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Marsh & McLennan Companies (NYSE:MMC)

Q1 2011 Earnings Call

May 04, 2011 8:30 am ET

Executives

Vanessa Wittman - Chief Financial Officer and Executive Vice President

M. Burns - Chairwoman of Mercer Human Resource Consulting and Chief Executive Officer of Mercer Human Resource Consulting

Daniel Glaser - Group President and Chief Operating Officer

Peter Zaffino - Chief Executive Officer of Marsh Inc and President of Marsh Inc

Brian Duperreault - Chief Executive Officer, President, Director, Member of Finance Committee and Member of Executive Committee

Analysts

Thomas Mitchell - Miller Tabak + Co., LLC

Yaron Kinar - Deutsche Bank AG

Keith Walsh - Citigroup Inc

Larry Greenberg - Langen McAlenney

Cliff Gallant - Keefe, Bruyette, & Woods, Inc.

Matthew Heimermann - JP Morgan Chase & Co

Meyer Shields - Stifel, Nicolaus & Co., Inc.

Brian Meredith - UBS Investment Bank

Adam Klauber - William Blair & Company L.L.C.

Operator

Good day, everyone and welcome to the Marsh & McLennan Companies Conference Call. Today's call is being recorded. First quarter 2011 financial results and supplemental information were issued earlier this morning. They are available on Marsh & McLennan Companies' website at www.mmc.com.

Before we begin, I would like remind you that remarks made today may include statements relating to future events or results, which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to inherent risks and uncertainties, in particular, references during this conference call to anticipated or expected results of operations for 2011 or subsequent periods are forward-looking statements and Marsh & McLennan Companies' actual results may be affected by a variety of factors. Please refer to Marsh & McLennan Companies' most recent SEC filings, as well as the company's earnings release, which are available on the Marsh & McLennan Companies' website for additional information on factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today.

I would now like to turn the conference over to Mr. Brian Duperreault, President and CEO of Marsh & McLennan Companies. Please go ahead, sir.

Brian Duperreault

Thank you. Good morning. Good morning, and thank you for joining us to discuss our first quarter results as reported earlier today. I'm Brian Duperreault, President and CEO of Marsh & McLennan Companies. Joining me and presenting on the call today is Vanessa Wittman, our CFO. Also I'd like to welcome Dan Glaser, Group President and Chief Operating Officer of Marsh & McLennan Companies; as well as our operating companies CEOs, Peter Zaffino of Marsh; Alex Moczarski of Guy Carpenter; Michele Burns of Mercer; and John Drzik of Oliver Wyman. Also with us is Mike Bischoff.

Our first quarter results show that we're off to a very good start this year. We reported a strong increase in revenue with growth of 9%. In fact, this is the third consecutive quarter that each of our operating companies produce revenue growth on both a reported and on underlying basis. And importantly, we can continue to achieve revenue growth while maintaining effective control over operating expenses.

As a result, we produced 10% growth in adjusted EPS for the quarter, a solid start for the year. The positive momentum at Marsh continued with good underlying revenue growth, fueled by new business development and high client revenue retention rates. Guy Carpenter also produced excellent quarterly underlying revenue growth, as it has for more than 2 years now led by its international operations. Mercer generated underlying revenue growth of mid-single digits for the third consecutive quarter. And Oliver Wyman's underlying revenue growth was its strongest since 2007. So we're very pleased with our operating performance in the first quarter.

I'd now like to expand on some recent management changes at the company. The 4 pillars I discussed in Investor Day last September are the foundation for Marsh & McLennan Companies to produce outstanding performance on a long-term basis, re-establishing us as a global growth company.

Our strategy focuses on the characteristics that create exceptional value and superior returns for investors, long-term growth, low capital requirements, high cash generation with disciplined capital management and low risk profile. Based on our strong performance last year and our excellent start this year, I am confident that the turnaround we began 3 years ago is complete.

Now that we've managed effectively through the great recession and each of our businesses is on an upward trajectory, I thought it was an opportune time to make changes to our leadership structure. These changes further enhance our strong management team by providing expanded responsibilities and broadened scope for certain key executives. This will allow them to utilize their unique perspectives to further refine our operating model, while at the same time maintaining the continuity and strong cohesive working relationship among the senior management team.

So as we announced last month, Dan Glaser is named Group President, Chief Operating Officer of Marsh & McLennan Companies. We believe his appointment will accelerate our progress towards growth in revenue and profitability across all our operating companies, and sharpen our focus as an organization. As you know, Dan is a seasoned executive with 30 years’ experience in the insurance business, including senior management positions both as a broker and as an underwriter. In his newly created role, Dan will have operational and strategic oversight of our 4 operating companies as well as certain functional areas. Under Dan's leadership, Marsh dramatically improved profitability and performance. And we have every confidence that he brings the same leadership qualities, strategic thinking and operational excellence to his new role.

Peter Zaffino is named CEO of Marsh. One of the best decisions I made when I joined Marsh & McLennan was to name Peter as CEO of Guy Carpenter in early 2008. During his tenure, Peter built and led a team that significantly improved performance, solidified Guy Carpenter's standing as one of the world's leading reinsurance intermediaries and positioned the company as a broad-based risk advisor for the insurance industry. Building on the strong foundation, Dan created at Marsh, Peter will draw on his 20 years of experience in the insurance and reinsurance industry to bring the same vision, insight and drive to his new role.

Alex Moczarski will now lead Guy Carpenter. Alex had been CEO of the International division of Marsh, and was instrumental in the building its substantial presence in markets throughout the world. Under his leadership, Marsh's International operations have been a strong contributor to Marsh's performance over the past 3 years. Alex has worked tirelessly to build a cohesive international team spanning several continents and he has a passion for the business that always takes into account what is in the best interest of Marsh & McLennan Companies. With more than 30 years in the insurance industry, 18 years at Marsh and before that, with AIG, Alex is an internationalist. He spent time in Latin America and Europe, as well as the United States, gaining invaluable experience and perspective needed to guide to lead Guy Carpenter as it focuses on the enormous potential of international growth.

I want to emphasize that our strong management team includes our colleagues within Mercer and Oliver Wyman, led by Michele and John. The entire senior management team will continue working together with a long-term focus driving performance. And before anyone asks, I couldn't be more engaged and energized about the company's prospects than I am today.

With that, let me turn it over to Vanessa to review our first quarter results in more detail.

Vanessa Wittman

Thank you, Brian, and good morning, everyone. I'm delighted to report that the financial performance of Marsh & McLennan Companies in the first quarter was strong. We achieved solid revenue growth and increased operating income in each of our operating companies.

On a GAAP basis, earnings per share in the first quarter was $0.58, including $0.56 from continuing operations, discontinued operations of $0.02 related largely to Putnam. And it's important to note that our adjusted EPS equaled GAAP EPS from continuing operations. On an adjusted basis, first quarter EPS increased 10% to $0.56. First, let's go into a little more detail on our consolidated results. Unless specifically indicated, my references will be to underlying revenue, underlying expenses and adjusted operating income.

Investment income rose to $19 million from $8 million last year. In the second quarter, we anticipate a slight loss due to a mark-to-market declines in our private equity portfolio, which are recorded on a one quarter lag. In the first quarter, interest income rose to $7 million due to higher cash balances compared with last year and slightly higher interest rates. Interest expense decreased to $51 million in the fourth -- first quarter from $60 million a year ago due to the payment of a $550 million senior note last September. Our next debt maturity is a $250 million note due in March of next year.

Let's turn to the results of our operations. In Risk and Insurance Services, both Marsh and Guy Carpenter contributed to strong revenue growth in the first quarter. Operating income increased 7% to $383 million. This growth in profitability was achieved despite higher pension costs and the negative impact of foreign currency translation. The euro and the British pound were weak, relative to the U.S. dollar in January, which is a major renewal period for Guy Carpenter and the largest period of profitability for Marsh's European operations. Had it not been for the effects of foreign exchange, Risk and Insurance Services would have achieved slight margin improvement instead of the slight decline.

Even taking this into account, Marsh had another solid quarter. Revenue rose 4% in the first quarter to $1.3 billion, marking the fourth consecutive quarter of growth. Every one of Marsh's major geographic operations experienced revenue growth in the quarter, with particularly strong growth in Asia-Pacific and Latin America. Additionally, U.S./Canada generated revenue growth of 3% for the third consecutive quarter, a real achievement considering the market conditions.

Turning to Reinsurance Broking. Guy Carpenter continued to build on its very strong performance in 2010. Revenue was $340 million, reflecting strong growth of 7% led by its International operations and global specialties. This quarter marks Carpenter's ninth consecutive quarter of revenue growth, reflecting continuing strong new business and high client retentions.

Our Consulting segment continued to generate strong revenue growth. In the first quarter, revenue rose 6% to $1.3 billion. Growth in operating expenses was 5%, including the impact of higher pension expense. Operating income rose 13%. Mercer's revenue increased 5% in the first quarter to $922 million, continuing its strong performance from the second half of last year. Within Retirement, revenue growth in EMEA, Asia-Pacific and Latin America was offset by declines in North America. Health and Benefits continued its outstanding performance, matching its 8% growth in the third and fourth quarters of 2010. All global regions showed strength, particularly the U.S., Latin America and Asia Pacific.

Rewards, Talent & Communications produced double-digit revenue growth for the third consecutive quarter. This was due to continuing demand for Mercer's compensation surveys, as well as higher demands for consulting services in all major geographies. In the quarter, outsourcing revenue was negatively impacted by the loss of 2 clients due to M&A. The double-digit growth in Investment Consulting & Management continued a trend that has now extended for more than a year.

Oliver Wyman's 9% growth rate in this quarter was its highest since 2007. This impressive growth was led by a number of industry sectors that achieved double-digit increases, including healthcare, transportation and retail. Oliver Wyman's close management of operating expenses also contributed to excellent growth and operating income. Debt at the end of the first quarter was $3 billion, unchanged from year end.

Average diluted shares rose due to 3 factors: one, acquisitions; two, an increase in common share equivalents due to a higher share price; and three, the normal vesting of equity awards. The increase was partially offset by share repurchases.

Quarter-end's cash was $1.3 billion compared with $1.1 billion a year ago. Our cash utilization is typically greatest in the first quarter, primarily due to the payment of incentive compensation awards. Other major uses of cash in the first quarter included $120 million for acquisitions and dividend payments of $117 million. We delayed repurchasing shares due to our normal heavy cash uses in the first quarter. But now in the second quarter, with bonus payments behind us and the anticipation of a tax refund in June related to the Kroll disposition, we plan to resume repurchasing our shares.

With that, let me turn it back to Brian.

Brian Duperreault

Thanks, Vanessa, probably, we should begin our Q&A session. Just as a reminder, our operating companies' CEOs are here to answer your questions. And for the first quarter results at Marsh, it's more appropriate, I think, that Dan answers. And the same for Guy Carpenter, I think it's more appropriate Peter answers. And with that, let's take questions.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll first hear from Keith Walsh with Citi.

Keith Walsh - Citigroup Inc

First question for Dan and then I've got one for Peter. And Dan, just on -- thinking about enhanced commissions. How should we be thinking about that year-over-year? Do you have more paying customers and more revenues this year than you did last, if you can directionally give us some color there?

Daniel Glaser

Sure. In general, I would look broadly on our strategy of increasing carrier revenue streams. Enhanced commission is part of that strategy but also fee-for-service agreements with carriers is also part of that strategy. If I look at the quarter specifically, I mean, we made progress last year and we are making progress this year. If I look at the quarter on a global basis, about a 0.25 of our growth were related to yield initiative, fee-for-services and enhanced commissions.

Keith Walsh - Citigroup Inc

Okay. Great. And then for Peter, 9 consecutive quarters of growth and coincidentally, I guess, Aon, Benfield was done 9 quarter ago. So maybe if you could just give us an idea of what percent of that growth is really coming from fallout from a merger that size? And then if you could have any commentary on our RMS '11?

Peter Zaffino

Yes. Again, our success over many quarters has been focusing on driving value to clients. And this quarter is no exception. We had our strongest quarter of new business ever and it was up 20% year-over-year when you look at the first quarter of '10 to '11. So again, it's very strong and it's coming from everywhere. Our competitors, we've had driven significant value to client that created new reinsurance opportunities. So there is no one specific trend, I think we've been executing very well on new business. In terms of RMS, it's not quite clear and certain how that's going to impact reinsurance purchasing or the industry as of yet. But we have been working very closely with all of our clients running a series of RMS and other vendor models to understand the changes and how they impact our clients and what specific trends there are. And we're starting to see a lot of the inland exposures being driven off in some of the peak zones, 15-plus percent. And so as renewals come up, we will certainly react to that, floor is the big one on June 1, and then we'll have others on 7, 1. So I think that's going to be a gradual impact as we look into the year.

Operator

Next we hear from Brian Meredith of UBS.

Brian Meredith - UBS Investment Bank

A couple questions here for you. I guess the first one, can you talk a little bit about exposure growth and what are you seeing from just the economy? Are we seeing exposure breakdown? Is that part of the revenue growth we're seeing here?

Brian Duperreault

Dan?

Daniel Glaser

Sure. We're there seeing a very slight improvement in exposure units, both in terms of payrolls, business interruption values and asset values. But very low-single digits, as an example on the United States and in the U.K. So while it's a very slight tailwind, I wouldn't put exposure growth as being the basis for our growth. Our growth is largely driven by high client retention and new business.

Brian Meredith - UBS Investment Bank

Great. And then, Vanessa, I'm wondering if you got what the FX-adjusted growth in operating expenses was at Risk and Insurance Services?

Vanessa Wittman

So Keith, we don't break it out, but I think the best way to think about it is that over the course of the year it's going to be a -- have a de minimis impact. It was a slight drag on the margins as I pointed out during the quarter.

Brian Meredith - UBS Investment Bank

Okay. So is it, therefore, so margins were up year-over-year, right? Ex Risk and Insurance Services -- I mean, ex FX?

Brian Duperreault

Yes, excluding FX, absolutely.

Vanessa Wittman

Excluding FX, that's right, Peter -- sorry, Brian.

Operator

Cliff Gallant of Keefe, Bruyette and Woods.

Cliff Gallant - Keefe, Bruyette, & Woods, Inc.

Can you talk a little bit about just the M&A strategy and the deals you did over the past year, how are they coming along? Are they meeting targets? And then what is the outlook?

Brian Duperreault

I guess I'll take that. Well, I think so far so good with the ones we've done over the last year. We've been concentrating more on the Marsh & McLennan agency and those things are relative, as you know, relatively new. And the strategy itself is a long-term strategy. So it's going to take a while for the total effect of that network to come together. But in terms of hitting our milestones, I think we're on target and we're going to continue to do that. We've been looking across all the operating companies for acquisitions that enhance capability. So we just finished the one at Mercer, Hammond, that does a lot for the investment side. On Guy Carpenter's side, we did a couple over the last year, so -- right, McKensie and Collins, which increased our capabilities in very specific areas. HSBC was done to enhance Marsh's international capabilities. And so, of course, I've left Oliver Wyman out but they continue to look. And as we find opportunities, we will seize upon them. So it's very targeted and specific and, of course, it has to be meeting all of the standards we laid out for you at Investor Day.

Operator

Next we'll hear from Meyer Shields of Stifel, Nicolaus.

Meyer Shields - Stifel, Nicolaus & Co., Inc.

Vanessa commented that retirement was weak in North America, I was wondering if we could get a little more detail on that from Michele?

M. Burns

Sure. Yes, as I indicated to you in the last quarterly call, retirement will continue to face some headwinds struggle as the DB [defined benefit] landscape changes. This quarter, the U.S. struggled a bit more than the rest of the theaters. However, I think that is episodic. If anything, there's a good marker and the fact that 1 million did stabilize. And again, it's come back. That said, I think the thing to remember about the business of retirement is that we are working hard to do 2 things to change and realign our operating model to reflect the new realities, as well as building and continuing to expand into capabilities that actually work in consort with that retirement client, to solve the needs that the retirement client has. So the combination of our Retirement business with the strength of its client base, the strength of the loyalties therein combined with our investment capabilities, makes that a winning hand over the long run.

Brian Duperreault

Okay.

Meyer Shields - Stifel, Nicolaus & Co., Inc.

Okay. Thanks, and if I could turn to Dan really quickly. There've been some chatter recently, whether it's the Japanese earthquake or other factors about the rate that we've stabilized there. Does that hinder the opportunities, the new M&A in the short term? Because brokers have again, I think, you're getting better.

Daniel Glaser

No, I don't think so. I mean, I think in general, we all know that we're in a cyclical business. And if you put yourself in the mind of a seller, they wouldn't sell based upon whether rates in the macro P&C environment were going up or down, because it's so temporary in one way or the other. I think there is a lot of other factors that drive -- it usually has to do with how they believe they can grow their businesses on a going forward basis, what global capabilities that many upper middle market accounts now, or have some global exposures. So which company can help them on a global platform basis? Which company can drive product to them, which they could sell on to their customer base? But I think there's a lot of other factors beyond P&C, so we're not seeing any impact on our pipeline based upon an anticipated flattening market.

Operator

Yaron Kinar, of Deutsche Bank.

Yaron Kinar - Deutsche Bank AG

I want to ask a question about the Risk and Insurance Services margins, maybe to follow-up little bit on Brian's question. So even if I kind of adjust for the foreign exchange effects, it would appear that with comp and benefit ratio being down, are there still something else there that's driving margins lower a little bit? Could you maybe expand on that a little bit?

Brian Duperreault

I guess that's Dan. Or you want to do it Vanessa?

Vanessa Wittman

Yes. Let me start because we do have the pension drag, as well. So we were trying to quantify for you that the FX drag would've lifted from a slight decline in the margin you see for this segment to a slight improvement. But also remember, that on top of the FX drag, which was really the anomaly because of the January rate inflection, exchange rate inflections, you also have that pension drag. We gave some guidance in the fourth quarter that, that would be about $45 million over the course of the year or call it, roughly, $12 million a quarter, and that's about $7 million for RIS [Risk and Insurance Services] and $5 million for Consulting. So if you add that to the -- to your pension -- I'm sorry, to your FX drag, you would have seen positive margins.

Yaron Kinar - Deutsche Bank AG

Got it. And then can I, maybe, ask one other question about the Consulting business, where clearly, there have been 2 major acquisitions in that space over the last couple of years. Because have you seen any -- a greater flow of resumes or talents looking for [indiscernible] opportunities after those acquisitions?

M. Burns

Absolutely, the market for talent currently is quite high. There's a lot of movement between firms, a lot of activity in the market. Obviously, we're in a unique position because we have a stable base to take advantage of that as appropriate, and we continue to build our business and our capabilities for this time. We feel very advantaged in the fact that we have not had the requirement or the need to do the large acquisition, instead, we've been able to deploy our capital to do tuck-in acquisitions that actually extend capability and allow us to have freedom of movement across the rest of portfolios to continue to build.

Operator

Matthew Heimermann, JPMorgan.

Matthew Heimermann - JP Morgan Chase & Co

Question for Dan, just on growth in the Marsh segment. You mentioned about a quarter, that was commission enhancement. Based on your response to Brian's question, it sounds like there were some positive impact from the economy. So I guess, what I'd be curious about is are you still seeing growth because retention is increasing year-on-year? That's something you talked about in the past and I'm just curious if that's continuing.

Daniel Glaser

Yes. Our -- we look at it in 2 ways: account retention and revenue retention. Our account retention levels are stable at a high level and are actually, depending on segment and geography, are between 90% and 94%, and those are levels that Marsh hadn't seen until the period of like 2000 and 2001, so our account retention level is very strong. Our revenue retention level, which really is the revenue we get on accounts on sort of the same-store basis, has been increasing as well. And that is where you could see some mild stabilization of rates, some mild increases in exposure units and expanded new sales to existing customers. So if you look at our growth in the quarter, it was very broadly distributed. We have 32 countries that grew organically 5% or more, and we have very strong new business both internationally and in the U.S./Canada. Our new business for the quarter is about $240 million.

Matthew Heimermann - JP Morgan Chase & Co

Okay. That's helpful. So if I -- just to summarize, and I realize these are my numbers, but if growth was 4%, you get about a 1% from the commission enhancement, maybe 1% from some of the economic things you talked about and then probably about 2% from the new business growth?

Daniel Glaser

Well, you're far more technical than us. We go out there and we try to find a new customer, so I would just leave it at that.

Brian Duperreault

Matt, let's say, you're [indiscernible].

Matthew Heimermann - JP Morgan Chase & Co

That doesn't count too far off though, does it?

Daniel Glaser

[indiscernible] we'll leave it at that, okay?

Matthew Heimermann - JP Morgan Chase & Co

Fair enough.

Daniel Glaser

That's good. That's okay.

Matthew Heimermann - JP Morgan Chase & Co

The other question I have for John, and I guess, Michele could opine on this as well, is just -- I think, previously, it's been -- the pipeline for the Specialty Consulting business has been quite full. I guess, I'd just be curious about whether or not the pipeline is starting to clear at kind of a pace consistent with past recoveries or whether or not that pipeline is still, maybe, fuller than it should be because things still aren't moving, even though the growth is picking up, aren't moving as fast as you normally would expect?

Brian Duperreault

Well, I think Matthew, if you look at the last 5 quarters, we've had revenue growth between 6% and 9% in each of the last 5 quarters. And I think that trajectory is broadly reflective of relatively weak recovery, but still growing business confidence over the last 5 quarters relative to say, '08 and '09. Now looking forward, I think, we're seeing a continuation of that same environment broadly. That is, we're still not seeing a spike in recovery, but we would expect the pipeline to clear at a pace similar to what we've seen over the last 5 quarters. So I think our outlook is for more of the same rather than a spike up or down.

Matthew Heimermann - JP Morgan Chase & Co

Okay. That's helpful.

M. Burns

Now, for Mercer, in our Specialty businesses, we actually lagged on a bit for a couple quarters and we did not see the turn until the third quarter of last year. Since that time, it has been consistent and strong and we have strong pipeline into the immediate and mid-term.

Matthew Heimermann - JP Morgan Chase & Co

All right. Thanks for that. And then, can I sneak one numbers question just on depreciation and amortization? I'd just be curious if you could give us a sense of what's happening with intangible amortization relative to just depreciation?

Vanessa Wittman

Intangibles are going to go up because of our acquisitions, so it would be a higher percentage. And you should expect that to stay in line with our M&A activity going forward.

Matthew Heimermann - JP Morgan Chase & Co

Okay. That's very -- but no other -- I mean, there's no underlying change in the depreciation number?

Vanessa Wittman

No.

Matthew Heimermann - JP Morgan Chase & Co

Okay. Perfect.

Operator

Larry Greenberg, Langen McAlenney.

Larry Greenberg - Langen McAlenney

For modeling purposes, when we think about buybacks going forward, should we assume, all other things equal, it will be greater in the latter half of the year when you tend to generate more cash?

Brian Duperreault

Well, I guess certainly, if you take the quarter out, the first quarter out, and then, the next 9 months, I'd say, certainly. Whether it's latter half of the year, I think it at all depends on a lot of market conditions, et cetera. But the first quarter is the anomaly.

Larry Greenberg - Langen McAlenney

Okay, fair enough. And then clearly, the sense from the underwriting community has been that the tone of the marketplace has changed for commercial lines. And I'm wondering if you could just give us your thoughts on that.

Brian Duperreault

Dan?

Daniel Glaser

Sure. Well I just got back from RIMS last night and it was a very active RIMS, lots of clients, lots of underwriter discussions. And I think you're right that the tone in the discussions is a bit different. Underwriters are not quite as aggressively pursuing new business and not quite as malleable with existing clients. That's not to say that they are walking away from clients based upon prices. And so I think, we're in a sort of shoulder season. We're not quite soft but we're certainly not hard, so it feels like it's stabilizing. I know from talking to our marketing pubs, placements are still getting done. Oftentimes, with reductions still, but the marketing of those placements is more difficult than it had been at this time last year. Okay?

Larry Greenberg - Langen McAlenney

And could Peter maybe comment on reinsurance?

Peter Zaffino

Sure. The reinsurance, remember, for our portfolio, over 50% of our business incepts on January 1, so as all these different catastrophes happen in the first quarter we're really looking forward as some of the major quarters that come up. The true story won't be told until next year. But similar to what Dan is saying, there are signs that rate reductions are starting to slow down, we still saw that in the first quarter on property cap and there will be a confluence of events. We've seen what happened in Japan. But as we see the earnings calls for reinsurers, many of them have increased their own estimates on what Japan means and what the expected loss is. So we have that coupled with RMS, coupled with the largest quarter catastrophes outside of the U.S. in the history of reinsurance. So, now all those confluence of events are going to have companies taking a hard look at how they're going to deploy their capital and how they are going to price the business going forward, so it's a very similar theme.

Operator

Next, we'll hear from Adam Klauber, William Blair.

Adam Klauber - William Blair & Company L.L.C.

A couple questions on Mercer. Obviously, growth was pretty strong at Health and Benefits and Rewards, Talent. Is that a function of pent-up demand from the recession or is that a function of new clients or a combination?

M. Burns

That is, I would say, a combination of the two. Let's start with Health and Benefits. We're still not seeing growth in employment in the U.S. at such rates as to impact that, so you would have to attribute the growth in H and B, Health and Benefits to the new business, new clients, expanded business or existing clients. Some of that would have to do with healthcare reform and we expect that trend to continue. We see that growth across the entire marketplace, whether it's in the top end of the market all the way to the small employer, where our D&A, the top of it have approach to providing, broking and consulting services, and Health and Benefits is winning in marketplace. With regard to Specialty Consulting, clearly, there is a pent-up demand where people have taken an opportunity to step back in to their talent management space, especially, both in the United States and around the world. I just recently completed a trip that covered Mexico to Argentina and met with a number of CEOs and CFOs and CHR. Those Chief Human Resource Officers seek consistent demand from them, bar none, was Talent Management, talent advice around their workforce strategies, and so yes, they have taken their eye off of that for a while, as we will all weather in the great recession, but have moved back into that space.

Adam Klauber - William Blair & Company L.L.C.

Okay. And one more follow-up on Mercer. The expense line effectively moved up with the revenue line. I think expense growth was roughly 8%, 9% for the quarter. Should we expect that trend going forward? That expense should track revenue or should we get some margin expansion with -- if revenue remains at high level?

M. Burns

This segment expects margin expansion over the mid- and longer-term. I think that we focus on profitability and with revenue growth you do, in fact, need some degree of expense growth to fuel the people and the talent and the pipeline to do the work. But that said, there were some couple of anomalies I won't even bother to call out in the first quarter. As we move forward, you should expect margin expansion across the segment fairly consistently.

Operator

Thomas Mitchell of Miller Tabak.

Thomas Mitchell - Miller Tabak + Co., LLC

Just in a broad sense, looking back and not making adjustments for what you did own and don't own, of course, the level of overall Consulting side earnings was considerably higher, let's say, if we go back to the first quarter of 2007, 2008. As we sort of model looking forward through the next couple of years, do you see the possibility that we could get back to similar levels of profitability or have we sort of adjusted to a lower level to start from and it'll be a more modest growth?

Brian Duperreault

How about if I answer that one? Because I would say that when we look at the potential for Consulting, those '07 levels, certainly, they reflect an economy that was robust, no question about it. But, I'd say that we have every belief that we can get back to those levels, over time.

Thomas Mitchell - Miller Tabak + Co., LLC

Okay. Good.

Operator

Our final question for today will be a follow-up from Meyer Shields of Stifel Nicolaus.

Meyer Shields - Stifel, Nicolaus & Co., Inc.

Is the first quarter corporate expense a good run rate for the year?

Brian Duperreault

Vanessa?

Vanessa Wittman

We will have some movement as we figure out our new management structure. So I think you can use it, but we may revise that guidance for you in the next quarter call.

Brian Duperreault

Okay? All right, well, let me just close and thank, first of all, thank you for attending the call and thank my associates all around the world for getting us off for a good start and wish all these guys with new jobs luck in their new endeavors. So good luck to you all. Thanks, again. We'll talk to you next quarter.

Operator

That does concludes today's conference. Thank you all for your participation.

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