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Executives

Kerry Calaiaro – Director, IR

Joe Plumeri – Chairman and CEO

Grahame Millwater – President

Stephen Wood – Group Controller and Interim CFO

Don Bailey – Chairman and CEO of North America

Peter Hearn – Head of Reinsurance

Adam Ciongoli – General Counsel

Analysts

Keith Walsh – Citi

Jack Sherck – SunTrust

Keith Alexander – JPMC

Brian Meredith – UBS

Meyer Shields – Stifel Nicolaus

David West – Davenport & Company

Willis Group Holdings Ltd. (WSH) Q1 2010 Earnings Conference Call April 29, 2010 8:00 AM ET

Operator

Welcome and thank you for standing by. All participants will be in a listen-only mode until the question-and-answer session of the conference.

(Operator Instructions)

As a reminder, today’s conference is being recorded. If you have any objections you may disconnect at this time. I would now like to turn the call over to your host Ms. Kerry Calaiaro, Director of Investor Relations. You may begin.

Kerry Calaiaro

Thank you and welcome to our First Quarter 2010 Earnings Conference call and webcast. Our call today is hosted by Joe Plumeri, Willis Group Holding’s Chairman and Chief Executive Officer. A replay of the call will be available through May 30, 2010 at 11:59 PM Eastern Time by calling 877-387-6450 from within the US or 1203-369-4751 from outside the US no pass code is needed. Alternatively the webcast replay can be accessed at our new and improved Investor Relations section of our web site at www.willis.com.

If you have any questions after the call my direct line is 212-915-8084. As we begin, our call let me remind you that we may make certain statements relating to future results which are forward-looking statements as that term is defined by the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those estimated or anticipated. Please note that these forward-looking statements reflect our opinions only as of the date of this presentation, and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. Please refer to our SEC filings including our annual report on Form 10-K for the year ended December 31, 2009 as well as our earnings press release for more detailed discussion of the risk factors that may affect our results.

Copies may also be obtained from the SEC or by visiting the Investor Relation section of our website. Also please note that certain financial measures we use on the call are expressed on a non-GAAP basis. Our GAAP results and GAAP to non-GAAP reconciliation can be found in our earnings press release. I'll now turn the call over to Joe.

Joe Plumeri

Thank you Kerry and welcome everybody and good morning. Thank you for joining us for our first quarter 2010 earnings call. Here with me today are Stephen Wood, Group Controller and Interim CFO; Grahame Millwater, our President; Don Bailey, Chairman and CEO of North America; and Peter Hearn, who is responsible as you all know for our reinsurance business. So we’re all here to answer your questions and the chime in, when you want us to.

Let me talk about the first quarter and the conditions surrounding the first quarter. Obviously we’re very pleased with the results we have delivered this quarter, especially given in the environment. The general economic conditions remain challenging in a number of countries in which we operate and then on top of that as you all know, the rate environment is still very soft, but against this background we delivered and that’s what we’re excited about.

Adjusted earnings per diluted share from continuing operations was $1.27, adjusted operating margin of 32.2% was up 240 basis points over a year ago period, 3% organic growth in commissions and fees and this was driven by positive organic growth in each of our operating segments which is really exciting to us, Shaping Our Future, an ongoing program that’s been going on for three years continued to yield net benefits of $14 million that was realized in the first quarter of 2010.

And I’ll only talk about our business segments, first North America, last year we continually talked about integration, updated you on how that was going, we’re not going to do that anymore, that’s done, dusted over. So let's talk about our business and really what’s going on in North America. We had 1% organic growth where we delivered double-digit new business generation, supported by continuing high client and producer retention rates, which is very, very important. And these are two things that we concentrated on especially in North America, since the acquisition was made.

We have a net due I think to intense personal engagement with producers by our local management, by our regional management, by Don Bailey and his staff and he’s making on a great job. Combining this was a new producer package which we inaugurated on January 1, I think it makes all of those statistics possible. The rate headwind was a negative 3% for the quarter compared with the 6% negative in the fourth quarter. So the rates remain soft.

The differentiation, I think within the mix of business, it’s not that the business has gotten any harder or more stable. I think it’s the mix of business, the mix of the differential between the two. Driving on a business growth in commissions and fees in general are our specialist businesses. We gained substantial client feedback from varied sources including client advisory councils, client surveys and interviews and we know from all of that that the client’s demand from us that our product and segment expertise and our specialist segment expertise carry today.

In the first quarter, high levels of growth were delivered in healthcare, financial institutions, personal lines and real estate hospitality. Bottom line, where we specialize is I said earlier we performed better and the whole lender pending [ph] of our growth that you’ll hear later with regard to our growth strategy going forward is our specialization, understanding our client needs, understanding their industry and where we specialize and let them understand and be confident by the fact that we understand them, we win.

We continue to successfully convert or protect the legacy HRH contingents, we noted that in the press release. In the first quarter of 2010, we had $8 million compared with $20 million in the first quarter of 2009. Let me just make a couple of points before I get off that subject with regard to contingent commissions, that they don’t convert that differential of $12 million, they don’t convert automatically in the first quarter, they convert overtime, over a period of the course of the year because it’s not a portfolio basis.

Secondly, they don’t convert dollar-for-dollar, a lot of times businesses lost or there is other things that occur in that business and they have been converted in a declining rate environment. So it’s not $12 million in the quarter, there are a lot of things that have jurisdiction over that $12 million and I thought I’d take a second to make sure that that’s understood.

So at the end of the day, our organic revenue growth came from strong new business with high client retention and producer retention. US recession and high unemployment continue to weigh especially on construction and our employee benefit businesses which I thought I’d mention because it is a big part of our business. The construction practice commissions and fees declined single digits in the first quarter. It is better than it was last year and they’re improving from now double-digit decline in the full year ’09 versus 2008 which is still in decline, now it’s a single-digit decline. They’re getting better.

Employee benefit practice represents about 20% of North American revenues, commissions and fees were flat in the first quarter of 2010 compared to 2009 which I think in a declining headcount job rate environment that was a very impressive result because a lot of this has to do with the amount of employees that are covered by our clients. So I think very, very impressive considering them point of levels.

Well I’m on the subject of employee benefits, I should give you a little bit of color, share a few thoughts on healthcare reform which is not an easy thing to do, it’s complicated and I’m not going to read all 2,600 pages but I’d give you our take on what healthcare reform is all about. Many of the final details of the legislation is yet to be determined and as such any definitive statement about its perspective impact on our business is difficult and it’s probably premature, I’ll take a few shots at it.

The legislation will create more insureds that's good for us. It will create more regulatory complexity and that’s certainly good for us. It will create incentives for cost management that will place the premium on world-class program, design and placement and that’s good for us and it will increase employer costs that will create the need to find high value, provide a broker that give them really intelligent consultation and that’s good for us. While the practical implications of medical loss ratios in state based exchanges are I think still will to be determined too early. Willis is – I think we’re well positioned to deliver what we believe clients will need.

Brokers with key structuring and transaction skills which we have along with broad consulting capabilities, I think will do well on the future environment. At Willis, we have all under one roof, we got all those capabilities, all the resources and we’re excited about the future as the economy recovers as more people are put to work, as more questions are answered, as more help is needed by our clients, we think that’s good. And then lastly I’ll tell you that our operating margin in North America expanded to 21.5% in the first quarter of 2010, up 60 basis points from a year ago, reflecting organic commissions and fee growth combined with ongoing cost management, just a terrific job in North America.

Let me talk a little bit about the international. The organic growth in commissions and fees continues to be good. It was 3% for the first quarter and continued its record of impressive growth across many regions in the phase of some slowing economic conditions which you are familiar with especially in some of the countries in Europe. Outside the UK and Ireland international grew 5%. So if you take out Ireland and its economic growth and if you take out the UK international grew 5%.

We had strong growth in Latin America let by Venezuela and Brazil. Asia let by Indonesia and China and Eastern Europe led by Russia while commonly Europe faces a more challenging economic environment as I said earlier resulting in lower growth levels. UK and Ireland retail are improving, but still declined 3% as they continue to face the economic challenges. We’ve seen some signs though of an improving economy in UK with positive GDP growth, while the Irish economy is showing signs it might have bottomed out, so that’s good.

Employee benefit practices which represented about 10% of international commissions and fees continues to perform well growing in mid-single digits. New business generation remains double-digit while absorbing a negative one point rate impact and then finally, international operating margins remained seasonally high at 33.9%. Now let me turn to global, the segment comprised of reinsurance just to remind you, Reinsurance, Global specialties, Faber & Dumas, Willis Capital Markets and Advisory had a 7% organic growth in commissions and fees in the quarter and in the phase of a two point rate headwind. Despite the continued softness in the market, each business delivered positive growth primarily driven by our reinsurance operation which continues to deliver.

Reinsurance had a high single-digit growth in the quarter. Growth was driven by strong new business generation in North America and strong growth in Europe and Asia. As a result of strong reinsurance underwriting process in 2009, this is general but disciplined softening of rates which continues to be a significant headwind. Insured losses not yet sufficient to change pricing but despite record loss activity in quarter one, it was the largest first quarter cat loss in history in the first quarter.

Global specialties are – revenues were the drivers, the financial and executive risk specialties and marine, strong business in a difficult environment, headwinds continue and include industry consolidation, depressed world trade and soft rates. Faber & Dumas our London based wholesale business also recorded positive organic growth driven by new business generation. Willis Capital Markets, all I can say is we’re happy with the early successes of Willis Capital Markets. It’s a very fledgeling business but we’re very, very hopeful and optimistic of what’s going to happen throughout the year and our global operating margin after having said all that was a seasonally high 45.5% in the first quarter.

So with all that as a backdrop let me turn it over to Grahame Millwater, who is going to talk to you about growth Shaping Our Future and funding growth as we go forward. Grahame?

Grahame Millwater

Thank you, Joe. We continued to drive our program with change and continual improvement across all the businesses and see the benefits from these programs reflected in our quarter results. Just to remind you the program focuses on three key areas. The organic growth program that is driving our revenue increase, Shaping Our Future which is driving our efficiency and profitability and funding growth which is the program managing our underlying expense base on a day-to-day basis.

Let me give you a brief update on progress report on all of these. Firstly growth, we’re now entering our second year of the growth program. We commenced at the beginning of 2009 and we initially focused on our international and global businesses and then our North American business in the second half of 2009 as we came out of the integration process. The growth program has the following key elements to it. First in driving the retention and new business metrics across every business unit with very define targets and those targets linked to our global incentives.

Secondly, increasing the productivity and effectiveness of our revenue generating associates and a major drive to recruit the best talents in the industry. Thirdly, continued development of our proposition in our key segments for global large accounts middle market and small commercial, and that combined with a real focus as Joe said earlier on our specialty skills and our industry segments. Also we’re focusing on real breakout growth segments such as China, Brazil where employee benefits facultative, reinsurance, Willis Capital Markets, etcetera. And in the first quarter of 2009, we had nine large meetings across the world, where we really engaged with a 1000 of our business leaders on the subjects of new business growth retention, business planning and targeting.

I have to say the optimism and excitement was so obvious at these meetings and just confirms the opportunity that we have in front of us as a group. The impact of all these initiatives has evidence in our sector leading organic revenue growth and it’s also very pleased to see our efforts in North America gaining traction. Now let me turn to Shaping Our Future. One of the questions we often get is whether our margin and our margin improvement is sustainable. One of the drivers of this not just been our day-to-day expense management, but our longer term program of change to our infrastructure program, processes and optimal use of locations such as our offshore center in Mumbai.

The momentum in this program that core Shaping Our Future continues and we will continue to drive benefits from this program over the coming years. We met the three year target we set ourselves at the beginning of 2008, within two years. Just to remind you this was to deliver cumulative additional net benefit to our bottom line of $100 million. Despite having met this target early we continued to drive the program and the associated benefits and in the first quarter of 2010 we delivered further additional growth benefits of $23 million with net margin benefits of $14 million.

The key drivers of these benefits in the past couple of years has been our focus on client profitability and enhanced new original commissions. However we’re now entering next interesting phase of Shaping Our Future where we start to drive real increase benefit from our longer term program with technology impressive change. Once we continue to manage our expenses on a day-to-day our efficiency gains going forward will largely derive from the infrastructure programs within Shaping Our Future.

We have three major large programs of technology impressive change in London, UK retail and now the ethic program in North America. And this will be extended into international retail in 2011. We also continued to roll out our program of location optimization with work being moved out of the branch offices to our regional service centers and then from the regional service centers to offshore in Mumbai and we’re now also in the process of identifying low cost service center location in Europe and Latin America, a non-English language related servicing requirements.

It is this combination of technology platform enhancement, key process change and optimal use of our service and support centers that really allows us to continue to drive cost efficiencies and increase service performance even as our revenues increase in line with our growth plans. And as I‘ve already said this plan allows us to believe that we continue to improve our margins over time.

Now let me turn to funding growth, the third of our major programs and we’re driving a funding growth program in 2010. As you know we achieved significant HRH synergies and rightsizing with us such savings in 2009. And generally speaking our major focus has shifted from integration to driving organic growth and building a platform build over the longer term efficiency gain. However, in 2010 we’ve identified further internal expense savings that come from just our performance management program and identifying other corporate expense improvements and we’re in the process of executing on those savings. This program will help us fund the investment we’re making in 2010 on these productive recruits and the further investments in our technology program.

Just a quick overview of where we are on these initiatives. Needless to say the accumulated effect of these has allowed us to yet another quarter of positive organic revenue growth and operating margins improvement. And with that I would turn the call over to Stephen Wood, our Group Controller and Interim CFO to review the financial results, Stephen.

Stephen Wood

Thank you Grahame and good morning or good afternoon everybody. Earnings, reported earnings for continuing operations in the first quarter were $204 million or a $1.20 per share. Reported earnings were impacted by nontaxable one time charge of $12 million or $0.07 per share. This relates to the Venezuelan currency devaluation. Adjusted earnings from continuing operations in the first quarter of 2010 excluding the Venezuelan revaluation with $216 or $1.27 per share.

Other foreign currency movements positively impacted earnings per share by $0.06 in the first quarter of 2010. Let me now turn over operating margin. Reported operating margin was 31%. This was negatively impacted by the one-time charge related to the Venezuelan devaluation. Excluding the impacts of the devaluation adjusted operating margin for the quarter was 32.2%, up 240 basis points from 29.8% in the year ago quarter.

The first quarter of 2010, adjusted operating margin was impacted by solid growth in commission and fees, lower investment income as global interest rates remained low, lower pension, severance and amortization cost and favorable operational FX. Let me give you some more details now on the expense. 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 were 50% up total revenue in the first quarter of 2010 compared with 51.6% in the year ago period.

As reported in the press release we have a cash retention program in place. We started awarding retentions in 2005 for a small number of people. With the success of the retention program we expanded it over time to include more staff on an employee turn of half decline. Given the increase prominence of that program we believe that is appropriate to give additional color. In the first quarter 2010, cash retention awards of $169 were paid with amortization currently over three years, starting from the beginning of the quarter in which is the payment is paid.

Salary and benefits includes $28 million of expenses relating to the amortization of cash retention awards compared to $18 million of expenses in 2009. Salaries and benefits do not reflect the unamortized portion of annual cash retention awards. At the end of the first quarter of 2010 the balance sheet held $233 million unamortized retention awards in other assets, $98 million as of December 31, 2009 and a $127 million as of March 31, 2009. Reported other operating expenses were $149 million in the first quarter of 2010 compared with a $138 million in the first quarter of 2009.

We will continue to maintain the strict expense control protocols we had in place throughout 2009. Operational Foreign Exchange, operational foreign exchange is a positive impact on a Q1 2010 adjusted earnings per share and adjusted operating margin compared to the quarter a year ago Q1 2009. The Euro appreciated positively impacting results due to overweight of Euro revenues. And the Pound appreciated against the dollar negatively impacting expenses due to overweight of Sterling expenses. However the impact of this was broadly offset by our hedging program.

Let me move to tax items, reported income taxes, income tax expense for the quarter was $67 million compared to $62 million expense for the comparable period a year ago. The effective tax rate for the quarter ended March 31, 2010 was 26%, after adjusting for the net effect of 13 items. The underlying effective tax rate for the quarter on the March 31 2010 remains at 26%. The same underlying effective tax rate for the full year 2009. Associates, income from associates was $20 million in the first quarter of 2010 compared to $26 million in the year ago quarter. This line is reported net of interest from (inaudible) in the Gras Savoye we completed last year.

We currently estimate that the reduction ownership of Gras Savoye will reduce the associate line by approximately $10 million in 2010 compared with 2009. Pensions, like others our defined pension plans continued to impact our income statement, balance sheet and cash flow. Our main plans were in the UK, US with several smaller plans in international. The scheme had a combined deficit of around $120 million at the end of 2009. That deficit was approximately $80 million at the end of the first quarter 2010.

We expect to make total contributions to the firm of approximately $125 million in 2010. We currently estimate pension expense in 2010 to be approximately $40 million. Debt and capital management, total debt at the end of the first quarter is now $2.4 billion compared with $2.37 billion as at December 31, 2009. As we typically do it this time of year, the revolver was drawn from normal seasonal usage to tune up of about $65 million. As you know we paid bonus and cash retention awards in the first quarter and the revolvers on paid back over the subsequent quarters.

We also had a mandatory term loan repayment in the quarter of $27 million. Debt reduction remains our priority. Looking at the rest of the year, we have mandatory term loan repayments of $27 million per quarter and a final bond maturity payments of $83 million in July. Cash and cash equivalents was a $196 million as at March 31, 2010.

With that I will now turn the call back to Joe.

Joe Plumeri

Thank you very much Stephen. Before I give you some concluding comments, I just wanted to give you an update our CFO search. The process is moving along very, very well. It’s a very, very important position, so we’re not rushing it. Shortlist very strong candidates across the board and we hope we’ll make a decision soon so you’ll be hearing that about that I think very soon. So let me just summarize, what I think are our key events.

Adjusted earnings per diluted share from continuing operations was $1.27, adjusted operating margin of 32.2% and 3% organic growth in commissions were positive, organic growth in each segment which as I said before is outstanding. So reiterate the priorities, many of what which you’ve heard over the course of this presentation. Reinforce our sales and revenue culture to drive growth, high growth in new business and high retention rates, further execute Shaping Our Future, that’s going go on for a long, long time it’s part of the culture of this company, maintain – continue to maintain as we have for years. Disciplined expense management to fund that growth and also to be able to fund the difficult environment we’re in and to continue to strengthen our balance sheet and continue to get to the point where we get the debt-to-EBITDA down to the levels that we mentioned earlier.

I think all of these efforts have and will continue to position us very, very well for success and I’ll turn this over to the moderator, who will ask you if you got any questions. Thank you.

Question-and-Answer Session

Operator

At this time, we’re ready to go to question-and-answer session. (Operator Instructions) One moment for the first question please. Keith Walsh from Citi. You may ask you question.

Keith Walsh – Citi

Hey Good morning everybody.

Joe Plumeri

Hi Keith, how are you doing?

Keith Walsh – Citi

Good. How are you Joe?

Joe Plumeri

Good to see you the other night.

Keith Walsh – Citi

Yes, same here. I guess first question the same one I have been asking I guess for the last four quarters in a row. The contingent you tell us it goes from 20 to 8, I'm assuming the other 12 I mean, you alluded to this a little bit maybe it’s less converted to regular commissions, is this number is or is that $12 million or $10 million whatever it is included in your organic growth rate of 1% in North America?

Joe Plumeri

No. It is not, I mean you – it’s something you and I’ve been talking about for a while and it’s just the suggestion is that the 12 is converted in one quarter, it is not. Its converted over a period of time and when it’s not converted on a dollar-for-dollar basis there is lost accounts in there, there is different kinds of treatments as it relates to the way about stuff flows through so that when you take all of that stuff in the account first declining rates the $12 million is almost de minimis, it's almost nothing there.

Keith Walsh – Citi

Okay. So just to be clear here, you had $20 million of contingents, now it’s only 8. There is the gap in between there and you’re telling me that gap is nothing?

Joe Plumeri

A gap of $12 million which appears to be in your particular case and I could appreciate that that suggest that when you take that away from we’re in a growth number that we’re not really growing 1%, to simply a difference of miscalculation in the way you look at it. The $12 million is not converted in one quarter Keith, the $12 million is not, its spread out throughout the year, so that gives you a very small percentage in the quarter, secondly it’s not done on a quarter – on a dollar-for-dollar basis. There are declining rates that are also included in there and there is also included in that calculation lost accounts that we’ll never see again and as a result of that when you include all of those factors, it’s de minimis.

Keith Walsh – Citi

Okay, so basically you’re saying that $12 million is an immaterial number and that 1% organic is more representative of your true organic growth even if I stripped out both of the interest.

Joe Plumeri

Yes, and another thing I would say on top of that whatever the number is that is converted into the upfront commissions which we’ve done over the last year and a half are work that we have to do to convert them from contingents to upfront commissions. So if you do all of that whatever is left and I think it’s small, it’s not a great percentage of the converted contingents it’s still upfront commissions which we had to work to generate. So when you put all those things together I don’t see that that had a grave effect upon our organic growth.

Keith Walsh – Citi

Okay, and then just moving on to Peter, looking at the strength in global I'm assuming a lot of that’s coming from reinsurance. Maybe if you could just talk a little bit about the strength there between maybe, buckets of price, carrier retention and maybe share gains from some of your larger competitors?

Peter Hearn

Yes, I think it’s a combination of all three Keith we’ve had in place in reinsurance a very strong sales, just went for a number of years starting to manifest itself in all of our businesses. We’ve still benefit from the purchase of R.K. Carvill last year on top of the strong North American growth we had but it’s a function of high client retention which is always been a hallmark of Willis Re, strong sales discipline and yes some fall out some of our competitors.

Keith Walsh – Citi

Okay and then just if I could sneak one last on Steve and just on the pension expense, I think you said the GAAP expense of $40 million in 2010. If you could just remind us what it was in 2009?

Stephen Wood

In ’09 it was, just a second, I’m just looking, $43 million.

Keith Walsh – Citi

Great, thanks a lot.

Joe Plumeri

Thanks Keith.

Operator

Our next question comes from Jack Sherck with SunTrust.

Jack Sherck – SunTrust

Hi, thank you very much. Just a question about the rate headwind in the US, you mentioned it was down 3% versus down 6% in 4Q and it was due to a change in the mix of business rather than a change in the market. I just wanted to know if I’m interpreting that correctly was it more strength did you saw in healthcare, financial, personal lines and real estate, did you know what that was?

Joe Plumeri

I’ll let Don to answer that question.

Don Bailey

And the answer would generally yes, so the point that Joe was trying to make is that we’re not suggesting that there is some demonstrable demands trend in the marketplace where rates are getting better. It’s not the case at all. What you’re seeing is more different products that represent our mix of business in the first quarter versus the fourth quarter, that’s all.

Joe Plumeri

It’s a question of sector strengthening, some lines getting better than other lines but so when you look at say rates seem to be getting better, that’s not case, that’s why I mentioned it’s more of a mix of the type of business and the lines of business rather than it is a broad book that’s going from six to three.

Jack Sherck – SunTrust

Right, and then you mentioned that in North America employee benefits is about 20%. What is that construction now?

Joe Plumeri

How much percentage of our business is construction?

Jack Sherck – SunTrust

Exactly.

Joe Plumeri

In North America, it's 10%.

Jack Sherck – SunTrust

10%. And then just my final question is on the 2% rate headwind that you mentioned in global. What was that last quarter, do you remember?

Joe Plumeri

What was that last quarter? It’s about 2%.

Jack Sherck – SunTrust

Okay, great. Thank you very much.

Joe Plumeri

Thank you.

Operator

Our next question comes from Keith Alexander with JPMC.

Keith Alexander – JPMC

Hi good morning.

Joe Plumeri

Hi good morning.

Keith Alexander – JPMC

Hi, I was wondering do you expect growth persists in global and international for the rest of 2010.And if not what kind of macro environment is needed to keep it positive?

Joe Plumeri

Well we certainly hope so, I can't make any predictions the economy there as you know is very inconsistent especially in the so called PIGS countries. But I will tell you that the PIGS countries just represent 15% of our revenue in international, but they’re good countries, Spain and Italy especially are very big countries for us but the total is only 15%. So there is a lot of inconsistency, you got Ireland, still not getting to positive GDP but getting better, the UK is positive GDP and that’s getting better. We don’t know what’s going to happen in Europe. We could get more strength in obviously Germany and France but then you got the Spain and Italy thing but I think when everything is certainly done and of course our Asian operations and South America – Latin America have done very, very well.

So when you put all that together you got 3% strength if you could UK and Ireland and you got 5% strength if you don’t include it. So well we’re very helpful with everything that we got in place and the consistent results that international is showing that we’re hopeful that that’s going to continue.

Keith Alexander – JPMC

Okay, great that was helpful. And then I was wondering if you could talk about why Willis has been able to grow North America while some peers, particularly in the middle market have had more difficulty?

Joe Plumeri

Well I’m looking at Don Bailey and I think our management is outstanding. We really spend a lot of time with our producers, I said that and then I’ll let Don answer this but we spend a lot of time with our producers. We’re very intense about the relationship we have with our producers. We have lots of growth oriented training that talks you growing our business and retaining our clients. Our client retention is 92% and growing, but if you take loss for cause, out of that 8% differential, it’s about 3 or 4% that’s actually lost, so that’s a great number. I think that the way we run our practices and our specialisms which means there are practices help our producers feel specialized in the areas that our clients are interested in and if you take all of those things together, that’s the reason why we grow as well as we do. There is a simply a different model that we execute in North America, lots of the time in our branches around the country are spent in servicing our clients’ needs, in talking about what they need to have done rather than a lot of administration and more that’s going to continue as we continue to do more administration outside of branches and less in branches. So I would say those are all the reasons. Well, Don is here.

Don Bailey

There is nothing to add –

Joe Plumeri

I missed anything.

Don Bailey

No, you didn’t.

Joe Plumeri

I wanted to answer that because I wanted to say that I think he is doing a great job and you would say that.

Don Bailey

Maybe he would.

Keith Alexander – JPMC

Thanks for that, has there been any change to how you define the middle market in terms of client size?

Don Bailey

Not really, we just a lot more of that business by virtue of the HRH combination than we ever had before so we’ve got some great critical mass in our core business which allows us to deploy a lot of the strategy that Joe was just talking about. It makes the recruiting game a lot more wide open than it was before, we can recruit from everybody, because we’ve got a space, a critical mass in that space and we’ve got it in cities all across the country. We now have a 130 plus offices all over North America. So our business in the middle market is not one that’s just focused around major cities, it’s a secondary and tertiary city presence as well.

Keith Alexander – JPMC

Okay, and then one last question, regarding the UK pension plan, was there any impact from foreign exchange mark-to-market on the plan in the quarter?

Stephen Wood

No there wasn’t that much impact actually assets increased and the dollar weekend, so it had a base (inaudible) up.

Keith Alexander – JPMC

Alright, great. Thank you, guys.

Joe Plumeri

Thank you.

Operator

Our next question comes from Brian Meredith with UBS.

Brian Meredith – UBS

Hey good morning everybody.

Joe Plumeri

Hi Brian, how are you doing?

Brian Meredith – UBS

Good. I had a question, I’m just looking at some of the numbers here. The corporate expenses looked like they were down substantially, is that due to FX or is that really where a lot of the expense saves have been coming out of?

Stephen Wood

That’s our corporate expenses as we put our hedging through and the amount of hedging that went through their was lower this year than it was last year, so the amount from hedging which was lower.

Brian Meredith – UBS

Okay, so that’s the principal reason why there is a big decline.

Stephen Wood

Yes sir.

Brian Meredith – UBS

Got you, and then next question, are you seeing any increase or any change in kind of the competitive pricing among the insurance brokers out there, or is it everybody kind of being disciplined with kind of fees right now?

Joe Plumeri

I don’t think everybody is the same. I think that you hear a lot of stories about the competitiveness of people dropping their fees to keep accounts. You heard out all the time, but I’m not going to suggest it comes from anyone place but you do hear stories about that all the time, we’re competing for accounts and some (inaudible) we won or we loss because so well they drop their fee enormously. Yes, it’s still out there, is it prevalent rather than once in a while, I think it’s more prevalent than it is once in a while. But in our particular case, we do most of our business in commissions, and when we do business on a fee basis, I do hear stories that people are dropping their fees a lot in order to hold onto accounts and come back and play another day. I think that’s accurate. Don, you want to?

Don Bailey

The other dynamic is just the clients in this environment are looking for more for less. So we’ve got that dynamic that plays out on top of what Joe just described which is brokers who are looking for that elusive organic growth who are increasingly more competitive on their fees.

Brian Meredith – UBS

Thank you very much.

Joe Plumeri

Thank you.

Operator

The next question comes from Meyer Shields with Stifel Nicolaus.

Meyer Shields – Stifel Nicolaus

Thanks. Good morning all.

Joe Plumeri

Hi Meyer.

Meyer Shields – Stifel Nicolaus

If I can take one more whack at the contingent commission issue or the conversion, I understand that only a small portion of the $12 million gap is going to show up as commission revenue this quarter, but I would think that this quarter would also include the converted contingents from previous quarters. Is there any way to sort of ballparking that total figure?

Joe Plumeri

No, it’s what it is, there is nothing else there. I don’t know, I’ve tried to bear down on this issue for what it is. The $12 million gets converted to upfront, it doesn’t happen at one time contingence by their nature, don’t happen all at once, it’s a book of business that is calculated over a course of the year, not in one quarter, and it’s not done on a dollar-for-dollar basis. And it’s certainly doesn’t include because the legacy HRH contingence that they’re necessarily going to be everything in there that’s going to be converted. So when you put all that together it’s just not what it appears to be, it’s not part of organic revenue, the organic revenue growth is there. I tried to explain it as easily and as thoughtfully as I possibly can for you.

Meyer Shields – Stifel Nicolaus

Okay, let me move to a different subject and on the reinsurance side, can you give us a breakdown of how much reinsurance brokerage revenue is fees versus commission?

Peter Hearn

It’s about 30% fees.

Meyer Shields – Stifel Nicolaus

Okay. So not too different from the primary side?

Peter Hearn

No.

Joe Plumeri

And basically mirrors of across the board.

Meyer Shields – Stifel Nicolaus

Okay, if your expectation that there is more growth opportunity in terms of market share gains from larger competitors or smaller, and this is again on the reinsurance side?

Peter Hearn

I think it’s both Meyer, I think we feel comfortable, we can compete against anybody, any place or any time. So it depends on the situation. So either large or small.

Meyer Shields – Stifel Nicolaus

Okay, great. That covers me, thanks so much.

Operator

Our next question comes from David West of Davenport & Company.

David West – Davenport & Company

Good morning.

Joe Plumeri

Hi, David.

David West – Davenport & Company

First question on the benefits side you mentioned the obvious that many employers have lower head counts, could you talk about the pricing trends overall on benefits?

Don Bailey

I mean you’re going to see in that business inflation factors that play out in the rates. So those have certainly moderated from what we’ve seen in the past, you’ll see a lower impact on that in our business that you might have seen historically.

David West – Davenport & Company

Very good, and then lastly Stephen nicely outlined your debt maturities and so forth this year. Could you maybe update us on your thoughts on 2010 as to where you may get on the EBITDA-to-debt targets and what implication that might have for share repurchase activity?

Joe Plumeri

Stephen and I’ll put a period at the end.

Stephen Wood

Debt-to-EBITDA at the moment is in the region about 2.5, that’s EBITDA and we expect to go continue to bring that down as the year goes on during this year and to get below 2.5 towards end of this year.

Joe Plumeri

And when that happens as I said on a couple of previous calls, we’ll take a serious look at buybacks.

David West – Davenport & Company

Very good, thanks so much.

Joe Plumeri

Thank you. Have a nice day.

Operator

And our final question comes from Keith Alexander of JPMC.

Keith Alexander – JPMC

Hi, thanks for the follow-up. I just had a question, have you guys observed any impact from the recent large losses in Chile and elsewhere on terms and conditions in those lines in geographies?

Joe Plumeri

We were talking about that earlier before the call and the expert on the subject is Peter Hearn’s so I’m going to let him answer the question.

Peter Hearn

Keith not yet, it takes a while for these to percolate through the system. As you may have read in our year report that there were $16 billion of loss in the first quarter of 2010 and it really hasn’t moved the dial on rates at all obviously the rig loss in the Gulf is a very large and potentially could be the largest maritime loss ever, and that could take time for these things to percolate through the system. Usually at a minimum three to six months and more likely nine months.

Keith Alexander – JPMC

Okay, and then, thanks that was helpful, I was also wondering if there is any update or if you could provide an update on the progression of the Stanford Financial lawsuit?

Joe Plumeri

Yes, Stanford Financial law suit, I’ll let Adam Ciongoli give you an update on that, our General Counsel.

Adam Ciongoli

We filed a motion to dismiss and there are four cases overall, three in Federal court, one was originally filed in State court has now been removed to Federal court, although for the same Federal district judge. We filed a motion to dismiss and two of the Federal claims and are expecting an answer from the plaintiffs any day now the third Federal case, there has been no movement, we’re waiting for scheduling order and the State case as I said has been transferred to Federal court and we’re waiting to see whether the judge decides to move it back to State court.

Keith Alexander – JPMC

Great. Thank you guys.

Joe Plumeri

Okay Keith. Any other questions.

Operator

There are no further questions at this time. I will turn back over to Joe Plumeri.

Joe Plumeri

Okay, that’s me. Have a nice day everybody and thank you very much.

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Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

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Source: Willis Group Holdings Ltd. Q1 2010 Earnings Call Transcript
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