Willis Towers Watson Public Limited Company (WTW) Earnings Call Transcript & Summary

Okay. We are good to get started with the final session. I'm very, very excited to introduce and to host Carl Hess, CEO of Willis Towers Watson or WTW for long. This is the last session of the night. I don't have a barbecue to go to, so we're going to go for 6 or 7 hours.

Which means I am the barbecue.

So I want to start with a very all-encompassing question. You've been CEO for about 1.5 years. Where are things? What's working? What's not? Where you looking forward? Where are you pulling back? That covers a lot. But really the floor is yours.

Yes, sure. Thanks. I mean, yes, it's been quite a ride, and we have come a long way over the last few years. In fact, if you told me 2 years ago, we'd be where we are now. I would to take in it, just to be clear, right? But we have stabilized the business, [indiscernible]. We have rebuilt our talent base. We have gotten our organic revenue growth back to where the industry is, which really happy about and we've accelerated our transformation program. Momentum is building for our offerings, and we think we have a unique place in the industries we operate, helping our clients evaluate their risks and opportunities in what's a really complex macro environment and sort of complexity is often good for our business because it makes our clients have to think. And that all creates strong demand. So from a market-facing perspective, right? I think we're doing what we said we would do back in our 2021 Investor Day, right? Focus on growth and the organic growth we've demonstrated over the last 3 quarters, I think, is a good indicator that there is good growth potential in this company. We have simplified how we go to market. Both our client-facing structure and our corporate structure. And we continue to do what it takes to transform this company to be as efficient as it can be. We are not pulling back any means, right? We continue to find good people to invest in and we think they can add value to us over both the medium and the long term. But on the flip side, we are trying to instill a bit more discipline and efficiency on the cost side, right? So in terms of opportunities, in addition to driving more operating leverage from our long-term growth and driving increased free cash flow margin, as we discussed on our last earnings call. We do see a great opportunity to deepen and broaden our specialization strategy and risk and broking. And that's an area where we've been showing strong success and strong organic growth in our specializations. We continue to grow faster than the industry and faster than the rest of our business. So we think that pays well.

Okay. So let me follow up that with maybe the obvious question. There are a couple of prospects in growing insurance brokerage. You could focus on small accounts don't require that much specialization. I mean this is no disrespect when I say that, those are salespeople and that's important. Specialization is a different approach. I was hoping you could share the thought process underlying that strategic direction.

Yes. Well, if you're focusing on relationships or sales, right? And we focus on relationship if one has to focus on relationships. We focus on basically commoditized sales in the market. You can have success, but you're -- at scale, you're just not going to be differentiated at all. So I look at it this way, if we try to do that, I'd be walking or my people would be walking into a room with being 1 of like 30 players in the U.S. or 10 players in France or 10 players in Germany. Flip a coin, right, odds are 1 in 10 or 1 in 30. Where you specialize though, you're different. So you may not be a fit for everybody, right? But where you are fit, you're going to be different in a good way and your odds of winning will go up significantly. They may not go to 100%. I wish they did, but they're going to go up significantly. So I think you're getting a better return for the resources you use in a specialized area. And that's one of the reasons we've continued to invest in our specialties. The trick for us is to continue to grow that out, continue to find areas where we can grow that out because the criticism you could make is, well, most of the market is general, you're a specialist, is there enough room for you to play. And I think our sandbox potential is plenty big here. So that doesn't worry me at all. That's a long time from now before we get demand constrained from the marketplace. But there are other things we can do, right? We don't have to just do retail broking. We can continue our build-out on MGAs and MGUs and use that same expertise in the specialist area to be able to drive added value to the client by being able to help price their risk and place it, not just placement.

Okay. So let's focus on that. When you talk about specialization, I've made this comment a couple of times over the conference, specialty and insurance came in, in a lot of things. What does it mean to you right now?

Yes. So there are probably 2 basic dimensions, right? One is a particular area of risks where they have unique characteristics and so having better knowledge and insight into those characteristics can help you drive a better bargain for the client. Let's take the aviation risk as an example, right? It doesn't exactly look like something that's here on the ground in many ways although, some of them are trapped on the ground in many ways, right? And then there are industry specialization. So understanding the dynamics of a particular industry and the unique set of risks that have into a client's individual portfolio can add value too, and we do both, right? So our global lines based in London, are all about the former. So aviation aerospace. And these are areas where sort of the world comes to London because it's a particular hub of intellectual capital that can help manage those risks. And then there are things like real estate and hospitality, which is one of our industry verticals in the U.S. where this is boots on the ground. I know this type of hotel chain/assisted living facilities/et cetera, where the lead line might be in this example, property, right? But you're helping with the suite of risks that a hotel owner might have to deal with, which obviously go well beyond property.

Sure. Okay. That's helpful. I want to make one observation leading to a question, and that is disclosure has gotten better, and I'm going to give Claudia the props for that, which should not be interpreted with me stopping [indiscernible] to you on things like that. But the ability to compare Willis Towers Watson's organic growth with competitors is much easier. Some of the stuff that was less recurring has been broken out explicitly. We can track them. It's actually tremendously helpful. But there are also -- so we've seen that stabilization. The point I want to make is we can look at organic growth without book of business settlement gains, without investment income. And we can see that it's has followed the trajectory you laid out going from really low immediately following the Aon deal collapse to impressive upper single-digit numbers right now. So when you -- I don't want to say pivot, but when you emphasize the specialization strategy. What are the associated investments with that and the cost and maybe the time line for them bearing fruit?

So the general rule of thumb is we bring someone on in broking, where it's going to take somewhere between 12, 18 months for them to get fully productive. And I look at our experience, the people we've been bringing on since Independence Day, July of 26 of 2021. We didn't start until maybe early 2022 because of things like gardening leave or just that time cycle process. We track all this, right? They're actually ahead of schedule in terms of what they're bringing on compared to compensation costs or fully loaded cost than we thought, but they're not fully productive yet on average because the average person we brought in, I think do the math is sort of toward the fourth quarter of last year, so 9 months plus in. So there's some momentum we think we'll still get out of the people we brought in. In terms of sort of where we are in the talent rebuild, right? I think largely where we want to be is the answer. Two years ago, we were significantly depleted, right? I mean we've spent 1.5 years in regulatory limbo where everybody else could offer our people certainty and we could offer them. Yes, at some point, the deal is going to happen. Not a great place. But we've reloaded our teams. We've reloaded them in a way though that was different than what we had before. So look at our U.S. business, in 2018, we had largely a producer-led generalist business. We have hired back into largely a team-based specialist business. And with last year's reorganization in industry lines, which now where most of the business is, it's a very different looking business than what we had. We'll never stop looking for good people, right? I don't want to stop looking for good people, but we're no longer in reload mode the way we were.

Okay. But one message or one inference that I'm going to take from your comments is that this wasn't something that emerged in the second quarter of 2023, if this is the rebuild since 2021.

That's -- in fact, the industry -- the global line/industry strategy dates back to '18 actually. It just like many, many other things around WTW got put on hold while the -- we're going someplace else was the course of action.

Right. Okay. I'm going to ask this in a numerical fashion. Answer however you think is appropriate. How should we think of the impact of this hiring in what's left of 2023, specifically on margins?

Yes. So we still expect full year margin expansion for R&B just full stop. We had some expense headwinds in Q2 that I talked about on the call. We have been taking actions to mitigate them. Our major expense categories are comp and ben and then things like travel, entertainment, et cetera. We are looking at all of them. Now the actions we started, right? We'll largely feel more like Q4 activity than Q3 but for the full year, we think that's good. I'd also note margin for us is a lumpy because we have -- Q4 is a heavy revenue quarter. So the impact in terms of margin expansion, we think, will be heavier in Q4 than Q3 as a result. But that should be more -- then to reconcile all that statement, that margin expansion in Q4 should more than make up for any margin contraction in the earlier quarters.

Okay. So by the end of this year...

By the end of this year.

We'll be feeling better. Okay. And then let's take that one step further. How do you view the trajectory of large I know we have guidance for 2024. I'm hoping the world doesn't end then ahead of things.

You and me both. Yes. I mean we don't -- don't plan on being satisfied by the end of 2024 full stop, right? We -- for instance, we size the transformation program at something we thought we could accomplish during the 3-year period, not everything we thought we can do, to make this a more efficient business. So we ain't done yet is the headline there. And this is also -- especially in R&B, it's a business where scale does matter, and you can get improved margin as you improve scale. And so we will -- growing the business will help as well, and we don't plan on stopping growing.

Understanding that, is there a tech list that we can look at? I mean -- and again, I don't expect you to like put out and have one of those schools that drops to the floor and bounces on for several feet. But what's the -- I was hoping you could share some details of the specifics of the game plan for margins, because that really seems to be the prime -- you've fixed organic growth. And I'm not sure you've gotten full recognition for that.

So over the short term, I mean, right it is a combination of the transformation program elements, right? Which are a combination of real estate, technology and process improvement/workforce relocation, all of which is in progress and happening in at least the pace as well as we thought it would. So we feel very good about landing the transformation program home by the end of next year. And we've sized that at $360 million of run rate. So you can -- we're a $10 billion plus or minus company, you can that one that math, even I can do. And we are looking for operational improvement in the business ex transformation as well. And that won't be every quarter, right, but we are going to look for steady progress. We do look at our peers and say that gap is something we think we can narrow over time. So they've been able to generate steady operational improvement. I don't think there's any reason we shouldn't have that once we're done with transformation as part of our mindset as well.

Okay. Fantastic. One last R&B question, and I want to open up -- I want to make sure that people in the room have the opportunity to ask their questions. One other element has been sort of the year-over-year margin headwind from bookings. Now the number has come down. And frankly, even though there's a negative margin impact, that's a good news. It means that less talent is leaving the building. From your perspective, when do we say, okay, now bookings are at a normal run rate because I don't think they're 0 for anybody.

No, we don't expect it -- we've always said sort of the normal might be around 25 million. And we think that sort of we know prior year book of business activity was around 11. We think we're looking at a similar number for this year, although whether it's Q3 or Q4, I'm not so sure, right? So there is a possibility that, that could drop into Q4, so make our results a little lumpy again for our quarter, but not for the year on that. But I guess what's also helping us on a forward-looking basis, the way we chose to rebuild. So book sales are largely a part of having producer-driven business as we've chosen to rebuild and what's largely not a producer-driven business, that makes -- you're servicing more accounts work with teams and less with individual people and to make the business stickier.

Okay. So we should think of it as being [indiscernible] institutionalized.

That's -- yes. Many people have said, I should be institutionalized.

Well, I was never going to even didn't think that. Okay. That's helpful. Other questions, I know we've been focusing on R&B, and I think that's an element of broad interest, and I want to make sure that I'm not overlooking anyone that had anything to ask. In otherwise, I'm going to move to HWC. With the acknowledgment that those of us that are P&C focused, have a little bit of tunnel vision and we sort of take that as given, even though it's 65% of what you do. Can you give us an update in terms of really the broad picture there? What's going on with recruitment, if necessary growth margins?

Yes. So unlike R&B, right, HWC was actually largely stable throughout the whole period of the [ 8 ] people deal. And part of that is because we actually have an excellent market position in each of the businesses with HWC. So when you're the market leader already, there was less worry about what's going to happen to you under a combination. So we actually did -- had quite a good job of continuing to retain people, which leads to retention of clients, and continue to see for quite a while new business opportunities in there. In areas like our retirement -- our pension retirement business, there aren't that many choices out there. So not getting the opportunity was probably not going to be a thing. But we were able to sort of push that for a while. The biggest place where we did suffer any human capital losses was in our health broking business, which did sort of have the same dynamics as the corporate risk and broking business with regard to talent. We have rebuilt that business quite nicely again. And I think we are very well positioned for this and many other type of economic environments we find ourselves in going forward there. The complexity of the situation we all find ourselves in has led to strong demand for HWC services. The growth rate for the last few quarters has been significantly in excess of historical levels. Part of that is demand based. And part of that is I've asked Julie Gebauer, who runs that segment to actually make people focus a bit more on growth than they had historically. And that can be growth within their business or can be growth through what we call smart connections, looking for an opportunity for our colleague to help. Most of HWC shares a common buyer hub, which is good because you actually have great brand portability between one service we offer another. So we typically sell more than one thing to the same client. And it's an easier and cheaper sale than going to a new name -- to logo.

For sure. Is there anything analogous to the specialization that we're seeing in R&B within HWC.

To some degree, yes. I mean if you -- let's take that pension actuarial business, right, that is -- you have to be a pension actuary to sign off on the financial health of a pension plan that, by definition, means you are a specialist. We are typically our clients outsourced pension department is the way to look at that. So it's not necessarily a specialty in the way of within an industry, the way aerospace is -- but on the other -- so we don't specialize by industry, we specialize by subject matter expertise. So whether it's that executive compensation, we have the biggest -- world's biggest database of executive compensation. So there's a bit of a moat effect around what we do, not meant in any kind of antitrust cash [indiscernible]

No, understood. And then maybe a follow-up to a point that you made about the common clients that you have across the HW and the C, obviously, the holy grail would be to continue that to the R&B.

Yes, although you can't push that too hard. And we tried back in when we became WTW, we tried to push that quite hard. The risk buyer and the HR buyer in an organization in the large market are different. They don't talk to each other. They don't like each other often, right? And so try and pushing that to hard, just -- it's just not worth it, right? There's more productive areas for sales activity. In the mid-market, however, there's -- especially outside the U.S., where health care is just not the big ticket it is for us, right, socialized medicine. You actually quite often have a common buyer for insurance, whether it's health insurance or property insurance. And that is one place where we do emphasize going to market more together, and we do have more crossover.

Okay. And how does that interplay with the specialization?

Because health care is a bit agnostic with respect to that -- the answer is it's just another line that we're selling -- think of it as another insurance line we're bringing to that relationship.

But you're not any worse off anywhere.

No.

Okay. Perfect. So we talked a little bit about this, and again, I'm happy to share the charts. With organic growth improving, the touch of grade associated with that filter lining, if you will, is that the comps get a little bit tougher in -- what have you done for the lately industries. And how should we think of that? How should we think of organic growth going...

Yes, the comps are getting a little tougher. But on other hand, we've got sort of better resources and more permission to go beat them than we did. I mean a year or 2 ago, people looking at WTW got to go, "Well, should I give them a try because they've suffered a lot of damage. Are they really back." We get our fair share of at bats now, and we're getting more than our fair share of hits. So no, we're not. There's no such things more than our fair share hits. We deserve it all, right? But I mean, we're doing quite well with respect to that. And so I think that actually gives us some positive momentum. I talked about the hiring and the fact that they're not fully productive yet. That's also some positive momentum. So even though we sort of say mid-single-digit organic growth for the year, I think there's some upside potential to that in terms of how we might end up this year.

Can I push you for 2024 yet?

Yes. It's early days, but I look at momentum across the businesses, and it's hard not to be pleased with sort of there's wind in the back of our sales, whether that's kind of the fact that on the consulting side, the world still remains very complex. People haven't sorted out new ways of working still, and you would still argue about how many days a week to be back in the office. So there's also opportunities for us to help clients with workforce management. Asset volatility is still quite a thing. So our investment business continues to experience demand and people realize it's hard -- too hard to do for themselves, they want us to do it. There's just good demand across all the portfolio. And the 193-year old brand -- no, it's getting 195 at this point year old brand we represent now that it's firmly established as a brand that's there to stay, helps a lot.

Okay. No, that's good to hear. I don't know if you mean the [indiscernible], but I...

The Willis [indiscernible]

Okay. Fair enough. So I'm going to pretend that I'm like at my computer now looking at my model and stuff like that. Is there any useful guidance you can give us for some of the shake year issues, book gains, the tax rate, recognizing that none of this is final until...

Yes, yes.

It's final investment income. But those are issues that have been bouncing around. And we're hoping that at least we model it accurately and that the buy side anticipates things accurately.

So let me try a couple. I talked about bookings earlier, right? 10 million year -- to first 2 quarters, maybe 10 million more for the last half, and we think that's Q4. We had 11 million in book gains last year, Q3. So that's probably a headwind for Q3. But for the year, mutual -- interest income. We -- so we've historically sort of split how we record interest income in the business. The reason for that was our Willis Limited operation within London, right, covered both our retail insurance and our retail -- sorry, retail and our reinsurance operations and you just couldn't split the interest income between them. So we record that in corporate. With now Gallagher, the co-broking with Gallagher ended, that's now all retail. So we now record it with Q3, we're going to be recording that in just the R&B segment as opposed to the corporate. That is a neutral thing from a total WTW perspective, but you'll see that in the R&B margins. I guess the other thing to look at, right, taxes, right? I'm going to quote this because otherwise, Claudia is going to be mad at me, right? Our year-to-date tax rate for the first half of the year was 22%, which was a modest uptick from the prior year rate of 20.8%. We expect a modest uptick for the full year tax rate from the 20.9% we reported for last year as well. She's smiling. I passed Okay.

Can I infer that, that uptick is a consequence of the first half of the year or there are other factors?

We -- there is a change in legislation of the [indiscernible]. They're not part of the EU anymore. I knew that.

You definitely knew, right? Okay. Talk about transformation. And I always get nervous when I'm talking about technology because I'm not an expert by any sorts of imagination. I took all my actuary exam using an Abacus. But I was hoping that you could give us a little bit more color into what exactly the plan entails. So we can build us from the outside that have limited scope, but we can see what's going on. We can monitor the progress.

So there are 3 components to the program. And back in Investor Day, we thought they were roughly equal size, right, to the $300 million we forecast. First was real estate, which was about building the office of the future, which would have less square feet and a more collaborative environment than the office of the past and that has gone great. I mean, we were already agile before COVID in most every office and so we are ready for what this is. And it's just -- it's creating a better work environment that people can come to the office when they need to come to the office, and that's to collaborate and to learn, not to read e-mails, right? Probably the only headwind there is it's not the world's greatest sublet market. So that's just -- we can manage our way through. The second is technology, and there's a couple of themes to that. One is finished journey to the cloud. And we're there now, right? We've sort of moved as much in the estate to the cloud as we're ever going to move, which is the '90s. There are some things you're just going to keep on-prem for our risk management reasons or other reasons. And the part we're not necessarily all done with, which is sort of where we have multiple systems getting down to and then be one in all cases, but a lot less than we've had. Part of this is about failure to integrate in the past, right? My predecessors were often better at buying things than integrating things. And part of it is about some of our people's relentless suit of perfection. Oh no, the other 30 chat bots we built weren't good enough. I'm going to build the 31st, right? And that we just sort of said now shell that, right? Look, I understand perfection, but we're not -- we can't afford perfection. We can afford excellence. The third part of it is operational improvement and it sort of relates to the technology in a way, but we have been doing the same sorts of things, a lot of different ways throughout the organization, part of this because we've just never bothered to try and integrate successfully on some of these things. So we are busy in reengineering processes, including where those processes will be performed and some of that's done, and a lot of it is a work in train that will be completed by the end of next year. And so as I said, we feel pretty good about the progress on all 3 of those but not willing to declare success yet until we lock down Q4 financials.

Okay. I do want to, again, look around the room to see if there are any questions. I'm hoping to dig a little bit deeper in the processes. Because I think I get it as a concept, but maybe a couple of examples would really flesh that out in terms of changes that you've made and where we have or should see that in the income statement.

Yes. Let's zoom in on our risk and broking for a second. And specifically let's look at the placement process, right? So we have a client who's got a risk, right, that needs to be bound and then needs to be documented placed. That might be done purely manually by the local broker and his team. It's often his, by the way, that's not accident and his team at the local site and then couple of things happen, right? One is we don't track anything of the winning bid, so we get no price information from that. I think it goes to the garbage, that's not helpful. Second, we don't make documentation other than the local office of what the coverage is. So if in fact there is a claim, we've got to do go dig up what happened, what is covered, what is not. Did we write the -- have the contract written in the most favorable way for our client the first time and then have to reinterpret this, which is expensive. And then where is the -- the claim handling being done or is the [indiscernible] being issued. What we're trying to do is centralize where all that's done and get it done in the same way. So that if we've developed contract wording, for instance, that we think is most favorable for a certain kind of coverage for a certain kind of client. We're going to see that in every contract we can with the same insurance company at the very least and hopefully with every insurance company we look at. We run the bid process more professionally. We trapped the price information we discover as part of the bid process. So that helps inform other client situations. So we can understand the price of risk better, so we can help the clients determine where they're going to spend their insurance dollars more efficiently.

Okay. That's very helpful.

I can go on and on and on, but I don't think that's going to help.

I probably welcome that but I understand what you're saying. What's -- how should we think of the time line? And I'm particularly curious about monetizing the intelligence that you are now retaining because some of that is expense side, right? You just haven't been able to optimize the process...

You're absolutely right. We see some of this as revenue side pretty much so because that intelligence is packageable, right, and saleable to a variety of people. You have to be very careful how you do that, right? Because data privacy, one. Who are you working for being another, but it is doable, and we've seen that at least one competitor where you have the possibility to monetize this data. And that can take the form of MDI. It can take the form of service agreements with carriers, they could take the form of analytics you sell to clients, which is something we do today.

Is there a way of describing the time line until the associated revenues and expenses are a good run rate?

So I think we view this as a couple of years journey. So never probably finishes because I look at the analytics we have today compared to the analytics we had 3 years ago, we made great progress, but by no means are we done yet today. And so this is something that, I guess, hard to flag directly. I guess I'd point out this today, we have a $400 million insurance consulting and technology business that's built all around this. It's client right now is the insurance company customer, right? And that business has been growing in single digit or better for some time. It's a Willis Towers Watson is a very good owner of it. And we see that sort of potential in the portfolio of what we do with this.

Okay. Fantastic. I was hoping to talk a little bit about the free cash flow margin trajectory and ambitions because one of the elements of feedback that we've gotten was at 16%. It sounds a little...

Yes. Let me correct you. I think we said 16% or greater. That's what we saw, say, potential for long-term free cash flow margin.

Yes. Okay. So can we flesh out [indiscernible] or greater? I know that it's a tough question.

Yes. So the short term things, right? TRANZACT, right, we think the cash drag from that is going to continue to subside, and we can get to cash flow positive in the next few years, not necessarily cash flow generated at the same rate as the rest of the organization, but stop being the 200 basis point drag it is today, right, which is helpful. Transformation spending is going to subside. And hopefully, Andrew will pay the last bill at some point in the first or second quarter of 2025. So that drag goes away. And really importantly, right, if we continue to improve adjusted operating margin and grow the way we can, that should be a double whammy and the positive for free cash flow growth. So getting our margins to where our competitors, at least within spitting distance of our competitors, I think, is a critical part of this. And we want to accomplish that not just through transformation efficiencies but improving our business mix at the same time. TRANZACT is an easy one to point to. But you can look at parts of the broking, we're very light right today in MGAs and MGUs and we have efforts on to deepen that footprint. I've had questions about reinsurance broking, which has historically been a more profitable business than retail broking and resuming our place in it. These are all things we want to look at to make sure we can maximize the value of our portfolio and generate the cash that investors like.

My sense is you've got a presence in MGAs and MGUs not necessarily on the reinsurance side. Am I thinking about that correctly?

That's correct. It's relatively light compared to our competitors, right? MGAs, MGUs today are a relatively small part of the business. We know how to run them, right, but we're not doing it at scale. Affinity is another example of something we do, but not nearly at the scale we could be doing.

Okay. If we can take a second and just jump into TRANZACT because there have been recently a number of companies that focused solely on competing with TRANZACT, and their record was kind of mixed. And it seems like on the outside, TRANZACT didn't have a lot of those issues just in terms of turbulent growth and retention problems. Hope you could give us a TRANZACT story.

Well, I mean, so TRANZACT, right, is a business that's at its heart, right sells Medicare Supplement, Medicare Advantage and life insurance to medicare-eligible people. Right? And the amount -- that's a growing population. There is -- with the advent of Medicare Advantage, there was a definite market opportunity there that TRANZACT and others faced. I think what's maybe a bit a bit different for us is we -- because TRANZACT is part of WTW, it's managed a bit differently than some of the competitors have been with most of them went for growth at all costs. And we've always taken a growth at a reasonable cost perspective. We get our leads from a variety of sources. They range in quality. And at some point, the quality will deteriorate to the point where the value of what you're trying to do turns negative, which we try to -- we like profits, right? So we may have stopped at a point before others did, and I think that served us well for a variety of reasons. And by keeping growth, which was healthy, but at the -- it's made the free cash flow management tameable -- no, I'm sorry, desirable, right? I mean, I don't think anyone here is particularly pleased with the cash drag from TRANZACT but it's -- we've said it's 200 basis points, it's not 2,000 basis points. And we do manage the growth versus profitability versus free cash flow as part of that mix and we'll continue to. And then the last place, I think we've been stay out of trouble, and I wish this was a wood table to knock rather than the glass table is that receivable is an actuarial estimate, right? It is what you think you are going to get in future cash. In actuarial estimates, shockingly says when actuary rates are subject to error. We have rather a lot more actuarial talent than our competitors do. And so while we don't do that valuation ourselves, we use an independent third party, we're able to have, I think, better insight into what that might be and are able to make sure we have a diversified set of risks going into that, that can help produce a more stable outcome.

No, that makes sense. I mean some of it I'd come in with the premise that the fact that the entirety of WTW is not ASC 606 accounting. So you're not as entirely subject to that sort of estimation error.

Well, we're all subject to it. Some of the -- it's not applicable.

It's not as disruptive, distorted [indiscernible]. That's a better way [indiscernible]

Yes. That's correct, yes. This was a big issue for TRANZACT. It was a big issue for Willis Re with quota shares. But that's one less problem I have.

Right. That was a good time, I will say. Again, if there are questions here, please let me know. Otherwise, I want to move to capital deployment in terms of prioritization. I know we certainly heard a fair amount of talk about share repurchases, but how do you think about your priorities for cash utilization as free cash flow improves.

All right. So the first thing I'll say is pretty much motherhood and apple pie, which is we want to deploy our capital in the highest return opportunities. We do think that given our share price being where it is, that's highly likely share repurchase as an opportunity. But we have to think strategically as well, right? And so remaining relevant in the businesses we're in is important too. And if everybody else is growing at organic plus x for inorganic and we just grow at organic, there's a danger we lose relevance. So we do think about that. But over the short term, we think capital deployment is going to be through share repurchase primarily. To color that year-to-date, as of last quarter, we had $450 million of share repurchases, and we expect a similar amount for the second half. We're going to put that in place. So we'll continue to evaluate the balance. But as I said, right now, share repurchases look like where we're concentrating the activity.

Okay. Does specialization within R&B give you a cleaner focus on acquisition targets if and when that's the best use of capital?

It does, although there are going to be fewer of them, right? And they're likely to be smaller, right? Because a large -- you look at our competitors as examples, right, they tend to be very generalist in nature. So -- if you were going to try and do that, and there's something to prevent us from going generalist, but I wouldn't want to necessarily put national all together. So I could see a sleeve of generalist as part of the mix. However, and I've said this -- I've been saying this for a year -- a couple of years now, right, doing it while we're still getting our operational act together on the business we do have is not something I think that's going to be very productive for the organization. So wait until we've got our house in order and then think about what additions you want to build on to it.

Okay. That makes sense. And I've got one final question, but again, I want to look around to make sure I'm not looking at anything. So I want to talk about the macro environment and how that impacts WTW. And this is maybe segment by segment, on a more granular basis. how things are manifesting themselves in terms of client demand and capability. And then finally, you as an enterprise have to deal with inflation [indiscernible]. So it's hoping it's a common question applying inside and outside.

Yes. So let's start with the revenue side, which is a little more fun to talk about, right, in some ways. So the effect on inflation on insurance pricing, I think it's pretty well discussed, right? And so that is a bit of a -- it's not great for our clients, but it is great for our commission book. Recognizing that as prices go up, our clients can buy less to offset it. If your budget for insurance this year is $2 million just because rates going up doesn't mean you're going to automatically bump up your budget. And so we're a bit insulated on the downside as well as muted on the upside from that. On health insurance, though, it tends to bleed through a bit more.

More directly in [indiscernible]

Exactly. Yes. So there is some help from that. The -- we -- our client is the corporate, right, it's not the insurer. So we push back and try and get better rates where we can and shop around where we have to. And so in some ways, don't oversell the effect of inflation on our insurance book. However, right, the complexity and the uncertainty is good for us, right? And that's true for very much for both segments, right? Complexity and uncertainty generates volatility that makes clients revisit their risk buying decision, which may make them rethink the efficacy of their current incumbents. And so we see more opportunity. We're at bats there as a result. On the consulting side, consulting does really well when there's change, right? And as long as change is not so severe that people stop making decisions, we tend to do pretty well. So the current environment tends to benefit pretty well. We've got a big compensation consulting business that's trying to help employers deal with their wage inflation, costs, the whole new ways of working and what that means and how do you deal with that? So in general, this is not a bad economic environment for us to be in. On the flip side, right, I do have to manage our costs as well. We have structured our comp programs in a way that has a large variable compensation element to it. So even though our fixed costs are going up and we have a lot of people who rely on wages from WTW to feed themselves, and I'm very aware of that. We want to make sure they continue to do so and stay with us. So we do have some pressures in that regard. At the macro level, it's not fully felt through because I can adjust some of that in variable compensation. We have taken the opportunity to make sure we manage the costs that aren't critical for running the business as tightly as we can, and we've done some of that in the third quarter, as I said before, that we think will bleed into the fourth. Things like travel, travel costs are way up. Well, maybe you don't need to send 3 people to that meaning you said, 1 have to come in via Zoom or Teams [indiscernible]. So just very practical things. But frankly, our clients are very accommodating about. So I guess the other thing I didn't mention was higher inflation means higher interest rates means more fiduciary income. So we do have seen some of the benefit of that as well. So last comment on labor just there, it is the biggest cost we have. Our attrition has actually come down very nicely even on the low side of expectations. So that -- with lower attrition, that gives you a bit of more flexibility on what you can do with overall workplace costs at the same time. So that's been, I would say, unexpected because we had hoped the actions we take would work when it's been helpful.

Okay. I'm going to throw one last question because [indiscernible] is lower-than-expected attrition. Are there any challenges associated with that?

Well, you could end up with too high a payroll if you don't manage it carefully. So the -- but what it does let you do is manage your payroll, right? So if you have a much higher-than-expected attrition, you've got to stick with the people you have.

That's true. You can't optimize anymore.

Yes. There's nothing to optimize with. There you go. Well put, Meyer..

Okay. With that, we are at the end of the session and the end of the conference. So thank you very much.