Q4 2020 Willis Towers Watson PLC Earnings Call
[music].
Good morning, welcome to the Willis towers, Watson and fourth quarter, 2000, and 'twenty 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 comments on 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 uncertainties.
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 risk factors and investors should review of the forward looking statements section of the earnings press release issued this morning, as well as other disclosures and the most recent form 10-K, and and other Willis towers Watson SEC filings.
During the call certain non-GAAP financial measures may be discussed for reconciliations of non-GAAP measures as well as other information regarding these measures. Please refer to the most recent earnings release and other materials and Investor Relations section of the company's website.
I'll now turn the call over to John Haley Willis Towers Watson Chief Executive Officer. Please go ahead.
Thank you.
Good morning, everyone and thanks for joining us on our fourth quarter, 'twenty and 'twenty earnings call.
Joining me today, and as Mike Burwell, our Chief Financial Officer.
They will review our results for the fourth quarter and for the full year ended December 31 2020.
Our overall performance reflects the durability and resilience of our business model and the fourth quarter, we continued to navigate through challenging economic conditions and I'm pleased with our financial performance, while our revenue continues to be impacted by the pandemic, particularly on our discretionary lines of business.
And many of our core businesses.
We continue to experience new business generation strong client retention rates and increased operating leverage.
We continued to reduce our controllable spending and improve our liquidity we.
We believe our resilience positions as well from the proposed combination with day on and bringing together the best of both organizations to provide opportunities for clients for our colleagues and for shareholders and.
We've continued to navigate through the COVID-19, pandemic and the resulting economic conditions, our colleagues stood and solidarity steadfast and their collaborative spirit across geographies and segments. They manage to achieve another year of solid financial performance. So all of our 46000 colleagues around the globe.
Thank you for all of your hard work, we continue to be grateful for your resilience and your focus.
The ongoing dedication of our colleagues reflects the rich history of Willis towers Watson.
And like streaming and proud to have served this organization and various roles for the last 43 years, it's been a privilege to work alongside my esteemed colleagues and to build what is now Willis towers Watson with roots dating back to 18 and 28. The company was formed with the goal of becoming the leading advisory Broking and solutions company.
It's especially gratifying to know that almost 200 years later the future of of our business remains bright.
For this company to be even more relevant today than it was at its inception is and the honor the few organizations experience.
The remaining roll over and over hundreds of years, it's not some serendipitous event.
<unk> relevant requires hard work of genuine desire to find solutions for the industries, we serve and.
Constant innovation.
Willis towers Watson's commitment the constant innovation as evidenced in part and the technology, we developed from the insurance industry. Our solutions help both the insurers and insurers make more informed data driven decisions and make them faster for example connected risk intelligence, our cri is of platts.
Warm, which brings modern finance approaches to the corporate risk management decision process.
Providing clients with the ability to optimize risk financing decisions by taking a portfolio approach allows for optimal risk retention and transfer of decisions. This platform has been highly impactful for clients burdened by the hard market and Covid recession.
Cri Leverages, a broad range of data sources and allows organizations to take advantage of insurance market inefficiencies.
We also have a platform called core analytics, which consists of risk models tools and rich data sources that enabled deep dives into the specific risks and provide insights into risk transfer and mitigation and decision making.
In addition, we of radar live which is the fast flexible and agile decision engine, which allows prices rules adjustments and scores and other metrics developed and analytical models to be deployed by insurance companies directly to their pricing underwriting and claims systems in real time.
Software innovations like these become a launching pad for reaching underserved industries.
Many industry sectors face unique risks the risk financing and Gore and mitigation solutions small to medium sized enterprises and established as well as emerging markets are particularly underserved.
These assets can help underserved industries understand risk the dominate their concerns and quickly formed strategies to protect themselves.
When I think about the range of capabilities that Willis towers Watson brings to the table to help the underserved and I consider a on zone data analytics and differentiated software I see a special opportunity to create a combined firm that we believe will make it even greater difference and the global economy and.
<unk> the organizations, often need greater support and controlling and protecting the organization from their main risks as a combined firm we believe our integrated data and advanced analytical capabilities will enable us to serve these industries and geographies, which we believe will allow these organizations to greatly improve prove the.
The risk investment decision, making and they're negotiating power with insurance market.
In effect, we believe we will become capable of transforming these clients from buyers of risk of the threat protection the sellers of risk.
The blending the best of both firms, we can unlock our potential for the benefit of all our stakeholders.
So now let's move on to our fourth quarter results reported revenue for the fourth quarter was $2 8 billion up 3% as compared to the prior year fourth quarter of 1% on the constant currency basis and up 2% on on an organic basis.
And that's all despite having a difficult comparable and the prior year of 6% organic growth over the fourth quarter of 2019.
Similar to last year, we experienced solid financial performance and areas, where we have a well established market position mature relationships and the annuity or compliance driven business, we face some headwinds and areas, where our revenue is more dependent on discretionary project spending and macroeconomic factors dampened market.
Net income was $483 million down 12% for the fourth quarter as compared to $551 million of debt income and the prior year fourth quarter.
Adjusted EBITDA was $1 billion or 35.0% of revenue for the fourth quarter as compared to 930 million of 34, 6% of revenue for the same period last year, representing a 4% increase on an adjusted EBITDA dollar basis, and 40 basis points of margin improvement.
For the quarter diluted earnings per share were $3 66, a decrease of 12% as compared to the prior year adjusted diluted earnings per share were $5.23 for the fourth quarter, reflecting an increase of 7% compared to the prior year overall it was a solid quarter we.
<unk> grew revenue and adjusted earnings per share and had enhanced adjusted EBITDA margin performance.
Reported revenue for the full year of 2020 increased 3% as compared to the prior year increased 4% on the constant currency basis and was up 2% on an organic basis.
This was against the prior year comparable of 5% of Gannett growth over the full year of 2019.
So now let's look at each of the segments and some more detail to provide clear comparability with prior periods. All commentary regarding the results of our segments will be on on organic basis, unless specifically stated otherwise.
Segment margins are calculated using segment revenue and 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 include discretionary.
Compensation and compensation.
The human capital and benefits of our HCP segment was down 1% on an organic basis and down 2% on a constant currency basis compared to the fourth quarter of the prior year. This result represents sequential revenue improvement compared to our prior quarter the.
The Q4 segment revenue decline was driven primarily and our talent and rewards business talent and rewards revenue decreased 5% as there was the decline and compensation survey sales and then the accelerated delivery of surveys that shifted revenue to Q3, this year compared to Q4, and 2019 talent and rewards.
<unk> experienced improving demand for our advisory services as we progressed through 2020.
And our health and benefits revenue declined nominally for the quarter. We continue to grow revenue from global benefit management and local brokerage appointments outside of the North America. However, this growth was offset due to a strong prior year comparable and North America retirement, and revenue was flat compared to the prior year with somewhat reduced de risking.
Activity in North America being.
Being balanced by increased administration work and North America, and project consulting work and Western Europe and Great Britain.
Technology and administration solutions revenue increased 8%, primarily due to a nonrecurring event and the prior year's comparable.
Hcp's operating margin increased by 120 basis points compared to the prior year fourth quarter. As the result of careful cost management efforts, we're really pleased with H C. B sequential improvement and strong margin growth, we remain confident about the long term prospects of the segment.
Now, let's look at corporate risk and broking, or CRB, which had a revenue decrease of 1% on on organic and constant currency basis as compared to the prior year fourth quarter.
North America's revenue was up by 7% and the fourth quarter, driven by new business and strong renewals across almost all lines of revenue for Western Europe decreased 4% as the macroeconomic impact of COVID-19, and put pressure on certain insurance lines, notably P&C.
Great Britain, and International's revenue declined 6% and eight <unk>.
<unk>, respectively from the fourth quarter the.
The results were negatively impacted by a change and the remuneration model for certain lines of business. This change, which is neutral to operating income results and lower revenue and and equal reduction of the salaries and benefits expense absent. This change great Britain's and International's revenue declined modestly due to headwinds from one.
And time nonrecurring placements and the prior year and the construction and natural resource of insurance lines, coupled with pressure on airline volume driven commissions as departure volumes remained low and premium returns are common.
CRB revenue was $888 million for the quarter with an operating margin of 32, 3% compared to $877 million of revenue with an operating margin of 33% in the prior year fourth quarter.
The margin improvement was primarily driven by effective cost containment efforts, we're pleased with <unk> performance for the year and we're looking forward to its future growth prospects the pandemic and the hard insurance market have depleted the financial resilience of many organizations against this complex economic backdrop CRB.
<unk> global team of dedicated experts stand ready to partner with clients to help re imagine and rethink their approach to risk management.
Turning to investment risk and reinsurance or IRR revenue for the fourth quarter was 292 million and increase of 1% on on organic basis, and the decrease of 9% on a constant currency basis as compared to the prior year fourth quarter reinsurance with growth of 22% continued to lead the segment's growth.
And through a combination of net new business and favorable renewals the growth was partially offset by declines in other businesses with reduced demand for discretionary work, having negatively impacted revenues in both the insurance consulting and technology and investment business, which were down 4% and 2% respectively.
The wholesale business was down 17% on an organic basis, although it's reported as organic about half the decline was because we transfer of wholesale special contingency risk business to the CRB segment and the fourth quarter. The remainder of the revenue decline was largely caused by COVID-19 related pressure on.
Marine and insurance energy lives.
As a reminder, we sold the maximum teeth and business in September 2020, and its revenue is not reflected in our quarter four results.
IRR had an operating margin of 11.0% as compared to nine 1% per the prior year fourth quarter have been thoughtfully reduced expenses to increase profitability.
During this challenging time and extended period of uncertainty IRR remains committed to helping clients navigate the changing landscape by focusing on their business priorities.
Capital strategy operations technology risk and people.
Revenue for the benefits delivery of the administration of BDA segment increased by 16% on both the constant currency and organic basis from the prior year fourth quarter the growth and revenue was largely driven by individual marketplace, primarily by transact, which contributed $279 million.
The bda's topline this quarter with growth and Medicare advantage products the.
Benefits outsourcing business all consume contributed to the increase in revenue, which was largely driven by its expanded client base.
The BDA segment had revenue of $693 million worth of 57 operating margin.
As compared to 52, 4% and the prior year fourth quarter.
The margin decline this transact rapid growth outpaced the rest of the segment, we continue to be optimistic about the long term growth of our BDA segment of the pandemic threat and the well being of people all over the globe and this time of heightened stress and uncertainty BDA empowers employees and retirees by providing easy access.
To the tools they need to understand their benefits options and take control of the health care.
Overall I'm very pleased with our results. This year, we delivered steady overall financial performance with modest margin expansion and adjusted EPS growth. Despite the lingering economic turmoil.
Colleagues showed great resilience and adapting and rising to the challenge as 2020 brought and I couldn't be prouder of how we came together to achieve these results now I'll turn the call over to Mike.
Thanks, John and good morning, everyone. Thanks to all of you for joining US I'd also like the Echo John's sentiments and extend my gratitude to our colleagues for another solid quarter and also the thank our clients and their continued support and trust in us and this challenging environment and I'm proud of our leadership our colleagues and the <unk>.
Overall resiliency demonstrated by our businesses.
So now, let's turn to our financial overview.
And the fourth quarter, we continue to face some headwinds from COVID-19 team, but we are reassured by the demand for our services and solutions and by our ability to reduce discretionary expenses and to manage our cash.
We were pleased to see another quarter of solid revenue growth with underlying adjusted EPS growth and outstanding free cash flow improvement.
So now I'll turn to the overall detailed financial results. There are a couple of significant charges incurred in the fourth quarter that we consider non core to our operations and addition to the $45 million of transaction integration expenses, primarily primarily related to our pending combination with E. On we also recorded a $50 million provision for significant litigation and $24 million of them.
Of structuring cost restructuring costs were incurred in connection with our assessment of our ongoing strategy and certain businesses.
The align resources across different geographies and service lines, primarily within our talent and rewards business to better prepare for future market demands.
All of these non core charges the transaction and integration expenses the provision for significant litigation and the restructuring costs and a negative impact on our GAAP profitability measures for the fourth quarter and the full year.
However, these charges were adjusted from our non-GAAP profitability measures from the same periods.
Income from operations for the fourth quarter was $587 million or 21, 2% of revenue down 430 basis points from the prior year fourth quarter income from operations of $687 million or 25, 5% of revenue.
Adjusted operating income for the fourth quarter was $820 million or 29, 7% of revenue down 40 basis points from 809 million of 31% of revenue and the prior year fourth quarter.
Income from operations for the full year 2020 was $1 2 billion or 12, 6% of revenue down 210 basis points over the prior year of $1 $3 billion of 14, 7% of revenue.
Adjusted operating income for the full year of 2020, and was $1 9 billion or 21% of revenue and down 20 basis points from the prior year of $1 8 billion or 23% of revenue.
For the fourth quarters of 2020, and 2019, our diluted EPS was $3 66 and $4 18.
Respectively.
And for the fourth quarter of 2020 of our adjusted EPS was up 7% the $5 23 per share as compared to $4 90 per share and the prior year fourth quarter.
For the full year of 2020, and 2019 diluted EPS was $7 65, and $8 and Tucson, respectively.
For the full year of 2020 of adjusted EPS was up 7% to $11 70 per share versus $10 96 per share and the prior year.
Foreign currency rate changes caused an increase and our consolidated revenue of $42 million of 2% of revenue for the quarter compared to the prior year fourth quarter with the <unk> tailwind to adjusted diluted EPS.
This quarter.
Foreign currency rate changes caused the decrease and our consolidated revenue of talent and $10 million for the full year 2020 compared to the prior year with the <unk> headwind to adjusted diluted EPS.
Overall for the year.
I'd also like to note that our fourth quarter of 2020 unallocated net expenses grew 122 million from $57 million on the prior year fourth quarter as we mentioned on our second quarter earnings call. This cost category relates to corporate functions and all of the budgeted on budgeted costs that we don't directly allocated to the segments each quarter, including items, such as true ups on benefits.
And stock compensation expense accruals incentive accrual adjustments and other items.
And <unk> Q4 of the year over year increase mostly relates to incentive accrual adjustments and discretionary compensation of increased alongside improved performance.
Our U S GAAP tax rate for the fourth quarter was 19, 7% versus 18, 3% and the prior year, our adjusted tax rate for the fourth quarter was 17, 8% down from 19, 4% rate and the prior year.
For the full year of the U S. GAAP tax rate was 23, 8% for 2020 as compared to 18, 8% from their prior year, while the adjusted tax rate was 28% compared to 23% from the prior year. The current year tax rate was higher as a result of enacted statutory tax rate changes and the U K requiring us to re measure of our UK debt.
U K deferred tax liabilities and recognize the discrete deferred tax expense of $11 million or <unk> <unk> on an adjusted EPS basis from the third quarter of 2020, excluding this non recurring item our adjusted tax rate for all of the full year would have been approximately 20%.
Turning to the balance sheet.
We ended the fourth quarter with a strong capital and liquidity position with cash and cash equivalents of $2 1 billion and full capacity on our Undrawn $1, two 5 billion revolving credit facility.
And it was towers Watson remains well positioned from a liquidity perspective, we aim to continue to maintain a strong and durable balance sheet and continue pushing forward, our cost savings and efficiency initiatives.
We continue to monitor the ever evolving impact of the pandemic and are prepared to take appropriate measures as needed to preserve our financial position.
Lastly, full year free cash flow almost doubled to $1 6 billion from $835 million and the prior year.
This.
Far exceeds the $1 billion, we targeted as part of our original pre Covid guidance that we gave during last year's fourth quarter earnings call. The.
It also having paid approximately $7 million of cash based transaction and integration costs. The.
The remarkable year over year growth and free cash flow was primarily due to improvements on working capital coupled with our effective cost containment efforts. The substantial increase of free cash flow is a testament to the hard work of our colleagues remain dedicated and focused on improving this performance on this area. Despite all the additional demands that we're juggling on 2020.
In terms of capital allocation for the full year of 2020, we paid approximately $346 million of dividends and we do not expect to repurchase any shares in 2021, given certain prohibitions on the transaction agreement with and.
Pension contributions to our qualified plans totaled the 120 $29 million and 2020 and we're currently projecting contributions of 132 million from 2021.
We remain committed to deleveraging and the near term and March will use on hand cash to pay the $500 million of senior notes. Due we will also use our cash to fund the $210 million of payments related to the settlement of Stanford and Willis towers Watson merger related litigations.
Now as the general matter. The COVID-19 pandemic did not have of material adverse impact of our overall financial results for the fourth quarter of fiscal 2020 on.
And the pandemic did impact revenue growth, particularly on some discretionary lines and we expect that the effects of COVID-19 on journal of economic activity will Nevertheless negatively impact our revenue results and 2021.
And the duration of the pandemic the full magnitude of its economic impact and the subsequent speed of recovery remain unknown in the meantime, we remain focused on maintaining a strong balance sheet liquidity and financial flexibility.
The Covid COVID-19 pandemic has caused considerable economic upheaval and I'm very proud of the leadership team and the resolve of our colleagues and supporting our clients. During these difficult times. These fourth quarter results of our direct reflection of the agility of our global model overall, we delivered solid financial performance on the fourth quarter and I remain confident on our ability to continue dry.
Giving value for all our stakeholders and now I will turn the call back to you back to John.
Thanks, very much Mike and now we'll take your questions.
Thank you, ladies and gentlemen, as a reminder to ask the question you would need the press Star then one on your telephone.
To withdraw your question press the pound key.
And again Thats star one to ask the question. Please.
Please standby, while we compile the Q&A on Boston.
Our first question comes from the line of Mark Hughes with Troy.
Your line is open.
Yes, Thank you and good morning.
The cash flow outlook for 'twenty 'twenty, one I wonder if you could comment on that.
Clearly the the quite well this year, they're going to be any sort of reversals or.
Adjustments in 2021 that might midstream the free cash.
And thank you for the question Mark.
We the team has worked very hard obviously in terms of the improvement on a year over year basis, and very proud of all of those actions. Obviously I think we will have some a little higher incentive compensation payments that will get paid out in 2021 from from cash.
But I think the similar level to where we are in 2020, we're not going to give guidance in terms of 2021.
But we're very proud of the performance and we'd like to believe that the.
And we'd like to continue to see that performance into the future.
And then the maybe just some details on transact I wonder with the election of ongoing did the higher AD rates impact your.
Your growth there and also the <unk>.
And we're having to hire agents remotely.
Did that lead to any operational challenges.
And then I think the I think the AD rates had an impact although it was an impact that we had expected in fact, we had alerted.
Think of analysts to that.
Coming up.
I think the we certainly had to be flexible and adapt to the new environment with Covid, but I thought the team did a fantastic job of that and that's why we had such great results.
And John maybe I would just add and Mark just I would add one thing to John's commentary I mean, just a reminder, right we acquired transact John.
And so and we only had five months of results and the prior year and we had 12 months of results and the current year and most of the revenue, obviously falls and the open enrollment period and the fourth quarter.
So.
And that has an impact just in terms of the overall cost base that we had overall and addition to John's comments.
Understood. Thank you.
Okay.
Thank you.
Our next question comes from the line of at least.
Green span with Wells Fargo. Your line is open.
Hi, Thanks, good morning.
My first question I was just wondering on.
On the north side of things John do you think that give us an update on the regulatory process.
Expectations as part of the transaction and the closing of the first half of the year on.
From where you're sitting he says everything theme on pace.
And then where you are and the U S as well as with European and overseas regulators on net.
At the field.
And at some point.
At the end of June.
Yeah, Thanks, very much for the question and a lease and.
And in March of last year, when we first announced this we had said we expected to close and the first half of the of.
2021.
And that's because this is a complex process and has the filings required around the world.
We are still on course to close in the first half of the two.
2021, we still expect to meet that deadline.
Okay. That's helpful.
And moving on with E on.
And you know pretty strong on both the team within North America on.
And then it sounds like some of the inherent axons.
With the change in the.
Remuneration model I think this is the second quarter you guys pointed that out correct me if I'm wrong. So should we be thinking about this having an impact on the <unk>.
And then within <unk>.
The.
First half of the year on the confusing that on a timing perspective, and then I guess kind of overall.
And I think you gave us the international growth and that impact.
The CRB segment and for quality of the down 1%, where we didn't have been kind of excluding the accounting noise and the corner.
Sure, Let me I'll, let Mike go into some of the details on that but let me just mentioned I think you are right. This second quarter, we talked about it in.
For 2020 results of course, we highlighted that in 2019, when we first made the change and when it had a very positive impact on our.
Some of the results there so we want it.
We've captured it both times, but Mike do you want to give the details on that.
Sure John and Leen.
And so if you look at certain operations that we have on particularly and Russia. We had had a consolidated entity that we had included and we had.
Change that.
Numeration to more of a.
The independent process itself and so.
Don't get the same revenue growth, but you get the same profitability that's going on there in terms of of the change. So it just had an impact on the on that revenue piece of the equation.
But I'll take the question like.
Like what the 2021 impact.
2021.
And we're not comment on on projections or anything as it relates to 2020 and want it ought to be consistent with how we recorded in <unk> and 'twenty would be the accounting.
And with CRB segment, it was down 1% Frontality for the segment have been around flat.
And the CRB Ben it from kind of adjusted for the accounting noise and declare.
I guess im not sure I would look at it that way of lease up.
I guess, what we looked at it was we did see international and GB down.
Overall, the accounting noise is just you know it didn't change the bottomline and terms of where are we where are we just saw volumes down there a little bit on a year over year basis, just in terms of one time projects.
That we saw but the accounting side of it didn't change the profitability on where we sat.
Okay, and then one last one on free cash flow.
The three point it out on.
1 million.
Right well in excess of the guidance.
And then and spending many here and working to improve the working capital generation of the firm on.
The data kind of seeing the fruits of the labor.
And over the last few years is there anything specific to 'twenty and 'twenty.
I guess it sounds like you buy everything that it didn't work and non kind of came together and without being like big upside per se.
And there's no guidance there or any other color you can provide thank you.
Well, thank you for the compliment of.
I appreciate that.
As I mentioned on our prepared remarks, our colleagues have worked extremely hard and as you pointed out I mean, this has been and effort that's been going on for several years in terms of improvement.
Around what we could do on working capital and that's been a great team effort in terms of delivering those results and also.
Have obviously, you're focused on cost and cost management and cost containment and Thats had a favorability.
To some degree.
And youre not traveling et cetera.
Has the benefit to that.
But overall I got to say the majority of it is really been driven by our colleagues and what it is that they've done.
So thank you for the comment and maybe maybe just to put this and a little more context the lease.
I think back the 2018 and the results. We had then and where if we had been projecting them to 2020, we probably would've been at a projection of getting to around 1 billion and a half with the kind of constant improvement, we would've expected and so we came in even above what that was but the.
Certainly 2019 was a year that was a bit of a downturn for us in terms of free cash flow, but in terms of the longer run. The journey is the where we would've expected to be we're now and the range. We would've expected the baby as Mike said, we think we still have some improvement, but we're really pretty pleased with where we came out and it's consistent with the longer on Germany.
Thanks for the color.
Okay.
Thank you.
Our next question comes from the line of from Me, Matt with Citi. Your line is open.
Thanks. Good morning, I was hoping you could just give us a sense of as we move through 2021.
Any sense around where you think of organic growth could be and.
And in particular I'm just curious on some of these discretionary businesses that you've talked about facing some pressure how quickly do you see that rebounding.
I think that is.
Very dependent on the macroeconomic environment, and how that how that develops and frankly.
There's a lot of lot of variation and what we what we think could happen depending on whether you know there are new variance of the COVID-19 that cause the new and.
More substantial lockdowns or whether the vaccines are relatively effective and we'd get them. So I think from our standpoint, what we're focused on this one of the reasons why we're not giving guidance for 2021, we're focused on is making sure we're as flexible and adaptive as we can be so that whatever happens we can have a good result in 2002.
'twenty one.
Okay, and then separately I wanted to pivot over to employee retention.
And one of your peers talked about a pretty significant level of hiring in the fourth quarter and.
And given the pending merger and I'm just wondering if you can give some color around what youre seeing where employee retention levels are maybe relative to history any big changes there.
Well I think four per.
And I look at for all of 2020, our turnover was lower in 2020 than it was in 2019. So I think it's running at about the about the kind of levels, we have experienced maybe a little bit below.
For 2020 I think.
As always.
We're constantly focused on making sure that we have the right kind of employee value proposition and that includes compensation and includes career opportunities and includes the exciting work for clients, but we try to make sure.
That we have the package that is second to none and the industry.
Okay. Thanks, John.
Thank you.
Next question comes from the line of Mark Mccollum.
Your line is open.
Hey, good morning, and congratulations on the on the year, considering the environment, particularly on the free cash flow I'm wondering just with regards to the to the.
The merger I noted that you are limited in terms of what you can say I appreciate that you laid out what the organizational table is going to look like.
But just wondering what are the biggest hurdles that you can talk about.
In terms of going forward and then Theres, obviously been a little bit of news just in the in the.
The industry with regards to Willis, Sri and how we should think about that.
Any comments that you could make there would be appreciated and then that's based on obviously, what's going on with the EC.
Any changes that we should think about with regards to the new administration and the U S.
And on.
Some of the antitrust.
The discussions that they've had there.
Okay.
So I think.
The biggest.
Thanks for the question Mark other than the.
Biggest.
Well the most immediate issue we have right now towards moving the transaction along.
And is getting the regulatory approvals throughout the world to do that and we are.
And I said in response to it and earlier question, we had targeted at the first half of 2021, we're still on track for that there's a there's nothing that's happened that has made us think that that's the.
We should things of that timeframe, so we're expecting to get there.
Obviously, I can't get into any details about what's going on and the regulatory process, but we knew from the beginning it was up it was of complex.
Merger, and we expect that the process to take from March of last year to sometime in the first half this year and it looks like that's exactly what it'll be.
I think after we get the approvals the.
The key then is really focusing on making sure that the integration.
<unk> correctly and that we hit the ground running both on day, one and then and the.
Time and immediately after that and so we've had.
We've had very good teams working on that the announcement of the.
The top structure and the the top.
Top positions on the Executive Committee was an important milestone and doing that and we just need folks to continue to be focused on making sure that we designed the company as best we can for success and the future.
Great and can you just talk a little bit about the reinsurance market and just.
How strong it is now and.
And and how.
People, who are focused on the space would think about it.
Over the next 12 to 24 months.
And I mean, when you look at reinsurance we were very pleased with the reinsurance results as we touched on the the.
The growth rate of 22% this quarter and.
And we look at it from.
And the annual perspective, and looking at it and it's been a very strong performer overall obviously.
We've had of pricing tailwind that's been helpful. Overall, but our colleagues are really helping our clients and working hard and the marketplace. So we feel very pleased with that business the leadership and the performance in terms of where it where it's been.
And then delivering and.
We're very pleased in terms of how it's measured up versus the marketplace.
Terrific. Thank you.
Thank you.
Our next question comes from them on the sales Bifano with Deutsche Bank. Your line is open.
Yeah, Thanks, and good morning, and probably one or two on a number of questions and maybe a more philosophical one.
And the IRR business, you had mentioned that you transferred.
The wholesale specialty contingency risk business the CRB.
Help us understand how much how much of and in fact that was and what the dollar amount was.
So Glenn it's it was impactful to the wholesale business overall, but the CRB it was immaterial.
Okay.
And.
And for the allocated business you know I appreciate the comments.
But we've seen the volatility out of that and at least for.
For me, it's the number that I've struggled with it.
How can we think about the directionally.
Directionally or any framework to help us understand kind of what a normalized or quote unquote run rate corporate expense item allocation could be.
Yes, I mean, obviously I think when you look at 2020, it's been an unusual year for all of them.
When you think about it and so what do you what do you have going on and that line item you have a couple of things. So one as I said in my prepared remarks.
And for you saw some additional compensation and in particular incentive compensation that was included in that line item also on COVID-19, you had vacations for people Werent taken all of the vacation. So we had a little bit of additional of vacation amounts that we had the.
The recording on there and we had some earn out arrangement overall so.
I would look back.
And the prior year and was looking at it but 2020 was an unusual year. So hopefully that gives you some color in terms of what's actually happening and that and that line item.
Okay and.
And the last one John and listening to and management talk about the combined entities.
Feels like there is an expectation of an acceleration of organic growth.
From your business and I was hoping you could talk about.
What do you see you know and.
And this better together scenario post the merger that could drive organic growth.
Potentially better than you've been able to do on your own.
Yeah. Thanks for that question, so I think.
And when we think about.
The rationale for the merger I would sum it up and one word and Thats innovation and I think both Willis towers Watson and E on share the view that innovation is needed and our industry that our industry is.
Not helping clients address a large.
A portion of the risks that they face and that we need.
We need to develop better solutions.
And at better products to help them address that and so the the whole notion of why we think we'll be better together is what we can deliver and innovation and it will be and things like how do we address.
Long tail events like pandemic, it'll be and things like cyber.
It will be and things like climate change, both Aon and Willis towers Watson are addressing each of the individual lake, but combined we think will be able to develop solutions that will get much bigger impact and the global economy.
Got it okay. Thank you.
Isn't it.
Thank you as a reminder, ladies and gentlemen, Thats star one to ask the question.
Our next question comes from the line of Meyer Shields with the K VW. Your line is open.
Great. Thanks, So two and I think maybe fairly small questions first can you help us.
I think through the impact of.
A weaker dollar relative to the pound on margins in CRB and IRR.
Sure I mean, when we look at it and we have well obviously of a fair amount of expenses are denominated.
And pounds.
But I would say we are of a fair amount that are in euros as well. So I think you've got you really need to look at our.
Overall, the view of that as we as we look out to the.
As we reflected on our numbers and the current year you of back and say, okay for the fourth quarter and you look at what the currency fluctuations.
Fluctuations, where it had <unk>.
Impact on our EPS for.
For the quarter and $42 million in terms of of impact on revenue.
So.
I think you know our Q.
Q1, and Q4 of our largest quarters.
And so I think that gives you a pretty good framework to think about from an FX standpoint in terms of in terms of its impact to the company.
Okay, and certainly the up there.
Originally and then second and I guess, it's been a while of just looking for an update on telematics consulting and.
We see.
Other companies looking to offer the same sort of services.
Hoping you can just give us an update on how towers Watson business is doing that.
Okay.
So.
Maybe could you just repeat your I didn't hear the the I got cut off on what the actual business unit wasn't you reflected in terms of consulting on.
I'm, sorry, telematics consulting for personal auto insurers.
Yeah I mean.
I think we are.
Sure.
To my knowledge, we don't we're not really doing that the and.
And a lot of detail of these days.
And we really got out of that business to be fair. So I guess my answer would be and nothing [laughter].
Okay My ignorance on thank you.
No problem.
Thank you.
And the interest of kind of and I would now like to turn the call back over to Mr. John Haley for closing remarks.
Okay, great well loved and thanks, very much everyone for joining us and we look forward to updating you on our results on the next call have a good day.
Ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.
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