Willis Towers Watson PLC (WTW) 2005 Q1 法說會逐字稿

Good morning, and welcome to the Willis First Quarter 2005 Earnings Release Conference Call.

At this time all participants are in a listen-only mode.

After the presentation, we will conduct a question and answer session.

To ask a question, please press "star" "one."

Today's conference is being recorded.

If you have any objections, you may disconnect at this time.

I would like to turn the call over to Ms. Kerry Calaiaro.

Ma'am, you may begin.

Thank you, and good morning.

And welcome to our earnings conference call and webcast at "willis.com" for the first quarter of 2005.

Our call today is hosted by Joe Plumeri, Willis Group Holdings Chairman and CEO.

A replay of the call will be available through May 12th by calling 800-294-3086 in the US, or 402-220-9766 international, or by accessing the website.

If you have any questions after the call, my direct line is 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 material from historical results or those anticipated.

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

Due to the adoption of Reg-G, where we use non-GAAP financial measures, we have included reconciliations to the most directly comparable GAAP measures as a supplement to our earnings release, which also could be found on our website.

I'd now like to turn the call over to Joe Plumeri.

Thank you, and good morning everybody.

As usual, joining me today is Tom Colraine, our Co-COO and Chief Financial Officer;

Richard Bucknall, our Co-COO; and Mario Vitale, CEO of North America; and for that matter our entire leadership team is here to answer any questions that you may have.

I guess the prelude in my quest with regards to this quarter, and I tried to find a better word than transition because transition is a word that everybody uses.

I think more appropriately the word that comes to my mind is a metamorphosis, because this quarter was a break from the old and an introduction to the new.

We've gone from one world to another world, and what you see in our earnings is the shedding of all of the bad things with very few of the good things that you'll see going forward in the quarter.

And even after you look at all of those things that this metamorphosis goes on, on an adjusted basis, you still see a 30% margin, and on an unadjusted basis, you still see a 14% margin, and judging from what I've seen over the last couple of days, it's better than most people and that is stripped bare.

So when we look at the future of our company, which is a model, which is much more enduring than the last one, without contingents, where we are showing value, we're growing our market share, where we are getting new clients everyday, and we're having more people join us, that model, we believe, is much more enduring, much more value-oriented.

And so what you're seeing in the quarter is an idea of what will come in the future, which is a company that, without contingents in an area of transparency, that begins to reset itself at very, very high margins.

And we go from there.

So I think you should look at the quarter that way, and as we progress in this call, we'll have that story unfold for you.

On April 8th, 2005, you all know that we announced agreements with the Attorney General of New York and the Attorney General of Minnesota to resolve issues raised by the industry-wide investigation into contingent commissions.

The company agreed to establish reimbursement funds totaling 51 million, and also recorded 9 million in legal and administrative expenses in relation to the settlements; that's 36 million or 21 cents a share after-tax.

We also continue to review its expense -- our expenses, based in light of an evolving business model for the insurance brokerage industry as part of this metamorphosis.

As of March 31st, 2005, over 500 positions were identified and are being eliminated.

Our severance charge and related expenses was recorded in the amount of $21 million; that's 19 million or 11 cents a share after-tax.

The annualized savings from this reduction is approximately $50 million and should be achieved by the yearend; that is to say that the run rate of savings of $50 million will be effected probably in the fourth quarter of this year.

So you will see a run rate of savings of 50 million by the fourth quarter.

Based on the quarter end review of current legal proceedings, we increased our provision for claims by an additional 20 million, or 14 million or 8 cents per diluted share after-tax.

So that gives you an idea of the range of the charge-offs and what that was all about.

The total volume in profit based contingent commissions related to 2004 arrangements outside the US totaled $3 million in the quarter, and it compares with 21 million a year ago.

So we have gone from 21 million a year ago contingent, that's down to 3.

So when I say stripped bare, that's pretty stripped bare.

The decline in volume and profit contingent commissions reduced organic revenue growth by 3%, and operating margin by 2%.

So you can see the effects that that had on our business.

We also collected a little in the way of other market remuneration what we call buckets 3 and 4, as you all know.

This is something that we can talk about as the call continues.

These are the fees for services that we put under buckets 3 and 4, that frankly, haven't manifested themselves yet.

We thought that they would by now, they haven't, but as the year goes on, we should get greater clarification with regard to those buckets.

But appreciate that a year ago we got $22 million from those buckets; this year in the same quarter we get $3 million.

So when I say, again, stripped bare, it's stripped bare.

We continue to work well with the insurance markets to restructure the existing relationships that we anticipate recovering a portion of these fees overtime.

But that should happen as the year goes through, but they haven't happened yet.

The decline in this income reduced organic growth by 3% and operating margin by 2%.

So, those two moves in regard to buckets 1 and 2 and 3 and 4, or buckets 1 through 4, showed the effect of 4% margin decline in our business.

From a financial point of view, the net income for the quarter ended March 31st, 2005, after regulatory settlements, severance charges and other provisions was 72 million or 43 cents per diluted share, compared with 148 million or 87 cents per diluted share a year ago.

Reported revenues for the quarter increased 1% to 669 million.

Organic revenue growth, excluding volume and profit-based contingent commissions and other market remuneration, was 2% for the first quarter, comprised approximately of 4% in net new business and 2% impact from decline in insurance premium rates.

Now I think that's incredible growth in spite of the continued decline in insurance premium rates for us on most lines of business.

And you add to that pretty challenging market conditions.

For example, our people have had to go through the challenge for the first time in their lives of explaining transparency.

That takes a long time, that's something that's new to our people.

They've gone through training.

But again, all of this is reflected in the quarter.

It just gets better from here.

Conversations that used to take "x" minutes take "x" plus-plus minutes.

And it is a transition that you are going through.

That's why I said that the quarter at most is embedded in it, and if you strip it bare you'll still see very good margins, which we see in our business.

Then it just gets better from there as the world progresses and our business progresses.

I will talk about each business units in a couple of minutes, but I want to give you a sense of what went on with the recruiting during the quarter, because there's a lot of talk about the recruits and the number of people that we've added on.

We continue to do that because we think again that we have an opportunity to do that.

We're building this business for, as I said, an enduring, long-term, great business.

We want to be number one.

But understand that is the producers that we're adding, the people that we're adding, or client basing and producers that generate business.

But, I will also say; you could hear me say this every quarter; that we keep very close tabs on the percentage run rate of the new people we are hiring.

It has always been in the 5 to 6% range, and continues to be in the 5% range, so none of that is changed.

Secondly, I want to add that as we add producers, we are eliminating nonperforming people at the same time, which was all part of this offset.

We don't indiscriminately just hire people.

We make sure they're productive and accretive as soon as possible.

One of the issues here is, when do you start seeing productivity?

This is not a business where they join you on Monday and Tuesday, you start seeing production; the business doesn't work that way.

You have to wait for renewals to take place, and you've got to go through the entire process.

This could be six months, it could be nine months, it could be a year, but understand that most of the recruits that we found; and I'll elaborate on this later, that have joined us in the last four or five months, have really not manifested themselves productively yet, but understand that the recruiting is not indiscriminate, and we're always looking offset against what we're hiring.

And I want to give you a sense of that because they have a lot to do with the financial results for the quarter.

I think we've also strengthened a number of places around the world by virtue of our recruiting and our ability to be able to generate more new business.

As I said, 4% net new business in this time of uncertainty, transparency and rates going down, I think, is an incredible performance given the state of flux, if you will, in our business.

There are two drivers, I think, that you have to look for in our business, which is our recruiting efforts, which as I said before I don't think it manifested itself yet, and going forward where our commission protocols and fee protocols will find us based upon the value we get.

What we will be about is going forward is our ability to drive top line.

We think we're pretty good at our expenses.

We work very closely together.

We think we control our expenses really well.

Everything depends upon our growth of the top line.

Growth of the top line that means we have grown our market share, we've grown the market share we're bringing you more clients because we provide value.

That is an enduring, good model that we have in place as you know.

We have for a number of years had our client advocacy model, our global model, in place, global resources deliver locally our expense (ph) that's always been put in place and I think if anything that model has come of age rather than not having to go find a new model because the world has changed.

So we have already been through all of that.

We have already been through all of the process redesign and all of that stuff to get our numbers more efficient.

So we've done that and we are very poised, to grow our top line, which in the quarter has really not manifested itself yet.

The recruits haven't manifested themselves.

The protocols haven't manifested themselves and yet we grew our new business 4%.

So we look at that as a very positive thing going forward.

Let me bring you up to date on some of the areas of our business and operations and Tom will give you some order numbers.

The total revenues were 145 million the first quarter.

Organic revenue growth and commissions in peak was 3%.

Net new business was sequentially higher in the first quarter, which outpaced the legacy's negative rate impact and retention rates in North America rising very, very nice.

You saw a survey recently by the CIAB, which basically said average rates declined over 9% the first quarter but the most significant rate decreases in commercial property, general liability and executive risk.

I tell you we agree with that in some cases.

In large accounts, there've been actually 10% or more.

But that is directionally something that we agree with and think it's correct.

We continue to recruit steadily but as I said not indiscriminately and we have added a great deal of depth geographically in are growing practices.

Almost cross the board, we think we have added better people to our business, which on an ongoing basis, we think, will manifest itself.

As far as clients wins is concerned, we always signed to really recover, I'm not going to get into how many clients we won and names and all that sort of stuff, but we are very encouraged.

Again our driver, our metrics, our evaluation, our standards is growing market share.

We grow market share, top line will grow our business will grow because we think we're pretty good at bringing back to the bottom line.

But it is very encouraging in terms of the client wins and again that should manifest itself throughout the rest of 2005 and 2006.

Our key volume remains elevated.

It's still running at about three times the pace of a year ago and we're seeing increasing evidence of companies changing brokers and also redistributing the brokerage.

I know there is a lot written about people not changing brokers and all those kind of stuff, but I can tell you we've got three times the RFP's out there and they are changing brokers.

They are not changing total lines but if you are looking at it from the point of view of a line here or line there or things that we never had access to before, we are seeing great examples of that.

For example, 70% of the RFP's that we have seen have changed the client has changed one line at least of broker for one line.

And of those 70 RFP's we have won approximately 90% of those 70 that I just made reference to, which means 63% of the time we are engaged in an RFP we have won at least one line of business by virtue of that, which we think is a great number and we track this stuff very diligently because again as I say the future of Willis is growing the top line and growing our market share.

We competed -- completed two acquisitions in the first quarter which extended our benefit practice.

They were not big acquisitions.

One in California called primary, the other one CGI in Philadelphia.

But we are continuing to do things like that to reinforce our business along the way.

Our global businesses, which as you know are our most seasoned businesses, I think, continue to perform in this environment extremely, well.

Total revenues were 375 million in the first quarter organic revenue growth and brokerage fees was zero.

The environment is very competitive.

When I say zero, I think it is a performance obviously that we want to see improve but again with the world the way it is I think that our people in our global businesses in London have gone a great job.

The environment is very competitive.

We have seen significant declines in rates in aerospace, wide property accounts.

UK retail, just to give you a little bit of an example.

With transparency has come some anticipated pressure on brokerage levels although, manageable the client response has been really favorable.

Our people are out there.

And what we find which is very interesting is in this world of transparency which I think you will find again I'm a big believer, if you tell people everything and you provide real value you have got to try real hard to provide that value because now everybody knows and properly so what you are doing, I think everybody's game is raisee and as a overtime you have a better company and you provide better value for your clients and we are actually seeing that and people are telling us those stories as I get around and I see our clients, they tell me that.

So this is just the beginning of what we anticipate to be a great growth period for us.

We see growth opportunities in our global businesses, financial lines, expanding aerospace, expertise in the airports and airplane manufacturers, servicing multinational accounts from expanding large account practice in Europe and North America.

So the more you expand North America's business the more it manifests itself by virtue of servicing those accounts throughout the world.

Also in the UK we added CR King to our UK retail presence and a fully integrated our other UK acquisitions last year.

And, as you know, a couple of weeks ago earlier this month we completed the sale of Stewart Smith, a wholesale operation which had reported to our global operation and we are very, very happy about that because again it continues to define what we are as a business going forward, which is the conduct of our retail business, growing retail accounts and providing value to them.

Our international operation continues to do well.

The total revenues were 149 million in the first quarter.

Organic revenue growth and brokerage and fees was 3%.

The rate environment continues to soften there as well but we're seeing very good performance in many areas around the world including Latin America, Iberia, Italy, Asia, especially Singapore and Korea and we completed a very small acquisition in Taiwan during the quarter.

Now let me turn this over to Tom who will get into the rest of the numbers.

Tom?

Thank you, Joe.

As usual, ladies and gentlemen, I will not go through every line item in the income statement but take out some of the high spots.

Net income for the quarter was $72 million compared to $148 million for the first quarter in 2004.

Net income for diluted share was 43 cents compared to 94 cents a year ago.

Foreign exchange improvements contributed positive 2 cents for the (inaudible) per share in the quarter over last year.

G&A expense was $511 million a quarter up from $419 million a year ago.

As Joe mentioned G&A including severance expense was $28 million, additional quake provisions of $20 million.

And legal and administrative expenses related to the regulatory assessment with New York and Minnesota of $9 million making a total of $57 million.

On an underline basis (inaudible) expense growth is 2% and what we've had mainly continues to maintain a strict expense such that companies and non-people expenses were actually down on last year.

Excluding severance salary and benefits were 53% of revenues for first quarter and 53% on a 12-month basis.

Most of the increase comes from the elimination of volume and profit commissions and recent hiring.

It may rise a bit over the next few quarters with increased state of hiring and lost contingent revenues but we expect that to trend back value over time as we grow and replace revenues.

On operating income on the margin we have put a detailed table in the release that sets out our views of adjusted operating income and margins.

Adjusted operating income fell 14% to 202 million in the first quarter of 2005 and as percent of total revenues the adjusted operating margin was 30.2% in the quarter starting from 35.5% a year ago.

About 2% of the decline came from the elimination of volume profit based contingents, 2% from the decline in other market remuneration, with the balance attributable to incremental hiring.

Increased pensions expenses cost about 1% but that was pretty much balanced by savings elsewhere.

Going to the capitalization, and liquidity of the company at the quarter end total long-term debt was $450 million up 50% from $300 million at the same time last year as we were in the process of paying off the then debt and putting the new credit facilities in place.

Following the announcement of the settlement with New York and Minnesota (inaudible) of CreditWatch and Moody's improved outlook to stable.

Total stockholders' equity at quarter-end was approximately $1.5 billion.

The ratio of total long-term debt to stockholders' equity was 23% at quarter-end.

The Board of Directors has approved a new buyback program for $300 million, this replaces the previous program under which $339 million of stock was purchased.

In a quarter $21 million for dividends and $13 million for acquisitions and there was approximately $113 million of immediately available cash at March 31, 2005, continued to provide significant financial flexibility to support the cash needs of the Company.

Cash is down from the fourth quarter-end following the reclassification of some $200 million to fiduciary fund under the new United Kingdom, FSA accounting rules as disclosed in our regulatory settlements last year.

There are timing differences there and it still takes two years impact to reduce to $134 million.

I'd now turn the call back to Joe.

I just wanted to -- I just wanted to conclude by giving you some comments and some thoughts to give you a perspective on how we all feel here at Willis.

So I think you through this metamorphosis that I mentioned of how you come out the other end.

We think we come out the other end in the leadership position in our industry.

We have a lot of people talking to us.

We have lot of clients talking to us and we think that these are all very, very big positives that will manifest themselves and will show great strength over the time ahead.

We are recruiting a lot of good people.

There are a lot of good people who want to join us.

And the opportunities that we have in the new account area and opportunities that we have to grow around the world, are bigger than we've ever seen before and this is all very important because, as I said, growing the top-line is very, very important to us.

We've always had the ability and I think you see it in the numbers -- for us to control our expenses, which we're doing very flexible.

We can use as we see the year goes on, how we're able to adjust our expenses against the revenue growth that we have.

So we have already done that.

All of these kinds of things that we put in place over the last four years -- they put us in a very good position now to be able to run our business in the new world of brokerage insurance.

Our model, which is a fine advocate model are already in great place.

We don't have to go out and say, what is our model, what is our vision, what are we going to do?

Everybody understands the one-flag philosophy, everybody understands what value is about.

We have been preaching that four or five years.

So we don't need somebody to come in and kind of, give us instruction about how to do that.

We've already do that.

We don't have to change the model.

Everybody at Willis around the world knows what the drill is.

So, we don't have to do that.

I think that puts us in good stead and we're not distracted by having to go and figure it out.

We don't have to go through a restructuring of our company.

We don't have to go through a process of redesign so a candidate is distracting the Company.

We already did that part.

The manifestation of that is that we stripped the Company bare and you have got adjusted margins of 30% and as I said, unadjusted with charge off, at 14 which seems to be better than everybody else without that stuff.

There's no need to do anything but to continue to do what we're doing.

We have a very good business.

This business going forward is to take business from the other people and that's exactly what we are going to do.

And I don't think we're distracted in any way by having to do some of the things that we think others are going to have to do.

When you look back and you say to yourself on an ongoing basis really, what is this business because I know you are going to ask me that question.

I think, this business stripped bare over the course of a year, I'd answer here, you know, this is a mid 20's margin business and we go from there.

So, it's mid 20's are better and we go from there and that's the reset number in our business and then it grows.

And if you put it on top of that the results of the recruits, which I told you, we haven't had the results of our commission protocols, which haven't really manifested those fully yet, what's going to happen with buckets 3 and 4?

You throw that on top of what I said is the bare number.

And the excitement that we have for that business model, I think, again, shows this itself in our excitement over -- and our readiness to buy back $300 million of our stock, which was approved by our board yesterday.

So, the future of this company, I guess is a great future.

This is a start-up and we start with at mid 20's or better, that's a great start.

Without all the props, our people won't understand what they need to do.

We are very, very excited about the business and the reason that we have those margins without the contingents in them and all the other kinds of things that have always been part of this business, which I think maybe, is finding growth in a lot of cases is because I think we've done good business over these years.

And I think the greatest example of that is when our margins are as they lay and that's a very great exciting proposition.

The future for us is, as I said before, is growing market share and top-line growth and our company is primed to do that.

Obviously, I'll answer as many questions as you want.

I'm not going to cut this off at any time.

I'll stay with this for as long as you've got questions.

So, I have got plenty of coffee here and the bananas are around the corner.

Fire away.

At this time if you would like to ask a question, please press "star" "one."

You will be prompted to record your name.

To withdraw your question, please press "star" "two."

Once again to ask a question, please press "star" "one."

One moment, please.

Our first question is from Charles Gates, CSFB.

You may ask your question.

Hi.

Good morning.

Hi, Charlie.

How are you doing?

I had thought from the conference call that occurred back in October, is that buckets three and four, which were laid out in your...

Right.

...memo at that time would be continuing.

Right.

What happened there?

That's my first question.

Back in October, we truly believed, Charlie, it's a valid question, that three and four were real services that we provide to the London market.

You know, we pay claims and the issue policies and those are real business services that we provide.

And we truly believe that as the world changed, that we would get compensated for those services and we'd be able to work something out.

As you have read, a lot of companies have tried to create various formulas to do that.

And the London markets, basically, so far have rejected any of those formulas.

So, we have not proposed any formula.

What we have chosen to do is to work with each market to kind of figure out how we should be paid for those services.

Therefore, we had not worked out how to get paid.

I think that should be clarified over the course of the next year.

I was very convinced that when I talked to you back in October that we would get paid for them.

But for some reason there has been an inability to be able to reach a conclusion as to what the value is either on a formula basis or any other basis.

But we worked very hard to do that.

I think that that will, as the year goes on that will clarify itself, none of, as you could see, buckets three and four in and others than the 3 million I mentioned which is down from 21 or 22 a year ago.

So that can only get better.

But that would happen, there's just been an inability with the London markets to arrive at a conclusion as to what that business, and what those services are worth when I thought then that was something that we could easily conclude and that just hasn't happened.

But I think that will unfold as the year goes on.

My colleagues Richard Bucknall and David Margrett work very closely with those markets.

I feel confident that we'll begin to get paid in some way for those services, but we just haven't gotten paid yet and I thought we would be paid by now.

My follow-up question, I always thought you ran a very lean ship.

With that comment, where were these 500 people who were leaving, where did they work in the organization, what service did they provide?

Most of these people -- that's a good question.

I should have mentioned that in my monologue I guess.

When we let people go, I always told you on an ongoing basis when you watch expenses as closely as we do there is always plaque at the end of every year.

There are things that you can do to always try to make your business leaner.

What we tried to do in this case is to look at nonperforming people, look at people -- excuse me -- with big salaries or big compensation that against the backdrop of the new world may not have been as needed or as necessary as they were in the old world and be very, very careful not to remove or tamper with people who service clients.

One of the criteria in our analysis was not to tamper with people that service clients so these are not client facing people, these are not servicing people.

A lot of the people may be nonperforming producer types all over the world that we were able to eliminate.

But our biggest criteria was do not remove people who service clients because the servicing of clients is very important in terms of building the top line as I said before.

How many people have you added since basically October 15th from the standpoint of these new hires?

Well, if you look at that 5% number against the backdrop of what I said before in terms of recruits, you are looking at a basis or net basis of probably 100 or more net, mostly producer people.

Thank you very much, sir.

Thanks Charlie.

Jon Balkind, Fox-Pitt Kelton.

You may ask your question.

Hi John.

John Balkan Thanks.

Good morning.

Just a few questions.

A couple of follow-up on, Charlie.

One in terms of buckets 3 and 4, in your conversations with the London markets, is it a matter of finding a happy medium or they are just basically saying we used to pay for this but we are not going to pay you for it any more?

That would question one.

Question two will be on the head count, have those 500 -- excuse me -- people been identified yet and, then three, on the new business of 4%, it seemed like your hit rate from an RFP standpoint was very high, yet that 4% was down from 7% last quarters.

So I'm just wondering if there is a mathematical issue I need to be thinking about.

Okay.

First I'll answer the question about the 500.

Yes, they have been identified that (inaudible) have been identified.

I think what you don't see in the 4% as I said before is we've adjusted our commission protocols, you haven't seen any of that really manifest itself yet.

The recruits in there haven't manifested themselves.

Yet, I think that there's some adjustment that needs to be made.

You got to remember also that there's no contingents in there at all.

So you are comparing last year with this year.

I think it's an apple to an orange and it's just not, you know, not the same thing.

So, I think if you look at it on the raw basis of the 4% growth, as I said before, I think that's a pretty incredible number.

I want Richard Bucknall to give you some color and flavor as to your question with regard to why that has not been concluded because he has been involved in these discussions and that might be more helpful to you, John.

Great.

I think that there are two elements which are closest (ph) involved.

Number one is obviously the transparency which we've taken place on renewal since the 15th of January.

So whatever revenues we had in whatever format would need to be disclosed to clients.

And the other is the avoidance of conflict of interest which the FSA who took a particular focus on and the concept with the difficulty of being paid by two separate parties from the same transaction and we've always been very mindful and respectful of that situation.

I think in terms of the response of the market that has varied quite significantly both by insurer to insurer and by sector to sector.

But we are seeing and I think it would probably be fair to say that certainly initially in the first quarter there was a degree of short-term opportunism on the part of certain underwriters seeking to reduce their costs.

But going forward I think as Joe has indicated we anticipate a migration of some of those buckets to straight brokerage and fees going forward and we anticipate that on some of our binding authorities and facilities that these will be restructured and have already been done so to a large extent in accordance with our own compliance standards and subject to our own disclosure requirements for those.

So, I think it's difficult in our answer to your question to give a completely clearly consistent answer because I think the market has not behaved in a totally consistent manner.

Richard, just as a follow-up, if you decided to stop performing those services who does the client blame?

Would the blame fall on you guys or the blame fall on the underwriter?

I think it certainly wouldn't enhance our reputation and certainly the protection of our reputation is also key to us at the moment.

I mean those services relate to both the issuance of policy documents, which is always in contract certainty is key.

The London market is slightly different in the brokers that actually perform that service.

So, the option of downing tools is not an option at all for us.

The other issue is in relation to the fact that we effectively act as a clearinghouse in terms of the premiums and the claims for all the markets.

So, I think we need to, in terms of the spirit of transparency, we need to work with the clients and the markets in explaining exactly what we do and we'll probably do a better job of that going forward.

I think I would like to add a couple of things to that, John, and then go back to the other question.

I'm not sure that everybody appreciates or understands how dramatic the changes in this business are.

We've gone from an old world, where we used to do it one way for hundreds of years frankly, except for the telephone and the computers really have been done the same way for a long time.

And in a short period of time there's an expectation over three months or four months that everybody has to thing figured out, which I think it's happening as people are trying to figure out how this is going to work in the new world for a long period of time.

And that's why, I think that there is a difficulty coming to some conclusion here, where everybody would like to see this happen overnight, so would we.

I think people are really grasping with the shock of all of these changes taking place.

But at the end of the day, we provide very good services.

I actually think that these services are going to be of greater use to our clients than they even were before.

I think that they were sort of taken for granted before.

You got to have the policy and you got to pay claims.

I actually, think that part of the value for which we'll be charging as part of this transparent world is, what's the value, show me what you do here.

As they say, show me the money.

This is show me what you do.

And I think our ability to be able to control the processes of policy issuance and claims paying will be a great benefit to the client because I think we'll be able to do that in such a way where it's better and that's part of the value that they're going to pay for and I think that will all sort itself out.

But we're asking people and the world to get it sorted out in three months and I think that that's part of the reason why it hasn't manifested, itself yet.

Secondly, to go back to your question about the 4%, even though I gave you some stats, which is the sort of -- wet your appetite a little bit about, what we're doing here, that does not suggest because we won an RFP that the business hit.

So, you can't do that, no matter the basis.

A lot of that doesn't manifest itself until the second quarter and in some cases the third quarter so you can't use the math of what it was for and if those numbers that you gave me Joe, of the wins are in the four of what is yet to come, how do we do that?

I don't think that you can assume that most of them have hit yet.

That's what I'm trying to say, that the 4% business growth is really without most of the things that we've been talking about.

Okay.

Thanks Jon.

Yes.

That's great.

That's what I needed.

Thank you.

Ron Bobman, (ph) Capital Return.

You may ask your question.

Hi.

Good morning.

Good morning.

What was the contribution of the Stewart Smith business in the quarter?

It was nothing in the quarter and ended last year.

So, I'm sorry there was no profitability because it was sold in -- the transaction closed in April?

Correct.

So just break even?

Is that my take away there was breakeven for the quarter?

Correct.

Okay.

Thanks a lot.

Thank you.

Van Johnson (ph),Citadel.

You may ask your question.

Great.

Thanks

Van, how are you doing?

I'm doing well.

Thanks Joe.

The first question really is, since it sound like you restructured some of these other market revenue agreements can you be a little more specific on the timing of when this revenue begins to come back into the P&L?

It's tough to say.

That's why, I gave myself the leverage.

I really appreciate the fact that everybody on this call would like to see this stuff happen immediately.

And, frankly, so do, I. I sound tolerant and patient but I really am not.

The fact of that matter is that's the way the world is in this business.

I can remember the securities business, you know, you hired somebody and put a trade on them the next day.

It doesn't work that way in this business.

I truly believe though that you'll see over the next nine months real results of all of the kinds of things that we're doing.

But it's very difficult Van, for me to give you a time and date where you'll see all this.

Listen, I know that you would rather have some certainty attached to that than you wouldn't.

But to tell you that I know when it's happening, I just know the opportunities that we are having, I know the RFP's that we're looking at, I know the recruits that we brought in.

I know all of these things, but I can't tell you exactly what that date will be, when all of this kind of happens in Christmas shows up.

I don't know want what to tell you.

I just believe that on a going-forward basis the things that we are measuring ourselves for is our top line growth.

I mean, that's what it is all about.

If we don't make up in top line growth, what we've given up in contingents and we don't show real value in our business then it's not going to matter anyway and I think if we do that we feel confident that we can bring it, to the bottom line and our business will grow very, very well because the infrastructure of the place, as I said before, when you do that, will breed on a reset basis at least mid 20s are better margins than we start from there.

So, I don't know what else to tell you.

And the mid 20's does take into account the fact that the other market revenue will not be to the level it was in prior years, at least this year?

Yes.

That's why I say it's a reset number.

Yes.

And in terms of this issue being a Willis issue versus being a market issue, is there any reason to think that this is particularly unique to yourself?

No.

Absolutely not.

And, then finally, in your breakdown between of organic, I think if I've got my numbers right, your impact on price, which I realize is not, you know a perfectly precise number but it looked like it was a little less negative than it was in the prior quarter.

If that's correct, can you just add up comment, it looks like pricing was negative two this quarter versus negative four, negative four and negative three over the preceding three quarters.

Yes.

What's happening -- that's not just price, that's price rate and other market factors.

So as the premium rates come down you have a number of phenomena that take place after the clients by more and commission rate corporately (ph) edging up.

So that's the net impact on our revenues.

Got it.

Great.

Okay.

Thank you very much.

Have a good day.

Ron Frank, Smith Barney.

You may ask your question.

Good morning.

Good morning.

Two things, if I could, one, Joe, the mid 20's reset number does that include first quarter as reported or as adjusted?

As - is that, let me make sure that you understand.

That when I say mid 20's are better, if you take the business as it's constituted now and I look over the course of the next year or so, Ron.

Okay.

I think it resets at mid 20s or better.

Okay.

So that is really the view of the base run rate of the business where we you know?

Yes, without contingents.

Okay.

And my next question relates to the London market, just taking a few things sort of together.

You mentioned in your prepared comments that there was some pressure on brokerage although manageable in the global business and I assume just from that significantly in London.

And interestingly, one of the Bermuda companies mentioned that they had as they put it some success in negotiating casualty commissions down in the London market.

And there's also been a dynamic in the negotiation over these other market compensations where it has been a little stickier than expected.

And putting that together and may be I shouldn't, I'm just wondering whether there's been a possible change in the negotiating dynamic here or the leverage or power on either side of the table.

And I was wondering if you could elaborate on what you are seeing in London so or may be, Richard, could in terms of the push and pull across the table there?

Richard will answer that for you, Ron.

Okay.

Thanks.

Ron, I think your observation is right certainly in the early part of the first quarter there have been a perceived change of the balance of powers as it were.

I think that is beginning to stabilize and equalize and the number of factors behind my thoughts there.

But the -- and that will continue to unfold.

The comments that I think we made about pressure on brokerage rates really stem from the impact of disclosure for the first time now, that we are telling our clients what we are earning on our commission accounts and there has been some pressure as I think we said the overall feedback has been favorable.

But there have been certain instances where the clients have put some pressure on us as to retained earnings.

That was the purpose of that comment.

So, it is sort of an initial -- I don't know if you call it sticker shock but they look and say, Gee, I never knew that or never saw it or...?

Yes.

And I think as Joe says this has come as something of a shock to our own people in a short period of time that they have had to disclose what we are earning, what we are doing for those earnings and I think that the feedback we are getting is that every month goes by we're getting better at that and more confident about it and more confident about explaining all the things we do, not only in relation to the transaction but accessibility -- all year around to world class services.

So, I think there is a -- there will be an increasing confidence factor that it would be true to say that in the initial flush, yes, there was some pressure.

I think it's important, Ron, to note in this issue of transparency we started back in October training our people to be transparent and I think this is a fact, but it doesn't matter, but in January 15th we were the only one worldwide that was actually transparent.

We -- our people were out there being transparent; they were trained to be transparent.

It was a big shock as I said before and I'm not sure people understand the value of the metamorphosis from one world to the other.

But I -- like I said, the quarter has in it, you know, the distraction of being able to have these discussions, the distraction of the length of the discussions, the adjustment by client and client advocate of going through these discussions.

And so, when I talk about resets, I give you a bare minimum and we go from there and when I look that, I say that's pretty good because this stuff has got to get off better from here because what is in here is all the bad stuff.

So, there is nothing good.

So, if you reset it, as I said, at the mid 20's or better and then you start adding on greater comfort with transparency, protocols that earn a better spot, people starting to manifest themselves in terms of the recruits that we have, the London markets beginning to clarify if you will, and it goes from there and we get very excited about that.

Joe, lastly, if I could, to the extent that you can't fully recover a 100% of the service remuneration from the markets, if that proves to be the case, do you have flexibility to further -- to rationalize the cost base of those service provisions in particular?

Say that last part again, please.

I guess what I'm asking is really how scalable it is.

In other words if you can't recover 100% of the other market remuneration, if you can only recover 60 or 70 or 80% or whatever it is, do you have the ability to bring the costs of those services in particular down inline with the adjusted revenue base?

I think that we always have the ability to adjust our cost base.

I mean, that would go with anything.

We will take a look at it.

So, if you are saying $1 goes to 60 cents and you can make up the 40 cents with cost is that what you are asking?

More or less?

Yes.

We will obviously take a good look at that.

We do that all the time, yes...

Okay.

Thanks.

...I can't tell you we can make up 100% but we just as a course, you know this, of running our business, we always challenge what our cost are.

I could tell you to remove all of these contingents and still have mid 20s or better margin you have to be in pretty good shape from a cost point of view to be able to do that, Ron.

Right.

But is there always an opportunity?

You bet.

This is a flexible, pliable operation and we are always going to give that a shot.

You can consider that a given anytime we do anything.

Okay.

Thanks very much.

Okay.

Michael Lewis, UBS Securities.

You may ask your question.

Good morning, Joe.

I just want to have a little clarification here just so I understand we put apples-to-apples that you answered somebody before that was apples and oranges comparison.

When I looked at your North American organic growth of minus, you said, 3% but that includes the minus 12% contingent commission, I'm trying to get the same number for the fourth quarter for starters.

In other words you had zero percent organic growth what was the negative contingent commission component of that?

And I'm asking that just to see what the trend is and see when you think you are going to bottom out because I know that trend seems to be going down even into the first quarter.

Is that right?

It's a starting question.

Sorry, Mike.

It is probably best to focus on the business excluding the contingent.

I believe the net new business is up from what it was in the fourth quarter but so is the negative impact.

Well, you gave a full year number for the next -- for the contingent commission and do you know what that number is for the fourth quarter?

No, I don't have that in hand, Mike.

Can you get it for me, offline?

Yes.

We can get back to you, Mike.

Okay.

Because I guess what I'm trying to figure out here, just as the London market didn't prove to be exactly play out the way you thought it would play out.

I'm trying to understand if whether the producers you are putting on, as we say, if those you know, these dogs will hunt.

Are they going to produce business or are you basically hiring people some of them who may be being hired for their lifetime achievement award...?

Okay.

We can get back to you.

...let me finish, Joe.

And what I'm trying to figure out is when should I know -- not you know -- when should I know as an outsider whether these guys are producing the kind of business that you expect?

And I understood you said six months, nine months, may be even a year it takes to see but I'm trying to know when we all know?

Well, you know, we talked about that when I visited with you.

And I just don't know.

I mean there's uncertainty there.

I can tell you that I will go back to what I said earlier.

We had not hired indiscriminately.

We had vetted out everybody we hired as it relates to the productivity.

We have hired people who have a track record of producing.

We have hired people who have a track record of being associate -- associated with companies and productivity.

So, I can tell you we have done all that.

And I feel confident that we have made the right choices.

Because we go through a process here that is a very difficult process before we hire anybody.

As to when they will begin to produce, again you will see in the course of the next nine months or between now and the end of the year their indication -- a very good idea of what's going to be happening here.

And may be some cases it may be the first quarter of next year.

Because I think you have to give it a full one-year renewable cycle.

As it relates to when you know, trust me, there will not be a long-time between when I know and you know, simply because it's only three quarter -- it's only three months apart between reporting periods.

So, but I feel pretty enthusiastic.

I have met almost every one of the people that we have hired.

A lot of them, as you know, have come from Marsh.

They are -- if they are not producer they are in very responsible regional leadership positions.

I think they had maybe nine is it Mario, you can talk to this issue of people that ran very big parts of the country.

I think three of them are now here with large relationships if you will, is that all good, and then we have a longtime now.

If that is supposed to come out the other end Mike, in business and I think it does, we shall see.

But I -- when you are looking at growing market share and you are looking as an opportunity that not normal because of all of the events that have transpired in the six months, we chose that type of people to take advantage of that and we will see whether this stuff turns out to be the way we think it will be or it will not.

I think it will.

And, trust me, you will know as soon as I can tell you.

Okay.

And just one last quick follow-up.

On the 500 people that will be let go what percentage of the workforce is that?

4%.

4%.

4%.

Thank you very much.

Rick Lapin (ph), Sera Capital (ph).

Hello.

Mr. Lapin, your line is open.

Hello.

Let's try somebody else, operator.

Barry Cohen (ph), Brand New Capital (ph).

Good morning, Joe.

Hi, Barry.

Hi.

How are you today?

Good.

Thanks.

Thanks for taking the call.

Just a couple of questions if I could.

One is I got on a little late.

I apologize.

Could you help me understand the mid 20s percent margin?

Is that a pre-tax margin and from there you kind of like say how do we get more productivity out of our people as we put it on and therefore, get some leverage.

Is that what you are suggesting?

And I am just trying to give you guys an idea.

Okay.

Of -- I'm trying to help you out as trying to guideline them all.

But I'm trying to help you out because I know you are always looking for some -- give me some help here, Joe and when I'm saying is that as we go in the new world and I look out over the course of the next year or so and all the contingents are gone and I have got this revenue base and I got this expense base where do we start, Joe, and I'm trying to help you out by telling you on EBIT basis I think we start in the mid 20's and it gets better.

And then I'm assuming that outlook or that helpful hand includes both not only net new hires but also the reduction in the roughly 500 people that you have managed to isolate and target so far?

Yes.

That includes what we know the world to be right now and then we go from there.

We see what happens with the recruits, we see hat happens with the protocols, the commissions.

We see what happens with the three and four and what goes on there and as I said we go from there.

But if you are asking, you know, what's this really business you know, take the company apart and how you start in this business, if this were a startup business, I'm telling you the startup would show this is the revenues that I know we have, this is the expenses I know we have.

We've got infrastructure in there so this thing called Willis going into the new world starts, I think at mid 20's and then gets better.

Okay.

A couple of just quick questions.

I noticed that the infrastructure costs, you know, your G&A net, your employees, I think was down a little bit.

Your CapEx for the last couple of years has been either flat to down.

Do we anticipate as we roll through '05 and into '06, especially with the new building, that those costs will migrate a little higher?

That's my second follow-up question.

Do you anticipate that just a little, Barry.

If you will notice they will go up a couple years and then come down a little bit.

So, I can't see it changing massively from those numbers.

Okay.

And just maybe over the last three or four years or so your net producer growth has been in the range of let's say 5 to 6%?

Right.

Given that you are hiring people that are as good if not better in terms of their capacity, when do you think, excluding the impact of changes in rate, when do you think that we will see organic revenue growth that is at or better than, you know, inline with that producer growth?

Again, that is always the hard part.

We don't know.

I can't give you a number because I don't know what the number is.

But again, you should certainly start to see over the nine months to a year, one full renewal cycle as to whether or not the decisions we've made about hiring these people make sense.

I think that they have made a lot of sense and we will see.

But I can't give you an exact date because in the mix is a lot of winning of business that has nothing to do with those recruits.

Those recruits are bringing on people.

So, far those recruits are bringing on business that clients have said we are going to transfer our account.

But they haven't hit yet, and that -- they will hit when the renewal date takes place.

We have had people bring brokers record letters with us but that hasn't manifested itself yet.

To give you a little more color, maybe Mario, -- and I know that you guys want and I appreciate the fact that you want me to tell you what quarter all of this stuff is going to -- the lights are going to go on.

I'm sorry, I can't do that.

I don't know.

I don't want to cut you -- all I can tell you is they are, they are coming on.

There is a sense of excitement.

If you -- any of you -- or when you read about Willis last week there is an excitement and buzz about this company that is exciting.

The world changed.

And I think if you want to understand who the best company is, take advantage of the world changing, I think in a lot of ways we are the biggest beneficiary of that by virtue of all those things that we are doing.

I believe that firmly but I can't tell you that on Tuesday, some Tuesday in September as you're going to see all that happen.

I can't do that.

Mario, could you, -- you want to help him out a little bit more than that.

Good morning, Barry.

The way I put it is, it's early in the game, but all of the signs are very encouraging.

It's just as new business is up in retention rate and all our retail markets segments, small, private client, middle market and large accounts, the large accounts are the most obvious.

We have RFP activities, Joe, has quoted earlier which takes place in the upper-middle market and a large account process mostly that's three times the level.

And at 70% of the RFPs are resulting in a change of broker for at least one line of business.

With us winning a very significant portion of that as evidenced in the first quarter.

Not all of that is bookable, yet but the wins are there.

We look at our market share of the fortune 1,000, it's growing.

We look at the name accounts that I mean very, very prestigious names that we won in the first quarter and not only of our core businesses like construction, pharmaceutical and others that we do but in new areas it refers to like financial institutions, where we're winning tremendously large corporate customers that we haven't had before.

The key people that Joe, is making reference to are some of the best in the business that are supplementing terrific people we have.

People like Paul Gibbs (ph) running our Southern California operation and Wayne Harrington but they joined us now running our Southeast region, terrific people.

We have seen teams come on board in Austin, Los Angeles, Pittsburgh, Dallas and New York in the first quarter.

Just beginning to get, if you will, primed up for a lot of live activity, we'll see in the next three or four quarters.

So we're excited about that and I can only put the exclamation point on it, that Joe said RIMs, which is the very big sales meeting for all risk managers the buzz was all about Willis.

Does that tell you how excited we are?

It certainly sounds like you are wonderfully excited.

Thank you.

We are.

This is again, the world changed and I think that the world changed in our favor.

But you can't, adjust when you take out all these contingents it's not going to happen overnight.

We are trying to give you a flavor for the way we feel about it.

But we are very excited about our top line growth, our -- we're excited about the fact that everybody is on page here.

We don't have to sit in rooms all day and figure out what our vision is.

We don't have to figure out what our model is.

We always did all of that part.

We don't have to figure out how we're going to have battalions of consultants come in and we start our business and we design it and we profile it and -- we don't have to do any of that stuff.

We're ready to go.

But you got to understand it doesn't happen overnight.

That's why I'm trying to give you an idea of the reset point and now let's go.

Thank you for your help.

You're welcome.

Adam Klauber, Cochran Caronia.

You may ask your question.

Thank you.

Good morning.

Good morning.

How long do you -- the share buyback of 300 million, what period is that 300 million for?

We're going to start our buyback as soon as practicable and go from there

Okay.

As far as the RFP's, I get it, it's sounds like you are having a fair amount of success at wins.

You said a lot of them are in pieces.

Which pieces are more than not being -- are you winning or being switched over from the existing programs?

I don't understand what, you mean by pieces.

We said that at least one line and as Mario told you could have great financial -- the financial piece, which is the D&O, the executive risk.

I mean there are lines of business in there.

I don't know what else I can tell you.

Okay.

And when do, for the January 2006 renewal, when do most of those RFP's get decided.

Again that goes to your issue of certainty and I'm trying to help you guys.

I mean, I wish I could tell you -- that's another way of asking it's going to happen on the third Tuesday in August.

I don't -- we don't know, because they are all over the lot and we haven't done a spot grant to show where the patterns fall, so that you can get some of the idea of when the revenue will be generated.

It's ongoing, it happens everyday and I can't be more helpful than that then to tell you, we think it's going to happen.

Okay.

And how is your acquisition pipeline and with you adding a fair amount of producers, how important are acquisitions today?

Well, if I -- We had an acquisition pipeline, we're always talking to a lot of people.

We have not given up on making acquisitions.

If acquisitions come along that are right and an acquisition comes along that makes economic sense, we'll do it.

We haven't discarded that.

But when you are looking at our best use of capital, right now, we are able to acquire good people at cheaper prices that are buying a whole company.

You buy a company at one to two times revenue, some place and some multiple of EBITDA and you're acquiring very, very good people without having, all of the issues of an acquisition, we think that's a good use of our capital and that's what you are seeing happening now.

That plus the buyback, we think, will have very accretive effects over the foreseeable future as we've been trying to define and we're very excited about that.

Thank you very much.

You're welcome.

Nic Pirsos, Sandler O'Neill.

You may ask your question.

Good morning.

Hi.

How you're doing?

Doing well, thanks.

Great.

On the contingent commission buckets three and four, two parts on that, one until this market kind of issue get settled.

Do we consider that kind of loss the revenues or will there'll be a one-time catch up, when it does get resolved.

And, I guess, is there a extension of that, are you seeing more of the push back from the carries or is it just be notional conflict of interest issue, discussed earlier?

I think to the economic question, it's not a one time catch-up, it's just revenues that don't occur or reoccur that used to.

And we'll see hopefully, manifest themselves in some arrangement or formulaically or through commission and so you might see it manifest itself in different ways, so it's not a catch-up issue on a one time basis, it simply goes away, or it doesn't accumulate at the same rate.

Richard, you want to answer the same part question?

I mean, in turns of the conflicts and interest and our push back from insurers, I mean, I think it's a bit of both.

There is some genuine conflict of interest concerns, which we're obviously respectful -- of but yes we have incurred some push back and that max will set part of the mix.

I think I again, as I listen to my colleagues and I talk to some of these markets myself.

I just think that there is the reasons it's taken more time is that there is caution on the part of the markets to define what these arrangements will be for the new world of insurance, instead of making one impetuously and that's what they live with going forward.

I think, they want to be very sure that this arrangement is the one that they live with going forward, for the future and I think that's kind of positioning is what's going on here, and why it's taking so much time.

Second question, just on general commission front.

I think you'd said in a speech, last week at Rims (ph) and it could be wrong.

That you are seeing some kind of front-end, increase on commission rates, is that more just a kind of market conditions I presume and not because of the elimination of the contingents?

I think, I think it's a combination of our protocols being reset.

What that means is, what we are to be charging for the value we give in this new world.

And then I see our ability be able to do that, pretty comfortably.

And but you haven't seen the full effect of that, in the first quarter.

I think some of that you'll see the buckets three and four, all buckets for that matter kind of manifesting itself in a different way.

That is branded as the commission, but that commission is justified because of the value we give in a transparent world.

Great.

Next question just, with regard to the litigation expenses, the $51 million number is itemized out in the income statement, but the incremental 20 million isn't.

Is that -- I guess why not and is that in another one of the line items?

We did do that, because its just a, I can help you little bit maybe satisfy you, if you look at the 10-K, all the issues are in there, without getting into the gory details, but I will tell you that the World Trade Center is not, that's done - it's not in there so that will give you some direction.

Okay.

And then just lastly, if you can just give us update on, what's happening with the China brokerage operation?

The China brokerage operation.

That happened a couple of days ago, and we are, I tried to do this, but you know what I'm going to let Sara Turble (ph) to do this.

Sara Turble is under our international operations, and is the expert on China.

It reports to her, so Sara, just give them a one-minute flavor.

It's being caused by a misunderstanding with the (inaudible) branch of the CIRC, which is the insurance regulatory council and we're working closely with the Beijing CIRC which is the governing body of the CIRC, to sort the matter out as quickly as possible.

Let me have no reason to think but in a over period of days or possibly weeks, the visit to China, but it will be sorted out, but there's nothing our other branches, we have several that can handle the clients in that areas, so that this, may bring no interruption to our activities.

We have 16 bonafide offices in China; this was one where, it was mostly an issue of misunderstanding rather than something that we did that brokered regulation, we're not getting into the gory details.

We take the issue seriously, but by the same token we are not concerned about the issue, although we take it seriously, it was more of a misunderstanding than anything else.

Okay.

Great.

Thank you.

You're welcome.

Terry Shoo (ph), JP Morgan.

Yeah.

Hi.

Hi David,

Contingent commission or the bucks that's reinforcing in the pre-tax margin, there is numerous questions then you've answered that all different ways.

I guess last year, during a London trip.

I heard a lot of commentary from the London underwriters on this issue.

I get -- got the stance back end though that, even though a number of them would have liked to withhold payment or they as they said, replaced services.

In the end, they recognized that they have to pay something.

So, when you talked about the mid 20% EBIT margins, I gather you are not assuming Joe any recovery there but are realistically maybe you get half of it on a normalized basis.

Is that one way to look at it?

Yes, Terry, that's a good question.

I'm assuming -- what we were all look at as a number that we can feel comfortable of that without being overly exuberant about the results.

So, the mid-20s, does it include or exclude getting some of it back?

It includes getting some of it back in some way or shape or form of some (inaudible).

Okay.

But it's modest, Terry.

It's not something you're saying that we're taking the upper end of hope and prayer and saying -- let's get real generous about it.

That number is a genuine reset number, which we consider to be circumstances that everybody would feel comfortable with.

Okay.

Richard, I think last year in -- we spoke about that, right?

The whole London situation and see what has been the change?

I saw that in general you had all been somehow more optimistic.

It's just that they are resisting more -- the London underwriters;

I'm not sure exactly what happened.

Is the greater resistance and that it's just too hard to price.

Is that what it is?

I think it's the two factors that we touched on earlier.

Really it's the combination of the greater resistance stemming from behind.

Some perception of the change of the -- between the brokers and the underwriters coupled with I think significant profile on this subject of complex of interest which those are the two issues and they tend to get it little bit confused in the process.

Right.

But then logically, wouldn't you also get expense savings overtime, because you would some of the functions are fairly specific.

Will you now take some clause out; again you've kind of addressed it?

As you said Joe the margins have been reset, but hopefully it gets better from here.

I gathered you had in the past talked more specifically about margin targets and I gather now you are more reluctant being that things are in a state of flux to give actual targets.

When you say it will get better from here, what can we look forward to because it provides a lot of leverage to earnings and it makes a big difference?

What one assumes in terms of the earnings per share progression over the next couple of years because we think, reset down by a huge amount?

Well, in the past, I gave your margin targets because I had pretty -- and I think I hit them all when I told you that.

Because we had a very clear idea of what the world was, Terry (ph), we understood what the world was, we understood what our business was coming from and we understood -- our expenses throughout the world.

So, I felt comfortable when telling you that.

The reason why I'm reluctant now is that I -- because I don't know with clarity all of these issues.

I think as the world continues to progress there will be greater clarity.

I think that -- the buckets three and four in my opinion have not been resolved because I really believe that everybody is trying to figure out what this new world order is.

Richard mentioned one of the issues is conflicts.

If they're going to pay us fees for services, does that was represent a conflict under what I describe as being paid by two masters.

Now, that might be a positioning point, on the markets point, from the markets point of view, or it might me a real issue.

I sense that it's more of a positing (ph) issue as they go forward.

All I know is that we are brokers, we have clients, we need to find markets for those clients, that's the business we are in, and we are providing in London services that are very, very important to those client to provide real value.

But the markets that are in the business of underwriting insurance, they are not in the business for the most part of finding clients for that.

And I think that at one time the two will meet very comfortably, after we figure out what the world will look like, and I think that that has to happen very soon.

They are in the business of underwriting, we are in the business of booking; these two get together, and we figure out how we work together going forward.

I'm very, very confident that that will happen, but I'm unclear of it.

So because of that lack of clarity, I can't tell you specifically when all of this is going to manifest itself, and I can't tell you I can only feel comfortable that it will.

So when I go back, and I say, I know all of these people real well, including you Jerry, and I know they're going to watch some idea of what we think the world is like going forward.

So I say to myself, let's get them a reset point that, under normal average circumstances, the way we know the world is today, what is Willis?

And what Willis is today, without being outlandish, and without being overgenerous, and without -- you know, making ourselves feel good.

We haven't reached that point in the mid 20's and it gets better from their.

And that is good as I can tell you, because I'm trying to help you get some clarity to a world that's a little foggy now, but I think it's going to get less foggy as the months go by.

As we look out into 2006, I gather there's so much of it is dependent upon the property/casualty pricing environment assuming stable rates, no further meaningful deterioration, and your business momentum sounds like it's strong -- it should -- all the hiring you've done, and as you said, the world has change the level of RSPs and such, we should be hopeful that we could see meaningful acceleration in revenue growth assuming that the pricing environment is flat?

And then, is it correct to assume then also that as far as margin goes, as you said, it should get better from here because you have more, what -- you all have the full years impact as you look at year-over-year comparison, full years impact of cost saved in '06 as well as incremental revenues, and perhaps, this bucket 3 and 4 you'll get somewhat greater recovery.

So, we could see upside leverage.

And, of course, you have the share repurchase which you always talked about as a tool of capital management, cash flow remain strong because this is not a cash consuming business.

Is that okay way to look at for '06?

Yes.

I think so.

Yes, I think that capitulates with what I've said the last hour and a half very well.

But, again, hard to quantify, right?

Yes, Terry, I can't.

I mean I know you want that, because it helps you and makes you feel more comfortable, but I'm trying to give you as much as I can and clarify as much as I can for you, but this is not the kind of world that does that.

In the past, I gave you all guidance, and I've given you margins, and I've given you all that stuff, but I can only tell you that you can hear the excitement in my voice and my colleagues that we're very safe about our future.

And if you look at it over, that's going to gain market share, and now market is now 9 to 10% in some place.

That means 90% is out there for the taking.

We got a great organization, our model's in place, we don't need to go figure out what that is, everybody is on board, we all wear the same pin, we all understand what our job is, and our economics, despite all this stuff, are very good.

Now let's go from there.

The share repurchase thing, that story that that's not materially changed from the past, is that correct?

Your margins are a bit lower and you've had some short terms cash drains because of severance and also you had to set up this fund for repayment.

But otherwise, it's more or less sustained with somewhat narrower margins.

It's still the same cash business.

Is that okay to the way to look at it?

Yes.

Okay.

But you will continue on a pack of share repurchases?

Yes, that is why we kind of reset the bars 300 million and we go from there.

Okay.

Thank you.

Thank you.

Meyer Shields, Legg Mason, you may ask your question.

Good morning.

Thanks for taking me.

Good morning.

How are you?

I'm doing well.

And yourself?

Good.

Thank you.

Couple of quick questions.

Has the flow of producers, I guess, knocking on your door changed since you announced the settlement with New York?

Not always, no, not at all.

If you're asking whether the New York resolution had the effect of producers waxing or weaning one way or the other, no.

Okay.

Yes, that's what I was looking for.

Also, have you, I guess, I am asking specifically about the Contra Marsh (ph) organization, their former executive, they have started up.

Have you lost any producers to them?

What organization?

There've been reports in the journal that several former Marsh executives are starting to broker to target the large account market.

You mean Integres...

Yes.

...which stands for honesty and integrity?

I imagine it says that or (inaudible) supplement.

The answer is no.

Okay.

And one last question.

I hate to beat this to death, but the mid 20's margin that represented a deterioration from the first quarter adjusted, I'm wondering what's driving that?

Is that your seasonality?

No, I am trying to look at, you know, first quarter is not the same as second quarter, and the second quarter is not the same as third quarter.

I'm just trying to give your some help that over the course of the next year, and if you are looking at a year, and you say to me, Joe, how does this all come out, the contingents are gone, you've put some in there where you think you might recover some, and you look at the business from a cross point of view against the revenues that you had still comfortably go and generate, what kind of business you've got?

And that's the number.

I mean I was reluctant to give you the number, but I think that my colleagues are going to give him that number and not as guidance but as giving a feel because there is so much turmoil out there, so much vacuum and I know that you guys are in the business with some certainty and some traction, I'm trying to help you out.

Okay.

I appreciate this -- may I understand why it's amorphous.

Just focusing on the rate environment itself, there's been a lot of commentary about how insurers are being more aggressive but still being, I guess, reasonable, is that your impression?

Give me the last part again, please?

A lot of commentary is that rates are going down but in turn, I guess as an industry, insurers remain disciplined and rates for the most part remain adequate.

I'm just wondering whether that reflects your perception of what's going on?

Well, rates are going down and insurers of discipline, that's an oxymoron.

They're two different things, I know there is a suggestion all the time from carriers that they remain disciplined, but rate keeps going down.

So I don't know where the discipline refers to.

What I can tell you is this, as I said the CIAB says 9% rate reduction, I told you we're seeing 10% or more on large accounts.

So, I don't what to tell you, other than rate seem to continue to go down.

Okay.

Thanks a lot.

Thank you.

Brad Bering (ph), Front Point Financial (ph).

Hi Brad.

Hi.

Good morning.

And thanks for the long call and taking all these questions.

No problem.

Take as long as you want.

Just real quick a couple of follow-ups and then a lot of questions already.

Stewart Smith, what was the revenue for the quarter?

I don't have the revenue for the quarter.

It's 77 million for the two years and the first quarter I think (inaudible).

Okay.

Can't follow-up with it.

I just trying to help us for modeling for next year?

Right.

It's been accretive (inaudible) to the total revenues.

Yes.

And foreign currency, how much was the earnings contribution this quarter?

Two cents positive, we expect the two years to date other than flat.

Two cents for the earnings?

Yes.

Okay.

And then, you guys commented about the expenses salaries, going higher than 53% over next couple of quarters.

Can you clarify that at all?

Yes.

Because the -- within the 8 to 10, 12 months, all you should have 53% Brad that includes of course three quarters of contingent commission on buckets 3 and 4 contingent commission are of course going to disappear in the later three quarters of this year.

No, I understand the reason why I was just wondering, do you think it's like a 54 or 55 or what?

If that's all happened in the contingent, I think (ph) that was 3-cent number by 2%.

Yes.

And depending how many bucket you put, keep a little to higher, and then as you get the stable point we grow it was graduate from that.

Okay.

Thanks.

I just wanted a little help on the modeling, I appreciate that.

Thanks guys.

Sure, Brad.

Anybody else.

Jim Edelman, Highland Capital.

Hi.

Good morning.

Good Morning.

Just a question on the -- first on the RRP level, you said it was three times, what it had been and I think, I remember reading recently you had put a number of 10 times and these are big numbers.

How do we think about all that?

You know was it 10 times for a while, and now it's three time or do you think it will be three times going-forward or?

No, Jim.

Well, what we have done, I'm trying to give you the experience at the time when we talk.

At the time I mentioned it, that was just 10 times number.

It's now three times number, you get there was a tendency months ago for a lot of them to come in, when there was more turmoil then there is now, and the number now still multiple.

So, I am giving you numbers as they occur.

One of the problems in trying to be forthcoming and give you as much color as possible, if some times the number change and they change a lot, because it's a world influx.

So, I'm trying to give you the most current numbers.

Okay.

Thank you.

And just one other, yet another questions on buckets 3 and 4.

Could part of this issue be a function of renewal and you were saying before that you know it takes a while for the new contracts to come in over a year cycle.

Is it similar issue with these buckets three and four that you're going to just have to wait for contracts to come up for renewal?

I don't think so.

I think you're talking about a broader issue.

I'm working with Richard as I'm answering your question.

Maybe you can be more specific but I don't think its more contractual issue, I think it's more of an arrangement that we come to with those markets, wouldn't you say Richard?

Yes.

I think the comment you made earlier that the model is changed not just for us but the market and everyone is seeking a way of sensible resolution.

I think that covers it.

Okay?

Yes.

Thank you.

Thank you.

Al Coppersino (ph) Colombia Management.

How are you doing?

Joe, thanks a lot for your patience.

This is a non-quantitative question.

I'm curious.

If I think about the balance of power within you all in London.

Certainly, there is spot light on brokers right now.

Certainly there are some product lines which London really specializes in versus the rest of the world.

But on the other hand, if the London market is so arcane and so inefficient that it can't perform the services you all are doing, aren't they to some extent shooting themselves in the foot by not cooperating with brokers and wouldn't business might be ready even more quickly from London to Bermuda if they don't work with you all, doe that sum up the balance of power pretty well?

I'm not going to comment on them shooting themselves in the foot because I'll probably see that in headline.

But I do think as I said before I think underwriters are in the business of underwriting and brokers are in the business of brokering and taking care of their clients and providing value.

And at the end of the day as long as we are in those businesses, I think that there has got to be an arrangement that we come to that is more than a gut feel.

Sense is logical.

Secondly, I did make reference to the fact last week that I thought that there was a shift from the importance of manufacturing or the process of placement being the focus of our business to placement, service, advocacy, consultation, advice being all part of what the value is.

So I think that's not a question of just London, this is the question of the placement in itself and the market itself being the permanent party.

If you look at the worlds in the business, we all came about because of our manufacturing issue whether it is contingence strength, transparency, kind, all that kind of stuff.

So I don't think it's a London market issue as much as its an issue that now placement which I call manufacturing takes it rightful place along with service which is policy issuances, claims paying shouldn't take as long to pay a claim, shouldn't take as long to issue a policy, advocacy, understanding the clients need all those sorts of things.

So I think if you put all of that together, I think what unfolds is a much more efficient arrangement where manufacturing takes its powerful place and all the economics follow that.

Great thanks Joe.

Okay.

Steven Lapey, Lang and Meccalenni (ph).

You may ask your question.

Hi, good morning.

Most of my questions have been answered.

Two quick ones.

One what should we think in terms of the prospective tax rate and two, could you talk about what is the immediate available cash on the balance sheet today which will include several factors most importantly the Stewart Smith sale?

Yes.

The tax rate contract is a group prospective one, but now we see business up to 3% (ph) and there are -- we think of a little over $200 million and as of the end of last week in which it appears.

Okay.

So this quarter's tax rate is about 30%, is the right one to use?

33%.

33%, okay, sorry.

And you say that little over 200 million?

Yes.

Great.

Thank you.

Thank you.

Michael Lewis, UBS Securities.

Thanks to be real fast Joe, talking about capital management and the excitement you are hearing, have you been buying any stock in the last six months or the company been doing -- I didn't see any announcement there so is there no share repurchased in the last six month?

I don't know exactly what it's been...

What has been diminimus (ph) in the fourth quarter, just wondering is it still diminimus (ph) in the current quarter?

No.

We haven't since October because of all the issue out there Mike.

Okay.

But one would imagine, for use a capital, your stock over with 20% without even opening today, that at some point you can buy into the excitement of the share value too.

Yes.

Alright.

Just curious.

And I mean we as investors like to -- I mean again I understand but at some point if the excitement -- if the company has to believe this stories so when we see isn't how they act with capital management.

Yeah.

It's why we're buying stock

Okay.

Just wanted to know that.

I mean that's the whole part of the repurchase;

I said you know we think at this level if the stock is very accretive and it make sense for us to do this.

And we're going to be very aggressive about it.

You know, I made that point couple of time and the thanks for allowing me to make it again.

But, yeah, I mean we haven't been there, not because we have been excited but because of all the issues that have been taken place, so we haven't been able to.

Okay.

And the other quick one is, now that you don't have contingent commission, is there a change in the seasonality of your operating margin, in other words we use to see a really skewing of the margins.

Talking about it starting at mid 20's level EBIT is it a straight level now without contingent commission or there is still going to be significant seasonality?

But we --we produce that, we'll supply (inaudible) and the seasonal of the contingent commission end up it seems buckets three and four and so there maybe some modest changing that it will still be seasonality.

Okay.

Thank you very much.

Okay.

Thank you again, Joe.

Okay, Mike.

Van Johnson, Citadel

Hello Van.

Hi, Joe.

Just that quick on Mike's prior question about the North American organic.

In the fourth quarter you said it was zero excluding contingent.

And this quarter it was three excluding contingents, is that generally an apples-to-apples comparison?

And if so, what improved in North America?

Yeah.

It's -- it is apples-to-apples excluding contingents, and I thought, I think you you're seeing little drips of, we had a sales coach which has always been there.

I think you're starting to see some of the manifestations of the RFP.

You are starting to see some of the ramifications of the recruiting.

All of the above and but not fully it's what I'm trying to tell you.

Thank you very much

Okay.

Anybody else?

Doug Smith (ph), (inaudible) Partners.

Good morning, guys.

Good morning

When you are going out to to clients to talk about transparency, does that means for the fee-based clients that your going out and telling them, we create this much value for you, and in the past we got a compensated directly from you and in the form of contingents and now we are not getting the contingents, so your effectively asking them for higher fees.

Well, on the fee basis obviously, they know what the fee is, so it's already transparent to the extent, if there any thing else to tell them, we'll certainly do that on a basis they know what they are paying.

I think that the issue on a feed basis is -- are explaining to them actually what we do for that feed.

As strange as it sounds, but in a lot of cases I don't think this is industry, this is not a realist (ph) issue, has actually gone out and told his client the value that it gives and what it provides to people, and I think transparency does that, and in a lot of cases helps us actually not only just likely to get more, a lot of this has to do on the commissions, for a commission based business in terms of how much we make for this and how much we make for that.

And certainly, a bigger issue when it comes to commissions then it is fees, but certainly do the same thing for fees.

Yes.

So, are you saying that you are now trying to increase fees to replace contingents?

I didn't say that.

I answered your question about this discussion of does transparency occur when for a fee business when I told you it does but not as much as it does commissions because they know what the fee they are paying is.

The second point you bring up, or question you bring up is are you trying to increase fees to make up for contingents and the answer is no.

We don't do that as a policy, we do that on a basis of negotiation for the value that we provide for the solutions for the problems that we serve.

Okay.

Thanks for that.

And the RSP wins which is fantastic the 90% hit rate, is that coming primarily from the Fortune 500?

Yes.

That's narrowly speaking.

So this is primarily a Fortune 1000.

Okay.

And lastly the compensation expense in the first quarter was 53%, and I think that was excluding benefits expense, and I'm just trying to -- can you repeat what the apples-to-apples number was in the first quarter '04?

It excluded the big seven (ph) number, Doug.

Okay.

You mentioned -- but the pension and the other benefits of being up 1% in the first quarter.

NT cost direct 1% to the expense.

That's included in the 53% compensation expenses.

Correct.

Okay.

Thank you very much.

Charles Gates, CSFB.

I guess two questions; one, in the first quarter I believe of last year you indicated you had some 4 cents in gains from an acquisition in Denmark.

Was there anything comparable to that or what was the status of that in the first quarter of this year?

No.

There's nothing comparable, Charles, in the first quarter (inaudible).

The only other question in if you answered this I apologize.

When do you think logically you could begin to repurchase your stock at this point?

Just to be clear, it's one of the earlier answer to that question.

The reason we've been out of the market for the last six month is because of a discussion that the AG and other, and so we were not able to get in the market.

As a matter of that, we feel we will be able to get in the market in the very short term.

So in the next several days possibly?

As soon as practicable.

Thank you.

At this time, there no further question

Thank you everybody.

I appreciate your questions and I appreciate your listening.

Thank you.

Thank you for participating in today's conference.

You may disconnect at this time.