Aon plc
Q4 2011 Earnings Call Transcript

Published: 3 Feb 2012

[Operator:]

Good morning, and thank you for holding. Welcome to Aon Corporation's Fourth Quarter Earnings Conference Call. [Operator Instructions] I would also like to remind all parties that this call is being recorded and that it is 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 the press release covering our fourth quarter results, as well as having been posted on our website. Now it is my pleasure to turn the call over to Greg Case, President and CEO of Aon Corporation. Thank you, sir. You may begin.

[Gregory C. Case:]

Thank you, Leslie, and good morning, everyone, and welcome to our fourth quarter conference call. Joining me here today is our CFO, Christa Davies. To begin, we finished the year with a quarter that was both challenging and exciting for our firm, challenging in a sense that the macroeconomic and industry pressure continues to be felt in many markets around the globe, albeit at a lesser pace, exciting in a sense that we took significant steps to substantially strengthen our global firm for long-term growth and value creation, including the proposed relocation of our corporate headquarters to London. Consistent with previous quarters, I'd like to cover 3 areas before turning the call over to Christa for further financial review. And we'd note that there are slides available on our website for you to follow along with our commentary today. First is our performance against key metrics we communicate to shareholders; second is overall organic growth performance; and third is continued areas of investment across Aon. On the first topic, our performance versus key metrics. Each quarter, we measure our performance against the 3 metrics we focus on achieving over the course of the year

[Christa Davies:]

Thanks very much, Greg, and good morning, everyone. As Greg noted, our fourth quarter and full year results reflect continued progress to strengthen our industry-leading platform, and the firm is positioned to increase growth in 2012. We are managing expenses through savings from our restructuring programs, generating strong cash flow and effectively allocating capital as highlighted by the repurchase of $828 million of common stock in 2011. Now let me turn to the financial results as highlighted on Page 7 of the presentation. Our core EPS performance, excluding certain items, was $0.97 per share for the fourth quarter, up 15% from $0.84 in the prior-year quarter. Strong underlying performance and effective capital management more than offset a $21 million increase in intangible amortization in the quarter. Certain items that were adjusted for in core EPS performance are highlighted in the schedules of Page 14 on the press release. In addition, foreign currency translations had a favorably impact of $0.01. If currency were to remain stable at today's rates, we would expect a modest unfavorable translation impact to EPS in the first quarter of 2012. Starting in the first quarter of 2012 and going forward, the company will provide adjusted results that exclude the impact of noncash intangible amortization and certain onetime items. We believe the exclusion of noncash intangible amortization will more closely align external audiences and the company around cash flow generation. We drive capital management and shareholder value creation through cash-on-cash returns. The schedule on Page 15 of the press release reflects this disclosure. I would note that EPS in the fourth quarter, excluding certain items and intangible amortization, was $1.16, up 20% from $0.97 in the prior-year quarter. Now let me talk about each of the segments on the next slide. In our Risk Solutions segment, organic revenue growth was 3%, and we delivered an operating margin of 21.8% on an adjusted basis, essentially flat with the prior-year quarter, including a 20 basis point unfavorable impact for costs related to the integration of the Glenrand acquisition. On an adjusted basis, operating income increased 3% or $10 million to $397 million. The year-over-year improvement was primarily driven by an increase in organic revenue and modest benefits related to the restructuring programs. Let me spend a moment on each of the restructuring programs, key initiatives that have enabled concurrent funding of investments and long-term structural margin expansion. With respect to the 2007 restructuring program, we have incurred 100% of the charges necessary to deliver savings. Restructuring savings in the fourth quarter are estimated $134 million compared to $128 million in the prior-year quarter. Approximately $113 million of savings were related to the Risk Solutions segment. The program is now complete, having delivered an estimated $536 million of cumulative savings in 2011. With respect to the Aon Benfield restructuring program, we incurred $21 million of charges in the fourth quarter and have now completed 96% of the charges necessary to deliver the remaining savings. The remaining charges of $7 million will be incurred in the first quarter, which will complete the charges under this program. Restructuring savings in the fourth quarter are estimated at $33 million compared to $27 million in the prior-year quarter. The Aon Benfield restructuring program delivered $122 million of cumulative expense savings in 2011 and is expected to deliver cumulative expense savings of $144 million in 2012. Turning to the HR Solutions segment, organic revenue growth was 3%. We delivered an adjusted operating margin of 12.4%, down 120 basis points compared to the prior-year quarter, including 190 basis point unfavorable impact related to intangible amortization. On an adjusted basis, operating income decreased 6% or $10 million to $147 million. The year-over-year performance was primarily driven by $22 million increase in intangible amortization; significant investment in long-term growth opportunities, including our healthcare exchange business; and an unfavorable revenue mix shift due to an organic revenue decline in Benefits Administration and retirement consulting. Excluding the impact of noncash intangible amortization, operating income increased 6% to $209 million in the quarter, reflecting savings from the restructuring program. With respect to the Aon Hewitt restructuring program, we incurred $25 million of charges in the quarter primarily related to workforce reduction. Cumulative savings related to restructuring program in the fourth quarter are estimated at $43 million compared to $4 million in the prior-year quarter, with additional synergy savings of approximately $27 million achieved outside of the formal restructuring program. For 2011, we achieved an estimated $233 million of cumulative restructuring and synergy savings compared to $4 million of savings in the prior year. Of the achieved savings in 2011, we estimate approximately 75% were realized in operating income before intangible amortization. Realized savings were less than 100% due to approximately $40 million of investment in long-term growth opportunities and weaker performance in certain core businesses. We are not satisfied with this performance, and as Greg noted, our priorities for 2012 are centered on driving improved profitability for our investments and certain of our core businesses. As we think about 2012, we would expect to deliver improved performance as we progress throughout the year. Before any adjustments related to the transfer of the Health and Benefits business, we'd expect to realize approximately 75% of incremental restructuring and synergy savings, expect to invest an additional $35 million in long-term growth opportunities across HR BPO, healthcare exchanges and additional talent to expand our distribution and would expect intangible amortization to increase approximately $63 million. In short, including intangible amortization, we would expect operating income to be down modestly through 2011. Excluding intangible amortization, we would expect operating income to be up modestly. Turning to the next slide, on our long-term operating margin targets. Effective January 1, 2012, the company moved the global Aon Hewitt Health and Benefits business from the HR Solutions segment into the Risk Solutions segment. This move will allow the business to benefit from broader global distribution channel and to promote the company's deep Health and Benefits capabilities with clients and insurance carriers. Additionally, as we noted last quarter and mentioned earlier, the company will begin reporting adjusted results for Q1 that exclude the impact of intangible amortization and certain onetime benefits. Historical selected financial information for the years 2009, 2010 and 2011 that reflect financial reporting changes for both the Health and Benefits transfer and for intangible amortization are provided in the press release this morning. This financial information will provide comparability to results reported in the first quarter of 2012. We recognize there are significant changes this quarter but believe these reflect greater transparency and focus our results on cash flow growth, which is how we run the company. Adjusting for these reporting changes, our new long-term operating margin target of 26% for Risk Solutions reflects significant opportunity for margin expansion in the following 5 ways

[Operator:]

Our first question comes from Ray Iardella of Macquarie.

[Raymond Iardella:]

Just a quick question. I think first, surrounding Europe. I know, Greg, you had mentioned in your commentary there was some weakness in the international Brokerage segment from that. But I'm just curious, was there any headwind on the Consulting or the HR Solutions side?

[Gregory C. Case:]

Ray, as we look at Europe overall, again, the natural expected sort of headwinds are there as you think about sort of how the economy's evolving. But we've been able to actually fight through those reasonably well, really, across the board, when you think of sort of where we are. We've seen on the HR Solutions side, consulting growth in multiple places across the region, especially when you compare to the previous quarter. So we feel pretty good about that. The headwinds are real from an economic standpoint, where we're fighting through those. Same on the HR -- or the Risk side as well. And when we reported 1%, we think about sort of where we were in the same quarter of last year, it was really an incredible, almost unprecedented quarter in terms of sort of overall organic growth. So net-net, we're cautious about what's going on in the economy. We feel good about our ability to kind of fight against that and serve our clients.

[Raymond Iardella:]

Great. And then quickly, on the reinsurance brokerage, I mean, I guess part of the growth there has been driven by the capital markets business. And I know 4Q '10 was a pretty tough comp, and certainly, delivering 4% growth there was quite impressive. But could you give a little bit more color on maybe -- was it cat bonds? I mean, what else might be driving that growth there?

[Gregory C. Case:]

Yes, look, I think as you reflect back on Aon Benfield overall, we feel good about where we are. The quarter, specifically, we highlighted was capital advisory and some facultative side, but -- which, by the way, drove a good portion of the growth. But if you reflect on kind of the evolution of Aon Benfield and reflect kind of back, when we actually brought together Aon Benfield then in the fourth quarter of 2008, we essentially said, "Look, this business is going to -- because so much of the renewal was January 1, there wasn't going to be a lot of movement in 2009." And in fact, overall growth was about 0. For 2009, we're roughly flat. We're down roughly 3% in 2010, when a lot of the adjustments occurred, at some of the rebalancing happened. And then now in 2011 for the year, we're 0% overall and 4% as you reflect in the fourth quarter 2011. As interesting to us is literally, over the last 3 quarters, when we looked at business won, net new business versus business lost, we've been strongly positive for the last 3 quarters. And what this just highlights for us is exactly the thesis we had going into this transaction and this combination was that the client serving capability of Aon Benfield was just incredibly substantial to help clients improve operating performance, strengthen balance sheets, decrease volatility. And we simply just have -- we have a greater array of analytic capability than anyone in the world out there at this point, and that served us very well. And after the adjustments that I've just described, the platform is actually fully in place and established for long-term growth.

[Operator:]

Next question, Keith Walsh of Citi.

[Keith F. Walsh:]

First question for Greg is just around Brokerage margins, just maybe a broader question. Since you arrived in '05, you've grown margins every year, except 2011. So I guess when we think about the things you can control, such as GRIP, Aon Broking, why aren't they moving the needle now that the cost saves are winding down? We're a couple of years into those. And then I've got a follow-up.

[Gregory C. Case:]

Sure, Keith. Listen, from our standpoint, we step back. We feel very good about the program and the progress to sort of drive into what is a 25% margin, as we described before, increasing now that we're going to -- from a cash perspective of 26% margin. And sort of the -- and as Christa described, the specific investments we have in place have, we believe described, are really getting -- have been proven in 2011, are really able to be scaled up in 2012, 2013, and that's working exceptionally -- that's working very well for us. We'd highlight -- by the way, as you described, while we were able to improve margins over the last 5 years, we did it against significant headwinds, and we made significant investments in the business. By the way, we're doing the same thing on the HR Solutions side when we saw opportunities. So things like GRIP and others sort of were drags from a margin standpoint, but were very positive from kind of -- at a capability-building standpoint. So we are confident as we proceed in '12 and '13, '14 in our ability to actually drive improved margin going forward. I think there are some specific things for the quarter. Maybe Christa, you could comment on some of those that actually highlight some differences there as well.

[Christa Davies:]

Yes, so if we look at 2011, Keith, in terms of Risk Solutions margin, there are obviously 2 big impacts. One was leases, which is a 50 basis point impact, and the other was the integration cost from Glenrand, which, we believe, is a fantastic investment for us in emerging markets and is going to generate a great return, and that was a 20 basis point impact. As we look forward to 2012, we do believe we'll expand Risk Solutions margin and the growth in Aon Benfield, that we believe we'll deliver, will certainly contribute to that. So we feel very good about the progress for 2012.

[Keith F. Walsh:]

And then just a follow-up to Christa on the HR business. I guess going back to the July 2010 presentation, you guys expected adjusted GAAP accretion of 1%-plus in '11 and 5.4% in 2012. And now you're telling us GAAP earnings are going to be down in 2012. I guess relative to the original targets, what specifically is causing this deal to underperform the original metrics?

[Christa Davies:]

Yes, what we would say, Keith, actually, is that we feel better about the long-term outlook for our HR Solutions business than we did when we originally did the transaction. And evidence of that is the fact that we are investing significantly more than we had originally anticipated. We did mention that we've done $40 million of investments in the business in 2011, and we will increase that by a further $35 million in 2012. And those investments span healthcare exchanges, and we believe the opportunity for growth in healthcare is just enormous; our HR BPO business, which we are extremely pleased about; and areas like investment consulting. So we feel very good about that. And as we look at the performance in 2011, as we said, there is some underperformance in certain core businesses, which we aren't happy with. And we would say there's economic pressure -- there's some economic pressure from Europe. And then we have some work to do to continue to improve our performance.

[Operator:]

Next question, Brian Meredith of UBS.

[Brian Meredith:]

A couple of questions here. First one, on the HR Solutions business, you did mention that one of the reasons for the weaker growth had to do with some client losses. What's that impact you think going to be for 2012? Was it significant, or was it something that shouldn't cause all that much of an issue in '12?

[Gregory C. Case:]

Brian, this is really the natural progression of the business. We feel good about the overall growth prospects for the business, really, across the board. We're cautious about the economics and the economic environment, I should say, that Christa described. We feel good about the fundamental client serving capability. On the Consulting side and on the Outsourcing side as well, really, when you step back and think about Consulting, in particular, in this quarter, we really had growth across the board on almost every category

[Brian Meredith:]

Great. And then next question, given the pricing dynamics going on right now in the commercial insurance pricing environment, do you expect that to potentially be a tailwind for you all from an organic revenue growth perspective going in 2012?

[Gregory C. Case:]

Well, listen, we've seen, as we described, and we've been very careful on this, and we look at it, Brian, as you know, quite analytically here. As we look at GRIP, and literally, this is sort of the kind of numeric reflection of exactly what's going on in the context of the overall marketplace, and I'll just go back to -- maybe I'll give you 5 numbers here. In Q4 2010, the overall market, this is across Aon's placements across the globe, minus 5.3%; Q1, it was minus 3.5%; Q2, it was minus 2.5%; Q3, minus 1.9%; and now flat in Q4. So we're seeing progression, and that's against -- across the overall system. Some ups, as you would expect in cat-exposed areas, some downs in areas like D&O, et cetera. But that's literally what's happening across the system. And when we think about Aon overall, again, we've made significant investments to build the platform for growth long term. If you think about where we were in '09, '10 and '11, we're at minus 1%, 0, now plus 2%, and we feel good about sort of continuing that trend moving into 2012.

[Operator:]

Next question, Michael Nannizzi, Goldman Sachs.

[Michael Nannizzi:]

Yes, so just if you could talk a little bit about the move of the Benefits segment over to the Brokerage side. I'm just trying to understand from a distribution perspective. How does that work? Or do some of the same brokers distribute both insurance product as well as Health and Benefits? And just a follow-up.

[Gregory C. Case:]

Yes, this is really for us. We're quite excited about this. It's an opportunity with great capability we have on the Health and Benefits side. It really was proven both Aon Hewitt and Aon Risk Solutions to bring those together. And really, it is about much stronger, greater access to clients around the world, in essence, the Health and Benefits capability now being brought to many Aon Risk Solutions clients. And in some respects, particularly in the middle market, they are the same buyer, so that's very much a CEO, CFO, and so it's a great opportunity there. In addition to that, it gives us the opportunity. They continue to work. As you think about sort of what we've done with GRIP on the Risk side, now we're adding Health and Benefits into that context. We've talked about a $60 billion overall flow across the Aon system. Now it's closer to $78 billion, almost $80 billion. So the opportunity to take very prudent approaches on the Aon Broking market side now get amplified doing this, and the access to clients gets amplified, particularly in the middle market and smaller commercial. We are, by the way, going to continue to keep investing behind the large corporate arena. We're very strongly positioned there, and we'll keep doing that. But we see this as really an opportunity to serve clients more effectively and are excited about it.

[Michael Nannizzi:]

But from a just kind of feet-on-the-ground perspective, does that mean that you'll have a broker kind of going into his client, as well as someone who will be representing Health and Benefits, sitting down sort of 3 people instead of 2 people? I'm just wondering, just kind of how does it work just from a feet-on-the-ground perspective?

[Gregory C. Case:]

Yes, the mechanics really don't quite work that way, although I could see where you're coming from. Literally, the mechanics are -- at the end of the day, this has to actually ultimately get designed and then placed, broked and then placed. And so a lot of our ARS colleagues sort of reach out for that capability. Now they've got greater access to fully branded Aon Hewitt capability, but they would have had access before, and we just got a much, much more introduction. So literally, it's like this. We're in the middle market, where we've got the strongest position in the world. The largest portion of our book is middle market, small commercial. Our brokers are sitting across the table saying, "Wow. I'm doing everything for you on the risk side. I know we've got people challenges and Health and Benefits challenges. I see that, that causes going up on your P&L," which, by the way, is a big deal in the middle market, big deal on large corporate, too. And said, "Listen. I'd love to introduce you to what we believe is the best client serving capability in the world in health and benefits if it's helpful." And that's really how it's taken off. And again, this is something we've seen work quite effectively in multiple regions around the world. It's exactly, by the way, how it works in Latin America and has for many years. It's exactly how it's worked in some of our offices in the U.S. already. And so this is, again, in many respects, taking a proven approach which we've seen work and now scaling it quite substantially around the world. And I would say and observe is we've actually made the transition already where we're beginning reporting in January, as Christa described, but we saw H and Benefit -- H&B growth overall in Q4 even as we are going through the transition, so we feel very good about it.

[Michael Nannizzi:]

And then just one last one. Just you mentioned Europe before, so, I mean, can you talk a little bit about pipeline? I mean, you said you're kind of fighting through the headwinds there. What is your base case for Europe as you think about your business there, particularly on the Consulting side? And where do you see -- where's your pipeline for business now versus where it was maybe 3 or 6 months ago?

[Gregory C. Case:]

Yes. We're still seeing good, strong, robust demand on the pipeline side. It's just, you can imagine, in Europe, clients are cautious. They're concerned about what's going to happen next. They have -- they might delay some projects that they would otherwise actually have done if they had a little more confidence or a little more certainty about what was going to happen. But in terms of sort of engaging with clients, seeing activity, that's remained quite robust. It really is just how we're actually serving them. Our sense is we're going to grow flat to low single digits in 2012. Sort of in the European theater, we're going to push that across both the Risk side and on the HR Solutions side. You know our commitment is to grow organically. And while there are headwinds out there, whether they're in pricing or economics or anything else, we're going to work hard to push against those and feel like we can do that in 2012.

[Operator:]

Next question, Dan Farrell of Sterne Agee.

[Dan Farrell:]

I was wondering if you could just talk a little bit more about the HR BPO business. This is a business that seemed like what it needed to do is get profitability fixed. It was not making much on a margin perspective, and now you're putting more into the business. Clearly, you must think of something that can be corrected very much on the margin but also grow, and I'm just wondering if you could talk about what trends you're seeing there that give you the increased confidence to invest in it and then also sort of what stage are we in the turnaround of that business from a margin perspective.

[Christa Davies:]

Yes, so we would say we are very pleased with the progress in this business. New client wins are up significantly, and the performance in this business is exceeding our expectations. We would say that it is a low but positive margin business today, and it will get to a mid-teens margin by 2015, and we are well on that path. So it's growing organically as we saw in Q4, and we expect that trend to continue into 2012, and it's well on track to get to mid-teens margin by 2015.

[Gregory C. Case:]

I might just also add, as you think about sort of the -- this is -- Christa's describing, literally, the core offering, and that's progressing very, very well, as she described. And we saw that, we anticipated that. We've seen that throughout the year, and the team's done a very good job on that front. But in addition to the core product, you might imagine there are lots of additional ancillary offerings that come with core HR BPO, on the Consulting side, in particular, and we're seeing that benefit as well, which is why we feel good about this business and look forward to continuing to grow it.

[Dan Farrell:]

Just one other quick question. I apologize if you've mentioned this already, Christa, but the pension contributions on a cash basis, are those even throughout next year? Are they more front-end loaded?

[Christa Davies:]

They're fairly evenly throughout the year.

[Operator:]

Next question, Adam Klauber of William Blair.

[Adam Klauber:]

Could you talk about uses of cash next year? Are share repurchases still the priority? And as cash increases, do acquisitions, significant acquisitions become a possibility again?

[Christa Davies:]

Yes, so the first thing I would say just to answer your M&A question is we do not believe there's a significant acquisition on the horizon. We believe M&A is going to be in the $200 million to $250 million a year range. It's traditionally smaller -- it's smaller acquisitions. So that would be sort of the M&A. But as we think about uses of capital and you refer to Slide 12 of the slide deck we posted, you can see that there are really sort of 6 main uses of capital

[Operator:]

Next question, Jay Gelb of Barclays Capital.

[Jay Gelb:]

On the Retail Risk Solutions business, as we get into a pricing environment here that moves into positive territory, how will clients react to that? Will they buy less coverage? And within the Retail business, how much of your revenue stream is commission-based rather than fee-based?

[Gregory C. Case:]

So, what we've seen, Jay, is -- and again, we step back. We solve the risk issues, challenges of our clients, really, very holistically. So we actually help them balance both the cost of that, including the core pricing as well coverage, all the different pieces that go with that. And you'll see some adjustment. Certainly, it's a mitigating factor. As prices increase, clients think about it, but so is the range of coverage that they're having to think about now when you sort of think about all the traditional risks that our clients have to deal with now, adding to that kind of nontraditional risk and the impact of cyber risk and sustainability and all the different pieces that go with that. So for us, it's a pretty kind of holistic picture. On the margins, as prices change, it does impact kind of what happens with our book of business and mitigated by things, as you described, like client retentions. About 70% of our book is commission-based, and about 30% is fee overall. So if you think about that, so it's -- the changes in price will have an impact. But again, we look at it from purely a client perspective on how we can serve them best.

[Jay Gelb:]

And then on the reinsurance organic growth in the fourth quarter, how much of that should we consider recurring? I mean, it seems like a lot of these capital markets transactions are sort of onetime in nature.

[Gregory C. Case:]

Well, as we described before, listen, the capital markets advisory businesses are lumpy. They go up and down. By the way, help us in some quarters, don't in other quarters. We just have an exceptionally strong capability here. When you think about what we're doing on the cat bond side and the capital advisory side, it's exceptional. We're the #1 player in the world leading the market. We're very much at the forefront there. Same on the advisory side, so that helps us. Facultative can be a bit lumpy, too, up and down. What I do want to emphasize is we feel good about our growth prospects, positive organic growth in 2012. And most important, as you reflect over the last few years in sort of the natural adjustment that occurs when you bring these 2 businesses together given our size, 2011, we believe, has set the stage very well in treaty, in capital advisory and, in fact, for growth.

[Operator:]

Next question, Yaron Kinar, Deutsche Bank.

[Yaron Kinar:]

Can we talk a little bit about GRIP, Aon Broking, Client Promise? How should we think about quantification of those both in terms of top line and maybe the margin impact?

[Gregory C. Case:]

Well, if you step back and think a little bit, Yaron, about how we've talked about this overall, when you think about sort of driving performance in the Risk Solutions arena, the number of clients, how we're doing on new business, our wins, losses, et cetera, so we've got a great deal of focus around that, a lot of efforts around the Revenue Engine. We think about share of wallet, literally, what's the cross-sell, how many products are we selling, how are we doing it in a way that, again, back to Jay's question, is holistic and really represents the best interest of our clients. And then we look at yield per dollar of premium paid. Really, that's really the other piece that's absolutely critical in the context of this. And so all the initiatives you're describing kind of fit into that framework. And this is really back to kind of Christa's point on getting to the 26% now margin and how that's fixed your play out over time. And in our view, the investments we've made, which have been true investments, they have been drags on margin, are really starting to show what we thought they would and seeing progress on yield per dollar of premium placed on Aon Broking and on GRIP, as well as kind of client wins and losses sort of on the Revenue Engine. In Client Promise, by the way, it's been fantastic. We've been very pleased with sort of the results. When we do Client Promise surveys and really understand holistically how we performed, our retention goes up substantially and our new business goes up substantially. And again, we're just systematically listening to clients and responding with the full capabilities of Aon. And on the Aon Broking side and on GRIP side, as I described before on the yield per dollar of premium paid, we believe there's substantial potential here as we kind of organize our firm to deliver for clients. One great example is over the past few months, we've actually pulled out a kind of a the tranche of risk, call it middle market D&O, for private companies and been able to bring that to market in a way that we've got clients a much better outcome in terms of additions, et cetera, and in the context of that, also done well for Aon. So we have a high expectation for where we think this is going to go and continue to improve Aon's performance. All these things are in Christa's controllable categories, the first 3 she talked about. Those, by themselves, we believe, can get us to our target margin over time. And if we get helped by some tailwinds, either on the investment return side or on the pricing or insured value side, that actually accelerates it.

[Yaron Kinar:]

Just so I understand, looking into 2012, would those be -- those initiatives, would those be a drag or a boost to margins?

[Gregory C. Case:]

Yes, they're going to begin to drive up. So as we said before, through 2011, on the investments we've really made in kind of end of '09, '10, into '11, we said we'd really start to offer some potential in 2012, and we fully expect that to happen.

[Yaron Kinar:]

Okay. And then on the Benefits Administration business, clearly, you're still seeing some ongoing price compression and pressures there. Is that kind of the new normal for that business, or do you expect something to change there? And if so, what do you see the catalyst has been?

[Gregory C. Case:]

Well, this has been as expected. This is a business, particularly on the large corporate side, that continues to experience compression, in line with what we thought as we came into the combination with Hewitt. But important, we take note of it. We really spend time with our clients to make sure we're helping them understand the value we can bring to the table, and we're getting paid for that, and we're delivering value. But we're looking for things evolving that capability into the middle market. Imagine middle market companies now that actually have much more compliance-related activities, they've got to come up to speed on, et cetera. We can actually help in the middle market. So the compression is real and meaningful, as we said before, offset by growth in new areas that we're trying to bring to bear to kind of offset that. But that really is what we're addressing as we go into 2012 and think about how we drive the business. So it's project revenue, what we're trying to do in the middle market, thinking about how we actually can continue improve productivity, things we call point solutions, which are specific targeted areas where we can help clients get better, Absence Management as an example of that. And so things -- those are the things we're trying to do, as we would always do, to improve the performance of the business through helping clients succeed.

[Operator:]

Next question, Meyer Shields of Stifel, Nicolaus.

[Meyer Shields:]

I was hoping you could take a couple of minutes and talk about year-over-year benefit or year-over-year changes in Aon Benfield's 1/1 renewals performance? I'm just thinking that that's particularly important over the course of the year. Just hoping to get some color on that.

[Gregory C. Case:]

Yes. I would say, Meyer, we would describe it as -- we feel good about the program, the progress for our clients on the 1/1 side. You would, I'd expect, would have seen some movements, particularly in the cat-exposed areas of the world around the globe in which we have significant shares. What we're not doing now at this point is -- on the Aon Benfield side, we believe that the capability we've got puts us in a pretty unique position to serve clients. So we're actually not sharing detailed forecast in sort of what's happened in 2012. Again, cat-exposed zones are up around the world, but the policy we adopted was really not giving our pricing forecast. And the reason for this is our ability to deliver better prices per unit of cover is, we believe, unique in the industry. And so we don't want to -- we're not sharing that with anybody except our clients, and by the way, we're sharing it with them in some detail. But again, you can imagine the overall trajectories, particularly in the cat-exposed areas around the world.

[Meyer Shields:]

No, I understand that. I guess what I'm pushing for and may not get is performance for shareholders, in other words, how Aon Benfield felt it.

[Gregory C. Case:]

Aon Benfield itself, I think the best way to grab that is looking at literally the win/loss. So you think about sort of net new clients won versus clients lost, and we're very pleased -- and as we expected, we believe once the overall set of adjustments were made as people readjust their books, which, by the way, in the insurance world, would take 18 months in the context of that because it takes 12 months to flow through. By the way, we actually do the recording of this. But our win/loss over the last 3 quarters has been up on a dollar basis and up on a client basis for 3 consecutive quarters as we're into 2011. We feel very good about that for 2012.

[Meyer Shields:]

Okay. And one other question. I know with the restriction of the outside wholesale brokers, is there economic benefit that you expect in 2012 from that, or is that already in the books?

[Gregory C. Case:]

Well, listen, the U.S. wholesale piece was really around serving clients more effectively, focusing around some preferred wholesalers who are bringing value to our clients in a very specific way, and we've got 2 who are in that category doing very, very well from our standpoint. And so it really is about how we serve clients more effectively and less about sort of the basic economics.

[Operator:]

Our last question comes from Michael Zaremski of Credit Suisse.

[Michael Zaremski:]

In terms of the share buyback authorization, will you be waiting until the second half of the year, when the headquarters change is completed, to resume repurchases? And related, the tax guidance of 29% doesn't appear to show a tax benefit. Then I have a follow-up.

[Christa Davies:]

Right. So on share buyback, I could say that I think $150 million a quarter is probably the right level, with a lower level in Q1 because it's a higher cash outflow quarter. That does not assume the relocation of headquarters, which would give us access to an additional $300 million sitting internationally on the balance sheet. In terms of -- so to answer you question, share buyback will continue throughout the calendar year, with Q1 being lower because it's our seasonally highest cash outflow quarter. Next, on the tax rate, we are giving guidance for 2012 of 29%. As we mentioned, the 27% we reported for 2011 had some onetime returns that will not continue.

[Michael Zaremski:]

Okay. And then lastly, if I look at Slide 9, the Long-Term Operating Margin Targets, and tell me if I'm thinking about this the wrong way, if I strip out -- looking at the change in intangibles. So I look at the Risk Solutions operating margin target of 26% and I take out the intangibles, so it's still going to be 25%. And if I look at HR Solutions, it looks like it's 22%, but if I take out intangibles, it's 18%. So I'm just kind of curious, do the margin targets, x intangibles, go down incrementally all-in?

[Christa Davies:]

No. This is literally a math equation just to back out intangibles and to account for the transfer of Health and Benefits. There's no change in our long-term margin targets.

[Operator:]

I would now like to turn the call back over to Greg Case for closing remarks.

[Gregory C. Case:]

Yes, thanks very much, everybody, for participating on the call. We look forward to our next discussion. Thanks so much.

[Operator:]

Thank you. That does conclude today's conference. You may disconnect at this time.