2016
Turning a year
of uncertainty
into opportunity
MARSH & McLENNAN COMPANIES
ANNUAL REPORT
We are Marsh & McLennan
Companies: a global professional
services firm offering clients
advice and solutions in risk,
strategy and people.
We serve clients in more than 130 countries
through our market-leading professional
services firms:
RISK & INSURANCE SERVICES
Insurance broking and
risk management
Reinsurance and intermediary
advisory services
CONSULTING
Health, wealth and career
solutions and consulting
Management, economic
and brand strategy consulting
WE ARE COMMITTED TO:
ENABLING CLIENT SUCCESS
We anticipate the needs of
our clients and act as their
trusted advisors.
FINDING THE SMARTER WAY
We never stop searching for a
better solution.
WORKING SIDE BY SIDE
We collaborate to harness our
collective intelligence.
LIVING THE GREATER GOOD
We act with integrity and strive
to improve our communities
around the world.
This annual report contains “forward-looking statements,” as defined in the Private Securities Litigation Reform Act of 1995.
Please see “Information Concerning Forward-Looking Statements” on page (i) in the Form 10-K included in this annual report.
To our shareholders,
Disruption swept the world in 2016. Waves of
nationalism and populism erupted, challenging
established institutions, norms and our expectations
of political leaders. Free trade, all types of immigration
and globalization became, almost overnight, fraught
concepts. Attempts to undermine public confidence
in the cornerstones of our society reached new levels
of sophistication.
“The more dynamic and
complex the world gets,
the more clients look
to Marsh & McLennan
Companies for our
trusted advice.”
Technology continued to transform our lives, bringing
with it productivity gains and awe-inspiring innovations.
These advances created deep anxiety about the impact of
technology on jobs. Much of the dialogue around dramatic
technological change focuses on the negative implications
rather than the extraordinary opportunities it presents to
solve some of our biggest global challenges.
The Chinese general, military strategist and philosopher,
Sun Tzu, once wrote, “In the midst of chaos, there is
also opportunity.”
Amid all the flux in 2016, one constant held true, as it has for
almost 150 years: the more dynamic and complex the world
gets, the more clients look to Marsh & McLennan Companies
for our trusted advice in the areas of risk, strategy and people.
Today, the quantity and speed of information, combined with
heightened geopolitical volatility, make it harder for countries,
institutions and individuals to identify risks and opportunities.
1
“ We enable our clients to
minimize risk, maximize
opportunity and energize
their people to achieve
great things.”
DAN GLASER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MARSH & McLENNAN COMPANIES
7 years
OF CONSECUTIVE
ADJUSTED MARGIN
GROWTH IN BOTH
SEGMENTS
2
The pace of innovation creates new risks — risks that will be
refracted and dispersed through a prism of social, political
and environmental issues. This landscape favors the innovative
and the agile.
At Marsh & McLennan, we see significant opportunity in this
environment. We are a strategic partner in promoting growth,
protecting value and helping clients make better decisions in
an increasingly complicated landscape.
Our more than 60,000 colleagues around the world thrive on
making a meaningful difference in critical moments on behalf
of our clients, delivering on our commitments to shareholders
and improving the communities in which we live.
In my letter to you last year, I articulated our aspiration to
become one of the very best companies, not simply in our
industry segments, but in the world. To achieve this, we
must be relevant to clients as the world becomes more
complex, drive innovation and continue to be a great
place to work. Together, these will enhance our ability
to generate sustained growth in revenues and profits.
It is my pleasure to report the tangible progress our firm
made in 2016.
ANOTHER YEAR OF STRONG FINANCIAL PERFORMANCE
Marsh & McLennan produced excellent financial results in 2016.
We delivered underlying revenue growth, margin expansion in
both segments and strong growth in adjusted earnings per
share. We also had another successful year of growing the
firm through acquisitions — enhancing our market position,
capabilities, client services and geographic footprint.
We generated 3% underlying revenue growth on a
consolidated basis, which was balanced across both
operating segments.
Adjusted operating income1 rose 10% to $2.7 billion and our
consolidated adjusted margin increased 140 basis points to
20.5%, our ninth consecutive year of margin improvement.
Our adjusted EPS grew 12% to a record $3.42. Since 2009,
adjusted EPS has grown at a CAGR of 13.3% — consistent with
our long-term target of 13%.
In looking at our operating segments, Risk and Insurance
Services revenue of $7.1 billion reflected an increase of 3%
on an underlying basis. Adjusted operating income rose 10%
to $1.8 billion, with the adjusted margin expanding 140 basis
points to 24.7%, the highest level in more than a decade.
Marsh continued to generate underlying revenue growth,
with 2016 marking the sixth straight year of 3% or more.
Guy Carpenter produced positive underlying revenue growth
in 2016 — and has done so every year since 2009.
Our Consulting segment produced revenue of $6.1 billion, an
increase of 3% on an underlying basis. Adjusted operating income
rose 9% to $1.1 billion, up from $1 billion in 2015. The adjusted
operating margin grew 130 basis points to a strong 18.6%.
$2.5 billion
OF CAPITAL ALLOCATED IN
2016 TO ACQUISITIONS, SHARE
REPURCHASES AND DIVIDENDS
Mercer’s underlying revenue growth of 3% marked its sixth
straight year of at least 3% growth.
Oliver Wyman also generated underlying revenue growth
of 3% for 2016.
OUR COMMITMENTS TO SHAREHOLDERS
We have two annual commitments to shareholders:
1) Increase our dividends per share by double digits; and
2) Reduce our total shares outstanding.
In 2016, we returned close to $1.5 billion to our shareholders in
the form of dividends and share repurchases, and delivered on
our capital-return commitments for the third consecutive year.
Our earnings growth has been impressive given the volatility
around commodity prices and foreign exchange, persistently
low interest rates, weak global GDP growth, political instability
and lower property and casualty insurance pricing.
Importantly, we have consistently delivered value over time —
over the past nine years, our annual EPS growth has exceeded
the S&P 500 by an average of seven percentage points.
Over the long term, we expect to grow EPS at a higher rate
than the S&P 500 with lower capital requirements — and lower
levels of risk.
1 For a reconciliation of non-GAAP results to GAAP results, as related to all non-GAAP references presented in this letter, please refer to the Company’s Form 8-K,
dated February 2, 2017, available on the Company’s website at mmc.com.
3
10.2% DIVIDEND
GROWTH
delivering on our annual commitment
to increase dividends per share
by double digits
“ Our adjusted EPS grew 12% to a
record $3.42. Since 2009, adjusted
EPS has grown at a CAGR of 13.3%
— consistent with our long-term
target of 13%.”
20.5%
consolidated adjusted margin —
an increase of 1,170 basis points
since 2007
9 CONSECUTIVE
YEARS
of consolidated adjusted
margin expansion
4
Highest margins in
Risk & Insurance Services
and Consulting in
13 YEARS
Risk & Insurance Services and
Consulting adjusted
operating income each at
RECORD HIGH
Committed nearly
$6 BILLION
across roughly 130 acquisitions
and investments since 2009
7 YEARS
of consecutive underlying revenue growth in the 3-5 percent range
5
4
3
2
1
0
5%
5%
4%
4%
3%
3%
3%
2010
2011
2012
2013
2014
2015
2016
Clients in more than
130 COUNTRIES
Annual revenue exceeds
$13 BILLION
60,000
colleagues around the world
making a difference for
clients in critical moments
55
“No other organization
can match Marsh &
McLennan’s breadth
of capabilities, depth
of specialization and
global reach.”
6
OUR VIEW OF THE MARKETS
The issues of risk, strategy and people give Marsh & McLennan
a sustainable platform for growth.
The age of risk has only just begun. Whether it’s artificial
intelligence, biotechnology, blockchain, 3D printing or climate
change, emerging technologies and global developments
present new sets of risks and opportunities. We are optimistic
that insurance will continue to play an integral role in the
advancement of society. Insurance is about more than just
protection on the downside, it’s also about growth — it enables
commerce to thrive.
Like the world around us, the insurance industry is changing
rapidly as data, distribution and capital converge.
Underwriters continue to offer new insurance and reinsurance
products and services that meet the emerging risk needs of
our clients. This trend enhances the value we deliver and
bodes well for the industry. We continue to see large-scale
mergers and acquisitions and an influx of alternative capital,
along with disruption and innovation in distribution platforms
and technologies.
The dynamic and shifting environment also places a premium
on trusted consulting advice and expertise.
Look no further than the workforce, which is being rapidly
transformed in many markets by everything from robotics to
the impact of longevity and the challenge of inadequate retirement
savings. Critical decision making in the areas of health, wealth and
careers is increasingly shifting to individuals, driving the need for
innovative solutions to create more secure and rewarding futures.
And across industries, more companies are seeking strategic
guidance as they fully embrace digitization to build and sustain
new competitive advantages while simultaneously navigating
complex regulatory environments.
Our firm changes with the times. The more complicated
the issue, the greater the opportunity we have to draw on
our collective strengths to better serve our clients.
According to the survey of approximately 13,000 executives
that informs the 2017 Global Risks Report produced by the
World Economic Forum in partnership with Marsh & McLennan
and others, the top five concerns of businesses worldwide
are unemployment, energy price shock, fiscal crises, national
governance crises and social instability.
We continually position the firm toward higher-growth
opportunities while divesting or de-emphasizing slower-
growing parts of the business. Our investments are focused
on growing the firm — organically and through acquisitions —
for the long term, while balancing our expectations to deliver
exceptional performance today.
To address these and other concerns, companies will look to
strengthen their resilience by sharpening their risk insights,
insulating their investment strategies and deepening
their stakeholder relationships. They will also seek to better
understand the disruptive potential of emerging technologies.
We believe they will increasingly rely on our expertise to
help with the concerns of the day. No other organization can
match Marsh & McLennan’s breadth of capabilities, depth of
specialization and global reach.
OUR COMMITMENT TO LONG-TERM GROWTH
Becoming one of the world’s best companies requires the
ability to drive long-term revenue growth. We are strongly
positioned to do this because we are in growth businesses
and markets — and anticipate even greater demand for our
advice and services in the areas of risk, strategy and people.
“Our people create and deliver new
solutions that add value and uphold
our commitment to integrity and
quality, each and every day.”
Rarely do we commit to an acquisition purely based on
financial considerations. Since 2009, we have committed
nearly $6 billion across roughly 130 acquisitions and
investments that have made us stronger. Through these
transactions, we have enhanced our strategic positioning by
expanding our geographic reach and presence in fast-growing
economies, opening up opportunities in under-penetrated
growth segments and adding new capabilities.
The diversity of our geographic footprint has long been a
distinct advantage for our firm. In 2016, we allocated capital
for expansion across all operating companies in Latin America,
Asia, the Middle East and South Africa. Amid shifting views
on globalization, Marsh & McLennan is on the ground in more
than 100 countries, providing flexibility to service clients in
either a global or local environment.
OUR COMMITMENT TO INNOVATION
Our history is steeped in innovation, which can take many
forms — and helps us drive growth. In our Risk and Insurance
Services segment, Marsh & McLennan Agency (MMA) has
been a great success for our firm. In 2009, we set out to extend
beyond our traditional base of large commercial clients to build
the best middle market agency in the industry. Seven years
later, MMA boasts more than 4,000 colleagues across the
United States and generates more than $1 billion in revenue.
Including the January 2017 acquisition of J. Smith Lanier & Co.,
the premier agency in the Southeast US, MMA has acquired a
string of 58 high-quality agencies since 2009.
Marsh has expanded its presence in the small and medium-
sized enterprise (SME) market in the United Kingdom
with the acquisition of Bluefin Insurance Group Limited in
2016, which followed our 2015 acquisition of Jelf Group.
7
184,000
VOLUNTEER HOURS CONTRIBUTED
BY OUR COLLEAGUES AROUND
THE WORLD TO IMPROVE SOCIETY
With approximately 250,000 customers in the UK, we’ve gone
from having a negligible presence less than two years ago to
being one of the largest SME players in the market.
Guy Carpenter has developed a series of state-of-the-
art technologies that are transforming the way insurers
assess their risks, capital needs and reinsurance pricing. In
partnership with Weather Analytics, Guy Carpenter provides
clients with predictive insights derived from machine learning
around catastrophe risk.
Mercer is providing new technology-driven solutions that enable
workforces to thrive as the relationship between employee and
employer evolves, the freelance economy expands, people
work further into life and concerns over financial security in
retirement heighten. In 2016, Mercer acquired Thomsons Online
Benefits, the leading global benefits management firm whose
proprietary platform, Darwin, has been implemented in more
than 80 countries and 24 languages. Mercer also acquired Sirota
Consulting LLC, a global provider of employee engagement
solutions, invested in Workday implementation capabilities and
built out the Mercer Pension Risk Exchange, which provides real-
time pricing for pension buyout transactions.
And Oliver Wyman is quickly emerging as a critical advisor on
the digitization of business. The company’s Digital, Technology,
Operations and Analytics practice is growing rapidly to support
clients across industries. OW Labs, a technology and data
service that helps clients achieve competitive advantages
through the power of their data, is also expanding quickly and
supporting our core strategy work.
8
The consistency of this strategic approach compounds
powerfully — we’re building for the long term. We expect
these faster-growing businesses will represent an even larger
portion of our firm’s revenues over time.
Taken together, our investment approach and ability to
innovate, constantly reassess our outlook and improve the mix
of our businesses have transformed Marsh & McLennan over
the past decade — and strongly position us for sustainable
growth and profitability.
OUR PEOPLE
Marsh & McLennan offers colleagues the opportunity to
work with extraordinary people, to address some of society’s
greatest challenges, to take on new roles and responsibilities
and to make a difference. In the last four years, more than
3,100 colleagues have moved to a different operating company
or to our corporate team, a testament to our commitment to
the development of our people.
Our colleagues give us their passion and their commitment.
They also give us their careers — in some cases, their
entire careers. It is deeply gratifying to have more than
650 colleagues who have worked with us for 35-plus years,
including 150 who have given us 40-plus years and nine
inspiring colleagues who have been with Marsh & McLennan
for more than 50 years.
The vitality and longevity of these colleagues is a shining
example for our millennial colleagues, whose ideas and
contributions touch every part of our company. Millennials
represent 37% of our entire firm globally, including 30% of
colleagues at Marsh, 26% at Guy Carpenter, 45% at Mercer
and close to 60% at Oliver Wyman. On a geographic basis,
Asia has our highest percentage of millennials at 62%.
Together, we share a sense of purpose that goes beyond
commercial success. Our colleagues relish being there for
our clients when it matters most: in moments of decision, in
moments of opportunity and in moments of peril. And they
bring this shared purpose to life, each and every day.
“There is no Marsh &
McLennan without the
knowledge and know-how
of our colleagues.”
They are trusted advisors always searching for a better solution;
working to harness our collective intelligence across teams,
business units and global offices; and living the greater good by
acting with integrity and improving their communities.
At Marsh & McLennan, we believe in the primacy of family life,
and that personal growth enriches professional development.
OUR CULTURE
Everything we do across our entire organization is anchored
by our culture.
Mutual respect, dignity, diversity and inclusion are at the heart
of Marsh & McLennan Companies. We value the richness of
different perspectives and life experiences. And we value a
striving, questioning culture, where it’s safe for all colleagues
to speak up, because diverse views and a free and open
exchange are how we create our best ideas. We will never back
away from our commitment to these fundamental values.
One of our most powerful competitive advantages is the
element of constructive discontent embedded in our culture.
It’s our way of looking at the world, at a business approach or at
our own work environment and spotting what could be better.
Not what’s wrong — what we can do better. At a recent town
hall meeting, a colleague asked me what could be improved at
the company. I responded with one word: “Everything.”
This restless search for a smarter way guards against
complacency and arrogance, which tend to afflict companies
that have done well for long periods of time. It’s also where
innovation — and impact — begins.
Our distinct culture is reflected in the contributions our people
make to the communities where they live and work. I am
extremely proud of what our colleagues accomplished outside
the office last year. Collectively, they volunteered 184,000
hours — to causes ranging from education, to animal advocacy,
to health, to homelessness — making a meaningful difference
in more than 350 cities and 50 countries around the world.
Among the commendations Marsh & McLennan received
in 2016, we were recognized by Forbes magazine as one of
America’s Best Employers for the first time, named the No. 1
Military-Friendly Employer in the US by G.I. Jobs magazine for
our efforts to support veterans and earned an A- rating by CDP
for our sustainability initiatives.
We are more than 60,000 global colleagues united by a uniquely
collaborative culture and our shared commitment to make a
difference for the businesses, people and societies we serve.
THE IMPORTANCE OF LEADERSHIP
One of the most powerful benefits of having high-quality
colleagues and a strong culture is that it enhances our ability to
attract the best, most qualified individuals to our organization.
The conventional command-and-control management
philosophy that multinational companies have applied for
decades is changing rapidly. For us, that means entrusting our
colleagues to make faster and smarter decisions, closer to the
client. Leadership is often less about one big idea and more
about always putting the client first, empowering our people to
create and deliver new solutions that add value and upholding
our commitment to integrity and quality, each and every day.
We are not satisfied with average; we strive to be exceptional.
More than any other factor, our performance is a matter of will
and determination.
9
“Our investments are
focused on growing
the firm for the long
term, while balancing
our expectations to
deliver exceptional
performance today.”
10
LOOKING FORWARD
I am incredibly proud to serve as the CEO of this unique
company. Combining our depth of leadership, the long-
term growth potential of each of our businesses and our
dedicated colleagues is powerful — making us an exceptional
professional services firm.
I would like to thank our Board of Directors, and especially
Ed Hanway for his stewardship since taking over as
Independent Chairman last year.
I would also like to welcome our newest board members,
Anthony Anderson and Deborah Hopkins. Tony’s deep
industry experience and Debby’s proven track record of
innovation will enrich our perspective.
In closing, I want to thank our colleagues for their energy and
commitment, our clients for the trust they place in us each day
and our investors for their continued support. We are always
in the market for investors who support our balanced approach
of delivering strong financial performance today while
investing for our future.
Together, we’ve been able to create a truly special company —
one that continues to make itself even stronger in every regard
while better enabling our clients to minimize risk, maximize
opportunity and energize their people to achieve great things.
In an unprecedented time of rapid change and emerging
challenges, there’s little doubt the best is yet to come for
Marsh & McLennan.
Best regards,
DAN GLASER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MARSH & McLENNAN COMPANIES
FEBRUARY 24, 2017
Top, from left: Morton O. Schapiro, Anthony K. Anderson, Steven A. Mills, Bruce P. Nolop, Daniel S. Glaser, Marc D. Oken, Lloyd M. Yates, Oscar Fanjul
Bottom, from left: R. David Yost, Elaine La Roche, H. Edward Hanway, Deborah C. Hopkins
OUR BOARD OF DIRECTORS
ANTHONY K. ANDERSON
Former Vice Chair and
Midwest Area Managing Partner,
Ernst & Young
OSCAR FANJUL
Vice Chairman, Omega Capital
Former Chairman and
Chief Executive Officer, Repsol
DANIEL S. GLASER
President and Chief Executive Officer,
Marsh & McLennan Companies
H. EDWARD HANWAY
Former Chairman and
Chief Executive Officer,
Cigna Corporation
Marsh & McLennan Companies Awards
DEBORAH C. HOPKINS
Former Chief Executive Officer
of Citi Ventures and
Chief Innovation Officer,
Citigroup
ELAINE LA ROCHE
Chief Executive Officer,
China International Capital Corporation US
Former Chief Executive Officer, China
International Capital Corporation, Beijing
STEVEN A. MILLS
Former Executive Vice President,
Software & Systems,
International Business Machines
Corporation (IBM)
BRUCE P. NOLOP
Former Chief Financial Officer,
E*TRADE Financial Corporation
MARC D. OKEN
Managing Partner,
Falfurrias Capital Partners
Former Chief Financial Officer,
Bank of America Corporation
MORTON O. SCHAPIRO
President, Northwestern University
LLOYD M. YATES
Executive Vice President, Market Solutions &
President, Carolinas—Duke Energy
R. DAVID YOST
Former President and
Chief Executive Officer,
AmerisourceBergen Corporation
Named one of America’s Best Employers
by Forbes magazine
Ranked #1 Insurance Broker
by Business Insurance
Named one of the Best Places to Work
for LGBT Equality by Human Rights Campaign
y
Named #1 Military Friendly® Employer in US
by G.I. Jobs magazine
Top, from left: John Q. Doyle, Scott McDonald, Mark McGivney, Peter J. Beshar, E. Scott Gilbert
Bottom, from left: Peter Zaffino, Daniel S. Glaser, Laurie Ledford, Julio A. Portalatin
OUR EXECUTIVE COMMITTEE
PETER J. BESHAR
Executive Vice President and
General Counsel,
Marsh & McLennan Companies
JOHN Q. DOYLE
President,
Marsh
E. SCOTT GILBERT
Senior Vice President and
Chief Information Officer,
Marsh & McLennan Companies
DANIEL S. GLASER
President and Chief Executive Officer,
Marsh & McLennan Companies
MARK McGIVNEY
Chief Financial Officer,
Marsh & McLennan Companies
LAURIE LEDFORD
Senior Vice President and
Chief Human Resources Officer,
Marsh & McLennan Companies
SCOTT McDONALD
President and Chief Executive Officer,
Oliver Wyman Group
JULIO A. PORTALATIN
President and Chief Executive Officer,
Mercer
PETER ZAFFINO
Chairman, Risk and
Insurance Services
Chief Executive Officer,
Marsh
Marsh named Best Cyber Risk Broking Team
by Advisen
Mercer ranked #1 Human Resources
Consulting Firm by Vault
Guy Carpenter named Reactions’
London Market Awards’
Reinsurance Broker of the Year
Oliver Wyman named one of the Best Workplaces
for recent college graduates by Fortune magazine
and Great Place to Work®
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
Commission File No. 1-5998
_____________________________________________
Marsh & McLennan Companies, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
36-2668272
(I.R.S. Employer Identification No.)
1166 Avenue of the Americas
New York, New York 10036-2774
(Address of principal executive offices; Zip Code)
(212) 345-5000
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $1.00 per share
Title of each class
Name of each exchange on which registered
New York Stock Exchange
Chicago Stock Exchange
London Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting Company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting Company" in Rule 12b-2
of the Exchange Act. (Check one):
Large Accelerated Filer
Accelerated Filer
Non-Accelerated Filer
(Do not check if a smaller reporting company)
Smaller Reporting Company
Indicate by check mark whether the registrant is a shell Company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
As of June 30, 2016, the aggregate market value of the registrant's common stock held by non-affiliates of the registrant was
approximately $35,474,889,954 computed by reference to the closing price of such stock as reported on the New York Stock
Exchange on June 30, 2016.
As of February 16, 2017, there were outstanding 515,003,586 shares of common stock, par value $1.00 per share, of the registrant.
Portions of Marsh & McLennan Companies, Inc.’s Notice of Annual Meeting and Proxy Statement for the 2017 Annual Meeting of
Stockholders (the "2017 Proxy Statement") are incorporated by reference in Part III of this Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains "forward-looking statements," as defined in the Private
Securities Litigation Reform Act of 1995. These statements, which express management's current views
concerning future events or results, use words like "anticipate," "assume," "believe," "continue,"
"estimate," "expect," "intend," "plan," "project" and similar terms, and future or conditional tense verbs like
"could," "may," "might," "should," "will" and "would." Forward-looking statements are subject to inherent
risks and uncertainties that could cause actual results to differ materially from those expressed or implied
in our forward-looking statements.
Factors that could materially affect our future results include, among other things: our organization's
ability to maintain adequate safeguards to protect the security of our information systems and
confidential, personal or proprietary information, particularly given the volume of third party vendors we
use; our ability to successfully recover if we experience a business continuity problem due to cyberattack,
natural disaster or otherwise; our exposure to potential liabilities, including reputational impact, arising
from errors and omissions, breach of fiduciary duty and similar claims against us; our ability to compete
effectively and adapt to changes in the competitive environment, including to respond to pricing pressures
and technological and other types of innovation; the impact of macroeconomic conditions, political events
and market conditions on us, our clients and the industries in which we operate, including the effects of
the vote in the U.K. to exit the E.U. and the potential for more protectionist laws and business practices;
the financial and operational impact of complying with laws and regulations where we operate, including
the E.U.’s General Data Protection Regulation; our exposure to potential civil remedies or criminal
penalties if we fail to comply with applicable U.S. and non-U.S. laws and regulations; our ability to
incentivize and retain key employees; the effect of our global pension obligations on our financial position,
earnings and cash flows and the impact of low interest rates on those obligations; the impact on our
competitive position of our tax rate relative to our competitors; the impact of fluctuations in foreign
exchange, interest rates and securities markets on our results; and the impact of changes in accounting
rules or in our accounting estimates or assumptions.
The factors identified above are not exhaustive. We caution readers not to place undue reliance on any
forward-looking statements, which are based only on information currently available to us and speak only
as of the dates on which they are made. The Company undertakes no obligation to update or revise any
forward-looking statement to reflect events or circumstances arising after the date on which it is made.
Further information concerning Marsh & McLennan Companies and its businesses, including information
about factors that could materially affect our results of operations and financial condition, is contained in
the Company's filings with the Securities and Exchange Commission, including the "Risk Factors" section
in Part I, Item 1A of this report and the "Management’s Discussion and Analysis of Financial Condition
and Results of Operations" section in Part II, Item 7 of this report.
i
TABLE OF CONTENTS
Information Concerning Forward-Looking Statements
PART I
Item 1 —
Business
Item 1A —
Risk Factors
Item 1B —
Unresolved Staff Comments
Item 2 —
Item 3 —
Item 4 —
PART II
Item 5 —
Item 6 —
Item 7 —
Properties
Legal Proceedings
Mine Safety Disclosures
Market for the Company’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Item 7A —
Quantitative and Qualitative Disclosures About Market Risk
Item 8 —
Financial Statements and Supplementary Data
Item 9 —
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Item 9A —
Controls and Procedures
Item 9B —
Other Information
PART III
Item 10 —
Directors, Executive Officers and Corporate Governance
Item 11 —
Executive Compensation
Item 12 —
Item 13 —
Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director
Independence
Item 14 —
Principal Accountant Fees and Services
PART IV
Item 15 —
Exhibits and Financial Statement Schedules
Item 16 —
Form 10-K Summary
Signatures
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ii
PART I
ITEM 1. BUSINESS.
References in this report to "we", "us" and "our" are to Marsh & McLennan Companies, Inc. and its
consolidated subsidiaries (the "Company"), unless the context otherwise requires.
GENERAL
The Company is a global professional services firm offering clients advice and solutions in risk, strategy
and people. It is the parent company of a number of leading risk advisors and specialty consultants,
including: Marsh, the insurance broker, intermediary and risk advisor; Guy Carpenter, the risk and
reinsurance specialist; Mercer, the provider of HR and investment related financial advice and services;
and Oliver Wyman Group, the management, economic and brand consultancy. With approximately
60,000 employees worldwide and annual revenue of more than $13 billion, the Company provides
analysis, advice and transactional capabilities to clients in more than 130 countries.
The Company conducts business through two segments:
• Risk and Insurance Services includes risk management activities (risk advice, risk transfer and
risk control and mitigation solutions) as well as insurance and reinsurance broking and services.
The Company conducts business in this segment through Marsh and Guy Carpenter.
• Consulting includes health, retirement, talent and investments consulting services and products,
and specialized management, economic and brand consulting services. The Company conducts
business in this segment through Mercer and Oliver Wyman Group.
We describe our current segments in further detail below. We provide financial information about our
segments in our consolidated financial statements included under Part II, Item 8 of this report.
OUR BUSINESSES
RISK AND INSURANCE SERVICES
The Risk and Insurance Services segment generated approximately 54% of the Company's total revenue
in 2016 and employs approximately 32,600 colleagues worldwide. The Company conducts business in
this segment through Marsh and Guy Carpenter.
MARSH
Marsh is a global leader in delivering risk advisory and insurance solutions to companies, institutions and
individuals around the world. From its founding in 1871 to the present day, Marsh has demonstrated a
commitment to thought leadership, innovation and insurance expertise to meet its clients’ needs. Marsh’s
pioneering contributions include introducing the practice of client representation through brokerage, the
discipline of risk management, the globalization of risk management services and the development of
service platforms that identify, quantify, mitigate and transfer risk.
Currently, approximately 30,300 Marsh colleagues provide risk management, insurance broking,
insurance program management services, risk consulting, analytical modeling and alternative risk
financing to a wide range of businesses, government entities, professional service organizations and
individuals in more than 130 countries. Marsh generated approximately 45% of the Company's total
revenue in 2016.
Insurance Broking and Risk Consulting
In its core insurance broking and risk advisory business, Marsh employs a team approach to identify,
quantify and address clients' risk management and insurance needs. Marsh’s product and service
offerings include risk analysis, insurance program design and placement, insurance program support and
administration, claims support and advocacy, alternative risk strategies and a wide array of risk analysis
and risk management consulting services. We believe that clients benefit from Marsh’s advanced
analytics, deep technical expertise, collaborative global culture and the ability to develop innovative
solutions and products. The firm’s resources also include more than 35 risk, specialty and industry
1
practices, including robust cyber, financial and professional service practices, along with a successful and
growing employee health & benefits business.
Marsh provides services to clients of all sizes, including large multinational companies, high growth
middle-market businesses, small commercial enterprises and high net-worth private clients. Marsh
segments clients to ensure that their needs are effectively addressed through tailored value propositions,
which aim to provide solutions that best mitigate and manage their risk exposures.
Global Risk Management. Marsh has an extensive global footprint and market-leading advisory and
placement services that benefit large domestic and international companies and institutions facing
complex risk exposures. These clients are also supported by Marsh’s robust analytics and a growing
digital experience.
In addition, Marsh’s largest multinational clients are serviced by a dedicated team of colleagues from
around the world focused on delivering service excellence and insurance solutions to clients wherever
they are located. Marsh provides global expertise and an intimate knowledge of local markets, helping
clients navigate local regulatory environments to address the worldwide risk issues that confront them.
Middle Market & Corporate. A fast-growing, "solutions-based" segment, middle market and corporate
clients are served by Marsh’s brokerage operations globally and constitute a substantial majority of clients
served by Marsh & McLennan Agency (MMA) in the United States, Jelf/Bluefin in the United Kingdom and
large portions of Marsh’s international business.
• MMA offers a broad range of commercial property and casualty products and services, as well as
solutions for employee health and benefits, retirement and administration needs and a growing
personal lines business in the United States and Canada. Since its first acquisition in 2009, MMA
has acquired 58 agencies. MMA provides advice on insurance program structure and market
dynamics, along with industry expertise and transactional capability.
•
Jelf (acquired in December 2015) and Bluefin (acquired in December 2016) service more than
250,000 clients, primarily in the small to mid-market segment across the United Kingdom, and
offer high quality technical advice, bespoke products and distinctive services including claims
consultancy, employee health and benefit, personal lines solutions and risk management. As a
result of these acquisitions, Marsh is now a leading SME (small and medium enterprise) broker in
the United Kingdom.
Small Commercial. Clients in this market segment face less complex risks and are served by Marsh’s
innovative product and placement offerings and growing capabilities in digitally enabled distribution.
• Schinnerer Group is composed of Victor O. Schinnerer & Co. in the United States and ENCON
Group Inc. in Canada. It is one of the largest underwriting managers of professional liability and
specialty insurance programs worldwide. In the United States, Victor O. Schinnerer & Co.
provides risk management and insurance solutions to over 35,000 insureds through a national
third-party distribution network of licensed brokers. ENCON Group Inc., a leading managing
general agent in Canada with over 42,000 insureds, offers professional liability and construction
insurance, as well as group and retiree benefits programs and claims handling for individuals,
professionals, organizations and businesses.
• Dovetail Insurance is a leading provider of cloud-based insurance services tailored to the U.S.
small commercial market. Based in Columbia, South Carolina, Dovetail has developed an
advanced cloud-based technology platform that enables independent insurance agents, on behalf
of their small business clients, to obtain online quotes from multiple insurance providers and bind
insurance policies in real time. The process enables independent agents to deliver more efficient
and timely service and an expanded product selection, while giving insurance providers access to
a state-of-the art platform for distributing their products.
High Net Worth (HNW). Individual high net worth clients are serviced by Marsh’s Private Client Services
(PCS), MMA and other personal lines businesses globally. These businesses provide a single-source
solution for high net worth clients, and are dedicated to sourcing protections across a complete spectrum
2
of risk. Using a consultative and advisory centric approach, exposures are analyzed and customized
programs provide comprehensive coverage for clients with complex asset portfolios.
Additional Services and Adjacent Businesses
In addition to insurance broking, Marsh provides certain other specialist advisory or placement services:
Marsh Risk Consulting (MRC) is a global practice comprising specialists that advise clients on
identifying exposures, use data and analytics to assess critical business activities and evaluate existing
risk practices and strategies. MRC provides client services in five main areas: Property Risk and Asset
Valuation; Workforce Strategies; Claims Consulting; Strategic Risk and Cybersecurity Consulting; and
Financial Advisory Services.
Marsh Global Analytics helps organizations use data and analytical tools to better understand risks,
make more informed decisions, support the implementation of innovative solutions and strategies and,
ultimately, reduce costs. Marsh Global Analytics employs a suite of solutions including extensive, global
placement data viewed using PlaceMAP (a benchmarking and placement application), statistical and
financial analyses, decision modeling, catastrophic loss modeling and the Marsh Analytical Platform
(Marsh’s proprietary suite of analytics applications that delivers risk insights to clients for better decision
making concerning retaining, mitigating and transferring risk).
Marsh Captive Solutions serves more than 1,250 captive facilities, including single-parent captives,
reinsurance pools and risk retention groups. The Captive Solutions practice operates in 42 captive
domiciles and leverages the consulting expertise within Marsh’s brokerage offices worldwide. The
practice includes the Captive Advisory Group, a consulting arm that performs captive feasibility studies
and helps to structure and implement captive solutions; the Captive Management Group, an industry
leader in managing captive facilities and in providing administrative, consultative and insurance-related
services; and the Actuarial Services Group, which is comprised of credentialed actuaries and supporting
actuarial analysts.
Bowring Marsh is an international placement broker for property and casualty risks. Bowring Marsh uses
placement expertise in major international insurance market hubs, including Bermuda, Brazil, China,
United Arab Emirates, Ireland, Hong Kong, England, Spain, the United States, Singapore, South Korea,
Japan and Switzerland, and an integrated global network to secure advantageous terms and conditions
for its clients throughout the world.
Torrent Technologies is a service provider to Write Your Own (WYO) insurers participating in the
National Flood Insurance Program (NFIP) in the United States. It offers a comprehensive suite of flood
insurance products and services to WYO carriers and agents. Torrent and Marsh together also have
demonstrated capabilities in the private retail flood space and in providing other non-NFIP flood insurance
administration services to mortgage lenders and other businesses.
Marsh ClearSight is a cloud-based software platform that serves the needs of risk management
professionals, insurance carriers and third-party administrators, through integrated technology, analytics
and data services solutions across risk, safety and claims management. Marsh ClearSight enables its
customers to analyze trends, gain industry insights, optimize decision-making and reduce costs across
the entire risk lifecycle.
Services for Insurers
Insurer Consulting Group provides services to insurance carriers. Through Marsh's patented electronic
platform, MarketConnect, and sophisticated data analysis, Marsh provides insurers with individualized
preference setting and risk identification capabilities, as well as detailed performance data and metrics.
Insurer consulting teams review performance metrics and preferences with insurers. Marsh's Insurer
Consulting services are designed to improve the product offerings available to clients, assist insurers in
identifying new opportunities and enhance insurers’ operational efficiency. The scope and nature of the
services vary by insurer and by geography.
3
GUY CARPENTER
Guy Carpenter, the Company’s reinsurance broker, generated approximately 9% of the Company's total
revenue in 2016. The workforce consists of approximately 2,300 professionals who provide clients with a
combination of specialized reinsurance broking expertise, strategic advisory services and analytics
solutions. Guy Carpenter creates and executes reinsurance and risk management solutions for clients
worldwide through risk assessment analytics, actuarial services, highly-specialized product knowledge
and trading relationships with reinsurance markets. Client services also include contract and claims
management and fiduciary accounting.
Acting as a broker or intermediary on all classes of reinsurance, Guy Carpenter places two main types of
property and casualty reinsurance: treaty reinsurance, which involves the transfer of a portfolio of risks;
and facultative reinsurance, which involves the transfer of part or all of the coverage provided by a single
insurance policy.
Guy Carpenter provides reinsurance services in a broad range of specialty practice areas, including:
agriculture; alternative risk transfer (such as group-based captives and insurance pools); aviation &
aerospace; casualty clash (losses involving multiple policies or insureds); construction and engineering;
credit, bond & political risk; cyber; excess & umbrella; flood; general casualty; life, accident & health;
marine and energy; medical professional liability; professional liability; program manager solutions;
property; public sector; retrocessional reinsurance (reinsurance between reinsurers); surety (reinsurance
of surety bonds and other financial guarantees); terror, and workers compensation.
Guy Carpenter also offers clients alternatives to traditional reinsurance, including industry loss warranties
and, through its licensed affiliates, capital markets alternatives such as transferring catastrophe risk
through the issuance of risk-linked securities. GC Securities, the Guy Carpenter division of MMC
Securities LLC and MMC Securities (Europe) Limited, offers corporate finance solutions, including
mergers & acquisitions and private debt and equity capital raising, and capital markets-based risk transfer
solutions that complement Guy Carpenter's strong industry relationships, analytical capabilities and
reinsurance expertise.
Guy Carpenter also provides its clients with reinsurance-related services, including actuarial, enterprise
risk management, financial and regulatory consulting, portfolio analysis and advice on the efficient use of
capital. Guy Carpenter's GC Analytics® unit helps clients better understand and quantify the uncertainties
inherent in their businesses. Working in close partnership with Guy Carpenter account executives, GC
Analytics specialists help support clients' critical decisions in numerous areas, including reinsurance
utilization, catastrophe exposure portfolio management, new product and market development, rating
agency, regulatory and account impacts, loss reserve risk, capital adequacy and return on capital.
Compensation for Services in Risk and Insurance Services
Marsh and Guy Carpenter are compensated for brokerage and consulting services through commissions
and fees. Commission rates and fees vary in amount and can depend upon a number of factors, including
the type of insurance or reinsurance coverage provided, the particular insurer or reinsurer selected, and
the capacity in which the broker acts and negotiates with clients. In addition to compensation from its
clients, Marsh also receives other compensation, separate from retail fees and commissions, from
insurance companies. This other compensation includes, among other things, payments for consulting
and analytics services provided to insurers; fees for administrative and other services provided to or on
behalf of insurers (including services relating to the administration and management of quota shares,
panels and other facilities in which insurers participate); and contingent commissions, which are paid by
insurers based on the attainment of specified goals relating to Marsh's placements, particularly at MMA
and in parts of Marsh's international operations.
Marsh and Guy Carpenter receive interest income on certain funds (such as premiums and claims
proceeds) held in a fiduciary capacity for others. For a more detailed discussion of revenue sources and
factors affecting revenue in our Risk and Insurance Services segment, see Part II, Item 7 ("Management's
Discussion and Analysis of Financial Condition and Results of Operations") of this report.
4
CONSULTING
The Company's Consulting segment generated approximately 46% of the Company's total revenue in
2016 and employs approximately 25,500 colleagues worldwide. The Company conducts business in this
segment through Mercer and Oliver Wyman Group.
MERCER
Mercer is a global consulting leader in health, retirement, investments and talent. Mercer helps clients
around the world advance the health, wealth and performance of their most vital asset - their people.
Mercer's approximately 21,000 employees are based in more than 40 countries. Clients include a majority
of the companies in the Fortune 1000 and FTSE 100, as well as medium- and small-market
organizations. Mercer generated approximately 33% of the Company's total revenue in 2016.
Mercer operates in the following areas:
Health. Mercer assists public and private sector employers in the design and management of employee
health care programs; administration of health benefits and flexible benefits programs, including total
benefits outsourcing; compliance with local benefits-related regulations; and the establishment of health
and welfare benefits coverage for employees. Mercer provides a range of advice and solutions to clients,
which, depending on the engagement, may include: total health management strategies; global health
brokerage solutions; vendor performance and audit; life and disability management; and measurement of
healthcare provider performance. These services are provided through traditional fee-based consulting as
well as commission-based brokerage services in connection with the selection of insurance companies
and healthcare providers. Mercer also provides products and solutions for private active and retiree
exchanges in the United States, including its Mercer Marketplace 365SM offering.
Retirement. Mercer provides a wide range of strategic and compliance-related retirement services and
solutions to corporate, governmental and institutional clients. Mercer assists clients worldwide in the
design, governance and risk management of defined benefit, defined contribution and hybrid retirement
plans. Mercer's approach to retirement services enables clients to consider the benefits, accounting,
funding and investment aspects of plan design and management in the context of business objectives
and governance requirements. Mercer also provides total benefits outsourcing; total retirement
outsourcing, including administration and delivery for retirement benefits; and stand-alone services for
defined benefit administration and defined contribution administration.
Investments. Mercer's investments business provides clients with investment consulting and investment
management services. In its investment consulting business, Mercer provides investment advice and
related services to the sponsors of pension funds, foundations, endowments, insurance companies,
wealth management firms and other investors in more than 40 countries. Mercer's services cover all
stages of the institutional investment process, from strategy, structure and implementation to ongoing
portfolio management.
Mercer provides investment management services - also referred to as delegated solutions or fiduciary
management - to institutional investors including retirement plans (defined benefit and defined
contribution), endowments and foundations and wealth managers, primarily through investment in
manager of manager funds sponsored and managed by Mercer. Mercer offers a diverse range of
solutions to meet a full spectrum of risk/return preferences and manages investment vehicles across a
range of investment strategies for clients globally. As of December 31, 2016, Mercer had assets under
management of approximately $158 billion worldwide.
Talent. Mercer's talent businesses advise organizations on the engagement, management and
rewarding of employees; the design of executive remuneration programs; and improvement of human
resource (HR) effectiveness. Through proprietary survey data and decision support tools, Mercer's
Information Products Solutions business provides clients with human capital information and analytical
capabilities to improve strategic human capital decision making. Mercer's Communications business
helps clients plan and implement HR programs and other organizational changes designed to maximize
employee engagement, drive desired employee behaviors and achieve improvements in business
performance.
5
Effective January 1, 2017, Mercer merged its investment and retirement businesses into a newly-created
wealth business. We believe this combination will align Mercer’s investment management capabilities
globally. In addition, moving forward we will refer to our talent business as our career business.
OLIVER WYMAN GROUP
With approximately 4,400 professionals and offices in 27 countries, Oliver Wyman Group delivers
advisory services to clients through three operating units, each of which is a leader in its field: Oliver
Wyman, Lippincott and NERA Economic Consulting. Oliver Wyman Group generated approximately 13%
of the Company's total revenue in 2016.
Oliver Wyman is a leading global management consulting firm. Oliver Wyman's consultants specialize by
industry and functional area, allowing clients to benefit from both deep sector knowledge and specialized
expertise in strategy, operations, risk management and organization transformation. Industry groups
include:
• Automotive
• Aviation, Aerospace & Defense
• Business Services
• Communications, Media & Technology
• Distribution & Wholesale
• Energy
• Financial Services (including corporate and institutional banking, insurance, wealth and asset
management, public policy, and retail and business banking)
• Health & Life Sciences
•
Industrial Products
• Public Sector
• Retail & Consumer Products
• Surface Transportation
• Travel & Leisure
Oliver Wyman overlays its industry knowledge with expertise in the following functional specializations:
• Actuarial. Oliver Wyman offers actuarial consulting services to public and private enterprises,
self-insured group organizations, insurance companies, government entities, insurance regulatory
agencies and other organizations.
• Business & Organization Transformation. Oliver Wyman advises organizations undergoing or
anticipating profound change or facing strategic discontinuities or risks by providing guidance on
leading the institution, structuring its operations, improving its performance and building its
organizational capabilities.
• Corporate Finance & Restructuring. Oliver Wyman provides an array of capabilities to support
investment decision making by private equity funds, hedge funds, sovereign wealth funds,
investment banks, commercial banks, arrangers, strategic investors and insurers.
• Digital. Oliver Wyman has a dedicated cross-industry team helping clients capitalize on the
opportunities created by digital technology and address the strategic threats.
• Marketing & Sales. Oliver Wyman advises leading firms in the areas of offer/pricing optimization;
product/service portfolio management; product innovation; marketing spend optimization; value-
based customer management; and sales and distribution model transformation.
• OW Labs. OW Labs applies innovative approaches to technology to drive business impact for its
clients. The mission of OW Labs is to help clients to unleash the power of the information they
already have or could capture - essentially to become knowledge-powered businesses - and
through that to drive competitive advantage and sustained impact.
6
• Operations & Technology. Oliver Wyman offers market-leading IT organization design, IT
economics management, Lean Six Sigma principles and methodologies, and sourcing expertise
to clients across a broad range of industries.
• Risk Management. Oliver Wyman works with chief financial officers, chief risk officers, and other
senior finance and risk management executives of corporations and financial institutions on risk
management solutions. Oliver Wyman provides effective, customized solutions to the challenges
presented by the evolving roles, needs and priorities of these individuals and organizations.
• Strategy. Oliver Wyman is a leading provider of corporate strategy advice and solutions in the
areas of growth strategy and corporate portfolio; non-organic growth and M&A; performance
improvement; business design and innovation; corporate center and shared services; and
strategic planning.
• Sustainability Center. The Sustainability Center at Oliver Wyman supports leading companies
and governments around the world in their efforts to foster economic growth while encouraging
more responsible use of natural resources and environmental protection.
• Value Sourcing. Oliver Wyman helps organizations with optimization of purchasing processes or
organization; cost monitoring; low-cost country sourcing; supply chain management; strategic
sourcing; sequenced supply; part kitting; and with transforming procurement into a strong
competitive advantage, delivering sustained value.
Lippincott is a brand strategy and design consulting firm that advises corporations around the world in a
variety of industries on corporate branding, identity and image. Lippincott has helped create some of the
world's most recognized brands.
NERA Economic Consulting provides economic analysis and advice to public and private entities to
achieve practical solutions to highly complex business and legal issues arising from competition,
regulation, public policy, strategy, finance and litigation. NERA professionals operate worldwide assisting
clients including corporations, governments, law firms, regulatory agencies, trade associations, and
international agencies. NERA's specialized practice areas include: antitrust; securities; complex
commercial litigation; energy; environmental economics; network industries; intellectual property; product
liability and mass torts; and transfer pricing.
Compensation for Services in Consulting
Mercer and the Oliver Wyman Group of businesses are compensated for advice and services primarily
through fees paid by clients. Mercer's Health & Benefits business is compensated through commissions
for the placement of insurance contracts (comprising more than half of the revenue in the Health &
Benefits business) and consulting fees. Mercer's delegated solutions business and certain of Mercer's
defined contribution administration services are compensated typically through fees based on assets
under administration or management. For a majority of the Mercer-managed investment funds, revenue
received from Mercer's investment management clients as sub-advisor fees is reported in accordance
with U.S. GAAP, on a gross basis rather than a net basis. For a more detailed discussion of revenue
sources and factors affecting revenue in the Consulting segment, see Part II, Item 7 ("Management's
Discussion and Analysis of Financial Condition and Results of Operations") of this report.
REGULATION
The Company's activities are subject to licensing requirements and extensive regulation under U.S.
federal and state laws, as well as laws of other countries in which the Company's subsidiaries operate.
See Part I, Item 1A ("Risk Factors") below for a discussion of how actions by regulatory authorities or
changes in legislation and regulation in the jurisdictions in which we operate may have an adverse effect
on our businesses.
Risk and Insurance Services. While laws and regulations vary from location to location, every state of
the United States and most foreign jurisdictions require insurance market intermediaries and related
service providers (such as insurance brokers, agents and consultants, reinsurance brokers and managing
general agents) to hold an individual or company license from a government agency or self-regulatory
7
organization. Some jurisdictions issue licenses only to individual residents or locally-owned business
entities; in those instances, if the Company has no licensed subsidiary, it may maintain arrangements with
residents or business entities licensed to act in such jurisdiction. Such arrangements are subject to an
internal review and approval process. Licensing of reinsurance intermediaries is generally less rigorous
compared to that of insurance brokers, and most jurisdictions require only corporate reinsurance
intermediary licenses.
The Insurance Mediation Directive was adopted by the United Kingdom and 26 other European Union
Member States in 2005. Its implementation gave powers to the Financial Services Authority ("FSA"), the
United Kingdom regulator at the time, to expand their responsibilities in line with the Financial Services
and Markets Act, the result of which was the regulation of insurance and reinsurance intermediaries. The
enhanced regulatory regime implemented in the United Kingdom created a licensing system based on an
assessment of factors which included professional competence, financial capacity and the requirement to
hold professional indemnity insurance. In April 2013, the FSA was superseded by the Financial Conduct
Authority ("FCA"). In April 2014, the FCA’s responsibilities were expanded further to include the regulation
of credit activities for consumers. This included the broking of premium finance to consumers who wished
to spread the cost of their insurance. In April 2015, the FCA obtained concurrent competition powers
enabling them to enforce prohibitions on anti-competitive behavior in relation to financial services.
Insurance authorities in the United States and certain other jurisdictions in which the Company's
subsidiaries do business, including the FCA in the United Kingdom, also have enacted laws and
regulations governing the investment of funds, such as premiums and claims proceeds, held in a fiduciary
capacity for others. These laws and regulations typically provide for segregation of these fiduciary funds
and limit the types of investments that may be made with them, and generally apply to both the insurance
and reinsurance business. The FCA is currently reviewing its rules governing the protection of client
assets and client money. If deemed appropriate, the FCA will implement changes intended to provide
enhanced protection to client funds.
Certain of the Company's Risk and Insurance Services activities are governed by other regulatory bodies,
such as investment, securities and futures licensing authorities. In the United States, Marsh and Guy
Carpenter use the services of MMC Securities LLC, a SEC registered broker-dealer in the United States,
investment adviser and introducing broker. MMC Securities LLC is a member of the Financial Industry
Regulatory Authority ("FINRA"), the National Futures Association and the Securities Investor Protection
Corporation ("SIPC"), primarily in connection with capital markets and other investment banking-related
services relating to insurance-linked and alternative risk financing transactions. Also in the United States,
Marsh uses the services of MMA Securities LLC, a SEC registered broker-dealer and member of FINRA,
SIPC and the Municipal Securities Rulemaking Board, primarily in connection with retirement, executive
compensation and benefits consulting and advisory services to qualified and non-qualified benefits plans,
companies and executives. In the United Kingdom, Marsh and Guy Carpenter use the expertise of MMC
Securities (Europe) Limited, which is authorized and regulated by the FCA to provide advice on securities
and investments, including mergers & acquisitions in the European Union. MMC Securities LLC, MMC
Securities (Europe) Limited and MMA Securities LLC are indirect, wholly-owned subsidiaries of Marsh &
McLennan Companies, Inc.
Consulting. Certain of Mercer's retirement-related consulting and investment services are subject to
pension law and financial regulation in many countries. In addition, the trustee services, investment
services (including advice to persons, institutions and other entities on the investment of pension assets
and assumption of discretionary investment management responsibilities) and retirement and employee
benefit program administrative services provided by Mercer and its subsidiaries and affiliates are also
subject to investment and securities regulations in various jurisdictions, including regulations imposed or
enforced by the SEC and the Department of Labor in the United States, the FCA in the United Kingdom,
the Central Bank of Ireland and the Australian Prudential Regulation Authority and the Australian
Securities and Investments Commission. In the United States, Mercer provides investment services
through Mercer Investment Management, Inc. and Mercer Investment Consulting LLC, each an SEC-
registered investment adviser in the United States. Mercer Trust Company, a New Hampshire chartered
trust bank, provides services for Mercer’s benefits administration and investment management business
in the United States. The benefits insurance consulting and brokerage services provided by Mercer and
8
its subsidiaries and affiliates are subject to the same licensing requirements and regulatory oversight as
the insurance market intermediaries described above regarding our Risk and Insurance Services
businesses. Mercer uses the services of MMC Securities LLC to provide certain retirement and employee
benefit services. Oliver Wyman Group uses the services of MMC Securities (Europe) Limited in the
European Union, primarily in connection with corporate finance advisory services.
FATCA. Regulations promulgated by the U.S. Treasury Department pursuant to the Foreign Account Tax
Compliance Act and related legislation (FATCA) require the Company to take various measures relating to
non-U.S. funds, transactions and accounts. The regulations impose on Mercer certain client financial
account tracking and disclosure obligations with respect to non-U.S. financial institution and insurance
clients, and require Marsh and Guy Carpenter (and Mercer, in limited circumstances) to collect, validate
and maintain certain documentation from each foreign insurance entity that insures a risk that is subject
to the regulations. As of January 1, 2017, FATCA expanded to regulate a broader set of insurance and
reinsurance placements, known as "foreign-to-foreign" transactions. The Company has adopted
processes to substantially address FATCA’s requirements.
COMPETITIVE CONDITIONS
The Company faces strong competition in all of its businesses from providers of similar products and
services, including competition with regard to identifying and pursuing acquisition candidates. The
Company also encounters strong competition throughout its businesses from both public corporations
and private firms in attracting and retaining qualified employees. In addition to the discussion below, see
"Risks Relating to the Company Generally-Competitive Risks," in Part I, Item 1A of this report.
Risk and Insurance Services. The Company's combined insurance and reinsurance services
businesses are global in scope. Our insurance and reinsurance businesses compete principally on
sophistication, range, quality and cost of the services and products they offer to clients. The Company
encounters strong competition from other insurance and reinsurance brokerage firms that operate on a
nationwide or worldwide basis, from a large number of regional and local firms in the United States, the
European Union and elsewhere, from insurance and reinsurance companies that market, distribute and
service their insurance and reinsurance products without the assistance of brokers or agents and from
other businesses, including commercial and investment banks, accounting firms, consultants and online
platforms, that provide risk-related services and products or alternatives to traditional insurance
brokerage services. In addition, third party capital providers have entered the insurance and reinsurance
risk transfer market offering products and capital directly to the Company’s clients. Their presence in the
market increases the competitive pressures that the Company faces.
Certain insureds and groups of insureds have established programs of self insurance (including captive
insurance companies) as a supplement or alternative to third-party insurance, thereby reducing in some
cases their need for insurance placements. Certain insureds also obtain coverage directly from insurance
providers. There are also many other providers of managing general agency, affinity programs and private
client services, including specialized firms, insurance companies and other institutions.
Consulting. The Company's consulting and HR outsourcing businesses face strong competition from
other privately and publicly held worldwide and national companies, as well as regional and local firms.
These businesses generally compete on the basis of the range, quality and cost of the services and
products they provide to clients. Competitors include independent consulting and outsourcing firms, as
well as consulting and outsourcing operations affiliated with accounting, information systems, technology
and financial services firms. Mercer's investments business faces competition from many sources,
including investment consulting firms (many of which offer delegated services) and other financial
institutions. In some cases, clients have the option of handling the services provided by Mercer and Oliver
Wyman Group internally, without assistance from outside advisors.
Segmentation of Activity by Type of Service and Geographic Area of Operation.
Financial information relating to the types of services provided by the Company and the geographic areas
of its operations is incorporated herein by reference to Note 16 to the consolidated financial statements
included under Part II, Item 8 of this report.
9
Employees
As of December 31, 2016, the Company and its consolidated subsidiaries employed approximately
60,000 people worldwide, including approximately 32,600 in risk and insurance services, 25,500 in
consulting and 1,700 individuals at the parent-company level.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are appointed annually by the Company’s Board of Directors. The
following individuals are the executive officers of the Company:
Peter J. Beshar, age 55, is Executive Vice President and General Counsel of Marsh & McLennan
Companies. In addition to managing the Company’s Legal, Compliance & Public Affairs function, Mr.
Beshar also oversees the Company’s Government Relations and Risk Management groups. Before
joining Marsh & McLennan Companies in November 2004, Mr. Beshar was a Litigation Partner in the law
firm of Gibson, Dunn & Crutcher LLP. Mr. Beshar joined Gibson, Dunn & Crutcher in 1995 after serving as
an Assistant Attorney General in the New York Attorney General's office and as the Special Assistant to
Cyrus Vance in connection with the peace negotiations in the former Yugoslavia.
John Q. Doyle, age 53, is President of Marsh and oversees Marsh’s core brokerage business worldwide
as well as Global Sales, Global Clients and Marsh & McLennan Agency. In addition to serving on the
Executive Committee of Marsh & McLennan Companies, he is a member of the Marsh Executive
Committee. Prior to assuming this role in April 2016, Mr. Doyle was most recently Chief Executive Officer
of AIG’s commercial insurance businesses. He began his career at AIG in 1986 and held several senior
executive positions, including President and Chief Executive Officer of AIG property and casualty in the
U.S., President and Chief Executive Officer of National Union Fire Insurance Company, and President of
American Home Assurance Company.
E. Scott Gilbert, age 61, is Senior Vice President and Chief Information Officer of Marsh & McLennan
Companies. Mr. Gilbert leads the Company’s firm-wide efforts to improve the experience of clients and
colleagues through the development and implementation of innovative and cost-effective technologies. In
his role, he has responsibility for the Global Technology Infrastructure group, the Marsh & McLennan
Innovation Centre, and chairs the Company’s Technology Council. In addition, Mr. Gilbert oversees the
Company's global Business Resiliency and Security operations. Prior to assuming his current role in
September 2015, Mr. Gilbert served as Senior Vice President and Chief Risk and Compliance Officer of
the Company. Prior to joining Marsh & McLennan Companies in January 2005, he was the Chief
Compliance Counsel of the General Electric Company since September 2004. Prior thereto, he was
Counsel, Litigation and Legal Policy at GE. Between 1986 and 1992, when he joined GE, he served as an
Assistant United States Attorney in the Southern District of New York.
Daniel S. Glaser, age 56, is President and Chief Executive Officer of Marsh & McLennan Companies.
Prior to his current role, Mr. Glaser served as Group President and Chief Operating Officer of the
Company from April 2011 through December 2012. He rejoined Marsh & McLennan Companies in
December 2007 as Chairman and Chief Executive Officer of Marsh after serving in senior positions in
commercial insurance and insurance brokerage in the United States, Europe and the Middle East,
returning to the firm where he had begun his career 25 years before, right out of university. Mr. Glaser
was named Chairman of the Federal Advisory Committee on Insurance (FACI) in August 2014. Mr. Glaser
also serves on the International Advisory Board of BritishAmerican Business and is a member of the
Board of Trustees for The Institutes (American Institute for Chartered Property Casualty Underwriters)
and Ohio Wesleyan University.
Laurie Ledford, age 59, is the Company's Senior Vice President and Chief Human Resources Officer.
Ms. Ledford is responsible for Marsh & McLennan Companies' overall human capital and talent strategy
and the delivery of human resources services to all our colleagues worldwide. Prior to her current role,
Ms. Ledford served as Chief Human Resources Officer (CHRO) for Marsh Inc. Ms. Ledford joined Marsh
in 2000 and was named CHRO in 2006, after having served as Senior Human Resources Director for
Marsh's International Specialty Operations. Her prior experience was with Citibank and NationsBank.
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Scott McDonald, age 50, is President and Chief Executive Officer of Oliver Wyman Group. Prior to
assuming this role in January 2014, Mr. McDonald was President of Oliver Wyman. Before becoming
President of Oliver Wyman in 2012, Mr. McDonald was the Managing Partner of Oliver Wyman's Financial
Services practice and has held a number of senior positions, including the Global head of the Corporate &
Institutional Banking practice. Before joining Oliver Wyman in 1995, he was an M&A investment banker
with RBC Dominion Securities in Toronto.
Mark McGivney, age 49, is the Company’s Chief Financial Officer. Mr. McGivney has held a number of
senior financial management positions since joining the Company in 2007, including Chief Financial
Officer of Marsh and Chief Financial Officer and Chief Operating Officer of Mercer. In his most recent role
as Senior Vice President, Corporate Finance of Marsh & McLennan Companies, Mr. McGivney was
responsible for leading and directing the Company’s Corporate Development, Treasury and Investor
Relations functions. His prior experience includes senior positions at The Hanover Insurance Group,
including serving as Senior Vice President of Finance, Treasurer, and Chief Financial Officer of the
Property & Casualty business, and investment banking positions at Merrill Lynch and Salomon Brothers.
Julio A. Portalatin, age 57, is President and Chief Executive Officer of Mercer. Prior to joining Mercer in
February 2012, Mr. Portalatin was the President and CEO of Chartis Growth Economies, and Senior Vice
President, American International Group (AIG). In that role, he had responsibility for operations in Asia
Pacific, South Asia, Latin America, Africa, the Middle East and Central Europe. Mr. Portalatin began his
career with AIG in 1993 and thereafter held a number of key leadership roles, including President of the
Worldwide Accident & Health Division at American International Underwriters (AIU) from 2002-2007. From
2007-2010, he served as President and CEO of Chartis Europe S.A. and Continental European Region,
based in Paris, before becoming President and CEO of Chartis Emerging Markets. Prior to joining AIG /
Chartis, Mr. Portalatin spent 12 years with Allstate Insurance Company in various executive product
underwriting, distribution and marketing positions.
Peter Zaffino, age 50, is Chairman of the Risk and Insurance Services Segment and Chief Executive
Officer of Marsh. Mr. Zaffino was named Chairman of the Risk and Insurance Services segment of the
Company in May 2015. Prior to being named Marsh CEO in 2011, Mr. Zaffino was President and CEO of
Guy Carpenter, a position he assumed in early 2008. Previously, he was an Executive Vice President of
Guy Carpenter and had held a number of senior positions, including Head of Guy Carpenter's U.S. Treaty
Operations and Head of the firm's Global Specialty Practices. Mr. Zaffino has over 25 years of experience
in the Insurance and Reinsurance industry. Prior to joining Guy Carpenter in 2001, he held several senior
positions, most recently serving in an executive role with a GE Capital portfolio company.
AVAILABLE INFORMATION
The Company is subject to the information reporting requirements of the Securities Exchange Act of
1934. In accordance with the Exchange Act, the Company files with, or furnishes to, the SEC annual
reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. The Company
makes these reports and any amendments to these reports available free of charge through its website,
www.mmc.com, as soon as reasonably practicable after they are filed with or furnished to the SEC. The
SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements
and other information regarding issuers, like the Company, that file electronically with the SEC.
The Company also posts on its website certain governance and other information for investors.
The Company encourages investors to visit these websites from time to time, as information is updated
and new information is posted. Website references in this report are provided as a convenience and do
not constitute, and should not be viewed as, incorporation by reference of the information contained on,
or available through, the websites. Therefore, such information should not be considered part of this
report.
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Item 1A. Risk Factors
You should consider the risks described below in conjunction with the other information presented in this
report. These risks have the potential to materially adversely affect the Company's business, results of
operations or financial condition.
RISKS RELATING TO THE COMPANY GENERALLY
Legal and Regulatory Risks
We are subject to significant uninsured exposures arising from errors and omissions, breach of
fiduciary duty and similar claims.
Our operating companies provide numerous professional services, including the placement of insurance
and the provision of consulting, investment advisory and actuarial services, to clients around the world. As
a result, the Company and its subsidiaries are subject to a significant number of errors and omissions,
breach of fiduciary duty and similar claims, which we refer to collectively as "E&O claims." In our Risk and
Insurance Services segment, such claims include allegations of damages arising from our failure to
assess clients’ risks, advise clients, place coverage or notify insurers of potential claims on behalf of
clients in accordance with our obligations to them. In our Consulting segment, where we increasingly act
in a fiduciary capacity through our investments business, such claims include allegations of damages
arising from the provision of consulting, investments, actuarial, pension administration and other services.
These services frequently involve complex calculations and other analysis, including (i) making
assumptions about, and preparing estimates concerning, contingent future events, (ii) drafting and
interpreting complex documentation governing pension plans, (iii) calculating benefits within complex
pension structures, (iv) providing investment advice, including guidance on asset allocation and
investment strategy, and (v) managing client assets, including the selection of investment managers.
These matters often relate to services provided by the Company dating back many years. Such claims
may subject us to significant liability for monetary damages, including punitive and treble damages,
negative publicity and reputational harm, and may divert personnel and management resources. We may
be unable to effectively limit our potential liability in certain jurisdictions, including through insurance, or in
connection with certain types of claims, particularly those concerning claims of a breach of fiduciary duty.
In establishing liabilities for E&O claims in accordance with FASB ASC Subtopic No. 450-20
(Contingencies - Loss Contingencies), the Company uses case level reviews by inside and outside
counsel, an internal actuarial analysis by Oliver Wyman Group, a subsidiary of the Company, and other
methods to estimate potential losses. A liability is established when a loss is both probable and
reasonably estimable. The liability is reviewed quarterly and adjusted as developments warrant. In many
cases, the Company has not recorded a liability, other than for legal fees to defend the claim, because we
are unable, at the present time, to make a determination that a loss is both probable and reasonably
estimable. Given the challenges inherent in establishing liabilities in accordance with FASB ASC Subtopic
No. 450-20, as well as the unpredictability of E&O claims and the litigation that can flow from them, it is
possible that an adverse outcome in a particular matter could have a material adverse effect on the
Company's business, results of operations or financial condition in a given quarterly or annual period.
Further, and as more fully described in Note 15 to our consolidated financial statements included under
Part II, Item 8 of this report, we are subject to legal proceedings, regulatory investigations and other
contingencies other than E&O claims which, if determined unfavorably to us, could have a material
adverse effect on our business, results of operations or financial condition.
We cannot guarantee that we are or will be in compliance with all current and potentially
applicable U.S. federal and state or foreign laws and regulations, and actions by regulatory
authorities or changes in legislation and regulation in the jurisdictions in which we operate could
have a material adverse effect on our business.
Our activities are subject to extensive regulation under the laws of the United States and its various
states, the European Union and its member states and the other jurisdictions in which we operate. For
example, we are subject to regulation by agencies such as the Securities and Exchange Commission in
the United States and the Financial Conduct Authority (the “FCA”) in the United Kingdom, state insurance
regulators in the United States and self-regulatory organizations such as FINRA, as further described
12
above under Part I, Item 1 - Business (Regulation) of this report. We are also subject to trade sanctions
laws relating to countries such as Cuba, Iran, Russia, Sudan and Syria, and anti-corruption laws such as
the U.S. Foreign Corrupt Practices Act and the U.K. Anti-Bribery Act. We are subject to numerous other
laws on matters as diverse as internal control over financial reporting and disclosure controls and
procedures, securities regulation, data privacy and protection, taxation, anti-trust, immigration, wage-and-
hour standards and employment and labor relations.
The U.S. and foreign laws and regulations that apply to our operations are complex, and our efforts to
comply with them require significant resources. In some cases, these laws and regulations may impose
operational limitations on our business, including on the products and services we may offer or on the
amount or type of compensation we may collect. While we attempt to comply with applicable laws and
regulations, there can be no assurance that we, our employees, our consultants and our contractors and
other agents are in full compliance with such laws and regulations or interpretations at all times, or that
we will be able to comply with any future laws or regulations. If we fail to comply with applicable laws and
regulations, including those referred to above, we may be subject to investigations, criminal penalties or
civil remedies, including fines, injunctions, loss of an operating license or approval, increased scrutiny or
oversight by regulatory authorities, the suspension of individual employees, limitations on engaging in a
particular business or redress to clients. The cost of compliance and the consequences of non-
compliance could have a material adverse effect on our business, results of operations and financial
condition. In addition, a failure to comply with applicable laws and regulations could have a material
adverse effect on the Company by exposing us to negative publicity and reputational damage or by
harming our client or employee relationships.
In most jurisdictions, government regulatory authorities have the power to interpret and amend applicable
laws and regulations, and have discretion to grant, renew and revoke the various licenses and approvals
we need to conduct our activities. Such authorities may require the Company to incur substantial costs in
order to comply with such laws and regulations. In some areas of our businesses, we act on the basis of
our own or the industry's interpretations of applicable laws or regulations, which may conflict from state to
state or country to country. In the event those interpretations eventually prove different from the
interpretations of regulatory authorities, we may be penalized or precluded from carrying on our previous
activities. Moreover, the laws and regulations to which we are subject may conflict among the various
jurisdictions and countries in which we operate, which increases the likelihood of our businesses being
non-compliant in one or more jurisdictions.
Cybersecurity and Data Protection Risks
We could incur significant liability or our reputation could be damaged if our information systems
are breached or we otherwise fail to protect client or Company data or information systems.
We rely on the efficient, uninterrupted and secure operation of complex information technology systems
and networks to operate our business and securely process, transmit and store electronic information. In
the normal course of business, we also share electronic information with our vendors and other third
parties. This electronic information comprises sensitive and confidential data, including information related
to financial records, health care, mergers and acquisitions and clients’ personal data. Our information
technology systems, and those of our numerous third-party providers, are potentially vulnerable to
damage or interruption from a variety of external threats, including cyber-attacks, computer viruses and
other malware, ransomware and other types of security breaches. Our systems are also subject to
compromise from internal threats such as improper action by employees, vendors and other third parties
with otherwise legitimate access to our systems. The latency of such attacks is often measured in
months, and we may not be able to detect an attack in a timely manner. We could experience significant
financial and reputational harm if our information systems are breached, or sensitive client or Company
data are compromised.
We are at risk of attack by a growing list of adversaries, including by state-sponsored organizations,
organized crime, hackers or "hactivists" (activist hackers), through use of increasingly sophisticated
methods of attack, including long-term, persistent attacks referred to as advanced persistent threats.
Because the techniques used to obtain unauthorized access or sabotage systems change frequently and
generally are not identified until they are launched against a target, we may be unable to anticipate these
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techniques or implement adequate preventative measures, resulting in potential data loss or other
damage to information technology systems.
As the breadth and complexity of our infrastructure continues to grow, including as a result of the use of
mobile technologies, cloud services, social media and the increased reliance on devices connected to the
Internet (known as the "Internet of Things"), the potential risk of security breaches and cyber-attacks also
increases. Despite ongoing efforts to improve our ability to protect data from theft, we may not be able to
protect all of our data across our diverse systems. Should an attacker gain access to our network using
compromised credentials of an authorized user, we are at risk that the attacker might successfully
leverage that access to compromise additional systems and data. Certain measures that could increase
the security of our infrastructure, such as data encryption or deployment of multi-factor authentication,
take significant time and resources to deploy broadly, and such measures may not be effective against an
attack. The inability to implement, maintain and upgrade adequate safeguards could have a material
adverse effect on our business.
Due to the large number and age of the systems and platforms that we operate, the increased frequency
at which vendors issue security patches to their products, the need to test patches and, in some cases
coordinate with clients and vendors, before they can be deployed, we are at risk that we cannot deploy
patches in a timely manner. We are also dependent on third party vendors like cloud service providers to
keep their systems patched in order to protect our data. If we, our clients and our vendors are unable to
keep systems patched in a timely manner, they may be breached, which could have a material adverse
effect on our business.
We have numerous vendors and other third parties who receive personal information from us in
connection with the services we offer our clients. A small percentage of them have direct access to our
systems. We are at risk of a cyber-attack involving a vendor or other third party, which could result in a
breakdown of such third party’s data protection processes or the cyber-attackers gaining access to our
infrastructure through the third party. To the extent that a vendor or third party suffers a cyber-attack that
compromises their operations, we could incur significant costs and possible service interruption, which
could have an adverse effect on our business.
We have a history of making acquisitions and investments, including 115 in the period from 2011-2016.
The process of integrating the information systems of the businesses we acquire is complex and exposes
us to additional risk. For instance, we may not adequately identify weaknesses in the target’s information
systems, either before or after the acquisition, which could affect the value we are able to derive from the
acquisition, expose us to unexpected liabilities or make our own systems more vulnerable to a cyber-
attack. We may also be unable to integrate the systems of the businesses we acquire into our
environment in a timely manner, which could further increase these risks until such integration takes
place.
Our policies, procedures and technical safeguards may be insufficient to prevent or detect improper
access to confidential, personal or proprietary information by employees, vendors or other third parties
with otherwise legitimate access to our systems. Improper access to or disclosure of sensitive client or
Company information could harm our reputation and subject us to liability under our contracts, as well as
under existing or future laws, rules and regulations.
We have from time to time experienced data incidents and cybersecurity breaches, such as malware
incursions (including computer viruses and ransomware), users exceeding their data access
authorization, employee misconduct and incidents resulting from human error, such as loss of portable
and other data storage devices. Like many companies, we are subject to regular phishing email
campaigns directed at our employees that can result in malware infections and data losses. Although
these incidents have resulted in data loss and other damages, to date, they have not had a material
adverse effect on our business or operations. In the future, these types of incidents could result in
confidential, personal or proprietary information being lost or stolen, including client, employee or
company data, which could have a material adverse effect on our business. We also may be unable to
detect an incident, assess its severity or impact, or appropriately respond in a timely manner. In addition,
our liability insurance, which includes cyber insurance, may not be sufficient in type or amount to cover us
against claims related to security breaches, cyber-attacks and other related breaches.
14
The costs to comply with, or our failure to comply with, U.S. and foreign laws related to privacy,
data security and data protection, such as the E.U. General Data Protection Regulation, could
adversely affect our financial condition, operating results and our reputation.
In providing services and solutions to clients, we store and transfer sensitive client or Company data,
including personal data, in and across multiple jurisdictions. We leverage systems and applications that
are spread all over the world requiring us to regularly move data across national borders. As a result, we
are or may become subject to a variety of laws and regulations in the United States and abroad regarding
privacy, data protection and data security. These laws and regulations are continuously evolving and
developing. The scope and interpretation of the laws that are or may be applicable to us are often
uncertain and may be conflicting, particularly with respect to foreign laws. For example, in April 2016 the
European Commission adopted the General Data Protection Regulation ("GDPR"), which greatly
increases the jurisdictional reach of its laws and adds a broad array of requirements for handling personal
data, such as the public disclosure of significant data breaches, privacy impact assessments, data
portability and the appointment of data protection officers in some cases. Other countries have enacted or
are enacting data localization laws that require data to stay within their borders. At a state level, the New
York State Department of Financial Services has issued cybersecurity regulations which impose an array
of detailed security measures on covered entities. All of these evolving compliance and operational
requirements impose significant costs that are likely to increase over time and may restrict the way
services involving data are offered, all of which may adversely affect our results of operations.
Unauthorized disclosure or transfer of sensitive or confidential client or Company data, whether through
systems failure, employee negligence, fraud or misappropriation, by the Company, our vendors or other
parties with whom we do business could subject us to significant litigation, monetary damages, regulatory
enforcement actions, fines and criminal prosecution in one or more jurisdictions. For example, under the
GDPR, violations could result in a fine of up to 4% of a corporation’s global annual revenue. Such events
could also result in negative publicity and damage to our reputation and cause us to lose clients, which
could therefore have a material adverse effect on our results of operations.
Competitive Risks
We face significant competitive pressures in each of our businesses.
As a global professional services firm, the Company faces intense, sustained competition in each of its
operating segments. Our ability to compete successfully depends on a variety of factors, including the
quality and expertise of our colleagues, our geographic reach, the sophistication and quality of our
services, our pricing relative to competitors, our customers' ability to self-insure or use internal resources
instead of consultants, known as "disintermediation," and our ability to respond to changes in client
demand and industry conditions. Some of our competitors may have greater financial resources, or may
be better positioned to respond to technological and other changes in the industries we serve, and they
may be able to compete more effectively. If we are unable to respond successfully to the competition we
face, our business, results of operations and financial condition will be adversely impacted.
As a U.S.-domiciled company, our consolidated effective tax rate is higher than a number of our key
competitors that are domiciled outside the United States where corporate tax rates are lower than the
U.S. federal statutory tax rate. Certain of our businesses, such as Marsh & McLennan Agency, also
operate primarily in the United States where their earnings are subject to higher tax rates. The higher
consolidated tax rate at which our earnings are taxed could have an adverse impact on our ability to
compete with a number of our competitors. Additionally, the tax laws, rulings, policies or related legal and
regulatory interpretations of the U.S. and other jurisdictions could change in the future, and such changes
could cause a material change in our tax rate.
In our Risk and Insurance Services segment, in addition to the challenges posed by capital market
alternatives to traditional insurance and reinsurance, we compete intensely against a wide range of other
insurance and reinsurance brokerage and risk advisory firms that operate on a global, regional, national
or local scale for both client business and employee talent. We also compete with insurance and
reinsurance companies that market and service their insurance products without the assistance of
brokers or other market intermediaries, and with various other companies that provide risk-related
services or alternatives to traditional brokerage services including through technological solutions. This
competition is intensified by an industry trend toward a "syndicated" or "distributed" approach to the
15
purchase of insurance and reinsurance brokerage services, where a client engages multiple brokers to
service different portions of the client's account. In addition, third party capital providers have entered the
insurance and reinsurance risk transfer market offering products and capital directly to our clients. Their
presence in the market increases the competitive pressures that we face.
In our Consulting segment, we compete for business with numerous consulting firms and similar
organizations, many of whom also provided, or are affiliated with firms that provided, accounting,
information systems, technology and financial services. Such competitors may be able to offer more
comprehensive products and services to potential clients, which may give them a competitive advantage.
The loss of key professionals could hurt our ability to retain existing client revenues and generate
revenues from new business.
Across all of our businesses, our colleagues are critical to developing and retaining the client
relationships as well as performing the services on which our revenues depend. It is therefore important
for us to attract, incentivize and retain significant revenue-producing employees and the key managerial
and other professionals who support them. In addition, we could be adversely affected if we fail to
adequately plan for the succession of members of our senior management team. We face numerous
challenges in this regard, including the intense competition for talent and the general mobility of
professionals.
Losing employees who manage or support substantial client relationships or possess substantial
experience or expertise could adversely affect our ability to secure and complete client engagements,
which could adversely affect our results of operations. And, subject to applicable enforceable restrictive
covenants, if a key employee were to join an existing competitor or form a competing company, some of
our clients could choose to use the services of that competitor instead of our services.
Our business performance and growth plans could be negatively affected if we are not able to
effectively apply technology in driving value for our clients.
To remain competitive in many of our business areas, we must anticipate and respond effectively to the
threat of digital disruption and other technological change. The threat comes from traditional players
through disintermediation as well as from new entrants. We must also identify relevant technologies and
methodologies and integrate them into our product and service offerings. We may not be able to do this
effectively. Additionally, the effort to gain technological expertise and develop new technologies in our
business requires us to incur significant expenses, and we may not make sufficient investments
necessary to realize these goals.
We have a number of strategic initiatives involving investments in technology systems and infrastructure
to support our growth strategy. In addition to new platforms and systems, we are deploying new
processes and many of our colleagues across the business are changing the way they perform certain
roles to capture efficiencies. These initiatives may not yield sufficient return to cover the investments they
require. In some cases, we depend on key vendors and partners to provide technology and other support
for our strategic initiatives. If these vendors or partners fail to perform their obligations or otherwise cease
to work with us, our ability to execute on our strategic initiatives could be adversely affected. If we do not
keep up with technological changes or execute well on our strategic initiatives, our business and results
of operations could be adversely impacted.
Damage to our reputation could have a material adverse effect on our business.
Our reputation is one of our key assets. We advise our clients on and provide services related to a wide
range of subjects and our ability to attract and retain clients is highly dependent upon the external
perceptions of our level of service, trustworthiness, business practices, financial condition and other
subjective qualities. Negative perceptions or publicity regarding these matters or others could erode trust
and confidence and damage our reputation among existing and potential clients, which could make it
difficult for us to attract new clients and maintain existing ones as mentioned above. Negative public
opinion could also result from actual or alleged conduct by us or those currently or formerly associated
with us in any number of activities or circumstances, including operations, regulatory compliance, and the
use and protection of data and systems, satisfaction of client expectations, and from actions taken by
regulators or others in response to such conduct. This damage to our reputation could further affect the
confidence of our clients, rating agencies, regulators, stockholders and the other parties in a wide range
16
of transactions that are important to our business and could have a material adverse effect on our
business, financial condition and operating results.
Consolidation in the industries we serve could adversely affect our business.
Companies in the industries that we serve may seek to achieve economies of scale and other synergies
by combining with or acquiring other companies. If two or more of our current clients merge, or
consolidate or combine their operations, it may decrease the amount of work that we perform for these
clients. If one of our current clients merges or consolidates with a company that relies on another provider
for its services, we may lose work from that client or lose the opportunity to gain additional work. Any of
these or similar possible results of industry consolidation could adversely affect our business. The
insurance industry saw increased market consolidation in 2016, and this trend could continue or
accelerate in 2017. As the insurance and reinsurance companies continue to consolidate, Guy
Carpenter’s smaller client base may be more susceptible to this risk given the limited number of
insurance company clients and reinsurers in the marketplace.
We rely on a large number of vendors and other third parties to perform key functions of our
business operations and to provide services to our clients. These vendors and third parties may
act in ways that could harm our business.
We rely on a large number of vendors and other third parties, and in some cases subcontractors, to
provide services, data and information such as technology, information security, funds transfers, data
processing, and administration and support functions that are critical to the operations of our business.
These third parties include correspondents, agents and other brokers and intermediaries, insurance
markets, data providers, plan trustees, payroll service providers, software and system vendors, health
plan providers, investment managers, risk modeling providers, outsourced providers of client-related
services and providers of human resource functions, such as recruiters. As we do not fully control the
actions of these third parties, we are subject to the risk that their decisions or operations may adversely
impact us and replacing these service providers could create significant delay and expense. A failure by
the third parties to comply with service level agreement, or regulatory or legal requirements in a high
quality and timely manner, particularly during periods of our peak demand for their services, could result
in economic and reputational harm to us. In addition, these third parties face their own technology,
operating, business and economic risks, and any significant failures by them, including the improper use
or disclosure of our confidential client, employee, or company information or failure to comply with
applicable law, could cause harm to our reputation or otherwise expose us to liability. An interruption in or
the cessation of service by any service provider as a result of systems failures, capacity constraints,
financial difficulties or for any other reason could disrupt our operations, impact our ability to offer certain
products and services, and result in contractual or regulatory penalties, liability claims from clients or
employees, damage to our reputation and harm to our business.
Financial Risks
Our results of operations could be adversely affected by macroeconomic conditions, political
events and market conditions.
Macroeconomic conditions and political events around the world affect our clients' businesses and the
markets they serve. These conditions may reduce demand for our services or depress pricing for those
services, which could have a material adverse effect on our results of operations. Changes in
macroeconomic and political conditions could also shift demand to services for which we do not have a
competitive advantage, and this could negatively affect the amount of business that we are able to obtain.
For example, recently there has been a move toward protectionist laws and business practices in some
countries, which could favor local competition and adversely affect our business. In particular, on June 23,
2016, the United Kingdom held a referendum and voted in favor of leaving the European Union, or E.U.,
referred to as "Brexit". Brexit has created political and economic uncertainty, particularly in the United
Kingdom and the E.U., and this uncertainty may last for years. Our business in the United Kingdom, the
E.U. and worldwide could be affected during this period of uncertainty, and perhaps longer, by the impact
of the United Kingdom’s referendum. In addition, as a result of the recent change of administration in the
United States, changes in U.S. social, political, regulatory and economic conditions or in laws and policies
governing foreign trade, manufacturing, development and investment in the territories and countries
17
where we currently do business, and any negative sentiments toward the United States as a result of
such changes, could adversely affect our business. Further, concerns persist regarding the economic
health and political stability of certain Eurozone countries. If the demand for our products and services
declines as a result of these or any other macroeconomic conditions, political events or market
conditions, we may be required to respond in a way which could adversely affect our ability to execute our
business strategy.
Our investments, including our minority investments in other companies as well as our cash investments
and those held in a fiduciary capacity, are subject to general credit, liquidity, counterparty, foreign
exchange, market and interest rate risks. These risks may be exacerbated by global macroeconomic
conditions, market volatility and regulatory, financial and other difficulties affecting the companies in which
we have invested or that may be faced by financial institution counterparties. During times of stress in the
banking industry, counterparty risk can quickly escalate, potentially resulting in substantial trading and
investment losses for corporate and other investors. In addition, we may incur investment losses as a
result of unusual and unpredictable market developments, and we may continue to experience reduced
investment earnings if the yields on investments deemed to be low risk remain at or near their current low
levels. If the banking system or the fixed income, interest rate, credit or equity markets deteriorate, the
value and liquidity of our investments could be adversely affected. Finally, the value of the Company's
assets held in other jurisdictions, including cash holdings, may decline due to foreign exchange
fluctuations.
If we are unable to collect our receivables, our results of operations and cash flows could be
adversely affected.
Our business depends on our ability to successfully obtain payment from our clients of the amounts they
owe us for the work we perform. Accounts receivable typically total about one-quarter of our total annual
revenues, and as of December 31, 2016, our accounts receivable were approximately $3.4 billion.
Macroeconomic conditions could result in financial difficulties for our clients, which could cause clients to
delay payments to us, request modifications to their payment arrangements that could increase our
receivables balance or default on their payment obligations to us. Timely collection of client balances also
depends on our ability to complete our contractual commitments and bill and collect our contracted
revenues. If we are unable to meet our contractual requirements, we might experience delays in
collection of, or be unable to collect, our client balances, and if this occurs, our results of operations and
cash flows could be adversely affected. In addition, if we experience an increase in the time it takes to bill
and collect for our services, our cash flows could be adversely affected.
We may not be able to obtain financing on favorable terms or at all.
The maintenance and growth of our business, the payment of dividends and our ability to make share
repurchases depend on our access to capital, which depends in large part on cash flow generated by our
business and the availability of equity and debt financing. Certain of our businesses such as GC
Securities and MMC Securities (Europe) Limited also rely on financings by us to fund debt and equity
capital raising offerings by their clients. There can be no assurance that our operations will generate
sufficient positive cash flow to finance all of our capital needs or that we will be able to obtain equity or
debt financing on favorable terms or at all. In addition, our ability to obtain financing will depend in part
upon prevailing conditions in credit and capital markets, which are beyond our control.
Our defined benefit pension plan obligations could cause the Company's financial position,
earnings and cash flows to fluctuate.
Our defined benefit pension obligations and the assets set aside to fund those obligations are sensitive to
certain changes in the financial markets. Any such changes may result in increased pension expense or
additional cash payments to fund these plans.
The Company has significant defined benefit pension obligations to its current and former employees,
totaling approximately $15.6 billion, and related plan assets of approximately $14.4 billion, at December
31, 2016 on a U.S. GAAP basis. The Company's policy for funding its defined benefit pension plans is to
contribute amounts at least sufficient to meet the funding requirements set forth by law. In the United
States, contributions to these plans are based on ERISA guidelines. Outside the United States,
contributions are generally based on statutory requirements and local funding practices, which may differ
18
from measurements under U.S. GAAP. In the U.K., for example, the assumptions used to determine
pension contributions are the result of legally-prescribed negotiations between the Company and the
plans' trustee. Currently, this results in a lower funded status than under U.S. GAAP and may result in
contributions irrespective of the U.S. GAAP funded status.
The financial calculations relating to our defined benefit pension plans are complex. Pension plan assets
could decrease as the result of poor future asset performance. Also, pension plan liabilities, periodic
pension expense and future funding amounts could increase as a result of a decline in the interest rates
we use to discount our pension liabilities, longer lifespans than those reflected in our mortality
assumptions, actual investment return that is less than the expected return on assets, adverse changes in
laws or regulations and other variables.
While we have taken steps to mitigate the impact of pension volatility on our earnings and cash funding
requirements, these strategies may not be successful. Accordingly, given the magnitude of our worldwide
pension plans, variations in or reassessment of the preceding factors or potential miscalculations relating
to our defined benefit pension plans could cause significant fluctuation from year to year in our earnings
and cash flow, as well as our pension plan assets, liabilities and equity, and may result in increased levels
of contributions to our pension plans.
Our significant non-U.S. operations expose us to exchange rate fluctuations and various risks that
could impact our business.
A significant portion of our business is located outside of the United States. We are subject to exchange
rate movement because some of our subsidiaries receive revenue other than in their functional currencies
and because we must translate the financial results of our foreign subsidiaries into U.S. dollars. These
movements may change over time, and they could have a material adverse impact on our financial
results and cash flows. Our U.S. operations earn revenue and incur expenses primarily in U.S. dollars. In
certain jurisdictions, however, our Risk and Insurance Services operations generate revenue in a number
of different currencies, but expenses are almost entirely incurred in local currency. Due to fluctuations in
foreign exchange rates, we are subject to economic exposure as well as currency translation exposure on
the net operating results of our operations. Because the non-U.S. based revenue that is exposed to
foreign exchange fluctuations is approximately 50% of total revenue, exchange rate movement can have
a significant impact on our business, financial condition, results of operations and cash flow. For
additional discussion, see "Market Risk and Credit Risk-Foreign Currency Risk" in Part II, Item 7A
("Quantitative and Qualitative Disclosures about Market Risk") of this report.
We may not be able to receive dividends or other distributions in needed amounts from our
subsidiaries.
The Company is organized as a legal entity separate and distinct from our operating subsidiaries.
Because we do not have significant operations of our own, we are dependent upon dividends and other
payments from our operating subsidiaries to meet our obligations for paying principal and interest on
outstanding debt obligations, paying dividends to stockholders, repurchasing our common stock under
our share repurchase program and paying corporate expenses. In the event our operating subsidiaries
are unable to pay sufficient dividends and make other payments to the Company, we may not be able to
service our debt, pay dividends on or repurchase our common stock or meet our other obligations.
Further, the Company derives a significant portion of its revenue and operating profit from operating
subsidiaries located outside the United States. Funds from the current year’s earnings of the Company's
non-U.S. operating subsidiaries are regularly repatriated to the United States. A number of factors could
arise that could limit our ability to repatriate funds or could make repatriation cost-prohibitive, including,
but not limited to, the imposition of currency controls and other government restrictions on repatriation in
the jurisdictions in which our subsidiaries operate, fluctuations in foreign exchange rates, the imposition of
withholding and other taxes on such payments and our ability to repatriate earnings in a tax-efficient
manner.
In the event we are unable to generate or repatriate cash from our operating subsidiaries for any of the
reasons discussed above, our overall liquidity could deteriorate and our ability to finance our obligations,
including to pay dividends on or repurchase our common stock, could be adversely affected.
19
Our quarterly revenues and profitability may fluctuate significantly.
Quarterly variations in revenues and operating results may occur due to several factors. These include:
•
•
•
•
the number of client engagements during a quarter;
the possibility that clients may decide to delay or terminate a current or anticipated
project as a result of factors unrelated to our work product or progress;
fluctuations in hiring and utilization rates and clients' ability to terminate engagements
without penalty;
seasonality due to the impact of regulatory deadlines, policy renewals and other timing
factors to which our clients are subject;
the success of our acquisitions or investments;
•
• macroeconomic factors such as changes in foreign exchange rates, interest rates and
global securities markets, particularly in the case of Mercer, where fees in its investments
business and certain other business lines are derived from the value of assets under
management or administration; and
general economic conditions, since results of operations are directly affected by the
levels of business activity of our clients, which in turn are affected by the level of
economic activity in the industries and markets that they serve.
•
A significant portion of our total operating expenses is relatively fixed in the short term. Therefore, a
variation in the number of client assignments or in the timing of the initiation or the completion of client
assignments can cause significant variations in quarterly operating results for these businesses.
Credit rating downgrades would increase our financing costs and could subject us to operational
risk.
Currently, the Company's senior debt is rated A- by S&P and Baa1 by Moody's. The ratings from both
S&P and Moody's currently carry a Stable outlook.
If we need to raise capital in the future (for example, in order to fund maturing debt obligations or finance
acquisitions or other initiatives), credit rating downgrades would increase our financing costs, and could
limit our access to financing sources. Further, a downgrade to a rating below investment-grade could
result in greater operational risks through increased operating costs and increased competitive pressures.
Global Operations
We are exposed to multiple risks associated with the global nature of our operations.
We do business worldwide. In 2016, 50% of the Company's total revenue was generated from operations
outside the United States, and over one-half of our employees were located outside the United States.
We expect to expand our non-U.S. operations further.
The geographic breadth of our activities subjects us to significant legal, economic, operational, market,
compliance and reputational risks. These include, among others, risks relating to:
•
•
economic and political conditions in the countries in which we operate;
unexpected increases in taxes or changes in U.S. or foreign tax laws, rulings, policies or
related legal and regulatory interpretations, including recent international initiatives to
require multinational enterprises, like ours, to report profitability on a country-by-country
basis, which could increase scrutiny by foreign tax authorities;
potential transfer pricing-related tax exposures that may result from the flow of funds
among our subsidiaries and affiliates in the various jurisdictions in which we operate;
• withholding or other taxes that foreign governments may impose on the payment of
•
•
•
•
•
dividends or other remittances to us from our non-U.S. subsidiaries;
potential conflicts of interest that may arise as we expand the scope of our businesses
and our client base;
international hostilities, terrorist activities, natural disasters and infrastructure disruptions;
local investment or other financial restrictions that foreign governments may impose;
potential costs and difficulties in complying with a wide variety of foreign laws and
regulations (including tax systems) administered by foreign government agencies, some
of which may conflict with U.S. or other sources of law;
20
•
•
•
•
•
•
potential costs and difficulties in complying, or monitoring compliance, with foreign and
U.S. laws and regulations that are applicable to our operations abroad, including trade
sanctions laws relating to countries such as Cuba, Iran, Russia, Sudan and Syria and
anti-corruption laws such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery
Act 2010;
limitations or restrictions that foreign or U.S. governments and regulators may impose on
the products or services we sell, the methods by which we sell our products and services
and the manner in which we are compensated;
limitations that foreign governments may impose on the conversion of currency or the
payment of dividends or other remittances to us from our non-U.S. subsidiaries;
the length of payment cycles and potential difficulties in collecting accounts receivable;
engaging and relying on third parties to perform services on behalf of the Company; and
potential difficulties in monitoring employees in geographically dispersed locations.
Our inability to successfully recover should we experience a disaster or other business continuity
problem could cause material financial loss, loss of human capital, regulatory actions,
reputational harm or legal liability.
If we experience a local or regional disaster or other business continuity event, such as an earthquake,
hurricane, flood, terrorist attack, pandemic, security breach, cyber-attack, power loss or
telecommunications failure, our ability to operate will depend, in part, on the continued availability of our
personnel, our office facilities and the proper functioning of our computer, telecommunication and other
related systems and operations. In such an event, we could experience operational challenges that could
have a material adverse effect on our business. The risk of business disruption is more pronounced in
certain geographic areas, including major metropolitan centers, like New York or London, where we have
concentrations of customers and employees or significant operations, and in certain countries and
regions in which we operate that are subject to potential threat of terrorist attacks or military conflicts.
Our operations depend in particular upon our ability to protect our technology infrastructure against
damage. If a business continuity event occurs, we could lose client or Company data or experience
interruptions to our operations or delivery of services to our clients, which could have a material adverse
effect. A cyber-attack or other business continuity event affecting us or a key vendor or other third party
could result in a significant and extended disruption in the functioning of our information technology
systems or operations, requiring us to incur significant expense to address and remediate or otherwise
resolve such issues. An extended outage could result in the loss of clients and a decline in our revenues.
We regularly assess and take steps to improve our existing business continuity plans and key
management succession. However, a disaster or other continuity event on a significant scale or affecting
certain of our key operating areas within or across regions, or our inability to successfully recover from
such an event, could materially interrupt our business operations and result in material financial loss, loss
of human capital, regulatory actions, reputational harm, damaged client relationships and legal liability.
Our business disruption insurance may also not be sufficient in type or amount to cover the cost of a
successful recovery in the event of such a disruption.
Acquisitions and Dispositions
We face risks when we acquire and dispose of businesses.
We have a history of making acquisitions and investments, including a total of 115 in the period
2011-2016. We expect that acquisitions will continue to be a key part of our business strategy. Our
success in this regard will depend on our ability to identify and compete for appropriate acquisition
candidates and to complete the transactions we decide to pursue with favorable results. As we typically
acquire other professional services firms, the success of our transactions is also highly dependent on the
retention of the key employees of our acquisition targets.
While we intend that our acquisitions will improve our competitiveness and profitability, we cannot be
certain that our past or future acquisitions will be accretive to earnings or otherwise meet our operational
or strategic expectations. Acquisitions involve special risks, including accounting, regulatory, compliance,
information technology or human resources issues that could arise in connection with, or as a result of,
the acquisition of the acquired company; the assumption of unanticipated liabilities and contingencies;
21
difficulties in integrating acquired businesses; possible management distraction; and the inability of
acquired businesses to achieve the levels of revenue, profit, productivity or synergies we anticipate or
otherwise perform as we expect on the timeline contemplated. In addition, if in the future, the
performance of our reporting units or an acquired business varies from our projections or assumptions, or
estimates about future profitability of our reporting units or an acquired business change, the estimated
fair value of our reporting units or an acquired business could change materially and could result in an
impairment of goodwill and other acquisition-related intangible assets recorded on our balance sheet or in
adjustments in contingent payment amounts. As of December 31, 2016, the Company's consolidated
balance sheet reflected $9.5 billion of goodwill and intangible assets, representing approximately 52% of
the Company's total consolidated assets and allocated by reporting segment as follows: Risk and
Insurance Services, $6.8 billion and Consulting, $2.7 billion. Given the significant size of the Company's
goodwill and intangible assets, an impairment could have a material adverse effect on our results of
operations in any given period.
When we dispose of businesses, we are also subject to the risk, contractually agreed or otherwise, that
we will continue to be subject to the liabilities of that business after its disposition.
RISKS RELATING TO OUR RISK AND INSURANCE SERVICES SEGMENT
Our Risk and Insurance Services segment, conducted through Marsh and Guy Carpenter, represented
54% of the Company's total revenue in 2016. Our business in this segment is subject to particular risks.
Results in our Risk and Insurance Services segment may be adversely affected by a general
decline in economic activity.
Demand for many types of insurance and reinsurance generally rises or falls as economic growth
expands or slows. This dynamic affects the level of commissions and fees generated by Marsh and Guy
Carpenter. To the extent our clients become adversely affected by declining business conditions, they
may choose to limit their purchases of insurance and reinsurance coverage, as applicable, which would
inhibit our ability to generate commission revenue and other revenue based on premiums placed by us.
Also, the insurance they seek to obtain through us may be impacted by changes in their assets, property
values, sales or number of employees, which may reduce our commission revenue, and they may decide
not to purchase our risk advisory or other services, which would inhibit our ability to generate fee revenue.
Moreover, insolvencies and combinations associated with an economic downturn, especially insolvencies
and combinations in the insurance industry, could adversely affect our brokerage business through the
loss of clients or by hampering our ability to place insurance and reinsurance business, as well as our
revenues from insurers. Guy Carpenter is especially susceptible to this risk given the limited number of
insurance company clients and reinsurers in the market place.
Volatility or declines in premiums and other market trends may significantly impede our ability to
improve revenues and profitability.
A significant portion of our Risk and Insurance Services revenue consists of commissions paid to us out
of the premiums that insurers and reinsurers charge our clients for coverage. We do not determine the
insurance premiums on which our commissions are generally based. Our revenues and profitability are
subject to change to the extent that premium rates fluctuate or trend in a particular direction. The potential
for changes in premium rates is significant, due to the normal cycles of pricing in the commercial
insurance and reinsurance markets.
As traditional insurance companies continue to rely on non-affiliated brokers or agents to generate
premium, those insurance companies may seek to reduce their expenses by lowering their commission
rates. The reduction of these commission rates, along with general volatility or declines in premiums, may
significantly affect our profitability. Because we do not determine the timing or extent of premium pricing
changes, it is difficult to accurately forecast our commission revenues, including whether they will
significantly decline. As a result, we may have to adjust our budgets for future acquisitions, capital
expenditures, dividend payments, loan repayments and other expenditures to account for unexpected
changes in revenues, and any decreases in premium rates may adversely affect the results of our
operations.
In addition to movements in premium rates, our ability to generate premium-based commission revenue
may be challenged by the growing availability of alternative methods for clients to meet their risk-
22
protection needs. This trend includes a greater willingness on the part of corporations to self-insure, the
use of captive insurers, and the advent of capital markets-based solutions to traditional insurance and
reinsurance needs. Further, the profitability of our Risk and Insurances Services segment depends in part
on our ability to be compensated for the analytical services and other advice that we provide. If we are
unable to achieve and maintain adequate billing rates for all of our services, our margins and profitability
could decline.
Allegations of conflicts of interest, adverse legal developments and future regulations concerning
how intermediaries are compensated by insurers or clients could have a material adverse effect
on Marsh’s business, results of operations and financial condition.
The ways in which insurance intermediaries are compensated receive scrutiny from regulators in part
because of the potential for conflicts of interest. The vast majority of the compensation that Marsh
receives is in the form of retail fees and commissions that are paid by the client or paid from premium that
is paid by the client. The amount of other compensation that we receive from insurance companies,
separate from retail fees and commissions, has increased significantly in the last several years, both
organically and through acquisition. This other compensation includes payment for (i) consulting and
analytics services provided to insurers; (ii) administrative and other services provided to insurers
(including services relating to the administration and management of quota shares, panels and other
facilities); and (iii) contingent commissions (paid by insurers based on volume and profitability of Marsh's
placements). Future changes in the regulatory environment may impact our ability to collect these
revenue streams. In addition, these revenues present potential regulatory, litigation and reputational risks
that may arise from alleged conflicts of interest or allegations under antitrust, competition and unfair trade
practice laws. Adverse regulatory, legal or other developments could have a material adverse effect on
our business and expose the Company to negative publicity and reputational harm.
RISKS RELATING TO OUR CONSULTING SEGMENT
Our Consulting segment, conducted through Mercer and Oliver Wyman Group, represented 46% of our
total revenue in 2016. Our businesses in this segment are subject to particular risks.
Revenues for the services provided by our Consulting segment may decline for various reasons,
including as a result of changes in economic conditions, the value of equity, debt and other asset
markets, our clients’ or an industry's financial condition or government regulation.
Global economic conditions over the past several years have negatively affected businesses and financial
institutions. Many of our clients, including financial institutions, corporations, government entities and
pension plans, have been reducing expenses, including amounts spent on consulting services, and using
internal resources instead of consultants. The evolving needs and financial circumstances of our clients
may reduce demand for our consulting services and our revenues and profitability. If the economy or
markets in which we operate experience continued weakness at current levels or deteriorate further, our
business, financial condition and results of operations could be materially and adversely affected.
In addition, some segments of Mercer's investments business generate fees based upon the value of the
clients’ assets under management or advisement. Changes in the value of equity, debt, currency, real
estate, commodities or other asset classes could cause the value of assets under management or
advisement, and the fees received by Mercer, to decline. Such changes could also cause clients to
withdraw funds from Mercer’s investment business in favor of other investment service providers. In
either case, our business, financial condition and results of operations could be materially and adversely
affected. Further, revenue received by Mercer as investment manager to the majority of the Mercer-
managed investment funds is reported in accordance with U.S. GAAP on a gross basis rather than a net
basis. Therefore the reported revenue for these offerings does not fully reflect the inclusion of sub-advisor
fees, and thus the amount of revenue ultimately attributable to Mercer would be lower.
Demand for many of Mercer's benefits services is affected by government regulation and tax laws,
rulings, policies and interpretations, which drive our clients' needs for benefits-related services. Significant
changes in government regulations affecting the value, use or delivery of benefits and human resources
programs, including changes in regulations relating to health and welfare plans, defined contribution plans
or defined benefit plans, may adversely affect the demand for or profitability of Mercer's services.
23
Factors affecting defined benefit pension plans and the services we provide relating to those
plans could adversely affect Mercer.
Mercer currently provides corporate, multi-employer and public clients with actuarial, consulting and
administration services relating to defined benefit pension plans. The nature of our work is complex. Our
actuarial services involve numerous assumptions and estimates regarding future events, including
interest rates used to discount future liabilities, estimated rates of return for a plan's assets, healthcare
cost trends, salary projections and participants' life expectancies. Our consulting services involve the
drafting and interpretation of trust deeds and other complex documentation governing pension plans. Our
administration services include calculating benefits within complicated pension plan structures. Clients
dissatisfied with our services have brought, and may bring, significant claims against us, particularly in the
United States and the United Kingdom. In addition, a number of Mercer's clients have frozen or curtailed
their defined benefit plans and have moved to defined contribution plans resulting in reduced revenue for
Mercer's retirement business. These developments could adversely affect Mercer's business and
operating results.
Mercer’s investment business is subject to a number of risks, including risks related to third-party
investment managers, operational risk, conflicts of interest, asset performance and regulatory
compliance, that, if realized, could result in significant damage to our business.
Mercer’s investment business provides clients with investment consulting and investment management
(referred to as "delegated solutions") services. In the investment consulting business, clients make and
implement their own investment decisions based upon advice provided by Mercer. In its delegated
solutions business, Mercer implements the client’s investment policy by engaging and overseeing
independent asset managers who determine which securities to buy and sell. To effect implementation of
a client’s investment policy, Mercer may utilize its "manager of managers" investment funds.
Mercer’s investment business is subject to a number of risks, including risks related to third-parties, our
operations, conflicts of interest, asset performance and regulatory compliance and scrutiny, which could
arise in connection with these offerings. For example, Mercer’s due diligence on an asset manager may
fail to uncover material deficiencies or fraud that could result in investment losses to a client. There is a
risk that Mercer will fail to properly implement a client’s investment policy, which could cause an incorrect
or untimely allocation of client assets among asset managers or strategies. Mercer may also be perceived
as recommending certain asset managers to clients, or offering delegated solutions to an investment
consulting client, solely to enhance its own compensation. Asset classes may perform poorly, or
investment managers may underperform their benchmarks, due to poor market performance, negligence
or other reasons, resulting in poor returns or loss of client capital. These risks, if realized, could result in
significant liability and to damage our business. In addition, the FCA is conducting a market study of the
U.K. asset management industry, which includes asset managers and investment consultants. In
November 2016, the FCA published an interim report which contains preliminary findings relating to the
investment consulting industry and a provisional reference to the U.K. Competition & Markets Authority
(CMA) for a market investigation reference (MIR). If the MIR goes forward, the CMA may impose
remedies on the industry that may adversely affect Mercer’s U.K. investment consulting and delegated
solutions businesses.
The profitability of our Consulting segment may decline if we are unable to achieve or maintain
adequate utilization and pricing rates for our consultants.
The profitability of our Consulting businesses depends in part on ensuring that our consultants maintain
adequate utilization rates (i.e., the percentage of our consultants' working hours devoted to billable
activities). Our utilization rates are affected by a number of factors, including:
•
•
•
•
•
our ability to transition consultants promptly from completed projects to new assignments,
and to engage newly-hired consultants quickly in revenue-generating activities;
our ability to continually secure new business engagements, particularly because a
portion of our work is project-based rather than recurring in nature;
our ability to forecast demand for our services and thereby maintain appropriate
headcount in each of our geographies and workforces;
our ability to manage attrition;
unanticipated changes in the scope of client engagements;
24
•
•
•
•
the potential for conflicts of interest that might require us to decline client engagements
that we otherwise would have accepted;
our need to devote time and resources to sales, training, professional development and
other non-billable activities;
the potential disruptive impact of acquisitions and dispositions; and
general economic conditions.
If the utilization rate for our consulting professionals declines, our profit margin and profitability could
decline.
In addition, the profitability of our Consulting businesses depends in part on the prices we are able to
charge for our services. The prices we charge are affected by a number of factors, including:
clients' perception of our ability to add value through our services;
•
• market demand for the services we provide;
•
•
•
our ability to develop new services and the introduction of new services by competitors;
the pricing policies of our competitors;
the extent to which our clients develop in-house or other capabilities to perform the
services that they might otherwise purchase from us; and
general economic conditions.
•
If we are unable to achieve and maintain adequate billing rates for our services, our profit margin and
profitability could decline.
Item 1B. Unresolved Staff Comments.
There are no unresolved comments to be reported pursuant to Item 1B.
Item 2. Properties.
Marsh & McLennan Companies maintains its corporate headquarters in New York City. We also maintain
other offices around the world, primarily in leased space. In certain circumstances we may have space
that we sublet to third parties, depending upon our needs in particular locations.
Marsh & McLennan Companies and certain of its subsidiaries own, directly and indirectly through special
purpose subsidiaries, a 58% condominium interest covering approximately 900,000 square feet of office
space in a 44 story condominium in New York City. This real estate serves as the Company's
headquarters and is occupied primarily by the Company and its subsidiaries for general corporate use.
The condominium interests are financed by a 30-year mortgage loan that is non-recourse to the Company
unless the Company (i) is downgraded below B (stable outlook) by S&P or Fitch or B2 (stable outlook) by
Moody's and such downgrade is continuing or (ii) an event of default under the mortgage loan has
occurred. The mortgage is secured by a first priority assignment of leases and rents, including the leases
which the Company and certain of its subsidiaries entered into with their affiliated special purpose
subsidiaries which own the mortgaged condominium interests. The net rent due under those leases in
effect services the mortgage debt.
Item 3. Legal Proceedings.
We and our subsidiaries are party to a variety of legal, administrative, regulatory and government
proceedings, claims and inquiries arising in the normal course of business. Additional information
regarding certain legal proceedings and related matters is set forth in Note 15 to the consolidated
financial statements appearing under Part II, Item 8 ("Financial Statements and Supplementary Data") of
this report.
Item 4. Mine Safety Disclosures.
Not applicable.
25
PART II
Item 5. Market for the Company’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
For information regarding dividends paid and the number of holders of the Company’s common stock, see
the table entitled "Selected Quarterly Financial Data and Supplemental Information (Unaudited)" below on
the last page of Part II, Item 8 ("Financial Statements and Other Supplementary Data") of this report.
The Company’s common stock is listed on the New York, Chicago and London Stock Exchanges. The
following table indicates the high and low prices (NYSE composite quotations) of the Company’s common
stock during 2016 and 2015 and each quarterly period thereof:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Full Year
2016
Stock Price Range
2015
Stock Price Range
High
$60.96
$68.57
$68.69
$69.77
$69.77
Low
$50.81
$59.85
$65.48
$62.33
$50.81
High
$58.11
$59.99
$58.83
$57.46
$59.99
Low
$53.50
$55.79
$50.90
$51.05
$50.90
On February 16, 2017, the closing price of the Company’s common stock on the NYSE was $73.26.
The Company repurchased 2.6 million shares of its common stock for $175 million during the fourth
quarter of 2016, resulting in full year 2016 repurchases of 12.7 million shares for $800 million. In
November 2016, the Board of Directors of the Company authorized the Company to repurchase up to
$2.5 billion in shares of the Company's common stock, which superseded any prior authorizations. As of
December 31, 2016, the Company remained authorized to repurchase up to approximately $2.4 billion in
shares of its common stock. There is no time limit on the authorization.
Period
Oct 1-31, 2016
Nov 1-30, 2016
Dec 1-31, 2016
Total
Total Number
of Shares
(or Units)
Purchased
Average Price
Paid per Share
(or Unit)
1,286,132 $
1,216,589 $
134,469 $
2,637,190 $
65.91
66.57
68.78
66.36
Total Number of
Shares (or Units)
Purchased as
Part of Publicly
Announced Plans
or Programs
Maximum Number
(or Approximate
Dollar Value)
of Shares (or
Units) that May
Yet Be Purchased
Under the Plans or
Programs
1,286,132 $
1,216,589 $
134,469 $
2,637,190 $
445,708,926
2,450,000,602
2,440,752,101
2,440,752,101
26
Item 6. Selected Financial Data.
Marsh & McLennan Companies, Inc. and Subsidiaries
FIVE-YEAR STATISTICAL SUMMARY OF OPERATIONS
For the Years Ended December 31,
(In millions, except per share figures)
Revenue
Expense:
Compensation and Benefits
Other Operating Expenses
Operating Expenses
Operating Income (a)
Interest Income
Interest Expense
Cost of Extinguishment of Debt
Investment Income
Income Before Income Taxes
Income Tax Expense
Income From Continuing Operations
Discontinued Operations, Net of Tax
Net Income Before Non-Controlling Interests
Less: Net Income Attributable to Non-
Controlling Interests
Net Income Attributable to the Company
Basic Net Income Per Share Information:
Income From Continuing Operations
Income From Discontinued Operations
Net Income Attributable to the Company
Average Number of Shares Outstanding
Diluted Income Per Share Information:
Income From Continuing Operations
Discontinued Operations, net of tax per share
Net Income Attributable to the Company
Average Number of Shares Outstanding
Dividends Paid Per Share
Return on Average Equity
Year-end Financial Position:
Working capital
Total assets
Long-term debt
Total equity
2016
2015
2014
2013
2012
$
13,211
$
12,893
$
12,951
$
12,261
$
11,924
7,461
3,086
10,547
2,664
5
(189)
—
—
2,480
685
1,795
—
1,795
27
1,768
3.41
—
3.41
519
3.38
—
3.38
524
1.30
27 %
802
18,190
4,495
6,272
$
$
$
$
$
$
$
$
$
$
7,334
3,140
10,474
2,419
13
(163)
—
38
2,307
671
1,636
—
1,636
37
1,599
3.01
—
3.01
531
2.98
—
2.98
536
1.18
23 %
1,336
18,216
4,402
6,602
$
$
$
$
$
$
$
$
$
$
7,515
3,135
10,650
2,301
21
(165)
(137)
37
2,057
586
1,471
26
1,497
32
1,465
2.64
0.05
2.69
545
2.61
0.04
2.65
553
1.06
19 %
1,856
17,793
3,368
7,133
$
$
$
$
$
$
$
$
$
$
7,226
2,958
10,184
2,077
18
(167)
(24)
69
1,973
594
1,379
6
1,385
28
1,357
2.46
0.01
2.47
549
2.42
0.01
2.43
558
0.96
19 %
2,027
16,960
2,619
7,975
$
$
$
$
$
$
$
$
$
$
7,134
2,961
10,095
1,829
24
(181)
—
24
1,696
492
1,204
(3)
1,201
25
1,176
2.16
—
2.16
544
2.13
—
2.13
552
0.90
19 %
2,007
16,274
2,657
6,606
$
$
$
$
$
$
$
$
$
$
Total shares outstanding (net of treasury
shares)
514
522
540
547
545
Other Information:
Number of employees
Stock price ranges—
60,000
60,000
57,000
55,000
54,000
U.S. exchanges — High
— Low
$
$
69.77
50.81
$
$
59.99
50.90
$
$
58.74
44.25
$
$
48.56
34.43
$
$
35.78
30.69
(a)
Includes the impact of net restructuring costs of $44 million, $28 million, $12 million, $22 million and $78 million in 2016, 2015, 2014, 2013
and 2012, respectively.
See "Management’s Discussion and Analysis of Financial Condition and Results of Operations", appearing under Part II, Item 7 of this report, for
discussion of significant items affecting the results of operations in 2016, 2015 and 2014.
27
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
Marsh & McLennan Companies, Inc. and its consolidated subsidiaries (the "Company") is a global
professional services firm offering clients advice and solutions in risk, strategy and people. It is the parent
company of a number of leading risk advisors and specialty consultants, including: Marsh, the insurance
broker, intermediary and risk advisor; Guy Carpenter, the risk and reinsurance specialist; Mercer, the
provider of HR and Investment related financial advice and services; and Oliver Wyman Group, the
management, economic and brand consultancy. With approximately 60,000 employees worldwide and
annual revenue of more than $13 billion, the Company provides analysis, advice and transactional
capabilities to clients in more than 130 countries.
The Company conducts business through two segments:
• Risk and Insurance Services includes risk management activities (risk advice, risk transfer and
risk control and mitigation solutions) as well as insurance and reinsurance broking and services.
The Company conducts business in this segment through Marsh and Guy Carpenter.
• Consulting includes health, retirement, talent and Investments consulting services and products,
and specialized management, economic and brand consulting services. The Company conducts
business in this segment through Mercer and Oliver Wyman Group.
We describe the primary sources of revenue and categories of expense for each segment below, in our
discussion of segment financial results. A reconciliation of segment operating income to total operating
income is included in Note 16 to the consolidated financial statements included in Part II, Item 8 in this
report. The accounting policies used for each segment are the same as those used for the consolidated
financial statements.
This Management's Discussion & Analysis ("MD&A") contains forward-looking statements as that term is
defined in the Private Securities Litigation Reform Act of 1995. See "Information Concerning Forward-
Looking Statements" at the outset of this report.
Consolidated Results of Operations
For the Years Ended December 31,
(In millions, except per share figures)
Revenue
Expense
Compensation and Benefits
Other Operating Expenses
Operating Expenses
Operating Income
Income from Continuing Operations
Discontinued Operations, Net of Tax
Net Income Before Non-Controlling Interests
Net Income Attributable to the Company
Net Income from Continuing Operations Per Share:
Basic
Diluted
Net Income Per Share Attributable to the Company:
Basic
Diluted
Average number of shares outstanding:
Basic
Diluted
Shares outstanding at December 31,
28
2016
2014
$ 13,211 $ 12,893 $ 12,951
2015
$
$
$
$
$
$
$
$
7,461
3,086
10,547
7,334
3,140
10,474
2,664 $
1,795 $
—
1,795 $
1,768 $
2,419 $
1,636 $
—
1,636 $
1,599 $
7,515
3,135
10,650
2,301
1,471
26
1,497
1,465
3.41 $
3.38 $
3.01 $
2.98 $
3.41 $
3.38 $
3.01 $
2.98 $
519
524
514
531
536
522
2.64
2.61
2.69
2.65
545
553
540
Consolidated operating income increased 10% to $2.7 billion in 2016 compared with $2.4 billion in 2015,
reflecting the combined impact of a 2% increase in revenue and a 1% increase in expenses as compared
to the prior year.
Diluted net income per share from continuing operations was $3.38 in 2016, compared with $2.98 in
2015, reflecting a $169 million increase in net income as well as a 2% decrease in the average number of
diluted shares outstanding as compared to the same period last year. Shares issued related to the vesting
of share awards and exercise of employee stock options were more than offset by share repurchases
over the past four quarters.
Risk and Insurance Services operating income increased $214 million, or 14% in 2016 compared with
2015. Revenue increased 4% reflecting a 3% increase on an underlying basis and a 3% increase from
acquisitions, partly offset by a decrease resulting from the impact of foreign currency translation of 2%.
Expense increased 1% in 2016 compared with 2015.
Consulting operating income increased $28 million, or 3%, to $1.1 billion in 2016 compared with 2015,
reflecting the combined impact of 1% revenue growth, while expense was flat.
Consolidated operating income increased 5% to $2.4 billion in 2015 compared with $2.3 billion in 2014,
reflecting the combined impact of a slight decrease in revenue and a 2% decrease in expense as
compared with the prior year. The Company achieved this growth despite significant foreign exchange
headwinds, caused by the strengthened U.S. dollar, which had the effect of reducing the translated value
of the Company's foreign earnings.
Risk and Insurance Services operating income increased $30 million, or 2%, in 2015 compared with
2014. Revenue decreased 1%, while expenses decreased 2%.
Consulting operating income increased $80 million, or 8%, to $1.1 billion in 2015 compared with 2014,
reflecting flat revenue and decrease in expense of 1%. The operating income and revenue in 2015
include a pre-tax gain of $37 million from the sale of Mercer's U.S. defined contribution recordkeeping
business.
The Company recorded expenses related to the early extinguishment of debt of $137 million in 2014.
Consolidated net income attributable to the Company was $1.8 billion in 2016, compared with $1.6 billion
in 2015 and $1.5 billion in 2014.
29
Consolidated Revenue and Expense
Revenue - Components of Change
The Company conducts business in many countries. As a result foreign exchange rate movements may
impact period-to-period comparisons of revenue. Similarly, certain other items such as the revenue impact
of acquisitions and dispositions, including transfers among businesses, may impact period-to-period
comparisons of revenue. Underlying revenue measures the change in revenue from one period to
another by isolating these impacts. The impact of foreign currency exchange fluctuations, acquisitions
and dispositions, including transfers among businesses, on the Company’s operating revenues by
segment was as follows:
Year Ended
December 31,
(In millions, except percentage figures)
2016
2015
Risk and Insurance Services
Marsh
Guy Carpenter
Subtotal
Fiduciary Interest Income
$
5,976
$
5,727
1,141
7,117
26
1,121
6,848
21
Total Risk and Insurance Services
7,143
6,869
Consulting
Mercer
Oliver Wyman Group
Total Consulting
4,323
1,789
6,112
4,313
1,751
6,064
Components of Revenue Change*
% Change
GAAP
Revenue
Currency
Impact
Acquisitions/
Dispositions
Impact
Underlying
Revenue
4%
2%
4%
4%
—
2%
1%
(2)%
—
(2)%
(2)%
(2)%
(2)%
(2)%
4%
—
3%
3%
—
—
—
3%
2%
3%
3%
3%
3%
3%
3%
Corporate/Eliminations
(44)
(40)
Total Revenue
$ 13,211
$ 12,893
2%
(2)%
2%
* Components of revenue change may not add due to rounding.
The following table provides more detailed revenue information for certain of the components presented
above:
Year Ended
December 31,
(In millions, except percentage figures)
2016
2015
Components of Revenue Change*
% Change
GAAP
Revenue
Currency
Impact
Acquisitions/
Dispositions
Impact
Underlying
Revenue
Marsh:
EMEA
Asia Pacific
Latin America
Total International
U.S. / Canada
Total Marsh
Mercer:
Health
Retirement
Investments
Talent
Total Mercer
$
1,924
$
1,848
635
374
2,933
3,043
636
380
2,864
2,863
$
5,976
$
5,727
$
1,588
$
1,558
1,215
1,345
838
682
818
592
$
4,323
$
4,313
4 %
—
(2)%
2 %
6 %
4 %
2 %
(10)%
2 %
15 %
—
(4)%
—
(10)%
(4)%
—
(2)%
(1)%
(3)%
(3)%
(2)%
(2)%
6 %
(3)%
—
4 %
4 %
4 %
—
(6)%
—
12 %
—
2%
3%
8%
3%
2%
3%
3%
—
6%
5%
3%
Underlying revenue measures the change in revenue using consistent currency exchange rates,
excluding the impact of certain items that affect comparability such as: acquisitions, dispositions,
transfers among businesses and the deconsolidation of Marsh India. For 2015, the impact of the
gain from the disposal of Mercer's U.S. defined contribution recordkeeping business is included in
acquisitions/dispositions in Mercer's Retirement business.
* Components of revenue change may not add due to rounding.
30
Year Ended
December 31,
Components of Revenue Change*
(In millions, except percentage figures)
2015
2014
% Change
GAAP
Revenue
Currency
Impact
Acquisitions/
Dispositions
Impact
Underlying
Revenue
Risk and Insurance Services
Marsh
Guy Carpenter
Subtotal
Fiduciary Interest Income
$
5,727
$
5,753
1,121
6,848
21
1,154
6,907
24
—
(3)%
(1)%
(7)%
(4)%
(6)%
Total Risk and Insurance Services
6,869
6,931
(1)%
(6)%
Consulting
Mercer
Oliver Wyman Group
Total Consulting
Corporate/Eliminations
Total Revenue
4,313
1,751
6,064
4,350
1,709
6,059
(40)
(39)
$ 12,893
$ 12,951
(1)%
3 %
—
—
(7)%
(6)%
(7)%
(6)%
* Components of revenue change may not add due to rounding.
3 %
(1)%
2 %
2 %
2 %
2 %
2 %
2 %
3%
2%
3%
3%
4%
7%
5%
4%
The following table provides more detailed revenue information for certain of the components presented
above:
Year Ended
December 31,
(In millions, except percentage figures)
2015
2014
Components of Revenue Change*
% Change
GAAP
Revenue
Currency
Impact
Acquisitions/
Dispositions
Impact
Underlying
Revenue
Marsh:
EMEA
Asia Pacific
Latin America
Total International
U.S. / Canada
Total Marsh
Mercer:
Health
Retirement
Investments
Talent
Total Mercer
$
1,848
$
1,980
636
380
2,864
2,863
683
413
3,076
2,677
$
5,727
$
5,753
$
1,558
$
1,553
1,345
1,375
818
592
836
586
$
4,313
$
4,350
(7)%
(7)%
(8)%
(7)%
7 %
—
—
(2)%
(2)%
1 %
(1)%
(10)%
(10)%
(18)%
(11)%
(1)%
(7)%
(3)%
(7)%
(12)%
(7)%
(7)%
1 %
1 %
2 %
1 %
5 %
3 %
(2)%
5 %
2 %
3 %
2 %
2%
2%
8%
3%
3%
3%
6%
—
7%
5%
4%
Underlying revenue measures the change in revenue using consistent currency exchange rates,
excluding the impact of certain items that affect comparability such as: acquisitions, dispositions and
transfers among businesses. For 2015, the impact of a $37 million gain from the disposal of
Mercer's U.S. defined contribution recordkeeping business is included in acquisitions/dispositions in
Mercer's Retirement business.
* Components of revenue change may not add due to rounding.
Revenue
Consolidated revenue was $13.2 billion in 2016, an increase of 2%, or 3% on an underlying basis.
Revenue in the Risk and Insurance Services segment increased 4% in 2016 compared with 2015, or 3%
on an underlying basis. Revenue increased 3% and 2% on an underlying basis at Marsh and Guy
Carpenter, respectively, as compared with 2015. The Consulting segment's revenue increased 1% on a
31
reported basis compared with 2015, or 3% on an underlying basis. Both Mercer and Oliver Wyman
Group's revenue increased 3% on an underlying basis compared with 2015.
Consolidated revenue was $12.9 billion in 2015, a slight decrease from 2014, but an increase of 4% on
an underlying basis. Revenue in the Risk and Insurance Services segment decreased 1% in 2015
compared with 2014, but increased 3% on an underlying basis. Revenue increased 3% and 2% on an
underlying basis at Marsh and Guy Carpenter, respectively, as compared with 2014. The Consulting
segment's revenue was flat compared with 2014, but increased 5% on an underlying basis. Mercer and
Oliver Wyman's revenue increased 4% and 7% on an underlying basis, respectively, compared with 2014.
Operating Expense
Consolidated operating expenses increased 1% in 2016 compared with the same period in 2015 on both
a reported and underlying basis. The underlying expense increase reflects higher base salary costs,
higher amortization of identified intangible assets and the impact of the net benefit from the termination of
the Company's post-65 retiree medical reimbursement plan in the United States (the "RRA Plan"), which
was recorded in the first quarter of 2015, partly offset by decreases in defined benefit plan pension
expense and contingent acquisition consideration expense.
Consolidated operating expenses decreased 2% in 2015 compared with the same period in 2014, but
increased 3% on an underlying basis. The increase in underlying expenses primarily reflects higher base
salary, bonus, and higher defined benefit and defined contribution plan costs ("retirement benefit costs"),
partly offset by the impact of the net benefit from the termination of the RRA plan.
Risk and Insurance Services
In the Risk and Insurance Services segment, the Company’s subsidiaries and other affiliated entities act
as brokers, agents or consultants for insureds, insurance underwriters and other brokers in the areas of
risk management, insurance broking and insurance program management services, primarily under the
name of Marsh; and engage in reinsurance broking, catastrophe and financial modeling services and
related advisory functions, primarily under the name of Guy Carpenter.
Marsh and Guy Carpenter are compensated for brokerage and consulting services primarily through fees
paid by clients or commissions paid out of premiums charged by insurance and reinsurance companies.
Commission rates vary in amount depending upon the type of insurance or reinsurance coverage
provided, the particular insurer or reinsurer, the capacity in which the broker acts and negotiates with
clients. Revenues can be affected by premium rate levels in the insurance/reinsurance markets, the
amount of risk retained by insurance and reinsurance clients themselves and by the value of the risks that
have been insured since commission-based compensation is frequently related to the premiums paid by
insureds/reinsureds. In many cases, fee compensation may be negotiated in advance, based on the type
of risk, coverage required and service provided by the Company and ultimately, the extent of the risk
placed into the insurance market or retained by the client. The trends and comparisons of revenue from
one period to the next can be affected by changes in premium rate levels, fluctuations in client risk
retention and increases or decreases in the value of risks that have been insured, as well as new and lost
business, and the volume of business from new and existing clients.
Marsh also receives other compensation from insurance companies, separate from retail fees and
commissions. This compensation includes, among other things, payment for consulting and analytics
services provided to insurers; administrative and other services provided to or on behalf of insurers
(including services relating to the administration and management of quota share, panels and other
facilities in which insurers participate); and contingent commissions. Marsh and Guy Carpenter also
receive interest income on certain funds (such as premiums and claims proceeds) held in a fiduciary
capacity for others. The investment of fiduciary funds is regulated by state and other insurance
authorities. These regulations typically require segregation of fiduciary funds and limit the types of
investments that may be made with them. Interest income from these investments varies depending on
the amount of funds invested and applicable interest rates, both of which vary from time to time. For
presentation purposes, fiduciary interest is segregated from the other revenues of Marsh and Guy
Carpenter and separately presented within the segment, as shown in the revenue by segments charts
presented earlier in this MD&A.
32
The results of operations for the Risk and Insurance Services segment are presented below:
(In millions of dollars, except percentages)
Revenue
Compensation and Benefits
Other Operating Expenses
Operating Expenses
Operating Income
Operating Income Margin
Revenue
2016
2015
2014
$
$
7,143
3,732
1,658
5,390
1,753
$
$
6,869
3,629
1,701
5,330
1,539
$
$
6,931
3,781
1,641
5,422
1,509
24.5%
22.4%
21.8%
Revenue in the Risk and Insurance Services segment increased 4% in 2016 compared with 2015, as a
3% growth in underlying revenue and 3% growth from acquisitions was partly offset by a 2% decrease
resulting from the impact of foreign currency translation.
In Marsh, revenue of $6 billion increased 4% on a reported basis in 2016 as compared with 2015,
reflecting a 3% increase on an underlying basis and a 4% increase from acquisitions, offset by a 2%
decrease resulting from the impact of foreign currency translation. The underlying revenue increase
reflects growth in all major geographies. International operations had underlying revenue growth of 3%
reflecting increases of 2% in EMEA, 3% in Asia Pacific and 8% in Latin America, while U.S./Canada
increased 2%.
Guy Carpenter’s revenue increased 2% to $1.1 billion in 2016 compared with 2015, reflecting an increase
of 2% on an underlying basis.
Fiduciary interest income was $26 million in 2016 compared with $21 million in 2015 due to the combined
effect of higher average invested funds and higher interest rates.
The Risk and Insurance Services segment completed nine acquisitions during 2016. Information
regarding those acquisitions is included in Note 4 to the consolidated financial statements.
Revenue in the Risk and Insurance Services segment decreased 1%, but increased 3% on an underlying
basis, in 2015 compared with 2014.
In Marsh, revenue of $5.7 billion, was essentially flat on a reported basis in 2015 as compared with 2014,
reflecting a 3% increase on an underlying basis and a 3% increase from acquisitions, offset by a 7%
decrease resulting from the impact of foreign currency translation. The underlying revenue increase
reflects growth in all major geographies. International operations had underlying revenue growth of 3%
reflecting increases of 2% in EMEA, 2% in Asia Pacific and 8% in Latin America, while U.S./Canada
increased 3%.
Guy Carpenter’s revenue decreased 3% to $1.1 billion in 2015 compared with 2014, but increased 2% on
an underlying basis.
Fiduciary interest income was $21 million in 2015 compared with $24 million in 2014 due to lower
average invested funds combined with lower interest rates.
The Risk and Insurance Services segment completed thirteen acquisitions during 2015.
Expense
Expense in the Risk and Insurance Services segment increased 1% on both a reported and underlying
basis in 2016 compared with 2015. The impact of foreign currency translation reduced expenses by 3%,
which was offset by a 3% increase related to acquisitions. The increase in underlying expense reflects
higher base salary and incentive compensation costs, higher identified intangible asset amortization
expense and the impact of the net benefit from the termination of the RRA plan which was recorded in the
first quarter of 2015, offset by a decrease in defined benefit plan pension expense and lower contingent
consideration costs related to acquisitions.
Expense in the Risk and Insurance Services segment decreased 2% on a reported basis, but increased
2% on an underlying basis, in 2015 compared with 2014. The impact of foreign currency translation
reduced expenses by 7%, partly offset by a 3% increase related to acquisitions. The increase in
underlying expenses reflects higher base salaries, incentive compensation and retirement benefit costs,
higher intangible asset amortization expense and charges for adjustments to acquisition-related
33
contingent consideration liabilities, partly offset by the impact of the net benefit from the termination of the
RRA plan.
Consulting
Effective January 1, 2017, Mercer merged its investment and retirement businesses into a newly-created
wealth business. We believe this combination will align Mercer’s investment management capabilities
globally. In addition, moving forward we will refer to our talent business as our career business.
The Company conducts business in its Consulting segment through two main business groups, Mercer
and Oliver Wyman Group. Mercer provides consulting expertise, advice, services and solutions in the
areas of health, retirement, talent and investments. Oliver Wyman Group provides specialized
management, economic and brand consulting services.
The major component of revenue in the Consulting business is fees paid by clients for advice and
services. Mercer, principally through its health line of business, also earns revenue in the form of
commissions received from insurance companies for the placement of group (and occasionally individual)
insurance contracts, primarily life, health and accident coverages. Revenue for Mercer’s investment
management business and certain of Mercer’s defined contribution administration services consists
principally of fees based on assets under management or administration.
Revenue in the Consulting segment is affected by, among other things, global economic conditions,
including changes in clients’ particular industries and markets. Revenue is also affected by competition
due to the introduction of new products and services, broad trends in employee demographics, including
levels of employment, the effect of government policies and regulations, and fluctuations in interest and
foreign exchange rates. Revenues from the provision of investment management services and retirement
trust and administrative services are significantly affected by the level of assets under management or
administration and securities market performance.
For the investment management business, revenues from the majority of funds are included on a gross
basis in accordance with U.S. GAAP and include reimbursable expenses incurred by professional staff
and sub-advisory fees, and the related expenses are included in other operating expenses.
The results of operations for the Consulting segment are presented below:
(In millions of dollars, except percentages)
Revenue
Compensation and Benefits
Other Operating Expenses
Operating Expenses
Operating Income
Operating Income Margin
Revenue
2016
2015
$
$
6,112
3,385
1,624
5,009
1,103
$
$
6,064
3,354
1,635
4,989
1,075
$
$
18.1%
17.7%
2014
6,059
3,398
1,665
5,063
996
16.4%
Consulting revenue in 2016 increased 1% compared with 2015, reflecting a 3% increase on an underlying
basis offset by a 2% decrease from the impact of foreign currency translation. Mercer’s revenue of $4.3
billion was flat when compared with 2015 but increased 3% on an underlying basis. Mercer's year over
year revenue comparison reflects a decrease of 2% from the impact of foreign currency translation. The
underlying revenue growth reflects an increase in Investments of 6%, Health of 3% and Talent of 5%,
while Retirement remained flat. Oliver Wyman Group’s revenue increased 2% in 2016 compared with
2015, reflecting an increase of 3% on an underlying basis, partly offset by a decrease of 2% from the
impact of foreign currency translation.
The Consulting segment completed six acquisitions during 2016. Information regarding those acquisitions
is included in Note 4 to the consolidated financial statements.
Consulting revenue in 2015 was flat compared with 2014, reflecting a 5% increase on an underlying basis
and a 2% increase related to acquisitions, offset by a 7% decrease from the impact of foreign currency
translation. Mercer’s revenue was $4.3 billion in 2015, a decrease of 1%, but an increase of 4% on an
underlying basis. The year over year revenue change also reflects an increase of 2% from acquisitions/
dispositions, offset by a decrease of 7% from the impact of foreign currency translation. Mercer's revenue
in 2015 includes a $37 million gain from the disposal of its U.S. defined contribution recordkeeping
business, and is reflected in the 2% impact from acquisitions/dispositions. The underlying revenue growth
34
reflects an increase in Investments of 7%, Health of 6% and Talent of 5%, while Retirement remained flat.
Oliver Wyman’s revenue increased 3% in 2015 compared with 2014, reflecting an increase of 7% on an
underlying basis and a 2% increase from acquisitions, partly offset by a decrease of 6% from the impact
of foreign currency translation.
The Consulting segment completed eight acquisitions during 2015.
Expense
Consulting expense in 2016 was essentially flat compared with 2015, reflecting an increase of 2% on an
underlying basis offset by a 2% decrease from the impact of foreign currency translation. The increase in
underlying expense reflects higher base salaries and the impact of the net benefit from the termination of
the RRA plan which was recorded in the first quarter of 2015, partly offset by lower defined benefit plan
pension expense.
Consulting expense in 2015 decreased 1%, reflecting increases of 4% in underlying expenses and 1%
related to acquisitions, partly offset by a 6% decrease from the impact of foreign currency translation. The
increase in underlying expense reflects the impact of higher base salaries and incentive compensation
costs and higher retirement benefit costs, partly offset by the impact of the net benefit from the
termination of the RRA plan.
Corporate and Other
Corporate expense in 2016 was $192 million compared with $195 million in 2015, reflecting lower
executive compensation and lower defined benefit pension costs.
Corporate expense in 2015 was $195 million compared with $204 million in 2014. The lower expenses in
2015 were primarily due to the cost of non-recurring corporate initiatives which occurred in 2014, which
included strengthening cyber security protections, expenses related to strategic investments and
corporate transformation efforts, primarily within the HR and Finance functions.
Discontinued Operations
As part of the disposal transactions for Putnam and Kroll, the Company provided certain indemnities,
primarily related to pre-transaction tax uncertainties and legal contingencies. In accordance with
applicable accounting guidance, liabilities were established related to these indemnities at the time of the
sales and reflected as a reduction of the gain on disposal. Discontinued operations includes charges or
credits resulting from the settlement or resolution of the indemnified matters, as well as adjustments to the
liabilities related to such matters.
On December 31, 2014, an agreement was reached between Putnam and the Massachusetts
Department of Revenue ("DOR") regarding a tax dispute, which was covered under the indemnity
agreement referred to above. In January 2015, all necessary approvals were received, the agreement
was executed and the tax was paid. Concurrently, Putnam and the Company executed a settlement
agreement to resolve all remaining matters under the indemnity agreement. The Company recorded a
gain, net of federal tax, of approximately $28 million in 2014 related to the settlement with Putnam.
Summarized Statements of Income data for discontinued operations are as follows:
For the Years Ended December 31,
(In millions of dollars, except per share figures)
Income (loss) from discontinued operations, net of tax
Disposals of discontinued operations
Income tax (credit) expense
Disposals of discontinued operations, net of tax
Discontinued operations, net of tax
Discontinued operations, net of tax per share
—Basic
—Diluted
2016
2015
— $
—
—
—
— $
— $
— $
— $
(5)
(5)
—
— $
— $
— $
2014
—
42
16
26
26
0.05
0.04
$
$
$
$
35
Other Corporate Items
Interest
Interest income earned on corporate funds amounted to $5 million in 2016 compared with $13 million in
2015. The decrease is due to the combined effects of a lower level of invested funds and lower interest
rates. Interest expense was $189 million in 2016 compared with $163 million in 2015 due to higher
average debt outstanding during 2015.
Interest income earned on corporate funds amounted to $13 million in 2015 compared with $21 million in
2014, primarily due to a lower level of invested funds in 2015. Interest expense was $163 million in 2015
compared with $165 million in 2014, due to lower average interest rates in 2015 compared with the prior
year, partly offset by higher average debt outstanding during 2015.
Cost of Extinguishment of Debt
In October 2014, the Company redeemed $230 million of its 2015 notes and $400 million of its 2019
notes. The Company acquired the notes at market value plus a make-whole premium based on the terms
of the original indenture, which exceeded the carrying value of the notes and resulted in a cost of $137
million in the fourth quarter of 2014.
Investment Income
The caption "Investment income (loss)" in the consolidated statements of income comprises realized and
unrealized gains and losses from investments recognized in current earnings. It includes, when
applicable, other-than-temporary declines in the value of debt and available-for-sale securities and equity
method gains or losses on its investment in private equity funds. The Company's investments may
include direct investments in insurance, consulting and related companies and investments in private
equity funds. The Company recorded net investment income of less than $1 million in 2016 and $38
million in 2015. Net investment income in 2015 was primarily related to the general partner carried
interest from Trident III. Stonepoint Capital, the investment manager of Trident III, substantially liquidated
the remaining two investments of Trident III during the third quarter of 2015, which resulted in the
Company recognizing its remaining deferred performance fees.
Income Taxes
The Company's consolidated effective tax rate was 27.6%, 29.1% and 28.5% in 2016, 2015 and 2014,
respectively. These rates reflect foreign operations which are taxed at rates below the U.S. statutory tax
rate, including the effect of repatriation, as well as the impact of discrete tax matters such as tax
legislation, changes in valuation allowances, nontaxable adjustments to contingent acquisition
consideration and the true-up of the tax provision to amounts filed in the Company's tax returns. In 2016,
pre-tax income in the U.K., Canada, Luxembourg, Australia, Bermuda and Ireland accounted for
approximately 60% of the Company's total non-U.S. pre-tax income, with effective rates in those countries
of 23% (excluding certain discrete adjustments), 27%, 2%, 30%, 1% and 13%, respectively. The
Company anticipates its non-U.S. operations will continue to incur taxes at rates below the U.S. federal
tax rate of 35% under current U.S. law. The Company's U.S. revenue over the past three years has been
approximately 50% of total revenue, while over that period the pre-tax income from U.S. locations has
been approximately 25% of total pre-tax income.
As a U.S.-domiciled parent holding company, Marsh & McLennan Companies, Inc. is the issuer of
essentially all of the Company's external indebtedness, and incurs the related interest expense in the U.S.
Further, most senior executive and oversight functions are conducted in the U.S. and the associated
costs are incurred primarily in the United States.
The effective tax rate may vary significantly from period to period for the foreseeable future. It is sensitive
to the geographic mix of and repatriation of the Company's earnings, which may result in higher or lower
effective tax rates. A proportional increase in U.S. pre-tax income will tend to increase the effective tax
rate because U.S. federal and state corporate tax rates exceed tax rates applicable outside the U.S.
Losses in certain jurisdictions cannot be offset by earnings from other operations, and may require
valuation allowances that affect the rate, depending on estimates of the realizability of associated
deferred tax assets. The effective tax rate is also sensitive to changes in unrecognized tax benefits,
including the impact of settled tax audits and expired statutes of limitation.
The realization of deferred tax assets depends on generating future taxable income during the periods in
which the tax benefits are deductible or creditable. Tax liabilities are determined and assessed
36
jurisdictionally by legal entity or filing group. Certain taxing jurisdictions allow or require combined or
consolidated tax filings. The Company assessed the realizability of its deferred tax assets. The Company
considered all available evidence, including the existence of a recent history of losses, placing particular
weight on evidence that could be objectively verified. A valuation allowance was recorded to reduce
deferred tax assets to the amount that the Company believes is more likely than not to be realized.
Changes in tax laws, rulings, policies or related legal and regulatory interpretations occur frequently and
may also have significant favorable or adverse impacts on our effective tax rate. For example, political
activity surrounding proposals for fundamental U.S. tax reform have recently intensified and such reform,
if enacted, could have a significant impact on the Company's effective tax rate.
Liquidity and Capital Resources
The Company is organized as a legal entity separate and distinct from its operating subsidiaries. As the
Company does not have significant operations of its own, the Company is dependent upon dividends and
other payments from its operating subsidiaries to pay principal and interest on its outstanding debt
obligations, pay dividends to stockholders, repurchase its shares and pay corporate expenses. The
Company also provides financial support to its operating subsidiaries for acquisitions, investments and
certain parts of their business that require liquidity, such as the capital markets business of Guy
Carpenter. Other sources of liquidity include borrowing facilities discussed below in financing cash flows.
The Company derives a significant portion of its revenue and operating profit from operating subsidiaries
located outside of the United States. Funds from those operating subsidiaries are regularly repatriated to
the United States out of annual earnings. At December 31, 2016, the Company had approximately $850
million of cash and cash equivalents in its foreign operations, substantially all of which is considered to be
permanently invested in those operations to fund foreign investments and working capital needs. The
non-U.S. cash and cash equivalents considered permanently reinvested includes $144 million of
operating funds required to be maintained for regulatory requirements or as collateral under certain
captive insurance arrangements. The Company expects to continue its practice of repatriating foreign
funds from its non-U.S. operating subsidiaries out of current annual earnings. While management does
not foresee a need to repatriate the funds which are currently deemed permanently invested, if facts or
circumstances change, management could elect to repatriate them, if necessary, which could result in
higher effective tax rates in the future. During 2016, the Company recorded foreign currency translation
adjustments which reduced net equity by $778 million. Continued strengthening of the U.S. dollar against
foreign currencies would further reduce the translated U.S. dollar value of the Company’s net investments
in its non-U.S. subsidiaries, as well as the translated U.S. dollar value of cash repatriations from those
subsidiaries.
Cash on our consolidated balance sheets includes funds available for general corporate purposes. Funds
held on behalf of clients in a fiduciary capacity are segregated and shown separately in the consolidated
balance sheets as an offset to fiduciary liabilities. Fiduciary funds cannot be used for general corporate
purposes, and should not be considered as a source of liquidity for the Company.
Operating Cash Flows
The Company generated $2.0 billion of cash from operations in 2016, compared with $1.9 billion in 2015.
These amounts reflect the net income of the Company during those periods, excluding gains or losses
from investments, adjusted for non-cash charges and changes in working capital which relate primarily to
the timing of payments of accrued liabilities or receipts of assets and pension contributions.
Pension-Related Items
Contributions
During 2016, the Company contributed $27 million to its U.S. pension plans and $187 million to non-U.S.
pension plans. In 2015, the Company contributed $29 million to U.S. plans and $166 million to non-U.S.
plans.
In the United States, contributions to the tax-qualified defined benefit plans are based on ERISA
guidelines and the Company generally expects to maintain a funded status of 80% or more of the liability
determined under the ERISA guidelines. There was no ERISA funding requirement for the U.S. qualified
plan in 2016. The Company expects to fund approximately $32 million to its U.S. pension plans in 2017,
including $6 million to its U.S. qualified plan to meet ERISA funding requirements.
37
The Company contributed $91 million to the U.K. plans in 2016, including an expense allowance of
approximately $9 million. Based on the funding test carried out at November 1, 2016, the Company
contributions to the U.K. plans in 2017 are expected to be approximately $125 million, including the
expense allowance.
Outside the United States, the Company has a large number of non-U.S. defined benefit pension plans,
the largest of which are in the U.K., which comprise approximately 81% of non-U.S. plan assets at
December 31, 2016. Contribution rates for non-U.S. plans are generally based on local funding practices
and statutory requirements, which may differ significantly from measurements under U.S. GAAP. In the
U.K., the assumptions used to determine pension contributions are the result of legally-prescribed
negotiations between the Company and the plans' trustee that typically occurs every three years in
conjunction with the actuarial valuation of the plans. Currently, this results in a lower funded status than
under U.S. GAAP and may result in contributions irrespective of the U.S. GAAP funded status. In
November 2016, the Company and the Trustee of the U.K. Defined Benefits Plans agreed to a funding
deficit recovery plan for the U.K. defined benefit pension plans. The current agreement with the Trustee
sets out the annual deficit contributions which would be due based on the deficit at December 31, 2015.
The funding level is subject to re-assessment, in most cases on November 1 of each year. If the funding
level on November 1 is sufficient, no deficit funding contributions will be required in the following year, and
the contribution amount will be deferred. As part of a long-term strategy, which depends on having greater
influence over asset allocation and overall investment decisions, in November 2016 the Company
renewed its agreement to support annual deficit contributions by the U.K. operating companies under
certain circumstances, up to GBP 450 million over a seven-year period.
In the aggregate, the Company expects to contribute approximately $224 million to its non-U.S. defined
benefit plans in 2017, comprising approximately $99 million to plans outside of the U.K. and $125 million
to the U.K. plans.
Changes to Pension Plans
Effective September 1, 2015, the Company divided its U.S. qualified defined benefit plan to provide
enhanced flexibility to manage the risk associated with those participants not receiving benefit accruals.
The existing plan was amended to cover only the retirees currently receiving benefits and terminated
vested participants as of August 1, 2015. The Company's active participants as of that date were
transferred into a newly established, legally separate qualified defined benefit plan. The benefits offered
to the plans' participants were unchanged. As a result of the plan amendment and establishment of the
new plan, the Company re-measured the assets and liabilities of the two plans as required under U.S.
GAAP, based on assumptions and market conditions at the amendment date. The net periodic pension
expense recognized in 2015 reflects the weighted average costs of the December 31, 2014 measurement
and the September 1, 2015 re-measurement.
The Company continues to manage the cost and assess the competitiveness of its benefits programs,
and also to manage the risks related to its defined benefit pension plan liabilities. In October 2016, the
Company modified its U.S. defined benefit pension plans to discontinue further benefit accruals for
participants after December 31, 2016. At the same time, the Company amended its U.S. defined
contribution retirement plans for most of its U.S. employees to add an automatic Company contribution
equal to 4% of eligible base pay beginning on January 1, 2017. This new Company contribution, together
with the Company’s current matching contribution, provides eligible U.S. employees with the opportunity
to receive a total contribution of up to 7% of eligible base pay. As required under GAAP, the defined
benefit plans that were significantly impacted by the modification were re-measured in October 2016
using market data and assumptions as of the modification date. The net periodic pension expense
recognized in 2016 reflects the weighted average costs of the December 31, 2015 measurement and the
October 2016 re-measurement. In addition, the U.S. qualified plans were merged effective December 30,
2016, since no participants would be receiving benefit accruals after December 2016.
After completion of a consultation period with affected colleagues, in January 2014, the Company
amended its U.K. defined benefit pension plans to close those plans to future benefit accruals effective
August 1, 2014 and replaced those plans, along with its existing defined contribution plans, with a new,
comprehensive defined contribution arrangement. This change resulted in a curtailment of the U.K.
defined benefit plans, and as required under GAAP, the Company re-measured the defined benefit plans’
assets and liabilities at the amendment date, based on assumptions and market conditions at that date.
The Company recognized a curtailment gain of $65 million in the first quarter of 2014, primarily resulting
from the recognition of the remaining unamortized prior service credit related to a plan amendment made
38
in December 2012. This gain was mostly offset by the cost of a transition benefit to certain employees
most impacted by the amendment.
Effective August 1, 2015, the Company amended its Ireland defined benefit pension plans to close those
plans to future benefit accruals and replaced those plans with a defined contribution arrangement. The
Company re-measured the assets and liabilities of the plans, based on assumptions and market
conditions on the amendment date.
Changes in Funded Status and Expense
The year-over-year change in the funded status of the Company's pension plans is impacted by the
difference between actual and assumed results, particularly with regard to return on assets, and changes
in the discount rate, as well as the amount of Company contributions, if any. Unrecognized actuarial
losses were approximately $1.7 billion and $3.1 billion at December 31, 2016 for the U.S. plans and non-
U.S. plans, respectively, compared with $1.8 billion and $2.9 billion at December 31, 2015. The decrease
in the U.S. was primarily due to the modification of the U.S. plans mentioned above. The increase in the
non-U.S. plans was primarily due to the impact of decreases in the discount rates partly offset by actual
returns on plan assets in 2016 that were higher than the estimated long-term rate of return on plan
assets. In the past several years, the amount of actuarial losses has been significantly impacted, both
positively and negatively, by actual asset performance and changes in discount rates. The discount rate
used to measure plan liabilities decreased in both the U.S. and the U.K. (the Company's largest plans) in
2016 after increasing in 2015. The increase in 2015 followed a decrease in 2014. An increase in the
discount rate decreases the measured plan benefit obligation, resulting in actuarial gains, while a
decrease in the discount rate increases the measured plan obligation, resulting in actuarial losses. During
2016, the Company's defined benefit pension plan assets had actual returns of 9.8% and 22.1% in the
U.S. and U.K., respectively. During 2015, the Company's defined benefit pension plan assets had a loss
of 3.9% in the U.S. and gain of 1.2% in the U.K. During 2014, the Company's defined benefit pension plan
assets had actual returns of 9.8% and 19.4% in the U.S. and U.K., respectively.
Overall, based on the measurement at December 31, 2016, expenses related to the Company’s defined
benefit pension plans are expected to decrease in 2017 by approximately $120 million from 2016. This is
driven by expense decreases in U.S. plans resulting from the modification of those plans which
discontinued further benefit accruals for participants after December 31, 2016, as mentioned above. This
decrease will be partially offset by an increase in defined contribution expense due to the additional
automatic company contribution also mentioned above. The impact of the reduction in expense from the
modification of the U.S. plans offset by the additional expense from the additional Company contributions
to the defined contribution plan is expected to result in a net expense reduction of approximately $30
million, net of bonus. Pension expenses in the Company’s non-U.S. defined benefit plans are expected to
increase approximately $5 million from 2016.
Historically, service and interest costs were estimated using a single weighted average discount rate
derived from the yield curves used to measure the benefit obligations at the beginning of the period. In
2016, the Company changed the approach used to estimate the service and interest cost components of
net periodic benefit cost for its significant non-U.S. plans. This change in approach was made to improve
the correlation between the projected benefit cash flows and the corresponding yield curve spot rates and
to provide a more precise measurement of service and interest costs. The change did not impact the
measurement of the plans’ total projected benefit obligation. The Company accounted for this change as
a change in estimate, that was applied prospectively beginning in 2016 and resulted in pension expense
being approximately $45 million lower than if the prior approach had been used.
The Company’s accounting policies for its defined benefit pension plans, including the selection of and
sensitivity to assumptions, are discussed below under Management’s Discussion of Critical Accounting
Policies. For additional information regarding the Company’s retirement plans, see Note 8 to the
consolidated financial statements.
In March 2015, the Company amended the RRA, resulting in its termination, with benefits to certain
participants to be paid through December 31, 2016. As a result of the termination of the RRA plan, the
Company recognized a net credit of approximately $125 million in the first quarter of 2015.
39
Financing Cash Flows
Net cash used for financing activities was $1.1 billion in 2016 compared with $906 million used in 2015.
Debt
The Company increased outstanding debt by approximately $400 million in 2016 and $1 billion in 2015.
The Company has established a short-term debt financing program of up to $1.5 billion through the
issuance of commercial paper. The proceeds from the issuance of commercial paper are used for general
corporate purposes. The Company had $50 million of commercial paper outstanding at December 31,
2016 at an effective interest rate of 1%.
In March 2016, the Company issued $350 million of 3.30% seven-year senior notes. In September 2015,
the Company issued $600 million of 3.75% 10.5-year senior notes, and in March 2015, the Company
issued $500 million of 2.35% five-year senior notes. The Company used the net proceeds from these
issuances for general corporate purposes.
In September 2014, the Company issued $300 million of 2.35% five-year senior notes and $500 million of
3.50% 10.5-year senior notes. In October 2014, a significant portion of the net proceeds of this offering
was used to redeem $630 million of debt, including $230 million of 5.75% senior notes due in September
2015 and $400 million of 9.25% senior notes due in 2019. Total cash outflow related to this transaction
was approximately $765 million, including a $137 million cost for early redemption, which was reflected as
a charge in the consolidated statements of income in the fourth quarter of 2014.
During the second quarter of 2014, the Company issued $600 million of 3.5% ten-year senior notes. The
net proceeds of this offering were used for general corporate purposes, including the repayment of $320
million of 5.375% senior notes that matured in July 2014.
In January 2017, the Company issued $500 million of 2.75% senior notes due in 2022 and $500 million of
4.35% senior notes due in 2047. The Company intends to use the net proceeds for general corporate
purposes, which may include the repayment of a $250 million debt maturity in April 2017.
Credit Facilities
The Company and certain of its subsidiaries maintain a $1.5 billion multi-currency five-year unsecured
revolving credit facility. The interest rate on this facility is based on LIBOR plus a fixed margin which
varies with the Company's credit ratings. This facility expires in November 2020 and requires the
Company to maintain certain coverage and leverage ratios which are tested quarterly. There were no
borrowings outstanding under this facility at December 31, 2016.
The Company also maintains other credit facilities, guarantees and letters of credit with various banks,
aggregating $376 million at December 31, 2016 and $379 million at December 31, 2015. There were $1.6
million of outstanding borrowings under these facilities at December 31, 2016 and $0.4 million of
outstanding borrowings under these facilities at December 31, 2015.
The Company's senior debt is currently rated A- by Standard & Poor's and Baa1 by Moody's. The
Company's short-term debt is currently rated A-2 by Standard & Poor's and P-2 by Moody's. The
Company carries a stable outlook from both firms.
Share Repurchases
During 2016, the Company repurchased 12.7 million shares of its common stock for total consideration of
$800 million at an average price per share of $63.18. In November 2016, the Board of Directors
authorized an increase in the Company’s share repurchase program, which supersedes any prior
authorization, allowing management to buy back up to $2.5 billion of the Company’s common stock going
forward. As of December 31, 2016, the Company remained authorized to purchase additional shares of
its common stock up to a value of approximately $2.4 billion. There is no time limit on this authorization.
During 2015, the Company repurchased 24.8 million shares of its common stock for total consideration of
$1.4 billion at an average price per share of $56.46.
Dividends
The Company paid total dividends of $682 million in 2016 ($1.30 per share), $632 million in 2015 ($1.18
per share) and $582 million in 2014 ($1.06 per share).
40
Contingent Payments Related To Acquisitions
During 2016, the Company paid $86 million of contingent payments related to acquisitions made in prior
years. These payments are split between financing and operating cash flows in the consolidated
statements of cash flows. Payments of $44 million related to the contingent consideration liability that was
recorded on the date of acquisition are reflected as financing cash flows. Payments related to increases
in the contingent consideration liability subsequent to the date of acquisition of $42 million are reflected as
operating cash flows. Remaining estimated future contingent consideration payments of $241 million for
acquisitions completed in 2016 and in prior years are included in accounts payable and accrued liabilities
or other liabilities in the consolidated balance sheet at December 31, 2016. The Company paid deferred
purchase consideration related to prior years' acquisitions of $54 million, $36 million and $25 million in the
years ended December 31, 2016, 2015 and 2014, respectively. Remaining deferred cash payments of
approximately $113 million are included in accounts payable and accrued liabilities or other liabilities in
the consolidated balance sheet at December 31, 2016.
In 2015, the Company paid $47 million of contingent payments related to acquisitions made in prior
periods, of which $13 million was reported as financing cash flows and $34 million as operating cash
flows. In 2014, the Company made $42 million of contingent payments related to acquisitions made in
prior periods, of which $30 million was reported as financing cash flows and $12 million as operating cash
flows.
Investing Cash Flows
Net cash used for investing activities amounted to $1.1 billion in 2016 compared with $1.3 billion used for
investing activities in 2015.
The Company paid $813 million and $952 million, net of cash acquired, for acquisitions it made during
2016 and 2015, respectively.
On February 24, 2015, Mercer purchased shares of common stock of Benefitfocus (NASDAQ:BNFT)
constituting approximately 9.9% of BNFT's outstanding capital stock as of the acquisition date. The
purchase price for the BNFT shares and certain other rights and other consideration was approximately
$75 million. In 2015, the Company elected to account for this investment under the cost method of
accounting as the shares purchased were categorized as restricted. Effective December 31, 2016, these
shares are no longer considered restricted for the purpose of determining if they are marketable securities
under GAAP, and are accounted for as available for sale securities and included in other assets in the
consolidated balance sheets.
On June 23, 2014, Mercer acquired 34% of the common shares of South Africa-based Alexander Forbes
Group Holdings Limited ("Alexander Forbes"). Mercer purchased its stake in Alexander Forbes in two
tranches at 7.50 South African Rand per share at an aggregate purchase price of approximately $300
million. The investment in Alexander Forbes is accounted for using the equity method and is included in
other assets in the consolidated balance sheets.
The Company’s additions to fixed assets and capitalized software, which amounted to $253 million in
2016 and $325 million in 2015, primarily relate to computer equipment purchases, the refurbishing and
modernizing of office facilities and software development costs.
The Company has commitments for potential future investments of approximately $45 million in four
private equity funds that invest primarily in financial services companies.
41
Commitments and Obligations
The following sets forth the Company’s future contractual obligations by the types identified in the table
below as of December 31, 2016:
Contractual Obligations
(In millions of dollars)
Commercial paper
Current portion of long-term debt
Long-term debt
Interest on long-term debt
Net operating leases
Service agreements
Other long-term obligations
Total
Payment due by Period
Total
Within
1 Year
$
50 $
50 $
262
5,520
2,128
2,173
351
385
$ 10,869 $
262
—
193
326
225
164
1,220 $
1-3
Years
— $
—
575
405
564
115
204
1,863 $
4-5
Years
— $
—
1,029
363
424
10
12
1,838 $
After 5
Years
—
—
3,916
1,167
859
1
5
5,948
The above includes the senior notes issued in January 2017. The above does not include the liability for
unrecognized tax benefits of $65 million as the Company is unable to reasonably predict the timing of
settlement of these liabilities, other than approximately $2 million that may become payable during 2017.
The above does not include net pension liabilities of approximately $1.9 billion because the timing and
amount of ultimate payment of such liability is dependent upon future events, including, but not limited to,
future returns on plan assets and changes in the discount rate used to measure the liabilities. The
amounts of estimated future benefits payments to be made from pension plan assets are disclosed in
Note 8 to the consolidated financial statements. In 2017, the Company expects to contribute
approximately $32 million and $224 million to its U.S. and non-U.S. defined benefit pension plans,
respectively.
Management’s Discussion of Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States ("GAAP") requires management to make estimates and judgments that affect reported
amounts of assets, liabilities, revenue and expenses, and disclosure of contingent assets and liabilities.
Management considers the policies discussed below to be critical to understanding the Company’s
financial statements because their application places the most significant demands on management’s
judgment, and requires management to make estimates about the effect of matters that are inherently
uncertain. Actual results may differ from those estimates.
Legal and Other Loss Contingencies
The Company and its subsidiaries are subject to numerous claims, lawsuits and proceedings including
claims for errors and omissions ("E&O"). GAAP requires that a liability be recorded when a loss is both
probable and reasonably estimable. Significant management judgment is required to apply this guidance.
The Company utilizes case level reviews by inside and outside counsel, an internal actuarial analysis by
Oliver Wyman Group, a subsidiary of the Company, and other analyses to estimate potential losses. The
liability is reviewed quarterly and adjusted as developments warrant. In many cases, the Company has
not recorded a liability, other than for legal fees to defend the claim, because we are unable, at the
present time, to make a determination that a loss is both probable and reasonably estimable. Given the
unpredictability of E&O claims and of litigation that could flow from them, it is possible that an adverse
outcome in a particular matter could have a material adverse effect on the Company’s businesses, results
of operations, financial condition or cash flow in a given quarterly or annual period.
In addition, to the extent that insurance coverage is available, significant management judgment is
required to determine the amount of recoveries that are probable of collection under the Company’s
various insurance programs.
Retirement Benefits
The Company maintains qualified and non-qualified defined benefit pension and defined contribution
plans for its eligible U.S. employees and a variety of defined benefit and defined contribution plans for its
eligible non-U.S. employees. The Company’s policy for funding its tax-qualified defined benefit retirement
42
plans is to contribute amounts at least sufficient to meet the funding requirements set forth in U.S. and
applicable foreign laws.
The Company recognizes the funded status of its over-funded defined benefit pension and retiree medical
plans as a net benefit plan asset and its unfunded and underfunded plans as a net benefit plan liability.
The gains or losses and prior service costs or credits that have not been recognized as components of
net periodic costs are recorded as a component of Accumulated Other Comprehensive Income ("AOCI"),
net of tax, in the Company’s consolidated balance sheets. The gains and losses that exceed specified
corridors are amortized prospectively out of AOCI over a period that approximates the remaining life
expectancy of participants in plans where substantially all participants are inactive or the average
remaining service period of active participants for plans with active participants.
The determination of net periodic pension cost is based on a number of assumptions, including an
expected long-term rate of return on plan assets, the discount rate, mortality and assumed rate of salary
increase. The assumptions used in the calculation of net periodic pension costs and pension liabilities are
disclosed in Note 8 to the consolidated financial statements. The assumptions for expected rate of return
on plan assets and the discount rate are discussed in more detail below.
The long-term rate of return on plan assets assumption is determined for each plan based on the facts
and circumstances that exist as of the measurement date, and the specific portfolio mix of each plan’s
assets. The Company utilizes a model developed by Mercer, a subsidiary of the Company, to assist in the
determination of this assumption. The model takes into account several factors, including: actual and
target portfolio allocation; investment, administrative and trading expenses incurred directly by the plan
trust; historical portfolio performance; relevant forward-looking economic analysis; and expected returns,
variances and correlations for different asset classes. These measures are used to determine
probabilities using standard statistical techniques to calculate a range of expected returns on the portfolio.
The target asset allocation for the U.S. Plans is 64% equities and equity alternatives and 36% fixed
income. At the end of 2016, the actual allocation for the U.S. Plans was 65% equities and equity
alternatives and 35% fixed income. The target asset allocation for the U.K. Plans, which comprise
approximately 81% of non-U.S. Plan assets, is 48% equities and equity alternatives and 52% fixed
income. At the end of 2016, the actual allocation for the U.K. Plans was 48% equities and equity
alternatives and 52% fixed income.
The discount rate selected for each U.S. plan is based on a model bond portfolio with coupons and
redemptions that closely match the expected liability cash flows from the plan. Discount rates for non-U.S.
plans are based on appropriate bond indices adjusted for duration; in the U.K., the plan duration is
reflected using the Mercer yield curve.
The table below shows the weighted average assumed rate of return and the discount rate at the
December 31, 2016 measurement date (for measuring pension expense in 2017) for the total Company,
the U.S. and the Rest of World ("ROW").
Assumed Rate of Return on Plan Assets
Discount Rate
Total Company
6.64%
3.40%
U.S.
ROW
7.95%
4.58%
6.07%
2.69%
Holding all other assumptions constant, a half-percentage point change in the rate of return on plan
assets and discount rate assumptions would affect net periodic pension cost for the U.S. and U.K. plans,
which together comprise approximately 86% of total pension plan liabilities, as follows:
(In millions of dollars)
Assumed Rate of Return on Plan Assets
Discount Rate
0.5 Percentage
Point Increase
0.5 Percentage
Point Decrease
U.S.
(23) $
(2) $
U.K.
(36) $
(5) $
U.S.
23
2
$
$
U.K.
36
2
$
$
The impact of discount rate changes shown above relates to the increase or decrease in actuarial gains
or losses being amortized through net periodic pension cost, as well as the increase or decrease in
interest expense, with all other facts and assumptions held constant. It does not contemplate nor include
potential future impacts a change in the interest rate environment and discount rates might cause, such
43
as the impact on the market value of the plans’ assets. Changing the discount rate and leaving the other
assumptions constant also may not be representative of the impact on expense, because the long-term
rates of inflation and salary increases are often correlated with the discount rate. Changes in these
assumptions will not necessarily have a linear impact on the net periodic pension cost.
The Company contributes to certain health care and life insurance benefits provided to its retired
employees. The cost of these post-retirement benefits for employees in the U.S. is accrued during the
period up to the date employees are eligible to retire, but is funded by the Company as incurred. The key
assumptions and sensitivity to changes in the assumed health care cost trend rate are discussed in Note
8 to the consolidated financial statements.
Income Taxes
The Company's tax rate reflects its income, statutory tax rates and tax planning in the various jurisdictions
in which it operates. Significant judgment is required in determining the annual effective tax rate and in
evaluating uncertain tax positions. The Company reports a liability for unrecognized tax benefits resulting
from uncertain tax positions taken or expected to be taken in a tax return. The evaluation of a tax position
is a two-step process. The first step involves recognition. The Company determines whether it is more
likely than not that a tax position will be sustained upon tax examination, including resolution of any
related appeals or litigation, based on only the technical merits of the position. The technical merits of a
tax position derive from both statutory and judicial authority (legislation and statutes, legislative intent,
regulations, rulings, and case law) and their applicability to the facts and circumstances of the tax
position. If a tax position does not meet the more-likely-than-not recognition threshold, the benefit of that
position is not recognized in the financial statements. The second step is measurement. A tax position
that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit
to recognize in the financial statements. The tax position is measured as the largest amount of benefit
that is greater than 50 percent likely of being realized upon ultimate resolution with a taxing authority.
Uncertain tax positions are evaluated based upon the facts and circumstances that exist at each reporting
period and involve significant management judgment. Subsequent changes in judgment based upon new
information may lead to changes in recognition, derecognition, and measurement. Adjustments may
result, for example, upon resolution of an issue with the taxing authorities, or expiration of a statute of
limitations barring an assessment for an issue.
Certain items are included in the Company's tax returns at different times than the items are reflected in
the financial statements. As a result, the annual tax expense reflected in the consolidated statements of
income is different than that reported in the tax returns. Some of these differences are permanent, such
as expenses that are not deductible in the returns, and some differences are temporary and reverse over
time, such as depreciation expense. Temporary differences create deferred tax assets and liabilities,
which are measured at existing tax rates. Deferred tax liabilities generally represent tax expense
recognized in the financial statements for which payment has been deferred, or expense for which a
deduction has been taken already in the tax return but the expense has not yet been recognized in the
financial statements. Deferred tax assets generally represent items that can be used as a tax deduction
or credit in tax returns in future years for which a benefit has already been recorded in the financial
statements. In assessing the need for and amount of a valuation allowance for deferred tax assets, the
Company considers whether it is more likely than not that some portion or all of the deferred tax assets
will not be realized and adjusts the valuation allowance accordingly. The Company evaluates all
significant available positive and negative evidence, including the existence of losses in recent years and
its forecast of future taxable income by jurisdiction, in assessing the need for a valuation allowance. The
Company also considers tax planning strategies that would result in realization of deferred tax assets,
and the presence of taxable income in prior period tax filings in jurisdictions that allow for the carryback of
tax attributes pursuant to the applicable tax law. The underlying assumptions the Company uses in
forecasting future taxable income require significant judgment and take into account the Company's
recent performance. The ultimate realization of deferred tax assets is dependent on the generation of
future taxable income during the periods in which temporary differences or carry-forwards are deductible
or creditable. Valuation allowances are established for deferred tax assets when it is estimated that it is
more likely than not that future taxable income will be insufficient to fully use a deduction or credit in that
jurisdiction.
44
Fair Value Determinations
Goodwill Impairment Testing—The Company is required to assess goodwill and any indefinite-lived
intangible assets for impairment annually, or more frequently if circumstances indicate impairment may
have occurred. The Company performs the annual impairment test for each of its reporting units during
the third quarter of each year. In accordance with applicable accounting guidance, the Company
assesses qualitative factors to determine whether it is necessary to perform the two-step goodwill
impairment test. The Company considered numerous factors, which included that the fair value of each
reporting unit exceeded its carrying value by a substantial margin in its most recent estimate of reporting
unit fair values, whether significant acquisitions or dispositions occurred which might alter the fair value of
its reporting units, macroeconomic conditions and their potential impact on reporting unit fair values,
actual performance compared with budget and prior projections used in its estimation of reporting unit fair
values, industry and market conditions, and the year-over-year change in the Company’s share price.
The Company completed its qualitative assessment in the third quarter of 2016 and concluded that a two-
step goodwill impairment test was not required in 2016 and that goodwill was not impaired.
Share-based Payment
The guidance for accounting for share-based payments requires, among other things, that the estimated
fair value of stock options be charged to earnings. Significant management judgment is required to
determine the appropriate assumptions for inputs such as volatility and expected term necessary to
estimate option values. In addition, management judgment is required to analyze the terms of the plans
and awards granted thereunder to determine if awards will be treated as equity awards or liability awards,
as defined by the accounting guidance.
As of December 31, 2016, there was $14.4 million of unrecognized compensation cost related to stock
option awards. The weighted-average period over which the costs are expected to be recognized is 1.42
years. Also as of December 31, 2016, there was $127.2 million of unrecognized compensation cost
related to the Company’s restricted stock, restricted stock unit and performance stock unit awards. The
weighted-average period over which that cost is expected to be recognized is approximately 1.05 years.
See Note 9 to the consolidated financial statements for additional information regarding accounting for
share-based payments.
New Accounting Pronouncements
Note 1 to the consolidated financial statements contains a summary of the Company’s significant
accounting policies, including a discussion of recently issued accounting pronouncements and their
impact or potential future impact on the Company’s financial results, if determinable, under the sub-
heading "New Accounting Pronouncements".
45
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk and Credit Risk
Certain of the Company’s revenues, expenses, assets and liabilities are exposed to the impact of interest
rate changes and fluctuations in foreign currency exchange rates and equity markets.
Interest Rate Risk and Credit Risk
Interest income generated from the Company’s cash investments as well as invested fiduciary funds will
vary with the general level of interest rates.
The Company had the following investments subject to variable interest rates:
(In millions of dollars)
Cash and cash equivalents invested in money market funds, certificates of
deposit and time deposits
Fiduciary cash and investments
December 31,
2016
$
$
1,026
4,241
Based on the above balances, if short-term interest rates increased or decreased by 10%, or 6 basis
points, over the full year, annual interest income, including interest earned on fiduciary funds, would
increase or decrease by approximately $2 million.
In addition to interest rate risk, our cash investments and fiduciary fund investments are subject to
potential loss of value due to counter-party credit risk. To minimize this risk, the Company and its
subsidiaries invest pursuant to a Board approved investment policy. The policy mandates the preservation
of principal and liquidity and requires broad diversification with counter-party limits assigned based
primarily on credit rating and type of investment. The Company carefully monitors its cash and fiduciary
fund investments and will further restrict the portfolio as appropriate to market conditions. The majority of
cash and fiduciary fund investments are invested in short-term bank deposits and liquid money market
funds.
Foreign Currency Risk
The translated values of revenue and expense from the Company’s international operations are subject to
fluctuations due to changes in currency exchange rates. The non-U.S. based revenue that is exposed to
foreign exchange fluctuations is approximately 50% of total revenue. We periodically use forward
contracts and options to limit foreign currency exchange rate exposure on net income and cash flows for
specific, clearly defined transactions arising in the ordinary course of business. Although the Company
has significant revenue generated in foreign locations which is subject to foreign exchange rate
fluctuations, in most cases both the foreign currency revenue and expenses are in the functional currency
of the foreign location. As such, under normal circumstances, the U.S. dollar translation of both the
revenues and expenses, as well as the potentially offsetting movements of various currencies against the
U.S. dollar, generally tends to mitigate the impact on net operating income of foreign currency risk.
However, there have been periods where the impact was not mitigated due to external market factors,
and recent events, including the vote on "Brexit" in the United Kingdom, may result in greater foreign
exchange rate fluctuations in the future. If foreign exchange rates of major currencies (Euro, Sterling,
Australian dollar and Canadian dollar) moved 10% in the same direction against the U.S. dollar compared
with the foreign exchange rates in 2016, the Company estimates net operating income would increase or
decrease by approximately $54 million. The Company has exposure to approximately 80 foreign
currencies overall. In Continental Europe, the largest amount of revenue from renewals for the Risk &
Insurance Services segment occurs in the first quarter.
Equity Price Risk
The Company holds investments in both public and private companies as well as private equity funds.
Investments of approximately $105 million are classified as available for sale, which includes the
Company's investment in Benefitfocus. Approximately $21 million are accounted for using the cost
method and $389 million are accounted for using the equity method, which includes the Company's
46
investments in Alexander Forbes. The investments are subject to risk of changes in market value, which,
if determined to be other than temporary, could result in realized impairment losses. The Company
periodically reviews the carrying value of such investments to determine if any valuation adjustments are
appropriate under the applicable accounting pronouncements.
As of December 31, 2016, the carrying value of the Company’s investment in Alexander Forbes was $247
million. As of December 31, 2016, the market value of the approximately 443 million shares of Alexander
Forbes owned by the Company, based on the December 31, 2016 closing share price of 7.95 South
African Rand per share, was approximately $251 million.
Other
A number of lawsuits and regulatory proceedings are pending. See Note 15 ("Claims, Lawsuits and Other
Contingencies") to the consolidated financial statements included in this report.
47
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31,
(In millions, except per share figures)
Revenue
Expense:
Compensation and benefits
Other operating expenses
Operating expenses
Operating income
Interest income
Interest expense
Cost of extinguishment of debt
Investment income
Income before income taxes
Income tax expense
Income from continuing operations
Discontinued operations, net of tax
Net income before non-controlling interests
Less: Net income attributable to non-controlling interests
Net income attributable to the Company
Basic net income per share – Continuing operations
– Net income attributable to the Company
Diluted net income per share – Continuing operations
– Net income attributable to the Company
Average number of shares outstanding – Basic
– Diluted
Shares outstanding at December 31,
2016
2015
2014
$ 13,211 $ 12,893 $ 12,951
7,461
3,086
10,547
2,664
5
(189)
—
—
2,480
685
1,795
—
1,795
27
7,334
3,140
10,474
2,419
13
(163)
—
38
2,307
671
1,636
—
1,636
37
7,515
3,135
10,650
2,301
21
(165)
(137)
37
2,057
586
1,471
26
1,497
32
$
$
$
$
$
1,768 $
1,599 $
1,465
3.41 $
3.41 $
3.38 $
3.38 $
519
524
514
3.01 $
3.01 $
2.98 $
2.98 $
531
536
522
2.64
2.69
2.61
2.65
545
553
540
The accompanying notes are an integral part of these consolidated statements.
48
MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended December 31,
(In millions)
Net income before non-controlling interests
Other comprehensive (loss) income, before tax:
Foreign currency translation adjustments
Unrealized investment income
Gain (loss) related to pension/post-retirement plans
Other comprehensive loss, before tax
Income tax (credit) expense on other comprehensive (loss)
income
Other comprehensive loss, net of tax
Comprehensive income
2016
2015
2014
$ 1,795 $ 1,636
$ 1,497
(742)
21
(119)
(840)
33
(873)
922
(639)
1
337
(301)
(527)
—
(1,085)
(1,612)
72
(386)
(373)
(1,226)
1,263
271
32
239
Less: Comprehensive income attributable to non-controlling
interests
27
37
Comprehensive income attributable to the Company
$
895 $ 1,226
$
The accompanying notes are an integral part of these consolidated statements.
49
MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
(In millions, except share figures)
ASSETS
Current assets:
Cash and cash equivalents
Receivables
Commissions and fees
Advanced premiums and claims
Other
Less-allowance for doubtful accounts and cancellations
Net receivables
Other current assets
Total current assets
Goodwill
Other intangible assets
Fixed assets, net
Pension related assets
Deferred tax assets
Other assets
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt
Accounts payable and accrued liabilities
Accrued compensation and employee benefits
Accrued income taxes
Total current liabilities
Fiduciary liabilities
Less – cash and investments held in a fiduciary capacity
Long-term debt
Pension, postretirement and postemployment benefits
Liability for errors and omissions
Other liabilities
Commitments and contingencies
Equity:
Preferred stock, $1 par value, authorized 6,000,000 shares, none issued
Common stock, $1 par value, authorized
1,600,000,000 shares, issued 560,641,640 shares at December 31, 2016 and December 31, 2015
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Non-controlling interests
Less – treasury shares, at cost, 46,150,415 shares at December 31, 2016 and 38,743,686 shares
at December 31, 2015
Total equity
The accompanying notes are an integral part of these consolidated statements.
50
2016
2015
$
1,026
$
1,374
3,370
83
286
3,739
(96)
3,643
215
4,884
8,369
1,126
725
776
1,097
1,213
3,198
51
309
3,558
(87)
3,471
199
5,044
7,889
1,036
773
1,159
1,138
1,177
$
18,190
$
18,216
$
312
$
1,969
1,655
146
4,082
4,241
(4,241)
—
4,495
2,076
308
957
—
—
561
842
12,388
(5,093)
80
8,778
(2,506)
6,272
18,190
$
$
12
1,886
1,656
154
3,708
4,146
(4,146)
—
4,402
2,058
318
1,128
—
—
561
861
11,302
(4,220)
89
8,593
(1,991)
6,602
18,216
MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
(In millions)
Operating cash flows:
2016
2015
2014
Net income before non-controlling interests
$
1,795
$
1,636
$
1,497
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization of fixed assets and capitalized software
Amortization of intangible assets
Adjustments and payments related to contingent consideration liability
Gain on deconsolidation of entity
Cost of early extinguishment of debt
Provision for deferred income taxes
Gain on investments
(Gain) Loss on disposition of assets
Share-based compensation expense
Changes in assets and liabilities:
Net receivables
Other current assets
Other assets
Accounts payable and accrued liabilities
Accrued compensation and employee benefits
Accrued income taxes
Contributions to pension and other benefit plans in excess of current year
expense/credit
Other liabilities
Effect of exchange rate changes
Net cash provided by operations
Financing cash flows:
Purchase of treasury shares
Net increase in commercial paper
Proceeds from debt
Repayments of debt
Payments for early extinguishment of debt
Shares withheld for taxes on vested units – treasury shares
Issuance of common stock from treasury shares
Payments of deferred and contingent consideration for acquisitions
Distributions of non-controlling interests
Dividends paid
Net cash used for financing activities
Investing cash flows:
Capital expenditures
Net (purchases) sales of long-term investments
Purchase of equity investment
Proceeds from sales of fixed assets
Dispositions
Acquisitions
Other, net
308
130
(33)
(11)
—
68
—
6
109
(154)
(9)
34
55
2
(21)
(279)
(97)
104
314
109
11
—
—
178
(38)
(13)
88
(52)
3
(10)
(125)
23
(15)
(231)
(60)
70
302
86
19
—
137
127
(37)
(38)
93
(58)
8
13
45
167
33
(152)
(196)
73
2,007
1,888
2,119
(800)
50
347
(12)
—
(39)
188
(98)
(21)
(682)
(1,067)
(253)
2
—
4
—
(813)
4
(1,400)
—
1,091
(61)
—
(49)
224
(49)
(30)
(632)
(906)
(325)
(65)
—
2
71
(952)
4
(800)
—
1,386
(331)
(765)
(64)
263
(55)
(20)
(582)
(968)
(368)
6
(304)
3
—
(554)
(5)
Net cash used for investing activities
Effect of exchange rate changes on cash and cash equivalents
Decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
(1,056)
(1,265)
(1,222)
(232)
(348)
(301)
(584)
(274)
(345)
1,374
1,958
2,303
$
1,026
$
1,374
$
1,958
The accompanying notes are an integral part of these consolidated statements.
51
MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
For the Years Ended December 31,
(In millions, except per share figures)
COMMON STOCK
Balance, beginning and end of year
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of year
2016
2015
2014
$
$
561 $
561 $
561
861 $
930 $ 1,028
Change in accrued stock compensation costs
44
16
Issuance of shares under stock compensation plans and employee
stock purchase plans and related tax impact
Balance, end of year
RETAINED EARNINGS
Balance, beginning of year
Net income attributable to the Company
Dividend equivalents declared - (per share amounts: $1.30 in 2016,
$1.18 in 2015, and $1.06 in 2014)
Dividends declared – (per share amounts: $1.30 in 2016, $1.18 in
2015, and $1.06 in 2014)
Balance, end of year
ACCUMULATED OTHER COMPREHENSIVE LOSS
Balance, beginning of year
Other comprehensive loss, net of tax
Balance, end of year
TREASURY SHARES
Balance, beginning of year
Issuance of shares under stock compensation plans and employee
stock purchase plans
Issuance of shares for acquisitions
Purchase of treasury shares
Balance, end of year
NON-CONTROLLING INTERESTS
Balance, beginning of year
Net income attributable to non-controlling interests
Distributions and other changes
Deconsolidation of subsidiary
Balance, end of year
TOTAL EQUITY
(63)
(85)
$
842 $
861 $
(15)
(83)
930
$ 11,302 $ 10,335 $ 9,452
1,768
1,599
1,465
(7)
(4)
(3)
(675)
(628)
(579)
$ 12,388 $ 11,302 $ 10,335
$ (4,220) $ (3,847) $ (2,621)
(873)
(373)
(1,226)
$ (5,093) $ (4,220) $ (3,847)
$ (1,991) $
(925) $
(515)
285
—
334
—
(800)
(1,400)
$ (2,506) $ (1,991) $
$
89 $
79 $
27
(22)
(14)
37
(27)
—
$
80 $
89 $
387
3
(800)
(925)
70
32
(23)
—
79
$ 6,272 $ 6,602 $ 7,133
The accompanying notes are an integral part of these consolidated statements.
52
MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Nature of Operations: Marsh & McLennan Companies, Inc. (the "Company"), a global professional
services firm, is organized based on the different services that it offers. Under this structure, the
Company’s two business segments are Risk and Insurance Services and Consulting.
The Risk and Insurance Services segment provides risk management activities and insurance broking,
reinsurance broking and insurance program management services for businesses, public entities,
insurance companies, associations, professional services organizations, and private clients. The
Company conducts business in this segment through Marsh and Guy Carpenter.
The Company conducts business in its Consulting segment through Mercer and Oliver Wyman Group.
Mercer provides consulting expertise, advice, services and solutions in the areas of health, retirement,
talent and investments. Oliver Wyman Group provides specialized management and economic and brand
consulting services.
Acquisitions impacting the Risk and Insurance Services and Consulting segments are discussed in Note
4 below.
Principles of Consolidation: The accompanying consolidated financial statements include all wholly-
owned and majority-owned subsidiaries. All significant inter-company transactions and balances have
been eliminated.
Fiduciary Assets and Liabilities: In its capacity as an insurance broker or agent, the Company
generally collects premiums from insureds and, after deducting its commissions, remits the premiums to
the respective insurance underwriters. The Company also collects claims or refunds from underwriters on
behalf of insureds. Unremitted insurance premiums and claims proceeds are held by the Company in a
fiduciary capacity. Risk and Insurance Services revenue includes interest on fiduciary funds of $26 million,
$21 million and $24 million in 2016, 2015 and 2014, respectively. The Consulting segment recorded
fiduciary interest income of $3 million, $4 million and $6 million in 2016, 2015 and 2014, respectively.
Since fiduciary assets are not available for corporate use, they are shown in the consolidated balance
sheets as an offset to fiduciary liabilities.
Net uncollected premiums and claims and the related payables were $7 billion and $6.9 billion at
December 31, 2016 and 2015, respectively. The Company is not a principal to the contracts under which
the right to receive premiums or the right to receive reimbursement of insured losses arises. Accordingly,
net uncollected premiums and claims and the related payables are not assets and liabilities of the
Company and are not included in the accompanying consolidated balance sheets.
In certain instances, the Company advances premiums, refunds or claims to insurance underwriters or
insureds prior to collection. These advances are made from corporate funds and are reflected in the
accompanying consolidated balance sheets as receivables.
Mercer manages approximately $158 billion of assets in trusts or funds for which Mercer’s management
or trustee fee is not considered a variable interest, since the fees are commensurate with the level of
effort required to provide those services. Mercer is not the primary beneficiary of these trusts or funds.
Mercer’s maximum exposure to loss of its interests is, therefore, limited to collection of its fees.
Revenue: Risk and Insurance Services revenue includes insurance commissions, fees for services
rendered and interest income on certain fiduciary funds. Insurance commissions and fees for risk transfer
services generally are recorded as of the effective date of the applicable policies or, in certain cases
(primarily in the Company's reinsurance broking operations), as of the effective date or billing date,
whichever is later. A reserve for policy cancellation is provided based on historic and current data on
cancellations. Consideration for fee arrangements covering multiple insurance placements, the provision
of risk management and/or other services is allocated to all deliverables on the basis of the relative selling
prices. Fees for non-risk transfer services provided to clients are recognized over the period in which the
services are provided, using a proportional performance model. Fees resulting from achievement of
53
certain performance thresholds are recorded when such levels are attained and such fees are not subject
to forfeiture.
Consulting revenue includes fees paid by clients for advice and services and commissions from insurance
companies for the placement of individual and group contracts. Fee revenue for engagements where
remuneration is based on time plus out-of-pocket expenses is recognized based on the amount of time
consulting professionals expend on the engagement. For fixed fee engagements, revenue is recognized
using a proportional performance model. Revenue from insurance commissions not subject to a fee
arrangement is recorded over the effective period of the applicable policies. Revenue for asset based
fees is recognized on an accrual basis by applying the daily/monthly rate as contractually agreed with the
client to the applicable net asset value. On a limited number of engagements, performance fees may also
be earned for achieving certain prescribed performance criteria. Such fees are recognized when the
performance criteria have been achieved and, when required, agreed to by the client. Reimbursable
expenses incurred by professional staff in the generation of revenue and sub-advisory fees related to the
majority of funds in the investment management business are included in revenue and the related
expenses are included in other operating expenses.
Cash and Cash Equivalents: Cash and cash equivalents primarily consist of certificates of deposit and
time deposits, with original maturities of three months or less, and money market funds. The estimated
fair value of the Company's cash and cash equivalents approximates their carrying value. The Company
is required to maintain operating funds primarily related to regulatory requirements outside the United
States or as collateral under captive insurance arrangements. At December 31, 2016, the Company
maintained $159 million related to these regulatory requirements.
Fixed Assets: Fixed assets are stated at cost less accumulated depreciation and amortization.
Expenditures for improvements are capitalized. Upon sale or retirement, the cost and related
accumulated depreciation and amortization are removed from the accounts and any gain or loss is
reflected in income. Expenditures for maintenance and repairs are charged to operations as incurred.
Depreciation of buildings, building improvements, furniture, and equipment is provided on a straight-line
basis over the estimated useful lives of these assets. Furniture and equipment is depreciated over
periods ranging from three to ten years. Leasehold improvements are amortized on a straight-line basis
over the periods covered by the applicable leases or the estimated useful life of the improvement,
whichever is less. Buildings are depreciated over periods ranging from thirty to forty years. The Company
periodically reviews long-lived assets for impairment whenever events or changes indicate that the
carrying value of assets may not be recoverable.
The components of fixed assets are as follows:
December 31,
(In millions of dollars)
Furniture and equipment
Land and buildings
Leasehold and building improvements
Less-accumulated depreciation and amortization
2016
$ 1,113
389
906
2,408
(1,683)
725
$
2015
$ 1,133
396
865
2,394
(1,621)
773
$
Investments: The Company holds investments in certain private equity funds. Investments in private
equity funds are accounted for under the equity method of accounting using a consistently applied three-
month lag period adjusted for any known significant changes from the lag period to the reporting date of
the Company. The underlying private equity funds follow investment company accounting, where
investments within the fund are carried at fair value. Investment gains or losses for its proportionate share
of the change in fair value of the funds are recorded in earnings. Investments using the equity method of
accounting are included in other assets in the consolidated balance sheets.
54
In 2016, the Company recorded investment income of less than $1 million compared to $38 million in
2015 and $37 million in 2014. The investment income in 2015 and 2014 is primarily due to general
partner carried interest from the Company's investment in Trident III, which was substantially liquidated in
2015.
Goodwill and Other Intangible Assets: Goodwill represents acquisition costs in excess of the fair value
of net assets acquired. Goodwill is reviewed at least annually for impairment. The Company performs an
annual impairment test for each of its reporting units during the third quarter of each year. When a step 1
test is performed, fair values of the reporting units are estimated using either a market approach or a
discounted cash flow model. Carrying values for the reporting units are based on balances at the prior
quarter end and include directly identified assets and liabilities as well as an allocation of those assets
and liabilities not recorded at the reporting unit level. As discussed in Note 6, the Company may elect to
assess qualitative factors to determine if a step 1 test is necessary. Other intangible assets, which
primarily consist of acquired customer lists, that are not deemed to have an indefinite life, are amortized
over their estimated lives, typically ranging from 10 to 15 years, and reviewed for impairment upon the
occurrence of certain triggering events in accordance with applicable accounting literature. The Company
had no indefinite lived identified intangible assets at December 31, 2016 and 2015.
Capitalized Software Costs: The Company capitalizes certain costs to develop, purchase or modify
software for the internal use of the Company. These costs are amortized on a straight-line basis over
periods ranging from 3 to 10 years. Costs incurred during the preliminary project stage and post
implementation stage, are expensed as incurred. Costs incurred during the application development
stage are capitalized. Costs related to updates and enhancements are only capitalized if they will result in
additional functionality. Capitalized computer software costs of $482 million and $498 million, net of
accumulated amortization of $1.1 billion and $958 million at December 31, 2016 and 2015, respectively,
are included in other assets in the consolidated balance sheets.
Legal and Other Loss Contingencies: The Company and its subsidiaries are subject to a significant
number of claims, lawsuits and proceedings including claims for errors and omissions ("E&O"). The
preparation of financial statements in conformity with accounting principles generally accepted in the
United States ("GAAP") requires that a liability be recorded when a loss is both probable and reasonably
estimable. Significant management judgment is required to apply this guidance. The Company utilizes
case level reviews by inside and outside counsel, an internal actuarial analysis by Oliver Wyman Group, a
subsidiary of the Company, and other analysis to estimate potential losses. The liability is reviewed
quarterly and adjusted as developments warrant. In many cases, the Company has not recorded a
liability, other than for legal fees to defend the claim, because we are unable, at the present time, to make
a determination that a loss is both probable and reasonably estimable. Given the unpredictability of E&O
claims and of litigation that could flow from them, it is possible that an adverse outcome in a particular
matter could have a material adverse effect on the Company’s businesses, results of operations, financial
condition or cash flow in a given quarterly or annual period.
In addition, to the extent that insurance coverage is available, significant management judgment is
required to determine the amount of recoveries that are probable of collection under the Company’s
various insurance programs.
The legal and other contingent liabilities described above are not discounted.
Income Taxes: The Company's effective tax rate reflects its income, statutory tax rates and tax planning
in the various jurisdictions in which it operates. Significant judgment is required in determining the annual
tax provision and in evaluating uncertain tax positions and the ability to realize deferred tax assets.
The Company reports a liability for unrecognized tax benefits resulting from uncertain tax positions taken
or expected to be taken in a tax return. The evaluation of a tax position is a two-step process. The first
step involves recognition. The Company determines whether it is more likely than not that a tax position
will be sustained upon tax examination, including resolution of any related appeals or litigation, based on
only the technical merits of the position. The technical merits of a tax position derive from both statutory
and judicial authority (legislation and statutes, legislative intent, regulations, rulings, and case law) and
their applicability to the facts and circumstances of the tax position. If a tax position does not meet the
more-likely-than-not recognition threshold, the benefit of that position is not recognized in the financial
55
statements. The second step is measurement. A tax position that meets the more-likely-than-not-
recognition threshold is measured to determine the amount of benefit to recognize in the financial
statements. The tax position is measured as the largest amount of benefit that is greater than 50 percent
likely to be realized upon ultimate resolution with a taxing authority. Uncertain tax positions are evaluated
based upon the facts and circumstances that exist at each reporting period. Subsequent changes in
judgment based upon new information may lead to changes in recognition, de-recognition, and
measurement. Adjustments may result, for example, upon resolution of an issue with the taxing
authorities, or expiration of a statute of limitations barring an assessment for an issue. The Company
recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.
Tax law may require items be included in the Company's tax returns at different times than the items are
reflected in the financial statements. As a result, the annual tax expense reflected in the consolidated
statements of income is different than that reported in the income tax returns. Some of these differences
are permanent, such as expenses that are not deductible in the returns, and some differences are
temporary and reverse over time, such as depreciation expense. Temporary differences create deferred
tax assets and liabilities. Deferred tax assets generally represent items that can be used as a tax
deduction or credit in tax returns in future years for which benefit has already been recorded in the
financial statements. Valuation allowances are established for deferred tax assets when it is estimated
that future taxable income will be insufficient to use a deduction or credit in that jurisdiction. Deferred tax
liabilities generally represent tax expense recognized in the financial statements for which payment has
been deferred, or expense for which a deduction has been taken already in the tax return but the expense
has not yet been recognized in the financial statements.
Derivative Instruments: All derivatives, whether designated in hedging relationships or not, are
recorded on the balance sheet at fair value. If the derivative is designated as a fair value hedge, the
changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are
recognized in earnings. The fair value of the derivative is recorded in the consolidated balance sheet in
other receivables or accounts payable and accrued liabilities. The change in the fair value of a derivative
is recorded in the consolidated statement of income in other operating expenses. If the derivative is
designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are
recorded in other comprehensive income and are recognized in the income statement when the hedged
item affects earnings. Changes in the fair value attributable to the ineffective portion of cash flow hedges
are recognized in earnings.
Concentrations of Credit Risk: Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash equivalents, commissions and fees
receivable and insurance recoverable. The Company maintains a policy providing for the diversification of
cash and cash equivalent investments and places its investments in a large number of high quality
financial institutions to limit the amount of credit risk exposure. Concentrations of credit risk with respect
to receivables are generally limited due to the large number of clients and markets in which the Company
does business, as well as the dispersion across many geographic areas.
Per Share Data: Basic net income per share attributable to the Company and income from continuing
operations per share are calculated by dividing the respective after-tax income attributable to common
shares by the weighted average number of outstanding shares of the Company’s common stock.
Diluted net income per share attributable to the Company and income from continuing operations per
share are calculated by dividing the respective after-tax income attributable to common shares by the
weighted average number of outstanding shares of the Company’s common stock, which have been
adjusted for the dilutive effect of potentially issuable common shares. Reconciliations of the applicable
components used to calculate basic and diluted EPS - Continuing Operations are presented below. The
reconciling items related to the EPS calculation are the same for both basic and diluted EPS.
56
Basic and Diluted EPS Calculation - Continuing Operations
(In millions, except per share figures)
Net income from continuing operations
Less: Net income attributable to non-controlling interests
Basic weighted average common shares outstanding
Dilutive effect of potentially issuable common shares
Diluted weighted average common shares outstanding
2016
2015
2014
$ 1,795 $ 1,636 $ 1,471
27
37
32
$ 1,768 $ 1,599 $ 1,439
519
5
524
531
5
536
545
8
553
Average stock price used to calculate common stock equivalents
$ 63.51 $ 56.27 $ 51.15
There were 13.2 million, 14.8 million and 18.0 million stock options outstanding as of December 31, 2016,
2015 and 2014, respectively.
Estimates: GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the reporting period. Actual
results may vary from those estimates.
New Accounting Pronouncements: In November 2016, the Financial Accounting Standards Board
("FASB") issued new guidance which requires that a statement of cash flows explain the change during
the period in the total of cash, cash equivalents and amounts generally described as restricted cash or
restricted cash equivalents. As a result, amounts generally described as restricted cash and restricted
cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-
period and end-of-period total amounts shown on the statement of cash flows. The new guidance is
effective for public companies for fiscal years beginning after December 15, 2017, including interim
periods within those fiscal years. The guidance must be applied retrospectively to all periods presented.
Early adoption is permitted. The adoption of this guidance is not expected to have an impact on the
Company's consolidated balance sheets or consolidated statement of cash flows.
In October 2016, the FASB issued new guidance which changes the evaluation of whether a reporting
entity is the primary beneficiary of a variable interest entity by changing how a reporting entity that is a
single decision maker of a variable interest entity treats indirect interests in the entity held through related
parties that are under common control with the reporting entity. If a reporting entity satisfies the first
characteristic of a primary beneficiary (such that it is the single decision maker of a variable interest
entity), the new guidance requires that reporting entity, in determining whether it satisfies the second
characteristic of a primary beneficiary, to include all of its direct variable interest in a variable interest
entity and, on a proportionate basis, its indirect variable interests in a variable interest entity held through
related parties, including related parties that are under common control with the reporting entity. The new
guidance is effective for public companies for fiscal years beginning after December 15, 2016, including
interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the
adoption of this guidance to have a significant impact on its financial position, results of operations and
statement of cash flows.
In October 2016, the FASB also issued new guidance which requires an entity to recognize the income
tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs.
The new guidance eliminates the exception for an intra-entity transfer of an asset other than inventory.
The new guidance is effective for public companies for fiscal years beginning after December 15, 2017,
including interim periods within those fiscal years. Early adoption is permitted. The new guidance must be
applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as
of the beginning of the period of adoption. The Company is currently evaluating the impact the adoption of
this standard will have on its financial position or results of operations.
In August 2016, the FASB issued new guidance which adds or clarifies guidance on the classification of
certain cash receipts and payments in the statement of cash flows, including cash payments for debt
prepayments or debt extinguishment costs, contingent consideration payments made after a business
57
combination and distributions received from equity method investees. The guidance is effective for fiscal
years beginning after December 15, 2017, including interim periods within those fiscal years. The
guidance must be applied retrospectively to all periods presented unless retrospective application is
impracticable. Early adoption is permitted. The Company is currently evaluating the impact the adoption
the guidance will have on its statement of cash flows.
In April 2016, the FASB issued new guidance which simplifies several aspects of the accounting for
employee share-based payment transactions, including the accounting for income taxes, forfeitures and
statutory tax withholding requirements, as well as classification in the statement of cash flows. The
guidance is effective for annual periods beginning after December 15, 2016, and interim periods within
those annual periods. Early adoption is permitted for any organization in any interim or annual period.
Based on the Company’s stock price during January and through February 21, 2017, the Company
expects the adoption of this standard to reduce the Company’s reported income tax expense and
increase its net income and earnings per share in the first quarter of 2017. However, the specific impact
will depend on the number of outstanding options exercised (which the Company does not control) and
the Company’s stock price on the dates shares vest and options are exercised.
In March 2016, the FASB issued new guidance which eliminates the requirement that when an
investment qualifies for use of the equity method as a result of an increase in the level of ownership
interest or degree of influence, an investor must adjust the investment, results of operations and retained
earnings retroactively on a step-by-step basis as if the equity method had been in effect during all
previous periods that the investment had been held. The amendments require that the equity method
investor add the cost of acquiring the additional interest in the investee to the current basis of the
investor’s previously held interest and adopt the equity method of accounting as of the date the
investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity
method of accounting, no retroactive adjustment of the investment is required. The amendments require
that an entity that has an available-for-sale equity security that becomes qualified for the equity method of
accounting recognize through earnings the unrealized holding gain or loss in accumulated other
comprehensive income at the date the investment becomes qualified for use of the equity method. The
new guidance is effective for all entities for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2016. Early application will be permitted. The Company is currently
evaluating the impact the adoption of this standard will have on its financial position or results of
operations.
In February 2016, the FASB issued new guidance intended to improve financial reporting about leasing
transactions. Under the new guidance, a lessee will be required to recognize assets and liabilities for
leases with lease terms of more than 12 months. Consistent with current Generally Accepted Accounting
Principles ("GAAP"), the recognition, measurement, and presentation of expenses and cash flows arising
from a lease by a lessee primarily will depend on its classification as a finance or operating lease.
However, unlike current GAAP, which requires that only capital leases be recognized on the balance
sheet, the new guidance requires that both types of leases be recognized on the balance sheet. The new
guidance will require additional disclosures to help investors and other financial statement users better
understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures
include qualitative and quantitative requirements, and additional information about the amounts recorded
in the financial statements. The accounting by organizations that own the assets ("lessor") leased by the
lessee will remain largely unchanged from current GAAP. However, the guidance contains some targeted
improvements that are intended to align, where necessary, lessor accounting with the lessee accounting
model and with the updated revenue recognition guidance issued in 2014. The new guidance on leases
will take effect for public companies for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2018. Early application will be permitted. The Company is currently
evaluating the impact the adoption of the guidance will have on its financial position and results of
operations, but expects material "right to use" assets and lease liabilities to be recorded on its
consolidated balance sheets.
In January 2016, the FASB issued new guidance intended to improve the recognition and measurement
of financial instruments. The new guidance requires equity investments (except those accounted for
under the equity method of accounting, or those that result in consolidation of the investee) to be
measured at fair value with changes in fair value recognized in net income; requires public business
58
entities to use the exit price notion when measuring the fair value of financial instruments for disclosure
purposes; requires separate presentation of financial assets and financial liabilities by measurement
category and form of financial asset (i.e., securities or loans and receivables) on the balance sheet or the
accompanying notes to the financial statements; eliminates the requirement for public business entities to
disclose the method(s) and significant assumptions used to estimate the fair value that is required to be
disclosed for financial instruments measured at amortized cost on the balance sheet; and requires a
reporting organization to present separately in other comprehensive income the portion of the total
change in the fair value of a liability resulting from a change in the instrument-specific credit risk (also
referred to as "own credit") when the organization has elected to measure the liability at fair value in
accordance with the fair value option for financial instruments. The new guidance is effective for public
companies for fiscal years beginning after December 15, 2017, including interim periods within those
fiscal years. The Company is currently evaluating the impact of the adoption of the guidance on its
financial position and results of operations.
New Revenue Recognition Pronouncement
In May 2014, the FASB issued new accounting guidance to clarify the principles for revenue recognition.
The core principle of the guidance is that an entity should recognize revenue to depict the transfer of
promised goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. To achieve that principle, the entity should
apply the following steps: identify the contract(s) with the customer, identify the performance obligations in
the contract(s), determine the transaction price, allocate the transaction price to the performance
obligations in the contract and recognize revenue when (or as) the entity satisfies a performance
obligation. Entities are permitted to adopt the guidance under one of the following methods: the "full
retrospective" method, which applies the guidance to each period presented (prior years restated) or the
"modified retrospective" method in which the guidance is only applied to the year of adoption, with the
cumulative effect of initially applying the guidance recognized as an adjustment to retained earnings. The
Company will adopt the new guidance effective January 1, 2018. The Company is evaluating the
transition method it will use, but currently expects to use the modified retrospective method.
The Company continues to evaluate the impact of the standard on our Risk and Insurance Services
("RIS") segment. Based on the results of our review to date, the Company expects there will be some
movement in the timing of revenue recognition between quarterly and annual periods. However, since the
vast majority of our brokerage arrangements involve contracts that cover a single year of placements, on
a year over year basis, the Company does not believe there will be a significant change to the amount of
revenue recognized in an annual period.
The Company's initial review and preliminary conclusions for the Consulting segment indicate the impact
on the existing pattern of revenue recognition in quarterly or annual periods will be less significant than for
RIS. The conclusions will be completed following a final review of customer arrangement legal terms and
conditions in certain of our non-U.S. locations.
The Company continues to evaluate the extent to which certain costs it incurs that are currently expensed
under GAAP must be capitalized as costs to obtain or costs to fulfill customer contracts under guidance
issued as part of the revenue recognition update. Any capitalized costs would be amortized on a basis
consistent with the transfer of services to which they relate. Such expenses related to Risk and Insurance
Services would generally be "amortized" over a period of one year or less. In the Consulting segment,
certain expenses that are currently deferred may be amortized over a longer period than our current
amortization policy, to reflect the amortization over the expected life of the contract including anticipated
renewal periods.
The Company has not yet quantified the impact of the changes discussed above.
New Accounting Pronouncements Recently Adopted
In September 2015, the FASB issued new guidance intended to simplify the accounting for adjustments
made to provisional amounts recognized in business combinations. The guidance requires the acquirer to
recognize adjustments to estimated amounts that are identified during the measurement period in the
reporting period in which the adjustments are determined, and to record, in the same period's financial
statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if
59
any, as a result of the change to the estimated amounts, calculated as if the accounting had been
completed as of the acquisition date. The guidance also includes additional disclosures required for the
amounts recorded in current period earnings arising from such adjustments. The guidance was adopted
on January 1, 2016 and did not have a material impact on the Company's financial position or results of
operations.
In May 2015, the FASB issued new guidance which removes the requirement to present certain
investments for which the practical expedient is used to measure fair value at net asset value within the
fair value hierarchy table. Instead, an entity is required to include those investments as a reconciling item
so that the total fair value amount of investments in the disclosure is consistent with the fair value
investment balance on the statement of net assets. This guidance is effective for fiscal years beginning
after December 15, 2015, including interim periods within those fiscal years. The adoption of this new
guidance affects footnote disclosure only, and therefore did not have a material impact on the Company's
financial position or results of operations.
In February 2015, the FASB issued new accounting guidance intended to improve targeted areas of
consolidation guidance for legal entities such as limited partnerships, limited liability corporations and
securitization structures. The guidance focuses on the consolidation evaluation for reporting organizations
that are required to evaluate whether they should consolidate certain legal entities. The guidance is
effective for periods beginning after December 15, 2015. The adoption of this guidance did not have a
material impact on the Company's financial statements.
In January 2015, the FASB issued new accounting guidance that eliminated the concept of extraordinary
items. The guidance is effective for annual periods beginning after December 15, 2015. Adoption of the
guidance did not materially affect the Company's financial condition, results of operations or cash flows.
In June 2014, the FASB issued new accounting guidance to clarify the treatment of share-based payment
awards that require a specific performance target to be achieved in order for employees to be eligible to
vest in the awards which include terms that may provide that the performance conditions could be
achieved after an employee completes the requisite service period. The guidance requires that a
performance target that affects vesting and that could be achieved after the requisite service period be
treated as a performance condition. As such, a reporting entity should apply the existing guidance as it
relates to awards with performance conditions that affect vesting. The guidance is effective for annual
periods beginning after December 15, 2015. Adoption of the guidance did not materially affect the
Company's financial condition, results of operations or cash flows.
In April 2014, the FASB issued new accounting guidance which changed the criteria for reporting
discontinued operations and enhances disclosures in this area. Under the new guidance, only disposals
representing a strategic shift in operations, such as disposal of a major geographic area or a major line of
business, should be presented as discontinued operations. Those strategic shifts should have a major
impact on the organization's operations and financial results. In addition, the new guidance requires
expanded disclosures about discontinued operations. The guidance is effective for fiscal years beginning
on or after December 15, 2014. Adoption of the guidance did not have a material effect on the Company's
financial condition, results of operations or cash flows.
60
2. Supplemental Disclosures
The following schedule provides additional information concerning acquisitions, interest and income taxes
paid:
(In millions of dollars)
Assets acquired, excluding cash
Liabilities assumed
Contingent/deferred purchase consideration
Net cash outflow for acquisitions
(In millions of dollars)
Interest paid
Income taxes paid, net of refunds
2016
2015
$
960 $ 1,327 $
(111)
(36)
(199)
(176)
2014
815
(64)
(197)
$
813 $
952 $
554
2016
2015
$
$
178 $
642 $
146 $
433 $
2014
172
426
The classification of deferred or contingent consideration in the statement of cash flows is dependent
upon whether the payment was part of the initial liability established on the acquisition date (financing) or
an adjustment to the acquisition date liability (operating).
The following amounts are included in the consolidated statements of cash flows as a financing activity.
The Company paid deferred and contingent consideration of $98 million in the year ended December 31,
2016, consisting of deferred purchase consideration of $54 million and contingent purchase consideration
of $44 million. In the year ended December 31, 2015 the Company paid deferred and contingent
consideration of $49 million, consisting of deferred purchase consideration of $36 million and contingent
consideration of $13 million, and in the year ended December 31, 2014 the Company paid deferred and
contingent consideration of $55 million, consisting of deferred purchase consideration of $25 million and
contingent consideration of $30 million.
The following amounts are included in the operating section of the consolidated statements of cash flows.
For the year ended December 31, 2016, the Company recorded a net charge for adjustments to
acquisition related accounts of $9 million and contingent consideration payments of $42 million. For the
year ended December 31, 2015, the Company recorded a net charge for adjustments to acquisition
related accounts of $45 million and contingent consideration payments of $34 million, and for the year
ended December 31, 2014 the Company recorded a net charge for adjustments to acquisition related
accounts of $31 million and contingent consideration payments of $12 million.
The Company had non-cash issuances of common stock under its share-based payment plan of $73
million, $72 million and $108 million for the years ended December 31, 2016, 2015 and 2014,
respectively. The Company recorded stock-based compensation expense related to equity awards of $87
million, $67 million and $75 million for the years ended December 31, 2016, 2015 and 2014, respectively.
The consolidated statement of cash flows includes the cash flow impact of discontinued operations
related to indemnification payments from the Putnam disposition that reduced the net cash flow provided
by operations by $82 million in 2015.
An analysis of the allowance for doubtful accounts is as follows:
For the Years Ended December 31,
(In millions of dollars)
Balance at beginning of year
Provision charged to operations
Accounts written-off, net of recoveries
Effect of exchange rate changes and other
Balance at end of year
2016
87
31
(20)
(2)
96
$
$
2015
95
14
(18)
(4)
87
$
$
2014
98
20
(17)
(6)
95
$
$
61
3. Other Comprehensive Income (Loss)
The changes in the balances of each component of Accumulated Other Comprehensive Income ("AOCI")
for the years ended December 31, 2016 and 2015, including amounts reclassified out of AOCI, are as
follows:
(In millions of dollars)
Balance as of January 1, 2016
Other comprehensive income
(loss) before reclassifications
Amounts reclassified from
accumulated other
comprehensive loss
Net current period other
comprehensive income (loss)
Unrealized
Investment
Gains
Pension/Post-
Retirement
Plans Gains
(Losses)
Foreign
Currency
Translation
Adjustments
Total
$
6 $
(3,124) $
(1,102) $
(4,220)
13
—
13
(294)
(778)
(1,059)
186
(108)
—
(778)
186
(873)
Balance as of December 31, 2016 $
19 $
(3,232) $
(1,880) $
(5,093)
(In millions of dollars)
Balance as of January 1, 2015
Other comprehensive income
(loss) before reclassifications
Amounts reclassified from
accumulated other
comprehensive loss
Net current period other
comprehensive income (loss)
Unrealized
Investment
Gains
Pension/Post-
Retirement
Plans Gains
(Losses)
Foreign
Currency
Translation
Adjustments
Total
$
5 $
(3,393) $
(459) $
(3,847)
1
—
1
101
168
269
(643)
(541)
—
(643)
168
(373)
Balance as of December 31, 2015 $
6 $
(3,124) $
(1,102) $
(4,220)
62
The components of other comprehensive income (loss) are as follows:
For the Year Ended December 31,
(In millions of dollars)
Foreign currency translation adjustments
Unrealized investment gains
Pension/post-retirement plans:
Amortization of losses included in net periodic pension cost:
Prior service losses (a)
Net actuarial losses (a)
Subtotal
Effect of curtailment
Net losses arising during period
Foreign currency translation adjustments
Other adjustments
Pension/post-retirement plans losses
Other comprehensive (loss) income
2016
Tax
Pre-Tax
(Credit) Net of Tax
$
(742) $
36 $
(778)
21
8
13
3
166
169
102
(855)
416
49
(119)
$
(840) $
1
46
47
38
(175)
70
9
(11)
33 $
2
120
122
64
(680)
346
40
(108)
(873)
(a) Components of net periodic pension cost are included in compensation and benefits in the Consolidated
Statements of Income. Tax on prior service gains and net actuarial losses is included in income tax expense.
For the Year Ended December 31,
(In millions of dollars)
Foreign currency translation adjustments
Unrealized investment gains
Pension/post-retirement plans:
Amortization of losses (gains) included in net periodic pension cost:
Prior service credits (a)
Net actuarial losses (a)
Subtotal
Effect of curtailment
Plan Termination
Net losses arising during period
Foreign currency translation adjustments
Other adjustments
Pension/post-retirement plans gains
Other comprehensive (loss) income
2015
Tax
(Credit)
Pre-Tax
Net of Tax
$
(639) $
4 $
(643)
1
—
1
(1)
271
270
(3)
(6)
(125)
214
(13)
337
—
96
96
—
(3)
(62)
43
(6)
68
(1)
175
174
(3)
(3)
(63)
171
(7)
269
$
(301) $
72 $
(373)
(a) Components of net periodic pension cost are included in compensation and benefits in the Consolidated
Statements of Income. Tax on prior service gains and net actuarial losses is included in income tax expense.
63
For the Year Ended December 31,
(In millions of dollars)
Foreign currency translation adjustments
Pension/post-retirement plans:
Amortization of losses (gains) included in net periodic pension cost:
Prior service credits (a)
Net actuarial losses (a)
Subtotal
Effect of curtailment
Net losses arising during period
Foreign currency translation adjustments
Other
Pension/post-retirement plans losses
Other comprehensive loss
2014
Tax
(Credit)
Pre-Tax
Net of Tax
$
(527) $
(12) $
(515)
(16)
242
226
(65)
(1,418)
180
(8)
(5)
74
69
(13)
(466)
39
(3)
(1,085)
(374)
(11)
168
157
(52)
(952)
141
(5)
(711)
$
(1,612) $
(386) $
(1,226)
(a) Components of net periodic pension cost are included in compensation and benefits in the Consolidated
Statements of Income. Tax on prior service gains and net actuarial losses is included in income tax expense.
The components of accumulated other comprehensive income (loss) are as follows:
(In millions of dollars)
Foreign currency translation adjustments (net of deferred tax
adjustments of $(9) in 2016 and deferred tax adjustments of $8 in
2015, respectively)
Net unrealized investment gains (net of deferred tax liability of $10 in
2016 and $2 in 2015)
Net charges related to pension / post-retirement plans (net of deferred
tax asset of $1,530 and $1,519 in 2016 and 2015, respectively)
December 31,
2016
December 31,
2015
$
(1,880) $
(1,102)
19
6
(3,232)
$
(5,093) $
(3,124)
(4,220)
64
4. Acquisitions / Dispositions
The Company’s acquisitions have been accounted for as business combinations. Net assets and results
of operations are included in the Company’s consolidated financial statements commencing at the
respective purchase closing dates. In connection with acquisitions, the Company records the estimated
value of the net tangible assets purchased and the value of the identifiable intangible assets purchased,
which typically consist of purchased customer lists, trademarks and non-compete agreements. The
valuation of purchased intangible assets involves significant estimates and assumptions. Until final
valuations are complete, any change in assumptions could affect the carrying value of tangible assets,
goodwill and identifiable intangible assets.
The Risk and Insurance Services segment completed nine acquisitions during 2016.
• February – Marsh & McLennan Agency ("MMA") acquired The Celedinas Agency, Inc., a Florida-
based brokerage firm providing property and casualty and marine insurance as well as employee
benefits services, and Aviation Solutions, LLC, a Missouri-based aviation risk advisor and
insurance broker.
• March – MMA acquired Corporate Consulting Services, Ltd., a New York-based insurance
brokerage and human resource consulting firm.
• August – MMA acquired Benefits Advisory Group LLC, an Atlanta-based employee benefits
consulting firm.
• September – MMA acquired Vero Insurance, Inc., a Florida-based agency specializing in private
client insurance services.
• November – MMA acquired Benefits Resource Group Agency, LLC, an Ohio-based benefits
consulting firm and Presidio Benefits Group, Inc., a California-based employee benefits
consulting firm.
• December – Marsh acquired AD Corretora, a multi-line broker located in Brazil, and Bluefin
Insurance Group, Ltd, a U.K.-based insurance brokerage.
The Consulting segment completed six acquisitions during 2016.
•
January – Mercer acquired The Positive Ageing Company Limited, a U.K.-based firm providing
advice on issues surrounding the aging workforce.
• April – Mercer acquired the Extratextual software system and related client contracts.
Extratextual is a web based compliance system that helps clients manage and meet their
compliance and risk management obligations.
• December – Oliver Wyman acquired LShift Limited, a software development company, and
Mercer acquired Sirota Consulting LLC, a global provider of employee benefit solutions; Pillar
Administration, a superannuation provider located in Australia; and Thomsons Online Benefits, a
U.K.-based global benefits software business.
Total purchase consideration for acquisitions made during 2016 was approximately $901 million, which
consisted of cash paid of $865 million and deferred purchase and estimated contingent consideration of
$36 million. Contingent consideration arrangements are based primarily on EBITDA and/or revenue
targets over periods of two to four years. The fair value of the contingent consideration was based on
projected revenue and earnings of the acquired entities. Estimated fair values of assets acquired and
liabilities assumed are subject to adjustment when purchase accounting is finalized. During 2016, the
Company also paid $54 million of deferred purchase consideration and $86 million of contingent
consideration related to acquisitions made in prior years.
65
The following table presents the preliminary allocation of the acquisition cost to the assets acquired and
liabilities assumed, based on their fair values:
(In millions)
Cash
Estimated fair value of deferred/contingent consideration
Total consideration
Allocation of purchase price:
Cash and cash equivalents
Accounts receivable, net
Other current assets
Property, plant, and equipment
Other intangible assets
Goodwill
Other assets
Total assets acquired
Current liabilities
Other liabilities
Total liabilities assumed
Net assets acquired
2016
865
36
901
52
49
8
22
307
556
18
1,012
57
54
111
901
$
$
$
$
Other intangible assets acquired are based on initial estimates and subject to change based on final
valuations during the measurement period post acquisition date. The following chart provides information
of other intangible assets acquired during 2016:
Client relationships
Other (a)
Amount
Weighted Average
Amortization Period
$
$
241
66
307
13 years
7 years
(a) Primarily non-compete agreements, trade names and developed technology
Prior Year Acquisitions
During 2015, the Risk and Insurance Services segment completed the following thirteen acquisitions:
•
January – Marsh acquired INGESEG S.A., an insurance brokerage located in Argentina.
• May – Marsh acquired Sylvite Financial Services, Inc., a Canada-based insurance consulting firm
and Sumitomo Life Insurance Agency America, Inc., an employee benefits brokerage and
consulting firm providing employee benefit and other services to U.S.-based subsidiaries of
Japanese companies.
•
•
June – MMA acquired MHBT, Inc., a Texas-based insurance broker and Marsh acquired SIS Co.
Ltd., a Korea-based insurance broker and advisor.
July – MMA acquired Vezina, a Canada-based independent insurance brokerage firm, Tequesta
Insurance Advisors, an employee benefits insurance provider based in Florida, Cline Wood
Agency, a Kansas City-based independent specialty insurance agency and J.W. Terrill, a
Missouri-based independent insurance agency. Marsh acquired SMEI Group Ltd., a U.K.-based
insurance broker providing specialist commercial insurance to small and medium-sized firms.
• August – Marsh acquired Dovetail Insurance, a leading provider of insurance technology services
to the U.S. small commercial market.
66
• October – MMA acquired Dawson Insurance Agency, a North Dakota-based agency providing
commercial and personal insurance, surety bonds, safety and loss control programs, and
employee benefits services.
• December – Marsh acquired Jelf Group, PLC, a U.K.-based insurance broking and financial
consulting firm.
During 2015, the Consulting segment completed the following eight acquisitions:
• February – Oliver Wyman acquired TeamSAI, a Georgia-based provider of consulting and
technical services to the transportation industry, and Mercer acquired Strategic Capital
Management AG, a Switzerland-based institutional investment advisor.
•
June – Mercer acquired Kepler Associates, a U.K.-based executive remuneration specialist.
• August – Oliver Wyman acquired the Hong Kong and Shanghai franchises of OC&C Strategy
Consultants.
• September – Mercer acquired Comptryx, a global pay and workforce metrics business
specializing in the technology sector.
• November – Mercer acquired HR Business Solutions (Asia) Limited, a Hong Kong-based
compensation and employee benefits consulting firm, and Gama Consultores Associados Ltda, a
Brazil-based retirement consulting firm.
• December – Mercer acquired CPSG Partners, a Workday Services partner assisting clients
worldwide to maximize the value of Workday Financial Management and Human Capital
Management.
Total purchase consideration for acquisitions made during 2015 was $1.2 billion, which consisted of cash
paid of $1.0 billion and deferred purchase and estimated contingent consideration of $176 million.
Contingent consideration arrangements are primarily based on EBITDA and revenue targets over two to
four years. The fair value of the contingent consideration was based on projected revenue and earnings
of the acquired entities. During 2015, the Company also paid $36 million of deferred purchase
consideration and $47 million of contingent consideration related to acquisitions made in prior years. In
addition, the Company purchased other intangible assets in the amount of $2 million.
Subsequent Acquisition
On January 13, 2017, MMA entered into a definitive agreement to acquire J. Smith Lanier & Co. ("JSL"),
one of the nation’s largest privately held insurance brokerage firms. The transaction is expected to close
in the first quarter of 2017 pending customary approvals. JSL is a leading provider of insurance, risk
management, and employee benefits solutions to businesses and individuals throughout the U.S. Upon
completion of the transaction, JSL will operate as MMA’s Southeast regional hub.
Pro-Forma Information
The following unaudited pro-forma financial data gives effect to the acquisitions made by the Company
during 2016, 2015 and 2014. In accordance with accounting guidance related to pro-forma disclosures,
the information presented for current year acquisitions is as if they occurred on January 1, 2015 and
reflects acquisitions made in 2015 as if they occurred on January 1, 2014. The pro-forma information
adjusts for the effects of amortization of acquired intangibles. The unaudited pro-forma financial data is
presented for illustrative purposes only and is not necessarily indicative of the operating results that would
have been achieved if such acquisitions had occurred on the dates indicated, nor is it necessarily
indicative of future consolidated results.
67
(In millions, except per share data)
Revenue
Income from continuing operations
Net income attributable to the Company
Basic net income per share:
– Continuing operations
– Net income attributable to the Company
Diluted net income per share:
– Continuing operations
– Net income attributable to the Company
Years Ended December 31,
2016
$ 13,503
$ 1,792
$ 1,765
2015
$ 13,528
$ 1,643
$ 1,606
2014
$ 13,395
$ 1,475
$ 1,469
$
$
$
$
3.40
3.40
3.37
3.37
$
$
$
$
3.02
3.02
2.99
2.99
$
$
$
$
2.65
2.69
2.61
2.66
The consolidated statement of income for 2016 includes approximately $25 million of revenue and $4
million of operating income related to acquisitions made during 2016. The consolidated statement of
income for 2015 includes approximately $124 million of revenue and $7 million of operating income
related to acquisitions made during 2015.
Acquisition-related expenses incurred in 2016 were $14 million.
Dispositions
In December 2015, Mercer sold its U.S. defined contribution recordkeeping business. The Company
recognized pre-tax gains of $37 million in 2015 and $6 million in 2016 from this transaction, which are
included in revenue in the consolidated statements of income in those years.
5. Discontinued Operations
As part of the disposal transactions for Putnam and Kroll, the Company provided certain indemnities,
primarily related to pre-transaction tax uncertainties and legal contingencies. In accordance with
applicable accounting guidance, liabilities were established related to these indemnities at the time of the
sales and reflected as a reduction of the gain on disposal. Discontinued operations includes charges or
credits resulting from the settlement or resolution of the indemnified matters, as well as adjustments to the
liabilities related to such matters.
On December 31, 2014, an agreement was reached between Putnam and the Massachusetts
Department of Revenue ("DOR") regarding a tax dispute, which was covered under the indemnity
agreement discussed above. The December 2014 agreement was subject to certain approvals, which
included the State Attorney General and the Commissioner of the DOR. In January 2015, all necessary
approvals were received, the agreement was executed and the tax was paid. Concurrently, Putnam and
the Company executed a settlement agreement to resolve all remaining matters under the indemnity
agreement. The Company recorded a gain, net of federal income taxes, of approximately $28 million in
2014 related to the settlement with Putnam.
Summarized Statements of Income data for discontinued operations is as follows:
For the Years Ended December 31,
(In millions of dollars)
Income (loss) from discontinued operations, net of tax
Disposals of discontinued operations
Income tax (credit) expense
Disposals of discontinued operations, net of tax
Discontinued operations, net of tax
Discontinued operations, net of tax per share
– Basic
– Diluted
68
2016
2015
$
$
$
$
— $
—
—
—
— $
— $
— $
2014
—
42
16
26
26
— $
(5)
(5)
—
— $
— $
— $
0.05
0.04
6. Goodwill and Other Intangibles
The Company is required to assess goodwill and any indefinite-lived intangible assets for impairment
annually, or more frequently if circumstances indicate impairment may have occurred. The Company
performs the annual impairment assessment for each of its reporting units during the third quarter of each
year. In accordance with applicable accounting guidance, the Company assesses qualitative factors to
determine whether it is necessary to perform the two-step goodwill impairment test. The Company
considers numerous factors, which included that the fair value of each reporting unit exceeded its carrying
value by a substantial margin in its most recent estimate of reporting unit fair values, whether significant
acquisitions or dispositions occurred which might alter the fair value of its reporting units, macroeconomic
conditions and their potential impact on reporting unit fair values, actual performance compared with
budget and prior projections used in its estimation of reporting unit fair values, industry and market
conditions, and the year-over-year change in the Company’s share price. The Company completed its
qualitative assessment in the third quarter of 2016 and concluded that a two-step goodwill impairment test
was not required in 2016 and that goodwill was not impaired.
Other intangible assets that are not deemed to have an indefinite life are amortized over their estimated
lives and reviewed for impairment upon the occurrence of certain triggering events in accordance with
applicable accounting literature.
Changes in the carrying amount of goodwill are as follows:
(In millions of dollars)
Balance as of January 1, as reported
Goodwill acquired
Other adjustments(a)
Balance at December 31,
2016
$ 7,889
556
(76)
$ 8,369
2015
$ 7,241
783
(135)
$ 7,889
(a)
Primarily due to the impact of foreign exchange in both years.
The goodwill acquired of $556 million in 2016 (approximately $71 million of which is deductible for tax
purposes) is comprised of $321 million related to the Risk and Insurance Services segment and $235
million related to the Consulting segment.
Goodwill allocable to the Company’s reportable segments is as follows: Risk and Insurance Services,
$5.9 billion and Consulting, $2.5 billion.
The gross cost and accumulated amortization at December 31, 2016 and 2015 are as follows:
(In millions of dollars)
2016
2015
Client relationships
Other (a)
Amortized intangibles
Gross
Cost
$ 1,390 $
204
$ 1,594 $
Accumulated
Amortization
Net
Carrying
Amount
Gross
Cost
Accumulated
Amortization
392 $
76
998 $ 1,281 $
128
176
468 $
1,126 $ 1,457 $
Net
Carrying
Amount
934
102
421 $ 1,036
347 $
74
(a) Primarily non-compete agreements, trade names and developed technology
69
Aggregate amortization expense was $130 million for the year ended December 31, 2016, $109 million
for the year ended December 31, 2015 and $86 million for the year ended December 31, 2014. The
estimated future aggregate amortization expense is as follows:
For the Years Ending December 31,
(In millions of dollars)
2017
2018
2019
2020
2021
Subsequent years
$
148
141
134
120
107
476
$ 1,126
70
7. Income Taxes
For financial reporting purposes, income before income taxes includes the following components:
For the Years Ended December 31,
(In millions of dollars)
Income before income taxes:
U.S.
Other
The expense for income taxes is comprised of:
Income taxes:
Current–
U.S. Federal
Other national governments
U.S. state and local
Deferred–
U.S. Federal
Other national governments
U.S. state and local
Total income taxes
2016
2015
2014
$
725
1,755
$ 2,480
$
702
1,605
$ 2,307
$
313
1,744
$ 2,057
$
$
208
366
43
617
26
32
10
68
685
$
$
90
385
52
527
125
15
4
144
671
$
$
80
369
26
475
27
62
22
111
586
The significant components of deferred income tax assets and liabilities and their balance sheet
classifications are as follows:
December 31,
(In millions of dollars)
Deferred tax assets:
Accrued expenses not currently deductible
Differences related to non-U.S. operations (a)
Accrued U.S. retirement benefits
Net operating losses (b)
Income currently recognized for tax
Foreign tax credit carryforwards
Other
Deferred tax liabilities:
Differences related to non-U.S. operations
Depreciation and amortization
Accrued retirement & postretirement benefits - non-U.S. operations
Other
2016
2015
$
582
127
629
56
71
—
50
$ 1,515
$
586
120
630
70
70
20
49
$ 1,545
$
$
217
377
10
14
618
$
$
176
368
94
6
644
(a) Net of valuation allowances of $3 million in 2016 and $9 million in 2015.
(b) Net of valuation allowances of $17 million in 2016 and $19 million in 2015.
71
December 31,
(In millions of dollars)
Balance sheet classifications:
Deferred tax assets
Other liabilities
2016
2015
$ 1,097
200
$
$ 1,138
237
$
U.S. Federal income taxes are not provided on the excess of the amount for financial reporting over the
tax basis of investments in foreign subsidiaries that are essentially permanent in duration, which at
December 31, 2016, the Company estimates, amounted to approximately $4.4 billion. The determination
of the unrecognized deferred tax liability with respect to these investments is not practicable.
A reconciliation from the U.S. Federal statutory income tax rate to the Company’s effective income tax
rate is shown below:
For the Years Ended December 31,
U.S. Federal statutory rate
U.S. state and local income taxes—net of U.S. Federal
income tax benefit
Differences related to non-U.S. operations
Other
Effective tax rate
2016
35.0%
1.5
(9.2)
0.3
27.6%
2015
35.0%
1.6
(8.0)
0.5
29.1%
2014
35.0%
1.7
(7.5)
(0.7)
28.5%
The Company’s consolidated effective tax rate was 27.6%, 29.1% and 28.5% in 2016, 2015 and 2014,
respectively. The tax rate in each year reflects foreign operations, which are generally taxed at rates lower
than the U.S. statutory tax rate.
Valuation allowances had net decreases of $8 million and $69 million in 2016 and 2015, respectively, and
an increase of $15 million in 2014. During the respective years, adjustments of the beginning of the year
balances of valuation allowances decreased income tax expense by $7 million, $14 million and $9 million
in 2016, 2015 and 2014, respectively. The decrease in the valuation allowance in 2015 also reflects the
write down of a deferred tax asset along with its full valuation allowance because the Company cannot
utilize a net operating loss. Approximately 77% of the Company’s net operating loss carryforwards expire
from 2017 through 2036, and others are unlimited. The potential tax benefit from net operating loss
carryforwards at the end of 2016 comprised federal, state and local, and non-U.S. tax benefits of $7
million, $48 million and $31 million, respectively, before reduction for valuation allowances.
The realization of deferred tax assets depends on generating future taxable income during the periods in
which the tax benefits are deductible or creditable. Tax liabilities are determined and assessed
jurisdictionally by legal entity or filing group. Certain taxing jurisdictions allow or require combined or
consolidated tax filings. The Company assessed the realizability of its deferred tax assets. The
Company considered all available evidence, including the existence of a recent history of losses, placing
particular weight on evidence that could be objectively verified. A valuation allowance was recorded to
reduce deferred tax assets to the amount that the Company believes is more likely than not to be
realized.
Following is a reconciliation of the Company’s total gross unrecognized tax benefits for the years ended
December 31, 2016, 2015 and 2014:
(In millions of dollars)
Balance at January 1,
Additions, based on tax positions related to current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Settlements
Lapses in statutes of limitation
Balance at December 31,
2016
74
2
6
(6)
(7)
(4)
65
$
$
2015
97
3
22
(10)
(20)
(18)
74
$
$
2014
128
13
3
(29)
(4)
(14)
97
$
$
72
Of the total unrecognized tax benefits at December 31, 2016, 2015 and 2014, $53 million, $53 million and
$51 million, respectively, represent the amount that, if recognized, would favorably affect the effective tax
rate in any future periods. The total gross amount of accrued interest and penalties at December 31,
2016, 2015 and 2014, before any applicable federal benefit, was $11 million, $8 million and $7 million,
respectively.
As discussed in Note 5, the Company has provided certain indemnities related to contingent tax liabilities
as part of the disposals of Putnam and Kroll. At December 31, 2016, 2015 and 2014, $0 million, $1 million
and $2 million, respectively, included in the table above, relates to Putnam and Kroll positions included in
consolidated Company tax returns.
The Company is routinely examined by tax authorities in the jurisdictions in which it has significant
operations. In the US federal jurisdiction the Company participates in the Internal Revenue Service’s
(IRS) Compliance Assurance Process (CAP), which is structured to conduct real-time compliance
reviews. The IRS is currently examining the Company’s 2015 tax return and performing a pre-filing review
of 2016. During 2016 the Company settled its federal tax audit with the IRS for the year 2014. In 2015,
the Company settled its federal tax audit for the year 2013, and in 2014 settled the year 2012.
New York State and New York City have examinations underway for various entities covering the years
2007 through 2014. During 2016, California initiated and concluded an audit of years 2013 and 2014.
Outside the United States, there are ongoing examinations in Germany for the years 2009 through 2012
and in France for the years 2013 and 2014. France closed examinations of years 2011 and 2012 in 2016.
Canada closed its examination of year 2012 in 2016 and commenced examinations for years 2013 and
2014. The United Kingdom closed its 2011 and 2012 examination in 2016 and commenced an
examination of year 2014. The Company regularly considers the likelihood of assessments in each of the
taxing jurisdictions resulting from examinations. The Company has established liabilities for uncertain tax
positions in relation to the potential assessments. The Company believes the resolution of tax matters will
not have a material effect on the consolidated financial position of the Company, although a resolution of
tax matters could have a material impact on the Company's net income or cash flows and on its effective
tax rate in a particular future period. It is reasonably possible that the total amount of unrecognized tax
benefits will decrease between zero and approximately $7 million within the next twelve months due to
the settlement of audits and the expiration of statutes of limitation.
8. Retirement Benefits
The Company maintains qualified and non-qualified defined benefit pension plans for its U.S. and non-
U.S. eligible employees. The Company’s policy for funding its tax qualified defined benefit retirement
plans is to contribute amounts at least sufficient to meet the funding requirements set forth by U.S. law
and the laws of the non-U.S. jurisdictions in which the Company offers defined benefit plans.
Combined U.S. and non-U.S. Plans
The weighted average actuarial assumptions utilized for the U.S. and significant non-U.S. defined benefit
plans and postretirement benefit plans are as follows:
Weighted average assumptions:
Discount rate (for expense)
Expected return on plan assets
Rate of compensation increase (for expense)
Discount rate (for benefit obligation)
Rate of compensation increase (for benefit
obligation)*
Pension
Benefits
Postretirement
Benefits
2016
2015
2016
2015
4.10%
7.06%
2.44%
3.40%
3.83%
7.23%
2.42%
4.11%
4.12%
—
—
3.64%
3.87%
—
—
4.12%
1.77%
2.44%
—
—
*The 2016 assumption does not include a rate of compensation increase for the U.S. defined benefit
plans since those plans were frozen to future benefits after December 31, 2016.
73
The Company uses actuaries from Mercer, a subsidiary of the Company, to perform valuations of its
pension plans. The long-term rate of return on plan assets assumption is determined for each plan based
on the facts and circumstances that exist as of the measurement date, and the specific portfolio mix of
each plan’s assets. The Company utilizes a model developed by the Mercer actuaries to assist in the
determination of this assumption. The model takes into account several factors, including: actual and
target portfolio allocation; investment, administrative and trading expenses incurred directly by the plan
trust; historical portfolio performance; relevant forward-looking economic analysis; and expected returns,
variances and correlations for different asset classes. These measures are used to determine
probabilities using standard statistical techniques to calculate a range of expected returns on the portfolio.
The Company generally does not adjust the rate of return assumption from year to year if, at the
measurement date, it is within the range between the 25th and 75th percentile of the expected long-term
annual returns. Historical long-term average asset returns of each plan are also reviewed to determine
whether they are consistent and reasonable compared with the rate selected. The expected return on
plan assets is determined by applying the assumed long-term rate of return to the market-related value of
plan assets. This market-related value recognizes investment gains or losses over a five-year period from
the year in which they occur. Investment gains or losses for this purpose are the difference between the
expected return calculated using the market-related value of assets and the actual return based on the
market value of assets. Since the market-related value of assets recognizes gains or losses over a five-
year period, the future market-related value of the assets will be impacted as previously deferred gains or
losses are reflected.
The target asset allocation for the U.S. Plans is 64% equities and equity alternatives and 36% fixed
income. At the end of 2016, the actual allocation for the U.S. Plans was 65% equities and equity
alternatives and 35% fixed income. The target asset allocation for the U.K. Plans, which comprise
approximately 81% of non-U.S. Plan assets, is 48% equities and equity alternatives and 52% fixed
income. At the end of 2016, the actual allocation for the U.K. Plans was 48% equities and equity
alternatives and 52% fixed income. The assets of the Company's defined benefit plans are diversified and
are managed in accordance with applicable laws and with the goal of maximizing the plans' real return
within acceptable risk parameters. The Company uses threshold-based portfolio re-balancing to ensure
the actual portfolio remains consistent with target asset allocation ranges.
The discount rate selected for each U.S. plan is based on a model bond portfolio with coupons and
redemptions that closely match the expected liability cash flows from the plan. Discount rates for non-U.S.
plans are based on appropriate bond indices adjusted for duration; in the U.K., the plan duration is
reflected using the Mercer yield curve.
The components of the net periodic benefit cost for defined benefit and other postretirement plans are as
follows:
Combined U.S. and significant non-U.S. Plans
For the Years Ended December 31,
(In millions of dollars)
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service (credit) cost
Recognized actuarial loss (gain)
Net periodic benefit (credit) cost
Curtailment (loss) gain
Plan termination
Settlement loss
Pension
Benefits
Postretirement
Benefits
2016
2015
2014
2016
2015
2014
$ 178 $ 196 $ 213 $
2 $
3 $
537
587
641
(940)
(977)
(990)
(1)
168
(1)
271
(16)
243
5
—
4
(2)
5
—
3
(1)
$ (58) $
76 $
91 $
9 $
10 $
(4)
—
—
5
—
1
(65)
—
—
—
—
—
—
(128)
—
Total (credit) cost
$ (62) $
82 $
26 $
9 $ (118) $
74
4
11
—
—
(1)
14
—
—
—
14
Plan Assets
For the U.S. Plans, investment allocation decisions are made by a fiduciary committee composed of
senior executives appointed by the Company’s Chief Executive Officer. For the non-U.S. plans,
investment allocation decisions are made by local fiduciaries, in consultation with the Company for the
larger plans. Plan assets are invested in a manner consistent with the fiduciary standards set forth in all
relevant laws relating to pensions and trusts in each country. Primary investment objectives are (1) to
achieve an investment return that, in combination with current and future contributions, will provide
sufficient funds to pay benefits as they become due, and (2) to minimize the risk of large losses. The
investment allocations are designed to meet these objectives by broadly diversifying plan assets among
numerous asset classes with differing expected returns, volatilities, and correlations.
The major categories of plan assets include equity securities, equity alternative investments, and fixed
income securities. For the U.S. qualified plans, the category ranges are 59-69% for equities and equity
alternatives, and 31-41% for fixed income. For the U.K. Plan, the category ranges are 45-51% for equities
and equity alternatives, and 49-55% for fixed income. Asset allocation is monitored frequently and re-
balancing actions are taken as appropriate.
Plan investments are exposed to stock market, interest rate, and credit risk. Concentrations of these risks
are generally limited due to diversification by investment style within each asset class, diversification by
investment manager, diversification by industry sectors and issuers, and the dispersion of investments
across many geographic areas.
Unrecognized Actuarial Gains/Losses
In accordance with applicable accounting guidance, the funded status of the Company's pension plans is
recorded in the consolidated balance sheets and provides for a delayed recognition of actuarial gains or
losses arising from changes in the projected benefit obligation due to changes in the assumed discount
rates, differences between the actual and expected value of plan assets and other assumption changes.
The unrecognized pension plan actuarial gains or losses and prior service costs not yet recognized in net
periodic pension cost are recognized in Accumulated Other Comprehensive Income ("AOCI"), net of tax.
These gains and losses are amortized prospectively out of AOCI over a period that approximates the
remaining life expectancy of participants in plans where substantially all participants are inactive, or the
average remaining service period of active participants for plans with active participants.
Interest and Service Cost
In 2016, the Company modified the approach used to estimate the service and interest cost components
of net periodic benefit cost for its significant non-U.S. plans. Historically, service and interest costs were
estimated using a single weighted average discount rate derived from the yield curves used to measure
the benefit obligations at the beginning of the period. This change in approach was made to improve the
correlation between the projected benefit cash flows and the corresponding yield curve spot rates and to
provide a more precise measurement of service and interest costs. The change does not impact the
measurement of the plans’ total Projected Benefit Obligation. The Company has accounted for this
change as a change in estimate, that was applied prospectively beginning in 2016.
75
U.S. Plans
The following schedules provide information concerning the Company’s U.S. defined benefit pension
plans and postretirement benefit plans:
U.S. Pension
Benefits
U.S. Postretirement
Benefits
2016
2015
2016
2015
(In millions of dollars)
Change in benefit obligation:
Benefit obligation at beginning of year
Service cost
Interest cost
Employee contributions
Effect of curtailment
Plan termination
Actuarial loss (gain)
Benefits paid
Benefit obligation, December 31
Change in plan assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Employee contributions
Benefits paid
Other
Fair value of plan assets, December 31
Net funded status, December 31
Amounts recognized in the consolidated balance
sheets:
Current liabilities
Non-current liabilities
Net liability recognized, December 31
Amounts recognized in other comprehensive income
(loss):
Prior service (cost) credit
Net actuarial (loss) gain
Total recognized accumulated other comprehensive
(loss) income, December 31
$
$
$
$
$
$
$
$
5,685 $
106
264
—
(98)
—
160
(223)
5,894 $
4,160 $
401
27
—
(223)
—
4,365 $
(1,529) $
5,924 $
114
254
—
—
—
(392)
(215)
5,685 $
4,516 $
(170)
29
—
(215)
—
4,160 $
(1,525) $
(27) $
(26) $
(1,502)
(1,529) $
(1,499)
(1,525) $
40 $
—
2
3
—
—
—
(8)
37 $
3 $
—
5
3
(8)
(1)
2 $
(35) $
(2) $
(33)
(35) $
— $
— $
(1,720)
(1,754)
(3) $
11
$
(1,720) $
(1,754) $
8 $
Cumulative employer contributions in excess of (less
than) net periodic cost
Net amount recognized in consolidated balance sheet $
$
Accumulated benefit obligation at December 31
191
(1,529) $
5,894 $
229
(1,525) $
5,600 $
(43)
(35) $
— $
76
177
1
2
3
—
(128)
(5)
(10)
40
18
—
4
3
(10)
(12)
3
(37)
(2)
(35)
(37)
(7)
13
6
(43)
(37)
—
(In millions of dollars)
Reconciliation of prior service credit (cost) recognized
in accumulated other comprehensive income (loss):
Beginning balance
Recognized as component of net periodic benefit cost
Plan termination
Prior service cost, December 31
(In millions of dollars)
Reconciliation of net actuarial (loss) gain recognized
in accumulated other comprehensive income (loss):
Beginning balance
Recognized as component of net periodic benefit cost
(credit)
Changes in plan assets and benefit obligations
recognized in other comprehensive income (loss):
Effect of curtailment
Other
Liability experience
Asset experience
U.S. Pension
Benefits
U.S. Postretirement
Benefits
2016
2015
2016
2015
$
$
— $
—
—
— $
— $
—
—
— $
(7) $
4
—
(3) $
4
3
(14)
(7)
U.S. Pension
Benefits
U.S. Postretirement
Benefits
2016
2015
2016
2015
$
(1,754) $
(1,749) $
13 $
74
146
(2)
98
—
(160)
22
—
—
392
(543)
—
—
—
—
—
2
(2)
—
8
5
—
5
13
Total (loss) gain recognized as change in plan assets
and benefit obligations
(40)
(151)
Net actuarial (loss) gain, December 31
$
(1,720) $
(1,754) $
11 $
For the Years Ended December 31,
(In millions of dollars)
Total recognized in net periodic benefit cost
and other comprehensive loss (income)
U.S. Pension
Benefits
2015
2016
2014
U.S. Postretirement
Benefits
2015
2016
2014
$
31 $
146 $
885 $
2 $ (138) $
14
Estimated amounts that will be amortized from accumulated other comprehensive loss in the next fiscal
year:
(In millions of dollars)
Prior service credit
Net actuarial loss
Projected cost (credit)
U.S. Pension
Benefits
U.S. Postretirement
Benefits
2017
— $
37
37
$
2017
(3)
1
(2)
$
$
77
The weighted average actuarial assumptions utilized in determining the above amounts for the U.S.
defined benefit and other U.S. postretirement plans as of the end of the year are as follows:
Weighted average assumptions:
Discount rate (for expense)
Expected return on plan assets
Rate of compensation increase (for expense)
Discount rate (for benefit obligation)
Rate of compensation increase (for benefit obligation) *
U.S. Pension
Benefits
U.S. Postretirement
Benefits
2016
2015
2016
2015
4.71%
8.72%
2.00%
4.58%
—
4.41%
8.75%
2.00%
4.74%
2.00%
4.36%
—
—
4.12%
—
3.90%
—
—
4.36%
—
* No assumption is required since the U.S. plans were frozen to future benefits after December 31, 2016.
In 2014, the Society of Actuaries in the United States issued a new mortality table (RP-2014) and an
updated improvement scale. The Company considered the effect of RP-2014, along with other available
information on mortality improvement and industry specific mortality studies, to select its assumptions for
measurement of the plans’ benefit obligations at December 31, 2016 and 2015.
The projected benefit obligation, accumulated benefit obligation and aggregate fair value of plan assets
for U.S. pension plans with accumulated benefit obligations in excess of plan assets were $5.9 billion,
$5.9 billion and $4.4 billion, respectively, as of December 31, 2016 and $5.7 billion, $5.6 billion and $4.2
billion, respectively, as of December 31, 2015.
The projected benefit obligation and fair value of plan assets for U.S. pension plans with projected benefit
obligations in excess of plan assets was $5.9 billion and $4.4 billion, respectively, as of December 31,
2016 and $5.7 billion and $4.2 billion, respectively, as of December 31, 2015.
As of December 31, 2016, the U.S. qualified plans hold 4 million shares of the Company’s common stock
which were contributed to the Plan by the Company in 2005. This represented approximately 6.2% of
those plans' assets as of December 31, 2016. In addition, plan assets may be invested in funds managed
by Mercer Investments, a subsidiary of the Company.
The components of the net periodic benefit cost for the U.S. defined benefit and other postretirement
benefit plans are as follows:
U.S. Plans only
For the Years Ended December 31,
(In millions of dollars)
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service (credit) cost
Recognized actuarial loss (gain)
Net periodic benefit cost (credit)
Plan termination
Total cost (credit)
Pension
Benefits
2015
2016
106 $
264
(379)
—
74
65 $
114 $
254
(373)
—
146
141 $
—
65 $
—
141 $
$
$
$
Postretirement
Benefits
2015
2016
2014
91 $ — $
2014
2
7
—
—
(2)
7
1 $
2
—
3
(2)
4 $
2
—
4
(2)
4 $
(128)
—
4 $ (124) $
—
7
253
(346)
(7)
112
103 $
—
103 $
Effective September 1, 2015, the Company divided its U.S. qualified defined benefit plan to provide
enhanced flexibility to manage the risk associated with those participants not receiving benefit accruals.
The existing plan was amended to cover only the retirees currently receiving benefits and terminated
vested participants as of August 1, 2015. The Company's active participants as of that date were
transferred into a newly established, legally separate qualified defined benefit plan. The benefits offered
to the plans' participants were unchanged. As a result of the plan amendment and establishment of the
new plan, the Company re-measured the assets and liabilities of the two plans as required under U.S.
GAAP, based on assumptions and market conditions at the amendment date. The net periodic pension
78
expense recognized in 2015 reflects the weighted average costs of the December 31, 2014 measurement
and the September 1, 2015 re-measurement.
In October 2016, the Company modified its U.S. defined benefit pension plans to discontinue further
benefit accruals for participants after December 31, 2016. At the same time, the Company amended its
U.S. defined contribution retirement plans for most of its U.S. employees to add an automatic Company
contribution equal to 4% of eligible base pay beginning on January 1, 2017. This new Company
contribution, together with the Company’s current matching contribution, provides eligible U.S. employees
with the opportunity to receive a total contribution of up to 7% of eligible base pay. As required under
GAAP, the defined benefit plans that were significantly impacted by the modification were re-measured in
October 2016 using market data and assumptions as of the modification date. The net periodic pension
expense recognized in 2016 reflects the weighted average costs of the December 31, 2015 measurement
and the October 2016 re-measurement. In addition, the U.S. qualified plans were merged effective
December 30, 2016, since no participants would be receiving benefit accruals after December 31, 2016.
In March 2015, the Company amended its U.S. Post-65 retiree medical reimbursement plan (the "RRA
plan"), resulting in its termination, with benefits to certain participants paid through December 31, 2016.
As a result of the termination of the RRA plan, the Company recognized a net credit of approximately
$125 million in the first quarter of 2015.
In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 became
law. The net periodic benefit cost for all periods shown above includes the related subsidy.
The assumed health care cost trend rate for Medicare eligibles and non-Medicare eligibles is
approximately 6.9% in 2016, gradually declining to 4.5% in 2039. Assumed health care cost trend rates
have a small effect on the amounts reported for the U.S. health care plans because the Company caps its
share of health care trend at 5%. A one percentage point change in assumed health care cost trend rates
would have no effect on the total service and interest cost components or the postretirement benefit
obligation.
Estimated Future Contributions
The Company expects to fund approximately $32 million for its U.S. plans in 2017, including an ERISA
funding requirement of $6 million to the U.S. qualified plan. The Company’s policy for funding its tax-
qualified defined benefit retirement plans is to contribute amounts at least sufficient to meet the funding
requirements set forth in the U.S. and applicable foreign law.
79
Non-U.S. Plans
The following schedules provide information concerning the Company’s non-U.S. defined benefit pension
plans and non-U.S. postretirement benefit plans:
(In millions of dollars)
Change in benefit obligation:
Benefit obligation at beginning of year
Service cost
Interest cost
Employee contributions
Actuarial loss (gain)
Plan amendments
Effect of settlement
Effect of curtailment
Benefits paid
Foreign currency changes
Other
Benefit obligation December 31
Change in plan assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Effect of settlement
Company contributions
Employee contributions
Benefits paid
Foreign currency changes
Other
Fair value of plan assets, December 31
Net funded status, December 31
Amounts recognized in the consolidated balance
sheets:
Non-current assets
Current liabilities
Non-current liabilities
Net asset (liability) recognized, December 31
Amounts recognized in other comprehensive
(loss) income:
Prior service (cost) credit
Net actuarial loss
Total recognized accumulated other
comprehensive (loss) income, December 31
Cumulative employer contributions in excess of
(less than) net periodic cost
Net asset (liability) recognized in consolidated
balance sheet, December 31
Accumulated benefit obligation, December 31
Non-U.S. Pension
Benefits
2016
2015
Non-U.S.
Postretirement Benefits
2015
2016
9,076 $
72
273
7
1,966
(49)
(27)
(7)
(352)
(1,290)
1
9,670 $
9,826 $
1,815
(27)
187
7
(352)
(1,439)
—
10,017 $
347 $
10,018 $
82
333
8
(432)
(5)
(12)
8
(337)
(632)
45
9,076 $
10,410 $
187
(12)
166
8
(337)
(620)
24
9,826 $
750 $
766 $
(5)
(414)
347 $
1,144 $
(5)
(389)
750 $
79 $
2
3
—
5
—
—
—
(3)
(5)
—
81 $
— $
—
—
3
—
(3)
—
—
— $
(81) $
— $
(3)
(78)
(81) $
43 $
(3) $
(3,081)
(2,887)
— $
(11)
(3,038) $
(2,890) $
(11) $
3,385
3,640
(70)
347 $
750 $
9,397 $
8,830 $
(81) $
— $
$
$
$
$
$
$
$
$
$
$
$
80
93
2
3
—
(6)
—
—
—
(3)
(10)
—
79
—
—
—
3
—
(3)
—
—
—
(79)
—
(3)
(76)
(79)
—
(6)
(6)
(73)
(79)
—
(In millions of dollars)
Reconciliation of prior service credit (cost)
recognized in accumulated other
comprehensive income (loss):
Beginning balance
Recognized as component of net periodic
benefit credit
Effect of curtailment
Changes in plan assets and benefit obligations
recognized in other comprehensive income:
Plan amendments
Exchange rate adjustments
Non-U.S. Pension
Benefits
Non-U.S.
Postretirement Benefits
2016
2015
2016
2015
$
(3) $
(2) $
— $
(1)
—
49
(2)
(1)
(5)
5
—
—
—
—
—
—
—
—
—
—
—
Prior service (cost) credit, December 31
$
43 $
(3) $
— $
(In millions of dollars)
Reconciliation of net actuarial gain (loss)
recognized in accumulated other
comprehensive income (loss):
Beginning balance
Recognized as component of net periodic
benefit cost
Effect of settlement
Changes in plan assets and benefit obligations
recognized in other comprehensive (loss)
income:
Liability experience
Asset experience
Other
Effect of curtailment
Total amount recognized as change in plan
assets and benefit obligations
Exchange rate adjustments
Net actuarial loss, December 31
Non-U.S. Pension
Benefits
Non-U.S.
Postretirement Benefits
2016
2015
2016
2015
$
(2,887) $
(3,215) $
(6) $
(14)
94
—
(1,966)
1,254
—
3
(709)
421
125
2
432
(417)
(20)
—
(5)
206
—
—
(5)
—
—
—
(5)
—
$
(3,081) $
(2,887) $
(11) $
1
—
6
—
—
—
6
1
(6)
For the Years Ended December 31,
(In millions of dollars)
Total recognized in net periodic benefit
cost and other comprehensive loss
(income)
Non-U.S. Pension
Benefits
2015
2016
2014
Non-U.S. Postretirement
Benefits
2015
2016
2014
$
21 $ (407) $
201 $
10 $
(2) $
5
81
Estimated amounts that will be amortized from accumulated other comprehensive income in the next
fiscal year:
(In millions of dollars)
Prior service credit
Net actuarial loss
Projected cost
Non-U.S.
Pension
Benefits
Non-U.S.
Postretirement
Benefits
2017
(2) $
126
124
$
2017
—
1
1
$
$
The weighted average actuarial assumptions utilized for the non-U.S. defined and postretirement benefit
plans as of the end of the year are as follows:
Weighted average assumptions:
Discount rate (for expense)
Expected return on plan assets
Rate of compensation increase (for expense)
Discount rate (for benefit obligation)
Rate of compensation increase (for benefit
obligation)
Non-U.S. Pension
Benefits
Non-U.S.
Postretirement Benefits
2016
2015
2016
2015
3.71%
6.36%
2.72%
2.69%
3.49%
6.57%
2.67%
3.71%
4.00%
—
—
3.42%
3.85%
—
—
4.00%
2.85%
2.72%
—
—
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the non-
U.S. pension plans with accumulated benefit obligations in excess of plan assets were $1.2 billion, $1.2
billion and $0.9 billion, respectively, as of December 31, 2016 and $1.7 billion, $1.6 billion and $1.3 billion,
respectively, as of December 31, 2015.
The projected benefit obligation and fair value of plan assets for non-U.S. pension plans with projected
benefit obligations in excess of plan assets was $2.1 billion and $1.7 billion, respectively, as of
December 31, 2016 and $1.9 billion and $1.5 billion, respectively, as of December 31, 2015.
Non-U.S. Plan Amendments
Effective August 1, 2015, the Company amended its Ireland defined benefit pension plans to close those
plans to future benefit accruals and replaced those plans with a defined contribution arrangement. The
Company re-measured the assets and liabilities of the plans, based on assumptions and market
conditions on the amendment date. The net periodic pension costs recognized in 2015 reflect the
weighted average costs of the December 31, 2014 measurement and the August 1, 2015 re-
measurement.
After completion of a consultation period with affected colleagues, in January 2014, the Company
amended its U.K. defined benefit pension plans to close those plans to future benefit accruals effective
August 1, 2014 and replaced those plans, along with its existing defined contribution plans, with a new,
comprehensive defined contribution arrangement. This change resulted in a curtailment of the U.K.
defined benefit plans and, as required under GAAP, the Company re-measured the defined benefit plans’
assets and liabilities at the amendment date, based on assumptions and market conditions at that date.
The net periodic benefit costs recognized in 2014 are the weighted average resulting from the
December 31, 2013 measurement and the January 2014 re-measurement. The Company recognized a
curtailment gain of $65 million in the first quarter of 2014, primarily resulting from the recognition of the
remaining unamortized prior service credit related to a plan amendment made in December 2012. This
gain was mostly offset by the cost of a transition benefit for certain employees most impacted by the
amendment, which is not part of net periodic pension cost.
82
Components of Net Periodic Benefits Costs
The components of the net periodic benefit cost for the non-U.S. defined benefit and other postretirement
benefit plans and the curtailment, settlement and termination expenses are as follows:
For the Years Ended December 31,
(In millions of dollars)
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Recognized actuarial loss
Net periodic benefit (credit) cost
Settlement loss
Curtailment (gain) loss
Total (credit) cost
Non-U.S. Pension
Benefits
Non-U.S. Postretirement
Benefits
2016
2015
2014
2016
2015
2014
$
72 $
82 $
122 $
2 $
2 $
273
(561)
(1)
94
(123)
—
(4)
333
(604)
(1)
125
(65)
1
5
388
(644)
(9)
131
(12)
—
(65)
3
—
—
—
5
—
—
3
—
—
1
6
—
—
$ (127) $
(59) $
(77) $
5 $
6 $
2
4
—
—
1
7
—
—
7
The assumed health care cost trend rate was approximately 5.20% in 2016, gradually declining to 4.48%
in 2026. Assumed health care cost trend rates can have a significant effect on the amounts reported for
the non-U.S. health care plans. A one percentage point change in assumed health care cost trend rates
would have the following effects:
(In millions of dollars)
Effect on total of service and interest cost components
Effect on postretirement benefit obligation
Estimated Future Contributions
1 Percentage
Point Increase
1
$
8
$
1 Percentage
Point Decrease
—
$
(7)
$
The Company expects to contribute approximately $224 million to its non-U.S. pension plans in 2017.
Funding requirements for non-U.S. plans vary by country. Contribution rates are generally based on local
funding practices and requirements, which may differ significantly from measurements under U.S. GAAP.
Funding amounts may be influenced by future asset performance, the level of discount rates and other
variables impacting the assets and/or liabilities of the plan. Discretionary contributions may also be
affected by alternative uses of the Company’s cash flows, including dividends, investments and share
repurchases.
In the U.K., the assumptions used to determine pension contributions are the result of legally-prescribed
negotiations between Company and the plans' trustee that typically occurs every three years in
conjunction with the actuarial valuation of the plans. Currently, this results in a lower funded status than
under U.S. GAAP and may result in contributions irrespective of the U.S. GAAP funded status. In
November 2016, the Company and the Trustee of the U.K. Defined Benefits Plans agreed to a funding
deficit recovery plan for the U.K. defined benefit pension plans. The current agreement with the Trustee
sets out the annual deficit contributions which would be due based on the deficit at December 31, 2015.
The funding level is subject to re-assessment, in most cases on November 1st of each year. If the funding
level on November 1st is sufficient, no deficit funding contributions will be required in the following year,
and the contribution amount will be deferred. As part of a long-term strategy, which depends on having
greater influence over asset allocation and overall investment decisions, in November 2016, the
Company renewed its agreement to support annual deficit contributions by the U.K. operating companies
under certain circumstances, up to GBP 450 million over a seven-year period.
83
Estimated Future Benefit Payments
The Plans' estimated future benefit payments for its pension and postretirement benefits (without
reduction for Medicare subsidy receipts) are as follows:
For the Years Ended December 31,
(In millions of dollars)
2017
2018
2019
2020
2021
2022-2026
Pension
Benefits
Postretirement
Benefits
U.S.
244
259
276
287
297
1,641
$
$
$
$
$
$
Non-U.S.
240
$
272
$
281
$
293
$
303
$
1,719
$
$
$
$
$
$
$
U.S.
Non-U.S.
3
$
3
$
3
$
3
$
4
$
19
$
4
4
4
4
3
14
Defined Benefit Plans Fair Value Disclosures
The U.S. and non-U.S. plan investments are classified into Level 1, which refers to investments valued
using quoted prices from active markets for identical assets; Level 2, which refers to investments not
traded on an active market but for which observable market inputs are readily available; and Level 3,
which refers to investments valued based on significant unobservable inputs. Assets and liabilities are
classified in their entirety based on the lowest level of input that is significant to the fair value
measurement.
In 2016, the Company adopted new guidance issued by the FASB, which removes the requirement to
present certain investments for which the practical expedient is used to measure fair value at net asset
value ("NAV") within the fair value hierarchy table. Instead, an entity is required to include those
investments as a reconciling item so that the total fair value amount of investments in the disclosure is
consistent with the fair value investment balance on the statement of net assets. The adoption of the new
guidance, which requires retrospective application, resulted in the reclassifications of $6.6 billion and $1.4
billion from Level 2 and Level 3, respectively, to NAV categorization within the hierarchy table as of
December 31, 2015.
84
The following table sets forth, by level within the fair value hierarchy, a summary of the U.S. and non-U.S.
plans' investments measured at fair value on a recurring basis at December 31, 2016 and 2015:
Fair Value Measurements at December 31, 2016
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
Assets (In millions of
dollars)
Common/collective trusts
Corporate obligations
Corporate stocks
Private equity/partnerships
Government securities
Real estate
Short-term investment funds
Company common stock
Other investments
Total investments
$
16 $
—
2,009
—
11
—
297
270
15
2,618 $
— $
3,024
3
—
380
—
22
—
23
3,452 $
— $
9
2
—
—
—
—
—
312
323 $
NAV
Total
6,805 $
—
—
722
—
412
—
—
—
7,939 $
6,821
3,033
2,014
722
391
412
319
270
350
14,332
Fair Value Measurements at December 31, 2015
Assets (In millions of
dollars)
Common/collective trusts
Corporate obligations
Corporate stocks
Private equity/partnerships
Government securities
Real estate
Short-term investment funds
Company common stock
Other investments
Total investments
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
$
175 $
—
1,844
—
10
—
312
222
13
2,576 $
— $
2,651
6
—
415
—
4
—
47
3,123 $
— $
1
2
—
—
—
—
—
257
260 $
NAV
Total
6,861 $
—
—
710
—
442
—
—
—
8,013 $
7,036
2,652
1,852
710
425
442
316
222
317
13,972
85
The tables below set forth a summary of changes in the fair value of the plans’ Level 3 assets for the
years ended December 31, 2016 and December 31, 2015:
Assets (In
millions)
Other
investments
Corporate stocks
Corporate
obligations
Total assets
Assets (In
millions)
Other
investments
Corporate stocks
Corporate
obligations
Fair Value,
January 1,
2016
Purchases Sales
Unrealized
Gain/
(Loss)
Realized
Gain/
(Loss)
Exchange
Rate
Impact
Transfers
in/(out)
and
Other
Fair
Value,
December
31, 2016
257
2
1
27
—
8
(28)
—
—
67
—
1
$
260
$
35
$ (28) $
68
$
1
—
—
1
(12)
—
(1)
—
—
—
312
2
9
$
(13) $
— $
323
Fair Value,
January 1,
2015
Purchases Sales
Unrealized
Gain/
(Loss)
Realized
Gain/
(Loss)
Exchange
Rate
Impact
Transfers
in/(out)
and
Other
Fair
Value,
December
31, 2015
239
1
3
47
—
—
47
(13)
—
—
$ (13) $
14
1
—
15
—
—
—
(30)
—
—
—
—
(2)
257
2
1
$
— $
(30) $
(2) $
260
Total assets
$
243
$
The following is a description of the valuation methodologies used for assets measured at fair value:
Company common stock: Valued at the closing price reported on the New York Stock Exchange.
Common stocks, preferred stocks, convertible equity securities, rights/warrants and real estate
investment trusts (included in Corporate stocks): Valued at the closing price reported on the primary
exchange.
Corporate bonds (included in Corporate obligations): The fair value of corporate bonds is estimated using
recently executed transactions, market price quotations (where observable) and bond spreads. The
spread data used are for the same maturity as the bond. If the spread data does not reference the issuer,
then data that references a comparable issuer are used. When observable price quotations are not
available, fair value is determined based on cash flow models.
Commercial mortgage-backed and asset-backed securities (included in Corporate obligations): Fair
value is determined using discounted cash flow models. Observable inputs are based on trade and quote
activity of bonds with similar features including issuer vintage, purpose of underlying loan (first or second
lien), prepayment speeds and credit ratings. The discount rate is the combination of the appropriate rate
from the benchmark yield curve and the discount margin based on quoted prices.
Common/Collective trusts: Valued at the net asset value of units of a bank collective trust. The net asset
value as provided by the trustee, is used as a practical expedient to estimate fair value. The net asset
value is based on the fair value of the underlying investments held by the fund less its liabilities. This
practical expedient is not used when it is determined to be probable that the fund will sell the investment
for an amount different than the reported net asset value.
U.S. government bonds (included in Government securities): The fair value of U.S. government bonds is
estimated by pricing models that utilize observable market data including quotes, spreads and data points
for yield curves.
U.S. agency securities (included in Government securities): U.S. agency securities are comprised of two
main categories consisting of agency issued debt and mortgage pass-throughs. Agency issued debt
securities are valued by benchmarking market-derived prices to quoted market prices and trade data for
identical or comparable securities. Mortgage pass-throughs include certain "To-be-announced" (TBA)
securities and mortgage pass-through pools. TBA securities are generally valued using quoted market
prices or are benchmarked thereto. Fair value of mortgage pass-through pools are model driven with
respect to spreads of the comparable TBA security.
86
Private equity and real estate partnerships: Investments in private equity and real estate partnerships are
valued based on the fair value reported by the manager of the corresponding partnership and reported on
a one quarter lag. The managers provide unaudited quarterly financial statements and audited annual
financial statements which set forth the value of the fund. The valuations obtained from the managers are
based on various analyses on the underlying holdings in each partnership, including financial valuation
models and projections, comparable valuations from the public markets, and precedent private market
transactions. Investments are valued in the accompanying financial statements based on the Plan’s
beneficial interest in the underlying net assets of the partnership as determined by the partnership
agreement.
Insurance group annuity contracts: The fair values for these investments are based on the current market
value of the aggregate accumulated contributions plus interest earned.
Swap assets (included in Other investments): Fair values for interest rate swaps, equity index swaps and
inflation swaps are estimated using a discounted cash flow pricing model. These models use observable
market data such as contractual fixed rate, spot equity price or index value and dividend data. The fair
values of credit default swaps are estimated using an income approach model which determines
expected cash flows based on default probabilities from the issuer-specific credit spread curve and credit
loss recovery rates, both of which are dependent on market quotes.
Short-term investment funds: Primarily high-grade money market instruments valued at net asset value
at year-end.
Registered investment companies: Valued at the closing price reported on the primary exchange.
Defined Contribution Plans
The Company maintains certain defined contribution plans for its employees, including the Marsh &
McLennan Companies 401(k) Savings & Investment Plan ("401(k) Plan"), that are qualified under U.S. tax
laws. Under these plans, eligible employees may contribute a percentage of their base salary, subject to
certain limitations. For the 401(k) Plan, the Company matches a fixed portion of the employees’
contributions. The 401(k) Plan contains an Employee Stock Ownership Plan feature under U.S. tax law.
Approximately $436 million of the 401(k) Plan’s assets at December 31, 2016 and $398 million in
December 31, 2015 were invested in the Company’s common stock. If a participant does not choose an
investment direction for his or her future contributions, they are automatically invested in a BlackRock
LifePath Portfolio that most closely matches the participant’s expected retirement year. The cost of these
defined contribution plans was $53 million in 2016, $51 million in 2015 and $49 million in 2014. In
addition, the Company has a significant defined contribution plan in the U.K. As noted above, effective
August 1, 2014, a newly formed defined contribution plan replaced the existing defined contribution and
defined benefit plans with regard to future service. The cost of the U.K. defined contribution plan was $81
million, $93 million and $65 million in 2016, 2015 and 2014, respectively. The decrease in cost from 2016
as compared to 2015 is primarily due to the impact of foreign currency translation.
87
9. Stock Benefit Plans
The Company maintains multiple stock-based payment arrangements under which employees are
awarded grants of restricted stock units, stock options and other forms of stock-based benefits.
Marsh & McLennan Companies, Inc. Incentive and Stock Award Plans
On May 19, 2011, the Marsh & McLennan Companies, Inc. 2011 Incentive and Stock Award Plan (the
"2011 Plan") was approved by the Company's stockholders. The 2011 Plan replaced the Company's two
previous equity incentive plans (the 2000 Senior Executive Incentive and Stock Award Plan and the 2000
Employee Incentive and Stock Award Plan).
The types of awards permitted under the 2011 Plan include stock options, restricted stock and restricted
stock units payable in Company common stock or cash, and other stock-based and performance-based
awards. The Compensation Committee of the Board of Directors (the "Compensation Committee")
determines, at its discretion, which affiliates may participate in the 2011 Plan, which eligible employees
will receive awards, the types of awards to be received, and the terms and conditions thereof. The right of
an employee to receive an award may be subject to performance conditions as specified by the
Compensation Committee. The 2011 Plan contains a provision which, in the event of a change in control
of the Company, may accelerate the vesting of the awards. This provision requires both a change in
control of the Company and a subsequent specified termination of employment for vesting to be
accelerated.
The 2011 Plan retains the remaining share authority of the two previous plans as of the date the 2011
Plan was approved by stockholders. Thus, approximately 23.2 million shares of common stock, plus
shares remaining unused under the previous plans, are available for awards over the life of the 2011
Plan.
The current practice is to grant non-qualified stock options, restricted stock units and/or performance
stock units ("PSUs") on an annual basis to senior executives and a limited number of other employees as
part of their total compensation. Restricted stock units are also granted to new hires or as retention
awards for certain employees. Restricted stock has not been granted since 2005.
Stock Options: Options granted under the 2011 Plan may be designated as either incentive stock options
or non-qualified stock options. The Compensation Committee determines the terms and conditions of the
option, including the time or times at which an option may be exercised, the methods by which such
exercise price may be paid, and the form of such payment. Options are generally granted with an
exercise price equal to the market value of the Company's common stock on the date of grant. These
option awards generally vest 25% per annum and have a contractual term of 10 years.
The estimated fair value of options granted is calculated using the Black-Scholes option pricing valuation
model. This model takes into account several factors and assumptions. The risk-free interest rate is
based on the yield on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life
assumption at the time of grant. The expected life (estimated period of time outstanding) is estimated
using the contractual term of the option and the effects of employees' expected exercise and post-vesting
employment termination behavior. The Company uses a blended volatility rate based on the following: (i)
volatility derived from daily closing price observations for the 10-year period ended on the valuation date,
(ii) implied volatility derived from traded options for the period one week before the valuation date and (iii)
average volatility for the 10-year periods ended on 15 anniversaries prior to the valuation date, using daily
closing price observations. The expected dividend yield is based on expected dividends for the expected
term of the stock options.
88
The assumptions used in the Black-Scholes option pricing valuation model for options granted by the
Company in 2016, 2015 and 2014 are as follows:
Risk-free interest rate
Expected life (in years)
Expected volatility
Expected dividend yield
2016
1.39%
6.0
25.55%
2.15%
2015
1.78%
6.0
23.75%
1.97%
2014
1.88%
6.0
24.2%
2.08%
A summary of the status of the Company’s stock option awards as of December 31, 2016 and changes
during the year then ended is presented below:
Balance at January 1, 2016
Granted
Exercised
Forfeited
Expired
Balance at December 31, 2016
Options vested or expected to vest
at December 31, 2016
Options exercisable at
December 31, 2016
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic Value
($000)
34.14
57.55
29.32
53.58
30.13
39.15
5.7 years $
377,580
Shares
14,776,804 $
2,167,645 $
(3,593,033) $
(91,016) $
(17,871) $
13,242,529 $
13,055,049 $
38.95
5.7 years $
374,871
8,598,826 $
31.63
4.4 years $
309,778
In the above table, forfeited options are unvested options whose requisite service period has not been
met. Expired options are vested options that were not exercised. The weighted-average grant-date fair
value of the Company's option awards granted during the years ended December 31, 2016, 2015 and
2014 was $11.57, $11.34 and $9.66, respectively. The total intrinsic value of options exercised during the
same periods was $137.7 million, $124.6 million and $174.3 million, respectively.
As of December 31, 2016, there was $14.4 million of unrecognized compensation cost related to the
Company's option awards. The weighted-average period over which that cost is expected to be
recognized is approximately 1.42 years. Cash received from the exercise of stock options for the years
ended December 31, 2016, 2015 and 2014 was $105.4 million, $134.7 million and $178.1 million,
respectively.
The Company's policy is to issue treasury shares upon option exercises or share unit conversion. The
Company intends to issue treasury shares as long as an adequate number of those shares is available.
Restricted Stock Units and Performance Stock Units: Restricted stock units may be awarded under the
Company's 2011 Incentive and Stock Award Plan. The Compensation Committee determines the
restrictions on such units, when the restrictions lapse, when the units vest and are paid, and under what
terms the units are forfeited. The cost of these awards is amortized over the vesting period, which is
generally three years. Awards to senior executives and other employees may include three-year
performance-based restricted stock units and three-year service-based restricted stock units. The payout
of performance stock units (payable in shares of the Company's common stock) ranges, generally, from
0-200% of the number of units granted, based on the achievement of objective, pre-determined Company
performance measures, generally, over a three-year performance period. The Company accounts for
these awards as performance condition restricted stock units. The performance condition is not
considered in the determination of grant date fair value of such awards. Compensation cost is recognized
over the performance period based on management's estimate of the number of units expected to vest
and is adjusted to reflect the actual number of shares paid out at the end of the three-year performance
period. Dividend equivalents are not paid out unless and until such time that the award vests.
89
A summary of the status of the Company's restricted stock units and performance stock units as of
December 31, 2016 and changes during the period then ended is presented below:
Non-vested balance at January 1, 2016
Granted
Vested
Forfeited
Non-vested balance at December 31, 2016
Restricted Stock Units
Weighted
Average
Grant Date
Fair Value
52.51
57.54
49.62
56.41
56.40
Shares
2,459,293 $
1,844,661 $
(1,100,706) $
(159,219) $
3,044,029 $
Performance Stock Units
Weighted
Average
Grant Date
Fair Value
46.25
57.47
36.56
54.49
54.68
Shares
678,165 $
323,990 $
(260,089) $
(20,049) $
722,017 $
The weighted-average grant-date fair value of the Company's restricted stock units granted during the
years ended December 31, 2015 and 2014 was $56.81 and $48.16, respectively. The weighted average
grant date fair value of the Company's performance stock units granted during the years ended
December 31, 2015 and 2014 was $57.33 and $48.00, respectively. The total fair value of the shares
distributed during the years ended December 31, 2016, 2015 and 2014 in connection with the Company's
non-option equity awards was $91.4 million, $114.3 million and $165.3 million, respectively.
The payout of shares in 2016 with respect to the PSUs awarded in 2013 was 180% of target based on
performance for the three-year performance period. The payout of shares with respect to the PSUs that
vested in 2016 due to certain types of termination was based on performance for the abbreviated
performance period. In aggregate, 468,858 shares became distributable in respect to PSUs vested in
2016.
As of December 31, 2016, there was $127.2 million of unrecognized compensation cost related to the
Company's restricted stock units and performance stock unit awards. The weighted-average period over
which that cost is expected to be recognized is approximately 1.045 years.
Marsh & McLennan Companies Stock Purchase Plans
In May 1999, the Company's stockholders approved an employee stock purchase plan (the "1999 Plan")
to replace the 1994 Employee Stock Purchase Plan (the "1994 Plan"), which terminated on September
30, 1999 following its fifth annual offering. Under the current terms of the Plan, shares are purchased four
times during the plan year at a price that is 95% of the average market price on each quarterly purchase
date. Under the 1999 Plan, after including the available remaining unused shares in the 1994 Plan and
reducing the shares available by 10,000,000 consistent with the Company's Board of Directors' action in
March 2007, no more than 35,600,000 shares of the Company's common stock may be sold. Employees
purchased 490,374 shares during the year ended December 31, 2016 and at December 31, 2016,
1,781,410 shares were available for issuance under the 1999 Plan. Under the 1995 Company Stock
Purchase Plan for International Employees (the "International Plan"), after reflecting the additional
5,000,000 shares of common stock for issuance approved by the Company's Board of Directors in July
2002, and the addition of 4,000,000 shares due to a shareholder action in May 2007, no more than
12,000,000 shares of the Company's common stock may be sold. Employees purchased 135,362 shares
during the year ended December 31, 2016 and there were 2,613,203 shares available for issuance at
December 31, 2016 under the International Plan. The plans are considered non-compensatory.
90
10. Fair Value Measurements
Fair Value Hierarchy
The Company has categorized its assets and liabilities that are valued at fair value on a recurring basis
into a three-level fair value hierarchy as defined by the FASB. The fair value hierarchy gives the highest
priority to quoted prices in active markets for identical assets and liabilities (Level 1) and lowest priority to
unobservable inputs (Level 3). In some cases, the inputs used to measure fair value might fall into
different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy, for disclosure
purposes, is determined based on the lowest level input that is significant to the fair value measurement.
Assets and liabilities recorded in the consolidated balance sheets at fair value are categorized based on
the inputs in the valuation techniques as follows:
Level 1.
Assets and liabilities whose values are based on unadjusted quoted prices for identical
assets or liabilities in an active market (examples include active exchange-traded equity
securities and exchange-traded money market mutual funds).
Assets and liabilities using Level 1 inputs include exchange-traded equity securities, exchange-traded
mutual funds and money market funds.
Level 2.
Assets and liabilities whose values are based on the following:
a)
b)
c)
d)
Quoted prices for similar assets or liabilities in active markets;
Quoted prices for identical or similar assets or liabilities in non-active markets
(examples include corporate and municipal bonds, which trade infrequently);
Pricing models whose inputs are observable for substantially the full term of the
asset or liability (examples include most over-the-counter derivatives, including
interest rate and currency swaps); and
Pricing models whose inputs are derived principally from or corroborated by
observable market data through correlation or other means for substantially the
full asset or liability (for example, certain mortgage loans).
The Company does not have any assets or liabilities that use Level 2 inputs.
Level 3.
Assets and liabilities whose values are based on prices, or valuation techniques that
require inputs that are both unobservable and significant to the overall fair value
measurement. These inputs reflect management’s own assumptions about the
assumptions a market participant would use in pricing the asset or liability (certain
commercial mortgage whole loans, and long-dated or complex derivatives including
certain foreign exchange options and long-dated options on gas and power).
Liabilities using Level 3 inputs include liabilities for contingent purchase consideration.
Valuation Techniques
Equity Securities, Money Market Funds and Mutual Funds - Level 1
Investments for which market quotations are readily available are valued at the sale price on their
principal exchange or, for certain markets, official closing bid price. Money market funds are valued using
a valuation technique that results in price per share at $1.00.
Contingent Purchase Consideration Liability - Level 3
Purchase consideration for some acquisitions made by the Company includes contingent consideration
arrangements. These arrangements typically provide for the payment of additional consideration if
earnings and revenue targets are met over periods from two to four years. The fair value of contingent
consideration is estimated as the present value of future cash flows resulting from the projected revenue
and earnings of the acquired entities.
91
The following fair value hierarchy table presents information about the Company’s assets and liabilities
measured at fair value on a recurring basis as of December 31, 2016 and 2015:
(In millions of dollars)
Identical Assets
(Level 1)
Observable Inputs
(Level 2)
Unobservable
Inputs
(Level 3)
Total
12/31/16
12/31/15
12/31/16
12/31/15
12/31/16
12/31/15
12/31/16
12/31/15
Assets:
Financial instruments owned:
Exchange traded equity
securities (a)
Mutual funds(a)
Money market funds(b)
Total assets measured at fair
value
Fiduciary Assets:
Money market funds
Total fiduciary assets measured
at fair value
Liabilities:
Contingent purchase
consideration liability(c)
Total liabilities measured at fair
value
$
89
$
— $
— $
— $
— $
— $
89
$
141
22
142
140
—
—
—
—
—
—
—
—
141
22
—
142
140
$
$
$
$
$
252
$
282
$
— $
— $
— $
— $
252
$
282
90
90
$
$
48
48
$
$
— $
— $
— $
— $
— $
— $
— $
— $
90
90
— $
— $
— $
— $
241
— $
— $
— $
— $
241
$
$
309
309
$
$
241
241
$
$
$
$
48
48
309
309
(a) Included in other assets in the consolidated balance sheets.
(b) Included in cash and cash equivalents in the consolidated balance sheets.
(c) Included in accounts payable and accrued liabilities and other liabilities in the consolidated balance sheets.
During the year ended December 31, 2016, there were no assets or liabilities that were transferred
between any of the levels.
The table below sets forth a summary of the changes in fair value of the Company’s Level 3 liabilities for
the years ended December 31, 2016 and December 31, 2015 that represent contingent purchase
consideration related to acquisitions:
(In millions)
Balance at January 1,
Additions
Payments
Revaluation Impact
Other (a)
Balance at December 31,
2016
2015
$
309
$
17
(86)
9
(8)
$
241
$
207
104
(47)
45
—
309
(a) Primarily reflects the impact of foreign exchange.
The fair value of the contingent purchase consideration liability is based on projections of revenue and
earnings for the acquired entities that are reassessed on a quarterly basis. As set forth in the table above,
based on the Company's ongoing assessment of the fair value of contingent consideration, the Company
recorded a net increase in the estimated fair value of such liabilities for prior period acquisitions of $9
million for the year ended December 31, 2016. A 5% increase in the above mentioned projections would
increase the liability by approximately $21 million. A 5% decrease in the above mentioned projections
would decrease the liability by approximately $22 million.
Long-Term Investments
The Company holds investments in certain private equity investments, public companies and private
companies that are accounted for using the equity method of accounting. The carrying value of these
investments was $389 million and $347 million at December 31, 2016 and 2015, respectively.
92
Private Equity Investments
The Company's investments in private equity funds were $79 million and $76 million at December 31,
2016 and December 31, 2015, respectively. The carrying values of these private equity investments
approximates fair value. The underlying private equity funds follow investment company accounting,
where investments within the fund are carried at fair value. The Company records in earnings, investment
gains/losses for its proportionate share of the change in fair value of the funds. These investments are
included in other assets in the consolidated balance sheets.
Investments in Public and Private Companies
Alexander Forbes: The Company owns approximately 33% of the common stock of Alexander Forbes, a
South African company listed on the Johannesburg Stock Exchange, which it purchased in 2014 for 7.50
South African Rand per share. As of December 31, 2016, the carrying value of the Company’s investment
in Alexander Forbes was approximately $247 million. As of December 31, 2016, the market value of the
approximately 443 million shares owned by the Company, based on the December 31, 2016 closing
share price of 7.95 South African Rand per share, was approximately $251 million.
The Company’s investment in Alexander Forbes and its other equity investments in private insurance and
consulting companies are accounted for using the equity method of accounting, the results of which are
included in revenue in the consolidated income statements and the carrying value of which is included in
other assets in the consolidated balance sheets. The Company records its share of income or loss on its
equity method investments on a one quarter lag basis.
Benefitfocus: On February 24, 2015, Mercer purchased shares of common stock of Benefitfocus
(NASDAQ:BNFT) constituting approximately 9.9% of BNFT's outstanding capital stock as of the
acquisition date. The purchase price for the BNFT shares and certain other rights and other consideration
was approximately $75 million. In 2015, the Company elected to account for this investment under the
cost method of accounting as the shares purchased were categorized as restricted. Effective December
31, 2016, these shares are no longer considered restricted for the purpose of determining if they are
marketable securities under GAAP, and are accounted for as available for sale securities and included in
other assets in the consolidated balance sheets. The value of the BNFT shares based on the closing
price on the NASDAQ at December 31, 2016 was approximately $84 million. Related unrealized gains of
approximately $21 million have been recorded in other comprehensive income.
Deconsolidation of a Subsidiary
Marsh operates in India through Marsh India Insurance Brokers Limited (Marsh India), which is owned
26% by Marsh and 74% by local shareholders. Prior to the second quarter of 2016, under the terms of its
shareholders’ agreement with the local shareholders, Marsh had a controlling financial interest in Marsh
India and its results were consolidated as required under U.S. GAAP. Under the recently adopted
Insurance Laws (Amendment) Act 2015 of India and related regulations issued by the Indian Insurance
Regulatory and Development Authority, Indian insurance companies (including insurance intermediaries
and brokers like Marsh India) must now be controlled by Indian promoters or Indian investors.
In the second quarter of 2016, the shareholders’ agreement among the shareholders of Marsh India was
amended to comply with these new regulations, which resulted in Marsh no longer having a controlling
financial interest under U.S. GAAP. In accordance with U.S. GAAP, the Company was required to
deconsolidate Marsh India and recognize its interest in Marsh India at fair value, with the difference
between the carrying value and fair value recognized in earnings. The Company estimated the fair value
of its interest in Marsh India, primarily using a discounted cash flow approach, which considered various
cash flow scenarios and a discount rate appropriate for the investment. Certain provisions relating to
restrictions on sales and repurchase of shares of Marsh India owned by its employees were also required
to be removed by the new regulations. As a result, the deferred compensation expense related to those
shares was accelerated in the second quarter of 2016. The net gain on the Company’s pre-tax income as
a result of these changes was approximately $11 million, which is included in revenue for the year ended
2016. Beginning on May 1, 2016, the Company accounted for its investment in Marsh India using the
equity method of accounting.
The summarized financial information presented below reflects the aggregated financial information of all
significant equity method investees as of and for the twelve months ended September 30 of each year (or
93
portion of those twelve months the Company owned its investment), consistent with the Company’s
recognition of the results of its equity method investments on a one quarter lag. The investment income
information presented below reflects the net realized and unrealized gains/losses, net of expenses,
related to the Company's investments in several private equity funds. Certain of the Company’s equity
method investments, including Alexander Forbes, have unclassified balance sheets. Therefore, the asset
and liability information presented below are not split between current and non-current.
Below is a summary of the financial information for the Company's significant equity method investees:
For the Twelve Months Ended September 30,
(In millions of dollars)
Revenue
Net investment income (a)
Net income
As of September 30,
(In millions of dollars)
Total assets
Total liabilities
Non-controlling interests
2016
843
1,824
91
$
$
$
2015
1,018
1,620
196
$
$
$
2016
22,997
21,087
12
$
$
$
2014
239
161
216
2015
21,101
19,348
12
$
$
$
$
$
$
The information above includes twelve months of income statement activity for Alexander Forbes in 2016,
2015 and two months of activity in 2014, reflecting the timing of the Company's investment.
(a) Net investment income in 2016 and 2015 includes approximately $1.9 billion and $1.5 billion,
respectively, related to Alexander Forbes, substantially all of which is credited to policy holders.
94
11. Long-term Commitments
The Company leases office facilities, equipment and automobiles under non-cancelable operating leases.
These leases expire on varying dates, in some instances contain renewal and expansion options, do not
restrict the payment of dividends or the incurrence of debt or additional lease obligations, and contain no
significant purchase options. In addition to the base rental costs, occupancy lease agreements generally
provide for rent escalations resulting from increased assessments for real estate taxes and other charges.
Approximately 98% of the Company’s lease obligations are for the use of office space.
The consolidated statements of income include net rental costs of $367 million, $381 million and $393
million for 2016, 2015 and 2014, respectively, after deducting rentals from subleases ($9 million in 2016,
$14 million in 2015 and $12 million in 2014). These net rental costs exclude rental costs and sublease
income for previously accrued restructuring charges related to vacated space.
At December 31, 2016, the aggregate future minimum rental commitments under all non-cancelable
operating lease agreements are as follows:
For the Years Ended December 31,
(In millions of dollars)
2017
2018
2019
2020
2021
Subsequent years
Gross
Rental
Commitments
$
$
$
$
$
$
372 $
345 $
297 $
262 $
198 $
862 $
Rentals
from
Subleases
Net
Rental
Commitments
326
303
261
230
194
859
46 $
42 $
36 $
32 $
4 $
3 $
The Company has entered into agreements, primarily with various service companies, to outsource
certain information systems activities and responsibilities and processing activities. Under these
agreements, the Company is required to pay minimum annual service charges. Additional fees may be
payable depending upon the volume of transactions processed, with all future payments subject to
increases for inflation. At December 31, 2016, the aggregate fixed future minimum commitments under
these agreements are as follows:
For the Years Ended December 31,
(In millions of dollars)
2017
2018
2019
Subsequent years
Future
Minimum
Commitments
225
$
79
36
11
351
$
95
12. Debt
The Company’s outstanding debt is as follows:
December 31,
(In millions)
Short-term:
Commercial paper
Current portion of long-term debt
Long-term:
Senior notes – 2.30% due 2017
Senior notes – 2.55% due 2018
Senior notes – 2.35% due 2019
Senior notes – 2.35% due 2020
Senior notes – 4.80% due 2021
Senior notes – 3.30% due 2023
Senior notes – 4.05% due 2023
Senior notes – 3.50% due 2024
Senior notes – 3.50% due 2025
Senior notes – 3.75% due 2026
Senior notes – 5.875% due 2033
Mortgage – 5.70% due 2035
Other
Less current portion
2016
2015
$
50 $
262
312
250
249
299
497
498
347
248
596
495
596
297
382
3
4,757
262
4,495 $
$
—
12
12
249
249
298
496
497
—
248
595
495
595
297
393
2
4,414
12
4,402
The senior notes in the table above are registered by the Company with the Securities and Exchange
Commission, and are not guaranteed.
The Company has established a short-term debt financing program of up to $1.5 billion through the
issuance of commercial paper. The proceeds from the issuance of commercial paper are used for general
corporate purposes. The Company had $50 million of commercial paper outstanding at December 31,
2016 at an effective interest rate of 1%.
In March 2016, the Company issued $350 million of 3.30% seven-year senior notes. In September 2015,
the Company issued $600 million of 3.75% 10.5-year senior notes and in March 2015, the Company
issued $500 million of 2.35% five-year senior notes. The Company used the net proceeds from these
issuances for general corporate purposes.
The Company and certain of its foreign subsidiaries maintain a $1.5 billion multi-currency five-year
unsecured revolving credit facility. The interest rate on this facility is based on LIBOR plus a fixed margin
which varies with the Company's credit ratings. This facility expires in November 2020 and requires the
Company to maintain certain coverage and leverage ratios which are tested quarterly. There were no
borrowings outstanding under this facility at December 31, 2016.
Additional credit facilities, guarantees and letters of credit are maintained with various banks, primarily
related to operations located outside the United States, aggregating $376 million at December 31, 2016
and $379 million at December 31, 2015. There was $1.6 million of outstanding borrowings under these
facilities at December 31, 2016 and $0.4 million of outstanding borrowings under these facilities at
December 31, 2015.
In January 2017, the Company issued $500 million of 2.75% senior notes due 2022 and $500 million of
4.35% senior notes due 2047. The Company intends to use the net proceeds for general corporate
purposes, including the repayment of a $250 million debt maturity in April 2017.
96
Scheduled repayments of long-term debt in 2017 and in the four succeeding years are $262 million, $262
million, $313 million, $514 million and $515 million, respectively.
Fair value of Short-term and Long-term Debt
The estimated fair value of the Company’s short-term and long-term debt is provided below. Certain
estimates and judgments were required to develop the fair value amounts. The fair value amounts shown
below are not necessarily indicative of the amounts that the Company would realize upon disposition, nor
do they indicate the Company’s intent or need to dispose of the financial instrument.
(In millions of dollars)
Short-term debt
Long-term debt
December 31, 2016
December 31, 2015
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
$
$
312 $
4,495 $
313
4,625
$
$
12 $
12
4,402 $
4,513
The fair value of the Company’s short-term debt consists primarily of commercial paper and term debt
maturing within the next year and its fair value approximates its carrying value. The estimated fair value of
a primary portion of the Company's long-term debt is based on discounted future cash flows using current
interest rates available for debt with similar terms and remaining maturities. Short- and long-term debt
would be classified as Level 2 in the fair value hierarchy.
13. Integration and Restructuring Costs
In 2016, the Company implemented restructuring actions which resulted in costs totaling $44 million.
Restructuring costs consist primarily of severance and benefits, costs for future rent and other real estate
costs. These costs were incurred as follows: Risk and Insurance Services—$3 million; Consulting—$34
million; and Corporate—$7 million.
Details of the restructuring liability activity from January 1, 2015 through December 31, 2016, including
actions taken prior to 2016, are as follows:
(In
millions)
Balance at
1/1/15
Expense
Incurred
Cash
Paid Other
Balance at
12/31/15
Expense
Incurred
Cash
Paid Other
Balance at
12/31/16
7 $
17 $
(7) $ (2) $
15 $
40 $ (22) $ (1) $
32
Severance $
Future rent
under non-
cancelable
leases and
other costs
Total
$
92 $
28 $ (28) $
85
11
(21)
3
1
78
4
(17)
(4)
$
93 $
44 $ (39) $ (5) $
61
93
As of January 1, 2014, the liability balance related to restructuring activity was $124 million. In 2014, the
Company accrued $12 million and had cash payments and other adjustments of $44 million related to
restructuring activities that resulted in the liability balance at January 1, 2015 reported above.
The expenses associated with the above initiatives are included in compensation and benefits and other
operating expenses in the consolidated statements of income. The liabilities associated with these
initiatives are classified on the consolidated balance sheets as accounts payable and accrued liabilities,
other liabilities, or accrued compensation and employee benefits, depending on the nature of the items.
14. Common Stock
During 2016, the Company repurchased 12.7 million shares of its common stock for total consideration of
$800 million. In November 2016, the Board of Directors renewed the Company's share repurchase
program, allowing management to buy back up to $2.5 billion of the Company's common stock. The
Company remains authorized to purchase additional shares of its common stock up to a value of
approximately $2.4 billion. There is no time limit on the authorization. During 2015, the Company
purchased 24.8 million shares of its common stock for total consideration of $1.4 billion.
97
15. Claims, Lawsuits and Other Contingencies
Litigation Matters
The Company and its subsidiaries are subject to a significant number of claims, lawsuits and proceedings
in the ordinary course of business. Such claims and lawsuits consist principally of alleged errors and
omissions in connection with the performance of professional services, including the placement of
insurance, the provision of actuarial services for corporate and public sector clients, the provision of
investment advice and investment management services to pension plans, the provision of advice relating
to pension buy-out transactions and the provision of consulting services relating to the drafting and
interpretation of trust deeds and other documentation governing pension plans. These claims typically
seek damages, including punitive and treble damages, in amounts that could be significant. In
establishing liabilities for errors and omissions claims in accordance with FASB ASC Subtopic No. 450-20
(Contingencies-Loss Contingencies), the Company uses case level reviews by inside and outside
counsel, and internal actuarial analysis by Oliver Wyman Group, a subsidiary of the Company, and other
methods to estimate potential losses. A liability is established when a loss is both probable and
reasonably estimable. The liability is reviewed quarterly and adjusted as developments warrant. In many
cases, the Company has not recorded a liability, other than for legal fees to defend the claim, because we
are unable, at the present time, to make a determination that a loss is both probable and reasonably
estimable.
To the extent that expected losses exceed our deductible in any policy year, the Company also records an
asset for the amount that we expect to recover under any available third-party insurance programs. The
Company has varying levels of third-party insurance coverage, with policy limits and coverage terms
varying significantly by policy year.
Governmental Inquiries and Enforcement Matters
Our activities are regulated under the laws of the United States and its various states, the European
Union and its member states, and the other jurisdictions in which the Company operates. In the ordinary
course of business, the Company is also subject to subpoenas, investigations, lawsuits and other
regulatory actions undertaken by governmental authorities. For example, the Financial Conduct Authority
("FCA") is conducting a market study of the U.K. asset management industry, which includes asset
managers and investment consultants such as Mercer. In November 2016, the FCA published an interim
report which contains preliminary findings relating to the investment consulting industry and a provisional
reference to the U.K. Competition & Markets Authority for a market investigation.
Other Contingencies-Guarantees
In connection with its acquisition of U.K.-based Sedgwick Group in 1998, the Company acquired several
insurance underwriting businesses that were already in run-off, including River Thames Insurance
Company Limited ("River Thames"), which the Company sold in 2001. Sedgwick guaranteed payment of
claims on certain policies underwritten through the Institute of London Underwriters (the "ILU") by River
Thames. The policies covered by this guarantee were reinsured up to £40 million by a related party of
River Thames. Payment of claims under the reinsurance agreement is collateralized by segregated
assets held in a trust. As of December 31, 2016, the reinsurance coverage exceeded the best estimate of
the projected liability of the policies covered by the guarantee. To the extent River Thames or the
reinsurer is unable to meet its obligations under those policies, a claimant may seek to recover from the
Company under the guarantee.
From 1980 to 1983, the Company owned indirectly the English & American Insurance Company ("E&A"),
which was a member of the ILU. The ILU required the Company to guarantee a portion of E&A's
obligations. After E&A became insolvent in 1993, the ILU agreed to discharge the guarantee in exchange
for the Company's agreement to post an evergreen letter of credit that is available to pay claims by
policyholders on certain E&A policies issued through the ILU and incepting between July 3, 1980 and
October 6, 1983. Certain claims have been paid under the letter of credit and the Company anticipates
that additional claimants may seek to recover against the letter of credit.
* * * *
98
The pending proceedings described above and other matters not explicitly described in this Note 15 on
Claims, Lawsuits and Other Contingencies may expose the Company or its subsidiaries to liability for
significant monetary damages and other forms of relief. Where a loss is both probable and reasonably
estimable, the Company establishes liabilities in accordance with FASB ASC Subtopic No. 450-20
(Contingencies - Loss Contingencies). Except as described above, the Company is not able at this time to
provide a reasonable estimate of the range of possible loss attributable to these matters or the impact
they may have on the Company's consolidated results of operations, financial position or cash flows. This
is primarily because these matters are still developing and involve complex issues subject to inherent
uncertainty. Adverse determinations in one or more of these matters could have a material impact on the
Company's consolidated results of operations, financial condition or cash flows in a future period.
99
16. Segment Information
The Company is organized based on the types of services provided. Under this structure, the Company’s
segments are:
Risk and Insurance Services, comprising insurance services (Marsh) and reinsurance services
(Guy Carpenter); and
Consulting, comprising Mercer and Oliver Wyman Group
The accounting policies of the segments are the same as those used for the consolidated financial
statements described in Note 1. Segment performance is evaluated based on segment operating income,
which includes directly related expenses, and charges or credits related to integration and restructuring
but not the Company’s corporate-level expenses. Revenues are attributed to geographic areas on the
basis of where the services are performed.
Selected information about the Company’s segments and geographic areas of operation are as follows:
For the Year Ended December 31,
(In millions of dollars)
Revenue
Operating
Income
(Loss)
Total
Assets
Depreciation
and
Amortization
Capital
Expenditures
2016 –
Risk and Insurance Services
Consulting
Total Segments
Corporate/Eliminations
Total Consolidated
2015 –
Risk and Insurance Services
Consulting
Total Segments
Corporate/Eliminations
Total Consolidated
2014 –
Risk and Insurance Services
Consulting
Total Segments
Corporate/Eliminations
Total Consolidated
$ 7,143 (a) $
6,112 (b)
13,255
(44)
1,753 $ 14,728
6,770
1,103
21,498
2,856
(3,308) (c)
(192)
$ 13,211
$
2,664 $ 18,190
$ 6,869 (a) $
6,064 (b)
12,933
(40)
1,539 $ 13,290
6,485
1,075
19,775
2,614
(1,559) (c)
(195)
$ 12,893
$
2,419 $ 18,216
$ 6,931 (a) $
6,059 (b)
12,990
(39)
1,509 $ 12,211
5,916
18,127
996
2,505
(204)
(334) (c)
$
$
$
$
$
$ 12,951
$
2,301 $ 17,793
$
248
121
369
69
438
240
120
360
63
423
213
119
332
56
388
$
$
$
$
$
$
128
68
196
57
253
136
108
244
81
325
173
92
265
103
368
(a)
(b)
(c)
Includes inter-segment revenue of $6 million in both 2016 and 2015 and $4 million in 2014, interest income
on fiduciary funds of $26 million, $21 million and $24 million in 2016, 2015 and 2014, respectively, and
equity method income of $12 million, $6 million and $9 million in 2016, 2015 and 2014, respectively.
Includes inter-segment revenue of $38 million, $34 million and $35 million in 2016, 2015 and 2014,
respectively, interest income on fiduciary funds of $3 million in 2016, $4 million in 2015 and $6 million in
2014 and equity method income of $19 million in 2016, $21 million in 2015 and $2 million in 2014.
Corporate assets primarily include insurance recoverables, pension related assets, the owned portion of the
Company headquarters building and intercompany eliminations.
100
Details of operating segment revenue are as follows:
For the Years Ended December 31,
(In millions of dollars)
Risk and Insurance Services
Marsh
Guy Carpenter
Total Risk and Insurance Services
Consulting
Mercer
Oliver Wyman Group
Total Consulting
Total Segments
Corporate/Eliminations
Total
Information by geographic area is as follows:
For the Years Ended December 31,
(In millions of dollars)
Revenue
United States
United Kingdom
Continental Europe
Asia Pacific
Other
Corporate/Eliminations
Total
For the Years Ended December 31,
(In millions of dollars)
Fixed Assets, Net
United States
United Kingdom
Continental Europe
Asia Pacific
Other
Total
2016
2015
2014
$
5,997
1,146
7,143
$
5,745
1,124
6,869
$
5,774
1,157
6,931
4,323
1,789
6,112
13,255
(44)
$ 13,211
4,313
1,751
6,064
12,933
(40)
$ 12,893
4,350
1,709
6,059
12,990
(39)
$ 12,951
2016
2015
2014
$
6,573
2,019
2,022
1,363
1,278
13,255
(44)
$ 13,211
$
6,316
2,036
1,902
1,333
1,346
12,933
(40)
$ 12,893
$
5,865
2,111
2,077
1,420
1,517
12,990
(39)
$ 12,951
2016
2015
2014
$
$
412
94
53
76
90
725
$
$
460
115
57
49
92
773
$
$
483
120
60
62
84
809
101
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Marsh & McLennan Companies, Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of Marsh & McLennan Companies, Inc.
and subsidiaries (the "Company") as of December 31, 2016 and 2015, and the related consolidated
statements of income, comprehensive income, cash flows and equity for each of the three years in the
period ended December 31, 2016. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial
position of Marsh & McLennan Companies, Inc. and subsidiaries as of December 31, 2016 and 2015, and
the results of their operations and their cash flows for each of the three years in the period ended
December 31, 2016, in conformity with accounting principles generally accepted in the United States of
America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the Company’s internal control over financial reporting as of December 31, 2016,
based on the criteria established in Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 24,
2017 expressed an unqualified opinion on the Company’s internal control over financial reporting.
/s/ Deloitte & Touche LLP
New York, New York
February 24, 2017
102
Marsh & McLennan Companies, Inc. and Subsidiaries
SELECTED QUARTERLY FINANCIAL DATA AND
SUPPLEMENTAL INFORMATION (UNAUDITED)
(In millions, except per share figures)
2016:
Revenue
Operating income
Income from continuing operations
Discontinued operations, net of tax
Net income attributable to the Company
Basic Per Share Data:
Continuing operations
Discontinued operations, net of tax
Net income attributable to the Company
Diluted Per Share Data:
Continuing operations
Discontinued operations, net of tax
Net income attributable to the Company
Dividends Paid Per Share
2015:
Revenue
Operating income
Income from continuing operations
Discontinued operations, net of tax
Net income attributable to the Company
Basic Per Share Data:
Continuing operations
Discontinued operations, net of tax
Net income attributable to the Company
Diluted Per Share Data:
Continuing operations
Discontinued operations, net of tax
Net income attributable to the Company
Dividends Paid Per Share
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
3,336 $
3,376 $
3,135 $
3,364
733 $
490 $
— $
481 $
0.92 $
— $
0.92 $
0.91 $
— $
0.91 $
0.31 $
726 $
480 $
— $
472 $
0.91 $
— $
0.91 $
0.90 $
— $
0.90 $
0.31 $
572 $
384 $
— $
379 $
0.73 $
— $
0.73 $
0.73 $
— $
0.73 $
0.34 $
633
441
—
436
0.85
—
0.85
0.84
—
0.84
0.34
3,215 $
3,225 $
3,115 $
3,338
735 $
498 $
(3) $
482 $
0.90 $
(0.01) $
0.89 $
0.89 $
(0.01) $
0.88 $
0.28 $
629 $
429 $
— $
419 $
0.78 $
— $
0.78 $
0.77 $
— $
0.77 $
0.28 $
461 $
329 $
2 $
323 $
0.61 $
— $
0.61 $
0.60 $
0.01 $
0.61 $
0.31 $
594
380
1
375
0.72
—
0.72
0.71
—
0.71
0.31
As of February 16th, 2017, there were 5,718 stockholders of record.
103
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.
None.
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures. Based on their evaluation, as of the end of the period covered
by this annual report on Form 10-K, the Company’s chief executive officer and chief financial officer have
concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or
15d-15(e) under the Securities Exchange Act of 1934) are effective.
Internal Control over Financial Reporting.
(a) Management’s Annual Report on Internal Control Over Financial Reporting
MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Marsh & McLennan Companies, Inc. is responsible for establishing and maintaining
adequate internal control over financial reporting for the Company. The Company’s internal control over
financial reporting is designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles.
The Company’s internal control over financial reporting includes those policies and procedures relating to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company; the recording of all necessary transactions to permit the
preparation of the Company’s consolidated financial statements in accordance with generally accepted
accounting principles; the proper authorization of receipts and expenditures in accordance with
authorizations of the Company’s management and directors; and the prevention or timely detection of the
unauthorized acquisition, use or disposition of assets that could have a material effect on the Company’s
consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Management evaluated the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2016 under the supervision and with the participation of the Company’s principal executive
and principal financial officers. In making this evaluation, management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—
Integrated Framework issued in 2013. Based on its evaluation, management determined that the
Company maintained effective internal control over financial reporting as of December 31, 2016.
Deloitte & Touche LLP, the Independent Registered Public Accounting Firm that audited and reported on
the Company’s consolidated financial statements included in this annual report on Form 10-K, also issued
an audit report on the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2016.
104
(b) Audit Report of the Registered Public Accounting Firm.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Marsh & McLennan Companies, Inc.
New York, New York
We have audited the internal control over financial reporting of Marsh & McLennan Companies, Inc. and
subsidiaries (the "Company") as of December 31, 2016, based on criteria established in Internal Control -
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission. The Company's management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting.
Our responsibility is to express an opinion on the Company's internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of,
the company's principal executive and principal financial officers, or persons performing similar functions,
and effected by the company's board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
company's internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of
collusion or improper management override of controls, material misstatements due to error or fraud may
not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of
the internal control over financial reporting to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies
or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2016, based on the criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated financial statements as of and for the year ended December 31,
2016 of the Company and our report dated February 24, 2017 expressed an unqualified opinion on those
financial statements.
/s/ Deloitte & Touche LLP
New York, New York
February 24, 2017
105
(c) Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting identified in connection
with the evaluation required by Rules 13a-15(d) or 15d-15(d) under the Securities Exchange Act of 1934
that occurred during the quarter ended December 31, 2016 that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information.
None.
106
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Information as to the directors and nominees for the board of directors of the Company is incorporated
herein by reference to the material set forth under the heading "Item 1: Election of Directors" in the 2017
Proxy Statement.
The executive officers of the Company are Peter J. Beshar, John Q. Doyle, E. Scott Gilbert, Daniel S.
Glaser, Laurie Ledford, Scott McDonald, Mark C. McGivney, Julio A. Portalatin and Peter Zaffino.
Information with respect to these individuals is provided in Part I, Item 1 above under the heading
"Executive Officers of the Company".
The information set forth in the 2017 Proxy Statement in the sections "Corporate Governance—Codes of
Conduct", "Board of Directors and Committees—Committees—Audit Committee", "Additional Information
—Transactions with Management and Others" and "Additional Information—Section 16(a) Beneficial
Ownership Reporting Compliance" is incorporated herein by reference.
Item 11. Executive Compensation.
The information set forth in the sections "Board of Directors and Committees—Director Compensation"
and "Executive Compensation—Compensation of Executive Officers" in the 2017 Proxy Statement is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
The information set forth in the sections "Additional Information—Stock Ownership of Directors,
Management and Certain Beneficial Owners" and "Additional Information—Equity Compensation Plan
Information" in the 2017 Proxy Statement is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information set forth in the sections "Corporate Governance—Director Independence", "Corporate
Governance—Review of Related-Person Transactions" and "Additional Information—Transactions with
Management and Others" in the 2017 Proxy Statement is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services.
The information set forth under the heading "Item 3: Ratification of Selection of Independent Registered
Public Accounting Firm—Fees of Independent Registered Public Accounting Firm" in the 2017 Proxy
Statement is incorporated herein by reference.
107
PART IV
Item 15. Exhibits and Financial Statement Schedules. †
The following documents are filed as a part of this report:
(1)
Consolidated Financial Statements:
Consolidated Statements of Income for each of the three years in the period ended
December 31, 2016
Consolidated Statements of Comprehensive Income for each of the three years in the period
ended December 31, 2016
Consolidated Balance Sheets as of December 31, 2016 and 2015
Consolidated Statements of Cash Flows for each of the three years in the period ended
December 31, 2016
Consolidated Statements of Stockholders’ Equity for each of the three years in the period
ended December 31, 2016
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Other:
Selected Quarterly Financial Data and Supplemental Information (Unaudited) for fiscal years
2016 and 2015
Five-Year Statistical Summary of Operations
(2)
All required Financial Statement Schedules are included in the Consolidated Financial
Statements or the Notes to Consolidated Financial Statements.
(3)
The following exhibits are filed as a part of this report:
(2.1)
Stock Purchase Agreement, dated as of June 6, 2010, by and between Marsh &
McLennan Companies, Inc. and Altegrity, Inc. (incorporated by reference to the
Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010)
†As permitted by Item 601(b)(4)(iii)(A) of Regulation S-K, the Company has not filed with this Form 10-K
certain instruments defining the rights of holders of long-term debt of the Company and its subsidiaries
because the total amount of securities authorized under any of such instruments does not exceed 10% of
the total assets of the Company and its subsidiaries on a consolidated basis. The Company agrees to
furnish a copy of any such agreement to the Commission upon request.
108
(3.1)
Restated Certificate of Incorporation of Marsh & McLennan Companies, Inc.
(incorporated by reference to the Company’s Current Report on Form 8-K dated July 17,
2008)
(3.2)
Amended and Restated By-Laws of Marsh & McLennan Companies, Inc. (incorporated
by reference to the Company’s Current Report on Form 8-K dated January 12, 2017)
(4.1)
Indenture dated as of June 14, 1999 between Marsh & McLennan Companies, Inc. and
State Street Bank and Trust Company, as trustee (incorporated by reference to the
Company’s Registration Statement on Form S-3, Registration No. 333-108566)
(4.2)
Third Supplemental Indenture dated as of July 30, 2003 between Marsh & McLennan
Companies, Inc. and U.S. Bank National Association (as successor to State Street Bank
and Trust Company), as trustee (incorporated by reference to the Company’s Quarterly
Report on Form 10-Q for the quarter ended June 30, 2003)
(4.3)
Indenture dated as of March 19, 2002 between Marsh & McLennan Companies, Inc. and
State Street Bank and Trust Company, as trustee (incorporated by reference to the
Company’s Registration Statement on Form S-4, Registration No. 333-87510)
(4.4)
Indenture, dated as of July 15, 2011, between Marsh & McLennan Companies, Inc. and
The Bank of New York Mellon, as trustee (incorporated by reference to the Company’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2011)
(4.5)
First Supplemental Indenture, dated as of July 15, 2011, between Marsh & McLennan
Companies, Inc. and The Bank of New York Mellon, as trustee (incorporated by reference
to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011)
(4.6)
Form of Second Supplemental Indenture between Marsh & McLennan Companies, Inc.
and The Bank of New York Mellon, as trustee (incorporated by reference to the
Company’s Current Report on Form 8-K dated March 7, 2012)
(4.7)
Form of Third Supplemental Indenture between Marsh & McLennan Companies, Inc. and
The Bank of New York Mellon, as trustee (incorporated by reference to the Company’s
Current Report on Form 8-K dated September 24, 2013)
(4.8)
Form of Fourth Supplemental Indenture between Marsh & McLennan Companies, Inc.
and The Bank of New York Mellon, as trustee (incorporated by reference to the
Company’s Current Report on Form 8-K dated May 27, 2014)
(4.9)
Form of Fifth Supplemental Indenture between Marsh & McLennan Companies, Inc. and
The Bank of New York Mellon, as trustee (incorporated by reference to the Company’s
Current Report on Form 8-K dated September 10, 2014)
(4.10)
Sixth Supplemental Indenture, dated as of March 6, 2015, between Marsh & McLennan
Companies, Inc. and The Bank of New York Mellon, as trustee (incorporated by reference
to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015)
109
(4.11)
Seventh Supplemental Indenture, dated as of September 14, 2015, between Marsh &
McLennan Companies, Inc. and The Bank of New York Mellon, as trustee (incorporated
by reference to the Company's Current Report on Form 8-K filed on September 14, 2015)
(4.12)
Eighth Supplemental Indenture, dated as of March 14, 2016, between Marsh &
McLennan Companies, Inc. and The Bank of New York Mellon, as trustee (incorporated
by reference to the Company's Quarterly Report on Form 10-Q filed on May 2, 2016)
(4.13)
Ninth Supplemental Indenture, dated as of January 12, 2017, between Marsh &
McLennan Companies, Inc. and The Bank of New York Mellon, as trustee
(10.1)
*Marsh & McLennan Companies, Inc. U.S. Employee 1996 Cash Bonus Award Voluntary
Deferral Plan (incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996)
(10.2)
*Marsh & McLennan Companies, Inc. U.S. Employee 1997 Cash Bonus Award Voluntary
Deferral Plan (incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997)
(10.3)
*Marsh & McLennan Companies, Inc. U.S. Employee 1998 Cash Bonus Award Voluntary
Deferral Plan (incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1998)
(10.4)
*Marsh & McLennan Companies, Inc. 2000 Senior Executive Incentive and Stock Award
Plan (incorporated by reference to the Company’s Annual Report on Form 10-K for the
year ended December 31, 1999)
(10.5)
*Amendments to Marsh & McLennan Companies, Inc. 2000 Senior Executive Incentive
and Stock Award Plan and the Marsh & McLennan Companies, Inc. 2000 Employee
Incentive and Stock Award Plan (incorporated by reference to the Company’s Quarterly
Report on Form 10-Q for the quarter ended June 30, 2005)
(10.6)
*Form of Awards under the Marsh & McLennan Companies, Inc. 2000 Senior Executive
Incentive and Stock Award Plan (incorporated by reference to the Company’s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2004)
(10.7)
*Additional Forms of Awards under the Marsh & McLennan Companies, Inc. 2000 Senior
Executive Incentive and Stock Award Plan (incorporated by reference to the Company’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2005)
*Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant
to Item 15(b) of Form 10-K.
110
(10.8)
*Marsh & McLennan Companies, Inc. 2000 Employee Incentive and Stock Award Plan
(incorporated by reference to the Company’s Annual Report on Form 10-K for the year
ended December 31, 2001)
(10.9)
*Form of Awards under the Marsh & McLennan Companies, Inc. 2000 Employee
Incentive and Stock Award Plan (incorporated by reference to the Company’s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2004)
(10.10)
*Additional Forms of Awards under the Marsh & McLennan Companies, Inc. 2000
Employee Incentive and Stock Award Plan (incorporated by reference to the Company’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2005)
(10.11)
*Form of Long-term Incentive Award under the Marsh & McLennan Companies, Inc. 2000
Senior Executive Incentive and Stock Award Plan and the Marsh & McLennan
Companies, Inc. 2000 Employee Incentive and Stock Award Plan (incorporated by
reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended March
31, 2006)
(10.12)
*Form of 2007 Long-term Incentive Award under the Marsh & McLennan Companies, Inc.
2000 Senior Executive Incentive and Stock Award Plan and the Marsh & McLennan
Companies, Inc. 2000 Employee Incentive and Stock Award Plan (incorporated by
reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2007)
(10.13)
*Form of 2008 Long-term Incentive Award under the Marsh & McLennan Companies, Inc.
2000 Senior Executive Incentive and Stock Award Plan and the Marsh & McLennan
Companies, Inc. 2000 Employee Incentive and Stock Award Plan (incorporated by
reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2008)
(10.14)
*Form of 2009 Long-term Incentive Award under the Marsh & McLennan Companies, Inc.
2000 Senior Executive Incentive and Stock Award Plan and the Marsh & McLennan
Companies, Inc. 2000 Employee Incentive and Stock Award Plan (incorporated by
reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2009)
*Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant
to Item 15(b) of Form 10-K.
111
(10.15)
*Form of 2010 Long-term Incentive Award under the Marsh & McLennan Companies, Inc.
2000 Senior Executive Incentive and Stock Award Plan and the Marsh & McLennan
Companies, Inc. 2000 Employee Incentive and Stock Award Plan (incorporated by
reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2010)
(10.16)
*Form of 2011 Long-term Incentive Award under the Marsh & McLennan Companies, Inc.
2000 Senior Executive Incentive and Stock Award Plan and the Marsh & McLennan
Companies, Inc. 2000 Employee Incentive and Stock Award Plan (incorporated by
reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June
30, 2011)
(10.17)
*Form of 2011 Long-term Incentive Award dated as of June 1, 2011 under the Marsh &
McLennan Companies, Inc. 2011 Incentive and Stock Award Plan (incorporated by
reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2011)
(10.18)
*Form of 2012 Long-term Incentive Award under the Marsh & McLennan Companies, Inc.
2011 Incentive and Stock Award Plan (incorporated by reference to the Company’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2012)
(10.19)
*Form of 2013 Long-term Incentive Award under the Marsh & McLennan Companies, Inc.
2011 Incentive and Stock Award Plan (incorporated by reference to the Company’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2013)
(10.20)
*Form of 2014 Long-term Incentive Award under the Marsh & McLennan Companies, Inc.
2011 Incentive and Stock Award Plan (incorporated by reference to the Company’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2014)
(10.21)
*Form of 2015 Long-term Incentive Award under the Marsh & McLennan Companies, Inc.
2011 Incentive and Stock Award Plan (incorporated by reference to the Company’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2015)
(10.22)
*Form of 2016 Long-term Incentive Award under the Marsh & McLennan Companies, Inc.
2011 Incentive and Stock Award Plan (incorporated by reference to the Company’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2016)
(10.23)
*Form of Deferred Stock Unit Award, dated as of February 24, 2012, under the Marsh &
McLennan Companies, Inc. 2011 Incentive and Stock Award Plan (incorporated by
reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended March
31, 2012)
*Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant
to Item 15(b) of Form 10-K.
112
(10.24)
*Form of Deferred Stock Unit Award, dated as of March 1, 2013, under the Marsh &
McLennan Companies, Inc. 2011 Incentive and Stock Award Plan (incorporated by
reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended March
31, 2013)
(10.25)
*Form of Deferred Stock Unit Award, dated as of March 1, 2014, under the Marsh &
McLennan Companies, Inc. 2011 Incentive and Stock Award Plan (incorporated by
reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended March
31, 2014)
(10.26)
*Form of Deferred Stock Unit Award, dated as of March 1, 2015, under the Marsh &
McLennan Companies, Inc. 2011 Incentive and Stock Award Plan (incorporated by
reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended March
31, 2015)
(10.27)
*Form of Deferred Stock Unit Award, dated as of March 1, 2016 under the Marsh &
McLennan Companies, Inc. 2011 Incentive and Stock Award Plan (incorporated by
reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended March
31, 2016)
(10.28)
*Form of Restricted Stock Unit Awards, dated as of April 1, 2016 under the Marsh &
McLennan Companies, Inc. 2011 Incentive and Stock Award Plan (incorporated by
reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June
30, 2016)
(10.29)
*Marsh & McLennan Companies, Inc. 2011 Incentive and Stock Award Plan (incorporated
by reference to the Company’s Registration Statement on Form S-8 dated August 5,
2011, Registration No. 333-176084)
(10.30)
*Amendments to Certain Marsh & McLennan Companies Equity-Based Awards Due to
U.S. Tax Law Changes Affecting Equity-Based Awards granted under the Marsh &
McLennan Companies, Inc. 2000 Senior Executive Incentive and Stock Award Plan and
the Marsh & McLennan Companies, Inc. 2000 Employee Incentive and Stock Award
Plan, effective January 1, 2009 (incorporated by reference to the Company’s Annual
Report on Form 10-K for the year ended December 31, 2008)
(10.31)
*Section 409A Amendment Document, effective as of January 1, 2009 (incorporated by
reference to the Company’s Annual Report on Form 10-K for the year ended
December 31, 2008)
*Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant
to Item 15(b) of Form 10-K.
113
(10.32)
*Section 409A Amendment Regarding Payments Conditioned Upon Employment-Related
Action to Any and All Plans or Arrangements Entered into by the Marsh & McLennan
Companies, Inc., or any of its Direct or Indirect Subsidiaries, that Provide for the Payment
of Section 409A Nonqualified Deferred Compensation, effective December 21, 2012
(incorporated by reference to the Company’s Annual Report on Form 10-K for the year
ended December 31, 2012)
(10.33)
*Marsh & McLennan Companies Supplemental Savings & Investment Plan (formerly the
Marsh & McLennan Companies Stock Investment Supplemental Plan) Restatement,
effective January 1, 2012 (incorporated by reference to the Company’s Annual Report on
Form 10-K for the year ended December 31, 2012)
(10.34)
*First Amendment to the Marsh & McLennan Companies Supplemental Savings &
Investment Plan Restatement effective January 1, 2012
(10.35)
*Marsh & McLennan Companies, Inc. Special Severance Pay Plan (incorporated by
reference to the Company’s Annual Report on Form 10-K for the year ended
December 31, 1996)
(10.36)
*Marsh & McLennan Companies Benefit Equalization Plan and Marsh & McLennan
Companies Supplemental Retirement Plan as Restated, effective January 1, 2012
(incorporated by reference to the Company’s Annual Report on Form 10-K for the year
ended December 31, 2012)
(10.37)
*First Amendment to the Marsh & McLennan Companies Benefit Equalization Plan and
Marsh & McLennan Companies Supplemental Retirement Plan as Restated effective
January 1, 2012
(10.38)
*Second Amendment to the Marsh & McLennan Companies Benefit Equalization Plan
and Marsh & McLennan Companies Supplemental Retirement Plan as Restated effective
January 1, 2012
(10.39)
*Marsh & McLennan Companies, Inc. Senior Executive Severance Pay Plan
(incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the
Quarter ended March 31, 2008)
(10.40)
*Amendment to the Marsh & McLennan Companies, Inc. Senior Executive Severance
Pay Plan, effective December 31, 2009 (incorporated by reference to the Company’s
Annual Report on Form 10-K for the year ended December 31, 2009)
*Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant
to Item 15(b) of Form 10-K.
114
(10.41)
*Marsh & McLennan Companies, Inc. Senior Management Incentive Compensation Plan
(incorporated by reference to the Company’s Annual Report on Form 10-K for the year
ended December 31, 1994)
(10.42)
*Marsh & McLennan Companies, Inc. Directors' Stock Compensation Plan - May 31,
2009 Restatement (incorporated by reference to the Company’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2009)
(10.43)
*Marsh & McLennan Companies International Retirement Plan As Amended and
Restated Effective January 1, 2009 (incorporated by reference to the Company’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2014)
(10.44)
*Description of compensation arrangements for independent directors of Marsh &
McLennan Companies, Inc. effective June 1, 2016 (incorporated by reference to the
Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016)
(10.45)
*Letter Agreement, effective as of March 20, 2013, between Marsh & McLennan
Companies, Inc. and Daniel S. Glaser (incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2013)
(10.46)
*Non-Competition and Non-Solicitation Agreement, effective as of September 18, 2013,
between Marsh & McLennan Companies, Inc. and Daniel S. Glaser (incorporated by
reference to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2013)
(10.47)
*Letter Agreement, effective as of May 14, 2014, between Marsh & McLennan
Companies, Inc. and Daniel S. Glaser (incorporated by reference to the Company’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2014)
(10.48)
*Letter Agreement, effective as of February 22, 2016, between Marsh & McLennan
Companies, Inc. and Daniel S. Glaser (incorporated by reference to the Company’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2016)
(10.49)
*Letter Agreement, effective as of March 20, 2013, between Marsh & McLennan
Companies, Inc. and J. Michael Bischoff (incorporated by reference to the Company’s
Annual Report on Form 10-K for the year ended December 31, 2013)
(10.50)
*Non-Competition and Non-Solicitation Agreement, effective as of November 21, 2013,
between Marsh & McLennan Companies, Inc. and J. Michael Bischoff (incorporated by
reference to the Company’s Annual Report on Form 10-K for the year ended December
31, 2013)
*Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant
to Item 15(b) of Form 10-K.
115
(10.51)
*Letter Agreement, effective as of May 14, 2014, between Marsh & McLennan
Companies, Inc. and J. Michael Bischoff (incorporated by reference to the Company’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2014)
(10.52)
*Waiver and Release Agreement, dated April 5, 2016, between Marsh & McLennan
Companies, Inc. and J. Michael Bischoff (incorporated by reference to the Company’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2016)
(10.53)
*Letter Agreement, effective as of March 20, 2013, between Marsh & McLennan
Companies, Inc. and Peter Zaffino (incorporated by reference to the Company’s Annual
Report on Form 10-K for the year ended December 31, 2013)
(10.54)
*Non-Competition and Non-Solicitation Agreement, effective as of November 21, 2013,
between Marsh & McLennan Companies, Inc. and Peter Zaffino (incorporated by
reference to the Company’s Annual Report on Form 10-K for the year ended December
31, 2013)
(10.55)
*Letter Agreement, effective as of May 14, 2014, between Marsh & McLennan
Companies, Inc. and Peter Zaffino (incorporated by reference to the Company’s Quarterly
Report on Form 10-Q for the quarter ended June 30, 2014)
(10.56)
*Letter Agreement, effective as of May 18, 2016, between Marsh & McLennan
Companies, Inc. and Peter Zaffino (incorporated by reference to the Company’s Quarterly
Report on Form 10-Q for the quarter ended June 30, 2016)
(10.57)
*Letter Agreement, effective as of March 20, 2013, between Marsh & McLennan
Companies, Inc. and Julio A. Portalatin (incorporated by reference to the Company’s
Annual Report on Form 10-K for the year ended December 31, 2013)
(10.58)
*Non-Competition and Non-Solicitation Agreement, effective as of November 21, 2013,
between Marsh & McLennan Companies, Inc. and Julio A. Portalatin (incorporated by
reference to the Company’s Annual Report on Form 10-K for the year ended December
31, 2013)
(10.59)
*Letter Agreement, effective as of May 14, 2014, between Marsh & McLennan
Companies, Inc. and Julio A. Portalatin (incorporated by reference to the Company’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2014)
(10.60)
*Letter Agreement, effective as of May 18, 2016, between Marsh & McLennan
Companies, Inc. and Julio A. Portalatin (incorporated by reference to the Company’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2016)
*Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant
to Item 15(b) of Form 10-K.
116
(10.61)
*Letter Agreement, effective as of March 20, 2013, between Marsh & McLennan
Companies, Inc. and Peter J. Beshar (incorporated by reference to the Company’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2015)
(10.62)
*Non-Competition and Non-Solicitation Agreement, effective as of November 21, 2013,
between Marsh & McLennan Companies, Inc. and Peter J. Beshar (incorporated by
reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended March
31, 2015)
(10.63)
*Letter Agreement, effective as of January 1, 2016, between Marsh & McLennan
Companies, Inc. and Mark C. McGivney (incorporated by reference to the Company’s
Quarterly Report on Form 10-Q for the quarter ended September 30, 2015)
(10.64)
*Non-Competition and Non-Solicitation Agreement, effective as of January 1, 2016,
between Marsh & McLennan Companies, Inc. and Mark C. McGivney (incorporated by
reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2015)
(12.1)
Statement Re: Computation of Ratio of Earnings to Fixed Charges
(14.1)
Code of Ethics for Chief Executive and Senior Financial Officers (incorporated by
reference to the Company’s Annual Report on Form 10-K for the year ended
December 31, 2002)
(21.1)
List of Subsidiaries of Marsh & McLennan Companies, Inc. (as of February 17, 2017)
(23.1)
Consent of Independent Registered Public Accounting Firm
(24.1)
Power of Attorney (included on signature page)
(31.1)
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
(31.2)
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
(32.1)
Section 1350 Certifications
101.INS
XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema
101.CAL XBRL Taxonomy Extension Calculation Linkbase
101.DEF XBRL Taxonomy Extension Definition Linkbase
101.LAB XBRL Taxonomy Extension Label Linkbase
101.PRE XBRL Taxonomy Extension Presentation Linkbase
*Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant
to Item 15(b) of Form 10-K.
117
Item 16. Form 10-K Summary
None.
118
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
MARSH & McLENNAN COMPANIES, INC.
Dated: February 24, 2017
By
/S/ DANIEL S. GLASER
Daniel S. Glaser
President and Chief Executive Officer
Each person whose signature appears below hereby constitutes and appoints Carey S. Roberts and
Tiffany D. Wooley, and each of them singly, such person’s lawful attorneys-in-fact and agents, with full
power to them and each of them to sign for such person, in the capacity indicated below, any and all
amendments to this Annual Report on Form 10-K filed with the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below
by the following persons on behalf of the registrant and in the capacities indicated this 24th day of
February, 2017.
Name
Title
Date
/S/ DANIEL S. GLASER
Daniel S. Glaser
/S/ MARK C. MCGIVNEY
Mark C. McGivney
/S/ ROBERT J. RAPPORT
Robert J. Rapport
/S/ ANTHONY K. ANDERSON
Anthony K. Anderson
/S/ OSCAR FANJUL
Oscar Fanjul
/S/ H. EDWARD HANWAY
H. Edward Hanway
/S/ DEBORAH C. HOPKINS
Deborah C. Hopkins
/S/ ELAINE LA ROCHE
Elaine La Roche
/S/ STEVEN A. MILLS
Steven A. Mills
Director, President &
Chief Executive Officer
February 24, 2017
Chief Financial Officer
February 24, 2017
Senior Vice President &
Controller
(Chief Accounting Officer)
February 24, 2017
Director
Director
Director
Director
Director
Director
February 24, 2017
February 24, 2017
February 24, 2017
February 24, 2017
February 24, 2017
February 24, 2017
Name
Title
Date
/S/ BRUCE P. NOLOP
Bruce P. Nolop
/S/ MARC D. OKEN
Marc D. Oken
/S/ MORTON O. SCHAPIRO
Morton O. Schapiro
/S/ LLOYD M. YATES
Lloyd M. Yates
/S/ R. DAVID YOST
R. David Yost
Director
February 24, 2017
Director
February 24, 2017
Director
February 24, 2017
Director
February 24, 2017
Director
February 24, 2017
Exhibit 31.1
I, Daniel S. Glaser, certify that:
CERTIFICATIONS
1. I have reviewed this Annual Report on Form 10-K of Marsh & McLennan Companies, Inc. (the "registrant");
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of
an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's
internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal control over financial reporting.
Date: February 24, 2017
/s/ Daniel S. Glaser
Daniel S. Glaser
President and Chief Executive Officer
Exhibit 31.2
I, Mark C. McGivney, certify that:
CERTIFICATIONS
1. I have reviewed this Annual Report on Form 10-K of Marsh & McLennan Companies, Inc. (the "registrant");
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of
an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's
internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal control over financial reporting.
Date: February 24, 2017
/s/ Mark C. McGivney
Mark C. McGivney
Chief Financial Officer
Exhibit 32.1
Certification of Chief Executive Officer and Chief Financial Officer
The certification set forth below is being submitted in connection with the Annual Report on Form 10-K for the year
ended December 31, 2016 of Marsh & McLennan Companies, Inc. (the "Report") for the purpose of complying with
Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and Section 1350 of Chapter 63 of Title 18 of the United States Code.
Daniel S. Glaser, the President and Chief Executive Officer, and Mark C. McGivney, the Chief Financial Officer, of
Marsh & McLennan Companies, Inc. each certifies that, to the best of his knowledge:
1.
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and
2.
the information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of Marsh & McLennan Companies, Inc.
Date: February 24, 2017
Date: February 24, 2017
/s/ Daniel S. Glaser
Daniel S. Glaser
President and Chief Executive Officer
/s/ Mark C. McGivney
Mark C. McGivney
Chief Financial Officer
Stock performance graph
The following graph compares the annual cumulative stockholder
return for the five-year period ended December 31, 2016 on:
Marsh & McLennan Companies common stock; a management-
constructed composite industry index; and the Standard & Poor’s
500 Stock Index. The graph assumes an investment of $100 on
December 31, 2011 in Marsh & McLennan Companies common
stock and each of the two indices, with dividends reinvested.
Returns on the composite industry index reflect allocation
of the total amount invested among the constituent stocks
on a pro rata basis according to each issuer’s start-of-the-year
market capitalization. The composite industry index consists
of Aon plc, Willis Towers Watson Public Limited Company
and Arthur J. Gallagher & Co.
Comparison of Cumulative Total Stockholder Return
($100 INVESTED 12/31/11 WITH DIVIDENDS REINVESTED)
240
205
170
135
100
2011
2012
2013
2014
2015
2016
Marsh & McLennan Companies
100
Composite Industry Index
S&P 500
100
100
112
108
116
161
170
154
195
181
175
193
186
177
240
214
198
Stockholder information
ANNUAL MEETING
DIRECT PURCHASE PLAN
STOCK LISTINGS
The 2017 Annual Meeting of Stockholders
will be held at 10:00 a.m., Thursday,
May 18, 2017, at the following location:
Directors Guild of America
110 West 57th Street
New York, NY 10019
INVESTOR INFORMATION
Stockholders of record inquiring about
reinvestment and payment of dividends,
consolidation of accounts, stock certificate
holdings, stock certificate transfers
and address changes should contact:
Wells Fargo Shareowner Services
P.O. Box 64854
St. Paul, MN 55164-0854
Telephone: 800 457 8968 or
651 450 4064 (Outside US/Canada)
Mailing Address:
1110 Centre Pointe Curve, Suite 101
Mendota Heights, MN 55120-4100
Wells Fargo’s website:
www.shareowneronline.com
Stockholders who hold shares of Marsh
& McLennan Companies beneficially
through a broker, bank or other
intermediary organization should contact
that organization for these services.
Stockholders of record and other interested
investors can purchase Marsh & McLennan
Companies common stock directly through
the Company’s transfer agent and the
Administrator for the Plan, Wells Fargo.
A brochure on the Plan is available on the
Wells Fargo website or by contacting
Wells Fargo directly:
Wells Fargo Shareowner Services
P.O. Box 64854
St. Paul, MN 55164-0854
Telephone: 800 457 8968 or
651 450 4064 (Outside US/Canada)
Wells Fargo’s website:
www.shareowneronline.com
FINANCIAL INFORMATION
Copies of Marsh & McLennan Companies
annual reports and Forms 10-K and
10-Q are available on the Company’s
website. These documents also may
be requested by contacting:
Marsh & McLennan Companies, Inc.
Investor Relations
1166 Avenue of the Americas
New York, NY 10036
Telephone: 212 345 6902
Website: www.mmc.com
Marsh & McLennan Companies
common stock (ticker symbol: MMC)
is listed on the New York, Chicago
and London Stock Exchanges.
PROCEDURES FOR RAISING
COMPLAINTS AND CONCERNS
REGARDING ACCOUNTING MATTERS
Marsh & McLennan Companies is committed
to complying with all applicable accounting
standards, internal accounting controls,
audit practices and securities laws and
regulations (collectively, “Accounting
Matters”). To raise a complaint or concern
regarding Accounting Matters, you may
contact the Company by mail, telephone
or online. You may review the Company’s
procedures for handling complaints and
concerns regarding Accounting Matters
at www.mmc.com.
By mail:
Marsh & McLennan Companies, Inc.
Audit Committee
c/o Carey Roberts, Corporate Secretary
1166 Avenue of the Americas
New York, NY 10036
By telephone or online:
Visit www.ethicscomplianceline.com
for dialing instructions or to raise a
concern online.
Marsh & McLennan Companies, Inc.
1166 Avenue of the Americas
New York, NY 10036
www.mmc.com