Willis Towers Watson PLC (WTW) 2009 Q4 法說會逐字稿

Welcome and thank you for standing by.

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

(Operator Instructions) Today's conference is being recorded.

If you have any objections you may disconnect.

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

You may begin.

Thank you and welcome to our fourth quarter 2009 earnings conference call and web cast.

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

A replay of the call will be available through March 6th, 2010 at 11:59 PM Eastern time by calling 877-611-5293 within the US or 1-203-369-4862 from outside the US.

No pass code is needed.

Alternatively, the web cast replay can be accessed on our website at willis.com.

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

As we begin our call let me remind you we may make certain statements relating to future results which are forward looking statements and that term is defined by the Private Securities and 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, 2009 which we expect to file by the end of February 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.

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 will now turn the call over to Joe.

Hi everybody.

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

Here with me today are Pat Regan, Co-Chief Operating Officer and CFO, Grahame Millwater, President and Don Bailey, CEO of North America.

This is Pat Regan's last official conference call -- earnings call.

He will be leaving on the 19th of February.

I want to thank him for his great efforts in helping Willis and all of its fortunes and we wish you well in the future Pat.

Stephen Wood which has been announced -- who is Willis Group Controller -- has been names interim CFO as we continue our search and someone who knows our Company very well, knows our business very well and we feel very, very comfortable working with Stephen going forward.

Other members of our management team are here to answer any questions that you have after our remarks.

Well, the best thing I can do is to say that 2009 was an amazing year as we tackled a number of external and internal challenges.

In the middle of a global recession and soft market environment, we delivered.

Adjusted earnings were diluted -- per diluted share -- from continuing operations was $2.67, adjusted operating margin of 22%.

2% organic growth in commissions and fees and shaping our future, an initiative that has been going on for a couple of years had a net benefit or approximately $60 million.

We began a major integration of an acquisition that closed in the middle of the financial crisis with bridge financing, substantially completed the integration with North America synergies and cost savings of $205 million in 2009, an astonishing achievement.

Earned improved stable outlook for Moody's and S&P and repaid the bridge financing, prefunded 2010 maturities at 7% and strengthened the balance sheet debt to adjusted EBITDA is now down to 2.6 times and completed the recapitalization of Gras Savoye, removed Gras Savoye, put and used the net proceeds for debt reduction.

All the boxes that needed to be checked at the beginning of the year from balance sheet readjustment to what are we going to do with Gras Savoye to the integration of HRH into Willis has all been checked off and that's why I started my comment by saying that this is surely an amazing year.

Now, let me drill down into the story line a little bit if I may.

In the fourth quarter the adjusted earnings per diluted share from continuing operations was $0.47 with a negative $0.03 from foreign currency in the quarter giving $0.50 excluding FX.

We had 2% organic growth in commissions and fees with positive contribution from each segment.

North American segment grew 1% which included -- I will remind you HRH.

It was the first quarter that we included HRH in our report -- in our calculation -- as we closed the transaction a year ago and a sequential improvement from the third quarter of 2009.

We are really pleased from that accomplishment.

The integration is over.

We talked about the integration all of last year being a distraction.

The integration was completed.

We started to concentrate on growth.

Don will talk about that and those were the results.

International segment grew at 3% and the global segment grew at 1%.

In North America I'm extremely pleased with the 1% growth in organic commissions and fees and significant margin expansion in the fourth quarter.

With the integration of HRH substantially completed and renewed focus on top line growth we generated a significant increase in the amount of new business in the fourth quarter compared to a year ago.

HRH has been a great strategic fit and we have more than exceeded our synergy targets creating significant operating leverage as we continue to navigate the recession and the soft market environment.

I want to -- for the first time turn the rest of the discussion of HRH -- of Willis and North America over to Don Bailey the CEO of North America to run you through a bit more color and progress that we have made in the past because as I said, we couldn't be more pleased with that effort and the accomplishments of Willis and North America.

Don?

Thank you Joe, good morning everybody.

First, it is helpful for me to remind you for the strategy for HRH and why we did the transaction.

It brought us critical mass in key regions in the United States.

I can include in that list, markets such as New York, Atlanta, California, Texas, Chicago, Boston and Florida.

It also brought us some critical market share in key locations such as Amarillo, Gainesville, Appleton Wisconsin, Columbus, Wichita, Richmond, Oklahoma City, Savannah Georgia and Bangor Maine where I was last week with one of our great construction clients.

All of this literally brings Willis closer to our clients than anybody.

That proximity allows us to deliver more value to our clients through the global model that we run which is global resources delivered locally.

This deal also created welcome diversity to our client portfolio.

It bolstered our core middle market business and added critical mass in the large account space, employee benefits, small commercial and private clients.

Finally on the strategy, we could have made many small acquisitions but we chose to do it all in one transaction and create a single unified team.

That strategy is tougher in the short-term no doubt but clearly creates a better business for the client and shareholders in the long run.

Let me offer you comments about the integration itself.

Integration as Joe talked about was clearly the focus for 2009 and is now largely complete.

With the aim of driving margin improvement in the business, our four main priorities during the integration process were expense reduction from synergies, retaining the producers and clients, implementing the integration plan and converting the contingent commissions.

I can tell you today that we are succeeding and exceeding our expectations on all fronts, combined synergy and right sizing savings of approximately $60 million in the fourth quarter of 2009 and approximately $205 million in the full year 2009.

That figure is double our original targets.

We continue to identify additional savings opportunities and expect to maintain similar level of total synergies and savings in full year 2010.

Our producer and client retention remain high.

We have had limited loss of producers, only about 3% of North America acquired revenues are tied to producers leaving.

Client retention at around 91% for Willis North America in 2009, that's consistent with recent years and in the midst of an integration that is not easily achieved.

We have had good progress on all integration work streams.

In the end we have created a strong combined operation.

The organizational structure and leadership is in place.

All office and staff moves are completed.

We had over 5,400 associates that were impacted by real estate moves.

This is a very impressive achievement to get done in 2009.

We have improved our business planning and processes as well throughout 2009.

Finally on converting contingent commissions, over 90% have been converted or protected.

Now, let me address Q4 results in North America.

The improvement in organic commission and fee growth to positive 1% in the fourth quarter was driven by an increase in new business generation.

We were up 17% over the fourth quarter of 2008 on new business.

And, while doing that maintained steady client retention rates.

We felt a more pronounced rate headwind of negative 6% for the quarter which is up from negative 4% in Q3.

In the end Q4's organic growth improvement was a result of realizing the benefits of a more rigorous new business strategy.

That strategy included a renewed focus on pipelines and differentiation as well as retaining those producers by creating a fair compensation plan and creating an environment that facilitates the creation and delivery of value to our clients all over North America and the world.

The operating margin in North America was 25.6% in fourth quarter 2009 which is up 670 basis points from 18.9% one year ago.

And was 23.7% for the year, up 830 basis points.

While the -- with the integration substantially complete with HRH we have laid a terrific foundation and are now focused on running a great business in North America.

Let me turn things back over to Joe.

Thanks, Don and hopefully you can see why we are excited by the future of North America and why we are now in a growth mode and doing business and not being distracted by the integration which I think was done very well.

Internationally, our international unit organic growth and commission and fees was 3% for the fourth quarter as it continues its record of impressive growth across many regions across the face of some slowing economic conditions.

Excluding the UK and Ireland the retail businesses international grew 7%.

The reason I say excluding Ireland and the UK, they have been beset, especially Ireland with some economic woes.

If I take all of our businesses around the world excluding those they grew an impressive 7%.

We had impressive growth in both Latin America and Asia, led by Venezuela, Brazil, Columbia and China.

The UK and Ireland retail declined 9% as they both face some of the same economic challenges that we are seeing in the US.

And new business generation remains double digit while absorbing a negative four point rate impact.

Productivity per FTE rose 4% from last year to 166,000 on a trailing 12 month basis.

Now, let me talk about our global businesses.

The global business segment comprised of Global Specialties, Faber & Dumas and Reinsurance had 1% organic growth in commissions and fees in the quarter in the face of a four point rate headwind.

The positive growth in specs and reinsurance was muted by a decline in the more economic sensitive Faber & Dumas.

Global Specialties, the revenue drivers, marine, aerospace, financial solutions and FINEX Financial and Executive Risk Specialties.

The rate environment continued its softness in a number of areas in Global Specialties although stabilization in aerospace and reinsurance had solid single digit growth in the quarter, primely North America and specialties and this growth was driven by exceptionally high new business generation.

The productivity per FTE rose 3% from last year to 358,000 on a trailing 12 month basis.

Let me turn things over to Grahame Millwater to update you on our priorities for 2010, shaping our future and driving growth.

Grahame?

Thank you.

Thank you Joe.

First let me turn to shaping our future.

We have again exceeded our targets in the fourth quarter.

We delivered $33 million of gross benefits for the fourth quarter.

These results include a continued contribution of $10 million from our global placement efforts.

Just to remind you that reflects increased commissions from working closely with our carrier partners with a contribution of $6 million from client profitability where we justified increased (inaudible) from our clients in line with the value we deliver and $3 million from the [persuade] program in reinsurance.

Since we started this program several years ago -- a couple years ago -- we delivered gross benefits of $179 million and net benefits after investment of $101 million.

Therefore, by the year end 2009 we have already exceeded the benefits we originally estimated we would achieve by the end of 2010.

And as we deliver success, we continue to see more opportunity.

The continued rolling investment we are funding from the program will again to continue drive benefits throughout 2010 and beyond.

We believe that shaping our future has delivered everything we expected from it and the initiatives contained within it have now become a way of life for the business units.

I mentioned last quarter we began our program in North America rolling out an integrated processing platform that we have entitled Epic.

The synergies that Don and his team have captured through the integration process to date have been remarkable and this is without this platform in place.

This new platform will help drive our synergies to the next level and our next stage of improvement in our north American results.

Let me turn to driving and funding growth.

In the past few quarters, we have commented that our renewed focus on driving revenue growth.

We have also commented that much of this was focused initially outside North America given the huge integration that was under way there.

However, in the last six months our attention has shifted to include North America and we believe this is reflected in the fourth quarter organic revenue numbers.

We believe this focus on growth is building momentum, delivering benefit and continues to be essential in an environment that is still facing substantial economic and insurance market headwinds.

In the interest of time on this particular call I will not go into detail on all the specifics on our growth (inaudible) program other than to say segmentation, the early proposition, disciplined sales and client management processes and a relentless focus on retention will continue to be the major globally.

We also continue to be increasingly agressive in our recruitment efforts and we continue to mobilize the organization to systematically identify and attract the best talent in the industry.

We refer to the right sizing efforts throughout this call and its impact in 2009.

And where this is critical.

We have to enable ourselves to fund this recruitment effort and expense management continues absolutely critical to our efforts in 2010.

Managing our cost basis has become a way of life and is necessary in this challenging and soft insurance pricing environment to enable us to continue to be able to build our talent base and by doing so enhance our foundation for [sector leading] revenue growth.

With that, I will return the call over to Pat Regan our CFO to review the financial results.

Thank you, Grahame.

Good morning.

As Joe mentioned earlier the fourth quarter in fact the whole year saw significant execution across a number of fronts.

Certainly this included significant strengthening of our balance sheet, to $205 million in synergies and right sizing savings in North America, expense saves right across the business and overall delivering results in what was a very challenging environment.

Adjusted earnings from continuing operations for the quarter were $80 million or $0.47 per share up from $0.36 per share from the fourth quarter of 2008.

Excluding the impact of FX adjusted earnings per share were $0.50 for the fourth quarter of 2009.

For the full year 2009 adjusted earnings per share from continuing operations were $2.67 up from $2.55 in 2008.

On the operating margin the adjusted operating margin for the quarter was 21.1% up 430 basis points from 16.8% a year ago.

The story for the margin for the quarter was very similar to what we have seen in each of the quarters in 2009.

Revenue growth despite what was a very tough pricing and economic environment -- in fact, the impact of rate is still significant negative five averaged across the group.

Margins impacted by higher pension costs and lower investment income.

But all of this offset by consistent straight cost controls.

Again, we generated underlying margin expansion in the quarter.

We have not arrived at these results by accident.

Throughout the year we executed on the $205 million in synergies in North America.

And, as Don said and worth repeating, despite a very tough revenue environment we have grown our operating margin in North America from 15% to nearly 24% in the full year 2009.

This together with the other right sizing outside of the US enabled us to deliver a 3% reduction in organic SG&A expense while at the same time hiring new producers such as we have talked about this before -- the Carville Team in reinsurance, investing nearly $40 million in our future and many other investments across the Company.

On an adjusted basis, salary benefits for the year remained relatively -- about 56% of revenues in '09 compared to a year ago.

This was despite absorbing nearly 300 basis points of increase in higher pension and some $20 million our of severance costs through the year.

We systematically managed our group headcount.

We completed an in-depth review of client [phasing] versus non client phasing positions.

We continue to have rigorous improvements in protocols.

As a result of this as examples we have now more than 200 extra positions in Mumbai.

We reduced headcount in North America by almost 600 in 2009 alone as well as other headcount savings across the group.

On adjusted basis for the operating expenses for the fourth quarter were 19% of revenues, a big improvement from last year's comparable 23%.

Year to date on a pro forma basis discretionary costs are down almost 14% from 2008 with significant savings in TV, advertising costs, printing and a number of other areas.

Just talk for a second on the financial headwinds we saw in 2009.

Many of those headwinds we were facing at this time last year have now stabilized.

Taken together we expect investments income, pension expense, and interest expense to be relatively in line flat for 2010 compared to 2009.

On foreign exchange in absolute terms, foreign currency movements have a negative $0.03 absolute impact on earnings per share in the quarter.

We have a slight gain on the dollar sterling offset by hedging.

Obviously compared to 2008 foreign exchange is a positive due to the foreign currency loss on the pension [skate] method last year.

On discontinued operations we sold Bliss & Glennon earlier in the year, so obviously we stripped that out of the comparative revenue [nails].

There is no impact on organic.

On tax, reported income tax for the quarter was $32 million compared to $23 million for the comparable period a year ago.

The effective underlying tax rate for the year was approximately 26%, again the same as for the 2008 full year.

On Redomicile, I'm very pleased to say we completed the change of incorporation from the group's parent company to from Bermuda to Ireland all on track and on time.

On associates, as a result of our recapitalization of Gras Savoye which completed in December, our owning (inaudible) has now changed to 31.8% down from the 46.2% we had before.

Therefore purely looking at the associates line which I think we talked about before, we currently estimate the associates line will be approximately $10 million lower in 2010 compared to 2009.

Turning to capital management overall then, I'm obviously very pleased by our progress on capital management throughout 2009.

As Joe mentioned we obtained improved outlook to stable from both Moody's and Standard and Poor's.

[Okay, it's a ] great capital from which to launch our September bond issue for $300 million which we eventually priced at 7%.

We used that to tender for what ended up being 160 million of our 2010 bonds.

We then applied the net proceeds from the Gras Savoye transaction together with operating cash flow we generated to reduce our term line by $180 million to $520 million at year end.

These actions together significantly improved our debt maturity profile.

Once the remaining 90 million of the 2010 bonds was repaid, only the mandatory repayment in the next five years of the quarterly scheduled payment of $27 million a quarter, on that $700 million five year term loan.

Total debt is now down to $2.37 billion, compared with $2.65 billion at the start of the year.

Debt to adjusted EBITDA at year end was down to 2.6 times well on the way to our comfort level of 2.5 times where as we have mentioned before we will start considering share buy backs.

Cash and cash equivalents were $191 million at December 31, 2009.

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

Thank you Pat, so we've had a busy and productive 2009 delivering I think a great result and along the way we checked off a lot of boxes.

Our adjusted earnings per diluted share from continuing operations $2.67.

Organic growth and commission and fees 2%.

Adjusted operating margin of 22%.

We obviously had to check off the box called HRH integration which I think substantially was completed and North America organic growth turned positive.

The other box was the completed reorganization of the capital of Gras Savoye -- we did that and did that successfully.

And strengthened our balance sheet with debt, adjusted EBITDA down to about 2.6 times well on our way of our target of 2.5 times when we will consider as I said in the past buy backs again.

We remain very vigilant about our priorities while the external environment remains a challenging one with continued slow global economies and a soft insurance market, we will have to continue to do the following -- and I think we do the following very well -- improve and reinforce our sales and revenue culture to drive growth, further execute shaping our future, whatever things we have left to fully integrate HRH like putting in a system that will now be constant throughout all the offices in North America whether they be legacy, HRH or Willis will be completed.

And continue to grow the top line of North America and of course, maintain the expense management to fund growth and I think these efforts really position us well for continued success in the future.

Now, I will turn the call back to moderator to take any questions that you may have.

Thank you.

Thank you.

(Operator Instructions) Our first request is from Mark Hughes of SunTrust.

Your line is open.

Thank you very much.

The North American new business activity obviously quite strong.

Was there anything unusual in that?

Any reason why that wouldn't be sustainable going forward?

And to what extent did the compensation structure play into that?

I'll answer that, then Don can offer his comments.

As we said all year last year, integrations of businesses especially that large take a lot of time.

There's a lot of distractions.

If you take that distraction, plus the soft market, plus the economy, it's just hard to do.

But with the integration substantially out of the way, we talked about it last call that our full attention was to growing our business.

And as a result of pipelines and as a result of everybody now concentrating on that subject, you saw what the growth of new business could be, and I actually think that with the way our pipelines are, it looks like it's a harbinger of things to come.

Secondly, we took care of telling everybody what the payout would be very early in the game.

We took care of all the guessing.

People knew who was going -- what offices were going to be merged together.

We told people what their payout structure would be.

We did that early in the game.

As a result, people's minds were fresh with the thought of actually doing business.

So when I think you take all of those considerations, even despite the headwinds in the fourth quarter, I think what you saw was what we expected and hoped for, which is very solid growth in North America.

Don, you want to add anything to that?

I would reiterate, Mark, the plan was pretty simple, but not simple to execute.

It was as Joe said, keep the producers.

There's no way we would have achieved 17% growth in new business in Q4 if we didn't keep the people.

We put a good compliment out, we did that early, we gave them something to sell so they felt like they had a good opportunity to deliver value to the client.

Then we put rigor around the pipe lines and got very, very serious about accountability and new business.

Just one follow-up.

The reinsurance segment, what should we think about that in Q1 with rate dynamics recently?

I'll have Peter Hearn answer that.

Peter?

Mark, rates obviously slipped in the first quarter based on the 1/1 renewals, anywhere from 5% to 10% depending on the segment, depending on the line of business.

Again, overall, the delta between the insurance and reinsurance results is still significant.

There will be pressure on reinsurance rates in 2010.

Thank you.

Thank you.

Our next request, from Keith Walsh with Citi at this time.

Your line is open now.

Hi, good morning everybody.

Hi, Keith.

How are you doing?

Good, thanks.

First for Pat, just a clarification around organic growth.

I just want to know, how are you accounting for the $50 million of HRH contingent commissions in the organic growth calculation since they've been converted to regular commissions?

I just want to get some clarification around that.

Pretty simple.

We still have a chunk of things that are still contingent in 2009 being converted as we go through '09 into 2010.

Two big stem things are commissions and fees, and they're shown in commissions and fees accordingly.

The impact in Q4 of any of those, quote, conversions wouldn't be significant on the overall organic growth rate.

As we said, Keith, we were very successful in converting over 90% of the contingent to fees.

Most of that contingents you saw in the first quarter because we just began the process.

By the time you got to the fourth quarter if the underlying question is that -- was there a lot of contingents in the fourth quarter that came from HRH, which bolstered the growth in North America, the answer is no.

There was very little contingents by the fourth quarter.

Most of them you saw in the first quarter of last year.

So there was very, very small contingents left.

Ace said, we converted 90 plus% of them, so this was pure organic growth.

I guess the question, what I'm getting at is a year over year comparison.

If in 4Q '08 there was a lot of contingents, and the way HR used to -- they used to exclude the contingents from the organic growth calculation, and now these are regular commissions, are we doing an apples to apples comparison is what I'm trying to get.

To answer your question specifically, there is not a big impact of what was MDI converting into commissions in fixed.

Then just for Joe, around compensation, I think you touched on this little bit, but just converting the HRH producers to the Willis compensation plan, when did that go into effect, and is this a source of up side for margin in 2010 as I think you've articulated -- when the deal was first done that the HRH plan was richer than the Willis plan?

We put into it effect January 1.

So we announced what we were going to do, but early or midyear last year, but it became effective January 1.

And if you can quantify maybe how this could potentially be a benefit to your margins in 2010.

I think it could be a benefit because I think we put more emphasis on growth.

And we reconfigured the compensation so that I think, A -- everybody was happy.

I believe they were, because you saw our attrition was rather low for a deal of this size.

Secondly, we reconfigured it so people got paid very well for growth, and you start to see the ramifications of that, and hopefully that will continue.

Just to follow up a little bit there, just assuming no growth, you get the same revenue year-over-year, the Willis plan versus the HRH plan, which is better?

It's not as simple to say as what was X% is now Y%.

What [one of the team did] was take the best of both plans, blend it into different (inaudible) -- different segments.

It isn't as simple as saying it used to be X% and thought's a Y% thing.

We do believe in the right areas it will drive better growth, but it's not a simple answer to say --

It is true, though, Keith, that if there is no growth in a producer's book, they won't get paid for that growth -- or lack of growth.

Okay, maybe we could follow up off-line.

Thanks.

Thank you.

Our next request from Jay Gelb with Barclays Capital.

Your line is now open.

Thanks, Joe or Don, the rate impact that you mentioned, I believe down 5% or 6% in the fourth quarter?

6%.

Down 6%?

Yes.

It's just a lot different from what we're hearing from some of the large primary commercial insurers.

Any thoughts in terms of what that disparity could be driven by?

First of all, I think that's always the case.

That's nothing unusual.

You always hear carriers say that they're more disciplined and all this stuff.

All I can tell you is that we track this and have been tracking this for quite a long time.

You've been covering this for a long time, and the fact that remains is that it as 6%.

The only thing I would add, Jay, what you'll see from the carriers typically is no contemplation of new business in their rate calculations, which are significant piece of what happens out there.

So if they are acquiring a piece of business at a lower rate than what it's going for at current, it's not going to be reflected in their numbers.

I think you'll some of the delta reflected in that dynamic.

That's a good point.

Then separately, just the numbers point, the interest income was $15 million in the fourth quarter versus $10 million in the third, but you're saying it should still be the same as it was for the full year, around $50 million in 2009.

Why is that?

We -- remember what I said was, interesting income, pensions and insurance payable taken together will be flat versus 2009.

I would expect that we would be around $50 million or slightly lower in 2010.

I'm sorry, you broke up a little there.

What was that?

I said we should be around $50 million or slightly lower in 2010.

Partly there's two factors.

One is obviously the interest rate prevailing at that time time, but also as we've talked about, we have a forward hedging program that has provided us with increments to that in the past.

We have some of those contracts rolling into 2010, so I would expect net-net that we would get a little less than $50 million in 2010.

Overall the anticipated impact or benefit from foreign exchange in 2010, what would that be?

Not expecting any significant impact one way or the other in 2010 versus 2009.

Thanks.

Thank you.

Our next request from Thomas Mitchell, Miller Tabak.

Your line is open.

Thank you.

The two off lines of interest and earnings of associates and net income attributable to non-controlling interest, after a number of transactions have been done -- I'm wondering if there is some way you can give us guidance as to what we should use for those two figures on a regular basis quarter by quarter.

Well, on the associates line, as I mentioned, following the Gras Savoye transaction, we will be about $10 million lower on that line in 2010 versus 2009.

The seasonal pattern, again Gras Savoye like Willis has significant seasonality so it will be a similar seasonal pattern to '09 and '08, if that makes sense.

On non-controlling interest there shouldn't be an enormous difference in 2010 versus '09.

That in fact is what we used to call [Bernard's interest] no great new news on that really.

Thank you.

Thank you.

Our next request from Meyer Shields with Stifel Nicolaus.

You line is open.

Good morning.

Can you talk about why interest expense is individually wrapped up in the quarter?

Versus last year, the pieces we've got there, $300 million of bonds we issued in the third quarter.

A little bit more of that than we had in earlier quarters.

And then obviously versus last year, we've got the [Goldman] money which we didn't have in fourth quarter of '08.

I'm asking about previous quarters in 2009.

That the $300 million is the difference?

Yes.

The only rate -- all of our debt is fixed apart from actually the term loan and the revolver, which are floating, so the rest of it is fixed.

The only new debt flowing in versus other quarters is the $300 million we issued earlier in the year.

Couple questions on North America, I guess.

Aside from converting HRH contingents to more standard commissions, my understanding is that there was a difference between HRH's overall compensation and what Willis had been able to get from carriers.

Has that been reduced or eliminated?

I don't understand your question.

If you mean that we were able to get higher commissions from carriers than HRH had been able to get, the answer is yes, which is why in large part we've been able to eliminate the contingents.

But was there a difference besides that?

No, it was basically a much more focused plan that we had that addressed differences in the way we were paid by carriers on a branch by branch basis.

And we said very early in the game that the discrepancies were great between HRH and Willis, which gave us a great deal of comfort and confidence that we're able to convert the contingents to commissions.

And as a result, we actually have almost completed 100% in a year that we said we would take three years to do.

We've done it in a year.

So you can check that box off.

Secondly, we believe going forward, irrespective of what happens to contingents that we'll be able to get paid our fair share of what we deserve, because we will not take contingents, if they are sunsetted in the future does not mean that we don't expect to get paid.

Oh, let me ask a slightly different question.

Now that will Willis combined with HRH is a much bigger North American player does, that itself mean that on the legacy Willis business there are higher commission rates possible?

That means that, obviously we are bigger, but our philosophy is that we coordinate our buying under our global placement strategy that we have carrier relationships, where we are very deliberate and directed toward where our business goes as it relates to where our clients get the most and best service and how well we're paid.

So if we're bigger and we consolidate and coordinate that effort, our chances of getting paid more are better.

Okay.

And one question for Grahame if I can.

Is there less sensitivity to rate trends in reinsurance than on the primary side in terms of how it impacts Willis's revenue?

That's probably better for Peter.

The problem with trying to put someone on rate trends is that it can change quarter to quarter, it can change from line of business to line of business.

It can change based on revisions in model output.

So, yes, there is sensitivity to the the same way there is on the retail side.

But again, since our business is more about rate and retention than it is about loss to competitors, it's more growth driven than it is sensitivities to rate.

Okay, thank you.

Thank you.

Our next request from Cliff Gallant, KBW.

Your line is open.

Good morning.

I had two questions about the North American operations.

One, the rate information.

You said rates were down 6% in this quarter compared to 4% in the third quarter, and I was curious is that a trend that you're continuing to see, not just softening, but an acceleration of that?

My second question was just about the new business generation.

I'm assuming if you had 6% down on rates, and then whatever economic pressures you might be facing, that the way you get to 1% organic is through that new business generation, I think you said was 13%.

Is there anything in that new business in particular that's driving that?

Is there a certain class of business or geography or a particular competitor perhaps that's losing business to you -- just more color on how you're doing that.

I'll answer the rate question.

It's early in the first quarter, and obviously we don't have any statistical evidence as it relates to what the rates are doing in this quarter this year.

But we haven't seen any evidence, and I'm looking at Don as I talk -- I'm answering you, that it's any different now than it was at the end of the fourth quarter.

So stay tuned, it looks like it's about the same.

One thing I will add before Don talks about the growth rate is that it's more than just new business.

There's lots of things called one-offs in there, lots of other adjusted factors that make up the net effect of new business.

Don?

On the new business, Cliff, I guess from a geographic standpoint, there's nothing I would highlight to you as being focused -- where the new business came from.

I'd probably speak to more in terms of specialization -- where we specialize we have higher growth rates.

So in particular, if you lacked at our executive risk business, terrific year.

Health care, environmental, M&A, where we specialize in industry and product, we experienced very healthy new business rates.

In Q4 and throughout all of 2009.

Okay.

That's helpful.

Thank you.

Thank you.

Our next request from Matt Haberman with JPMorgan.

Your line is open.

Good morning, everybody.

Good morning.

One quick question.

Could you just clarify, on the comment regarding cost saves in 2010?

I thought I heard you say that the $205 million that you were striving for something similar in 2010, but I'm not sure that's right.

We said that $205 million in '09, and we expect a similar level of synergies plus cost saves in 2010.

So read $205 million?

Yes, something at that level.

All right, so I did hear you.

Thanks for that.

I guess just -- and both for Peter and for Don, can you just talk about whether or not there's any more or less shopping going on now that rates are moving down again?

And can you actually discuss -- to the extent you're seeing that whether that's actually switching from a carrier perspective?

You mean shopping for rate?

Just shopping business and checking things out.

Shopping price, RFPs, things like that?

Correct.

We can both chime in.

From a -- the answer, Matt, yes, there's a ton of shopping going on.

I think the economic environment that we're operating in, along with the rate environment, which is very accommodating to shopping, frankly, has created a lot of activity in that respect.

So keeping business is probably more challenging than ever.

Maintaining retention rate is probably more challenging than are, because your clients certainly are looking for you to drive economies from a premium perspective within their portfolio.

So we see an enhanced level of shopping that goes on, and we continue to see that as we go forward.

People are trying to save money because of the economy, and that's a global issue, and as a result, they're shopping around, where as they might not have done that before.

Peter?

Yes, Matt, I think there are a couple of things you have on the rate side.

You have -- balance sheets are stronger, people are feeling better about their ability to retain more risk, underlying income bases are depressed based on the overall global economy, and reinsurance budgets are constrained.

Having said that the reinsurance market I think has responded favorably to their clients, so there's less shopping by market, and from a business standpoint, absent their Sarbanes Oxley requirements, there's nothing unusual about the level of tenders and RFPs that we see around the world.

Then just a follow-up on the primary side.

Is there any different -- or any distinction you would draw between your specialized businesses and maybe the more flow or traditional business?

Well, there's no doubt that there's certain aspects of your business that are probably more undifferentiated than others.

And to your question, Matt, yes, there probably is more shopping that goes in, in the less differentiated areas of our business than in the specialized areas where we deliver a more pronounced, clear, and quantifiable value proposition, which gets to some of the commentary you've heard already on this call, which is where we specialize, we tend to do a lot better.

We tend to have higher retention rates, and it's a better way for us to run the business going forward.

Okay, that makes sense.

If I could, could we just get the pension expense in the quarter?

The pension expense for the quarter was a little over -- $17 million -- a little over $15 million -- $17 million.

Perfect, thanks.

(Operator Instructions) My last request at this time from Jay Cohen of Bank of America Merrill Lynch.

Your line is open.

Thank you, good morning, everybody.

Three questions.

Two numbers question.

First, can you give us a concern, given the changes in the debt over the past year, what we should think about for a run rate quarterly for interest expense in 2010?

Yes, the run rate we had in the fourth quarter is a pretty representative run rate now.

We're pretty much at run rate for all of the elements of it.

So as I mentioned earlier, we've pulled back to only 600 of it floating, so, the rest of it is fixed, so the run rate in the fourth quarter is pretty representative now.

That's helpful.

Secondly, I also assume that we should use -- assume the tax rate stays where it's been, around 26%.

Yes, I think as I've said, there's some opportunities we've got and we'll continue to obviously look at things on the tax rate but around 26% is the right assumption.

Great.

Last question, bigger picture, are you getting any senses on your business, that the economy is showing any improvement, whether it's in the US or the UK or parts of Europe, any early signs?

Nothing significant.

I'm looking around the room to make sure my answer is correct, that my colleagues know something I don't, but nothing that I could report that is worth reporting, Jay.

Okay.

Hopefully another quarter.

Thanks.

Okay.

Thank you.

Our next request from Brian Meredith with UBS.

Your line is open.

Good morning.

Quick question on capital management.

Joe what do you think share buyback versus continuing to pay down debt here -- would be your preference?

Well, as I said earlier, and I said a call ago or so that we'd like to get down comfortably around 2.5, We're about 2.6 now.

Like to get to 2.5, maybe a little bit under that.

But I am hoping, and it's our objective that we will begin to buy back stock this year.

When that will happen, I can't tell you.

But the strategy stays in place.

Pay down the debt, get to a comfortable level, buy back stock, and that's plan.

That continues to be the plan.

Any acquisitions that we make will be very, very small.

We've already are where we need to be.

And now it's capital management and paying debt down and buying back stock, and thus we're going to continue to do.

Grow the top line, maintain our expense discipline, pay down more debt, buy stock back, and hopefully we have as good a year in 2010 as we did in 2009.

Excellent.

And, do you know what free cash flow was during 2009?

It will be out in the Q.

Terrific.

Thanks, everybody.

Thank you.

Thank you.

And our final request is from Mark Hughes with SunTrust.

Your line is open.

Thank you.

The international operating margin down a little bit the last couple of quarters -- obviously UK, Ireland, currency.

Should we start to see that stabilize?

What's the outlook there?

Don't read too much into that.

The little bit of FX impacts a couple of timing items in the fourth quarter, and then obviously the UK and Ireland, but don't read too much into that.

Stable, perhaps improved going forward?

Yes.

That's accurate.

Thanks.

Thank you.

As I have no further requests, I would like to turn the conference back to management.

Just a quick clarification, just to be crystal clear.

The $205 million of integration and savings I referred to earlier is the same $205 million that Don referred to earlier as non-incremental $205 million -- just to be crystal clear on it.

Any other questions?

I have no further questions.

Thank you very much, everybody.

Have a good day.

Good bye.