Marsh & McLennan Companies, Inc.
Q2 2008 Earnings Call Transcript

Published: 6 Aug 2008

[Operator:]

Good day everyone and welcome to MMC's Conference Call. Today's call is being recorded. Second quarter 2008 financial results and supplemental information were issued early this morning. They are available on MMC's website at www.mmc.com Before we begin, I would like to remind you that remarks made today may include statements relating to future events or results, which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward- looking statements are subject to inherent risks and uncertainties. In particular, references during this conference call to anticipated or expected results of operations for 2008 or subsequent periods are forward-looking statements and MMC's actual results may be affected by a variety of factors. Please refer to MMC's most recent SEC filings, as well as the company's earnings release, which are available on the MMC website for additional information on factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. I'll now turn this call over to Mr. Brian Duperreault, President and CEO of MMC.

[Brian Duperreault:]

Good morning, and thank you for joining us to discuss our second quarter results reported earlier today. I am Brian Duperreault, President and CEO of MMC. Joining me and presenting on the call today are Matt Bartley, our CFO; and Dan Glaser, CEO of Marsh. After I make some brief remarks, Matt will present our financial results. And Dan will share with you his insights into Marsh's strong performance during the quarter. I'd also like to welcome our operating company CEOs to today's call; Michele Burns of Mercer, Peter Zeffino, of Guy Carpenter, John Drzik of Oliver Wyman, and Ben Allen of Kroll. Also joining us is Mike Bischoff, our Head of Investor Relations. Let me began by saying that MMC's excellent results in the quarter were driven by a significantly improved operating performance in Marsh and strong revenue growth at Mercer and Kroll. Looking at Marsh's performance in the quarter, it is clear that the recovery is picking up speed. Revenue is growing throughout the world, reflecting both higher client revenue retention and increased new business. Expenses are being closely monitored with a noticeable improvement in management accountability. And morale has significantly improved. Senior leadership of Marsh has acted on input from colleagues from around the globe, and employees are bracing the resulting changes. They not only are willing to change, they are asking what more can we do. In the near future, Marsh will be making several important changes and improvements to its business model and Dan will discuss these in his remarks. All of these efforts should allow Marsh to show continued improvement even as a soft insurance market cycle continues. At Guy Carpenter, difficult market conditions continue to effect results. Our previously announced restructuring at Guy Carpenter was in reaction to net new business declines in the first part of the year. The execution of the restructuring has gone well, and all necessary steps are being implemented rapidly, a credit to Peter Zaffino. These were tough, but necessary steps that needed to be taken to protect Carpenter's profitability. Additionally, Peter and his team have reduced other cost to better align expense with the revenue levels. As a result, unlike the first quarter when there was a meaningful decline at Carpenter's profitability, this more disciplined approach resulted in only a modest decline in the second quarter. And lastly, we are seeing improvement in the Carpenter's new business origination with a success rate of competitive RFPs year-to-date significantly ahead of what was achieved in 2007. However, the majority of this new business will not impact revenue until next year. Mercer had an excellent quarter. This was a continuation of a strong revenue growth we saw from Mercer in first quarter. Underlying revenue growth in the quarter was 9% with a strong growth experienced across all businesses. Areas of particular strength were investment consulting and health and benefits. While we are satisfied with Mercer's growth, we are also sensitive to the current economic environment, particularly in the United States and the UK, Mercer's two largest geographies. To address this, Michele and her team had begun to prudently implement cost containment measures to maintain growth and profitability even if revenue growth moderates. Conversely, Oliver Wyman, which makes up 30% of our consulting segment, has seen a weakening of demand primarily from U.S.-based clients. This caused underlying revenue growth in the first half of the year to slow to 4% from the mid-teens growth Oliver Wyman had experienced over the last four years. We're also seeing early indications of slower growth in Europe. As a result, John and his team are vigilantly managing operating expenses and consultant productivity. Taken together, we are pleased to report that the strength at Mercer more than offset this weakness at Oliver Wyman. As a result, we reported an increase in operating profit for our Consulting segment in the second quarter. Turning to Kroll, the second quarter showed very strong revenue growth, 20% on a reported basis and 11% underlying. This strong growth occurred at Ontrack, which provides litigation support technology services, it's due to exceptionally strong demand for electronic discovery, and in the business intelligence and investigations group, which provides outsourced investigator services transactional due diligence, and security-related consulting. Not only did Kroll had a strong quarter with respect to revenue growth, we are also pleased to see Ben and his team significantly improved profitability. You will see the profitability for the Risk Consulting and Technology segment improved on a non-GAAP basis. However, this understates Kroll's significant improvement in profitability as the corporate advisor and restructuring business, which is also in this segment, had a loss in the quarter. Let me conclude by saying I'm very pleased with the amount of progress we have made throughout MMC in the past six months. We have reestablished the earnings power of Marsh. This quarter each of our segments saw an increase in revenue and operating income. And although a great deal of effort is still required, it's gratifying to show strong operating results this quarter. We are excited about the future. And with that, I will turn it over to Matt to present our financial results for the quarter.

[Matthew B. Bartley:]

Thank you, Brain. Good morning. Before I discuss MMC's financial results for the second quarter, there are two matters that I want to highlight

[Daniel S. Glaser:]

Thank you, Matt. And good morning everyone. I am pleased with the performance of Marsh for the second quarter. We have a long way to go with our results this quarter reflects strong progress on many funds. Today, I will take a few minutes to review the quarter and share some of the actions we are taking to continue to improve our financial performance. Marsh grew revenue by 8%, 3% on an underlying basis. This underlying growth was broad-based. EMEA was up 5%, Asia-Pacific grew 8%, Latin America rose 1%, and U.S. and Canada increased 1%. While revenue was up 8%, our expenses on a GAAP basis were flat, and on an underlying basis were down 5%, driving a significant improvement in our margin in Q2 compared with the second quarter of last year. In fact, we earned materially more in the first six months of this year than we earned for all of 2007. On a non-GAAP basis, Marsh's net operating income in the second quarter increased by more than $90 million from the second quarter of 2007. For the first six months of 2008, the increase was over $130 million. I'm pleased with these results and they reflect a significant improvement in our performance just a short time ago. Our new business was up 6% or 3% on an underlying basis in the quarter, led by a solid performance in our international operations. These levels of new business demonstrate that we continue to win in the marketplace. Year-to-date, we have generated $466 million of new business, an increase of 11% on a GAAP basis and 5% on an underlying basis from last year. Also, we have seen meaningful across the board improvements in our client revenue retention rates. On a global basis, through the first six months, our client revenue retention rate has improved five percentage points compared with the second half of last year. I feel good about our revenue performance in the second quarter. We are winning in the marketplace and we have clearly gained momentum. I am also pleased with the greatly improved morale and how the organization has responded to our drive for greater expense discipline, defined by our mantra, Think like an Owner. As I mentioned earlier, our expenses in the quarter were flat compared with last year and this includes $22 million in severance charges related to position eliminations in the quarter. On a non-GAAP basis, underlying expenses were down 5%. This reflects the benefit of a much greater cost discipline on many fronts. We are holding our managers much more accountable for expense control at a very detailed level, which is contributing to the significant cost reductions. Our other operating expenses fell 15% in the quarter with decline showing in many areas, as we cut down on spending, not specifically tied to better servicing of clients. As examples, we are seeing significant reductions in marketing and advertising, nonessential internal meetings, and consulting fees. In addition to cutting spending, we have also reduced staff. In Q2, we eliminated approximately 360 positions. This was in addition to the 150 positions that were eliminated in the first quarter. Total restructuring costs so far this year have been $36 million, which will result in annualized savings of more than $45 million. At the beginning of July, we completed our outsourcing arrangement for back office functions in the UK. As part of this transaction, about 600 Marsh employees have been transferred to Capita Group. This transaction will reduce our operating costs and improve the quality of our service. My team and I have also completed plans for additional reductions. The cuts largely will come from corporate, back office operations, and non-client facing areas. We will also see reductions as a result of the operating model changes we are making in our U.S. business. We're being surgical with these reductions, which will be largely executed this year and will result in an additional 900 position eliminations, a potion of which will come from attrition and further outsourcing. As with revenue growth, it is early days in terms of expense control, while we are starting to see the benefits. We view this as a multi-year process that will greatly improve our competitive position and significantly increase profitability. Now let me give you the broad outlines of our improvement plans. We have already completed what I'd like to call the first wave of these plans. We established the senior management team. We reorganized Marsh's global organizational structure. We streamlined reporting relationships and we established better P&L accountability with managers while sharpening our focus on clients and colleagues. Since these early steps, we have diagnosed our most critical performance issues and developed plans for further improvement. These plans are aimed primarily at improving our operations in the United States and continuing to position ourselves for growth and margin expansion internationally. We are now in the early stages of the second wave of operational improvements and major initiatives that will include the following

[Brian Duperreault:]

Thanks, Dan, thanks, Matt. Now I would like to begin our Q&A. So, and as a reminder, we have our operating company CEOs here with us who can help answer any questions you have. So operator, we are ready to begin the Q&A. Question And Answer

[Operator:]

Thank you. Ladies and gentlemen, the question and answer session will be conducted electronically today [Operator Instructions] Our first question will come from Keith Walsh with Citi.

[Keith Walsh:]

Good morning, gentlemen. First question just for Dan. When I think about, I guess, the Americas' roughly 35% to 40% in revenues total, it seems like you are talking... you are going in surgically to take cost out. Maybe if you could even whittle that down, is there a subsegment within the Americas that is really where the problems are, if you can just give us some color around that? Thanks.

[Daniel S. Glaser:]

Okay, thanks, Keith. A couple of things. One, when we look at the 900 job cuts, let's bear in mind first of all that about 200 of those roles will be outsourced and we will probably have another 100 or so, which will manage via attrition. So the lion's share of the remaining exits within that will be in the United States. We had several parts of our business where I feel that we can reduce expense and reduce our employee account without affecting client revenue at all. To give you some examples, in the second quarter, we eliminated a group which we call the Policy Management Group, which was set up only two or three years ago as a policy checking, policy issuance area. But as you know, a big part of our business is in the large account space and most of those policies are manuscripted and bespoke. And so it added redundancies because clearly the client team has to review a bespoke policy and take responsibility for that. And all it all did was sort of add cost as we sent those policies to a central location and it added time as well in terms of our ability to deliver timely policies. And so that was about 200 headcount right in that group. When you look at our business, our approach in the past has very much been a one side fits all strategy in terms of service and account handling. And so when you look at that and since our tradition is a large account area tradition, what it tends to mean is that we do better in the large account space, and as we drift through middle market and into small, we struggle on the efficiency side and on the cost side because we are giving large account solutions to customers that are really looking at... looking for a broad and comprehensive products rather than bespoke solutions. So if we have a focus, it will be more in that middle and small area.

[Keith Walsh:]

And just a follow-up with the placement hubs, may be if you can give us a little more color around timing and magnitude of how beneficial that could be? And that's it, thanks.

[Daniel S. Glaser:]

Okay. Where we are today, we have distributed placement. So that means that in about 60 offices we are doing property and casualty placement activities. And you could imagine we've got a great deal of variability with that. We have offices that have a great deal of volume and they do a terrific job. We have other offices which have very limited placement volume, but yet they are maintaining placement organization. So, in my mind, hubbing placement is absolutely critical to the delivery of the absolute best terms and conditions available in the marketplace for our clients. And so, I think it would be a... concentrating that placement and product expertise will be a big win for our clients. And we'll help on some industry issues, for example, like improving contract certainty performance, which is a big issue and we have made a lot of progress in the UK and I think we can do the same thing in the U.S. I also think carriers will benefit from hubs. The reality is, most carriers don't have as distributed in underwriting platform as we have a distribution platform. And so we've heard very good feedback from carriers about organizing around our hubs, which will make them more efficient and save cost. That will give us some ability to work together to create things like standardized submissions and gain efficiencies that way. And of course, for us, removing some of the variability and focusing our placement personnel in a more controlled environment will lower our cost and will reduce our E&O exposure. And it would also enable us to focus some of our technology expenditure on improving the whole placement process.

[Keith Walsh:]

Great, thanks a lot.

[Brian Duperreault:]

Okay. Next question please?

[Operator:]

Our next question will come from Meyer Shields. Sir, please state your name or your company name.

[Meyer Shields:]

Stifel Nicolaus. Good morning everyone.

[Brian Duperreault:]

Good morning.

[Meyer Shields:]

I guess another question for Dan, if I can start with that. Obviously pushing for higher revenue for those commissions and fees is going to be a permanent process, but can you give us some insight in terms of how far along you are compared to where you should be at this point in time?

[Daniel S. Glaser:]

Well, I am happy with 3% organic growth in the quarter and unhappy with some of the progress we've made in the U.S. We're starting... a lot comes with confidence. A lot comes with how people feel about themselves, how they feel about the company. And when they feel good about the stability in the firm and that the company is on the front foot, they feel a lot more confident to ask their client for a fee review, as an example. Some of the things that we're seeking on the fee side, as an example, I think are pretty standard in other businesses along the lines of, let's say, inflation adjustments. There are too many clients that have a philosophical problem with having an adjustment base upon inflation built in to our contract with them. We have all kinds of different ways, in my mind, in order to grow revenue. I think our segmentation strategies will enable us to grow revenue. I think our placement hubs will make us more competitive in the market and we'll win more deals. Right now there has been a shift in the last six or seven months toward offensive RFPs as opposed to defensive RFPs. And right now in the United States more than... almost 80% of our RFP activity is on offense as opposed to playing defense. So that's a fundamental shift from were we've been over the last few years. And in terms of enhancing the, what we call our pricing of services, a lot of that is our looking at the way we do business, I have been very cheered as I have gone around the country, with how many clients have said that we offer terrific value and terrific services. And then they fundamentally rely on Marsh on a strategic basis. I think that puts us in a good position, have a discussion with regard to the compensation.

[Meyer Shields:]

Okay, thanks. And just quick follow-up for Matt. Can you give us the impact of foreign exchange on, I guess, EPS and the brokerage margin?

[Matthew B. Bartley:]

It was not significant. So I would say we got a slight benefit, some of our competitors show pretty substantial benefit, but ours doesn't approach that. So both on an aggregate basis and specifically in the Risk and Insurance Services segment, it was a bit more than de minimis although we have a discussion about whether that's the right term, but very slight.

[Meyer Shields:]

Okay. Thanks very much.

[Brian Duperreault:]

Next question please.

[Operator:]

Our next question will come from Larry Greenberg with Langen McAlenney. Please state your name and company name before posing your question.

[Larry Greenberg:]

Thanks. Actually my question was answered.

[Brian Duperreault:]

Okay, Larry. Next please?

[Operator:]

Our next question will come from Mathew Heimermann with JPMorgan. Please state your name and company name before posing your question.

[Mathew Heimermann:]

Hi, Matt Heimermann, JPMorgan. Good morning everybody.

[Brian Duperreault:]

Good morning

[Mathew Heimermann:]

First on Oliver Wyman, I guess, could you just talk maybe a little bit about what you're seeing in the pipeline, because I would suspect that you have some visibility with revenues. So is the pipeline slowing even faster, I guess, or more dramatically then we are seeing in the reported organic at this point?

[Brian Duperreault:]

I am going to let John answer that question. John?

[John Drzik:]

Sure. We are seeing continued headwinds in the pipeline for the second half of the year, probably comparable to what we had for the first half of the year rather than better or worst at this stage.

[Mathew Heimermann:]

Okay. And then just in terms of, is that... I mean, with the discussion that you are seeing signs of Europe weakening, is that just U.S... you have seen the worst of the U.S. at this point?

[John Drzik:]

I think our business follows the broader economic pattern. So as right now, the U.S. is the weakest economy. And that's where our business is weakest. We are expecting that some of that may move into Europe, and we are seeing some early signs of that. But that may be balanced by some recovery in the U.S. business. So right now we are not seeing the business in aggregate looking to be worse than it's been. But because of the spread, it may... there may be continue headwinds in the global business for some period of time.

[Mathew Heimermann:]

Okay. And then just a follow-up for Dan was just, I think somebody suggested that retention was near historical levels, if I didn't know that was... if I heard that right and if it wasn't, if no one opined on it, could you just talk about where retention levels are versus history at this point?

[Daniel S. Glaser:]

Okay. So, let me approach that in two different ways. We tend to manage to client revenue retention. And on our the point that Matt made was the client revenue retention levels are at the historical soft market level. So the comparison would be when we look at some of the soft market conditions in the late '90s that would be the comparison with that. From a account retention level, which we don't think is as meaningful for a variety of reasons to manage to, but I am also pleased to say that our account retention levels, both in the U.S./Canada division and internationally, are at historical norms which are in the low to mid 90s, depending on geography.

[Mathew Heimermann:]

Okay. And then could you maybe give us a sense of what the spread is between soft market and hard market retention?

[Matthew B. Bartley:]

It's a couple of percentage points. And it depends upon what point you are in the cycle. So the reference that I made was an extended soft market where you really felt the brunt of the soft market play through over a period of time. But it's a couple of percentage points.

[Mathew Heimermann:]

Okay. Thank you very much.

[Brian Duperreault:]

You are welcome. Next question please.

[Operator:]

Our next question will come from Jay Gelb. Please state the your name and company name please.

[Jay Gelb:]

Hello, it's Jay Gelb from Lehman. I was wondering if you could sort of break down first the anticipated expanse savings as a result of the restructuring in Marsh and then what the offsetting expanse... what the offsetting investments would be, so kind of a net level of expense reductions?

[Daniel S. Glaser:]

Yes, I can very much understand the question, Jay. I can't answer it in full, but I will answer it in part. As you now, when we look back a little bit in Q4, we had disclosed that we were going to achieve about $125 million of expense savings and at that time we said a fair amount of that, a heavier amount of that would roll back in through inflation area adjustments, through comp and other activities. And so I imagine that's a part of what underpins your question. But let me address it this way. In addition to that $125 million through this year, we've made significant changes to our expense policies, as an example, our T&E policy. And we expect to see about $25 million of benefits on that through 2008. When we look on a year-to-date basis, we've eliminated 500 positions and we've outsourced 600 employees to Capita in the U.K. The year-to-date restructuring has been $36 million and the annualized run rate savings from that is $45 million. As we move through the rest of year and the balance of the restructurings that we do, we expect the proportionality to be similar.

[Brian Duperreault:]

Okay.

[Jay Gelb:]

Yes, yes, okay. And then if we look at the overall Risk and Insurance segment, I think 20% pre-tax margin was put out there as a reasonable goal. At what point do you think you can get there?

[Brian Duperreault:]

I am not sure who made that goal that day, but --

[Jay Gelb:]

May be an older one?

[Brian Duperreault:]

Yes, may be. I think for us... we have like a two-step process and one of them is to get us competitive, to get us at levels that the competition is achieving. When we get there, then we go to the next step, which is to beat the competition. So whatever that is, it is.

[Jay Gelb:]

Okay. And then just for Michele, what type of margins do you think the Consulting segment can generate in this type of economic environment?

[M. Michele Burns:]

In this economic environment, we probably are in this low to, say, mid-teen range. Over time, as we continue to grow the firm and scale certain of the businesses, I think you will see that we can achieve mid to high-teen ranges on the margin line. And particularly it takes effect as our outsourcing business, which is becoming more and more significant, continues to scale. Similarly, our investment management business, as it continues to scale, it will improve the margin as well. So I would expect over a longer time horizon, you'd see margin improvement that will be marked.

[Jay Gelb:]

Thanks very much.

[Brian Duperreault:]

Okay, you are welcome. Next question please?

[Operator:]

Next we will hear from Alain Karaoglan. Please take your name and company name.

[Alain Karaoglan:]

Good morning. It's Alain Karaoglan with Banc of America. Congratulations on the nice improvements in results this quarter.

[Brian Duperreault:]

Thank you.

[Alain Karaoglan:]

Dan, in your comments you mentioned you have a long way to go for business to be where you'd want to be. And maybe if I could ask that question to both Dan and Brian, where do you want to be and is there a timeframe by which you want to get there? What were you thinking about when you made that comment and what sort of timeframe do you think about? And you might still be reluctant, Brian, to mention any financial metrics that these relate to, but I don't know if you have fine-tuned your thinking on that or not?

[Brian Duperreault:]

Dan, do you want to start?

[Daniel S. Glaser:]

Yes, I will start. One, I am a firm believer that you are never done. There is always a smarter way of doing something, there is more margin to achieve. So we're not going to get to a point and stop and say we are there and get complacent. We clearly have had underperforming margins. So over... I think a reasonable period to look at when you are taking a business and driving margin improvement is over a two to three-year period, you are going to drive some fundamental changes and then you are going to make further changes from there. So at the end, I think you will see some significant improvement in our margins as we go through this year, might expect that to continue next year as well. And as we go forward, I really think in 2010 and beyond, we'll be looking to optimize parts of our business. I've always believed Marsh is the finest insurance brokerage firm in the world and there is a great deal of opportunity for us. And I wouldn't trade our strategic position with anyone.

[Brian Duperreault:]

Dan, it's tough to top that, I think you said it all.

[Alain Karaoglan:]

Thank you.

[Operator:]

Jay Cohen has our next question; please state your name and company name.

[Jay Cohen:]

Jay Cohen from Merrill Lynch. I have one question and a follow-up, I guess both relatively simple, I think. The first one, the tax rate on sort of the adjusted earnings, looks like it was down 200 to 300 basis points from the first quarter, and I am wondering what was the cause of that.

[Matthew B. Bartley:]

The tax rate this quarter was benefited, Jay, from the geographic mix of earnings. Normally when you see a move, I think the move is a little bit less than the one that you articulated or enumerated there. But normally when you see a move like that, there is something else going on. But here it was really the geographic mix that helped us considerably. Now, the benefit that we got on tax line, we kicked away a little bit, you may have noted on the cooperate line, where we had some incremental expenses in the quarter that we do not expect to recur. So net-net, we probably didn't benefit any on a net basis through EPS, but it was purely the geographic mix of earnings.

[Jay Cohen:]

That's helpful. And then lastly, maybe for Brian, the company has done a pretty good job of managing capital, meaning, buyback stock, frankly, over the last several years. And I am wondering, my sense is that you historically have not been a big believer in buybacks, but I am wondering with Marsh and given the strong cash flow, what your feeling is on that?

[Brian Duperreault:]

Well, just an unfair reputation I have. I think it really is the question of what's the best use of the capital. And we are constantly looking for places to grow, organic and through acquisitions. And so, that does have my priority, but that doesn't mean we wouldn't buyback shares if we felt that... at that moment the best use of the capital was to buyback shares. And I have in the past done that in a former life. But my priorities would be to try to find ways within the business to grow it.

[Jay Cohen:]

Good. Thanks. Brian.

[Brian Duperreault:]

Okay. Next question please.

[Operator:]

Next we'll hear from Brian Meredith. Please state your name and company name.

[Brian Meredith:]

Brian Meredith at UBS. Two question here for you. First, Matt; can you tell us what the year-over-year benefit was from lower pension expenses, if there was any this quarter? And then also the variable comp situation on a year-over-year basis?

[Matthew B. Bartley:]

Well, the pension expense, similar to what we discussed on the first quarter, we're in the range of $30 million give or take a little bit in the quarter as a benefit year-over-year. And obviously some of that flows to Marsh, but it is also spread among a number of the other operating units. And so that hasn't changed, and we'll see that play out through the year. I am sorry, the second question was around variable comp?

[Brian Meredith:]

Last quarter you said it was off set by variable comp?

[Matthew B. Bartley:]

Yes, oh, in fact, that's right. A similar situation happening in this quarter as well, okay, again on a year-over-year basis. Now that will fall away in Q3 and Q4.

[Brian Meredith:]

Okay, great. And the second question for Dan. I guess, question on the placement hubs. Can you maybe talk a little bit about how is this different from what global broking used to be at Marsh, or is it going back to somewhat that kind of a strategy?

[Daniel S. Glaser:]

Well, the placement hubs, in my view, are very much to organize ourselves, to concentrate placement capability. But we are not going to run them as a separate profit center. They are going to be part of our geography. And it's almost like a placement utility as opposed to a placement profit center. And I am a big believer in one client at a time. So there will be no sense of aggregating our clients into the hub. We are aggregating our capability, and each client will come in as an individual and they will have the same placement team year-over-year. And so, it won't be homogenized, it would actually be very specific to individual clients. So it's a far different approach.

[Brian Meredith:]

Okay. And you don't anticipate clients being a little bit worried by this?

[Daniel S. Glaser:]

No, actually I have gotten really good feedback from clients to-date. I think what... where you'll see things, the company is largely hubbed in several of our key specialties right now. Most of our excess casualty business is placed out of New York, most of our financial lines business has three locations in the country. And so all we are doing is recognizing that model and solidifying it and making it part of a Marsh model as opposed to where the business as individual units had created on their own. We are just trying to put some hest behind it.

[Brian Meredith:]

Perfect. Thank you.

[Brian Duperreault:]

Okay. You are welcome. Next question please.

[Operator:]

Next question will be Bill Wilt. Please state your name and company name.

[Bill Wilt:]

Hi, Bill Wilt from Morgan Stanley. Most of my questions have been asked, I just wanted to check back, Matt, in your prepared remarks side, I was writing perhaps too quickly. You commented on Marsh's revenues in the third quarter and if I wrote it down correctly, you though revenues would be or may the second half would slow. Perhaps you could just revisit, I think you commented on margin improvement in the third quarter and then revenues in the second half '08.

[Matthew B. Bartley:]

I was probably speaking too quickly rather than you writing too quickly, Bill. What I said or what I hoped to indicate there was that the third quarter for Marsh is seasonally a light quarter, and as a consequence, we won't see the same sort of margin on an absolute basis out of the Risk and Insurance Services segment driven by Marsh in Q3 that we've seen in Qs 1 and 2. Not the case in Q4. Q4 is again a heavy revenue quarter. But Q3 is always a bit light and so on an absolute basis, we'll see the margin come down. However, we will see significant margin improvement in the third quarter on a year-over-year basis. That's our anticipation.

[Bill Wilt:]

Very helpful. Thank you.

[Brian Duperreault:]

You are welcome. Thank you.

[Operator:]

Our final question today will be a follow-up from Meyer Shields. Once again please state your name and company name.

[Meyer Shields:]

Meyer Shields from Stifel Nicolaus. I guess a question for Dan, with regards to the hearings going on in New York. Right now, in the absence of full transparency, do feel like that's actually causing you either accounts or revenue when some of your competitors don't have to fully disclose the total revenues?

[Daniel S. Glaser:]

It is a good question. And I would pair contingent commissions and transparency as really what creates an unleveled playing field. And while I wouldn't cite specific accounts, I would say that I do feel that we are competitively disadvantaged from that unleveled playing field. Disadvantage both on the revenue side, on the margin side, and also on the cost side because of the various monetary and compliance regimes we have that other companies don't bear. And so I am quite enthusiastic that these hearings have been held. I really applaud the Insurance Commissioner and Attorney General Cuomo for tackling an issue which they've inherited, much like we've inherited. And I think regardless of the outcome, I would imagine a level playing field have to be viewed by all as being what is the right environment to operate in. And I am comfortable in our position that we would do quite well competing on any basis as long as it's level.

[Meyer Shields:]

Okay. And if I can follow that up, you talked about improved reinsurance new business generation, is that a shift in retention levels of those new clients you talked about, what's actually driving that?

[Brian Duperreault:]

Peter?

[Peter Zaffino:]

Yes, what Brian had mentioned in his opening statement about Guy Carpenter is that we monitor RFP activity from new opportunities. And when measured through the first two quarters, our activity has increased and our actual success ratio has gone up over 30%. And with how we account for revenue, a lot of this is done well in advance. So it's going to be mostly January 1 renewals of 2009. But we're very encouraged globally on the increased activity and the increase in our success ratio.

[Brian Duperreault:]

Okay. Well, thank you very much. I think we can draw this thing to a close. Thank you very much for calling in today.

[Operator:]

And that does conclude today's teleconference. Thank you all for joining, have a wonderful day.