Q2 2020 Willis Towers Watson PLC Earnings Call
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Good morning.
Come to the Willis towers Watson second quarter 2020 earnings conference call.
Please refer to Willis towers Watson Dot com for the press release and supplemental information that was issued earlier today.
Today's call is being recorded and will be available for the next three months on Willis towers Watson's website.
Some of the comps comments in today's call may constitute forward looking statements within the meaning of the private Securities Reform Act of 1995.
These forward looking statements are subject to risks and uncertainty.
Actual results may differ materially from those discussed today and the company undertakes no obligation to update these statements unless required by law.
For more detailed discussion of these and other risks factors investors should we view the forward looking statements section of the earnings press release issued this morning as well as other disclosures in the most recent form 10-K and in other Willis towers Watson's FCC.
Filings.
During the call certain non-GAAP financial measures maybe discuss.
Reconciliations of non-GAAP measures as well as other information regarding these measures measures. Please refer to the most recent earnings release and other materials and the Investor Relations section of the company's website.
I'll now turn the call over to Mr., John Haley Willis Towers, Watson's Chief Executive Officer. Please go ahead Sir.
Oh. Thank you good morning, everyone and thank you for joining mostly on our second quarter 2020 earnings call.
Joining me today, our Mike Burwell, our Chief Financial Officer, and Rich keeper head of Investor Relations.
In the second quarter, we continue to navigate through an uncertain and unprecedented economic downturn. Nevertheless, I'm pleased with our financial performance, while our results were somewhat impacted by the pandemic. Our overall performance reflects the strength diversity in the door ability of our business model in many of our.
Core businesses, we continued to see new business generation strong retention rates and increased operating leverage we also reduced our controllable spending and improved or liquidity through prudent cash flow management I'm extremely proud of the work we've gone to build the company's operational resilience and strong balance sheet both.
Which are provided the foundation for long term sustainable growth.
Before delving further into our second quarter performance I'd like to give a brief update on a couple of important topics.
During her last earnings call I talked about the cobot 19 crisis and the measures we have taken to mobile isn't mitigates the risk to our colleagues.
Now, we're taking what we've learned from the global pandemic to work together, even better and a re imagining or workplace and or work activities.
This is no longer about reacting to the cobot 19th situation, it's about proactively using the experience of the last few months to create a more flexible agile future.
We want to leverage and enhance what we've learned to explore how we can work differently.
And we want to ensure we maintain the key elements of our culture. The keeper colleagues engaged in inspired.
Working group that includes leaders from across the company. It's been can being to plan for this next phase of our journey.
Their work focuses on re imagining or workplace across core thieves, including collaboration learning and development and externals stakeholder engagement.
I continue to be impressed with the agility of our college and their commitment to clients and de Joker in the wake of this global pandemic against the rapidly evolving backdrop of the west few months, our colleagues around the world quickly embraced the immense amount of change spurred by cobot 19 and remained resolute in provide.
Excellent client service likewise, our colleagues of rapidly embraced the prospect of the a and combination and are generally enthused and looking forward to the many opportunities lie ahead.
On July eight we filed our definitive joint proxy statement.
Oh I'm sorry on July eight we filed our definitive joint proxy statement in connection with the proposed combination with a.
We've continued to work towards obtaining the necessary regulatory approvals and consents and we'll hold the necessary meetings for shareholders to vote on the transaction on August 26.
We remain on pace to close the transaction in the first half of 2021 subject to the satisfaction of the applicable closing conditions. We continue to be excited about this next step in their revolution and about the overall future of this industry redesign and deliver solutions that help manage risk optimize.
Nice benefits cultivate towers and expand the power of capital to protect and strengthen institutions and individuals.
Cobot 19 has highlighted deficiencies in the way the world approaches risk. These unprecedented times warrant a reappraisal of how companies assessed on certain dates and strengthen the rationale for the combination with a lot.
We're eager to bring new and innovative solutions to our clients to meet their evolving needs and solve global problems.
As a general matter the corporate 19 pandemic did not have a material adverse impact to our financial results for the second quarter fiscal 2020.
However, the pandemic did impact revenue growth, particularly in some discretionary lines and we expect that the impact of Coke, making on general economic activity could negatively impact our revenue and results for the remainder of 2020 and potentially even longer.
So now let's move onto our quarter to 2020 results reported revenue for the second quarter was 2.1 billion up 3% as compared to the prior year second quarter up 5% on a constant currency basis and flat on an organic basis.
Reported revenue included $35 million of negative currency movement.
We experienced good financial performance in areas, where we have a well established market position matured relationships and annuity or compliance driven business, we didn't perform as well in areas, where our revenue is tied to discretionary projects. Our clients are facing tough times in making difficult decisions in that context.
Initiatives that are aimed at reducing costs and risk or higher priorities. We continue to work with our clients defined practical solutions for these challenges.
Net income was $102 million.
Down 32% to the second quarter as compared to the $149 million of net income in the prior year second quarter.
Adjusted EBITDA was $441 million were 20.9% of revenue as compared to the prior year adjusted EBITDA for the second quarter $425 million or 20.8% of revenue representing a 4% increase on an adjusted EBITDA dollar basis, and 10 basis points of margin.
For the quarter diluted earnings per share were 72 cents, a decrease of 32% compared to the prior year adjusted diluted earnings per share were $1.80, reflecting an increase of 1% compared to the prior year. Overall it was a solid quarter, we grew revenue and adjusted earnings per share and it.
Enhanced adjusted EBITDA margin performance.
Now, let's look at each of the segments in more detail to provide clear comparability with prior periods. All commentary regarding results of our segments will be on on organic basis, unless specifically stated otherwise.
Segment margins are calculated using segment revenue and they exclude unallocated corporate costs, such as amortization of intangibles certain transaction and integration expenses, resulting from mergers and acquisitions as well as other items, which we consider non core to our operating results.
The segment results do include discretionary compensation.
The human capital and benefits segment revenue was down 2% on an organic and constant currency basis compared to the second quarter. The prior year, primarily as a result of a decline in demand in our talent and rewards business talent and rewards revenue decreased 19% with the uncertain nikin.
Missions related to cobot, 19, having created cost constraints and affecting workforce dynamics that many companies dampening client need for advisory work globally.
The decline was partially mitigated by modest growth in HCB other businesses.
Our health and benefits revenue increase for the quarter. In addition to strong client retention, we had an increase in consulting assignments in North America, as well as new global benefit management and local brokerage appointments outside of North America.
Retirement revenue increase nominally, namely as a result of an uptick in slumping advice and guaranteed minimum pension equalization work in Great Britain.
Technology and administrative solutions also increased in Western Europe, and international attributed to increased project work.
Despite the shortfall in revenue H. CBS operating margin decreased by just 20 basis points compared to the prior year second quarter and that was as a result of careful cost management efforts. We remain confident about the long term prospects of our HCV business employers experienced unprecedent.
And significant changes to the ways of working in 2020, our clients are facing many new challenges as they make plans to restore stability HCB experts remain prepared to help them rethink their human capital efforts and employee benefits in the wake of Cobot 19.
Now, let's look at corporate risk and broking, or CRP, which had a revenue increase of 4% on an organic and constant currency basis as compared to the prior year second quarter.
North America's revenues grew by 9% in the second quarter from new business wins, alongside favorable rates international and Western Europe's revenue increased 8% and 1%, respectively, driven by new business and strong renewals, great Britain's revenue declined 5% for the second quarter, primarily due.
To a decline in marine in retail activity that was related to cobot 19.
CRB revenue was 701 million this quarter with an operating margin of 19.2% compared to 690 million of revenue with an operating margin of 15.2% in the prior year second quarter. The margin improvement was due to top line growth alongside cost containment efforts this year how.
It's been and we'll continue to be at extraordinary time for the insurance industry CRP is committed to keeping our clients fully informed about what they should expect and have a plan for the uncertainty theyre experiencing.
Turning to investment risk and reinsurance our IR revenue for the second quarter increased 1% to 413 million and increased 2% on both the constant currency basis and organic basis as compared to the prior year second quarter.
Reinsurance, where the growth of 6% continued to lead the segment's growth through a combination of net new business and favorable renewals insurance consulting and technology revenue was flat as growth in technology sales was largely offset by declines in consulting projects investment revenue increased 1% with the can.
Tenured expansion of the delegated investment services portfolio, our wholesale business was up 1% on an organic basis, mainly from new business wins.
I or our had an operating margin of 28.7% as compared to 26.9% for the prior year second quarter. This improvement reflects topline growth alongside the scaling of successful businesses. We continue to feel good about iron ores growth trajectory IR our portfolio of offerings provide.
Its clients with the information needed to make strategic decisions in this uncertain and dynamic environment, we have a deep understanding of risk and all the ways that affects capital and organizations financial performance. Our core focus is to provide clients with the superior understanding of this they face and then advising them on the best way.
Race to manage the risk about extreme outcomes.
Revenues for the BTA segment increased by 66% on a constant currency basis and decreased 3% on an organic basis from the prior year second quarter. The growth in reported revenues was driven by transact, which contributed $87 million to beat the ace topline the decline.
On an organic revenue was primarily due to a shift in timing in our individual marketplace business. The decline was partially offset by benefits outsourcing increase in revenue, which was largely driven by us expanded client base.
The VVA segment had revenues of 209 billion with a minus 4.2% operating margin as compared to a minus 20.1% in the prior year second quarter. The margin improvement was primarily driven by the topline growth.
We're optimistic about the long term growth at this business in the Cobot 19 area erupt sustaining health benefits is more difficult than ever be da solutions and power employers employees and retirees to navigate the changing world of benefits through a tailored integrated experience that combines consulting expertise with enough.
Native technology.
Overall I'm pleased with our progress we delivered steady financial performance across most businesses modest margin expansion and adjusted EPS growth all while adapting to the rapidly changing global environment.
Now I'll turn the call over to Mike.
Thanks, John and I'd like to express my gratitude to all of our colleagues who shown remarkable resilience as they continue to collaborate our virtual means and operate effectively through this challenging environment.
Second quarter was like unlike any other we've seen I'm extremely proud of our team and our performance.
The results demonstrate the durability of our business model and agility of our colleagues to not only adapt to rapidly changing conditions, but to continue to deliver for our clients. While also producing solid financial results.
The second quarter was challenging.
But we are reassured by the demand for our services and solutions for our ability to reduce discretionary expenses and to manage our cash and our teams overall creativity.
We're pleased to see continued overall revenue an underlying adjusted EPS growth and robust free cash flow growth.
Now I'll turn to the overall detailed financial results.
I'll start with income from operations.
Income from operations for the second quarter was 163 million or 7.7% of revenue down 90 basis points from the prior year second quarter.
Income from operations of 176 million or 8.6% revenue.
Adjusted operating income for the second quarter was $296 million or 14% of revenue down 60 basis points from 299 million or 14.6% of revenue in the prior year second quarter.
Our second quarter 2020 on allocated net expenses grew to 109 million from 58 million in the prior year second quarter.
The cost in this category, primarily relate to corporate functions and other on budgeted cost that we don't directly allocate to the segments each quarter.
Including items, such as true ups on benefit and stock compensation expense accruals incentive accrual adjustments and in on legal settlement items.
So let me provide additional detailed increase for Q2.
During the quarter, we had a lower than normal vacation usage patterns stemming from the pandemic, which required a 12 million vacate $12 million vacation expense to be booked within on allocated net.
Likewise, we've had some year over year increases related to timing around incentive accruals and business taxes.
Now, let me turn to earnings per share.
For the second quarters of 2020 in 2019, our diluted EPS was 72 cents and one dollar six respectively.
For the second quarter of 2020, our adjusted EPS was up 1% to $1.80 per share as compared to $1.78 per share in the prior year second quarter.
Foreign exchange had a de minimis impact on EPS for the second quarter.
Our us GAAP tax rate for the second quarter was 42.2% versus 19.7% in the prior year.
Our adjusted tax rate for the quarter was 22.2% up slightly from the 21.4% rate in the prior year.
The current year U.S. GAAP effective tax rate is higher due to $35 million discreet tax expense.
Mainly related to an incremental base erosion anti views tax or beat recognized during the second quarter in connection with a temporary income tax provisions of the carriers Act.
The temporary provisions of the care sector applicable to tax years, 2019 and 2020.
Analyzing these temporary provisions the company will realize a cash tax benefit in 2020 of approximately 40 million.
Turning to the balance sheet.
As a cobot 19 situation continues to evolve I believe that we are well positioned to navigate the uncertainty that lies ahead.
We ended the second quarter with a strong capital and liquidity position with cash and cash equivalents, a 1.1 billion and full capacity on our undrawn $1.25 billion revolving credit facility.
We aim to continue to maintain a strong a durable balance sheet I'm looking to conserve cash and the current environment, but leaning into our costs inefficient efficiency initiatives.
We will continue to monitor the situation and intend to take appropriate measures to further reduce cash outflow and preserve adequate liquidity if demand for our solutions or services deteriorates.
For the second quarter 2020, our free cash flow was 593 million versus 287 million in the prior year, bringing our year to date free cash flow to $550 million, an increase of 201% from 183 million for the first half from the prior year.
The year over year improvement in free cash flow through a combination of our cash process improvements.
Prudent working capital management and disciplined approach to managing spend.
In terms of capital allocation, we paid $171 million dividends than our repurchase any shares in the first half of 2020.
As a reminder, given certain prohibitions on the transaction agreement in connection with our pending business combination with Amazon, we do not expect repurchased any shares during the remainder of 2020.
As John mentioned earlier, the economic fallout from Cobot 19, generally had no material impact on the company's overall financial results for the second quarter of 2020.
But we believe this is not indicative of its potential impact on the cover results for the remainder of the year and beyond.
The duration of the pandemic the full magnitude of its economic impact and the subsequent speed of recovery remain unknown.
Considering this uncertainty in the economy, we probably should we withdrew our original guidance for 2020.
We continue to be unable to predict the extended the impact of cobot 19 pandemic.
The company will reassess is positioned once we have a clear understanding the depth duration and geographic reach of the pandemic.
In the meantime, we remain focused on maintaining a strong balance sheet liquidity and financial flexibility.
The changes brought on by Cobot, 19, pandemic, our and continue to be formidable, but I'm very proud of the leadership and personal sacrifices demonstrated by our colleagues supporting our clients. During these very difficult times.
The second quarter results are directly reflection of the continued support from our clients our colleagues and all our stakeholders.
Overall, we delivered solid financial performance in the second quarter.
Despite the near term uncertainty in the global market I remain confident the underlying fundamentals of our business and I will turn the call back to John.
Thanks, very much Mike and now we'll take your questions.
At this time, if you would like to ask a question. Please press star one on your telephone keypad. If you wish to withdraw your question press the pound key.
Okay sounds Ali compile acuity roster.
Your first question comes from the line of Mark more Cohn with Baird.
Good morning, and congratulations to everybody the performance was better than what we were looking for it looks like results were very resilient.
In this in the face of coded can you talk a little bit about like how much of the.
The strong performance this quarter was a reflection of just the way the contracts kind of lay out in terms of.
How far in advance their set up and how they continues through the quarter and how we should think about.
Potentially in in whichever divisions, where we should be most sensitive to potentially a.
A little bit of a drop off as the cold it impacts ends up coming through and then I have two follow ups. Thank you.
Sure.
Mark Thank you for the kind comments upfront there.
As we've spoken about in the past we look at at the beginning in the outside of the year and we have line of sight to 80, 85% of our revenue base for the year and obviously Q1 in Q4 tend to be outsize quarters for us.
But.
We feel pretty good about the multi year arrangements that we have in place whether they're in our retirement business or the retention rates that we have in our CRB business and reinsurance businesses overall, but obviously in our talent rewards business as we commented on here or people have more discretionary.
Ill ability, we've seen a decline and people taking on those particular projects that we've seen overall, so I think on one hand, we feel very good about the industry ran and our line of sight in terms of what our revenue it looks like but clearly we're seeing fall off as it relates to those those discretionary projects.
And equally as it relates to the insurable base overall.
We're not taking on new construction projects or you're seeing.
That discretionary activity.
Decline as we touched on as it relates to the marine business et cetera. Those are the areas that we see that more discretionary.
Got it.
And with regards to.
You know the talent and rewards is there a potential for.
We're ramping up in certain practice areas like say diversity and inclusion given.
The current environment and could that potentially be an opportunity.
Back to Siri to to scale up.
Yes, yes, it is our firm, but John you want to comment on that go ahead.
Thanks, Mike I would just say, yes, I think so im mark.
One of the things we've seen in other.
Downturns, whether it's the early 2000, so the financial crisis or even some of the other since that if talent and rewards is very sensitive and we can see some of the revenue declines can be reasonably steep in the beginning a just as we saw in this quarter and certain aspects of 10.
In the rewards, but it's also an area that can ramp up relatively quickly when times get better and.
In today's times, there are really quite challenging.
Alan and reward issues whether its.
Diversity inclusion.
Whether it's how you handle the pandemic, whether it's how you reimagine work for the future. So I think theres a lot of opportunities for us to scale that up over the coming years.
Great and then with regards to re imagining work for the future you referenced this in the beginning John can you can you talk a little bit more about how you.
What potentially we could end up seeing in terms of changes and how that could end up impacting the cost base and then lastly.
It sounds like everything is on track with a on is there anything that you can envision at this point that that would set that off or or put it off track.
Yes, so maybe I'll just deal with that first and then I'll come back to the workplace frankly, and I think we referenced this in her prepared remarks.
What has happened in term of the economic turmoil that we've had from the Lockdowns and some of the other changes that we've seen over the last couple of months.
Have really.
Deep into our appreciation for the merger, we see that there's more innovation required and the basic thesis of this merger was as we said not about getting bigger, but about getting better but about providing more innovative solutions and the one thing we've seen over the last few months as the world needs more innovative solutions. So.
Theres.
We actually are more excited about the merger today than we were run at the beginning of March when we announced and frankly, we were pretty damn excited that so.
I think thats.
That's just been readable.
In terms of the workplace of the future I think mark we.
We're trying to take a quite thoughtful approach to what we're doing here what are the things that means is we don't actually know with the answer is yes, and let me explain about that we know that we're not going to go back to the pre cope it world of work, but we also note that we're not going to be the way we're working today.
It's not the way, we're going to be working future also and so it's going to be something in between and what we're trying to do is understand we add in its been incredible the way our colleagues have.
Embraced working from home and some of the adversity, we've had there, but thats not a sustainable way at working and what we need to do is to figure out what we can do in the future, but we do know working from both will be a bigger part of that we just don't know exactly how that would play out there will probably be.
Impact so on the real estate, probably impacts on location, but we don't know exactly what they are yet.
I appreciate the wise comments, thank you and congrats.
Thanks Mark.
Your next question comes from the line the lease Greenspan with Wells Fargo.
Hi, Thank you good morning.
John last quarter on you had said in a worst case scenario on your business decline into double digits organically over the preceding quarters, obviously the QQ.
Much better than that.
The point that you made earlier resiliency of your businesses.
But now one quarter in and recognizing there are some labs in some of the businesses. It would seem like that worst case scenario even for the back half.
No look around the table.
So.
The at least thanks, thanks for the question.
Yes by the way I would say.
Just you talked about the resilience of our businesses and I would say, yes, but I would also just comment on I think Mike mentioned this the resilience of our colleagues.
Just amazing the way they they've stepped up during this time.
I think yes, it's.
The worst case I was looking at was a decline I think during the second quarter, and then going into the back half of the year, though the one question I would give to that is.
This situation is a little bit uncertain with potential second waves with more end.
Turn to some of the Lockdowns. So we're still a little we're still a little uncertain, but nowhere near as pessimistic as I was.
At least I worry about the downside as much as I did three months ago site.
Sure.
Okay. That's helpful and then in time.
Alan and move where his business.
It sounds like the slowdown there obviously now much sorry media in terms of what we saw.
I came to Colby on is that business.
More pronounced meeting a greater percentage of HCV second quarter and other quarter I'm, just trying to get a sense jobs at that won't be as much of that headwind.
So to the fourth quarter, just Peter first time to fit.
No. We don't expect it if theres a bigger impact from that it won't be because of the concentration of T. R. I mean, it could be that as you go longer into some lockdowns you get more projects cancelled, but it's not a concentration issue.
Okay. That's helpful.
And then on in terms on the.
Transaction you.
You guys have laid out to close for the first half of next year, which we affirmed I believe in my opening comments. Tom can you. Just you know on your side of things just give us an update where do we stand on with the regulatory process are things about when we thought.
We would be at this point, recognizing it's still ways away from the deal closing ops and just what are kind of net that regulatory process from a timeline.
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Yes sure so.
As you know there's several global antitrust filings that are required.
In connection with the transaction and the specific process that we have to do varies by jurisdiction, but we're still planning to submit all of our required filings.
It.
And that in the various jurisdictions and we expect to have clearances in the first half of 2021 I'm I will say this is a this is a complex.
Undertaking, but theres nothing that has happened so far that has been any surprise to us and we're continuing to work with the regulators cooperatively. So we have we have no change to our plans as to when we expect to finish.
Okay. That's helpful and one last question on the unallocated not mine I. Appreciate the added color this quarter just given the volatility there on Mike just.
Given what you know now is there anything on and we should be thinking about that that artificially inflate those kind of corporate non segment expenses in the back half of the year.
No lease on the Anil.
We don't see that to be the pace.
No.
Okay. Thank you appreciate all the time.
From.
Your next question comes from the line of Dave Styblo with Jefferies.
Hi, there good morning, Thanks for the questions. I know you guys are not providing full year guidance, but I'm. Just curious if you had sent the some of the key levers within their that.
Really will will affect the outlook.
Sorry, maybe on the organic growth side, obviously, you guys are up 2%.
Year to date.
At this point, how much visibility you have to the back half of the year and are you expecting.
Vast to turn turn negative for the rest of the year and as the delays coming up working side come in and then discretionary spend on consulting remains under pressure and and then maybe you can give us some color about the expense initiatives you took the you've undertaken I imagine you guys are probably pretty quick to to ratchet down expenses on a teeny savings.
Fourth, but where do you see those trending over time and and and as you know today is it reasonable think that you guys can can roughly maintain an EPS Beth comparable to what you had and 19 or or are there. Other major factors that we should be we should be thinking about that.
So then.
Thanks for the for the question I mean I guess.
I'll try to give you a little bit, but it's going to be difficult I mean, I mean, the reason we pulled the guidance was was for that very reason in terms of making those estimates.
On the revenue side, I guess I'd really go back to John's earlier comments I would he said I mean use more pessimistic as it relates to the second quarter, but feeling better as it relates to the top line for the full year, but it's just difficult to predict I mean in terms of what's happening. Obviously, we have line of sight to say a lot of of our business and.
Terms of.
Renewals, whether that be and have a great line of sight, we're seeing greater retention activities going on in our and our business, particularly on our our CRB business. The we're seeing the insured base going down we're seeing rates come up a bit.
And obviously, we're seeing retention rates going up.
Overall, we're getting smarter and more creative in terms of how it is that we work and proposed on new business and doing that remotely.
And thats across all our businesses overall so.
On the topline I guess I'm trying to you know again, there's a reason we pulled the guidance and I was giving as much color as we can down about what our recurring revenue base would be picking up on John's comments, and what that looks like from a revenue standpoint on the cost side, we want to effort pretty quickly as we saw things change in terms of what we could do on.
On all cost.
Actions that made sense.
We wanted to make sure that we are balancing the short term and long term.
Investments in terms of.
Not making cost decisions that were going to impact the business for the long term, but in the short term, where discretionary cost and and activities could happen.
That we would would it mean would indeed ill make those decisions and we have and we've seen that youre seeing that.
Offset as it relates to our overall cost base.
I would also go back and saying you know that transact on deal that we closed at the end of last year and that business. Overall has been very helpful to us on our BTA segment.
In terms of we are continuing to see the growth.
Of that business overall and continue to believe that we'll continue to see what we had highlighted the rationale for that deal and it continues to exceed our expectations and that management team overall is doing one heck of a job.
So I try to give you asked I know you're trying to get those line items I'm trying to give as much color as I can but in the same time. There's a reason we pulled the guidance, Dave So I'm, sorry, I can't be more helpful. There.
Sure that's fair.
In terms of of just touch on demand I know, you're selling environment like this retention rate go up I am I am curious, though as a larger broker in the industry and you guys can can provide more insight and information and solutions to.
Gamut of services and I'm thinking about how are you guys seeing any sort of new business uptake from.
From employers who might be just looking for a more a more.
[noise] sophisticated broker that can back in service things and the environment, where there's a lot more challenges going on like we're in now.
Yes, I mean, I think clients are always looking for different solutions right I mean, they're seeing a hardening market and so they are evaluating what alternatives and what other solutions people can bring to their challenges that they may be dealing with and you know the creativeness.
Our teams has been.
Outstanding and we've seen that in and then what's happening and delivered on our CRB business.
But frankly in our reinsurance business and I would tell you I think the creativity of our colleagues across Willis towers Watson is one of the hallmarks.
Of our culture in terms of being creative and bringing innovative solutions.
Bear so in an environment like this where people are being challenging I want to different opinion, and we're really primed and well positioned to be able to help them think through those solutions and I think thats reflective in what you're seeing delivered in our in our results overall, so that'd be my comment on John anything you'd add to that.
Yes, I mean, I think Mike you have that they are what I would say is that.
Every day.
I see things come across my.
E mail of.
New business wins that we've had and our colleagues have adapted to.
Going after new business in a virtual way and that become very successful at that but the fact remains.
New business is not as robust as we as it was in the pre Kobe or that's just effect of life.
Not as many people are going after a bit so.
Become successful in in doing this where we where we can but it's not as big of features.
Got it and my last one real quick just on transact can you talk about with the.
Same store basis was year over year end and there has been some some overhang on the group published recently publicly traded.
Because one of that one of your peers as is experiencing significantly higher churn right now and its shortening the duration and pressuring unit economics seems like that that might be a company specific challenges going on but I'd be curious to hear what what is your churn on the on the M&A business right now how long are they on with you for in our you expire.
And are you guys experiencing any uptick in churn from from the market dynamics right now.
Okay. So look we.
The our churn is something that weve.
Looked at for quite a while here.
And we're re were affirm with the lots and lots of actuaries and so one of the things we've done over the time is is analyze that we've actually use outside advisors to analyze that too and unlike some others in the market, we haven't changed our churn assumptions.
Just a arbitrarily we.
We've continued to monitor that quarter to quarter, we do some actuarial analysis.
We are actually slightly conservative in our estimates so.
We feel pretty good about.
The kind of numbers, we have here and we don't expect any change.
Your next question comes from the line of Greg Peters with Raymond James.
Good morning.
I was wondering if you could provide us some perspective on how the positive pricing trends and property casualty.
Affected your corporate risk and broking and investment.
The second reinsurance segments and then in the.
Slide deck, you did note and CRB that part there was some pressure in great Britain.
And John It seems like Japan reflect back on the last several years the more often than not great Britain has been a source of some challenges for the company maybe that impressions wrong, but maybe you could provide some perspective on that as well.
Yes, so maybe starting with a second 0.1st I mean, just as it relates to Great Britain.
Look you're looking at continued market conditions Greg.
That have been happening and I think I think our what we're seeing in at least another other competitors have reported.
Their results of equally seen great Britain as a market at this time has been a bit more.
You know down a bit and just in terms of what's happening in that and that market. The good news is obviously, we operate in many markets and some as you see Latin Americas up in North America has been strong.
Overall so.
I think it's just at this point in time in terms of where it spend but great Britain spent a very good market for us for a long time, it's just kind of where we are you know in its current cycle.
As it relates to rating.
And rates I mean, I would say you know what you're seeing as John alluded to this servicing retention rates of our clients are up on a year over year.
No basis.
And you're seeing the insured base.
Itself is down in some of the transient type of work that we had had or we would ensure overall.
But you're obviously PNC rates, increasing and depending on whether you had a loss or not a loss.
Is obviously impacting those rates, but we're we're seeing that positive impact of that tailwind on those rates. So try to give you some color to it but I would wrap it up and say overall, we're very pleased with Russia CRB business is done what our colleagues have down there in terms of delivering results. So hopefully that gives you some color to it.
Yeah, and I would just just add that.
Like you sort of touched upon this but look great Britain has been impacted by some of we talked about the marine some of the global aerospace some things like that that have impacted great Britain in this quarter, but.
Great Britain is one of the great reservoirs are talent into our intellectual capital and it's a key part of the business. We don't have any yet we don't ready concerns about cheesecake.
Okay.
I know I know this is probably been incorporated to some degree and the results already but you know.
Given the dynamics and requirements of assay six so six.
Im curious how you're thinking about the assumptions that you laid out the first half the year, especially in the context of all the uncertainty as we go into the back half the year and if there's any potential reset issues or challenges you might be dealing with.
From an accounting perspective.
Yeah, Greg I. Thank you for the question, but right now no I mean, we do not see that to be the case we.
Leaves in terms of thought about all the various options upon its adoption.
We have a lot of discussion and talked about six or six over last.
A couple of years, but nothing no right now based on our estimates and then what some how weve projected things we don't see any.
Anything unusual coming through six months. Thanks.
Got it.
I guess the final question just from a sequencing perspective, and I know John you did provide some comments, but I just wanted to confirm that.
From a shareholder bulk perspectives that.
The shareholders will be voting.
On this transaction within on before we know if there's any antitrust issues that force.
The spinoff of some some businesses just wanted to confirm that that's the case.
Yeah, and all the all the transactions I've done that's been the case I think all these big transactions. We've always said the shareholder vote before we got the antitrust approval in this case. This this was no exception.
Got it well listen.
Congratulations on the results and John stay Safe Theres, a hurricane headed your way so.
Well yeah.
Hoping it's going to Miss me, Greg, but we'll see.
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Your next question comes from the line of Mark Hughes with Suntrust.
Yes. Thank you good morning.
In the ACB I think in the last the recession you benefited from some restructuring activity.
I Wonder if you could.
Comment on.
The potential opportunity here in risk.
In this cycle and then what would be the timing if you did start to see.
More wholesale.
Okay.
Changes.
The pellet and reward the issues that emerge with a restructuring.
When would that normally kick in.
Yeah, Thanks, and I think if we look back to the less several downturns that we've seen.
We would expect sets the talent and rewards.
The revenue decline would probably persist.
Through at least the third quarter, maybe into the fourth quarter, and then really picking up during the first half of 2021 that would be consistent let's say the early two thousands that would be consistent with the financial crisis.
And so.
That's that's what we see the one thing that makes this a little difficult as I was saying is.
That.
We don't know what the effect of the Lockdowns is going to be in the second half of this year and so if we see.
[noise], particularly in the U.S. states going back and.
Having the second wave of Lockdowns in everything that could have an impact that we.
Yes.
We wouldn't.
We havent factored in right now that that would change the whole timing of everything there but.
I think where.
As I said earlier, there are a lot of.
Human resource challenges and opportunities that are here in this current environment, they're not going to go away and I think's, especially in the 2021, we would expect to see corporations going out to address all those and frankly, it's one of the things that as I said earlier the.
The ability to offer innovative solutions when we get together with a on that combination is going to be even more powerful in this regard.
And then on the transaction I think you said it was at 87 million dollar contribution to to give me a year ago results for trend back as a standalone.
We did not we did not do that no you may remember we acquired them.
Over the third quarter last year right. So we just we have not we've not disclosed.
Okay.
Thanks, I got to tell you I mean, we're you know the going back on that inside the business is growing nicely and I'd just reiterate the comments I mentioned earlier, we're very pleased with transact.
Now what it's doing the team that's been in place and the results of Theyre, delivering and and its profitable. So we're very pleased with transact.
Yeah, I mean, I think that that is the key thing is that it's that this is a.
Nicely profitable business that we have here.
Your next question comes from the line of Meyer Shields with KBW.
Thanks, I wanted to see if I can focusing on one element of typical organic growth mr. negotiating higher.
Revenues on on the work that you're doing for your clients during whether that is being impacted.
That specific force is being impacted by the current recession.
The other in Oh go ahead John.
It is going to say look we're going to we're in a competitive.
Industry and when we.
I talked earlier about the doing new business on a virtual basis, but we have to.
When we're doing that we'd have to come out with the competitive offerings and that means we have to make sure that.
We're offering the most value for this services were providing and we feel we continue to do that it's not it's that is not much different now than it was six months ago.
And I was just to answer your comments dominant but then the day, we believe we have a.
Very good margins overall in our HCV business as we look across the industry and as John said, it's obviously competitive and we will be competitive, but it's ultimately about value and as our as in our clients continue to see that value.
Versus the cost equation and they've continued to reward us based on that value.
Okay understood that's helpful.
Second question can you.
Sarah how.
We'll test Watson employees, we acted when a on first announced it.
Temporary salary reductions and then pulled them back is that.
Was there any intent on employee morale four cents into.
That wasn't something that.
We discussed in the company's generally I mean, I'm sure individual individual colleagues were discussing that but it wasn't something that we did any kind of survey or anything on.
Okay fair enough. Thank you so much.
Yes.
There are no further questions at this time.
Okay, well, thanks, very much everybody and we look forward to updating you on our third quarter earnings call.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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