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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Welcome to Marsh & McLennan's Conference Call. Today’s call is being recorded. Fourth quarter 2020 financial results and supplemental information were issued earlier this morning. They are available on the company’s Web site at mmc.com.
Please note that remarks made today may include forward-looking statements, including certain expectations related to COVID-19 and other matters. 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 MMC Web site.
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.
Good morning, and thank you for joining us to discuss our fourth quarter results reported earlier today.
I’m 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 Scott McDonald of Oliver Wyman. Also with us this morning is Sarah DeWitt, Head of Investor Relations.
2020 was a year like no other and Marsh & McLennan’s response and performance was nothing short of remarkable in these circumstances. The year was characterized by tough choices that we made as a business and as individuals. Our colleagues rose to the occasion and demonstrated resilience, courage, agility, collaboration and empathy in the face of the global pandemic and social unrest. Times like these validate our purpose to make a difference in the moments that matter for our clients, colleagues and communities, and we did exactly that.
Our 2020 adjusted EPS growth of 7% is impressive in one of the worst economic recessions ever. Our strong financial performance also enabled us to continue to invest for the future. We continue to develop digital technologies to offer more robust client solutions. We made a number of strategic hires and achieved a record year of acquired revenue with MMA through eight acquisitions, with approximately 235 million of annualized revenue.
Looking forward, while the global pandemic will most likely dominate at least the first half of 2021, there are brighter days ahead. Our proprietary pandemic navigator model predicts that as vaccines are rolled out and we move closer to herd immunity, through natural immunity, infection case counts and vaccinations, the U.S. and UK could see a return to more normal patterns sometime in the back half of the year.
As we emerge from the crisis, clients around the world can rely on our expertise, with the three areas that are critical for every organization, risk, strategy and people. The World Economic Forum's Annual Global Risks Report which was released last week and prepared with the support of Marsh & McLennan and other partners highlight some of the most likely and impactful risks facing the world today, and we are working with clients to navigate these issues.
Marsh & McLennan has collaborated in the preparation of the Annual Global Risks Report for 16 years. In its first edition in 2006, the report warned against the risk of a lethal flu spread by global travel patterns. And in 2015, pandemics were identified as the number two global risk.
It also drew attention to the risk of global climate change and cyber threat many times over the past 10 years. This year's report highlights infectious disease, extreme weather and climate action failure as top impact risks, while social, digital and economic inequality have ascended as major risks.
Marsh & McLennan continues to help clients adapt to an evolving risk landscape and navigate long-term secular challenges, while at the same time providing advice and solutions for their most pressing issues of the day.
Let me spend a moment on current PNC insurance market conditions. The fourth quarter marks the 13th consecutive quarter of rate increases in the commercial PNC insurance marketplace. The Marsh Global Insurance Market Index showed price increases of 22% year-over-year versus 20% in the third quarter.
Global property insurance was up 20% and global financial and professional lives were up 47%, while global casualty rates were up 7% on average, and U.S. workers’ compensation pricing declined modestly. Keep in mind our index skews to large account business. However, U.S. small and middle market insurance pricing continues to rise as well, although the magnitude of price increases is less than for large complex accounts.
At the January renewals, commercial insurance market conditions remained challenging across products and regions. Risks are able to be placed, although at higher prices and in some cases with less coverage and stricter terms. Insurance carriers continue to push for rate increases in the face of losses, low returns and interest rates.
At the January 1 reinsurance renewal, while pricing ultimately settled at the lower end of early predictions, negotiations were lengthy and complex with a significant focus on coverage and structure. Traditional dedicated reinsurance capital increased slightly as calculated by Guy Carpenter and AM Best. However, alternative capital was down marginally.
The willingness of providers to deploy capital improved over the very constrained midyear 2020 conditions. Capacity was generally available in both property and casualty lines. Non-loss impacted property programs saw pricing of mid single digit to low teens in the U.S. and low single digits in EMEA and Asia Pacific.
Significant recent loss activity drove prices up in excess of 30% on some segments of impacted business. Casualty renewals were subject to increased underwriting rigor due to ongoing pressures of social inflation and challenging experience. Price increases continue to be pervasive in both the PNC insurance and reinsurance markets overall, while capital levels remain reasonable.
2020 saw elevated loss activity, a historic pandemic and low interest rates. Periods of rising PNC rates, changing risk environment and uncertainty present challenges for our clients and the value of our advice and services becomes even more critical.
Now let me turn to our fourth quarter financial performance. We generated a jump in EPS of $1.19, which capped a strong year for Marsh & McLennan despite the ongoing global pandemic and economic recession.
Total revenue increased 4% versus a year ago and rose 1% on an underlying basis. Underlying revenue grew 3% in RIS, or 4%, excluding the decline in fiduciary interest and declined 1% in consulting. Marsh grew 4% in the quarter on an underlying basis, finishing the year strong.
Guy Carpenter grew 5% on an underlying basis in the quarter. Mercer underlying revenue declined 3% in the quarter and Oliver Wyman grew by 4% as new business picked up into the end of the year. The overall fourth quarter saw adjusted operating income consistent with prior year with our adjusted operating margin down 60 basis points year-over-year.
As we mentioned on our last earnings call, we expected to see a sequential uptick in expenses in the fourth quarter. The increase reflects employee-related actions that would have taken place over the course of the year, but were delayed in the thick of the pandemic and increase in variable compensation accruals due to Oliver Wyman’s better than expected performance, as well as strategic hiring and other investments.
As we consistently say, it is important not to overemphasize a single quarter and rather look at performance over a longer period of time. For the full year 2020, adjusted operating income increased 9% with 120 basis points of adjusted operating margin expansion. RIS achieved 170 basis points of adjusted operating margin expansion for the full year, while consulting gained 20 basis points.
For the full year, adjusted EPS grew 7%. Overall, revenue grew 3% or 1% on an underlying basis. RIS underlying growth of 3% was driven by growth of 3% in Marsh and 6% at Guy Carpenter, partially offset by a significant decline in fiduciary interest.
Consulting revenue held up well despite the more discretionary nature of revenue and higher economic sensitivity, with Mercer's underlying revenue down 1% and Oliver Wyman down 4% for the full year. As we look to 2021, we are well positioned given the resilience of our business, strong demand for our services and our expectation for a better economic backdrop.
For the full year 2021, we expect to deliver underlying revenue growth in the 3% to 5% range, market expansion and solid growth in adjusted EPS. This is based on our outlook today, which assumes the global economy recovers in 2021 with a return to positive economic growth in the second quarter.
2021 represents the 150th anniversary of Marsh & McLennan. Few enterprises endure, let alone prosper for a century and a half. Our predecessors helped our clients navigate through world wars, depressions and yes, pandemics. From our very beginning, we developed unique solutions and markets to address complex issues.
We helped enable the development of major industries by creating insurance solutions for the automobile, telephone and electric power sectors. We pioneered innovative pension products that enhance retirement security. Decades ago, we developed some of the first space protection programs.
Today, we are boldly working with governments around the world on a new type of public-private partnership to help address systemic risk from pandemics. We were also at the forefront of tackling society challenges such as cybersecurity, the protection gap, healthy societies, the retirement gap and climate resilience. Our growth and financial performance over this period was also outstanding.
At the beginning of the 20th century, we had approximately 20 employees and less than $1 million of revenue. Fast forward to today, we have over 76,000 employees in 130 countries and over 17 billion of revenue. Since going public in 1962, our financial returns have been exceptional with significant earnings growth.
During this time, our revenues, adjusted operating income and adjusted EPS, all have grown by a double digit CAGR with a share price return CAGR over 10% annually. These stock returns meaningfully outpaced the S&P 500 and are testament to the value that Marsh & McLennan delivers for clients, colleagues and shareholders.
We intend to use the occasion of our 150th anniversary to celebrate our history, chart our future and demonstrate indeed our commitment to the community. To that end, we announced earlier this month that we have committed to be carbon neutral as a company in 2021, and will reduce our carbon emissions by 15% by 2025.
Over the balance of the year, we will roll out other initiatives including fellowships for racial and social justice. As 2020 has powerfully demonstrated, the age of risk has really just begun. We want to preserve the best of what we have learned in 2020, about the importance of resilience, flexibility and empathy, and then build on that foundation with a relentless spirit of innovation to shape the future. And one thing that Marsh & McLennan will never change, we put clients at the center of everything that we do.
With that, let me turn it over to Mark for a more detailed review of our results.
Thank you, Dan, and good morning. We're pleased with our fourth quarter and full year results, which was strong despite the challenges of 2020. We grew our top line, delivered solid earnings growth and entered 2021 with a strong balance sheet and liquidity position.
Consolidated revenue increased 4% in the fourth quarter to 4.4 billion, reflecting underlying growth of 1%. Operating income was 571 million, while adjusted operating income was 855 million. Our adjusted operating margin decreased 60 basis points to 21.3%. GAAP EPS was $0.73 and adjusted EPS was $1.19.
Looking at risk and insurance services, fourth quarter revenue grew 6% to 2.5 billion and was up 3% on an underlying basis, or 4%, excluding the impact of a decline in fiduciary interest. We are pleased with this excellent finish to the year, which demonstrates the strength and resilience of our business in the face of the pandemic.
Adjusted operating income decreased 5% to 525 million and the adjusted margin contracted 220 basis points to 23.5%, reflecting the expected increase in expense in the fourth quarter.
For the year, revenue was 10.3 billion, an increase of 8% with solid underlying growth of 3%. Adjusted operating income growth for the year was impressive at 14%, and our adjusted operating margin in RIS increased 170 basis points to 28%.
At Marsh, revenue in the quarter rose 7% to 2.4 billion increasing 4% on an underlying basis. In the U.S. and Canada division, underlying growth was 7% for the quarter and 5% for the full year, driven by strength across the portfolio. 2020 represents the third straight year of 5% or higher underlying growth in U.S. and Canada.
In the international division, underlying revenue was flat in the quarter with Latin America up 3%, Asia Pacific up 1% and EMEA down 2%. For the full year, revenue at Marsh was 8.6 billion, an increase of 7% or 3% on an underlying basis.
Guy Carpenter's revenue was 162 million, an increase of 5% on an underlying basis for the quarter, representing a great finish to a strong year. The performance in the quarter benefited from growth of GC Securities as well as strength in new and renewal business across our region. For the year, revenue was 1.7 billion, an increase of 15% or 6% on an underlying basis. The full year growth was well balanced with all businesses producing strong results.
In the consulting segment, fourth quarter revenue increased 1% to 1.9 billion with an underlying revenue decline of 1%. Consulting operating income was 179 million and adjusted operating income was 387 million, up 8%. The adjusted operating margin was 21.4%, an increase of 170 basis points versus a year ago.
For the year, revenue was 7 billion, a decrease of 2% on an underlying basis. Adjusted operating income for the year declined 2% to 1.2 billion, while our adjusted operating margin increased 20 basis points to 18.8%.
Mercer's revenue was 1.3 billion in the quarter, representing a decrease of 3% on an underlying basis. Wealth decreased 1% on an underlying basis, with an increase in investment management offset by a decline in DB. Our overall assets under management continue to grow, and at year end exceeded 357 billion, up 11% sequentially and 17% year-over-year.
Health revenue declined 2% on an underlying basis in the fourth quarter, reflecting headwinds from higher unemployment levels along with a tough comparison to a strong quarter for project work in the fourth quarter of 2019. Career revenue declined 7% on an underlying basis. For the year, revenue at Mercer was 4.9 billion, a decrease of 1% on an underlying basis.
Oliver Wyman's revenue in the fourth quarter was 590 million, an increase of 4% on an underlying basis. The stronger than expected results were driven by increased client demand across most segments of the business. We are pleased with the sequential improvements of positive underlying growth to finish out the year, although we recognize the environment remains uncertain. For the full year, Oliver Wyman's revenue was 2 billion, a decrease of 4% on an underlying basis.
Adjusted corporate expense was 57 million in the quarter. In the fourth quarter, we reported 284 million of noteworthy items, the majority of which are related to JLT. Included in this total are 70 million of JLT integration costs, 13 million of JLT acquisition-related costs, 46 million of other restructuring costs, and 161 million related to a legacy JLT E&O in the UK.
This E&O relates to an industry-wide review commenced by the FCA in 2014. The FCA focused on suitability of financial advice provided to individuals by a number of companies, including JLT, relating to enhanced transfer value exercises that in some cases date back to 2001.
At the time of the JLT acquisition, a gross liability of approximately 77 million had already been recorded. This latest update reflects our best estimate of the ultimate liability. We expect this gross liability to be partially offset by insurance recoveries from JLT’s insurers and indemnification claims.
As we typically do on our fourth quarter call, I will give a brief update on our global retirement plans. Cash contributions to our global defined benefit plans were 143 million in 2020 compared to 122 million in 2019. We expect cash contributions in 2021 will be roughly 124 million. For 2021, based on our current expectations, we anticipate our other net benefit credits will increase modestly year-over-year.
Investment income was 25 million in the fourth quarter on a GAAP basis and was 11 million on an adjusted basis. For the full year 2020, our GAAP investment income was a loss of 22 million and adjusted investment income was a gain of approximately 6 million.
The differences between GAAP and adjusted primarily relate to mark to market adjustments on our remaining investment in Alexander Forbes which we exclude from our adjusted results. For 2021, we expect only modest investment income on an adjusted basis.
Our effective adjusted tax rate in the fourth quarter was 24% compared with 23.4% in the fourth quarter last year. For the full year 2020, our adjusted tax rate was 24.4% as compared to 24.1% for the full year 2019. Excluding discrete items, our adjusted tax rate for the full year was approximately 25.3%.
When we give forward guidance around our tax rate, we do not project discrete items which can be positive or negative. Based on the current environment, it is reasonable to assume a tax rate between 25% and 26% for 2021.
We made great progress in 2020 on our integration of JLT and have exceeded the key milestones we laid out when we announced the transaction. We incurred 70 million of JLT integration in restructuring costs in the fourth quarter, bringing the total to date to 586 million.
The remaining work to be done in 2021 consists primarily of ongoing technology application migration and the further consolidation of real estate. Through year end 2020, we have exceeded the estimated savings of 350 million.
We now expect to achieve approximately 425 million in savings by the time the integration is completed in 2021. We expect to incur approximately 650 million of cash cost to generate these savings. In addition, we continue to expect approximately 75 million of non-cash charges.
We ended the year with 2.1 billion of cash due to the strength of our cash flow from operations and efforts made during the crisis to improve working capital. Our strong cash generation during the year enabled us to raise our dividend, complete a record level of acquisition activity at Marsh & McLennan Agency and stay on pace with our deleveraging plan with 1.5 billion of total debt repaid in the fourth quarter.
Total debt at the end of the year was 11.3 billion, down from 12.7 billion at the end of the third quarter, reflecting the repayment of 700 million of senior notes, the prepayment of 300 million floating rate notes due in December 2021 and repayment of the remaining 500 million due on our term loan. Our next scheduled debt maturity is in July when 500 million of senior notes mature.
Interest expense in the fourth quarter was 128 million. Based on our current forecast, we expect approximately 119 million of interest expense in the first quarter of 2021. In line with our prior commentary, we did not repurchase any shares in the fourth quarter of 2020. As we look to 2021, while uncertainty remains high, the combination of our available cash and expected cash generation positions us well for a year of significant capital deployment.
Based on our outlook today, we currently expect to deploy approximately 3.5 billion of capital in 2021 across dividends, debt reduction, acquisitions and share repurchases. Due to our debt reduction in Q4, we expect only a modest amount of debt paydown in 2021, which will complete our deleveraging.
We have consistently stated that we favor attractive acquisitions over share repurchases as we do high quality acquisitions as a better value creator for shareholders and the company over the long term.
Our track record is good, as evidenced by our high teens return on invested capital over the past three years. We expect to resume share repurchases in 2021 and the ultimate level of share repurchases will depend on how the M&A pipeline develop.
Uses of cash in the fourth quarter totaled 365 million and included 124 million for acquisitions, and 241 million for dividends. For the full year 2020, uses of cash totaled 1.8 billion and included 877 million for acquisitions and 943 million for dividends.
In summary, we are proud of the resilience, courage and agility of our colleagues in a year that presented unique challenges. As we look forward to 2021, our outlook is for another year of strong performance.
And with that, I'm happy to turn it back to Dan.
Thank you, Mark. Operator, we’re ready to go to the Q&A.
Certainly. [Operator Instructions]. Our first question comes from the line of Elyse Greenspan with Wells Fargo.
Hi. Thanks. Good morning. My first question was on the outlook for 2021. You guys pointed to 3% to 5% overall organic revenue growth. Just trying to get a sense embedded in that, what’s the views for RIS versus consulting. And then given that you guys obviously expect the economy to start to rebound, I think you said, Dan, in the second quarter, but should we assume that the growth is better in the back three quarters than the Q1?
Yes, it's a good question, Elyse. We were 3% to 5% growth on an underlying basis for 10 straight years before 2020. And so we feel that it's actually really positive that we're believing we will return to that 3% to 5% growth in 2021. The difference between RIS and consulting has more to do with what's happening in the global economy and macro factors, business confidence. Obviously, as demonstrated this year, the RIS business is a bit more resilient with higher levels of recurring revenues in the consulting business. But we're still hopeful actually that we will grow our consulting business in 2021 in both Mercer and Oliver Wyman, and that's actually our plan. We do expect that there would be more strength from the second quarter onwards, because the first quarter, you're basically comparing a pre-COVID world with a COVID world. And so there will be some challenges within that. But we've got some pretty decent momentum that we built throughout the year. And so we're expecting a good year in 2021. As we mentioned in the script, we expect that margin expansion for the year and we also expect solid adjusted EPS growth.
Okay, that's helpful. And then my second question I guess is also on the other component of guidance, the margin improvement. You guys did, like you said, a pretty good job of managing your expenses during the second and the third quarter. Sounds like there was a little bit more reinvestment, some stuff that got put off I think you said in the fourth quarter. So I guess the same question I was thinking about on the margin side. It sounds like maybe there could be constraints on the Q2 and the Q3, because those are pretty tough comps. But I guess that's one part of the question. And then the same thing, are you implying, Dan, since you said, potentially growth in both consulting and RIS that both segments could see margin improvement in 2021?
Our margin improvement in 2021 will in part be a function of where organic growth is. When we look at it, you say we did a pretty good job of the second quarter. My God, we rattled back expenses fast. Expense growth was down 5% in the second quarter, 4% in the third quarter. So I think it was a remarkable job. Not impacting the business itself, continuing to invest in the business, but managing our expenses aggressively and setting a very high bar for what was required in the midst of a real crisis, a real global crisis. And so the fourth quarter represents to us of getting back not quite to normal, but looking at pacing the way we normally would do. A little inside baseball in that we -- clearly we did a number of strategic hiring in the fourth quarter. We're actually up 500 or actually close to 500 headcount in the fourth quarter. And so we're positioned well for 2021. I'm not worried about quarter-by-quarter comparisons looking at 2021 versus 2020, because 2020 in a lot of ways is such a unique, bizarre type of year. So we're going to run our business the way we run our business as we usually do, where revenue growth exceeds expense growth in almost every quarter, and certainly in every year as it has done for the last 13 years. So, I know that the entire firm was very interested in doing our best to turn the page on 2020 and focus on 2021. And in the fourth quarter, we started really focusing on what that would mean. So I think we're positioned to grow decently in both. Whether our margin goes up in both segments or not, I'm not going to really talk about right now. Our expectation is that we will grow margins. Now, are we going to grow margins to the extent that we did as an overall company in 2020? Well, that would be a very tall ask, bearing in mind all the expenses that were pulled back in the second and third quarter.
Thank you. Our next question comes from the line of Mike Zaremski with Credit Suisse.
Hi. Good morning. I guess I'll ask the expense question a little differently. You said remarkable job kind of pulling back on expenses. So, I guess do you feel that or any kind of lessons or things that you think that can expense wise or operating leverage wise can kind of persist permanently, or are you saying kind of the relationship between revenues and expenses kind of hopefully just goes back to the old relationship as the world opens up and things get back to normal?
It's a complicated question, but I think the answer is both. I do think we will return to a more normal pattern to where we look at revenue growth in the 3% to 5% area. Our expense growth for a number of years, four out of the last five years before 2020, was average – was not average. It was actually 2% growth. So our expense growth normally would be around 2% as it's been. Now some years it might be 3%, some years it might be 1%, but ultimately I think that's the more normal pattern. We do see the opportunity of certain things that we've learned during this year, during the year 2020 to continue. Clearly, when you think about things like where a business is filled with knowledge workers and subject matter experts, so remote working is manageable for us. So our choice of returning to offices is just that. It's a choice. We think it's better for the business. We expect our offices, physical offices to remain really the hub of activity in Marsh & McLennan. But having said that, we also think that over a period of a few years that we would be able to reduce our footprint a bit, and that would actually benefit shareholders but it would also benefit colleagues by making their life a bit more flexible and a bit easier. So certainly, that's an area of having a more actual real estate footprint is an example. We also operated much faster and more connected during COVID than we did previously. And there's an efficiency gain with that that we absolutely want to keep. I don’t think T&E. I think it's going to be a while before travel snaps back to the levels that we had in like 2019. And maybe it will be quite a while. I do expect people, once this COVID clears and the crisis is over, to return to travel to see markets and to see clients, but maybe we won't travel quite as much in the past like we used to, and maybe we won't jump on an airplane at a moment's notice. It could be more like, well, let's talk on Zoom, because everybody's used to that now. So I do think that there is lasting efficiency gain which will benefit shareholders in the post COVID world.
Okay, great. And last, a follow up switching gears a little bit to some of the more consulting centric businesses. I guess a lot of the questions we get are about whether organic will kind of succumb to some cost cutting actions some corporations are taking. I guess on the other hand, there seems to be a lot of uncertainty out there, which sometimes can lead to a new political administration, which could actually be a tailwind for parts of your consulting businesses. So maybe you can kind of talk through some of the pluses and minuses you’re seeing? Thanks.
Sure. I’ll lead that off and then I'll hand off to Martine and Scott who can give you a little bit more detail. Our consulting businesses, yes, they have less recurring revenue and parts of the career business and Oliver Wyman are project based. But having said that, they're resilient businesses and there's still plenty of activity as demonstrated versus performance through the year, which was minus 3, but much stronger, minus 3 the last three quarters and actually minus 1 for the year, which actually is much stronger than during the financial crisis. And areas like health and investments, retirement security are lasting and have resilience in and of themselves. Oliver Wyman's pop in the fourth quarter was a bit unexpected for us and it gave us -- usually as I've mentioned before, they tend to be a bit of a canary in the coal mine as the business confidence and thoughts. And so let me go to Martine first and then Scott who can give you a little bit more flavor for how they see growth in their business in 2020. Martine?
Yes. Well, thanks, Ben and Mike for the question. Actually we're pleased, as Dan said, about the new business activities that we've seen in the current challenging circumstances. And we look at what the world needs right now in terms of redefining the world of work, addressing health challenges. And also we've seen quite a lot of demand in the investment solutions side of our portfolio. We've closed the year at a record level of assets under management at $357 billion. So I'd say health has been resilient through the crisis. We grew 2%. And we see a bright spot there in terms of digital solutions demand for virtual care, mental health, for example, or workforce communication. As I said, wealth, of course, we have the structural decline in the defined benefit, but that has slowed down a bit during 2020. And we've seen a lot of project work related to market volatility. So that could continue. But definitely our investment solutions are very much in demand. And then for us, career is our most discretionary project work business, in particular on the service side of career. But career usually rebound with the economy. And as Dan said in his remarks, we expect the economy recovery to come back at least in part of H2 and therefore -- and we are seeing some strength in the career pipeline. We've seen that in Q4. So all-in-all, I think our services are very relevant for the times. We're watching, of course, the agenda from the Biden administration. But we think that we are well positioned there. In particular, we are very strong in ESG, like diversity and inclusion consulting and also on responsible investment, and helping clients address the transition to a low carbon economy. So I think as soon as the economy comes back, I think we should see a good rebound.
Thank you, Martine. Scott, let’s talk a little bit about how you see 2021.
Yes, sure, Dan and Mike. From an underlying perspective, we had a very strong Q4 and we had strong business activity across most segments of the business and real particular strengths in areas like financial services, health, the public sector and our actuarial and living cost businesses. And the type of business we're doing was really broad based. And it ranged all the way from growth strategies and digital transformation to the other end of restructuring and bankruptcy. I think the lesson I'm drawing from that is that there's a lot to do out there as businesses recover after the pandemic and they rebuild, they grow, they evolve, transform. Oliver Wyman also tends to focus on big companies, which have performed relatively better than small companies over the last period. Looking into the new year, our new sales in the pipeline are also strong. But as you said in your question, clients are facing significant uncertainty as they hopefully managed through the last leg to the pandemic. But looking at to the whole year, I think the first quarter could be challenging. But beyond that, I feel really good about our business, our prospects and our ability to grow. Companies are certainly challenged and they've got at least another quarter or more of challenge and uncertainty. But they have a lot to do. They need a lot of support. And I think between Oliver Wyman and Mercer, we have many of the things they need.
Thanks, Scott. Next question please.
The next question comes from the line of Phil Stefano with Deutsche Bank.
Yes, thanks. I want to go back to the expenses for a moment. And I think last quarter, the commentary was that it would be up sequentially, but maybe not to the extent that we saw on a year-over-year basis, and it feels like it was higher than that. And I was hoping you could talk around -- my suspicion is there was an opportunity for investment or hiring. Maybe you can better flush that out.
It's a good question, Phil. And it's a good catch. My expectation on the call for our third quarter was that expenses would kick in the fourth quarter, but they would still be negative on a year-over-year basis. And actually they're positive on a year-over-year basis. Our expenses grew 1.5% or 2% in the fourth quarter. So it was a bit of a surprise. There’s two factors underneath that. One, we didn't expect Oliver Wyman to grow in the fourth quarter and Oliver Wyman grew. And as I've mentioned before, they have the most variable compensation model. And so when they're growing, that's when we build in more on terms of variable comp. So that was something that we did. And the hiring that we did in the fourth quarter on the strategic recruitment side was higher than what we expected. We see a lot of opportunities out there. And as I mentioned, we're up nearly 500 headcount on a net basis in the fourth quarter. So that was a little bit more. So those are the two factors that contributed to us having expenses. It's important to point out, neither of those factors in and of themselves are one way. Certainly with the strategic improvement, we expect revenue over time as a result of building out our headcount as we've done for many years in a row. And the variable comp increase in OW to me is a good news story, because it's attached to growth. And so I would love for that to continue, because it would signify that we're growing the top line in Oliver Wyman.
Okay. And dialing in on the RIS international businesses, to what extent do the different regions within there have different organic growth profiles in the short run? And I'm trying to think through the various regions’ ability to manage vaccinations, to adopt stimulus programs and things like that? Should we see significant difference in these regions as we look in the very short term?
Yes, it's a good question. And I'll start it off and then I'll hand over to John who's got the biggest international footprint and also to Peter so he can weigh in as to what he's seeing in different parts of the world and expectation levels. Let's bear in mind, just to start, our top six countries represent about 75% to 77% of our revenue. So you look at the United States, UK, Canada, Australia, France and Germany, that’s a big part of our company. And so it's pretty developed economies stuff. But we always have some level of variability, as you mentioned, and there's going to be different rollouts and there's going to be different timing as to when the individual countries return to normal. But, John, how do you see regional growth patterns as you go forward into 2021?
Sure, and thank you for the question. Look, we expect a better growth trajectory in the international business in 2021. Of course, the economic outlook matters. And many parts of the world struggled more from an economic perspective as a byproduct, of course, of the pandemic saw maybe less government intervention to support the economies. What I would say, too, internationally, at least in many markets, maybe not the UK, maybe not Australia, or some other more developed markets, a lot of premium spend can be quite discretionary. And so you have liability environments that are very, very different than the countries that I mentioned earlier. And we also saw less price and less rate increase in many of those markets as well. So I think overall, I would expect less premium growth from an insurer perspective internationally than what we saw in the U.S. where as you saw, we had very, very strong revenue growth this year. But again, I'm optimistic about '21. It should be a better year.
Thanks, John. Peter, you want to give us Guy Carpenter's perspective of regional growth patterns?
Sure. Our 2020 international business was fantastic. We had strong double digit growth in Latin America, Asia Pacific, EMEA operations, our UK operations. And it's fascinating because we have not seen any weakness in the underlying subject premium basis from our clients. And quite frankly, uncertainty creates demand in the reinsurance business. The uncertainty created by COVID and the potential loss magnitude has increased demand in all of our businesses. But for the first time in a long time, our international businesses have all grown by strong double digits. And we see the same thing for 2021.
Thank you. Next question please.
Our next question comes from the line of Jimmy Bhullar with JPMorgan.
Hi. Good morning. So first just a question on capital deployment. I think you mentioned 3.5 billion. And I guess about 1 billion of that will be used for dividends, about 0.5 billion for debt retirement, so the remaining 2 billion. Should we assume that buybacks will be consistent with what you've done in the past which is sort of offset the -- or keep the share count constant or go down a little bit, or would you consider being more active, either based on the stock price or just your deal pipeline?
Sure. Thanks, Jimmy. So Mark mentioned that we will deploy approximately 3.5 billion of capital in 2021. And Mark, you want to take that question and give a little bit of our philosophy how we’re thinking about that?
Sure. Jimmy, your math is good. The 3.5 billion; your 1 billion for dividends, 0.5 billion in debt paydown and your remainder of 2 billion. As I said earlier and as we've said consistently, we favor acquisitions. And so as we think about that, that $2 billion bucket, the lean is going to be M&A. Our M&A pipeline is good. But I would say we do expect a meaningful amount of share repurchases. Just the exact amount is really going to depend on the strength of the M&A pipeline as we go through the year.
And how is just the competition for deals and sort of availability of attractive properties, because there does seem to be a lot of interest and there's ongoing consolidation in the market?
Yes. Jimmy, we’re the market leader. We don't compete an awful lot for assets in the marketplace in any kind of competitive bidding processes. At the end, the majority of companies that we acquire were in exclusive negotiations. And their decision oftentimes is, are they going to come with Marsh & McLennan or will they remain private. That is how it works on the majority of ours. So we're not chasing deals. And frankly, if a company is debating whether they should sell to us as a combination that would help them grow better and give better career path into their colleague base and they’re viewing that as to what about private equity as an example, as an alternative, then they were not ready for really that conversation. At the end, we like doing transactions in which we're not selling ourselves and they're not selling themselves. We're deciding in combination that working together will enable more flow for the combined operation on a go-forward basis. So we're highly selected. We're not doing dozens and dozens of deals, as you see that takes place out there in the market. And as I said, most of our acquisitions were in some element of exclusive discussion.
Next question please.
Our next question comes from the line of Meyer Shields with KBW.
Thanks. Dan, I don't know if you mentioned this before and I missed it, but the nearly 500 headcount increase in the fourth quarter, was that more weighted towards RIS or consulting?
Yes. At the end, I don't have the precise number for you. My view in it would be RIS weighted. But consulting, we intend -- if I look at our overall headcount for the total company in 2020, it is up slightly versus 2019. So it's not that we've emptied the cupboard and then we've achieved our margin expansion in 2020 in a way that's going to impact us negatively into the future. We are well prepared for a rebound. And certainly RIS had a very strong year and is the market leader. And so we are the employer of choice in the industry and we have a lot of opportunities to build our headcount with really quality subject matter experts and producing people as we go forward.
Okay, that's helpful. On a different topic, I guess you and Martine mentioned the record assets under management. Can you give us a framework for how we should think about that impacting earnings?
Sure. It's not a direct read-through. Obviously, with AUM growing, we earn more revenue generally from that. It also creates a bit more volatility to us as we go forward. But it's very much a good news story. I think the CAGR on AUM mid 20s over the last five years or so. So, Martine, how should Meyer and others think about AUM when it comes down to what does it mean for Mercer's business?
Yes. Well, it's definitely a very strong suit for us, and also the demand through the COVID crisis has increased. We’ve seen the same on the global financial crisis. When the market becomes more uncertain, the demand for improved governance and transaction agility really drive demand for us, and we're seeing this. So we had very, very strong inflows in 2020. We're seeing a very good pipeline for 2021. And, of course, there's always the aspect of capital market in that business that impacts AUM itself, but also the revenue. And then within the offering, Meyer, there's different types. So we have pension assets and we have non-pension assets, and there's a – the client really decide on the asset mix, so the exposure to whether equity or bonds or private markets. We think that actually the way that we deploy these assets, there's just mitigation or risk in itself because of the diversification of the portfolio. So I would say that the revenue flows depends on when the AUM funds in the year, but it's been a success and growth story so far.
Thanks, Martine. Next question please.
Our next question comes from the line of David Motemaden with Evercore ISI.
Hi. Thanks. Good morning. I just wanted to follow up a bit on the underlying expenses and just how to think about it. So, Dan, you mentioned earlier, it was a bit above what you had expected in 4Q or at least what you had expected in the third quarter. I guess how should we be thinking about it as we look forward into '21? Based on how I calculate, it looks like underlying expenses were up 1% in 2020. Would you still expect it to be in that 2% to 3% range in '21, or is some of the timing impact kind of -- would that maybe bring the underlying expense growth below that range as we look to '21?
Well, it's an impossible question to answer without knowing the organic or underlying growth rate for 2021 in each of our businesses, because a fair amount of our expense growth is linkage with variable comp. Our bonus pool increased in 2020. In fact, the overall Marsh & McLennan bonus pool has never been higher than in 2020, because profitability was up considerably. And so what I look forward to next year or 2021 rather, I look at it and say, almost certainly revenue is going to exceed expense growth as it has for the last 13 years. It may not be in every quarter, but certainly that's how we run the business for a year. I think a lot of our expense pop in the fourth quarter was non-run rate. Some of it was, but a lot of it wasn't. And so I look at it pretty simply. For 10 years prior to COVID, we grew underlying revenue between 3% and 5% and we delivered an adjusted EPS CAGR over that decade of close to 12%. So ultimately, that's what we were playing for the idea that as long as we grow underlying revenue, we can run our business and the expense side of our business in a way to develop strong adjusted EPS growth, and that's kind of how I think about 2021.
Okay, great. That's helpful, Dan. Thanks. And maybe just a quick question or maybe not so quick, but a question for John. Just wondering what your thoughts are on the primary PNC market pricing environment. And I guess how long do you think that this current hardening rate environment will continue? I think there's been some discussion out there that it may start to taper off at the end of the year, and maybe be more in line with loss trend, but just wanted to get your sense in terms of the direction of the market.
John, you want to take that.
Sure, David, the market remains very challenging for our clients in the quarter. Dan talked about the overall price increase at 22% versus 20% in the third quarter. 2020 was obviously a really difficult year for insurers; cat losses, COVID losses, social inflation, low interest rates. So, it certainly accelerated -- COVID certainly accelerated the trend for rising prices throughout 2020. U.S., UK and Australia are the most difficult markets generally speaking for our clients. Looking forward, I'm most concerned, again, from our clients’ perspective, about D&O pricing and excess liability pricing, the excess liability market primarily here in the U.S. Just a lot of ongoing discussion about growing claim frequency, growing claim severity in part, again, driven by social inflation. But just broad concerns in the underwriting community about rate adequacy there. Work comp remains, pricing remains down on the other hand and it’s been down candidly a bit longer than I’ve been expecting, but good for our clients. We are seeing some lines of business where the rate increase line kind of flattened out or began to moderate. And that's not to say that prices were down, but the average increase in the fourth quarter, like in our property book, for example, wasn't up as much as it was in the third quarter. So again, overall, from my clients’ point of view, I'm most concerned about D&O and excess liability pricing. I do think as time wears on throughout the rest of 2021, other lines of business will likely moderate a bit.
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.
I'd like to thank everyone for joining us on the call this morning. In closing, I'd also like to thank our colleagues for their hard work and dedication in 2020, which, of course, was a very challenging year. I want to thank our clients for their continued support. I look forward to speaking to all of you next quarter. Be well.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.