威達信集團 (MMC) 2009 Q1 法說會逐字稿

Welcome to MMC's conference call.

Today's call is being recorded.

The first-quarter 2009 financial results and supplemental information were issued earlier this morning.

They are available on MMC's website at www.mmc.com.

Before we begin, I would like to remind you that remarks made today may include statements relating to future events or results, which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are subject to inherit risks and uncertainties.

In particular, references during this conference call to anticipated or expected results of operations for 2009 or subsequent periods are forward-looking statements, and MMC's actual results may be affected by a variety of factors.

Please refer to MMC's most recent SEC filings, as well as the Company's earnings release, which are available on MMC's website, for additional information on factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statement made today.

I will now turn the call over to Brian Duperreault, President and CEO of MMC.

Please go ahead.

Good morning and thank you for joining us to discuss our first-quarter results reported earlier today.

I'm Brian Duperreault, President and CEO of MMC.

Joining me in presenting on the call today is Vanessa Wittman, our CFO.

I would also like to welcome our operating companies' CEOs to today's call -- Dan Glaser of Marsh; Peter Zaffino of Guy Carpenter; Michele Burns of Mercer; John Drzik of Oliver Wyman and Ben Allen of Kroll.

Also with us is Mike Bischoff, our head of Investor Relations.

After I make some brief remarks, Vanessa will present our financial results, and then we will take your questions.

Overall, I'm pleased with our first-quarter results.

Despite the significant hurdles we faced in the quarter, which Vanessa will outline, MMC produced $390 million of adjusted operating income, an increase from $386 million in the prior year.

Most notably, we saw significant improvement in the Risk and Insurance Services segment.

When I joined MMC in early 2008, one of my key priorities was to improve the operating margin in this segment to close the substantial gap with our direct competitors.

At that time the adjusted margin for Risk and Insurance Services for 2007 was only 8.6%.

After very strong growth and profitability throughout 2008, the adjusted operating income within Risk and Insurance Services rose 30% in the first quarter of 2009.

And adjusted margin increased to 25% from 17.6%.

So if you look at the margin for this segment over the past four quarters, it was 15.1%.

This is a notable achievement within a 15-month period.

On our last call, we told you we had a goal of an adjusted margin of 16% for 2009.

Given our assumption of modest revenue growth and the strong first-quarter performance at both Marsh and Guy Carpenter, we are now raising our targeted adjusted margin for the segment to 17% for 2009.

In Marsh's international operations, underlying revenue growth was 4%, reflecting a strong position in many regions around the world.

Our international operations for the most part enjoy high margins, so the focus here is, and has been, on increasing revenues.

In the US, Marsh's top line was affected by the softness in the economy, the implementation of a new business model and a heavy focus on expense reduction and margin improvement.

Overall, Marsh's underlying revenue was down slightly in the quarter, which we consider a reasonable outcome in this environment.

Most importantly, Dan and his team delivered another significant increase in profitability in the first quarter.

It is clear that the restructuring efforts over the past year have been very successful.

Going forward Marsh's continued operational improvements and initiatives are designed to enhance service to clients while positioning Marsh for further profitable growth and margin expansion.

Guy Carpenter also had an excellent quarter.

Underlying revenue growth was strong, increasing 10%.

Conditions in the reinsurance market improved slightly this quarter, but the real story for Carpenter was increased new business, which we have seen for the last three quarters.

In fact, new business production this quarter was the highest level Carpenter has had in over five years.

Additionally Peter and his team have continued the cost reduction measures begun in the second quarter of 2008.

As a result of the strong revenue growth and cost reduction, Guy Carpenter saw a dramatic increase in profitability.

In April we completed the acquisition of Collins Associates, formerly the fifth largest reinsurance intermediary in the United States and seventh largest in the world.

I'm pleased to report the integration is going extremely well.

Turning to our Consulting segment, Mercer's performance in the first quarter was encouraging.

The two largest Consulting practices, Retirement and Health and Benefits, both saw revenue performance improvement.

Retirement grew 2% in the first quarter on an underlying basis, and Health and Benefits grew 4%.

As you would expect, the decline in discretionary projects due to the recession impacted Mercer's other Consulting practices, especially Human Capital.

When you look at adjusted revenue for Mercer's Consulting business overall, it was unchanged from the first quarter of last year.

We view this as a solid performance in the current economic environment.

And Mercer's management kept pace with the changing operating environment over the past year.

Michele and her team acted quickly to establish cost containment measures, and as a result, expenses declined in the quarter by 1% on an underlying basis.

So Mercer's profitability decline was mainly due to foreign currency translation into a stronger dollar.

Oliver Wyman continues to face the most difficult operating environment it has seen in many years.

John and his team are reducing consultant capacity and many discretionary expense items, while striving to maintain strong market positions in their areas of expertise.

Headcount was reduced in the first quarter, and it will continue to fall in the second quarter as a result of actions taken in April.

These actions are in addition to the expense initiatives taken since the middle of 2008.

In this environment tough decisions have to be made and executed effectively.

This is being done.

We look for a sequential improvement in profitability in the second quarter from the first quarter.

Now turning to Kroll, the economic climate is also affecting Kroll's cyclical businesses such as employment screening.

Kroll's non-cyclical businesses remain stable.

Ben and his team are continuing to take out costs, which Vanessa will cover in her remarks.

Throughout MMC we have made substantial progress over the last year despite one of the most challenging operating environments in decades, and I should point out that our major operating companies are well built.

We continue to implement plans that will position our operating companies for the longer term.

We are improving our operational characteristics, our systems, client service platforms and achieving operational efficiencies.

These actions will position us to accomplish more than just weathering the storm.

We are laying the foundation and building an organization that will emerge as a global growth company.

We are extremely confident about the long-term prospects of MMC.

Now let's turn it over to Vanessa to present our financial results for the quarter.

Vanessa?

Thank you, Brian, and good morning, everyone.

As Brian mentioned, I will walk you through a number of hurdles that MMC faced in the first quarter of 2009; then I will cover our operating results.

Our adjusted EPS for the first quarter was $0.40.

There were a number of items that negatively impacted MMC's EPS in the first quarter.

These items totaled $0.15 and included the following: Foreign currency translation reduced EPS by $0.05; lower corporate interest income reduced EPS by $0.01, while the decline in fiduciary interest income from $40 million in the first quarter of 2008 to $15 million in the first quarter of 2009 decreased EPS by an additional $0.03;a swing in investment income impacted EPS by $0.03.

There are two additional items that investors could not have calculated.

First, in response to IRS regulation 409(a) involving deferred compensation, MMC modified vesting conditions of deferred bonus awards for retirement eligible employees.

This resulted in accelerated amortization in the quarter of $17 million or $0.02 per share.

Secondly, MMC was required to adapt the FASB pronouncement pertaining to the calculation of EPS using the two-class method.

This method reduced EPS in the first quarter by $0.01.

These two items totaled $0.03 a share, and although they did impact the quarter, they have no long-term impact on earnings.

Were it not for these last two items, we would have met the First Call estimate of $0.43 for the quarter.

Now I would like to move to the financial performance of our operating companies.

As I have done previously, all my references to growth rates will be underlying revenue and adjusted operating income.

Let me start with Risk and Insurance Services.

Total segment revenue, which includes fiduciary interest income, was $1.4 billion.

Excluding the decline in fiduciary interest income, segment revenue increased 1%.

More importantly, segment profitability increased 30% to $343 million from $264 million.

Marsh's revenue declined 1%, reflecting reduced general insurance activity as a result of the global economic downturn.

International operations, which were about 60% of Marsh's revenue in the first quarter, were strong, up 4% in aggregate.

Latin America increased 15%, Asia Pacific was up 9%, and EMEA rose 2%.

Ongoing expense reduction initiatives drove Marsh's operating expenses down 8% in the first quarter, resulting in strong growth and operating income.

Moving to reinsurance broking, Guy Carpenter also had an excellent quarter.

Revenue increased 10% in the first quarter, its strongest performance in several years.

For the third consecutive quarter, Guy Carpenter generated strong new business, a testament to the approach taken by Peter and his team a year ago to reshape operations.

At the same time, expense controls implemented over the past four quarters continued to be effective.

Operating expenses decreased 7%.

The resulting growth in Guy Carpenter's profitability was impressive.

Turning to our Consulting segment, Mercer's performance in the first quarter was encouraging.

Consulting revenue for Mercer was flat.

The decrease in outsourcing revenue was primarily due to the sharp declines in the securities markets, affecting revenues tied to assets under administration by $12 million.

Demand remains strong for our Investment Consulting and Management Services, which generated revenue growth of 6%.

On the cost side, Michele and her team have done an excellent job dealing with the recent market conditions.

They reacted swiftly, and as a result, operating expenses decreased by 1% on a year-over-year basis in the first quarter.

Looking at profitability, Mercer was significantly affected by foreign currency translation.

The strengthening of the dollar against currencies such as the pound, the euro and the Canadian dollar negatively affected Mercer's operating income by $26 million in the first quarter.

Excluding the effects of foreign exchange and the accelerated expenses due to IRS 409(a) discussed earlier, Mercer's operating income was flat with last year.

We view this as solid performance.

At Oliver Wyman first-quarter revenue of $280 million decreased 19% from last year's first quarter.

Expense reductions were implemented that resulted in a 9% decrease in operating expenses in the quarter.

This substantial expense reduction was achieved despite the fact that first-quarter operating expenses included $10 million in severance for capacity-related staff reductions and $8 million of 409(a) accelerated amortization.

Now let me take a minute to explain how we differentiate between restructuring charges that we add back to operating income to arrive at our non-GAAP measures, versus severance charges that we consider operational.

If there is a reduction related to a permanent or fundamental change in our business operations, we identify these costs in our non-GAAP schedules.

These fundamental changes could include a business reorganization, a departure from a business line or geographic area, or an integration due to an acquisition.

If, however, we reduce staffing capacity as a response to a temporary reduction in business activity resulting from economic conditions, the severance costs are included in our operating expenses, not in our non-GAAP schedules.

In the first quarter of 2009, there were capacity reductions at both Oliver Wyman and at Kroll.

The severance costs associated with these reductions are included in our operating expenses, since capacity will be reestablished when demand increases.

Turning back to Oliver Wyman, capacity reduction actions already taken will result in a decline in headcount in the second quarter, along with additional severance costs of approximately $8 million.

So, as Brian noted, we expect that Oliver Wyman will deliver an improvement in profitability in the second quarter from the first quarter since we will not have accelerated amortization from 409(a), and we will begin to see the benefits of the capacity reductions done in the first quarter.

Now moving to Risk Consulting and Technology.

Kroll had revenue of $187 million in the first quarter, down 8%.

Results include $5 million of operating expenses for capacity-related headcount reductions in the quarter.

Looking ahead we also expect a sequential improvement in Kroll's profitability in the second quarter.

Moving on to investment income.

With the decline in the securities within the private equity portfolio, we anticipate an investment loss in the second quarter that could approach $30 million.

Turning to our capital structure, our liquidity and cash positions remain strong.

As you know, our cash utilization is typically greatest in the first quarter, primarily due to the funding of incentive compensation payments.

Our cash generation typically accelerates in the second half of the year.

We ended the first quarter with $1.4 billion of cash.

In March we issued $400 million of 10-year senior notes to refinance our $400 million of senior debt due in June.

We saw high investor demand for these notes, which was very encouraging and a strong indication of our financial flexibility.

Our next bond maturity is not until September 2010, and it is $550 million.

MMC has no outstanding commercial paper or bank loans.

We continue to maintain a $1.2 billion revolving credit facility that remains undrawn.

With that, let me turn it back to Brian.

Thanks, Vanessa.

Okay, Jake.

I think we can take some questions.

(Operator Instructions).

Keith Walsh, Citi.

Just for Dan to start with, just North America, if you give some color there, you know the minus 8%.

I'm looking at some of your competitors at least in the US minus 5% was sort of the standard.

What was the real downfall there if you can give us some more color?

Well, most of the US and Canada top-line result was driven by difficult economic conditions, particularly in the US.

We are seeing clients delay decisions, cut back discretionary work and purchase less insurance in certain instances, all of which are affecting our revenue retention and new business.

Now there's a few important things to point out.

At least a point of the reduction was due to the fact that we simply walked away from small underpriced consulting engagements for clients.

We also estimate that we lost a couple of points due to timing of certain large renewals.

I expect to get that back later in the year, so those two factors explains about half of the drop.

Great.

And then the second thing, a follow-up question just on margin, Dan.

You know, great margin this quarter, but I guess you are creating tougher comps as we go out, which I guess is a good problem to have.

But excluding the non-core headwinds like FX and interest income, are there additional underlying improvements as we go out into 2010 that you can still get to to get that margin to continue to increase at Marsh?

Well, the answer is absolutely.

I have absolutely no doubt that we have a great deal of work still to accomplish within Marsh, and we will continue to deliver margin improvement.

We drove down our underlying expenses last year by 6%, and as you can see in the first quarter, our underlying expenses were down 8%.

I don't expect the 8% to continue for the entire year, but we will see meaningful reductions in our expenses.

And just to give you one thought, if I exclude compensation and benefits, our expenses were actually down 11% in the first quarter.

So we are finding lots of areas of real estate, technology, facilities, T&E where we are eliminating waste, and we are continuing to be able to find items which we can drive out of the business.

Larry Greenberg, Langen McAlenney.

I was a little bit surprised that your expectation for the second-quarter investment results was a loss of $30 million just given the market and what I perceive as some of the holdings in that.

I wonder if you could explain that?

And then secondly, if you could maybe just talk about what Collins adds to the Guy Carpenter franchise?

Good.

Okay.

Well, let's let Vanessa do the $30 million, and Peter can do the Collins.

Go ahead, Vanessa.

Sure.

In the $30 million of investment income, Larry, we have a significant portion of public market securities that are managed by an outside investor -- by Stone Point.

And so we are -- the guidance we are giving on the $30 million is really related to us reporting those on a lag.

So we have a significant amount of information going into that guidance as to the results from Q1 of Axis and Enstar.

Okay.

Peter, why don't you talk about Collins?

Certainly.

Collins, a wonderful organization.

We felt it was a very strong strategic fit for us for several reasons.

One is they had a market-leading medical malpractice portfolio, very strong in the agricultural and crop area, so it really complemented our portfolio quite well.

Strong in regional business and they had a very strong presence in Florida, a great sales culture, and combining that with Guy Carpenter gave us opportunities, we think, to leverage further growth in the United States in 2009 and beyond.

So just following up, I mean was Florida really a big part of that and maybe capitalizing on some of the dislocations that could be going on down there?

They had a strong presence in Florida, but that was not a key driver.

It was something that complemented the core reasons why we wanted to do the acquisition.

But really medical malpractice, the agricultural business and the regional business are the biggest strengths for Collins.

But they did have a presence in Florida that was a nice addition to what we had currently.

Brian Meredith, UBS.

Just a couple of quick numbers questions here.

First, Vanessa, what is the run-rate tax rate going to look like?

Is that going to go back down to 31%?

It will bounce around quarter to quarter, Brian, as we move through the year, but guidance between 29 and 31 for the year would be appropriate.

Great.

And then the FX drag going forward, do you think it would probably be an issue in the second quarter?

The second and third quarter particularly for Mercer.

Great.

And then back on Larry's Collins question, any way to give us a sense of what the actual revenue that Collins generated in maybe 2008 looks like so we can kind of factor it into our model?

The 2008 revenue for Collins was around $69 million.

Great.

And then last question, what about M&A opportunities, particularly in the agency business that you are looking at, what does that look like right now?

Have you done many quarter-to-date or year-to-date?

Okay.

Dan, you want to take the Agency?

Sure.

We have not closed on any transactions in the Agency in the quarter.

I mean the focus in the near term is on acquisitions, and we are in the prospecting mode.

So we are very excited about what we are seeing.

There is a lot of quality firms in the small and middle market space.

So we have a very active pipeline.

We expect to be active in the acquisition market.

But our timing is more related to when there is a good fit and when the prices are right and when we think that mutually working with an agent that we can grow the business profitably together.

So we don't feel compelled to do transactions, but we would expect that we will do some this year and certainly every year thereafter.

So the weak economy is not causing prices to come down?

I think the weak economy is one factor which is impacting an agency's EBIT.

And so the question is, are multiples coming down or not?

And I think what you tend to find is multiples on high quality businesses probably are under less pressure, maybe a little bit of downward pressure, but it is really some drop in the actual earnings of firms based upon what the economy is doing.

Matthew Heimermann, JPMorgan.

With Guy Carpenter, can you just give us a little bit of color with respect to the new business and how much of this is kind of net new versus what you would maybe perceive as share?

Sure, certainly.

I know Peter would love to answer this question.

As Brian and Vanessa said, we had a really strong quarter in new business growth.

Overall we saw about 35% increase year-over-year from first-quarter 2008 to first-quarter 2009.

Around 80% of that was expanding through current clients, creating different solutions around capital, perhaps expanding catastrophe placements, and 20% came from brand-new clients that we did not have prior to this year.

And how does that 20% compare to -- is that a kind of a normal ratio?

It is.

I would say usually it is in the 10% to 15% range, so we slightly exceeded expectations for Guy Carpenter in the first quarter.

But it is in the range of expectation for the first quarter of any calendar year.

Okay.

And then just with respect to the margins in Risk and Insurance, I was curious if you could just talk about on a year-over-year basis the margin improvement, what Guy Carpenter's contribution to that was, just order of magnitude?

We actually don't split the contribution out for you on the margins.

Well, would you be willing to give us what -- I cannot remember if maybe you gave this already -- but the underlying decline in expenses in that segment then?

Yes, we cannot give you any further information, sorry.

Okay.

And then just one for Dan.

You mentioned in your comments some of the things that were affecting, but could you just speak more specifically to what is happening, what clients are doing with respect to exposures?

Is there any price elasticity offsetting that, or are we basically -- is that just running through in full force?

Well, I think there is a wide variety of factors.

So I would not say that there is only one factor impacting us and impacting the economy.

I mean obviously the deep recession is causing lower exposures.

You also -- we are seeing rate competition amongst insurers.

There is more marketing activity on existing accounts, particularly since certain insurance companies had their own issues over the course of the last six months.

So a lot of clients are going to the market.

So we are doing a lot more work on existing accounts to market them and explore alternatives, not necessarily to move the accounts but actually to give our clients alternatives, and we are seeing less new business.

So I would call it in the vernacular we are in a hunkering down phase, and a lot of our clients are just deciding to push off some of the discretionary kind of things that they have done in the past, either on a limit basis or a retention basis.

So we have seen clients make decisions about what their overall premium level is that they want to spend and sort of retrofit their program into a premium level.

And that is pretty unusual.

Okay.

Could you give us a guesstimate of what you think budgets are down for kind of the Fortune 500 or Fortune 1000 buyer?

Well, I mean I think on a broad sense you usually find insurance being very close to mirroring GDP in mature economies.

So if you would use any measure, I would use that one.

But when you look at us who have the leading market share in the Fortune 1000 space, there's an awful lot of different industries that are captured within that, and I would think the factors for individual industries would be very different.

(multiple speakers).

Matthew, just to follow up, I don't want to split out the margins for you, but we did talk about the expense reductions at both Marsh, which were down 8%, and at Guy Carpenter, which were down 7%.

Okay.

And that -- (multiple speakers)

That may help you to get --

Yes and that 7%, that is excluding the impact of Collins, right?

Right.

We did not close Collins until April, so that will be a 2Q event.

Meyer Shields, Stifel Nicolaus.

Within the reinsurance, the new business that you are seeing, is that from larger competitors that are distracted, smaller competitors with less resources or just a tendency to buy more reinsurance?

Yes, we have seen -- I will start with talking about geography.

We have seen 50% of our new business come from UK and continental Europe and 50% come from our Americas region.

We changed last year our new business philosophy in terms of how we structured the organization and had several if not five to 10 very senior executives within Guy Carpenter shift their focus to exclusively sales.

So there is really no specific type of client that we have been more successful with than others.

We shifted our focus around capital and capital management to help the discretionary spend about reinsurance, be a little bit more insightful in terms of how we are looking at contingent capital.

We have had a lot of success there.

As I mentioned earlier, 80% or so has come from current clients, and that has been expansion of new opportunities through increases in catastrophe or just reinsurance they have not purchased in the past.

Expect to see, as we look forward, the same type of solutions that we are going to drive to clients around the world and expect to see the new business continue that trend.

And within the I guess primary insurance brokerage, I think Dan talked a little bit about a new business model.

I guess two questions for that.

How long will that be affecting revenues, and were there any expenses that were deferred related to the two-point hit from timing?

Okay.

A couple of things.

One, we have developed a new business model in the United States, and it is geared toward client segmentation and also placement hubs.

I'm very happy to say, in the first quarter, more than 80% of the submissions that we handled went through our placement hubs, and it was in the mid to upper 80s in terms of premium volume were handled in our hubs.

So we are in the process of implementing that right now.

I don't believe that the implementation of the model is having an impact on revenue.

You know, if you ask whether there is any distraction, I would say there may be, but that's a very short-term issue, and our client retention levels are as high as they have been even in the heydays of the 1990s.

So our actions in our model are not impairing our service or impacting our client retention levels.

My overall feeling about distraction in general, while it may be a human trait, I also think it's a sign of weakness.

And so I would not expect that to sustain, and our organization is strong and resilient and will bounce back.

So an easy answer would be, I don't expect to run at minus 8 in the US and Canada for the balance of the year.

And there were no expense deferrals.

Thomas Mitchell, Miller Tabak.

I have a sort of double-barreled question about outlook for the corporate strategy.

When we talk about acquisitions, as you have had a question about it, we note that your own stock price when we include the Consulting business represents close to or less than your expected revenues per share.

Which means that possibly Marsh & McLennan itself might be attractive for acquisition or your stock might be attractive for investments compared with other insurance brokerage businesses.

Secondly, previous management at Marsh & McLennan was eager to talk about how important it was to cross-sell and come up with different ways to make the single enterprise, including the Consulting businesses and the insurance brokerage businesses all in one single large entity.

But perhaps it might make more sense not to be in the Consulting business longer-term.

So I'm wondering what your views are on both aspects of your corporate structure, let's say, five years from now?

Wow, I guess I have to take that question.

Everybody says you get that one.

Well, let's take the acquisition approach.

When we refer to it, one was the agency space, which we think is very strategic for Marsh.

It is an area in the brokerage world which we have not done very much in.

It is a very large, very big space, and companies do very well in it.

And there is really no reason why we should not.

So strategically I think it has been a miss for us, and we need to fix that.

So our approach to acquisitions really revolves around improving the strategic position of the operating companies, and we are going to continue to do that.

There is no reason why we would not.

Collins was a terrific addition to Guy Carpenter.

So I don't think there's really much more to say about acquisitions except we feel this year is a great year to make acquisitions.

Any year is a good year.

There's always pluses and minuses.

Value is a little better, people are a little more interested, and we are going to take advantage of it.

Now in terms of the whole structure of the Company and this issue of cross-sell, now obviously one would want to have opportunities that emerge between operating companies maximize push to taken advantage of.

Who wouldn't?

But this year, this past year, the last 15 months or so, we have really been spending on getting each of the operating companies into good condition, better condition than they were, better managed, better expensed, a better sales culture, and that has been the primary thrust.

Now we, at the same time, always look at opportunities to cross-sell, but that is not a driving motivation for us, and it is not the overall corporate sale.

We are a collection of some very, very good companies, all of them excellent in their space, and collectively we think we have the most interesting collection of advice one can get globally.

It runs through the whole risks gamut from physical risk to HR risk to strategic risk to information risk.

And I think that is really -- that is what we provide to our clients.

That is our brand, and that is what we are going to push.

Now I'm not going to speculate on what this Company looks like five years from now, but it is going to continue to grow.

Keith Walsh, Citigroup.

Just a couple of things.

First, what was the FX impact on your brokerage margin this quarter?

And then I have got a follow-up for Michele or John.

Sure.

The FX impact overall was $0.05 or $40 million, and that split roughly $32 million to the Consulting segment, $26 million to Mercer.

And then the remaining $8 million would have been in the Risk and Insurance Services segment.

Okay.

Perfect.

And then just regarding Consulting, I mean we have seen over history of the limited data we have got revenues rarely go negative before this quarter and margins rarely go below 10.

But we have not seen unemployment of 10% within those -- that data set.

Maybe if you can just give us some idea about sensitivity around -- we get to 10% unemployment, what really happens to revenues at your Company?

And basically give us a little more color about how you are going to restore margins with these expense saves back towards that 10% level.

Okay.

Well, I think really both Michele and John have to answer that question separately.

So, Michele, do you want to start?

Yes, I think that is an interesting question.

If you look at Mercer, if you take Mercer apart just for a second, in the quarter and, quite frankly, as we think about the future over the next couple of quarters, we see a challenged revenue environment, but against that challenged revenue environment, Mercer across its pillars is holding its own.

I would call out that in some lines that are more directly comparable to our competitors, we are actually growing at or above where we are after two years of very solid growth in that first quarter.

So we are lapping both, I believe it is 8% and 9% growth in Q1 '07, Q1 '08.

So the idea that Mercer has come along today in that kind of shape feels pretty good and at the same time of holding onto our margin, holding onto our profitability.

Now take us up another few percentage points of unemployment, allow the recession to deepen.

We would continue undoubtedly to see the weakness that we see today in our project-based businesses, our human capital business, our communications business for example.

They are more material to Mercer than they are to our competitors because our business mix is just different.

We would see the other drags that have happened in those environments because you would be inferring that some businesses may fail.

And so you would see some additional issues, and certainly we would have to take even more aggressive expense actions.

But we have tried to build ourselves in such a way that we are ready for that and ready to move both ways depending on what happens here.

I think we are seeing some sense of consolidation, and I'm, quite frankly, when I look across our strong core businesses, quite frankly, pleased at 2% and 4% in retirement and H&B, especially after such strong growth years in both those areas.

And I am not as pessimistic perhaps as we could have been at some earlier time about how long this might last.

So to summarize for Mercer, I think at this stage we feel pretty well built for this and pretty flexible in terms of how we could respond reasonably quickly to the extent that predictions turn out to be a bit worse than we might expect today.

I will have John also answer because I think it is a different enough scenario that he needs to express it himself.

So Oliver Wyman's business is clearly sensitive to the economic environment, and we are projecting a continuation of the tough environment for the next several quarters and have made our capacity and expense decisions based on that outlook.

And so roughly speaking, we are projecting a sequential revenue, sort of stable revenues quarter to quarter through the year, but we should see a profitability increase through the course of the year for three reasons.

One is starting in the second quarter we will start to see the benefits of the capacity decisions we took in the first quarter of this year, and those will continue through the year.

Second, we will not have the 409A adjustment on deferred comp that we had in the first quarter.

That was a one-time effect.

And then finally, after Q1 and Q2, our severance costs will drop off, which was obviously significantly increased in that period because of the actions we are taking.

So we are sensitive to the environment.

If it gets worse or better, we will have to make continued adjustments.

But we are not expecting an immediate recovery and expecting a relatively prolonged continuation of this type of revenue environment.

Meyer Shields, Stifel Nicolaus.

I was hoping to get some guidance as to the seasonality of Collins' revenues and expenses.

Collins seasonality, Peter?

It is going to be very consistent with, I believe, how our revenue gets recognized.

Again, as Vanessa said, it did not close until the second quarter.

We have approximately 1/3 of our revenue come through in the first quarter, and then it is around 22% in the second and third and then 20% plus in the fourth quarter.

And I think their revenues are going to be fairly consistent.

They may have a little bit more based on Florida and some of the ag book in the second quarter.

So when we look at it, depending on how we are successful in Florida, we may have a little bit of an uplift in the second quarter relative to how our revenue earns out at Guy Carpenter, but it should be fairly consistent.

Okay.

I think we have got time for maybe one more question.

And at this time, there is no additional question.

Alright.

Well, good.

Well, let me close it up, and I would just like to express my appreciation to all our employees across the Company.

It has been an extraordinary period in our lives, and I'm really proud of what you have done to really help our clients and this Company and our shareholders.

So let's all get back to work.

Thanks.

With that, that does conclude today's conference.

Thank you for your participation.