Marsh & McLennan Companies 10-Q 2022-03-31

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2022

OR

For the transition period from to

Marsh & McLennan Companies, Inc.

1166 Avenue of the Americas

New York, New York 10036

(212) 345-5000

Commission file number 1-5998

State of Incorporation: Delaware

I.R.S. Employer Identification No. 36-2668272

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically 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 ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý

As of April 18, 2022, there were outstanding 501,913,724 shares of common stock, par value $1.00 per share, of the registrant.

INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q 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:

• the impact of geopolitical or macroeconomic conditions on us, our clients and the countries and industries in which we operate, including from conflicts such as the war in Ukraine, capital markets volatility and inflation;

• the increasing prevalence of ransomware, supply chain and other forms of cyber attacks, and their potential to disrupt our operations and result in the disclosure of confidential client or company information;

• the impact from lawsuits or investigations arising from errors and omissions, breaches of fiduciary duty or other claims against us in our capacity as a broker or investment advisor, including claims related to our investment business’ ability to execute timely trades in light of increased trading volume;

• the financial and operational impact of complying with laws and regulations, including domestic and international sanctions regimes, anti-corruption laws such as the U.S. Foreign Corrupt Practices Act, U.K. Anti Bribery Act and cybersecurity and data privacy regulations;

• our ability to attract, retain and develop industry leading talent;

• our ability to compete effectively and adapt to competitive pressures in each of our businesses, including from disintermediation as well as technological change, digital disruption and other types of innovation;

• our ability to manage potential conflicts of interest that may arise across our businesses given our expanding client base, the broad scope of our work and the significant volume of our engagements;

• the impact of changes in tax laws, guidance and interpretations, or disagreements with tax authorities; and

• the regulatory, contractual and reputational risks that arise based on insurance placement activities and insurer revenue streams.

The factors identified above are not exhaustive. Marsh McLennan and its subsidiaries (collectively, the "Company") operate in a dynamic business environment in which new risks emerge frequently. Accordingly, we caution readers not to place undue reliance on any forward-looking statements, which are based only on information currently available to us and speak only as of the dates on which they are made. 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 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 and the "Management’s Discussion and Analysis of Financial Condition and Results of Operations" section of this Quarterly Report on Form 10-Q and our most recently filed Annual Report on Form 10-K.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

The accompanying notes are an integral part of these unaudited consolidated statements.

MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

The accompanying notes are an integral part of these unaudited consolidated statements.

MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these unaudited consolidated statements.

MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Continued)

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General

Marsh & McLennan Companies, Inc. and its consolidated subsidiaries (the "Company") is a global professional services firm offering clients advice in the areas of risk, strategy and people. The Company’s 83,000 colleagues advise clients in over 130 countries. With annual revenue of approximately $20 billion, the Company helps clients navigate an increasingly dynamic and complex environment through four market-leading businesses. Marsh provides data-driven risk advisory services and insurance solutions to commercial and consumer clients. Guy Carpenter develops advanced risk, reinsurance and capital strategies that help clients grow profitably and identify and capitalize on emerging opportunities. Mercer delivers advice and solutions that help organizations create a dynamic world of work, shape retirement and investment outcomes, and unlock health and well being for a changing workforce. Oliver Wyman Group serves as a critical strategic, economic and brand advisor to private sector and governmental clients.

The Company conducts business through two segments:

• Risk and Insurance Services** includes risk management activities (risk advice, risk transfer and risk control and mitigation solutions) as well as insurance and reinsurance broking and services. The Company conducts business in this segment through Marsh and Guy Carpenter.

• Consulting** includes health, wealth and career consulting services and products, and specialized management, economic and brand consulting services. The Company conducts business in this segment through Mercer and Oliver Wyman Group.

The results of operations in the Management Discussion & Analysis ("MD&A") includes an overview of the Company's consolidated three months ended March 31, 2022 results compared to the corresponding quarter in 2021, and should be read in conjunction with the consolidated financial statements and notes. This section also includes a discussion of the key drivers impacting the Company's financial results of operations both on a consolidated basis and by reportable segments.

We describe the primary sources of revenue and categories of expense for each segment in the discussion of segment financial results. A reconciliation of segment operating income to total operating income is included in Note 18, Segment Information, in the notes to the consolidated financial statements included in Part I, Item 1 of this report.

For information on the three months ended March 31, 2021 results and similar comparisons, see "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Form 10-Q for the quarter ended March 31, 2021.

This MD&A contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. See "Information Concerning Forward-Looking Statements" at the outset of this report.

Financial Highlights

• Consolidated revenue for the three months ended March 31, 2022 was $5.5 billion, an increase of 9% or 10% on an underlying basis.

• Consolidated operating income increased $87 million, or 6% to $1.4 billion for the three months ended March 31, 2022 compared to the corresponding quarter in the prior year. Net income attributable to the Company was $1.1 billion. Earnings per share increased 10% to $2.10.

• Risk and Insurance Services revenue for the three months ended March 31, 2022 was $3.5 billion, an increase of 10%, or 11% on an underlying basis. Operating income was $1.1 billion for the three months ended March 31, 2022, compared to the corresponding quarter in the prior year.

• Consulting revenue for the three months ended March 31, 2022 was $2.0 billion, an increase of 7%, or 10% on an underlying basis. Operating income was $392 million, compared with $361 million for the three months ended March 31, 2021.

• Results for the three months ended March 31, 2022 include a loss of $52 million on the deconsolidation of the Company's Russian businesses and other related charges. On March 10, 2022, the Company also announced it would exit its businesses in Russia and transfer ownership of its Russian entities to local management who will operate independently in the Russian market.

• In the first quarter of 2022 the Company repurchased 3.2 million shares of stock for $500 million.

For additional details, refer to the Consolidated Results of Operations and Liquidity and Capital Resources sections in this MD&A.

Acquisitions and dispositions impacting the Risk and Insurance Services and Consulting segments are discussed in Note 8, Acquisitions and Dispositions, in the notes to the consolidated financial statements.

Deconsolidation of Russia

On February 24, 2022, Russian forces launched a military invasion of Ukraine. In response, the United States, the European Union, United Kingdom and other governments have imposed significant economic sanctions on Russia, and Russia has responded with counter-sanctions. The war in Ukraine has disrupted international commerce and the global economy.

On March 10, 2022, the Company announced it would exit its businesses in Russia and transfer ownership of its Russian businesses to local management who will operate independently in the Russian market.

In the first quarter of 2022, the Company concluded that it does not meet the accounting criteria for control over its wholly-owned Russian businesses due to the evolving trade and economic sanctions against Russia and related Russian counter-sanctions. These sanctions include restrictions on payments to and from Russian companies and reduced currency access through official exchange markets that have significantly impacted the Company's ability to effectively manage and operate its Russian businesses. For the three months ended March 31, 2022, the Company recorded a loss of $52 million on the deconsolidation of the Russian businesses and other related charges. Refer to Note 8, Acquisitions and Dispositions, in the notes to the consolidated financial statements for additional information on the deconsolidation of the Russian businesses.

The Company continues to monitor the ongoing situation and its potential impact on our business, financial condition, results of operations and cash flows.

Business Update Related To COVID-19

For over two years, the COVID-19 pandemic has impacted businesses globally including in every geography in which the Company operates. Our businesses have remained resilient throughout the pandemic and demand for our advice and services remains strong.

The Company had strong revenue growth for the first three months of 2022. However, uncertainty remains in the economic outlook, and the ultimate extent of the impact of COVID-19 to the Company will depend on future developments that it is unable to predict, including new "waves" of infection from emerging variants of the virus and potential renewed restrictions and mandates by various governments or agencies.

Factors that could adversely affect the Company’s financial statements related to the financial and operational impact of COVID-19 are outlined in “Item 1A - Risk Factors” in the Company’s Form 10-K for the year ended December 31, 2021.

Consolidated Results of Operations

Consolidated operating income increased $87 million, or 6% to $1.4 billion for the three months ended March 31, 2022 compared to the corresponding prior year quarter, reflecting a 9% increase in revenue and 10% increase in expenses. Revenue growth was driven by increases in the Risk and Insurance Services and Consulting segments of 10% and 7%, respectively, reflecting the continued strong demand for our advice and services and the improvement in global economic conditions compared to the corresponding quarter in the prior year. The increase in expenses is primarily due to increased headcount and higher incentive compensation.

Diluted earnings per share increased 10% to $2.10 for the three months ended March 31, 2022 compared to $1.91 for the three months ended March 31, 2021. The increase is primarily the result of higher operating income for the three months ended March 31, 2022, compared to the corresponding quarter in the prior year. Results for the three months ended March 31, 2022 also included a charge of approximately $52 million for the deconsolidation of the Company's Russian businesses and other related charges in Marsh and Oliver Wyman.

The following table summarizes restructuring and other items discussed in more detail below:

In the three months ended March 31, 2022 and 2021, the Company's results of operations and earnings per share were impacted by the following items:

• Restructuring:** Includes costs related to the Company's global information technology and HR functions, JLT integrations costs, Marsh (RIS) operational excellence and adjustments to restructuring liabilities for future rent under non-cancellable leases.

• Changes in contingent consideration:** Primarily includes the change in fair value of contingent consideration related to acquisitions and dispositions as measured each quarter.

• JLT acquisition-related costs and other:** Includes retention costs and legal charges related to the acquisition of JLT.

• JLT legacy E&O provision:** In the first quarter of 2022, the Company recorded $10 million of recoveries under indemnities for a legacy JLT Errors and Omissions ("E&O") matter related to the suitability of advice provided to individuals for defined benefit pension transfers in the U.K. See Note 17, Claims, Lawsuits and Other Contingencies, in the notes to the consolidated financial statements in this report for additional detail.

• Legal claims:** The Company recorded settlement charges and legal costs related to strategic recruiting.

• Deconsolidation of Russia entities and other related charges:** The loss on deconsolidation is included in revenue and excluded from the underlying revenue calculations.

Consolidated Revenue and Expense

Revenue – Components of Change

The Company conducts business in 130 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 the next 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 are as follows:

Consolidated Revenue

Consolidated revenue increased $466 million, or 9% to $5.5 billion for the three months ended March 31, 2022 compared to $5.1 billion for the three months ended March 31, 2021. Consolidated revenue increased 10% on an underlying basis and 1% from acquisitions, partly offset by a decrease of 2% from the impact of foreign currency translation. On an underlying basis, revenue increased 11% and 10% for the three months ended March 31, 2022 in Risk and Insurance Services and Consulting segments, respectively. Underlying revenue growth in the Risk and Insurance Services and Consulting segments was driven by the continued strong demand for our advice and services.

Consolidated Operating Expenses

Consolidated operating expenses increased $379 million, or 10% to $4.1 billion for the three months ended March 31, 2022 compared to $3.7 billion for the three months ended March 31, 2021, reflecting increases of 11% on an underlying basis and 2% from acquisitions, partly offset by a decrease of 2% from the impact of foreign currency translation. On an underlying basis, expenses increased 12% and 9% for the three months ended March 31, 2022 in Risk and Insurance Services and Consulting, respectively. The increase in underlying expenses is primarily due to increased headcount and higher incentive compensation.

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.

The results of operations for the Risk and Insurance Services segment are presented below:

Revenue

Revenue in the Risk and Insurance Services segment increased $324 million, or 10% to $3.5 billion for the three months ended March 31, 2022 compared to $3.2 billion for the three months ended March 31, 2021. Revenue grew 11% on an underlying basis and 1% from the impact of acquisitions, partly offset by a decrease of 2% related to the impact of foreign currency translation. The increase in underlying revenue was primarily due to strong growth in new business, solid retention, and benefits from pricing in the marketplace.

At Marsh, revenue increased $221 million, or 10% to $2.5 billion for the three months ended March 31, 2022 compared to $2.3 billion for the three months ended March 31, 2021. This reflects an increase of 11% on an underlying basis and 1% from the impact of acquisitions, partly offset by a decrease of 2% from the impact of foreign currency translation. On an underlying basis, the U.S. and Canada rose 10%. Results for the three months ended March 31, 2022 also included a charge of approximately $27 million at Marsh related to the loss on deconsolidation of the Company's Russian businesses. Total International operations produced underlying revenue growth of 11%, reflecting growth of 17% in Asia Pacific, 9% in EMEA and 16% in Latin America.

At Guy Carpenter, revenue increased $104 million, or 12% to $999 million for the three months ended March 31, 2022 compared to $895 million for the three months ended March 31, 2021. On an underlying basis, revenue increased 11%.

The Risk and Insurance Services segment completed one acquisition during the first three months ended March 31, 2022. Information regarding this acquisition is included in Note 8, Acquisitions and Dispositions, in the notes to the consolidated financial statements.

Operating Expenses

Expenses in the Risk and Insurance Services segment increased $263 million, or 12% to $2.4 billion for the three months ended March 31, 2022 compared to $2.2 billion for the three months ended March 31, 2021. This reflects an increase of 12% on an underlying basis and 2% from the impact of acquisitions, partly offset by a decrease of 2% from the impact of foreign currency translation. The increase in underlying expenses is primarily due to increased headcount and higher incentive compensation.

Consulting

The Company conducts business in its Consulting segment through Mercer and Oliver Wyman Group. Mercer delivers advice and solutions that help organizations create a dynamic world of work, shape retirement and investment outcomes, and unlock health and well being for a changing workforce. Oliver Wyman serves as critical strategic, economic and brand advisor to private sector and governmental clients.

The results of operations for the Consulting segment are presented below:

Revenue

Consulting revenue increased $137 million, or 7% to $2.0 billion for the three months ended March 31, 2022, compared to $1.9 billion for the three months ended March 31, 2021. This reflects an increase of 10% on an underlying basis partly offset by a decrease of 2% from the impact of foreign currency translation.

Mercer's revenue increased $55 million, or 4% to $1.3 billion for the three months ended March 31, 2022 compared to the corresponding quarter in the prior year. This reflects an increase of 6% on an underlying basis, partly offset by a decrease of 2% from the impact of foreign currency translation. On an underlying basis, revenue for Career, Health and Wealth increased 16%, 9% and 2%, respectively, as compared to the corresponding quarter in the prior year. The increase in underlying revenue at Mercer for the three months ended March 31, 2022 was due to higher investment management fees from growth in assets under management and increased demand and retention for Health and Career products and services.

Oliver Wyman's revenue increased $82 million, or 14% to $667 million for the three months ended March 31, 2022 compared to $585 million for the three months ended March 31, 2021, reflecting an increase of 17% on an underlying basis partly offset by decreases of 1% from dispositions, and 2% from the impact of foreign currency translation. Results for the three months ended March 31, 2022 also included a charge of approximately $12 million at Oliver Wyman related to the loss on deconsolidation of the Company's Russian businesses. The increase in underlying revenue at Oliver Wyman for the three months ended March 31, 2022 primarily reflects the impact of increased demand for project-based services across all industries.

The Consulting segment completed two acquisitions during the first three months ended March 31, 2022. Information regarding the acquisitions is included in Note 8, Acquisitions and Dispositions, in the notes to the consolidated financial statements.

Operating Expenses

Consulting expenses increased $106 million, or 7% to $1.6 billion for the three months ended March 31, 2022 compared to $1.5 billion for the first three months ended March 31, 2021. This reflects an increase of 9% on an underlying basis partly offset by a 2% decrease from the impact of foreign currency translation. The increase in underlying expenses in the Consulting segment for the three months ended March 31, 2022 is primarily due to increased headcount and incentive compensation.

Corporate and Other

Corporate expenses were $68 million for the three months ended March 31, 2022 compared to $63 million for the three months ended March 31, 2021. Expenses increased 7% on an underlying basis primarily due to increased headcount and incentive compensation.

Interest

Interest expense was $110 million for the three months ended March 31, 2022 compared to $118 million for the for the three months ended March 31, 2021. Interest expense decreased $8 million due to lower average debt levels in 2022 compared with the corresponding quarter in the prior year.

Investment Income

The caption "Investment income" in the consolidated statements of income comprises realized and unrealized gains and losses from investments. It includes, when applicable, other than temporary declines in the value of securities, mark-to-market increases or decreases in equity investments with readily determinable fair values and equity method gains or losses on its investments in private equity funds. The Company's investments may include direct investments in insurance, consulting or other strategically linked companies and investments in private equity funds.

The Company recorded net investment income of $26 million for the three months ended March 31, 2022 compared to net investment income of $11 million for the same period in the prior year. The increase in 2022 is primarily driven by higher mark-to-market gains in the Company's private equity investments and its investment in Alexander Forbes.

Income and Other Taxes

The Company's effective tax rate in the first quarter of 2022 was 23.7% compared with 24.5% in the first quarter of 2021.

The tax rates in both periods reflect the impact of discrete tax matters such as excess tax benefits related to share-based compensation, enacted tax legislation, changes in uncertain tax positions, deferred tax adjustments and non-taxable adjustments to contingent acquisition consideration.

The excess tax benefit related to share-based payments is the most significant discrete item, reducing the effective tax rate by 1.8% and 1.1% in the first quarters of 2022 and 2021, respectively. The rate in the first quarter of 2022 also reflects tax benefits from planning implemented in the period that postponed the utilization of current-year losses in the U.K. to a future year when the tax rate will be 25%.

The effective tax rate may vary significantly from period to period. The effective tax rate is sensitive to the geographic mix and repatriation of the Company's earnings, which may result in higher or lower effective tax rates. Thus, a shift in the mix of profits among jurisdictions, or changes in the Company's repatriation strategy to access offshore cash, can affect the effective tax rate.

In addition, losses in certain jurisdictions cannot be offset by earnings from other operations, and may require valuation allowances that affect the rate in a particular period, depending on estimates of the value of associated deferred tax assets which can be realized. A valuation allowance was recorded to reduce deferred tax assets to the amount that the Company believes is more likely than not to be realized. The effective tax rate is also sensitive to changes in unrecognized tax benefits, including the impact of settled tax audits and expired statutes of limitations.

Changes in tax laws, rulings, policies or related legal and regulatory interpretations occur frequently and may have a significant favorable or adverse impact on our effective tax rate.

As a U.S. domiciled parent holding company, the Company is the issuer of essentially all of the external indebtedness and incurs the related interest expense in the U.S. The Company’s interest expense deductions are not currently limited. Further, most senior executive and oversight functions are conducted in the U.S. and the associated costs are incurred primarily in the U.S. Some of these expenses may not be deductible in the U.S., which may impact the effective tax rate.

The quasi-territorial U.S. tax regime provides an opportunity for the Company to repatriate foreign earnings more tax efficiently and there is less incentive for permanent reinvestment of these earnings. However, permanent reinvestment continues to be a component of the Company’s global capital strategy. The Company continues to evaluate its global investment and repatriation strategy in light of its capital requirements, considering the treatment of future earnings under the quasi-territorial tax regime.

The Company has established liabilities for uncertain tax positions in relation to potential assessments in the jurisdictions in which it operates. The Company believes the resolution of tax matters will not have a material effect on the consolidated financial position of the Company, although 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 $49 million within the next twelve months due to settlement of audits and expiration of statutes of limitation.

The Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") was signed into law on March 27, 2020. The CARES Act provided over $2 trillion in economic relief to individuals, governmental agencies and companies, to deal with the public health and economic impacts of COVID-19. Pursuant to the CARES Act, the Company deferred payroll taxes due from March 27, 2020 through December 31, 2020 and paid 50% in 2021 and will pay the remaining 50% in 2022.

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 can also provide financial support to its operating subsidiaries for acquisitions, investments and certain parts of their business that require liquidity, such as the capital markets business of Guy Carpenter. Other sources of liquidity include borrowing facilities discussed in financing cash flows.

The Company derives a significant portion of its revenue and operating profit from operating subsidiaries located outside of the U.S. Funds from those operating subsidiaries are regularly repatriated to the U.S. out of annual earnings. At March 31, 2022, the Company had approximately $736 million of cash and cash equivalents in its foreign operations, which includes $281 million of operating funds required to be maintained for regulatory requirements or as collateral under certain captive insurance arrangements. The Company expects to continue its practice of repatriating available funds from its non-U.S. operating subsidiaries out of current annual earnings. Where appropriate, a portion of the current year earnings will continue to be permanently reinvested.

During the first three months of 2022, the Company recorded foreign currency translation adjustments which decreased net equity by $169 million. Continued strengthening of the U.S. dollar against foreign currencies would further decrease 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 used $702 million of cash from operations for the three months ended March 31, 2022 compared to $408 million used by operations in the first three months of 2021. 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 plan contributions. The Company paid $39 million and $54 million related to its restructuring activities for the three months ended March 31, 2022 and 2021, respectively.

Pension Related Items

Contributions

The Company's policy for funding its tax-qualified defined benefit plans is to contribute amounts at least sufficient to meet the funding requirements set forth in accordance with applicable law. During the first three months of 2022, the Company contributed $60 million to its non-U.S. defined benefit pension plans and $8 million to its U.S. defined benefit pension plans. In the first three months of 2021, the Company contributed $17 million to its non-U.S. defined benefit pension plans and $12 million to its U.S. defined benefit pension plans.

In the U.S., 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 in accordance with the ERISA guidelines. During the first three months of 2022, the Company made $8 million of contributions to its non-qualified plans and expects to fund approximately an additional $23 million over the remainder of 2022. The Company is not required to make any contributions to its U.S. qualified plan in 2022.

Outside the U.S., the Company has a large number of non-U.S. defined benefit pension plans, the largest of which are in the U.K., which comprise approximately 81% of non-U.S. plan assets at December 31, 2021. 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.

The Company contributed $58 million to its U.K. plans (including the JLT section) for the first three months of 2022. The Company contributions to its U.K. plans (including the JLT section) for the remainder of 2022 are expected to be approximately $66 million.

In the U.K., the assumptions used to determine pension contributions are the result of legally-prescribed negotiations between the Company and the plans' trustee that typically occur every three years in conjunction with the actuarial valuation of the plans. Currently, this results in a lower funded status compared to U.S. GAAP and may result in contributions irrespective of the U.S. GAAP funded status.

During 2021, the JLT Pension Scheme was merged into the MMC U.K. Pension Fund with a new segregated JLT section created. The Company made deficit contributions of $55 million to the JLT section in the first quarter of 2022 and is expected to make $57 million of contributions in the remainder of 2022. The funding level of the JLT section will be reassessed during 2022 to determine contributions in 2023 and onwards.

For the Marsh McLennan U.K. Pension Fund, excluding the JLT section, an agreement was reached with the trustee in the fourth quarter of 2019 based on the surplus funding position at December 31, 2018. In accordance with the agreement, no deficit funding is required until 2023. The funding level will be re-assessed during 2022 as part of the December 31, 2021 actuarial valuation to determine if contributions are required in 2023. As part of a long term strategy which depends on having greater influence over asset allocation and overall investment decisions, in November 2019, the Company renewed its agreement to support annual deficit contributions by the U.K. operating companies under certain circumstances, up to £450 million over a seven-year period.

The Company expects to fund an additional $87 million to its non-U.S. defined benefit plans over the remainder of 2022, comprising approximately $21 million to plans outside of the U.K. and $66 million to the U.K. plans.

Financing Cash Flows

Net cash provided by financing activities was $855 million for the three months ended March 31, 2022, compared with $261 million used by financing activities for the same period in 2021.

Credit Facilities

On April 2, 2021, the Company entered into an amended and restated multi-currency unsecured $2.8 billion five-year revolving credit facility ("New Facility"). The interest rate on the New Facility is based on LIBOR plus a fixed margin which varies with the Company’s credit ratings. The New Facility expires in April 2026 and requires the Company to maintain certain coverage and leverage ratios which are tested quarterly. The New Facility includes provisions for determining a LIBOR successor rate in the event LIBOR reference rates are no longer available or in certain other circumstances which are determined to make using an alternative rate desirable.

As of March 31, 2022, the Company had no borrowings under this facility. In connection with the New Facility, the Company terminated its previous multicurrency unsecured $1.8 billion five-year revolving credit facility and its unsecured $1.0 billion 364-day unsecured revolving credit facility.

The Company also maintains other credit facilities, guarantees and letters of credit with various banks, aggregating $483 million at March 31, 2022 and $508 million at December 31, 2021. There were no outstanding borrowings under these facilities at March 31, 2022 and December 31, 2021.

Debt

On April 9, 2021, the Company increased its short-term commercial paper financing program to $2.0 billion from $1.5 billion. The Company had $825 million of commercial paper outstanding at March 31, 2022 at an effective interest rate of 0.91%.

In December 2021, the Company issued $400 million of 2.375% senior notes due 2031 and $350 million of 2.90% senior notes due 2051. The Company used the net proceeds from these issuances for general corporate purposes, and repaid $500 million of 2.75% senior notes with an original maturity date of January 2022 in December 2021.

On April 15, 2021, the Company repaid $500 million of senior notes maturing in July 2021.

The Company's senior debt is currently rated A- by Standard & Poor's ("S&P") and Baa1 by Moody's. The Company's short-term debt is currently rated A-2 by S&P and P-2 by Moody's. The Company carries a Stable outlook with both S&P and Moody's.

Share Repurchases

On March 23, 2022, the Board of Directors of the Company authorized an additional $5 billion in share repurchases. This is in addition to the Company's existing share repurchase program, which had approximately $1.3 billion of remaining authorization as of December 31, 2021. During the first three months of 2022, the Company repurchased 3.2 million shares of its common stock for $500 million. As of March 31, 2022, the Company remained authorized to repurchase up to approximately $5.8 billion in shares of its common stock. There is no time limit on the authorization.

During the first three months of 2021, the Company repurchased 1 million shares of its common stock for total consideration of approximately $119 million, of which $112 million was paid during the first quarter of 2021.

Dividends

The Company paid dividends on its common shares of $272 million ($0.535 per share) during the first three months of 2022, as compared with $237 million ($0.465 per share) during the first three months of 2021.

Contingent Payments Related to Acquisitions

The classification of contingent consideration in the consolidated statements of cash flows is dependent upon whether the receipt, payment, or adjustment 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 operating and financing activities:

Derivatives

Net Investment Hedge

The Company has investments in various subsidiaries with Euro functional currencies. As a result, the Company is exposed to the risk of fluctuations between the Euro and U.S. dollar exchange rates. As part of its risk management program to fund the JLT acquisition, the Company issued €1.1 billion Senior Notes, and designated the debt instruments as a net investment hedge of its Euro denominated subsidiaries. The hedge is re-assessed each quarter to confirm that the designated equity balance at the beginning of each period continues to equal or exceed 80% of the outstanding balance of the Euro debt instrument and that all the critical terms of the hedging instrument and the hedged net investment continue to match. If the hedge is highly effective, the change in the debt balance related to foreign exchange fluctuations will be recorded in foreign currency translation gains (losses) in the consolidated balance sheets. The U.S. dollar value of the Euro notes decreased by $29 million through March 31, 2022 related to the change in foreign exchange rates. The Company concluded that the hedge was highly effective and recorded a decrease to accumulated other comprehensive loss for the three months ended March 31, 2022.

Fiduciary Liabilities

Since cash and cash equivalents held in a fiduciary capacity are not available for corporate use, they are shown in the consolidated balance sheets as an offset to fiduciary liabilities. Financing cash flows reflect an increase of $926 million and $190 million for the three months ended March 31, 2022 and 2021, respectively, related to the increase in fiduciary liabilities.

Investing Cash Flows

Net cash used for investing activities amounted to $159 million in the first three months of 2022, compared with $67 million used for investing activities for the same period in 2021.

The Company paid $24 million, net of cash and cash equivalents for acquisitions it made during the first three months of 2022. The Company made no acquisitions in the first three months of 2021.

During the first three months of 2022 and 2021, the Company sold its Mercer retirement plan administration and call center operations in Brazil, for cash proceeds of approximately $4 million. There were no dispositions during the first three months of 2021.

The Company's additions to fixed assets and capitalized software, which amounted to $122 million in the first three months of 2022 and $69 million in the first three months of 2021, primarily related 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 $44 million in six private equity funds that invest primarily in financial services companies. On April 1, 2022, the Company committed to invest $100 million in a private equity fund.

Commitments and Obligations

The following sets forth the Company’s future contractual obligations by the types identified in the table as of March 31, 2022:

The above table does not include the liability for unrecognized tax benefits of $94 million as the Company is unable to reasonably predict the timing of settlement of these liabilities, other than approximately $35 million that may become payable within one year. The table also excludes the provisional estimate of remaining transitional tax payments related to the Tax Cuts and Jobs Act ("the TCJA") of $62 million.

Management’s Discussion of Critical Accounting Policies and Estimates

The Company’s discussion of critical accounting policies and estimates that place the most significant demands on management’s judgment and requires management to make significant estimates about matters that are inherently uncertain are discussed in the MD&A in the 2021 Form 10-K.

New Accounting Guidance

Note 19, New Accounting Guidance, in the notes to the consolidated financial statements in this report contains a discussion of recently issued accounting guidance and their impact or potential future impact on the Company’s financial results, if determinable.

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, cash equivalents, and cash and cash equivalents held in a fiduciary capacity will vary with the general level of interest rates.

The Company had the following investments subject to variable interest rates:

Based on the above balances, if short-term interest rates increased or decreased by 10%, or 2 basis points, over the course of the year, annual interest income, including interest earned on cash and cash equivalents held in a fiduciary capacity, would increase or decrease by approximately $1.5 million.

Changes in interest rates can also affect the discount rate and assumed rate of return on plan assets, two of the assumptions among several others used to measure net periodic pension expense. The assumptions used to measure plan assets and liabilities are typically assessed at the end of each year, and determine the expense for the subsequent year. Assumptions used to determine net periodic expense for 2022 are discussed in Note 13, Retirement Benefits, in the notes to the consolidated financial statements included in our most recently filed Annual Report on Form 10-K. For a discussion on pension expense sensitivity to changes in these rates, see the "Management’s Discussion and Analysis of Financial Condition and Results of Operations - Management’s Discussion of Critical Accounting Policies and Estimates - Retirement Benefits" section of our most recently filed Annual Report on Form 10-K.

In addition to interest rate risk, our cash investments and fiduciary cash investments are subject to potential loss of value due to counter-party credit risk. To minimize this risk, the Company invests pursuant to a Board approved investment policy. The policy mandates the preservation of principal and liquidity and requires broad diversification with counter-party limits assigned based primarily on credit rating and type of investment. The Company carefully monitors its cash, cash equivalents, and cash and cash equivalents held in a fiduciary capacity, and will further restrict the portfolio as appropriate to market conditions. The majority of cash, cash equivalents and cash and cash equivalents held in a fiduciary capacity 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 53% 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 external macroeconomic events 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 that held constant over the course of the year, the Company estimates that full year net operating income would increase or decrease by approximately $62 million. The Company has exposure to approximately 80 foreign currencies overall. In Continental Europe, the largest amount of revenue from renewals for the Risk and Insurance Services segment occurs in the first quarter.

If exchange rates at March 31, 2022 hold constant for the rest of 2022, the Company estimates the year-over-year impact from conversion of foreign currency earnings will decrease full year net operating income by approximately $34 million.

Equity Price Risk

The Company holds investments in both public and private companies as well as private equity funds, including investments of approximately $82 million that are valued using readily determinable fair values and approximately $39 million of investments without readily determinable fair values. The Company also has investments of approximately $224 million that are accounted for using the equity method. The investments are subject to risk of decline in market value, which, if determined to be other than temporary for assets without readily determinable fair values, could result in realized impairment losses. The Company periodically reviews the carrying value of such investments to determine if any valuation adjustments are appropriate under the applicable accounting pronouncements.

At March 31, 2022, the Company owns approximately 14% of the common stock of Alexander Forbes ("AF"), a South African company listed on the Johannesburg Stock Exchange. The investment in AF is accounted at fair value, with unrealized gains and losses recorded as investment income (loss) in the consolidated statements of income. The fair value of this investment at March 31, 2022 was approximately $64 million.

Other

A number of lawsuits and regulatory proceedings are pending. See Note 17, Claims, Lawsuits and Other Contingencies, in the notes to the consolidated financial statements included in this report.

a. Evaluation of Disclosure Controls and Procedures

Based on their evaluation, as of the end of the period covered by this report, 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.

b. Changes in Internal Control

There were no other 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 Company’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

The Company and its subsidiaries are also party to a variety of other legal, administrative, regulatory and government proceedings, claims and inquiries arising in the normal course of business. Additional information regarding certain legal proceedings and related matters as set forth in Note 17, Claims, Lawsuits and Other Contingencies, in the notes to the consolidated financial statements provided in Part I of this report is incorporated herein by reference.

The Company and its subsidiaries face a number of risks and uncertainties. In addition to the other information in this report and our other filings with the SEC, readers should consider carefully the risk factors discussed in "Part I, Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2021.

If any of the risks described in our Annual Report on Form 10-K or such other risks actually occur, our business, results of operations or financial condition could be materially adversely affected.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Issuer Repurchases of Equity Securities

On March 23, 2022, the Board of Directors of the Company authorized an additional $5 billion in share repurchases. This is in addition to the Company's existing share repurchase program, which had approximately $1.3 billion of remaining authorization as of December 31, 2021. The Company repurchased approximately 3.2 million shares of its common stock for $500 million during the first quarter of 2022. As of March 31, 2022, the Company remained authorized to repurchase up to approximately $5.8 billion in shares of its common stock. There is no time limit on the authorization.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosure.

Not Applicable.

None.

See the Exhibit Index immediately following the signature page of this report, which is incorporated herein by reference.

SIGNATURES

Pursuant to the requirements 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.

EXHIBIT INDEX