Willis Towers Watson Public Limited Company

Good morning. Welcome to the Willis Towers Watson's Second Quarter 2020 Earnings Conference Call. Please refer to willistowerswatson.com for the press release and supplemental information that was issued earlier today. Today's call is being recorded and will be available for the next three months on Willis Towers Watson's Web site. Some of the comments in today's call may constitute forward-looking statements within the meaning of the Private Securities Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties. Actual results may differ materially from those discussed today, and the company undertakes no obligation to update these statements unless required by law. For a more detailed discussion of these and other risk factors, investors should review the forward-looking statements section of the earnings press release issued this morning, as well as other disclosures in the most recent Form 10-K and in other Willis Towers Watson's SEC filings. During the call, certain non-GAAP financial measures may be discussed. For reconciliations of the non-GAAP financial measures, please refer to the most recent earnings release and other materials in the investor relations section of the company's Web site. I'll now turn the call over to Mr. John Haley, Willis Towers Watson's Chief Executive Officer. Please go ahead, sir.

John Haley, Chief Executive Officer, Willis Towers Watson, SEC Thank you. Good morning, everyone, and thank you for joining us on our second quarter 2020 earnings call. Joining me today are Mike Burwell, our Chief Financial Officer, and Rich Keefe, our Head of Investor Relations. In the second quarter, we continue to navigate through an uncertain and unprecedented economic downturn. Nevertheless, I'm pleased with our financial performance. While our results were somewhat impacted by the pandemic, our overall performance reflects the strength, the diversity, and the durability of our business model. In many of our core businesses, we continued to see new business generation, strong retention rates, and increased operating leverage. We also reduced our controllable spending and improved our liquidity through prudent cash flow management. I'm extremely proud of the work we've done to build the company's operational resilience and strong balance sheet, both of which have provided a foundation for long-term sustainable growth. Before delving further into our second quarter performance, I'd like to give a brief update on a couple of important topics. During our last earnings call, I talked about the COVID-19 crisis and the measures we have taken to mobilize and mitigate the risks to our colleagues. Now, we're taking what we've learned from the global pandemic to work together even better and are reimagining our workplace and our work activities. This is no longer about reacting to the COVID-19 situation. It's about proactively using the experience of the last few months to create a more flexible, agile future. We want to leverage and enhance what we've learned to explore how we can work differently. And we want to ensure we maintain the key elements of our culture that keep our colleagues engaged and inspired. A working group that includes leaders from across the company has been convened to plan for this next phase of our journey. Their work focuses on reimagining our workplace across core themes, including collaboration, learning and development, and external stakeholder engagement. I continue to be impressed with the agility of our colleagues and their commitment to clients and each other in the wake of this global pandemic. Against the rapidly evolving backdrop of the last few months, our colleagues around the world quickly embraced the immense amount of change spurred by COVID-19 and remained resolute in providing excellent client service. Likewise, our colleagues have rapidly embraced the prospect of the Aon combination and are generally enthused and looking forward to the many opportunities that lie ahead. On July 8th, we filed our definitive joint proxy statement. I'm sorry. On July 8th, we filed our definitive joint proxy statement in connection with the proposed combination with Aon. We've continued to work towards obtaining the necessary regulatory approvals and consents and will hold the necessary meetings for shareholders to vote on the transaction on August 26th. We remain on pace to close the transaction in the first half of 2021, subject to the satisfaction of the applicable closing conditions. We continue to be excited about this next step in our evolution and about the overall future of this industry. We design and deliver solutions that help manage risk, optimize benefits, cultivate talent and expand the power of capital to protect and strengthen institutions and individuals. COVID-19 has highlighted deficiencies in the way the world approaches risk. These unprecedented times warrant a reappraisal of how companies assess uncertainty and strengthen the rationale for the combination with Aon. We're eager to bring new and innovative solutions to our clients to meet their evolving needs and solve global problems. As a general matter, the COVID-19 pandemic did not have a material adverse impact to our financial results for the quarter of fiscal 2020. However, the pandemic did impact revenue growth, particularly in some discretionary lines, and we expect that the impact of COVID-19 on general economic activity could negatively impact our revenue and results for the remainder of 2020 and potentially even longer. So now let's move on to our quarter two 2020 results. Reported revenue for the year two 2020 results were $35 million in revenue in the first quarter of 2020, up 5% on a constant currency basis and flat on an organic basis. Reported revenue included $35 million of negative currency movement. We experienced good financial performance in areas where we have a well established market position, mature relationships and annuity or compliance driven business. We didn't perform as well in areas where our revenue is tied to discretionary projects. Our clients are facing tough times and making difficult decisions. In that context, initiatives that are aimed at reducing costs and risk are higher priorities. We continue to work with our clients to find practical solutions for these challenges. Net income was $102 million, down 32% for the second quarter as compared to the $149 million of net income in the prior quarter. Adjusted EBITDA was $441 million for .9% of revenue as compared to the prior year adjusted EBITDA for the second quarter of $425 million or .8% of revenue, representing a 4% increase on an adjusted EBITDA dollar basis and 10 basis points of margin improvement. For the quarter diluted earnings per share were 72 cents, a decrease of 32% compared to the prior year. Adjusted diluted earnings per share were $1.80, reflecting an increase of 1% compared to the prior year. Overall, it was a solid quarter. We grew revenue and adjusted earnings per share and it had enhanced adjusted EBITDA margin performance. Now let's look at each of the segments in more detail. To provide clear comparability with prior periods, all commentary regarding the results of our segments will be on an organic basis unless specifically stated otherwise. Segment margins are calculated using segment revenue and they exclude unallocated corporate costs such as amortization of intangibles, certain transaction and integration expenses resulting from mergers and acquisitions, as well as other items which we consider non-core to our operating results. The segment results do include discretionary compensation. The human capital and benefits segment revenue was down 2% on an organic and constant currency basis compared to the second quarter of the prior year, primarily as a result of a decline in demand in our talent and rewards business. Talent and rewards revenue decreased 19% with the uncertain economic conditions related to COVID-19 having created cost constraints and affecting workforce dynamics at many companies dampening client need for advisory work globally. The decline was partially mitigated by modest growth in HCB's other businesses. Our health and benefits revenue increased for the quarter. In addition to strong client retention, we had an increase in consulting assignments in North America as well as new global benefit management and local brokerage appointments outside of North America. Retirement revenue increased nominally mainly as a result of an uptick in funding advice and guaranteed minimum pension equalization work in Great Britain. Technology and administrative solutions also increased in Western Europe and international attributed to increased project work. Despite the shortfall in revenue, HCB's operating margin decreased by just 20 basis points compared to the prior year's second quarter and that was as a result of careful cost management efforts. We remain confident about the long-term prospects of our HCB business. Employers experienced unprecedented and significant changes to their ways of working in 2020. Our clients are facing many new challenges as they make plans to restore stability. HCB's experts remain prepared to help them rethink their human capital efforts and employee benefits in the wake of COVID-19. Now let's look at corporate risk and broking or CRB, which had a revenue increase of 4% on an organic and constant currency basis as compared to the prior year's second quarter. North America's revenues grew by 9% in the second quarter from new business wins alongside favorable rates. International and Western Europe's revenue increased 8% and 1% respectively driven by new business and strong renewals. Great Britain's revenue declined 5% for the second quarter, primarily due to a decline in marine and retail activity that was related to COVID-19. CRB revenue was 701 million this quarter with an operating margin of .2% compared to 690 million of revenue with an operating margin of .2% in the prior year's second quarter. The margin improvement was a top-line growth alongside cost containment efforts. This year has been and will continue to be an extraordinary time for the insurance industry. CRB is committed to keeping our clients fully informed about what they should expect and how to plan for the uncertainty they're experiencing. Turning to investment risk and reinsurance or IRR, revenue for the second quarter increased 1% to 413 million and increased 2% on both a constant currency basis and organic basis as compared to the prior year's second quarter. Reinsurance with a growth of 6% continued to lead the segment's growth through a combination of new business and favorable renewals. Insurance consulting and technology revenue was flat as growth in technology sales was largely offset by declines in consulting projects. Investment revenue increased 1% with the continued expansion of the delegated investment services portfolio. Our wholesale business was up 1% on an organic basis mainly from new business widths. IRR had an operating margin of .7% as compared to .9% for the prior year's second quarter. This improvement reflects top-line growth alongside the scaling of successful businesses. We continue to feel good about IRR's growth trajectory. IRR's portfolio of offerings provides clients with the information needed to make strategic decisions in this uncertain and dynamic environment. We have a deep understanding of risk and all the ways it affects capital and organizations' financial performance. Our core focus is to provide clients with a superior understanding of the risks they face and then advise them on the best ways to manage the risk extreme outcomes. Revenues for the BDA segment increased by 66% on a constant currency basis and decreased 3% on an organic basis from the prior year's second quarter. The growth in reported revenues was driven by TransAct which contributed 87 million to BDA's top line. The decline in organic revenue was primarily due to a shift in timing in our individual marketplace business. The decline was partially offset by benefits outsourcing increase in revenue which was largely driven by its expanded client base. The BDA segment had revenues of 209 million with a minus .2% operating margin as compared to a minus .1% in the prior year's second quarter. The margin improvement was primarily driven by the top line growth. We're optimistic about the long-term growth of this business. In the COVID-19 era, sustaining health benefits is more difficult than ever. BDA's solutions empower employers, employees, and retirees to navigate the changing world of benefits through a tailored integrated experience that combines consulting expertise with innovative technology. Overall, I'm pleased with our progress. We delivered steady financial performance across most businesses, modest margin expansion, and adjusted EPS growth all while adapting to the rapidly changing global environment. Now, I'll turn the call over to Mike.

Thanks, John. And I'd like to express my gratitude to all of our colleagues who have shown remarkable resilience as they've continued to collaborate by our virtual means and operate effectively through this challenging environment. The second quarter was unlike any other we have seen. I'm extremely proud of our team and our performance. The results demonstrate the durability of our business model and the agility of our colleagues to not only adapt to rapidly changing conditions but to continue to deliver for our clients while also producing solid financial results. The second quarter was challenging, but we are reassured by the demand for our services and solutions, for our ability to reduce discretionary expenses and to manage our cash and our team's overall creativity. We're pleased to see continued overall revenue and underlying adjusted EPS growth and robust free cash flow growth. Now, I'll turn to the overall detailed financial results. I'll start with income from operations. Income from operations for the second quarter was $163 or .7% of revenue down 90 basis points from the prior year second quarter. Income from operations of $176 or .6% of revenue. Adjusted operating income for the second quarter was $296 or 14% of revenue down 60 basis points from $299 or .6% of revenue in the prior year second quarter. Our second quarter 2020 unallocated net expenses grew to $109 million from $58 million in the prior year second quarter. The cost in this category primarily relates to corporate functions and other unbudgeted costs that we don't directly allocate to the segments each quarter, including items such as true ups on benefit and stock compensation expense accruals, incentive accrual adjustments, and E&O on legal settlement items. So, let me provide additional detail on the increase for Q2. During the quarter, we had a lower than normal vacation usage pattern stemming from the pandemic, which required a $12 million vacation expense to be booked within unallocated net. Likewise, we've had some -over-year increases related to timing around incentives, E&O accruals, and business taxes. Now, let me turn to earnings per share. For the second quarters of 2020 and 2019, our diluted EPS was 72 cents and $1.06, respectively. For the second quarter of 2020, our adjusted EPS was up 1% to $1.80 per share as compared to $1.78 per share in the prior year second quarter. Foreign exchange had a de minimis impact on EPS for the second quarter. Our U.S. GAAP tax rate for the second quarter was .2% versus .7% the prior year. Our adjusted tax rate for the quarter was 22.2%, up slightly from the .4% rate in the prior year. The current year U.S. GAAP effective tax rate is higher due to a $35 million discrete tax expense primarily related to an incremental based erosion anti-abuse tax, or BTE, recognized during the second quarter in connection with the temporary income tax provisions of the CARES Act. The temporary provisions of the CARES Act are applicable to tax years 2019 and 2020. Utilizing these temporary provisions, the company will realize a cash tax benefit in 2020 of approximately $40 million. Turning to the balance sheet. As the COVID-19 situation continues to evolve, I believe that we are well positioned to navigate the uncertainty that lies ahead. We ended the second quarter with a strong capital and liquidity position, with cash and cash equivalents of $1.1 billion and full capacity in our undrawn $1.25 billion revolving credit facility. We aim to continue to maintain a strong and durable balance sheet and looking to conserve cash in the current environment by leaning into our cost and efficiency initiatives. We will continue to monitor the situation and intend to take appropriate measures to further reduce cash outflow and preserve adequate liquidity if demand for our solutions or services deteriorates. For the second quarter of 2020, our free cash flow was $593 million versus $287 million in the prior year, bringing our -to-date free cash flow to $550 million, an increase of 201% from the $183 million for the first half of the prior year. The -over-year improvement in free cash flow is due a combination of our cash process improvements, prudent working capital management, and disciplined approach to managing spend. In terms of capital allocation, we paid $171 million in dividends and did not repurchase any shares in the first half of 2020. As a reminder, given certain prohibitions in the transaction agreement in connection with our pending business combination with Aon, we do not expect to repurchase any shares during the remainder of 2020. As Sean mentioned earlier, the economic fallout from COVID-19 generally had no material impact on the company's overall financial results for the second quarter of 2020, but we believe this is not an indicator of its potential impact on the company results for the remainder of the year and beyond. The duration of the pandemic, the full magnitude of its economic impact, and the subsequent speed of recovery remain unknown. Considering this uncertainty in the economy, we previously withdrew our original guidance for 2020. We can continue to be unable to predict the extent of the impact of COVID-19 pandemic. The company will reassess its position once we have a clearer understanding of the depth, duration, and geographic reach of the pandemic. In the meantime, we remain focused on maintaining a strong balance sheet, liquidity, and financial flexibility. The changes brought on by COVID-19 pandemic are and continue to be formidable, but I'm very proud of the leadership and personal sacrifices demonstrated by our colleagues in supporting our clients during these very difficult times. The second quarter results are a direct reflection of the continued support from our clients, our colleagues, and all our stakeholders. Overall, we delivered solid financial performance in the second quarter. Despite the near-term uncertainty in the global market, I remain confident in the underlying fundamentals of our business, and I'll turn the call back to John.

Thanks very much, Mike. And now we'll take your questions.

At this time, if you would like to ask a question, please press star one on your telephone keypad. If you wish to withdraw your question, press the pound key. Please hold while we compile our Q&A roster. Your first question comes from the line of Marcone with Baird.

Good morning, and congratulations to everybody. The performance was better than what we were looking for. It looks like results were very resilient in the face of COVID. Can you talk a little bit about how much of the strong performance this quarter was a reflection of just the way the contracts kind of lay out in terms of how far in advance they're set up and how they continue through the quarter and how we should think about potentially in whichever divisions where we should be most sensitive to potentially a little bit of a drop-off as the COVID impact ends up coming through? And then I have two follow-ups. Thank you.

Sure. And Marc, thank you for the kind comments up front there. You know, as we've spoken about in the past, what we look at at the beginning and the outset of the year, we have, you know, lined the site to, you know, 80, 85 percent of our revenue base for the year. And obviously Q1 and Q4 tend to be outsized quarters for us. But, you know, we feel pretty good about the multi-year arrangements that we have in place, whether they're in our retirement business or the retention rates that we have in our CRB business and re-insurance businesses overall. But obviously in our talent rewards businesses we commented on here where people have more discretionary, you know, ability, you know, we've seen a decline in people taking on those particular projects that we've seen overall. So I think on one hand, we feel very good about, you know, the industry we're in and our line of sight in terms of what our revenue looks like. But clearly, you know, we're seeing, you know, fall off as it relates to those discretionary projects. And equally as it relates to the insurable base overall, you know, as you're not taking on new construction projects or you're, you know, seeing that discretionary activity decline as we've touched on as it relates to the marine business, et cetera, those are the areas that we see that more discretionary view.

Got it.

And with regards to,

you know, the talent rewards, is there a potential for ramping up in certain practice areas like say diversity and inclusion given, you know, the current environment? And, you know, could that potentially be an opportunity as a practice area to scale up?

Yes. Yes, it is. But John, you want to comment on that?

Go ahead. Thanks, Mike. I would just say yes, I think so. And Mark, you know, one of the things we've seen in other downturns, whether it's the early 2000s or the financial crisis or even some of the others since then, if talent and rewards is very sensitive and we can see some of the revenue declines can be reasonably steep in the beginning, it's just as we saw in this quarter in certain aspects of talent and rewards, but it's also an area that can ramp up relatively quickly when times get better. And in today's times, there are really quite challenging talent and reward issues, whether it's diversity and inclusion, whether it's how you handle the pandemic, whether it's how you reimagine work for the future. So I think there's a lot of opportunities for us to scale that up over the coming years.

Great. And then with regards to reimagining work for the future, you referenced this in the beginning, John. Can you talk a little bit more about how you, you know, what potentially we could end up seeing in terms of changes and how that could end up impacting the cost base? And then lastly, you know, it sounds like everything is on track with Aon. Is there anything that you can envision at this point that would set that off or put it off track?

Yeah, so maybe I'll just deal with that first and then I'll come back to the workplace. I mean, frankly, and I think we referenced this in our prepared remarks, what has happened in terms of the economic turmoil that we've had from the lockdowns and some of the other changes that we've seen over the last couple months have really deepened our appreciation for the merger. We see that there's more innovation required and the basic thesis of this merger was, as we said, not about getting bigger but about getting better, but about providing more innovative solutions. And the one thing we've seen over the last few months is the world needs more innovative solutions. So there's, we actually are more excited about the merger today than we were on the beginning of March when we announced it. And frankly, we were pretty damn excited then. So I think that's just been redoubled. In terms of the workplace of the future, I think, Mark, we're trying to take a quite thoughtful approach to what we're doing here. One of the things that means is we don't actually know what the answer is yet. And let me explain about that. We know that we're not going to go back to the pre-COVID world of work, but we also know that we're not going to be, the way we're working today is not the way we're going to be working in the future also. And so it's going to be something in between. And what we're trying to do is understand, I mean, it's been incredible the way our colleagues have embraced working from home and some of the adversity we've had there, but that's not a sustainable way of working. And what we need to do is to figure out what we can do in the future. But we do know working from home will be a bigger part of it. We just don't know exactly how that will play out. There will probably be impacts on real estate, probably impacts on location, but we don't know exactly what they are yet.

Appreciate the wise comments. Thank you and congrats.

Thanks,

Mark.

Your next question comes from the line of Elise Greenspan with Wells Fargo.

Hi,

thank you.

Good morning. Sean, last quarter, you know, you had said in a worst-case scenario, your business could decline in the double digits organically over the proceedings, three quarters. Obviously, the Q2 was much better than that, you know, to the point that you made earlier of the resiliency of your businesses. But now, you know, one quarter in and recognizing there are some lags in some of the businesses, it would seem like that worst-case scenario, even for the back half, is no longer on the table.

So, Elise, thanks for the question. Yes, by the way, I would say just you talked about the resilience of our businesses, and I would say yes, but I would also just comment on, I think Mike mentioned this, the resilience of our colleagues. Just amazing the way they've stepped up during this time. I think, yes, it's, the worst case I was looking at was a decline, I think, during the second quarter and then going into the back half of the year. The one caution I would give to that is the situation is a little bit uncertain with potential second waves, with more and, you know, some of the lockdowns. So, we're still a little uncertain, but I'm nowhere near as pessimistic as I was, or at least I don't worry about the downside as much as I did three months ago,

say. Okay, that's helpful. And then in terms of the talent and rewards business, it sounds like the slowdown there obviously, you know, much very immediate in terms of, what we saw the reaction to COVID. Is that business more pronounced, meaning a greater percentage of HCB in the second quarter than other quarters? I'm just trying to get a sense if that won't be as much of a headwind in the third or the fourth quarter, just either percent of business.

No, we don't expect it. If there's a bigger impact from it, it won't be because of concentration of TR. I mean, it could be that as you go longer into some lockdowns, you get more projects canceled, but it's not a concentration issue.

Okay, that's helpful. And then in terms of the Aon transaction, you guys have laid out closed for the first half of next year, which we affirmed, I believe, in your opening comments. Can you just, you know, from your side of things, give us an update, where do we stand with the regulatory process or, you know, things about what you thought, you know, we would be at this point recognizing it's still a ways away from the deal closing and just, you know, what are kind of next steps in the regulatory process from a timeline that you could provide?

Yeah, sure. So as you know, there's several global antitrust filings that are required in connection with the transaction. And the specific process that we have to do varies by jurisdiction. But we're still planning to submit all of our required filings in the various jurisdictions. And we expect to have clearances in the first half of 2021. I will say, you know, this is a complex undertaking, but there's nothing that has happened so far that has been any surprise to us. And we're continuing to work with the regulators cooperatively. So, you know, we have no change to our plans as to when we expect to finish

it. Okay, that's helpful. One last question on that unallocated line. I appreciate the added color this quarter, just given the volatility there. Mike, just given what you know now, is there anything that we should be thinking about that could artificially inflate those kind of corporate non-segment expenses in the back half of the year?

No, Elise, I don't, you know, we don't see that to be the case. No.

Okay, thank you. Appreciate all the cover.

No problem.

Your next question comes from the line of Dave Stieblu with Jefferies.

Hi there. Good morning. And thanks for the questions. I know you guys are not providing full year guidance, but I was just curious if you had a sense of some of the key levers within there that really will affect the outlook, you know, starting maybe on the organic growth side. And obviously you guys are up 2% year to date. At this point, how much visibility do you have to the back half of the year, and are you expecting that to turn negative for the rest of the year as the delays kind of on the working side come in and then discretionary spend on consulting remains under pressure? And then maybe you can give us some color about the expense initiatives you've undertaken. I imagine you guys are probably pretty quick to ratchet down expenses on the T&E side, so forth. But where do you see those trending over time? And at the end of the day, is it reasonable to think that you guys can roughly maintain an EPS that's comparable to what you had in 19 or are there other major factors that we should be thinking about that?

So Dave, thanks for the question. I mean, I guess, you know, I'll try to give you a little bit, but it's going to be difficult. I mean, the reason we pulled the guidance was for that very reason in terms of making those estimates. You know, on the revenue side, I guess I'd really go back to John's earlier comments of what he said. You know, I mean, he was more pessimistic as it relates to the second quarter, but feeling better as it relates to the top line for the full year. But it's just difficult to predict, I mean, in terms of what's happening. Obviously we have line of sight to, you know, as I say, a lot of our business in terms of, you know, renewals, whether that be and have a great line of sight. We're seeing greater retention activities going on in our business, particularly on our CRB business. You know, we're seeing the insured base going down. We're seeing rates come up a bit. And obviously we're seeing retention rates going up, you know, we're getting smarter and more creative in terms of how it is that we work and propose on new business and doing that remotely. And that's across all our businesses overall. So on the top line, I guess I'm trying to, you know, again, there's a reason we pulled the guidance and, you know, is give you as much color as we can, you know, again, about what our recurring revenue base would be, picking up on John's comments and what's that look like from a revenue standpoint. On the cost side, you know, we went after, you know, pretty quickly as we saw things change in terms of what we could do on all cost actions that made sense. We wanted to make sure that we were balancing the short-term and long-term investments in terms of, you know, not making cost decisions that were going to impact the business for the long term, but in the short term where discretionary costs and activities could happen, that we would indeed, you know, make those decisions and we have. And we've seen that, you know, you've seen that offset as it relates to our overall cost base. I would also go back and say, you know, the transact deal that we closed at the end of last year and that business overall has been very helpful to us in our BDA segment in terms of we're continuing to see the growth of that business overall and continue to believe that they will continue to see what we had highlighted, the rationale for that deal and it continues to exceed our expectations and that management team, you know, overall is doing one heck of a job. So I'm trying to give you, I know you're trying to get those line items, I'm trying to give you as much color as I can, but at the same time, there's a reason we pulled the guidance, Dave, so I'm sorry, I can't be more helpful there.

Sure, that's fair. In terms of just customer demand, I know usually in an environment like this, retention rates go up. I am curious though, as a larger broker in the industry and you guys can provide more insight and information and solutions to the gamut of services an employer might have, are you guys seeing any sort of new business uptake from employers who might be just looking for a more sophisticated broker that can service things in an environment where there's a lot more challenges going on like we're in now?

Yeah, I mean, I think clients are always looking for different solutions, right? I mean, they're seeing a hardening market and so they're evaluating what alternatives and what other solutions people can bring to their challenges they may be dealing with. And the creativeness of our teams has been outstanding and we've seen that in what's happening and delivered in our CRB business, but frankly in our reinsurance business. And I would tell you, I think the creativity of our colleagues across Willis Towers Watson is one of the hallmarks of our culture in terms of being creative and bringing innovative solutions to bear. So in an environment like this where people are being challenged and want a different opinion, we're really primed and well positioned to be able to help them think through those solutions. And I think that's reflective in what you're seeing delivered in our results overall. So that'd be my comment. I don't know, John, anything you'd add to that?

Yeah, I mean, I think, Mike, you have that there. What I would say is that every day I see things come across my email of new business wins that we've had. And our colleagues have adapted to going after new business in a virtual way and have become very successful at that. But the fact remains, new business is not as robust as it was in the pre-COVID era. That's just a fact of life. Not as many people are going out to bid. So we've become successful in doing this where we can, but it's not as big a feature as it had been.

Got it. And the last one real quick, just on Transact, can you talk about what the same store basis was year over year? And there has been some overhang on the group, at least for some of the other publicly traded, because one of your peers is experiencing significantly higher churn right now and it's shortening their duration and pressuring unit economics. It seems like that might be a company-specific challenge going on, but I'd be curious just to hear what is your churn on the MA business right now? How long are they on with you for and are you guys experiencing any uptick in churn from the market dynamics right now?

Okay. So look, our churn is something that we've looked at for quite a while here. And we're a firm with lots and lots of actuaries. And so one of the things we've done over the time is analyze that. We've actually used outside advisors to analyze that too. And unlike some others in the market, we haven't changed our churn assumptions just arbitrarily. We've continued to monitor that quarter to quarter. We do some actuarial analysis. We're actually slightly conservative in our estimates. So we feel pretty good about the kind of numbers we have here, and we don't expect any change.

Thank you. Coordinator- Your next question comes from the line of Greg Peters with Raymond James.

Greg Peters- Good morning. I was wondering if you could provide us some perspective on how the positive pricing trends and property cashly have affected your corporate risk and broking and investment risk and reinsurance segments. And then in the slide deck, you did note in CRB that there was some pressure in Great Britain. And John, it seems like you reflect back on the last several years that more often than not, Great Britain has been a source of some challenges for the company. Maybe that impression is wrong, but maybe you could provide some perspective on that as well.

John Harkness- Yeah. So maybe starting with the second point first. I mean, just as it relates to Great Britain, you're looking at continued market conditions, Greg, that have been happening. And I think what we're seeing, at least in other competitors have reported their results, has equally seen Great Britain as a market at this time, has been a bit more down a bit just in terms of what's happening in that market. The good news is obviously we operate in many markets, and some, as you see, Latin America is up and North America has been strong overall. So I think it's just at this point in time in terms of where it's been, but Great Britain has been a very good market for us for a long time. It's just kind of where we are in its current cycle. As it relates to rating and rates, I mean, I would say what you're seeing is, and John kind of alluded to this, so you're seeing retention rates of our clients are up on a -over-year basis, and you're seeing the insured base itself is down in some of the transient type of work that we had had or we would insure overall. But your obviously P&C rates increasing, and depending on whether you've had a loss or not a loss is obviously impacting those rates. But we're seeing the positive impact of that tailwind on those rates, so try to give you some color to it. But I would wrap it up and say, overall we're very pleased with what the CRB business has done, what our colleagues have done there in terms of delivering results. So hopefully that gives you some color to it.

Yeah, and I would just add that, Mike, you sort of touched upon this, but look, Great Britain has been impacted by some of, we talked about the marine, you know, some of the global aerospace and things like that that have impacted Great Britain in this quarter. But Great Britain is one of the great reservoirs of our talent and our intellectual capital, and it's a key part of the business. We don't have any concerns about GD. Okay.

I know this has probably been incorporated to some degree in the results already, but, you know, given the dynamics and requirements of ASC 606, I'm curious how you're thinking about the assumptions that you laid out in the first half of the year, especially in the context of all the uncertainty as we go into the back half of the year. And, you know, if there's any potential reset issues or challenges you might be dealing with from an accounting perspective.

Greg, I thank you for the question. But right now, no, I mean, we did not see that to be the case. We, you know, believed in terms of thought about all the various options upon its adoption. You know, we've had a lot of discussion and talked about 606 over you know, a couple of years, but no, right now, based on our estimates and what's in, how we've projected things, we don't see, you know, anything unusual coming through 606.

Got it. I guess the final question, you know, just from a sequencing perspective, and I know, John, you did provide some comments, but I just wanted to confirm that, you know, from a shareholder vote perspective, that the shareholders will be voting on this transaction with Ann before we know if there's any antitrust issues that force, you know, the spin-off of some businesses. Just wanted to confirm that that's the case.

Yeah, and all the transactions I've done, that's been the case. I think all these big transactions, we've always had the shareholder vote before we got the antitrust approval. In this case, this one's no exception.

Got it. Well, listen, congratulations on the results, and John, stay safe. There's a hurricane headed your way, so be well.

Yeah, I'm hoping it's going to miss me, Greg, but we'll see.

Your next question comes from the line of Mark Hughes with SunTrust.

Yeah, thank you. Good morning. In the HCB, I think in the last recession, you benefited from some restructuring activity. I wonder if you could comment on the potential opportunity here in this cycle, and then what would be the timing if you did start to see, you know, more wholesale changes, you know, talent and rewards issues that emerge with restructuring? When would that normally kick in?

Yeah, thanks, and I think if we look back to the last several downturns that we've seen, we would expect that the talent and rewards revenue decline would probably persist through at least the third quarter, maybe into the fourth quarter, and then really be picking up during the first half of 2021. That would be consistent with, say, the early 2000s. That would be consistent with the financial crisis, and so that's what we see. The one thing that makes this a little difficult, as I was saying, is that we don't know what the effect of the lockdowns is going to be in the second half of this year, and so if we see, particularly in the U.S. states going back and having the second wave of lockdowns and everything, that could have an impact that we, you know, we wouldn't, we haven't factored in right now. That would change the whole timing of everything there, but I think we're, as I said earlier, there are a lot of human resource challenges and opportunities that are here in this current environment. They're not going to go away, and I think especially in 2021, we would expect to see corporations going out to address all those, and frankly, it's one of the things that, as I said earlier, the ability to offer innovative solutions when we get together with Aon, that combination is going to be even more powerful in this regard.

And then on the Transact, I think you said it was an $87 million contribution. Did you give the year ago results for Transact as a standalone? We did

not. We did not do that, no. I mean, remember, we acquired them, you know, over the third quarter last year, right? So we just, yeah, we have not disclosed that. Thanks. But I got to tell you, I mean, we're, you know, going back on that 87, the business is growing nicely, and I just reiterate the comments I mentioned earlier. We're very pleased with Transact, you know, what it's doing, the team that's been in place, and the results that they're delivering, and, you know, and it's profitable. So we're very pleased with Transact. Yeah. I mean, I think that

that is the key thing is that it's, that this is a nicely profitable business that we have here.

Our next question comes from the line of Meyer Shields with KBW.

Thanks. I wanted to see if I can focus in on one element of typical organic growth, and that's just negotiating higher revenues on the work that you're doing for your clients. Is there any way that is being impacted, that specific force is being impacted by the current recession?

Mayor, I mean, we're

in a,

oh, go ahead. Go ahead, John.

I was just going to say, look, we're in a competitive industry, and when we, you know, I talked earlier about doing new business on a virtual basis, but we have to, when we're doing that, we have to come out with the competitive offerings, and that means we have to make sure that we're offering the most value for the services we're providing, and, you know, we feel we continue to do that. It's not, it's, that is not much different now than it was six months ago.

Yeah, and I was just going to add to your comments, John. I mean, at the end of the day, we believe we have very good margins overall in our HCB business as we look across the industry, and as John said, it's obviously competitive, and we will be competitive, but it's ultimately about value, and as our, you know, our clients continue to see that value versus the cost equation, and they continue to reward us based on that value.

Okay, understood. That's helpful. Second question is, can you share how the -Tasin-Watson employees reacted when Aon first announced its temporary salary reductions and then pulled them back? Was there any impact on employee morale or sentiment there?

That wasn't something that, you know, we discussed in the company generally. I mean, I'm sure individual colleagues were discussing that, but it wasn't something that we did any kind of survey or anything on.

Okay, fair enough. Thank you so much.

There are no further questions at this time.

Okay, well, thanks very much, everybody, and we look forward to updating you on our third quarter release call.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.