Willis Towers Watson PLC (WTW) 2009 Q2 法說會逐字稿

Welcome to the Willis second quarter earnings conference call.

All participants have been placed on a listen-only mode until the question and answer session.

(Operator instructions) This conference is being recorded.

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

I would now like to introduce Ms.

Kerry Calaiaro, the Director of Investor Relations.

Thank you -- you may begin.

Thank you, and welcome to our earnings conference call and webcast at willis.com for the second quarter 2009.

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

A replay of the call will be available through August 28, 2009 at 11:59 PM Eastern Time by calling 866-568-0618, or 1-402-998-1520 outside the US with no passcode, or by accessing the website.

If you have any questions after the call, my direct line is 212-915-8084.

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 Private 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 estimated or anticipated.

Please note that these forward-looking statements reflect our opinions only as of the date of this presentation, and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events.

Please refer to our SEC filings, including our Annual Report on Form 10-K for the year ended December 31, 2008, and subsequent filings, as well as our earnings press release for a more detailed discussion of the risk factors that may affect our results.

Copies may also be obtained from the SEC, or by visiting the Investor Relations section of our website.

Also, please note that certain financial measures we use on the call are expressed on a non-GAAP basis.

Our GAAP results, and GAAP to non-GAAP reconciliation, can be found in our earnings press release.

I'll now turn the call over to Joe.

Good morning, everybody.

Welcome, and thank you for joining us for our second quarter 2009 earnings call.

Here with me today are Pat Regan, COO and CFO, and Grahame Millwater, our President, as well as other members of our management team, who are here to answer any questions that you have after our remarks.

Well, let's start first with the second quarter.

The second quarter reflected a number of trends that we have seen over the past few quarters, with good growth in operating margin in the face of extremely soft insurance market trends and economic slowdown, especially in the US, the UK, and Ireland.

Let me talk about some key metrics now.

Adjusted earnings per share from continuing operations were $0.52 in the quarter, compared to $0.59 last year.

That's a good result, as we absorb the HRH acquisition and manage the expense base, and I'll talk about that in a second.

We had 1% organic growth in commissions and fees, which we think was outstanding in this environment.

Now, that growth came from 4% net new business, and 3% headwind from declining rates and other market factors.

The rate headwind, which while certainly very pronounced in the US, turned modestly positive in our Global business, especially Reinsurance.

Now, our real strength, from geographic and business line diversity, was with 7% growth in Global, comprising Specialties, Faber & Dumas, and Reinsurance, and 5% in International, mitigating the negative 8% in North America.

Adjusted operating margin was 21.2%, which is good underlying business performance as we continue to focus on top line growth while successfully Right-Sizing Willis for the current environment in these very challenging economic conditions.

Now for the six months, the organic growth in commissions and fees were 2%, including positive growth of 6% in Global, and 5% in International.

The adjusted earnings per share from continuing operations were $1.68, and adjusting operating margin was 25.8%.

Now, let me focus our attention on HRH, and the HRH integration.

Just to remind everybody, we had four main priorities during the integration process.

First, retaining the producers and clients.

Second, expense reduction from synergies.

Third, implementing integration plans.

And four, converting contingent commissions.

Now, let's see how we did against those four objectives.

First, as it relates to producer and client retention, our producer retention remains at 96%, with a client retention of 91%.

Now, what that means is, is that when the economy turns, and when the markets stop going down, all the people are still there, all the clients are still there, so the effects of having done that part of the integration, which we have concentrated all of our time doing, bodes very, very well for the future.

Let's look at the second one, with the combined synergy, which had to do with synergy in costs and integration.

With combined synergy and right-sizing, savings of approximately $60 million in the second quarter of 2009.

We are now targeting cost reductions in North America of approximately $170 million in 2009.

Now, remember that this estimate is up from the $100 million target when we announced the acquisition.

So we're way ahead of where we thought we would be in synergies and integration.

So that's way ahead of schedule.

Obviously, the revenues are not ahead of schedule, but we didn't expect at the time the economy to be what it's turned out to be, and have the impact that it's had on some of our businesses, and I'll talk about that in a second.

Now, just to remind everybody, because when you hear about $170 million, the obvious question is, are you cutting into muscle?

The answer is, we are not cutting into muscle.

Over half of the $170 million that I just referred to are savings in non-related people areas -- corporate, real estate, IT, professional fees, T&E, and other discretionary spend.

So we're doing it in a very sound way, which sets us up very, very well for the future.

We have made great progress in all of our other integration workstreams, and I'm very, very happy with that.

Over 90% of -- and then the last issue, which was a big issue when we announced it, is how are you going to convert all of these contingents over three years?

I am happy to report that now over 90% of HRH's legacy contingents have now been either converted or protected, if you will.

So that's not an issue.

By the end of the year, we'll probably have 100% of the contingents converted to upfront commissions, so that's not an issue.

That's not going to fall away, and we've both done all of that in the first year, and we're very proud of that.

So all of the issues having to do with integration, which is a very difficult task, and all of the things that people have asked us about, integration, holding onto people, contingents, synergies, all of those things are way ahead of schedule.

We just happened to hit a headwind and a timing issue, which in fact, when everybody is still there, which they are, and all the integration is going well, when all of these headwinds start to abate a bit, then we'll start to see much more effects of a positive nature of the integration of HRH.

Now, let me specifically talk about North America.

It continues to feel the brunt of the soft insurance market and weak economy.

Given this environment and the fact that we are in the first year of a merger integration, we're really pleased with the progress we have made.

Because it's tough to fight a lot of battles at the same time, we chose to fight the battle of integration, get that done, concentrate on that.

And as you can see, the results are outstanding on the things that we have concentrated on.

Now, there was a decline in organic commissions and fees of 8%.

Let me break that down a little bit, and I'll be glad to talk about it more in the Q&A.

There was 6% headwind from rate and other market factors such as commission rates and fee compression, and a negative 2% from volume, as new business was more than offset by the impact of the recession on buying patterns.

Now, for example, we do a big employee benefits business.

There were two things that were attractive to us about the acquisition a year ago, which is the employee benefits business and construction, and the economy has hurt those two things in a very big way.

So as a result, that's what you're seeing.

When employees reduce headcount, obviously, that's less they pay in premium for employee benefits purchasing.

The decline in the surety business due to the lack of access to the capital markets to fund private development and governmental insurance packages are yet to take effect in most of our business, so we haven't seen that yet.

Plus, most of our business in construction in the US is traditional residential and commercial business, with not much public entity work that drives our international construction business.

So what drives our international business does not drive our US business.

And because we're still in the first year of this acquisition, the focus, as I said earlier, has been understandably on integration, physically and culturally, and not on recruiting new producers.

So as a result of all of that, you're going to find that is the reason why we're in the position that we're in with the decline in revenue, but the foundations of what is being built, and the nature of why the business is down, makes us feel very, very comfortable as it relates to the future and how we're doing.

In fact, I would add that our measure of revenue per producer is relatively flat year-over-year.

So we're focusing now our efforts on the top line.

The integration is never over.

The synergies are never done.

But we feel comfortable now that we can start our attention being drawn to the top line.

Now, our operating margin in North America, because of the synergies, and because the integration is going so well, is 22.3% in the second quarter of 2009.

Now, that's up 660 basis points, from 15.7% a year ago.

So if you're asking me a question, you know, was this a good deal to do, certainly it is driving our margin, and to understand why the top line is not growing, as I've tried to explain, is to suggest that that will occur as things start to change, and that will drive, I think, our margins even higher.

So, perfect example of the integration working.

We have reduced the pro forma combined expense base by about 21% through merger integration and Right-Sizing Willis.

Our discretionary costs -- again, not muscle -- on a pro forma basis are down about 42%.

So that's not people -- that's just watching the way we do business, which is what we've always done.

And as I've said before, our client retention is 21%.

You want to talk about North America more, we'll do it in the Q&A.

Let me talk about International now, if I may.

In our International unit, organic growth in commissions and fees was 5% for the second quarter, as it continues an incredible record of impressive growth across many regions in the face of some slowing economic growth.

International, now, excluding the UK and Ireland, actually grew its business 10%.

As you know, the UK is having the same economic issues as the US, and certainly Ireland is even worse.

UK and Ireland Retail declined 7%, as it faces the same challenges as we're seeing in the US.

The operating margin was 23%, up from 21.5% a year ago, reflecting good revenue growth and expense management.

Client retention is a steady 92%, so we're seeing these retention levels across the world at Willis in the 91%, 92%, 93% range, reflecting good revenue growth and expense management.

As a result, productivity per FTE rose 2% from last year, to $164,000 on a trailing 12-month basis.

Now, our Global business segment, which is comprised of Global Specialties, Faber & Dumas, and Reinsurance, had a 7% organic growth in commissions and fees in the quarter, with a standout performance from Reinsurance.

Just standout.

Our Global Specialties, the revenue drivers were Marine and Construction.

The rate environment continued the softness in a number of areas in global specialisms, although there was real stabilization and firming in Energy.

I will tell you, even though we don't break it out, that the Reinsurance grew at double digit growth, with favorable impact, but more than that, I think, is the way we have transformed our Reinsurance business.

Great job.

Revenue drivers for strong new business generation, especially in International.

The Global operating margin was 35.4% in the second quarter, up 30.2% from a year ago.

We are benefiting from the strengthening in Reinsurance and investments we have made, as I said earlier, over the last year or so, and totally transformed that business.

Client retention, again, it was a steady 90% through the first six months, and as a result, productivity per FTE again rose 2% from last year, to $356,000 on a trailing 12-month basis.

So now, let me turn things over to Grahame Millwater to update you on our three priorities -- revenue growth, Shaping Our Future, and Right-Sizing Willis.

Grahame?

Thank you, Joe.

To help drive the results that Joe has just articulated, we continue to drive the three main programs of activity across the Group.

Firstly, driving growth -- with the obvious focus on integration in the US, the majority of our activity in this area -- in driving growth, has been on the International and Global businesses.

This emphasis will now switch to the US as we enter the second half of 2009, in order to lay the foundations for growth across the entire Group as we enter 2010 and beyond.

We continue to enjoy market leading growth rates in our International and Global businesses, as articulated by Joe, and this is driven by investment and the proposition itself.

Some examples include continued investment in analytics and advice in Willis Re, the creation and development of the Willis Research Network, the largest cooperation in the financial services sector between academic research and the commercial community, accelerated investment in all areas of analytics, ERM and advisory services for all the segments of our Retail business across the world, Willis Capital Advisory, a completely new entity, offering capital raising and M&A advice to insurance companies globally, continued investment in productive hires.

This includes teams in Reinsurance, the largest of which has been our [ex-Carvill's] reinsurance team, which has been a spectacular result for us this year, specialty teams in Marine, Aerospace, Engineer, Faber & Dumas, and individuals on teams in Asia, Europe and Latin America.

Finally, we've had a relentless focus on metrics around growth at an individual business unit level, and at a country level.

And this is both to understand the detail behind the headline revenue numbers, but also to ensure these businesses are being driven continually to grow the top line.

Given Willis HRH in North America is largely delivered now and integrating the people and delivering the cost synergies, we feel we're now in a position to bring this same level of focus to the US, and start to build on this fantastic new footprint.

The second major area of priority has been the continued rollout of the Shaping Our Future program.

We once again exceeded our Shaping the Future targets in the second quarter with $29 million worth of gross benefit, following on from exceeding benefit targets for the whole of 2008 and the first quarter of 2009.

The key benefits in the second quarter exceeded plan, and came from global placement uplift of $9 million, client profitability uplift of $6 million, and benefits from our bespoke reinsurance program of $6 million.

Our program of rolling out technology and process change continues at a pace.

Shaping Our Future London, which is the complete overhaul of our London platform, will be completed by December this year, with more benefits achieved at less cost than our targets that we originally set in 2006 when we started this program.

This has been a very successful initiative, and delivered a state of the art platform for our Global Specialty businesses.

With the confidence that the London program has given us, we're now focusing on our UK Retail platform, with the underlying technology selection completed, and office by office implementation underway.

We've also embarked upon a review of our technology platforms in the US, post the acquisition of HRH, and are in the early stages of developing a program of creating a new technology platform for the entirety of our businesses in North America.

Again, given our experience and success in London, the UK, we will be adopting the same approach, but understand that this is a long-term program that will ultimately deliver further significant synergies in North America.

And finally, the third program, Right-Sizing Willis.

And this is the third and final program for the current [running] that's been Right-Sizing Willis for the current economic environment.

This is a program we started in the third quarter 2008, and was in recognition of the headwinds we would face in the emergent economic and financial turmoil.

This program underpins the 4% reduction in pro forma SG&A expense in the second quarter.

And some examples of what we've done includes, no salary general review in 2009, review of all employee benefits globally -- for instance, the US pension plan was frozen in May 2009, and 401k contributions were suspended for 2009, performance management across the globe to ensure appropriate action regarding our poorer performance whilst also ensuring due reward and recognition is focused on our best performances.

Also, aggressive reduction of non-critical discretionary spend, and our continued optimal use of low-cost locations, including rapid utilization of our new second site in Mumbai.

We've now added 150 new positions in Mumbai this year.

So these programs of growth, Shaping Our Future and Right-Sizing Willis, combined with the HRH integration synergies, underpin our results, and are critical for us to continue to deliver organic revenue growth, while at the same time achieving expense reduction and margin improvement in our underlying business performance.

The key change of focus in the second half of 2009 will be the renewed focus on growth in the US.

And with that, I will turn the call over to Pat Regan, our COO and CFO, to review the financial results.

Thank you, Grahame, and good morning, everyone.

Reported earnings from continuing operations for the second quarter 2009 were $87 million, or $0.52 per share.

And adjusted earnings in continuing operations were $88 million, also $0.52 per share.

The adjusted operating margin for the quarter was 21.2%, compared to 21% a year ago.

There were a number of moving parts in the margin story.

Margin for the quarter was negatively impacted by a number of financial headwinds caused by the economic climate, as well as the impact of the HRH acquisition.

This is somewhat mitigated by favorable foreign currency, altogether totaling 370 basis points of negative impact.

The impact of the HRH acquisition diluted margin by 300 basis points, primarily due to the higher amortization.

Lower interest rates caused investment income to decline $8 million in the second quarter, or 110 basis points.

Pension expense, net of the curtailment gain of $12 million in the quarter, increased $5 million in the second quarter, or 90 basis points, overall mitigated somewhat by the favorable foreign currency impact of 130 basis points, mainly related to the strengthening of the dollar.

Adjusting for these factors, the underlying business performance contributed about 390 basis points of expansion, a product of our organic growth of 1%, while our pro forma SG&A expenses declined 4%.

Let me give you a little bit more detail on some of our expense reduction work.

On an adjusted basis, salary and benefits were $443 million, or 56.5% of revenues in the second quarter 2009, compared to $377 million, or 57%, a year ago -- a good improvement in the S&B ratio.

We have systematically managed the Group headcount, while continuing to invest in the business.

In International and Global segments, we've kept headcount flat, while hiring nearly 500 people as a Group, while at the same time, delivering the synergy benefits in North America.

On an adjusted basis, other operating expenses in the second quarter 2009 were $138 million, or 17.6% of revenues, a good improvement from last year's comparable, 19.7%.

We've had great success in managing the level of these other operating costs.

We've achieved reductions of greater than 20% in expenses such as travel, accommodation, professional fees, advertising, etc., etc.

As I mentioned earlier, all of this contributed to a pro forma decline in SG&A expenses of 4% in the quarter.

On investment income, as expected, we saw a decline in investment income in the second quarter to $12 million, from $20 million in the second quarter 2008, as global interest rates fell.

However, we have a forward hedging program in place, which is generating significant savings in 2009 versus if we just had LIBOR based rates.

We currently estimate investment income of approximately $50 million for full year '09, compared to $81 million in 2008.

Foreign currency movements had no impact on earnings per share in the second quarter, and a favorable 130 basis point impact on the operating margin for the quarter.

The positive benefit to the dollar strengthened relative to sterling was naturally offset by the effect of our hedging program of dollar versus sterling, and the net negative impact of the dollar strengthening 9% relative to the euro.

All things being equal, we don't expect to see a material impact from foreign currency for the second half of 2009.

The effective underlying tax rate for the second quarter was approximately 26%, unchanged from last year's full rate also of 26%.

Turning, then, to capital management.

Firstly, our pension status.

Like all pension plans, our UK and US pension plans asset values were impacted by the falling markets in 2008, from a combined surplus of $360 million at the start of 2008, which (inaudible) a combined deficit of approximately $100 million at the end of 2008.

That deficit was approximately $170 million at the end of the second quarter.

As I've mentioned before, we estimate total pension plan cash contributions of approximately $60 million in 2009.

With the changes we've made to the US pension plan, we currently estimate total pension expense for '09 to be approximately $35 million, net of the curtailment gain.

Total debt at the end of the second quarter was $2.5 billion, down from $2.65 billion at year end.

The interim bridge facility, which was $103 million at the end of the first quarter, was fully repaid in the second quarter.

The revolver was drawn down for normal seasonal usage to $95 million.

There was also $103 million of cash and cash equivalents at 30 June 2009.

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

Thanks, Pat.

Before I conclude, I just wanted to circle back on a few things in the news -- Gras Savoye and Stanford Financial, to be specific.

Let me talk about Gras Savoye.

No change in the status from our recent 8-K filing, that we are in negotiations to potentially sell a portion of our interest in Gras Savoye.

No definitive agreement with respect to any sale has been reached or entered into by Willis.

We continue to be strongly committed to a global partnership with Gras Savoye, and will retain a substantial interest in Gras Savoye following any such sale, and we also fully intend to acquire a majority interest in Gras Savoye at some point in the future.

Now let me talk about Stanford Financial Group.

Willis and one of its subsidiaries, as you know, have been sued in federal courts in Texas and Florida by plaintiff lawyers acting on behalf of Mexican and South American investors in Stanford Financial Group.

A Willis associate also has been named in the Texas suit, and Willis has separately received a demand letter from a Texas law firm in advance of commencing litigation.

The matters relate to the collapse of Stanford, for which Willis acted as broker of record for certain lines of insurance.

The complaints generally allege that Willis aided Stanford's efforts to sell certificates of deposit by issuing to Stanford certain letters regarding these insurance policies that Willis placed for the firm, and the plaintiffs are collectively seeking damages in excess of $1 billion.

Let me make a comment.

Disappointed investors, like those involved in the Stanford situation, frequently, as you know, look for a deep pocket.

They look for somebody to sue.

I believe that the plaintiffs here see Willis as a deep pocket, and therefore, have filed these complaints.

From my perspective, it makes no sense to think that investors making the type of investment at issue here would rely on a letter from Stanford's insurance broker.

Though the Company, obviously, we will defend itself vigorously in these lawsuits, we do not believe that any Willis employee knew that Stanford was engaged in fraudulent activity, and we're undertaking a full investigation of the facts so it can address this matter as expeditiously as possible.

So, where are we?

I think we're off to a great start in 2009.

The organic revenue growth of 1% for the quarter and 2% for the six months, given the conditions, and given what we're doing, is outstanding, and I applaud my colleagues.

The pro forma SG&A expense fell 4% for the second quarter, driven by integration synergies in a real discipline with discretionary costs, which you must have in times like that, because the business is simply not predictable because of the environment, and we're doing that extremely well.

So, we remain vigilant about our priorities -- reinforce our sales and revenue culture, which will be stepped up now that we believe that the integration has taken hold.

It certainly has the traction that we wanted, and is certainly doing all of the things that we wanted it to do.

We're going to continue, as Grahame said, to execute Shaping Our Future, which has really been terrific, and added a great deal to our earnings, integrate HRH and achieve our targeted synergies, which we will do and continue to do, and continue to Right-Size Willis for the current environment, which we don't know how long it's going to last, but we're certainly in great position to take advantage of that.

So these efforts continue to position us very, very well for the future, and we're very comfortable with where we are.

We will be glad to take any questions that you have at this time.

Thank you.

Thank you.

(Operator instructions) Our first question is from Keith Walsh.

You may ask your question, and please state your company name.

Hi, Keith Walsh at Citi.

Good morning, everybody.

You know, Joe, just speaking of your last comments about things in the news, your friends at Gallagher yesterday, Illinois Attorney General allowing them to take contingent commissions again -- maybe if you could just comment, are you seeing any -- I know it's very premature, but are you seeing any movement toward a leveling of the playing field, and would you reconsider your staunch opposition to those types of payments?

Thanks.

We have not, Keith -- good morning.

We have not heard from the Attorney General of New York.

Obviously, our jurisdiction is New York.

So nothing new there.

I did read, obviously, about Gallagher in Chicago, so we haven't heard anything about New York, so I don't know what's going on.

To your second question, as it relates to, if the New York Attorney General sunsetted the AOD, if you will, that we are under sanctions for now, would we take contingents?

The answer is no, we will not take contingents if that happens -- if that's your question.

But by the same token, I want everybody to understand that doesn't mean I don't expect to get paid.

As you could -- as you heard earlier, we have replaced 90% of the contingents at HRH.

We have raised significantly our levels of compensation up front.

There are still a lot of insurance companies that do not pay contingents, large ones that don't pay contingents.

And so, I don't expect for a moment that even though we feel very strongly about contingents and its conflict with our clients, that we don't expect to get paid the same as other people might get paid if they accept the contingents, just in another manner.

I guess maybe just following up on that.

I mean, you do accept contingents right now from HRH.

Isn't there a difference in profitability between an enhanced commission, or a supplemental, or a contingent, however we want to call it?

Isn't there a differential?

How would you be able to get an elevated level of commissions to compensate for that differential?

Well, first of all, everybody keeps saying, you take contingents.

I took the contingents because we had to do a deal, Keith.

I've said that on every call.

It has nothing to do with how we feel ethically about contingents.

We took them to be able to do a deal.

You can't do a deal when somebody takes $40 million of contingents and make believe they're not there.

That was the only reason we took them, and we said that we would make them go away as fast as possible.

I even made the comment that by buying HRH, there was another company that didn't take contingents.

And as it turns out, within the first year of that deal, the contingents will go away, because we would have, in effect, replaced them with upfront commissions.

No, I don't think there's a difference in profitability.

The issue is, do you get paid 2% or 3% or 4% or whatever percent it is on an upfront basis by negotiating a proper deal with an insurer, or do you take it based upon profits, or do you take it based upon volume?

If we took it based upon profits, I think that's a conflict.

That makes us charge more to our clients, and makes the insurance companies make more money, and therefore, we get paid more, because we did a deal based upon profits.

That's not -- we don't think that's right.

And we don't think we have to give business to this company or that company, even though they may not service our clients well, just because we have a deal based upon volume.

We just don't think that's right.

And we believe that strongly, and we're going to continue to believe that.

But I do not think it will affect the way we get paid.

I fully expect that if XYZ Company pays a competitor who takes contingents on a certain amount of business X dollars, I expect to be paid the same without the relevant contingent, upon profits or revenue.

Great, thank you.

And then just one follow-up for either you or Pat.

You just mentioned the organic -- what was the organic at the HRH block of business?

I know you did the minus 8% North America.

It was very similar to the North America one, Keith.

I'm sorry -- what's that?

Very similar to the North American organic.

Okay, and then the cost save number, you had mentioned the $60 million.

Cost saves continue to be impressive.

Is the $12 million pension curtailment gain included in that number, or excluded?

It's included within the $60 million.

Okay.

Thank you very much.

Thank you.

Thank you.

Our next question is from Jay Gelb.

You may ask your question, and please state your company name.

Jay Gelb from Barclays Capital.

So --

Hi, Jay.

How are you, Joe?

Good, thank you.

Could you help me reconcile the statements where commission rates and fees are being compressed, and that was reflected in a decline in North America organic growth, with the view that you want to take higher commissions up front if you can't accept contingents?

Yes, well, the compression is the softness of the market in terms of premium, which affects, obviously, how we get paid.

The basis of the way we get paid is against the backdrop of what the premiums are.

The premium goes down, the commission rate is down, even though we get paid more from the carrier.

It's just a simple question of the math.

That's the basis for the calculation.

So if the compression in the commission is down 5%, 6%, 7%, our commissions are going to get paid based upon what that premium is.

Even though they are higher, we might get paid more in terms of the replacement of the commissions that I mentioned in terms of the contingents.

So it's just a question of the math.

I see.

And also, looking back from my old research, it seemed that Willis, before contingents were banned in New York, Willis had roughly $133 million of contingent revenue in the legacy book.

How much of that have you been able to recapture so far as upfront commissions or other type of compensation arrangements?

I really haven't calculated that, Jay.

It would be a guess, but -- because it's been five years, almost five years since that occurred.

But through renegotiating our upfront commissions and other kinds of things, I just don't want to take a guess.

It's probably more than half, but I don't know what the number is.

Certainly it's true to say we have accumulated tens of millions of dollars of share (inaudible) market in benefits.

The reason it's hard to put a number on it is, over exactly the same period, we've had a continued soft market for each and every year.

So it's very hard, net-net of all of that, to come up with a precise number.

And what we did in Shaping Our Future marketing, Jay, is to concentrate on our placement, concentrate on our profitability with our clients, and so we -- there are all different ways that we have tried to compensate for the lack of contingents.

And so, that's why I say, it's more than half, but I don't know exactly what the number is.

We haven't calculated it.

You heard Grahame over the last couple of quarters talk about the effect that it's had on our business and our bottom line.

So it's well over half.

As to whether it's $130 million of $133 million, or all of it, I don't know, but it's pretty good.

I mean, when you consider what our margins were, which was about 30%, I guess, before contingents, as I think back that far, and we were at 24% last year, we lost 6% -- only 6%.

So we did a heck of a job coming back from all of that.

And then you include the soft market on top of that -- you know what?

I'll tell you, we came pretty close.

But I can't give you the number.

Right.

So if I kind of pull that all together, is it safe to say that even if contingent commissions returned, it may not be as much of a windfall as some people were thinking it may be?

I don't -- no, I don't think so at all.

That's what I'm trying to tell you.

I think a lot of companies don't pay them, big ones, the last time I looked.

A lot of these companies had made up for contingents, as we have, by getting upfront commissions that are higher.

I've said that on these calls.

Plus, tried to make our Company more efficient, which was a good thing, because of the contingents going away, made us concentrate more on our core product, which is a good thing.

So I -- you know, I continue to want to be paid for the value that we provide for our clients, and the value that we provide for our insurers.

But I don't think we should be paid based upon a contingent on profitability or volume.

We just don't believe in it.

All right.

Thank you for the answers.

You're welcome.

Thank you.

Our next question is from Dan Farrell.

You may ask your question, and please state your company name.

Good morning, and it's Fox-Pitt Kelton.

Just on the HRH portion, and I know you're in the process of integrating, so it might be tough to split up.

But can you say ballpark what the organic was in that operation?

And then give a rough estimate of what the revenues were from HRH in the quarter?

The size of business is -- so the answer to both of them is the same.

The size of business is almost exactly the same between both businesses.

And the organic, sorry, was almost exactly the same as the legacy Willis business as well, at minus 8%.

Okay.

And then just in your organic growth table, the 26% from acquisitions and disposals, is that mainly just HRH?

And then also, your sale to wholesale operations?

Is there anything else meaningful to think about there?

No, no, that's basically it.

Okay.

All right.

Thank you very much.

Thank you.

A pleasure.

Thank you.

Our next question is from Mark Hughes.

You may ask your question, and please state your company name.

Thank you very much.

It's SunTrust.

How are the International Retail rates looking these days?

International Retail rates are looking not as soft as I mentioned in my comments as in the US -- nowhere near as soft, nor has the economies been as bad, except for some countries.

France is okay, Germany is terrible, the UK is terrible.

Spain is not so hot either, but we're doing very well in Spain.

It depends upon business lines market, it depends upon the type of business that you do, which really affects a lot of these numbers.

So I would say generally, economies, except for the UK and some other countries, not as bad as the United States, and the rates are not as soft.

But it also has to do with the types of business that we do.

Like in the US, I said, we do a lot of (inaudible) business, we do a lot of construction business, we do a lot of M&A business in the US.

And those businesses -- and we do program business in the US, but the programs have to do with car dealerships and resorts and things like that.

So we happened to hit all of the wrong things in the economy in the US, and we have a lot of the right things going on internationally, plus a great distribution system.

Right, is it -- that would be less?

It was about -- the rate difference, I think, is a couple of percent.

It's probably about minus 3% headwind in the rest of the world, whereas it's 5% or 6% here.

Got you.

And then, here in the US, how does the rate and volume environment feel now at the end of July?

It feels very soft.

I'm sure you've heard that before.

We still see a lot of softness in the market across the board.

We don't see any stabilization other than, what I said earlier, than in Reinsurance.

But it's a soft market, and it's not getting more stable.

It's still very soft.

Thank you.

Thank you.

Thank you.

Our next question is from Matthew Heimermann.

You may ask your question, and please state your company name.

Hi, JPMorgan.

Good morning, everybody.

Good morning.

Morning, Matt.

Hi.

A couple of questions, if I may.

With respect to North America, were there any other disposition or acquisition included in that 8% adjustment to organic growth besides HRH?

No.

No.

Okay.

And then, Joe, with respect to the comment you made with retaining 91% of the clients, is that a client count number, or a premium number?

That is a --

A revenue number.

A revenue number.

Okay, that's helpful.

And then I guess the last question I had was -- or actually, one numbers question, and one strategic question.

Any -- in the past, FX movements with respect to the UK plan have affected numbers.

Was there any impact this quarter?

No.

Okay.

And then with respect to Gras Savoye, I guess I'm a little bit confused, Joe, from the standpoint that on the one hand, this is still something that you feel is very attractive and strategically important to acquire a majority.

But on the other hand, you're selling something.

So I guess, could you just help me reconcile those two kind of competing actions?

Sure.

We think Gras Savoye is a very attractive business.

It's the largest broker in France.

It has operations throughout the world, which interestingly enough, mostly are not in the same places where we are.

Simply, what we want to do is to sell down our position, and to get private equity involved, along with ourselves and Gras Savoye, and over the next two, three years or so, help build the Gras Savoye business in a way where it's a more efficient business, it's more consistent with the Willis business in terms of synergies as it relates to IT, sales, other kinds of things.

So it gives us more time to be able to synergize Gras Savoye from where we are now.

And then, when all of that is done, in two, three, four years from now, we think a better business with better synergies, then have the ability to buy the rest.

So we think that it gives us an opportunity and time to be able to work with Gras Savoye to get it to where we both want it to be, and be available and ready to synergize with Willis.

That's why we're doing it, and we think it makes a great deal of sense.

Okay.

Can I reinterpret that, and see if I -- see if you would agree with what I say?

I guess, in other words, you -- by getting private equity involved, you're effectively willing to forego buying it sooner rather than -- you're willing to forego buying it sooner, to avoid kind of the time, expense, manpower of driving some of the efficiencies you've talked about in that business, even if it means potentially if that happens down the road, it might actually cost you more to buy back in?

Ah, so, yes.

That's all true.

Okay.

All right, I appreciate it.

Thanks.

Okay.

Thank you.

Thank you.

(Operator instructions) Our next question is from Meyer Shields.

You may ask your question, and please state your company name.

Hello, Meyer.

Thanks, hi.

It's Stifel Nicolaus.

Hope you're all doing well.

Yes, you too.

Joe, I've asked this before, but can you clarify why, when different insurance companies pay different commission rates, that's less of a conflict than volume based contingents?

When insurance companies pay different insurance commissions, why that's less of a conflict?

Yes, because it's not based upon doing something that may not be in the best interest of the client.

If you're giving an insurance company business because you have a deal based upon the profitability of the book, then that means that you're not in a position to be able to clearly, without bias, be able to operate with the client in the client's best interest.

Or, if you're giving business to an insurance company because the volume that has to be created so you get paid something on the end because of it, those are all based upon things that may be in a conflict with your client, and not simply one where the negotiation with your client and the insurance company is based upon everybody's best interest.

How much you get paid is a function of your value, but not tied to anything that might conflict or get in the way of that relationship.

There's a big difference.

Okay, that's helpful.

Two quick questions, then, if I can.

When you were talking about the HRH contingent conversion, you said that 90% were either converted or protected, and I'm not sure what the protected part refers to.

Protected means that we don't think that there's a diminution of the way those contingent [agreements] were arranged with HRH, with the insurance companies, that they would fall away for any other reason.

But it doesn't matter, because at this point in time, most of it is -- has been replaced by upfront commissions.

And I'm -- surely by the end of the year, we'll be at 100%, which means we'll be two years ahead of schedule.

Okay, that's good news.

And lastly, within Reinsurance, is there any positive momentum outside of the property, property-catastrophe reinsurance market?

Yes, in the financial lines, is probably the only other place where you're seeing some rate lift.

That was Peter Hearn, the head of Reinsurance.

Okay, fantastic.

Thanks, all.

Thank you.

Anybody else?

Any other questions?

Our final question today is from Mark Hughes.

You may ask your question, and please state your company name.

Yes, thank you.

Speaking of reinsurance, you've had some new initiatives there.

Are you benefiting from the rate environment, or are you taking some share as well, do you think?

I think it's a combination of several factors.

There is some modest change in buying habits.

As Grahame referred to earlier, the onboarding of the RK Carvill income has been higher than expected, strong new business growth in all of our business segments.

And as I just said, some rate lift in specific market segments.

So it's a combination of things.

Thank you.

Anybody else?

(Operator instructions)

Thanks a lot, everybody.

Have a great day.

Thank you.

Bye bye.

Bye bye.

Thank you.

This concludes today's conference.

Thank you for participating.

You may disconnect at this time.