Willis Towers Watson PLC (WTW) 2012 Q2 法說會逐字稿

Welcome, and thank you for standing by.

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

(Operator Instructions)

Today's conference is being recorded, if you have any objections you may disconnect at this time.

Now I'd like to turn the meeting over to Peter Poillon, Head of Investor Relations.

Thank you.

You may begin.

Thank you, and welcome to our second-quarter 2012 earnings conference call and webcast.

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

A webcast replay of the call 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.

These statements reflect our opinions only as of today's date and we undertake no obligation to revise or publicly update them 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, 2011, 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 a non-GAAP basis.

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

I'll now turn the call over to Joe.

Thank you.

Good morning.

Welcome, and thank you, everybody, for joining our call today.

With me, as usual, is Mike Neborak, our Chief Financial Officer.

Mike and I will make our regular remarks, as usual, but this quarter I also want to do something a little bit different.

In less than two years, our three main business units -- North America, International, and Global -- each have new leaders.

The leaders that have come up from posts within our organization.

You haven't heard a lot from them on these calls, so today, after I offer some introductory comments, I've asked Vic Krauze, Tim Wright, and Steve Hearn to offer a brief report on their businesses.

As usual, we'll be happy to answer questions at the conclusion of our prepared remarks.

You've obviously seen some of the other brokers' reports and their earnings already.

The positive trends that they've talked about are very encouraging for the industry as a whole, and we'll offer our own perspective on the industry environment in a few minutes.

But, as you saw our release last night, and compare it with those who have already reported, it's fair to wonder why Willis is not in its historical position at the head of the pack.

Leading organic growth and leading margins has been the Willis way.

I know it is on your mind and I want to address that up front.

While our top line shows modest 2% organic growth, there are several things offering compelling evidence of our strengths.

Willis Global, for example, produced 7% organic growth.

And, looking forward, robust sales pipelines, increased recruitment of new producers, and improved retention across our businesses, we believe, will provide revenue momentum in the future.

And remember, as we have been telling you over the past few calls, a number of things have dragged on our North America results, most with roots going back to our merger with HRH.

These things have taken time to course through the system, which we'll dissect and detail in a minute, but I think that this quarter represents sort of the end of all of those things that have to be flushed through.

Compounding that, what we see, in the end, of a difficult comparable of items for North America, has been a brief plateau this quarter for international.

So all things kind of happened at the same time.

And, like our competitors, there's effect of the euro zone crisis.

But Willis also had to put up subpar numbers for UK and Australia, which also had an effect on our international numbers.

We'll talk about that in a little bit as well.

Both at the end of the -- both are at the end of a restructuring process.

Those international numbers are, we believe, an anomaly and not indicative of any trend.

So what you'll hear from me today -- Vic, Steve, Tim, and Mike -- is an acknowledgement that, despite our growth, we didn't come in as high as we wanted to this quarter.

That said, you'll also hear a very upbeat assessment of what lies in store for the second half, both for what our industry faces as a whole and for the many important things we're doing at Willis to regain our sector leadership position.

Now, let me review the results with you.

Our fully diluted adjusted earnings per share came in at $0.59.

Excluding the $0.06 of positive foreign exchange, earnings were $0.53 per diluted share; that compares to a year-ago quarter of $0.61 per diluted share and, obviously, that's not acceptable.

Before zeroing in on our bottom-line numbers, we feel that our underlying earnings results are better than they appear at first glance relative to the prior-year results.

Allow me to give you some of the background.

You've heard us talk over the last few quarters about Loan Protector.

I love Loan Protector.

I keep talking about Loan Protector.

I told everybody here we're never going to talk about Loan Protector again, and how its drop off in performance created a difficult comparison with its results in the first half of 2011 and prior.

This quarter, Loan Protector hurt our earnings by $0.01 relative to the year-ago quarter, but this is the last quarter of the lopsided comparisons.

Loan Protector is over.

Vic's going to talk more about that in a minute.

I'm sure he is going to be glad to say the same thing to you.

We also had a difficult comparison related to the fraud we uncovered and reported earlier in the year that happened in North America.

That hurt our current quarter earnings by $0.01 relative to a year ago.

So, right off the bat, you have a couple of cents, and you have a couple of things that hurt top-line growth as well.

Our second-quarter results last year included $9 million of expense benefits from a release of funds and reserves related to potential legal liabilities.

We talked about Bowes in some detail a year ago.

We did have $3.5 million in similar benefits in the quarter, but that difference between the two equals $0.02 relative to the prior year.

So you start to see a buildup in what would have been versus what you see.

Actually, and additionally, our employee benefits business in North America experienced some pressure on commissions that hurt the current quarter.

But we should get contingent commissions in that business later this year or next year to make up for that.

Because, as you know, insurers are charging -- or paying us less than they paid before which is the whole reason we decided to accept contingents in the first place on that business.

So, that should catch up to itself.

And, lastly, we had some notable pieces of business that we expect to shift from the second quarter to the second half of the year.

And they were quite notable.

And they would have made a pretty decent difference in the top-line growth that you see.

But, this is what happens in our business.

But, it is worth sharing with you so you know that revenue generation would have been better.

But for some unfortunate timing, it's better than it appears, both on a top-line basis, as I'm explaining to you, and a bottom-line basis, as well.

In total, we have to take the results as they close.

But, as I mentioned, my colleagues and I feel good about the strength of our businesses and franchises, and we are each excited about what we're doing going forward in the future to grow the business over the remainder of the year.

Before I turn it over to the team, let me provide some headlines.

The commissions, as I said, and fees, grew at 2%.

Our Global segment was, again, very strong at 7% organic growth, led by great results from our reinsurance business that enjoyed low double-digit growth -- just outstanding.

In a few minutes, Steve will outline how he's making our high-performing businesses even more integrated, and I think we'll be even higher performing in the future, which will drive that performance from Global.

Steve has a lot to talk about just in terms of results and his vision for the business.

So, I will tell you what's going on in our capital markets business, which is also part of the Global segment.

Willis Capital Markets Advisory continues to gain traction and momentum in the insurance advisory and capital-raising arena.

During the second quarter, Willis Capital Markets Advisory revenues were down a little bit on a comparable prior year.

But, you know that, that's lumpy as a result of deals that we expected to close, again, slipping into the second half.

However, the pipeline or backlog of transactions that WCMA is involved with is robust and a lot of that activity will probably manifest itself in the second half.

In the International segment, the organic growth was at 2%, very low.

It is an anomaly for them.

It's below its historic growth range.

You should know that we believe this is more than an anomaly than a new trend, and we believe that we're poised to do even better in the future.

But, we have to temper that with slower overall growth in continental Europe, partly as a result of the euro zone issues and our own efforts to turn around our UK and Australasia businesses, which are in the restructuring phases, so that has an effect on International as well.

But, everything being considered, we had excellent growth in Asia and Latin America.

Later, Tim is going to provide you with some insight into the areas where we're seeing improvement, including Willis UK.

As the year goes on, Willis UK gets better on a comparable basis, and so does Australia.

So, as I said, again, another positive element in the second half.

Tim will also tell you about the depth of our pipelines in the business, and the initiatives that caused us to be excited about the growth opportunities in this segment.

In North America, excluding the impact of -- there it is again -- Loan Protector, organic commissions and fees declined by 2% in the quarter and is down 1% over the first six months of this year, relative to the first half of last year.

While that is disappointing for all of us here, regardless of the context, that business has a lot of positive things going on, including -- improved pipelines, the best pipelines I've seen since I've been here; a positive trend in producer head count -- head count is up; and strong retention and solid new business trends.

North America's retention is back to its historic levels, in the low 90s, despite covering business loss due to producer defections in the second quarter of 2011.

That is a lagging indicator.

So, anything you see now is kind of at the tail end of what happened a year ago.

And, that might have had an effect, as well, on some of the North American numbers, both top and bottom line.

But the retention levels actually, as a lagging indicator, as I said.

And Vic will talk about some of the leading indicators that he monitors, like pipelines and producer headcount, both looking far better today than they did at the beginning of this year, and he'll tell you why that is the case.

With regard to group expenses, our group organic expense growth came in at 4.3% for the quarter, and 3.3% for the first half of the year.

Mike will provide an overview of our financials for the quarter and spend some time talking about expenses.

With that, I'm going to turn the call over to Vic, Steve, and Tim, who will review this past quarter and, importantly, share insights into the initiatives that give us reason to be excited and optimistic as we look ahead.

Vic?

Thank you, Joe, and good morning, everybody.

I want to begin by saying that everyone at Willis North America believes we can deliver a better top line than we saw in the second quarter.

We are highly focused on producing better results for the second half of the year.

First, I'd like to give you a brief overview of what drove the second quarter's result, then I'll spend some time talking about what we are doing to improve that going forward.

So now looking back, organic commissions and fees declined 3% in the second quarter.

The decline was driven by several factors including, as Joe mentioned, the lopsided comparison in the Loan Protector business.

This is the last time I expect to mention Loan Protector as going forward.

It will no longer have a disproportionate impact on comparables quarter over quarter.

So, excluding the impact of Loan Protector, organic commissions and fees in North America declined 2%, a full percent less than we're reporting.

Beyond Loan Protector, let me list a number of other factors that drove the decline in North American's organic revenues.

First, as we discussed in previous quarters, our employee benefits business, which accounts for almost a quarter of North America's revenues, has experienced some pressure on compensation structures from the healthcare insurers as being driven by healthcare reform in the United States.

That compensation compression resulted in approximately 1% negative impact on North America's revenue growth in the second quarter, relative to the second quarter last year.

But I also want to remind you that this pressure from healthcare insurers is why we said we'd take contingents on this line of business beginning in April of this year.

Going forward, we should see some positive impact from contingents in late 2012, or early 2013.

Second, as Joe mentioned, our employee benefits results in the second quarter last year were affected by the fraudulent activity we discovered and disclosed.

That business overstated revenue by about $2.4 million in that quarter, but which, regardless, must be compared to in terms of revenue growth.

That totals to about 0.75% of 1% of North America revenue in comparison.

The final note is our one-off in surety revenues, primarily construction related.

We're still not seeing a lot of construction projects as that industry has not yet recovered.

That lack of projects caused almost a 1% decline in revenues in the quarter, relative to the prior year.

So, if you add up those four items -- Loan Protector, for the last time; employee benefits compensation; the fraud we stopped; and the one-offs -- that accounts for more than the 3% decline we're reporting.

On a positive note, North America's retention came in at 91% for the quarter, despite some accounts that left due to producer defections last year.

Our year-to-date retention is also at 91%.

We're pleased to see that metric is back to our historical and expected levels.

But, we aspire to and believe we can do better.

I'm going to address that in detail in a few moments.

Also, in the second quarter, we saw a new business come in at low double digits.

That is good, but I think we can do better at that as our growing pipeline converts to new business.

With regard to rates, we continue to see rate improvement in certain lines in geographic regions during the quarter.

On property, we're seeing average rate increases of 8%, predominantly driven by catastrophe exposed risks.

Non-CAT is up 2% to 5%.

I should note, however, that we are seeing property rates starting to level as capacity is entering the market.

In casualty, most insureds are seeing modest increases on renewal.

We saw an average of 3% on casualty, which was driven mainly by workers' compensation.

Liability rates are flat to up 2%.

And also, for the first time this year, we're starting to see positive rate in our FINEX business, up 2% on average.

Our human capital business, which encompasses employee benefits, is also seeing some rate increase.

Again, the impact of that rate is tempered somewhat due to the carrier compensation model ships that we spoke about.

More broadly, the overall rate improvement we've seen so far in 2012 has not yet had a material impact on our revenue base.

To the extent it has helped, it has been offset by reductions in exposure units and higher client risk retention levels.

It shouldn't come as a surprise that, in this economic environment, the majority of our clients are simply not able or willing to absorb the increased cost of insurance and are actively managing the expense.

And it is our job to help them manage that expense.

Across our industry practices -- financial services, environmental, life sciences and real estate -- they all did well for the quarter.

Further, our M&A business had a very good quarter continuing their strong performance from Q1.

While deal flow has not been as robust as last year, they are maintaining consistent new business; they were up in Q2 by 13% and up 15% through the first six months of the year.

So, while we expected this quarter to be challenging, we are not satisfied with how we ended up.

So, for the next few minutes I'd like to discuss some of the initiatives that are ongoing in North America that lead me to believe that the future is brighter than this past quarter may indicate.

We are intently focused on three things that we believe will improve this business.

They are simply -- pipelines, recruiting, and retention.

First, on pipelines.

Since we bought HRH, we were totally focused on integrating the Company, even as the economic meltdown created turbulence around us.

The first task was holding on to our people and keeping our existing accounts.

Looking back, filling our pipelines with new opportunities took a back seat.

That's all changed now.

Since I assumed my post in early 2011, we have been relentless in returning the pipeline management with the sales force.

As a result, our pipelines have improved dramatically in that period, our rolling 12-month pipeline has improved from less than 1 times earned new business growth over 2.5 times.

That gives us a lot more clarity on future revenues.

My goal is to get pipelines at 3 times by the end of the year.

Since January our pipelines have roughly doubled and they continue to grow.

While these opportunities take time to convert, and obviously we won't win 100% of our opportunities, I know it will translate into improvement in our already good new business metric that I mentioned a few minutes ago.

Second, on recruiting.

We are building a continuous, sustainable recruiting program that attracts experienced producers to Willis.

While that might seem basic, after the HRH transaction a lot of our efforts were devoted to retaining the HRH producers that came to Willis with the transaction.

The tide has now shifted.

We're very pleased that, in 2012, our producer force is up slightly, and my goal is to increase producer count 3% to 4% annually, while actively managing under-performers.

In doing so, we'll manage overall growth and headcount to approximately flat to keep our S&B expense in check.

So, this will not be a recruiting spree by any means, but rather an extremely selective process in our search for experienced producers.

Third, with regard to retention, an important rule to remember is that if we do a good job in retaining our current clients, new business growth becomes much more impactful to organic growth level.

Our historic retention levels in North America have been in the 90% to 92% range.

We're pleased to be back at that level, and we aspire to be even better at around 95%.

One key aspect of client retention is great service and I know we do a great job there.

But equally important is associate retention.

Insurance broking is a relationship business.

If we keep our people, we keep our business.

We're making great headway on that score by engaging producers in training and supporting them with what they need to grow.

Our Sales 2.0 program is a great example of that.

There should be no better working environment than at Willis.

And, while we still have work to do, we are making steady progress, which bodes well for future business growth.

And, since I just brought up Sales 2.0, let me give you a brief update on that initiative as it's been rolled out throughout North America.

Through the first six months of this year, we've held over 1500 sales 2.0 meetings with clients and prospects and have converted over 10% of those meetings into new business wins.

That is a fair start to a program that I take very seriously and I expect it will continue to gain traction amongst our sales associates and drive increased revenue.

We've trained over 2500 of our associates in the 2.0 process and close to 600 producers are using that process as they interact with clients and prospects.

Like all companies, we are operating in a difficult economic environment.

But I believe that if we maintain and execute on the focus we adopted last year, the improved pipelines, increased producer headcount, and improved retention levels, they all will return us to delivering solid organic growth and improved margins.

With that, I will turn it over to Tim to discuss International.

Thank you, Vic.

Good morning, good afternoon, or good evening, everyone.

I'm delighted to have the opportunity to talk to you about our International segment, an exciting set of businesses with a wealth of potential for the Group.

Since taking up the leadership of Willis International last October, I've made a point of visiting as many of our 40-plus countries in which we operate as possible.

And, I'm happy to report that our 6,000 associates in the UK, Continental Europe, Latin America, and Asia-Pacific Middle East Africa, are doing a great job.

Between them, they generate around $1 billion in annual revenues today and can generate a lot more through the series of actions I'll describe later.

While these actions cannot insulate us from the broader economic conditions, we believe that they can help capture opportunities, even in the most turbulent markets.

We reported 2% organic growth in the second quarter, down from International's historic levels of 4% to 6%.

As Joe mentioned, the primary reasons for the lower-than-historic growth were the ongoing turnarounds in the UK and Australia, plus the relative weakness in the euro zone.

Together, these businesses account for half of our International revenues.

But, with a geographic spread as large as ours, these negatives have been partially offset by strong performance in a number of our higher gross markets.

For the next few minutes, let me run through some of the notable developments in these Willis International countries.

The UK business, which accounts for almost 20% of our International revenues annually, has improved significantly from its weak showing in late 2011.

Although organic growth declined low single-digits during the quarter, the improvement was in line with my expectations for the business and reflects the hard work done by the UK team to address the operational issues noted in 2011.

We have applied much greater client focus, which has manifested itself in improved service metrics and business retention.

Additionally, we've had a major focus on sales, instilling one of the best sales management disciplines across the whole of International.

Willis has always been a major player in the UK and the steps we've taken should ensure it remains so.

In Continental Europe, I'm happy to report that, despite the overall economic pressures across the region, we still manage to deliver low-single-digit growth.

Most countries in the region reported positive results, including Germany, which was up low-double digits, Italy up high-single digits, and Denmark up mid-single digits.

Ireland was flat for the quarter.

While Spain was down for the second quarter, its fabulous sales culture has allowed it to deliver low-single-digit growth year to date, a tremendous achievement given the economic headwinds faced by that country.

Eastern Europe, which is dominated by Russia, delivered somewhat slower mid-single-digit growth in the second quarter, but has achieved strong double-digit growth on a year-to-date basis.

Latin America grew high-single digits.

The stories in each country of the region are unique.

There was steady growth in our Brazil and Argentina retail businesses, as well as in our reinsurance businesses across most countries.

But some of these advances were offset by declines in Colombia and Venezuela.

Willis has a great business and a great future opportunity in Asia-Pacific Middle East Africa, and Joe and I have made a point to visit the region and many of the countries in the first half of the year.

It is also a region we have recently reorganized, which I'll talk about in a moment.

Asia continued to do well, with high-single-digit growth, driven by strong contributions from China, Korea, and Hong Kong.

Australia was flat compared with last year, which was a nice improvement compared with last quarter when we declined significantly.

And, finally, South Africa exhibited strong double-digit growth in the quarter, maintaining positive momentum from the first quarter.

Vic talked about retention in his remarks, and we're as passionate about retention in International as he is in North America.

Our retention remained healthy at 93%, about the same as last year.

Likewise, new business generation was about the same as last year, and rate was neither a head- nor tailwind during the quarter.

So, with that backdrop, like Vic, I'd like to share with you some of the key actions we've implemented since I took responsibility for International last year.

We believe these should provide a strong foundation for the future.

Firstly, we have sought to bring much greater structure, discipline, and consistency to the way we manage the business.

Under a new CFO and a [Char] Director, we've established common reporting and management information, which provides us with much greater visibility over the business.

Secondly, like Vic, we have had a major focus on sales -- implementing segments, specific strategies, building our sales capacity, and making selective investment hires.

During the period in which I served as group COO, we developed and delivered Sales 2.0, working with Vic's North American team.

We have now deployed this model across an additional 16 international countries.

Like Vic, we've held over 1500 Sales 2.0 meetings.

And also, like Vic, we have seen more than 10% of those meetings convert into new business wins.

More generally, our sales pipelines have improved significantly, increasing by almost two-thirds since the start of this year.

Thirdly, we recently announced a restructuring of our large and strategically important Asia-Pacific Middle East Africa region, in order to reinforce our focus on growth.

Roger Wilkinson, formerly head of the overall region, is being relocated to become executive chairman of our Australasia region.

Adam Garrard, formerly head of Continental Europe, will run our Asia business, a business he ran in its infancy from 2002 to 2005.

And Scott Pickering runs our Middle East Africa region, based out of South Africa.

Finally, we know the power of delivering the whole of Willis to our clients and are connecting much more closely with our colleagues from elsewhere in the Group, especially Steve's Global businesses.

A few examples will help illustrate this point.

We're working hand in hand with Global on joint prospecting for both large accounts -- for large accounts in both Europe and Latin America.

We've introduced new leadership in our reinsurance business in Latin America.

And we're building our construction and FINEX business in Asia and Australia.

To conclude on International, although we can't control the effects of the global economy, we are excited about the opportunities across the different businesses, and believe that the actions that we have taken provide us with a strong basis for reducing historical growth levels in future.

I'll now turn over to Steve to discuss the Global segment.

Thank you, Tim, and good morning, everyone.

The comments Vic and Tim have offered fit well with what we're doing in Willis Global, as well.

We spent a lot of time together with Joe and the other members of the operating committee, and I echo their view that we're working as a tight unit to make Willis Group stronger and more unified to capitalize on the enormous opportunities available to us in the months and years ahead.

This morning, I want to focus on three items with regards to the Willis Global segment.

Firstly, I want to report on yet another strong quarter for the businesses which comprise Willis Global.

Secondly, I want to update you on the strategic transformation work that I described during our Q1 earnings call.

Thirdly, I want to update you on the progress we've made on the implementation of WillPLACE, our client-centric broking platform.

You may recall, there are three core operations within Willis Global.

These are Willis Re, Global Specialties, and Willis Faber & Dumas.

Q2 was another strong quarter of strong growth in our Global businesses with organic growth at 7%, compared with the comparable quarter in 2011.

This growth was led by our reinsurance operation, Willis Re, which had another outstanding quarter, with double-digit growth year on year.

This growth resulted from both significant new business growth and some rate improvement in both Willis Re's International and North American business units.

Willis Re continues to be one of the jewels in the crown of the Group.

And I congratulate the leadership team and the associates in Willis Re for their continued high performance.

Global Specialties, you will recall, is our specialty insurance operation, with businesses including aerospace, marine, energy, construction, financial solutions, and our financial lines business.

This part of Global grew middle-dig -- single digits during Q2.

Many of these industry segments remain challenged, by flat or even softening rate environments.

And, as such, I'm very pleased with the overall results here.

A number of the units in Global Specialties achieved double-digit growth in the quarter.

Willis Faber & Dumas is our wholesale facultative and third-party facing group of businesses and the third-core operation of Willis Global.

WF&D declined by low single-digits.

But that was after a Q1 that showed low double-digit growth that benefited from some favorable timing of revenues.

For the first half, Willis Faber & Dumas achieved solid, single mid-digit growth.

So, taken together, the second quarter overall represents another outstanding result for Willis Global.

But, like Vic and Tim, we're focused on the future and what we can do to produce even better results.

So then, let's look forward and take a few minutes to look at our strategic transformation work.

Our Global businesses represented more than 40% of the Group's EBIT in 2011.

Many individual parts of Willis Global are industry and market leaders.

Common to each of these businesses is a strong culture of innovation, technical ability, strong work ethic, and deep industry knowledge, all very important parts of the Willis cause.

Historically, the Global business has grown well, whilst producing significant EBIT and a high quality of income for the group.

We announced, in the first quarter, a new vision for Willis Global, with a new structure to enable the vision to be executed.

We concluded that, despite our strong historic performance, we could grow even faster by creating a simpler structure which would enable our highly successful businesses to come closer together.

We feel this will bring sustainable benefit to each of our core stakeholders -- our associates, our clients, our carriers, and, of course, our shareholders.

We are delighted to report we made huge progress in the last three months.

We've launched a new vision and structure, internally and externally.

We're hugely encouraged by the response that we've had to this new strategy.

We're now building a catalog of examples, where we have already been able to drive benefit for our clients and ourselves through the work that's being done.

As an overview, we've simplified the structure of the Global segment by creating three clear parts of Global.

The first is reinsurance, which now also includes facultative.

The second is specialty, which combines Global Specialty and Willis Faber & Dumas.

And the third is placement, which permits our clients to capitalize on the significant power of the over $40 billion of premium that we place into the insurance marketplace.

Under this new structure for Willis Global, we've combined a number of our divisions into larger P&Ls and a smaller number of management teams.

This structure also enables us to work more closely with our colleagues in Willis North America and Willis International.

Willis Global, as a whole, is now in a period of detailed business planning in the newly formed teams.

Our mission is simple -- exploiting the opportunities for growth at an even faster rate than we've achieved historically.

Our intention is to have this work concluded by the beginning of Q4.

We will then be fully operational under our new structure with these new growth plans on the 1st of January 2013.

Willis Global has grown well for many years.

Our intention is to turn it up a notch, or three, over the coming years.

We all know the opportunity is there for us to exploit.

Finally, I want to update you briefly on our progress on the implementation of WillPLACE.

To remind you, WillPLACE is a unique application built by us to enable our associates to demonstrate to our clients and prospects optimum solutions in terms of market selection, coverage, price, security, and other factors.

WillPLACE is a world-wide enterprise for Willis, embracing Willis International, Willis North America, and Willis Global.

It has been eagerly welcomed across our businesses.

We only started this development in late 2010 through a successful pilot in Willis Italy.

I'm delighted to report we've now trained thousands of our associates around the world on this new technology, its purpose, and its benefit for our clients.

We're now operational with WillPLACE in all of our largest-volumed territories and more than 14,000 placements have been made using this new process.

The algorithms that are at the heart of WillPLACE technology are powered by client preference, and a view of the carriers' appetite for the client's business, and by data that supports the choice of one particular carrier over another.

This is clever stuff, unique in its client-centric approach and very powerful indeed.

Based on our close evaluation of all the competing approaches, we would rather have WillPLACE than any other platform.

It serves Willis, and more importantly, our clients, the best.

Our team has done a tremendous job here, both the people in the central placement team and the insurance professionals in our retail and Global businesses.

Willis has a very strong and uniquely collaborative culture.

WillPLACE is Willis at its best.

You can tell I remain excited about our opportunities.

And, again, I know I speak on behalf of the entire team in Global in saying we're very optimistic about our future.

With that I'll hand over to Mike Neborak to discuss our financial results.

Thank you, Steve, and hello, everyone.

As you heard, we have made substantial progress building our business in Q2.

Key areas of focus remain expense management, infrastructure investments, and allocating capital as highlighted by repurchasing shares and reducing debt during the quarter.

In reviewing the numbers, all comparisons are to Q2 2011, unless otherwise noted.

All references to adjusted figures exclude those items that we disclosed in the supplemental financial information in our press release.

Adjusted net income from continuing operations was $104 million, or $0.59 per diluted share.

That compares to $107 million, or $0.61 per diluted share, in the second quarter 2011.

As noted in our press release, foreign currency fluctuations positively impacted our results by $0.06 per share.

To get a bit more granular on FX, the P&L benefit had two components.

First, we recorded foreign currency translation adjustments to both our revenues and expenses for the period.

Since many of the currencies in which we do business weakened against the dollar, this resulted in a $24 million reduction of our revenues.

It also resulted in an $18 million reduction in expenses for the period, recorded as a $14 million reduction in salaries and benefits, and a $4 million reduction in other operating expenses.

So, the translation component resulted in a net $6 million negative impact to our pretax earnings.

Second, we recorded foreign exchange in the amount of $19 million as a reduction to other operating expenses from revaluing assets and liabilities denominated in non-functional currencies.

That result was primarily driven by the revaluation of pound sterling-denominated net liabilities in our London market operations.

In total, foreign exchange reduced revenue by $24 million and reduced operating expenses by $37 million, reducing the $0.06 per share benefit.

Now let me turn to expenses.

Total reported operating expenses were down $42 million, or 6%, from $705 million in the second quarter 2011 to $663 million.

On an adjusted basis, total operating expenses decreased by $8 million, from $676 million to $668 million, or approximately 1%.

When the $37 million benefit from foreign exchange is excluded, our adjusted operating expenses grew $29 million, or 4.3%.

If you exclude the impact of lower expense credits in the second quarter of 2012 versus second quarter 2011, expense growth was 3.5%.

On a year-to-date basis, adjusted operating expenses grew 3.3%, excluding foreign exchange.

Now, let me talk a little bit about the component pieces.

First, adjusted salaries and benefits were up 1%, or $5 million, from $495 million to $500 million in the quarter.

Once again, excluding the $14 million positive impact from foreign exchange, underlying growth was $19 million, or 3.8%.

The largest driver of salaries and benefit growth was increased amortization expense related to cash retention awards, which grew $10 million, from $44 million in the year-ago quarter to $54 million in the current quarter.

In addition, annual salary increases, which take effect in the second quarter and, as we discussed last quarter, the investment in new hires throughout the second half of 2011 impacted the year-over-year comparisons.

Year-to-date adjusted salaries and benefits grew 2.9%, excluding foreign exchange.

The second piece, other operating expenses, on an adjusted basis, were down $12 million, or 8.2% in the quarter, from $146 million to $134 million.

Excluding the $23 million favorable impact from foreign exchange, other operating expenses grew by $11 million, or 7.5%.

Approximately one-half of that growth was due to a year-over-year decrease in expense credits derived from the release of funds and reserves related to potential legal liabilities.

In the second quarter of 2012, we recorded $3.5 million expense benefit compared to a $9 million benefit taken in the second quarter last year.

In addition, as we have discussed in previous quarters, we continue to invest in technology and systems, which also impacted year-over-year comparisons.

Year-to-date adjusted other operating expenses grew 4.9%, excluding foreign exchange.

As you know, operating margins are a key measure of performance and tracked very closely by management.

In Q2, our adjusted operating margin contracted 80 basis points, from 21.5% to 20.7%.

Excluding foreign exchange, our adjusted operating margin declined 290 basis points, to 18.6%.

Several factors impacted this result -- 35 basis points from lower investment income; 65 basis points from the difference in expense credits; and 35 basis points from the impact of Loan Protector.

And the remainder, approximately 155 basis points, from adjusted expense growth exceeding revenue growth.

Turning to tax, on an adjusted basis, income tax expense for the quarter was $34 million, resulting in an income tax rate of 24.1% compared to 24.5% in the year-ago quarter.

We continue to expect the 2012 effective tax rate to be between 24% and 25%.

Now, let me discuss the associates line, which is outside of our operating numbers.

As you know, the associates line consists primarily of our share of the after-tax earnings from Gras Savoye, France's leading broker.

For the quarter, that line recorded a loss equal to $1 million versus a loss of $3 million in the year-ago period.

Most of our income from this line is booked in Q1 and is driven by the seasonality in Gras Savoye's business.

Like many businesses located in the euro zone, Gras Savoye's operations are being pressured by the economy.

In addition, Gras Savoye recently appointed a new CEO and is undergoing a business review that is designed to drive growth in revenues and operational deficiencies.

As a result of these two factors, we expect the associates' line for full-year 2012 to be down $6 million to $7 million, versus 2011.

More specifically, in the third quarter, we expect the associates' line to be a loss of $1 million to $2 million.

In Q4, we expect the line to show a loss of $5 million to $6 million.

While these are our best estimates, keep in mind that we do not control the numbers produced by our associates.

However, we recognize that many of you model our associates' results using prior-year amounts as the base, so we thought it necessary to inform you of these developments.

On our balance sheet, total debt outstanding at the end of the quarter was approximately $2.4 billion.

And our debt to adjusted EBITDA ratio was approximately 2.7 times.

During the quarter -- we generated approximately $100 million in cash from operations; capital expenditures totaled $27 million; we repaid $35 million of our revolver, leaving a balance outstanding of $50 million; and we purchased more than 1 million shares of stock for a total price of approximately $37 million.

At June 30, cash and cash equivalents amounted to $407 million.

That compares to $436 million at June 30.

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

Thank you very much, Michael.

I know this call is running late.

We started late because we wanted to make sure as many people that could be on would be on.

I'll just finish with a couple of comments.

The first half of the year is behind us.

And, as you probably heard, each of the segment heads discussed their businesses and some of the issues we faced this year.

And we're very confident that, because the first half of the year is over, that a lot of things go away, and many things show up in the second half.

Importantly, I hope you have an appreciation as to why we're optimistic about the second half of 2012.

Loan Protector, that comparison is behind us, thank goodness.

And last year's fraudulent activity that we talked about has just one more quarter to go in terms of difficult comparisons, and that goes away.

But this Company is not watching in the rear-view mirror.

It is all about the road ahead and about doing everything we can to drive revenue growth and expand margins in a continuing, difficult global economy.

We spent the first half of this year relentlessly executing our revenue initiatives, with great emphasis on building pipelines.

Sales 2.0 and WillPLACE are starting to kick in, as you heard.

And we believe our pipelines are primed and expect that they should benefit our top line going forward.

As Vic mentioned earlier, our producer headcount in North America is finally on the upswing after years of playing defense against defections.

Retention is back up, and that, combined with those filling pipelines, should mean more revenue.

Tim and Steve are in the process of reorganizing their businesses in order to optimize top and bottom lines.

We have already seen good flow of transactions across our businesses, including a few large deals that, I said earlier, we expected would close in the second quarter, but were pushed into the second half of this year.

And, we will continue to manage our expense growth as you come to expect us from here at Willis, where the revenues exceed the expenses, which did not happen in the second quarter, which is the reason why most of the decline of the margin took place.

I'll end it there with the hope that you can sense that the excitement that we feel going forward into the second half of this year is real.

Thank you very much, and we'll take questions at this point.

We will now begin the question-and-answer session.

(Operator Instructions)

Keith Walsh, Citi, your line is open.

Hey, good morning, everybody.

Quickly for Vic a couple and then I've got something for Tim.

So Vic, In EB, the contingents, will they completely make up for the commission squeeze we're seeing on revenues and earnings?

It is hard to predict that exactly because we haven't received any of them, yet.

We've also just started implementing those contracts for April -- in April, as opposed to for the full year.

But I expect that in the long haul they will replace it.

I think that and the fact that you'll have better revenue growth in the second half, because of our EB platform, so the combination of growth, better growth in EB and the reception of the contingents together, Keith, I think will make for a better outcome.

And then secondly, for Vic.

Even if we adjust for the items you mentioned in North America you're still lagging the peers there, I appreciate the clarity around the initiatives.

Around pipeline, retention and recruiting, but we're four years post-HRH and why are we talking about this now and not a couple of years ago?

All I can tell you, Keith, is that from when I stepped into the job, I had to take a look at the basics of the business.

It's in my mind not a very complex business and you have to focus on pipelines and you have to focus on growing producers, and you have to focus on retention.

I can't really comment on my competitors, but I know what it takes to get this business growing and that is what I'm focused on.

I'm going to make an additional comment, Keith.

When we did the HRH transaction we did it at the worst possible time we could do it.

And people forget that.

We closed that deal in October 2008.

The timing couldn't be worse.

It was a good deal to do it, timing couldn't be worse.

We bought a company that had 280 different -- before it 280 acquisitions were all disparate.

To integrate all of those offices and to make one company at a time when interest -- when the economy was bad, when markets were terrible, the credit markets were closed, and obviously rates were very, very soft, and to do all of that at the same time and create a culture is difficult.

So you're not going to spend time with new accounts and pipelines.

You're going to spend time keeping people, changing systems, integrating cultures.

That takes long in itself and then you throw the economic conditions on top of that in the US, it simply took longer.

So, instead of concentrating on pipelines, you're concentrating on holding on to accounts, people that left, people weren't making as much money.

Other people are trying to get them by giving them more money and guaranteeing them deals over a period of time.

All of this stuff we have fought, and I will tell you that at this stage of the game, half-way point of 2012, even though it's four years later, and even though it's taken a lot of time and a lot of frustration, I think most of that's over.

You know, when you have a deal like the fraud that took place in Chicago that we talked about.

That we needed like a hole in the head.

But those things happen and you fight through it and you got to separate structural systemic problems from issues that occurred because of what happened with HRH, what happened in the economy, and the things that we have been through.

And I think we're through all of that.

So the question about why all of that now had to do with what you were doing at the time to make sure that the business was right, it was being down sized, things were merged, offices were integrated.

We integrated over 60 offices in the US, which took -- was a chore in itself.

But that is all behind us, and I think we're ready for growth.

If you add up all of the things that Vic talked about, which is we had one lost account which probably cost us a point.

We had the EB issues which probably cost us another point.

You had EB fraud.

Loan Protector, and all of those things.

When you start to add it up, you're in positive ground.

And when that stuff goes away, which most of it will go away, we have one more quarter of the fraud in Chicago, you're going to start to see the growth that we expected to see all along.

It just happened to start late because we were playing a different game than everybody else.

So if you compare us to the others, it is I don't think a suitable comparison because they didn't go through what we went through.

But that's the way the game is played.

We made the deal.

I'm glad we made it now.

We have a great platform in the US.

It just took a little bit longer.

Okay.

And just for Tim on International.

I mean, Joe mentioned in the script that 2% growth is an anomaly, I believe you said.

Specifically speaking about the UK and Continental Europe, if you could walk us through the math on how you improve.

Currently you've got good retention, it sounds like, and stable new business.

How do you improve on that to offset what is likely shrinking exposures and flat at best pricing we're probably going to see in that part of the world in 2013?

Thanks.

Hi, Keith.

A few things and the story is different by country.

As you know, the UK business is in turnaround.

We reported in the fourth quarter of last year a 16% decline in that business, and that is being cut substantially to low single-digits in the current quarter.

And we expect that turnaround momentum to continue.

So the math is on that, that is a big business, Keith.

That is almost 20% of International.

Just being flat in that business has a positive impact on our earnings, and we're not going to be satisfied at flat.

We want to grow that business in the future.

In terms of Continental Europe, again, it's a mix-story by different parts of the region.

In Northern Europe, we've actually seen pretty good growth in a number of markets.

In Southern Europe, as you know, those are the economies of Spain and Italy, that have borne the brunt of the euro zone crisis.

We're fortunate in that -- we're not going to be immune to that -- but we're fortunate we have strong management there, who leverage the full capabilities of the group, have a strong sales culture, follow their clients around the world.

And they're able to grow, maybe a little bit more modestly but grow, despite the environment.

And then of course there is central Eastern Europe which has provided a lot of growth.

So the math, Keith, to have improved growth in this region is a combination of turning around performance in the UK and share gain in the other European markets on the back of our sales initiatives and sales pipelines.

Thanks.

I think you'll see relative to what Tim just said, I think you'll see we're looking at in terms of our numbers--we're looking at probably a restoration in the second half to what the numbers -- that we've usually put up in International return, Keith.

Our next question comes from Cliff Gallant, KWB.

Your line is now open.

Hi.

This might be a simple question but I just want to understand the pipeline discussion.

How do you define what a pipeline is?

You say it is doubled year-to-date.

You know, how did that come about?

What drove the increase?

Well, we track pipelines very, very heavily in the Company.

We've always tracked them, I think, remarkably closely on a week-to-week basis.

Basically what we believe is, is we look at our business plans and we say how much new business has to be done to reach certain levels of revenue activity.

And then what we say is that we take 30% or so that we need to convert a prospect to an account.

So the coverage in our pipelines, you know, has to be robust at least to the tune of 2 times or 3 times that which we actually need to be able to generate the business that we want to generate.

So what we're saying is, is that, you know, one time would be kind of close to the vest.

Two times gives us enough coverage.

You heard Vic talk about approaching three times by the end of the year.

I would say that the Company is in the 2 to 2.5 times range.

Vic made a point of the fact that it is a big deal now simply because they got time getting new business rather than holding on to business, which is the point that he was trying to make.

So this is something that we're very excited about and so when you see -- it is like how many ships are going to come in?

Tell me how many ships you sent out?

And I'm telling you in our case these pipelines look very, very good.

So it gives us a greater sense of predictability as it relates to the future, Cliff.

Thank you.

Adam Klauber, William Blair, your line is now open.

Thanks, good morning, everyone.

Hi, Adam.

On comp expenses, can you give us any visibility what the amortization award should be next year?

It seems like the growth is over 20% this year.

Are we looking at flat next year or is it still going to be growing next year?

It is going to grow next year but at a lower rate than it's growing this year.

I think in the past, Adam, I mentioned that the year-over-year increase--that meaning the increase of 2012 versus 2011 was going to be somewhere around $35 million, and I said next year it will still grow but at a much lower rate.

So I also mentioned it will probably be in the low $20 million to $25 million in terms of a growth.

So down from $35 million growth to $20 million to $25 million growth.

So what you're seeing is, you remember it was $65 million last year.

$35 million this year.

And he's telling you it is in the $20 million to -ish range.

So every year it is going to be growing less so you're picking up $15 million, or whatever the case may be, which is also going to auger well with regard to our numbers next year.

We're pretty confident that's the number.

Again, another example of as the world continues to go on for Willis, the numbers get better.

How did capital markets do this quarter?

Was it additional to growth?

Capital markets did great.

The problem is that the deals that they did great with, didn't hit.

As I said in my commentary, we have a high expectation that there will be a lot of activity in the second half that will result in a--I think in a considerable amount of business.

I just can't tell you how much.

It is very lumpy.

We have no control over these things closing.

But I can tell you that they're in the stage -- stages of closing, and in one case, one deal was two days into the quarter.

I just can't announce, you know, what that was, but I can tell you that the second half should be pretty bountiful, frankly.

And I know that that's a big word.

Okay.

That's helpful.

Also, North America--did I hear right were there also some deals in North America that got pushed in the second half, or is that mainly in the Global business?

No, that was mainly in the Global business and Steve mentioned that.

Okay.

Okay.

And then, finally, how much -- good to see some buybacks.

Could you give us some idea how much cash you have available for buybacks in second half of the year?

Well, you know, our cash balance, as I mentioned at the end of June, was a little bit more than $400 million.

Not a lot of that cash is available in terms of -- for general corporate purposes.

We have it in various entities that are regulated or where we need to keep cash.

So, you know, I would say on the balance sheet right now there is probably about $30 million to $50 million that I would call, you know, available for general corporate purposes.

Okay.

Thanks a lot.

Thanks, Adam.

Question from Greg Locraft, Morgan Stanley, your line is open.

Thanks, good morning.

Just wanted to get an update on the CEO succession plan.

Me?

Yes.

You could have referred to me like Joe or something.

Oh okay.

(laughter) Are you staying, are you going, what's the plan and what is the timing around it all?

(laughter)

As I said before, you know, the succession planning process continues.

The board is obviously concentrating on that.

Everybody knows my contract is up, you know, next July.

I'm concentrating on this business, which you can hear -- I hope you can hear in my voice -- is going to be very, very exciting going forward.

And they're worried about succession and I'm worried about, you know, running this business every day.

I'm going to eliminate the word worry.

I'm excited about running the business everyday and seeing the clarity get better and better and better.

Okay.

In terms of timing, though, how do you know -- and I know you can't speak necessarily for the board -- but it is a big job, there is a lot going on at the corporation, you know, when do you guys kind of put this in place, and so everyone can kind of move on and know what is happening?

I obviously can't answer that.

But you'll get the -- as soon as I know, you'll know.

How is that?

And everybody will know at the same time.

But it's something, obviously, that the board is working on.

And I mean it, the succession planning, when you get somebody that's been around for as long as I have, you take very seriously, you start -- you go through a big process, and I let them do that.

And we're doing this.

And hopefully you get a sense that what we're doing here is exciting.

I think it is exciting.

I think that the worst is over.

A lot of stuff that we had to trudge our way through is -- is almost behind us, except for a couple of things in the third quarter which should not affect the third quarter in a big way.

I think all of that stuff is behind us.

I can't tell you any more than that.

I mean, it's -- it will happen, it will happen.

And we'll let you know, obviously.

Great.

No, I totally appreciate that.

Thanks.

One other one, totally different, it's just if you -- from your level, Joe, sort of what is the minimum organic growth rate you need to drive operating margin improvement in the business, you know?

I think it is obviously higher than what it is now.

And the 2% is not acceptable.

What we've tried to do very hard is to give you a sense of all of the things that aren't in there, that if you added them back in, what you would get is more than 2%.

And that--by virtue of that we think we would cover our expenses very well.

So without telling you that, I've tried to give you examples that if you added 1% more back for this and 1% more back for that and what didn't hit in capital markets, et cetera, you're not 2% anymore, you're up there pretty good where you think you're at a level where our expenses are covered.

Okay and then I guess you may dodge this one, but when do you think we're going to--

That wasn't dodged, that was good.

(multiple speakers) Come on.

Okay.

Great.

I appreciate that, thanks, guys.

Dan Farrell, Sterne Agee, your line is open.

Thanks and good morning.

In your prepared remarks on the segment discussion, you've obviously focused a lot on revenue and pipeline.

But there's been less focus on cost.

To what extent do you think the margin pressure, in your view, is it more of a revenue issue or a cost issue?

I can certainly understand the negative organic pressures in North America but you've had some positive organic international and those margins have declined at a greater pace.

And then could you also talk a little bit about some of the cost issues?

Yes, I think it is a revenue issue.

I don't think we have a cost issue.

I think we do costs pretty well in this place.

We always have.

That has been one of the things that people always suggested that we do very well.

I think it is simply a revenue issue.

When you have International at 2%, when it's usually 6% or 7%, that doesn't help margins.

And if you listened and you got North America, at minus 2% or 3%, depending upon that word again Loan Protector, that's going to be positive one day because that's going to go away.

And I think the Global will continue to grow and continue to be strong, if you heard what Steve had to say.

So I think it's more of a revenue issue, which you're going to start to see coming to the fore like it used to, in the past.

I don't think it is a cost issue at all.

That is why we didn't spend a lot of time talking about it.

I think we have been judicious about our cost and the issue is revenue.

And when you're generating 2% revenue in the quarter, it might be for all of the reasons we mentioned, but it is 2%, that's got to improve, and we believe it will.

That's the reason why we spent so much time trying to give you some comfort around the fact that we're concentrating on that.

If you look at the margin that Mike went through, 150 basis points of the margin decline came from the fact that the revenue was less than the expense.

And not because we spent too much, because you got 2% revenue growth, you're not going to, you know, you're not going to, you know, you're not going to do wonderful things.

That's the issue which we think and hopefully you've heard in our voices we think will change.

Okay.

Thank you.

Thomas Mitchell, Miller Tabak, your line is open.

Along with the issue of succession at the top there has been a tremendous amount of change in your cadre of executives in recent periods.

And this, of course, you know, it's sort of a double-barreled issue.

On the one hand it presents those of us who follow you with a picture of, okay, there is change, and the change is presumably valuable and important.

But, on the other hand, it also raises the issue of, you know, of what was wrong before.

And especially when we're talking about how your performance rates against other insurance brokers, the question comes up of whether or not you are treating as extraordinary, issues that would be more considered, you know, part of the way that you run a business year in and year out.

How do you respond to that?

I'll be glad to respond to it.

First of all, you heard from the people who run our businesses.

And you could hear, hopefully you could hear, they're very articulate, they know what they're doing, they have been around here a long time.

Vic has been around here for over 12 years.

Steve's been around here since the HRH acquisition four years ago and has run reinsurance and run Glenn Karen before that, and now runs the Global businesses.

These are not neophytes.

Tim has been around for, if I count the times he was here helping us here on a consultancy basis, has been here a long time.

These are seasoned executives so that we're not filling these holes with people that don't know what they're doing.

That's number one.

And number two, and I can really appreciate if I were you and I'm sitting on the other side and I'm looking at some of the difficulties Willis has had and I see people leaving, it doesn't feel right.

It feels like something is wrong in the place.

And I'm saying to myself and I say to my colleagues, these people think there is something wrong.

The fact of the matter is that there is nothing wrong structurally or systemically.

We simply had three people that left -- four people actually, three of whom -- let's put it this way.

We left on a mutual basis.

One decided to go pursue something else, and that was Graham Millwater after 26 years of being here.

And the other was mutual and I don't want to get into that.

But it wasn't because it caused any structural or systemic problem or there was any issue in the company or there was a revolution, or there was any of those things.

But I could understand how it would appear that way on the outside when you couple the results and you couple people leaving.

You say that is a ship that really bothers me that might be going in a direction we don't want.

That is not the case.

That would be a big mistake to assume that.

Okay.

I can accept that.

I think that's interesting.

I really appreciate your laying that out.

The other question I have is totally unrelated.

But it was almost a year ago, I think, that you discussed going after more of the big international multi-national corporate business and Martin Sullivan's responsibilities for that.

Haven't heard anything lately in the last couple of quarters about that.

How is that going, and is that still really on the front burner?

Not only is it -- I think is it going well, but I will allow you to speak to Martin Sullivan himself.

Martin?

Thanks very much, good morning.

In fact, it is hard to believe it was actually closer to two years ago.

Was it that long ago?

That Joe announced the initiative and I'm pleased to report that we have very good momentum.

We're very focused, we are very disciplined and expanding the penetration into the global 1220 as we've defined it, which is the segment of clients excess of $7 billion of revenues.

I think we've got an outstanding value proposition, and we're delivering that across the organization in various geographies.

Just to give you some indication, I think in a previous call we gave some information out that we touched about 27% of the global 1220, you know, two years ago.

And now we're now up to close to 40% penetration into that segment, i.e.

that means we have a share of wallet of approximately 40% of the global 1220.

As Joe said, it is going well.

The great thing, the most exciting thing, is the size of the opportunity out there.

So, we remain very disciplined in our targeting and our marketing to those clients and prospects.

That's great.

Thank you very much.

Anybody else?

Matthew Heimermann, JPMC.

Good morning, everybody.

How are you.

Fine.

Question for you, when you're talking about some of the things that dragged on 2Q this year, are you telling us that we should feel -- whatever our view was for the second half, we should feel comfortable in that view?

Or are we actually--if some of these things hit should be feeling better about.

Like actually potentially thinking that things could be better than we were thinking about originally.

Well for every -- that's a tough answer because I don't know how each individual of you feel.

Everybody has different aspirations, you have different estimates for the second half.

All I can tell you is how we feel.

And hopefully I've expressed how we feel and we feel very good.

We've experienced stuff that I've never experienced in 45 years, to be honest with you.

But I'm a fighter like everybody else, and you go through those patches.

You go through slumps, and it is the people who dust themselves off and get back into the game.

And I hope you're getting a sense that we got back into the game and we're in the game a big way and the second half is going to be better.

Relative to what each individual of you think better is, I can't tell you that, because I can't give you a single answer against what each individual might feel.

You will have to figure that out, you know, for yourself.

But what you're getting is we feel like the second half is going to be better.

And then just on WillPLACE, can you give us a sense of maybe the kind of the key things that WillPLACE that are a little bit different than some of the other things, some of your competitors on?

And kind of what -- why those differences or how those differences make the platform appealing to customers.

Thanks for that question, it is a great question and Steve Hearn is going to answer that.

Thanks, Joe.

It is a great question.

We're obviously familiar with our competitors' platforms and how they've approached this.

We started with a client and it is a very, as I said in the words I delivered earlier, it is a very client-centric system.

So as part of the sales process, in our retail businesses and our global businesses as we engage with a client, we understand what their appetite and tolerance is for various factors around security, risk, pricing, the quality of the capacity that's provided, et cetera.

So there is an engagement with a client directly in putting their appetite in terms of those types of characteristics within the system.

The system then, through its algorithms, looks at global marketplace in terms of the carriers and their appetite to write certain risks either in by product class, geography, and their appetite in terms of engaging with our client base.

So it's very, very client-centric.

Other systems, without being too specific, are driven, I believe, by the desire of the organizations that have built them rather than being necessarily client-centric, and that's the key differentiator.

And I think that is recognized by the marketplace with which we trade.

And so this effectively what it does for--if I'm a broker working at Willis it allows me to be more efficient because I might go to a particular client, you know.

If I'm in North America and one client can fill--one underwriter can get -- is all I need to place the business, I can -- I can get down to the two or three that are the most necessary.

And if I'm in London putting a wholesale slip together and I need 5 to 10 carriers, I'm not going to waste time, because it's going to call the list down to where I'm likely to get hits and everything is going to fit together.

Is that the right way from an internal perspective way to think about it?

Yes, that is a very good description of it.

There are efficiency gains which we can get out of our broking activity as well.

But it is absolutely matching the right carrier with the right client and that takes out some efficiency.

And there is all sorts of benefits out of that.

Economic, certainly, compliance in terms of making sure we've got the right proposition in front of the right customer, all sorts of benefits.

But your description is accurate.

And is this something that potentially, you know, could electronically, you know, effectively bind business as well?

Or is that-- is that, you know, on potential easy standard policy type things, or is that far in the future?

No, I think, no, it doesn't do that at the moment.

I wouldn't want to mislead you.

It does not do that at the moment.

Probably, yes, if you envision further down the track in a couple of years time we have simplistic transactions where we have facilities in place where the transaction is simple, absolutely.

The moment WillPLACE sits on top of the core accounting and settlement transactional systems.

So there is a way to go, I think, before we would be in that position.

But yes, absolutely part of our vision for the future.

Thanks much.

Jay Cullen, Bank of America Merrill Lynch, your line is now open.

Yes, thank you very much.

Maybe just one quick follow-up on the last question on WillPLACE, is there a big investment to be made in WillPLACE?

Will that have some dragging effect on the earnings at all?

Yes, should I take that, Joe?

Yes.

The fundamental investment has actually been made.

As I said earlier, we've now rolled this out in all of our key volume territories, the technology is in place in those operations.

It has capitalized cost in many respects and the big investment is done.

You got that reflected in our numbers.

If you're asking is there more, you know, big expense to come to fill this out, the answer is no.

Whatever expense is going to come from WillPLACE is actually going to be in the rollout and implementation phase, which is nothing compared to the technology in building the algorithms, Jay, that went into that.

I might also add, that's really unique about this, that it's also coupled with the Willis quality index.

Which gives us the ability to show our clients what quality measures we've given each carrier in various categories of measure of service.

So the quality index is part of the -- of selling to the client, this is the best match for you, and you ought to know.

This is how we score the carriers against each kind of category like service, claims, paying, how quick they send out the contracts, and things of that nature, and policies.

So it is different than everybody else, and this is just something that will be in full bloom and manifest itself certainly in the second half of the year and certainly next year.

Yes.

That's great.

Thank you.

And then the other question I had was on the Global segment.

It sounds like there's some --potentially decent sized transactions that will come in the third quarter.

I'm just looking at my model, it looks like last year at third quarter you had some pretty sizeable one-time benefits in the Global segment, I think in reinsurance.

I'm just wondering, just for remodeling purposes, how tough is that comparison in the third quarter?

Yes, we did some work last year in terms of profitability around reinsurance relationship dividend, which as you say had some benefit in Q3.

The track on our reinsurance business, as you have seen yet again, continues to perform very well and as I said in earlier borne out of new business and some rate.

And also some good retention in that and we expect that momentum to be continued through Q3 and Q4.

So I don't see that being an issue for us in Q3.

That's great.

Thank you.

Our next question comes from Brad Huff, Stephens Incorporated.

Your line is now open.

Good morning.

Hi.

How are you doing?

Good.

One quick question, you mentioned that these couple of deals that had slipped.

Is the expectation that those will be a 3Q for 4Q event.

Or any specific timing color on those.

Definitely by the end of the year.

And then on the retention amortization going up.

What kind of metrics have you all seen as it relates to that, the benefits that you've seen from that.

How are you kind of measuring the return on that sort of expanded bonus pool?

Well, if you're asking -- it is going up, but as I said earlier, and Mike said earlier, it is going up as a lesser pace, at a lesser rate.

So it will cost us less next year.

If you're asking has this method of paying people retained them, because it is called the retention award.

I think the answer is yes.

There are a lot of people -- I can't give you a metric -- all that I know is that our turnover is low.

It's in the low double-digits to -- 10% to 12% range, which as you know pretty low for a large corporation.

But we've never done a survey to find out whether or not the retention awards kept people here.

But our sense is, if you look at the numbers, that it has.

Okay.

Those are the two questions I needed.

Thanks for your time.

You're welcome.

Our next question comes from Meyer Shields, Stifel Nicolaus, your line is now open.

Thanks, good morning.

How are you, Joe?

I appreciate your taking so much time today.

As much as you want.

We'll be here all day, if you want.

Maybe I'll take you up on that.

How much were the fraud revenues in the third quarter of 2011?

Say that again, please, I'm sorry.

The fraudulent revenues in 2011, just for modeling, how much was that?

I'm sorry, the third quarter of 2011.

I'm sorry, I didn't hear the first part.

The revenues associated with the fraud in Chicago, that you know you said will pose a little bit of a drag to revenues in the third quarter of this year.

I'm just trying to get a sense of the number.

No, it was $4 million in the second quarter.

And third?

Third quarter it should be about the same.

Okay.

And then it's over.

Okay.

And when you talked about the contingents in employee benefits, are those predicated on growth or profitability?

This is Vic.

Those are going to be based on predominantly growth, but some of them may have profitability components.

Everyone of those contracts is negotiated individually state by state because that is the nature of that business.

So there is going to be a variety of different ways that we achieve those.

And the last question I guess for Steve, if I ascribe to the theory that it is the number of insurance companies that are fighting for share that impact pricing, are the -- is the pipeline for capital markets transactions something that you think will shift the marketplace?

I guess I can answer that question.

I can only tell you that from a capital markets point of view I have never seen the pipeline be as robust as it is today and mainly in M&A activity.

I would say almost exclusively M&A activity.

We're doing a lot of cap-ons.

Cap-ons have picked, as you know, up a lot.

If you want to hear about that, Steve--Peter can talk to you about that.

But the M&A activity in the pipe-line is huge.

I think we'll see lots of deals hit in the second half.

But it is almost daily now when Tony or Sonno is telling me we picked up this and we picked up this, and we're getting retainer on that.

And there is a lot of things going on.

I don't know what that tells you, other than the fact that I guess insurance companies are looking, you know, at the future and saying how could we consolidate and shore up our businesses.

And I think if I may add, Joe, I think your thesis is right, that, you know, if we take a longer term view in terms of consolidation, in that area, that they've got to be more transactions and we have close connection between our reinsurance business and insurance business as well as capital markets business.

There should be an increasing and, as Joe said, robust pipeline for Willis Capital Markets.

I think that is very positive and thank you very much, again.

Thank you.

Next question comes from Raymond Iardella from Macquarie.

Your line is now open.

Thanks, and good morning, everyone.

A couple of quick questions.

First of all, maybe for Vic.

You talked about the pipeline a lot more recently but maybe talk about the converging rates that you're seeing there.

Is that something that is getting better or pretty steady as the pipeline grows?

Thank you.

I would say that the conversion rates still need to improve, in my mind.

We have been tracking them.

The first thing we needed to do is fill the pipelines, get to a point where we had something to measure and track.

And as we go forward I would expect them to improve.

Okay.

That's helpful.

And maybe for Mike.

Any impact going forward in terms of FX if the exchange rates stay where they are?

Not significant.

Okay.

And then I guess last one for Joe, maybe the hot topic sort of with July coming you know, sooner and sooner everyday.

I mean, is there something in the Company's bylaws that would sort of prohibit them from maybe offering you another contract or extending the contract for another year?

No, there's nothing in the Company's bylines -- bylaws, excuse me, that have to do with age or ethnic consideration.

There is nothing that says you can't hire an old Italian American.

I'm Italian, too, so don't worry.

That's why I said that.

And so if the board were to ask you to stay on for an extra period of time, how would you respond to that?

I would respond to it by saying there is nothing in the bylines that prohibit that.

Okay.

Thank you very much.

Our last question comes from Mark Hughes, SunTrust.

Your line is now open.

Did you see any uptick in employee benefits as opposed to the Supreme Court decision?

No, I'll let Vic answer that, but I don't think so.

I don't think we saw any uptick in employee benefits due to that.

We still feel very bullish about that line of business.

We're investing in that business because, I think if you have the resources and the specialties in place, volatility gives you an opportunity to distinguish yourself and that is why we are looking at it.

Our business, you've got to understand, Mark, is a middle-market business in the United States.

And the middle-market is whether Obama care stays in, stays out, whatever, these people have lots of issues one way or the other with regard to how they're going to take the dollar they have and be able to use it on a maximum basis.

And our platform, which is called total rewards, allows people to make decisions based upon how much they have to spend on a voluntary basis against the backdrop of each employee.

That's why we're so bullish about our employee benefits business, or what we call human capital, because it does just that.

Thank you.

You're welcome.

Anybody else?

I show no further questions.

You sure?

Yes.

I want to make sure.

Okay.

Thanks a lot, everybody, have a great day.

Appreciate the questions.

Thank you.

This concludes today's conference call.

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