Willis Towers Watson PLC (WTW) 2004 Q3 法說會逐字稿

Welcome to the Willis Third Quarter 2004 Earnings Release Conference Call. (OPERATOR INSTRUCTIONS).

I would now like to turn the call over to Ms. Kerry Calaiaro, Investor Relations Director.

Thank ma'am you may begin.

Welcome to our earnings conference call and webcast at willis.com for the third quarter of 2004.

Our call today is hosted by Joe Plumeri, Willis Group Holdings, Chairman and Chief Executive Officer.

This teleconference call will be available by replay starting at 10:00 AM today Eastern Time, and ending at 5:00 PM on November 11.

To access the audio replay, please call 866-514-4268 within the US, or 1-203-369-2011 from outside the US, or by accessing the Website.

If you have any questions after the call, please feel free to dial 212-837-0880.

As we begin our call, let me remind you that we may make certain statements relating to future results, which are forward-looking statements, as that term is defined by the Securities Litigation Reform Act of 1995.

Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated.

Additional information concerning with factors that could cause such difference can be found in the Company's documents filed with the SEC from time to time.

Due to the adoption of Regulation G, where we use non-GAAP financial measures, we've included reconciliation's to the most directly comparable GAAP measures, as a supplement to our earnings release, which can also be found on our Website.

Now I'd like to turn the call over to Joe.

Joining me today are Richard Bucknall, who is the Co-COO of our Company, Tom Colraine, who is the other Co-COO and Chief Financial Officer; and Mario Vitale, who is the head of North America.

I want to break up this call -- 2 distinct parts.

The first part is to discuss the third quarter, and the second part is to discuss the ramifications and the impact on the announcements that we made last week with regard to abolishing the contingence and what that means.

So I'm sorry about the third quarter, and then we'll talk about what those impacts are.

Obviously we're also very proud of having achieved 19 consecutive quarters now of record results.

And we continue to do it, I guess the old fashion way, spend less than you make trying very very hard to do it by increasing our revenues, which is you see was 4 percent for the quarter.

And in this kind of an environment, we think that's something that is quite noteworthy.

We continue to be disciplined in our expenses, we continue to do all the things that we've always done before, there is nothing different or change very much about our model, which is why we think it in doors.

Our adjusted net income per share rose 24 percent to 46 cents from 37 cents in the third quarter of last year, the first 9 months adjusted net income per share rose 25 percent to $1.97 from $1.58 last year.

So the quarter organic revenue growth was 4 percent as I said, and net new business grew 6 percent with a negative 2 percent impact from softening rates.

I just want to remind everybody, when we talk about impact from softening rates, that is not the rate of decline in rates, that's impact to us.

The rates have actually been declining if you look at it on a worldwide basis, and you look at it line by line obviously I can't do that, but we still got rates that are softening at least that depend at 15 percent range 10 to 20 in some areas.

But on an adjusted basis, the impact on us after having gotten more commissions and things of that nature is about 2 percent, so the real growth was 6.

Adjusted operating margin was 23 percent in the third quarter, fairly steady with last year for the first 9 months of 2004.

The adjusted operating margin was 29.7 up from 29 percent last year.

I guess the point that I would make here is that we continue to grow our margins because of our enormous expense discipline which I have to congratulate my colleagues on.

It's very difficult to grow your business, service your business, and to watch what you spend all at the same time.

It takes enormous discipline to be able to do that.

And my colleagues in this Company do that very well, and I think that gives us great ability having done this now for the better part of 4 years to be able to go in to what I call the new world of insurance brokers, which has changed significantly over the past week or so, and I'll talk about that later.

We continue to deploy all of our growth levers.

As you know, we continue to buy back stock, I'll get into that in a second.

We said that the levers that we would want pool had to do with the deployment of our cash, which included the buybacks and which included acquisitions, both of which started to show their very attractive faces in the last quarter and over the first 9 months of this year, and I'll talk about specifically.

During this quarter, we bought back 3.5 million shares for $124 million.

So, so far this year we purchased 9.1 million shares for $327 million and that totaled (ph) an authorization, which is currently up to $500 million.

So we still have a way to go, we've done what we said we are going to do and we are deploying our capital as we said we would do.

Now, about the acquisitions which is not something that we have relied upon, as you know, for the better part at least of my tenure here.

But I said that when we thought the opportunities were there and that the opportunities were strategic and the deal made sense, we were going to do it.

Well, to date the Company has announced 8 acquisitions with annual revenues of approximately $130 million.

These include the October 1, 2004 acquisition of a 56 percent share interest in Coyle Hamilton, Republic of Ireland's largest privately owned insurance broker with annualized revenues of approximately $60 million, and in January 2004, increased our ownership position in Denmark to a 100 percent from 30 percent with annualized revenues of $50 million.

So those 2 alone gave $110 million, plus a number of smaller acquisitions amounted to 130 million.

I would get into later what our pipeline represents going into the fourth quarter and into next year.

But again, I just want to make sure that I'll remind everybody that we are doing what we said we are going to do.

In terms of the deployment of our capital and using all of the possible means of our disposal.

This is a, I guess not to use a sports term but I will, above on star fence, we do everything here.

If you want to be good at what you do, you have to do all of these things and I think the quarter exemplified best our ability to be able to do a lot of things at the same time, and that's what we are doing.

Let me talk a little bit about market conditions.

I made reference to it a little bit earlier.

Rates continue to decline across most lines of insurance during the third quarter.

As I said the conditions -- the change in marketing conditions have not had a measurable impact on managers ability to buy insurance, the behavior is still the same.

Most insurers are buying the same coverage and with us (ph) under a science that some clients are exploring well at deductibles.

We really don't know that yet, but the scenario will plat out better by the end of the year.

But as I said, across the board you are looking at 10 to 20 percent, decreases in premium.

I'd like to take you through our business units.

By the way, you saw that our growth grew on reported basis 8 percent, the difference between the 4 percent organic when we reported 2 percent came from currency and the other 2 percent came through acquisitions.

Now let me talk about the North America climate.

We continue to be very excited about North America, we continue to be very excited about all of our retail operations.

In North America, we believe we have enormous leverage.

It's the place that is the longest among our businesses, frankly that just goes back to 1990, when Corroon & Black was brought by Willis.

Our retail operations are actually around the world, now that I say they are the youngest parts of our businesses.

Our total revenues for the quarter were $158 million, the organic revenue growth was 4 percent with a modest negative rate in practice of about 1 to 2 percent.

Premium rates were down 10 to 20 percent on average, but we are working hard to keep commission rates steady, and I think we've done a pretty good job at doing that.

We had solid contributions from middle market and large accounts, and specialty practices especially executive risk, employee benefits, and construction.

Our global businesses which are our oldest businesses continue to perform as our manufacturing plants if you will.

Total revenues were $251 million in the third quarter.

Organic revenue growth was 2 percent in the quarter with the most noticeable rate pressure there, and that's the reason in large measure for the 2 percent growth in the quarter, but I think a very reasonable if not more than reasonable job given the enormity of the rates.

In the global businesses, the acquisition of Coyle Hamilton will help a great deal, and will manifest themselves, I think, as the quarter goes on especially next year because all of that business that Coyle Hamilton did that went elsewhere, will now stay internally.

That will help a great deal but it's not a small business, and will help a great deal.

Also I might add there is a lot of -- there is a smaller Company called Jeffries in the UK which was part of our commercial network.

There are a lot of businesses in our commercial network.

Let me tell you what that means.

It's important to know this.

We run a business where basically there are lots of small brokers in England that process through business through Willis, which we call commercial network, and we charge a fee.

As the FSA in the world changes, and as it becomes more difficult to comply with FSA regulations, financial services already in England -- a lot of these companies will come up for sale, one of them is the Jeffries.

A logical place to go would be some place like Willis because we know the people, and we think that represents great opportunities for us going forward.

So, our global businesses which includes all of UK retail, there is a lot of activity, and lot of things going on.

We are very excited about what might happen in the next 12 months.

Our international business and I call it young (ph) simply because our international business is a result of many acquisitions basically over the last 10 to 15 years, and our retail distribution which is in over 80 countries in the worldwide basis takes better and better hold every quarter and I couldn't be more proud of their efforts.

Total revenue is $81 million in the third quarter.

The organic growth was 8 percent in the quarter with a modest negative rate impact on average.

That varies country by country and line by line.

That's much more difficult for me to give you a reason on that because it just varies in so many places, and we continue to have good performance in Asia and Latin America.

I will also add, while I am at it that we are very proud as part of our international division, and I give great credit to my colleagues Richard Bucknall, and Sarah Turvill who is responsible for International -- that we were the first insurance broker to receive a full license in China.

We received that a couple of weeks ago.

I went there to talk to our people.

We bought 50 percent share of Pudong Insurance Brokers.

We now have 18 branches in China.

We are very proud of that -- 16 I might add of which I can't pronounce, but nevertheless, that's a good deal.

That's not just a license in Shanghai, or a license in Beijing, that's all over.

So, for those accounts, multinational large accounts who have businesses in China, the only broker that they can do businesses with without sub-broking out from our competitors is Willis, and I am very proud of that, and puts us I think, in better position.

If you look at the number of Starbucks in Beijing or Shanghai, you get a pretty good idea of the amount of multinational companies, the same thing was with McDonald's, and it goes on and on.

There is property business to be done, there is liability business to be done and we are the only broker on a multinational basis, who can do business there.

We are very excited about our future and I would be remiss, if I did not mention my enthusiasm for that.

Now, I would like to turn the intrinsic part of this conversation over to my colleague, Tom Colraine.

Thank you Joe.

Starting with the earnings, net income for the quarter was $75 million or 45 cents per diluted share compared to $99 million or 59 cents a diluted share a year ago, including noncash compensation of performance based stock options and a related one-time tax benefit arising from that change in UK tax legislation 2003 and a net gain (on course of operation) (ph) .

Adjusted net income is 24 percent to $77 million for the quarter ended September 30, 2004 from $62 million in the same period last year.

The first 9 months of 2004, net income was $319 million or $1.89 per diluted share compared to 296 million or $1.75 per diluted share a year ago.

Adjusted net income for the 9 months was 25 percent to 333 million compared to 257 million for the nine months in 2003.

Adjusted net income per diluted share was 24 percent, 46 cents for the first quarter of 2004, was 37 cents a year ago and for the first nine months of 2004, it was 25 percent to $1.97 compared to a $1.58 last year.

Foreign exchange movements has no impact on reported earnings per share in the quarter of the last year and has contributed 1 cent to reported earnings through the 9 months.

Our current view is that for the full year 2004, administrative expense caused us 1 cent on reported earnings.

And operating expenses, general and administrative expenses grew 8 percent during the third quarter reported excluding the impact of foreign exchange acquisitions and disposals.

There was no organic expense growth.

Salaries and benefits were 56 percent of revenues for the third quarter and relatively steady at 50 percent if you look at on a trailing 12-month basis.

Adjusted operating income was 9 percent to $130 million in the third quarter of 2004, (under the status called) (ph) revenue, the adjusted operating margin was 23.1 percent, relatively steady from a year ago.

For the first nine months, adjusted operating income was 15 percent to $501 million and the adjusted operating margin was 29.7 percent during the period, up from 29 percent a year ago.

On taxes, [Inaudible] this year, the Company has provided a tax rate of 34 percent.

However, due to the actual geographic mix of our results, the full year effective tax rate in 2004 is estimated to be 33 percent.

The impact of the low effective tax rate contributed 3 cents to our earnings in the third quarter.

At September 30, 2004, total long-term debt was $450 million, varied slightly, up from $448 million a year ago.

Total stockholders' equity at the quarter end was approximately $1.3 billion.

And the capitalization ratio, long-term debt to total capital was 25 percent at the quarter end.

In addition to the stock buyback, was $85 million of dividend and $78 million through acquisition during the 9 months ended September 30, 2004.

And there is approximately $168 million of immediately available cash at September 30, 2004 giving us tremendous financial flexibility to support the cash needs of the Company going forward.

I will now turn the call back to Joe.

Thanks a lot Tom.

Now, I would like to talk about what we call part 2 of this discussion, which is the impact of the abolishing of the commitments and the contingents and our future outlook.

The impact of our decision, obviously to abolish contingent agreements, we were the first Company I believe in industry to take that step.

I think there is a big difference between suspend and abolish.

Suspend to me, I mean, trying to abolish means no question about it.

We took that action because our clients made it clear that they weren't comfortable with contingents, and as client advocates we believe in responding to our clients' concerns.

Whether this conflicts or not, there's a perception that there is, and if there is a perception that there is, we're simply not going to be in that business and I already went through that last week.

As everybody knows, since we made that decision way on in March, now others have also announced that they're abolishing contingents as well.

We go back a little bit and remind everybody what that means financially.

Now, the $80 million of volume and profit-related commissions, those are the first 2 buckets, if you remember that I made reference to.

Those are the contingents that are particularly related to volume and particularly related to profits.

There were no services that were particularly involved in those first 2 buckets other than what you would define as distribution.

Now, so far in 2004, we have already earned $50 million of the $80 million in the first 9 months of the year of that $80 million.

So, $50 million in the first 9 months of the total $80 million, which are in those first 2 buckets.

As a result, therefore, the previously announced elimination of the volume and the profit-related commissions could result in the decrease in revenue of approximately $30 million -- the balance between the $50 million and the $80 million -- on a pretax basis or 12 cents per diluted share in the fourth quarter.

So, those are the effects of the first 2 buckets.

So, if I take all of what remains in the first 2 buckets that $30 million, that's the extent of what that is.

Because the events are developing on a very fast pace basis -- they are developing rapidly -- the actual impact on 2004 could be more or less than those estimates, but I'm trying to give you a number that gives you the best direction I can give you, and that's the best direction I can give you.

Instead of saying I have no idea,

I don't know, remember you know we've talked about unwinding the other stuff outside the United States.

Of that $30 million, $8 million is in the United States that has gone.

Now, the rest of it is in the other parts of the world that's tight -- tougher to unwind.

So, there's a lot of movement in there, but I our best guess is $30 million, because I want to give you direction and do the best job I can to try to help you out.

There are many years of history in these things.

And it takes a while to unwind it.

That's why we used that word last week.

But, we're trying as far as we can to do it as quickly as we can.

So our best guess is $30 million or 12 cents a share.

We expected a jump in net income for 2004; therefore will be in the range of $2.60 to $2.65 per diluted share.

But, I got to tell you, we see new opportunities to enhance our global market share, especially with middle-market and large accounts, and we believe we'll benefit significantly from a more level playing field.

I can't stress that enough, it involves the stuff that has been alleged (ph) goes away.

Then the bidding process changes.

And when you're bidding against somebody else and the playing field is much more level, we've got a better shot at kicking up more market share than maybe we did before.

I can't tell you how excited we're about that.

I got to try real hard; most of you know me pretty well and heard me.

It's tough to furnish (ph) my enthusiasm.

And I'm trying to be as statesman-like as I possibly can, but this is an aggressive place.

We're aggressive people, we wouldn't have done as well as we have done without being aggressive in various sales originated, but a level playing field really helps us hell a lot.

And as I mentioned in China -- what a great opportunity there.

What a great opportunity to service large accounts all over the world, and the large accounts have been the domain of other people here before.

So, we say that we are not going to try aggressively to take advantage of that -- it's not something I could pass up, telling you.

The ability to pick up 1 percent market share, and we're in about 8 or 9 now, just 1 percent.

Obviously, a couple of our competitors have about 50, and if we take 1 percent of that, just one, and you can use your own calculation -- that is $220 million at our margins.

I feel pretty good about that.

I can't guarantee that we're going to pickup 1 percent, I can guarantee that the perspiration that will go on around here will be flown.

But that's a big number.

So, I feel really excited and confident about that.

But I can't quantify for you what the increases will be.

I can't guarantee that, but I can just say now what the circumstances are.

And so as a result, award decision of assessing the impact of that decision to (Wall Street, since it effect) (ph) is rapid.

We don't know.

So because we don't know, I can't give you any long-term guidance as relates to 2005.

I can only go through a couple of things for you, and you can decide for yourselves.

People say to me, `Joe, what's going to happen with commissions?` I don't know what's going to happen with commissions, I don't know what the reactions of insurance companies will be.

But I can assure you that I wanted to be paid fairly.

We are going do every thing we possibly can to get paid fairly.

So, when you put that in the mix, I can give you an example, in North America alone we placed about $7 billion -- almost $8 billion of premium, and if we picked up half a point commission increase on $0.5 billion, that's $35 million.

That happens to be $40 million, that happens to be well known with the contingence for North America last year.

Well, will we be able to do that? -- I don't know, but we should be paid for it or I'll leave it up to you to decide whether we'll do that or not.

I don't need to tell you about the expense discipline here.

We do that all the time, we don't do that because there is an issue or because there is a crisis.

I have been talking about that on these costs forever.

I don't think there is anybody who is in the better position to try to offset whatever issues there may be with regard to our income being hampered, our revenue being hampered because of the abolishment of contingence.

So if we can get some relief from expenses, you can be rest assured, we'll take full advantage of that, but I can't give you a number, you just have to decide for yourselves.

The market share, I already went through with you.

I feel pretty confident we can pickup 1 percent, but I can't guarantee it.

By the way, that 1 percent may not be picked up next year.

We may pick up 2 over 2 years.

That's $0.5 billion in increased revenue.

And if that happen, our market share worldwide will only still be 10 or 11 percent.

But, I think, we have a good shot of that.

Yes, I do -- but I can't guarantee that.

Our recruits -- well.

Yes, I can tell you, we're going to recruit.

And we're going to recruit pretty aggressively.

It is no secret that if people want to change their hats from one with M to one with W, we will try to have them.

There's no question.

We'd love to do that.

I can't guarantee though, how many that will be.

But I can tell you that we run numbers all the time.

If we were to recruit a 100 people a quarter, and we use the same statistics of the people that we have recruited over the past several years, and they perform the same way and generate the same amount of revenue and the same amount of bottom line -- well, that would mean, just to give an example, that would be 400 people a year.

Next year that would mean $60 million of additional revenue.

A 120 million in 2006 and a 160 million in 2007.

It would be much accretive were it diluted next year.

But in 2006 it'd be 9 cents accretive and it'd 25 cents accretive in 2007.

Now if we have a 200 people every quarter or 800 people a year, the numbers would be doubled so forth and so on.

I can't guarantee we are going to do that but I'll tell you we are going to try.

So, I don't know it is tough for me to give you, may be give you a number.

You saw what we are doing in acquisitions; we've done 130 million, which you'll see manifested next year.

I'd tell you that our pipeline of acquisitions has the leased out amount in it.

Should I guarantee that they are going to close, I cannot do that.

But I feel pretty comfortable that now we are getting pretty good at it, our integration teams are in place, our people are very excited.

So that's an arrow -- another arrow in the quarter where then there we had never available reserves in the past.

And of course the buyback that we've begun the process of doing also represents another option for us in the future.

So, we don't want to use the 2005 to determine where it is, you think we can do.

I just don't want to get in again with the business of trying to take all of that and put some sort guidance to it.

We are still very good about it.

We believe our position as client advocates, Willis is well positioned to make gains.

We've taken a number of steps to build on that leadership position.

By the way, client advocacy is not something along with other things that we've done or not moves that have been made during the time of crisis, these things we've always done.

Client advocacy, the ability to be able to understand and listen to our clients we've done for the last 3 years.

We've had client advisory counsels for the last 3 years, where people and clients are focused.

These are things that are new because it sounds fashionable to do those things.

When we did the abolishment of the contingency payments from carriers not only was that first but I thought that it was also an indication of how a large company can be nimble.

We try ourselves on our ability to be nimble, while being large at the same time.

When we introduced the Client Bill of Rights detailing our obligations to clients and how to communicate, how we are compensated and how we disclosed compensation, we established the call-in hotline for clients unless we did a call, with 750 clients on a worldwide basis.

We already setup an 800 number to ask clients to tell us whether we are not or delivering on the promises that we made in the Bill of Rights, they even have my phone number, they have my Email address, there isn't anybody who know they can call here.

This Company is -- we strive very hard to make it feel very small by having all the resources of the global company.

I think if anybody wrote down what they would like to have that's what they like to have.

They like to have a company that feels small, charmy, that have all the guns.

That's what this place is, and we think that is going to bode very well for us in the future but that's not something we made up in the last week.

That's what we've always done and that's why we've been able to gain market share that we have.

We are expanding that client advocacy program a great deal over the course of the next year, the same already has been in place.

One of the things that we are strengthening and monitoring is our existing

Willis Excellence Model let me say what that is.

Willis Excellence Model is something we put in place 3 years ago.

All of the orders around the world that are done are done against the Willis Excellence Model, that model is to ensure that our placement process is accurate and is done professionally and in the best interest of the client.

That's been in place for 3 years.

All of our orders are audited against it.

So when I said in the last week we don't do bid rigging and we don't do time, I just had to make that up because people said that we don't do that our audits, we have shown that because our audits specifically look for that.

They look to see if the placement is done correctly.

A second set of eye signs of on all of those places.

Somebody got the eye and frozen the fees.

So that being in place, that hasn't been in place because something happened and we made it up.

And is important that you know that and everybody in a worldwide basis knows what that it is.

And is very familiar with [Inaudible] .

So, as a matter of fact, when we put it in we -- our competitors recruited against this because it takes a lot of work to do that they said, you know, you can come over here.

You don't have to do that kind of stuff.

Well we do that here.

This is a disciplined place.

Now it is become fashionable.

So, any evidence and we have a hotline, a complaint hotline, where any representations of inappropriate market contact behavior of Willis associates, I am sure personnel or any other director in direct involvement will well as client is notified.

These standards are monitored and then forced by Willis compliance and our whole audit mechanism is done.

And I might add that when those audits are finally done, the person who -- the committee that meets to look at those audits internally is chaired by me.

It is not a Company that's got lots of layers.

And if you have a problem, and if you don't fix it, the part that is not fun, is you got to tell me why you didn't fix it.

Lets not talk what we did last week or I putting in because it sounds like it's nice now.

We have been doing after 3 years.

I know people don't like that, but you know what, we don't have any delinquencies.

It is funny what happens when you got to do that stuff, there are no delinquencies and we are proud of that.

Now what we are going to do is regard to the Bill of Rights, is to make sure that we are here to it.

That this full disclosure and transparency and all those things that we have laid out, and we are going to get a third party independent organization to monitor it, to make sure we are doing everything that everybody says we are going to do.

So, I think this is our time, I really do.

I think that from a Company point of view there are times when companies merge, when the way you finally do business your model emerges, because your model and the time and atmosphere and the environment merge.

Our model and our environment are merging.

And I think that you will find a whole slew of people that will say, you know it's time to do business with small people because we don't do that kind of stuff, and those big people do that kind of stuff.

Well I have to tell you if you do business with small people they don't have the resources.

And if you do business with the Willis, we think we are small.

We are small in the sense, that we are nimble, we are very flat, but very a organized group of people who work as team.

That's we wear these one slide pins.

And this whole global approach, which is local representation by using global resources to fix your problems is not a new slogan, you heard me use that for 3 or 4 years.

So, I actually really believe, I truly believe that this is our time, our model's already in place, the expenses, the discipline, the win, all of the kinds of things we can do.

So, when you look at whether or not our expense discipline our market share ability, or recruiting, the commission ability, the acquisitions, the buybacks, and all those things we put in place over the last several years, we are finally come to roost.

I can't make any guarantees, but I can tell you that we going to try a little hard to make sure that they do, and that this the best guidance I can give you.

I would love to answer any questions that you have.

(OPERATOR INSTRUCTIONS) Andy Dinhaupt, Excess (ph) .

Two questions, the first one is, I guess, you are assuming 100 percent margin on the contingent commissions?

Yes.

And the secondly, is the industry working with --?

Just wanted to say, Andy if I may, I am assuming it because I can't quantify, and so you have the voids.

So, I am assuming the whole thing.

And then is the industry working with Spitzer in the states to make sure that the changes that you are making are sufficient for -- to meet whatever their agenda is?

Well, I can't tell you that because I haven't had those discussions with him.

What I can tell you, if I look at Marsh -- and what I read in the paper and they are doing.

Which I guess they are doing under the auspices, I don't know, of Spitzer.

And I look at what we have done and are doing, which is that and more, I have to believe that is more than sufficient but I can't say for sure anything.

Ron Frank, Smith Barney.

A few things if I could, one is, real growth in the quarter excluding the rate impact was 6 percent, its was running at 9 percent previously.

I know this is a small quarter for you but if you could give us some color on that.

Second and related, the rate impact was actually less than in the second quarter, which means you assumingly are neutralizing all the incremental rate hits here from as we go along and I am wondering if you could give us some detail on you are accomplishing that?

And finally, another thing that Marsh is doing here is to unbundle, they are going to give their clients a detailed accounting of where the commissions are, what buckets they are in?

And I am just wondering if you do a similar unbundling, which I imagine is possible.

How confident are you that your rates are competitive?

Well, I am going the answer the first one.

The last question first, I mean our rates are very competitive.

I mean, I think you will see that that when all this stuff winds down and there level playing field that our rates are going to be more than competitive and we are looking forward to that.

Yes, and we have given full disclosure, full transparency.

They can look at any bucket they want.

I said you about the deadline and I shouldn't believe this.

I think that this business and I have preached this well before anybody or this discussion of contingent thereafter came up.

And are more in record, the various speeches that I gave at Lloyds and I have given all over the world, that the [Inaudible] you've got to get your profit model straight and you have to be able to provide value.

If you don't provide value then it doesn't matter because price will also be an issue in the absence of that value.

And client advocacy in all those veins that we do provide great value.

As it relates to your question, having to do with the new business for the quarter.

Yes, the third quarter is not one of our great quarters.

We also found that there was an overhead amount of business that might have come to us in the quarter that may appear in the fourth quarter.

And so we saw a little bit more of that than we normally do.

But it doesn't really concern me too much, we are still being very aggressive with regard to what we are doing.

As you can see relative to others that we still reported so far, not that I care about that, but I think that tells you some of our relative basis.

And as it relates to -- on an impact basis, the 2 to 3 -- I think that's probably the result of being very good at getting greater commissions.

We still do a good job at that.

So, the impact is much less not to us, because of our ability to be able to do that, Ron, which I think goes well when I said it in the future.

If you think we can pick up a half a percent in commission increases, I think we can.

So I think if you put all of that together, all in all if -- it was 15 percent growth in revenue, I would tell you, I think we can do better.

But I think all in all, given what's going on in the world and -- also when you've got soft market, our people are trying very, very, hard to get the best ways they possibly can that preoccupies in this world.

I think you put all of that mixed, but I think 4 percent is pretty good against all the backlog, various things going on?

Joe, how does that conversation with the client go?

Because I would think that in a softening market they will be pretty reluctant to give some of the savings back to you guys.

What's the pitch?

The pitch is not with the client.

The commission is with the insurance company.

Braun Bobman (ph) , Capital Returns.

Couple of quick questions.

I wanted to make sure [Inaudible] that is my understanding, does Willis Reinsurance division receive any cost contingent commissions or anything of that ilk from the reinsures?

No.

The next question I had, do you anticipate having to return any of previously received contingence commissions to the careers as a result of sort of push back from your clients in awake of the investigation and what's going on?

Do you say will I have to?

Yes, do you anticipate?

No, I don't.

I assume you have been with the earnings coming out this morning, sort of out of the stock buyback market by virtue of that, is that correct of late, I am talking about the last couple of weeks?

Yes, that's --

Standard practice right?

Yes, it's not legal.

And the last question I had was the contingence commissions and if you look at the script definition of the primary 80 million that you have highlighted is -- is that going away basically?

How concentrated is that by carriers?

Is the largest carrier or the top 3 carriers representing a meaningful percentage of that 80 million?

No.

Could you -- can you tell us how large the largest carrier makes up of the 80 million?

Sure.

Approximately?

In North America, to give it you in North America, okay.

The largest carrier in North America made up about 5 percent.

Five percent of the total 80 or 5 percent of the North America, which is a subsidiary?

North America.

My point being and it's very difficult to give it to you on a global basis.

But if you look at it and the reason I mentioned that is because of this whole issue of conflict that obviously -- we are not getting -- I don't think great deal and that's 5 percent of the premium not revenue, okay.

That -- and you don't see that a large percentage or your business is going in one place just because of what we are getting back in contingence.

Okay, because you are [Inaudible] , could you simplify for me this thing, 5 percent of the premium, so this is -- if you could look at it in another way, what portion of the 80 million, I forgot, was North America?

Thirty five million.

Thirty five million, okay and so of the 35 million how much came from the largest carrier or and -- what would you bring that the maximum amount?

Less than 5 percent.

So less than a million in 3 quarters?

Right.

John [Inaudible] Capital.

I think I had two questions.

First I wanted to gage your comfort level which would [Inaudible] with research analysis accounting -- the third quarter buckets seen on your press release in the last week?

Yes.

And then secondly, I wanted to ask whether these type of administrative credit contingencies were common in the industry or is there something that were more unique to Willis?

I can't hear your second question.

Yes, I wanted to know whether the third and fourth buckets, those types of contingencies, if that was something that was unique to Willis or if that was something that was pretty common throughout the industry?

Okay and then your first question is, how much equilateral the third and fourth buckets we can keep?

Yes, how were your comfort level?

It sounds like you think you are going to keep 100 percent of those?

As I said last week, that there are real fees in services that we provide to insurers for that.

The reason I mentioned almost contingence is because of logarithm in the third bucket, remember I said that they are volume related although they are real services.

Actually -- they are actually not billed correctly.

It should be for fee on a menu-by-menu basis, which is what we will do.

I got to believe that most of it, if not all of that is retainable because if we don't do it, they got to do it, and they know how to do that.

So as a result, I'm assuming that we will be able to retain it.

In the fourth bucket there is very little volume in there, but again the interest of full disclosure I put that in there.

So in the last two buckets are 80 million.

Those are real fees and services.

They have to do it all the things that I'd outlined in my call last week.

So because they don't do it, and we do it I got to assume that we'll be retained, but we have had those discussions yet, and I can't tell you that on a guaranteed basis.

If that is the case, I feel pretty good about it, but I can't make any guarantees.

Do you think it's pretty common throughout the industry to have this type of fees?

Yes.

So you think your competitors also had that type of fees -- they were admin related?

Yes.

I mean call somebody else and ask them where their buckets are, but I --

Nick Pirsos, Sandler O' Neil.

Good morning.

First, I missed the international revenue and organic numbers.

Joe could you repeat those?

The international number was 8 percent.

And the revenues?

$81 million.

84?

81.

81.

Thank you.

Second just with regard to investment income.

I was curious -- it was up $2 million from the second quarter, and obviously you did a lot in the way of buyback.

So, I was just wondering was there any accrual adjustment or timing adjustment, or is that type of run rate we should be looking at on a quarterly basis?

And it's kind -- the balances we hold do fluctuate on a seasonal basis, and we can get some fluctuation.

Okay and just lastly.

It seems like a lifetime ago and I know it's already off your radar screen, but Phase II of the trade center lawsuit has started.

Is it still off your radar screen, Joe?

No not on my radar screen.

The last -- no I don't have problems you bringing it up.

Nobody dared to do that in a long time.

The last time we talked about this I told you that our auditors allowed for us to remove it from our documents our public documents because they didn't think it was an issue.

I don't know what to tell you, as I don't think this trial makes any difference one way or the other.

So it's not on our radar screen, and we're in the same position we're in before.

Chris Winans, Lehman Brothers.

Just forgive me if you have already answered this question.

But on a contingence that are going away what is the seasonality of that in other words is the fourth quarter number -- obviously fourth quarter number is not a run rate.

How does it go from quarter-to-quarter?

There is no seasonality to the number because we can just take a number we think should be collected in the quarter and do at that request.

It's just there is no seasonality to it.

So you expect it to be the same amount each quarter.

No, I don't expect it to be the same each quarter, but that's what remains this quarter.

And I gave you the totality of that.

I threw everything in there.

David Sheusi, J.P. Morgan.

Good morning everyone.

Actually a couple of questions here.

First on the capital management side, is this recent, I guess emergence of the new model changed near term capital initiatives with the buyback or even M&A?

David, we are getting a bit of a broken line.

Did you ask, if our capital -- as our use of capital priority might change in the near term?

That's right.

No I think we have sufficient capital.

If your question has to do with our ability to be able to do all the things that we're talking about, I think we're in pretty good shape to be able to do that.

Is that what your question was -- because it came over garbled.

I'm sorry.

No that's fine.

I guess year-to-date we've been pretty aggressive on the share buyback side and I was -- with the

We have but and we've been doing that and I think we're continuing to do that, but what happened was the world changed.

And as a whole bunch of opportunities could open up to us that it is like you're a kid in a candy store.

And I don't mean that in any other way other than this fact that now you got buyback opportunities, you got acquisition opportunities, you got opportunities to recruit some people, you got opportunities to do a lot of things that required money.

So, I got to believe that we are going to take the best possible use of what we think that money is to get the best possible returns to our investors over the short and long term, whatever that means, I mean -- I think that our model as I said before, you know, our time has come.

If you look to see, this has been a very disciplined model.

This has been a model that has been much more restricted than other people.

I told you we get recruited again.

All of these other companies are going to get restricted like we've been.

Frankly, one of my pitches is going to be why those -- phase that's going to go through, everything this phase has already gone through.

Once you just come here, we've already done that, the model is in place and our people are quite happy about it.

So, I think there is [Inaudible] uses of money now that we have to now deliberate in terms of what we do about it, we don't think it's a great problem.

I agree and I guess your priorities in the near-term, how do you rank them?

Well, I can't -- it's hard for me to do.

I could just lay out what the options are.

Let me give you an example.

If somebody says to me tomorrow, I am making this up, I truly am making this up, that there is a whole bunch of people who would like to join us from some place, a lot of them, and they are good people, and they really want to work at Willis, if I had my choice given that's hypothetical, I'd probably hire the people.

I told you what the numbers mean over the long term, so that's a dynamic that we live within today, it's just a wonderful, wonderful thing.

There is whole bunch of companies out there that don't want to go through the process of redesign, the process of going through restrictive environment, that won't want to go through this and that, and then my callers say, `Joe, we'd love to talk to you` and there is a $100 million company or $50 million, I don't know.

I just know that there is a whole wide world out there of great opportunities for us and we are going to do the best we can for our shareholders.

And just shifting directions on the China opportunity, could you explore a little bit in terms of the barriers to entry.

What does it take to get license?

How long you have been working on that, and what's the opportunity?

How long we've been working in the China line?

The China license, we have been working on since 1948.

I am not -- I am serious, I mean, not really in my college, I mean since the revolution [Inaudible] lots of great things about our Company, that pleasant people, and our forefathers worked in there for a long time.

I mean one of the reasons we got the license is because of great ties that we have in China.

You can't underestimate this.

I mean that's why I came to this place, Place of Sleeping Giants.

I'll take a collogue by the name of Michael Staffer, who has been hanging out in China, he has probably spent more time in Beijing than in London, I mean it.

And obviously from the Saber (ph) family from one of those -- the founding fathers of the Company, the barriers to entry are enormous.

And so I am not kidding when I say 1948, they have, but because we stuck with it and we went out there, God knows my collogues that I mentioned visited a lot, I went out there three times and it gets done which you get done.

I truly believe that's our time, I am trying to contain myself, but it is really terrific what we are doing.

Thank you, and this concludes today's question and answer portion.

Thank you very much everybody, have a good day.