Good day, ladies and gentlemen, and welcome to the fourth quarter 2016 Willis Towers Watson earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touch-tone telephone. As a reminder, this conference is being recorded. I would like to introduce your host for today's conference, Ms. Aida Reyes, Director of Investor Relations. Ma'am, please go ahead.
Thank you, Michelle. Good morning. Welcome to the Willis Towers Watson earnings call. On today's call are John Haley, Willis Towers Watson's Chief Executive Officer, and Roger Millay, our Chief Financial Officer. Please refer to our website for the press release issued earlier today. Today's call is being recorded and will be available for replay via telephone through tomorrow by dialing 404-537-3406, conference ID 53649380. The replay will also be available for the next three months on our website. This call may include forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 involving risks and uncertainties.
For a discussion of the forward-looking statements and the risks and other factors that may cause actual results or events to differ materially from those contemplated by forward-looking statements, investors should review the forward-looking statement section of the earnings press release issued this morning, a copy of which is available on our website at wtwco.com, as well as other disclosures under the heading of Risk Factors and Forward-Looking Statements in our most recent annual report on Form 10-K and quarterly report on Form 10-Q and in other Willis Towers Watson filings with the SEC. Investors are cautioned not to place undue reliance on any such statements which speak only as of the date of this earnings call. Except as required by law, we undertake no obligation to revise or publicly update forward-looking statements in light of new information or future events. During the call, we may discuss certain non-GAAP financial measures.
For a discussion of the non-GAAP financial measures as well as the reconciliation of non-GAAP financial measures under Regulation G to the most direct comparable GAAP measures, investors should review the press release we posted on our website. After our prepared remarks, we'll open the conference call for your questions. Please note today's call is scheduled for one hour. I'll turn the call over to John Haley.
Thanks, Aida. Good morning, everyone. Today, we'll review our results for the fourth quarter of 2016 and provide updated guidance for the full year of 2017. We'll also provide consolidated full-year 2016 and certain pro forma 2015 financial results. Our segment results are presented based on the updated Willis Towers Watson structure. We provided historical Willis Towers Watson segment information in a Form 8-K filed on July 14, 2016. Let's turn to our results, which mark the end of our first year as Willis Towers Watson. Reported revenues for the quarter were $1.9 billion, flat as compared to pro forma prior year revenues. This includes $74 million of negative currency movement on a pro forma basis. For the quarter, revenues on an organic basis were up by 1%. Reported revenues for the year were $7.9 billion, up 5% as compared to pro forma prior year revenues.
Adjusted revenues for the year were $7.9 billion, up 6% as compared to pro forma prior year revenues. This includes $202 million of negative currency on a pro forma basis. For the year, organic revenues were up by 2%. Net income attributable to Willis Towers Watson for the quarter was $34 million as compared to the prior year pro forma net income of $66 million. Adjusted EBITDA for the quarter was $419 million or 21.7% of revenues as compared to the prior year pro forma adjusted EBITDA of $406 million or 21.1% of revenues. We are pleased to see year-over-year margin enhancement, which is consistent with our goal. Adjusted EBITDA for the year was $1.8 billion or 22.3% of adjusted revenues as compared to pro forma adjusted EBITDA for the prior year of $1.7 billion or 22.5% of adjusted revenues.
For the quarter, diluted earnings per share were $0.25 and adjusted diluted earnings per share were $1.88. Currency fluctuations net of hedging had a positive impact of $0.19 on adjusted diluted EPS. For the year, diluted earnings per share were $2.26 and adjusted diluted earnings per share were $7.96. Currency fluctuations net of hedging had a positive impact of $0.08 on adjusted diluted EPS. Before moving on to the segment results, I'd like to highlight the progress made in 2016 and provide an update on three areas of integration, revenue synergies, cost synergies, and tax savings. Reflecting on our first year as Willis Towers Watson, we've accomplished a great deal in a relatively short amount of time. We've developed integrated market offerings for our stated revenue synergies. We've also taken steps to enhance our profitability margins with OIP, a business restructuring program, and cost merger synergies.
We've also refined our focus of financial discipline for long-term growth and enhanced our focus on business fundamentals. The impact of the benefits from the revenue synergies and cost programs will grow in 2017. We feel we've made very good progress against all of our objectives. Let me highlight some of these accomplishments in more detail. I'll start with the revenue synergies. As I mentioned in a previous earnings call, the 2016 revenue synergies were about 5%-10% of our stated 2018 revenue synergy targets. While they're only a small portion of the overall goal, we're very pleased with the efforts in achieving, and in some cases, surpassing our 2016 revenue synergy sale goals. Our merger objective identified three specific areas of revenue synergies, global health solutions, the U.S. mid-market exchange, and large market property and casualty. Let's start with global health solutions.
During 2016, we won 23 global or regional projects valued at over $18 million, and 120 were smaller single country projects for an additional $5 million. Turning to the U.S. mid-market exchange synergies, we added about 75,000 employees, which will provide approximately $15 million annually. Lastly, we surpassed the 2016 P&C revenue synergy goal with placements of almost 30 accounts representing eight different industries for approximately $12 million. On the tax front, we surpassed our original goal of a 25% adjusted tax rate a full year ahead of schedule. The 2016 merger-related cost savings guidance was estimated at $20 million of savings in calendar 2016, and I'm pleased to report that we ended the year with almost $40 million of savings. We feel very confident in meeting our 2018 cost savings objectives of $100 million-$125 million.
Through the efforts of the Operational Improvement Program, or OIP, we saved approximately $89 million during 2016. We anticipate additional savings of $95 million as we exit 2017. The OIP program is expected to be completed at the end of 2017. In addition to the OIP program, we initiated a business restructuring program during the third quarter of 2016, which was completed in the fourth quarter. The restructuring impacted approximately 450 positions across all segments, which cost approximately $50 million. The majority of this cost was incurred in the fourth quarter. We're very focused on delivering on our various cost initiatives, the OIP, cost-related merger synergies, and business restructuring to drive improved margins in 2017. Now, let's look at each of the segments in more detail. For the quarter, total reportable segment constant currency commissions and fees growth was 3%.
Constant currency commissions and fees for Human Capital & Benefits were flat. Corporate Risk and Broking increased 6%, Investment, Risk and Reinsurance decreased 3%, and Exchange Solutions increased 21%. All of the revenue results discussed in the segment detail and guidance reflect commissions and fees constant currency, unless specifically stated otherwise. Turning to Human Capital & Benefits, or HCB. HCB commission and fee growth was flat. On an organic basis, commissions and fees decreased 2%. The HCB segment experienced the largest impact of the business restructuring effort. More than 325 positions were eliminated. This restructuring was intended to create better alignment with client expectations and market demand and also to improve our leverage model. However, given the size of this initiative in the HCB segment, we experienced more business disruption in this segment than in any of the others.
Retirement commissions and fees were down as a result of a decrease in actuarial fees, partly offset by new pension administration client fees. The business restructuring impacted almost 160 positions, mainly in Europe and the U.S. Demand for consulting assignments was down in the Netherlands and were in an off-cycle period of pension negotiations in the U.K., which typically occur every three years. There was also less data-related project work associated with bulk lump sums than anticipated. Talent and Rewards commissions and fees were down primarily due to a decline in executive compensation and reward and talent and communication work in North America. The restructuring impacted over 100 positions in Talent and Rewards. We saw fewer transaction-related projects and uncertainty on regulatory and economic conditions in advance of the U.S. November elections.
Healthcare consulting continued to see commission and fee growth primarily as a result of new business won outside of the North American region. Technology and Administration Solutions, or TAS, continued to produce strong results due to new clients. We continue to have a positive outlook for the HCB business in 2017 and expect momentum to build during the year. Turning to Corporate Risk and Broking, or CRB, commissions and fees grew 6% from the prior year as a result of the Gras Savoye acquisition. On an organic basis, commissions and fees were flat. Revenue increased in all regions except for North America. Great Britain's revenue increased due to growth in construction, retail, and aerospace. Western Europe grew as a result of Gras Savoye and the affinity business in Northern Europe. International revenues increased as a result of Gras Savoye.
A slight rebound in the Venezuela and Brazil P&C businesses was offset by continued softness in Asia and Central and Eastern Europe, Middle East, and Africa. Revenue declined in North America as a result of less new business. We expect the general pricing trends to continue into 2017. We also expect that we will gain momentum as we move into the second half of the calendar year. Now to Investment Risk and Reinsurance. Commissions and fees were down by 3% for the quarter. Organic commissions and fees declined 3%, primarily due to a decline in reinsurance and portfolio and underwriting services. The reinsurance line of business represents treaty-based reinsurance only. The facultative reinsurance results are captured in the CRB segment.
North America reinsurance and specialty revenue growth was more than offset by revenue declines in the international region and in portfolio and underwriting services due to weakness in underlying premiums and profit-sharing programs on certain contracts, as well as rate competition. The fourth quarter is seasonally the softest quarter of the calendar year for IRR. We continue to see wholesale delivering solid results from Miller. Investment experienced growth as a result of increased performance fees in the delegated investment services business. We're targeting growth for the IRR business in 2017. While the overall environment may not be changing dramatically, prior year comparables are soft, and the sales pipeline is more robust in certain lines of business. Lastly, Exchange Solutions finished up the year with another outstanding quarter, with commissions and fees of $174 million, an increase of 21%.
Driven by record enrollments, our retiree and actives exchange revenues increased 34%, and the rest of the segment increased 9%. Increased membership and new clients drove the revenue increases. Our health and welfare and North American pension outsourcing businesses continue to grow, primarily as a result of the new business won over the last two years, which added almost 400,000 lives. We had a very successful exchange enrollment season. As a reminder, revenues are generally recognized as the healthcare plans become effective, which is January 1st for most of our enrollments. Revenues are recognized on a prorated basis through the calendar year. We enrolled approximately 110,000 retirees and more than 250,000 total lives on the active exchange, our biggest active enrollment ever. Approximately 65% of the active enrollments were on the Liaison platform, and the balance were enrolled on our large company platform.
We continue to find that first-year savings are between 5% and 15%. Most of our clients target a savings of 5% to 8% as they custom configure their plan design. That equates to a first-year savings of approximately $500 per employee. Our 2017 sales pipeline continues to look strong, especially in the mid-market. Large companies continue to be more deliberate in their decision-making process, but we have four large clients that have already committed for the 2018 enrollment period. We expect the mid-market to continue to adopt at a faster pace than the large companies. We anticipate the revenue growth to slow a little bit in 2017, but continue to feel good about the momentum of this business in the long term. Perhaps one of the most important developments of 2016 was confirmation of the merger rationale.
While the 2016 revenue performance may not fully reflect our integration and sales efforts, the commitment I see from our colleagues throughout the organization and the steps we've taken to build the framework for long-term success gives me great confidence in achieving our merger objectives. We still have a lot of hard work ahead of us, but the momentum continues to build. Most important, we have to keep focusing on our clients, carry forward the financial disciplines initiated in 2016, and continue to work collaboratively as we build and improve our go-to-market strategies. I'd like to conclude my comments today by thanking all of our colleagues for their hard work over this last year. I'm looking forward to reporting on our future success. I'll turn the call over to Roger.
Thanks, John, and good morning, everyone. I'd like to add my thanks to our colleagues around the globe for all their efforts during 2016. As we take a step back and consider the progress we've made in just 12 months, bringing together 40,000 colleagues from three legacy companies in over 140 countries, it's really quite an accomplishment. While we still have a couple of years to complete our integration, the actions required in the first year of building a new organization and culture are the hardest and most sensitive. There's simply a lot of change to absorb. It took a lot of collaboration and commitment to get us where we are today, and as we turned into our second year, I saw the necessary foundation for our ultimate success building in the right direction. For the financial results.
As a reminder, our segment margins are before consideration of unallocated corporate costs, such as amortization of intangibles, restructuring costs, and certain integration expenses resulting from mergers and acquisitions. The segment results include discretionary compensation. Income from operations for the quarter was $88 million, or 4.6% of revenues. The prior year fourth quarter pro forma operating income was $131 million, or 6.8% of pro forma revenues. Adjusted operating income for the quarter was $374 million, or 19.4% of revenues. The prior year quarter pro forma adjusted operating income was $377 million, or 19.6% of pro forma revenues. As we highlighted earlier, revenue pressure and seasonality related to Gras Savoye impacted the fourth quarter margin. Income from operations for the year ended December 31st, 2016, was $551 million or 7% of revenues. The prior year pro forma operating income was $765 million or 10.2% of revenues.
Adjusted operating income for the year ended December 31st, 2016, was $1.6 billion or 20.4% of adjusted revenues, and the prior year pro forma adjusted operating income was $1.5 billion or 20.2% of pro forma revenues. The GAAP tax rate for the quarter was 3% and the adjusted tax rate was 19%. For 2016, the GAAP tax rate was 3% and the adjusted tax rate was 21%. Before we discuss the segment operating results, I'd like to remind you that we provided recast segment operating income for the prior periods in the Form 8-K we filed on July 14th, 2016. Additionally, our segment margins are calculated using total segment revenues. For the fourth quarter, the operating margin for the Human Capital and Benefits segment or HCB, was 20% as compared to pro forma 21% in 2015.
As expected, the 2016 margin trended lower due to the Gras Savoye margin being lower than the company average. Revenue performance also impacted margin. For the year ended December 31st, 2016, the HCB segment operating margin was 21% as compared to pro forma 22% in 2015. For the fourth quarter, the CRB business or Corporate Risk and Broking, had a 32% operating margin as compared to a pro forma 33% in the prior year fourth quarter. Western Europe, as a result of Gras Savoye's seasonality and lower margin profile, drove the margin down. Operating margin was 21% for both the year ended December 31st, 2016, and pro forma 2015. For the quarter, the Investment, Risk, and Reinsurance segment or IRR, had a 1% operating margin as compared to pro forma negative 3% in the prior year fourth quarter. The margin improvement was from investment, RCS, and wholesale.
IRR experiences a seasonally low operating margin in the fourth quarter, primarily driven by the timing of revenue in reinsurance. For the year ended December 31st, 2016, the IRR segment operating margin, inclusive of the JLT Legal settlement, was 21% as compared to pro forma 19% in 2015. For the quarter, the Exchange Solutions segment at an 8% operating margin, as compared to a pro forma 10% margin in the prior year fourth quarter. TAS and retiree and actives exchanges led the segment with 23% and 18% operating margins respectively as we continue to invest in the actives exchange. For the year ended December 31st, 2016, the Exchange Solutions segment operating margin was 16% as compared to 11% pro forma in the prior year. Moving to the balance sheet, we continue to have a strong financial position.
Free cash flow was $288 million in the fourth quarter, and $745 million for the year ended 2016. This was almost $100 million greater than our original expectation, as noted during our Analyst Day. We continue to focus on enhancing free cash flow in 2017. This stronger free cash flow provided the capital to repurchase approximately $400 million of Willis Towers Watson stock in 2016, rather than the previously announced $300 million we had initially targeted. In November, we increased our share repurchase plan by $1 billion and anticipate a total repurchase of about a half a billion for 2017. On February 8th, 2017, the Willis Towers Watson Board of Directors approved a 10% increase to the regular quarterly cash dividend, which will now be $0.53 per common share per quarter. This is targeted to maintain the payout ratio of approximately 25%.
Let's review our guidance for fiscal year 2017. In fiscal 2017, we're expecting constant currency revenue growth to be in the 2%-3% range. Constant currency and organic revenue will be aligned as we now have a full year of results for all of the 2015 acquisitions. We expect adjusted EBITDA to be in the range of 23%-24%. We continue to drive our business improvement and cost reduction programs and expect to demonstrate clear momentum in 2017 toward our goal of a 25% adjusted EBITDA margin. For segment revenues, we're expecting low single-digit constant currency commissions and fees growth for HCB, CRB, and IRR. As we put a year of integration and restructuring focus behind us, we expect to see gradual growth enhancement in these businesses as the year goes on.
Exchange Solutions revenue growth is expected to slow to around 10% due to stabilization of the retiree enrollments. As we've mentioned previously, the retiree enrollments will be episodic from year to year, depending on the timing of large clients joining the exchange. While we continue to expect the actives exchange growth to be very strong, the enrollment base is still relatively small. As of 2017, we're aligning the Max Matthiessen business from HCB to IRR, and the fine arts and jewelry team from IRR to CRB. In addition, we're harmonizing corporate expense allocation methodologies. The changes made for 2017 will have an impact on year-over-year segment margins. Given these changes, we will not be providing segment margin guidance in 2017. You'll continue to see the segment margin results each quarter, and we plan to file a year-over-year comparison prior to our first quarter earnings.
The 2017 adjusted tax rate is expected to be 23%-24%. The tax rate is expected to increase from 2016 due to one-time discrete items, which will not repeat in 2017. Adjusted diluted EPS is expected to be in the range of $8.40-$8.55. Guidance assumes average currency exchange rates of $1.25 to the GBP and $1.08 to the EUR. We expect to generate approximately $30 million in merger cost synergies in 2017 and incur approximately $180 million of expense for integration-related items. We're making good progress on the cost synergies and expect to achieve the high end of our 2018 savings goal of $100 million-$125 million. Integration expenses and restructuring costs will continue to be adjusted from our GAAP measures.
As John mentioned earlier, we expect to save approximately $95 million from OIP in 2017, the final year of the program, and plan to spend approximately $140 million. The OIP restructuring will continue to be adjusted from GAAP measures. Finally, depreciation is expected to be approximately $175 million-$195 million, and capital expenditures are expected to be approximately $250 million. As we've been discussing, 2016 was a year of building a new organization, a new way to address our clients' needs, and developing strong focus on financial management. I think we've succeeded in building this foundation, and I expect to see our financial performance momentum grow in 2017. I'll hand it back to John.
Thanks, Roger. Now we'll take your questions.
Thank you. Ladies and gentlemen, if you have a question at this time, please press star, then 1 on your touch-tone telephone. In the interest of time, we ask that you please limit yourself to one question and one follow-up. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Our first question comes from the line of Ryan Tunis with Credit Suisse. Your line is open. Please go ahead.
Hey, thanks. I guess just following up on the segment outlooks for brokerage and for HCB next year. It's kind of low single-digit organic expense growth, which implies a decent amount of acceleration from what we've seen year-to-date, especially on the brokerage side. I guess looking back at 2016, you talked a little bit about the revenue synergies. How much do you think revenue dyssynergies may have impacted that comp? Because I'm trying to bridge from where we've been in Corporate Risk and Broking, which is an IRR, which has been zero to sub-zero to getting that to low single-digits. Thanks.
Okay. Well, Roger may want to add to this, but I would say, I think revenue synergies did not play any significant effect at all. Frankly, we didn't really see any revenue dyssynergies really across the company. I think the reason for the revenue growth being off in 2016 was really reflected in a distraction that we had that took people, had them more internally focused than it should have been, didn't have the best go-to-market operation that we could have had, and it distracted from our new business efforts. I don't think revenue dyssynergies were anything that really added to that.
Okay. My follow-up, I guess, is just on thinking about 2%-3% organic growth this year. Looking out to 2018, thinking about the $10 number, do you think you need acceleration off the 2%-3% in 2018 to be able to hit that? Or are we still sort of thinking that capital management and organic expense management can produce those type of results, even if we're still sort of in a 2%-3% organic growth environment? Thanks.
Yeah. I think I would say this with regard to the $10 number. When you think about the various components that we had to get there, one of them was certainly revenue growth, really at we thought the 3% plus was we needed to get to that to be achieving $10. The other items were our tax rate getting to 25% or better. I think we got a check next to that. Our share repurchase. Actually, if you think about last year, in the beginning of the year, we said we were going to try to purchase $200 million worth of shares last year. Midway through, we said we'd like to get to $300 million. We ended up purchasing $400 million. We feel good about what we were able to accomplish there.
As Roger said, we expect to buy back at least $500 million worth of shares this year. That's in place as to where we want to be. We'll continue to buy shares back in 2018 also, probably at a higher clip than we have in 2017. We want to get the expense savings and the margin enhancement. We referenced a couple of times some of the OIP savings that we expect to get coming out of 2017. We're on board for almost all the things. We just see we have to get the revenue growth up a little bit. We're focused right now on getting to the 2%-3% level for 2017. We think that'll give us a good base to improve that going into 2018.
Okay. Just lastly, I guess in the retirement business, if you could just help us understand the macro sensitivity of that, just given the move higher in rates, the new administration. It sounds like a lot of the slowdown there was less actuarial work, lump sum, but it sounded like it was maybe being replaced with pension administration. How should we think about that if interest rates are sort of where they are continuing to rise? Is that an area where you're going to continue to see kind of sluggish organic growth? Thanks.
Yeah, I think overall that's right. Look, some of our competitors have reported. When you look at our retirement revenue growth, it's almost identical to theirs. Maybe that's not so surprising now. On top of it, though, we had the restructuring program, which was largely focused on retirement. When I was younger, I used to think you could put these restructuring programs in place and not lose any revenue in the short run. I've learned from experience that that's not the case. The fact that we had retirement slow down a little bit was not a particular surprise here that happened. We love the restructuring we did. We think it positions us extraordinarily well for the future. That was clearly the right thing to do. That hurt us a little bit in the fourth quarter.
As I said, even then, we still came out right at the same level as our competitors. We feel good about this going into 2017. When we look at the outlook for 2017, I think the thing that we would most focus on is this is probably likely, you can never tell at this stage in the year. This is probably likely to be a slower growth for bulk lump sum work or a real slowdown in bulk lump sum work compared to other years. Bulk lump sum work it varies. I think 2013, it was $28 million. 2014, I think it was over $75 million. I think it was around $77 million or something. It's been just under $50 million, 2015 and 2016. We think it's going to go down substantially in 2017. Bulk lump sum is granular.
One of the reasons we think it'll probably go down is because we're likely to see several rate increases during the year. It's not the absolute level, it's the arbitrage between where you can pay out the lump sum at and what you're recording it at as the accounting expense. 2017 might be a low year for bulk lump sums. In the end, though, that may just mean that there's more work in 2018. We see this as you got to look at it on a multi-year cycle.
That's helpful. Thanks.
Thank you. Our next question comes from the line of Sarah DeWitt with J.P. Morgan. Your line is open. Please go ahead.
Hi, good morning. Just looking at the margins in the quarter, could you talk about how you achieved the margin expansion given the low organic growth? Just walk us through how much came from OIP dropping to the bottom line versus integration savings versus if there was any FX margin benefit?
Sure, Sarah. Hi. We think, again, maybe just to step back to the margin trends for the year, we've been watching all the elements closely quarter-to-quarter. As we said in the third quarter, we saw probably about a few percentage points in sequential drop in expenses, that sort of trend continued into the fourth quarter. Really, we think it's the combination, kind of as John and I both referred to in our remarks, it's the combination of continuing to push across the board on the savings initiatives, which now you mentioned two of the elements, the third element is the business restructuring. All of those kicking in, along with just the financial discipline that we're employing throughout the company. Margin comes gradually.
Last time we said we weren't sure that we saw all those efforts flow through, I think this time you're seeing it. I think those were the drivers.
Okay, great. Thanks. Separately, I would be interested to get your thoughts on some of the macro issues post the U.S. election. If the U.S. tax rate fell to 20%, but there was no interest deduction, what would that mean for Willis Towers Watson's earnings? Also, would you be impacted by border adjustment at all since you're domiciled outside the U.S.? Would your services be considered an import?
I think, just generally on the taxes, two points. One is, it depends very much on the details of how these things are structured as to how we could do that. Depending on exactly what's in there, we could get a slight benefit. We could see our taxes even increase, depending on what the details of that are. I think whatever we see, anything we've modeled there, it's still within us achieving our 2018 goals of being at 25% or less. Nothing that would impact that. By the way, all of the modeling we've done is sort of a worst case because it's a steady state, assuming we don't make any changes in response to new tax legislation, which we wouldn't do. Overall, we'd see any changes as being relatively modest.
It actually is possible under certain scenarios for our tax rate to go up, but it doesn't go up that much. I think how a border-adjusted tax applies to services, the short answer is nobody knows.
Okay, great. Thank you.
Thank you. Our next question comes from the line of Gregory Peters with Raymond James. Your line is open. Please go ahead.
Good morning. Thank you for the call. My first question centers around your comments around the Exchange Solutions segment. You talked about a slowdown or a normalization in that business. Perhaps you could provide some additional color on that.
Yeah, sure. Let me just mention, Greg, what's really going on here. The biggest part of the business we have right now is the retiree part of the business. The retiree part of the business, we've been very fortunate. We've gotten almost all of the really big cases that have gone on to the exchanges. We won almost every one of them. At some point, you run out of, there's fewer and fewer of those big ones to go out. We did our largest client ever, we implemented last year, and of course, that's what led to the big enrollments we have for this year and the big revenue growth. We don't have a similar really big one that we are implementing this year. We're still going to get up to 110,000 retirees because we're getting a lot of them.
We had the one client that accounted for, I think it was 140,000, 145,000 retirees last year. 110 is still a great result, but it doesn't make up for that one big client. We're seeing that slow down a little bit. I think what I would point to, and as Roger said, the active exchange is a smaller piece of the business. In the long run, that's what we expect to be by far the dominant part of the business. Our growth rate was terrific there the last year. We really added a lot of folks. We've already got four big clients signed up for 2018. We're very enthusiastic about that, but that's a small part of the piece that's having that high growth rate.
Thank you. I know you've already commented in some other answers about the legacy OIP program. If we could just step back and from a big picture perspective, I know periodically last year you expressed some frustration about the ability for these savings actually to fall to the bottom line. Perhaps now that you have a year under your belt, you could provide some updated perspective on the legacy OIP program and what you think might be impactful as we think about 2017 and 2018.
Let me make just two quick comments, and then I'll turn it over to Roger, who I know will want to provide some more color. I think frustrated is the right word, that we had these good savings we were getting in OIP, and for one reason or another, they weren't dropping to the bottom line. I think one of the things we said to the analyst and investor community was we were actually going to be focused less on what the top-line savings in OIP were, but really are we going to be getting margin improvement? Are we going to be seeing things falling through there?
In the last quarter, Roger talked about our sequential expenses being down, and I think he said at that time, "This is too early for us to say this is a real trend, and we'll wait and see what happens in the fourth quarter." As he just mentioned in his prepared remarks, I think the fourth quarter has come in, and we've said, "Okay, they are down again, and we're seeing margin improvement." We feel like that kind of a focus is paying off, and we're seeing some results there. We're still not exactly where we would like to be, but I think we have seen parts of the operation. I think in Great Britain, there was enthusiastic adoption of the OIP program, and we've seen it have a very positive effect on margins there.
I think one of the things we want to do is take some of the learnings from that and apply them worldwide. Roger, maybe you want to add.
Yeah. The only thing, John, I'd add to that is, again, refer to probably one of the changes in our remarks this time, that we both talked about financial discipline. I think it fits what John said about our emphasis early in the year, internally and externally, just shifting more to really thinking on a more focused basis about value creation through margin enhancement in these programs. It really seems as we ended 2016 that that was showing through in the financials. It's something that we emphasized in the budget process, really challenging ourselves to find the levers, to see the enhancement as we go forward and know how we had to manage different parts of the business to make sure margin came through as a result of those cost programs. I think the results now, as John said, are showing through in the margin line.
It bodes well, I think, for 2017.
Thank you for your answers.
Thank you. Our next question comes from the line of Kai Pan with Morgan Stanley. Your line is open. Please go ahead.
Thank you, and good morning. Just want to drill down a little bit specific on the cost saving, the three buckets there. I just want to make sure you mentioned that the integration savings will be $30 million in 2017 and then $95 million from the OIP program. How much of that will drop to the bottom line? You have the business restructuring in HCB segment. How much saving will that be in 2017?
I'd say in terms of the individual amounts and consistent with what we just talked about in the last question, the drive here is to achieve a margin improvement. We came in with what? 22.3%, I think we said, EBITDA margin for 2016. We're guiding to 23%-24%. If you take the $30 million plus the $95 plus some, I don't know, tens of millions of dollars, I don't have the specific number in front of me for the business restructuring. That's what's really driving the overall margin improvement, which is in that range of, based on the range we gave you, of around 100 basis points. Again, without specifying by individual program, that's margin improvement, obviously, of somewhere around $80 million.
Okay. That's assuming there's no sort of constant top line, right?
Well, actually, the reason we don't have every last dollar in there is because there is some cost on the top line.
Okay, great. My second question on the sort of free cash flow side. You guided about a $500 million buyback 2017. If you add about $300 million for the dividends, that's $800 million. That's pretty much the same free cash flow in 2016. I just wonder either there is no growth in free cash flow or you plan to use part of free cash flow for other purposes.
Yeah. I think in general, now that we're using around hundreds of millions of dollars here, you're doing the numbers correctly. There are some other payments going out. We do have, related to some past acquisitions, some payouts of contingent considerations. That's a little bit of an add to what you mentioned. In general, we're circling, call it available free cash. I don't know that anybody really uses that term, but maybe we made it up here. We're looking to target available free cash to pay back in share repurchases. That's roughly what we're trying to communicate.
Okay. Any plan sort of would acquisition be a focus here or not?
Well, we would never want to rule out if there is some really attractive acquisition. I think at the moment, we think we're going to be hard-put to find something that's more attractive than buying our own stock.
Great. Thank you so much.
Thank you. Our next question comes from the line of Adam Klauber with William Blair. Your line is open. Please go ahead.
Hi. In the North American U.S. brokerage operation in 2016, did the level of producers, was it pretty much flat? Did it grow or did it decline? How are you thinking about the level of producers in North America in 2017?
Yeah. The level of producers was lower at the end of 2016 than it was at the beginning. There's a number of moving pieces that occurred there. One is that we have some smaller accounts that we've transferred over. We've sort of sold some operations or we've transferred them over under some agreements we have to some other operations, and we lose some producers when we do that. We had some retirements. We had some folks who moved from producer to non-producer status, where they're still managing the clients, but they're doing it in a different way. We did have some turnover among the producers.
We did have fewer producers at the end than at the beginning. At the end of the day, I think the voluntary turnover rate was about what we would have expected. I think going forward for 2017, we would expect to see an increase in the number of producers. We expect to have more producers at the end of the year than we have now.
Okay. Great. One follow-up. I'm not sure if you said it, but how is organic running in the wholesale business? Again, do you expect that in 2017 to be better than the other parts of IRR?
The wholesale business led by Miller was up in 2016, and we expect continued steady growth performance.
Okay. Thanks a lot.
Thank you. Our next question comes from the line of Mark Marcon with Baird. Your line is open. Please go ahead.
Good morning. Nice to see the progress. I was wondering if you could just talk about a few things. One, you did a great job in terms of outlining the area of revenue synergies that you ended up seeing in 2016. I'm wondering if you can talk a little bit about the targeted revenue synergies that you would have at the highest point in your list and the highest aspirations for 2017 and 2018.
Well, let me just mention something about the revenue synergies too, Mark. When I went through them, the revenue synergies are the run rate that we were expecting to get from selling these things. It's not the revenue synergies that necessarily occurred in the year. For example, when I talked about the Exchange Solutions and the revenue synergies from the mid-market, we sell the mid-market. For the most part, they're going to be implementing January 1st, so the ones we sold in 2016, we're getting the revenue in 2017.
Totally appreciate that.
I gave you the revenue number, but it's not revenue that you would have seen there. Likewise, even for the large company P&C, most of those were sold in the second half of the year, you haven't seen much of the revenue increases there. When we come to this as to where we'd expect to be, I think generally, as I said, the revenue synergies, we expect it to be about 5%-10% of what the ultimate run rate goal was for the end of 2018. We expect it to be there at the end of 2016. It's probably between about a third and 40% is where we would expect to be at the end of 2017.
That is great. Can you just talk about the Exchange Solutions in terms of what you ended up seeing there with the four large clients that you've got on the active exchange coming on on 2018? Any way to size that in terms of number of lives or scope and how you would think the momentum would build with those four getting announced?
We don't have an exact figure to give right now. I'd say it'll be over 100,000 for those lives for those four clients we have there. I think one or two of them we even talked about potentially whether they might decide to adopt in 1/1/2017, and I think as we worked with them, it became clear that because of all the things they had to pull together as well as what we could have done, we probably could have adopted for 1/1/2017, but I think they wanted to make sure they had everything going well, and we now have a very good plan with them. We found that encouraging. I think it fits with the general theme that the larger companies, it's a longer time talking about it. It's more planning. Their organizations are more complex.
I think they're more risk averse about doing it, so you need to build in a longer process for that. Frankly, we feel very good about the enrollment season we had for what we're implementing for 1/1/2017, and we think this gives us a lot of momentum heading into 2018.
Great. If I could squeeze in two more. One would just basically be with regards to the uncertainty around the ACA. How would you expect that to end up impacting your healthcare consulting business here in the U.S.? The second question would be totally different. On the CRB side, when we think about Todd taking over and the recent fine-tuning of the management team under him, how do you expect this from a cultural perspective, the adoption of a pay-for-performance kind of culture to translate to retention and performance? Thank you.
Yeah. Thanks. The first one on the ACA, frankly the ACA doesn't impact our typical client all that much. When we deal with it in the exchanges, we only deal with it in a few limited circumstances. When we deal with it in our consulting, some of our clients that have lower paid folks that they don't want to provide healthcare coverage for or have a lot of part-time workers or something, it comes into it, but it's not a very large part at all of what our consulting does. I think in general changes there won't have a significant impact on our healthcare consulting business. Who knows, maybe we'll get a few more questions about things.
In the CRB business, I know you didn't get a chance to see Todd and Carl in person at Analyst Day, but you did get a chance to hear them over the phone. I think they're both individuals who really understand the segments that they are working with and leading. I think Todd commands great respect throughout the organization. I think people appreciate the fact that he has a long background in brokerage. I think they believe in his vision of the future. I'm as excited as can be to have him rolling out his program and leading that operation.
Great. Thank you.
Thank you. Our next question comes from the line of Elyse Greenspan with Wells Fargo. Your line is open. Please go ahead.
Hi. Yes, a few questions. First off, in your 2017 guidance, are you including any impact from currency?
Well, the guidance is based on the rates that I stated in my remarks. I think it was $1.24 for the GBP and $1.08 for the EUR. I believe that's what we said.
Okay. Do you know what that would translate to in bottom line in terms of EPS?
Yeah. I really don't have specific numbers. There isn't a huge impact for us EPS-wise with changes to the pound and the euro, because we do have kind of in the legacy businesses, one of them was net in the P&L, net long pound, the other was net short pound. We do have profitability in the euro, so a little more exposure there, but movements don't drive a big impact on EPS.
Okay. Then in terms of the fourth quarter margins, I know on the last call, we had mentioned there potentially being a lower level of incentive comp just as the revenue was, you guys said a little bit lower than you would've expected for this year. Did that have an impact on the fourth quarter margins?
Certainly we do have a pay for performance system, and we update that as the year goes on. There would've been a little bit of an impact in the fourth quarter, but not something that was a big driver.
Not anything that was way out of whack, and in fact, and for the year, we came in right in our range. We say in between 30% and 35% of sort of our net operating income, and we came right in there.
Okay. Then in terms of the margin outlook for 2017, I know you guys did go through the components of the OIP and the merger-related savings that you expect to see fall to the bottom line. Do you expect to see that even, like, I mean, will we see more of the OIP savings fall to the bottom line within your Q1 margins? Just how do you think about the projection of that kind of as we move through 2017?
I think this being the last year of OIP, I think there is a push of getting all the possible activity done by the end of 2017. I think OIP impact this year will be a little bit back-end loaded in the year. I think the merger cost savings probably pretty even, I think. I can't think of a big kind of driver of early or late of any of those programs. The restructuring savings from the business, of course, occurred in the second half of 2016. Will have the biggest impact on margins in the first half of the year.
Okay, great. Then one more question, if I may. Does your guidance for IRR assume a return to growth just within the reinsurance component of that segment in 2017? How are you just thinking about the outlook for the reinsurance business?
Yeah, I think in our outlook, the reinsurance business was roughly flat in the outlook.
Okay. That's great. Thank you very much.
Thank you. Due to time, this does conclude today's question and answer session, and I would like to turn the conference back over to Mr. John Haley for any further remarks.
Okay. Thanks very much, everybody, and we look forward to talking with you after our first quarter earnings call in May.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.