Welcome, and thank you for standing by. At this time, all participants will be in a listen-only mode until the question and answer session of the call. To ask a question at that time, please press star one. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the call over to Carrie Pagliaro. You may begin.
Thank you, and welcome to our third quarter 2010 earnings conference call and webcast. Our call today is hosted by Joe Plumeri, Willis Group Holdings Chairman and Chief Executive Officer. A replay of the call will be available through November 28th, 2010, at 11:59 P.M. Eastern Time by calling 800-385-2289 from within the U.S. or 1-203-369-3262 from outside the U.S. with no passcode. Alternatively, the webcast replay can be accessed through the investor relations section of our website at www.willis.com. If you have any questions after the call, my direct line is 212-915-8084. As we begin our call, let me remind you that we may make certain statements relating to future results, which are forward-looking statements as that term is defined by the Private Securities Litigation Reform Act of 1995.
Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those estimated or anticipated. Please note that these forward-looking statements reflect our opinions only as of the date of this presentation, and we undertake no obligation to revise or publicly update the results of any update to these forward-looking statements in light of new information or future events. Please refer to our SEC filings, including our annual report on Form 10-K for the year ended December 31, 2009, as well as our earnings press release for a more detailed discussion of the risk factors that may affect our results. Copies may be obtained from the SEC or by visiting the investor relations section of our website. Also, please note that certain financial measures we use on the call are expressed on a non-GAAP basis.
Our GAAP results and GAAP to non-GAAP reconciliation can be found in our earnings press release. I'll now turn the call over to Joe.
Thank you, Carrie. Hi, everybody, and welcome, and thank you for joining our call today. On the call with me are Grahame Millwater, our Group President, Don Bailey, CEO of North America, Michael Neborak, our CFO, and as usual, all of the members of our executive team and management team are also here and will be happy to answer all of your questions. Let me talk about the conditions that impact the third quarter of 2010 and a little bit about the remainder of 2010. I am very happy with what we've delivered this quarter and in the year-to-date. We have reported exceptional organic growth in the face of a really tough external environment that is little changed from the last time we spoke. In the U.S., economic and unemployment growth remain anemic. A number of European economies also remain pressured.
There are some bright spots, particularly among the emerging economies. In addition, as I indicated the last quarter, the general rate environment remains soft, and in the absence of a major loss activity, we see little near-term sign of change. Looking at earnings, we reported adjusted earnings per share of $0.37 for the quarter, compared with $0.53 a year ago, with both years affected by tax items. If you look at adjusted earnings and apply the underlying effective rate of 26%, adjusted earnings per share would have been about the same in both periods. Our culture of teamwork and discipline has served us well in this environment, continues to serve us well with our commitment to growth and our focus on cost control.
Our commitment to growth is reflected especially in another 4% organic growth in commissions and fees that we delivered in both the third quarter and in the year-to-date period. That's been pretty consistent, and our ability to be able to deliver that, I think, shows the underlying sales culture that I make reference to. This compares very well to the 2% organic growth that we delivered in the corresponding periods last year. Each of our segments also delivered organic growth in both the quarter and year-to-date periods. This is especially something that we're proud of because all of our operating segments grew, again, in a very difficult environment. In the third quarter, North America grew 2%, where probably the rates are softest around the world and the economy is the worst. International grew 6%, and Global grew 4%.
Across the board, our diversity, our ability to be able to distribute our product again shines through. This growth continues to be driven in the main by new business generation across all segments. We spend a lot of time at it. It's something that we're good at and we can get better at. Net growth was 13% for the quarter and a steady client retention. You take the two, clearly both of those are trending in the right direction, and there's no reason to believe that that trend wouldn't continue. I'm also happy that we delivered adjusted margin expansion in the quarter. The 140 basis point adjusted margin expansion largely reflects growth in organic commissions and fees Rigorous expense management and favorable foreign currency movement, and that's partly been offset by higher incentive compensation. What do I mean by incentive compensation?
I really mean the amortization of the retention award and higher payouts. Higher payouts mostly come from North America, where we raised the payout during the integration period that was effective at the beginning of this year. The payouts are higher, and we're getting higher revenue growth out of North America than we got the year before. As a result, you see the incentive compensation line going up. We increased the headcount also since last year on purpose, because we're trying to support and fuel the areas that are growing the most for us. International has been a consistent growth leader for us for a long time, over the last couple of years. We want to support that, and we want to feed that to make sure that it continues to do that.
In our global segments, especially, we've grown and added support levels and resources to our areas in London and across the world. Even though North America has lowered its headcount following the HRH integration, in a lot of other areas, we've tried to reinforce very good growth. That's something that we've done on purpose. Shaping Our Future also continues to deliver net benefits, around $12 million in the third quarter, even as a number of the programs have become entrenched in the way we do business. Now let me drill down a little bit into the segment results. North America, as I said before, has just been terrific. Not much, though has changed as it relates to the external environment. The economy and the recovery remains anemic and protracted, and the employment recovery is slow. The rate environment remains soft, and there's little evidence of a turn.
You've heard that before. I'm just going to tell you what everybody else has told you. CIAB data for the third quarter indicated rates down 5% compared with 6% in the second quarter. Even in areas where we're seeing some increases, lower underlying exposure bases are offsetting gains, and we really don't see much of an improvement in exposures either. In this environment, 2% organic growth for the quarter and 1% positive on a year-to-date basis is just an unbelievable result, especially when I see what's happening elsewhere with our competitors. Delivered against a rate headwind of 2%, that's a net new business of 4%. We're very proud of that, and my congratulations to our North American colleagues. Our producers continued to generate double-digit new business growth, and client retention even got better.
We even saw positive results across a number of regions, including the Northeast, Atlantic, and South Central, and some of the standout cities in the quarter were New York, Boston, Philadelphia, Baltimore, Atlanta, Dallas, and Los Angeles. What's really great about having said that is that those cities are a blend of former HRH offices and former Willis offices, now that our impact in these major cities show the ramifications and results of the acquisition. Our employee benefit business, our largest practice, was up 4%. Its second consecutive quarter of growth and a great result in a really tough labor market. If we can do that in a tough labor market, it tells us again that we're headed in the right direction as it relates to our value proposition in employee benefits in North America.
Our construction practice, which is about 10% of our business in North America, was down low single digits, better than last year, but that's in an area of the economy that is still not seeing much signs of improvement. You got 2% improvement in revenue when 10% of your business has gone down. That shows great strength in our ability to retain our people and to grow our new business. We continue to see good results in a number of specialty practice areas, such as executive risk, healthcare, and financial services. North America's operating margin remains steady at 21.4%. The result that our North America business delivered really reflects, I think, the success of the integration efforts and the teamwork across our enhanced network.
This success is illustrated by, as I said, great top-line growth and even better client retention and strong producer retention, again, in the aftermath of a major integration and a major acquisition, which we're really enthusiastic about and proud of. Let me turn to International. International continues to deliver with organic growth in commissions and fees of 6% in the quarter and 6% year-to-date. When I say 6% International, that means all of our offices outside of the U.S. The new business generation remains in the double digits, again, against a headwind of 4%. The strength and diversity of our international network, I think, is reflected in these results, even as some of the economies in which we operate remain pressured. Latin America, Asia, and Eastern Europe, again, all delivered double-digit growth with really strong contributions from Venezuela, Brazil, and Chile in Latin America.
China and Korea in Asia were simply outstanding. Poland and Russia and Eastern Europe continue to show great growth. Continental Europe was slightly positive and a seasonally light quarter for those countries. As a matter of fact, this is a light quarter for International in general, and some of the numbers, especially in the margin, I think, reflect that. Amidst continued economic weakness in Central Europe, Spain and Italy, though, among others, continued to deliver positive growth. U.K. and Ireland, which is a really good story, also face challenging economic conditions. Despite that, despite this headwind, they delivered another quarter of positive organic growth, supported by ongoing investments in sales teams and processes. We're investing in places where we need to invest and support areas that are growing.
The result of that was both of the U.K. retail had significant revenue growth, and Ireland showed some growth for the first time in a long time in an economy that still hasn't gotten much better. The key revenue drivers in the quarter were major accounts and employee benefits. The International operating margin was 9.6%. That was down from the 13.4% in the year-ago quarter. Again, I'll remind you that this is the smallest of our quarters Internationally. We had very strong organic revenue growth, which was negated by unfavorable foreign currency movements.
We continue to support the current and future growth, for example, with a headcount increase in international of over 200 from a year ago, again, on purpose, to again, feed, fuel, and seed a big growth area for us that's been consistent throughout the last couple of years, even during the 2008-2009 meltdown. As far as our global business is concerned, that segment comprised of reinsurance, global specialties, Faber and Dumas, and Willis Capital Markets, also performed well, delivering 4% organic growth against headwinds from rate of about 2% and clients continuing to retain more risk. Reinsurance had mid-single digit organic growth again. I could not say enough about our reinsurance operation. They continually are delivering mid-single digit organic growth.
The revenue drivers there continued to be strong new business generation with strong international growth in an area that has continued to be generally soft in a rating environment. Global specialties, again, mid-single digit organic growth. I think our specialisms are the best around. I congratulate them as well. The revenue drivers led by FINEX, Inspace, Aerospace, and Construction, especially. Growth was really strong through new business and improved retention and targeting hiring, again, of producer talent and global connectivity. All part of the plan, all part of specifically and selectively spending our money where we think we can get the most growth both today and in the future. That's why we're so confident about that. Their environment, again, remains tough with depressed world trade and transit volumes, industry consolidation, and pressure on financing of construction projects are still very evident.
We had weakness in Faber and Dumas as they are impacted by soft wholesale market. Remember, that's our wholesale operation, but continued pressure in the most economically sensitive lines such as bloodstock, jewelry, and fine arts. Global operating margin was 19.7% up 90 basis points from the prior year period and helped by good organic growth, favorable foreign currency translation impact on our London market businesses, while we continue again to support the current and future growth of this area as well. I'd like to turn things over to Grahame Millwater to update priorities for 2010. Grant?
Thanks very much, Joe. Good morning, good afternoon, everyone. As part of the growth that Joe has discussed, our new business levels have continued to climb with all business units posting double-digit new business wins. We continue to drive this new business through our focus on developing healthy pipelines of prospects in targeted segments and geographies. It's important to point out that the diversified nature of the group in geography, segments, and business mix is purposely designed to ensure a robust and sustainable organic growth strategy. Last quarter, I talked briefly about the sales platform we're building in the middle market and the franchise commercial network model for the small commercial segment. Today, I'd like to focus a little bit about our global large account segment. We handle a significant number of major global accounts, particularly in specialty areas such as airlines, construction, and mining.
Generally speaking, we're underweight in this global major account segment compared to our natural market share, and we have a definitive plan to rectify this. We've been refining our approach to this segment over the past 12 months. Using our specialty skills, our global footprint, our analytics, together with our client advocate model to deliver the whole of Willis to these clients and to prospects, we believe we can seriously grow this segment. Our unique team-orientated culture, together with the integrated way we run the group, helps us to create a unique proposition in this space. When considering a leader for this business, which we have called Global Solutions to reflect the needs of these major clients, we wanted someone with real global experience, in-depth insurance knowledge, and the ability to interact with our global clients at the most senior levels.
Martin Sullivan fits that description perfectly, and we're delighted to have him on board. After six weeks, I can truly say that both he and Willis could not be more excited by the opportunity we have in this segment going forward. Global Solutions sits as part of Willis Global, which comprises Global Solutions, Willis Analytics, Global Specialties, Willis Re, Willis Capital Markets & Advisory, Willis Facultative, Global Markets, Global Placement, and our wholesale business, Faber & Dumas. This brings together a really amazing powerhouse of client relationships, specialist skills, research and analytical capabilities, transactional prowess, and carrier relationships that we believe is absolutely unique in the broker sector. Recent wins are confirming the power of this proposition when focused effectively. The transformation of our business is a constant, and I'm pleased to report that Shaping Our Future continues to deliver substantial benefits.
In this quarter, we delivered a further $23 million worth of gross benefits with $12 million net benefits after reinvesting in certain areas, which I'll just go on to point to. Client profitability and our placement strategy continue to deliver significant incremental revenue for us, while our business model updates, such as Shaping Our Future Retail UK and Shaping Our Future London, are delivering a transformation in the way we work with our clients. A substantial proportion of the benefits generated from these programs are reinvested into the businesses for future benefit. For example, in this quarter alone, we launched our WillPLACE initiative, part of our global placement strategy in Milan and Italy. A rollout of our Eclipse technology platform into our global Willis Re organization, following the successful rollout of Eclipse into our London-based Global Specialties. A transformation program for our finance and accounting infrastructure has started.
In Epic, we continue the rollout of our U.S. retail platform. At the same time, we continue to invest in initiatives such as the sales platform in the middle market and Shaping Our Future Retail UK. Initiatives which we will think will continue to deliver benefits for us and our clients over the coming years. A brief summary, and I hand over to Mike, our CFO, to review the financial results. Mike.
Thank you, Grahame. I'm excited to be here and part of this management team. In the third quarter, we continued to execute with focus on organic revenue growth, cost control, and further progress in capital management and debt reduction. Our reported and adjusted earnings from continuing operations in Q3 2010 were $64 million, or $0.37 per share. This includes a $0.02 per share benefit from favorable FX. For comparison, adjusted EPS from continuing operations in the third quarter 2009 were $0.53 per share. Earnings in both quarters were positively impacted by certain tax items that I'll talk about later. As I said, foreign exchange had a positive $0.02 per share impact on EPS and a positive 130 basis point impact on operating margin year-over-year.
That positive impact from FX is principally the net result of dollar strength against the GBP, where we are overweight on the expense side, and dollar strength against the EUR, where we are overweight on the revenue side. Fortunately, the expense reduction was greater than the revenue reduction, resulting in a positive $0.02 per share FX impact versus the third quarter of 2009. If rates remain unchanged through the remainder of 2010, we anticipate that the impact on margin and earnings per share in the fourth quarter would be slightly negative, while the full-year impact would remain positive. Our revenues increased 1% to $733 million in the third quarter of 2010 compared to the year-ago period, and increased 3% in the first nine months of the year to $2.5 billion.
Reported commissions and fees grew 1% in the third quarter to $723 million, and were up 3% for the first nine months to $2.5 billion. It is important to note that the reported commission and fee growth of 1% in the third quarter was negatively impacted by foreign exchange movements. Organic growth was 4%. Total investment income of $10 million was largely unchanged from the year-ago period. While rates are lower, we continue to benefit from our forward hedging program. On the expense side, total operating expenses were down 2.5% to $627 million compared to Q3 2009. The salary and benefits piece was $462 million or 63% of total revenues in the current quarter, compared to $449 million or 62% in the year-ago period.
The 3% increase in salaries and benefits was primarily due to increased headcount and higher incentive compensation, moderated by the impact of favorable foreign currency movements and lower stock-based compensation expense. In the third quarter 2010, salaries and benefits included $28 million of expense related to the amortization of cash retention awards, compared to $22 million in the year-ago quarter. Other operating expenses were down 14.6% to $129 million, compared to $151 million in the year-ago quarter, reflecting our disciplined cost management and favorable FX movement. The year-ago quarter included $7 million in charges related to HRH integration costs, and in addition, other operating expenses in this quarter were favorably impacted by the release of a $7 million legal reserve. Our reported and adjusted operating margin for the third quarter was 14.5%, an increase of 140 basis points compared to the adjusted operating margin in the year-ago quarter.
As Joe said, adjusted operating margin was positively impacted by continued growth in commissions and fees, rigorous expense management, and favorable foreign currency movement, partially offset by higher retention amortization and producer payout. Let me turn now to taxes, where our income tax expense for the quarter was $10 million, compared to an income tax credit of $29 million in the year-ago quarter. Tax expense in the quarter included a $7 million credit related to the release of a previously recorded tax provision where the statute of limitations had expired. In addition, the third quarter 2009 tax credit also reflected the release of a $27 million provision following a change to the U.K. tax law. The effective tax rate was 15.2% for the quarter and 24.8% for the first nine months.
The underlying effective tax rate, however, for both the quarter and nine months, was approximately 26%, the same as the 2009 full-year rate. We recorded income from associates of $9 million in the third quarter of 2010, compared to $16 million in the quarter a year ago, primarily due to our reduced ownership in Gras Savoye. On the pension side, our U.K., U.S., and international defined benefit pension plans had a combined deficit of approximately $10 million at the end of the third quarter, down from approximately $120 million at the end of 2009, principally due to cash contributions. Pension contribution payments were $44 million in the quarter and $103 million in the first nine months of 2010. We expect to make approximately $125 million total pension contribution payments during 2010. Pension expense was $9 million in the quarter and $27 million in the year-to-date period.
I am pleased to report that we made some progress on debt reduction and capital management in the quarter, that both Moody's and S&P reaffirmed our investment-grade ratings and stable outlook during the quarter. Total debt, including the revolver, was $2.3 billion at the end of Q3, in line with the second quarter. Cash and cash equivalents were $141 million, up slightly from June 30th. During the quarter, we generated approximately $100 million in cash from operating activities and approximately $260 million in cash from operating activities in the year-to-date period. During the quarter, we also added a second revolver, which is undrawn in the amount of $200 million, basically with the same terms as our existing revolver, and it will be priced if drawn, I mentioned it's not drawn, at LIBOR plus 275 basis points.
The principal reason for entering into that facility was just to give us additional financial flexibility. With that, I'll turn the call back to Joe.
Thanks, Mike. In conclusion, we're very pleased with the results through the first nine months. I want to reiterate our priorities, which we have talked about in the course of this call. One, to reinforce our sales and revenue culture to drive growth, evidenced in 4% organic growth in the quarter and year to date. We just think that in this environment, that's outstanding, and we need to continue to support that and reinforce that so that we can remain confident that that will continue. Second, further execute Shaping Our Future and our growth strategies. In doing so, continue to selectively invest in growing markets. That's people, talked about that earlier. Further develop our Willis Global unit , including Willis Global Solutions, which Grahame talked about. Enhance the operating platform to support our business units. What do we mean by that?
That's investments in systems like Epic in the U.S. or North America, which is an accounting system, and everything can be driven off of it. Continue to support Eclipse here in London, WillPLACE, which is our new placement system. That these things, in building out our platform and enhance the platform to support our business units, give us future efficiencies so that we can continue to run the place efficiently and look to drive out costs in all areas of our business, which gives us the ability to maintain disciplined expense management, as Mike said, continue to strengthen our balance sheet. We think that these efforts position us extremely well for continued success in the future. Thank you for listening. We'll be very glad to answer any questions that you may have.
Thank you. We're now ready to begin the question and answer session. To ask a question, please press star one. You will be prompted to record your name. Please record your name and company name to ask your question. You may withdraw your question by pressing star two. Once again, to ask a question, please press star one. One moment, please. One moment. Once again, to ask a question, press star one. Our first question comes from Mark Hughes with SunTrust. You may ask a question.
Yeah. Thank you very much. Good morning.
Good morning.
What is the general outlook for headcount additions as we look at 2011, maybe in the international and overall? Do you plan on keeping up the same pace of investments? Will it taper off a little bit?
We have a very succinct program that we're looking at to reinforce our ability to be able to continue to produce the business at the levels that we're producing at. International is a very diversified place, Mark, just to give you an example. It makes sense for us to grow in China. It makes sense for us to grow in Brazil. It makes sense for us to grow in a lot of parts of Latin America. It makes sense for us to grow in the Middle East. It makes sense for us to grow in Russia. These places have been very big contributors, and in some cases, in the emerging markets, we're market leaders. We're going to have to continue to do what you would expect us to do, which is to invest in those areas.
Our specialisms in London are among the finest, and we have to make sure that we constantly reinforce that. In North America, we've done a great job at even reducing our headcount. Again, where we selectively find producer hires, we're going to do that. It's not an indiscriminate hiring that's going on. It is a very calculated, very selective approach to being able to reinforce our people, reinforce our capability. You're seeing that in our results as it relates to our revenue growth.
Would the strategy then be to take any margin upside and reinvest it? You're talking steady margins?
No, I wouldn't say that we would give up the ideas to take margin improvement and to reinvest all of that margin improvement. I would say that it's the ability to be able to grow our top line at levels that we've been growing it, which has been very good. Not give up all of our margin. Certainly, in a selective approach to investing in our resources, maybe give a little bit of it, but expect to grow our margins.
Thank you.
Thank you.
Our next question comes from Keith Alexander with JPMorgan.
Hi, good morning.
Hi.
Hi. I was wondering, can you start off by talking about the capital markets activity in the quarter and specifically the impact on global growth? Then, as part of that, can you talk about how the pipeline looks versus six months and 12 months ago?
Sure. The impact of capital markets, which by the way, has been outstanding since we hired that group led by Tony Ursano, has been terrific, has had very little impact on the third quarter. The third quarter, as a matter of fact, was very small, so it was de minimis. We continue to have a very robust pipeline in the capital markets area. We have been retained on a number of fronts. I would say that the pipeline, the activity, the amount of consolidation that we possibly see in the business looks like it's going to continue apace. We're very happy with where we are with capital markets. Specifically, your question being, what kind of an impact was it on the third quarter? It was relatively little, if none.
Okay, thanks for that. My next question is on the investments the company has made over the last several quarters. How long should it take for revenues to catch up and margins to expand? Perhaps, if you could talk about it by segment.
Well, I think revenues have caught up pretty good. The reason that the revenues are 4% and continue to lead the league, I don't know what will happen with the rest of our competitors, but I'm really proud of 4%. I'm proud of North America at 2%. It appears that where we have invested, we're doing the right thing. I can see it coming out in some of the accretive hires that we've made. You see some of the investment in the last question with regard to capital markets. That was an investment we made. That was a whole team from Bank of America that we decided to hire, and that's accretive right off the bat. I think that there is a catch-up already.
You're going to see even more of a spread as we seed for the future, as we continue to look to the future to continue to grow our revenue in an environment that continues to be, by all accounts, soft for a long time. I'm very pleased. I'm happy that we're growing the revenue the way we are, and looking at our totality of our business. I would be upset if we had great margin growth, and it was at the expense of no revenue, and everything on the backside of continuing to watch and never invest, where we still watch costs very closely. As I said earlier, we're making a lot of investments in our platform.
Our platform, which is our service hubs all over the world, our technology hubs all over the world, give us the ability to get future efficiencies that you don't see today, but you're going to see those efficiencies in a year or two from now. The plan is working, I think, extremely well.
I get your point about the growth. I guess what I'm trying to ask is, when should we expect margins to stabilize, barring any significant changes in the economic environment?
Barring any changes in the environment, I think you should see margins continue to improve on a moderate basis, because I think I have a lot of confidence in our ability to expand our revenue and grow our revenue.
Okay. One last question, then I'll hop back in the queue. You spoke broadly about limited to no exposure growth, but can you differentiate between the lines of business and types of clients?
The lines of business, it would take too long to go through each line. I would tell you that on across-the-board basis, I really don't see, and I'm looking at my colleagues as I'm saying this around the room, any increase in exposures at all. We're still seeing the basic exposure levels that we've seen over the last couple of years.
Thank you.
Thank you.
Our next question comes from Adam Klauber with Macquarie.
Good morning, thank you.
Good morning.
As your cash generation continues to improve, can you tell us, maybe as we look to 2011, what uses of cash you're looking at?
I'll answer part of the question. Obviously, we still are looking forward to, in early 2011, of buying back some stock. We've said that every quarter now for a couple of quarters or more. That's still on our radar screen and our ability to do that. We don't believe that you're going to see much in the acquisition area with regard to use of our cash. We think from an acquisition point of view, other than small situations, that's about all that you'll see. We're looking toward getting our debt to EBITDA down. We've talked about that, and de-leveraging our balance sheet, and then give us the ability to be able to buy some stock back.
Great. Thank you very much.
Thank you.
Our next question comes from Dan Farrell. Please state your company name.
Good morning, it's Sterne Agee.
Good morning.
What level of free cash on the balance sheet would you want to get to be comfortable to start undertaking that? Your free cash was roughly flat this quarter, and obviously, you're still doing stuff on the debt side. At what point do we need to see debt come down to, and then the free cash grow to a certain point before you'd consider doing something in that area?
At the end of the third quarter, our debt to EBITDA was about 2.4 times, and the covenants in our debt agreements limit that to no more than 2.5 times. Our goal is to get it down to 2.2 to 2.1, before we would consider really starting a buyback program.
Okay. Your comment on acquisitions. I'm just curious why in the U.S., in your middle market business, when you do have some more cash, why you wouldn't be interested in doing some of the smaller M&A which some of the other companies are doing. It seems like it would be a nice opportunity for fold-in and things of that nature.
I'll answer that generally. By the way, Dan, the answer that Mike gave you with regard to our ratios have been consistent. We've always said that we wanted to get around 2.1, 2.2, and that would make us comfortable. To answer this question, and I'll give you a global answer, and Don Bailey maybe can add to it. We have about 130 locations in the United States, and very heavy emphasis on the middle market. We are developing a culture in the U.S. after a huge integration effort, which has been very successful. Every place that you need to be, and the rates, the density of our population, our associates, and our producers that you need to be in the U.S., we're there. Are there some places in corners of the U.S. that we're not? Sure.
I think that we're going to get greater yield out of our investment in what we've already done and continuing to reinforce our culture and Sales 2.0 and all of the things that we have planned to grow the middle market than we would by continuing to make acquisitions. There are others that are making acquisitions one by one by one, when in HRH, we did it all at once. We got great efficiencies. We got margins over 20%. Our thinking suggests that that's working and why change that now? Don, do you have anything you want to add to that?
I'll just add, Joe, that as you said, we've got the platform in North America that we wanted, and we're executing on it, and you're starting to see those results. We're in all the major cities. As you highlighted, Joe, we had very good numbers in those major cities, and we had a lot of real good numbers in secondary and tertiary cities as well. For us, there might be more niche book plays, book acquisitions that are out there that we can contemplate. Our operating platform right now is very sound, and as Joe said, just running a better business on that platform will produce meaningful yields for us going forward.
Thanks. Just one other quick item. Can you just comment on some of your small account efforts? You talked a little bit about your global and large stuff. Can you talk a little bit about what's going on in that area?
Don?
Sure. This business that we're in has generally been more focused on middle market, lower middle market type business. There is a segment which we refer to as commercial
It's defined a little differently across the globe within Willis, as you can appreciate. Really has to do with making sure you've got probably three things to properly conduct that business. You need critical mass, you need a proper operating platform, and you need some technology. When you have all three of those, you can actually take that business, for the most part, out of the middle-market operating environment that it's in, move it into a more specialized environment, get a lot more margin out of it than you would otherwise, get it to, frankly, profitability in a lot of that space. We've probably got two efforts going on within Willis right now. One is certainly in just migrating all of our current commercial segment business to that platform and making sure we get profitability through that effort. That's been going on and will continue to go on.
We also believe there are third-party efforts that we can engage in to grow that business as well. We'll continue to do that as we go forward.
Thank you.
Once again, if you'd like to ask a question, please press star one and record your name and company name. Our next question comes from Meyer Shields with Stifel Nicolaus.
Thanks. Good morning. Let me start with, I guess, one question on the international segment. What's the exposure unit trend there? Is that a positive on a year-over-year basis in the aggregate?
I didn't hear. Would you say that, Meyer, again slowly? I'm sorry, I didn't catch the whole question.
No, no problem at all. I'm wondering whether in the international segment, the trend in exposure units is actually about flat. Is it rising?
Exposure units in international, I think, are about flat. As I said, when I answered the question about exposures, I speak for most of the world, where I don't see very many places other than emerging countries. Of course, I'm eliminating those places which are obvious, like Latin America, where exposures are up, the emerging countries in Russia and China. In the more seasoned, mature countries, and I'm looking at Sarah Turvill as I say this, that our exposures are about flat and I don't see any rise. I'm looking at the U.K., I'm looking at David Margrett when I say this, the U.K. exposures are about the same as well. Our rise in our revenue growth in our businesses are coming from opening more accounts and retaining our accounts. That's where it's coming from. It's not coming because rates are better or exposures are higher.
Okay, thanks.
Thank you.
With regard to the global I'm sorry, the large corporate account business under Martin Sullivan, is that business fundamentally lower margin than, let's say, the current North American business?
Good morning. It's Martin Sullivan. Just turn the microphone around. Not necessarily. Obviously, in many areas of the global account segment, there are niche opportunities that actually have very wide margins. In the first six weeks of my Willis career, I've been sitting down with my colleagues and actually scoping the opportunity, and it's a very large opportunity. As Grahame articulated earlier, we're all very excited about that opportunity. To be specific to your question, I wouldn't necessarily assume that in the major account area, we can't maintain the current level of margins. Obviously, we'll be selective in the RFPs that we respond to and the accounts that we target, but we expect to make the level of returns that you would expect us to make.
Okay, fantastic. Thank you very much.
Our next question comes from Mark Hughes with SunTrust. Your line is open.
Yeah, thank you. Refresh me on how much of the North American business is benefit, and then what's your take on the impact of health reform on that segment?
Sean?
About 25% of our business is in the employee benefits area as we sit here today. Healthcare reform, anybody that's going to get on this call and give you a definitive forecast of what the impact of healthcare reform is going to be on that business is probably a little naive. We've done, as you can appreciate, a lot of analysis, certainly on our own and through a lot of third parties, as to how that reform will ultimately play out. On a net basis, we believe it actually can be positive for us as we go forward. We think increasingly carriers are going to be looking for more value-added intermediaries on a going-forward basis. We're already seeing that and engaged in some of those conversations.
We also believe that buyers, employers, increasingly are going to be looking for more value-added intermediaries, not just transactional players, but those that can bring HR communication strategies, wellness strategies to the table as well. We believe we're well-positioned in that space. You can start to play through the advent in 2014 of state-based exchanges and what impact is that going to have on your business. You've got 20 states currently that are suing the government, I'm not sure how quickly they're going to adopt those exchanges. If you look at Massachusetts and Utah, we don't necessarily see those as they currently exist as being threats to our business.
I think you're going to have some of the very small life businesses that are impacted, the individual market may be impacted, overall, we think employers are going to increasingly need our services, this business, for the most part, will continue to be distributed through employers. We think net-net, we're well-positioned, this is going to be a good opportunity for us as we go forward. Complexity tends to be a space where we play well.
Just to add to that, I think our value proposition is outstanding. You can see by the 4% growth in employee benefits in North America, where again, it's 20, 25% of our business is outstanding. The value proposition, I think, plays a bigger part with employers wanting to understand more about what their options are and how they can help their employees, especially in a dwindling expense base with, "I only got so much money to spend to help my employees." We're finding more and more in our value proposition as we talk to our people, that employers are asking more questions and looking for more assistance as to the best way to use that dollar that they do have.
It appears that even though we're not clear about healthcare reform, we are clear about the fact right now that people are looking for more and more help.
Thank you.
Our next question comes from Cliff Gallant with KBW.
Good morning.
Hi, Cliff.
Hi. My question has to do with the, I think, a market thesis out there that there is a certain large international insurance carrier that had a couple of financial problems a few years ago, which has pressured rates throughout the industry. I was curious if there happened to be anyone there who could comment on whether or not that is still true. Also regarding that same insurance company, there was a thesis out there that because this insurer paid lower brokerage commissions, that as the industry changed or if that company lost market share, that the insurance brokers would benefit from higher commissions transferring from that company to other insurers. I was wondering if anyone there could comment.
No one here wants to comment on that subject.
Okay. Thank you.
Our next question comes from Keith Alexander with JPMorgan.
Hi. Can you guys talk a bit about the thought process behind recent initiatives, including the Group Mining Practice, the captive insurance facility in Malta, the agribusiness unit, and the Metal and Plastics Program with Chartis? I know it's a broad range.
Yeah, that's a lot. Those are a lot of initiatives. When you talk about the captives in Malta is simply to expand our ability. I was at the conference in Chicago for self-insurance, and I told them that Malta was just another way that we wanted to expand our experience there. As it relates to mining and plastics, what this business is about is specialization. This business is about our investment in specialization. No longer do you go out and say, "Do you want to buy insurance," or, "Do you want to buy insurance from us?" It's about understanding we have a thing called The Willis Cause, and the first piece of the cause is to understand our clients' industries and knowledge of those industries.
By having specializations, by enhancing our ability to understand those industries, gives us a greater ability to be able to have our clients feel that we understand them, and as a result of understanding them, can give them solutions that nobody else can give them. You're going to see us continuing to expand our specialization base.
Thank you.
Our next question comes from Adam Klauber with Macquarie.
Thanks. Just one or two follow-ups. Could you guys give us any guidance on the amortization of cash retention payments? They've obviously been growing at a relatively rapid pace. Will that slow down eventually?
Well, eventually, yes, we'll slow down. In the fourth quarter, the amount will be a little bit larger than it was here in the third quarter. Then in 2011, the total amount will be greater than 2010. Early in 2012, it'll converge, so there will be no kind of year-over-year or quarter-over-quarter increases.
Okay. Also, can you help us on the tax rate going forward? What can we expect?
I think 26% is a good rate to use going forward. I'll tell you, it could come in at 26 and a half. A lot of that depends on our income coming out of North America. 26%, 26 and a half is really the rate that I would use going forward as you model the business.
Okay. Thank you very much.
At this time, there are no further questions.
Okay, thank you very much, everybody. Have a great day. Bye.
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