威達信集團 (MMC) 2011 Q2 法說會逐字稿

Good day, everyone, and welcome to the Marsh & McLennan Companies' conference call.

Today's call is being recorded.

Second-quarter 2011 financial results and supplemental information were issued earlier this morning.

They are available on Marsh & McLennan Companies' 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 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 will now turn the call over to Brian Duperreault, President and CEO of Marsh & McLennan Companies.

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

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

Joining me in presenting on the call is Dan Glaser, Group President and Chief Operating Officer; and Vanessa Wittman our CFO.

Also I'd like to welcome our operating company CEO's, Peter Zaffino of Marsh; Alex Moczarski of Guy Carpenter; Michele Burns of Mercer; and John Drzik of Oliver Wyman.

Also with us is Mike Bishoff.

Following my comments, Dan will discuss our operating results in more detail.

Vanessa will then update you on our financial position.

Let me begin by saying our second-quarter results were outstanding and illustrate the excellent progress we have made over the past year.

We reported a strong increase in revenue, with growth of 12%.

And growth was 5% on an underlying basis for the second quarter in a row.

In fact, this was the fourth consecutive quarter that each of our operating companies produced revenue growth on both a reported and an underlying basis.

And we continue to achieve this growth while maintaining control over our operating expenses.

As a result, we produced strong growth and adjusted operating income.

In the first 6 months of this year, underlying revenue growth of 5% and adjusted underlying expense growth of 4% produced 13% growth in adjusted operating income -- an excellent first half of the year.

The positive momentum at Marsh continued this quarter with underlying revenue growth driven by strong new business development and increased client revenue retention rates.

Guy Carpenter also produced underlying revenue growth, as it has for 10 straight quarters.

Mercer generated an underlying revenue growth of mid-single digits for the fourth consecutive quarter and Oliver Wyman's string of solid revenue growth continued driven by financial services, its largest industry sector.

So as we look across the breadth of the Company, we're very pleased with the performance of every one of our operating Companies.

As you heard me say a number of times since our Investor Day last September, our plan is to establish Marsh & McLennan Companies as an elite business enterprise, valued by our clients, our colleagues and our shareholders.

And we have articulated our growth strategy that will guide us in realizing this aspiration.

Our strategy focuses on the characteristics that create exceptional value and superior returns for investors -- sustained long-term growth in revenue and earnings per share, low capital requirements, high cash generation, and reducing the risk profile of the Company.

Some of these pillars are interrelated.

For example, our positive cash flow has allowed us within the last several quarters to increase our dividend, make attractive acquisitions, and institute a share-repurchase program.

Our excess cash also allowed us to strengthen our balance sheet, which lowers the risk profile of the Company.

Another example of how we are evolving into an elite organization is the articulation to our colleagues throughout the world of our corporate philosophy, which we refer to as The Greater Good.

This philosophy is designed to assist our colleagues with respect to the legal, ethical and risk issues that may arise in the course of doing business.

This enhanced approach reinforces our business standards as we operate globally.

As part of this effort, we produced a documentary to creatively represent the essence of our corporate philosophy.

We encourage you to visit our website to learn more about The Greater Good and to view the four-minute trailer of the award-winning film titled Faces of Marsh & McLennan.

So you see we take very seriously the four pillars we presented to the investment community 10 months ago.

Not only are we producing strong results, we are implementing a variety of initiatives to better position the Company for growth.

In summary, our excellent performance in the first half of the year demonstrates the type of performance the senior leadership is striving for.

Sustaining this performance over the long term should translate into outstanding results for our shareholders.

And with that, let me turn it over to Dan to review our second-quarter results in more detail.

Thank you, Brian, and good morning, everyone.

I'm delighted to talk to you about the outstanding financial performance of our operating companies for the second quarter.

First, let's go into a little more detail on our consolidated operating results.

We achieved solid revenue growth and increased adjusted operating income at each of our operating companies for the fourth consecutive quarter.

This quarter, revenue increased 12% to $2.9 billion, and underlying revenue growth was 5%.

We also produced a robust increase in adjusted operating income of 17%.

Risk and insurance services revenue increased 11% to $1.6 billion, with underlying revenue growth of 5%.

Continued expense discipline held adjusted underlying expense growth to 3%.

Adjusted operating income increased 16% to $352 million, with Marsh and Guy Carpenter both contributing double-digit growth.

And the adjusted operating margin increased 100 basis points to 21.7%, reflecting higher margins at both operating companies.

For the first half of the year, the adjusted operating margin for the segment increased slightly despite the effects of higher pension expense and the negative impact of foreign currency translation.

Marsh had another strong quarter, any way you look at it.

Revenue increased 12% to $1.4 billion, and underlying revenue rose 5%, marking the fifth consecutive quarter of growth.

Every one of Marsh's major geographic operations experienced underlying revenue growth in the quarter, with particularly strong growth of 18% in Latin America.

In fact, throughout Marsh's global operations, 27 countries produced underlying revenue growth that exceeded 10%.

Additionally, US/Canada generated revenue growth of 3% for the fourth consecutive quarter.

On a year-to-date basis, Marsh's growth rate swung by 500 basis points, compared with the first six months of last year -- an impressive performance considering market conditions.

Global new business development continues to be strong.

In the second quarter, Marsh's new business was up 8% on an underlying basis, with similar growth in both its US/Canada and international operations.

For the first six months, Marsh generated over $500 million in new business.

And with disciplined expense control, the result is double-digit growth in adjusted operating income, not just for the quarter, but the year-to-date as well.

Now turning to reinsurance broking, Guy Carpenter continues to build on last year's very strong performance.

Revenue was $257 million, reflecting underlying growth of 5%, led by Global Specialties, Latin America, Continental Europe, and US facultative reinsurance broking.

Guy Carpenter had particular strong solid revenue growth from sales of its new CWIL, or County Weighted Index Loss product.

Over the last two and a half years, Carpenter has produced 10 consecutive quarters of underlying revenue growth.

It was able to accomplish this through continuing strong new business development and very high client retention.

So in summary, Marsh and Guy Carpenter both produced strong financial results not only in the second quarter but throughout the first half of this year.

Turning to our Consulting segment, I am pleased that our Consulting operations continued to generate strong revenue growth as well.

In the second quarter, revenue rose 13% to $1.3 billion, with underlying growth of 5%.

Growth in adjusted underlying expenses was 4%.

Adjusted operating income increased 21% and year-to-date growth was a 17%.

And the Consulting adjusted margin rose 80 basis points in the current quarter.

The impact of higher pension expense in the quarter was offset by a benefit from foreign currency translation.

Mercer had a strong second quarter.

Mercer's revenue increased 13% this quarter to $945 million and underlying revenue growth was 4%.

Mercer continued the solid performance we've seen over the past year.

Within retirement, growth in the UK and Latin America was offset by declines in the US and Ireland.

Health and Benefits continued its good performance, with growth in all regions of the world and particular strength in the US, Latin America, Canada, and Asia Pacific.

Rewards, Talent, and Communications produced double-digit revenue growth for the fourth consecutive quarter.

Outsourcing's underlying growth of 2% primarily reflected growth in Australia, partially offset by a decline in the US.

The 13% underlying revenue growth in Investment Consulting and Management continued a trend that has extended for more than a year.

Mercer has assets under management of $44 billion as of June 30.

And Mercer produced margin improvement and double-digit growth in adjusted operating income.

Oliver Wyman also had an excellent quarter, continuing to produce strong revenue growth with an increase of 14%.

On an underlying basis, its growth was 8%, which represents Oliver Wyman's sixth consecutive quarter of high single-digit revenue growth -- an impressive performance.

In the latest quarter, Oliver Wyman's growth was diversified with strong growth from its largest industry sector, Financial Services.

It also had solid growth from the Healthcare, Manufacturing, and Transportation industry sectors.

Oliver Wyman's close management of operating expenses also contributed to double-digit growth in adjusted operating income with a healthy increase in its margin.

In summary, we are very pleased with the performance of each of our operating companies, not only this quarter, but also over the first six months of the year.

In aggregate, our operating companies produced adjusted income growth of 17% for the quarter and 13% for the first half of the year -- an excellent performance.

Now let me turn it over to Vanessa.

Thank you, Dan, and good morning, everyone.

As Brian and Dan have indicated, the financial performance of Marsh & McLennan Companies in the second quarter was very strong.

We produced earnings per share of $0.50 in the second quarter on both a GAAP and adjusted basis.

And despite a year-over-year decline in investment income of $24 million, or $0.03 per share, the increase in adjusted EPS was 9%.

We anticipate investment income in the third quarter to be a slight loss, similar to the third quarter of 2010.

In the second quarter, net interest expense decreased to $44 million from $57 million a year ago.

This was due to a slight increase in interest income and a substantial decrease in interest expense resulting from the payment of a $550 million debt obligation last September.

On last quarter's call, we indicated we would be active in the second quarter with share repurchases.

I'm pleased to report we aggressively resumed our buyback program with a repurchase of nearly 8 million shares for $235 million.

Combined with our buyback activity in last year's fourth quarter, we've used $320 million of our $500 million authorization, repurchasing a total of 11.2 million shares.

We plan to continue repurchasing our stock in the third quarter.

When we analyzed our debt portfolio at the beginning of the year we felt some changes would be warranted if market conditions afforded us an opportunity.

In the second quarter, we took advantage of a significant decline in 10-year corporate rates by tendering for a portion of our debt obligations.

Although we have small amounts due in 2012 and 2013, we chose to address the spike in our maturity ladder in 2014 and '15, when an aggregate of $1.4 billion was coming due within a 14-month period.

In June, we initiated a tender offer for $250 million each of the 2014's and '15's.

The tender was oversubscribed, and in July we reduced the $1.4 billion spike by $600 million.

We brought in $330 million of the $650 million due in 2014, and $270 million of the $750 million maturing in 2015.

Given our strong cash position, we funded the tender with $100 million of cash and a new issued 10-year note for $500 million.

The coupon on the new note is 4.8%.

Costs of $73 million related to the early extinguishment of the debt from the tender offer will be recognized in the third quarter.

We are very pleased with these transactions, which have lowered our refinancing risk in the intermediate term by extending our maturities at a very attractive interest rate.

Additionally, we'll see a reduction in our annual interest expense of $9 million.

Our tax rate in the second quarter was 31%, reflecting our geographic mix of earnings.

We continue to expect that the tax rate for the year will be approximately 31%.

Quarter-end cash was $1.7 billion, compared with $1.5 billion a year ago.

Debt at the end of the second quarter was $3 billion.

Net debt, which is total debt less cash and cash equivalents was $1.4 billion, compared with $2.1 billion at the end of the second quarter of last year.

In summary, our financial position has continued to strengthen over the last 12 months.

We prudently used the current environment of low interest rates to opportunistically reconfigure our capital structure, extend maturities of our debt portfolio, de-lever our balance sheet, trim ongoing interest expense, and reduce our intermediate term refinancing risk.

With that, I'll turn the call back to Brian.

Thank you, Vanessa, and now we're ready for your questions.

Thank you, Mr.

Duperreault.

(Operator Instructions) Brian Meredith, UBS.

Brian the first question I guess for you is given all the uncertainty right now from a global perspective, what are you seeing in your business trends?

Is there any concern here going forward that maybe you'll see a slowdown in business trends because the global economy?

That's interesting, Brian.

We were talking about that just recently as of yesterday, because we do think about these things.

And I'll give you my overview, but I think maybe the guys can talk about it individually what they're seeing in their own operations.

And I would start by saying, Brian, that's something we don't have control over but we do have control over how we operate, and that's the whole point of keeping control on both sides.

So, we've done a pretty good job of growing this business in difficult times and maintaining expenses.

So, frankly I don't worry about it too much.

But I don't think we're seeing the signs that seem to be in the headlines everyday and our underlying business, looks good pretty going forward.

So, let me start with John because I think the consulting side would be the place where you'd see it the most.

John?

Brian, our business pipeline still looks good.

Obviously, there's lots of concerning news out there as you referenced with sovereign debt crisis and the US debt ceiling negotiations and some weak macroeconomic news.

But to date, we've found that business confidence has been pretty resilient and our clients are still investing in their businesses, so demand for consulting has been pretty robust.

If we look at our recent sales between say, April and July, and the run up to now, they've been strong, our forward-looking pipeline is good, so there's no immediate warning signs in our business.

We obviously need to monitor it closely but at this point, we'd expect to stay on growth trajectory similar to what we have been.

And Michele, on the Mercer side?

I concur with what John said.

The pieces of our business that usually are the early warning signs of trouble or of good opportunity, we see great growth.

Double-digits in talent and rewards, obviously investment pillars growing at 13%, so we have seen no signs of our clients slowing down.

In fact, they are investing in the pieces of the business that they typically invest in when they are planning for growth.

The second thing I'd say is that, the environment has afforded us an opportunity to do some tuck-in acquisitions.

So, we've done three tuck-in acquisitions this year that have been very opportunistic and have been very, very low risk, continuing to enable us be able to grow both organically and inorganically.

Does that help, Brian?

Yes, that's helpful.

Just one other quick follow-up question here, Dan, you mentioned that FX benefits offset pension expense.

Where was the benefit to FX in the quarter from an earnings perspective?

You know what, let Vanessa --

Or Vanessa, how about that?

I don't mind Dan answering --

He's the one who said it, so that's why I figured --

I'll be happy to take it.

So, Brian, in the quarter, we had a slight benefit from FX and year-to-date we're neutral.

And over the course of the year, as always, the FX impact is de minimus.

But if you think about the pension impact, which we've given guidance for is roughly $12 million a quarter and two-thirds of that in the RIS segment, there's a drag there that's offset.

I would point out that FX on a margin perspective for RIS is a drag, so you've got a double-drag on your margins in RIS, one from pension and the second from FX.

Great.

Thank you.

Cliff Gallant, KBW.

Regarding acquisitions, particularly on the brokerage side of the business, there's been a lot of talk in the marketplace that perhaps pricing is improving or at least bottoming.

And I'm curious as to how that might be affecting expectations on the seller side of whether or not they're willing to sell at this point or what kind of valuations they would want?

Thanks, Cliff.

Well, Peter, you're in it, so why don't you tell us a little about it?

Yes.

There's a fair amount of activity on the acquisitions of side.

Don't think that the underlying macroeconomic factors or pricing are playing into it for us to much.

We have a very strong strategy on Marsh & McLennan Agency and we're about $300 million in size and we're looking for strategic acquisitions that fit in with what our vision is for the MMA.

And we also have an acquisition strategy to complement what our current portfolio looks like, either from a segmentation or geographical standpoint.

So, while there is activity, we will absolutely stick to our strategy and drive growth in acquisitions that fit what we've outlined in the past.

Okay.

Thank you.

Meyer Shields, Stifel Nicholas.

I don't know if this is a Michele or a Vanessa question but I'm hoping to get a sense as to which currencies are driving the benefit for FX in terms of Consulting revenues.

Sure, Meyer.

I'm going to take that one.

So, if you think about our four major currencies, the euro, the pound, the Canadian dollar, and the Aussie dollar, they've all strengthened against the US dollar, both for the quarter and over the first half of the year.

We had a little volatility in the January side of FX, the January renewals on the RIS side.

But in Consulting, as we've mentioned, it's a very minor benefit for both the quarter and for year-to-date.

Okay.

And if I can follow that, I guess this is more of an RIS question.

Is the price that you're charging, whether it's on a commission or a fee basis, is there any gap between where it should be at this point in time and where it actually is?

That's interesting.

Anybody want to take the question?

Dan?

I'll take it.

I would phrase it more along the lines of when we look at whether we are compensated by either commission or fee it's about what value we create.

And I believe that over the past several years, our value has increased, both through our clients, and also to the insurance companies we deal with.

So, I would say that there is a delta between the value, the additional value we've created and the income we're receiving for that value.

And obviously, we work on closing that delta.

Okay.

Perfect.

Thank you very much.

Matthew Heimermann, JPMorgan.

I guess this question is probably either for Peter or Dan.

Just with respect to the US and Canada, retention still seems to be kind of a positive tailwind for you.

I was curious, if you could just give us a little bit more insight into how much of that is the retention improvement of the last several years, just trying to get back to normal.

And then, whether or not there's any incremental pick-up you're seeing, whether it be from value, service, what have you?

So, this is in client retention?

Correct.

Okay.

So, Peter?

Why don't you do it and maybe Dan might have his own insight.

Sure.

Actually, the client retention in the US has remained very stable, it's been very strong.

We saw evidence of that in the second quarter as well, so we have actually had it pretty stable the last six quarters in the US.

The growth has come from strong new business, US had a very robust new business quarter in the second quarter.

As a matter of fact for the overall organization of Marsh, this is the second-best quarter we've had in the last five years in new business, So, it's a combination of very strong retentions, although I think they've remained fairly stable.

We have had strong new business and really are executing much better than we have in the past.

This is something that's been an evolution process, but Dan's leadership, from 18 to 24 months ago, of implementing Winning at Marsh has derived a much stronger pipeline for us.

We've been focusing on really driving value as you mentioned before.

So, it's a combination of all factors that have given us the 500 basis point lift over the first six months of 2011.

So, just to summarize I guess, we're past the point of year-on-year retention gains helping the growth rate in the US and Canada.

We're now at a point where just the absolute retention rate is just so strong with the business levels you're getting, that's really leading to pretty attractive organic?

Dan?

Sure.

Let me -- that is a good summary, but I just want to make sure that you have it -- that we separate client retention and revenue retention.

So, from a client retention standpoint, our client retention levels have fully recovered from our dark period, and in fact, have stabilized, from multiple quarters ago, five or six quarters ago, but our client retention levels are as good as they've ever been.

On a revenue retention basis, you benefit from exposure changes, from some stabilization of the cycle, and also, from our answer to the previous question, our creation of additional value for our clients.

And we seek to monetize that additional value creation through higher fees or higher commissions.

So, all of those factors benefit revenue retention.

That's helpful.

And then I guess I'm not -- maybe for Vanessa, maybe for Michele or John, but just with the 4% underlying expense growth in the Consulting segment, can you give us a sense of what that's comprised of, how much of it is compensation, how much of it is, G&A or other investment expense in the business?

Okay.

Why don't we have -- I think Michele and John should answer that.

So, why don't we have Michele talk about Mercer first.

I think there's some compensation expense increases as a result of the raises that go into effect in the first quarter, so you're lapping some quarters.

The second piece, is I think we're really investing into professionals inside the business.

So, as we went through 2009 and into 2010 in the first half, we have not built for the robustness of certain of the businesses that are growing in double-digits, as well as importantly, the health and benefits business that is showing nice consistent strong growth around the world.

So, there's been some increase in numbers of people, as well as a smaller increase in compensation itself.

The rest of expenses are not necessarily growing in any way disproportionate to the business itself.

So, that's the balance I would say, where you see expense growth in Mercer, it is investing in the products and services almost exclusively.

Good.

John?

Our primary expense is compensation, so the non-comp expenses would probably be growing slower overall than revenues, but comp would be growing closer to revenues.

As with Michele, part of it reflects investment in new professionals, so we are growing the overall staff capacity in business in response to the revenue growth and part of it would reflect productivity increase which results in higher compensation for those who are producing the greater productivity.

So, I think it's a mix of those but we're continuing to run with a positive gap between revenue and expenses.

Okay.

That's helpful.

In terms of just how we should think about the timeline of the investments going forward, and people?

Well, let me jump in there.

For us, what we sell is our expertise, and that's person by person.

So, as we see opportunities we're going to bring in the best people we can.

So, I think they'll go hand-in-hand, but we will get productivity out of them, and the net result is a very positive operating income growth.

So, that's kind of what you should see from us.

We tend to think very positively about the future and the growth potential and therefore, positively about expanding our personnel.

That makes sense.

I just wanted to make sure it wouldn't be a mischaracterization to suggest that given six, eight quarters ago, we were in a much different growth environment, there's probably been somewhat of a ramp-up with the pickup in growth and that very well could level off as organic growth.

Even if it's at these levels obviously may not be accelerating.

Beyond the --

Yes, I guess, what we really were concerned about in the Great Recession period was reducing too deeply our capabilities, and I think we did a pretty good job of that.

So, the ramp up wasn't maybe as large as you might think because we were pretty good at holding the people we needed to hold.

So, I think now it's going to be proportional.

Okay.

Much appreciated.

Keith Walsh, Citi.

Two questions, first for Vanessa, and just some numbers around margins, I think you guys are probably the only public broker that's really going to grow margins quarter and you have headwinds that others don't.

So, maybe if you could -- by my math, the pension headwinds by at least 70 BPS.

Could you give us the numbers, what's the FX headwinds you had for on the margin?

And were there ever any other severance costs in there, because you guys have been hiding those severance costs and not taking them out of your P&L, maybe if you could give us a little color around that.

And then I have a follow-up.

Go ahead, Vanessa.

I'd rather say we're absorbing the severance costs, not hiding the severance cost.

But if you aggregate the headwinds that we are seeing in the margin, in the RIS margin, it's about 70 basis points from FX.

You are directionally correct on the pension.

And we're probably bearing another 15 to 20 basis points of other headwinds in the margins.

Okay.

So, growth even better than the hundred that you've put out there.

And then the second question just for Brian and/or Vanessa, just a philosophy on the capital structure.

I mean, you guys have been actually reducing debt and most of your competitors out there prefer to run with a much higher debt/EBITDA level, and you guys are well below what everyone else is.

So, what's the philosophy there, and why -- I guess it's a high-class question, or I guess high-class problem, why are you running so low compared to everyone else?

Yes, I don't know what everyone else is thinking, so let me just tell you what we're thinking.

My four pillars include that risk thing and capital management flexibility.

So, my feeling is -- and I told you I'm very positive, right?

Very positive about going forward but I want to be -- I want to hedge my bets a little bit here.

So, we want to manage the balance sheet so that we have a very prudent level of debt which we could expand if necessary and add for opportunity reasons or because something goes wrong we don't know about.

So, I like the position we are in.

We are expanding our margin, we're growing the business, we're keeping faith with what we put forward in the Investor Day, 10 months ago, about 10%-plus growth rate.

And so, to be able to maintain the balance sheet at the level we have and do that, I think is great for all of us because it gives us tremendous financial flexibility.

And that's what I'm trying to get.

So, I like to be in a position where we can be very agile if necessary.

And we're still buying back shares, and we're doing other things we need to do.

So, that's kind of where I'm coming from, does that help, Keith?

Yes, that's great.

Thanks a lot.

Yaron Kinar, Deutsche Bank.

Good morning and congratulations on the quarter.

Thank you.

I have a couple of questions, one with regards to RIS.

Can you talk a little bit about your efforts vis-a-vis the enhanced commissions and in particularly how they fit in the environment where you see increased competition where exposure growth has been slow?

How are you able to achieve that?

Okay.

Well, what was the second question?

That was actually the first question.

The --

Including the spend.

Okay.

Good.

Peter?

I think again, there's not going to be much change in my answer from what's Dan's answered in the prior quarters but enhanced commissions for us are about working with enormous transparency.

We work with carriers for fee-for-service in terms of value that we provide for the carriers.

Our Marsh Market Connect is a great example of that.

We have expanded enhanced commissions that are disclosed to our clients and then also embedded within our numbers is increased yield, which is just getting more commission on placements, again with transparency to clients.

So, I think all of those initiatives that have been going on for some time have still been reflected in the second quarter.

And something, that again, is not material in terms of the change for the overall numbers, but has been a slight positive in the quarter.

Great.

And you're able to achieve that despite the fact that the competition for the business is increasing in a kind of stagnant exposure environment?

Yes.

The competition is as you've outlined, still very competitive, but this is all about a value proposition that we provide to insurance companies.

And so, again, it's a separate revenue stream that is not linked to volume, it's not linked to anything other than value that we're providing to clients, again with a lot of transparency, and to carriers.

Got it.

And then the second question probably for Michele, with regards to the Rewards, Talent Communications.

Can you shed some light maybe on how you've been achieving the double-digit organic growth that's now four consecutive quarters of that?

Even though employment levels remain pretty sluggish and the economy is still not really as robust as one would've hoped?

Sure.

Glad to do that.

I think we'll see that segment of our business continue to grow strongly and the reason is because of the demographic shifts that are occurring in the world.

And these major developed countries in particular, we see that we have -- while we have unemployment rolls that do not seem to be lessening, we have clients that have a need for skilled labor and not enough people who have those skills.

So, they're competing significantly for talent in engineering and executive rights, et cetera, et cetera.

So, the strategies they need to have are broad-based to retain major groups of employees is quite significant.

So, I think you'll see that continue because demographic trends will not abate in this area.

And that presents major opportunities for us both over those issues and the years to come.

Got it.

Thank you very much.

Michael Nannizzi, Goldman Sachs.

Thanks.

Just a question for Vanessa on the debt.

Quick one.

Are you going to include that refi charge in, or are you going to include or exclude in next quarter's earnings?

Adjusted number, I should say?

It will be a separate line item, but it will be included.

That's why we wanted to point out the size of the charge, so, that you could bake that into your third quarter outlook.

Got it.

And then just to understand, how you're thinking about -- so, $9 million a year benefit from lower interest expense, I think is what you said?

Is that right?

Yes.

And then it was a $73 million cost?

Sure.

Let me break it down, because it is -- if you think about the way the bonds, the 2014s and 2015s were trading at the time, there was $62 million of embedded premium in where they were trading.

So, you're going to pay that one way or another, right?

So, the true costs, the way we look at it, is there was a $7.5 million charge for the incremental premium -- about 10 basis points on one issue and 15 on the other, to tender for the bonds to bring them in.

So, $7.5 million there, and $1.5 million of dealer fees.

So, really from a true charge perspective, it's a $9 million cost, and we'll get a $9 million recurring benefit.

I see.

So, the $73 million is because you paid higher than par on the retirement?

Right.

They're both trading above par, right?

So, you've got to pay at least market and then a small market premium to bring them in.

Got it.

Okay.

So, is it fair when thinking about that to think about the $9 million in terms of savings versus -- like when you're deciding whether or not you're going to manage this end of your balance sheet, do you think about the cost to retire versus the benefit you get?

And then is the difference the premium you ascribe to reducing your exposure to liquidity in 2014 and 2015, or --

Well, it's a couple of things.

First of all, we were looking out and saying, in today's interest rate environment, to be able to print the 4.8% coupon bond, was an opportunity we didn't want to miss when we were looking out and saying in 2014 and 2015, you've got a $1.4 billion due in 14 months which -- so part -- the biggest driver here was knocking that spike down, and being able to push it out, for five and six more years.

And then, coupled with a dramatically lower interest rate for the 10 years than we have seen over the course of the last few years.

Got it.

Okay.

That helps.

And if I could get one quick one on the Guy Carp side, any commentary on cat bond issuances this quarter?

And how is Guy Carpenter's business there performing?

Alex, please.

It's performing well, and there is increased demand, also as we've mentioned before on the CWILs, we've seen increased demand.

We've actually issued more in the first half than we did in the last two years.

So, activity is good.

Great.

Thank you.

Thomas Mitchell, Miller Tabak.

Just sort of a minor housekeeping question, which is, you didn't have any restructuring charges to speak of this quarter.

Should we anticipate that the restructuring period is now officially ended?

Officially ended?

Well, I put it this way.

You know, we had quite a bit of work to do over the last several years to position the Company properly, certainly in Risk & Insurance, but secondarily in Consulting, given economic conditions.

We've done that.

I mean, we are thinking about growth, but look, we are always looking and we're always trying to improve the structure and if we found things that needed to be done that required restructuring, we would do them.

But our plan is to take what we have now and really grow this Company.

Thank you very much.

Jay Gelb, Barclays Capital.

In the Risk & Insurance Services segment, adjusted margins are largely unchanged year-over-year and I'm just trying to get a sense of whether you feel organic growth -- organic revenue growth can outstrip organic expense growth for the full year.

Dan?

Sure.

I mean, one, I would start by saying that our adjusted margins in the second quarter in RIS are about 100 basis points above prior.

You may be referring through the first six months of the year, and on that basis we're slightly ahead on adjusted margin basis, and we would be reasonably ahead if not for the headwinds of pension and foreign exchange.

In terms of what we can do in the future, one part of my new role has really been digging into each of our businesses and looking at what our strategies are, what our organic strategies are, what the pipeline looks like for acquisitions, and what kind of efficiencies we can seek.

And I'm very happy to say that in our collective view, there's plenty of opportunity for us over the next several years, to not only increase our earnings but to expand our margins in both segments.

I see.

Okay.

And then separately on the share buyback trend, what would -- how would it work out if there were to be a new repurchase authorization put in place?

Would that have to go to the Board and potentially what time frame could that take place in?

Jay, yes.

The Board approves these things.

We would recommend it.

We've expressed to you and all the investment community that share buybacks is a part of our capital management on a going forward basis, particularly as we continue to grow good positive cash.

So -- but it's a Board decision, and the Board will decide when it decides.

I can't tell you anything more than that.

I mean, there's no -- it's not like it has to happen at a certain time in the year, right?

No.

You could do it tomorrow but the Board has its regularly scheduled meetings, things like that.

Yes, but it's not a seasonal thing.

Okay.

Great.

Thank you.

There are no other questions at this time.

Well, listen, thank you very much for joining us.

We had an outstanding quarter.

And that's all because of the hard work of all of our colleagues around the world, and I want to thank them, terrific job.

See you next quarter.

That does conclude today's conference.

Thank you all for your participation.