Q4 2020 Willis Towers Watson PLC Earnings Call

[music].

Good morning, welcome to the Willis Towers Watson fourth 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 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's undertakes no obligation to update these statements unless required by law.

For more detailed discussion of these and other risk factors index investors should review the forward looking statements section of the earnings press release issued this morning as well as other disclosures in our most recent form 10-K and in 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's Chief Executive Officer. Please go ahead.

Thank you.

Good morning, everyone and thanks for joining us on our fourth quarter 2020 earnings call.

Joining me today is Mike Burwell, our Chief Financial Officer.

They will review our results for the fourth quarter items for the full year ended December 31 2020.

Our overall performance reflects the durability and resilience of our business model in 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 on improve our liquidity.

We believe our resilience positions us well for the proposed combination with day on and bringing together the best of both organizations to provide opportunities for clients for colleagues and for shareholders.

We've continued to navigate through the COVID-19, pandemic and the resulting economic conditions, our colleagues stood and solidarity steadfast in their collaborative spirit across geographies and segments. They manage to achieve another year of solid financial performance to all of our 46000 colleagues around the globe.

Thank you for all of your hard work, we continue to be grateful for your resilience on your focus.

The ongoing dedication of our colleagues reflects the rich history of Willis towers Watson.

I'm extremely proud to have served this organization in 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 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 our business remains bright for.

For this company to be even more relevant today than it was at its inception is an honor that few organizations experience.

Remaining robin over hundreds of years, it's not some serendipitous event.

<unk> relevant requires hard work a genuine desire to find solutions for the industries we serve.

Constant innovation.

Willis towers Watson's commitment to constant innovation as evidenced in part and the technology, we developed for the insurance industry.

Our solutions help both insurers and insurers make more informed data driven decisions and make them faster for example connected risk intelligence. Our Cri is a platform, 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 decisions. This platform has been highly impactful for clients burdened by the hard market in 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 enable deep dives into specific risks and provide insights into risk transfer and mitigation and decision making.

In addition, we have radar line, which is a fast flexible and agile decision engine, which allows prices wools adjustments scores and other metrics developed an 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, but lack risk financing Andrew on mitigation solutions small to medium sized enterprises and established as well as emerging markets are particularly underserved.

These assets can help underserved industries understand risks the dominate their concern 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 in the global economy.

<unk> organizations, often need greater support and controlling and protecting the organization from their main risks as a combined.

Buying 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 their 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 the threat protection for sellers of risk by 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 up 1% on a constant currency basis and up 2% on on an organic basis.

And that's all despite having a difficult comparable in the prior year of 6% organic growth over the fourth quarter of 2019.

Similar to last year, we experienced solid financial performance in areas, where we have a well established market position mature relationships and annuity or compliance driven business. We faced some headwinds in 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 in the prior year fourth quarter.

Adjusted EBITDA was $1 billion or 35.0% of revenue for the fourth quarter as compared to 930 million or 34 six percentage 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.

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 a constant currency basis.

Was up 2% on an organic basis.

This was against the prior year comparable of 5% organic <unk> growth over the full year of 2019.

So now let's look at each of the segments in some more detail to provide clear comparability with prior periods all commentary regarding the results of our segments will be on on an 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 compensation.

The human capital and benefits or HCP segment was down 1% on on 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 for.

For Q4 segment revenue decline was driven primarily in our talent and rewards business talent and rewards revenue decreased 5% as there was the decline in compensation survey sales and then the accelerated delivery of surveys that shifted revenue to Q3 this year compared to Q4 in 2019 talent and rewards.

<unk> experienced improving demand for our advisory services as we progressed through 2020.

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 North America. However, this growth was offset due to a strong prior year comparable in North America retirement revenue was flat compared to the prior year with somewhat reduced de risking.

Activity in North America being.

Being balanced by increased administration work in North America, and project consulting work in Western Europe, and Great Britain.

Technology and administration solutions revenue increased 8%, primarily due to a nonrecurring event in the prior year's comparable.

Hcp's operating margin increased by 120 basis points compared to the prior year fourth quarter as a result of a 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 this 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% in the fourth quarter, driven by new business and strong renewals across almost all lines revenue for Western Europe decreased 4% as the macroeconomic impact of COVID-19 put pressure on certain insurance lines, notably P&C.

Great Britain, and International's revenue declined, 6% and 8% respectively for the fourth quarter.

Their results were negatively impacted by a change in the remuneration model for certain lines of business. This change, which is neutral to operating income results in lower revenue and an equal reduction for salaries and benefits expense absent. This change great Britain's and International's revenue declined modestly due to headwinds from one.

One time nonrecurring placements in the prior year and the construction and natural resource 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 for many organizations against this complex economic backdrop CRB is global.

Team of dedicated experts stand ready to partner with clients to help re imagined and rethink their approach to risk management.

Turning to investment risk and reinsurance or IRR revenue for the fourth quarter was $292 million, an increase of 1% on on organic basis, and a 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 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 investments 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 wholesale special contingency risk business to the CRB segment in 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 decent business in September 2020, and its revenue is not reflected in our quarter for results.

<unk> had an operating margin of 11.0% as compared to nine 1% for the prior year fourth quarter have been thoughtfully reduced expenses to increase profitability.

During this challenging time, an 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 on administration or BDA segment increased by 16% on both the constant currency on organic basis from the prior year fourth quarter. The growth in revenue was largely driven by individual marketplace, primarily by transact, which contributed $279 million to be.

<unk> top line this quarter with growth in 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 with a 57 operating margin.

As compared to 52, 4% in 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. The pandemic threat on the well being of people all over the globe in 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 to take control of their 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 in 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 for all of you for joining US I would also like to Echo John's sentiments and extend my gratitude to our colleagues for another solid quarter and also to thank our clients for their continued support and trust in us in this challenging environment impairment on <unk>.

Loud of our leadership, our colleagues and the overall resiliency demonstrated by our businesses. So now, let's turn to our financial overview in.

In the fourth quarter, we continued to face some headwinds from COVID-19 team, but we are reassured by the demand for our services on 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 for a couple of significant charges incurred in the fourth quarter that we consider non core to our operations. In addition to the 45 million on transaction integration expenses, primarily primarily related to our pending combination with Aon. We also recorded a $50 million provision for significant litigation and $24 million on <unk>.

Structuring cost restructuring costs were incurred in connection with our assessment of our ongoing strategy in certain businesses.

Your line 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 integration expenses for provision for significant litigation and the restructuring cost had a negative impact on our GAAP profitability measures for the fourth quarter and the full year.

However, these charges for adjusted from our non-GAAP profitability measures for the same periods.

Income from operations for the fourth quarter was $587 million or 21, 2% of revenue down 430 basis points from our 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 or 31% of revenue in 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 or 14, 7% of revenue.

Just to the operating income for the full year of 2020 was $1 9 billion or 21% on revenue and down 20 basis points from the prior year of $1 8 billion or 23% of revenue.

For the fourth quarters of 2020 in 2019, our diluted EPS was $3 66, and $4 18 per.

Respectively.

For the fourth quarter of 2020, our adjusted EPS was up 7% to $5 23 per share as compared to $4 90 per share in the prior year fourth quarter.

For the full year of 2020 in 2019 diluted EPS was $7 65 and $8.02 respectively.

For the full year of 2020, adjusted EPS was up 7% to $11 70 per share versus $10 96 per share in the prior year for.

Foreign currency rate changes caused an increase on our consolidated revenue of $42 million or 2% of revenue for the quarter compared to the prior year fourth quarter with <unk> <unk> tailwind to adjusted diluted EPS.

This quarter.

Foreign currency rate changes caused the decrease in our consolidated revenue of $10 million for the full year 2020 compared to the prior year with a <unk> <unk> headwind to adjusted diluted EPS.

Overall for the year.

I'd also like to note that our fourth quarter 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 on other budgeted on budgeted costs that we don't directly allocated for the segments each quarter, including items, such as true ups on benefit.

Stock compensation expense accruals incentive accrual adjustments and other items.

And Q Q for the year over year increase mostly relates to incentive accrual adjustments as discretionary compensation increased alongside improved performance.

Our U S GAAP tax rate for the fourth quarter was 19, 7% versus 18, 3% in the prior year on.

Our adjusted tax rate for the fourth quarter was 17, 8% down from 19, 4% rate in the prior year.

For the full year on the U S. GAAP tax rate was 23, 8% for 2020 as compared to 18, 8% for the prior year, while the adjusted tax rate was 28% compared to 23% for the prior year. The current year tax rate was higher as a result of enacted statutory tax rate changes on the UK, requiring us to re measure our U K debt.

U K deferred tax liabilities and recognize a 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 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 5 billion revolving credit facility.

Let's 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 in 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.

Despite also having paid approximately $7 million in cash based transaction and integration costs.

The remarkable year over year growth on free cash flow is primarily due to improvements on working capital coupled with our effective cost containment efforts.

Essential increase on free cash flow is a testament to the hard work of our colleagues remain dedicated and focused on improving this performance in 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, we do not expect to repurchase any shares in 2021, given certain prohibitions on the transaction agreement with <unk>.

Pension contributions to our qualified plans totaled 120 $29 million in 2020, and we're currently projecting contributions of $132 million for 2021.

We remain committed to deleveraging in the near term in March where we use on hand cash to pay the $500 million on 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 a general matter. The COVID-19 pandemic did not have a material adverse impact to our overall financial results for the fourth quarter of fiscal 2020. However, the pandemic did impact revenue growth, particularly on some discretionary lines. It was and we expect that the effects of COVID-19 on general economic activity will nevertheless negatively impact our revenue results in 2012.

One the.

The duration of the pandemic for 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-19.

COVID-19 pandemic has caused considerable economic upheaval, but I'm very proud of the leadership team on the resolve of our colleagues on supporting our clients during these difficult times.

These fourth quarter results are 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 driving value for all our stakeholders on now I'll 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 a question you will need to press Star then one on your telephone to withdraw your question press the pound key again Thats star one to ask a question. Please.

Please standby, while we compile the Q&A on Boston.

Our first question comes from the line of Mark Hughes with true it.

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 did quite.

Quite well this year, they're going to be any sort of reversals or.

Adjustments from 2021 that might midstream that free cash.

Thank you for the question Mark.

The team has worked very hard obviously in terms of the improvement on a year over year basis I'm very proud 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.

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 on we'd like to believe that.

We'd like to continue to see that performance into the future.

And then maybe just some details on transact I wonder with the election ongoing.

For AD rate impact your.

Your growth there and also the.

We're having to hire agents remotely.

Did that lead to any operational challenges.

I mean, 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 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 Thats why we had such great results.

And John maybe I would just add Mark just I would add one thing to John's commentary I mean, just a reminder, right we acquired transact.

So we only had five months of results in the prior year and we had 12 months of results in the current year and most of the revenue obviously falls on the open enrollment period in the fourth quarter.

So.

That has an impact just in terms of the overall cost base that we had overall in addition to John's comments.

Understood. Thank you.

Okay.

Thank you.

Our next question comes from the line of Elyse Greenspan with Wells Fargo. Your line is open.

Hi, Thanks, Good morning, Mike.

My first question I was just wondering on from here.

North side of things Tom you can just give us an update on our regulatory process.

I expect he can just for the transaction with E on to closing.

Close enough for half of the year on.

From where you're sitting he does everything theme on caisson, given where you are on you asked as well as with European and overseas regulators on NAV.

To get this deal closed some point.

At the end of June.

Yeah, Thanks, very much for the question and a lease and.

In March of last year, when we first announced this we had said we expect it to close in the first half of the two.

<unk> 2021, and that's because this is a complex process and has a filings required around the world.

We are still on course to close in the first half of.

2021, we still expect to meet that deadline.

Okay. That's helpful.

Moving on with him.

No pretty soon on the relative team within North America on and then it sounds like some of the international decline.

Let's see.

Remuneration model I think this is the second quarter you guys pointed that out correct me if I'm wrong.

Are you thinking about this having an impact on your revenue per.

Half of the year on my confusing that on a timing perspective, and then I guess.

For all.

I think you gave us the international growth ex that impact.

For CRB segment and for quality was down 1%, whereas it had been kind of excluding this accounting noise in the quarter.

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.

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 our 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.

So if you look at certain operations that we have for them, particularly in Russia. We had had a consolidated entity that we had included and we had.

Change that.

For numeration to more of a.

Independent process itself and so.

You don't get the same revenue growth, but you get the same profitability. That's that's going on there in terms of the change. So it just had an impact on that on that revenue piece of the equation.

But I can give you credit.

Like what the 2021 impact.

2021.

I will now comment on on projections or anything as it relates to 2020 I want it ought to be consistent.

We recorded it in 'twenty would be the accounting.

So with CRB segment, it was down 1% in totality for this segment have been around flat.

On the CRB, Ben it from kind of adjusted for the accounting noise this quarter.

I'm not sure I would look at it that way at least I guess, what we looked at was what.

We did see.

International and GB down overall, the accounting noise is just it didn't change the bottom line in terms of where we were we just saw volume is down there a little bit on a year over year basis, just in terms of onetime 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.

Right.

It out.

On one day.

Right well in excess of for guidance.

And spending many years working to improve the working capital generation on the firm.

The day kind of theme for the labor right.

Putting on over the last few years was there anything specific to 2020.

It sounds like you buy everything you guys have been working on kind of came together without CMI.

<unk> for.

The initial guidance or any other color you can provide thank you.

Well, thank you for the compliment.

Alicia I appreciate that.

I think as I had mentioned on our prepared remarks, our colleagues have worked extremely hard and as you pointed out I mean this has been an effort that's been going on for several years in terms of improvement.

And what we can do on working capital and that's been a great team effort in terms of delivering those results.

Also I mean, we have obviously, you're focused on cost and cost management and cost containment and Thats had a favorability.

To some degree.

When you're not traveling et cetera.

It has a benefit to that.

But overall I got to say the majority of it is really been driven by our colleagues on what it is that they've done.

So thank you for the comment and maybe maybe just to put this on a little more context for lease.

I think back to 2018 and the results. We had then and where if we had been projecting them for 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 have expected and so we came in even above what that was but that.

Certainly 2019 was a year that was a bit of a downturn for us in terms of free cash flow, but in terms of a longer run journey as to where we would've expected to be we're now in the range. We would've expected the day 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 run journey.

Thanks for the color.

Okay.

Thank you.

Our next question comes from the line of for me.

With Citi. Your line is open.

Thanks. Good morning, I was hoping you could just give us a sense of.

We moved through 2021.

Any sense around where you think organic growth could be.

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.

Yeah.

I think that is.

Very dependent on the macroeconomic environment, and how that how that develops and frankly.

There's a lot of.

A lot of variation in what we what we think could happen depending on whether you know there are new variance of COVID-19 that cause new wind.

More substantial lockdowns or whether the vaccines are relatively effective and we 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 2021.

Okay, and then separately I wanted to pivot over to employee retention.

One of your peers talked about a pretty significant level of hiring in the fourth quarter.

And given the pending merger I'm just wondering if you could give some color around what youre seeing where employee retention levels are maybe relative to history.

Big changes there.

<unk>.

Well I think for.

For.

If 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 about the kind of levels, we have experienced maybe a little bit below.

For 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 includes exciting work for clients, but we tried to make sure.

We have a package that is second to none in the industry.

Okay. Thanks, Jeff.

Thank you.

Our next question comes from the line of Mark <unk> with Baird. 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.

For the merger I noted that you are limited in terms of what you could say I appreciate that you laid out what the organizational table is going to look like.

Wondering just.

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 there in the industry with regards to Willis Sri and how we should think about that.

Comments that you could make there would be appreciated.

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 in the U S.

Some of the impact trust.

Discussions that they've had there.

Okay.

So I think.

The biggest.

Thanks for the question Mark on the biggest.

For the most immediate issue we have right now towards.

Moving the transaction along is getting the regulatory approvals throughout the world to do that and we are.

As I said in response to an earlier question, we had targeted for the first half of 2021, we're still on track for that.

There's nothing that's happened that has made us think that debt.

You should think that timeframe, so we're expecting to get there.

Obviously I can't get into any details about what's going on in the regulatory process, but we knew from the beginning it was up it was a complex.

Merger, and we expect that the process to take from March of last year to sometime in the first half of this year and it looks like that's exactly what it'll day.

I think after we get the approvals day.

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 in the.

On time immediately after that and so we've had.

We've had very good teams working on that the announcement of the.

Top structure and the.

The top positions on the Executive Committee was an important milestone in 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 in the future.

Great and can you just talk a little bit about the reinsurance market interest.

How strong it is now.

And on.

Hello.

People, who are focused on this space would think about it.

Over the next 12 to 24 months.

Yes.

When you look at reinsurance we are very pleased with the reinsurance results as we touched on the other.

The growth rate of 22% this quarter and.

And we look at it from my end.

On annual perspective, and looking at it its been a very strong performer overall obviously.

We've had a pricing tailwind that's that's been helpful. Overall, but our colleagues are really helping our clients and working hard in the marketplace. So we feel very pleased with that business. The leadership on the performance in terms of where where it's been.

<unk> been 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 for final with Deutsche Bank. Your line is open.

Yeah, Thanks, and good morning, probably a quick one or two on a numbers questions on maybe a more philosophical one.

In the IRR business, you had mentioned that you transferred.

Wholesale specialty contingency risk business to CRB.

Help us understand how much how much of an impact that was or what the dollar amount was.

So Glenn it's it's it was impactful to the wholesale business overall, but to CRB It was immaterial.

Okay.

Hey.

And for the allocated business you know I appreciate the comments.

But we've seen some volatility out of that at least for.

For me, it's a number that I've struggled with it.

How can we think about this is.

Directionally or any framework to help us understand kind of what a normalized or quote unquote run rate corporate expense items, our allocation could be.

Yes, I mean, obviously I think when you look at 2020, it's been an unusual year.

When you think about it and so what do you what do you have going on in that line item you have a couple of things. So one as I said in my prepared remarks.

For you you saw some additional compensation on in particular incentive compensation that was included in that line item also on COVID-19, you had vacations for people Werent taken all their vacation. So we had a little bit of additional vacation amounts that we had to.

Recording on there and we had some earn out arrangement overall so.

I would look back.

Prior year on is looking at it but 2020 it was an unusual year. So hopefully that gives you some color in terms of what's actually happening on that in that line item.

Okay and then the last one John in listening to you on management talk about the combined entity it for.

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.

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.

When we think about.

The rationale for the merger I would sum it up in one word and that's innovation and I think both Willis towers Watson and E on share the view that innovation is needed in our industry that our industry is.

Not helping clients address a large.

Portion of the risks that they face and that we need.

We need to develop better solutions.

Etcetera products to help them address that and so the whole notion of why do you think will be better together is what we can deliver and innovation and it will be in things like how do we address.

<unk> tail events like pandemic it'll be in things like cyber.

It will be in things like climate change, both Aon and Willis towers Watson are addressing each of these individually, but combined we think will be able to develop solutions that will get much bigger impacting 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 K VW. Your line is open.

Great. Thanks for two I think they'd be 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 when we look at it we have obviously a fair amount of expenses are denominated.

In pounds.

But I would say we have a fair amount that are in euros as well there. 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 on the current year you go back and say, okay for the fourth quarter and you look at what the currency fluctuations.

Fluctuations, where it had five.

Impact on our EPS for.

The quarter and $42 million in terms of impact on revenue.

<unk>.

Think you know our Q1 and Q4 are our largest quarters.

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 for the company.

Okay, Yeah, no it certainly does.

Directionally and then second I guess, it's been a while just looking for an update on telematics consulting.

As we see.

Other.

He is looking to offer the same sort of services.

I was hoping you can just give us an update on how towers losses business is doing that.

So maybe could you just repeat your I didn't hear that I got cut off on what the actual business unit wasn't reflected in terms of consulting.

Im 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.

And a lot of detail these days.

We really got out of that business to be fair. So I guess my answer would be nothing.

Yeah, My ignorance and thank you.

Problem.

Thank you.

And the interest of time I would now like to turn the call back over to Mr. John Haley for closing remarks.

Okay, great well, 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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