Aon plc (AON) Q1 2012 Earnings Report, Transcript and Summary

Good morning, and thank you for holding. Welcome to Aon plc'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 plc. Sir, you may begin.

Thanks very much, and good morning, everyone, and welcome to our first quarter conference call. Joining me here today is our CFO, Christa Davies. Consistent with previous quarters, I'd like to cover 3 areas before turning the call over to Christa for further financial review and would note that there are slides available on our website for you to follow along with our commentary today. First is our performance against key metrics we communicate to shareholders. Second is overall organic growth performance. And third is continued areas of investment across Aon. 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. Turning to Slide 3, in the first quarter, organic revenue was 4% overall, reflecting the strongest rate of organic revenue growth since the second quarter of 2007 and the strength of our industry-leading platform. Operating margin decreased 80 basis points, driven primarily by significant investments we're making across our businesses to increase long-term growth. Finally, EPS was $0.98, including $0.06 of unfavorable impact from foreign currency. Overall, our first quarter performance reflects improved organic revenue growth across our businesses as foreign currency movement and significant investments to drive greater long-term growth had an unfavorable impact on bottom line results. While we're not satisfied with margin improvement and working capital management in the near term, we fully anticipate improved performance in the second half of the year, are on track with our long-term targets and have completed significant steps to position the firm for long-term growth, strong free cash flow generation and increased financial flexibility, as highlighted by the completed redomestication to London in early April. Turning to Slide 4, on the second topic of growth, I want to spend the next few minutes discussing the quarter for both our segments. In Risk Solutions, overall organic revenue growth was 4% with growth across every major business. As market-related conditions continue to stabilize, we're driving a set of initiatives that are strengthening underlying performance and positioning our Risk Solutions segment for long-term growth and leverage to an improving economy. With management of our renewal book through Client Promise and retention rates of 90% or better on average, highlighting strong client satisfaction. New business generation of over $220 million across our Retail Business, with strong growth across many markets including China, Latin America, Italy and New Zealand, 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 and Aon Broking globally and in our core treaty reinsurance business, net new business trends have now been positive for 4 consecutive quarters. Reflecting on the individual businesses. In the Americas, organic revenue growth improved to 4% as the impact from pricing and exposures are relatively flat, reflecting a continued modest pace of improvement from a year ago. We saw strong management of the renewal book portfolio across all regions, strengthened by the continued rollout of Client Promise. We saw solid new business growth in Latin America. Results reflect strong performance, overcoming continued market weakness in the commercial construction sector. In international. Organic revenue growth improved to 4% against pricing, which was flat to modestly down on average overall, including firmer pricing in catastrophe-exposed regions. We saw strong growth in New Zealand, across many regions in Asia and in emerging markets, including double-digit growth in many areas such as China, Taiwan and Italy. In the U.K. and Continental Europe, market conditions remained soft and macroeconomic conditions remained fragile across many core markets. With leadership positions across the U.K. and Europe, we saw strong retention rates and the management of the renewal book portfolio led to modest growth across almost every region, a solid performance given industry and economic headwinds. In reinsurance, organic revenue growth improved to 5%, a level of organic revenue performance not achieved since Q3 2006. Results primarily reflect strong new business growth in global treaty placements. The impact of the market from pricing internationally was modestly favorable, partially offset by higher cedent retentions as clients retain more risk. The underlying strength of the book continues to improve as net new business won was positive for the fourth consecutive quarter. This level of performance and the strength of new business generation continues to reflect the Aon Benfield's value proposition for clients of strengthening operational performance and reducing volatility through unmatched data, analytics and advisory capability. Turning to HR Solutions. Overall organic revenue growth improved to 3% compared to minus 1% in the prior year quarter. We saw a growth across both businesses despite weak discretionary spend globally and continued economic pressure in Continental Europe. Performance primarily reflects strong growth in areas where we're making significant investments in the business. In areas such as HR BPO, investment consulting, pension risk management consulting and health care exchanges. These investments reflect Aon Hewitt's deep understanding of market trends and the long-term issues that face our clients, such as health care costs and associated financial risks that will continue to rise unchecked at a time when overall health and wellness is not improving. The clients are increasingly looking for a global benefit solution that support global organizations at a local level, managing and transferring risk against pension schemes that are increasingly frozen and largely underfunded. And last, after working through the worst economic recession in the last 70 years, clients are beginning to renew their focus on talent, retention, development and engagement, to prepare themselves for renewed long-term growth. Turning to the individual HR Solutions businesses. In Outsourcing, organic revenue growth improved to 3% compared to minus 3% in the prior quarter. We saw a growth from both new client wins in HR BPO, Absence Management and from the investments in our health care exchange business. Results were partially offset by a modest decline in Benefits Administration as client wins were offset by anticipated price compression and client losses within expectations. In Consulting Services, organic revenue growth is 1% compared to 2% in the prior-year quarter. We saw strong growth across our businesses in Asia. Increased demand for surveys and services in our Compensation Consulting Group and strong demand for delegated pension risk management and investment consulting services. Results were partially offset by a decline in discretionary demand for actuarial services in our core Retirement Consulting business. Overall, in HR Solutions, we're pleased with our organic revenue performance in the first quarter and are on track with previous expectations for delivering improved growth in both businesses in 2012. And while encouraged that we're beginning to deliver results from the investments we are making in new growth opportunities, our priorities for 2012 remained focused on delivering improved profitability from these investments and improving the growth profile in our core business administration and Retirement Consulting businesses. Slide 5 highlights the third topic, further areas of investment. We believe Aon is in a unique position. Solid long-term operating performance combined with expense discipline and strong cash flow continues to enable substantial investment in colleagues and capability around the globe. A few examples include, in Risk Solutions, we're investing in client leadership to drive greater productivity and efficiency with the rollout of the revenue engine internationally, as well as the rollout of Client Promise, which is driving greater retention and rollover rates across our client base. We continue to invest in innovative technology such as GRIP, which is the world's leading global repository of risk and insurance placement information. We now have 1.4 million trades, more than $75 billion of down premium and a growing client list of 25 insurance carriers utilizing the platform's analytics and services capabilities. We're driving our Aon Broking initiative to better match client needs with insurer appetite for risk as highlighted by our ability to package similar risks and place substantial programs and the facilities into the market on behalf of clients. Effective January 1, we aligned our global Health and Benefits platform to broaden our global distribution channel and strengthen these deep brokerage capabilities. And finally, we're expanding our footprint through tuck-in acquisitions that either increase scale in emerging markets or expand capability to better serve clients, as well as adding key talent across Asia and Latin America in specialty sectors and in our GRIP Services business. In summary, as we have noted previously, we have proved the concept of these major investments in 2011. As we move across 2012 and 2013, we will drive greater scale and increase operating leverage. In HR Solutions, we're making significant investments to strengthen our leading position in health care exchanges, enabling clients to begin the shift of their participants to a market-based defined contribution model for health care. Later this year, we plan to launch our first multi-carrier health exchange for active employees. We're expanding our outsourcing offerings in high-growth areas, such as dependent eligibility audits and absence management. We continue to expand our industry-leading Benefits Administration platform from large market to middle market. We're developing new delegated solutions in investment consulting and pension risk management that leverage our total capabilities across advisory and delivery services. And finally, we're increasing our international footprint to support a global workforce, with investments in key talent and capabilities across Asia and emerging markets. In summary, we delivered improved organic growth across both Risk and HR Solutions, made significant investments that will drive greater long-term growth and took important steps to strengthen our global firm. With that said, I'm pleased now to turn the call over to Christa for further financial review. Christa?

Thanks very much, Greg, and good morning, everyone. As Greg noted, our first quarter results reflect improved organic revenue growth across both segments, resulting in the highest level of organic growth in the last 15 quarters. While we are not satisfied with margin performance and working capital management, we continue to drive a set of initiatives to improve operating performance, deliver savings from our formal restructuring programs, generate strong cash flow and effectively allocate capital as highlighted by the repurchase of $100 million of common stock in the first quarter. Now let me turn to the financial results as highlighted on Page 6 of the presentation. Our core EPS performance, excluding certain items, was $0.98 per share for the first quarter compared to $0.99 in the prior year quarter. Strong organic growth and effective capital management in the quarter was offset by unfavorable foreign currency movement and investments to deliver increased long-term growth. Certain items that were adjusted for in the core EPS performance and highlighted in the schedules on Page 12 of the press release, include noncash intangible asset amortization, restructuring charges related to the formal restructuring programs and $3 million of headquarter relocation costs. In addition, there were 2 unfavorable foreign currency impacts not adjusted for, but it's helpful in understanding the core results. First, the company recognized an $18 million pretax or $0.04 per share loss due to the unfavorable impact of exchange rates on remeasurement of assets and liabilities in nonfunctional reporting currencies. Secondly, foreign currency translation had an unfavorable impact of $0.02 per share. If currency were to remain stable at today's rates, we would expect a modest unfavorable translation impact to EPS in the second quarter of 2012. Now let me talk about each of the segments on the next slide. In our Risk Solutions segment, organic revenue growth was 4%. Operating income increased 2% and operating margin decreased 20 basis points to 21.4%. Excluding the $8 million impact of FX in the quarter, operating income increased 4% and operating margin was essentially unchanged from the prior year quarter. Solid organic revenue growth, restructuring savings and lower lease termination costs contributed to operating income growth, but operating margin improvement was offset by significant investments in key talent across Asia and in our GRIP platform, as well as $11 million of costs or a 60 basis point unfavorable impact related to both the integration of Glenrand and to certain project-related work in Australia. We would expect these costs and investments to have a modest impact in Q2 and Q3. Let me spend a moment on the formal restructuring programs, key initiatives that have enabled concurrent funding of investments and long-term structural margin expansion. With respect to the Aon Benfield restructuring program, we incurred $8 million of charges in the first quarter. The company has closed and completed all restructuring activities and incurred 100% of the total charges necessary to deliver the remaining savings. Restructuring savings in the first quarter are estimated at $34 million compared to $29 million in the prior year quarter. The Aon Benfield restructuring program is expected to deliver cumulative expense savings of $146 million in 2012, compared to cumulative savings of $122 million in 2011. Further, associated with the transfer of the Health and Benefits business at January 1, 2012, an estimated $46 million of restructuring savings under the Aon Hewitt restructuring program will be achieved in Risk Solutions. Approximately $18 million of the $46 million in cumulative savings have been achieved under the program, including an estimated $18 million of savings in the first quarter. A breakout of restructuring charges incurred in Risk Solutions associated with the Aon Hewitt restructuring program is detailed in the schedule on Page 13 of the press release. As Greg noted in his commentary, we are not satisfied with flat margin performance in the first quarter. As we think about the remainder of the year, we would expect a similar performance in Q2 and Q3. Through return on our investments, remaining restructuring savings and lower integration costs, we would expect a strong Q4 resulting in Risk Solutions margin improvement for the full year 2012, and continued margin improvement towards our long-term target of 26%. Turning to the HR Solutions segment, organic revenue growth was 3%, operating income decreased 7% and operating margin decreased 180 basis points to 16.5% compared to the prior-year quarter. Included was a $1 million or 10 basis point unfavorable impact from FX. Organic revenue growth of 3% and $26 million of incremental restructuring and synergy savings were more than offset by $20 million or a minus 210 basis point impact from significant investments in long-term growth initiatives, an unfavorable revenue mix shift as core Benefits Administration and Retirement Consulting declined modestly and a $13 million impact from deferred costs in Outsourcing related to the timing of large client implementations. With respect to the Aon Hewitt restructuring program, we incurred $9 million of charges in the quarter. Cumulative savings related to the restructuring program in the first quarter are estimated at $40 million compared to $24 million in the prior-year quarter, with additional synergy savings of approximately $29 million achieved outside of the formal restructuring program compared to $19 million in the prior-year quarter. As we noted in the fourth quarter, we provided specific comments regarding the outlook for the HR business in 2012. Number one, we expect improved organic growth in both businesses for 2012. Number two, we would invest approximately $35 million in new growth opportunities, primarily our health care exchanges, HR BPO, investment Consulting and pension risk management. Number three, approximately 75% of the restructuring savings will be realized in adjusted operating income. Number four, expected performance will improve in the second half of the year as investment spend decreases in the second half from the first half. And lastly, for the full year, with the transfer of an additional $26 million of savings to the Risk segment related to Health and Benefits, and a more conservative view on discretionary spend for project-related revenue, we would now expect operating income to be down modestly year-over-year, with Q2 and Q3 down from the prior-year quarter and flat in Q4 before growing in 2013. While we are not satisfied with our results in the first quarter, we are focused on delivering against our objectives we laid out for the full year. And we'll continue to push against each of these objectives every quarter as we strengthen our industry-leading HR Solutions business for long-term operational excellence going forward. Turning to the next slide on our long-term operating margin targets. We continue to drive a set of initiatives to improve operating performance on an annual basis. While we've improved operating margins 500 basis points over the last 6 years, our long-term operating margin target of 26% for Risk Solutions reflects significant opportunity for further margin improvement in the following 5 ways: Number one, deliver $47 million of remaining restructuring savings and deliver other operational improvements. Number two, continued rollout of the revenue engine globally. Number three, Aon Broking and GRIP-related initiatives. These 3 are fully within our control. In addition, there are 2 additional macro drivers that provide significant leverage based on improvements in external market. Number four, increase in short-term interest rates. Number five, industry improvements driving high-insured values or insurance pricing. Similarly, for HR Solutions, while we've improved operating margins 1,200 basis points over the last 6 years, our long-term operating margin target of 22% reflects significant opportunity for further margin improvement in the following 3 ways: Number one, deliver $91 million of remaining restructuring savings after the transfer of savings to Health and Benefits. Number two, growth in core business and return on incremental investments. Number three, improvement in HR BPO. Now let me discuss a few of the line items outside of the operating segments on the next slide. Unallocated expenses increased $2 million to $34 million, excluding headquarter relocation costs. Interest income decreased $3 million due to lower average interest rates and lower average cash balances. Interest expense decreased $4 million to $59 million due primarily to a decline in the average rate on total debt outstanding. Other income included an $18 million loss due to an unfavorable impact of exchange rates on remeasurement of assets and liabilities in nonfunctional currencies, offset by a gain on certain company-owned life insurance plans and distributions from certain private equity securities. Going forward, we continue to expect a run rate of approximately $3 million to $5 million per quarter of interest income, $35 million of unallocated expense and $60 million of interest expense per quarter. Turning to taxes, the effective tax rate on net income from continuing operations declined to 28% in the first quarter compared to 29% due primarily to changes in the geographic distribution of income and certain deferred tax adjustments. We would anticipate an effective tax rate on net income from continuing operations of 28% for 2012. Lastly, average diluted shares outstanding decreased to 336.6 million in the first quarter compared to 345.4 million in the prior-year quarter due primarily to the company's share repurchase program. The company repurchased 2.1 million shares of common stock for approximately $100 million in the first quarter. Actual common shares outstanding on March 31 were 326.4 million and there are approximately 11 million diluted stock equivalents. Subsequent to the close of the first quarter, in connection with the completed change in corporate domicile, the Aon plc Board of Directors announced the authorization of a $5 billion share repurchase program, which replaced and canceled the previously authorized program by the board of Aon Corporation. Now let me turn to the next slide to highlight our strong balance sheet and cash flow. At March 31, cash and short-term investments were $833 million and total debt outstanding was $4.5 billion. Overall debt-to-capital was 34.8% at March 31, compared to 35.7% at December 31. Cash flow from operations for the first quarter was a use of $15 million, compared to a source of $155 million in the prior-year quarter. While the first quarter is historically our seasonally weakest quarter from a cash flow perspective, due primarily to incentive compensation, there are several key impacts I'd like to highlight. First, included is a use of $118 million as Hewitt colleagues were transitioned from a September fiscal year end to Aon's calendar year-end incentive compensation cycle. Effectively creating a 15-month payout for 2011 in 2012. Second, cash pension contributions, net of expense, increased $31 million compared to the prior year. And lastly, we continue to operate with elevated levels of invoicing and cash collections, approximately $400 million, related to a temporary delay in invoicing in Aon Hewitt, which began in the second half of 2011 with the conversion of certain audited cash systems. We are making progress and expect this temporary increase to return to normalized levels by the end of 2012. Free cash flow as defined by cash flow from operations less CapEx, was negative $86 million, down from $99 million in the prior year due primarily to lower cash from operations and a $15 million increase in CapEx year-over-year. Turning to the next slide to discuss our long-term financial flexibility. Regarding our underfunded pension plans, we've taken significant steps to reduce volatility and liability as we've closed plans to new entrants, frozen plans from accruing additional benefits and derisked certain client assets. In 2011, we contributed approximately $477 million to our plans and would expect to contribute approximately $541 million in 2012 before any discretionary contributions. Higher contributions primarily reflect the decline in discount rates. We would expect contributions to decline annually beginning in 2013, resulting in fully funded plans on a GAAP basis in 2016. Regarding our restructuring plans, cash payments were $178 million in 2011. Our restructuring plans continue to wind down. We would expect cash payments to decline $31 million to approximately $147 million in 2012 before declining further in 2013. As we continue to grow, improving operating performance and our required uses of cash decline over the next several years, we expect our strong free cash flow growth to be a significant source of value creation for shareholders. As an important step in unlocking that value for shareholders, on April 2, the company completed its change in jurisdiction of incorporation from Delaware to the U.K. We believe the transaction will help drive shareholder value through, number one, providing greater global access to expected increases in future free cash flow; number two, enable us to access approximately $300 million of excess capital held internationally on our balance sheet; and number three, increase future cash flows through a significant reduction in our global tax rate over the long term. In summary, we are positioned for stronger growth in 2012. We have significant leverage through an improving global economy. While we are investing to further strengthen our industry-leading portfolio, we have significant opportunities to continued long-term margin improvement. Our balance sheet and strong cash flow will continue to provide significant financial flexibility. And lastly, we've positioned the firm to effectively manage capital through the announced $5 billion share repurchase program and the recent increase in our annual dividend, highlighting our firm belief in the underlying value of Aon. With that, I'll turn the call back over to the operator and we'd be delighted to take your questions.

Our first question comes from Dan Farrell, Sterne Agee. Dan Farrell - Sterne Agee & Leach Inc., Research Division: Can you talk a little bit more about the margin? I think, obviously, coming in a bit lower than I would've thought. And there's quite a bit of reinvestment going on in the business. And while it's a constant practice to reinvest, it seems that it's running at a higher turn. I guess, talk about how much longer you think that goes on. And then maybe expand a bit more on the revenue opportunities and put maybe some numbers around where you think that starts to ramp and give you benefits.

Well, I appreciate the question. I think the area of investment is obviously an important one for the quarter and really for the next few quarters. As Christa described, it's important you really do understand what we're ramping up in 2012. And if you step back and think about what we are accomplishing with our investments, what we've done with the Aon Broking investment around GRIP and the overall GRIP platform, we believe is actually quite unique. I do want to emphasize, as Christa described, our view is, the Risk Solutions margin will be positive in 2012. So in the end, when we think about these investments in the trade-offs, as we look at margin overall, we look at it on a year-to-year basis. And this is going to get reflected in this year. But step back and think about what we try to accomplish, we want to grow organically, increase margins, increase earnings per share. And we're not just focused on individual quarters. We're going to focus on the year overall, and we are going to take steps to improve the foundation of Aon to the extent we think it can improve operating leverage. These are the kinds of investments we have been making. There have been a number that have been on the traditional side that largely the entire industry has been doing around adding talent. We continue to do that, too. That's affected the quarter. Those will pay off over time. But what's different about this quarter is a specific decision we made for 2012 to ramp up Aon Broking and to ramp up what we're doing with overall GRIP. And this is a very important question. When you think about what we've done, we talked about GRIP, really, for the last couple of years. And what we needed to do, first of all, is understand our flow. So $60 billion plus of flow around the world. We needed to do the analytics behind it, drove that -- by the way, that investment got no monetization, so we didn't get a lot of benefit out of that. Then we had to actually introduce that to our clients around the world and our markets to really prove the concept. And on this call and some individual conversations, we talked about proving concept of GRIP and Aon Broking in 2011. And we believe we've absolutely done that. We've got 25-plus carriers who have actually come online and actually are making use of the data. We've been able to actually launch a D&O program last summer that proves what we can do on behalf of clients. So Dan, we've made specific steps to truly prove the concept around what we've done with Aon Broking. And now, what we're doing is we've decided we're going scale it. And scale up means we're going to make additional investments in technology. By the way, we're going to add the entire Health and Benefits flow, which is another $24 billion of flow. We're adding some geographies. We're making it more automated and we're putting people around it. So we've actually got dedicated teams who are representing the carriers as they come online. So each of the 25 carriers, we've got various versions of dedicated teams that help them do what they need to do, to actually better match their capital with our clients. And the reason I'm taking a bit of time to make the point is, this is a fundamental difference in the type of investment that I think has been made across the industry. We believe is very substantial for Aon and that it improves our operating leverage, but it also strengthens our client-serving capability. In many respects, if you think about what we were able to accomplish in 2011, we got quite excited about what we were able to pull together and realize that in our order to actually roll that out, we needed to ramp up. And that's, if fact, what we've done. It's important again -- a lot of times when people actually bring people online or brokers online, they're talking about a multiyear payback. We know what this payback looks like. We know what the pipeline is, we know the revenue potential, we know the cost to ramp up and support. By the way, we know there's going to be headwind as we ramp up, but we also know in the context of that there will be positive margin for the year. And what we're going to have in the end, is we're going to have positive margin, but we're also going to have a platform in place that is best-in-class around data and analytics with now over $80 billion of flow. We've got revenues from carriers, who get great value to serve our clients. And we're going to get higher yield per dollar premium play. So for us, this is an opportunity to ramp up something that we've actually been working on for quite some time, and you'll see benefit in year. We could basically absorb the kind of proof phase of this, if you will, for the last couple of years, but we're not going to be able to absorb the ramp-up piece. But we're quite confident about what the overall benefit's going to look like for us and what it's going to mean for you. So that's the difference. Dan Farrell - Sterne Agee & Leach Inc., Research Division: Just one quick follow-up on the Consulting side and the amount of investment going in there. Can you put a number around the revenue opportunity from the health care exchanges that you're making investment in because, obviously, there's probably not much, if any, revenue yet?

Well, I'd say and I would contrast, by the way, you asked the question quite appropriately on investments. What we just described on GRIP is different than what we're doing from the health care exchange stand point. That's actually got a bit more of a lead time. We're putting in place a whole series of things that actually will launch these exchanges, both looking at the corporate side and on the retirement side. And so it's going to take a bit more time, but we see this as a fundamental opportunity. This, again, if you think about what's different around Aon Hewitt from when we actually brought the firms together, one of them is a very explicit decision to invest the better part of $75 million over the course of the couple of years in these exchange arenas, which we think are going to be quite beneficial for our clients and quite beneficial for our shareholders over time. But the lead time is going to be longer.

And in terms of the revenue, Dan, I mean we will see revenue in this year on the retiree exchange and the corporate exchange will sort of ramp up. But we see the return on this investment being one of the highest across the business, which is why we've made such a large investment.

Next question, Ray Iardella, Macquarie.

A couple of questions here. I guess first, maybe you can talk about a little bit about investments in people. I think you guys have called out key investments in talent in the past couple of releases. And certainly, you know with some of the initiatives like GRIP, you certainly need additional talent. And I know you pointed to Asia on the Brokerage side. But when does that translate, I guess, the talent translate into more revenue growth?

Well, so a couple of aspects on that. As you think about -- we've been investing in talent, and we'll continue to do so, over time, particularly as described in Asia and Latin America and the high-growth areas around the world. And we see opportunity with the talent investments on this coming end of 2012 and in 2013. But I want to contrast that with the people investment we're making in GRIP. Those investments we're making as we ramp up, we see benefit in 2012, with very clear line of sight of where that's going to come from. And again, I contrast that. And the reason I'm spending a bit of time on this, it's important you understand the nature of that investment around building the technology platform, putting it in place, bringing it in front of carrier, potential carriers, having them actually buy into it and come online, gives us very clear confidence in sort of what it means to ramp that up and get benefit out of that. And we see that from a people investment in '12. And then the others are the more traditional. So it's essentially adding 300, 400, 500 people across Latin America and Asia because we see big opportunities and that's going to take a bit more of time to play out.

And we certainly see the revenue from these coming in Q4 and we see the investments ramping down in Q3.

Okay. And then maybe on the HR Solutions side, similar commentary. I mean, is it back half of 2012?

Yes. Well, what we would say is, and I did say, that we expect that operating income is going to be down modestly year-over-year in Q2 and Q3 and flat in Q4 before growing in 2013. And really, the investments we said were going to be $40 million in 2011 and an additional $35 million in 2012. And that $35 million is really front-half weighted because we do see revenues coming in the exchange business in Q4 because it ties with the annual enrollment cycle, which is at that time period of the year.

It's almost as if you think about, literally, the series of investment ARS, Aon Benfield are ahead of where Aon Hewitt is. Aon Hewitt has come online, we've actually now -- we've got a clear sight of what we think we want the portfolio to look like, where we see the investment opportunities to be. Those play out a bit longer term, as Christa just described. And the others are going to yield benefits much sooner because, frankly, they're in a -- we've actually had a bit more time to work with them over the last few years.

Okay, that's helpful. And then maybe going back to GRIP a little bit, I guess one of the things that I struggle with, I certainly understand the benefits of the GRIP platform, but towards, I guess, larger insurance carriers. But maybe can you talk about the value proposition that you offer towards smaller insurance carriers because I think that really makes up the majority, I guess, of the carriers around the world?

Well, this is, again, the opportunity really is, it's carriers around the world, it really is about how we align their capital and where they want to place it with our flow around the world. So again, obviously, nothing's ever guaranteed. But to be able to match their interest with our flow is an incredibly powerful thing. So if you're a carrier virtually of any size around the world and you have a view on where you want to invest and how you want to invest, what GRIP does is enable you to actually get access, get exposure, get true connection to our flow in a way that you can actually apply your capital and win business. And we've actually, as we talked about proving the concept, we've actually worked with large carriers and medium-sized carriers both. And just for reference, proving the concept, 25 carriers is what we talked about. We work with over 2,000 carriers around the globe, so this a very large percentage. We absolutely don't believe that all of them are going to engage in this, nor do we want them to, nor do they need to. But we believe the opportunity is substantial, really, if you're a large carrier, a medium-sized carrier or small carrier.

Next question comes from Adam Klauber, William Blair. Adam Klauber - William Blair & Company L.L.C., Research Division: On the Consulting business, for margins to turn around 2013, do you need more than flat to 2% revenue growth?

No, Adam. What we're really looking at occurring 2012 to 2013 is the ramp-down of the investments and the ramp-up of the savings. And those 2 things will put us to operating income growth in 2013. Adam Klauber - William Blair & Company L.L.C., Research Division: Okay. That's helpful. And then as far as GRIP, I mean, from what I've been hearing it's actually been very successful. Revenues, which you haven't disclosed, but from what I've heard they're at least north of $100 million and maybe materially more than that. I'm not asking you to validate that, but why isn't that more margin accretive if the revenues are becoming substantial? And then number two, because it has been very successful, at some point, will you give us an idea what the revenues are?

Yes. I think as we said back, again, we wanted to be -- we want to first be very careful in terms of how we put items in place that will actually improve our ability to serve our clients, which GRIP does. Support our markets and our carriers, which GRIP does. And as we said before kind of proving the concept and making sure that we could provide value to both those constituents with very sophisticated large carriers, medium-sized carriers and carriers around the world, is exactly what we wanted to do. Obviously, for competitive reasons, I know this is going to be pretty sensitive in terms of sort of how we think about this. But over time, we, as we said before, are doing this because we think it gives us a fundamentally better platform. These analytics help our clients very substantially and the markets very substantially, and it improves our operating leverage. So in essence, if you think about sort of our ability to improve margin, as Christa described before, on lower levels of growth, we believe, quite strongly, that GRIP will help us do that. And so why isn't it showing up in 2012, if that's the case? And this is really the ramp-up. So this is a fundamental decision taken by Aon and its leadership team over the last couple of years to invest behind what we believe is a unique data set in the world today to operationalize it and actually get it in front of clients in a way that we can actually monetize it. It's taken us a period of time to do that. By the way, I wish we would have -- I wish we could have done it faster and we could have done it in months instead of a couple of years, but it's taken that time to actually pull all this together. And what you see now is the ramp up and that's really the first 3 quarters. But we also want to highlight, maybe, slightly different in most "investments" that are made sort of in the brokerage world in which you bring in a broker and talk about an 18- to 24-month payback. We know what this looks like and we said we're going to have positive brokerage margin in 2012, which highlights sort of how this could be accretive. Adam Klauber - William Blair & Company L.L.C., Research Division: Okay. And one follow-up question. As far as organic growth in the Risk Solutions business, Americas was up. Is part of that driven by the U.S. doing better with better rate and exposure? And given that rate and exposure seems to build, would you continue -- would you expect that to continue to do better throughout the rest of the year?

Yes. I would say, first of all, Americas is up 4%, international is up 4% and we feel good about -- we always want to grow more, but we feel good about this from the standpoint. When you think about our European book, which is very, very substantial for us, disproportionately substantial -- and by the way, the renewal for that is about 50% in the first quarter. So that had a bit of a drag, when you think about all the things that are going on in Europe. Although our European colleagues did a remarkable job. Then the Americas, as you said, up 4%. U.S. was not really impacted by the market. We had minimal price impact in the U.S. It was really management of the renewable book and what we've done with Client Promise and a number of other things that's really helped us. We looked at something called rollover, which is you keep the client, literally, what happens to the revenue in the context of that. And that improved -- that's really what helped us. New business was roughly flat across the board. Retention was strong, rollover was up and it was really driven by management actions here more than it was the overall market. We think we've got a lot of leverage still out there to GDP pricing improvement, if it shows up over time, but we didn't see it as much in Q1.

Next question, Jay Cohen, BofA Merrill Lynch.

Just a couple of questions. I guess on the HR Solutions business, so the guidance seems to have, I guess, come down a little bit for this year relative to what you've talked about last quarter. And I'm wondering what changed in the last 3 months to cause that?

Yes. Jay, there are really 2 things that changed. We transferred $26 million of savings to the Risk Solutions segment related to Health and Benefits and we have a slightly more conservative view on discretionary spend for project-related revenue. And so we'd now expect operating income to be down modestly year-over-year, whereas -- I did say in Q4 that we thought it will be up modestly year-over-year. And we certainly believe that it will grow in 2013 as the investments ramp down and the savings ramp up. And we improved the core business performance.

But the transfer of the savings, you kind of knew about before?

Yes. I mean, I think as we sort of -- as we transfer that business and allocated the savings, I think it's really sort of $26 million of the savings were delivered in Q1 and I think we've got an incremental $26 million of savings that are going to come through. And so I think having seen the savings come through in Q1, I think it's just giving us a better clarity to the amount of savings that are going to happen related to the Health and Benefits business.

I would highlight, Jay, as Christa said, the savings came over, so I think they're going to show up throughout the year. But this has not been a trivial exercise. It's $720-plus million of revenue that moved over. We weren't sure exactly sort of what specific pieces. We now have much more clarity on exactly what it means to the penny that sort of bring this business over. So that's really what we actually -- we upped. I would reflect, as you step back, really I think to the core of your question is, how are we feeling about the business long term? And I would say, that remains unchanged. We've got sort of timing and movement in the middle. There have been some deal model changes around H and B, in which we made a decision, as Christa described, core business we've talked about. But long term, we feel very positive about where we are with Aon Hewitt and how's it evolving over time. And again, this is -- you can look at the movie, go back and look at what's happened in Aon Benfield, go back and look what's happened -- and see what we're doing with GRIP now and what we're doing with Aon Risk Solutions. Aon Hewitt's sort of the next in the line and we see that progressing. There'll be puts and takes, but we see it progressing very well.

Great. And then the other topic is, on the Risk side. I guess, what's a little frustrating is that you guys did a really great job of improving margins over many years in what was a horrendous environment. And the environment certainly feels a lot better. So of course, the expectation has been you would see much more significant margin improvement when this environment has finally arrived. But you've been investing all along. Is [ph] the investment incrementally higher, could you say you were under investing for a couple of years in retrospect? I guess, can you address that frustration that people have?

So I first of all, Jay, fully understand the frustration and sort of, particularly, quarter-to-quarter movement and margin improvement. And I would ask you to do the following. Step back, think about sort of how this has worked over time, sort of on the Risk Solutions side, 320 basis point improvement from 2007, a 500 basis point improvement in 2005 against the headwinds that you described. In that context, we invested a lot. By the way, we also had a lot of restructuring savings that we could absolutely absorbed. As those wound down, we still have some left. We took full advantage of that, in our view, invest more heavily in the business than we think probably anyone in the industry. And in fact, it didn't show up in quarter-to-quarter, it shows up over time. The biggest investment we've made sort of outside of the traditional adding talent is the investment in growth. And what you're really starting to see is the confidence we've got to ramp that up. And what we're essentially saying is, that ramp-up happens in '12 and yet you're still going to see margin improvement in '12, even with that ramp-up and then you're going to see substantial operating leverage in '13. So I understand your frustration quarter-to-quarter, but I'd ask you to step back and say, in the end, when you get done with 2012, we're going to have GRIP basically ramped up; Aon Broking fully online, a platform which is, we believe, fundamentally higher leverage platform from an operation standpoint than anything we've ever had before; client-serving capability that we think is going to be stronger; and our ability to connect with markets and generate revenue streams to support markets, which is also stronger and unique. And while we'd always love to produce quarter-to-quarter, we will take that trade to get to that position for 2012 and establish 2013 to '14. It's just something that we're going to do to build our firm long term.

And Jay, I'd say as we allocate capital, we think about return on capital as the right metric. And as the growth prospects improve in our business, the return on capital of these investments also improves. And therefore, we're actually investing more. And so I think that's what you're really seeing in this calendar year.

Next question comes from Brian Meredith of UBS.

Two quick questions here for you. First one, Greg, I was hoping -- or Christa you could talk a little bit about the impact of the price competition in the Benefits Administration business on your organic revenue growth. Kind of what you expect it's going to be going forward, as well as on margins? Kind of what's the headwind from that?

Yes. Brian, we continue to see pricing competition in the Benefits Administration business. It's exactly in line with what we originally modeled when we did the deal, and it's been fairly consistent over the last 3 years. It hasn't got materially better, but it hasn't got materially worse. And so what I would say is, that is absolutely impacting core business performance, and we continue to talk about that. The other thing I would say though is, project revenue, which is high-margin revenue, is not offsetting this. And that was one of the things we had originally anticipated to offset this pricing competition. And so I think that's really sort of the impact in this calendar year that's different from what we had originally modeled.

When do you anticipate project revenue to start picking up again?

I think we would expect that it correlates with the economic growth, it correlates with M&A and we would expect that to occur Q4 and 2013.

In many respects, Brian, if you think about where we are, this is no different than the question, is there a competition in Aon Benfield for our treaty business? Is there competition in Aon Risk Solutions for large corporate arenas, et cetera? These are the things we do every day. There is definitely price competition, it will always be there. We're going to always come back and go to the market around Aon offering that we believe is highly value-oriented and highly value-based. Our objective is to deliver more value per dollar than anyone else. That means we should have a price premium. We have to support that price premium with real value. And that's really what we're working through with our team and they're doing a great job at sort of reacting to the market and coming back with different ideas and perspectives. The good news about this sector, just like it is on the Risk side, is you step back and say, fundamentally, is there real client demand. Our client -- do clients need to actually do something about health and benefits growth, cost growth that shows up in their P&L every year, and the answer is yes. Do they need to do something about pension, and pension challenges? Yes. Can you do something about the talent side and the rewards side? Yes. So we see client demand high, competition similar as we see across our businesses and it's our job to react to it and deal with it.

And then second question, Christa, can you talk about when should we start seeing the benefits in your tax rate from the redomestication? And maybe give us some numbers around, potentially, how much?

Yes. So Brian, we've said we expect significant reduction in the global effective tax rate over the long term, and we've said that is similar to what we've achieved over the last 5 years, which is really a sort of a 500 basis point reduction and in line with certain global competitors. And we do expect the global effective tax rate for calendar year 2012 to be 28%.

Okay. And then -- but the 500 basis points should be coming off of 2011 tax rate, right?

Correct. And it will happen over the long term, Brian.

Next question comes from Yaron Kinar, Deutsche Bank.

Maybe to follow-up on Jay's question earlier on the Risk Solutions side. So granted looking backwards, there's a bit of a frustration, which I'm sure you feel as well. But frustration also sometimes breeds some concern. Looking forward, I understand that the investments in GRIP will slow down, but clearly, you're not going to rest on your laurels, you're going to look for further improvements and further investment in the business. So how should we think about margins as new initiatives come around? Should we still expect kind of the 26% target to be intact? Do you have any ideas as to how much time it would take to get there with continued investments?

Yes. Listen, the 26% next step that we've described -- by the way, in the next step of our evolution on the margin side is in full force and we have absolute focus on achieving it and aim to improve operating margin, risk margin every year until we get to the 26%. Then we'll come back and talk to you about sort of where we are from there. But we, Yaron, see, really, the investments we're making this year and what we're able to do in GRIP, actually, in our view, increases the probability substantially. I think we're marching our way toward 26%. And we've essentially said irrespective of market conditions, irrespective of investments over time. Repeat that, market conditions and investments over time, we're going to get to a 26% margin. If you go back and look at our history, what we've been able to achieve, we'll see how 2012 plays out and where we are in 2013. But I want to emphasize 26% is the next step in the journey. And we think -- what we were able to achieve in 2011, we're actually quite excited about in terms of the opportunity, and excited about how it's going to play out in '12 and set the stage for '13 and '14.

And we would say, Yaron, that on the journey's 26%, the single biggest contributor to it is the Aon Broking initiative and the investments we're making in GRIP. And so that's why we feel so confident about getting to the 26% margin.

I mean one of the things I would say is, if we were -- one, we're backing off. You'd say we made these investments, let's see what happens. We essentially say we're ramping up these investments and we're going to get margin improvement in 2012. The and there is quite important.

Okay. And then on the Consulting side, clearly, you're making a lot of investments in the health care exchanges as well. What happens if in June, the Supreme Court ends up repealing or deciding that the mandate is not constitutional or anything of that nature? Does that affect the timing of revenue ramp-up? Does it affect the magnitude of revenues that you expect coming in?

Yes. I think, in the end -- you never know exactly how this is going to play out and what decisions are going to get made. We come back to the fundamentals. And the fundamentals here are, literally, is there going to be health care out there? Yes. Is there going to be a need for companies to play a role in that in helping their employees? Yes. And will there be a big need for advice to increase that we'll have to ramp up as employers are trying to navigate in the new world? And we think in almost every case, the answer to that is yes. That's going to be very, very positive from that standpoint. And we don't believe the Supreme Court ruling is going to have a material impact on the business overall. It could affect the timing, plus or minus. But overall, we think the majority of what we do for clients continues to stand, irrespective of the outcome of the overall decision.

Next question comes from Matthew Heimermann, JPMorgan Chase. Matthew G. Heimermann - JP Morgan Chase & Co, Research Division: I guess, a couple of clarification questions. One, just on the -- thinking about buybacks for the year, you gave guidance in 4Q, when you reported 4Q in early February. Previously, you'd made a comment that once the deal closed, you get access to $300 million of international cash and that could be used for buybacks. I just wanted to make sure that, in fact, the plan still was to use that $300 million and just -- is it fair to think about kind of a 12-month time horizon in terms of potentially, incrementally laying that into your buyback expectation?

Yes. So for 2012, we had said that we do approximately $100 million in Q1 and $150 million per quarter from Q2 to Q4, with potential for the $300 million of additional purchase using the excess capital in the balance sheet. And there is no change to that guidance. I don't think it's in our best interest to provide specific guidance on the timing. But it is worthwhile saying that any incremental use of cash flow or excess capacity, including the $300 million of cash held internationally, will be evaluated and allocated on the highest return on invested capital. And we continue to believe that share buyback is the highest return on capital across the firm because we look at the long-term growth prospects for Aon and we have an internal valuation, which is substantially higher than where we're trading at today, and we will be opportunistic about taking advantage of that. Matthew G. Heimermann - JP Morgan Chase & Co, Research Division: Okay. Well, just, I guess, without telling, I'm not looking for quarter per se, but if the stock trades here, let's say, over the next 12 months, is 12 months a reasonable time frame if that's your highest return on capital option?

Yes. I mean, again, we're not going to provide specific timing and guidance. But of course, if it's our highest return on capital, then we will take advantage of any opportunities. And history's a very good guide of future behavior. Matthew G. Heimermann - JP Morgan Chase & Co, Research Division: Well, it just kind of sound -- it sounded when you talked about it before like it was a no-brainer, it would happen. The way talked about it now makes it sound like it's a little bit more. . .

I would go back to what I said before, which is there is no change in guidance. Matthew G. Heimermann - JP Morgan Chase & Co, Research Division: Okay. Other question I had was just in the reinsurance business. Could you maybe give us a sense of what's happening in the treaty growth side property versus casualty? And I guess the reason I'm asking is, you made a comment about retention cutbacks being a headwind, and I'm just -- my suspicion would be that, that might continue to be more of a casualty issue than a property issue, but just any color there would be great. And also just whether or not capital markets was incremental to the quarter or not?

Yes. So Aon Benfield as we described drove 5% organic for the quarter, which is the best we've done in quite some time. The real -- when you think about that overall impact, market impact was a piece of it, but it was relatively smaller, very low single digits. By the way, it was a bit pricing but also by retention as we described before. By far, the biggest impact on the quarter was the treaty book. So it wasn't fact [ph], and it wasn't capital markets, it was the treaty book. And it was really new business over lost business from that period of time. And that's really what drove the growth of the quarter. If you think about the property book for us about 70% of the book overall and the new business is really all from properties. We've thought about sort of what we've done and the team's just done a great job. Really, as we brought the firms together and described, before -- essentially, the first year was sort of clients really couldn't react because we were so close to the renewal deadlines in 2009. 2010, they kind of did their adjustments. 2011, we really saw the beginning of the ramp up. Where we were winning more and more new business. And what you saw this quarter was not really market, as much as it was new business generation. Matthew G. Heimermann - JP Morgan Chase & Co, Research Division: Okay. And then any -- on the loss side, how are retention trends year-on-year?

Yes. Retention trends have been very, very good year-on-year, in fact, increasing and really has been one of the issues we've had to deal with. So as these prices gone up and retention has sort of burned back about half of that when you think about sort of what we're looking at for the quarter overall. Matthew G. Heimermann - JP Morgan Chase & Co, Research Division: Okay. That's helpful. And just can I get the ending common share count?

Say again?

Yes. Share count, hang on just a minute. So share count as at March 31 was 326.4 million.

Next question Meyer Shields, Stifel, Nicolaus. Meyer Shields - Stifel, Nicolaus & Co., Inc., Research Division: I think the specificity that you're giving in terms of the expense is helpful in alleviating the frustration everyone's been talking about, so I'm going to push for little bit more. I guess over the past few years, you've had the investment expenses associated with building GRIP. In addition to the ramp up now, should we expect that former category to ease up in 2013?

Yes. In fact, great question. Literally, this has come online. If you think about what you have to do, you step back and basically realize you're running on top of the better part of $60 billion of flow, didn't really know exactly how it'd come together and how it would fit and how you could actually bring it to the marketplace. So there's a set of analytics that, again, you don't really get a chance to monetize, as you pull that together, you just absorb that. That's substantial, but not as substantial as the ramp up. And then you actually take it to market. You prove the concept for 25 markets and you prove the concept and being able to actually offer different panels and offerings in the market place, which we did last summer. And then you basically say then we need to ramp it up, which is the final set of technology investments to broaden it. By the way, one of the reasons we brought the Health and Benefits business over is we literally give a chance to bring now the $24 billion of Health and Benefits flow into this fold, which is fantastic. And we're now working on doing that, expanding it more globally and then adding the people around it. But to your specific point, once that's done, we've got the platform in place. And the costs associated is much more variable with the additional revenue that comes with that. So again, it's back to the opportunity here to both strengthen our client-serving capability, strengthen how we link to the markets and, very important and, improve operating leverage in the business. Obviously, we don't give guidance here in terms of what this is going to be, but we see real opportunity in terms of sort of what it's going to create for us overall. Meyer Shields - Stifel, Nicolaus & Co., Inc., Research Division: Okay. Any chance I could ask for -- not so much guidance, but what the annual investment expense run rate has been?

Well, we said before, we really -- it's really part of the overall program. We don't give it out and break it out specifically. What we would come back and say is, the way you hold our feet to the fire is you look at brokerage margin year-over-year and that's we've got to include in our increase. And margins have been up substantial. If you think about sort of what we've been able to do over the last few years, and we have very high expectations on what we're going to be able to do over the next few years with this one opportunity. Meyer Shields - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And if I can drill down into one comment in the press release, where you talked about reduced retirement discretionary spend in the quarter. I guess, that surprised me because I didn't know that pension deficits were getting better. So if you could talk about what, maybe, macro factors are impacting the retirement revenues.

Yes. So as we think about our retirement consulting business and the transition from DB to DC, then there really is a decline in that sort of actuarial business, which is being offset by the investments we're making in investment consulting. And that is why we're making the investments in investment consulting because it's a very high area of growth to help clients navigate, managing pension risk and thinking through their portfolio and their unfunded liabilities and managing that volatility correctly.

Our last question comes from Larry Greenberg, Langen McAlenney.

Just to beat the GRIP questions into the ground. Just curious, is it a fair conclusion that you're saying your -- I know you're not giving any specific numbers, but your 2013 risk margin will be higher than it otherwise would have been without this ramp up in investments? And then secondly, does this accelerate the time at which you're going to reach your 26% target?

Larry, by the way, happy to beat this one into the ground as long as you'd like to do because this is certainly something we focus a lot on and it's very important, we think, to the continued progression at Aon. First of all, it does accelerate the movement. This is a step we wanted to take. Again, that improves our client-serving capability, our market-facing capability and increases leverage in the business. And as we said, if you think about it, we're not only going to make investments in '12, we're going to get the ramp-up investments, we're going to get yield in '12. So operating margin, we said, our Risk Solutions margin will increase in '12. And then in '13, obviously, it'll have a positive impact, perhaps, even a more positive impact in '13 than in '12 because you won't have the continued ramp-up costs. Those will have stabilized and you'll have the benefit.

So yes to both of those, I guess?

Yes.

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

I just want to thank everybody for joining us today. We appreciate your interest in Aon and look forward to our next discussion.