Today's Viewpoint: A MarshBerry Publication



Highlights from the WLTW earnings release and analyst call.

Willis Towers Watson (WLTW) reported today first quarter 2021 net income of $733 million, an increase of 140% from the $305 million reported for the prior year 1Q20. First quarter 2021 adjusted diluted earnings per share (EPS) of $3.64 were up 9% from the prior year, and above the consensus estimate of $3.28. Total revenue for the first quarter was $2.6 billion (vs. the consensus estimate of $2.5 billion), a 5% increase (4% organic growth) compared to 1Q20. Adjusted 1Q21 operating income of $579 million (a 22.4% operating margin) increased by approximately 110 basis points over the prior year.

Free cash outflow in the first quarter was $165 million, an increase from the previous year’s $43 million due to the net legal settlement payment to the Stanford Financial Group, and higher incentive compensation and benefit related items for the WLTW merger with Aon plc. Management noted free cash flow would have increased without these one-off items. The company also repaid $500 million of bonds outstanding in the quarter.

Segment results for each of WLTW’s business units included:

  • 1Q21 revenue within the Human Capital & Benefits (HCB) segment was $875 million, an increase of 3% from 1Q20. Organic growth was flat for the quarter. First quarter operating margins in the HCB segment were 25.2%, a slight increase from the 25.0% operating margins posted in 1Q20.
    • Both Health and Benefits and Retirement revenue declined in North America but were offset by expansion outside of this market. Revenue attributable to Technology and Administrative Solutions increased during the quarter due to new project and client activity in Great Britain.
  • Corporate Risk & Broking (CRB) segment revenue in 1Q21 revenues of $810 million increased 10% (5% increase in organic), over 1Q20’s revenues of $739 million. Overall, operating margins for 1Q21 increased to 20.0% from 17.2% in 1Q20.
    • North America positively contributed to organic growth with strong renewals, led by Financial, Executive and Professional Risks (Finex) insurance lines. Declines in Western Europe related to senior staff departures partially offset revenue growth.
  • Within the Investment, Risk & Reinsurance (IRR) segment that includes wholesale and reinsurance brokerage, 1Q21 revenue was $605 million, a 2% decrease (4% increase organic growth), from $615 million reported in the first quarter of 2020. However, IRR’s operating margin of 47.9% was an increase over the 45.1% operating margin produced in 1Q20.
    • Organic growth was driven by an increase in demand for advisory work as well as increased software sales. Further organic growth was constrained by a decline in wholesale revenue. The company completed the sale of Miller, its U.K.-based wholesale insurance broking subsidiary on March 1, 2021.
  • The Business Delivery & Administration (BDA) segment reported fourth quarter revenues of $287 million, a 24% (23% increase organic) increase over 1Q20 revenue of $231 million. First quarter 2021 operating margin was 2.5%, an improvement from the -4.7% for the same period in 2020.
    • Organic growth is predominantly attributable to TRANZACT, WLTW’s direct-to-consumer line of insurance products, which generated revenue of $148 million in the first quarter driven by growth in sales of Medicare Advantage. Benefits outsourcing also increased revenue as this division expanded its client base.

Other takeaways from the first quarter 2021 earnings call included:

  • Producer turnover over the past 12 months was about the same as it was a year ago, with a slight improvement, despite the upcoming merger with Aon plc.
  • Management stated that the Aon plc and WLTW merger is still on track to be completed during the first half of 2021.

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This earnings summary has been prepared by Marsh, Berry & Co., Inc. and is not intended to provide investment recommendations on any company. It is not a research report, as such term is defined by applicable laws and regulations, and it does not contain sufficient information upon which to make an investment decision. It is not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any securities, financial instruments or to participate in any particular trading strategy. These materials are based solely on information contained in publicly available documents and Marsh, Berry & Co., Inc. has not independently attempted to investigate or to verify such information.

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