Willis Group Reports Q1 2010 Results

“We delivered another solid quarter of financial results, supported by positive organic growth in each segment of our business. Combined with our continued focus on cost control, we expanded our adjusted operating margin by over 200 basis points,” said Joe Plumeri, Chairman and Chief Executive Officer, Willis Group Holdings. “I am pleased with our performance in the quarter as we continue to face a challenging environment, with rates still soft and economic pressures persisting in a number of countries in which we operate.”

Reported net income from continuing operations for the first quarter of 2010 was $204 million, or $1.20 per diluted share, compared with $192 million, or $1.15 per diluted share, in the same period a year ago. Reported net income in the first quarter of 2010 was impacted by a charge of $12 million, or $0.07 per diluted share, relating to the devaluation of the Venezuelan currency, and in the first quarter of 2009, by certain items, which are detailed later in this release.

Adjusted net income per diluted share from continuing operations was $1.27 in the first quarter of 2010 compared with $1.16 in the first quarter of 2009. Other foreign currency movements positively impacted adjusted earnings per diluted share from continuing operations by $0.06 in the first quarter of 2010. Total reported revenues for the first quarter of 2010 were $972 million compared with $930 million for the same period of 2009, an increase of 5 percent. Total commissions and fees were $963 million, an increase of 5 percent from $915 million reported in the first quarter of 2009. Foreign currency movements increased reported commissions and fees by 3 percent compared with the same period a year ago. Investment income was $9 million in the first quarter of 2010 compared with $13 million in the first quarter of 2009, a decline of 31 percent, principally due to lower interest rates.

Organic growth in commissions and fees was 3 percent in the first quarter of 2010 compared with the same period of 2009. Organic growth reflected net new business won of 5 percent, driven by solid new business generation with steady retention of existing clients. Partially offsetting net new business growth was a negative 2 percent impact from declining premium rates and other market factors.

The North America segment reported 3 percent decline in commissions and fees and 1 percent growth in organic commissions and fees in the first quarter of 2010 compared with the same period of 2009. Included in North America reported commissions and fees were legacy HRH contingent commissions of $8 million in the first quarter of 2010 compared with $20 million in the first quarter of 2009. North America continues to generate strong new business, with steady client and producer retention. The North America segment continued to benefit from specialist industry expertise, with strong results from the healthcare, financial institutions, personal lines and real estate/hospitality businesses. North America's results also continue to reflect headwinds from the soft insurance market conditions and ongoing weakness in the US economy. As a result of organic growth in commissions and fees and ongoing cost management, operating margin expanded 60 basis points to 25.5 percent in the first quarter of 2010 compared with the prior year period.

The International business segment reported 12 percent growth in commissions and fees and 3 percent organic growth in commissions and fees in the first quarter of 2010 compared with the same period of 2009. Strong growth in the emerging economies of Latin America, Asia and Eastern Europe, was partially offset by slowing growth in some developed European economies and continued weakness in the UK and Ireland retail market. Excluding the UK and Ireland, the International business segment organic growth was 5 percent. Strong new business more than offset the soft rate environment and weakness in the UK and Ireland market. Operating margin was33.9 percent compared with 34.9 percent in the first quarter of 2009.

The Global segment, which comprises the Reinsurance, Global Specialties, Faber & Dumas, and Willis Capital Markets & Advisory divisions, reported 9 percent growth in commissions and fees and 7 percent organic growth in commissions and fees in the first quarter of 2010 compared with the first quarter of 2009. Growth was primarily driven by the Reinsurance division, with strong organic growth in commissions and fees, especially in North America. Solid net new business in this division more than offset the softness in reinsurance rates. Global Specialties contributed positive organic growth in commissions and fees, led by financial and executive risks and marine. Operating margin was a seasonally high 45.5 percent, in line with the first quarter of 2009.

Reported salaries and benefits were $486 million in the first quarter of 2010 compared with $480 million in the first quarter of 2009. Salaries and benefits improved to 50.0 percent of total revenue in the first quarter of 2010 compared with 51.6 percent in the first quarter of 2009.

Salaries and benefits do not reflect the unamortized portion of annual cash retention awards made to employees. Employees must repay a proportionate amount of these cash retention awards if they voluntarily leave the Company's employ (other than in the event of retirement or permanent disability) before a certain time period, currently three years. The Company makes cash payments to its employees in the year it grants these retention awards and recognizes these payments ratably over the period they are subject to repayment, beginning in the quarter in which the award is made.

During the first quarter of 2010, the Company made $169 million of cash retention payments compared with $111 million in the first quarter of 2009. Salaries and benefits in the first quarter of 2010 include $28 million of amortization of cash retention payments made on or before March 31, 2010 compared with $18 million in the first quarter of 2009. As of March 31, 2010, December 31, 2009 and March 31, 2009, the Company included $233 million, $98 million and $127 million, respectively, in other assets on the balance sheet, which represented the unamortized portion of cash retention payments made on or before those dates.

Reported other operating expenses were $149 million in the first quarter of 2010 compared with $138 million in the first quarter of 2009. Other operating expenses as a percentage of revenues were 15.3 percent in the first quarter of 2010 compared with 14.8 percent in the same quarter a year ago. Reported other operating expenses for the first quarter of 2010 included $12 million in respect to the devaluation of the Venezuelan currency.

Reported operating margin was 31.0 percent for the first quarter of 2010 compared with 29.5 percent for the same period of 2009. Excluding the impact from the devaluation of the Venezuelan currency and other items, which are detailed later in this release, adjusted operating margin was 32.2 percent for the first quarter of 2010 compared with 29.8 percent for the prior year period. The improvement in the adjusted operating margin reflected solid organic growth in commissions and fees and other expense savings.

The effective tax rate for the quarter ended March 31, 2010 was 26 percent. After adjusting for the net effect of certain items, the underlying effective tax rate for the quarter ended March 31, 2010 remained at 26 percent, the same underlying effective tax rate as for the full-year 2009.

As of March 31, 2010, cash and cash equivalents totaled $196 million and total debt was $2.4 billion. Total equity as at March 31, 2010 was $2.4 billion.

The Board of Directors declared a regular quarterly cash dividend on the Company's ordinary shares of $0.26 per share (an annual rate of $1.04 per share). The dividend is payable on July 16, 2010 to shareholders of record on June 30, 2010.

“As we move through 2010, we will continue to reinforce our sales and revenue culture, maintain disciplined expense management to fund growth and work to further strengthen our balance sheet. Even as we face continued challenges from economic and rate headwinds, I believe these efforts position us well for continued success,” said Joe Plumeri, Chairman and Chief Executive Officer, Willis Group Holdings.

A conference call to discuss the first quarter 2010 results will be held on Thursday, April 29, 2010, at 8:00 AM Eastern Time. To participate in the live teleconference, please dial (866) 803-2143 (domestic) or +1 (210) 795-1098 (international) with a pass code of “Willis”. This call will be available by replay starting at approximately 10:00 AM Eastern Time, through May 30, 2010 at 11:59 PM Eastern Time.

Willis Group Holdings plc is a leading global insurance broker, developing and delivering professional insurance, reinsurance, risk management, financial and human resource consulting and actuarial services to corporations, public entities and institutions around the world. Willis has more than 400 offices in nearly 120 countries, with a global team of approximately 17,000 employees serving clients in virtually every part of the world. Additional information on Willis may be found at www.willis.com.

We have included in this document “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934, which are intended to be covered by the safe harbors created by those laws. These forward-looking statements include information about possible or assumed future results of our operations. All statements, other than statements of historical facts that address activities, events or developments that we expect or anticipate may occur in the future, including such things as our outlook, future capital expenditures, growth in commissions and fees, business strategies, competitive strengths, goals, the benefits of new initiatives, growth of our business and operations, plans and references to future successes, are forward-looking statements. Also, when we use the words such as “anticipate”, “believe”, “estimate”, “expect”, “intend”, “plan”, “probably”, or similar expressions, we are making forward-looking statements.

There are important uncertainties, events and factors that could cause our actual results or performance to differ materially from those in the forward-looking statements contained in this document, including the following:

• the impact of any regional, national or global political, economic, business, competitive, market and regulatory conditions on our global business operations;

• the impact of current financial market conditions on our results of operations and financial condition, including as a result of any insolvencies of or other difficulties experienced by our clients, insurance companies or financial institutions;

• our ability to continue to manage our significant indebtedness;

• our ability to compete effectively in our industry;

• our ability to implement and realize anticipated benefits of the Shaping Our Future, Right Sizing Willis initiatives or any other new initiatives;

• material changes in commercial property and casualty markets generally or the availability of insurance products or changes in premiums resulting from a catastrophic event, such as a hurricane, or otherwise;

• the volatility or declines in other insurance markets and premiums on which our commissions are based, but which we do not control;

• our ability to retain key employees and clients and attract new business;

• the timing or ability to carry out share repurchases or take other steps to manage our capital and the limitations in our long-term debt agreements that may restrict our ability to take these actions;

• any fluctuations in exchange and interest rates that could affect expenses and revenue;

• rating agency actions that could inhibit ability to borrow funds or the pricing thereof;

• a significant decline in the value of investments that fund our pension plans or changes in our pension plan funding obligations;

• our ability to achieve the expected strategic benefits of transactions;

• changes in the tax or accounting treatment of our operations;

• the potential costs and difficulties in complying with a wide variety of foreign laws and regulations and any related changes, given the global scope of our operations;

• our involvements in and the results of any regulatory investigations, legal proceedings and other contingencies;

• our exposure to potential liabilities arising from errors and omissions and other potential claims against us; and

• the interruption or loss of our information processing systems or failure to maintain secure information systems.

The foregoing list of factors is not exhaustive and new factors may emerge from time to time that could also affect actual performance and results. For more information see the section entitled “Risk Factors” included in Willis' Form 10-K for the year ended December 31, 2009 and our subsequent filings with the Securities and Exchange Commission.

Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of these assumptions, and therefore also the forward-looking statements based on these assumptions, could themselves prove to be inaccurate. In light of the significant uncertainties inherent in the forward-looking statements included in this document, our inclusion of this information is not a representation or guarantee by us that our objectives and plans will be achieved.

Our forward-looking statements speak only as of the date made and we will not update these forward-looking statements unless the securities laws require us to do so. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this document may not occur, and we caution you against unduly relying on these forward-looking statements.

This press release contains references to non-GAAP financial measures as defined in Regulation G of SEC rules. Consistent with Regulation G, a reconciliation of this supplemental financial information to our GAAP information is in the note disclosures that follow. We present such non-GAAP supplemental financial information, as we believe such information is of interest to the investment community because it provides additional meaningful methods of evaluating certain aspects of the Company's operating performance from period to period on a basis that may not be otherwise apparent on a GAAP basis. This supplemental financial information should be viewed in addition to, not in lieu of, the Company's condensed financial statements. 

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