Thank you for joining us live. This is the Bank of America U.S. Insurance Conference, our annual insurance event here in the States. We're very pleased for our next session to have Carl Hess, the CEO of the rebranded WTW, formerly Willis Towers Watson. Carl has been with the company or its predecessor companies for 30 years. He's had a variety of roles. He ran the investment risk and reinsurance business. He was from the Towers Watson side. He was head of investments, he was consultant to retirement business. He's probably worked in every single place that you have in the organization, and now he's the CEO. Thank you, Carl. We really appreciate your time. I have a bunch of questions, but if you're watching this, you're probably watching it through an app called Veracast. You can type questions into Veracast, and I can ask them. Feel free to do so, and as long as they're not too racy, they'll probably get asked. Let's start with the rebranding a little bit and WTW, one WTW. I've been doing this for about 25 years. I remember when Willis bought Hilb Rogal & Hobbs, when obviously the Towers Watson and Willis merger, Gras Savoye, Miller. It seems you sold Miller, and you've sold Max Matthiessen. You've sold the reinsurance business. I still think in the plenary years, there was one idea I had of Willis. I don't know if that's Willis today. Is the culture at Willis the Towers Watson culture? Is it a uniquely Willis Towers Watson culture? What is the DNA in there? What does the one WTW represent? Thanks, Josh. At the end of the day, one WTW is about one broad culture. While our colleagues may have come from different predecessor firms, over time together, and that's come through common values, common goals, and that's resulted in forming one WTW. Our colleagues have drawn key insights from each other. Their strongest attributes have transformed our differences, and we do come from a variety of backgrounds. That's the benefit and sometimes the drawback of being a multi-line firm, is there are a lot of different people under the hood. At the end of the day, our values, our client focus, our integrity, our respect, our emphasis on excellence, that's our DNA. It's at the core of everything we do. In many ways, we've been operating as one WTW for years because we know that when our individual talents are combined, we unlock our collective potential. Together, we're a group of highly intelligent people, he says bashfully, who care deeply about clients, who show up for each other in meaningful ways, and that's what makes our culture special and why we win in the market and why we celebrate each other's successes. Our vision is to be the best company we can be, and that's for the benefit of all of our stakeholders. In summary, we have a culture that brings colleagues together from all across the company to address client issues, and we have a great foundation in place to build from within, and that's why we're taking the following steps. We're built being a magnet for the most accomplished and most talent, aspiring and accomplished talent in the industry. We are offering clients the best advice, broking, and solutions in the areas we specialize in. People, risk, and capital. We are making a difference in the communities in which we live and work, and we are going to deliver significant value for our shareholders. It takes a lot of things to make a successful company. I think about culture. Some companies have sales cultures, some are technology cultures, some are knowledge cultures. Of course, you want to be all those things. Is there a leading sort of spirit that embraces what Willis or what WTW is about? Yeah, there are a couple of things. We take that idea that everybody can contribute very seriously, and it's not just everyone can contribute, but everyone should contribute. When my colleague has a problem, I have a problem. When my client has a problem, it's everybody's problem to solve. We're doing our darnedest to make sure that everyone has a chance to come up with new ideas and that we properly. It's not about just coming up with ideas, of course, it's about commercializing those ideas. Everyone should be absolutely empowered to contribute. When we come up with something, then it's about using all 40,000 plus of us to deliver on that. So having the organizational discipline to make my colleague's idea my idea and have it appear not just once, but 1,000 or better yet, 1 million times. In 2015 or 2014, Willis acquired Max Matthiessen. In 2015, Willis acquired Miller. Also in 2015, Willis acquired the portion of Gras Savoye it didn't already own. In that time, it's disposed of Max Matthiessen and Miller. Under your leadership, you acquired Leaderim out of Israel. Recently, Gras Savoye is still part of the WTW team, and I believe Willis started rebranding as a WTW business going forward. When you think about what's worked and what hasn't worked, what kind of acquisitions worked for WTW and why? Why didn't the other ones work? At the beginning and the end of the day, we're not afraid to evaluate our portfolio, and we are constantly assessing our strategy to ensure that the assets we have and the assets we'd like to have are aligned with them. As we evolve, as WTW evolves due to changes in the business or the macro environment, we change our plans. When it comes to Max Matthiessen and Miller, we decided we were no longer the best owners for those businesses and made a decision that best served all parties involved. That's not to say we weren't successful owners of them, right? Despite the fact we sold those businesses, both performed well and performed better, not just well, but better while they were a part of WTW. I'll note that on selling them, we recorded some notable gains. When it comes to sort of the whys and wherefores of the deals, right? With Miller, you had a channel conflict with our retail business. Miller's customers were our retail business' competitors. Max Matthiessen, a fabulous business, but Swedish financial counseling isn't necessarily noted for synergies with the rest of our portfolio. On the other hand, Gras Savoye has been a part of WTW just as long as Towers Watson's been a part of WTW, and we think that business has done really well, and it's an instrumental part of our portfolio. You mentioned Leaderim. The acquisition of Leaderim reflects our global strategy to work with high-performing, high-potential businesses in thriving markets. Welcoming them into WTW strengthened our footprint and capabilities in Israel and the Middle East. Leaderim will benefit from leveraging our global WTW expertise and growth. It's a real win-win. We talk about acquisitions and dispositions at WTW, but that's not really been the story. If you look at like a Gallagher or Marsh, [Brown & Brown], I think doing bolt-on acquisitions has been a huge part of what their business model has been about for the past 5 to 10 years, if not longer. That's a core competency, integrating regular bolt-on acquisitions. It's not what Willis is necessarily doing. To what extent, A, do you think that that strategy is an important component of being a successful insurance brokerage? To what extent have interest rates and the cheap capital been a function about why that's been such a successful strategy? Three, in my mind, I look at a lot of the margin expansion at your competitors, which has been very successful, but it's come from doing those bolt-ons. I don't know how successful their margin expansion would be without a bolt-on strategy. Coming back to WTW, if bolt-on is not a strategy, where does margin expansion come from? Maybe I'm wrong, maybe they would've been successful. Where do you put the bolt-on phenomenon? If you're not going to do it, what does it mean for you? The bolt-on strategy has served some players in the market really well. Obviously, as you pointed, targets have become very expensive due to macroeconomic conditions. At WTW, we've been taking a more focused approach. We're pursuing opportunistic small tuck-ins and bolt-ons to strengthen our capabilities and expand our geographic reach. The Leaderim example is a perfect example of this. We do have a bolt-on strategy, but we look for targets that can leverage our platform to enhance growth and profitability. We are not simply aiming to be a roll-up machine. It's not our focus. If you look at sort of our footprint? Strong specialist capabilities, and a global footprint. We like things that reinforce that, not just simply scale for the sake of scale or focus. In terms of reevaluating the price portfolio, I think one of the major news stories and surprises is the sale of Willis Re. Why was it the right time to sell Willis Re? Two parties can both be happy. You can be happy you sold it, Gallagher can be happy that they bought it. People are very bullish on Gallagher's opportunity with Willis Re. To what extent had Willis Re run its course about what it could do for the Willis organization? To what extent did that factor into your view that it was time to part ways? A couple things I'd like to point out. One is, the much vaunted between reinsurance broking and retail broking are largely one way. That is, reinsurance brokers benefit from having a retail arm, and I can assure you from long years of experience, not vice versa. In terms of thinking about, what are you getting from having reinsurance broking? Often the answer is, you get models that you can help develop into the retail market. We retain that capability. In fact, we think we're the market leader with our Insurance Consulting & Technology business that has those models and analytics that actually we sell to the insurance industry. We don't think we're missing a step there at all. I'd point out one more macroeconomic factor. One of every $7 right now of reinsurance capital is provided by the financial markets, and that trend has gone only one direction. That may be fine for the procurement of reinsurance, it's not necessarily a favorable sign for the reinsurance broking industry, as fees for issuing a cat bond are a lot lower than for broking a treaty. At the end of the day, we don't think that the divestiture of Willis Re is going to hinder us at all from executing on the margin improvement goals we outlined at Investor Day. We don't think that the absence of a reinsurance broking business has a negative effect on our retail broking business' ability to compete it's going to be[inaudible] what happens as the capital markets collide with the reinsurance markets. What's the reinsurance broker's role going to be going forward as opposed to other players, like large securities institutions that can help insurers manage their overall book of risk? We do think that WTW will continue to have a role to play in this universe, and we'll see where it goes. Again, people can ask questions they want using the Veracast app to write them in. We do have a question coming in from the outside. It involves the weaker organic growth seen in the company in the last couple of quarters and wondering if this is a trend that requires a full year of experience in the book as it continues to play through. Does that mean the next two quarters will be weak? In particular, they want to know about the book of business settlements that were done. Does this weigh on the growth until they play through? Also, why would Willis Towers Watson, WTW, allow its producers to buy books out from the company? What's in those books, and why did that make sense? Very good. That was a three-part question. I have a noted inability to remember all three parts to a question, so you'll have to prompt me as I go along. For the next couple of quarters, given what we saw last- In terms of growth, right, we spent a year and a half plus of basically being able to not hire anybody while the merger was hanging over our heads and being a target for talent acquisition by the rest of the industry. Coming off of Independence Day, we resumed our talent acquisition, and while we are making good headway, we have a ways to go yet, and that is definitely impeding our ability to grow as fast as the competition. We anticipate that over the course of the year, that will cease to be as large a headwind as it has been. With respect to book sales, as we've talked about in our quarterly calls, right? 2021 was a heavy period of book sales for us, and book sales represent short-term revenue and give up of revenue in the future. It's clearly a headwind for us in 2022, but we believe that book sales should normalize to historic levels going forward, and that will dissipate over the course of the year. With respect to sort of why sell a book, the way this typically happens is a producer will leave, and a number of changes of broker of record letters will follow forthwith. The cow is already well out of the barn, and you're now talking about how to make sure that you're getting some value for a book that's leaving you anyway. This isn't particular to Willis. It's pretty bog standard to the U.S. producer model. It's not anything that's specific to us in the least. Nonetheless, given the phenomenon and the merger hanging over the head during 2020 and 2022, it's more pronounced for us than perhaps for others. We don't anticipate that to be a permanent feature going forward. In terms of the concept idea of being the third alternative and competing with Marsh & Aon, I think you've said in the past that when WTW wants to compete, it can compete well. It doesn't want to compete in every area, however. I think that's been said a number of times. What is going to change this time around? I'm not going to say maybe this is by matter of execution, but if that's the goal to be the third option, why is WTW the third option and not the up-and-coming Gallagher, who's getting bigger and stronger? What sort of embedded talents are there in WTW that make it the most likely candidate to be the third choice, per se, where you want to compete? To be the third choice, it's not simply about scale. Up and coming, which is about bigger, doesn't necessarily mean a choice when it comes to this sort of market. We think it's possible to take share of the large account space because we've invested significantly in our data, our analytics, and our advisory services since the formation of WTW back in 2016. This is a differentiator. I already sort of pointed out our Insurance Consulting & Technology business, right? That's a unique asset in the industry, we think. In addition, our focus on deep industry and product expertise without geographic boundaries, our global line of business strategy sets us apart. This differentiation is particularly pronounced against our middle-market competitors. Also we think we're ahead of our large account rivals who are playing catch up in this space. Our Connected Risk Intelligence model offers large corporates the ability, for the first time, to truly optimize their risk dollar. It can evaluate risk types not in isolation, but as a portfolio, taking into account the correlation and dependencies of each risk against the other, analyzing literally millions of options to provide an efficient frontier of optimal risk retention and risk transfer programs. You can see I'm an actuary at heart. This gets me really excited. There's nothing like it on the market. We think Connected Risk Intelligence is a game changer. That's not all that differentiates us. Our approach isn't just like, how do we transact, right? It's let's figure out the problem is Before we suggest solutions. We figure out what the problem is through analytics, through consultancy, and through industry and product expertise. This is resonating. We think we're being known as not just the analytic broker but the smart broker. I don't mean that in an intelligent way, I mean going about things smartly, right? While we continue to develop and continue to innovate, we're bringing in talent to help us execute on this strategy and fill in the gaps resulting from the elevated attrition levels I already talked about from 2021. Although, you did say in the fourth quarter you were net hirer, though. That's correct, yes? That's correct. That trend has continued into 2021. January is even stronger with respect to our retail broking business. I do have a question coming in from the outside. Pretty straightforward. Since acquisition seems expensive, stock seems cheap, free cash flow is great, and the balance sheet has net cash, is there any reason why you would not continue buybacks at the same pace you did in January? We feel that our capital allocation strategy, we treat buybacks as the benchmark for any investment. At our current price level, we anticipate continuing with the buyback strategy we announced at our Investor Day. Okay. Macroeconomic picture, the demand for some of the things that WTW sells are some strong tailwinds. You have a macro recovery. You have a tight labor market. There's consulting revenues from future of work right now. Pricing in insurance is up notably. There seems to be a heightened awareness of risk following COVID that makes people want to protect themselves better or [inspect themselves better]. To what extent is this a particularly fertile marketplace that can't be relied upon to last forever? To what extent are there certain things that you're selling right now that are core competencies versus things that there will be an annuity over time versus things that might be transitory? Are we in the best possible scenario from a industry standpoint for insurance and consultancy? Yeah. Things can always get better. We're very unlikely to just sort of say, "It's good enough now, and let's just hope it continues." I mean, for the last two years, our clients have been striving to create continuity and clarity in a environment of, let's just say, ongoing disruption. I mean, since commerce began, adapting in uncertain changing environments become-- it's fundamental to business success. Our client base includes future-focused leaders. They acknowledge that risk is a mainstream element of business decisions and is going to remain so. Today's challenges are fueled by the frequency and complexity of threats across risk categories like geopolitics, economic volatility, population health, climate change, supply chain, talent, technology. We can serve our clients across all of these, right? Forward-looking leaders know that the time is acting now by engaging people and activating purpose to combat these threats and create opportunity, right? There's three real imperatives here if you're going to thrive. One, connect future and current risks, act on ESG and sustainability, and build organizational resilience. Better use of data analytics supports all these three areas. WTW's unique perspective and capabilities can help organizations solve for these issues. I'm really happy with our placement on this, right? While recent events have indeed challenged us, right, leadership actions demonstrate it's possible for businesses to manage through uncertainty. We can help them do that, right? If we can collectively work with our clients to focus on these three imperatives, organizations will be better and stronger for the future, and that's a good sign for us. Let's talk about the insurance pricing environment. Very strong. It's been probably in the large space market, third year of double-digit pricing increases. A lot of insurance carriers are reporting combined ratios that include a underwriting margin in the 10% range right now. If you run a major insurance brokerage and your job is to save your clients money, to what extent are brokers working hard to push back on the price increase? Say, "Look, you're making a lot of money already." It still seems that despite that pricing continues to be strong. To what extent are you offering your clients self-insurance as an option to help them manage, given that, look, cash is [very, very strong] and you should be self-insuring at this point, right? There's no use of cash on your balance sheet. Where is the market going? What is the Willis part of WTW doing to help their clients save money given what's going on right now? Yeah. We think this sort of thing plays really to our strengths. We see it as an opportunity to demonstrate our analytical capabilities. In light of the rise of prices, clients do have to be much more discerning in their insurance purchasing. Remember, the premium's not the problem. This premium's the solution with one caveat, you have to buy it right. That means you really have to understand your risks in terms of the frequency of events, the consequences of events, and the price of a hedge. All of our investments over the past few years have been about helping our clients understand so they can make better decisions and better risk trade-offs. That they become better informed and position themselves as sellers of risk, not buyers of insurance. The role of the broker in its interactions with carriers it's no longer about just wrangling a discount. It's about proving to the market that the risk is worthy of a certain price, to do that, you need sophisticated risk and analytics, which we have. Clients should only buy insurance if they can get a return on the risk dollar spent, if they get a better return retaining the risk, they should do so. The key for us is about being able to advise on that equation, we know that we're ahead of our competitors and be able to provide that advice through both in the mid-market, through our core algorithmic models, and in the large account space through our consultancy and industry expertise, coupled with models such as Connected Risk Intelligence that I spoke about earlier. Do you think that Willis and the brokerage industry is on the cusp of being able to rein in some of this insurance price inflation? Well- Where do you think we stand here? Insurance pricing is a combination of factors, right? Including all the ways you can determine sort of how you can properly allocate capital at an insurance company, what the appetite is for risk, what the attractiveness of other investment options are, rather than providing capital to the insurance industry. The brokerages can't control all that by any means, right? What we can control is working with our clients to determine whether buying insurance is the most appropriate use of their dollar, that I alluded to before. At some point, that's a natural check in the process, right? If coverage becomes too expensive, people will just go naked or self-finance. We work with them to make those decisions. One thing that obviously, restructuring is an issue. Companies spend a lot of money to get on the right restructuring path. You said in the past, you talked about WTW's past restructurings as having failed to do the desired outcome for those. A lot of times, these restructurings, there are goalposts that we want to hit and certain things, in general, there should be goalposts for companies. If you want to think about, A, sort of think about how would you tell investors, look, on a one-year plan, on a two-year plan, on a three-year plan, look at everything, but what are the essential features that you believe are going to be most telling that, A, the restructuring efforts are working, but also, B, that broadly speaking, a lot of people look at just the organic growth numbers. Should we expect competitive organic growth one year from today? What are the basics that you would tell everyone, "This is what you should focus on, and you will see this is the indicator of success"? We outlined our goals for the next three years at Investor Day regarding EPS growth and margin. Those remain our priorities, and we are taking steps to make sure that our management team and our colleagues broadly are highly aligned to those priorities. You should evaluate our success based on our progress against those goals. While it's still early in the program, I'm pleased to say we've already taken actions that will get us two-thirds of the way toward our $30 million annualized run rate savings goal for 2022, which sets us on the right path to achieve our longer-term margin expansion goals. On Investor Day, we also outlined targets for revenue growth, free cash flow, and adjusted EPS, we think all these metrics are important since each represents a promise made to our shareholders. We believe the comp committee of our board of directors is ultimately going to improve an exec comp plan that I described that aligns our rewards with our successful completion of all these targets. A bit of all of the above, Josh, right? All right. Let's talk about the comp plan a little bit. We don't know exactly. I'm going to talk a little about the past. Back in 2016, there was a comp plan that was absolute stock return in what became a bull market for stocks anyways, combined with hitting an EPS number when the accounting for that number changed when ASC 606 accounting standards got adopted, and there's some question whether it was even hit or not. Ultimately, I think that was a terrible way of aligning shareholder and management [expense]. If you're advising the comp committee, you can't factor in everything. I certainly know that you wouldn't want to repeat the comp, or maybe you would because I think everyone got paid well in 2018 for maybe not such great performance. What is the right comp plan? Is it very difficult to understand? Is it easy to understand? How should we know that, A, you're going to hit your goals, and B, the goals are going to be good for shareholders? Yeah. Our board of directors has this responsibility. We do have the world's largest exec comp consultancy in-house. We obviously use external consultants to work with the board. Look, we communicated and that was in consultation with the board and others which were aimed at creating longer-term sustainable improvements to our operation and our financial performance. Yes, I think we should be paid for performance if we successfully complete those goals outlined at Investor Day. At the end of the day, it's the comp committee that's going to determine how our exec comp plans are structured. There is a robust process in place for reviewing those plans, which include benchmarking against market best practices, review, and approval by the comp committee, and they do have an independent consultant, I assure you. In addition, we do have a regular shareholder engagement process that involves obtaining feedback on exec comp. That design process and monitoring gives us confidence that the structure of our plans will properly align our rewards with the creation of long-term shareholder value. I have an outside question coming in, and it seems pretty straightforward. Why has there been such weakness in Medicare growth across the industry in the fourth quarter? Should we expect that to continue, and do you expect TRANZACT to remain ahead of peers? The fourth quarter, I think, had a number of factors that affected the industry. First of all, trying to operate that business in a pandemic environment with a potential client base that may not be fully in the meta world presented a share of challenges. In addition, it requires licensing, maintaining an adequate amount of licensed agents who can close deals in a work from home environment represented a particular challenge for that area of our business and for our competitors. The product design at some of the carrier levels and their particular [inaudible], some of that translate into results for others, I think that will in turn look toward their focusing on best in class partners going forward, and we think that's an opportunity for us. Some of the pandemic related headwinds that we and others face should dissipate over, we hope, COVID willing, over the upcoming periods. We think this remains a very attractive market, especially given the number of people becoming 65 every single day, for us to be able to continue to grow in. I guess one more point is we do have a unique advantage here in our B2B2C business in the space, what used to be called Extend Health. That diversification of channel is something that is we think a very helpful diversifier and base for us to build on. Finally, a question about free cash flow versus adjusted net income. Aon and yourselves and maybe Gallagher going forward are going to begin deducting amortization expense from adjusted net income. Some of the argument is, these were things we bought in the past. I tend to view, that's the cost of having bought them, please don't deduct it. Ultimately, when I look at adjusted free cash flow or cash flow deployed to shareholders over time and adjusted net income, the two don't necessarily relate. How should investors think about free cash flow relative to your reporting of adjusted net income? Is that adjusted net income a good indicator of actual cash being generated for shareholders? What should we really think is the right way to track how much value Willis is delivering for shareholders? There are a lot of layers to that question. I'll give you a few specific points to consider. I think that'll cover everything you talked about. First, recent history and deployment of cash. We don't think our recent historical trends should be considered as a guide for how we deploy capital. The reason for that's simple. For 18 months while the Aon transaction was pending, we were prohibited from doing stock buybacks. After the deal was canceled, we started repurchasing shares at an accelerated pace, a pace that was faster than our pre-deal cadence. Our activity over the last couple of years skews the average and doesn't really serve as a useful indicator of our future plans. Second, adjusted operating income. That reflects what we consider core. Pension income, for example, it's an important part of our rewards package for our colleagues and should be considered non-core to our earnings. For this reason, when you're looking to understand our core earnings, the metric we focus on is adjusted operating income, not adjusted net income. That's also the reason we're targeting improvements to our adjusted operating income margin as part of our 2024 goals. We do think as we improve adjusted operating income, we're going to see free cash flow improve as well. These two metrics will work in unison and increase the amount of cash we have on hand to deploy. Third, how do we think about deploying cash? As part of our Investor Day discussion, we communicated about $4 billion of near term share repurchases and a willingness to fund further share repurchases using our free cash flow unless other investment opportunities with superior return potential rise. That's that discipline I spoke about earlier. We have already repurchased $2.6 billion in stock and plan to complete the remaining $1.4 billion as soon as we can, depending on market conditions and other factors. As I said, at current price levels, we think that repurchasing our stock continues to be our highest return opportunity. We do have resources to capitalize on that. We are out of time, one minute over. I hope that you have a strong day with talking to investors. Everyone, we have a homeowners panel coming up next, people should be tuned into that. Carl, thank you for your time. Lots of exciting stuff going on at Willis and our WTW. It's now WTW, everyone. I'm working on that myself. All the best. We'll be in touch. Everyone stay tuned. Thank you.