Income before income taxes increased 14% to $2.8 billion as compared to $2.4 billion in 2019, reflecting the change in operating income discussed in the preceding paragraph, partially offset by lower investment income.
The Company recorded a net investment loss of $22 million in 2020, primarily due to the loss from the sale of shares of AF during the second quarter of 2020. The Company recorded net investment income of $22 million in 2019 which included gains of $10 million related to mark-to-market changes to equity securities and gains of $12 million related to investments in private equity funds and other investments.
In the Risk and Insurance Services segment, judgments related to the amount of variable revenue consideration to ultimately be received on placement of quota share reinsurance treaties and contingent commission from insurers, which was previously recognized when the contingency was resolved, now requires significant judgments and estimates.
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.
Revenue: The Company provides detailed discussion regarding its revenue policies in Note 2 to the consolidated financial statements.
The core principle of the revenue recognition 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 applies 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. In accordance with the accounting guidance, a performance obligation is satisfied either at a “point in time” or “over time” depending on the nature of the product or service provided, and the specific terms of the contract with customers.
The Company records accounts receivable when the right to consideration is unconditional, subject only to the passage of time. Contract assets primarily relate to quota share reinsurance brokerage and contingent insurer revenue. The Company does not have the right to bill and collect revenue for quota share brokerage until the underlying policies written by the ceding insurer attach to the treaty. Estimated revenue related to achievement of volume or loss ratio metrics cannot be billed or collected until all related policy placements are completed and the contingency is resolved. The change in contract assets from January 1, 2020 to December 31, 2020 is primarily due to $311 million of additions during the period, partly offset by $284 million transferred to accounts receivables, as the rights to bill and collect became unconditional. The change in contract assets from January 1, 2019 to December 31, 2019 is primarily due to $437 million of additions during the period offset by $342 million transferred to accounts receivables. Contract assets are included in other current assets in the Company's consolidated balance sheets. Contract liabilities primarily relate to the advance consideration received from customers. Contract liabilities are included in current liabilities in the Company's consolidated balance sheets. The change in contract liabilities from January 1, 2020 to December 31, 2020 includes cash received for performance obligations not yet fulfilled of $615 million offset by revenue recognized in 2020 of $527 million that was included in the contract liability balance at the beginning of the year. The Company recognized revenue of $531 million in 2019 that was included in the contract liability balance at January 1, 2019.
The consolidated statement of income for 2020 includes approximately $169 million of revenue and operating income of $11 million related to acquisitions made during 2020. The consolidated statement of income for 2019 includes approximately $1.2 billion of revenue and $40 million of operating loss related to acquisitions made during 2019, and the consolidated statement of income for 2018 includes approximately $120 million of revenue and $2 million of operating income related to acquisitions made during 2018.
Other intangible assets that are not deemed to have an indefinite life are amortized over their estimated lives and assessed for impairment upon the occurrence of certain triggering events in accordance with applicable accounting literature. Based on its assessment, the Company concluded that other intangible assets were not impaired. The Company does not have any indefinite lived intangible assets.
(a)Net of valuation allowances of $123 million in 2020 and $54 million in 2019.
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 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. The vast majority of unrecognized losses relate to inactive plans and are amortized over the remaining life expectancy of the participants.
Equity Securities, Money Market Mutual Funds and Mutual Funds - Level 1
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, 2020 and December 31, 2019.
In March 2019, the Company issued €1.1 billion of senior notes related to the JLT Transaction. See Note 13 for additional information related to the Euro senior note issuances. In connection with the senior note issuances, the Company entered into a forward exchange contract to hedge the economic risk of changes in foreign exchange rates from the issuance date to settlement date of the Euro senior notes. The Company recorded a charge of $7.3 million in the consolidated statement of income for the year ended December 31, 2019, related to the settlement of this contract.
has also elected not to recognize ROU assets and lease liabilities for leases that, at the commencement date, are for 12 months or less.
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.
•In April 2017, the Financial Conduct Authority in the United Kingdom (the "FCA") commenced a civil competition investigation into the aviation insurance and reinsurance sector. In connection with that investigation, the FCA carried out an on-site inspection at the London offices of Marsh Limited, our Marsh and Guy Carpenter operating subsidiary in the United Kingdom, and JLT Specialty Ltd., JLT's U.K. operating subsidiary. The FCA indicated that it had reasonable grounds for suspecting that Marsh Limited, JLT Specialty Ltd. and other participants in the market had been sharing competitively sensitive information within the aviation insurance and reinsurance broking sector.