Marsh & McLennan Companies, Inc. (MRSH) Q2 2010 Earnings Report, Transcript and Summary

Welcome to MMC's Conference Call. [Operator Instructions] Second quarter 2010 financial results and supplemental information were issued earlier this morning. They are available on MMC's website at www.mmc.com. Before we begin, I would like to remind you that remarks made today may include statements relating to future events or results, which are forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to inherent risks and uncertainties. In particular, references during the conference call to anticipated or expected results of operations for 2010 or subsequent periods are forward-looking statements, and MMC's actual results may be affected by a variety of factors. Please refer to MMC's most recent SEC filings, as well as the company's earnings release, which are available on the MMC website. For additional information on factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. I will now turn the call over to Brian Duperreault, President and CEO of MMC.

Good morning, and thank you for joining us to discuss our second quarter results reported earlier today. I'm Brian Duperreault, President and CEO of MMC. Joining me in presenting on the call today is Vanessa Wittman, our CFO. I'd also like to welcome our operating company's CEOs to today's call: Dan Glaser of Marsh; Peter Zaffino of Guy Carpenter; Michele Burns of Mercer; John Drzik of Oliver Wyman; and Ben Allen of Kroll, who is joining us for his last MMC conference call. Also, with us is Mike Bischoff, our Head of Investor Relations. I'll begin by making several comments, then turn it over to Vanessa to discuss our financial results. After that, we'd be happy to take your questions. Let me start by saying I am pleased to report that MMC continued to make progress in the second quarter, producing strong earnings performance. Our operating companies continue to do an excellent job in managing their respective businesses. Our performance is impressive given the continued challenges presented by soft market conditions in the global property, casualty, commercial insurance marketplace, which shows no signs of abating and the overall weak economic environment in the developed markets. Insurance industry capital remains plentiful. Insured losses have been within normalized ranges and competition among underwriters remains intense. As I joined MMC as CEO in early 2008, I and the rest of the senior management team has spent considerable time and effort on resolving a number of legacy issues that prevented the company from operating at its fullest potential. I've mentioned several of these on previous calls, including the matters within Marsh that substantially depressed its operating performance through 2007. Marsh's performance has improved dramatically since then, due to the efforts of Marsh's senior management team, led by Dan Glaser, its CEO. Changes were also needed at Guy Carpenter. Peter Zaffino was appointed CEO in early 2008 and has overseen an impressive turnaround as evidenced by re-energized new business production, strict expense control and improved profitability. As an organization, we also had to adapt to the requirements imposed by the agreement reached with the New York Attorney General in 2005. For several years, we were required to compete on an unlevel playing field. We are gratified that with our involvement and perspective, the New York regulators revised the agreement earlier this year, leveling the playing field for Marsh and other large brokers. Additionally, we recently addressed two other significant matters. The sale of Kroll and the settlement of the Alaska litigation. Over the past six years, Kroll has been a valued member of the MMC family. However, after careful analysis we concluded that MMC's long-term strategy should be the focus on our Risk and Insurance Services and Consulting businesses. We ran a very tightly-managed process for assessing the market value of Kroll, culminating in an agreement to sell Kroll to Altegrity, which we announced in June. Altegrity, an international screening and securities solutions firm, should be a superb partner for Kroll. We expect the deal to close this week, nearly two months earlier than originally projected. I want to thank Ben Allen for his leadership of Kroll over the last two years and recognize the tremendous efforts that he and his team undertook to ensure a successful transaction for MMC's shareholders. We wish Ben and his colleagues continued success with their new partners. In June, we settled the Alaska litigation against Mercer. Given the uncertainty of the jury trial in Juneau where a high percentage of residents have a direct connection to the retiree medical plans involved in the litigation, we determined that a settlement was in MMC's best interest. I would like to take this opportunity to give special recognition to Peter Beshar, MMC's Executive Vice President and General Counsel. Peter has done an outstanding job in managing the complex legal matters faced by MMC in recent years. In summary, due to the hard work and dedication of our colleagues and the leadership demonstrated by our management team over the past two and a half years, we have addressed a number of issues that has impeded our ability to operate at full strength. Moving forward, our goal is to establish MMC as a world-class growth company, not just in relation to our direct competitors, but with respect to other leading global companies. Generating superior, long-term total return for shareholders was a hallmark of MMC's first four decades as a public company. We believe we can achieve this status once again because of our leading market positions and the long-term growth characteristics of our businesses. To return to this record of performance, we will focus on four major pillars in the coming years: growth, low capital requirements, generating high levels of cash and lowering MMC's risk profile. I'll touch briefly on these. First, earnings growth. We are committed to generating long term, sustainable revenue and earnings growth. Within each of our businesses and our global footprint, MMC should produce long-term organic revenue growth augmented by acquisitions at least equal to global GDP growth. A continuing focus on expense discipline, which is even more important during the cyclical downturns, will expand margins and lead to superior long-term earnings growth. The second is low capital requirements. As a professional services firm, we don't require significant capital investments to successfully run our businesses. Unlike an insurance underwriter, MMC is not capital intensive and should not require a large balance sheet. We expect to maintain low capital requirements in each of our businesses. Third is high cash generation. Our businesses generate strong operating cash flow. As a result of MMC's cash earnings, we should equal or exceed our reported earnings. With long-term earnings per share growth, low capital requirements and the completion of the bulk of our restructuring activities, we should generate significant cash flow in future years. Fourth and finally, the lowering of our risk profile. In addressing the legacy issues earlier, I noted we had made important progress in reducing the overall risk characteristics of MMC. In addition, we have implemented enhanced organizational, operational and risk management measurements that should contribute to further reducing the company's risk profile. To summarize, it is our belief that the successful execution of these four pillars over the next several years will restore MMC to its preeminent position as a global growth company. With a clear strategic direction, a strong competitive position, a cohesive management team and long-term growth prospects, we embrace the challenges of the future. We will provide more insights into MMC's operational and financial characteristics on September 30, when we will host an Investor Day in New York. We are in the process of sending out invitations to members of the investment community. We hope we will have the opportunity to have you join us. Now let me turn it over to Vanessa.

Thank you, Brian, and good morning, everyone. There are several areas I'll cover today. First, I'll give an overview of MMC's consolidated earnings for the quarter. Next, I'll discuss the results of the individual operating companies. And finally, I'll close with some observations regarding MMC's cash position. On a GAAP basis, EPS in the second quarter of 2010 was $0.43 due to the inclusion of the Alaska settlement, we had a $0.06 loss from continuing operations. Kroll is now classified as a discontinued operation. A significant tax benefit from this pending disposition results in earnings from discontinued operations of $0.49 per share. On an adjusted basis, EPS was $0.46, an increase of 28% from $0.36 in last year's second quarter. For a more appropriate earnings comparisons, Kroll's operating results are included in adjusted earnings for all periods. Kroll contributed $0.03 to adjusted EPS in the second quarter, with an 8% increase in underlying revenue and strong growth in profitability and margins. To assist the investment community with financial modeling, the supplemental schedules included with this morning's press release detail the reclassification for the first quarter of 2010 as well as the four quarters of 2009. Turning to the results of MMC's continuing operations, unless specifically indicated, my references will be to underlying revenue, underlying expense and adjusted operating income. On a consolidated basis, MMC's operating income rose 8% compared with last year's second quarter. Investment income was $18 million in the quarter, primarily due to mark-to-market gains at Trident II. This is compared with a loss of $32 million last year. Looking ahead to the third quarter, we currently anticipate an investment loss in the third quarter of $5 million, a negative swing in EPS of $0.04 from the third quarter of 2009. Corporate expenses decreased from $38 million to $36 million, consistent with the positive trends we saw in the first quarter. The effect of foreign currency translation on MMC's earnings in the second quarter was de minimis, with a slight positive at Risk and Insurance Services and a slight negative in the Consulting segment. Next, I'd like to review the performance of our operating segments. On a reported basis, second quarter revenue for Risk and Insurance Services rose 9% to $1.5 billion, and underlying growth was 1%. Operating income increased 11% from $271 million to $302 million. In the second quarter, we began the process of integrating the operations of HSBC Insurance Brokers into both Marsh and Guy Carpenter. Additional restructuring charges will be incurred in the second half of the year. Marsh's second quarter revenue rose 9% on a reported basis to $1.2 billion. On an underlying basis, revenue growth was 1%, reflecting an improvement from the first quarter. In fact, Marsh's generated sequential improvement since the third quarter last year from minus 2% to minus 1% to flat, and now to growth of 1% in the second quarter. Marsh's international operations, particularly Asia Pacific and Latin America, drove revenue growth. The positive momentum in new business generation has continued in the second quarter with strong new business growth of 11% globally. Even while investing significant amounts back into the business and with higher pension expense, operating expenses decreased 1% in the quarter. This resulted in growth in Marsh's operating income and margin. Guy Carpenter continued to generate revenue growth in the second quarter despite significant headwinds, including declines in both primary and reinsurance pricing, increased retentions by clients and declines in insurance exposures. On a reported basis, revenue increased 7% to $243 million, primarily due to acquisitions. Underlying growth was 2%, reflecting the sixth sequential quarter of growth, and excellent performance. This revenue growth reflects Carpenter's strong revenue retention rate and new business production, led by its international operations. Cost containment efforts contributed to solid growth in operating income in the quarter. In our Consulting segment, reported revenue rose 2% to $1.2 billion. Underlying growth was also 2%, the second consecutive quarter of growth. Operating expenses, including higher pension costs, were held to 2% growth. Operating income decreased slightly from $131 million to $127 million. For the six months, operating income rose 19% from $205 million to $243 million with growth in the operating margin of 130 basis points. Mercer's reported revenue increased 1% in the second quarter to $838 million. Underlying revenue was down 1%, unchanged from the first quarter. In the second quarter, global demand for retirement consulting remain subdued as clients were generally reluctant to commit to discretionary work, similar to the first quarter. Health and benefits grew 2% for the third consecutive quarter. We saw growth in all of the major geographies except the U.S. Outsourcing revenue was stable in the quarter. Affirming our strategy, investment consulting and management increased 17% for the second consecutive quarter with very strong growth in the U.S., EMEA and Asia Pacific. Oliver Wyman generated strong revenue growth in the second quarter. Reported revenue grew 6% to $330 million and underlying growth was 8%. This continues the improving fundamentals that began to emerge at the end of 2009. Among its industry specialties, Financial Services, representing almost 40% of revenue, continued its strong performance. Revenue rose double digits in the second quarter, reflecting the improving health of this sector. A number of other business sectors, most notably manufacturing and transportation also saw solid growth. Oliver Wyman generated growth in operating income and margin improvement, not only in the second quarter, but also year-to-date. Cash at the end of the second quarter was $1.5 billion, and upon the closing of the Kroll transaction we will receive cash proceeds of $1.13 billion. Additionally, we expect to receive an accumulated cash tax benefit of roughly $260 million, resulting from not only this disposition, but the sale of operations within Risk Consulting and Technology over the past two years. We expect to receive this cash tax benefit over the next six to nine months. On August 10, we will have an outflow of cash of $400 million, representing the Alaska settlement, net of insurance. We have a $550 million debt maturity in September that we will fund with cash. We have no other debt maturing until March 2012. With that, let me turn it back to Brian.

Thanks, Vanessa. We're ready for your questions. Operator, please go ahead.

[Operator Instructions] We'll go first to Keith Walsh with Citi.

First question, for Brian, I asked you this a few quarters ago, but in light of the M&A we've seen in the Consulting side of the business recently, what is your view on M&A? Would you allocate capital to the Consulting side of the business or is it brokerage only? Or how should we think about that?

Keith, I'd say that's great. It's nice to be in a position where we can talk about that. We've articulated our strategy with respect to the brokerage with the Marsh & McLennan agencies and done some other acquisitions, and we were behind in that area because, with the issues at Marsh, it wouldn't make any sense to put additional companies together with it. But that's changed, and so we've been devoting our energies to the brokerage side. But that doesn't mean that acquisitions are not in the future of the Consulting. Certainly, we have been doing that over time, and I would expect that to continue. I think it's really a reflection of the fact that we had not been addressing the needs of the brokerage side. And so that's -- I think you'll see acquisitions going forward, and I mentioned that in my growth comments.

And then second question, for Michelle, just one of the things in the release that caught my eye is, in the footnotes there's an extra -- or a split out of $30 million of incremental professional liability costs within the Consulting business. And if you could just give us some more color behind that? Does that mean that, going forward, we've got to think about margins being lower as a result of higher professional liability costs?

Well, let me do it this way. How about Vanessa talks about that footnote, and then Michelle can talk about margins. So Vanessa, why don't you start.

Sure, Keith, I think what you're referring to is where we walk through our non-GAAP measures. And what we did was, we -- in order to make the quarter-to-quarter comparison more meaningful because we have qualified Alaska as a noteworthy, we also stripped that $30 million in the adjusted for the second quarter 2009. Otherwise, you would see an inflated margin improvement quarter-to-quarter. So that's the $30 million.

But Michelle, you want to talk a little bit about the margins?

Yes, I think the underlying question is what to expect from the Consulting segment, and perhaps doesn't -- in particular. And the way that I would view our margins pickup, if you will, is as follows. First of all, I've talked before about the amount of work that we have put in as a company in terms of two things. First of all, retooling, in general, our infrastructure to better be able to leverage our business across all the geographies that we have. And secondly, we spent a significant amount of effort to retool our risk profile. And those efforts started in 2005 and '06 and have continued over the last four years so that our risk profile is different. In fact, I believe our risk is much better managed at this point in time. I think thirdly, it's important to remember that Mercer undertook a strategy about 2005, 2006 that should build out its three pillars. Our Consulting segment is quite strong. From a margin perspective, outsourcing and investments we have been growing and investing in. So we talk about a lot about M&A with this company and M&A being inorganic. But there is a way to look at Mercer that says that there's been a significant amount of organic M&A by building out outsourcing and investments. So in summary, if you look at that profile, we have two businesses that we've been investing in for five years that are rapidly maturing in terms of their infrastructure, as well as a better infrastructure overall, which would lead to an expectation of expanded margins for some time to come.

We'll go next to Larry Greenberg, Langen McAlenney.

I was wondering if you could give us what new business is running as a percentage of base revenues in both Marsh and Guy Carpenter. And then secondly, just curious about your decision to pay down debt with cash and how you're thinking about the kind of the excess cash that's come on board through the Kroll acquisition vis-à-vis stock buyback opportunity, debt pay down, other uses.

I'll do that last, so why don't we have Dan and Peter talk about this new business question.

Sure. Well, you can do the math, Larry, but I would tell you that new business within Marsh on a total basis in the quarter was $229 million, so that was 11% growth. And as we reported before in the first quarter, it was about $221 million. And so it's been very healthy and that growth level has been expanding as well. So with 7% growth of new business in the first quarter, 11% growth in the second quarter.

And we have similar numbers. Our new business represents 11% of our total revenue for the second quarter. One very positive sign for Guy Carpenter is 20% of our new business came from clients that we did not have prior,,where historically, we've been running about 10%. So we're keeping very good pace with our new business, but also picking up a lot of new clients.

So talking about -- just general question about the use of cash. And as I mentioned in our four pillars, cash generation is going to be one of the hallmarks of this company, once again. And it should have always been, but we'll get back to where we were. And I said it's a wonderful position to be in. We don't need much capital, as I said earlier. So what do you do with the cash? Once we get past our dividend policy, which should be significant, we would return it to shareholders in different ways. And I think the best way, frankly, is to continue to grow this company. As we ask about M&A earlier, I would use the cash for M&A purposes. We have a pipeline in the agency side, potential for the Consulting. So it is a question of what is best for the shareholders, what's the best return. In that equation, one has to consider the question of stock buybacks, so it would be a use if it is the best use for the ultimate benefit. But my preference has always been to grow the company and to find good strategic partners that make the company greater. And that's how this company has grown over time, and I think that's the way it's going to continue to grow.

Do you view the cash coming from the Kroll divestiture differently than operating cash generation vis-à-vis the alternatives for deploying it?

Well, yes, I guess it does have special significance, since we have to replace the earnings. But all cash is that way, all cash is that way. But yes, I think you're really saying, are we focusing on finding ways of continuing our earnings growth, best use of cash. And the answer is, yes, we are looking for the best way to use cash in general and that one in particular to continue our earnings growth.

We'll go next to Cliff Gallant with KBW. Cliff Gallant - Keefe, Bruyette, & Woods, Inc.: I wanted to ask about the 4% decline in the underlying revenue at the U.S. Canada operations in the Broker business? I think in the first quarter you had a positive 1%, and I'm just curious what caused the quarter-to-quarter shift.

Sure. I'll take that. It's Dan. The conditions in the U.S. remain challenging for us and our competitors. When you're in such a market, there really is no trend and we see that in our results. The underlying fundamentals in the market really make it tough to generate any kind of consistency, and the result is that a few key pieces of business falling in one quarter or another really change the results so change the numbers quite a bit. That said, I'm very pleased with how the U.S. business and Canadian business is actually performing. We've had solid new business in the U.S. Canada division as an example, $89 million, which was 6% growth part of the overall $229 million in the quarter. Our account retention levels are still very strong in the low 90s. And actually not only strong, but very stable with where they were last year as well. So the basic business is performing, and I don't believe that the minus four represents a new trend. I think that we're more likely, that you'll look at that as a six-month trend rather than a quarter. Cliff Gallant - Keefe, Bruyette, & Woods, Inc.: It sounds like you're saying, it's more of a timing issue quarter-to-quarter, not lost clients, or something like that.

Yes, we're going to be -- I mean, the market itself in the U.S. has very strong downward rate environment, exposure units have been down. That's beginning to abate somewhat. But it's still a soft market, getting softer. So from that perspective, I look at a whole number of different metrics new business, RFP performance, our retention of key personnel, our ability to hire in the market and strategic recruiting. And when I look at the overall business, I'm comfortable where it is and I think it's doing well. And in terms of trend line, I'm comfortable that I wouldn't pin it exactly to timing, but I am comfortable that we're sort of bouncing around a little bit and that we're just as likely to have a decent quarter of next, as we were having what I viewed as not a stronger top line as I would like in the second.

We'll go next to Meyer Shields, Stifel, Nicolaus. Meyer Shields - Stifel, Nicolaus & Co., Inc.: In both Brokerage and Consulting, there's sort of wide variation in the individual businesses organic growth rate. I was wondering if you could talk a little bit about the implications for margins.

I don't know. Do you want to do this one, Dan and Michelle?

Sure. I'll start. I mean, when I look at -- well, one, we're a global company. We have operations on the ground in 90 different countries, and I would say the level of GDP growth is very variable. The level of project work is really variable as well. Our underlying growth in -- and by the way, I'm an internationalist. So growth is growth, it doesn't matter much to me as to whether it's appearing in one spot or another, we run our business as a firm. When I look at our overall business in international growing 6% in the quarter, with really very strong growth in both Asia Pacific and also Latin America, and decent growth, 3% growth in EMEA. So it was really very broad based. More than 35 countries or territories grew more than 5% for us in the second quarter and 20 of those grew more than 15%. So I feel very good about where we're performing on a growth standpoint. And to me, margin -- there are -- we clearly are interested in growing our margin over time. As you know, it's a lot easier to do that when you're moving the top line. Having said that though, we focused on aligning our expense base with our revenues. So I'm quite comfortable that even in a very low growth environment, we would still be able to move our margins. We have a bit of a headwind now because as you know, our pension expense has grown a little bit. But in our view, we have just really started on looking at our business in a strategic way, reducing the number of process steps, creating less variability on how we handle business. And that will take, in my view, a significant amount of cost out of the business over the coming few years.

Michelle, could you touch in on that?

Absolutely. I'll talk about it across the three pillars with the slight decomposition on Consulting. Between the six months to three months, we're seeing improvement in Consulting. We improved about one percentage point, still negative, but it's going in the right direction. The Retirement business remains subdued for those economic reasons, as well as the nature of that business. I think it's important to remember in Retirement that it is a big component of that Consulting number that we had positive growth in the second quarter and the first quarter of 2009, which is a little bit unusual. So as we continue to come off those comparabilities I think we'll see some growth in Retirement. Our H&B is showing some growth. And importantly, while Talent and Rewards is still negative, it is improving significantly quarter-over-quarter. So overall, we see a 3% decline in our Consulting business. But as you decompose it, it's actually some signs of positive things. The Talent and Rewards business tends to be the business that leads the way in terms of being a bit of a shift. I've took some optimism from that, not just about Mercer's business, but perhaps about the economic environment, which is still quite uncertain and bouncing around along the geographies. But at least in that area, it typically is an area that gives us some indication of what people are willing to spend discretionary dollars on. Outsourcing is doing what we expected to do. It's a strong business that's stable and it's continuing to have a strong pipeline of sale, which we will see, show up in 2011. So I think it's doing what we expected to do as the second pillar of a three-pillar strategy. And investments is doing exactly the same thing, investment has 17% growth across the six months and it's very exciting for us and also producing quarter-after-quarter. So I think both of those things together are important. When I step back from the Consulting basis doing more or less what one might expect in an uncertain economy with growth showing up in the right places, outsourcing holding stable and then investments leading the way with significant growth rates. And so as I've look at it, I feel pretty comfortable with where we are and continue to believe that Mercer's going to show overall growth in the low single digits some time during this year. Meyer Shields - Stifel, Nicolaus & Co., Inc.: And if I could just get Vanessa's comment on tax rate expectations going forward?

Tax expectations? Meyer Shields - Stifel, Nicolaus & Co., Inc.: Yes.

We would expect it to be at just about 31% for the full year, Meyer.

We'll go next to Jay Gelb, Barclays Capital.

Two questions, one for Dan and one for Michele. For Dan, can you talk about the outlook for contingent commissions, in light of how each of the major three brokers are now approaching this issue somewhat differently? And then for Michelle, can you talk about how you think about the competitive dynamic in Consulting now, with an anticipated combination between Aon and Mercer?

I'll start, Jay. First of all, in regard to contingent commissions, we've been very consistent in our approach. As I've said before, the broader issue in our mind relate to all carrier revenue streams and the potential conflicts of interest that they present. All brokers, all of them, receive carrier compensation in one form or another and each of these arrangements requires a good system of internal controls to manage those conflicts. So I do think that the view that contingent commissions could represent the only conflict of interest facing insurance brokers is simplistic and actually wrong. In our view recently, Aon announced a change in their position. I respect their position. But as we've said, we do not intend to pursue contingent commissions on our Brokerage business in the U.S. and Canada. In other parts of our business around the world, though, we will consider taking them where appropriate. And one of the things is, over the last couple of years, we have been pursuing higher retail commissions and enhanced commissions now successfully. And so I don't see a material uplift certainly in the near term from our release from the settlement agreement. And enhanced yield, in terms of higher retail commission or enhanced commission or fee-for-services types of payment are an integral part of our revenue stream and their recurring revenues and they're very different from contingents. So on that basis, we don't plan on separately disclosing them.

Michelle, why don't you talk about the Aon, Hewitt issue?

Sure. From that perspective, the move -- Aon, Hewitt move, does two things. First of all, it presents a stabilizing market environment. So we evolve into three similarly-sized large competitors in a marketplace with a lot of smaller fractured competitors below that. And so the stabilizing industry structure in what we hope is a stabilizing market environment is certainly a good thing to me. Secondly, the move is a clear, if you will, endorsement of the Mercer three-pillar strategy, and a lot of a conversation around that acquisition confirms our strategy, which we believe very strongly as you hear me say quarter-after-quarter. And so I feel very good about that. And then finally, I believe that our business is quite strong. We have had to -- through this significant recession, we have done less damage to our Consulting organization of this size and scope than one might expect. And given that we are well positioned to spring forward as we hope the economy begins to recover and deploy all our assets in the marketplace right away. I feel very good about it. I think from their perspective, it's a logical move and then generally for the industry and specifically for Mercer, it's a good playing field for us to compete against them.

And then, just one fast one for Vanessa. That $260 million of cash tax benefit, is there any impact on the P&L from that? Or is that just on cash?

It's already in the disc ops calculation. If you flip to the schedule on Page 12, Jay, it's probably the easiest place for you to track through.

We'll go next to Adam Klauber, Macquarie.

Just checking in on Asia Pacific/Latin America, obviously very strong recently. Do you think those growth rates are sustainable? Or is that more just coming off obviously tougher 2009 levels?

Yes. I mean, it's interesting because we, as a group, were recently in China and I wouldn't set -- I spent some time before that in other parts of Asia the previous week. I would not set any bars on what our expectations are. This is a high-growth optimistic building region. And so from that perspective, I wouldn't want to set any management expectation that reduces the amount of potential that we have in those businesses. I'm very excited about those businesses. We've invested in people in those businesses, and I certainly don't believe that a double-digit growth rate would be unusual in a normal economic environment.

We were just -- we had our board meeting in Beijing and Shanghai because of the significance we see for China, and specifically in Asia in general. And it is where the dramatic amount of growth is taking place globally. And interestingly, what we do for a living, this Consulting business, whether it's in Broking or it's HR, general strategic is somewhat of a late developing aspect to economies. And so it's kind of like our turn now. So we would expect a significant growth for quite a long time to come.

One follow-up, is there any signs that in the Consulting, benefits/healthcare that, that pipeline is opening up?

Michelle?

Yes, let me answer that question for the U.S. and then for the rest of the world, specifically Asia Pacific. The Consulting pipeline, especially at that complex higher end is very strong and we saw some of that in second quarter and expect that to continue, as you would expect, as a result of U.S. legislation. So in that regard, it's quite strong there. Now the business is quite different all around the world. We do see good growth in EMEA and H&B and we also have seen some nice growth and double-digits growth coming out of Asia Pacific and H&B as a result of flex benefit plan that employers are putting in. So overall, the H&B business is strong. We focused a lot on the U.S. because it is a very significant part of that portfolio and it is also strong with regard to Consulting services, and it's growing and stabling and beginning to grow with regard to the Brokerage Services. The differential with the Brokerage end is that we are still lapping headcount reductions and that revenue is driven strictly by that. So I think you would see -- could expect to see that moderate and then again, the comps to come around and see growth in H&B in general supported by a stronger U.S. growth.

We'll go next to Thomas Mitchell, Miller Tabak.

Two sort of separate issues, and you're sort of on the first one now, but let me come back to this question of the professional liability expenses. It's unclear to me whether that is a new level of recurring expenses, or whether that is a one-off expense that was tied to the settlement. Which was it?

Well, Thomas, Vanessa will answer that.

Thomas, if you go to Page 9 on the schedules, that's probably the easiest place to see it. The Alaska settlement is indeed a one-time settlement. The reason that you see the professional liability included for the three months June 30, 2009, is so that you see more consistent margin comparability within Consulting. If it were excluded, the margin expansion would be overstated. So it's in there as a onetime, not a recurring.

The second question, and I don't know if you can answer this, but when Hewitt filed an S-4 on their deal, they put a great deal of emphasis on the fact that they had discussions with company X, and company X sure looks like, sounds like and flies like MMC. And with company X, they reported that company X approached them, then they countered by approaching company X to make a bid for their Consulting businesses, and then they both ended up walking away. To put it interestingly, is Hewitt not too big? Is a company the size of Hewitt not too big for you to buy into, to take over?

Well, I thought you're going to ask me a different question, which I wouldn't comment on. But I think we have -- we certainly have the potential to make large acquisitions. There's no question about that. And it's our job to find the ones that fit the best for us and match the strategic direction we're taking for the best degree.

And at this time, with no further questions in the queue, I'd like to turn the conference back over to our speakers for any additional or closing remarks.

Okay. Well, thank you very much, and thanks, everybody for your attention. And so I just want to maybe take a moment just to emphasize our commitment on growth. We're a growth company, and we're going to get back to growing and you should look for that. And when we talk to you, September 30 at our Investment Day in New York, we hope to continue that dialogue. So once again, thank you, and goodbye.

This concludes today's conference. We appreciate your participation.