The WTW Third Quarter 2023 Earnings Conference Call was held and recorded, with the operator providing information about the call and cautioning about forward-looking statements. The CEO, Carl Hess, discussed the company's strong third quarter performance, including a 9% organic revenue growth and $2.24 adjusted diluted earnings per share. He also mentioned the company's strategic priorities and the enterprise's 10% organic revenue growth when excluding book of business activity.

The company's solid results were driven by the efforts of their colleagues, global client model, investments in talent and technology, and business resilience. The quarter saw a 170 basis points increase in adjusted operating margin, thanks to cost-saving measures and productivity of new hires. The transformation program has also resulted in $300 million in annualized savings. The company expects further margin expansion in the long term through organic revenue growth, transformation program progress, and cost discipline. Specialization and risk and broking have been key drivers of organic growth, with the company developing innovative products and services, strategic partnerships, and building platforms. One major client win for the quarter was an affinity solution for a luxury vehicle manufacturer.

WTW's expertise in the automotive industry and high net worth personal lines, as well as their successful track record in global affinity insurance programs, has led to strong growth in their specialty lines. They are expanding their specialization strategy by launching Verita, a new MGU focused on select industries, with plans to expand into more industries in the future. Verita will offer tailored insurance solutions while maintaining underwriting discipline. WTW's analytic tools and expertise in insurance advisory and brokerage have also led to growth in their health, wealth, and career segment.

The company has had success in their sales compensation benchmarking with a high number of participating companies. They have also introduced new talent intelligence reports and expanded their healthcare benchmarking services. The company's differentiated smart connections have led to additional consulting opportunities and the launch of new solutions. The company has also expanded their life site solution to the US and added new clients in other countries. The company is focused on allocating their capital to high return opportunities.

In the third quarter, the company bought back stock and expanded their repurchase authorization, showing that share repurchases are a top priority. They are seeing momentum building as their unique offerings help clients manage risks in a complex macro environment. The company is committed to driving greater operating leverage and believes their transformation program and disciplined expense management will support margin expansion. The CEO acknowledges the escalating conflict in the Middle East and reassures the safety of their colleagues in the region. The third quarter revenue was up 9% on an organic basis and would have been 10% if excluding Book of Business activity.

The company's growth in the third quarter is attributed to the productivity of new hires and strategic focus on Risk & Broking. The transformation program has resulted in significant cost savings and will continue to drive operating leverage. The Health, Wealth, and Career segment saw a 9% growth on an organic basis, with strong performance in all regions. Health revenue increased by 7%, driven by global benefits management and new clients. Wealth grew by 7%, primarily due to retirement activities in North America and Europe.

Investments grew in the quarter due to new client acquisitions and higher fees, offsetting the negative impact of capital market performance. Career and Benefits delivery and outsourcing saw strong growth, with the latter driven by outsourcing for new clients and increased compliance and project activity. HWC's operating margin increased due to improved operating leverage and transformation savings. Risk & Broking revenue also saw strong growth, with organic and constant currency growth of 10% and exceptional growth of 12% when excluding book of business activity. There is expected to be a similar amount of book of business settlements next quarter, but their timing can be unpredictable.

Corporate Risk & Broking had a strong quarter with 10% organic revenue growth and 12% growth excluding book of business activity. This was driven by new business growth and improved client retention, with pricing having a moderate positive impact. Interest income was up $19 million due to higher rates and a change in allocation. The quarter also saw exceptional growth in specialty lines and strong performance in Europe, Latin America, and North America. The insurance consulting and technology business also saw a 9% increase in revenue. R&B's operating margin increased by 200 basis points compared to the previous year.

The company's margin has increased due to transformation and expense management measures. The adjusted operating margin increased by 170 basis points, and excluding book of business activity, it would have increased by 220 basis points. Adjusted diluted earnings per share were $2.24, with minimal impact from foreign exchange. The U.S. GAAP tax rate for the quarter was 15.5%, while the adjusted tax rate was 24.3%. The company remains confident in its ability to execute a disciplined capital allocation strategy, and during the quarter, it paid dividends and repurchased shares. Share repurchases are seen as a way to create long-term shareholder value.

The company has raised its repurchase authorization by $1 billion and expects to repurchase a similar amount in the second half of the year. They have also repaid $250 million of debt and generated $707 million in free cash flow so far this year. The improvement in free cash flow is due to non-recurrence of previous year's headwinds. The company is pleased with its business performance and expects it to continue for the rest of the year. They attribute their success to investments in talent, innovation, and operational transformation. The call is now open for Q&A. The first question is from C. Gregory Peters of Raymond James, followed by Christian Gestoff of Wells Fargo Securities.

The speaker is asked about the full-year margin expansion for R&B and what the biggest driver of that will be. They explain that Q4 historically has the most operating leverage and they expect strong organic revenue growth and continued impact of their actions to mitigate expenses. They also mention the benefits of their transformation program and strategic hires. The speaker is then asked about Willis potentially re-entering the reinsurance broking business, to which they respond that it is a natural fit with retail broking businesses.

The company has successfully added reinsurance to its capital allocation options, and is well connected to the reinsurance markets. They will only pursue opportunities if they are more compelling than other options, such as share repurchases. The company expects organic growth to continue based on a strong client pipeline, but the mid-single-digit guidance for the full year may be conservative.

The company is optimistic about achieving their objectives and capitalizing on momentum. Their focus on specialization in R&B is driving growth in specialty lines, especially in HWC. They expect organic revenue growth in line with previous years and continued margin expansion. They plan to continue with share buybacks and are constantly looking for high return opportunities to deploy capital.

The company is open to doing more in the reinsurance market if it is appropriate, depending on market conditions and return profiles. The de-risking activity is expected to continue, with pension funds being better funded and considering annuity purchase and buyout options. The expansion of Verita is expected to have a meaningful impact on organic growth in the future. The company is launching Verita in a controlled manner and may expand it to more industries and geographies if it receives a positive reception. The company acknowledges the success of their reinsurance business in the past.

The speaker is discussing the potential for Willis to enter the reinsurance market, which is seen as an expensive but attractive business. They state that any decision would have to be made within the context of their current guidance and overall strategy. They then switch gears to discuss the company's improved margins and disciplined cost management, which have contributed to strong organic growth and margin accretion. They mention specific actions taken to control costs, such as reducing travel expenses and managing vendor and marketing costs.

The company has seen positive results from its transformation program, which has led to improved processes and technology. This has allowed for workforce-related actions to be taken, resulting in increased leverage. The health and welfare segment has also seen 9% organic growth, driven by strong demand, cross-selling, and data and analytics. The company expects to finish the year with good results in line with historical trends. There were no unusual timing items in expenses or revenue.

The company experienced organic growth in various areas, including global benefits management, consulting services, and brokerage income. The growth in the BD&O segment was driven by both project work and outsourcing, as well as TRANZACT. The survey business and healthcare costs were key factors in the growth, but the company expects a more stable performance in the future. Retirement saw a lot of activity during the summer months, but the company is confident in its long-term prospects.

During a conference call, Shlomo Rosenbaum asked Andrew Krasner about the expenses and their impact on revenue. Krasner responded that there were no notable expenses and the increased revenue was the main factor driving the margin. David Motemaden then asked about the contribution of new hires to organic growth and if the peak contribution had passed. Krasner stated that they were 12 to 18 months into the hiring process and the first cohort of hires was at or near expected production levels, but there was still room for increased productivity from ongoing hires.

The company is gradually building up its workforce rather than hiring a large group of people at once. The individual marketplace is driving growth, and the company has been working to improve free cash flow dynamics. They are also curtailing T&E expenses and vendor spend, which could potentially impact organic growth.

The speaker is asked about balancing between organic and inorganic growth and their impact on the company's organic business. They mention asking employees to be smarter about travel expenses and combining client visits to increase productivity. The speaker also discusses the potential for reentering the reinsurance business and the need for a thoughtful and disciplined approach, whether through inorganic or organic growth.

During a conference call, Andrew Krasner asks Carl Hess about the sources of organic growth acceleration in CRB and which global lines are expected to drive growth in the next 12 months. Hess explains that they are seeing success in the marketplace, particularly in the D&O market despite rate reductions. They are also seeing good results in all global lines, with a focus on specialization. However, their M&A business has faced a headwind due to less activity. Krasner adds that they saw solid performance across all geographies, with an increase in new business and strong retention rates contributing to the top line. The company also saw double-digit growth in most global lines. Michael Ward asks about the $200 million cash flow improvement in the quarter, with $75 million coming from working capital. Krasner and Hess do not provide any specific actions or quantification of the transformation in cash flow impact.

In the previous year, the company saw an improvement of 370 due to the non-recurrence of some headwinds, such as FX hedges, discretionary comp payments, and taxes. However, this was partially offset by increased costs related to the transformation program. The company expects to spend $150 million more on the program for the full year. During a Q&A session, a question was asked about the recent broad-based improvement in organic growth rates across all lines of business. The CEO attributes this success to the efforts of all 46,000 employees and a focus on becoming a more disciplined organization. The guide for the full year suggests a de-sell, but the CEO reassures that it is a conservative estimate.

During the fourth quarter, the enrollment season for BDO and TRANZACT will be a major factor in the company's performance. It is still too early to predict trends, but the company expects demand to be lower than in the summer due to a decrease in benefit redesign and de-risking activity. TRANZACT is still generating negative cash flow, but it is expected to improve each year until it becomes cash flow positive.

The company is well-positioned to handle macroeconomic uncertainty and has a track record of growing revenue during recessions. The CEO believes that there is a range of actions the company can take to weather any potential downturn. The company's clients are facing uncertainties in the current macro environment, including rising commercial insurance rates.

The speaker discusses how insurers are pushing for premium increases, creating challenges for clients. However, their customized tools and specialist approach in risk and benefits management helps position them well. Economic issues are also driving demand for their services in benefits, pensions, and workforce management. When asked about the possibility of getting back into the wholesale insurance brokerage business, the speaker declines to comment. When asked about performance in different markets, the speaker mentions a broad-based performance but does not provide specific details.

In this paragraph, the speaker discusses the differences in results across different regions of the world. They point out that they do not have a dominant business in any one place, but have strong businesses in many places. They also mention that their specially-led approach has led to good results in Europe and Latin America, and that their revamp in North America is working well. In terms of financials, they expect the book of business sales to run their course by 2024 and do not anticipate any material difference. In response to a question, they mention that they expect a bit in Q4 but that it should not significantly impact 2024. The following question asks about the impact of interest rates and the spike in non-operating income in the quarter, to which the speaker responds that there may be some impact from the sale, but nothing significant.

The company experienced a significant headwind in their pension income due to an increase in interest rates and decline in capital market return. They expect pension income to be $112 million in 2023, and will update their expectations for 2024 during their fourth quarter call. However, they do not anticipate the pension headwinds to subside based on current market conditions. The gain on the sale of their Saville Assessment business is the main component of their other income line item. The CEO thanks stakeholders and colleagues for their support and hard work, and is proud of the company's third quarter performance. The call concludes with a reminder to disconnect.

This summary was generated with AI and may contain some inaccuracies.