The paragraph is an introduction to WTW's Third Quarter 2024 Earnings Conference Call. The call is being recorded and involves forward-looking statements that come with risks and uncertainties. Chief Executive Officer Carl Hess and Chief Financial Officer Andrew Krasner discuss the company's strong financial performance this quarter, highlighting a 6% organic revenue growth with significant contributions from Risk & Broking and HWC. The adjusted operating margin improved by 190 basis points to 18.1%, attributed to operating leverage, cost discipline, and their Transformation program. Consequently, the adjusted diluted earnings per share increased by 31% compared to the third quarter of 2023.

The company reported a 14% year-over-year increase in free cash flow, generating $807 million for the first nine months of the year. Despite GAAP losses due to the pending sale of its TRANZACT business, strong third-quarter performance is driving momentum into the fourth quarter. The company is optimistic about achieving its 2024 targets, forecasting potential margin improvements from productivity, transformation savings, expense management, and a rebound in global M&A activity. In the HWC segment, organic growth reached 4%, with notable performance in Health (6%), Wealth (3%), and Career (7%). The company focused on core growth and enhancing smart connections, with successes in global benefits management, compensation surveys, and benefits outsourcing, among other areas.

The paragraph highlights several achievements and initiatives by a company in the healthcare and employee benefits sector. They gained over 50,000 new customers in Maryland and were named actuary for a major US utility, displacing a long-term incumbent. The company launched innovative solutions, including a virtual captive for global employee benefits and a workforce management system to streamline reductions in force while minimizing costs and turnover. Their approach emphasizes data analytics and effective communication. The company's integrated services also supported a gas company with cost-saving strategies and assisted a European technology client with risk and benefits management during an acquisition.

The Risk & Broking division experienced strong growth, achieving 10% organic growth this quarter, supported by a specialization strategy, technological investments, and high client retention. The focus on specialized services has enhanced their ability to address complex client risk profiles, driving growth. They are expanding their MGA, MGU, Data & Analytics, Affinity, and Specialty Solutions through innovative partnerships. Verita, their North American MGU, partnered with Canopius US Insurance to create the Client Edge Facility for property insurance, while a new partnership with Kayna enhances their offerings in the affinity insurance sector by integrating data and analytics with tailored insurance solutions.

The paragraph outlines the company's strategic initiatives, highlighting a co-brokerage agreement with The J. Morey Company to serve North American needs of Japanese companies. This partnership aims to leverage WTW's risk management expertise and carrier relationships, thereby enhancing specialization and driving growth in high-margin insurance sectors. The company's Transformation program contributed significantly to margin expansion, achieving $52 million in savings this quarter and $446 million cumulatively. Investments in technology and infrastructure have improved efficiency and leverage. Additionally, the company is focusing on simplifying its portfolio by selling TRANZACT to concentrate on high-growth, high-margin businesses that align with its core capabilities.

The paragraph discusses WTW's strategic decisions to simplify its portfolio by selling TRANZACT, which was its only direct-to-consumer business, to focus on core B2B and B2B2C operations. The sale supports WTW's long-term cash flow margin goals. Additionally, WTW acquired a minority stake in atomos, a UK wealth manager, to strengthen their strategic alliance, enabling WTW to access the UK wealth market valued at GBP2.2 trillion. These actions, along with strategic partnerships and capital allocation strategies like share repurchases and strategic M&A, aim to maximize shareholder value and align businesses for profitable growth. The speaker expresses satisfaction with the third-quarter performance and optimism for achieving year-end objectives before handing off to Andrew Krasner.

In the third quarter, the company achieved a 6% organic revenue growth with an adjusted operating margin increase of 190 basis points, resulting in $2.93 adjusted diluted earnings per share, a 31% rise from the prior year. Health, Wealth & Career segments all showed varying degrees of growth, with Health seeing a 6% increase due to international and European successes, and North America growing due to higher brokerage income. The Wealth segment grew by 3%, driven by retirement business growth in Europe and capital market improvements. The Career segment experienced a 7% growth due to increased sales of compensation surveys and data analytics services. However, Benefits, Delivery & Outsourcing saw a 1% decline compared to the previous year. These results support confidence in achieving the 2024 financial targets.

In the third quarter, BD&O faced challenges due to prior strong performance comparisons and a client insourcing its benefits administration, resulting in expected low single-digit growth for the year. HWC improved its operating margin by 90 basis points to 24.7% through transformation savings. Risk & Broking saw a 10% increase in organic revenue with an operating margin rise of 240 basis points to 18.1%, aided by business activities and interest income. The Corporate Risk & Broking division experienced strong geographic growth, particularly in Great Britain and Western Europe, driven by specialties like facultative crisis management, financial solutions, FINEX, and construction. North America's growth was bolstered by the construction, marine, and natural resource sectors.

The paragraph reports on the company's performance across various regions and business segments. There was notable organic growth in Latin America and Asia, and in specialty businesses like P&C Retail and Affinity, even as some global rates stabilize or decrease. The insurance consulting and technology business saw a 7% revenue increase, driven by strong double-digit growth in the technology sector, although consulting demand was weaker. The operating margin for R&B improved to 18.1%, thanks to organic growth, expense management, and Transformation savings. However, challenges persist with motor risks and North American exposures. At the enterprise level, the adjusted operating margin increased by 190 basis points, with cumulative Transformation savings reaching $446 million. Despite some headwinds expected in Q4, balance consistency with 2023 is anticipated for 2024.

The company reports a foreign exchange impact, reducing adjusted EPS by $0.02 for the quarter and projecting a $0.06 reduction for the year. The US GAAP tax rate for the quarter increased slightly to 16.1%, while the adjusted tax rate decreased to 19.7% from the previous year's 24.3%. The anticipated annual adjusted tax rate is favorable compared to an earlier estimate of 22.4%. The company returned $294 million to shareholders through share repurchases and dividends and plans to increase share repurchases to $900 million for the year due to market conditions. Additionally, the company has entered an agreement to sell its TRANZACT business to focus strategically and aims to complete the transaction later in Q4. TRANZACT's financials will still be part of the company's statements until the sale is finalized.

The company does not expect a recent transaction to impact its financial targets for the year, as they anticipate recording a full year of financial results for TRANZACT. However, the transaction led to over $1 billion in pre-tax losses and impairment charges, reflected in the GAAP results for Q3. These charges are one-time, non-cash, and excluded from adjusted diluted earnings per share. The anticipated sale of TRANZACT is expected to positively influence organic growth, adjusted operating margins, and free cash flow margin. The company reported $807 million in free cash flow for the first nine months of the year, an increase of $100 million from the previous year, largely due to operating margin expansion. The company remains confident about year-over-year free cash flow margin improvement and expects the sale of TRANZACT to enhance its long-term free cash flow goals. Overall, the company is pleased with its strong business performance and optimistic about achieving its 2024 targets. During the Q&A session, Andrew Krasner clarified that TRANZACT was a 70 basis point headwind on organic growth at the HWC level and 50 basis points at the enterprise level for Q3.

The paragraph discusses the financial results and future expectations for BD&O and the Risk & Broking segment. BD&O showed uneven growth in the prior year's third and fourth quarters, and future comparisons will focus on full-year results. For 2025, excluding TRANZACT is expected to positively impact growth, margins, and free cash flow. Carl Hess highlights that Risk & Broking's growth was driven by client retention, new business, and new hires but primarily credited to their overall team. Elyse Greenspan from Wells Fargo questions about margin and EPS guidance. Carl Hess mentions margin expansion of 190 basis points this quarter, totaling 210 year-to-date, while Andrew will follow-up on EPS guidance in response to Elyse's question.

The paragraph discusses the company's positive outlook on its margin performance and opportunities for improvement, particularly in productivity from talent investments and potential global M&A activity. Challenges include a $14 million book of business sale and Transformation savings pacing, which may impact comparables. The company remains confident in meeting its EPS target, with potential for outperformance through margin improvement and top-line growth. Elyse Greenspan asks about repurchases given the incoming cash from the Gallagher Re earn-out and TRANZACT divestiture. The company aims for a balanced approach to mergers and acquisitions (M&A) with this cash influx.

The paragraph discusses a company's strategy for capital allocation, balancing share repurchases, and considering organic and inorganic investment opportunities. Andrew Krasner emphasizes the importance of maintaining flexibility in capital deployment, given the company's improved cash position and progress in free cash flow. Carl Hess highlights the company's achievements over the past three years, including stabilizing the business and returning capital to shareholders, while also evolving their capital allocation strategy. This approach includes considering mergers and acquisitions (M&A) as part of a balanced growth strategy. Both Krasner and Hess emphasize the continued commitment to a balanced approach in evaluating capital allocation options, with share buybacks being a central component. The operator then introduces a question from Rob Cox of Goldman Sachs.

The paragraph involves a discussion about the strong performance of the Risk & Broking (R&B) segment, which achieved 10% organic growth in the quarter. This growth was not significantly impacted by book of business, interest income, or rate changes. Carl Hess attributes the success to new business driven by investments in talent and specialization strategy. Andrew Krasner emphasizes new business and retention as key growth drivers, noting that investment income and book activity had minimal impact. Within the Corporate Risk and Broking (CRB) segment, growth was mainly due to new business, while the Investment, Consulting, and Technology (ICT) segment saw 7% growth driven by technology, which was slightly offset by reduced demand in consulting. Robert Cox asks about expected tax shields from the sale of the TRANZACT business as a follow-up question.

The paragraph features a discussion about tax implications and hiring strategies from executives Andrew Krasner and Carl Hess. Krasner mentions potential capital losses from TRANZACT that can only be offset by U.S.-specific capital gains, and he refrains from giving future tax rate guidance, instead indicating this will be addressed in a future call. Carl Hess responds to a question from Mark Hughes about hiring, noting that while they continue to hire talent, it is done more opportunistically now, as opposed to a more aggressive rebuilding effort from a few years ago. He emphasizes that the company has successfully rebuilt and is experiencing competitive growth rates.

The paragraph features a discussion among several individuals about financial projections and market conditions affecting their organization. Mark Hughes inquires about the cash impact of a Transformation program for 2024 and its potential extension into 2025. Andrew Krasner states that cash impacts are expected to remain consistent with previous years, with some effects extending into the next year, affecting free cash flow and margins. Carl Hess adds that these impacts will taper off by the first and second quarters. Charles Sebaski then asks about increased competition in the London market's insurance sector. Carl Hess responds, noting a global market trend of stabilization or softening, affected by decreasing commercial rates and a slowdown in inflation particularly in international markets, with specific mentions of property, financial, and cybersecurity lines. Casualty lines are stable globally, except in North America, while ongoing impacts from Hurricane Milton and other natural catastrophes are also noted.

The paragraph discusses the stability in various global business lines, with construction and marine sectors showing stabilization, although marine liability is experiencing slight increases. Specialty lines remain stable, except for areas like political risks and trade credit, which are affected by geopolitical factors. Overall, rate changes have not significantly impacted the company's portfolio recently. Growth is attributed to high retention rates and strong new business. Charles Sebaski inquires about the inclusion of TRANZACT in financial results until its sale is completed, to which Andrew Krasner responds that the sale is expected to finish by year-end, ensuring a full year of results are accounted for, and that future organic growth and financial metrics will improve post-sale. The operator introduces Peter Newton from Evercore ISI, who asks Carl about the optimism for a rebound in global M&A activity, seeking more details.

In the conversation, Carl Hess discusses the current demand trends in consulting services, noting an increase in M&A activity in Europe but not in North America. He mentions strong demand for technology solutions within the ICT sector, noting that consulting often follows technology to help clients maximize its value. He explains that ICT can be cyclical, influenced by M&A and securities issuance by insurance companies. Over the past decade, the company has balanced its consulting and technology mix to reduce business cyclicality and increase resilience. Some technology sales are recognized immediately rather than over the contract's duration.

The paragraph discusses the impact of the removal of TRANZACT's seasonal earnings pattern on Willis's quarterly earnings, indicating that supplemental slides provide more information on seasonality. Additionally, it highlights the critical elements of Willis's specialization strategy in maintaining strong client retention in Risk & Broking. The company is structured along industry verticals with dedicated personnel, ensuring that business decisions are industry-specific. This structure enables tailor-made solutions, enhanced value through analytics, and improved client engagement, making their offerings attractive for risk management.

The paragraph discusses a company's strategy to tailor services based on regional needs, with specific industry focuses such as real estate and hospitality in North America and commercial auto insurance in Europe. During a Q&A session, Justin Moreno asks about the future impact of a Transformation program on margins heading into 2025. Andrew Krasner responds that while specific guidance for 2025 isn't available yet, they expect ongoing benefits from the program in terms of savings into next year. Carl Hess adds that the program was designed for achievements within a three-year period, but the company will continue to improve margins and cash flow beyond that through regular operations.

The paragraph features a discussion primarily involving Carl Hess about the company's approach to capital allocation and growth strategies heading into 2025. It touches upon capital infusion from transactions like the Gallagher deal and hiring approaches. Carl Hess mentions their interest in mergers and acquisitions (M&A) as a strategic opportunity to create value and enhance their business operations, particularly through an improved business mix and cash flow margins. Furthermore, in response to Katie Sakys' question, Carl Hess affirms their existing involvement in the middle market, recognizing its potential for business and job creation, and indicating it as an area of ongoing interest and familiarity for the company. The strategies and detailed plans will further be discussed at an upcoming Investor Day.

The paragraph is from a discussion on an economic strategy focused on investing in the middle market, where growth is seen as attractive. The company has been investing organically in this area and is considering future inorganic opportunities. The conversation then shifts to cash flow margins, with Andrew Krasner explaining that 2024 will see reduced headwinds due to strategic slowing of growth, which aids cash flow. Once a certain business segment is no longer part of the portfolio, a more significant improvement in free cash flow is anticipated. The dialogue transitions to Mark Marcon asking about the impact of election cycles on the healthcare consulting aspect of the Health, Wealth, and Career (HWC) business, with Carl Hess prepared to respond.

The paragraph discusses how regulatory changes often benefit the consulting side of WTW's business as clients navigate potential impacts on their benefits programs. Specifically, the company sees positive effects across its Health, Wealth, and Career services divisions. Regarding pensions, Carl Hess mentions the importance of traditional pension plans and the shift towards defined contribution plans, highlighting unresolved issues this shift poses. WTW is prepared to assist employers in choosing suitable pension plans for their workforce. The current interest rate environment has increased demand for pension derisking strategies, and WTW provides support throughout the process.

The paragraph discusses the observed trend of pension derisking by clients in North America due to a favorable interest-rate environment, with actions such as bulk lump sums and annuity buyouts being popular, particularly in Great Britain. Despite expectations of a decrease in bulk lump-sum activity, an increase in areas like annuity purchases and retiree medical derisking is anticipated. The speaker, Carl Hess, expresses gratitude to colleagues and shareholders for their support and notes the company's strong quarterly performance and goals for 2024. He looks forward to further discussions at Investor Day in December and concludes the conference with holiday greetings.

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