Willis Towers Watson PLC (WTW) 2011 Q3 法說會逐字稿

Welcome, and thank you for standing by.

At this time, all participants will be in a listen only mode.

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

(Operator Instructions) 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 Mr.

Peter Poillon.

You may begin.

Thank you, and welcome to our third 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 November 25, 2011 at 11.59 PM Eastern time by calling 866-495-6480 from within the US, or country code 1 then 203-369-1769 from outside the US.

No pass code is needed.

Alternatively, 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 212-915-8084.

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 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 10K for the year ended December 31, 2010 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 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 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.

Thank you, Peter, and hi, everybody.

Welcome, and thank you for joining our call today.

On the call with me today are Grahame Millwater, our Group President, Vic Krauze, CEO of North America, Michael Neborak, Chief Financial Officer and as usual, other members of the management team are also here and will be happy to answer all of your questions at the conclusion of our prepared remarks.

First of all, I want to tell you that I feel good about the quarter and how the Company is doing.

Even the North America segment, once you adjust out for the impact of Loan Protector, which I will get into momentarily, had flat organic growth in the face of an uneven pricing market and as you all know, continued difficult economic conditions.

I mentioned in my quote in the press release that this quarter's earnings were complicated by a number of factors, and I appreciate that that's an understatement.

We believe that many of those factors are either non-core to our business or otherwise not generally considered in analyst estimates.

And I'd like to start off right away by walking you through those items in some detail.

And hopefully, this will make the earnings that little bit easier for all of you to understand.

In the third quarter of 2011, we reported earnings of $0.34 per diluted share.

There were 2 non-core items that had a significant negative impact on this measure and one core item that had a relatively smaller impact.

First, we had a $15 million charge for our 2011 operational review.

We have discussed our operational review during the past 3 quarterly calls, and we told you that we expected to take charges throughout 2011.

And Mike obviously we will discuss this in further detail on the call.

The current quarter charge equates to about $0.06 per diluted share, and there is a further $0.01 adjustment to our senior note redemption.

And as we have done in previous quarters, we adjusted those charges out of our reported earnings and disclosed adjusted earnings per diluted share our $0.41.

Second, the poor performance of the Loan Protector business included within our North America segment that places loan protection insurance primarily for mortgage services.

Loan protector achieved strong earnings and margin growth in the third quarter of 2010 and really throughout all of 2010 and into the first quarter of 2011.

Unfortunately, starting in the second of this year, that performance has fallen off significantly, primarily due to the loss of clients through either attrition or M&A activity.

Also, there was industry wide commission pressures and a general slowdown, as you know, by banks in starting foreclosures on delinquent properties.

We expect this negative trend to continue in the fourth quarter of 2011.

The earnings impact from the drop off in Loan Protector performance was $0.05 per diluted share.

This is the delta from the third quarter of 2010 to the third quarter of 2011.

And lastly, during the third quarter of 2010, we reported to you that we have taken a $7 million benefit in other operating expenses related to the release of a previously established legal accrual.

In the third quarter of 2011, other operating expenses were similarly favorably impacted by a release of funds related to potential legal liabilities, but only by $5 million.

That differential of $2 million had a $0.01 per diluted share negative impact quarter over quarter.

Combined, those negative items added up to $0.13 per diluted share.

Now, we also recorded a few items that we consider to be non-core of nature that had a positive impact on this quarter's reported earnings per diluted share.

First, we recorded an adjustment to our taxes to update our full-year estimated tax rate from 25% to 22%.

This is essentially a positive catch up since we booked our first two quarters' taxes at an estimated effective rate of 25%, as previously disclosed.

Mike will take you through that later in the call.

The positive adjustment came to $0.05 per diluted share.

Second, we recorded revenues in our reinsurance business that may or may not recur related to a profitability initiative in that unit, and that resulted in $0.02 per diluted share.

And finally, as we discuss every quarter in our press release, favorable foreign exchange increased earnings per share relative to the third quarter of 2010 by $0.01 per diluted share.

Combined, if you take all those items, all of which has a positive impact on our reported earnings, it added up to $0.08 per diluted share.

Therefore, we have earnings of $0.39 per diluted share, which is the non-GAAP measure slightly different than our defined adjusted earnings per share.

But we wanted to present it in this quarter, because it provides even more clarity to investors regarding the underlying business.

I also want you to know that having said all that, our goal is to provide uncomplicated earnings in the future and to do that simply by growing revenues across our segments, controlling expenses and improving our margins.

And we expect to do better, and that is why we have undertaken our initiatives in 2011.

As a reminder, and at the risk of being repetitive to earlier quarters this year, we set out clear goals for what we wanted to achieve this year, and I just want to remind you what we said.

One, undertake an operational review to better align our resources with our growth strategies and generate meaningful savings.

We think we have done that or are doing that.

Two, take a charge to implement these changes.

We have done that.

We will talk about that more.

Roll out growth initiatives.

We have done that, and we will talk about that some more and review our balance sheet, and we have certainly done that.

So I'm pleased with the progress we have made on these very important initiatives.

And during the third quarter, we recorded a $15 million related to the operational review and year-to-date, we have recorded $130 million.

Also during the quarter, we identified additional opportunities to achieve efficiencies, and we now expect the full-year charge for the operational review to be $160 million, which will have a positive effect on next year's expenses, and Mike will talk about that later on.

Importantly, we realized about $48 million in savings year-to-date, and we now expect that the operational efficiencies will result in full-year cost savings in 2011 of approximately $75 million and that the Company will achieve annualized cost savings of approximately $115 million to $125 million beginning of 2012, and that is significant.

You already know about our debt refinancing that we completed earlier in the year.

That is already saving us money on an interest -- on our interest expense line.

Grahame will update you on some of our revenue initiatives later on in the call.

In previous quarters, I said that we expected these actions would help us deliver modest growth in both adjusted operating margin and adjusted earnings per share in 2011.

Even as we knew costs would increase from higher retention award amortization, reinstatement of salary review and reinstatement of 401K match.

At the time of those statements, I did not foresee the significant deterioration in the financial results of Loan Protector.

In 2010, Loan Protector contributed about $41 million to our earnings before income taxes and achieved higher than our average margin.

We expected similar results in 2011.

However, due to the unanticipated decline in Loan Protector's business due to reasons I mentioned earlier, we currently expect that it will contribute approximately $10 million to $14 million to earnings before income taxes in the full year 2011, and its margins have compressed significantly.

As you know from reading the press release, we have accordingly modified our expectations for 2011 adjusted earnings per share and margins.

Our expectation is that full-year 2011 adjusted earnings per share will fall in the range of $2.70 to $2.80 per diluted share.

That takes into consideration the significant negative impact that Loan Protector has had on our earnings year to date and the expected impact in the fourth quarter.

It also takes into consideration the stubbornly difficult economic conditions encountered throughout Europe and the US.

Those are our two largest revenue generating markets, and both are tracking below our expectations.

That earnings range does not include any impact positive or negative from foreign exchange of the fourth quarter of 2011.

As mentioned in our press release, we also expect to achieve full-year adjusted operating margin in the mid 22% range.

However, I continue to believe that delivering the Willis Cause to our clients, together with our other revenue initiatives and the efficiencies we are achieving from our operational review, will position us to drive significant growth and adjusted earnings per share and adjusted operating margin in 2012.

Now, let me provide you with some details behind our organic growth in the quarter.

Organic growth in commissions and fees was up 2% over the prior year quarter, a very good result given the conditions.

That growth was led by our global and international segments.

North America was down 4% compared to the prior year, however, as I just discussed, Loan Protector was a big driver of the disappointing results.

Excluding Loan Protector from both periods, North America's organic growth would have been flat.

And I will talk more about the segments in a moment.

The net new business was up 2%, driven by double-digit new business generation and the retention of existing clients, which increased to 92%.

During the quarter, for the first time in a while, rates did not have a negative impact on our growth, essentially rates overall were flat to slightly down year-over-year.

Any improvement in rates will benefit our top line significantly.

As 70%, as you all know, of our revenues come from commission on a worldwide basis and 80% of North America's revenues are commission-based.

We already have seen some firming and loss effected areas where there have been specific events.

Workers comp rates in some states in North America are showing signs of rate increase.

Property rates on a global basis for cat or loss affected accounts are rising, and RMS 11 is impacting both North American and European property cat exposures.

However, this firming is being offset by continued softening of rates in areas where there is excess capacity.

For example, D&O is still seeing double-digit decreases, and aviation is seeing moderate decreases.

But overall, there is still plenty of capital.

So, as soon as the rates start to harden in one area, capital is being quickly deployed, and this is keeping pressure on rates overall.

But I would say that obviously, given the economics that carriers that are now experiencing, the pressure on rates to go up will continue to be the discussion simply because interest is down, combined ratios are up, and obviously, that's the reason why rate is constantly being discussed, and it is something that we have to keep an eye, and we can discuss later on if you want to.

In addition, the external environment remains difficult and really hasn't changed much since the last conference call.

In fact, the economic news out of the US and in many of the European countries including the UK has been pretty bleak and has gotten worse.

And exposures, too, are basically unchanged.

Now, let me talk more about our segments.

In North America, our underlying business remains in good shape, as I said earlier, in spite of some familiar challenges.

The overall insurance rate environment is still not positive but is less of a headwind than it has been.

Exposures aren't increasing, and clients aren't buying more, and we have still got a weak economy and high unemployment, meaning tough operating conditions for our middle market clients, which as you know as a reminder, is the mainstream of our business in North America.

Against that, flat economic growth excluding Loan Protector was really not a bad outcome, although I will tell you that we expect better.

New business generation was in the low double digits while client retention calculated on a dollar basis, not a client basis, remained at a solid 92%, and you need to know that our goal is 95%.

In terms of geographies, we saw good growth from South and Atlantic regions.

Employee benefits, our largest practice, was flat for the quarter.

That was a pretty good result given the stubbornly high unemployment that we still have in the US.

Construction, our next largest practice, was up single digits.

Also a pretty good result given at continued tough conditions in that industry.

Our tech and telecom practices had great quarters -- had a great quarter, growing double digits.

Additionally, financial services and executive risks did well.

So, as I said, the underlying business in North America remains in good shape.

Looking at the margins this quarter, the decline in commission and fees primarily as a result of the decline in Loan Protector business, partially offset by cost savings, primarily from the operational review, drove the 180 basis point decrease to 19.5%.

Now, 180 basis points is a lot, especially when you consider how much the contribution in 2010 came from Loan Protector.

In international, although the third quarter is a seasonally light one for international, the segment had another quarter of growth, reflecting the strength and the diversity of our extensive network.

Organic growth in commissions and fees was 5%.

New business generation remained in the double digits against a rate headwind of 1% while retention grew to 93%.

Latin America and Eastern Europe delivered double-digit growth with strong contributions from Brazil, Chile and Argentina and Latin America and Russia in Eastern Europe.

Asia Pacific was flat overall, strong double-digit growth from China and Indonesia was offset by negative growth in Australia.

Continental Europe continues to be at economically pressured.

In that tough environment, we grew low single digits.

Growth in the region was led by Sweden, Norway and Germany and offset by Denmark and the Netherlands.

The UK and Ireland businesses was down slightly, although retention was up slightly.

The decline there also effects -- reflects the ongoing weakness in economic growth and employment in both countries.

Margin -- operating margin declined 240 basis points to 1.9%.

Higher amortization of retention awards and continued investment in future growth were the primary drivers of the margin decline, partially offset by favorable foreign exchange movements.

Let me now talk about our global businesses.

The global business segment comprising reinsurance, global specialties, London market wholesale and Willis Capital Markets performed strongly, delivering 9% organic growth.

Reinsurance maintained strong growth momentum, growth was driven primarily by renewal business, with particular strength in Asia Pacific and North America.

Secondarily, we also had some revenues that may or may not recur, related to reinsurance business profitability initiatives that helped the quarter.

In terms of the reinsurance market overall, the rating environment is generally flat, although varies by line, geography and client size, EG Aviation down, energy up.

Reinsurers are seeking pricing increases based on most recent model changes in Europe, but buyers are resisting.

US reinsurers are noticing some positive rate trend on catastrophe affected property as a function of loss activity and changes in modeling exposures.

Signs of reinsurers revisiting their diversification strategies with some pulling back from second third quarter tier third -- second and third tier territories and are requiring higher pricing.

Overall, pricing buyer versus seller is finally balanced.

Global specialties had mid-single-digit growth driven by energy, marine and construction.

Growth from strong new business and improved client retention with continued overall softness.

Willis Capital Markets and advisory, this is an interesting story, as we have said in the past, it is a choppy business in terms of revenue.

Capital Markets would have had a very good quarter except for a timing issue with a deal closing that we expected in the third quarter slipped from the third quarter to the fourth quarter, that would have made a difference in the quarter.

So, the numbers that we reported would have been much different, but that's the nature of the business, and we're looking forward to that in the next quarter.

London Market Wholesale, good growth of our global markets international business, driven by new business generation.

Offset by weakness in Faber & Dumas, which reflects continued softness in the wholesale market.

Operating margin was down 70 basis points to 22.4%.

Unfavorable foreign currency movements and increased amortization of retention awards were partially offset by strong growth in commission and fees and lower pension expense.

As far as our growth strategies for the future, let me just talk about that for a second.

What I did was I give you a look back on the quarter's results.

I went into gory detail more than I usually do, because I appreciate from your perspective that could have been a little complicated, and I wanted to make sure that we tried to help you as much as possible.

Ahead of Graham's discussion though, I would like to spend time discussing with you our view on one aspect of our growth strategy into the future.

We have spent the past 3 years absorbing HRH, right sizing the organization, implementing important initiatives like the Willis Cause, Sales 2.0 will place the operational review to drive our growth organically.

Those organic initiatives are well underway, and I'm very satisfied with the traction that we have made to date, and you are going to hear that from Grahame shortly.

But over those 3 years, we have paid very little attention to growth via strategic acquisitions.

And I think you should expect us to be more proactive in that area as a way to supplement our organic growth and allow us to grow our revenue and our geographic footprint even faster.

So what I'm basically saying is for 3 years we have been inactive as it relates to acquisitions.

That does not mean that our business model will turn to acquisitions.

I simply want you to know that as we look and we find and we see acquisitions that make sense strategically, geographically or by way of sector, we are going to take a look at them, whereas over the last 3 years, we were concentrating on our disciplines.

We were concentrating in our strategy, we were concentrating on our costs, we were concentrating on our integration.

We work concentrating on our initiatives, and we're still going to do all of those things, but I think we got a little bit of time now in our diary, as they say here in London, to concentrate a little bit on acquisitions, and I wanted you to know that we are ready to do that.

So, I'm going to conclude my prepared remarks by saying that I'm really excited about the future of this Company.

It has just been a choppy quarter, I appreciate that.

But if you look at the underlying strength of the place and you look at the 2% growth, the 2% growth without Loan Protector and the insertion of what might have happened in capital markets could have been a much bigger number.

It wasn't, it is the way it is, but the excitement that you hear is that we got all the things in place to make sure that the future is the one that we expect and deliver on our value proposition.

The Willis Cause and everything that we have talked about as it relates to our future and the significant improvement, I think we can make in our numbers next year.

With that, I'll turn it over to Grahame Millwater to update you on the initiatives and the Willis Cause.

Grahame?

Thanks, Joe.

Given that Joe spent a lot of time on the complexities of the quarter, I will make this relatively short.

The progress on driving the underlying growth continues, and our growth will be driven by 3 factors.

Pure organic, recruitment and acquisition.

Given we have now largely completed our operational review and revised our capital structure and restrengthened the balance sheet, we have already focused on growth going forward with very little distraction.

The organic growth plan is a good shape, as Joe says, as we have laid great foundations under the heading Delivering the Willis Cause.

A quick update on our core programs.

Sales 2.0 continues as a pace as our industry focused proposition in the middle market.

We are more convinced about this as a proposition as when we deploy it, we are getting good early hit rates.

We have now assigned about 8,000 prospects to 500 associates globally and we are monitoring weekly calls made, meetings arranged, reviews produced and ultimately, sales made.

Overseas, Sales 2.0 is a critical factor in filling our forward-looking pipelines new business, which we continue to drive across all geographies and all segments.

However, also new business it is critical, so is retention, our retention levels continue to improve.

We monitor pipeline and retention by business unit on a monthly basis, and these 2 metrics will become fundamental to our performance management as we increasingly focus on growth.

Additionally, having spent 2 years developing our approach in terms of carrier relationships and management of our premium flows, we are delighted to be launching a completely new placement process, data analysis and technology in the next 3 months and 14 countries.

This is called Will Place, and the 14 countries include UK, US and most of Europe and will cover 70% of our premium volume with the remaining countries coming online by the middle of next year.

Will Place is already being piloted in Italy, Brazil and it couple of offices in the US, and we have really good reception from carriers when we have taken them through the process.

We have launches of Will Place with carriers in November in New York and London.

This will give us control data flow and analysis that we have never had and will create a really differentiated benefit for both our clients and our carriers.

Let me talk about large accounts.

We're getting real traction in the global solutions unit that focuses on the world's largest companies, and we are ahead of plan for 2011.

However, more importantly in this sector, where the time length prospecting and winning is at its longest, we have established real foundations in terms of our offering while also laying down initial relationships with global companies that frankly did not know Willis as a viable alternative to our largest competitors.

Out of the top 1,200 companies worldwide we identified, we have continued to work on clear account plans for the 450 we have given real priority to.

We were really focused on the Sales 2.0, Will Place and global solutions programs in 2012 to drive -- continue to drive organic growth.

And as Joe indicated earlier, we know in certain cases to attract to the right talent in scale and to fill out our platform, scientifically targeted strategic acquisitions will also become part of our growth program.

For example, acquisition will be an important part of our strategy in EB, where we need to build further scale quickly in certain critical territories, whether it be mature markets such as the UK and US or rapidly developing regions such as Asia or Latin America.

And with that, I will hand it over to Mike Neborak to review the financial results.

Mike?

Thank you, Grahame.

Let me begin by commenting on some important items that impacted our financial results.

All comparisons are to the third quarter of 2010 unless otherwise noted.

The first item is the operational review.

As described in our press release, we recorded a charge of $15 million in the quarter related to the operational review, bringing the total recorded in the first 9 months of the year to $130 million.

A $15 million charge in Q3 was spread.

$7 million but your salary and benefits line, and $8 million of the other operating expense lines.

Joe mentioned, we have identified more opportunity to lower our cost structure and now expect the total charge in 2011 to be approximately $160 million.

The remaining $30 million will be recorded in the fourth quarter.

And just to give you some perspective, a substantial majority of that increase comes from further headcount reduction in function relocation to lower cost geographies.

We expect to realize cost savings in 2011 of approximately $75 million, which is the top end of our previously estimated range.

In the third quarter, we achieved cost savings of close to $24 million, of which $14 million were against our salary and benefit line and $10 million against other operating expenses.

Total savings year to date were approximately $48 million.

Full-year cost savings in 2012 are now estimated at $115 million to $125 million, up from our previous estimate of $95 million to $105 million.

Therefore, 2012 will benefit incrementally by approximately $40 million to $50 million of lower costs before investment.

Now, turning to Q3 2011 results.

Reported earnings were $60 million, or $0.34 per diluted share.

These numbers were negatively impacted by the $15 million in costs from our operational review.

Adjusted net income was $72 million, or $0.41 per diluted share, up 11% from Q3 2010.

And that adjusted EPS benefited by $0.01 from FX movements.

Basically, foreign exchange increased our revenues by $21 million to $22 million and increased our expenses by $17 million to $18 million.

The principal reason for that was weakness of the US dollar against the pound sterling and against the euro.

I should also mention that these movements resulted in a 30 basis point increase in our adjusted operating margin.

On the revenue side, total recorded revenues increased 4% to $762 million, reported commissions and fees also grew 4% to $755 million while organic growth was 2%.

Total investment income was $7 million, down slightly from the year ago period.

Important to note that we continue to estimate that the full year 2011 investment income will be approximately $30 million.

Included in fiduciary assets on the balance sheet was fiduciary cash of $1.8 billion, down from $2 billion at the end of the second quarter.

Now, let me turn to expenses, which continued to be an important focus for us.

Again, our goal is to keep expense growth lower than revenue growth and expand the operating margin.

Total reported operating expenses were up $45 million, or 7% to $672 million.

Around 3%, or $17 million of that increase related to foreign exchange, 2%, or $15 million came from the costs associated with implementing the operational review.

So, as a result, the underlying organic growth from total expenses comes to approximately 2%, or $13 million.

So, let me give a little bit more perspective on the 2 major components of our expense structure.

First, salaries and benefits were up $28 million, or 6% to $490 million.

And if you exclude the $7 million charge that the operational review has recorded in that line, and you exclude the increased cost from foreign exchange movements, the underlying growth in salary and benefits was about 1%, or $6 million.

And you could look at a 1% growth in another way.

That came from higher amortization expense related to cash retention awards and other compensation costs including salary increases, 401K matches and investment in new hires.

And those costs then and increases were partially offset by $14 million of realized savings coming from implementing our operation review and $8 million decrease in pension expense.

Reported other operating expenses, the second large category, were up $18 million, or 14% to $147 million.

Excluding $8 million of operational review costs and the increased costs from foreign exchange movements, underlying growth in other operating expenses was approximately 7%, or $9 million.

The biggest driver of that underlying growth came from investing in our technology infrastructure and operating systems and also increases in the UK statutory VAT rate.

The interest expense for the quarter was $38 million, down from $40 million in the third quarter of last year.

Those savings were driven by the refinancing we did back in the first quarter of our high cost debt.

Please note the current quarter expense was higher than the second quarter of 2011.

So, third quarter higher than the second quarter on a sequential basis, primarily due to changes to the fair market value of certain derivatives that we used to hedge portions of our fixed rate debt.

However, we continue to expect our quarterly run rate to be approximately $34 million.

While on the topic of expenses, I would like to outline some parameters for expense growth in 2012.

First, we expect total operating expenses will grow approximately 3% to 4% on an adjusted earnings basis, meaning excluding the impact of 2011 expenses from the operational review, the FSA settlement and the make whole premium paid to refinance our hard cost debt earlier this year.

That growth will be driven by several factors, including increased amortization of retention awards, although a substantially smaller increase in 2011 -- a smaller increase than 2011 over 2010.

A full year impact of costs coming from people investments we made in 2011, continued reinvestment in our business during 2012 via new hires and increased depreciation expense related to technology infrastructure investments such as Sales 2.0, Will Place and Epic, which is our new North American broker management system.

These factors will be partially offset by the $40 million to $50 million of incremental savings associated with the 2011 operation review.

Turning to taxes, which were complicated this quarter, I want to spend a little bit of time.

Income tax expense for the quarter was $2 million resulting in an income tax rate of 4% compared to income tax expense of $10 million and a rate of 15% in the year ago quarter.

Our current quarter income tax expense reflects a revised estimate of the annual tax rate from 25% down to 22%.

This decrease is driven by an increase to operational review charge and changes in the geographical mix of profits, especially from Loan Protector in North America.

And as many of you know, North America is the highest corporate tax rate in our group.

The revised estimate of expected full-year 2011 effective tax rate, when applied to our year-to-date normalized income, resulted in a tax benefit of $8 million being recorded in this quarter.

This benefit reflects the impact of applying the revised rate to the income of the first 2 quarters which previously have been taxed at 25%.

Excluding the impact of nonrecurring items, you should look at our effective tax rate going forward as being 24%.

Income from associates was $10 million compared with $9 million in the year ago quarter.

We continue to expect income from associates in the fourth quarter of 2011 to be similar to the fourth quarter of 2010.

Our UK, US and international defined benefit plans had a combined GAAP surplus of $133 million at September 30, up from approximately $15 million at year-end 2010.

Principally due to cash contributions we have made to the plan during the year.

Pension contribution payments were $42 million in the quarter, and we still expect that cash contributions for the full year to be approximately $130 million.

Pension expense in the quarter was $3 million, an $8 million reduction from the third quarter of 2010.

We continue to make progress on debt reduction in capital management in the third quarter, total debt was $2.4 billion, largely the same as at the end of the second quarter.

However, we did make a $27 million principal repayment on our term loan.

The leverage ratio was calculated under our term loan agreement was approximately 2.5 times at the end of the quarter, down slightly from the June 30 figure.

Cash and cash equivalents were $363 million compared to $317 million a June 30.

And during the third quarter, we generated approximately $146 million in cash from operations, bringing the total in the first 9 months of 2011 to $272 million.

Importantly, Standard & Poor's reaffirmed our investment grade rating and raised their outlook from stable to positive while Moody's reaffirmed our investment grate rating and stable outlook.

Regarding priorities for capital management, our first priority is to pay down debt and to reduce financial leverage.

As I have said before, our goal is to lower our debt to adjusted EBITDA ratio into the low 2 times range.

And once we are there, there is good room to consider share buybacks and other types of capital management.

That is the end of my prepared remarks, I'll turn it back to you, Joe.

Thank you very much everybody.

I know that that presentation was longer than usual.

But we also appreciated, as I said at the beginning of this call, this quarter is a little bit more complicated than usual.

We wanted to clarify as much as we can, and we appreciate very much your patience in allowing us to do that.

I think what you will find is you went through the presentation and you listed -- and you listened that the underlying revenues were a little bit better than they seem, and the underlying expenses were a little bit better than they appear to be.

And that is why we wanted to go through that in as much detail as possible.

We told you that what we were going to do the beginning of the year, I think we are continuing to do that.

We have completed the operational review, we're implementing the associated cost and revenue initiatives.

We have improved our debt, we are concentrating in putting the right people in the right place so that we can execute on all those strategies.

And I have said before, everything we're doing is being done to differentiate Willis in the eyes of our clients, retaining those clients and grow the business.

We are not where we want to be yet.

The actions we have taken will allow us to achieve our goals and get a little bit closer.

We know we can do better, and we will.

And we appreciate you listening.

We will take questions now, so we will open it up.

Thank you very much.

Thank you.

(Operator Instructions) Our first question comes from Jay Gelb with Barclays Capital.

Your line is open.

Thank you.

For overall organic growth, what was that ex- the drag from Loan Protector in the third quarter and the second quarter?

Say that again, Jay?

I'm sorry, I couldn't hear you.

The overall organic revenue growth for the company?

4%.

Ex- Loan Protector in 3Q, and what would that have been in 2Q?

2Q, 4% as well.

Okay.

For next year where you talk about 3% to 4% underlying operating expenses growth, it would seem that based on your goal of generating significant adjusted operating margin that you would have to generate organic revenue growth well in excess of that amount.

Is that achievable?

Well, we would definitely have to generate organic revenue growth in excess of that amount.

Depends on what you defined to be well.

So, 3% to 4%, organic revenue growth 4% to 5%, depending on how the mix comes out, you will get more than 100 basis points margin.

Okay.

And then, Joe, maybe would be helpful given the recent announcements about unit management leadership changes, can you give us at a bit more insight in terms of what is going on there?

The only insight that I can give you that you shouldn't expect by virtue of those changes, Jay, that there is going to be an event you read about next week or two weeks or three weeks from now.

They were not associated to any event whatsoever.

It was simply a couple of people that left to the Company, and we go forward from there.

But it was not related to an activity that you are going to read about.

All right, thanks.

And then finally, we have heard from a couple of the large underwriters late last week, they are seeing monthly improvements in rates, particularly in the US.

Do you see that flowing through as well going into end of 2011 and into 2012?

Well, it is a general question, and a question is more of a feeling, okay, than anything else.

I gave you the stats, and the stats that in the US rates are flat.

The rest of the world, they're down minus1, and then you throw the economic backdrop on top of that.

Those are the facts.

As it relates from the feeling point of view, I think what you are getting is a little bit of a breeze.

I wouldn't call it wind at our back, but I think what you're getting is a breeze.

And you're getting from carriers a sense and hope, maybe, that's why call it subjective, that the rates will at least go from flat, let's say, in the US to maybe up a little bit because the statistics require and the economics require it.

So, that is the subject part.

I gave you the factual part.

The subjective part is there is probably a little bit of a breeze that they would like to see.

Haven't seen it in exposures and haven't seen it in real rates, but as I said, where we have seen the increases, they have been offset by where there's a lot of money like D&O and aviation and things like that.

But I think that's what your hearing.

Excellent, thank you.

You're welcome, thank you.

Our next question is from Keith Walsh with Citi.

Your line is open.

Hey, good morning, everybody.

Hi, Keith, how are you doing?

I'm good, thanks.

First question, if Peter Hearn is there.

Just in the press release looking at the reinsurance profit initiative, can you give us a little more color what that is and how much that contributed?

Keith, to answer your question, we have in place agreements with a portion of our client base which, while contractual in nature, some provide for negotiations for additional revenue based on our performance.

As you well know, we don't break out individually what we do in reinsurance.

Okay, but you guys were happy to break out the Loan Protector, so I want to understand, what was the wind at your backs?

If you are going to give us the negatives, I want to hear what the positives are as well.

Just to clarify that, we have obviously some pricing agreements with insurance companies that we do business with.

And there's some adjustments in the prices that were renegotiated, Keith, and that's what he's talking about.

Okay.

Maybe we take that off-line.

I guess second question for Mike Neborak, you guys were really clear about some of the savings you have, and I appreciate that.

But what are some of the costs that maybe come back next year?

If we think about the furlough program, is that still in effect, and will it be in 2012?

As well as thinking about pension expense right now, when your -- with where discount rates are.

Well next year, as I mentioned, we will have an increase in the cash retention amortization, albeit much smaller than the increase that we faced 2011 versus 2010.

So, just an order of the magnitude going into 2011, we knew that the amortization of the cash retention would be up about $65 million versus 2010.

2012 versus 2011, that number is somewhere between $20 million and $30 million.

We will have pay reviews again next year, so that will be an increase there.

And then we will hire new people, in terms of investing in certain areas of the business.

In terms of the pension expense, Keith, that is a great question.

Right now it is a little bit premature.

I can tell you that we have done some things here in 2011 that would reduce of the benefits of that plan.

On the other hand, the market's been very choppy, so the investment performance of the portfolio isn't as good as we would like.

That obviously has a negative impact and obviously, the assumed rates of return, all companies with rates of return on portfolios, in terms of the future, there's probably some pressure there.

So at this point, I don't know how to quantify that.

But I think it is something that we are looking at and we are focused on.

And the furlough program, is that still in effect, or does it continue to be?

If you're talking about the Willis Choice program, Keith?

Yes.

Yes that is still in effect.

That is part of our benefits package basically.

We put that in effect a couple of years ago, as you know, and people enjoyed it so much in terms of giving them flexibility that we just left it in.

So, it is a permanent part of what we do today.

It gives people flexibility, it gives people the opportunity to travel with their families, spend time with their family.

And that gives us ongoing savings, but it's not predictable.

Because it's a choice, it's not forced.

So, we don't know what it is, but we do get savings out of it, if that's what you're asking.

Okay, and then the last question, just for Mike or Joe.

You guys mentioned M&A.

I was a little surprise by that, just without the mention of repurchase.

And how do you think about your free cash flow in 2012 and potential uses?

And what is the priority of cash flow?

Thank you very much.

Thank you.

I will answer the question and then he can answer it from a capital point of view.

Because it is appropriate that you hear me talk about acquisitions, and then you wonder what the priority of your cash is.

You want to buy back stock, you want to pay off debt, what are you going to do?

I simply mentioned it so that if you see that there is an acquisition here or there, that you are not surprised by it.

I just wanted to mention, again, for full transparency, that we have not looked at acquisitions at all, even ones -- not only haven't we looked, but ones that have called us, we have not even bothered to entertain.

And as I just wanted you to know that to the extent that we have now time and we have the ability to be able to do that on a strategic basis, geographically or otherwise, we are going to do that.

That doesn't mean to say our business model, as I said earlier, is going to be adjusted by companies, like some people do.

We don't do that.

We are still going to grow organically.

But to the extent that there is something out there that make some sense, and I'm not talking about the HRH type of acquisition.

I'm talking about things that could be bolt ons our fill in some sectors.

We might do that.

But I don't see us doing that from the point of view that there is a lot of money that is going to be shifted from one priority to the other.

But I just wanted to make sure you understood that to the extent that they occur, and we don't know when they do, where they will or in what form, we're going to take a look at them because I think that we have the time and the taste, if you will, to do that now.

Mike?

I would also like to add, Keith, that right now paying down our debt or reducing our leverage and buying back stock, those two items are mutually exclusive.

And you might ask why, because in our balance sheet is shows that we have $360 million of cash.

But a substantial majority of that cash is committed, meaning it is not available for general corporate purposes.

So, for example, we have approximately $180 million of the cash it Willis Limited.

Not all that is required regulatoraly, but we have that much in Willis Limited.

We need a certain amount, say $50 million to $100 million just of working capital.

And then have other restricted cash either in geographic locations or other regulatory environment.

Out of that $360 of cash, probably $30 million to $40 million is really for general corporate purposes.

So, right now, if we were to repurchase stock in a meaningful way, I don't mean just in a -- just to repurchase stock, but in a meaningful way, we would have to draw down our revolver, increase our debt, and that would increase our leverage.

And as I said, our goal is to reduce our leverage.

So, during 2012, as we continue to generate cash, the cash available that we can use for any purpose really will grow.

And based on the fact of the timing as it relates to M&A or buying back our stock, we will take all of that into consideration.

Thanks a lot.

Our next question comes from Thomas Mitchell with Miller Tabak.

Your line is open.

In looking at the Loan Protector, what I heard, a couple of things was that there seems to have been possibly a temporary or cyclical factor in the slower processing of foreclosures that was going on.

But then there was also what seemed to be a kind of the secular change in the mortgage servicing industry.

I am wondering if you could give a little more detail on that.

Sure.

I think there were a couple of factors, a couple of which you mentioned.

And I will go through the categories.

I think that there was basically a slowdown in foreclosures whereby the banks were not as forceful with regard to foreclosures as they had been in 2009 and '10, specifically.

Secondly, what you had additionally is that that is an MGA for us.

Which means as an MGA, we represent insurance companies, we do not represent the client in that regard.

So that we had less foreclosures, less volume, they are linked to contingents that we do take in MGAs, because it is not client related.

And as a result, they slowed down as well.

Then you had the addition of flooding and other issues that came with the housing market.

And as a result, that slowed down the profitability contingent that you get from that type of business.

And then on top of that, we had the loss of accounts through M&A and loss of accounts through attrition.

If you take all of those things together, the comparison to last year was certainly not as good as it was, and that is the reason for the significant difference and how much money we have made from Loan Protector in 2010 versus this year.

Now, that seems clear.

I guess just the follow-up on that is, I thought, I may be wrong, but I think that when you went through the unusual items in the third quarter you sort of, to get your $0.39 number, not the official adjusted number, you had added back the decline from Loan Protector, and I am wondering how we should view that.

Should we view that as a business that may be going into runoff or may be available for sale?

Or how should we be thinking about that?

I think you should -- it was $0.05 when I did a review of the math.

I said it was $0.05.

And your second question is how you should view that.

It is an ongoing business that is not as viable and as vibrant as it was in the past.

And as a result, we are not going to simply get the returns that we did in the past at a time when the world in that business was much different, and we are going to continue to review it.

But no, you should not look at it the way you did in the past.

Thank you very much.

Thank you.

Our next question comes from Mark Hughes with SunTrust.

Your line is open.

Yes, thank you.

How did the benefits business do in the third quarter?

Was it a little better or worse than what you saw in 2Q?

I'm sorry, would you said again, please?

Yes, how did the employee benefits business do, and I'm thinking North America, in the third quarter as compared to the second quarter?

In the second quarter were up 3%, in the third quarter we were flat.

That's not -- that business is not a business where it is sort of like every quarter you look at it and it is up a percent, up a percent, up 2% et cetera.

It's choppy because it comes and in terms of employment, a lot of our -- most of our business is tied to a per employee basis of sort of a thing.

And so as a result, you saw flatness in the third quarter.

But don't look at that flatness as being a deterioration quarter over quarter.

That business doesn't work that way.

It is still a very vibrant business.

As a matter of fact, the more confusion that we found that is being caused by the health reform in the United States is really making employers look more toward the kinds of things that we can do for them on an advice and a consultative basis which then looks at their benefits plans differently.

And I am pretty excited about that business, especially the platform that we have in the US.

Thank you.

You're welcome.

Our next question comes from Matthew Heimermann with JPMC.

Your line is open.

Hi, good morning, everybody.

Hi.

A couple -- I guess, this is just more clarification questions.

But around Loan Protector, you mentioned we're kind of looking at $10 million to $14 million this year.

But given that you had mentioned some things that went against you this year like the flooding, when we're thinking about this business for next year, assuming we don't model in any dramatic change in the foreclosure landscape, what is incrementally the step up we would get if you get the kind of more normal performance from loss perspective in that book?

It would be difficult to say, because I don't -- there has been included in that, I should have mentioned, a dramatic decrease in the pricing.

In other words, the amount of commissions that we were paid have reduced dramatically as well.

So, in 2010, everything in the world going forward, if you will, and the last couple of quarters of 2011, you've had just the opposite.

So, given the fact that the commissions have been reduced dramatically, one of the accounts were lost through M&A.

Another account dropped dramatically in terms of commissions.

Others, the MDI has gone down.

So, it is very difficult to predict, but you're probably looking more at the $10 million level that we are at now than you are at a higher level going forward.

Okay that's helpful.

And then, just on the M&A side, I just want to clarify this too.

Is the right word to use to describe the deals that you are looking at, especially given that you are still kind of priority wise deleveraging, that these are things that would be tuck in kind of acquisitions?

Yes.

I just want to make sure, again, full transparency, that in the next call, if you see us do a deal and somebody says, Joe, where did that come from?

I just wanted you to know that we are more sanguine to -- and that's a good word.

More sanguine towards entertaining an acquisition that makes us some sense in a geography or sector to fill in a business line that we are not appropriately good at when we think specialization is everything.

And then you say, Joe, what happened to your deleveraging and all that kind of stuff?

I just wanted to make sure that we put everything out on the table, that's all.

Okay.

That's helpful.

And then maybe just for Peter, just on the reinsurance side.

Just curious how we should think about 2012 prospects versus 2011.

There were kind of two ways I was are thinking about this question.

One was just how you are thinking about demand globally in 2012 relative to 2011.

And then the other question I had was, is there any risk around pricing given that we saw some big gains in some geographies in 2011 that you actually see some slippage as we go through the year on price in some areas?

I think, Matthew, if I could take it in chunks.

I think it will be interesting to see how the year plays out, because there is always the issue of whether these spate of losses globally were earnings effective our capital effective.

And if they start to affect capital, I think demand will go up because of companies concern of the 2012 looking like 2011 and that there is a frequency of loss in the US and internationally, there was a severity of loss.

I can see a scenario where demand goes up to protect capital.

And with regard to pricing, I would say that pricing by the reinsurance market has been reasonably consistent in that where modeled impact exposures, there was some increase where exposures went down as a result of model change.

They stayed the same or went down, and when there was increase in exposure and an increase due to a loss, there was a bigger increase pricing.

I don't see that changing fundamentally absent some big event happening between now and the first of the year or what happens in 2012.

So, I would say that, again, demand could well go up based on how 2011 ultimately looks, and pricing should stay reasonably stable --

Okay.

That's helpful.

Absent significant model change of laws.

Okay, that's helpful.

And then Michael, just clarification, I just want to make sure that when you guys talk about savings, we are still talking run rate savings, not in the period savings.

Yes.

Well, for 2011, the $75 million is an absolute number.

So, that is savings in all of 2011.

In 2012, when the full impact of the benefit from the operational review takes hold, that is the full year savings number that we said was about $120 million.

But what I want to point out is that we are only going to get the benefit in 2012 incrementally over the $75 million that we realized in 2011.

Yes, that's fair.

Okay, just wanted to make sure.

Thanks.

Our next question comes from Ray Iardella with Macquarie.

Your line is open.

Thanks, good morning.

Hi, Ray.

Just a question going back to Loan Protector.

In 2010, what would the organic growth number for North America be excluding the business?

It would have been -- we were flat in North America in 2010.

It would have been minus1.8%.

Okay.

And then I think you mentioned, too, in 2010, the pretax earnings of about $41 million from that business.

What piece of that would be the contingent piece that I think that you mentioned earlier from the MGA side?

The contingent part would have been of the $41 million about -- I have to look at the number.

And this is a guess, but I don't want to give you a bad number.

But give us a call, because I'm kind of thinking that about 25% to 30% of that number was MDI.

But that's not an answer, that's a guess, but Peter will give you specific answer.

Okay, I will that off-line.

And then I guess just turning over to the international side, I guess you guys had pretty good growth over there, and guess margins are being pressured a little bit from investments being made.

And I can completely understand why you are investing in the business.

But can you maybe give some more color surrounding some of the geographies that you guys are focusing on?

Yes, I think most of the increase in expenses has been our investment in Asia, primarily.

We invested in a lot of people in China, Asia, for all the obvious reasons, Ray.

We did a lot of investing in Brazil, obviously.

So, when you look at our international business and you see the SMB or expense line go up there, basically, you are looking at it from that point of view.

I would also tell you -- and that's the large majority of it.

But you still have to appreciate that you make decisions in this business, even though the economy -- let's, I'll give you an example in Spain, is not the greatest in the world, but we have a great operation in Spain.

They are really good.

They are growing their business at mid-single digits.

And you want to be able -- even on a time like this, and the margins are very high.

So, you want to reinforce and help them at a time like this, not pull back.

So, that would be an example of where we would be investing still, even in a place where the economy is not so hot.

I would give you two ends of the spectrum.

One, we are investing where we have great franchises, where the economy's not so good, where we have a very good development franchises.

Like in China where we are growing, our margins in the mid-20s in China.

We have 22 branches in China, and we are investing in people a lot in China, because of our footprint.

So, that is where you are seeing that from.

Okay that's very helpful.

Thank you.

You're welcome.

Our next question comes from Yaron Kinar with Deutsche Bank.

Your line is open.

Good morning, everybody.

Hi, how are you?

Good, thanks.

I had a question on the additional efficiencies that were identified in the operational review.

Maybe the timing of them, why -- how are they identified now versus any of the other efficiencies that were identified earlier in the process?

Well, basically, during the end of the third quarter, actually during the end of the second quarter, third quarter, when we looked out in terms of the economic landscape, and I think it would be -- you would agree that things are deteriorating versus three to six months earlier when perhaps there was more optimism.

We just said we're going to take a harder look.

And so therefore, we're going to eliminate more staff and actually move more functions to lower costs areas.

Okay.

So, if economic conditions don't improve our actually deteriorate further, should we expect or not be surprised if we see additional actions?

No I don't think that you're going to -- listen, the charge is going to end here 2011, and you are not going to see -- it is going to be approximately $30 million that will recorded the fourth quarter.

It could be $25 million, it could be $32 million, but you're not going to see any big difference.

The other thing that I would add, which would be a legitimate question.

They are all legitimate questions, but if I were you, we started the year by saying we have $130 million charge, now we are at $160 million.

What's going on?

Is there something that we are not seeing?

Is just that the world hasn't gotten any better, and we are just trying to make sure that we take care of ourselves and put the right expense base into place because the world is so unpredictable going into 2012.

That's what we are doing.

There is nothing that has occurred that bothers us, if you will, so that we keep enlarging the charge.

It's simply that the unpredictability of the world, the unpredictability of the market in terms of that softness, the unpredictability of the economies and what's going on, we are simply saying to ourselves, we are better off if we are really conservative with regard to our expenses and while we have the charge in place, take advantage of it.

And that's what that's about.

Okay, that's very helpful.

And then on the employee benefits.

I guess I was a little bit confused given that -- I understand that employment levels are certainly not where we would like to see them.

But after all, they are relatively flat the last year, if even improving slightly.

And then if you have healthcare reform and you have medical loss trends creeping up, shouldn't we expect further improvements there?

Yes, I think our employee benefits business, as I said before, is a very good platform in the US.

It represents 24% of our business in the US and frankly, we would expect that business to go even higher.

We are very comfortable with our platform, which is the middle market platform.

Which means that it takes in the number of employees that would not -- would be beyond what normally would go to exchanges which would be 50 or 100 employees or less.

So, as a result, we feel very good about that platform and what we are doing in the US.

And if you ask me if there was something that we found interesting someplace in the US in employee benefits, which goes with a number of other questions that you have asked about acquisitions, I would say that if there was an employee benefits broker in the right geography that was the right type of broker to buy, that would be the one that we would look at.

Okay, got it.

And then one last question, if I may.

With regards to the P&C rate environment, can you maybe break out a little bit what you see as the renewal rates versus the new rates?

I can't really break that out for you because we don't have -- I don't have that statistic right off the top of my head.

But obviously there's the differential between what you charge new accounts and what you charge on a real basis.

Vic, do want to give him any insight into that?

Sure, Joe.

The only thing I can add is that we track the renewal rates in our existing book, and we can see (inaudible) in terms of what's happening there.

But on new business, we don't have the year over year basis.

What I can tell you is that on business that is being completed for, rates are very, very competitive and dropping.

Our businesses that are being renewed, you are seeing more pressure to increase rates.

And that's about all I can --

Which would make sense.

Because when you are vying with other people for an account, you're going to be much more competitive with regard to rate versus one that you are renewing that you already have.

So, I think you got to distinguish when you hear carriers speak whether they are speaking about their renewal book or they are talking about their new book.

Right.

Thank you.

Thank you.

Our next question comes from Jay Cohen with Bank of America Merrill Lynch.

Your line is open.

Yes, thanks.

A couple questions.

Hi Jay.

Hey, Joe.

On the Loan Protector, you suggested that the first quarter of this year was still a reasonably good year, I think.

And does it suggest that the first quarter of 2012 you've got a tough comparison?

Yes.

Okay.

And then secondly, just on the 3% to 4% increase in the expense base, is that just operating expenses, or are you including interest expense in there as well?

Excluding interest expense.

Everything other than interest expense.

Okay.

And you are including the expected savings, the incremental savings from the operational review?

That's correct.

Okay, just wanted to clarify that.

That's it.

Thanks a lot.

Thanks, Jay.

Our next question comes from Brian Meredith with UBS.

Your line is open.

Hi, Brian.

Hey, how are you all doing?

Two questions here for you, Joe.

The first one, I'm wondering if you could talk a little bit about the kind of competition for talent here.

Are you finding it maybe more expensive to keep people and recruit people?

Is that maybe part of the reason that you are seeing an increase in investment spending and you are having to take some more expense our of the business?

Yes, I think -- that's a good question.

I think that when you see brokers having hard times growing, there is a greater degree of pressure in the recruiting arena.

By buying brokers so that even though a broker, let's say at this Company, year over year may be flat, for another company, it's an increase of whatever the heck they do.

And so as a result, we find that there is a lot of movement from brokers to brokers.

And then as a result, they have to fill in what they lost, so they wind up coming to Willis sometimes to do that, and you play round robin.

If you have no growth are very little growth in an industry, you got to find ways to do that.

And so as a result, sometimes you find yourself in a defensive position to retain people.

And yes, you're right, sometimes you do what you got to do, and that tends to increase the S&B or the retention level.

Great.

And then one quick question on the P&T environment.

Maybe if you could give us a sense of kind of small business, what is going through the insurance, how pricing is there versus as you work your way up to your larger corporate clients.

Is there difference in what is going on with pricing?

Is there a difference in terms of what's going on with what, Jay?

I'm sorry, Brian, I didn't hear you.

Is there different with what's going on with respect to commercial line's pricing as far as a small commercial or stuff may be going through the insurance noodle versus as you work your way up to middle and larger commercial?

No, not markedly that I can tell you that there is a difference, no.

Great, thank you.

Our next question comes from Meyer Shields with Stifel Nicholas.

Your line is open.

Hi, Meyer.

Good morning, how are you?

Good, thank you.

A few questions, I guess, segment by segment.

On the global --

Could you speak a little louder, please?

I'm sorry, I can't hear you.

Sure, is this any better?

Yes, that's better, thank you.

Okay, the potentially a nonrecurring revenues that we saw the global segment, are those basically 100% margin?

I would say for the most part they are very hard margins if not 100%, yes.

Okay.

On North American side, I think last quarter you said that excluding Loan Protector, there was positive organic growth and this quarter it was flat.

And I was wondering, given the, I guess at least anecdotal improvement in the rate picture, what changed on a sequential basis?

I think what I heard you say is that excluding Loan Protector, we were flat in this quarter and we were up last quarter.

And what can we expect going forward?

Is that what you said?

Yes, and I'm also trying to understand the deterioration.

I would expect that, excluding Loan Protector, if you look at our underlying business in North America, that I would be very enthusiastic about what is going on.

Okay.

Any thoughts on why the ex- Loan Protector, organic growth was slower this quarter than last?

No, I just think we're looking at the business, as I said, flat in North America, simply because of rate and so forth.

And new business growth has been good.

We have had some regions that have been very, very good.

And I think given the rate in the economy and everything else, I look at that to be pretty good.

And when I look at the competitors and I see what is going on with them, I am fairly happy on a relative basis.

I will be much happier when I see a real growth with or without Loan Protector.

I've got to look at the underlying business as such.

Vic, do you want to add anything to that?

I think that we're obviously still working very hard to achieve our organic growth, Loan Protector aside.

The second quarter obviously has a lot more activity with the 71 business and it.

There's opportunities to go chase up, the third quarter's traditionally the slowest quarter.

So, going forward, we still believe we can achieve organic growth.

It will be moderate, and we will continue to work hard with all our other initiatives to do that.

I would also add that Sales 2.0, which Grahame mentioned, is now fully rolled out in North America.

It is not something that clicks on the next day.

But as next year evolves, quarter after quarter, you should start to see the affects of Sales 2.0 and the new business that is generated from it, A.

And B, the cross-selling that is generated from it.

See, the Sales 2.0 is not just a vehicle for new business.

It is one to go back to accounts to do diagnostic for, that we are to have as account at Willis.

So, I'm looking at next year.

If we have an environment where the economy is decent, not great, not terrible, decent, and you got at least a flat environment on a rate bases, our expectation is that we should grow, excluding Loan Protector.

Okay, that's very thorough.

And last question I guess for Michael.

If property-casualty rate increases are 100 basis point higher next year, then the assumptions that you have baked in right now, what would be the incremental impact on operating expenses?

The operating expenses should not go up if it is 100 basis points, is what your example is.

You should be able to absorb the 100 basis points in revenue increase with the cost base that you already have.

Other than the payout to the producer in North America or whatever you have got to pay out for the additional business, everything else is embedded from a cost point of view in the business already.

So, most of that will drop to the bottom line.

Oh, fantastic, okay thank you very much.

Thank you.

Our next question comes from Mark Hughes of SunTrust.

Your line is open.

Yes, thank you.

Just to clarify on the cost situation, I think you said expect operating expenses up 3% to 4% in 2012.

Was that going to be offset by the $40 million to $50 million from the operational review, or was that already inclusive of the $40 million to $50 million?

That was already inclusive, inclusive with an I, of the $40 million to $50 million.

Right.

So, the operating expenses would've been up faster but for the operational review?

Yes, that's correct.

Thank you.

There are no further questions at this time.

Okay, everybody.

Thank you very much.

Have a good day.

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