威達信集團 (MMC) 2010 Q4 法說會逐字稿

Welcome to Marsh & McLennan Companies' conference call.

Today's call is being recorded.

Fourth-quarter and full-year 2010 financial results and supplemental information were issued earlier this morning.

They are available on the Marsh & McLennan Companies website at www.MMC.com.

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

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

In particular, references during this conference call to anticipated or expected results of operations for 2011 or subsequent periods are forward-looking statements and Marsh & McLennan Companies' actual results may be affected by a variety of factors.

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

I would now like to turn the conference over to Mr.

Brian Duperreault, President and CEO of Marsh & McLennan Companies.

Good morning, and thank you for joining us to discuss our fourth-quarter and full-year results as reported earlier today.

I'm Brian Duperreault, President and CEO of Marsh & McLennan Companies.

Joining me and 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; and John Drzik of Oliver Wyman.

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

So let's get right to it.

I'm very pleased with our performance, not only in the fourth quarter, but for the full year as well.

When we reported our results a year ago, we indicated that our primary goal for the year ahead was to drive top- and bottom-line growth across the enterprise.

Our plan was to grow revenue organically and through strategic acquisitions.

A year later, I'm delighted to be able to say we've met both our objectives.

Let's start with the fourth quarter.

We produced very strong revenue growth in the fourth quarter with reported growth of 9%.

On an underlying basis, the overall increase for the Company was 6%, including 6% growth at Marsh, 3% at Guy Carpenter, 5% at Mercer and 8% at Oliver Wyman.

We're also very pleased with our level of revenue growth for the full year, which was 7% as reported and 3% on an underlying basis.

Additionally, we are encouraged that revenue performance got stronger as the year progressed.

In both the third and fourth quarters, all our operating companies produced revenue growth on both a reported and an underlying basis.

And importantly, we achieved this solid revenue growth while effectively managing expenses.

Overall adjusted underlying expenses grew only 2% last year, despite having to absorb a significant increase in pension costs.

While we continue to manage our business efficiently, we have also been actively reinvesting in our future.

Major investments, not only in 2010 but over the last three years, include key strategic hires, value-added technology for clients, product development, and expanded analytical capabilities within each of our operating companies.

By combining revenue growth with expense management, we've produced excellent earnings growth in 2010.

For example, adjusted operating income increased from $1.3 billion in 2009 to $1.5 billion in 2010, an increase of 14%.

As you are aware, we decided after a thorough strategic review to divest Kroll, a transaction we completed last August at a very satisfactory price.

Aggregate cash proceeds, including the prior divestment of selected Kroll business units and related tax benefits, will be $1.6 billion.

So overall, Marsh & McLennan Companies delivered a very impressive performance last year, both from a financial and a strategic perspective.

Now let's turn to our operating segments.

Both Risk and Insurance Services and Consulting produced good underlying revenue growth in 2010.

Adjusted operating income increased 10% at Risk and Insurance Services and 16% at Consulting.

Both segments also increased adjusted operating margins for the year.

We were pleased that Marsh's underlying revenue growth rate increased each quarter during the year.

This growth was fueled by new business development.

Guy Carpenter also had an excellent year with good underlying revenue growth, a continued focus on expense control, and strong growth in adjusted operating income.

We are especially pleased with the expansion of its international operations, reflecting one of Guy Carpenter's strategic initiatives.

Our Consulting operations also performed well in 2010.

Mercer reported underlying revenue growth of mid single-digits in both the third and fourth quarters.

And Oliver Wyman's underlying revenue growth of 8% in the fourth quarter capped a very good year.

Importantly, both companies grew adjusted operating income in 2010, and the segment margin rose 110 basis points.

Proven and effective capital management, including disciplined redeployment of excess cash into accretive acquisitions, and share repurchase, will also contribute to long-term earnings growth and increasing shareholder value.

On the acquisition front, we continued the development of the Marsh & McLennan Agency with nine acquisitions over the past 15 months.

These acquisitions are expected to add annualized revenue approaching $300 million.

Additionally, in 2010, Mercer completed several acquisitions to broaden its client capabilities.

The most recent acquisition of Hammond Associates, which established Mercer as a leader in investment consulting for endowments and foundations.

It's also worth noting that we initiated our share repurchase program in the fourth quarter.

As we indicated at Investor Day, our goal is to reestablish Marsh & McLennan Companies as an elite global growth company, not just in relation to our direct competitors, but with respect to other leading global companies.

Our strategy focuses on the characteristics that create exceptional value and superior return for investors -- long-term growth, low capital requirements, high cash generation with disciplined capital management, and a low risk profile.

Emphasizing these four pillars should produce 10% organic growth in operating income over the long term.

We view 2010 as a very successful year for the Company, and we are confident about our prospects for the coming year.

Now let me turn it over to Vanessa to review our fourth-quarter and full-year results in more detail.

Thank you, Brian, and good morning, everyone.

I'll begin with an overview of Marsh & McLennan results for the quarter, then I will discuss the results of each operating company.

I will close with some observations regarding our financial position, including pensions.

On a GAAP basis, earnings per share in the fourth quarter was $0.37, which included $0.34 from continuing operations.

The $0.03 from discontinued operations was primarily insurance recoveries related to Putnam.

On an adjusted basis, EPS in the fourth quarter of 2010 increased 8% to $0.41 from $0.38 in the fourth quarter of 2009.

In September, we funded a $550 million debt maturity.

This reduced our interest expense in the fourth quarter to $53 million from the prior run rate of $60 million per quarter.

We have no debt maturing in 2011.

Investment income was $19 million in the fourth quarter, largely due to gains in our private equity portfolio, which are recorded on a one-quarter lag.

In the fourth quarter of 2009, investment income was $23 million.

Looking ahead to this year's first quarter, we anticipate investment income of approximately $15 million.

Let's turn to the results of our operations.

Unless specifically indicated, my references will be to underlying revenue, underlying expenses, and adjusted operating income.

As Brian discussed, the financial performance of Marsh & McLennan was impressive in 2010.

We achieved growth in both revenue and operating income in every one of our operating companies, not only in the quarter, but for the full year.

On a consolidated basis, operating income in the fourth quarter rose 22% to $379 million compared with the prior year.

For the full year, operating income increased 14% from $1.3 billion to $1.5 billion.

In Risk and Insurance Services, revenue in the fourth quarter rose 5% to $1.5 billion.

Operating income increased 22% to $259 million from $213 million in the prior year, reflecting higher margins at both Marsh and Guy Carpenter.

For the year, Risk and Insurance Services growth in operating income was 10%, increasing from $985 million to $1.1 billion.

Despite continuing soft market conditions, Marsh had another great quarter.

Reflecting sequential improvement throughout the year, revenue rose a strong 6% in the fourth quarter to $1.3 billion.

All geographic operations experienced revenue growth in the quarter, with particularly strong growth in EMEA, Asia-Pacific and Latin America.

The positive momentum in Marsh's new business generation through the first nine months continued in the fourth quarter.

This resulted in global new business growth of 8% for the year.

Despite a significant increase in pension expense, Marsh increased its profitability as well as its margin in the fourth quarter.

Turning to reinsurance broking, Guy Carpenter continued its excellent performance, led by its international operations.

Revenue was $184 million, growing 3% over last year's fourth quarter.

This is especially notable considering current market conditions.

In fact, this quarter marked Carpenter's eighth consecutive quarter of revenue growth, reflecting continuing strong new business and high client retention over the past two years.

Ongoing expense discipline produced improved operating income for both the fourth quarter and the year.

In our Consulting segment, revenue in the fourth quarter rose 6% to $1.3 billion.

Growth in operating expenses, including higher pension expense, was held to 4% for the quarter and was only 2% for the entire year.

In the fourth quarter, operating income rose 17% from $142 million to $166 million.

For the year, operating income increased 16% from $477 million to $553 million with margin improvement of 110 basis points.

Mercer's revenue increased 5% in the fourth quarter to $910 million, similar to the growth in the third quarter, highlighting the balanced portfolio Mercer has built over the past several years.

Within Retirement consulting, revenue growth in Canada and Latin America was more than offset by declines in the US and EMEA.

Health & Benefit's consulting continued its strong performance, matching its 8% growth in the third quarter.

All regions around the world showed strength, with the US and Europe's growth improving and impressive growth in Canada, Latin America, and Asia Pacific.

This performance reflects the recent investments made by Mercer, as well as a stabilizing global economy and employment market.

Rewards, Talent and Communications produced double-digit revenue growth for the second consecutive quarter, partly due to a resurgence in demand for Mercer's compensation surveys across all major geographic regions.

Outsourcing revenue was up 5% in the quarter.

Investment Consulting and Management increased 14%, affirming Mercer's strategy to provide enhanced investment solutions for their clients' retirement plans.

Even with higher pension expense, Mercer's operating income increased in both the fourth quarter and for the year.

Oliver Wyman also generated strong revenue growth in the fourth quarter, which continues the positive performance that we saw throughout the year.

Revenue increased 8% to $399 million, reflecting a broad-based growth in the business.

Oliver Wyman's practices in the health care, transportation, consumer and communications sectors all generated double-digit increases.

For the year, revenue increased 7%, including double-digit growth in the financial services sector, Oliver Wyman's largest industry specialty.

Oliver Wyman also produced excellent growth in operating income for the fourth quarter and full year.

Turning to the cost of our defined benefit plans, as you know, higher pension expense impacted earnings per share in 2010 by slightly more than $0.10.

We are projecting that pension expense will increase modestly in 2011, impacting earnings per share by $0.05.

This increase reflects lower discount rates at December 31, 2010, compared with the end of 2009.

Despite this increase, we expect to generate double-digit growth in earnings.

From a funding perspective, we made a tax efficient $200 million discretionary contribution to our US retirement plan last September.

Combined with ongoing contributions to our worldwide plans, total cash contributions to our pension plans in 2010 was approximately $450 million.

For 2011, we expect contributions to our global pension plans to be approximately $300 million.

In looking at our balance sheet, cash at the end of the year was $1.9 billion, compared with $1.7 billion at the end of the third quarter.

The major uses of our cash in the fourth quarter included approximately $245 million for acquisitions; $119 million for our fourth-quarter dividend payment to shareholders, which reflects a 5% increase on a per share basis; and $86 million for the start of our $500 million share repurchase program.

By year end, we purchased 3.4 million shares.

In addition to our year-end cash position of $1.9 billion, we expect to receive $230 million in the first half of this year from tax credits related to the Kroll disposition.

For modeling purposes, you should continue to use a 31% adjusted tax rate for the year.

With that, let me turn it back to Brian.

Thanks, Vanessa.

Candace, I think we -- operator, we can go to questions now.

(Operator Instructions).

Keith Walsh, Citi.

Good morning, everyone.

I have two questions.

First for Dan, just thinking about you guys are more of primarily a fee business, Marsh in the US.

Can you talk a little bit about the leverage to improving exposures in a fee business versus maybe your competitors a little more commission based?

And then the second piece of that, it seems every broker is facing expense inflation.

How do you think about that to make sure shareholders are getting the leverage of a better top line?

Okay, so let me take your first question.

One, our overall business, as you know, is now a majority outside of the United States, and so, when I look at my global business, I'm about 50/50 between fee and commission.

And it's more like 60/40 in the US and 40/60 in the rest of the world, and so I feel very well-balanced.

In terms of your question on leverage, I think that the commission business is slightly more leveraged to a hard market than the fee business.

But having said that, fees are based upon value, and I think we demonstrate increased value in a hard market.

And I feel that there would be upward momentum on the fee side as well, as a market tightens and as our jobs serving clients become more complicated.

You saw the reverse of that in the soft market.

There was some downward pressure on fees through the soft market, and so it gives you some insulation, but I really like the way that we are positioned 50/50, and I feel levered enough to the market.

In terms of expansion possibilities and leverage as we grow, we manage our expenses very carefully.

I think some of our expansion is being masked right now.

If I just look at the fourth quarter, our expense base -- half of our expense growth in the fourth quarter within Marsh was based on pension increase and some severance expenses that did not run through the restructuring line that ran through our operating line.

So, the other thing I would say is all throughout the downturn and over the last couple of years, we have continued to invest in the business.

So I don't feel any pent-up requirement to have some sort of rebound in expense to get us back to some sort of a trajectory in investing in the business.

We've been steady throughout, so I feel quite good about that.

Okay, great.

And then just for Vanessa, thinking about -- you mentioned the pension expense.

I think you guys are the only ones out there that still have an active pension plan if I'm correct.

Why not freeze the plan at this point?

If you could just talk to that.

Hey, Keith, let me do this one.

Yes.

Let me do this one.

It's Brian.

You know, we do constantly look at all our benefit plans, pension in particular.

You know, what pension does for us is add a bit of volatility to our income, bottom line.

The expense movements, positive and negative.

There's a bit of volatility to it.

Overall, so far from what I can see, it is a reasonable approach for our employees and for our shareholders.

But it does have this volatility to it.

And, what we did in the last year, and it was considerably volatile last year, the swing was considerable, was that we were able to manage that and still produce excellent growth and control of our expenses.

And as we pointed out, it's going to be a bit of a drag this year coming.

We gave you the number.

But I think still, long term, it is reasonable for us to maintain.

Now, we will constantly look at that.

You never say never.

But I think the volatility question is something we have been able to address, and I expect that we will continue to address it, and therefore, long term, I like the position we're in.

Thanks a lot.

Brian Meredith, UBS.

Two questions for you all.

The first one on the Consulting side.

Can you dig in a little bit on the outsourcing revenue growth in the quarter?

Was it new business, or was it growth from just exposures, payrolls?

Can you give us a little more detail on that?

Michele will do that.

Certainly.

This is Michele.

The outsourcing growth was sales of new business that had occurred both in 2009 and into 2010.

As a matter of fact, in the outsourcing business, we have about $50 million of added wins during 2010 that will also affect our result for the future.

So as we said and promised, that business was built and is built to be a scaled business.

What you're seeing is the impact of that scale as we sell the service across all our product lines and bundle with other pieces of Mercer's offering.

Are you seeing any benefit from the other large merger in the industry?

We -- there's a lot of activity in the industry.

The large merger in the industry is a little bit still recent, but there are certainly transfers of talent moving around and lots of activity in the marketplace with regard to our clients, as they take a look at how services will be provided.

So we feel well positioned with regard to that combination.

Great.

And then for Dan, could you -- we know what the organic revenue growth and obviously know what the revenues look like from the recent acquisitions.

What was the earnings contribution like from some of the recent acquisitions?

Are they still a pretty big drag on margins?

There's a couple of things.

One, when I look overall at the acquisitions within Marsh over the last couple of years, it adds about $475 million of revenue.

In terms of contribution on an earnings basis, it was very negligible in 2010, and will be a more meaningful contributor in 2011.

In terms of margin, it was a bit of a drag in 2010.

But in 2011, as our agency gets broader, it should perform very similarly to the overall US business.

Over time, it will perform with a better margin than the core US business, but for 2011, it will be very similar.

Okay.

And I was thinking specifically also on the HSBC acquisition, whether -- because I know there was several -- some of the restructuring charges coming through were on that one.

Is that positive from an earnings perspective yet?

Yes; it was not positive in 2010.

It will certainly be positive in 2011.

Excellent.

Thank you.

Matthew Heimermann, JPMorgan.

Two questions.

First, for Dan, just on the agency acquisition, so could you give us a sense of what inning we are in, in terms of building a platform?

And then also, I guess for John, can you just give us a sense of where the pipeline is in Oliver Wyman today and how that maybe compares to 12 months ago?

Okay.

So I'll take the agency question first.

We're still in the early stages in my mind.

I mean right now, the Agency is nearing $300 million of revenue.

I've said before, I think that this business could be a $750 million to a $1 billion business.

I'm very satisfied with where we are.

I'm very satisfied with the pipeline that we have and the type of agencies that we are having conversations with.

We are building out the capability and had several acquisitions right around year end and in the early part of 2011.

So I would characterize this as still the early stages.

Is that -- is that -- so is the delta between the $750 to $1 billion and the $300 million today all going to be acquisitions or what role will organic growth play in getting you there?

Well, certainly organic growth within the agencies will occur.

And as you've seen, there's -- you can look through the CIAB type of information and look at what growth rates have been occurring in those kind of businesses.

I mean certainly, some of those businesses, and to Keith's question earlier, are more highly levered because they're commission-based businesses and they're in the small commercial and middle market.

So, when I look at -- I would see there would be a combination of organic growth combined with -- in certain Marsh offices, we're handling some small business not as efficiently as the Agency is, so over time we would probably move some of the business around as we build out our platform and acquisitions.

But acquisitions would be the principal source.

Okay.

Thank you.

So can we get John to answer the pipeline question?

John?

Yes, so the Oliver Wyman pipeline is very healthy today, consistent with us staying on the rough top-line trajectory we established in 2010.

A year ago, we looked at 2010 and expected to see relatively weak recovery and economic conditions in the US and Europe, a little better than that, obviously, in emerging markets.

And that was consistent with the revenue growth that we established in 2010.

I think as we enter 2011, our broad sense of the macro environment is similar, a continuation of the weak recovery that -- in the developed markets, better than that in terms of emerging markets.

And that's what our pipeline is showing today.

And so I think pretty consistent with where we were a year ago.

Okay.

Thank you very much.

Larry Greenberg, Langen McAlenney.

Good morning.

I might have misheard this, but it almost sounded as if in your opening comments and in Vanessa's comments, that you were kind of emphasizing the competitive conditions in the reinsurance business.

And I'm just wondering if you are all sensing that perhaps reinsurance competition is taking a ratchet up a little bit?

And maybe you could just -- maybe Dan and Peter and Brian, certainly, if you want to chime in, just on what pricing looks like out there on the underwriting side.

Well let me start.

I'm not sure we emphasized some kind of a ratcheting up of competition in the reinsurance.

Reinsurance remains competitive, and Peter can give you the numbers.

But, it's an area that continues to show rate declines, and yet we had good organic growth, and I think particularly compared to others.

And I think that was what we were trying to emphasize.

But Peter, do you want to say something?

Yes.

The market has remained pretty stable.

We've seen rate decreases on average of 5% to 10% for property cat.

Some of the areas that are more localized, we actually saw some stabilization of rates -- Chile, I think we will anticipate that, and Australia.

And casualty pricing has remained modest to slightly down.

So we really haven't seen any different trends.

And when you look at reinsurance brokers as well, it's really driven by the first quarter because more than 50% of the portfolio is renewed in the first quarter, so even when you see rate deterioration in a fourth quarter, it doesn't really impact that quarter that much.

So you're really looking at a very stable, modest decrease.

And as we look into 2011, believe it will be the same.

Okay, Larry?

Great, thanks.

Just a follow-up.

We could play around with the numbers, but do you have what the underlying growth in the business units would have been excluding pension in 2010?

Do we have it?

Larry, I think the easiest way to look at it is to say that the margin expansion would have been for RIS, it would've been about 120 basis points.

And for Consulting, it would have moved from 110 to 160 basis points.

That is probably the easiest way to get at it.

Great.

That's helpful.

Thank you.

Meyer Shields, Stifel Nicolaus.

Brian, I saw you quoted at a conference saying that you don't necessarily need a macro event to change pricing.

Sometimes carriers just get exhausted by the fact that their business is unprofitable.

Is there any actual sign of that yet?

Any sign of that?

Yes.

I'm glad you read it.

What I was trying to emphasize is that personal experience here.

It's more of the psyche of the market that drives hard and soft markets, and we always keep talking about if we have this catastrophe, things will change.

And I tried to point out that in 2001, before 9/11, the rates started going up.

There was no catastrophe; it was just exhaustion.

And in 2008, we had a cataclysm.

What, $100 billion of capital disappeared overnight almost, and the rates didn't change.

So, there's a couple of cases in point where it wasn't a catastrophe one way or the other.

And so what I was trying to emphasize is that one needs to see or understand what the psyche of the market is and how people are feeling and is there exhaustion in the market?

And I said we didn't see it in 2009.

We didn't see it in 2010.

We don't see it so far in 2011.

So, I'm not sure that the catastrophe itself would do something.

Of course, I was bold enough to say it's probably sooner than later, but remember, we have very long cycles, anyway.

But that's what I was trying to point out.

So no, I think at this point, I haven't seen exhaustion hit the market yet.

No; I'm sorry to hear that.

Well, that's alright.

We're supposed to be able to perform in all weathers, and what I tried to explain to the underwriting community but what we think of ourselves here is, look at, most trading conditions are soft.

And so, if you can't perform in soft markets, you can't perform.

And for us, this is the time to put the Company right, get the place in the best shape possible so that when that hard market occurs, you maximize.

And that's what we're doing with what Dan and Peter have done in their respective companies, with the acquisitions we've done, particularly in Agency.

That's our plan.

Okay, Meyer?

Yes, no, that's very helpful.

One quick question for Vanessa.

I might have missed it, but the tax rate was higher than we anticipated in the quarter, and I was hoping you could explain that.

Sure.

If you look at the adjusted tax rate for the full year, Meyer, it was at 31%, which is similar to the guidance I gave last year for the full year, and also similar to what we're saying for 2011.

In the fourth quarter, we go through a reconciliation of the estimates for the first three quarters to make final end-of-year adjustments to take into account the geographic mix of our profitability as well as any impact of state and local taxes.

And that's what you are seeing in that higher rate for the fourth quarter.

Okay, great.

Thanks so much.

Yaron Kinar, Deutsche Bank.

Good morning.

I was wondering if you could maybe give a little more color on the, what I would say is robust underlying revenue growth, in both RIS and consulting.

Are you achieving that through improved pricing, more discretionary spending, exposure growth, taking market share?

I guess the answer is yes.

If you want to -- maybe Dan and Michele in particular could answer.

Sure.

So several factors contributed to our growth in the quarter.

I would say our new business generation would be first and foremost.

We had $276 million of new business in the quarter, which is the highest quarter of new business since all the way back in 2007.

Our past and present hiring of top-tier talent, our success in generating enhanced commission and fee-for-services agreements with carriers, all of those contributed to our overall performance.

I've been in the business a long time, so I don't get overly excited about growth in any one quarter.

I look at it for the year.

In 2009, we were minus 1, so our real focus in 2010 was to get growth going again.

And for the year, we were at plus 2 on an underlying basis.

When I'm looking forward, I would think we will do better than that, but I wouldn't necessarily extrapolate the fourth quarter and say that that would be continuing.

I mean, hope so, and we are out there plugging away, but it was a terrific quarter and a lot of things broke our way.

Yes, from Mercer's perspective, I think it's in direct reflection of our strategy and the strategy that we've been executing on for, frankly, the past several years.

We've made decisions to expand our core Consulting unit, and to continue to invest in it, and several of the organic and inorganic investments that we've made at Mercer were into core Consulting.

But in addition, we made a decision to expand in our next generation businesses, and those businesses are outsourcing -- the outsourcing pillar and the investments pillar, and we've consistently done that.

This quarter and last quarter, as a matter of fact, as Dan said, the full year reflects that strategy.

You see growth in the Consulting pillar, which is hardest hit by the recessionary period, but with good growth in outsourcing, outstanding growth in investments.

And so the blend is really giving our clients two things, giving our clients a lot of stability with regard to how we service them; new product offerings that they are finding to be innovative, especially in the DB space; as well as, and then for the investor, you get that same sense of stability, stability to perform in different areas at different times, and bundled products to produce this kind of revenue growth.

So from our perspective, we believe that the strategy has been confirmed and we expect that this will continue into the future as a good, balanced portfolio with which to serve our human resource clients.

You know, our operating companies are all a little different.

Maybe I should have John and Peter talk about it.

John?

Yes, I think in Oliver Wyman, the growth reflects a couple different things.

One is the general strengthening of the economy, so consulting demand tends to follow economic conditions.

So obviously 2010 was a stronger year than 2009 and that's part of it.

I think also, Oliver Wyman has particular strength in the financial services segment, and our fastest-growing segment is in health care.

And each of those are industries that are undergoing significant restructuring and where there's greater demand for advice in that type of segment, and so we experienced particularly strong growth in those segments in 2010.

Peter?

Our growth has really been driven by increased new business.

Our new business year-over-year in the fourth quarter is up over 25%.

We've had very strong client retention, well over 90%.

And our expansion within new business has been driving new clients.

Roughly 20% of the new business that we've generated is from new clients.

And as Vanessa said in her opening, a real significant top-line performance from our international operations, specifically in Asia-Pacific.

So where we've been making investments and focusing on top-line growth, we've been able to execute.

Okay.

Thank you.

Next question, please.

Jay Gelb, Barclays Capital.

Just first, a detailed question, the double-digit earnings growth outlook for 2011, is the baseline for 2010 the $1.64 of adjusted earnings?

Yes.

Okay.

And then, Brian, maybe you can give some insight in terms of where you expect the majority of the growth to come from?

Is it both Risk and Insurance Services and Consulting?

Or should one grow faster than the other earnings-wise?

Yes, that's great to -- we're blessed to having a nice balanced portfolio between Consulting and Insurance.

Consulting was growing faster this year than Insurance, so the Risk and Insurance I think showed great performance, particularly relative to peers.

So, what would you expect next year?

I think the same.

We're still on a soft market, and so that limits, to some degree, what we can do on the Insurance side.

Consulting will, I think, continue to take advantages of the things that pointed out -- that Michele and John pointed out, and the economy is improving.

So that should benefit us.

And Consulting is a -- more of a late-stage buy in emerging markets, and so we're -- our international footprint will help in that regard.

So I would say, if it's a horse race, maybe Consulting wins by a nose.

Anyway.

All right.

And then on a separate issue, we've been hearing more from our conversations with risk managers that there's increased interest in multi-year deals in terms of fee arrangements with the major brokers.

Can you comment on that?

And also, if there are multi-year deals written, as all that revenue recognized in the initial year?

I think Dan will answer.

Okay.

A couple of things.

One, if there's a multi-year deal done, the income is not all recognized in the first year.

So that's point number one.

There's not any kind of structural change amongst risk managers to multi-year deals.

The reality is, most multi-year deals have cancellation provisions.

And so, if you look in the large account space, I think the movement is more toward risk managers identifying two or three insurance companies who they want a broader, more strategic global relationship.

And they're building those relationships, and they recognize that those relationships, contractual or not, will tend to go across many, many years.

And so, and we help them with those choices.

So, I wouldn't -- in the tail end of every soft market, you tend to get some additional multi-year deals, and there's a little bit of that out there, but I wouldn't say it's a rush to that level.

And frankly, many multi-year deals have certain levels of cancellation provisions within them, either based upon loss ratios or market factors.

Dan, I should have clarified.

I meant multi-year fee arrangements with the brokers.

Yes; when we do a multi-year fee arrangement, first of all, we have very few clients that are pure fee.

Most of our clients are a combination of fee and commission, so we get a fee for certain services but we may get brokerage on some of the transactions that take place in London and Bermuda, as an example.

And so, there's very few where there's a -- where it's a global fee without any brokerage element on the transactional side.

But in terms of multi-year agreements on fees, we actually encourage that because it enables us to plan better, but we also negotiate with risk managers, and we tend not to keep a flat line over multiple years, right?

Because our expense base grows; our fee income needs to grow with the expense base.

And our clients recognize that.

And are those fees earned over the course of the arrangement?

Correct.

Correct.

Great.

Thank you.

Thomas Mitchell, Miller Tabak.

I'm wondering if -- looking at your prospects, you certainly have a lot of cash.

How do you view today, as compared to three months ago or six months ago, the opportunities to grow through acquisition, either on the Consulting side or through organic growth that might take some additional investment?

What are the best kinds of opportunities out there today?

Okay, Tom, see if I can summarize that.

Relative to three months ago, probably not much -- not a huge difference in that timeframe.

A year ago, or more it might be different.

I think you could -- certainly, as things improve economically, values start to change, and so one would expect that valuations would be slightly higher going forward than they have been, certainly, on the Consulting side.

I think to me, it's more important what we are buying, is, does it fit in our strategic positioning.

And in that regard, I think we've done quite well so far.

And certainly in Consulting, some very interesting acquisitions.

I think the Company is recognized as one to join again.

And so we have that extra added benefit of being a place that would be a good home for a company that has limitations as to where they go, but they are great people and they've got a great capability and they look around for what's the next step in their evolution, we're a good home for it.

And I think -- so our prospects actually are improving, not going the other way, even with say the economy changing.

In insurance, we've committed to the Agency development as our primary place for acquisitions.

It's not exclusive.

We're certainly looking internationally all the time as well.

The HSBC is a good example of that.

In that regard, I think, again, it's kind of an interesting issue.

Do people expect -- this is the seller, do they expect that the economy is going to improve or the market is going to improve?

And in that case, maybe they would be less interested.

But again, what I said about Consulting is probably true and stays with respect to the Agency because we have now, I think, established a structure, a position in the marketplace, that is attractive to those independent agency companies who are, again, looking for some next move, a way to grow.

And, what they are seeing is an organization that has the kind of qualities they're looking for.

And so that's why Dan pointed out the pipeline is very good.

So, and that's a long-winded way of saying I feel -- I certainly feel better this year than I did last year with our prospects.

And I think we're going to continue to find good acquisitions.

Organic growth acquisitions internally?

They are always a little bit more difficult.

We can do it through teams and we can do it through products and everything, and so it doesn't get the same kind of big-bang press that another acquisition does.

But we tried to point that out in the earlier remarks that when we look at -- we're in this for the long haul, and expense reduction alone, it doesn't get you anywhere, you know?

And so you have got to invest, and we've been investing, investing in technology and investing in product, investing in people.

So that's going to continue.

And then, my conversion to share buyback will also play a role.

Okay?

Thanks.

Thanks very much.

Scott Heleniak, RBC Capital Markets.

In Mercer, if you saw any improvement in organic growth trends in retirement over the past few months -- I know it was down 6% for the fourth quarter.

I'm just wondering if you saw any improvement toward the end of the year and the beginning into 2011 at all?

Because obviously there's pretty big upside if that gets turned around relative to Consulting.

Absolutely.

I think we will continue, frankly, to see retirement struggle, if you will, through this environment as people readjust their pension plans.

But I think the focal point for Mercer is slightly different, which is, we have taken intentionally and with great intention, the portfolio of services we have and aligned them to this DB market, this defined-benefit market.

So while you may see that there, there are other places where we are seeing significant growth where we've bundled these retirement services along with our investment services and our outsourcing services.

And so, I don't expect that you will see the broad demand change dramatically in the retirement business per se.

In other words, the traditional business, but the segments that we are pursuing quite, quite heavily and the changes that we're making in our retirement business allow us to capture business across the demands that the clients have currently in the same space, but for different kinds of services.

Okay.

That makes sense.

And then one last question on the -- I know you haven't talked about it specifically, but the hub strategy you talked about a couple of years ago.

Have you filled all the hubs?

Are you at a point where you have all those completed and your service is going to -- I think you termed it as spoke acquisitions.

Are you to the point where most of those are going to be those type of acquisitions, or is there still more left for the kind of big focal-point hubs?

Okay, there are certainly more hubs that will be required as we fill out the geographic footprint of the Agency.

The hubs that have been acquired are seeking spoke and fold-in acquisitions.

And so you will see that two of the acquisitions that we've made recently are actually spoke and fold-in operations for Rutherfoord, as an example.

So you will see us doing spoke and fold-ins for existing hubs, but we are still seeking additional hubs as we fill out our geographic footprint.

Okay.

Thanks.

Good.

I think we should take maybe one last question and then wrap it up.

One last question, please?

There no further questions at this time.

All right.

Very good.

Well, let me end by thanking everyone on the phone for their attention and interest in the stock, and more importantly, sorry to you guys, but more importantly, to all the employees who are listening out there, thanks for a great year.

Thanks for a great year.

Bye, everybody.

That concludes our conference for today.

Thank you all for your participation.