Aon plc (AON) Q1 2011 Earnings Report, Transcript and Summary

Good morning and thank you for holding. Welcome to Aon Corporation's First Quarter Earnings Conference Call. [Operator Instructions] I would also like to remind all parties that this call is being recorded, and that it's important to note that some of the comments in today's call may constitute certain statements that are forward-looking in nature as defined by the Private Securities Reform Act of 1995. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated. Information concerning risk factors that could cause such differences are described in the press release covering our first quarter results, as well as having been posted on our website. Now it is my pleasure to turn the call over to Greg Case, President and CEO of Aon Corporation.

Good morning, everyone, and welcome to our first quarter conference call. Joining me today is our CFO, Christa Davies. To begin, our first quarter results reflect continued momentum and progress as we execute on our strategy to distinctly strengthen and unite Aon around the globe, irrespective of the stock market, economic conditions or other challenges outside our control. Consistent with previous quarters, I'd like to cover 3 areas before turning the call over to Christa for further financial review: First is our performance against key metrics we communicate to shareholders; second is continued areas of investment across Aon; and third is overall organic growth performance. On the first topic, our performance versus key metrics. Each quarter, we measure our performance against the 3 metrics we focus on achieving over the course of the year: grow organically, expand margins and increase earnings per share. In the first quarter, organic revenue was plus 2%, highlighted by solid growth in both our Retail Brokerage and Consulting Services businesses, placing us firmly on track for growth in 2011. Adjusted operating margin decreased 230 basis points and EPS was $0.80 as the inclusion of Hewitt results, including a significant increase in intangible amortization expense and a higher effective tax rate, offset strong underlying performance and effective capital management. Overall, our team views the underlying first quarter results as a solid quarter of continued progress, as we strengthen the firm for long-term growth and value creation. On the second topic, further areas of investment. We believe Aon is in a unique position. Solid operating performance combined with expense discipline and strong cash flow continues to enable substantial investment in colleagues and capabilities. As we have significant opportunity remaining to deliver further margin expansion, we will continue to build on our leadership position and industry-leading capabilities to capture growth opportunities we see across our markets, specifically focused on the 2 most dynamic sectors of the global economy, risk and people. A few examples include, in Risk Solutions, we're investing in innovative technology, such as our Global Risk Insight Platform and Impact On Demand to ensure that clients have full access to the best of global Aon in every region around the globe. In fact, highlighting the unique value of GRIP, we've now completed over 1 million trades, capturing more than $50 billion of premium and continue to expand its addressable market opportunity. We're also investing additional capability in talent, as well as strengthening our international footprint through recent and continued acquisitions such as Glenrand in South Africa, which solidifies our position as the largest broker on the continent of Africa. We're investing in client leadership to drive greater productivity and efficiency with the rollout of the revenue engine in EMEA and Asia Pacific; the rollout of Client Promise, which is driving greater retention rates and ensuring clients understand our value proposition; and the rollout of our Aon Broking platform, to better match client needs with insurer appetite for risk in any geography around the globe. In HR Solutions, we continue to strengthen our industry-leading position in both public and corporate healthcare exchanges, enabling clients to prepare for ultimate changes in healthcare legislation with design, purchasing, administrative capability. We're expanding our capability in investment management consulting as highlighted by the acquisition of EnnisKnupp. This complements our incredibly strong U.K. business, creating an industry leader with over $4.3 trillion in assets under advisement. We're expanding our international footprint as the workforce is increasingly becoming more global with investments in key talent and capabilities across Asia. And finally, we're continuing to invest in expanding our core HR BPO offering and platforms, including the use of new social media channels. In addition to our focus on our core BPO business, we're also continuing to expand add-on benefits in HR Solutions that have shown significant growth in the last 2 years. In summary, across Risk Solutions and HR Solutions, our fundamental client-serving capability continues to substantially strengthen around the globe. These investments, fully funded in the context of long-term margin improvement, position Aon very well to take advantage of an improving global economy and a long-term growth opportunity we see across our markets. Finally, on the third topic of growth. I want to spend the next few minutes discussing the quarter for both our segments. In Risk Solutions, overall organic revenue was plus 2%, a continuation of the positives trend we saw in the prior quarter and a solid start to the year, despite soft pricing, excess capital and fragile economic conditions globally. Against these headwinds, which were primarily market-related, we're driving a set of initiatives that continue to strengthen our underlying performance and give us confidence that our Risk Solutions business is firmly positioned for long-term growth and leveraged in an improving economy. We have strong management of our renewable book portfolios with Client Promise and retention rates of 90% or better on average, highlighting strong client satisfaction. Strong new business generation of more than $200 million across our Retail business with double-digit new business growth across many markets including France, Italy, Asia, Africa, New Zealand and Canada, just to name a few, highlighting the strength of our global client-serving capability. Investments in new product and service capabilities with the rollout of GRIP, Client Promise and Impact on Demand. Turning to the individual businesses. In the Americas, organic growth was plus 4%. We saw a strong growth in Latin America and in our Affinity products, modest growth in U.S. Retail despite continued pressure from pricing which is down low single-digits on average and a weakness in major sectors such as construction. On the international front, organic revenue growth was plus 3%. We saw a strong growth across Asia and New Zealand, driven by a solid client retention and new business activity. We have modest growth in the U.K. Retail side and EMEA as exposures are generally stable. We're recognizing the economic conditions remain fragile across the region. In Reinsurance, organic revenue was flat. Results reflect a modest improvement from a minus 1% in the prior quarter. Growth in facultative placements were offset primarily by higher CD retentions, continued soft pricing in the U.S. for treaty placements. And despite significant industry losses in international in the first quarter, we believe excess capacity globally will continue to drive soft pricing globally, albeit, at a moderately lesser rate of decline. Given these industry conditions for Treaty business and the transactional orientation nature of the facultative placements and capital advisory, we'd expect the trends on our Reinsurance business to be fairly similar for the foreseeable future. Turning to HR Solutions. Overall, organic revenue was flat, similar to the prior quarter as price compression in Benefits Admin continued and fragile economic conditions placed pressure on corporate discretionary spend and global unemployment trends. Against these headwinds, which are primarily market-related, we're driving a set of initiatives that continues to strengthen our underlying performance and gives us confidence that our HR Solutions business is firmly positioned for long-term growth and leverage in an improving economy, with a high degree of recurring revenue across HR Solutions, with strong renewal rates highlighting strong client satisfaction. Solid business generation of over 100 new client wins including more than 10 new large and mid-market Benefits Admin wins and a very significant win with a large leading financial institution in HR BPO. And continued investments in new product and service capabilities in emerging markets such as investment management consulting, healthcare exchanges and international markets. Turning to the individual businesses on the HR Solutions side. In Consulting Services, organic revenue increased 4%. The results reflect the modest improvements in the prior quarter. Solid growth in international health and benefits and human capital consulting was partially offset by the impact of weaker economic conditions in the U.S. retirement consulting. In Outsourcing, organic revenue decreased 3%. Anticipated price depression and a modest decline in project-related revenue in Benefits Administration was partially offset by new client wins and growth in point solutions revenue and the HR Business Process Outsourcing business. Excluding the $14 million favorable impact relating to deferred revenue by Hewitt in the prior quarter, organic revenue Outsourcing would have been flat compared to the prior year quarter. Most important, I wanted to provide a brief update on the progress of Aon Hewitt. First, our teams are working exceptionally well together to support clients and client disruption has been basically nonexistent. As an example, 8 new Benefits Administration clients went live on January 1, and 2 large HR BPO clients are ramping up with all systems go, and implementation proceeding exceptionally well. The leadership team is being particularly sensitive to all the normal issues that arise out there and they're listening very carefully and working hard to respond to feedback from our colleagues around the world. And we're deeply engaged with key talent across the businesses to ensure we're building a solid foundation for long-term growth. Second, new business wins across Aon Hewitt continue to be exceptional across middle market, large corporate and Fortune 100 clients, with Aon Hewitt having already secured a number of new business wins across multiple product lines, as clients fully recognize the breadth and depth of Aon Hewitt's products and services capability. Lastly, the integration activities are largely complete. We are fully on track to deliver the $355 million of synergy savings in 2013, as well as our committed savings in 2011. And Christa will provide an update on this shortly. With the integration work set, we're focused on growing and building Aon Hewitt for the future. It's a very exciting time for all of our team. In summary of our first quarter results, we're delivering solid underlying progress against the key metrics we communicate to shareholders. Events occurring in Japan, Australia, New Zealand, our pending healthcare reform in the U.S, just to name a few, only reinforce the needs of our clients and the significant long-term growth opportunities for Aon as the industry leader in both Risk and HR Solutions. I'm now pleased to turn the call over to Christa for further financial review.

Thanks, Greg, and good morning, everyone. As Greg noted, our first quarter results reflect continued progress to strengthen our industry-leading position and client-serving capabilities across risk and people. We are firmly on track for growth in 2011. Against that, we're managing expenses, delivering savings from our restructuring program and effectively allocating capital as highlighted by the repurchase of $350 million in common stock in the quarter. Now let me turn to the results for the first quarter. Our core EPS performance, excluding certain items, is $0.80 per share for the first quarter, compared to $0.83 in the prior-year quarter, as the inclusion of Hewitt results, including a $61 million increase in intangible amortization expense and a higher effective tax rate offset strong underlying performance and effective capital management. Certain items that were adjusted for in the core EPS performance and highlighted in the schedules on Page 12 include: $30 million of restructuring charges primarily related to the Aon Hewitt restructuring program and $15 million of transaction-related Hewitt costs. Lastly, there were 2 items not adjusted for in the core results, including $19 million or $0.04 of lease termination costs and facility exits in France and an unfavorable impact of $0.02 related to foreign currency translation. Now let me talk about each of the segments. In our Risk Solutions segment, organic revenue growth was 2% and we've delivered an operating margin of 19% on an adjusted basis, down 150 basis points from the prior-year quarter. Our operating performance for the quarter was primarily impacted by 3 items: First, as noted above, we incurred $19 million of lease termination costs or 110 basis point impact for facility exits in France that were not part of the formal restructuring program; second, foreign currency translation, primarily resulting from a weaker euro versus the U.S. dollar, unfavorably impacted margin by approximately 60 basis points; lastly, lower investment income impacted margin by 10 basis points. These 3 items, largely nonrecurring or macro-related, unfavorably impacted margin by 180 basis points in the quarter. Excluding these items, our underlying performance for the quarter continues to demonstrate strong operational discipline and underlying structural margin improvement, positioning the segment for greater operating leverage long term, as growth and economic conditions continue to improve around the globe. Let me spend a moment on each of the restructuring programs, key initiatives that are enabling concurrent funding of investments and delivering long-term structural margin expansion. With respect to the 2007 restructuring program, we have incurred 100% of the charges necessary to deliver the remaining savings. Restructuring savings in the first quarter are estimated at $134 million compared to $110 million in the prior-year quarter. Approximately $113 million of savings were related to Risk Solutions segment, primarily for workforce reduction. With respect to the Aon Benfield restructuring program, we incurred $7 million of charges in the quarter and have now incurred 92% of the $155 million of total costs necessary to deliver the remaining savings. Restructuring savings in the first quarter are estimated at $29 million compared to $22 million in the prior year quarter. Overall, we are ahead of schedule on our 2007 and Aon Benfield restructuring program. We have completed nearly 100% of the charges as of the end of the first quarter, yet we still have approximately $48 million of incremental Risk Solutions savings still to achieve under these 2 programs between now and the end of 2011. The following 3 areas of margin opportunity are within our control and continue to cross firmly on track towards delivering our long-term margin target of 25% in Risk Solutions: number one, operational efficiency and the remaining restructuring savings; number two, the continued rollout of the revenue engine; and number three, Aon Broking and GRIP-related initiatives. In addition, there are 2 additional macro drivers that provide significant operating leverage based on improvements in the external market. An improving global economy in areas such as employment levels, asset values and corporate revenues will drive leverage through exposure growth, along with every 100 basis point rise in short-term interest rates delivers roughly $35 million to $40 million to the bottom line. And lastly, improvements in insurance pricing. We are on track for delivering our long-term margin target of 25% for Risk Solutions. Turning to the HR Solutions segment. Organic revenue was flat, and we delivered an adjusted operating margin of 14.4% as the results reflect the merger with Hewitt, including a $61 million increase in intangible asset amortization expense. To further assess the underlying performance of operating income and margin in the segment, we believe it's useful to add together results for both Aon Consulting and Hewitt in the prior-year quarter to form your starting point of analysis. For example, if we take Hewitt's adjusted operating income of $123 million plus $56 million for Aon Consulting, your combined total is $179 million of operating income as reported for the prior year quarter. If we subtract additional intangible amortization expense of $61 million, this leaves an underlying $118 million of operating income. Compared to the $161 million we reported in the first quarter, the increase in operating income reflects savings related to the restructuring program, additional synergy savings and other operational improvements. Essentially, we believe that strong operating income growth on flat organic revenue implies solid operating margin expansion in the HR Solutions segment. Lastly, for the HR Solutions segment, I wanted to briefly comment on the Aon Hewitt restructuring program. With respect to the Aon Hewitt restructuring program, we incurred $23 million of charges in the quarter, primarily for workforce reduction. The Aon Hewitt restructuring plan is expected to result in cumulative cost of $325 million through the end of the plan, primarily encompassing $180 million in workforce reduction and $145 million in real estate rationalization costs. Cash costs are expected to be approximately $275 million. Savings related to the restructuring program in the first quarter are estimated at $24 million with additional synergy savings achieved outside of the formal restructuring program. We expect to deliver total annual savings of $355 million in 2013, including approximately $280 million of annual savings related to restructuring programs and additional savings in areas such as information technology, procurement and public company costs. We are on track to deliver $243 million of annual savings in 2011. These savings are the first of 3 key drivers for delivering our long-term operating margin target of 20% in HR Solutions. The other 2 key drivers are growth in the core business, including HR BPO improvement, and declining intangible amortization expense beginning in 2013. Now let me discuss certain line items outside of the operating segment. Interest expense increased $29 million due to an increase in the average amount of debt outstanding following the merger with Hewitt. Other income in the quarter was $17 million including a $9 million gain related to sale of certain investments and $7 million related to distributions from certain private equity securities. Going forward, for these items, we would expect a run rate of approximately $5 million per quarter of interest income, $35 million of unallocated expense and $65 million of interest expense per quarter. Turning to taxes. The effective tax rate on continuing operations increased to 29% compared to 24.9% in the prior-year quarter, due primarily to changes in the geographic mix of income following the merger with Hewitt. The prior-year quarter was favorably impacted by certain deferred tax adjustments. Going forward, we will continue to anticipate an underlying tax credit on continuing operations of 30% for 2011. Turning to shares. Average diluted shares outstanding increased to 345.4 million in the first quarter compared to 283.4 million in the prior-year quarter due primarily to the issuance of 61 million shares of common stock related to the merger with Hewitt, partially offset by the company's share repurchase program. Actual common shares outstanding on March 31 were 330.5 million compared to 332.3 million at December 31. There are approximately 14 million diluted profit equivalents. The company has approximately $1.7 billion remaining under the share repurchase program previously authorized in 2010. Now let me turn to the balance sheet. At March 31, cash and short-term investments were $1.3 billion and total debt outstanding increased to $4.9 billion. Included in these figures is approximately $377 million of cash that was used to fully repay $375 million of Canadian debt due April 2011. Post this transaction, we had roughly $900 million of cash and short-term investments, and $4.5 billion of total debt, similar to December 31. Per requirements of our outstanding $1 billion term loan, we expect to pay down $100 million of the term loan debt in 2011. In summary, we delivered 2% organic revenue, placing us firmly on track for growth in 2011 despite fragile economic conditions and a continued soft market. We continue to strategically invest in long-term growth opportunities and are well underway with the integration of Hewitt. We are managing expenses, driving operational initiatives across both segments and fully on track to achieve our long-term operating margin targets. We have significant leverage to an improving global economy. Our balance sheet and strong cash flow continue to provide significant financial flexibility to deliver increased shareholder value as highlighted by the repurchase of $350 million of common stock in the quarter. With that, I'll turn the call back over to the operator and we'd be delighted to take your questions.

[Operator Instructions] Our first question comes from Yaron Kinar, Deutsche Bank.

My first question and I have a follow-up after that. My first question relates to the Risk Solutions segment and the expenses there. So even when I adjust for the FX and the lease termination and despite the 3% improvement in the comp and benefit expenses, the adjusted operating income was still flat year-over-year. So I was hoping to get a little more color on what, I guess, is organic revenue growth related expenses? And maybe how we should think about it going forward?

Yes. So I think as we look at our Risk Solutions margin, we believe that we have underlying Risk Solutions margin expansion in the quarter after we adjust for the onetime lease termination payment in France, that's 110 basis points and the FX and investment income impact of 70 basis points, that's 180 basis points which if you then adjust for that, it's 30 basis point improvement year-over-year. We do believe that we continue to sort of drive a structural operational improvement in our business which is leading to long-term margin expansion both over the course of the year and towards our long-term 25% margin target.

But wasn't that improvement that you were just talking about, it all came from the compensation expense side and it's pretty much offset by the other expenses in a scalable business, or what I thought was a scalable business.

Yes, so I mean, I think there are a couple of onetime items in the quarter which are really sort of meaning that we're not getting quite the level of margin expansion we would excluding those onetime items.

Okay. And then on the HR Solutions side, could you maybe talk a little bit about the pension business? Do you see it coming back at some point, maybe to the point where it starts getting like 2%, 4%, 5% organic growth again for a longer period? And do you think that's possible without a regulatory change?

We see a tremendous opportunity across the HR Solutions business from a growth standpoint. And in fact, if you just reflect on sort of the last few years in which what's happened in the U.S. economy and the global economy on that front, the business has actually helped serve quite well. And during that time, we made substantial investments to sort of build for the future long-term growth and we see a number of those items actually coming to pass now as we think about what's going on. When you just think about what's going on in the overall retirement market right now, and what's needed to think about pensions and retirement across an employee base, that demand is going up, not down and we're incredibly well-positioned for that. The same on the healthcare side, when you think about what's happening in the healthcare in the U.S. right now, just as one example, but you can actually talk about it around the world and the demand for advice in the context of reducing healthcare costs is actually going up. So we actually see lots of opportunity for growth across the HR Solutions business, whether it's on the retirement side, the investment advice side, the admin side. So we're very optimistic about how we think that's going to evolve over the next couple of years.

Next, Brian Meredith, UBS.

A couple of questions here. Greg, first one, I was hoping you could chat a little bit more what's going on in the Outsourcing business. We've been hearing from some of the carriers that they're starting to see some exposure growth out of the comp business and I'm just curious why you're not seeing it translate into the Outsourcing business as well.

Yes. So Brian, I think one of the things we're seeing in our sort of HR Solutions business in Outsourcing in particular is, they're very long-term contracts. And so we absolutely sort of expect long-term growth in that business and as we've said before, with 5 to 7 years sort of average contract length in the HR BPO business, we can see the next 4 years of revenue and EBITDA growth. And so absolutely, we see the structural, sort of forces you're describing. They just take time to flow through given the long-term sort of contract nature in that business.

So changes in employment don't have an immediate impact?

Changes in employment absolutely do. And we have huge potential upside from changes in employment and they do flow through and get trued up on a monthly basis.

Okay. So we haven't seen that yet, I guess, is what's happening here?

Absolutely.

So we expect that, Bryan, on the horizon. And again, that will come through faster than in the U.K. For example, on the risk side, you see rates come through, so that's a much more direct impact.

Okay. And then, also just curious on cash flows in the quarter, I mean share buyback was greater than I was expecting. You had some cautionary remarks on cash flows in I think last quarter on kind of the timing. I'm curious why the level of share buyback was great but why was it bigger in this quarter? Should we expect a big slow down coming forward?

Yes. So I think as we think about sort of share buyback going forward, I'd look at sort of cash and short-term investments on the balance sheet which I would observe post the Canadian debt is down from $1.2 billion at year-end to $900 million x the Canadian debt. And so we have used up excess cash in the quarter. And I would say, going forward, as we think about share buyback, Q4 is more of sort of a good run rate to use than the Q1 number. Because really what we've done there is we've got some excess cash on the balance sheet as well as operating cash flow.

Overall, Bryan, look at our investments on the buyback side, as Christa has described before on the call, reflecting sort of our view on where we are and the opportunity on return on invested capital. And we're just very, very positive on our current position and the opportunity against it and that reflects our investment.

Next question, Meyer Shields, Stifel, Nicolaus. Meyer Shields - Stifel, Nicolaus & Co., Inc.: I just want to follow up on Yaron's question with regard to retirement. Did we see within the U.S., a general trend towards later retirement for whatever reason, skepticism on Social Security or whatever, would that have a negative impact on -- or does that conform with your expectations and what's the estimated long-term impact on insurance and healthcare?

No. In fact, again, back kind of fundamental principles of sort of what's going on across really the overall HR Solutions business in total, whether it's on the retirement or pension side or whether it's on the healthcare side, we actually see demand for advice in that business which is really what we do exceptionally well going up. And in fact, because the costs are going up, the demand for high-quality execution, which is also what we're capable of doing in the Outsourcing businesses, is actually going up. So we are very, very bullish on sort to the fundamental underpinnings of what drives our HR Solutions business, both on the advice side as well as on the execution side. I mean, as an example, I was with a client last week, just talking about their current situation, and look, they're essentially talking about how they can think about supporting their employees for overall retirement and actually delivering on a sort of promises that are helping their employees deliver on a set of commitments that they've really made over time. And our advice in the context of what's going on in the current marketplace is vital to them both in terms of how they actually execute it but also in terms of how they do it in a cost-effective way and that same argument holds true on the health and benefits side. Meyer Shields - Stifel, Nicolaus & Co., Inc.: Okay. And a couple of quick modeling questions if I can. When would be the expected share issuance of compensation over the course of the year? And the second would be the ramp up of the $200 million or so in expected too of related savings sort of over the balance of that one.

Right. So on the share issuance, share issuance in the form of stock compensation has been coming down over the last couple years. We would expect around 8 million shares over the course of 2011. Q1 is always the highest because that's when we issue shares related to our sort of major compensation program. And then your second question, the ramp-up of savings. So we have said that we are on track to deliver $243 million of total savings. That's comprised of restructuring savings plus other non-restructuring savings. You saw $24 million of restructuring savings plus other additional synergies in the quarter. As we complete projects the savings will ramp up during the course of the year to that $243 million total number.

But Meyer, we are fully on track, as Christa described, both in the overall game plan for 2011, as well as I described for the $355 million in 2013. Just the teams have just done a magnificent job coming together and really identifying the projects, getting those behind us and really focusing Aon Hewitt very much on future growth. But on the savings side have just done a terrific, terrific job. Meyer Shields - Stifel, Nicolaus & Co., Inc.: No, I understand that and that's helpful. I'm just trying to sort of use the methodology you talked with summing Aon Hewitt's operating income, subtracting the increased amortization and then adding back the savings and then trying to get a handle on the seasonality of the...

Would you like the -- so the baseline for the numbers in terms of how to think about the starting point and sort of seasonality of our business. So seasonality of our revenue overall, Q4 is our strongest revenue quarter, followed by Q1 and then Q2 and Q3 sort of on the revenue front. If you think about the starting point for the HR Solutions operating income for Q2, if you take the Aon Consulting operating income number of $47 million, you add in the Hewitt operating income number of $105 million from Q2 2010, that gets you to $152 million, Meyer. Then you get subtract the $61 million of amortization expense, that gets you to a $91 million operating income starting point for Q2. And you can do a similar math for Q3 2011, taking the numbers from Q3 2010, Aon Consulting $55 million, Hewitt $115 million, that gets you to $170 million, less the amortization expense of $61 million, gets you to $109 million starting point in operating income for Q3 2011.

Next question, Dan Farrell, Sterne Agee. Dan Farrell - Sterne Agee & Leach Inc.: You guys, obviously, in the brokerage segment have taken out a lot of expenses over the last few years. And importantly, I think you've been very disciplined in putting some of the savings back into the business. I'm wondering, as those expense savings are ramping down, is there still a need to keep reinvesting? And I then also wonder if we're in an environment that's only modest organic growth, with the margin expansion that we think we might see be a little more muted because of ongoing stuff getting put back into the business.

Look, Dan, I'd take a step back, you're absolutely right. If you think about sort of what we've done over the last number of years, we've literally laid out a game plan and executed as cleanly as we could against our game plan which was to invest in our business, build for long-term organic growth and also do it in a way simultaneously that we build margin over time. And I will just reflect, as you think about your question and some previous questions around the margin front, you think about the track record over the course of the last 5 years. We've increased margin 530 basis points from 15% and change to 20% plus and we have a game plan in place to drive that to 25% as we said before. The 25% really is fundamentally driven by 5 specific areas where we believe there will be real improvement: The restructuring, and you're absolutely right, it's ramping down but there's still $48 million left in that. What we're doing with the revenue engine and how we think about bringing in new clients and increasing share with those clients. What we're doing with the Global Risk Insight Platform which is literally fundamentally helping us increase yield per dollar of premium placed. But obviously some of the things that are in less our control as Christa has described before on interest rates and the overall GDP situation. But we absolutely see that track that's driving the 25%. The first quarter has done nothing for us except underpin that we are on track to achieve that. And we've, by the way, done it in environments in which growth was flat or negative. Now that growth is picking up and we're confident we're seeing that, we are even more positive in terms of being able to both achieve organic growth and grow the margins to 25%. And many of the investments we've made over the course of the last few years are just beginning to really kick in and pay off as I described before, be it revenue engine efforts, GRIP or Client Promise, et cetera. So look, we feel very good about the progress and we're just going to keep marching forward against the game plan we set in place. And as I said, Q1 has done nothing but underscore that we are on track to do that, and whether it's on the risk side or the HR Solutions side. Dan Farrell - Sterne Agee & Leach Inc.: Is there a level of organic that you think you need to achieve the 25%? And I realize there's other headwinds below interest rate environment and other things that could help as well over time, but is there a type of organic level in your mind that you think you have to sort of have on a run rate to get to that point?

There really isn't. Obviously, we're about growing our business and building our business over time. So we're absolutely focused on doing that. But we've reflected on these calls before, we absolutely don't need insurance pricing in the context of growing our business. And again, we've looked at over the last 5 years, we've been able to grow. Most of the years, we've certainly been able to improve margin and we've done that in an environment obviously that's got soft insurance pricing, a very negative economy, low interest rates, et cetera . And we absolutely have the game plan in place to continue to drive and do that. Obviously, growth and some of the external factors can really help accelerate that and can bring the 25% to us much more quickly. But irrespective of what happens on the items outside our control, we intend to get to a 25% margin.

Next question, Jay Gelb, Barclays Capital.

I wanted to touch base on the Reinsurance Brokerage business. You had a nice uptick in organic growth in the first quarter versus 4Q. And I'm trying to understand the implications of the impact on the massive Asia Pacific Reinsurance losses going forward, on what that means for Aon's organic revenue growth, as well as margins. And alongside of that, Aon recently put out a report talking about pretty dampened expectations for the U.S. midyear property Reinsurance renewals, so I was hoping you could expand a bit on that because the reinsurers are talking it up a bit more.

Yes, Jay, absolutely have to talk about it. Really 2 questions in the context of sort of what we're doing there. One as it relates to Aon Benfield and agree with you, our colleagues are doing a great job as we continue to build in that platform we believe is a very unique platform in the world today with Aon Benfield and our position on the treaty side, number one in the world, number one in facultative, number one in the capital markets world, et cetera. And a very strong platform and we're improving in that. I would say in the first quarter, factually, the market had a negative impact on us, it was negative 1% as you think about what we were able to deliver on flat organic growth, market impact was negative 1% and so overall, we haven't seen the impact that you've described. And as we go forward through the year, we expect it to be a lot of the same, obviously we're reacting to the trauma around world, and supporting our clients, but we see more of the same. In the context of your second quarter in the broader pricing environment, look, there's always going to be a lot of discussion. It's obviously an important topic for our clients, critical for our clients. We observe it on 2 sides; one is you think about Q1, literally what happened and then sort of think about what the go forward is going to look like. And we base our observations very much on a couple of things. One is the Aon Benfield team with those great analytics, really, we believe world-class analytics around this as well as what happens and the observations we take on the specific data out of GRIP, the Global Risk Insight Platform. And that’s now got 1 million trades on it, over $50 billion in premiums. So we literally look at that fact-based. And in the context of that, Jay, literally, rates were down 2% to 5% in the first quarter and that's just factually what they were. It impacted our Retail book negatively. It impacted our Reinsurance book as I described before. And on the go forward, what we've essentially said is assuming no new events, capital availability will remain at surplus levels, it just will, and as a result, it's going to continue to support a pretty competitive market. Obviously, we recognize that there a lot of important, very important critical regional events that have occurred around the world. And accordingly, there’s going to be price increase in those areas. And certainly in these affected areas, in some cases, it will be substantial increases. But and we also recognize, by the way, to your point, there's more pressure on the system than ever before around rate declines. But overall, the facts indicate that unless there's another event or series of events, the industry's going to have excess capital and that, that remaining supply, demand imbalance is going to continue to put downward pressure on price. Particularly, in the non-affected areas which happen to be, in this case, much, much larger than the affected areas. In the example, you described on the Reinsurance analysis what our colleagues have done is literally calculate it bottom up literally brick by brick the capital in the industry. And it's roughly $470 billion as of the year-end 2010 which was a 17% increase over 2009. It really is that supply/demand imbalance, Jay, that's led us to basically say, "Look, there's clearly, less slack in the system than maybe there has been for a long time," but we see that supply demand imbalance remaining at a reasonable level. And I would just finally say, our GRIP data suggests that, if you sort of looked at our pipeline over the next 30, 60, 90 days, and it also indicates continued decreases in price. Albeit at a lower level, want to make sure I'm highlighting that. It's a lower level, but not the turns that others have talked about. So hopefully that's helpful.

It’s very helpful, Greg. And just on GRIP, are you talking about primary commercial, as well as Reinsurance? Or just...

Well, the GRIP really is primary commercial. So I'm trying to give you 2 perspectives, one on the Reinsurance side, and one on the primary side, given the importance of the topic. And GRIP, literally look at it as 1 million trades, it's not the market, but it literally is our entire market. So and it's pretty extrapolatable to the overall market and it’s the specific data which shows exactly what happened in the first quarter and then it literally has all the indications in it for the foreseeable future.

And that $470 billion, you're saying that's dedicated Reinsurance capital globally?

Yes, exactly. The analysis, by the way, happy to send it to you, you can also access it on our website, is we did our level best to identify dedicated Reinsurance capital around the world and that's how we got to the $470 billion.

Next question, Matt Heimermann, JPMorgan. Matthew Heimermann - JP Morgan Chase & Co: Couple questions, just specifically in HR Solutions on the traditional Consulting side, I'm just curious if you could maybe break down what you're seeing in terms of growth between maybe the less discretionary lines which I would think about being kind of health and benefits actuarial, investment, Consulting and then the discretionary of kind of talent, compensation, leadership?

Well, essentially, we're actually seeing growth across the board but what you do see is the areas that we’re really impacted by the economy, talent, comp, et cetera, those are really beginning to bounce back. We see that as very positive. Things that involved, Matt, discretionary spend during the last few years have really been under pressure. Our colleagues have done a great job in those businesses, but now as the economy has leveled off or even in some cases looks like it might even be coming back a bit, we're seeing real upticks in those businesses. And the others that were actually holding a bit more during the downturn, are doing just fine, but they don't see as much of an uptick. Matthew Heimermann - JP Morgan Chase & Co: Okay. And so as we think about what might happen with growth there, it's more likely we should think about those discretionary areas pulling the growth rate up more so than much of a change in the other areas?

Well, in the other areas, it'll just be more gradual in the other areas. The uptick will be more acute and more positive on the areas that involve discretionary spend, but we're investing to see it in both sides. And we've got, again, great capability on both sides and we see positive movement really on the discretionary and some of the things that were more recurring. Matthew Heimermann - JP Morgan Chase & Co: Okay. And then if we kind of dovetail that same question into Outsourcing with respect to project revenues, is it fair to think about the timeline there maybe being a little bit drawn out than what we might see in some of the discretionary areas in the Consulting side?

That's right, Matt, because of the long-term nature of the contract. The only thing I would note is, as employment levels increase, they do flow through the Outsourcing contracts with a month lag. And so employment levels have significant upside leverage to that revenue base. The project related sort of revenue year-over-year will stabilize really in Q2. Matthew Heimermann - JP Morgan Chase & Co: Okay, that's helpful. And then just a couple numbers questions, if I could, just, Christa, just the pension expense or benefit in the quarter. And then also, can you just tell us what the common outstanding shares were at the end of the quarter?

So the pension expense for the year, Matt, it's down slightly in 2010. And it's roughly the same per quarter, is the way I think about it. And then contribution levels on pension, we did say were about $400 million for the year and again roughly equal by quarter. And then common shares outstanding were 330.5 million as at March 31.

Next question, Dan Johnson, Citadel.

You mentioned that in your prepared remarks your outlook on the Reinsurance business. I can't recall the exact word you used, but I didn't think it implied much change from the current level of, I think, we put up a 0 this quarter. Is that characterization correct?

Well, I think, Dan, I would say, we're continuing to build and working to grow that business. But we essentially characterize it as sort of over the next 12 months, sort of roughly positive but we did not dramatically positive.

Sure. That sounds like a decent uptick from last quarter where I think it was minus one, but the expectations were for something that looked a little bit more like 2010, which was a minus 3. If all this math is right, what sort of led to, I guess I'll call it, an improvement in the outlook?

Well, listen, getting back, we've been try to pretty measured about this and will always do that as is our practice. We believe we'll see continued improvement here. I wouldn't say it's a dramatic change. It's really sort of roughly the overall same outlook. Again, as we said before, certain aspects of the business on the fact side and on the capital markets side, Cap bond, et cetera, tend to be a bit lumpy so it sometimes a little more positive and little negative and we'll highlight that in the process. But essentially, this is a business in which we think demand is going to continue to increase. The events around the world have actually highlighted that. And it will be reflected in our overall business. But we just see solid progress for 2011.

Okay. And then in terms of the Brokerage margins, do you have any visibility on any further sort of one-timers, if you will, like we saw this quarter with the lease termination?

We really don't and I would highlight again, on the lease termination in France, for us, that really for us was just an investment in our colleagues around the world. This is something that in the context of what we're trying to do with Aon united and really bring our global firm together, deliver for our clients in a very local way. Our colleagues in France have just done a remarkable job, Robert Le Blanc, Laurent, Michel, and all the colleagues there have done a great job and really it's an investment we wanted to make to get our business back closer into kind of central Paris. And it's something we talked about for quite some time and we believe that it's is going to help our business long term. And we made the investment. We always do that to strengthen our business and our business lets us make these investments and absorb it and that's exactly what we did in the context of Q1. And we don't see anything more on the horizon, but I wanted you to understand why we did it and the psychology behind it.

Yes, understood. And then last quick one on the commission compliance efforts, I forgot exactly which program that falls under, but any update you could add there as to sort of how that has helped profitability versus what you think it could do and sort of maybe what inning we're in I guess in that effort?

Great question. This really relates back to kind of Aon Broking, so if you really think about how we're going to grow our business, we're going to take a number of steps to really bring new clients in and get a greater share of wallet with them, a la what we’re doing on the revenue engine in Client Promise. And then we're also going to work to, in the context of that, as we get them the best deals out there in the world, best terms and conditions, best price, we're also going to work to make sure we get a fair and appropriate kind of yield per dollar of premium placed. And that really is our Aon Broking effort. That's what you're describing. And we're in the early innings of that still. In the 9-inning baseball game, if you want to use that analogy, we're kind of still in the third or fourth inning, early innings, it's beginning to actually have some benefit for us. We're excited about that. We can see how that's going to play out for us over time in a very positive way, but that's really still early innings and but we're quite excited about it. That combination of new clients and again, we had a great, great quarter from a new client, new business standpoint, grew at 11% across the board which is fantastic for us, feel good about that. Very good on the retention side and we think this one you're describing or highlighting, Dan, is a very important one for us as we continue to increase yield per dollar of premium placed.

And you see it as a contributor to 2011 profitability or is this more of a 2012 and beyond sort of effort?

No, we see it as having meaningful impact as we get into the second half of 2011 and then really kicking in, in '12 and '13.

Our last question comes from Scott Scher, Clovis Capital.

All my questions have been answered.

I would now like to turn the call back over to Greg Case for closing remarks.

I just wanted to say to all of our investors and partners on the phone, thanks for taking part and we appreciate your support in Aon.

Thank you. That does conclude today's presentation. You may now disconnect.