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The Insurer In Full: Willis Towers Watson – so what is different this time?

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    • Mergers & Acquisitions
    • Strategy

Wind the clock back six weeks to breakdown day, when the termination of the Aon-Willis Towers Watson (WTW) transaction was announced...

...and there was a sense that the John Haley-led firm was in disarray.

But if the initial share price reaction to yesterday’s WTW investor day is anything to go by, the steps taken since look to already be restoring confidence in its prospects as a standalone company.

There was plenty of talk in the immediate aftermath of the breakdown that WTW and its management did not have a plan B.

As Aon appeared to take the bitter disappointment in its stride, rapidly unveiling a new leadership team with a reaffirmed strategy and a strong set of Q2 results, WTW for a while at least looked to be in a state of shock-induced stasis.

The last four weeks have seen the firm leap into action, however.

First came the deal announced on 13 August to sell Willis Re to Arthur J Gallagher for $3.25bn up front, potentially rising to $4bn, then three days later Carl Hess was unveiled as the replacement for Haley as CEO when he stands down at the end of the year.

Then at the end of August WTW unveiled its own new global leadership team and a reorganisation of the business into two distinct segments – risk and broking led by Adam Garrard, and health, wealth and career led by Julie Gebauer – while Andrew Krasner will return from AssuredPartners to take up the CFO role.

But the real acid test of “life after Aon” came yesterday as WTW unveiled a much-anticipated strategy update at an investor day arranged in the immediate aftermath of the deal being pulled.

The “Grow, Simplify, Transform” strategy includes targets for top-line expansion to $10bn+ of revenues by the end of 2024 supported by mid-single-digit growth or greater, as well as margin improvement from 21.5 percent last year to 24-25 percent through $300mn of net run-rate savings, and a $4bn share buyback plan.

Haley acknowledged that the firm needed a “bold new vision for the future” and is now at an inflection point after regrouping following the aborted Aon merger.

The initial response from investors appeared to be positive, with WTW shares closing up almost 4.5 percent in New York.


During the investor day Q&A after long presentations from Hess and his management team, there was naturally some degree of scepticism from analysts, however.

Mistakes of the past

Two areas of focus are key to the targets set by Hess and his management team.

One is the chequered past of the firm’s attempts to improve operating margins that have lagged those of peers – which typically sit in the mid- to high-20s (see chart).

WTW has lagged peers on operating margin

The other is the viability of plans for WTW’s risk and broking unit (as it will be called from the start of next year) to grow in the North American large account segment – an area it previously targeted with limited success after the 2016 combination of Willis and Towers Watson.

Analysts brought up the legacy Willis Operational Improvement Program, which had not succeeded in addressing the expense base of the firm and delivering the level of margin expansion targeted.

Hess said that the failure was because savings that had been made under the programme were not banked but instead reinvested, with little accountability around the process.

He reassured analysts that lessons had been learned from the experience and that the new programme – which targets areas like rationalising real estate, offshoring operations and modernising technology – will be tracked to ensure savings are retained.

“One other thing is we’ve had an opportunity over the last 18 months to observe another organisation that’s been through some of these,” Hess added, alluding to work done with Aon through the integration-planning process.

The argument looked to win over some analysts, including Wells Fargo’s Elyse Greenspan.

In a note she commented: “While past teams have failed with trying to right-size the expense base, we believe the help of Aon (during the merger process) has potentially spearheaded Willis to have a different expense mindset.”

Large account prospects

There were also questions raised about the strategy to grow in the large account space after what were described as unsuccessful past endeavours in the segment.

Risk and broking chief Garrard again suggested that things are different this time.

He said that now the firm has a “right to win” with a “winning proposition”.

“We didn’t have as well rounded, or as detailed, as analytical or as scientific proposition five years ago as we do today,” he suggested, referring to the ability to harness data and analytics at WTW.

He also acknowledged that in the past the firm had not done enough to hire and develop large account management talent but is now rectifying that.


“We need to expand our North American large account business. We have a successful large account business across the world because of our advanced analytical offering, unencumbered access to global markets and our specialised industry expertise.

“We need to increase the scale of distribution in North America by developing existing and hiring new large account management talent and leveraging health, wealth and career existing large account relationships,” Garrard commented.

Greenspan remained sceptical but said she believes WTW could hit its mid-single-digit revenue target with or without this revenue.

She added that if the firm delivers on its three-year plan with good revenue and margin growth as well as capital return, investors should reward it with an improving share price.

There are of course other dynamics highlighted by WTW in its investor day presentations that arguably put it in a different position from a few years ago.

There is a case to be made that the divestment of Willis Re - which was a higher margin business than other parts of the group - means that the targets on margin will be more challenging to meet.

A different world

Offsetting that there are market tailwinds, however, both in the continued attractive pricing environment and the potential for significant increases in demand for insurance and consultancy services that can be tapped by firms able to respond.

In risk and broking, for example, the threat landscape has changed, as the reality of systemic challenges such as global warming, cyber and pandemic elevate risk management to the top of the corporate boardroom agenda.

WTW believes it has the capabilities to address these – acknowledging the need to invest in making sure its producers and distribution platform can most effectively showcase and ultimately sell those capabilities to meet rising demand for products and solutions.

But it is also looking to retain and add staff in a challenging environment, with a talent war raging in the insurance broking arena.

After the inevitable loss of a proportion of its employees and clients through the uncertainty of the last 18 months, WTW is confident that client retention levels will quickly return to previous levels and attrition levels will drop with recruitment rising in the next couple of quarters.

Garrard said his division has already hired back 100 colleagues who had left during the Aon-WTW process and is in the process of re-hiring more.

If it can convince its employees and clients to buy into the “bold new vision” and put the Aon saga in the rear-view mirror, that will play a key role in pushing the firm towards its targets as it looks to execute its strategy.

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