怡安集團 (AON) 2010 Q1 法說會逐字稿

Ladies and gentlemen, good morning and thank you for holding. Welcome to Aon Corporation's first quarter 2010 earnings conference call. At this time all parties will be in a listen-only mode until the question and answer portion of today's call. I would like to remind all parties that this call is being recorded. If anyone has an objection, you may disconnect your line at this time.

Ladies and gentlemen, it is important to note that some of the comments in today's call may constitute certain statements that are forward-looking in nature as defined by the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated. Information concerning risk factors that could cause such differences is described in the press release covering our first quarter results as well as having been posted on our website.

Now it's my pleasure to turn the call over to Mr. Greg Case, President and CEO of Aon Corporation. Sir, please go ahead.

Thanks, John, and good morning, everyone, and welcome to our first quarter 2010 conference call. Joining me here today is our CFO, Christa Davies.

To begin, I would like to say our team is proud to deliver results that represent another solid quarter of continued progress and momentum. I would say, as we said before, irrespective of economic conditions, a soft market or other challenges outside our control, we continue to execute on our plans to substantially strengthen our firm for long-term growth and shareholder value creation. Consistent with our previous quarterly updates, I'd like to cover three areas before turning the call over to Christa for further financial review. First is our performance against key commitments to shareholders, second is continuing areas of investment across Aon, and third is overall organic growth performance.

On the first topic, our performance versus commitments, each quarter we measure our performance against the three metrics we committed to shareholders to receiving our undivided focus over the course of each year, and that is around growing organically, expanding margins and increasing earnings per share. In the first quarter organic revenue declined 3% as the global economic recession continued to provide significant headwinds across our businesses despite strong retention rates and new business growth in a number of geographies and product lines around the world. Our results for the quarter were also negatively impacted by the timing of certain parts of our renewal business.

The good news is that we believe some of the headwinds we've been facing are now beginning to stabilize. On the adjusted operating margin front it was similar to the prior year quarter as strong operational performance offset lower organic revenue and a substantial decline in investment income in the quarter. For EPS on an adjusted basis, it increased 11% to $0.83, representative of a strong operational performance and effective capital management in a difficult business environment. Overall, for our team, this is a continuing journey to build and strengthen our position as the world's preeminent advisor on risk and human capital, and we believe there's no one better positioned in the industry to capture that opportunity.

On the second topic, further areas of investment, we are in a unique position. Solid operating performance combined with expense discipline and a strong balance sheet continues to enable substantial investment in colleagues and capabilities. While we have significant opportunity remaining to deliver cost savings under our restructuring programs, we continue to build on our leadership and industry-leading capabilities.

Here are a few examples. In brokerage we are investing in innovative technologies such as FAConnect, our Global Risk Insight Platform, to ensure that clients have great access to the best of Global Aon in every local region around the globe. We're investing in additional capability as risk continues to increase in size and complexity around the globe, with recent acquisitions such as Allied North America and FCC Global strengthening our industry-leading construction capability as well as the acquisition of Carpenter Moore, strengthening our capabilities and professional liability.

We are also investing in developing even stronger client leadership to derive greater productivity and efficiency with the rollout of the revenue engine in AMEA and Asia-Pacific, our Aon Broking platform to better match client needs and ensure appetite for risk and client promise to ensure clients fully understand our value proposition with the greatest transparency in the industry.

In Consulting we recently completed the acquisition of JP Morgan's Compensation and Benefits business, strengthening our intellectual capital in key areas, including pension, actuarial and advisory services with over 150 colleagues in key markets worldwide. In addition, we're continuing to invest in key leadership globally with senior leaders hired across multiple practice areas including health and benefits, retirement and management consulting, both in the US and Asia-Pacific.

These categories highlight just a few of the investments we're making, and we remain quite excited about how our fundamental client-serving capability continues to strengthen around the world. This was recently highlighted, by the way, by the announcement that 43 Aon colleagues, significantly more than any other advisor, were named as powerbrokers in their respective industries by risk managers around the globe. These investments, fully funded in the context of continued margin improvement, position Aon very, very well to take advantage of improvements in the global economy.

Finally, on the third topic of growth, I want to spend the next few minutes discussing the quarter for both our Brokerage and Consulting segments. In Brokerage overall organic revenue for the segment declined 3% with a modest decline from the previous quarter in both our retail and reinsurance businesses. In retail, as our retail brokerage business generally lags GDP the movement by one to two quarters, we continue to be pressured by lower exposures, reduced discretionary spend and the impact of pricing, which was down mid-single digits on average globally. And in reinsurance, higher cedent retentions in treaty more than offset a slight price impact overall and new business growth for treaty placements in the Americas.

Against these impacts, though, which are primarily market related, we are driving a set of initiatives that continue to strengthen our underlying fundamental performance and give us confidence that our brokerage business is firmly positioned for long-term growth with retention rates at 90% or better on average, highlighting strong client satisfaction. New business generation of almost $200 million in our retail brokerage business during the quarter from multiple product lines in diversified markets around the globe, including US retail, affinity, China, Australia and the Middle East, highlight just some of the strength of our global client serving capability.

And investments in new capability with the rollout of GRIP, FAConnect and impact on demand across our brokerage platform are other examples.

Turning to the individual areas across our brokerage platform, starting with the Americas, organic revenue declined 5% versus the prior year quarter. The primary decline was in our US retail renewal book of business as strong growth in Latin America, primarily offset continued economic weakness in Canada. If we break down the 500 basis points of year-over-year decline, you're focusing primarily on the US renewal book. About 100 basis points was due to weak economic conditions and soft pricing impacting the renewal book, about 200 basis points was sector weakness, primarily in areas such as construction and M&A, and the remaining 200 basis points was really due to timing of certain renewals.

The underlying US retail business, however, remained strong as our retention rate improved to 92% and new business increased 1% from the previous year's new business, which represented the second-highest quarter of new business in US retail history -- a very, very strong performance. And overall, while we still see pressure from both the economy and soft pricing, we would expect to see significant improvement from this quarter's Americas organic revenue performance going forward.

And as underlying trends continue to highlight the work we've put in place over the last year to drive continued improved performance through pipeline management, productivity improvements and client service.

Turning to Europe, Middle East and Africa, organic revenue decreased 2%. Here we saw strong growth in emerging markets more than offset primarily by continued economic weakness in continental Europe and Ireland. Pricing was down low-single digits on average and heavy export countries such as Germany and Netherlands continue to be impacted by lower exposure units.

We've still got 90-plus retention rates and leadership positions across most of these markets in Europe with ability in key countries such as Spain, Portugal and Italy. However, as noted last quarter, fragile economic conditions will continue to make results across the entire region lumpy on a quarterly basis.

Turning to the UK, organic revenue declined 2% compared to a negative 9% in the fourth quarter last year. The results were in line with our expectations of a sequential improvement. Lower exposures compounded by soft pricing continue to have an unfavorable impact on the region in a number of areas such as financial institutions, construction and aviation. These are partially offset by growth in our captives business and in specialty lines such as marine and energy.

Similar to EMEA, fragile economic conditions will continue to make these results across the region a bit lumpy and quarter basis.

In Asia-Pacific organic revenue was up 1%. Results reflect a modest improvement compared to 0% in the fourth quarter last year, and we saw significant growth in a number of markets such as China, Korea and Thailand, partially offset by soft market conditions in Australia and continued economic weakness in Japan, both of which, when combined, represent slightly more than half of the Asia-Pacific region.

On the reinsurance front organic revenue was down 4%. The results reflect a modest decline from the prior quarter as higher cedent retentions and lower facultative and capital markets transactions were partially offset by new business growth in the Americas for treaty placements. If we break down the organic growth performance for the quarter, the impact to the market drove a negative 2% decline as higher cedent retentions more than offset a modest positive price improvement, primarily in US property, and the impact of lower facultative and capital markets transactions, which tend to be a bit more transactional oriented, drove a negative 1%, and then timing of certain renewals drove another negative 1% decline, which we would expect to reverse over the next few quarters.

Now let me reflect on the core Aon Benfield business overall from the standpoint of clients, people and synergies. In terms of clients, this has just been exceptional performance. We've retained more than 95% of the combined global client base and have not lost a single client in our global top 30 since merging Aon and Benfield. In fact, we believe we continue to gain market share with this group, highlighting the strength of our number one position in integrated capital solutions. This is even more highlighted by the fact that Aon Benfield was chosen as the lead reinsurance broker for the three largest startup insurers in the last year.

On the people front we've retained more than 95% of the top 150 leaders we identified in the original integration plan despite unsuccessful attempts by competitors to attract key talent. In terms of synergies, we are well ahead of schedule in achieving our stated synergy goal of $122 million in 2011, and overall just an unparalleled franchise that is positioned for great long-term growth.

Turning to our consulting segment, organic revenue declined 1%, a solid improvement from the prior quarter. As our consulting business generally lacks GDP movement by three to four quarters, results reflect the continued economic weakness driven by lower payroll related numbers in our health and benefits business and lower discretionary spend in our retirement business, primarily offset by strong participation for certain global compensation surveys in our compensation consulting business.

Against these economic headwinds, however, our underlying business continues to deliver growth from new products in areas such as dependent eligibility audits and corporate transactional work in our health and benefits business. Additionally, as I mentioned previously, I want to welcome our new colleagues from JP Morgan as they joined our firm and it was completed in the quarter. It was actually a terrific addition for our consulting business, and it strengthens quite considerably our benefits consulting intellectual capital in key areas such as pension, actuarial and advisory services.

In summary, as it reflects on our first quarter, we face continued challenges from the broader economy yet delivered solid progress against our core commitments to shareholders. And against these headwinds we continue to drive a set of initiatives that are delivering strong core operational improvement and positioning Aon for long-term growth supported by a solid balance sheet and strong cash flow and significant financial flexibility.

I'm now pleased to turn the call over to Christa for a further financial review.

Good morning, everyone. As Greg noted, our first quarter reflects a solid quarter of continued progress and momentum. We are delivering on our restructuring programs and demonstrating strong expense discipline while funding significant investment in our business. Our balance sheet and strong cash flow provide us with excellent financial flexibility to create long-term value for our shareholders as highlighted by the repurchase of an additional $50 million of common stock during the quarter.

We continue to make great strides in providing greater transparency in our financial results. As we have now fully exited all of our insurance underwriting operations, beginning in Q1 the presentation of our financial results will focus on operating margin for each of our segments, more representative of a threshold services fund. Any miscellaneous gains or losses that may have historically been included in the operating segment are now reflected below operating income. This change has no impact on consolidated results or on our long-term target of achieving 25% margins in brokerage.

I would also like to point out that we have now begun providing a quarterly cash flow statement with our earnings release as we believe it's important for our investors to understand the strength of our strong cash flow generation capability over the course of each year.

Now let me turn to the results of the first quarter. GAAP EPS from continuing operations was $0.63 per share for the first quarter. Our core EPS performance is reflected in an adjusted EPS of $0.83 per share for the first quarter, up 11% compared to the $0.75 in the prior-year quarter. The difference between GAAP and our adjusted EPS is $76 million or $0.20 per share of restructuring charges.

Also included in results, foreign currency translation had a favorable impact of approximately $0.04 per share on adjusted EPS results.

Now let me talk about each of the segments. In our Brokerage segment, against a decline in organic revenue of 3% we delivered an adjusted operating margin of 20.5%, the same as the prior-year quarter. To hold margins flat with the prior year, given the challenges we face this quarter, we believe it's particularly impressive and demonstrates strong operational discipline and leverage that we are building into our operating model. Adjusted brokerage operating income increased 3% or $10 million to $326 million. The year-over-year margin benefited by significant savings related to our restructuring programs and operational improvements, offset by a 260 basis point decline related to a decline in organic revenue, a 70 basis point decline related to lower fiduciary investment income and a 40 basis point decline related to FX.

Let me spend a moment on each of the restructuring programs, key initiatives that are enabling concurrent funding of investments and delivering long-term margin expansion. With respect to the 2007 restructuring program, we achieved approximately $110 million of savings in the first quarter, primarily in the brokerage segment through workforce reduction. This compares to $108 million in the fourth quarter and $41 million in the prior-year quarter. We incurred $67 million of charges in the quarter and have approximately $29 million of total charges remaining under the program, which we expect to complete in the second quarter.

With respect to the Aon Benfield restructuring program we achieved approximately $22 million of savings in first quarter, primarily through workforce reduction. This compares to $17 million in the fourth quarter and $4 million in the prior-year quarter. We incurred $9 million of charges in the quarter out of approximately $36 million of total charges remaining under the program, and we expect the majority to be completed in the second quarter.

Overall, we continue to be ahead of schedule on our restructuring program. We have completed 93% of the charges as of the end of the first quarter, yet we still have approximately $230 million of incremental brokerage savings or 40% still to achieve under these two programs between now and the end of 2011.

We believe there are five key areas that contribute to achieving our long-term target of 25% brokerage margin -- number one, the benefits of restructuring programs and other operational efficiency initiatives; number two, the continued rollout of the revenue engine globally; number three, the implementation of Aon broking; number four, economic improvement driving growth in GDP and short-term interest rates; and, number five, improved insurance pricing.

Turning to the consulting segment, against a decline in organic revenue of 1% we delivered an adjusted operating margin of 17.4%, a 60 basis point increase from the prior-year quarter. Adjusted consulting operating income increased 8% or $4 million to $56 million. Margin improvement was driven primarily by benefits from the 2007 restructuring program and strong operational discipline as we manage expenses in a challenging macro environment of weak payroll and discretionary spend. As we think about the full year, we would anticipate a relatively flat operating margin in 2010 compared to 2009 as continued economic challenges, weak employment levels and investments in key talent and new products are partially offset by benefits related to the 2007 restructuring program.

Now let me discuss our unallocated income and expenses. Unallocated results including other income were a pre-tax loss of $59 million. This compares to a pre-tax loss of $54 million in the prior-year quarter, excluding the pension curtailment gain. The first-quarter results primarily reflect $5 million of higher interest expense related to an increase in the average rate on outstanding debt. Going forward for items outside the operating segment, we would anticipate net expense of approximately $65 million per quarter, which includes approximately $5 million per quarter of interest income, $35 million of interest expense and $35 million of unallocated expenses.

Turning to taxes, the effective tax rate on continuing operations decreased 24.9% in the quarter, due primarily to a favorable impact from certain deferred tax adjustments. This compares to 31.5% in the prior year quarter, which included the unfavorable impact of a non-cash deferred tax expense on the US pension curtailment gain. We would continue to anticipate an effective tax rate on continuing operations of 28% in 2010.

Turning to shares, average diluted shares outstanding decreased $9 million(Sic-see press release) to 283 million for the first quarter. Actual shares outstanding on March 31 were 269 million compared to 266 million at December 31. During the quarter the Company repurchased $50 million or 1.2 million shares at an average purchase price of $40.63 per share, and issued approximately 4.4 million shares primarily for performance-based incentive plans. The Company has approximately 215 million of remaining authorization under the 2005 share repurchase program and $2 billion under the 2010 share repurchase program. While we do not provide guidance as to the timing or specific amount of share repurchase, share repurchase activity will be subject to prevailing market conditions utilizing our strong cash flow generation and solid financial flexibility over the long-term.

Now let me turn to the balance sheet and cash flow statement to discuss our financial flexibility. Cash and short-term investments were approximately $734 million at March 31 compared to $639 million at December 31. Total debt outstanding was $2.1 billion and debt to capital was 28% at March 31. Cash flow from operations was $463 million in the first quarter compared to $553 million in the prior-year quarter. The change in funds held on behalf of clients has no impact on cash. Excluding the change in funds held on behalf of clients, cash flow from operations increased $27 million year-over-year from $41 million to $68 million.

In summary, Q1 continued to represent significant economic challenges throughout the world, compounded by unfavorable timing of certain businesses resulting in a decline in organic revenue. We would anticipate that economic weakness combined with soft pricing and historically low interest rates will continue to place pressure on our business, similar to what we experienced in the first quarter. However, against these headwinds we are executing on our restructuring programs that will deliver substantial savings and strategically investing in long-term growth opportunities. Our balance sheet and strong cash flow provide excellent liquidity and significant financial flexibility as we drive value creation for improved business results and effective capital management.

With that I'll turn the call back over to the operator and we'd be delighted to take your questions.

(Operator instructions) Keith Walsh, Citi.

Just around reinsurance, I know you know organic is soft across the board, but I just want to hone in here a little bit. I understand '09, where your results differed from your two larger peers or smaller peers, but the two competitors, but I just don't understand why that's continuing here. I understand the comps that they had -- they had a weak '08, you guys had a strong '08, so your '09 looked a little different relative to theirs. But we continue to see their results -- the gap continues into '09. I'm not clear why that is. And then I've got a follow-up.

As you reflect back and assess where we've come in 2009 we feel very, very good overall about the position and how the businesses have come together and where we stand. If you look at the negative 4% for the quarter, about 2% of that was market impact, and a big chunk of that -- and some of that was timing, and then a big chunk of it was really facultative and capital markets. These tend to be a bit more lumpy for us, probably for everybody. But given the size of our business, a bit more lumpy for us, and they were down in the quarter. And as you think about moving forward, we expect significant movement from both of those.

So take capital markets as an example. If you take the first six months of last year versus the first six months of this year, the pipeline in capital markets is roughly double. By the way, nothing showed up in the first quarter for us in capital markets; it's all going to hit the second quarter. So it's just literally -- it's lumpy.

The key point here, really the central point for us that we look at every day is the overall treaty book, that's the core treaty book, it's twice the size of everybody else's treaty book out there in the world. And, most important for us, we fully held serve on that book in 2009 and certainly have in the first quarter of 2010, more than offset any leakage with new business wins and done very, very well. And we believe we're quite well positioned moving forward to grow that business.

Again, this is a business, when you reflect on it in Aon Benfield, it is the single most significant platform in the world. When you think about the combination from analytics and capability standpoint, 500 colleagues strong, more content and capability than anyone in the world, our integrated capital markets solutions approach has actually worked exceptionally well. As an example, last year, when you think about the three most recent startups, we were in the middle of all three of them. We are a very central -- we feel very, very good about the approach and the underlying strategy which underpins Aon Benfield. And as Christa said, from a financial standpoint, whether it's restructuring, retention of key colleagues, retention of key clients, we've just done exceptionally, exceptionally well.

So I understand your question and your point. And as you reflect on the position in 2010, we feel quite good about where we are going to be.

I've got to assume there's some leakage in your business any time you do a deal. Maybe if you could comment specifically to that as well as the management changes you've had recently within this business -- how does that intertwine with the results we are seeing?

I've got to tell you, as we reflect back on the overall deal model as it came together and you think about some of the aspects of that around what are we going to think about in terms of retention of clients, how are we thinking about retention of key colleagues and restructuring, we have been extremely pleased with the progress of Aon Benfield. It has exceeded all of our model expectations as we went into it. And when you think about it just coming across each one of these, Christa talked about restructuring savings of $122 million. We're well ahead on that front, both in terms of magnitude and in terms of timing. On key clients, as we talked before, we have retained 95% of the total combined client base and haven't lost a single client in the top 30. I will tell you the numbers we had in place in terms of leakage have been much, much smaller than we expected.

And as I said before, if you think about last year, the treaty book actually grew 1% across the board. So we more than offset leakage with growth. And we've done the same in the first quarter.

So back to -- you're absolutely right; as businesses come together there's always trauma, particularly in people businesses. But our team has just done a magnificent job as they've come together and really pulled off what we believe has been really a kind of a tour de force in the next generation of what capital leadership and capital management is going to be in reinsurance.

Which leads to the second part of your question, around the coleaders, with Mike Bunker and Dominic Christian transitioning from Andrew Appel. I will just say, first of all, the overall team, really across the board -- Andrew, Dominic, Mike, Mike Bunker, [Chilly], the whole team has just done an absolutely fantastic job pulling these businesses together. Again, performance which has fully exceeded everything we had thought going into the overall deal.

And what we've now positioned is, if you think about the next step, is really right to your core question around how we are really going to grow and build the franchise. Now we've got in place a co-leadership model, which, by the way, is a model which is very prevalent across professional services. We've used it very, very successfully. We have two colleagues in place in the form of Mike and Dominic who together have 60-plus years experience in the industry. It really, for us, is a very exciting team supported by Michael Halloran and Chilly and our entire global team, which we believe is very unique in the industry.

So for us it was a very logical and predicted and planned transition to go through the integration, which we actually completed more quickly than we thought, and then could move to the co-leadership model with our two global co-leaders, it really is, as I said, really proceeded quite well. We feel very, very fortunate in where we stand today and the position we are in.

And then, just for Christa, I was a little surprised to hear that the margin is going to be flattish in 2010. Understanding the pressures that the business is under, but the cost saves are ramping up pretty significantly. That leads me to believe that's basically implying that your organic growth is going to be quite negative throughout the entire year if we're not going to get any margin lift, considering the cost saves that we see coming in. If you could just speak to that a little bit?

I want to clarify what I said. So I was giving a forecast for consulting margin for 2010, not our overall margin. And so obviously one of the things that you can see in our brokerage margin, for example, in the first quarter is we've overcome 260 basis points of headwinds in organic revenue growth, 70 basis points of headwinds in investment income and 40 basis points in FX. The whole margin is flat quarter over quarter in brokerage.

And so really what I was saying in brokerage is we are continuing to make progress and we think there are substantial areas for us to drive brokerage margin expansion. And I did talk to those five areas that we believe will help us get to our long-term target of 25%.

Adam Klauber, Macquarie Research.

Greg, you had mentioned that you think the headwinds may have lessened going forward and that you think the revenue growth, I think particularly in North America, could improve in the near-term. Could you give us some idea -- is that mainly due to economic stabilization, or maybe give us some more color on those comments?

I think you start with some of the points that you highlighted around economic stabilization, no doubt for the US. And then we'll see how Europe evolves over the coming months, and we've certainly started to see it a bit in the UK.

But what I was also talking about is, look, for us when you think about growth, we think about growth clearly from the standpoint of two areas. Obviously, how we do on our new business overall, how we do on the renewal book -- both pieces are absolutely critical for us. And from our standpoint on new, as I was describing, we are doing exceptionally well. Overall, winning new business at really almost unprecedented rates for us, clearly increasing share and we are continuing to win it 2 to 1 versus our competition and, as Christa Davies described, making great investments.

Our new business growth, as I described, was $200 million in the first quarter, and our new business overall, I should say, for the first quarter is $200 million, which is among the highest in our history. And for the US alone it was $50 million, which is the second-highest in the last five years -- so just exceptional performance on the new business front.

The pressure for us has been on renewals and continues to be on renewals -- by the way, not from competition. It's really from decreased insured values and price declines, and a big determinant of that obviously is insured values, as I said, and the economy. And as that continues to start to turn a bit, and we are starting to see some stabilization, that helps us a lot.

Then the other thing I would mention is, look, we also are very, very heavily invested in a couple of sectors that are very important to us. We love them, long-term. We think they are exactly the right long-term investment for us. But short-term there's real headwinds. Those two areas are construction and M&A. In construction, as an example, it's a very significant part of our overall global book. And obviously it hasn't done as well, of late. And the same with M&A. As an example, if you literally look at -- maybe if you just dissected the 5% negative organic for the Americas, the most difficult number we printed -- obviously not an outcome we like, but the underlying plan, we feel, that's in place we think is quite, quite strong. In the Americas we had $88 million in new business -- very, very strong; $50 million in the US alone, as I described, among the highest in our history. And embedded in that new business performance was a 30% downturn in M&A. So we are fighting significant headwinds there and massively overcoming them on the new business front.

And then on renewal, which is basically 85% of our commissions and fees, we essentially, with our construction book, which obviously had a very significant, significant impact in the first quarter, we were able to fight off that downturn and that pressure and continued, by the way, to invest in construction because, as we said before, we added Allied, we added [FCC] and other investments which actually put us in exceptionally strong position as the market turns in construction; but, in the near-term, a lot of pressure on the renewal book.

And some of the good news is, January and February were quite difficult, March was a bit better. In the US I think there were 26 states who expanded employment in construction, and our pipeline in construction is now beginning to fill up and grow. By the way, that bodes pretty well for us; construction is a $7 trillion to $8 trillion market worldwide that is expected to grow 70% over the next 10 years and we had nine out of the top 10 US government contractors are Aon clients. So we love the position long term; we think it's going to serve us and our shareholders quite well. But in the near-term, the pressure for us is on the renewal book, and it really stems from a couple of sectors that are under a lot of pressure that we are going to keep fighting through. So, hopefully, that gives you a little perspective on how we are thinking about growth.

Meyer Shields, Stifel Nicolaus.

I was wondering if we could get some sort of update, numeric or otherwise, in terms of your success in investing commissioned leakage through the GRIP platform?

As we said before, the overall Aon broking efforts are continuing to proceed quite well. As we said on the last call, kind of expect to see those benefits show up in 2011 and 2012, but really start to show up in 2011. The discussions we've had with both clients and markets on GRIP have been quite, quite strong, quite powerful. The Risk Insight Platform as it currently stands is really becoming the single most significant repository of insurance information that exists in the world today. As you think about our $54 billion in flow plus eventually even the reinsurance flow, we are getting dangerously close to $100 billion, which gives us insight into market conditions that literally no one else has in the world. And that actually has served us quite well as we've begun to talk to both clients and in winning clients and doing well with clients as well as thinking about what the clients are looking for and the insurers' appetite.

You can imagine an insurer that basically says, I'm in one part of the world, I want to invest in another part of the world. They can get greater insight through their Risk Insight Platform, the GRIP platform, than anywhere in the world. And we see insurers with a lot of interest in how we think about that. So everything we've seen so far has been very, very positive on this front. We are actually ahead of schedule in terms of what we think the impact might be, and we think they are going to be showing up as we get into 2011.

Within the reinsurance business, can you describe the seasonality of facultative versus treaty?

Well, the treaty business is really more skewed toward the beginning of the year. The facultative business really runs throughout the year and it really tends to be lumpy throughout the year, as I said before. There literally is a function of what's going on in the world. Insurer appetites change. That changes the facultative placement profile quite considerably. Sometimes one or two insurers can influence this quite considerably. In our business, by the way, as we've built our fac business is unique. It is a global facultative business. FAConnect is a unique platform, so it literally is -- we think it will make us much, much better positioned than anyone out there. But we're going to be a bit more variable because it's essentially going to be the global facultative market that we are going to be accessing and we are going to be [right] on behalf of our carrier partners.

So for us, look at fac as variable throughout the year. It could be up, it could be down, and no kind of rhyme or reason year to year, necessarily. And treaty is much more skewed toward the front end of the year.

And reinsurance overall, still a 50-50 split between fees and commission?

No, more like 70% commission and 30% fees.

Jay Cohen, Banc of America/Merrill Lynch.

The share issuance in the quarter, I think, was something in the range of 4.4 million shares. Is that a seasonal number? Should we expect more issuance in the first quarter versus the other quarters going forward?

Yes. That's absolutely right, Jay. So Q1 is our seasonally highest quarter, and the 4.4 million shares issued was down from 5 million shares issued in Q1 last year. And we tend to issue a little under 9 million shares per year.

Not to get too picky, but in this quarter when were those shares issued? Late in the quarter, early in the quarter?

Throughout the quarter. You should just sort of -- roughly sort of evenly over the quarter.

On the reinsurance broking business, I seem to hear that you talked about prices being up modestly. Did I hear wrong?

What you really heard, Jay, is they were very, very modestly for a very short period of time, more than offset by season retentions. And what we see, actually, is the trend coming down. If you look at the renewal period, in April and now what we're looking at sort of midyear is a decline. Literally, the capital replenishment has actually more than outstripped the demand on the reinsurance front, for a whole variety of reasons -- less cats and investment returns which are higher, and that combination has really replenished capital really throughout the insurance industry and certainly on the reinsurance side. So we expect significant and have experienced significant rate pressure overall.

Jay Gelb, Barclays Capital.

I wanted to circle back. I believe, on the long-term margin goal for brokerage of 25%, in order to -- if consulting margins are going to be flat in 2010, that would certainly imply margin expansion for the brokerage segment in 2010. So, given the headwinds with organic growth, I'm just trying to get a better sense of how long it may take to get there.

We obviously don't give guidance on margin for any particular year. What we have done is given a long-term brokerage margin target of 25%. And we believe there are a number of things that can help us get there. Obviously, if you see what kind of headwinds we overcame in the quarter, particularly overcoming the negative [breaks] in organic revenue growth in brokerage, to actually hold margins flat year-over-year in the quarter, you can see the leverage we are building into our operating model.

Directionally, should we anticipate margin expansion in brokerage in 2010?

Yes. Obviously, Jay, you can see the restructuring savings flowing through during calendar year 2010 and 2011. But as I said, we don't give guidance on margin on any particular year. And obviously, we have -- specifically we have consulting. So as you look at the long-term margin expansion growth through brokerage, we see it being substantial.

And then separate issue, Deepwater Horizon is clearly a major event for the offshore energy market. What are potential buyers doing now? You have -- British Petroleum essentially has no coverage. Does this mean that companies may come back to the market and buy more coverage for offshore energy, in light of this type of event? Or will it just be so expensive that companies will still self-insure?

You're looking at a couple of things going on. One is particularly what's happened in the Gulf, also what's happened in Chile. By the way, rising to the occasion and making sure claims are getting paid and clients are getting served is actually at a premium. It really is absolutely the place where the best come to the fore and actually set themselves apart. So that is actually off the charts. And if you think about implications for what's happening in the Gulf for folks who might be impacted as well as what's happened in Chile and other places, that is overriding what's on our mind.

And then, of course, you've got clients looking at options. And they're going to be looking at options in any way they can to try to mitigate risks. Some of these, as you know, are so substantial some of the insurance markets aren't always the right place for those, and we're looking at alternatives as well. But there's more activity than ever before as we think about trying to write options for these clients who are in very, very challenged situations.

And by the way, it's just opened up the specter for a lot of others who aren't going through the trauma, but can see a certain oil company going through that trauma.

(Operator instructions) Paul Newsome, Sandler O'Neill.

Is there any update on when the restructuring charges ultimately should peter out and end?

Yes. As I mentioned, we are 93% of the way through the restructuring charges at the end of the first quarter, and we will complete the majority of those charges at the end of the second quarter.

I think you've touched on this already, but I just want to make sure I got it right. You mentioned several instances of unfavorable timing of renewals. Maybe you could pull that comment together by segment and give us a couple of examples?

It's just literally, both on the reinsurance side and on the insurance side, occasionally you've got literally just timing where things fall and where they've fallen before. And obviously, we do a very straightforward, transparent comparable analysis quarter to quarter as we calculate organic growth. And all I was highlighting is, in both businesses, on retail and on reinsurance, we just had pieces of the business fall in a different quarter than it did last year. So that's really the timing. There are lots of examples of that, particularly when these tend to be bigger deals that we're working on, they have an impact on the overall performance. I was just highlighting that. By the way, nothing to get too excited about one way, if it's high or low. We just highlighted for you for transparency.

Is it really that material? Obviously, you are an enormous company that does an enormous number of transactions.

It was a point as we look at the accumulation of everything pulled together. So it was worth mentioning to you and we'll always be, again, as complete and open a book as we can be. Again, we don't overplay it or underplay it. But it was basically a point, a point and a half and growth.

Matthew Heimermann, JP Morgan.

The question I had, and this might seem strange given that you're going through workforce reduction. But could you comment on the competition for talent out there and whether or not, with the economy showing signs of stabilization and potentially growth, the growth outlook improving, whether or not there are pressures building on the compensation side for some of the key producers?

Great question to end on, because it's really around the thing that matters most to us, which is talent. It's our focal point of everything we do every day, which is our people and our colleagues around the world. And just reemphasize the work we've done over the last few years has really been all about strengthening client serving capability. So we have literally, as we've thought about where we were as our firm, a disproportionate amount of spend was happening in areas that supported our business. And they were support areas. We essentially said they were close to a third of overall spend and we wanted to reduce that to roughly 20%.

That reduction then would give us great capacity to invest back into the client serving part of our business and make investments in global content and capability. So as we've gone through and been able to both improve margins, we've also been able to invest in our business. So we believe we've invested as much or more than anyone maybe in the entire industry over the last few years in content and capability at a time when we've also improved margin. And it's really been that shift from back office, if you will, our client -- folks who support -- colleagues who serve clients to focus on actually serve clients (inaudible). Both, by the way, are critically important to our future. Both are critically important to Aon. But that shift was required to get us balanced in the right way. So that really has been what we've been doing.

And against that, the talent war, as you described it, is always going to be prevalent in our business. And we've been so fortunate, we've had a number of folks over the last few years -- many, many, many folks who have sought out to join Aon and in fact have joined Aon. And we think the talent struggles are always going to be part of our business, an inherent part of our business. And we're a little biased, but we think we've got some of the most amazing talent in the world. So of course people will be coming after them because they are great colleagues with great capability. And by the way, what a great thing for Aon. When you are a great firm, a lot of people go after you and target you. And by the way, that hasn't always been the case. That's certainly the case today, and we celebrate that.

But we also are celebrating the fact that we are investing very, very heavily in our colleagues in every way, and we think we've got a very compelling value proposition. And the last few years have really proven that out. We've got great, great new additions to go with the great talent we've already got. So we'll see how it plays out. And we think it will continue to intensify, and we welcome it.

I think one of the things you've done since you've been there is coordinate better globally or have the leaders of the individual countries or regions coordinate and have a greater dialogue. I'm wondering, can you comment on whether or not that, at this point, is showing up in the numbers in terms of either retention or starting to flow through new business wins, just that better coordination, particularly since globalization broadly is a theme for the economy?

This is central to us. We quite literally -- Aon is a firm with tremendous global capability, by the way, built up at the local level. When we coordinate and combine that capability, we think we are simply the most significant and strongest firm in the world on the topics of risk and people, period.

And getting back to the investments we've made to really coordinate and really bring global Aon together, it really has been organizationally, as you've described, creating Aon Risk Services, which really is a group of 26 leaders on the retail side who get together every month; it's 26 leaders, 21 non-US passports, a very global team that talks about global Aon from a retail standpoint, the same with Aon Benfield, the same with Aon Consulting, really three powerful groups to get together and talk about global Aon. More important even than the structure is the investment. So if you think about the investment in the Global Risk Insight Platform, that's fundamentally designed to bring our firm together, and in fact is doing that.

Or, what we are doing around Aon broking -- all of these things are fundamentally at the core of really thinking global Aon and delivering it locally. And, again, when we do that, we do exceptionally well. And in fact we launched last week an effort around how we think about uniting the firm even more; we're going to call it Aon United. There's an absolute core effort in terms of how we think about bringing together global Aon.

And to your question on whether this is an interesting kind of feel-good exercise or it's powerful, we believe this is an incredibly, incredibly powerful effort that's going to really help drive our firm. By the way, in new clients, more with existing clients and even greater yield on premium placed through clients. So all the above -- more clients, more with clients and greater yield on what we learn as we work with clients, all three are beginning to work for us. And we would describe it as we are in inning two or three, if you will, of the nine-inning baseball game. We're just at the beginning of really putting together our global firm in a way that we believe will serve clients quite effectively.

And this is why it all ties back to Christa's points around margin and around performance. Even in a period in Q1 when we had all these headwinds, tremendous headwinds around growth, tremendous headwinds around investment income, etc., etc., we were still able to dramatically drive new business, improve share, hold serve, do everything we needed to do with our existing clients, positions us exceptionally well, and -- big and -- maintain margin and even show greater operational leverage so, when this starts to move forward, it gives us a great, great potential.

So that really, in a nutshell, is the whole story of how we bring together global Aon under the umbrella of Aon United in a way that we think is going to serve our clients well, we think it's going to serve our colleagues well. And, no kidding, we think it's going to serve our shareholders exceptionally well.

Is it fair to say, when you say you are in inning two or three, that the first couple of innings of this game really are the -- coordinating the organization rather than actually really impacting the business, so to speak?

It really is setting the foundation, and it really is -- the time together, it's setting the foundation to position us. And again, all this ties back together, back to the point Jay raised around even leadership in Aon Benfield, all these things really start to take off, start to build foundation going forward. And so it really is what we are trying to do.

If you think about it, we came together with 423-plus acquisitions over 20 years. And as we bring that powerhouse of portfolio together, we've already reaped a lot of benefits from that for our clients and for our shareholders. But if you think about the potential, we've barely, barely tapped that potential. And that's really what the game plan is going forward. And that's what we're -- again, we're excited to be progressing on and feel like this is another quarter of progress against that vision and that view.

That's great. If I could sneak one other question in regarding the re-insurance segment and just the Florida renewals. Given some of the regulatory changes down there around purchasing -- and I would suspect this is probably more material to the legacy Benfield part of the organization. But is that potentially -- is that something you worry about when you think about placements, aside from the other market factors you've talked about?

I think, as you think about overall what's happening with Florida, a strong position for us -- and, by the way, in times of turmoil, when markets are in turmoil, that's when we are at our best. Turmoil may be too strong, but in times of uncertainty, that's when we are at our best. And if you think about the implications of lower cat coverage and what's going to happen over time, we see lots of potential to help clients understand risk in that marketplace.

And it may take different forms and fashions, and it certainly will do that. And it has ebbed and flowed over time, and we'll adapt to that and we'll deal with it. But one thing is for sure. There is risk in Florida, and it's not going down. And we are incredibly well-positioned to serve it, and we look forward to doing that on behalf of our clients.

I'll turn it back to you for any closing comments.

Again, very much appreciate everyone participating today and your interest in Aon.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.