Marsh & McLennan Companies Q4 2008 Earnings Call Transcript

Feb.11.09 | About: Marsh & (MMC)

Marsh & McLennan Companies, Inc. (NYSE:MMC)

Q4 2008 Earnings Call

February 11, 2009 08:30 AM ET


Brian Duperreault - President and Chief Executive Officer of MMC

Vanessa A. Wittman - Executive Vice President and Chief Financial Officer of MMC

Daniel S. Glaser - Chairman and Chief Executive Officer of Marsh

Peter Zaffino - President and Chief Executive Officer of Guy Carpenter

M. Michele Burns - Chairman and Chief Executive Officer of Mercer


Keith Walsh - Citigroup

Larry Greenberg - Langen McAlenney

Meyer Shields - Stifel Nicolaus & Co., Inc.


Good day everyone and welcome to MMC's Conference Call. Today's call is being recorded. Fourth Quarter and Full-Year 2008 financial results and supplemental information were issued earlier this morning. They are available on MMC's website at

Before we begin, I would like to remind you that remarks made today may include statements relating to future events or results, which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are subject to inherent risks and uncertainties. In particular, references during this conference call to anticipated or expected results of operations for 2009 or subsequent periods are forward-looking statements and MMC's actual results may be affected by a variety of factors.

Please refer to MMC's most recent SEC filing as well as the company's earnings release, which are available on the MMC website for additional information on factors that could actual... that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today.

I'll now turn the call over to Mr. Brian Duperreault, President and CEO of MMC.

Brian Duperreault

Good morning and thank you for joining us, to discuss our year-end results reported earlier today. I am Brian Duperreault, President and CEO of MMC. Joining me and presenting on the call today is Vanessa Wittman, our CFO.

I would also like to welcome our operating company's CEOs to today's call, Dan Glaser of Marsh; Peter Zaffino of Guy Carpenter; Michele Burns of Mercer; John Drzik of Oliver Wyman; and Ben Allen of Kroll. Also with us is Mike Bischoff our Head of Investor Relations.

After I make some brief remarks, Vanessa will present our financial results and then we will take your questions.

I am pleased to report we had a strong fourth quarter. Adjusted EPS of $0.37 represented an increase of more than 50% over the $0.24 we reported in the fourth quarter of last year. This was achieved despite several factors, including significantly lower interest rates that reduced corporate and fiduciary interest income. The impact of foreign exchange on Mercer's operating income, which is greater than it has been historically in an economic climate that weighed heavily on our consulting businesses.

In the quarter, we saw a very strong improvement, primarily in Risk and Insurance Services segment. As a result adjusted operating income was $279 million, an increase of 30% from the fourth quarter of last year.

For the full year, adjusted operating income was $1.2 billion, an increase of 24% from the $1 billion reported in 2007. Adjusted EPS grew 9% to $1.45 from $1.33. We achieved these results even though we experienced a significant year-over-year decline in investment income, reducing EPS by $0.23.

Now a few words about each of our businesses:

Marsh turned in an impressive performance, not only in the quarter but for the entire year. It is clear that Dan and his team are successfully executing their turnaround plan and it is gratifying that they exceeded their goals for the year.

Marsh produced 3% underlying revenue growth for the quarter. Client revenue retention increased in the quarter, continuing a trend seen over the past nine months. In fact, for the year, Marsh's client revenue retention rate exceeded prior year by 3 percentage points.

New business production also remained strong exceeding $900 million for the year. The main driver of Marsh's improved profitability was expense reduction. Not only for the quarter but for the entire year, Marsh's expenses were down versus 2007. As a result, even as the soft insurance cycle persisted, Marsh was able to show a significant improvement in profitability and margins.

Looking at the year, I'm extremely pleased to report that Marsh had a 570-basis point margin improvement, surpassing even our own expectations. It is a fantastic start to a multiyear process.

Then I started down the path of implementing the second phase of operational improvements and major initiatives to enhance client service and to position Marsh for a continued growth in margin expansion.

This includes client's segmentation, the creation of placement hubs, the launch of Marsh & McLennan agency for the small emerging growth sector, and exploring potential M&A opportunities.

At Guy Carpenter, profitability improved over the last three quarters. Just a recap; the first quarter saw a meaningful decline in profitability, which prompted a change in management and led to Carpenter's restructuring program.

In the second quarter, there was a modest decline in profitability. And in the third quarter, profitability was maintained at prior-year level, as a result... as the full effects of expense savings were realized. In the fourth quarter, despite continued competitive insurance market conditions, profitability improved dramatically due to these expense savings.

For the entire year, profitability was essentially maintained in a difficult environment. This impressive turnaround is a credit to Peter and his team.

For the Risk and Insurance Services segment, even with fiduciary interest income declining substantially, adjusted operating income for the full year increased 58% to $729 million from $462 million, with margin improvement of 470 basis points. These results were achieved in the soft insurance cycle that characterized 2008.

As you know however, we've seen dramatic events occur in the past six months. A question that remains is how will the events occurring today, affect market conditions in 2009 versus 2008?

Personally, I believe the market will harden (ph). We've already seen that occurring in reinsurance, particularly in the property segment. We're yet see it meaningfully in the primary market. However, it is clear that the severity of the current economic downturn may substantially dampen the effect of rate increases leading to something I'm calling it invisible hard market.

For us at MMC, 2009 remains a year devoted to margin improvement through better expense management, creation of efficiencies and improved processes. It will not be a year in which we expect a dramatic impact from a hard market per se. Irrespective of external forces however, we have laid a good foundation for our Insurance Services business in 2008, and so you see... continue that momentum this year.

Moving on to our Consulting businesses; Mercer's underlying revenue growth in the quarter was flat. Retirement, Mercer's largest business, saw a near-term decline in client project activity. Currently, client demand remains solid and we expect us to achieve low single-digit growth in the Retirement business in 2009.

A 6% decline in outsourcing in the quarter was a direct result of lower equity markets, since a portion of outsourcing fees is tied to assets under administration. On the positive side, we reported growth of 3% in Mercer's Health and Benefits business, 3% growth in other consulting lines, and total Mercer Consulting increased 1%.

Investment Consulting & Management grew 7%. As early as last spring, Michele and her team had anticipated a slowdown in client demand due to changing economic conditions. They reviewed areas in which they could potentially cut spending, which allowed them to move quickly to reduce expenses when they saw a weakness developing last fall.

During the quarter... during the fourth quarter, Mercer reduced its headcount by 400 and as a result of management's planning and foresight, limited growth in adjusted operating expenses on an underlying basis to 1%. For 2008, Mercer had an excellent year overall, with underlying revenue growth of 7%, and strong results across all lines of business. Growth and profitability was also strong.

In the quarter, Oliver Wyman's business saw a continued weak demand for projects particularly, in the United States market. As a result, John and his team implemented a series of prudent cost savings initiatives.

In January, they initiated a multi-sector, multi-geography reduction in headcount of approximately 6% of total staff. Capacity is now more closely aligned with projected demand. But John and his team will continue to react to economic conditions as the year progresses.

Turning to Risk Consulting and Technology; Kroll had a difficult quarter due primarily to the impact of economic conditions on the Employment and Mortgage Screening businesses, as well as M&A-related consulting.

Kroll's Litigation and Data Recovery business saw reduced volumes in the fourth quarter, as clients sought to delay litigation costs. We believe this is an anomaly since litigation has not historically been sensitive to economic conditions.

Due to the economic environment, Kroll implemented cost containment measures, including capacity-related headcount reductions. These are actions resulted in a 3% reduction in adjusted expenses on an underlying basis. However, profitability for Kroll declined in the quarter, as the benefit of the headcount reductions was not fully realized. Kroll completed some additional expense reductions in the early part of this quarter.

For 2008, Kroll reported revenue growth of 6%, with underlying revenue growth of 2% and an improvement in adjusted operating income of 7%.

In separate transactions at the end of last year, we sold our U.S. and UK restructuring businesses to their senior executives in leveraged management buyouts. Vanessa will provide additional details.

In closing, let me say that, when I became CEO a year ago, there were several goals I wanted to achieve. And I think 2008 has been a year of great progress.

Marsh was returned to profitable growth with a significant improvement in its operating results.

Guy Carpenter and its new management team successfully implemented a major restructuring, increased new business development and improved profitability over the last three quarters. It is well positioned to grow going into 2009.

Kroll also had a change in senior management and undertook a major redefinition of its business, gave greater attention to expense control and divested a business that clearly did not fit with its future plans.

And Mercer and Oliver Wyman managed well through a difficult economic environment.

While I am pleased with the progress we've made so far, I have always said that restoring MMC to its pre-eminent position is a multiyear process. Certainly, we will manage the company prudently in the face of the current uncertainty in both the financial markets and the global economy. Even in the current environment, we believe we can deliver profitable growth in 2009.

We think our Risk and Insurance Services segment will see continued improvement in its profitability. While Mercer saw some weakness in the fourth quarter, we think it will show positive growth in 2009. And Oliver Wyman and Kroll, which are more subject to market forces in other parts of MMC, will continue to monitor the environment and weather the storm.

While no one expects this year to be easy, we are confident that MMC with its diverse mix of professional services will be highly valued by our clients.

Now let me turn it over to Vanessa to present our financial results for the quarter.

Vanessa A. Wittman

Thanks very much Brian and good morning everyone. This morning I'd like to cover several topics: operating results, investment income, pensions and liquidity.

Given the unusual combination of interest rate declines, equity market declines and foreign exchange rate volatility, I'll try to highlight the impact of these factors on the segment results as I describe the quarter.

Let's turn to our operating results. EPS from continuing operations was $0.14 in the fourth quarter of 2008. Noteworthy items in the quarter as described in our supplemental schedules were $0.23 a share. This takes us to adjusted EPS of $0.37, an increase of 54% from $0.24 in last year's fourth quarter.

As I discussed, each operating company's progress for the quarter, all the references to growth rates will be underlying revenue growth and operating income on an adjusted basis.

Let me start with Marsh. For the fourth quarter, while Marsh grew revenue up 3%, expense reduction and cost discipline drove operating expenses down 6%. Marsh's client revenue retention rate continued to improve in the fourth quarter.

On a year-over-year basis, the increase was 2 percentage points and for the full year, the rate improved 3 percentage points, reaching its highest level in the past five years.

For the full year 2008, Marsh's restructuring activities reduced staff by about 2200 people, including 700 positions that were outsourced. Restructuring and related charges in 2008 were approximately $180 million, with anticipated annualized savings totaling $200 million. This includes savings of $75 million that were realized in 2008.

In addition to these restructuring efforts, across the board reductions in travel and entertainment, marketing and advertising, information technology and outside consulting fees enabled Marsh to improve its operating margin for the year by 570 basis points. As we look forward, we expect Marsh's operating margins to continue to rise in 2009, though not at the magnitude of the increase that was achieved in 2008.

Now, let's look at Guy Carpenter. Revenue decreased 2% in the fourth quarter, a solid improvement from the first nine months of 2008. We are pleased that Carpenter generated strong new business in both the third and fourth quarters. We saw a continued evidence of this increased new business activity in the important January renewal period.

Over the last three quarters, Peter and his team were able to improve Carpenter's profitability despite a very difficult environment. They implemented a series of cost containment measures that resulted in an 8% decline in operating expenses in 2008.

Before we leave the Risk and Insurance Services segment, I want to talk about the impact of interest rate declines on the segment. As seen in the supplemental schedules included in our press release, we now segregate fiduciary interest income from the revenue of Marsh and Guy Carpenter.

Prior periods have been reclassified to be consistent with the fourth quarter presentation. A substantial decline in short-term interest rates compared with fourth quarter of 2007, reduced fiduciary interest income from $40 million to $25 million in the fourth quarter.

For the year, fiduciary interest income fell from a $177 million in 2007 to $139 million in 2008. We expect short-term interest rates will continue to act as a significant hurdle to interest income earned on fiduciary funds. But, we expect both Marsh and Guy Carpenter to more than overcome this hurdle with their operating performance.

Turning to our Consulting segment, let's start with Mercer. For the year, Mercer had strong revenue growth of 7% with growth in all businesses. Its consulting practice increased 7%, outsourcing was up 4%, and investment consulting and management grew 16%.

Mercer maintained its margin while increasing operating income by 7%. In the fourth quarter, Mercer's consulting practices had revenue growth of 1%, as a slight decline in retirement was more than offset by 3% gains in both health and benefits, and human capital.

Outsourcing was down 6%. The sharp declines in the equity markets impacted their results in the fourth quarter, as 25% of Mercer's outsourcing revenue is tied to assets under administration.

Investment Consulting and Management rose 7% for the fourth quarter. As Brain mentioned, in anticipation of a potential economic slowdown, Mercer began the process to reduce costs, and gain efficiencies in the spring of 2008. As a result, in the fourth quarter, Mercer eliminated approximately 400 positions at a cost of $39 million, with anticipated expense savings of about $45 million.

As mentioned on last quarter's earnings call, Mercer's results were negatively affected by the strengthening of the dollar. This continued through the fourth quarter. As an example, in the fourth quarter, the British pound averaged a decline of 23% against the dollar on a year-over-year basis. In January, the pound sank to its lowest value against the dollar in nearly a quarter century, before strengthening somewhat in the last couple of weeks.

If January foreign exchange rates for the U.S. dollar held for the entire year against currencies such as the pounds, the euro, and the Canadian dollar, Mercer's 2009 operating income could be negatively affected by 60 to $80 million.

At Oliver Wyman, fourth quarter revenue of $392 million reflected a decrease of 10%. This was primarily due to approximately $30 million in success fees in the fourth quarter of 2007, which were not replicated in 2008. Excluding the impact of success fees, the decrease in revenue would have been 4%.

Oliver Wyman implemented expense reductions that resulted in a 4% decrease in operating expenses in the quarter. With extremely challenging conditions persisting, Oliver Wyman is continuing to reduce expenses, while protecting its long-term franchise value. As Brian mentioned, selective headcount reductions better aligned staff levels with anticipated demand.

Now turning to Risk Consulting and Technology; Kroll had revenue of a $188 million in the fourth quarter, a decline of 8%. Growth of 4% in risk mitigation and response was offset by declines of litigation support and background screening.

At the end of 2008, we completed the divestiture of three separate restructuring businesses, one in the U.S., and two in the UK, each with a unique deal structure. We are unable to treat these businesses as discontinued operations, since MMC will continue to have a financial interest through revenue sharing arrangements and seller financing. As a result, we recognized a $28 million charge in the disposal of the UK businesses, even though much of this may be recovered through future royalty payments. We also deferred an $18 million gain on the disposal of the U.S. businesses.

Moving on, MMC's investment income was $19 million in the fourth quarter of 2008 compared with $10 million in the prior-year period. The increase was primarily due to mark-to-market gains in investments within our private equity portfolio, which is reported to MMC on a one-quarter lag basis.

Looking ahead to the first quarter of 2009, with the decline in the publicly-traded securities within the private equity portfolio, we expect an investment loss of at least $20 million.

Now, let me bring you up to-date on pensions. Our defined benefit pension plans were clearly affected by the severe downturn in the global equity markets in 2008. Our defined benefit assets declined over 20% in the U.S. to $2.8 billion and in the U.K our largest plan by approximately 15% to £2.7 billion.

For GAAP purposes, pension liabilities are largely dependent on the discount rate set as of year-end. In the U.S., interest rates declined dramatically by year-end driving the year-end discount rate lower. This contributed to a $300 million increase in the projected benefit obligation. While our U.S. plan show a funding deficit as of year end, no contributions to the U.S. plan are required in 2009.

Due to an increase in the discount rate and a reduction in inflation expectations, our U.K plan liabilities decreased slightly in 2008. Although we made scheduled contributions to the UK plan throughout the year, in January of 2009, we made a discretionary pension contribution of £50 million or $70 million. We expect to contribute a similar amount in the second quarter. Overall, MMC's aggregate pension expense in 2009 will be similar to that of 2008.

Looking at our capital structure, our liquidity and cash positions remain strong. Despite the meaningful restructuring activities in 2008 for Marsh, Guy Carpenter, Mercer and Corporate debt reduction of $250 million and the final $170 million payments to the New York Attorney General, we ended the year with $1.7 billion of cash, with an increase of $200 million in the fourth quarter.

We expect that restructuring costs will diminish substantially over the course of 2009. MMC has no outstanding commercial paper bank loans. We continued to maintain a $1.2 billion revolving credit facility that remains un-drawn. Due to our annual incentive compensation payments, we expect to be users of cash in the first quarter of 2009, as is our typical pattern.

Lastly, we have a $400 million bonds maturing in June of 2009. Our plan is to fund a significant portion of this maturity with new debt. As you know the credit markets are volatile and if the capital markets are unattractive to us, our cash position and bank clients will enable us to fund the maturity if required.

With that, let me turn it back to Brian.

Brian Duperreault

Thanks Vanessa. I think it's time to begin the question-and-answer period. Just to remind you, that we have our operating company's CEOs here too to help. And with that operator, let's begin the Q&A.

Question-and-Answer Session


Yes sir. (Operator Instructions). We'll go first to Keith Walsh with Citi.

Keith Walsh - Citigroup

Hey, good morning everybody. First question for Dan, as you finishing your... you finished your first year there obviously you've gotten a lot out in costs already. Where are you relative to where you thought you'd be a year ago and what are the opportunities on the cost side? And then just another piece to that, when you're talking about the retention, how that improved so significantly I guess over the last year as well as the last quarters? Is that partially driven by maybe the AIG situation out in the market, customers just stand put? Thanks.

Daniel Glaser

Okay, let me handle the question in a couple of parts, Keith. First of all, obviously I am very pleased with the quarter and very pleased with the year. Our... a lot of our margin expansion this year obviously is focused on expense reductions and our work on expenses is not done, and I would expect further expense reductions to contribute to earnings growth in 2009.

But, as I've said from the beginning, this is not just a expense-reduction story. Ultimately, we will need to grow the business and grow the business better than we're presently growing the business, in order to reach the level of returns that I believe the firm is capable of. But, I think that in 2008, we laid the foundation for future growth through several actions.

We reorganized the U.S. business, streamlining the structure, driving greater accountability for results. We are driving globally better sales discipline. We've improved client service, which is I think the predominant reason why you are seeing some improvement in revenue retention. And I believe it will also help us win more business in the future. We also have just really begun receiving compensation from carriers in recognition of the value and efficiency that our distribution and placement capabilities provide to them. And we formed the Marsh & McLennan agency.

So, we've done a lot of things other than expense reduction. And so I feel we're well-positioned for 2009. Then moving onto the client retention situation, I don't think there is any impact in the marketplace on client retention based upon the current turbulence. I do think that it may help us in terms of gaining new clients, because in turbulent markets, there is always a fight to quality, and I think Marsh will do well in that milieu.

Keith Walsh - Citigroup

And then just to...

Brian Duperreault

Thank you. Keith?

Keith Walsh - Citigroup


Brian Duperreault

Did you want to say something else?

Keith Walsh - Citigroup

Yeah, I was going to just follow-up with the question. But, sorry, go ahead.

Brian Duperreault

I'm sorry, you can do that. I'll let you do that.

Keith Walsh - Citigroup

And then, Dan just a follow-up of my second question would be, when I think about the hub strategy, if you can expand a little bit on some of those payments. I heard recently in the news, AIG has signed on to this. So, have you gotten the full slate of underwriters paying, and is there something that's going to materially impact the bottom line in margins in '09? Thanks.

Daniel Glaser

Sure. Overall, our enhanced commission strategy and our commission strategies in general are global. So, they're not only linked to the U.S. and not only linked to our hub strategy. Essentially, our commission initiatives are in three parts: One, we wanted to look at the various lines of business and establish some level of minimums that we think are required to handle a piece of business. So, we have established our own internal view of what minimum rates should look like.

Then in parts, in different places around the world, we've tried to negotiate an enhanced retail commission, where we could negotiate with carriers to receive something more than the minimum. And we've been successful in parts in doing that.

And then, we have enhanced commission, which probably has gotten the most publicity, because it applies to both commission business and fee business. That's really a commission paid by carriers that is agreed at the corporate level, and it recognizes the value of things like our hubs and our distribution and quality control procedures. So, we're pursuing those kind of initiatives in many markets.

I would say in... we've set down a path. This is going to be again a multiyear process. But I'm comfortable where we are. I don't expect material revenue change in 2009, based upon enhanced commission. But it should obviously help profit a bit more than the revenue side.

Brian Duperreault

Okay. Why don't we go to the next question?


Yes, sir. (Operator Instructions). We'll go next to Larry Greenberg with Langen McAlenney.

Larry Greenberg - Langen McAlenney

Thank you, and good morning. I was wondering if Peter could perhaps talk a little bit about what Carpenter is looking at, going into '09. And I am particularly curious, whether... there were clearly some major missteps going into '08. And as we go into '09, is the company in a position to recover from some of those missteps and I guess, I am thinking about kind of a leveraged step up in revenue. Or, are we really just talking about growth off of what was a depressed and to some extent, a missed 2008 year?

Peter Zaffino

Larry, thank you. We believe we made a lot of significant changes in 2008 to position us for a positive growth for 2009, beyond rate.

Vanessa mentioned that our new business has been up in the third and fourth quarter. That is also true for January. When we went through the restructuring earlier this year, we put together a very strong sales group that just focuses on top-line growth. In addition to that, we have identified areas where we think we're under-weighed relative to our market position that is in the international arena. So, it's the UK, Europe, to a lesser extent Japan and we feel we can grow in the specialty areas, marine and energy, retro as well as aviation.

So our focus is going to be pushing growth beyond rate. Clearly the headwinds we had in 2008, we don't believe we'll have those in 2009 as rates will start to move upward slightly. But we're going to grow through new business beyond rate.

Brian Duperreault

Larry, are you there?

Larry Greenberg - Langen McAlenney

Yeah, just a follow-up; does some of that missed opportunity in '08 comeback to you simply because you guys have your act together right now?

Peter Zaffino

I'd like to think so. In 2008 we...where we lost some business was in the U.S., which is our strongest geographic area for performance on revenue and profitability. So it was an anomaly. We feel like the new business has moved us in a very positive direction in the U.S. and don't believe you'll see that type of our experience for Guy Carp in 2009.

Larry Greenberg - Langen McAlenney

Great. Thanks very much.

Brian Duperreault

You are welcome, Larry. Next question please.


We'll go next to Meyer Shields with Stifel Nicolaus.

Meyer Shields - Stifel Nicolaus & Co., Inc.

Thanks. Good morning.

Brian Duperreault

Good morning.

Meyer Shields - Stifel Nicolaus & Co., Inc.

I think it's a question for Dan or Brian. If you look at the brokerage mix of new and renewal business, is it more new business now than I guess long-term target or what?

Brian Duperreault


Daniel Glaser

Yes, well I mean our new business this year was in total greater than our new business last year. And as I said last year, we've now grown $900 million of new business which would be a top-ten global insurance broker. So we grow the top-ten global insurance broker and we'll hopefully do that every year. So new business was very strong, it was higher this year than last year.

Meyer Shields - Stifel Nicolaus & Co., Inc.

But, what I am trying to get at is, I am assuming that it's more expensive to get new business in which case the new business growth which is what you want, you're still going to have some sort of negative impact on margins?

Daniel Glaser

Well, actually in my view, it's the opposite, because I am not growing infrastructure with new accounts. So my marginal benefit of a new piece of business is higher than an existing piece of business.

Meyer Shields - Stifel Nicolaus & Co., Inc.

Okay. That's helpful. And I am sorry --

Brian Duperreault

Go ahead please.

Meyer Shields - Stifel Nicolaus & Co., Inc.

Yeah, with regard to retirement consulting is that sort of... is that a negative or net positive, as we... as many clients have to figure out what to do with their pensions?

Brian Duperreault

Well I think that's a good one for Michele. Michele?

M. Burns

Yeah that's, in our view it's a net positive. We believe that what you would expect first of all legislative activity that we've already seen in the United States and are having conversations around the world. As well as the general need for clients to analyze their pension plans, that over time it is a net positive. We do think that the strength our retirement business is more reflected by our full-year performance in 2008 at around 5%, and we expect to continue to grow retirement in the low-single digits going into 2009.

Meyer Shields - Stifel Nicolaus & Co., Inc.

Okay, fantastic. Thanks so much.

Brian Duperreault

Okay. Thank you. Next question please?


We'll take our last question from (Inaudible).

Unidentified Analyst

If I can go back to the margin question; I think Brian I may have asked the last quarter that is there any particular reason why Marsh's margins would be below the other global brokers. And I believe as you've said it's a matter of both of the expense initiatives as well as the top line. So is it just sizing the expense structure and getting the top line going again. At some point do you think that gap will close meaningfully over a couple of years?

Brian Duperreault

Well Terry (ph) thanks for the question. It is mix a business issue and it's an operational question. I mean clearly Marsh was not performing well. So it didn't maximize its profitability with its business and had to fix that with expense controls and getting its processes right, et cetera. Dan's doing that. I think you heard from Dan, he is not... he doesn't fell he is finished with that process, that continues.

Now as that changes just one piece of it, but there is also getting new revenue. It's a top line as well as an expense solution. He outlined things he is doing there. When you look at our margin against others, even with the progress we have made and it's considerable as I pointed out, almost 500 on those segments. We don't think we're near it and there is a mix of business issue too that has to come into play. The reinsurance has to be a bigger part of what we do particularly the international piece.

The Marsh & McLennan agencies initiative is significant because that is a very high margin business. It's an area that we should excel in but we historically been bad at it. And so that's the whole segment of the market that should produce great business for us and will. But it's going to take a little while to get that.

So when you put it all together, there's no reason why our margins segment-to-segment, geography-to-geography because the international courses are higher margin business than the U.S; so then segment-to-segment, geography-to-geography, we should match and preferably exceed our competitors. And so, that's our, that's our goal, talking about what we are look at in '09, even with the headwinds and interest rates and all of those things, we think we can get the whole segment to 16%, in '09. Its 13.3 now, that still isn't where we need to be, but it takes a while.

But progress... I mean the thing, I think, one thing I can point to is when we had the call last year this time, it was all potential. And I think you've seen progress, I think the team, I think the people working in both Marsh and Guy Carpenter are world class and we are going to get there.

Unidentified Analyst

16% again is sort of goal-end target for the current year.

Brian Duperreault

Yeah that's '09.

Unidentified Analyst

Right. Okay thank you so much.

Brian Duperreault

You are welcome Terry (ph). Okay. Well, listen thank you all for joining us today. We appreciate it and we look forward to talking to you again. Thank you.


That does conclude today's teleconference. We thank you for your participation and wish you a wonderful afternoon.

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