, Michael for the question as well. I think I agree with the way that Dan and Martine have both characterized this overall. In our businesses it is a competitive market for talent. I think we fit in our clients, I think we particularly see it in our business. And there have been a couple of times when with our strong growth, capacity constraints have constrained our ability a little bit. I am not enormously worried by it. We are finding it -- we are hiring more than we hired, I think, maybe ever before but certainly over the last five years. I'm hiring extremely rapidly. But we see some of the musical chairs which Martine described across our businesses too. So in short, yes, there is a period of employee power and rising wages.
Thank you. I think we have time for another question or two. But next question, please.
Our next question comes from the line of Ryan Tunis with Autonomous Research.
Hey thanks. Good morning. Dan, I just had one. How do you think about the growth dynamics of the talent pool in the industry as a whole whether it's a consulting you do or PNC brokerage, I guess I ask because we know there is some areas of brokerage, I guess it's more in the personal line side where there's kind of secular talent outflow, I'm just trying to get a sense…?
No, it is a very good question. We see no, Ryan it is a great question but we see no problem with our ability to attract talent. In fact, when we hire 5000 people, you have to understand we are interviewing 25,000 to 30,000 interviews taking place. We are very selective on how we approach talent. Every time we're seeking talent we have numerous applicants. And so I think, at the very heart of it is the work that we do. We're not an insurance business, we're a risk business. We're not a people business, from an administrative standpoint, we're a strategic people business. And so from that standpoint, the purpose of the organization of making a difference for companies, in their moments that matter, and those inflection points I think it is very attractive. And so where we're able to compete with the best firms in the world for high levels of talent, and when you have the broad base that we have, you can take some risks around, okay, so that person is not a subject matter expert, but boy, they've got a history of success. And let's see how they do. And so we can go a little bit broader. So we see none of the constraints that some folks particularly in the insurance industry have in terms of inflow of talent.
Thank you.
Thank you. I would now like to turn the call back over to Dan Glaser, President and CEO of Marsh & McLennan for any closing remarks.
Thank you, Andrew. And thank you everybody for joining us on the call this morning. In particular, I want to thank our 81,000 colleagues for their commitment to hard work and dedication to Marsh & McLennan, it shows. Thank you all very much and I look forward to speaking with you next quarter.
This concludes today's conference call. Thank you for participating and you may now disconnect.