Aon Corp. Q4 2007 Earnings Call Transcript

Aon Corporation (AOC)

Q4 FY07 Earnings Call

February 8, 2008, 11:00 AM ET

Executives

Gregory C. Case - President and CEO

David P. Bolger - EVP and CFO

Analysts

Keith Walsh - Citigroup

Brian Meredith - UBS

Meyer Shields - Stifel Nicolaus

Chuck Hamilton - FTN Midwest

David Small - Bear Stearns

Jay Gelb - Lehman Brothers

Dan Farrell - Fox-Pitt Kelton

Mark Lane - William Blair

Jay Cohen - Merrill Lynch

Dan Johnson - Citadel Investment Group

Mathew Heimermann - J.P. Morgan

Al Copersino - Madoff Investments

Presentation

Operator

Good morning ladies and gentlemen and thank you for holding. Welcome to Aon Corporation's Fourth Quarter 2007 Earnings Conference Call. At this time, all parties will be in a listen-only mode until the question-and-answer portion of today's call. I would also like to remind all parties that this call is being recorded. If anyone has an objection, you may disconnect your line at this time.

It's important to note that some of the comments in today's call may constitute certain statements that are forward-looking in nature as defined by the Private Securities Reform Act of 1995. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated. Information concerning risk factors that could cause such differences are described in our press release covering our second quarter results, as well as having them posted on our website.

Now it's my pleasure to turn the call over to Mr. Greg Case, President and CEO of Aon Corporation. Please go ahead sir.

Gregory C. Case - President and Chief Executive Officer

: Good morning everyone and welcome to our fourth quarter and 2007 conference call. Joining me here today are Dave Bolger and Christa Davies, our current, and incoming CFO.

On the call today, I'd like to cover four areas: first, our performance against key commitments to shareholders; second, continued areas of investment across Aon; third, organizational changes we've made to strengthen our firm; and fourth, overall organic growth performance for the quarter. I'll then turn the call over to Dave for further financial review.

On the first point, performance against our key commitments to shareholders. As we commented in yesterday's press release, our fourth quarter results reflect the strength of our industry leading global network and continued progress in each of our key operating metrics. Our team feels very good about the results for the quarter and for the 12 months as we complete year two of our initial three-year improvement plan.

As we do each quarter, we report on three metrics we committed to our shareholders: grow organically, expand margins, increase earnings per share. Our plans are committed to achieving all three over the course of each year, not necessarily every quarter. Further, we said we would not sacrifice one of these metrics for the other.

We're very pleased to report our fourth quarter reflects continued improvement in all three metrics. Organic growth increased 2% in brokerage, and 3% in consulting services. Pre-tax margin on an adjusted basis increased to 110 basis points, and EPS on an adjusted basis increased 17%.

As we said before, we're not going to use soft pricing conditions as an excuse. And when you look at results of our larger markets in brokerage, you see solid organic growth on our Americas and EMEA regions and in reinsurance, again demonstrating the strength and capabilities of our industry leading network.

On the second point, areas of investment across Aon. Our team is excited about this industry. We believe in the aggregate level of risk, as we've looked at it continues to increase in complexity, and size around the globe. And as a result, the needs of our clients are increasing, and Aon is exceptionally well positioned to help them understand and capitalize on this challenge and long-term opportunity.

During the quarter, we continued to make a number of significant investments across the organization in both key talent and in our practice areas to better serve our clients and drive long-term growth, including a group of colleagues who joined our aviation practice primarily in the Southeast, key leadership additions in our life sciences practice, investments in our affinity business, the retail expansion... our regional expansion in Latin America, and in new specialties such as healthcare. Also welcomed the new vice Chairman of our reinsurance group who is up and running, a group of colleagues to strengthen our construction services group. These highlight five areas, but the list is long. And overall, we continue to make substantial investment that will position our firm for greater growth and profitability.

As we invest in capabilities and add leadership across organization, we're very careful to do this in a way that is coordinated and leverages our global network. Through our client leadership approach and revenue engine work, we are gaining an in-depth understanding of local market share, better visibility to manage our pipeline and driving greater individual accountability.

We're also improving our ability to take innovative products, such as Aon Advantage, Rapid Response, our overall class environmental capabilities, and deliver this value to our clients around the globe. Through our operational excellence effort, we're reducing operating costs to create a more efficient global network that enables investments in additional resources and capabilities to serve clients as highlighted by the $225 million savings in 2007 from our restructuring program.

Through portfolio simplification such as the sale of our underwriting businesses, we are fully focused on our core strengths in professional services specializing in risk and human capital. In short, we're investing very, very heavily in the future of our firm, at the same time we're increasing margins.

On point three, organizational changes we made to strengthen our firm. We announced yesterday the formation of Aon Risk Services, which consolidates all of our retail brokerage assets into a globally coordinated group with 26,000 colleagues and more than $5 billion in revenue. This is a powerful statement, and the formation of Aon Risk Services follows on our success with globalization of our consulting and reinsurance groups bringing together a single global view of our retail brokerage assets. This will improve our ability to drive products and services seamlessly to clients anywhere around the globe.

This has been part of the overall plan since the beginning. And thanks to the tireless leadership of our Aon's colleagues around the world, we are able to accelerate by about a year this very logical next step in our development. The announcement also included several leadership changes I want to highlight.

These changes continue to build on our strong global team and has great cross-functional knowledge in our firm. Steve McGill will serve as Chairman and CEO of Aon Risk Services leading the engagement with our clients and markets. Ted Devine who was previously CEO of reinsurance will rejoin Aon Risk as President and a partner with Steve McGill. Reporting to Ted will be each of the country or regional leaders including EMEA, APAC, UK and the Americas.

Andrew Appel, who was previously CEO of consulting will bring his career knowledge, capital markets background and operational experience with him as the new CEO of Aon Re Global. In this role Andrew will team with Michael O'Halleran, our Executive Chairman of Re and the market face of this important group. Our team in Re has developed a great operating plan to build this business. And Mike and Andrew will continue to drive this plan forward working with the global team.

The consulting business will be led day to day by co-heads, Kathryn Hayley and Bal Dail. Kathryn will continue in her U.S. CEO role as she assumes the global position with Bal. And Bal currently chief administrative officer for consulting and the chief information officer for Aon will continue in the global CIO role as he moves to the chief executive role of Kathryn. And Andrew will continue to support the consulting team as Chairman.

I must tell you I can't begin to describe how privileged I feel to be working with a group of leaders we have across Aon, including the colleagues I've just highlighted. We have a strong and a very dedicated team who will continue to do great things on behalf of our clients, our people and our shareholders.

On point four, organic growth performance for the quarter. In brokerage, overall organic growth was 2%, reflected due... strong new business growth across the organization with both existing and new clients. Also reflected retention rates 90% or better on average, highlighting strong client satisfaction. We also enjoyed strong double-digit growth in new business in several areas. And we continue to see benefits from investments in many areas, such as environmental, construction among many others.

For us in brokerage, this really reflected solid results, despite market conditions where pricing was down on average, mid single to low double digits outside the Americas and mid-teens in the Americas.

In the Americas, specifically organic growth was 3% in the quarter reflecting strong performance in our Latin American region in our affinity business. Solid new business growth in U.S. retail both in large corporate and middle market. For the business we track off the income statement in terms of wins and losses. We continue our win rate at about 2 to 1. And as I said before we continue to make very substantial investments in our capabilities during the quarter adding key hires and capability in many, many areas.

In EMEA, another quarter of strong performance with organic growth of 5%, double-digit growth in emerging markets such as Africa and the Middle East. Solid growth in continental Europe. Again retention rates well above 90%. In this region, we just enjoy exceptionally strong presence and strong country leadership and is reflected in the results.

In APAC, it was a tough quarter here with an organic revenue decrease of 6%. In order to understand APAC you've got to understand that it's really a story of three areas; Asia, Australia and Japan. In Asia we achieved double-digit growth across many Asia market such as China, Taiwan, Thailand. Continue to make... and we continue to make many investments across the region in areas such as energy and risk just to name two.

In Australia, we continue to work through soft market conditions. We're doing a lot in Australia around segmentation to improve new business growth. And we're beginning to see instances of price stabilization where insurers are beginning to hold the line on pricing but with caution still early signs.

In Japan which represents less than 10% of the revenue for the region, we continue to work through regulatory changes that have impacted a specific investment, we made to build capabilities to support clients. And we're evaluating alternatives for this piece of business going forward.

Overall, we anticipate the APAC business will be a bit lumpy due to the specific investment made in Japan and soft market conditions in Australia. But expect improvement from the levels we are currently as we move forward.

In the UK organic revenue was a decrease of 1% in the quarter. Strong performance was seen around solid new business trends in the specialty network area including aviation, marine and natural resources, again with retention rates well above 90%. And this is offset primarily by timing and soft market conditions and weaker new business trends in U.K. retail, as we continue to invest in sales leadership and additional capabilities.

In reinsurance, strong performance with organic revenue of 3% for the quarter, despite higher seeing [ph] retention and soft pricing. Growth in facultative placements from our key investments were reflected here as well as growth in capital markets transactions. And we are winning new business in our traditional treaty book. Very strong performance, and overall reflects very strong leadership positions.

Our colleagues in reinsurance are number one, in treaty number, one in FAC, number one in capital markets. And this really provides our clients with a great integrated solution around capital management.

In consulting overall, we reported an organic revenue decrease of 5% in the quarter. And as previously highlighted, this segment continues to be a tale of two businesses. In the core services business, organic growth was 3% after a strong performance in the prior year quarter. And this was driven primarily by growth in our compensation and health and benefits groups.

In the outsourcing business, we were down 32%, as a direct result of our previously announced contract that was terminated, and in the prior year we highlighted that we had recorded additional revenue related to winding down that contract. On a sequential basis going forward, we have largely absorbed the client related to this contract, overall once again in consulting, solid progress.

In summary, as our team reflects on a very busy quarter, it's really a story about continuing momentum and progress. We are in a position of strength with the industry's broader set of globally owned resources and capabilities. We continue to work to change the behavior of how we evaluate and how we sell into our market segments, as well as reinforce a culture of being held accountable for performance and delivering distinctive value.

We intend to do that while continuing to deliver margin improvement, and internally funding very substantial investments, which are building a base for a longer-term growth platform across Aon. We're focused on core strengths as we align our global assets with the formation of Aon Risk Services, as well as we're on track to complete the sale of Sterling by the end of Q1 and the sale of CICA by the end of Q2.

In short, we're working hard to sustain and build on our leadership position in the market with our clients. Overall, we feel good about our progress for the fourth quarter, and where we are at the end of the year against our... in year two of our three-year plan.

With that said, I'll now turn the call to Dave for a review of progress on our margin and EPS commitments, and to discuss the financials in greater detail. David?

David P. Bolger - Executive Vice President and Chief Financial Officer

Thanks Greg. Good morning everyone. As Greg noted our positive momentum continued in the fourth quarter with improvement in each of our three key financial metrics. Organic revenue growth was solid in a challenging market. We saw meaningful margin expansion in both the brokerage and consulting segments, and earnings per share from continuing operations was up significantly.

We also believe we're managing our balance sheet and capital prudently, and continue to sharpen our focus on strategically core businesses with the announced sale of Combined Insurance, Sterling Life, and the increase to our stock repurchase authorization.

The results of Combined and Sterling are reported in discontinued operations, and the results of the remaining P&C run off book have been moved to the unallocated section in continuing operations. Consequently, we are no longer reporting an insurance underwriting segment. You see an unusually high effective tax rate in discontinued operations, as some of the tax liability relating to the estimated gain on sales of certain of Combined foreign subsidiaries had to be booked in the fourth quarter. This is simply a timing item.

For the quarter EPS from continuing operations was $0.59 per share, up 37% from the year ago quarter. There are a couple of items, which we think are important to understand in assessing core performance. First as usual, we schedule out the restructuring charges, which in the fourth quarter were $34 million or $0.07 per share. Second, during the quarter, we recorded a $15 million non-cash adjustment related to a UK balance sheet reconciliation difference, which came to light, as we converted our financial systems to a new general ledger. This difference accumulated over a number of years prior to 2005 and equated to $0.05 per share.

Finally, we recognize a gain of approximately $6 million relating to the sale of one of our managing general underwriters during the quarter, which equated to $0.01 per share. Consequently, we would view the core or adjusted EPS performance of $0.69 a share, up 17% against the comparable number a year ago. Foreign currency translation had a favorable impact in the quarterly comparison to a year ago adding $0.04 per share to fourth quarter results.

Before turning to our business segment, let me spend a moment on the 2005 and 2007 restructuring programs and on pension expense, important initiatives driving margin improvement, and enabling concurrent funding of investments for the long-term growth of Aon. Related to the 2005 program, we have incurred $366 million of charges, and the actions necessary to generate the savings are complete.

We believe that we have realized approximately $225 million of annualized savings in 2007 and are on schedule to realize our $270 million target in 2008. I would point out that our estimated savings targets no longer include any benefits related to those businesses, which have been placed in discontinued operations.

With respect to the 2007 program, we incurred $29 million of charges in the fourth quarter. We anticipate this program will result in $360 million of charges once complete and $50 million to $70 million of savings in 2008, $175 million to $200 million in 2009, and $240 million of cumulative annualized savings by 2010 before any potential reinvestment. Page 13 of the press release provides our usual quarterly update on these programs.

Finally, I want to update you on pension expense. Pension expense for our major defined benefit pension plans in the fourth quarter was approximately $15 million compared to $54 million in the fourth quarter of last year. Partially offsetting this reduction is increased defined contribution costs of about $5 million per quarter as our UK plan was modified to remain competitive in that market.

We currently estimate the collective pension deficit in the major plans to be approximately $870 million at December 31st, down from $1.1 billion at year-end 2006 and $1.7 billion at year-end 2005. We previously told you that our pension deficit and annual pension costs were key financial priorities, and we continued to successfully address both of those issues, which have constrained our financial flexibility, and significantly affected our margins in an adverse way.

As you know, future expense and funding positions will depend on a number of factors, including interest rates, asset returns, and mortality assumptions. But we feel very good about the progress in this area. Pension expense was $233 million in 2006, $80 million in 2007, and we currently anticipate 2008 pension expense will be similar to the 2007 level.

Turning to the segments, I'll focus on adjusted pre-tax income and margin, which are detailed on page 12 of the press release. For the quarter, adjusted brokerage pre-tax income increased 15% to $305 million. Adjusted pre-tax margin improved 100 basis points to 18.5%. Expense discipline has been a recurring theme of these calls. And in a challenging pricing market, prudent expense management becomes even more critical.

So, let me spend a minute on expenses in our brokerage segment. As you can see from page 10 in the press release, total brokerage expenses in the quarter increased $44 million, or 3% from last year. Included in the quarter-over-quarter results was a decrease of $40 million in restructuring charges. Excluding that, expenses increased $84 million of which $69 million is accounted for by foreign currency translation. So, you are left with the underlying expense increase of $15 million on a quarterly expense base of $1.3 billion to $1.4 billion.

The point is that our expense initiatives continue to manage the inherent inflationary push and the investments we are making in the business with the net effect driving meaningful margin improvement. I would point out that for the full year the adjusted brokerage margin was 18.1%, up 200 basis points from 2006.

In consulting, adjusted pre-tax income increased 14% to $64 million compared to the fourth quarter of 2006. Adjusted pre-tax margin improved 180 basis points to 17.2% in the quarter, a record margin for any quarter driven primarily by the realization of restructuring benefits and other operational improvement efforts.

The story in consulting is largely the same as in brokerage. As you can see from the press release, expenses were relatively flat despite $14 million of unfavorable impact from foreign currency translation. Absent that, consulting expenses were down meaningfully year-over-year reflecting solid expense management while again funding investments in people and capabilities to drive future growth. For the full year, the adjusted margin was 14.8%, which is up 390 basis points from 2006.

Finally page 10 of the earnings release provides information on unallocated items for the quarter and reflects the adjustments related to placing the remaining underwriting activities into discontinued operations.

The property and casualty loss was $4 million compared to a loss of $3 million in the prior year quarter. All P&C business was placed in run off in the fourth quarter of 2006. We would anticipate this run-off book to have a loss of approximately $13 million in 2008 consistent with the loss of $13 million in 2007.

Unallocated investment income for the fourth quarter increased slightly compared to the prior year quarter, but more importantly for you to understand reflects the movement of income earned on policyholders' surplus into discontinued operations in light of the impending sales of Combined Insurance.

Unallocated investment income largely reflects benefits relating to our PEPS securities, which we believe have a value of approximately $150 million in excess of their carrying value. We anticipate continued cash distributions, which should over time monetize that gain, although the timing of these cash distributions is subject to uncertainty and will vary from quarter-to-quarter.

Unallocated expenses increased $12 million to $39 million versus the prior year, including the resolution of the $15 million non-cash balance sheet reconciliation item in the UK. Absent that non-cash item, unallocated expenses were down $3 million over the prior year quarter.

Interest expense increased $6 million to $36 million versus a year ago due primarily to a higher percentage of borrowings and foreign currencies, and the resulting translation impact of that expense and higher interest rates. We realize there are a lot of moving pieces in this section. We previously provided a guidance of a loss of... to estimate a loss of $35 million per quarter for this section.

Going forward, we would anticipate a loss of approximately $50 million to $55 million per quarter. The increased loss largely reflects the elimination of income earned on the policyholders' surplus of approximately $12 million per quarter, and the inclusion now of the quarterly P&C run-off loss. This guidance does not include the impact of investment income on cash received from the pending sale of our remaining insurance underwriting businesses.

The effective tax rate on continuing operations was 30.47% in the quarter compared to 26.7% in the prior year. This quarter benefited from adjustments to prior year's taxes, and credits primarily the finalization of our 2006 tax return, which resulted in a net liability less than the accrual that we had made. For 2008, we anticipate that the effective tax rate on continuing operations will be approximately 33%.

During the quarter, we repurchased approximately 545,000 shares, as the pending Combined and Sterling transactions prevented the company from being active in the open market. We have roughly $2.8 billion of remaining authorization which includes the $2.6 billion increase authorized during the fourth quarter.

At the end of the fourth quarter, basic shares outstanding were 301 million. For EPS calculation purposes, the fully diluted share count was 324 million, down from 334 million in the prior year quarter.

Cash was approximately $600 million at December 31st and as of yesterday, the liquidity pool available for corporate use is approximately $890 million. Total debt outstanding, was $2.1 billion compared to $2.2 billion in the prior year. During the quarter, we converted $243 million of outstanding convertible debt into common stock. The conversion had the impact of increasing basic shares outstanding by approximately 11 million shares with no impact on diluted shares outstanding as those shares were already accounted for, in our diluted share calculation.

In summary, our results continue to demonstrate our commitment to managing expenses which is evidenced by meaningful margin expansion in both brokerage and consulting. At the same time, we continue to make significant investments intended to drive future growth in both revenue and profitability. We are focused on our core strengths through the formation of Aon Risk and pending sale of our underwriting businesses.

Our balance sheet remains strong and our liquidity is excellent as we pursue value creation through improve business results and effective capital management.

This is my 21st and last quarterly conference call. And I would like to thank all of you for your interest in Aon and the relationships I've had the opportunity to establish with many of you over the last 5 years. I leave Aon knowing that its businesses are in great shape; its balance sheet is excellent. And hopefully we have brought you a greater understanding of our company through increased disclosure and transparency.

With that, I'll turn the call back over to the operator, and we'll be happy to take your questions.

Question And Answer

Operator

Thank you. [Operator Instructions]. First, with the line of Keith Walsh with Citi. Please go ahead.

Keith Walsh - Citigroup

Hey good morning everyone. And Dave congrats on a great run and good luck bringing the Olympics to Chicago. Just first on organizational changes, I thought this is interesting, maybe if you could just... what does this really mean as far as driving revenues and cost efficiencies on the platform? Maybe if you can just talk, drill down a little bit on numbers and how this is really going to help shareholders. And then within that, Andrew going to reinsurance, he has done obviously an outstanding job at consulting. Just based on the results, but what specifically is his skill set going to bring to Reinsurance. What are you looking for him to bring to the table there? And I got a follow-up on revenues? Thanks.

Gregory C. Case - President and Chief Executive Officer

Keith on your first question on Aon Risk Services. Why Aon Risk Services and why now. Give me a moment, I'll try to lay this logic out and then be happy to drill down, in anyway you would like to or anyone on the phone would like to as well. First of all, we're very excited about what we announced yesterday. And you start by stepping back and understanding where we're trying to go as a firm. We are on, what we believe is a very well defined journey to build the pre-eminent risk brokerage and advisory and human capital management firm, the best in the world. And when you think about it, achieving that has tremendous benefit for our clients, for our people, for our shareholders. The economic outcome of this we believe is compelling.

The characteristics of that firm when you think about it, start with great assets, great people, world-class content, and frankly a willingness to change and adapt. But at its core, it's around coordination, collaboration, trust and alignment. So if you start with those two... those two pieces Keith and take a step back and say, let's put those in the context of Aon and what our objective is. You start at stage one with a great foundation, and we have that, global footprint, great network, 120 countries, $70 billion in insurance flow, just a phenomenal foundation, certainly at Aon well before I arrived.

Stage two is building the structure around that foundation, it's absolutely critical. It's really earning the right to be much more global, if I could call it that. And in order to do that our colleagues had worked very hard. When I refer to the work that our colleagues have done and I am dead serious about that. When you think about it, first is solidifying all of our regions. You can't begin to do what we did yesterday unless all of our regions are on track and making progress.

And in fact, we've done in the last two years, what our colleagues have done, has really raised the bar on performance. Really getting to the same level, so we think about the work in the U.S. as we improve margins from closer to zero to where they are now. Growth in the U.S. we have done in the U.K., we have done in consulting, in EMEA, restructuring all these things lay the groundwork underneath the point of solidifying our regions around performance and raising the bar. In all of these again within the context of moving to our objectives as we've talked to you all about around substantial growth and a margins greater than 20%.

The second piece you've got to do around building the structure is just, what our colleagues... and just build and strengthen an ethic around investing in capability. It's easy to say, it's hard to do, it's also very hard to skip to. As we said before, we have invested a greater... better part of $0.5 million over the last 30 months. We continue that investment rate... have increased it in '07, lots of people hundreds of people, lots of leaders, lots of capabilities.

And the other piece it's absolutely critical, is building excitement. And this gets right to your question around what that meant? How does it impact the income statement? But you got to build excitement energy around global coordination and collaboration in a sense that if you do this, it drives revenue, it drives sales, drives client satisfaction. And building trust and conviction, this is not just a nice thing to do but in imperative it's critical. And if you think about we've done that, our colleagues have done that over the last few years. You can really begin to see the pieces of this. Go back to Aon Global. We put this in place to coordinate in a better fashion around the world. We've done that, we had some of the biggest wins in Aon's history. We are at 2 to 1 margin in terms of our win rate, but more important than even that performance Keith is our colleagues are hungry to do more.

They want to coordinate more crisply. They want to actually mobilize resources more effectively. They can see what this could mean. By the way coordination is hard, trust is hard. And if you're able to coordinate and do what we are describing as hard, they are now excited to do it. Another example might be Aon Network Solutions in the UK. When we worked very hard to try to bring the world, the U.S., EMEA, APAC to Lloyds [ph] much more effectively. We've now got double digit growth as this is fundamental in doing what we needed to do in the improvement of the UK. But it also involved real coordination. You see it now in consulting and any another number of places around our firm. The punch line now is that a lot of the success we've had has come out of this kind of coordination and our colleagues are excited about it. Its increased sales, less costs, more momentum, and people are excited about it, and want to be part of Aon.

But that's progress, that's not greatness. That's not what we're going for, and what we announced two days ago or yesterday was really how we're going to put it all together really under one roof, if you will. With a global operating committee, global capability with much better local execution, more trust, we think more collaboration and a stronger culture. And very specifically if you just said what can we do economically now that we couldn't do yesterday? I'll give you a few examples. Around client focus and sales, this is going to very much help us ramp up what we've done on revenue engine and the sales pipeline. It's imbedded at the beginnings around the world. We're now going to be able to drive it down. It's going to make a huge difference. It's going to help us under the idea of client focus and sales take product like Aon advantage and our mid-market product or rapid response, and roll that out more effectively around the world. And it's just going to be a much greater ability to import and export country specific idea than innovations around the world. So, we're very excited about that from a client standpoint. It would have been more difficult to do that yesterday.

The second area Keith is around just a consistent view of pricing around the world. And look at our fee business, roughly 40% of what we do, how we price, we time track in the U.S. as an example. We haven't rolled that out around the world. That could be incredibly powerful. How we define the scope of our services. We've got a very different definitions, scope to keep it costs our clients. It costs us. We can deal with that under the contracts that we have got now. And then how we price? We've talked about being the highest valued price of any firm in the world. This is how we operationalize it. In commissions, and if you think about pricing, our top 10 markets in every geography. We've got them in every geography, five are the same, Keith, for the same. We approach them in a 120 different ways, not stock. We're not doing that anymore. So it's not going to be as inconsistent, not going to be as fragmented. And when you think about our $70 billion in premium flow, getting that right on behalf of our clients, better terms, better conditions, better everything from the context of what we do with clients. And by the way we think we've started with the best platform in the world already. It's not about the competition. It's about what we are going to do on behalf of our clients. We're very excited about that for them. And candidly, we're also excited about what it could mean for us in terms of getting paid appropriately for what we do.

And finally, around the third pocket of operational efficiencies, but we make decisions everyday that are very, very good from the local geography standpoint, or regional standpoint. But they are sub-optimal, in some cases quite considerably from a global standpoint. How we think about off-shoring and outsourcing? We have got 2000 people in Bangalore as we speak, but we've also built facilities in three other places around the world, maybe the right thing to do, or maybe not. So for us Keith, the economics of this, the economics of this are unbelievably compelling, which is why we'd have loved to have done it a couple of years ago, but we weren't ready. We needed to be able to get the positioning and the pieces in place, and to create the demand pool. In fact, the excitement of our colleagues around the world enabled to do this. And that's why for me, I am so excited about where our colleagues have come and what they are looking for, and what they are trying to accomplish. And that's the specifics around how we believe this will tie directly into economics, and we can go in more detail if you would like to do that.

On Andrew, your second question. First of all, I am incredibly excited about what we are about to continue to do on the reinsurance front. First of all, you start with... on a leader of Michael O'Halleran who was the founder with Pat Ryan of the reinsurance business at Aon built it up over time. It's the most significant in the world, and you add to that now Andrew Appel. Andrew by the way whose previous background involved very extensive working capital markets with many of the investments banks on the street. This is what he did in the previous life, as well as operating on a global platform, as he did in consulting, and understanding how that comes together, and continues to strengthen as well as the work he did in the P&C world in his previous life. So for me I am incredibly excited about the combination and the partnership of Michael O'Halleran and Andrew Appel continuing to drive on a very well defined agenda in the reinsurance side.

Keith Walsh - Citigroup

Okay, great thanks. I'll re-queue.

Operator

And we'll go to line of Brian Meredith with UBS. Please go ahead

Brian Meredith - UBS

Yes, great answer there by the way. The first one, can you talk about the Japan investment and the regulatory issues? What impact did that have on margins in the quarter?

Gregory C. Case - President and Chief Executive Officer

The Japan investment that we made was made a few years ago, and really was an investment designed to help buying consortiums, manage their insurance needs. So it's actually fundamentally a very, very good idea and began to grow quite considerably. The difficulty that we got is, the regulatory environment in Japan has changed, has shifted. And has been evaluated in terms of how these businesses are actually going to evolve over time. So you could imagine, many of the large companies were buying... were basically buying groups. We essentially apply that concept into the risk arena and built a very, very good growing business and now is being challenged in a regulatory environment. And that really is, what fundamentally impacts the performance in Japan.

Brian Meredith - UBS

Right but you've got expenses there. But no revenue is coming through, right?

Gregory C. Case - President and Chief Executive Officer

That's correct.

Brian Meredith - UBS

So I was just kind of asking. Do we know what the impact that is on margins in the quarter, how that hurt the brokerage margins?

David P. Bolger - Executive Vice President and Chief Financial Officer

Japan swung from a mid 7-digit, pre-tax profit to a modest loss. So, it's probably about 40 basis points of a drag on the margin in the quarter versus a year ago.

Brian Meredith - UBS

Okay. That's actually helpful. And then Greg, can you talk about your ability to get price right now in market? Are you getting increased commission rates, are you getting more priced?

Gregory C. Case - President and Chief Executive Officer

We have been... we have pushed this and we have talked about this. In fact, we are having some success and starting to see some results, in sitting down and having very candid and straight-forward conversations with our clients. Most important around the value we provide and what the compensation should be to us for that. And also with markets, in terms of what the trend lines look like. How they have evolved over time, I would remind the group when you actually take a step back and look at it, post Spitzer in which... a world in which contingents went away for four players. So you'd imagine the contingents went down, those are fairly significant players. Contingent commissions have actually gone up by $1 billion.

So it is very clear to us that the markets are very happy to pay contingent commissions and in fact, have been paying in an increasing rate to many of our regional competitors. And we have actually begun to have some good success with them in terms of what's fair from our side.

Brian Meredith - UBS

And then the last question. Greg, when you think about investments spending here going forward, given the increasingly competitive pricing environment out there, are you always going to have... back [ph] at all? Do you think if this marketplace continues the way it is and continues to pressure your revenues the way it is?

Gregory C. Case - President and Chief Executive Officer

Well, Brian here is what I would tell you. Look we've got a game plan, which we are very excited about. As David highlighted from a margin standpoint in '06 we were up 70 basis points over '05. We were up 200 basis points in '07. We are going to drive very hard, and we are building a firm for the future, that is distinctive and sustainable. And we've continued to be able fund investments via taking out costs in a way that's actually... and then still being able to increase margins. That's the commitment we made to our shareholders. And that's the commitment we're going to meet. But we're quite excited about the set of opportunities that are out there. And we said, we're going to grow organically. We're going to improve margins and we're going to increase EPS, and we intend to do that. But we see lots of great opportunities.

Brian Meredith - UBS

Thank you.

Operator

Your next question from Meyer Shields with Stifel Nicolaus. Please go ahead.

Meyer Shields - Stifel Nicolaus

Thanks, good morning. I am trying to tell if I am thinking about this the right way. But if I look at the adjusted brokerage margin and I adjusted for the impact of foreign exchange and for the impact of the pension savings, is the margin going down year-over-year?

David P. Bolger - Executive Vice President and Chief Financial Officer

You can quantify any discrete item. The pension impact in brokerage was about $129 million for the year which is about 200 basis points. But there is lots of moving pieces there.

Meyer Shields - Stifel Nicolaus

Is there anyway of quantifying I guess the impact of hiring?

Gregory C. Case - President and Chief Executive Officer

We have not historically broken out for you guys the impact of that. What I would reflect again is, what we've said is, we're going to increase margins. And we've also talked about without giving guidance, so at levels that we believe would be appropriate for the world we operate in, that hasn't changed. With the current environment that hasn't changed. And we're going to continue to make those investments to do that.

Meyer Shields - Stifel Nicolaus

All right that's helpful. And the second question is a little more on guidance. How should we think about share repurchase now that the sale of the underwriting unit has been announced?

Gregory C. Case - President and Chief Executive Officer

As part of that sale Meyer, we did talk about an increase in authorization. We will continue as we have to manage our capital very, very judiciously and to maximize return on invested capital for our shareholders. We obviously like our... we like the investment called Aon. We've proven that and we continue to really like that investment. And we'll continue to evaluate that within the context of everything else that's out there. But we obviously love that investment. As Dave said, we were shut out of a window for a whole variety of reasons, given the transactions. And we're going to move forward and very aggressively and very assertively manage our capital.

Meyer Shields - Stifel Nicolaus

Okay. Thanks so much.

Operator

And next we go to the line of Chuck Hamilton with FTN Midwest. Please go ahead.

Chuck Hamilton - FTN Midwest

Good morning everyone. Congratulations on the good quarter.

Gregory C. Case - President and Chief Executive Officer

Thanks Chuck.

Chuck Hamilton - FTN Midwest

A couple of quick questions. I guess first one is on numbers and second one is more of a strategy question. In terms of the numbers, maybe you can help me understand how the restructuring costs and savings might be reflected in 2008. When I look at the total costs for the '07 restructuring plan, you've identified $360 million total costs. You've already incurred $29 million in the fourth quarter this last year leaving 331. Do you believe that the bulk of that's going to be largely reflected during 2008?

David P. Bolger - Executive Vice President and Chief Financial Officer

From the '05 plan?

Chuck Hamilton - FTN Midwest

No the '07 plan.

David P. Bolger - Executive Vice President and Chief Financial Officer

In '08 and '09?

Chuck Hamilton - FTN Midwest

Just looking specifically at the cost side?

Gregory C. Case - President and Chief Executive Officer

Say a little bit more about what you are looking for there.

Chuck Hamilton - FTN Midwest

Okay. Let me try and clarify. You've identified $360 million of total expected costs for the program, right. When do you expect to incur? You've already incurred $29 million during fourth quarter '07. You've got $330 million roughly remaining then. How do you expect to see that phasing in over time?

David P. Bolger - Executive Vice President and Chief Financial Officer

We expect... roughly and this will depend on the initiatives that approximately $200 million in '08 and balance in '09.

Chuck Hamilton - FTN Midwest

Okay. Thank you. And in terms of savings and you've identified the '07 plan a range of $50 million to $70 million. And if I am doing the math correctly, roughly about $45 million of savings in '08 from the '05 plan based on the difference in the cumulative savings. So roughly about 105 maybe $110 million of savings against $200 million of expected costs. So it looks like net, net about $100 million of net costs from the different restructuring plans. Is that the correct way to look at this?

David P. Bolger - Executive Vice President and Chief Financial Officer

Well, I think your math is correct. I guess we look at it as a cost of one time and the savings are recurring. So, I wouldn't necessarily net it to and say it's a net.

Chuck Hamilton - FTN Midwest

Sure. But just in terms of coming up an '08 number?

David P. Bolger - Executive Vice President and Chief Financial Officer

Yes, yes your math is right.

Chuck Hamilton - FTN Midwest

Okay. And I guess secondly Greg, this is just one for you. Given the fact that we have seen some significant slowdowns in the overall economy this last year and certainly into '08, how do you anticipate that's going to change your organic revenue growth for this next year, certainly in the retail side?

Gregory C. Case - President and Chief Executive Officer

We're going to... as we look at it, again it's hard because there are a lot of countervailing things that go on here. First of all, the economy overall as it's slowing down or assuming it slows down, obviously is going to have impact on our different businesses for all the reason that you are aware. But on the other hand, we continue to offset that, much like we do from price... when we talk about pricing with the number of things we are doing to build our firm. And Aon continues to be very much in build mode and has I think demonstrated that over '07. We will continue to do that over '08. So from our standpoint, let me put it this way. We've got our own internal expectations on what we think is available in the potential if from a gross standpoint. And we have not changed those based on economic forecast of other people.

Chuck Hamilton - FTN Midwest

All right, if I could just follow up quickly. I noticed in the third quarter you identified you had 3% revenue growth out of Americas primarily out of U.S. retail. Looking at the fourth quarter, you highlighted Latin American in affinity as the sources of the primary organic revenue growth for the quarter. I guess differing from that are we to think that during the fourth quarter, we saw some degree of slowdown in the Americas... out of U.S. retail piece?

Gregory C. Case - President and Chief Executive Officer

Again to me the Americas is exactly the example to look at. When you look at the net overall, it's absolutely true that... if we look at the Americas, we highlighted the two you described, they were better off than the Americas. The Americas by the way obviously you've seen in results of other competitors. And what everybody has described was fighting the face, a very significant price decreases. What's the offset to that, how about new business? We actually set a record in 2007 in new business, by the way that's in the face of private equity freezing the last two quarters.

So our colleagues have done an unbelievably good job, building the engine. And so that's why it's hard for us to predict. This is not a steady state thing. Aon is in build mode and we believe that the actions we are taking will offset, whatever is going on, in the external environment. And by the way if that tide ever comes with us, that will just accelerate what we are doing.

Chuck Hamilton - FTN Midwest

Great. Thank you very much for your answers.

Operator

The next question is from David Small with Bear Stearns. Please go ahead.

David Small - Bear Stearns

Good morning. Two quick questions, yesterday on your competitor's conference call they said they're seeing cedants starting to buy more coverage on the reinsurance side, take advantage of lower rates. Just curious, if you are seeing this behavior as well.

Gregory C. Case - President and Chief Executive Officer

What... we are seeing a lot of things change on the reinsurance front. The one thing I would tell you, that from our standpoint is incredibly compelling on the reinsurance front. As when you look at overall capital given what's happened in the debt markets that everybody lives and breathes everyday. The capital cost in the reinsurance world has actually stayed the same or gone down a bit. And so therefore the spreads, in terms of costs from reinsurance capital versus debt capitals, massively widen. And so we believe there is tremendous opportunity, obviously offsetting softness in other areas but tremendous opportunity there when you look at this from a client standpoint.

David Small - Bear Stearns

Okay. And then I guess just the second question. Can you help us understand growth in the quarter by client size?

Gregory C. Case - President and Chief Executive Officer

We have not disclosed that historically. We've actually had good progress across the board. A lot of the results you've seen, have happened in every segment, small middle and large.

David Small - Bear Stearns

But one segment wasn't growth... can you give us any color of one segment was growing fast than the others? If there is a, I guess there is no way to give additional clarity on that.

Gregory C. Case - President and Chief Executive Officer

Well I would say again, what we've done... what we have described from a revenue engine standpoint is designed to cut across segments and in fact has. We've actually seen very good results in each of those, as I've just describe the new business result in the Americas. There isn't anyone, I would call out and basically say it is... it's still the day and drove our organic growth. They actually all contributed.

David Small - Bear Stearns

Okay. Thank you.

Operator

Our next question is from Jay Gelb with Lehman Brothers. Please go ahead.

Jay Gelb - Lehman Brothers

Thank you. In terms of the share repurchase with the proceeds from the recent sales, should we anticipate some type of accelerated repurchase in the second quarter or do you plan on spacing that out a bit more?

Gregory C. Case - President and Chief Executive Officer

Again we're going to make the calls based on capital management. The best way we possibly can. Jay and we expect us to do that and move forward, I'm sorry, I can't give you more detail.

Jay Gelb - Lehman Brothers

That's fine. And then on the corporate line with the higher losses, the $20 million to $25 million higher per quarter. Should we anticipate that being offset some place else within the business?

David P. Bolger - Executive Vice President and Chief Financial Officer

Well part of that in the near term will be overhead... corporate overhead expenses that were allocated to the underwriting segments. And, as you know there have been a number of initiatives underway. Greg has talked a lot about reducing our non-client facing expenses to fund investment in client facing personnel and capabilities. So we've got to manage those down, but they are not going to go away overnight. So, that's part of the increase. But I mean the offset will be through growth of the normal businesses.

Jay Gelb - Lehman Brothers

Right and then separately on the outsourcing piece within consulting. At what point do you get easier comparisons on that for organic growth?

Gregory C. Case - President and Chief Executive Officer

Luckily Q2 Jay, which we're excited... we are excited to tell sort of the differential of the contract rollout here is going to be largely completed by then.

Jay Gelb - Lehman Brothers

All right thanks very much for the answers.

Gregory C. Case - President and Chief Executive Officer

Sure.

Operator

And next we will go to Dan Farrell with FPK. Please go ahead.

Dan Farrell - Fox-Pitt Kelton

Good morning. Just another question on expenses and margins. If you look at your expenses this year ex-pension costs, they did grow, and it's understandable given the significant investment you are putting back in the business. But as we look to 2008 with more cost savings coming through, is this the year that we could see some expense improvement... net expense improvement even with the cost savings? And then just more broadly in terms of your overall target for margin in brokerage, you are targeting I think 20% plus, and you came it at around 18% this year. Is that 20% target something that could maybe achievable in '08, or '09, even in this environment?

Gregory C. Case - President and Chief Executive Officer

Again, what we have said first of all, the second question first. From our standpoint to achieve what we believe we can, we are operating at 20% plus. That's what we've described. And again take the environment aside for the moment. We are doing a number of things to invest in building our firm that we believe are going to hold and in fact will serve us incredibly well in almost any environment, and maybe even differentially better in a bad environment. So we are going to keep pushing and we are not changing that internally.

We've not given guidance, we won't give guidance in terms of what exactly, when that's going to happen. But you can take a step back and what we essentially said it we've got a game plan. We've have laid out for two years into it. We feel very good about the progress, and we are pushing toward a 20% plus margin, so we feel good about that.

In terms of... what you're looking at in terms of absolute expenses, remember the three things we committed to, organic growth, margin expansion, EPS increase. That's what we are going to drive. So the expense fees is by the way is critical in that, managing that, driving that, understanding that. But that's going to move around based on opportunities, where we see the trade-offs are, where the industry is, but net, net the three areas of commitment are the three areas we are going to focus on.

Dan Farrell - Fox-Pitt Kelton

Great thanks and just one additional question, even after you complete the share repurchases, you have some significant cash resources with what you are generating. Can you talk a little about... a bit about our strategy on acquisitions and what types of acquisitions you might be targeting in the future?

David P. Bolger - Executive Vice President and Chief Financial Officer

Even if you look at 2007, Dan this is David. I think we did roughly 21 acquisitions and maybe $250 million overall give or take. So we've been very, I guess relatively active, and we'll continue to do that. Those acquisitions take varying forms, and fashions, are ones around building capability, bringing in specific groups of people, geographical expansion etcetera. And we are just going to continue do that and continue to drive that. I am going to assume your questions on broader acquisitions than that potentially, and I would just come back to what we said before.

Listen, we look at our world from the standpoint of capital management very seriously. We know that the correlation between our P/E and our market book and return on invested capital is very high. That's what drove a lot of our actions to focus our portfolio, away from more capital intensive underwriting businesses. In fact, I would argue, we probably made the biggest bet in the history of brokerage. We just bet close to $4 billion in divestitures between Warranty and Combined on a world we love. We think it's fantastic which is focused on risk and risk understanding, risk mitigation, and human capital management. And we're just going to continue to work very hard thinking about how to improve return on invested capital. And if acquisitions can help us do that, we will go there. If repurchase is going to help us, we'll go there

Dan Farrell - Fox-Pitt Kelton

Great, thank you very much,

Operator

Our next question is from Mark Lane with William Blair. Please go ahead

Mark Lane - William Blair

Hi excuse me, just two quick ones, and also I want to wish Dave good luck. First question, Greg if you go back to when you joined the firm. How would you assess your success in pushing it for more price and demonstrating the value proposition that you are giving to your clients? How would you rate yourself and company overall relative to your original expectations on what you thought you can get done?

Gregory C. Case - President and Chief Executive Officer

How would I rate myself? I am actually the least relevant in the entire group of our 43,000 colleagues who actually go out and get stuff done every day.

Mark Lane - William Blair

Well rate the company.

Gregory C. Case - President and Chief Executive Officer

I got it, I got it. I would say though listen I joined Aon for a very specific set of reasons. And in my time in Aon those reasons have been validated ten fold. In fact, I came in with high expectations around the raw horsepower, and capability that Pat and others have built before me. And frankly, I was overwhelmed by what was here. The content is phenomenal. Again if you flex on the announcement we made yesterday this is just a next step as we try to build toward what our potential is. And so the assets are incredible. I think our team has done a phenomenal job really taking those assets that raw horsepower and capability in that footprint and began to coordinate it in a way that is really powerful on behalf of our clients. I don't know how many times I heard early on was gosh, when we get coordinated if Aon gets coordinated, you guys are going to be amazing. And candidly my colleagues, not me, had very little to do it. My colleagues have done a masterful job beginning to pull that together.

Yesterday was the next step in that process, I would describe as though... although we've had a little bit of momentum, little bit of success, at very much at the end of the beginning. We're nowhere near what we are capable of doing, nowhere near. And over time we're excited about the next step in our journey as we try to get there. But I would say not close to our potential.

Mark Lane - William Blair

Has there been more of a challenge relative to you expect...original expectations?

Gregory C. Case - President and Chief Executive Officer

Candidly, it's actually again back to the three-year game plan we talked about. We just put in place Aon Risk Services a year earlier than I thought we were going to be able to do. And again it is a... when you think about the blueprint on building a world-class wonderful professional services firm, you start with incredible assets with which we have, which I inherited. And for our colleagues to do what we've done and a period we've done it with the U.S. with the U.K. pulling together, what we've done on the restructuring, again the credits to all of them, it's just been just fantastic. So to me no, I'm actually more excited today than I was April 4, 2005 when I had the privilege of joining Aon.

Mark Lane - William Blair

Okay. And then a follow up question on margins. I understand you are pushing for margin improvement. But when you look at the numbers for this year, you showed 200 basis points of improvement in adjusted operating margin. The benefit from the cost savings and the restructuring, the benefit from lower pension expense was about 550 basis points, foreign exchange was an un-quantified gain. And you've given guidance on cost savings this year of $45 million from the old restructuring plan, 50 to 70 and pension expense flat. Who knows about foreign exchange, you're in a tough growth environment. So when you look at '08 versus '07, what adjustments can you make because I don't understand how margins can go up this year?

Gregory C. Case - President and Chief Executive Officer

The one... first of all, I understand your math. But respectfully it's incomplete. And let me describe...

Mark Lane - William Blair

I would like you to continue...

Gregory C. Case - President and Chief Executive Officer

When you think about the restructuring pieces, we describe operational excellence and all the things we are doing on our operational excellence. One piece of which is called restructuring which because of accounting, we have to call out to you guys and tell you what it is to put a little bow around it, etcetera. The operational excellence work we are doing, which is around cost reduction, goes far beyond restructuring. So the items we have highlighted for you around what we are going to get in restructuring next year, we will get, we will drive. But there is a lot more outside of that, that candidly does need not be on your radar screen until we achieve it.

It has been our custom by the way to achieve it then tell you about it. As opposed to advertise it upfront, we will continue to do that. So from our standpoint again you... it's up to you to think about your levels of confidence. From our standpoint, our leadership standpoint, we have a lot of conviction around the next step in our journey which is we described is a business which is a 20 plus margin.

Mark Lane - William Blair

Okay. Thanks.

Operator

Our next question is from Jay Cohen with Merrill Lynch. Please go ahead.

Jay Cohen - Merrill Lynch

Thank you. I guess one of the numbers that stood out on the positive side was the growth in reinsurance broking. Obviously described what is a tough environment and you still grew that organically. You had mentioned that, a part of that growth came from strong capital markets type activities, which my sense is, can be pretty lump. And I am wondering if any of that natural lumpiness sort of, I am going to say artificially but boosted it more than you might have expected in the quarter.

Gregory C. Case - President and Chief Executive Officer

No I would... I actually wouldn't overplay the capital markets piece. We have got a great capital markets group with Paul Schultz and Brian Erhardt [ph] have done some wonderful things, and we are very, very exacted about the potential of that business. But I wouldn't overplay the impact on capital markets. It had one piece of it, it's traded off by a number of other different things, what's going on in the treaty world etcetera. And what really is... we drove the organic growth was... were wins in treaty which we were very excited about in 2007, which will now bleed over in 2008, which is fundamental core treaty business.

So we actually had a series of wins on the property side in treaty, which again back to the conversation very early on, on this call, have been quite extraordinary. And quite a credit to my colleagues in the reinsurance world, particularly in the U.S. and continued movement and positive progress, in fact Elliot Richardson and global Fac team have done a phenomenal job, beginning to build that capability and drive that capability. We are still very early days on that. But those two pieces which are recurring efforts, we drove a lot of the progress as well.

Jay Cohen - Merrill Lynch

That's great. Thanks Greg and again Dave good luck with everything.

David P. Bolger - Executive Vice President and Chief Financial Officer

Thanks Jay.

Operator

Our next question is from Dan Johnson with Citadel Investment Group. Please go ahead.

Dan Johnson - Citadel Investment Group

Thank you very much. Many of them have been answered already. And so maybe we can talk a little bit about, Greg you have mentioned many times and the numbers show it, that we have made substantial investments during 2007. Let's talk a little bit about those investments that you think are already bearing fruit or will bear fruits in 2008 in a way that will be noticeable to us.

Gregory C. Case - President and Chief Executive Officer

Now I would say, Dan the... we have not broken out in detail. And I am actually sitting here with a schedule with the investments by U.S. retail, by affinity, by each of the areas across the globe. And I would come back to what... you don't see a massive impact in 2007, as we described. We anticipate that, we obviously think every one of these investments is going to pay off, which is why we made, and we are tracking them. And we are very excited about what the potential could be. I am going to struggle Dan in giving you numbers. I would say the three categories of investments we've made have all been validated, bringing in additional capability. We've talked about the number of those Valley Oak being one example that we brought into augment risk counsel. These types of investments to augment capability have actually gotten incredible grounding and have already had significant impact with clients. We think these are going to continue to pay off, there are many others.

Additional capability like the Brightstone Group in environmental, incredible growth, and a great client traction, areas around just bringing in teams. We've said before, we are incredibly fortunate. We've had a number of colleagues approach us over the course of the last couple of years to join Aon. We've largely said no, but we said yes a lot, but proportionally we said no. So, the 100% group that came to us, we probably said yes to 20% of it, but we've been very careful about how we bought people in, but we brought in significant teams of people. And they are beginning to have impact.

And in geographic expansion holds the same piece. So I would say Dan not to be direct. You just understand I can't be direct, but each one of those areas we believe has tremendous potential. And the early actions that we see clients taking against that are pinning exactly what we thought. And we are very, very excited about what this is going to be from our growth platform for us.

Dan Johnson - Citadel Investment Group

Can you put a little color around the comment of significant teams maybe touching on... I know we've talked construction, you've talked aviation. But are we talking 20 people, or we are talking a 120 people, or 220 people? Because there is some thing to give us something to get our hands around, that word significant?

Gregory C. Case - President and Chief Executive Officer

Well it's significant. I don't have the Webster definition, but maybe I should go get it significantly, more significant than you've described.

Dan Johnson - Citadel Investment Group

Fair enough and then.

Gregory C. Case - President and Chief Executive Officer

Look at the high end of your range, it is more significant than that.

Dan Johnson - Citadel Investment Group

Alright I got a number. Thank you very much. Let's see the... I know Jay just mentioned some of the reinsurance questions I was going to ask. But it seems like you've had some notable account wins in 2007. Can you tie that to one or two capabilities that you have in '07, that you didn't have in '06? What is it that allowed you to have some of these wins that didn't allow you to have them previously?

Gregory C. Case - President and Chief Executive Officer

Yes not to recover ground Dan, but to me this is yet another example, when I was describing in my long-winded answer at the beginning at around kind of where we are in stage 2 right now. What we're essentially doing is just operating and building capability. Our reinsurance colleagues again, the most developed platform we have on our firm, the most distinctive in the world, said this is interesting but we're going to raise the bar. And that's what this is all about. This is what Aon Risk Services is all about. It's what our reinsurance strategy is about, our consulting strategy, and not in any way negative to competitors. It's not about competitors. It's about us, it's about our clients, and basically we said we are going to raise the bar. We've done it everywhere and Aon Risk Services is going to do it substantially in retail.

In Re, if you sit down with our reinsurance colleagues, they're going to talk about integrated capital solutions. And we know every one can talk about, your client. You're trying to figure out the best way to bring on capital, use capital. Only one player in the world is number one in treaty, number one in Fac, and number in capital markets, that's us. And what our colleagues had essentially said is listen, we're bring all those to bear in a very integrated way that means by the way playing together differently, bringing different people to the table, augmenting our RFPs. And it's been a very powerful combination.

We're again still kind of at the end of the beginning if you'll forgive that phrase. But we like what we're seeing, and by the way it's been defined around client need. And we've got tremendous capability. We pull it off. It's going to have a lot of impact. And you're right, we had three or four property wins in the U.S. that were in their previous lives probably 20 or 30 year relationships with their previous advisors. So, we are very privileged with that and hold that in very high regard. But candidly what's different is very real, very specific, and we think our clients are recognizing it.

Dan Johnson - Citadel Investment Group

Great and then one last question. You said we are in the third year or starting the third year of the first three year program. Can you remind us what the key metrics are for that program?

Gregory C. Case - President and Chief Executive Officer

Well the primary... we actually have never said specifically Dan in terms of sort of how we are going to measure success in that given our guidance rules. But we have, what I certainly talked about the day on Aon Risk Services is a firm, and which we would describe a pre-eminent platform, not recognized by us, but recognized by a more important constituent called our clients, best in the world around retail, best in the world around reinsurance, best in the world around human capital management.

The metrics very crisply, organic growth, margin expansion, and again recognizing what we said about margins before, 20 plus, and EPS growth. So, use those three metrics against that backdrop and you'll have a pretty good sense on how we're thinking about the world.

Dan Johnson - Citadel Investment Group

Great and to Dave congratulations and thanks for sort of putting up the platform that other people have obviously inherited to carry forward. Best of luck.

David P. Bolger - Executive Vice President and Chief Financial Officer

Thank you, Dan.

Operator

And next in the line of Mathew Heimermann with J.P. Morgan. Please go ahead.

Mathew Heimermann - J.P. Morgan

Hi, good afternoon everyone. All my questions have been answered, but best wishes Dave and thanks for setting a high bar.

David P. Bolger - Executive Vice President and Chief Financial Officer

Thanks.

Operator

And we go to Al Copersino with Madoff Investments. Please go ahead.

Al Copersino - Madoff Investments

Great, thank you. I just on pile on David. It's been a real pleasure right interacting with you. I had a couple of quick questions. Greg I have asked you at times in the past, is the consulting business over earning? Are the margins higher than substantial? And yet the margins continue to go up. Can you give me your thoughts about the long-term margin in the consulting business, particularly if we are actually over the next year or two going to be facing from real economic headwinds?

Gregory C. Case - President and Chief Executive Officer

We've have talked about the margins on the consulting side kind of in the mid-teen range as being substantial. Our team will obviously have their set of aspirations but I think that's a fair, that's a fair place to be.

Al Copersino - Madoff Investments

Great. The outsourcing business, a very quick question here is obviously small. Are you planning on now growing that business from its smaller base?

Gregory C. Case - President and Chief Executive Officer

Well will have... when we are done a left core that we are in, the business that we will drive. The business that's left relates and links directly back to our core services business and we are working to build that.

Al Copersino - Madoff Investments

Okay, my last question then. You cited. I can't recall actually, perhaps it was Dave. One of you cited that you are now applying less of your savings goals from restructuring to the discontinued operations obviously. Should we think about that applying mostly to the brokerage group, and what implication does that have long term?

David P. Bolger - Executive Vice President and Chief Financial Officer

The point was in the 2005 program, there was about $10 million of projected benefit, that that was in the Combined Insurance operation. So, when we talk about now our targets since that's in discuss [ph], that's why we lowered it down to 270.

Al Copersino - Madoff Investments

I see okay.

David P. Bolger - Executive Vice President and Chief Financial Officer

I think we previously talked about 280.

Gregory C. Case - President and Chief Executive Officer

So it's simply that some of is leaving the company.

Al Copersino - Madoff Investments

Got it. That makes sense. Thanks very much.

Gregory C. Case - President and Chief Executive Officer

Sure.

Operator

: And this time our final is from Keith Walsh with Citi. Please go ahead.

Keith Walsh - Citigroup

Hey guys just you know on revenues, on the overall plus 2% probably leading the industry this quarter. But specifically Asia-Pac I know you talked a little bit about Japan. How big is Australia as a piece of that? What specifically can you do to fix that over there? Thanks.

David P. Bolger - Executive Vice President and Chief Financial Officer

Great question, Keith. Australia is about half of Asia-Pac, and really if you think about the thing that's really driving the growth more than anything, it's Australia. Australia has started the soft market and continues to be in the soft market. May come out of it sooner than everybody else if history is any judge, because that's typically what we have in Australia. Our colleagues have really doubled down in their efforts to increase targeting around clients, how they think about segmentation, product innovation, and very candid conversations with the market. So we are very hopeful that I highlighted and foreshadowed, we are starting to see some movement. I don't want to overplay it. It will happen we believe over the course of the next year. And as I said we've got high expectations of the current base in APAC to improve that, but a lot of it will be driven by Australia.

Keith Walsh - Citigroup

Great. Thank you very much.

Operator

And this concludes today's call

Gregory C. Case - President and Chief Executive Officer

Sorry, go ahead.

Operator

Do you have any final comments?

Gregory C. Case - President and Chief Executive Officer

I do. I'd like to make... I would like to make a final comment to everyone on the phone, and in most important to my colleague on my left David. I think it's wonderful to and really a testimony to Dave to hear the comments coming back from all of you. I just appreciate all those tremendously. I just think it's incredible. But finally before closing, I want to personally thank my colleague David Bolger. His efforts and leadership here at Aon have been extraordinary. He has been a tremendous leader during his tenure at our firm, and he's been a incredible support for Christa Davies who has come in, joined us in November, or more sooner role as CFO in March. I just appreciate everything. David, you have been fantastic and we wish him all the success in whatever he does including his role to win the 2016 Olympics, which is fantastic. And also I would like to say to Christa a heartfelt welcome to the team. In her short period, she's already had great impact on our firm, and we are excited to have you around the table. So, David all the best.

Dan Johnson - Citadel Investment Group

Thanks Greg.

Operator

Ladies and gentlemen that does conclude your conference for today. Thank you for your participation. You may now disconnect.

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