Willis Towers Watson PLC (WTW) 2011 Q1 法說會逐字稿

Welcome, and thank you for standing by.

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

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

Today's conference is being recorded.

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

I would now like to turn the meeting over to your host, Mr.

Mark Jones.

Good morning, thank you, and welcome to our first-quarter 2011 earnings conference call and webcast.

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 June 5, 2011, by calling 866-489-2844 from within the US or country code 1, then 203-369-1658 outside the US.

No passcode is needed.

Alternatively, the webcast replay can be accessed through the Investor Relations section of our website at www.Willis.com.

If you have any questions after the call, my direct line is 212-915-8796.

As we begin our call, let me remind you 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 update the results of any update 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, 2010, as well as our earnings press release for a more detailed discussion of the risk factors that may affect our results.

Copies may be obtained from the SEC or visiting 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.

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

Welcome, good morning, thank you for joining our call today.

On the call with me are Grahame Millwater, Group President, Michael Neborak, CFO, and as usual, other members of the management team are also here, and will be happy to answer your questions.

Well, the quarter was great, but it was also simple.

It was a matter of executing on fundamentals and executing on the things that we said we were going to do, and I'd like to take a moment to talk to you about what they were and remind you what they were.

First of all, we said we wanted to undertake an operational review to better align our resources with our growth strategies and generate meaningful savings.

We also said we wanted to take a charge to implement these changes.

We wanted to roll out our growth initiatives, and we wanted to review our balance sheet.

We said that we believed that this would allow us to deliver modest adjusted operating margin and earnings per share in 2011 and meaningful operating margin and earnings per share growth in 2012.

The first quarter of 2011 was fairly straightforward.

We did what we said we would do.

We completed the operational review, and recorded most of the $130 million charge.

We identified and began to realize the anticipated cost savings.

$65 million to $75 million this year, $95 million to $105 million in 2012.

We implemented revenue and cost initiatives.

We successfully raised new debt, allowing us to repay our expensive 2016 notes and improve our maturity profile and, as planned , we delivered modest adjusted operating margin and adjusted earnings per share growth.

Organic growth in commissions and fees continues to be strong, up 4% over the prior-year quarter.

This was led by great performances in our international and global segments, and I'll dig into that in a moment.

Net new business was up 5%, driven by solid new business generation, and higher retention of existing clients, which increased 150 basis points to 93%.

And just as a reminder, we measure that retention on a dollar basis, not on a number of clients basis.

This was partly offset by a 1% headwind from rate and other market factors.

We continued to face familiar issues in the first quarter with economic weakness and soft insurance rates in many countries and lines of business.

Although there has been some change in catastrophe-exposed property, and some other specific lines, there is still substantial capacity in the market and we do not expect the environment to change significantly any time soon, and exposures are basically unchanged.

Let me talk about North America.

The external environment in North America hasn't changed a lot.

The economy is showing some signs of recovery, but at a slow pace.

Jobs are being added slowly, but unemployment remains high.

The rate environment is less of a headwind than it has been, but it is still soft, and there is not much evidence of return.

Exposures are not increasing, as I said earlier, and clients are really not buying that much more.

Organic growth in the quarter was negative 1% with a rate headwind of 1%.

There were a number of projects in the first quarter of 2010 that didn't repeat this year.

We had a lot of one-offs in the first quarter of 2010, which on a comparable basis, obviously, hurt the results in the first quarter of 2011.

Employee benefits, our largest practice, which is 24% of the revenue of North America, had a relatively slow quarter after a very solid growth in 2010.

We expect that to bounce back in the quarters ahead.

Construction practice was down low single-digits, in an industry that is still, as you all know, is under a great deal of pressure.

Even though it is better than it was a year ago, it is still not where we want it to be.

So 35% of our revenue in two practices really makes a big difference in the first quarter, but both of these practices are in good shape, and I believe that these practices will benefit as further jobs are added and the economy improves.

On the much more positive side, we had good growth in our specialty businesses and we did a great job in client retention.

Calculated on, again, a total dollar basis, which is a much harder way to calculate it, not on a per-account basis.

On a dollar basis, retention improved to 94% during the first quarter from 92% in the first quarter a year ago.

That's a 2% jump in the retention business, that's exceptional.

North America's operating margin declined by 160 basis points to 23.7%.

And that was largely driven by lower organic growth commissions and fees, which we talked about earlier, and lower legacy HRH contingent commissions.

That is to say those contingents are being now changed to up front commissions where we pay out on them, rather than contingents that we do not pay out on.

So that had an effect on the margin, and also weighing on operating margin was the planned reinstatement of our 401-k match at the beginning of the year.

Those are all things that had we planned to do and are manifesting themselves in the quarter.

So we had some positive signs.

We don't believe the negative growth will continue.

We feel good about the potential for the North American business, and I think the retention level tells you a lot about the stability of that particular business.

Let me talk about international, which continues to shine.

International continues to deliver strong growth, reflecting the strength of our extensive international network.

Organic growth and commissions and fees were 6% in the quarter.

New business generation remains high, in the double-digits against the rate headwind of 1%.

Latin America, Asia, Eastern Europe, and Africa all delivered double-digit growth with strong contributions from Venezuela, Brazil and Chile in Latin America, China and Korea in Asia, and South Africa.

Continental Europe grew mid-single-digits, a good result, given the economic pressures that number of countries in the region continue to face.

Growth in the region was led by Spain and Germany.

The UK and Ireland business had a very good quarter, and especially, I want to single them out, because if you consider the economic environment in those countries, they really did extremely well.

The UK-GDP growth was essentially flat in the first quarter, after being negative in the fourth quarter.

And Ireland, as you all know, is still under a lot of economic pressure.

This makes the single-digit growth impressive and was driven by strong new business generation and higher client retention.

International operating margin was 29.8%, down from 32%, 32.2% a year ago.

While we had strong organic commissions and fee growth, this was more than offset by planned investments to fund growth.

This was planned, this was additional head count that we added in international to fuel a wonderful fire that is going on in our international operation.

Including a year ago, we had added 150 positions and higher incentive compensation.

So what we're doing is investing in international, because it is delivering.

The global business segment, comprised of reinsurance, global specialties, London markets, wholesale, and Willis Capital Markets also performed well, delivering 8% organic growth.

Reinsurance, mid-single-digit growth, double-digit new business growth with particular strength in North American reinsurance.

Much of the focus is now on the pricing outlook for natural perils, reinsurance as a result of the cumulative impact from global catastrophes, and the RMS 11 model changes.

There is still plenty of natural catastrophe capacity, even across most lines of business and geographies where prices are expected to rise.

The catastrophe renewal rates in Japan at April 1 saw significant rate increases.

US property catastrophe pricing has stabilized.

Still, very limited evidence of price stabilization or increases in classes outside of the natural catastrophe.

Willis Capital Markets and Advisory had a strong quarter, on the back of increased M&A advisory activity.

As we have said before, this business can be lumpy due to the nature of the transactions, and its flow.

But please -- we're very pleased with the results and continue to build the pipeline.

The London market wholesale business had positive growth in our global markets international business, partially offset by weakness in Faber & Dumas.

Still impacted by soft wholesale market and continued pressure on economically-sensitive lines such as bloodstock, jewelry and fine arts.

Operating margin was a seasonally-high 48.5%, compared with 46.1% in the first quarter of 2010.

Strong growth in commissions and fees and favorable foreign currency movements were partially offset by investments to fund growth, including higher incentive compensation.

Let me just talk a little bit about the operational review and delivering the cause and Grahame will give a little bit more detail about that in a second.

As I said in the last quarter, 2011 is an important year for us.

We're trying to realign our business model to deliver our value proposition, so we get the right people in the right place against delivering value proposition.

We call that the Willis Cause to all of our segments, in a differentiated most efficient and consistent way.

We're trying to implement target operating models, making sure we have the right people, the right places across the globe, and making maximum use of our regional service centers, and offshore locations.

We're aligning our global retail network to deliver synergies from more consistent application of business practices and procedures, so that we work together synergistically to offer the best product and the best services to our clients.

We're bringing together the great skills and knowledge of our global businesses to maximize the opportunity in that area.

And we're making sure we have the right people, properly incentivized to take us where we want to go.

So this year is an a year where, we call this year the year of the Willis Cause, where we significantly want to prepare ourselves so that 2012 is a break-out year.

And as I said earlier, it is all developed around the Cause and the restructuring and everything we did is to allow us to continue to grow our margins at a very, very significant rate, because we're tired of the modest that we talked about in the last quarter.

So we're aggressively implementing this program and strongly believe that along with the cost savings we expect to achieve, will position us to deliver accelerated margin growth and earnings per share growth in 2012.

And because we keep talking about the Cause, what I've asked Grahame to do is to get more specific as to what it is, so that you can understand that it is not sloganeering, that it is real in-depth things we're doing inside the Company to allow us to grow our value proposition.

Thanks, Joe.

As Joe just mentioned, much of the realignment we've done is aimed at putting the Willis Cause business model into place.

What do we actually mean by the Willis Cause?

Excuse me if I spend a little bit of extra time on this, but we need to introduce it as it will feature in the calls going forward.

Fundamentally, the Cause is not rocket science.

It is a simple statement of what we feel we have to do extremely well to distinguish ourselves in the insurance and reinsurance broker sector.

We are actually at the point that we feel we are ready to focus our considerable execution ability on truly differentiating Willis in the eyes of our clients.

This execution ability has been proven, and we've seen it.

Let me give you a few examples.

Delivery of shaping our future.

We targeted $100 million of net benefits in 3 years.

Under this program, we delivered more than $150 million.

Delivery of the HRH integration, for which we had synergy targets of $100 million and the right-sizing during the financial crisis, the combination of the HRH integration synergies and right-sizing Willis delivered over $200 million of cost savings.

Realignments of our organization and senior team, we've aligned our retail businesses, as Joe said, to drive consistency and synergies, and we've created Willis Global as a power house of global knowledge, expertise and access to markets globally.

The execution of our operational review this quarter, we said last quarter we would undertake the review, and take a charge.

We've executed that over the past 3 months.

All of this has brought us to the point where we feel we have the capabilities, we have the positioning, we have the team, and we have the motivation to take the Company to the next stage.

And that next stage is delivery of the Willis Cause.

Now, let me go briefly through each component of the Cause, and how we believe we have laid the foundations for future success.

The first element is, we thoroughly understand our clients' needs and their industries.

Again, a simple statement, but if we're going to do this to the excellence that we want to, it means we have to change our model, and we have been busy putting that into place.

Let me give you a few examples.

The analytical capabilities we built in Willis Re are now extending into our retail business, including our Willis Research Network.

Our global solutions business we're building for global accounts, and just a reminder, we hired Martin Sullivan to drive that business going forward.

Our industry-focused new sales and client management process in the middle market.

This is a deeply analytical and industry risk-focused process, revolutionary in many ways, but incredibly well-received by our sales professionals as we roll this process out in the US and Europe.

The commercial network franchise model, focused on the small commercial clients.

This is a model we built in the UK and now are rolling out systematically globally.

The developments of our Willis Re proposition, aligning our analytics, our advisory, our treaty reinsurance, facultative reinsurance, and capital market access.

So that was the first, basically foundations for the first element of the Cause.

The second element of the Cause is we develop client solutions with the best markets, price and terms, again another simple statement.

But look at what we're doing to lay the foundations.

We have built our global capabilities in global specialties, global markets and global placement organization.

Our placement model, emphasizing the partnership we have with our carrier partners, and the data analysis we're creating to support that partnership.

The creation of Willis Capital Markets advisory to access capital other than just insurance, or reinsurance companies.

The third element of the Cause, we relentlessly deliver quality client service.

We have target operating models in place, as Joe said, across our global businesses, driving how we optimize excellent client service, but at efficient cost.

We've built our client service hubs in Ipswich, Nashville, and critically, Mumbai, and continue to drive non-sales functions and processes to those centers.

We have plans to extend those hubs into Latin America, Asia and Europe.

We're rolling out process and technology change to support this.

We talked about a lot of this over the past 3 years.

We have completed that rollout in our global direct businesses, are just completing our rollout in our UK retail businesses and starting the rollout in our reinsurance and North American retail business.

The fourth element of the Cause, we get claims paid quickly.

We believe we do this well already and we do have great claims professionals.

We're starting to look at the process, though, of how we can align these professionals even more effectively, to be more effective and distinctive in our performance because at the end of the day, paying the claim is what our clients want fundamentally, when they have an event.

We've also created the Willis quality index, which measures carrier service performance, and particularly focuses on claims payment performance.

This is a totally unique index in the insurance sector.

Finally, we do all of those 4 elements of the Cause with real integrity.

We believe we have a global reputation with our client base for openness, partnership, and trust.

Our starter issues like contingents and transparency has enhanced that position significantly.

We also believe that Willis, more than any other broker, has a reputation for team work and an integrated global offering, and a culture internally of working with one another and supporting one another that is truly distinctive in the brokering sector.

We intend to build on this culture and believe it is very, very difficult for our competitors to replicate.

So the story of Willis in the past 10 years has been of financial turnaround, building a reputation, filling out the platform and capabilities, navigating financial turmoil and navigating an extremely soft insurance market.

However, even against that backdrop, we have consistently delivered the highest organic revenue growth in the sector year after year, quarter after quarter.

We believe this organic revenue growth is also high-quality, and sustainable, in that we don't take contingent commissions or the like.

The next stage of the story is how we take that platform and reputation and via delivery of the Cause, offer a truly distinctive client proposition that in turn delivers even greater organic revenue growth.

All our efforts will now be aligned with this program including shaping our future, which will be subsumed into the Willis Cause project.

Our new cheer leadership team are excited, motivated and financially aligned to execute on this next stage, and our execution machine is now turning relentlessly to that objective.

With that, I'll turn it over to Michael Neborak, our CFO, to review the financial results.

Michael?

Thanks, Grahame.

Let me begin by discussing a few important components to the financial results.

As described in our press release, we recorded a $97 million charge in the first quarter related to the operational review.

$82 million was recorded on the SMB line, $11 million was recorded to other expenses and $4 million was recorded to depreciation.

The total charge in 2011 will be approximately $130 million, the balance will be recorded over the remaining quarters.

Total cost savings in 2011 will be approximately $65 million to $75 million, and will be weighted towards the second half of the year.

Approximately 60% of the cost savings will be compensation-related.

And in the first quarter, cost savings were realized against this operating review that we did, of $3 million.

As Joe mentioned, annualized cost savings in 2012 are estimated at $95 million to $105 million.

When we anticipate the expense split between SMB and other expenses on the remainder of the charge, will be approximately 50-50.

As mentioned on our last call, we focussed on a number of balance sheet actions this quarter.

We launched a successful senior notes issue, raising a total of $800 million, $300 million of 5-year maturities at a 4.125% coupon and $500 million of 10-year maturities at a 5.75% coupon.

With the proceeds, $465 million of our 12.875% 2016 notes were redeemed.

We also called for redemption the remaining $35 million of these notes and executed this redemption early in the second quarter.

As a result of these actions, we booked a charge totaling $171 million, including a make-whole premium of $158 million and $13 million related to the write-off of the original debt issuance costs.

Interest expense should be approximately $35 million per quarter for the remainder of 2011.

With more in-the-money stock options, average diluted shares outstanding increased to 174 million during the quarter, versus 170 million in the year ago quarter.

If our stock price remains in the low $40s, average diluted shares outstanding will increase to approximately 175 million.

As we noted in our recent 10-K, our segment reporting changed to reflect the way that we now manage our business internally.

The 2 changes were, first, the movement of our global markets international business from the international segment into the global segment, with a revenue movement of approximately $120 million.

Second, the movement of a relatively small Mexico retail business from international into the North America segment.

This change had no impact on North America's organic growth.

All of the quarter-by-quarter segment data in our press release was restated to reflect these changes.

We also will file restated 10-K MD&A and financials to reflect these updates.

Turning to first-quarter results, reported earnings for Q1 2011 were $34 million or $0.20 per share.

These numbers were impacted by costs from the operational review, equal to $97 million and costs from the repurchase and redemption of our 2016 senior notes, equal to $171 million.

After adjusting for these items, net income was $223 million or $1.28 per diluted share, up $0.01 from Q1 2010.

Adjusted EPS benefited by $0.04 per share, and adjusted operating margin benefited by 70 basis points, due to favorable FX movements.

The positive FX impact was principally the result of a swing from hedging losses in Q1 2010, to hedging gains in the current quarter.

US dollar weakness against the Australian dollar and Japanese yen, which increased revenue.

Both of these positives were partly offset by US dollar weakness against the pound sterling, which increased expenses.

Our total reported revenues increased 4% to a little over $1 billion, compared to the year ago period.

Both reported and organic commissions and fees also grew 4% in the first quarter to $1 billion.

It is important to note that the reported commission and fee growth of 4% was positively impacted by 50 basis points in foreign exchange movements and reflected a decline of $4 million in legacy HRH contingent commissions.

As we noted in our earnings release, a change in accounting treatment in a specialty business in our global segment resulted in a $6 million favorable impact to total commissions and fees in the quarter.

That change had a 2% favorable impact to the global segment's organic commission fee growth, and a 60 basis-point favorable impact to consolidated growth.

Total investment income of $8 million was down slightly from the year-ago period.

We continue to estimate that full-year 2011 investment income will be approximately $30 million.

Included in fiduciary assets on the balance sheet was fiduciary cash of $1.75 billion, flat to the balance at year-end.

Please note that the majority of fiduciary cash is US-dollar denominated and tied to US interest rates.

Total operating expenses were up $99 million or15% to $770 million, compared to Q1 2010.

Of this increase, substantially all, or $97 million related to costs associated with implementing the operational review.

Salaries and benefits were up $98 million to $584 million, or 58% of total revenues in the current quarter, compared to $486 million or 50% in Q1 2010.

The increase in salaries and benefits was primarily due to severance and other costs totalling $82 million, associated with the operational review.

Excluding charge-related expenses, the ratio of salaries and benefits to revenue, was in line with the year-ago level at 50%.

In Q1 2011, salaries and benefits included $44 million of expense, related to the amortization of cash retention awards, compared to $28 million in the year ago quarter.

Cash retention awards are paid primarily in the first quarter of the year.

In the current quarter, cash retention awards paid were $195 million, up from $169 million, in the year-ago quarter.

$44 million amortization expense is a reasonable quarterly run rate.

Included in first quarter 2011 SMB expense was around $3 million related to reinstating the 401-k match.

We expect the full-year 401-k expense to be approximately $10 million.

As we said on our last call, we reinstated salary reviews in 2011, effective April 1st.

Other operating expenses were up $4 million or 3%, to $153 million in the first quarter of 2011, compared to $149 million in the year-ago quarter.

The absence of charges related to the devaluation of the Venezuelan currency in Q1 2010, were more than offset by costs in the current period associated with the operational review, and increased systems costs in support of our growth initiatives.

Finally, on the expense side, depreciation was approximately $20 million, representing an increase of $5 million, from Q1 2010.

The increase was largely due to systems rationalization costs related to the operational review.

Depreciation should run approximately $17 million per quarter throughout the remainder of 2011.

A little bit about operating margin, adjusted operating margin was 32.8%, up 60 basis points versus Q1 2010.

This margin was positively impacted by our continued growth in commissions and fees, and favorable foreign currency movements, partially offset by higher incentive compensation.

On the tax side, income tax expense for the quarter was $1 million, compared to $67 million in the year-ago quarter.

The book tax rate was 4%.

After adjusting for the net effect of non-recurring items, the underlying tax rate for the quarter was 26%.

The effective tax rate for 2011 also should be approximately 26%.

Income from associates was $16 million compared with $20 million in the year ago quarter, primarily reflecting performance of Gras Savoye.

At this stage we do not expect income from associates in 2011 to be significantly different from what we recorded in 2010.

Our UK, US and international defined benefit pension plans had a combined surplus of approximately $46 million at March 31st, up from approximately $15 million at year-end 2010.

Pension contribution payments, were $30 million in the quarter, and we expect to make cash contributions to our pension plans of approximately $130 million for all of 2011.

Pension expense in the quarter was $3 million, versus $7 million in the first quarter of 2010.

Total debt was $2.6 billion at the end of the first quarter, up from $2.3 billion at the end of 2010, reflecting the issuance of $800 million of new debt, reduced by the repurchase and redemption of our 2016 notes.

The leverage ratio, as calculated under the bank loan agreement, was approximately 2.7 times at the end of the quarter, and note during March we amended our bank loan agreement to increase the leverage ratio for stock repurchases to 2.75 times, up from 2.5 times.

This action provides us with flexibility to allocate capital more efficiently in the future, and to mitigate the increased share count from option exercises.

Cash and cash equivalents were $432 million, up from $316 million, at the end of 2010.

With that, I'll turn it back to Joe.

Thanks, Mike.

So the roundup of all this is that we put in place the foundations for our future.

What we said in the first -- at the end of the year call, in February, is that we were tired of moderately growing our earnings per share and moderately growing our margins.

And what we wanted to do was put ourselves in a position to be significant.

Significant not only from the point of view of differentiation, from our competitors, with regard to our value proposition, but significant with regard to differentiating ourselves in terms of growth of margin, and growth of earnings per share, and everything we did in the first quarter is not only what we said we would do, but put us in position to be able to do that.

We'll be very glad to answer any questions that you have.

(Operator Instructions).

One moment, please.

Our first question comes from Mark Hughes of SunTrust.

Thank you very much.

With the change in the covenants about the share repurchase, what are your thoughts about how soon you might restart that?

Well, as you heard -- good morning, Mark.

Good morning.

As you heard Mike say, we amended with our bankers the ability to be able to repurchase stock if our debt to EBITDA was under 2.75.

We are currently at the end of the quarter at 2.7.

We have a share count that's gone up.

So obviously, one of the things that we're going to be looking at, as the year goes on, is the ability to be able to do that.

So that's on our radar screen.

We put ourselves in a position to do that, and we're going to look very carefully at doing that as the year goes by.

And then any thoughts about pension contribution next year, you have little bit of a surplus here, you're going to make a sizeable cash contribution this year.

How is that shaping up next year?

Any early thoughts?

It is too early to talk about where it shapes up as it relates to next year, but we have been historically very dutiful as it relates to being able to make the contributions, so that the pension fund is intact and our associates feel good about the fact that the pension fund has always been in a very positive position.

So you can look forward to that happening, but it is too early to tell you what that will be.

Thank you.

Thank you.

Our next question comes from Adam Klauber from William Blair.

Good morning, thank you.

Good morning.

I've got a question or two about growth and compensation costs.

When we compared this quarter's compensation costs compared to 1Q, 2010, excluding the charges, it seemed that compensation costs grew by only $16 million or $18 million.

But I thought that overall compensation costs were increasing at least by $100 million annually.

That is suggested to be more like $25 million.

It seemed like there was almost no growth in comp costs with exclusion of the amortization.

Is that correct?

Well that is partially correct but there is a number of items in 2010, that didn't repeat, so that the 2010 base is higher than what you're looking at.

There is also a couple of items in 2011 in the first quarter, so when you go through it, and you kind of sort through all that stuff, the compensation costs are really up over $20 million on apples to apples basis.

Okay.

So when we think about it going forward again, you gave us the amortization number going forward, and you said some of these salary increases are going to kick in.

Aside from that, should we assume there's not going to be a lot of growth in comp costs besides those two factors going forward?

The three comp -- going forward, what you heard, Adam, was that we began salary reviews April 1.

So that's going to kick in.

You're going to have the continuation of the contribution of 401-k which began at the beginning of the year.

And, of course, you have the amortization, the very large amortization of the retention award that you're seeing this year.

As it relates to next year, the 401-k will continue.

The compensation reviews, the salary reviews will continue, but the amortization, as we said, in the call last time, are not going to increase as dramatically next year as they did this year.

So as a result of all of that, you should see modest growth next year in compensation.

Okay.

And as far as -- just one follow-up -- as far as the cost savings, you mentioned there were $3 million this quarter.

What sort of ramp, is that going to be more third and fourth quarter or can we see more evidence in the second quarter?

You'll see more evidence in the second quarter, but the biggest increases or reductions in our cost base will occur in quarters three and quarters four.

Okay.

Again, the number we're citing for all of 2011 is somewhere between $65 million and $75 million.

Okay.

Great.

Thank you very much.

Thanks ,

Our next question comes from Vincent DeAugustino from Stifel Nicolaus.

Good morning.

Good morning.

I just had one question and a numbers question afterward.

I'm pretty sure I had seen the Willis Capital Markets and advisory enacted on the recent Chaucer deal, I'm just curious from Willis's standpoint, if you have any insight on carrier M&A consolidation as the soft market drags on?

In short, would you expect to see heightened transaction volumes in the coming quarters?

We were very -- first of all, we were very proud of Willis Capital Markets.

We were very involved in two very significant transactions, as you know.

You pointed out one of them.

And I would say that if your question is, is that -- is there a pretty vibrant pipeline as it relates to M&A activity?

The answer is yes.

I guess just on the numbers question, if corporate and other operating expenses were $103 million and there was the operational review charges of $97 million, so X those charges we would be looking at a corporate and other operating expense of about $11 million?

I just wanted to make sure there wasn't any other adjustments to get that in a more normalized number for the quarter?

It is pretty close.

If you adjust it -- a couple of thing -- it is about a $15 million increase, versus the first quarter of 2010, so you're close, you're very close.

You're right.

You're right on.

That's all I had.

Thank you.

Thank you.

(Operator Instructions).

Our next question comes from Donald Chen of JPMorgan.

Hey, good morning.

Good morning, how are you doing?

Good, good.

My first question is on the US market.

A number of competitors are showing improving growth rates, I guess.

Can you provide some color and views on the competitive landscape in the US and are there any constraints to the Company's growth in the market?

We have no constraints whatsoever.

I'll take the last part first.

We're very excited about where we are in North America.

You have to remember when you compare us to our competitors, over the last couple of years we made the biggest acquisition in 10 years in the insurance brokerage space in 2008, which was the worst possible time you could do it.

Not only did we do it, but we retained most of the people, we retained most of the revenue, and the margins went up.

And last year, if you look last year we were flat in North America with regard to revenue, I think we did quite well, especially given the fact that a lot of the acquisition had to do with employee benefits business and had to do with construction business.

I pointed out in this quarter our retention was 94%.

When you look at it on the whole, and our growth for new business has been very, very strong, I like the position that we're in, a great deal.

When you looked our competitors in terms of a frame of reference, and you said that you had some growth, you have to remember that in most cases, almost all cases, they were negative last year, versus where we were.

So when you look at it against a comparative point of view and you look at it holistically, we are very, very pleased about North America, and very, very pleased with our direction.

Vic Krauze, who is the Chairman and CEO of North America is here.

Vic, you want to add anything to that?

Thank you, Joe, and we are very excited about where we're going in 2011.

I expect that a lot of the work that we have been doing over the past six months is going to start coming to fruition.

We have spent a lot of time focus on sales training, changing how we actually work and approach our clients and our prospects, and I think that things will be improving as we go forward.

Okay?

Great.

I have a follow-up.

Is the turmoil in the cat reinsurance market creating any revenue opportunities.

More specifically, if rates increase in US cat reinsurance market, will demand and volume increase enough to help revenues materially or will client demand offset rate increases?

I will ask Peter Hearn, the Head of Willis Re, to answer that question for you.

Peter?

Thanks Joe, Donald.

There are two forces at play here.

One is loss in the international market and one is model change in the US.

Yes, model change will impact the demand for more capacity.

There is more capacity in the market.

And in the international market, loss activity will drive increased reinsurance pricing, and it will increase demand, as well.

Great.

That's helpful.

Thank you.

Thank you.

Our next question comes from Mark Hughes of SunTrust.

Any comment on the North American benefits business?

How did it do this quarter?

North American benefits business, as I said, in my earlier comments, was slower than it was last year.

Last year it grew significantly.

It was slow in the first quarter of this year, it's 24% of our revenue.

So as a result, that was one of the reasons we were down one.

But we expect that to pick up as the year goes through.

Yes.

And then you mentioned there was some one-offs in 1Q 2010 that dampened growth a little bit.

But as you look over the next couple of quarters, anything else we should keep in mind when we think of year-over-year comps?

No, I don't think you'll have the same significant -- there were a lot of one-offs last year, and therefore this year, I don't see the same thing.

It was a quarter that was unusual with regard to those one-off items and therefore on a comparative basis you see that showing up.

But as I'm thinking about it and I'm looking at Vic, I don't see any of that.

There were some significant construction projects we had in the first quarter that we didn't have in this quarter.

But I think that will be more normalized going forward.

Thank you.

All right?

Any other questions?

There is no further questions.

Thank you very much, everybody.

Have a great day.

Bye-bye.