Willis Towers Watson PLC (WTW) 2015 Q3 法說會逐字稿

Welcome and thank you for standing by.

(Operator instructions)

This call is being recorded, if you have any objections please disconnect at this time.

Now I will turn it over to your host, Mr. Matt Rohrmann, Head of Investor Relations.

Sir, you may begin.

Thank you and welcome to our third-quarter 2015 earnings conference call, which is being hosted by Dominic Casserley, Chief Executive Officer of Willis Group Holdings.

A webcast replay of the call, along with a slide presentation to which we will be referring, can be accessed through our website.

If you have a questions after the call my direct line is 1-212-915-8180.

Please note 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 for those estimated or anticipated.

These statements reflect our opinions only as 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, 2014 and subsequent filings, as well as our earnings press release for more detailed discussions 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 used 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 and slides associated with this call.

I would now like things over to Dominic.

Thanks Matt and welcome everyone and thank you for joining us today to talk about our performance in the third quarter.

With me today are John Greene, our Chief Financial Officer; Nicolas Aubert, CEO of Willis GB; Todd Jones, CEO of Willis North America; and Tim Wright, CEO of Willis International.

Let's turn to our results.

In short, we executed well and delivered strong performance in a challenging economic and insurance environment.

I will start by looking at some of our key financial metrics.

Earnings per share increased 56% on an underlying basis, driven by strong revenue growth of over 10% from our organic business and our acquisitions, combined with strict cost management.

If we look at the business just on organic basis, then commission and fee growth was the 3.3% in line with our expectations of mid single-digit organic growth for the year.

We were able to increase the spread between organic commissions and fees growth and organic operating expense growth to 230 basis points, above our 200 basis point target.

This drove expansion of our operating margin on both an underlining and organic basis.

I'm particularly pleased with our consistency on this front, as this marks the fourth consecutive quarter of margin expansion.

These strong results are attributable to the continued execution of our three pillared strategy to create value, which I will review briefly now.

The first pillar is driving organic growth of our diversified portfolio of risk advisory, brokerage and human capital and benefits businesses.

We delivered on that, as demonstrated by the solid organic revenue growth from our portfolio, that I mentioned previously.

John and I will provide more detail on the drivers of the business lines and of our overall financial results later in the call.

The second pillar of our growth strategy is execution of our strategic M&A program.

We target firms that are complementary to our existing businesses and then work with our new partners to drive enhanced performance.

Our underlying commissions and fees grew 10.5% in the quarter.

I noted the 3.3% organic C&F growth earlier, and the additional 7 percentage points attributable to M&A is evidence of good progress in this area.

Now the quarter marked our first full period with Miller Insurance Services as part of Willis, and the relationship is going very well.

We solidified Miller's partnership with one of its larger clients earlier in the quarter by agreeing to sell a 16.9% stake to BB&T to align our interests.

This is a strategic transaction, but was part of the anticipated plan since discussions with Miller first started.

Even though negotiation and execution were delayed due to some additional regulatory requirements.

We also announced the acquisitions of several targeted purchases to enhance our current product and service offerings.

PMI Health Group in the UK, Elite Risk Services in Taiwan and CKA in Australia.

Looking ahead, we have two of our most important, most transformative deals ahead of us.

Our acquisition of Gras Savoye remains on track.

In parallel, we continue to work towards our proposed merger with Towers Watson, a transaction that we strongly believe will accelerate growth for both businesses and generate substantial value for all shareholders.

Our third pillar is the transformation of our service delivery and our financial performance through our operational improvement program.

As with the past three quarters, the impact of the operation improvement program is evident in our financial performance.

The program continues to exceed our expectations, generating $33 million in cost savings in the quarter bringing the year to date total to $63 million.

These gains are a big driver of the increased spread between organic commissions and fees and expenses.

With another quarter of progress under our belts we have even greater comfort in our ability to meet increased targets for overall cost savings, and organic spread this year that we announced with second-quarter earnings.

So bottom line, we made significant progress across all three pillars of our strategy again in the third quarter, resulting in mid single-digit organic revenue growth, over 10% underlining revenue growth, improved profitability and positive operating cash flow.

Overall a strong performance.

With that overview I will now walk through the quarter in bit more detail, beginning with Willis International.

International saw underlying revenue growth of 29.4%, another very strong performance that reflects the contributions of Max Matthiessen and the IFG pension and benefits business.

Organically, international grew 8.6%, bringing its organic growth to a solid 7% year to date.

With the exception of CEMEA where we saw declines in Russia, the segment generated growth in all regions in the quarter, with double-digit growth in Latin America and mid single-digit growth in Western Europe.

We also saw modest growth in Asia as overall strength in the region was partially offset by a year-over-year decline in China.

As you know, we've been expecting to see some softening in Russia due to economic conditions there so that comes as no surprise.

In China we saw some deferred projects due to economic uncertainty in the quarter, offsetting strong growth in the first half of the year.

And we retain our optimism around the one long-term growth prospects for this market.

Overall, it is a testament to the strength of our portfolio that we were able to produce a 8.6% organic growth in the quarter, despite softening in two of our largest economies, and we expect international to finish the year on a strong note.

Turning to Willis North America, we saw underlying revenue decline 3.8% as a result of steps we've taken to exit several non-core businesses and markets.

On an organic basis the business was flat.

However, it should be pointed out that in this quarter, always the smallest for North America, we experienced timing differences versus the prior year in some business lines with certain sales shifting into the fourth quarter.

This was most notable in the healthcare industry group.

Adjusting for the timing of these sales, Willis North America would have reported modestly higher quarterly organic C&F growth.

Now let's turn to Willis Capital Wholesale and reinsurance, which includes Willis Re, Willis Capital Markets and Advisory, our wholesale business, including Miller and Willis Portfolio and Underwriting Services, which encompasses our programs business.

CW&R achieved underlying growth of 32.6%, driven by a full quarter's contribution of Miller Insurance Services, as well as SurePoint Re.

As impressively, organic commission and fees increased 8.8%.

We saw revenue growth across most of the portfolio with solid growth in reinsurance and our capital markets and advisory and wholesale businesses.

The Willis Re performance is notable, given the continuing challenges of the reinsurance markets.

Willis Capital Markets and Advisory had another strong of performance, driven by capital raising and advisory mandates completed during the quarter.

Moving beyond the organic performance in CW&R, let me make one comment about our largest acquisition in the segment, Miller Insurance Services.

Miller, as expected, is performing very well.

While our overall expectations for contributions from Miller remain unchanged, the business generates most of its earnings in the first half of the year, and this seasonality impacted profitability in the quarter.

Let's now turn to Willis GB, which is made up of Great Britain based specialty and retail businesses.

Organic commissions and fees declined 70 basis points, a solid growth in P&C and strong growth in financial lines were more than offset by declines in transportation and retail.

I mentioned last quarter the segment is executing an operational turnaround, the team held expenses relatively flat in the quarter and has reduced expenses 3.4% year to date.

Year on year, Willis GB profits are up.

We remain positive on the prospects for this business.

So overall a solid performance that again demonstrates the strength of our Business and the effectiveness of our execution in a challenging global economic clod.

Now let me turn the call over to John who will walk you through the numbers in more detail.

John?

Thank you Dominic.

Good morning to those on the call.

I will be working off the third-quarter slide deck which is available on our website.

On slide 3, you can see our EPS growth.

As Dominic said, Willis grew underlying earnings by 56% over the same quarter last year.

This was driven by underlying revenue growth of 10.7% and continued successful execution of our cost management initiatives.

On a reported basis, our results reflect adjusting items that in total added $0.50 per share.

The largest factor of this was the release of a valuation allowance on deferred tax assets of $0.60 per share.

As a result of the valuation allowance we reported a tax credit of about $110 million.

In all, adjusting items in the quarter included two positive items.

$0.60 from the deferred tax valuation rate, and $0.07 related to the gain on the disposal of a non-core business.

And three negative items, $0.09 for restructuring charges associated with our operational improvement program, $0.07 from M&A transaction-related cost, and $0.01 related to the devaluation of the Venezuelan Boliver.

I should also point out that as expected, headwinds from foreign exchange began to ease in the second half of the year.

When we spoke to you on our second-quarter call we said foreign exchange headwinds was reversed to a degree in the third quarter.

As you know, in the first half of the year foreign exchange was a headwind of $0.13 per share to our bottom line.

In the third quarter, the combination of translational and reval FX resulted in a benefit of about $0.04 per share.

Based on current rates we now expect FX to negatively impact the full-year by $0.11 to $0.15, so a little higher than our previous outlook.

As we expected though, the bulk of his impact was felt in the first half of the year.

In all, I'm pleased to report that the third quarter continued the solid trends we've seen throughout the year.

Positive performance both organically and from our M&A strategy, coupled with our cost management initiatives.

Combined, these factors drove margin gains and generated a $0.05 improvement in underlining EPS.

Let's turn to slide 4. As a reminder, as always, the difference between reported and underlying revenue in each the segment is the foreign currency movement and the difference between underlying and organic is a net impact in acquisitions and disposals.

At a group level, underlying commissions and fees grew by 10.5%, driven by Willis International and CWR.

Dominic has described the drivers of performance in each segment, so I will just add a little bit.

Quarter over quarter, foreign currency movements negatively impacted our revenues by about $47 million.

Reducing the group's underlying commission and fees by 640 basis points.

International's results reflected contribution of our acquisitions, primarily Max Matthiessen and ISG, which together added approximately $30 million in revenue in the quarter.

Within capital, wholesale and reinsurance our underlying growth reflected the first full quarter of contribution from Miller Insurance Services.

Miller added $33 million in revenue in the period.

Organic growth in the quarter was driven by our M&A advisory business.

In Willis North America, Dominic mentioned the revenue return we saw in third markets.

Beyond this, our construction growth returned to more typically growth levels and was up 10% in the quarter.

Let's turn to slide 5. The middle of the chart shows organic expense growth, with a modest 1%.

This was another quarter in which we were able to control organic expenses that generate.

Underlying operating expenses grew 10.3% to $780 million, driven by salary and other expenses related to our acquisitions.

This increase, once again below our growth in underlying commissions and fees, created 20 basis points of positive underlying spreads.

We continue to be very pleased with our performance on cost management and its significant impact on profitability.

Let's walk through salary and benefit expense on slide 6. Here too, we have again successfully controlled costs in the quarter.

On the top part of this chart you can see we had another strong quarter of performance.

Underlying salary and benefits increased 7% to $569 million, with all the increase resulting from the net impact of M&A activity.

On an organic basis, salary and benefits were flat at $525 million, driven by our FTE management initiatives.

Let's go a bit deeper into the FTE discussion on the bottom of the chart.

As you can see, organic headcount rose by 2.5% from the same period last year.

All of this growth came from our expansion in lower cost, offshore or nearshore locations.

In fact, onshore organic FTEs declined by 500 year over year and were down 200 from year-end 2014.

This is consistent with our strategy of relocating FTEs to lower cost regions.

As a mentioned before, the peril of running of growth associated with the operational improvement program will be temporary FTE (Inaudible) growth as we maintain our service costs.

This overlap will decline over time and we will see a related reduction in costs.

Turning to slide 7, which focuses on organic methods, by the way, my favorite slide.

As you can see from the chart, the combination of our solid organic revenue growth and our focus on cost savings are combining to drive strong organic performance.

We're very pleased with the consistent improvement in the organic spread between revenue and expense growth.

The graph on the left shows that the current spread between organic commissions and fees growth and expense growth has reached a new high of 230 basis points.

The impact of this can be seen in the graph on the right.

Organic EBITDA had grown $20 million or more than 23% over the same period last year.

This marks the fourth consecutive quarter of expansion in organic spread, a fact we're very proud of it.

This is strong evidence that our revenue growth and cost savings initiatives are bearing fruit.

Finally on slide 8, I just want to remind you of our commitment to the operational improvement program.

You can see here that we continued to make progress against the program's key objective.

That's achieving everything we hoped it would.

We are well on track to achieve or exceed our recently increased cost savings target of $80 million.

Progress on the operational improvement program continued in this quarter.

Our efforts included the establishment of three low cost service centers in China, Bulgaria and central Florida.

So let me finish by saying that with another quarter of delivery under our belts, we are in a strong position to achieve our stated goals for the full year, and deliver the growth and profitability we targeted.

And now let me hand it back to Dominic.

Thanks John.

Before we open the call up to your questions, let me leave you with a few thoughts.

This was another strong quarter, with results driven by execution on our three-part value creation strategy.

Our organic performance continues to be solid and we're confident of meeting our outlook for mid single-digit revenue growth and at least 200 basis points of positive spread in the 2015 full-year period.

Our carefully targeted acquisitions made a significant contribution to our underlying growth.

We expect that the positive impact of our acquisitions on our growth will continue in the fourth quarter and into 2016.

The impact of the operational improvement program continues to be very positive.

We're making excellent progress towards our goals and have now seen four consecutive quarters of margin growth in the process.

We also continue to expected that the program will turn cash positive, with cost benefits exceeding restructuring charges in 2016.

In short, our performance has been a result of the hard work and execution of our team and staff, driving progress across all three pillars of our strategy.

This has put us in a position to succeed and create a significant momentum that we will carry into our proposed merger with Towers Watson.

Let me spend a moment on the transaction, as our shareholders are asked to vote on it on November 18.

We are as convinced as ever that this proposed merger will bring together highly complementary businesses and efficiently connect each to new customers, geographies and markets.

The result is expected to be an acceleration in the ability of both companies to achieve their goals.

Driving revenue, cash flow and EBITDA growth superior to what either could achieve on its own.

Both companies have the skills and experience to make this combination a success, and generate significant value for shareholders.

We're deep into integration planning and look forward to creating value for our shareholders, colleagues and clients.

With that, I will turn it back to the operator and we can take your questions.

Thank you.

We will now to get the question-and-answer session.

(Operator Instructions)

First question, Cliff Gallant, Nomura.

Thank you.

I was hoping you could talk up a little bit more about the North America revenue organic numbers being flat?

I know you did address them and said that on a normalized online business you'd have a seen a little bit of growth due to timing issues.

But I was wondering in terms of the outlook, particularly given the pricing cycle what you think is a reasonable organic growth rate over the next 18 months?

So, morning, I would say overall that we remain very, very confident about our North American franchise overall and of course it's an important part of the proposed merger with Towers Watson.

Let me turn it over to Todd to talk about the specifics of the situation.

Thanks Cliff.

I think, as noted, we try to be pretty specific about some of the impacts in the quarter specific around the timing issue.

We still remain, despite the fact as you noted that a tough market and we've got some pricing headwinds that we see increasing during the course of the year, but still remain really bullish in our ability to grow organically all the key drivers that we look at in terms of our production force, our pipeline, and what's going on in terms of new business conversion, along with client retention suggest the business is operating well.

We feel like we can always can do better of course, but we feel like we're set up to finish the year strongly and go on to 2016 the same.

Okay, thank you.

I have another question, it was unrelated, during the quarter you also announced a small transaction with BB&T, regarding to selling part of it of the Miller.

And I was just curious about that after you had just closed on acquiring it and can tell us a little bit about what was happening there?

Sure, it's Dominic again.

As I hopefully tried to make clear, the negotiations with BB&T were running in parallel with our negotiations with Miller from day one.

And so it was always part of the plan, from very early in these discussions that Miller would be -- BB&T would be part of this story.

It just took longer to close that part of the transaction because of a more complicated regulatory issues that had to be gone through by all parties involved to make that.

You shouldn't see as a situation where we invested in Miller and then a few months later we sold part of the investment.

In fact we had always planned for the situation you now see, we just took longer to execute the BB&T part of that.

Okay, okay, thank you.

Great quarter.

Thank you.

Next, Kai Pan, Morgan Stanley.

Thank you, good morning.

So first question is on your margin.

It looks like the underlying operating margin expanded 30 basis points year over year, while the organic margin expended 240.

So I think the delta probably is some drag from the acquisitions.

I just want to see if you can specifically address three items there.

One is what's the underlying margin of the acquired business, and secondly what is impact of the amortization and how long will it last, and the third is there any seasonality on the acquired basis as different from your core book?

Thanks.

I'm going to hand over to John in a second, but you highlighted the key issues actually quite well.

The underlying margin is we think is attractive, obviously amortization increased and we actually laid out how much it went up of course in one of the slides earlier, so that obviously had an impact.

And definitely the seasonality of Miller has quite a big impact here.

As we said, the vast majority of its profits are made in the first half of the year so it does impact the numbers.

But John, do you want to add anything on top of that?

Dominic, you summarized the key issues there, let me just add a couple of points here.

So we previously gave some guidance that the acquisitions will deliver somewhere between $55 million and $65 million of EBITDA for the year.

On an annualized basis we are on track to hit that.

As folks on the call probably know, Miller timing was a bit delayed.

We were waiting for approval from the FCA to commence the transaction and as a result a certain amount of earnings, actually that we anticipated when we gave that guidance, actually ended up residing in Miller books pre-transaction.

So again, on the annualized basis we are on track to hit the guidance we provided for the year, due to the timing we're going to be off of that somewhere between $5 million and $10 million.

And the other question regarding amortization of the intangibles, in the quarter it was $15 million increase from the M&A activity.

A lion's share of that was from Miller and a typical life on this stuff is seven years and each successive year it declines, so essentially it's a double declining balance methodology.

Hopefully that gives you the information you were looking for.

That's great, just follow up on the underlying margin.

Are these acquired books similar to your core book or is there room for improvement there is well?

Yes, whenever we have done one of these deals, we try to pay a reasonable price for the EBITDA that the business will generate.

And then separately from the evaluation that we use, we typically build in some anticipated cost synergies which would drive margin north.

Honestly, the deals we did excluding Miller slightly lower margin rates initially, which we think will build over time.

And by the way the price we pay reflected those lower margin rates.

So again, we're really comfortable with this pillar in the strategy and we're happy that each of the acquisitions we have done are performing to the performance that we modeled when we decided to commence the transaction.

Thanks for the detail.

My last question is on the operational improvement program.

It looks like the spending for the quarter is slightly less like the run rate and seems like you have a big catch up to achieve $140 million spending for the full-year.

On the savings side are actually coming ahead if you look at the run rate and only leave you about $70 million for the first quarter.

Is that, can you talk about maybe about the timing of your spend and the savings?

Yes, so you did your homework.

The spending is actually forecasted to be $140 million.

We see that coming in perhaps lower in the total year outlook.

The range of that is somewhere between $2 million and $8 million, depending on some timing of some exits.

And the savings rate is actually -- has been a positive story throughout the program, so you know we are optimistic that we're going to deliver the 80 on the savings and perhaps a bit more.

Okay, great, thanks so much and good luck.

Thanks.

Next, Jay Cohen, Bank of America.

Just a really quick follow-up on the last question, can you actually quantified the drag from Miller in the third quarter?

Yes, that's getting quite specific, Jay.

Why don't I go back to the information that I provided on the last question.

So the total year guidance was $55 million to $65 million.

I think we're going to come a little bit short on that, maybe $10 million short in the calendar year, but on an annualized basis we will be at the numbers that we've talked about.

I was just thinking from the APS standpoint, what the drag from Miller was if you have that, it you don't that's okay.

Yes, $0.01 is a ballpark.

Okay and I assume the fourth quarter will feel a similar of a drag as well given that you have those expenses but the revenues tend to be first half weighted?

Yes.

Yes, that's a fair point.

Okay.

And I would say just in general when there is this kind of seasonality with an acquisition, maybe you did talk about it and I missed it, but that's really helpful that kind of detail before you announce your earnings really helpful.

And thanks for the details here, I appreciate it.

Yes, and Jay, you know the driver of that was actually the timing.

It just over a month later than we thought it would.

Got, it.

Thanks John.

Next, Meyer Shields, KBW.

One basic question to begin, there was $9 million of other income.

Is that the source of the $0.07 of excluding gains on disposals?

Yes.

Yes, Meyer, there was $14 million gains on disposals that we strip out of organic and underlying.

Okay so the underlying, obviously without that there would have been a $5 million loss in other income?

Yes, and that would've been primarily FX reval.

There was nothing else flowing through there.

Okay, that's helpful.

The second, the press release noted some timing issues both in North America and Great Britain and Dominic touched little bit on the North American side.

I was wondering whether there was any more detail or color we can get on how much revenue was pushed to the fourth quarter in both of these segments?

So there's a little bit of timing in GB.

And I'm going to turn to Nicolas just to give a little of detail on timing issues in GB.

Yes, thanks, Dominic and good morning.

Last year we had slightly more missing in aerospace and in space in fact in this quarter.

This has being delayed in our planning for Q4 this year.

That seasonal position in fact.

Across-the-board we've got good growth in P&C and in pension lines and slightly some shrinkage in the marine [category] and in the retail network business.

So that's the significant changes versus prior items of top line.

Okay with there any timing impact on expenses of the segments?

On the expenses, impact no not really.

No.

Okay, perfect.

There was so just a minor commitment here, there were some last year that did not impact this year.

And we had also a slight difference in the accruing of the AIP, so [bonuses] last year versus this year.

That is the only changes.

Okay, that's very helpful, thank you.

Next, Ryan Tunis, Credit Suisse.

Thanks, good morning.

My question I guess is on some of the pension expenses here, I think John called out on the last quarter and I think it's helping, it's been a tailwind for expenses by about $60 million this year.

I just want to make sure I'm thinking about it the right way that as we head into 2016 that it will be in the base.

And I wanted to know if there's anything on top of the $60 million into next year that could impact the way we think about the expense comparison?

Okay, thanks for the question.

I'm just going to backtrack for the folks that are on this call.

There are two elements of the pension credit.

So one has to do with the asset performance of the business which typically is hard to predict and we saw about $15 million to $20 million of benefit from that.

And then the other aspect of the pension benefit related to the freezing of the pension that we get earlier in the year which drove the balance of the credit coming through the P&L.

So both will be in the base year over year when we look forward to next year.

The one point that we are mindful of, and you folks that are trying to build up projection should be mindful of, is the underlying asset performance of the pension assets which could create some variability in the numbers.

So it is certainly a nice benefit for this year, but it was certainly a lot of hard work on the part of the management team to get us to the position where we were able to freeze it and execute a benefit, not only through the P&L but on the overall pension deficit, which came down substantially as a result of this.

That's helpful, thanks.

I think my follow-up is probably for Dom and it's on just thinking about natural expense growth, thinking about the cost saves, you talk about mid single-digit organic growth, but looking into 2016, pre-cost saves, what type of expense growth do you think you'll probably have to obtain those type of organic growth revenue objectives?

Okay I presume by Dom you meant Dominic so we'll bear with you on that one.

The way we think about this is the following.

We see the operational improvement program as enabling us to continue to invest in the front office.

And in revenue generating activities.

So yes, it is obviously improving our economic performance, you've seen the results, you've seen the margin spread we're getting year on year.

But it also is enabling us to invest in the business and so revenue -- the organic revenue growth we're getting today and the organic revenue growth we're getting going forward is enabled by the continued efficiencies we are generating.

I mean for instance we don't generate over 8% organic revenue growth in international without obviously adding people.

You'd expect us to be doing that it's just these are growth markets for us.

On average we think that for the sort of organic growth we're looking at we need cost growth of about 3% across the portfolio.

And then obviously what we're seeing is the operational improvement program as it played through as meaning the net growth number is much below that.

So that's broadly what we're looking at.

That's helpful, thank you Dominic, I appreciate that.

That's all right.

Next, Josh Shanker, Deutsche Bank.

Thank you.

I want to follow-up on Cliff's question a little bit, I'm interested in this secondary part of the Miller transaction.

When you bought Miller you moved certain assets of Willis wholesale into Miller.

In the business that was transferred, the share of the business that was transferred to BB&T, did they acquire that Willis business as well?

So we actually transferred some activities from Willis to Miller and some activities from Miller to Willis.

BB&T is a [Carrick Casou] investor in the net Miller business alongside Willis on the same terms and conditions.

So will they benefit from business that was formerly Willis business being written under the Miller name today?

Sure, just like they're not benefiting from bits of the Miller business which are being moved into Willis, right?

They are Carrick Casou investors in Miller alongside us.

Yes.

And why does it make sense, why, I know you left 10% percent or so with the original Miller personnel as incentive comp.

Why does it make sense to share the Miller pie with minority investors?

Well, they're not just minority investors.

BB&T, as you know, is one of the top six insurance brokers in the world.

Have major flows in, into London.

And so that's an attractive part of the arrangement, obviously if you think that through going forward.

As well as of course being an interesting player in the North American market.

So all in all we're very, very excited about the net economic impact for Willis of BB&T coming into the Miller arrangement.

Okay, I appreciate the color, thank you.

Next, Paul Newsome, Sandler O'Neill.

Good morning and thanks for the call.

One housekeeping thing.

Just curious, when Willis decides to exit the business but it's not selling that business just shutting it down.

Does that get included in your definition of organic growth?

I'm trying to think if there are any examples of that.

Let me go back, so if Willis decides to shut down a business rather than sell it, is that inorganic, is that the question?

Yes.

Then the answer is absolutely yes.

Okay and I just want a broad question outside of, obviously the towers deal you're still buying some, presumably looking to buy businesses.

I love your take on just kind of what's happening from an M&A perspective in insurance brokerage business.

My sense is things are getting more expensive and I want to know if that was true?

Yes, so we obviously, and I think because of our emerging track record in the acquisition space and the things we've done and the happiness I think of the new teams who have joined us, we get to see lots of opportunities these days.

And we are, all I can tell you is we are extremely disciplined in thinking through the net present value of any move we might take.

It is true that certain assets are being priced up, particularly those where the private equity industry is also a potential buyer.

So you have obviously seen some of the things going on and going around the North American regional brokerage market where you often do see very, very high prices being paid.

We look at those somewhat askance, frankly sometimes of the prices we can't make the economics work.

So what we have been doing as we said many times, is looking at complementary businesses, critically businesses where the people involved want to be part of the Willis family.

They are making a positive choice for Willis.

Not a positive choice to sell, but a positive choice to Willis.

And by the way, now some of them are starting to say we're making a positive choice for Willis Towers Watson, even though is not complete yet.

And then we look very, very hard at the economics.

We've got to pass on those tests and all the integration implementation challenges before we will get close to moving forward.

Great, thank you very much.

Next, Brian Meredith, UBS.

Good morning, couple questions for you here.

First one following on Ryan's question, on underlying expense growth, just noticed in the quarter if you adjust for the savings in the quarter from the operational improvement, looked like organic expenses, G&A expenses were up north of 5%.

Was there anything unusual in the quarter when it had anything to do with the pension?

Brian, no there wasn't actually anything unusual.

So I will say it's a bit challenging just to take the operational improvement program numbers right off the expense page and then calculate a growth rate.

As Dominic mentioned about say the investments we are making in international high growth markets, there's a certain level of reinvestment related to any of those markets where we see opportunity to grow.

So the operational improvement program as we said initially, the majority of those savings will fall to the bottom line.

And we are continuing to monitoring that and we are actually well within that, in terms of what is dropping.

So there wasn't anything unusual whatsoever other than a certain level of inflation and some reinvestment, selective reinvestment in the business.

Okay, great.

And then second question, just a quick numbers question.

Any way we can get what the revenues were from Willis Capital Markets and advisory in the quarter, just for modeling purposes, I know that's kind of lumpy.

We don't break that out separately.

So I'm not going to comment on that on the call, but I will say that it was up over 100% versus the prior year.

Okay, great, and the last question was I noticed an 8-K that came out I guess a day ago, it talked about amendments to the long-term incentives program if the Towers Watson deal closes, can you talk little bit about why the changes there?

Yes, it's really around the metrics that we are able to use on that program.

Obviously it's very simple basically, our compensation committee looked at the challenge of our LTIP in the first tranche under the merged company where it's not possible really to use the metrics we had before, our revenue and profit growth, because the businesses aren't combined yet.

So the conversation we've really had to look at what, with a lot of outside advice, what was the right thing to do.

And so just for this tranche, literally just this tranche, we are changing them to performance relative to the S&P 500.

With triggers relative to performance to the S&P 500 because that was seen to be the best measure we could use for this one tranche of LTIP.

Is not a proposal that should be the long-term approach, it's just for the specific tranche this time.

Got you.

And that was the tranche that would end in a couple of years from now, it's not the one that would end by this year?

Yes, it's looking at the performance of the business 2015, 2016 and 2017.

Got you, makes sense.

Thanks.

Next, Jane Stevenson, Wells Fargo.

Just had a few questions, the first one in terms of the EBITDA that you guys mentioned from acquisitions for the year coming in a bit lighter, the $55 million to $65 million.

Just so we can accurately compare when we get to the end of year, where we sitting on a year to date basis relative to that metric?

On a year-to-date basis, yes, we are 60%.

All right.

So 60% of the $55 million to $65 million?

Yes, with call it, $5 million timing that pushed into the following year.

Okay great.

And in terms of the Towers Watson merger.

a few questions.

First off, what regulatory approvals are you guys still waiting on and waiting on for that transaction?

We are going through as you can imagine the big markets in which we operate we need to get regulatory approval from.

We're going through that process.

We're just waiting for a few of them to come through.

And we're never quite sure of the timing and we're obviously very, very cognizant of the needs of our regulators.

But it's the usual big markets you'd expect us to be looking at.

Okay and then also in terms of that merger, I know that the combined company has laid out a bunch of revenue synergies that you pointed to, I'm just curious of conversations -- a big piece of that was upside that you guys pointed to on the private healthcare exchange front, bringing Willis clients over to liaison platform.

Have conversations begun with your clients in advance of this merger or is this something that you expect conversations to begin post-close at the start of next year?

So as you probably know, Willis has the Willis advantage healthcare exchange offering.

And it is the liaison product.

Just white labeled as the Willis advantage.

We have been, had that as part as a set of offerings we provide to clients but it has been very much Willis providing a third-party product.

The big change we're obviously we're going to have once the proposed merger is approved and closed, is that we will now be operating with an in-house product.

We will be obviously much closer to the product development teams, who will be able to think through some of the incentive issues to really make this product hum through our distribution force.

But we already know the liaison product, that's the point.

Okay and how many -- at the end of this year how many of your clients do you expect to be on the liaison product?

We have given on and off updates on that thing, on that process.

There's a very long pipeline of discussions taking place.

As I described I think on previous calls, actually for a company to move onto a platform like this is a big decision.

We did it ourselves, Willis is on the Willis advantage and it was a major, major decision.

We have a very long platform.

The numbers we will have by the year end will be in the teens, teens or low 20s, maybe in the 20s, Todd, I'm looking at you and you're nodding enthusiastically.

Those sort of numbers, but the pipeline is long.

Okay and then one last question, in terms of the organic revenue growth, was there anything that impacted, seasonally impacted the reinsurance growth, any one timers in there that might have positively impacted that number in the quarter?

So overall -- and I will hand it to John for a second, but overall the reinsurance -- remember the reinsurance business is a business which is much, much more concentrated by client, by number of clients than any of our other businesses.

The top 50 or 70 clients dominate the revenues of that business, as you would expect.

The timing of one or two clients can obviously affect the numbers in any particular quarter.

John, do you want to highlight?

I was just going to add that on the second quarter call we did point out that we had some headwinds in reinsurance from timing.

And there was one customer, significant customer that was from second quarter into the third quarter, which did help the organic results.

But nonetheless a positive performance from the reinsurance team with and without that particular timing issue.

Okay, thank you very much.

Next, Dan Farrell, Piper Jaffray.

I was wondering if you could give us any color on the current trends of results at Gras Savoye.

So I'm going to turn to Tim Wright in a second.

Overall, we remain very excited about that Gras Savoye situation.

We're expecting to close that transaction in or around the year end.

And of course it will materially impact our company, cloud-based and the spread of our geographic reach.

We also are happy with the way the business is performing, and let me hand it over to Tim to give a bit more color on that.

Yes, thanks for the question Dan.

As Dominic said, Gras Savoye is doing very well.

Probably describe that in two parts.

First of all, their business on a standalone basis, as you know, they went through a turnaround from operation improvement program a number of years ago and that's helped with their cost base, and they have been focused very much on growing on that solid foundation ever since.

We see continued strong organic growth in the business.

Not dissimilar to the sorts of levels of growth that we're seen in the comparable businesses at Willis, so that's very promising for the future.

And vindicates our decision to accelerate the acquisition.

The second part is that we're obviously working with Gras Savoye on integration planning where that is possible at this stage before closing, and identifying areas where we can create incremental value over and above that from bringing capabilities and relationship to meet organization.

That's progressing very well also.

So we are pleased with the progress on Gras Savoye on those two fronts.

Thank you and then just a quick question on the UK business.

How much of a challenge on organic growth do you think is related to pricing in some of your specialty lines there?

I know you have a lot of green in aviation and then how much is stuff that's within your control?

I know you have been putting through some strategic initiatives there as well, trying to improve it.

Thanks.

Obviously pricing in reinsurance and then spreading into specialty lines is a well prophesied story.

Let me hand over to Nicolas just to give a bit more color on that.

Thanks Dominic, thanks for the question.

Pricing pressure continues, but quite interesting and because [quite often] you referred to aerospace and aviation, despite the continuous pressure on aviation, our teams are quite successful.

And in fact we're seeing some loaded G gross in aviation.

When we talk about the reduction in consultation in fact that's essentially coming from marine.

So this guide the reduction of the pricing we see some interesting prospect in terms of growth, and actually we are seeing an acceleration of our new business growth, if you look at our new business in 2015 it has been increasing by 8% versus 4% in prior.

So interesting to see that of course yes, rate reduction continues, but for us the growth is going to be coming from new business generation.

Okay, thank you very much.

Thank you.

At this point there are no questions in the queue.

Great.

Let me thank you everybody for your questions.

In closing, let me just reiterate the following.

We are proud of the solid progress we made again this quarter.

Despite a challenging environment, we delivered on all parts of our strategy.

We are on track to meet the expectations we set for the year.

When we talk next, we expect it to be as Willis Towers Watson, as we begin the next part of the journey to creating substantial shareholder value.

Thanks again for joining us today.

Thank you and that concludes today's conference.

Thank you for all for joining, you may now disconnect.