Thank you everybody. Good morning. Thanks for joining us on this session for the conference on a Friday afternoon or Friday morning, depending on where you are. I'm Michael Phillips from Morgan Stanley, as Equity Research Analyst for Property and Casualty Insurance. Pleasure to have with us today, Carl Hess. He's the President and incoming CEO of Willis Towers Watson. Thank you, Carl, for joining us. It's nice to see you. My pleasure. Good day, all. Thanks. Guys, we have 30 minutes, we'll save some time at the end. You guys in the crowd are allowed to ask questions, which I'll get through email. We'll save a little bit of time at the end for that. We have about 30 minutes to chat with Carl about things that are happening in brokerage land and Willis Towers Watson, specifically. Before we get into it, let me get the disclosure out of the way. For important disclosures, please see the Morgan Stanley Research Disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. Cool. With that out of the way, let's get into it. Carl, again, thanks. You look comfortable there. Kind of jealous. Looks pretty cozy where you're calling us from. Thanks. These gamer chairs are first rate. You should try one. Yeah. That's perfect. Look, got some questions for you. Let's start with, I guess, just because your background, you've been at Willis Towers Watson for a long time. Your background actually comes from the other side, the consulting side, before the mega merger back 5, 6 years ago. I guess I'm just curious, because we hear a lot about this from clients. They ask these questions all the time about just cultural differences between the two sides of the fence. Since you've been there so long and come from the consulting side, curious any thoughts you have about what you see there, specifically at Willis Towers Watson, or maybe any differences in the culture between the two sides, if that's important or not? How that works, in terms of, well, if it's any different, do you think they might be from some of your peers, if you can comment on that? Yeah. We're 6 years in, hopefully the sort of idea of two sides has gone away, we focus a lot more about our culture of inclusion and collaboration. There is significant collaboration across the organization. We have come a tremendous way since Willis and Towers Watson came together in 2016. We acknowledge we've learned a lot from each other. There is a unique blend of talents in the organization. I think that was reflected at our Investor Day back in September when Adam Garrard, who's the head of our broking business, was outlining our vision and described the broking segment as a, let me see if I can get this right, data technology, analytics, consulting, and solutions business rather than a traditional transactional broker. Look, we have a bold vision at Willis Towers Watson, right? That's to be the best company we can be, that's for the benefit of all our stakeholders, that includes our colleagues. A key element to that vision is being a magnet for talent. To accomplish this, we do need that inclusion and the inclusive culture I talked about, where everyone's heard, everyone's respected, everyone's valued. Because when we all bring that perspective to work, regardless of whether you're a broker or a consultant, and yes, the consultant in me is still in me, right? We're able to bring that together and produce better outcomes for clients and for each other, and that gets us to our full potential. Okay. No, thanks. Obviously, you mentioned it in your answer there, so no secret that some of the headwinds you faced in the past year or maybe a little bit longer have been just from attrition, given the Aon deal that's gone now. Yeah. I guess, is the worst of that passed? Recently, we've seen some news you guys are actually grabbing some people and adding to staff. I don't know, is the worst of that behind us and now it's kind of go forward with hiring? Or where do you think we are with that? No, I think you're right on that, Mike. No question that during 2021, we had elevated levels of attrition. There was a lot of uncertainty around the business combination. At the enterprise level, right, our overall attrition rates remain pretty stable, so this was really mostly focused on our Corporate Risk and Broking business. In response to that, because we didn't just sit back, right? We provided clarity in our direction, announced a strategy, right? Here's where the firm's going. We also did put some financial incentives in place to retain key client-facing colleagues. Having lifted the constraints of the disruption caused by the deal and the cancellation of the deal, I am really happy that talent attraction and retention has improved. You've noted that, thank you very much. Hiring rates are up dramatically in our Corporate Risk and Broking business, and attrition stats are improving as well. As we mentioned on our Q3 earnings call on a net basis, core CRB headcount was down about 100 colleagues. That's just under 1% compared to the third quarter of the prior year. We think the worst behind us. We can keep the hiring momentum going that you've noted in the press. At this point, we're focused on retaining and expanding our talent base, and we're actually really excited about the future of this business and what we can achieve together. Well, I guess on that, just to follow up on that, Carl, what are some of the things you're saying to employees to keep folks there? You must have town hall meetings that you talk to them and give them the plan for the next three or four years and the long-term plan to get them excited. What are the communications you're giving to employees to keep them inside? Well, you're right. I've done dozens and dozens of town halls over the last three months. It is about the vision, right? We are trying to be the best, not the biggest. Right? We have a great value proposition for clients. We have a great value proposition for colleagues. We are working together, 46,000 brains working as one to actually produce superior results. Other people talk that, we walk it. The idea that if you can help bring the best of Willis Towers Watson to everybody else, you don't just succeed, we'll all succeed. That actually resonates, right? The people who are with us are here because they wanted to be with us. Think what we did to them, right? Put them through a pandemic, put them through a merger, and they're still with us, and they're still proud, right? It's incredible. Yeah. I'm so proud of them. Yeah, very true. Been through quite a bit. I guess if we can talk about some of the things you laid out in your Investor Day. First off, maybe we can talk about the plan to be, by 2024, I guess, the $10 billion revenue company. Maybe can you talk about, I guess, first off, what are the biggest challenges to get to that number, you think, over the next three years? Well, we're confident in our ability to hit that $10 billion revenue target by 2024. We took a bottoms-up approach to figuring out the opportunities and the objectives for all the goals we communicated, including the revenue target. To achieve that revenue target, it's about smart investment, right? Looking for the places in our portfolio that offer the greatest potential, figuring out what the portfolio effect is. Leveraging the places that our businesses intersect that enable us to differentiate and drive premium pricing and/or take market share. Let me give you an example of that. Our retirement and our investment businesses together came up with something called LifeSight, which is the leading master trust in the U.K. We've taken that from nothing to over GBP 14 billion of AUM, and this is a market that's projected to grow in double digits over the next decade per year, right? We're the leading player now. By finding those intersections, we actually can add significant value. We will look to be disciplined about innovation. I've stood up an innovation and acceleration function that's about growing fast, blossom fast only if you have to, fail fast. We come up with great ideas in the organization, it's actually properly commercializing them. On the flip side of that, we've established a sales and client management function that's about putting one sales process together so that we can actually get that best of Willis Towers Watson to every client where it makes sense. We're going to look to inorganic opportunities, but not just for growth's sake. We'll do it to fill in gaps or take advantage of scale effects in our portfolio. The deal we announced in Israel, where Leaderim, great firm, great people, great analytics. Actually helps us with our geographic footprint. We were doing business before via correspondent. Great developing economy. Some real growth industries that we have specialist expertise in. Makes perfect sense for the portfolio. That's sort of how we built that confidence, I think if you combine that focus on growth with the measures we've taken to simplify our structure, going from four segments to two, which helps with that intersection effect, less barriers in the organization. Four geographies down to three, fewer barriers to getting to the right clients everywhere. That'll make it quicker and easier to do business with us, thus, we remain highly confident in our ability to get to that $10 billion. Yeah, it sounds like part of that and part of your answer there is simplicity. Getting rid of the complexity that was maybe built into the past and streamlining some things that might make things more efficient. I'm not sure if that's part of the way you think about it or not, but that's. No, it's right there what I'm hearing. Three-part strategy, right? Grow, simplify, and transform, right? Simplify is right there in the middle, and I've got to say, that's been really well-received. We have great people. They want to feel empowered. If we can actually not just make them feel empowered, but empower them so they can bring the best of the company to their clients, we will win. Okay. No, thanks. If we think about your organic growth assumptions that are built into your plan, do you have any specific assumptions underneath that to think about what GDP needs to be to get to those organic growth and even the three-year plan for overall revenue? Yeah, we've got a portfolio of businesses, right? You started there. Consulting and broking. Under the hood, lots of subdivisions within those. Most of our businesses are relatively non-cyclical, right? We've got clients that are spread across different industries. We've got a global footprint. About 80% of our revenue base is recurring, and it's built on solutions and services that are required by regulators, either explicitly, like our pension valuation work, it's a billion-dollar business for us, or implicitly. The insurance coverage levels. No one doesn't not buy insurance, right? It's a question of how much. For that reason, GDP is not a really reliable guide in terms of forecasting our revenues. Let me give you an example. In 2020, U.S. GDP down by 2%, company organic growth of plus 2%. That was even during the added disruption caused by the pending acquisition. Similarly, if you look at our predecessor company, Willis, their results from the 2008, 2009 economic downturn, they continued to grow revenue in the cycle during those years as well. Most of our businesses do remain stable across economic cycles. That being said, we do have some businesses where the work we do is discretionary in nature. A portion of our Talent and Rewards business has project work, and there are a few areas where we provide consulting services in health and benefits or our Insurance Consulting and Technology business and to a smaller extent, in our investments business. Collectively, across the company, discretionary work is probably about 20% of our revenue base. That's discretionary work, right? When we model, we do our internal modeling, we do consider GDP, but it's on a case-by-case across the business portfolio as deemed applicable. That investment business, it's far more dependent on what equity markets are going to do because we have performance-based fees and asset-based fees. Okay. No, that's perfect. In fact, you already answered my next question about economic recessions and how that'll play in. I think your 20% is what I was thinking, so that's good. I guess, switch over to the margin assumptions that came out of Investor Day. Some lofty goals there of how you can expand your margins. I guess first off on that, it's around 500 basis points of improvement call it from, say, 2020 over the next three years. I guess first off, in that margin expansion, are you assuming any type of just insurance pricing that needs to be built in the bigger environment to help you get to that margin expansion? No. We forecast that it's a mug's game to try and look three years out and figure out what you're going to be on rate, right? The margin expansion is really based on our shorter term view, right? We have an Insurance Marketplace Realities report, most recent one issued in November. You can find that on our website. That'll give you our view on that. It comes out twice a year, and it does sort of inform our view on rate. Generally speaking, we think that pricing increases are going to moderate over the near term. We are not sort of just looking at what rate's going to do when we sort of project out our broking business' growth. Okay, thanks. One of the pushbacks or questions we often get as well with you guys, this is something that you've turned the corner quite a bit on recently, is just free cash flow and how that's compared to your peers. I guess first off, if you look back over the past couple of years, what have you learned that maybe you said, "Oh, we kind of got that wrong, and we got that fixed today to allow us to have more tailwind from that going forward and get back in line with where our peers are? Yeah. Well, thank you for the compliment, Mike, because we have worked really hard on that, and you're absolutely right that I think you roll the clock back a number of years, and it just wasn't the focus for the organization that it should have been. Our CFO, Andrew Krasner, in his prior role, actually led a significant effort to instill far more operational discipline around the organization with respect to the processes that'll help us generate a more consistent free cash flow. We looked at things like contract management, better visibility with regard to billing and collections, and managing capital within the organization, right? Simplifying the number of bank accounts, making sure we're sweeping more frequently. We are going to sustain those working capital improvements and look at incremental opportunities in our upcoming transformation program. The real thrust on free cash flow growth is underlying margin and profit expansion, right? Ignoring the short-term outlays we're going to make for the transformation program. We think the increased operational efficiency we'll get from there, plus better operating leverage, should enable us to continue to improve our free cash flow results from where they are today. Which now is a place I don't have to be embarrassed about, which is a good start. Okay. That's fair. Part of your plan, too, and you talked a lot about this in the past couple of weeks and since your Investor Day, is what you're doing with cash flow and what you're doing with share purchase and how much you're kind of front-loading that. I guess at a higher level, how do you think about allocating between, I guess, M&A and share repurchase and where you should put their money? I think, again, you've talked about how early on, you'll front-load some of the share repurchase. Beyond that, you mentioned one of the first questions, you mentioned filling holes for M&A. Just how you evaluate that at a broader level of where to allocate funds. Yeah. To recap for those who didn't memorize our Investor Day discussion. We communicated we'd have about $4 billion of near-term share repurchase activity. We completed the first $1 billion already, and we are doing repurchases for the remaining component of the $4 billion in 2021 and expect to conclude that during 2022. Obviously, with the proceeds of the Willis Re sale in pocket, we have a high degree of conviction we'll be able to pull that off. We also communicated we expect to generate about $10 billion-$11 billion in cash through 2024, and about $5 billion or $6 billion of that for free cash flow generation during that time. That includes the first four I was talking about. Our primary use of free cash flow is expected to be share buybacks unless investment opportunities with superior return potential arise. We think that is a really good organizational discipline for us to have. As far as M&A is concerned, we will pursue opportunistic small tuck-ins, like I talked about with Israel, both on M&A to strengthen capabilities. We see opportunities there, and we continue to survey them. I expect we will be doing some of that, but we do not expect any big transformational acquisitions, right? It'll be about reinforcing our capabilities and expanding that geographic footprint where it makes sense. That's helpful. Thank you. Just broader questions now without too many numbers around these, but I guess, how would you define the key differences between the company today versus Aon and Marsh Mac? What do you have to offer that these guys don't? Yeah. To be honest, we get that question a lot. How do you differentiate? You can probably talk about this for hours. Let's not do that, but your differences on what you can offer clients versus what they can. Yeah. Obviously, there's a lot of similarity between the businesses, but there are a few differentiators I can highlight. One is our business base is a bit different. We have more consulting and less brokerage as a result than the big competitors. Our geographic footprint is different across businesses. Part of that's heritage. Our London wholesale base and our London investment base and insurance consulting base just sort of means we have a bit more of a U.K. accent than others might have. None of our competitors have the equivalent of our Benefits Delivery and Administration segment. That's a big growth engine for us as a company. It is a differentiator. I know for European investors, the U.S. Medicare market can be a bit mystifying in bits. It's an area which, because we still age, right? The population subject to it is growing, and we think we have a great niche in it. Lastly, our approach to how we do brokering, our global lines of business and overall approach to risk management that I talked about a little earlier, Adam's comments, I think differentiates us from standard insurance broking. We see that as the way of the future, right? Clients demanding risk management, not insurance. I just want to add, one thing that we've heard a lot about is clients are more concerned about just overall risk given the pandemic and given cyber and all these different things are kind of hitting us in every direction. Do you feel that, first off, do you feel that from clients, that that's actually the case? That they're more worried about risk in general, so they're needing more help from folks like you, one, and if so, anything else besides pandemic risk and cyber that come to mind that you think of that clients are asking about today that they weren't asking about before? Yeah. Climate's a great example of an area which was largely off people's radar screens despite various COPs, right? It didn't affect the corporate world the way it does now, and now it's on everyone's radar screen. We think climate change across our clients' both human capital and risk capital portfolios is something where we have led, right? Our Climate and Resilience Hub has generated intellectual capital that has actually translated into tangible business results for us, and we will continue to lead in that area. There are some interesting opportunities for us in emerging and evolving markets. I talked about our LifeSight product before, right? Defined contribution is on the growth virtually everywhere in the world, and this is an offering where it's a pan-employer scheme where we have consolidation opportunities. Our individual marketplace business that sells Medicare, right? I talked about that. These are all places where there's tremendous interest and areas where we can grow. The one area where the opportunities are is just broking, right? The pandemic, there's nothing like a good crisis to focus the mind wonderfully on. I think I'm botching the phrase, but I think I've got it about right. The bounce back effect there after we've taken our bruises kind of moving forward means that we've got just tremendous potential there, right? Risks are much more complex. They are broader in scope. As so much of corporate America has moved corporate, the world in general, right, has moved from tangible to intangible assets, the sort of need to sort of figure out how do you create resilience with respect to that? It's a tremendous opportunity for the entire industry, not just Willis Towers Watson. We plan on leveraging our competitive advantages to take advantage of that. Thanks. Let me ask a specific question on one of your specific divisions, and that's the acquisition you've done not too long ago, the TRANZACT business. Yes. Can you talk about, I guess, just the different distribution channels used for that, and then a couple follows from that. That acquisition seems to be doing quite well for you, but maybe just how the distribution channels on that and how that's split for TRANZACT. Yeah. You can't really talk about the split by lead channel at any given point in time because we have this really agile model for TRANZACT, and the split varies across all these different lead sources. Again, I'll back up a step just to make sure people understand. In the U.S., right, you turn 65, you become eligible for socialized medicine from the government, Medicare. You'll typically do one of two things as a retiree. Either you'll buy a supplement, because Medicare's got some big gaps in it, or you'll convert your government-provided Medicare to something called Medicare Advantage, where you're getting your insurance instead from a private insurance company, and they'll typically offer extra benefits. We help retirees with both, right? We are sourcing our sources of retirees from various different channels like internet or TV or mail to identify opportunities. The costs for those various different channels are going to fluctuate. The cost of TV ads may go up and down, right, depending on the time of year or what's being shown. We adjust our plans accordingly. TRANZACT has exceeded our original expectations by a goodly margin. Our outlook remains really positive. This is a direct-to-consumer business, and there are some real differentiators we have there, right? One is we have a long history using internal agent workforce. This is insurance, you need agents to sell it. We've got a proven way of going about doing that. We also have an incredibly close partnership with our carrier clients, and that gets us better quality enrollments and drives down the cost of sale. For example, we own branded domains on behalf of Humana, Mutual of Omaha, John Hancock, Aetna, MassMutual, Aflac, et cetera. This sort of channel where people are dealing with a brand they know and trust means that the cost of sale gets driven down. We've also taken steps to diversify our lead channels. For instance, we've got one targeting Spanish speakers. Looking at partner campaigns that give us more targeted and thus more efficient marketing environments. The diversification there effect for us is really strong and I think relatively hard to match. I guess one of the things we've seen from other businesses that rely on kind of direct-to-consumer models and searches from Google, if you will, or Facebook searches, is there's been quite an inflationary pressure there. Yeah. I'm curious how much you've seen that for TRANZACT. That's the reason we've thought about diversity is actually so we can mitigate that and diffuse it, right? Otherwise, you end up highly vulnerable to some of these individual factors. We just shift, right? That's the way we manage that. It helps contain our costs. I'm going to take a peek for questions from, because I get them from my email, and let me take a look and see. I said earlier, I doubt it, but I want to make sure, because we're getting close. I do not see any, which was what we expected, so that's fine. Why don't we do a couple more, I guess, as you sit back and think about the role you're inheriting soon and taking over. Big plans for the next 3 years that you laid out on Investor Day. I guess, what are some of the things that keep you up at night that you're most concerned about that affects your plan, that affects the business? What are you most worried about, Carl? I'm pretty busy during the day, so nothing much keeps me up at night. My wife will tell you. Look, organizationally, historically, Willis Towers Watson does not have a great track record with pulling off operational approved programs. I don't underestimate the challenge. We have spent the last bunch of months making sure that all 46,000 people are aligned and recognize that it's not being done to them, it's being done for them, and it's going to be done by them. That mitigates the risk of sort of death by friendly fire here, which otherwise would have been my concern, right? This is going to demand a lot of time and attention in an organization that because of the attrition we talked about earlier, right, it feels a little bit threadbare in places. Asking even more of our people is an ask. I realize that. There's a reason I've been doing all these dozens of town halls. There's a reason that we have our focus on engagement is because we're a people business, right? It's just like the cliché, right? The assets of the business walk out the door every day. I want them excited to walk back in and going to do my best, and the management team will do their best to make sure they stay that excited. We have a lot to ask of them, but they have a lot to offer. Okay. I mean, I didn't hear in there, which is good. I mean, what I heard of your answer was it's more of the employees and because they're the engine that drives where you're headed. I didn't hear anything from like external things that might come at you that you have to worry about at night, even though you're sleeping well. Look, there's no point losing sleep over whether the Federal Reserve's going to or Biden administration's going to do something stupid. Right? These big exogenous threats, you can do a little bit of scenario planning, but you actually can't control them. I can react to them, and we can plan for them, and we do, right? You spend your time thinking about things you can actually act on. I think that's the right way to go about it, and I will continue to keep us focused on what we can do. Okay, perfect. Well, I'll wrap it up there, Carl. Thank you very much. We're at the top or the bottom of the hour anyway. Thank you. It's been fun talking to you, and stay busy you can sleep well at night. Nice talking to you, and we'll be in touch soon, I'm sure. Thanks very much. Nothing else from the field, we'll wrap it up there. Thank you so much for your time. Thanks, Mike. Okay, you bet. Talk to you soon.