Willis Towers Watson PLC

NASDAQ:WTW

Earnings Call Transcript 2020-Q2

[Operator]

Good morning, welcome to the Willis Towers Watson Second Quarter 2020 Earnings Conference Call. Please refer to willistowerswatson.com for the press release and supplemental information that was issued earlier today. Today's call is being recorded and will be available for the next three months on Willis Towers Watson's website.

Some of the comments in today's call may constitute forward-looking statements within the meaning of the Private Securities Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties. Actual results may differ materially from those discussed today and the Company undertakes no obligation to update these statements unless required by law. For a more detailed discussion of these and other risk factors, investors should review the forward-looking statements section of the earnings press release issued this morning, as well as other disclosures in the most recent Form 10-K and in other Willis Towers Watson's SEC filings.

During the call, certain non-GAAP financial measures may be discussed. For reconciliations of the non-GAAP measures as well as other information regarding these measures, please refer to the most recent earnings release and other materials in the Investor Relations section of the Company's website.

I will now turn the call over to Mr. John Haley, Willis Towers and Watson's, Chief Executive Officer. Please go ahead, sir.

[John Haley, CEO]

Thank you. Good morning everyone and thank you for joining us on our second quarter 2020 earnings call.

Joining me today are Mike Burwell, our Chief Financial Officer, and Rich Keefe, our Head of Investor Relations. In the second quarter, we continue to navigate through an uncertain and unprecedented economic downturn. Nevertheless, I'm pleased with our financial performance, while our results were somewhat impacted by the pandemic, our overall performance reflects the strength, the diversity, and the durability of our business model.

In many of our core businesses we continue to see new business generation, strong retention rates, and increased operating leverage. We also reduced our controllable spending and improved our liquidity through prudent cash flow management.

I'm extremely proud of the work we've done to build the Company's operational resilience and strong balance sheet, both of which have provided a foundation for long-term sustainable growth.

Before delving further into our second quarter performance, I'd like to give a brief update on a couple of important topics. During our last earnings call, I talked about the COVID-19 crisis, and the measures we have taken to mobilize and mitigate the risk to our colleagues. Now, we're taking what we've learned from the global pandemic to work together even better and are re-imagining our workplace and our work activities.

This is no longer about reacting to the COVID-19 situation, it's about proactively using the experience of the last few months to create a more flexible, agile future. We want to leverage and enhance what we've learned to explore how we can work differently.

And we want to ensure we maintain the key elements of our culture that keep our colleagues engaged and inspired. A working group that includes leaders from across the Company has been convened to plan for this next phase of our journey.

Their work focuses on re-imagining our workplace across core themes, including collaboration, learning and development, and external stakeholder engagement. I continue to be impressed with the agility of our colleagues and their commitment to clients and each other in the wake of this global pandemic.

Against the rapidly evolving backdrop of the last few months, our colleagues around the world quickly embraced the immense amount of change spurred by COVID-19 and remained resolute in providing excellent client service.

Likewise, our colleagues have rapidly embraced the prospect of the Aon combination and are generally enthused and looking forward to the many opportunities which lie ahead. On July 8, we filed our definitive joint proxy statement. I'm sorry. On July 8, we filed our definitive joint proxy statement in connection with the proposed combination with Aon.

We've continued to work towards obtaining the necessary regulatory approvals and consents and we'll hold the necessary meetings for shareholders to vote on the transaction on August 26th.

We remain on pace to close the transaction in the first half of 2021 subject to the satisfaction of the applicable closing conditions. We continue to be excited about this next step in our evolution and about the overall future of this industry.

We design and deliver solutions that help manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. COVID-19 has highlighted the efficiencies in the way the world approaches risk.

These unprecedented times want a reappraisal of how companies assess on certain dates and strengthen the rationale for the combination with Aon. We're eager to bring new and innovative solutions to our clients to meet their evolving needs and solve global problems. As a general matter, the COVID-19 pandemic did not have a material adverse impact to our financial results for the second quarter of fiscal 2020.

However, the pandemic did impact revenue growth, particularly in some discretionary lines, and we expect that the impact of COVID-19 on general economic activity could negatively impact our revenue and results for the remainder of 2020, and potentially even longer. So, now let's move on to our Quarter two 2020 results.

Reported revenue for the second quarter was $2.1 billion, up 3% as compared to the prior year second quarter, up 5% on a constant currency basis and flat on an organic basis. Reported revenue included $35 million of negative currency movement. We experienced good financial performance in areas where we have a well-established market position, mature relationships and annuity or compliance driven business.

We didn't perform as well in areas where our revenue is tied to discretionary projects, our clients are facing tough times in making difficult decisions. In that context initiatives that are aimed at reducing cost and risk are higher priorities. We continue to work with our clients to find practical solutions for these challenges.

Net income was $102 million, down 32% for the second quarter as compared to $149 million of net income in the prior year second quarter. Adjusted EBITDA was $441 million or 20.9% of revenue as compared to the prior year adjusted EBITDA for the second quarter of $425 million or 20.8% of revenue, representing a 4% increase on an adjusted EBITDA dollar basis and 10 basis points of margin improvement.

For the quarter, diluted earnings per share were $0.72, a decrease of 32% compared to the prior year. Adjusted diluted earnings per share were $1.80 reflecting an increase of 1% compared to the prior year.

Overall, it was a solid quarter. We grew revenue and adjusted earnings per share and then it had enhanced adjusted EBITDA margin performance. Now let's look at each of the segments in more detail. To provide clear comparability with prior periods all commentary regarding results of our segments will be on an organic basis, unless specifically stated otherwise.

Segment margins are calculated using segment revenue and they exclude unallocated corporate costs such as amortization of intangibles, certain transaction and integration expenses resulting from mergers and acquisitions, as well as other items which we consider non-core to our operating results. The segment results do include discretionary compensation.

The Human Capital & Benefits segment revenue was down 2% on an organic and constant currency basis compared to the second quarter of the prior year, primarily as a result of a decline in demand in our Talent and Rewards business. Talent and Rewards revenue decreased 19% with the uncertain economic conditions related to COVID-19 having created cost constraints and affecting workforce dynamics at many companies to Anthony client need for advisory work globally.

The decline was partially mitigated by modest growth in HCB's other businesses. Our Health and Benefits revenue increase for the quarter. In addition to strong client retention we had an increase in consulting assignments in North America, as well as new global benefit management in local brokerage appointments outside of North America.

Retirement revenue increased nominally mainly as a result of an uptick in funding advice and guaranteed minimum pension equalization work in Great Britain. Technology and Administrative Solutions also increased in Western Europe and international attributed to increased project work.

Despite the shortfall in revenue, HCB's operating margin decreased by just 20 basis points compared to the prior year's second quarter and that was as a result of careful cost management efforts.

We remain confident in about the long-term prospects of our HCV business. Employers experienced unprecedented and significant changes to the ways of working in 2020. Our clients are facing many new challenges as they make plans to restore stability. HCB's experts remain prepared to help them rethink the human capital efforts and employee benefits in the wake of COVID-19.

Now let's look at Corporate Risk and Broking or CRB which had a revenue increase of 4% on an organic and constant currency basis, as compared to the prior year second quarter. North America's revenues grew by 9% in the second quarter from new business wins alongside favorable rates.

International and Western Europe's revenue increased 8% and 1% respectively, driven by new business and strong renewals. Great Britain's revenue declined 5% for the second quarter, primarily due to a decline in marine in retail activity that was related to COVID-19.

CRB revenue was $701 million this quarter with an operating margin of 19.2% compared to $690 million of revenue with an operating margin of 15.2% in the prior year second quarter. The margin improvement was due to top line growth alongside cost containment efforts.

This year has been and will continue to be an extraordinary times of the insurance industry. CRB is committed to keeping our clients fully informed about what they should expect and how to plan for the uncertainty they are experiencing.

Turning to Investment Risk & Reinsurance or IRR. Revenue for the second quarter increased 1% to $413 million and increased 2% on both a constant currency basis, and organic basis as compared to the prior year second quarter. Reinsurance with a growth of 6% continue to lead the segment's growth through a combination of net new business and favorable renewals.

Insurance Consulting and Technology revenue was flat as growth in technology sales was largely offset by declines in consulting projects. Investment revenue increased 1% with the continued expansion of the delegated investment services portfolio. Our wholesale business was up 1% on an organic basis mainly from new business wins. IRR had an operating margin of 28.7% as compared to 26.9% for the prior year second quarter.

This improvement reflects top line growth alongside the scaling of successful businesses. We continue to feel good about IRR's growth trajectory. IRR's portfolio of offerings provides clients with the information needed to make strategic decisions in this uncertain and dynamic environment.

We have a deep understanding of risk and all the ways that affects capital and organizations financial performance. Our core focus is to provide clients with the superior understanding of the risk they face and then advise them of the best ways to manage the risk about extreme outcomes.

Revenues for the BDA segment increased by 66% on a constant currency basis and decreased 3% on an organic basis from the prior year second quarter. The growth in reported revenues was driven by TRANZACT which contributed $87 million to BDA's topline.

The decline in organic revenue was primarily due to a shift in timing in our individual marketplace business. The decline was partially offset by benefits outsourcing increase in revenue, which was largely driven by its expanded client base.

The BDA segment had revenues of $209 million with a minus 4.2% operating margin, as compared to a minus 20.1% in the prior year second quarter. The margin improvement was primarily driven by the top line growth. We're optimistic about the long-term growth of this business.

In the COVID-19 era sustaining health benefits is more difficult than ever. BDA's solutions and power employers, employees, and retirees to navigate the changing world of benefits through a tailored integrated experience that combines consulting expertise with innovative technology.

Overall, I'm pleased with our progress. We delivered steady financial performance across most businesses, modest margin expansion, and adjusted EPS growth, all while adapting to the rapidly changing global environment.

Now, I'll turn the call over to Mike.

[Mike Burwell, CFO]

Thanks John, and I'd like to express my gratitude to all of our colleagues, who has shown remarkable resilience as they continue to collaborate by virtual means and operate effectively through this challenging environment.

The second quarter was like unlike any other we have seen, and I'm extremely proud of our team and our performance. The results demonstrate the durability of our business model and the agility of our colleagues to not only adapt to rapidly changing conditions, but to continue to deliver for our clients, while also producing solid financial results.

The second quarter was challenging, but we are reassured by the demand for our services and solutions, for our ability to reduce discretionary expenses, and to manage our cash, and by our team's overall creativity. We're pleased to see continued overall revenue and underlying adjusted EPS growth and robust free cash flow growth.

Now, I'll turn to the overall detailed financial results. I'll start with income from operations. Income from operations for the second quarter was $163 million or 7.7% of revenue, down 90 basis points from the prior year second quarter. Income from operations of $176 million or 8.6% of revenue.

Adjusted operating income for the second quarter was $296 million or 14% of revenue, down 60 basis points from $299 million or 14.6% of revenue in the prior year second quarter. Our second quarter 2020 unallocated net expenses grew to $109 million from $58 million in the prior year second quarter.

The costs in this category primarily related to corporate functions and other unbudgeted costs that we don't directly allocate to the segments each quarter, including items such as true-ups on benefit and stock compensation expense accruals, incentive accrual adjustments, and Aon on legal settlement items.

So let me provide additional detail on the increase for Q2. During the quarter, we had a lower-than-normal vacation usage, pattern stemming from the pandemic, which required a $12 million vacation expense to be booked within unallocated net. Likewise, we've had some year-over-year increase was related to timing around incentives, Aon accruals and business taxes.

Now let me turn to our earnings per share. For the second quarters of 2020 and 2019, our diluted EPS was $0.70 and $1.06 respectively. For the second quarter of 2020, our adjusted EPS was up 1% to $1.80 per share as compared to $1.78 per share in the prior year second quarter. Foreign exchange had a de minimis impact on EPS for the second quarter. Our U.S. GAAP tax rate for the second quarter was 42.2% versus 19.7% in the prior year.

Our adjusted tax rate was 22.2% up slightly from the 21.4% rate in the prior year. The current year, U.S. GAAP effective tax rate is higher due to $35 million discrete tax expense, primarily related to an incremental base erosion and Anti Abuse Tax or beat recognized during the second quarter in connection with the temporary income tax provisions of the CARES Act. The temporary provisions of the CARES Act applicable tax years 2019 and 2020. Utilizing these temporary provisions the Company will realize a cash tax benefit in 2020 of approximately $40 million.

Turning to the balance sheet. As the COVID-19 situation continues to evolve, I believe that we are well positioned to navigate the uncertainty that lies ahead. We ended the second quarter with a strong capital and liquidity position, with cash and cash equivalents of $1.1 billion and full capacity on our undrawn $1.25 billion revolving credit facility. We aim to continue to maintain a strong, and durable balance sheet, and looking to conserve cash in the current environment by leaning into our cost and efficiency initiatives.

We will continue to monitor the situation and intend to take appropriate measures to further reduce cash outflow and preserve adequate liquidity if demand for our solutions are services deteriorates.

For the second quarter of 2020, our free cash flow was $593 million versus $287 million in the prior year, bringing our year-to-date free cash flow to $550 million, an increase of 201% from $183 million for the first half of the prior year. The year-over-year improvement in free cash flow is to do a combination of our cash process improvements, prudent working capital management, and disciplined approach to managing spend.

In terms of capital allocation, we paid $171 million of dividends and did not repurchase any shares in the first half of 2020. As a reminder, given certain provisions in the transaction agreement you can action with our pending business combination with Aon. We do not expect to repurchase any shares during the remainder of 2020.

As John mentioned earlier, the economic fallout from COVID-19 generally had no material impact on the company's overall financial results for the second quarter of 2020. But we believe this is not an indicator of its potential impact on the company results for the remainder of the year and beyond.

The duration of the pandemic, the full magnitude of its economic impact, and the subsequent speed of recovery remain unknown. Considering it's uncertainty in the economy, we previously withdrew our original guidance for 2020. We continue to be unable to predict the extent of the impact of COVID-19 pandemic.

Company will reassess it's position once we have a clear understanding of the depth, duration, and geographic reach of the pandemic. In the meantime, we remain focused on maintaining a strong balance sheet, liquidity and financial flexibility.

The changes brought on by COVID-19 pandemic are and continue to be formidable. But I'm very proud of the leadership and personal sacrifices demonstrated by our colleagues in supporting our clients during these very difficult times. The second quarter results are directly reflection of the continued support from our clients, our colleagues and all our stakeholders. Overall we delivered solid financial performance in the second quarter. Despite the near-term uncertainty in the global market, I remain confident the underlying fundamentals of our business.

And I'll turn the call back to John.

[John Haley, CEO]

Thanks very much, Mike. And now we'll take your questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Mark Marcon with Baird.

[Mark Marcon, Baird]

The performance was better than what we were looking for. It looks like, results were very resilient in the face of COVID. Can you talk a little bit about like how much of the strong performance this quarter was a reflection of just the way the contracts kind of layout in terms of how far and advance their set up and how they continue to the quarter and how we should think about, you know potentially in whichever divisions, where we should be most sensitive to potentially a little bit of a drop-off as the COVID impacts ends up coming through? And then I have two follow-ups. Thank you.

[Mike Burwell, CFO]

Sure. And Mark, thank you for the kind comments upfront there. You know as we've spoken about in the past, we look at it at the beginning of the outset of the year, we have line of sight to 80%, 85% of our revenue base for the year and obviously, Q1 and Q4 tend to be outsized quarters for us. But we feel pretty good about the multiyear arrangements that we have in place. Whether there in our Retirement business or the retention rates that we have in our CRB business and reinsurance businesses overall.

But obviously in our Talent and Rewards business as we commented on here where people have more discretionary ability, we've seen a decline in people taking on those particular projects that we've seen overall.

So I think on one hand, we feel very good about the industry ran and our line of sight in terms of what our revenue looks like, but clearly we're seeing fall off as it relates to those discretionary projects and equally as it relates to the insurable base overall as we are not taking on new construction projects or you're seeing that discretionary activity decline as we've touched on as it relates to the Marine business et cetera, those are the areas that we see that more discretionary.

[Mark Marcon, Baird]

And with regards to the Talent and Rewards, is there a potential for ramping up in certain practice areas like say, diversity and inclusion given the current environment and could that potentially be an opportunity, there was a practice area to scale up?

[Mike Burwell, CFO]

Yes, yes, it is, Mark. But John, you want to comment on that?

[John Haley, CEO]

Thanks, Mike. I would just say, yes, I think so. Mark, one of the things we've seen in other downturns, whether it's the early 2000s or the financial crisis or even some of the other sensitive, Talent and Rewards is very sensitive and we can see some of the revenue declines could be reasonably steep in the beginning. It's just as we saw in this quarter in certain aspects of talent, rewards.

But it's also an area that could ramp up relatively quickly when times get better. And in today's times, there are really quite challenging Talent and Reward issues whether it's diversity and inclusion, whether it's how you handle the pandemic, whether it's how you re-imagine work for the future. So I think there's a lot of opportunities for us to scale that up over the coming years.

[Mark Marcon, Baird]

And then with regards to re-imagining work for the future, you referenced this in the beginning John. Can you talk a little bit more about how you, what potentially we could end up seeing in terms of changes and how that could end up impacting the cost base? And then lastly, it sounds like everything is on track with Aon, is there anything that you can envision at this point that would set that off or put off track?

[John Haley, CEO]

Yes. So maybe I'll just deal with first and then I'll come back to the workplace. I frankly and I think we referenced this in our prepared remarks. What has happened in term of the economic turmoil that we've had from the lock-downs and some of the other changes that we've seen over the last couple of months have really deepened our appreciation for the merger.

We see that there's more innovation required and the basic thesis of this merger was as we said, not about getting bigger, but it's about getting better, about providing more innovative solutions. And the one thing we've seen over the last few months is the world needs more innovative solutions. So there is - we actually are more excited about the merger today than we were in the beginning of March when we announced it and frankly we were pretty damn excited that.

So I think that's just - that's just been redoubled. In terms of the workplace of the future, I think, Mark, we, we're trying to take a quite thoughtful approach to what we're doing here. One of the things that means is we don't actually know what the answer is yet. And let me explain about that. We know that we're not going to go back to the pre-COVID world of work, but we also know that we're not going to be the way we're working today. It's not the way we're going to be working in the future also.

And so it's going to be something in between. And what we're trying to do is understand. I mean, it's been incredible the way our colleagues have embraced working from home and some of the adversity we've had there, but that's not a sustainable way of working. And what we need to do is to figure out what we can do in the future.

But we do know working from home will be a bigger part of that, we just don't know exactly how that the play out, that will probably be impacts on real estate probably, impacts on location. But we don't know exactly what they are yet.

[Operator]

Your next question comes from the line of Elyse Greenspan with Wells Fargo.

[Elyse Greenspan, Wells Fargo]

John, last quarter you had said in a worst-case scenario, your business to decline in the double-digits organically over the preceding three quarters, obviously the Q2 was much better than that. To the point that you made earlier of the resiliency of your businesses, but now one quarter in and recognizing there are some lags in some of the businesses. It would seem like that worst-case scenario even for the back half is no longer on the table.

[John Haley, CEO]

So, thanks for the question. Yes. By the way, I would say, just, you talked about the resilience of our businesses and I would say, yes. But I would also just comment on, I think Mike mentioned this, the resilience of our colleagues. Just amazing the way they stepped up so during this time. I think, yes, it's the worst case, I was looking at was a decline I think during the second quarter and then going into the back half of the year.

The one caution I would give to that is the situation is a little bit uncertain with potential second waves with more and a return to some of the lockdowns. So we're still a little uncertain, but I'm nowhere near as pessimistic as I was or at least I cannot worried such a downside as much as I get three months ago.

[Elyse Greenspan, Wells Fargo]

And then in terms of the Talent and Rewards business, it sounds like the slow down there obviously much very immediate in terms of what we saw the reaction to COVID. Is that business more pronounced meeting a greater percentage of HCB in the second quarter and other quarters? I'm just trying to get a sense of if that won't be as much of a headwind in the third and fourth quarter to see of a percent of business.

[John Haley, CEO]

No, we don't expect it. If there is a bigger impact from it, it won't be because of the concentration of Aon. I mean, it could be that as you go longer into some locked down as you get more projects canceled, but it's not a concentration issue.

[Elyse Greenspan, Wells Fargo]

And then on in terms of the Aon transaction. You guys have laid out on close for the first half of next year, which we affirmed I believe in your opening comments on. Could you just, you know from your side of thing to give us an update where do we stand with the regulatory process or things about where we thought we would be at this point recognizing it's still a ways away from the deal closing and just what are kind of net in the regulatory process in the timeline that you could provide?

[John Haley, CEO]

Yes, sure. So, as you know, there are several global antitrust filings that are required in connection with the transaction and the specific process that we have to do varies by jurisdiction. But we're still planning to submit all of our required filings in the various jurisdiction and we expect to have clearances in the first half of 2021. I will say this is a complex undertaking.

But there is nothing that has happened so far that has been any surprise to us and we're continuing to work with the regulators cooperatively. So, we have no change to our plans as to when we expect to finish.

[Elyse Greenspan, Wells Fargo]

One last question on unallocated not line. I appreciate the added color. This quarter just given the volatility there. Mike, just what given what you know now, is there anything we should be thinking about that artificially inflate those kind of corporate non-segment expenses in the back half of the year?

[John Haley, CEO]

No, Elyse, I don't think - we don't see that to be the case. No.

[Operator]

Your next question comes from the line of Dave Styblo with Jefferies.

[Dave Styblo, Jefferies]

I know you guys are not providing full-year guidance, but I was just curious if you had a sense of some of the key levers within there that that really will affect the outlook starting maybe on the organic growth side, obviously you guys are up 2% year-to-date. At this point how much visibility do you have to the back half of the year? And are you expecting that to turn negative for the rest of the year? The delay, kind of the broken side come in and then discretionary spend on consulting remains under pressure. And then maybe you can give us some color about the expense initiatives you took, you've undertaken, I imagine, you guys are probably pretty quick to ratchet down expenses on the T&D side and so forth, but what do you see those trending over time and at the end of the day, is it reasonable thing that you guys can roughly maintain EPS that's comparable to what you had in '19 or there other major factors that we should be thinking about that?

[Mike Burwell, CFO]

So, yes, thanks for the question. I mean, I guess, I'll try to give you a little bit, but it's going to be difficult. I mean, the reason we pulled the guidance was for that very reason in terms of making those estimates. On the revenue side, I guess I'd really go back to John's earlier comments, what he said, I mean more pessimistic as it relates to the second quarter but feeling better as it relates to the top line for the full-year, but it's just difficult to predict. I mean in terms of what's happening.

Obviously, we have line of sight to, as I say, a lot of our business in terms of renewals whether that we and have a great line of sight. We're seeing greater retention, activities going on in our business, particularly on our CRB business. We're seeing the insured base going down, we're seeing rates come up a bit and obviously we're seeing retention rates going up, overall, we're getting smarter and more creative in terms of how it is that we work and propose on new business and doing that remotely and that's across all our businesses overall.

So on the top line, I guess, I'm trying to, you know again there's a reason we pulled the guidance and just give you as much color as we can, again about what our recurring revenue base would be picking up on John's comments and what that look like from a revenue standpoint.

On the cost side, we went after pretty quickly as we saw things change in terms of what we could do on all cost actions that made sense. We wanted to make sure that we are balancing the short-term and long-term investments, in terms of not making cost decisions that we're going to impact the business for the long-term, but in the short-term where discretionary cost and activities could happen, that we would indeed make those decisions and we have and we've seen that - you're seeing that offset as it relates to our overall cost base.

I would also go back and saying, you know the TRANZACT deal that we closed at the end of last year, and that business overall has been very helpful to us in our BDA segment, in terms of we are continuing to see the growth of that business overall and continue to believe that they will continue to see what we had highlighted the rationale for that deal and it continues to exceed our expectations and that management team overall is doing one heck of a job.

So I'll try to give you, I know you're trying to look at those line items. I'm trying to give you as much color as I can. But in the same time. There's a reason we pulled the guidance, Dave. So I'm sorry I can't be more helpful there.

[Dave Styblo, Jefferies]

In terms of just softened demand, I know you've an environment like this, retention rates go up. I am curious though, as a larger broker in the industry and you guys can provide more insight and information and solutions to the gamut of services and might have, are you guys seeing any sort of new business uptake from employers who might be just looking for a more sophisticated broker that can second service things and an environment where there's a lot more challenges going like we're in now?

[Mike Burwell, CFO]

Yes, I mean I think clients are always looking for different solutions. Right, I mean they're seeing a hardening market and so they're evaluating what alternatives and what other solutions people can bring to their challenges that they may be dealing with and the creativeness of our teams has been outstanding and we've seen that and what's happening and delivered in our CRB business.

But frankly, in our reinsurance business - and I would tell you, I think the creativity of our colleagues across Willis Towers Watson is one of the hallmarks of our culture in terms of being creative and bringing innovative solutions to bear.

So, in an environment like this, where people are being challenging and want a different opinion. We're really primed in well positioned to be able to help them, think through those solutions and I think that's reflective in what you're seeing delivered in our results overall. So that be Mike, I don't know, John, anything you'd add to that.

[John Haley, CEO]

I mean I think, Mike, you have that there. What I would say is that every day I see things come across my e-mail of new business wins that we've had and our colleagues have adapted to going after new business in a virtual way and if become very successful at that. But the fact remains, new business is not as robust as it was in the pre-COVID there and that's just a fact of life not as many people are going out a bit. So, we've become successful in doing this, where we, where we can, but it's not as big a features that date.

[Dave Styblo, Jefferies]

And my last one real quick, just on TRANZACT. Can you talk about with the same store basis was year-over-year and there has been some overhang on the group probably interestingly other publicly traded because one of your peers is experiencing significantly higher churn right now and it's shortening the duration and pressuring unit economics. It seems like that might be a company-specific challenges going on, but I'd be curious to hear.

What is your churn on the M&A business right now? How long are they on what Q4 and are you guys experiencing any uptick in churn from the market dynamics right now?

[Mike Burwell, CFO]

So, look we, - our churn is something that we looked at for quite a while here and we're are a firm with lots and lots of Actuaries and so one of the things we've done over the time is analyze that we've actually use outside advisors to annualize that, too. And unlike some others in the market we haven't changed our churn assumptions just arbitrarily, we've continued to monitor that quarter-to-quarter, we do some actuarial analysis. We are actually slightly conservative in our estimates. So, we feel pretty good about the kind of numbers we have here and we don't expect any change.

[Operator]

Your next question comes from the line of Greg Peters with Raymond James.

[Greg Peters, Raymond James]

I was wondering if you could provide us some perspective on how the positive pricing trends and property casualty have affected your Corporate Risk and Broking and Investment Risk and Reinsurance segments. And then in the slide deck you did note in CRB that part, there was some pressure in Great Britain and John it seems like if I reflect back on the last several years, the more often than not Great Britain has been a source of some challenges for the Company, may be that impressions wrong, but maybe you could provide some perspective on that as well.

[Mike Burwell, CFO]

Yes. So maybe starting with the second point first, I mean, just as it relates to Great Britain, you're looking at continued market conditions Greg, that have been happening. And I think, I think what we are seeing at least other competitors have reported their results equally seen Great Britain as a market at this time, has been a bit more down a bit, just in terms of what's happening in that market. The good news is obviously we operate in many markets and some, as you see Latin America is up and North America has been strong overall.

So, I think it's just at this point in time in terms of where it's been a Great Britain is been a very good market for us for a long time. It's just kind of where we are in its current cycle. As it relates to rating rates, I mean I would say, what you're seeing is as John alluded to there.

So we're seeing retention rates of our clients are up on a year-over-year basis, and you're seeing the insured base itself is down and some of the transient type of work that we had had or we would ensure overall, but you're obviously P&C rates increasing and depending on whether you've had a loss or not a loss is obviously impacting those rates but where we're seeing the positive impact of that tailwind on those rates, so try to give you some color to it.

But I would wrap it up and say, overall we're very pleased with what the CRB business has done, what our colleagues have done there in terms of delivering results. So hopefully that gives you some color to it.

[John Haley, CEO]

Yes. And I would just add that, Mike, you sort of touched upon this but look Great Britain has been impacted by some of, we talked about the marine, some of the global aerospace and things like that that have impacted Great Britain in this quarter, but Great Britain is one of the great reservoirs of our talent and our intellectual capital, and it's a key part of the business. We don't have any, concerns about GB.

[Greg Peters, Raymond James]

I know this is probably been incorporated to some degree and the results already, but given the dynamics and requirements of ASC 606, I'm curious how you're thinking about the assumptions that you laid out in the first half of the year, especially in the context of all the uncertainty as we go into the back half of the year. And if there is any potential reset issues or challenges you might be dealing with from an accounting perspective.

[John Haley, CEO]

No Greg, I thank you for the question, but right now, no. I mean, we did not see that to be the case. We believed in terms of thought about all the various options upon its adoption. We have a lot of discussion and talked about 606 over the last couple of years, but not right now based on our estimates and what and how we've projected things, we don't see anything unusual coming through 606.

[Greg Peters, Raymond James]

Got it. I guess the final question, just from a sequencing perspective, and I know John you did provide some comments, but I just wanted to confirm that from a shareholder vote perspective that the shareholders will be voting on this transaction with Aon before we know if there is any antitrust issues that force the spin-off some businesses. Just wanted to confirm that that's the case.

[John Haley, CEO]

Yes, and all the transactions I've done, that's been the case. I think all these big transactions, we've always said, the shareholder vote before we've got the antitrust approval, in this case, this was no exception.

[Greg Peters, Raymond James]

Well, listen, congratulations on the results, and John, stay safe there's a hurricane headed your way. So, be well.

[John Haley, CEO]

Yes I'm hoping it's going to miss me Greg. But we'll see.

[Operator]

Your next question comes from the line of Mark Hughes with SunTrust.

[Mark Hughes, SunTrust]

In the HCB, I think in the last recession you benefited from some restructuring activity. I wonder if you could comment on the potential opportunity here in this cycle and then what would be the timing, if you did start to see more wholesale changes, Talent and Rewards issues that emerge with the restructuring. When would that normally kick in?

[John Haley, CEO]

Yes, thanks. And I think if we look back to the last several downturns that we've seen. We would expect that the Talent and Rewards revenue decline would probably persist through at least the third quarter, may be into the fourth quarter and then really be picking up during the first half of 2021, that would be consistent with, say, the early 2000s, that would be consistent with the financial crisis. And so that's what we see.

The one thing that makes this a little difficult as I was saying is that we don't know what the effect of the lockdowns is going to be in the second half of this year. And so if we see, particularly in the U.S. states going back and having the second wave of lockdowns and everything that could have an impact that we would, we haven't factored in right now that would change the whole timing of everything there.

But I think we're - as I said earlier, there are a lot of Human Resource challenges and opportunities that are here in this current environment. They're not going to go away, and I think especially in 2021 we would expect to see corporations going out to address all those. And frankly, it's one of the things that as I said earlier, the ability to offer innovative solutions when we get together with Aon, that combination is going to be even more powerful in this regard.

[Mark Hughes, SunTrust]

And then on the TRANZACT, I think you said it was at $87 million contribution, did you give the year-ago results for TRANZACT is the standalone?

[Mike Burwell, CFO]

We did not. We do not do that, no. You may remember, we acquired over the third quarter last year. Right. So we just, we have not, we have not disclosed that. I think, but I got to tell you, I mean, were you know. going back on that in and where the business is growing nicely, and I just reiterate the comments I mentioned earlier. We're very pleased with TRANZACT, what it's doing, the team that's been in place, and the results of their delivering, and it's profitable. So, we're very pleased with TRANZACT.

[John Haley, CEO]

Yes, I mean I think that is the key thing it's that this is a nicely profitable business that we have here.

[Operator]

Your next question comes from the line of Meyer Shields with KBW.

[Meyer Shields, KBW]

I wanted to see if I can focus on one element of typical organic growth and that's just negotiating higher revenues on the work that you're doing for your clients regarding whether that is being impacted, that specific fourth is being impacted by the current recession.

[John Haley, CEO]

We're in a competitive industry and when we - I talked earlier about doing new business on a virtual basis, but we have to, when we're doing that we have to come out with the competitive offerings and that means we have to make sure that we're offering the most value for the services we're providing. And we feel, we continue to do that, it's not - that is not much different now than it was six months ago.

[Mike Burwell, CFO]

Yes, and I was just to add to your comments John. I mean, at the end the day we believe we have very good margins overall in our HCB business as we look across the industry and as John said, it's obviously competitive and we will be competitive, but it's ultimately about value. And as our clients continue to see that value versus the cost equation. And they've continue to reward us based on that value.

[Meyer Shields, KBW]

Okay, understood. That's helpful. Second question, could you share how the Willis Towers Watson employees reacted when Aon first announced its temporary salary reductions and then pull them back? Is that were there any impact on employee morale or sentiment there?

[John Haley, CEO]

That wasn't something that we discussed in the Companies generally. I mean, I'm sure individual colleagues were discussing that but it wasn't something that we did any kind of survey or anything on.

[Operator]

There are no further questions at this time.

[John Haley, CEO]

Okay. Well, thanks very much everybody and we look forward to updating you on our third quarter earnings call.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.