Marsh & McLennan: an insurer that AI can't threaten

In February, major US brokers such as Marsh & McLennan , Willis Towers Watson, Aon and Arthur J. Gallagher & Co. declined by 8%-11% in a single day on news that OpenAI, the owner of ChatGPT, had approved the first insurance-focused AI app designed by US intermediary Insurify. OpenAI's tool arrived a week after Claude, the model developed by Anthropic, also released a new plug-in to automate sales, legal and financial analytical functions.

As well as this risk of obsolescence, investors have had to try to factor in the growing challenges of a so-called “soft” insurance market. Since 2017, the insurance market has been in a “hard” phase, where prices have been rising, and profits have jumped. However, two years ago, prices started to flatten and then fall as the market turned from hard to soft. The hard market was very good to Marsh & McLennan (NYSE: MRSH). Between 2017 and the beginning of 2024, shares in the broker and global-intelligence company rose more than 200%, but since topping out in the first half of 2025, they have fallen by around 28%.

This decline was needed. Insurance is a highly cyclical business and, coming into the soft cycle, Marsh was trading at about 22 times forward earnings, a multiple that left little, if any, room for error. After the re-rating, the shares are now trading at just 16.8 times forward earnings, according to UBS. That is still a bit high for this stage of the market cycle, but there's a good argument that you should start buying the shares at this level.

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Marsh & McLennan plays an important role in the insurance market

Marsh & McLennan is the parent firm of Marsh Inc, one of the world's largest risk-management and insurance-services firms. The group also owns Guy Carpenter, a risk-management and reinsurance specialist; management consultancies Mercer, plus Oliver Wyman and Jardine Lloyd Thompson Group (JLT), an insurance, reinsurance and employee-benefits broker based in London.

The group's largest division is Marsh Risk, which generated $14.4 billion in revenue in 2025. The second largest is Mercer, with revenue of $6.2 billion, and Marsh Management Consulting, at $3.6 billion. The total consulting business turns over $9.8 billion a year. The risk-management and insurance businesses (including Marsh Risk) generated $17.3 billion in revenue.

Marsh Risk plays an important role in the insurance market. Large, complex risks are often underwritten by pools of insurers and reinsurers bought together by brokers. The insurers like it because they're not overly exposed to a single risk, and the buyer of insurance likes the security of multiple parties underpinning the contract. Marsh Risk helps navigate this process. The company also manages the claims process, which most large insurers and reinsurers don't have the capacity to handle, as it can be costly and time-consuming.

For example, Marsh has helped set up a clean hydrogen insurance facility, where developers pay an insurance premium, and Marsh negotiates insurance coverage with insurers to transfer the risk from the project owners' balance sheets. Investors (in this case, the insurers) provide capital investment for the projects, with their risk exposure mitigated by tailored insurance coverage. In the event of insured incidents, Marsh manages the claims process. The single platform helps lower costs for all involved.

It's hard to imagine a world where AI disrupts this process. It will certainly help streamline the paperwork, but the human touch of the Marsh brokers will always be required to navigate deals among key stakeholders. This business is highly profitable and cash-generative. The insurance arm booked an adjusted operating margin of 32% last year, compared with 21.1% for consulting. Of the $7.3 billion in adjusted operating income, $5.3 billion fell to the bottom line as operating cash flow. The company's return on invested capital, a measure of profit for every £1 invested in the business, is 25%.

How Marsh is embracing AI

The real AI threat is to Marsh's consulting arm, but even here, the company claims it is addressing the potential risk. In the company's first-quarter results, it said Oliver Wyman's AI Quotient, which helps firms deploy and scale AI tools, has advised on upwards of $50 billionin AI investment. This helped the consulting arm outperform in the first quarter, with Oliver Wyman recording revenue growth of 6%, ahead of group top-line growth of 4%.

Management is deploying these tools internally to help reduce costs. It's targeting a total of $400 million in savings over three years and has logged a 20% improvement in efficiency through AI-powered document processing. Other tools have saved an estimated one million hours of the team's time in the first year. UBS estimates this could help drive Marsh's return on invested capital to near 30% by the end of the decade.

So while the market frets about the risk AI poses, the company is quietly leveraging the technology to enhance its own services. This suggests that, if anything, the firm is an AI play.

Marsh's most important assets are its people and technology, and while it spends heavily on both, overall capital spending requirements are low. As a result, most of the cash generated from operations converts to free cash flow. Management has set out to return as much cash as possible to investors. At the end of last year, management authorised a $6 billion share buyback, with $750 million deployed in the first three months of the year. While the market was selling, Marsh was buying its own shares.

Cash flow is the firm's most attractive quality. While the shares might not look too cheap on a price-earnings basis, according to UBS, the shares are trading at a forward free cash-flow yield of 6.2% for 2026, 6.7% for 2027 and 8.1% for 2030.

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