Christa Davies - Chief Financial Officer and Executive Vice President Greg C. Case - Chief Executive Officer, President, Executive Director and Member of Executive Committee

Matthew G. Heimermann - JP Morgan Chase & Co, Research Division Michael Nannizzi - Goldman Sachs Group Inc., Research Division Adam Klauber - William Blair & Company L.L.C., Research Division Yaron Kinar - Deutsche Bank AG, Research Division Meyer Shields - Stifel, Nicolaus & Co., Inc., Research Division Brian Meredith - UBS Investment Bank, Research Division Jay A.

Cohen - BofA Merrill Lynch, Research Division Keith F. Walsh - Citigroup Inc, Research Division

Thanks very much, and good morning, everyone, and welcome to our third quarter conference call. Joining me here today is our CFO, Christa Davies.

To begin, our underlying results reflect strong performance in our Risk segment, delivery of synergy savings related to Aon Hewitt, and the repurchase of 175 million of common stock. And while not satisfied with our organic revenue performance in HR Solutions, and I'll discuss more of that in detail, we continue to execute against our long-term strategy to substantially strengthen the firm for long-term growth and value creation.

Consistent with previous quarters, I'd like to cover 3 areas before turning the call over to Christa for further financial review. First is our performance against key metrics we communicate to shareholders; second is continued areas of investment across Aon; and third is overall organic growth performance.

On the first topic, our performance versus key metrics. Each quarter, we measure our performance against the 3 metrics we focus on achieving over the course of the year: grow organically, expand margins and increase earnings per share.

In the third quarter, organic revenue was 1% overall, highlighted by strong growth of 4% in our Retail Brokerage business. Adjusted operating margin decreased 180 basis points driven by the inclusion of Hewitt results, including a significant increase in intangible amortization expense, which had a 220 basis point negative impact.

EPS increased 13%, driven by strong underlying performance and effective capital management. Overall, a quarter of continued progress against our key metrics as we remain focused on our long-term strategy.

On the second topic, further areas of investment. We believe Aon is in a unique position.

Solid, long-term operating performance combined with expense discipline and strong cash flow continues to enable substantial investment in colleagues and capabilities. Just a few examples.

In Risk Solutions, we continue to invest in innovative technology, such as our Global Risk Insight Platform, which is the world's leading global repository risk and insurance placement information. We now have 1.2 million trades in more than 59 billion of bound premium and a growing client list of more than 20 insurance carriers utilizing the platform analytics and services capabilities.

Also, we're driving our Aon Broking initiative to better match client needs with insurer appetite for risk, resulting in better economics for all participants. As highlighted by a significant D&O program of more than 175 million in premium, we're placing in the market on behalf of clients.

We're also investing in additional capability and talent through recently completed acquisitions such as Aon Grieg in Norway and Glenrand in South Africa, significantly strengthening our international footprint. A final example is our investment in client leadership to drive greater productivity and efficiency, with the rollout of the revenue engine in EMEA and Asia Pacific, as well as the rollout of Client Promise, which is driving greater retention and rollover rates as clients gain better understanding of our value proposition.

As we discussed previously, we are proving the concept of these investments in 2011, and as we move into 2012 and 2013, we're going to continue to drive greater scale and increased operating leverage as a result of these investments in our Risk business. In HR Solutions, we continue to strengthen our industry-leading position in both public and corporate healthcare exchanges, with the significant investment we're making in our Aon Hewitt Navigators business, enabling clients to prepare for ultimate changes in healthcare legislation with design, purchasing and administration capability.

We're also expanding our capability in compensation consulting. With the recent acquisition of Ward Financial Group, a leading provider of benchmarking for insurance carriers in North America.

We're also expanding our international footprint as the workforce has increasingly becoming more global, with investments in key talent and capabilities across Asia. And finally, we're continuing to invest in expanding our core HR BPO offerings through point solutions opportunities, such as dependent eligibility audits and absence management diagnostics.

In summary, as we focus on the long term across Risk and HR Solutions, our fundamental client-serving capability continues to substantially strengthen around the globe. Finally, on the third topic of growth, I want to spend the next few minutes discussing the quarter for both our segments.

In Risk Solutions, overall organic revenue growth was 3%, with improved rates of organic revenue in each business despite soft pricing, excess capital and fragile economic conditions globally. Against these headwinds, which are primarily market-related, we're driving a set of initiatives that continue to strengthen our performance and give us confidence that our Risk Solutions business is firmly positioned for long-term growth and leveraged to an improving economy.

With the management of our renewal book portfolio through Client Promise and retention rates of 90% or better on average, highlighting strong client satisfaction. New business generation of more than $250 million across our Retail business, with solid growth across many markets including China, Latin America, Africa, New Zealand, Middle East, Ireland, Italy and U.S.

Retail just to name a few, highlighting the strength of our global client-serving capability. Investments in new product and service capabilities with the rollout of GRIP, Aon Broking and Client Promise.

An improved win-loss trends in our core treaty reinsurance book of business that have now been positive for the last 2 quarters. Turning to the individual businesses.

In the Americas, organic revenue growth was 4%. Exposure units were relatively stable, pricing continues to be soft, down low-single digits on average, albeit at a moderating rate of decline.

We also saw growth across all regions as a result of strong management of the renewal book of business in Latin America, U.S. Retail, solid growth in new business in Canada as well.

A really, really solid performance overcoming soft market conditions and continued sector weakness in areas such as commercial construction and financial services, where we got leadership positions. On the international front, organic revenue growth was also 4%.

Pricing continues to be flat to modestly down on average, with firmer pricing in cat-exposed regions. We saw strong growth in New Zealand and across Asia, including double-digit growth in areas such as Thailand, Taiwan and China.

We saw a modest growth in U.K. Retail and EMEA as exposures are generally stable, but economic conditions remain fragile across many core markets in Continental Europe.

In reinsurance, organic revenue declined 1%, a modest improvement from Q2. Results reflect the 2% decline related to facultative transactions, partially offset by 1% growth in capital markets and advisory businesses in our international treaty placements.

In our core book of treaty reinsurance, which represents 85% of revenues, we saw a 2% negative impact from the market as pricing was flat to down modestly on average, with firmer pricing in cat-exposed regions and higher seen retentions as clients retain more risk. And while market impact remains negative, the underlying strength in treaty reinsurance continues to improve.

As net new business was up 2%, reflecting continued improvement from a negative 3% in Q4, flat in Q1, and now plus 2% in Q2. As we look ahead to the fourth quarter, we would note that the prior year quarter was a particularly strong quarter for capital markets transactions.

While our pipeline is encouraging, the timing of capital market transactions, as well as facultative transactions can be lumpy quarter-to-quarter. If certain transactions are pushed out, we'd expect a modest decline from this quarter's results, with the reverse being true of the transactions that are completed in the quarter.

Overall, we continue to be encouraged by the underlying trends in the core treaty book, and we'd expect to see modest growth overall in 2012 if trends continue. Turning to HR Solutions.

Overall organic revenue was negative 2%, a modest decline from flat in the prior quarter and a disappointing result compared to our previous expectations for modest improvement. Primarily due to 2 factors: Lower project-related revenue in Outsourcing and weaker results in EMEA in Consulting.

Turning to the individual businesses. In Outsourcing, organic revenue was negative 2% compared to flat to the prior quarter.

We saw positive growth from new client wins in both Benefits Administration and HR BPO, partially offset by price compression within expectations, suggesting continued strong underlying client performance. However, results were primarily impacted by a $13 million decrease in project-related revenue as the prior year quarter reflected strong performance, including support from multiple M&A transactions that didn't repeat at the same level this year.

In addition, the quarter included $4 million related to a onetime adjustment of business in Canada. As we look to the fourth quarter, we'd expect less pressure from project-related revenue resulting in modestly improved organic revenue performance from the third quarter's results.

In Consulting Services, organic revenue was a negative 2% compared to flat in the prior quarter. In the U.S.

and Canada, we continue to see pressure in both Health and Benefits Consulting related to unemployment levels and in Communications Consulting from lower discretionary spend. Additionally, significant uncertainty in the third quarter surrounding economic conditions in EMEA drove lower-than-anticipated results in our Health and Benefits Consulting business.

Partially offsetting these weaker results were solid growth in Asia Pacific, in Global Compensation Consulting and Investment Management Consulting, all areas where we continue to invest and see good, long-term growth opportunities. As we look to the fourth quarter, we'd expect Consulting to deliver modest organic improvement from the third quarter's result.

Overall, I want to emphasize, we are not satisfied with our growth performance. While we expect economic conditions to remain fragile in the short term, against these headwinds, we're driving a set of initiatives that continue to strengthen our underlying performance and give us confidence that our HR Solutions business is positioned for improved long-term growth and leveraged to an improving economy.

With solid new business generation, with over 160 wins including more than 20 new large and mid-market benefits administration wins and a very significant recent win in a large leading financial institution in HR BPO. A high degree of recurring revenue across HR Solutions with strong renewal rates, highlighting strong client satisfaction and continued investments in international markets, we were seeing double-digit growth in Investment Management Consulting and in new products and services such as our Aon Hewitt Navigators Healthcare Exchange business.

In summary, our solid performance in Risk reflects the strength of our industry-leading platform and continues progress against our long-term strategy. And we're driving a set of initiatives that are strengthening the underlying performance and positioning HR Solutions for improved organic growth over time.

With that said, I'd like to turn the call over to Christa for further financial review. Christa?

Thanks very much, Greg, and good morning, everyone. As Greg noted, our third quarter results reflect continued progress to strengthen our industry-leading position and client-serving capabilities across Risk and HR.

While we're firmly on track for growth in 2011, we are not satisfied with our organic growth performance year-to-date. Against this challenge, we are managing expenses, driving operational initiatives, delivering savings from our restructuring program and effectively allocating capital as highlighted by the repurchase of 175 million in common stock in the quarter.

Now let me turn to the results of the third quarter. Our core EPS performance, excluding certain items, was $0.69 per share for the third quarter, up 13% compared to $0.61 in the prior year quarter.

The inclusion of Hewitt results, combined with strong underlying performance and effective capital management more than offset a $61 million increase in intangible amortization expense and shares issued in the prior year for the Hewitt transaction. Certain items that were adjusted for in the core EPS performance and highlighted in the schedules on Page 12 include $26 million of restructuring charges and $22 million of transaction-related Hewitt costs.

Lastly, foreign currency translation had a favorable impact of $0.03. If currency were to remain stable at today's rates, we would expect a very modest favorable impact to EPS in the fourth quarter.

Starting in the first quarter of 2012 and going forward, the company will begin providing adjusted results that excludes the impact of noncash intangible asset amortization and continue to exclude certain onetime items such as restructuring charges. We believe the exclusion of noncash intangible asset amortization will more closely align external audiences and the company around cash flow generation, and with how we think about capital management and shareholder value creation for cash-on-cash returns.

As our required uses of cash decline over the next several years and free cash flow improves, we expect it to be significant source of value creation for shareholders. Now let me talk about each of the segments.

In our Risk Solutions segment, organic revenue growth was 3%, and we delivered an operating margin of 19% on an adjusted basis, up 110 basis points from the prior year quarter. Our performance for the quarter continues to demonstrate strong operational discipline and underlying structural margin improvement, positioning the segment for greater operating leverage as growth and economic conditions continue to improve around the globe.

On an adjusted basis, operating income increased 16% or $42 million to $308 million. The year-over-year performance was primarily driven by an increase in organic revenue performance and modest benefits from the restructuring program.

Let me spend a moment on each of the restructuring programs. Key initiatives that have enabled concurrent funding of investments and long-term structural margin expansion.

With respect to the 2007 restructuring program, we've incurred 100% of the charges necessary to deliver the remaining savings. Restructuring savings in the third quarter are estimated $134 million compared to $125 million in the prior year quarter.

Approximately $113 million of the savings were related to the Risk Solutions segment, primarily for workforce reduction. With respect to the Aon Benfield restructuring program, we have incurred 83% of the charge necessary to deliver the remaining savings.

Restructuring savings in the third quarter are estimated at $30 million compared to $27 million in the prior year quarter. Overall, we are ahead of the original schedules and have delivered structural margin improvement.

We have completed nearly all of the programs as of the end of the third quarter, with approximately $29 million of incremental Risk Solutions savings still to deliver. As remaining restructuring savings continue to wind down, the following 3 areas of margin opportunity are within our control and continue to put us on track toward delivering our long-term target of 25% in Risk Solutions: #1, operational efficiency and remaining restructuring savings; #2, continued rollout of a revenue engine; #3, higher-margin, GRIP-related and Aon Broking initiatives.

In addition, there are 2 additional macro drivers that provide significant operating leverage based on improvements in the external market; #4, an improving global economy in areas such as employment levels, asset values and corporate revenues will drive leverage through exposure growth, along with every 100 basis point rise in short-term interest rates, delivered the roughly $40 million to the bottom line; and fifth, improvements in insurance pricing. Turning to the HR Solutions segment, organic revenue declined 3% and we delivered an adjusted operating margin of 11.2% as results reflect the merger with Hewitt, including a $61 million increase in intangible asset amortization.

To further assess the underlying performance of operating income and margin in the segment, we believe it's useful to add together results of both Hewitt and Aon Consulting in the prior year quarter to form your starting point of the analysis. For example, if we take Hewitt's adjusted operating income of $110 million plus $55 million for Aon Consulting, your combined total is $165 million of operating income as reported for the prior year quarter.

If we subtract additional intangible amortization expense of $61 million, this leaves an underlying $104 million of operating income. Comparing $104 million to the $125 million we reported in the third quarter, the increase in operating income reflects approximately $63 million of total restructuring and synergy savings, partially offset by lower organic revenue growth, including a $35 million decline in project revenue, $10 million of onetime items related to certain write-offs and a significant investment in our Aon Hewitt Navigators business.

Lastly, for the HR Solutions segment, I wanted to give an update on the Aon Hewitt restructuring plan and a brief comment on integration. With respect to the Aon Hewitt restructuring program, we incurred $26 million of charges in the quarter, primarily related to workforce reduction and lease consolidation.

The Aon Hewitt restructuring plan is expected to result in cumulative cost of $325 million through the end of the plan, primarily encompassing $180 million in workforce reduction and $145 million in real estate rationalization costs. Cash costs are expected to be approximately $275 million.

Savings related to the restructuring program in the third quarter are estimated at $37 million, with additional synergy savings achieved outside of the formal restructuring program. We expect to deliver total annual savings of $355 million in 2013, including approximately $280 million of annual savings related to the restructuring plan, an additional savings in areas such as information technology, procurement and public company costs.

We are on track to deliver our 2011 target of approximately $242 million of annual savings. These savings are the first of 3 key drivers for delivering our long-term operating margin target of 20% in HR Solutions.

The other 2 key drivers are growth in the core business, including HR BPO improvement and declining intangible amortization expense beginning in 2013. Lastly, as we continue to make investments in our talent and capabilities, we are also making investments in certain back-office systems such as our Order-To-Cash platform.

With any IT integration there can be challenges and during the third quarter, we had some temporary delays in invoicing certain clients in North America. However, this issue had no material impact on the results of the third quarter and we expect will be corrected over the next 2 quarters, resulting in a better end-to-end cash platform across the combined businesses.

Now let me discuss certain line items outside of the operating segments. Unallocated expenses were $44 million.

The prior year quarter included $18 million of costs related to the merger with Hewitt. Excluding those costs, unallocated expenses increased $13 million due primarily to a onetime $11 million unfavorable mark-to-market on certain company-owned life insurance plans.

Interest expense increased $10 million to $60 million due primarily to an increase in debt outstanding following the merger with Hewitt. Other income of $7 million in the third quarter includes gains related to the company's ownership in certain insurance investment funds and other long-term investments.

The prior year quarter included an $8 million loss from the sale of certain businesses. Going forward, we expect a run rate of approximately $5 million per quarter of interest income, $35 million of unallocated expense and $60 million to $65 million of interest expense per quarter.

Lastly, minority interest was $10 million compared to $3 million in the prior year due to stronger performance of our joint ventures and partnerships primarily in emerging markets. Turning to taxes.

The effective tax rate on net income from continuing operations declined to 28.9% in the third quarter compared to 29.4% in the prior year quarter, primarily due to certain deferred tax adjustments. The company anticipates an effective tax rate on net income from continuing operations of 29% for the fourth quarter.

Turning to shares. Average diluted shares outstanding increased to 336.9 million in the third quarter compared to 282.2 million in the prior year quarter, due primarily to the issuance of 61 million shares of common stock related to the merger with Hewitt, partially offset by the company's share repurchase program.

Actual common shares outstanding on September 30 was 323.3 million, down 3.4 million from 326.7 million at June 30. There are approximately 12 million of diluted stock equivalents.

The company has approximately $1.2 billion remaining under the share repurchase program previously authorized in 2010. Now let me turn to the balance sheet and cash flow statement to discuss the financial flexibility.

On September 30, cash and short-term investments were $902 million and total debt outstanding was $4.6 billion. Overall debt-to-capital was 35.6% at September 30, compared to 34.9% at June 30.

Cash from operations, excluding change in funds held on behalf of clients which has no impact on cash, increased $296 million to $368 million in the third quarter, compared to $72 million in the prior year quarter. Stronger cash flow was driven primarily by the inclusion of Hewitt results, along with improved operating performance and lower working capital requirements, partially offset by restructuring-related cash payments and pension contributions.

Year-to-date, cash payments related to restructuring were $131 million and the company anticipates another $80 million of cash payments in the fourth quarter. Cash payments related to restructuring are expected to decline approximately $65 million to a total of approximately $146 million in 2012 before declining further in 2013.

Regarding our unfunded pension plans, year-to-date contributions have been approximately $390 million, and the company anticipates contributing another $90 million in the fourth quarter. Because we close plans to new entrants, frozen plans from accruing additional benefits and de-risk certain pension plan assets, pension expense is much less volatile.

Despite weak equity and AA corporate bond portfolio performance year-to-date, we would not expect to see any meaningful impact to pension expense either up or down in 2012. In summary, we delivered 1% organic revenue, placing us firmly on track for growth in 2011 despite fragile economic conditions and a continued soft market.

We are managing expenses, driving operational initiatives across both segments and fully on track to achieve our long-term operating margin targets. We have significant leverage to an improving global economy.

Our balance sheet and strong cash flow continue to provide significant financial flexibility as we repurchased $175 million of common stock in the quarter, highlighting our belief in the underlying strength of the firm. With that, I'll turn the call back over to the operator, and we'd be delighted to take your questions.

I really want to focus on Consulting as Brokerage was pretty solid. So just thinking about Consulting, minus 2 organic.

Maybe you could split out for us how much of that is really related to the macro environment and how much related to attrition from the integration? And I've got a couple of follow-ups.

Sure. Happy to do that, Keith.

Let me -- and I'll kind of give you the clinical read on this. But overall, let me start with just a perspective.

We said, as we worked to build our business over the years, irrespective of economic conditions, we focus on growing and building our business, period. And by the way, we're making a lot of investments to do that.

And those investments not only effect the top line, they impact the bottom line too. And at the end of the day, the full responsibility for growing the business is on me and on our team, and we just -- we've got to do better operationally.

We are very confident in the plans, we'll take you through those in a second. But we just got to do better operationally.

And if you think about sort of clinically what happened, a lot of this was economic headwinds. There was a greater economic headwinds in EMEA and in the U.S.

In EMEA in particular, the conditions got worse. Basically, a lot of uncertainty in EMEA as you'd expect right now, and that led clients really to defer a lot of discretionary spend.

In the U.S., poor conditions remain. We thought they did a little better, they didn't.

And the resulting impact showed up really in one area or 2 areas in particular. One was in project-related revenue.

On the Outsourcing side, it was down substantially. And this is the area, Keith, that really is discretionary spend.

Things like support for M&A or benefits changes, et cetera. And in the end, that's a significant amount over time.

$13 million, $14 million, that's a significant amount in terms of the impact. It also showed up the state of the economy around health and benefits on the Consulting side, particularly on health and benefits brokerage in EMEA.

And then there were couple of onetime items that aren't going to reoccur, that also flowed through as well. But to your question, this is all around sort of the overall part of the business in the end.

Unfortunately, it's happening at the time when the core business is doing quite well. And from an integration standpoint, we see Consulting growth in the multiple areas: Asia Pacific, global comp, investment and Consulting, Outsourcing growth has been very, very positive.

In terms of new business wins, we actually we're doing -- we've done better in this quarter than we've done maybe -- in any time over the last number of years. And then the synergy capture, as Christa described, was very, very good.

In fact, on or ahead of track. And so from our standpoint, this has been a lot of the reaction to the economy in Q3, but I want to be absolutely clear, that's not an excuse.

There really is, as I said at the beginning, this is on me and on our team, and we said we're going to grow our business irrespective of economic conditions. We expect modest improvement in Q4, and we're looking to that, and we're just going to push through and keep driving the business.

But the core thesis is incredibly positive and incredibly strong.

Okay. And then for Christa, you alluded to being ahead of target on the restructuring savings.

Can you actually push those cost saves forward quicker to offset some of this underlying margin deterioration you're getting out of Consulting right now?

I mean, Keith, we do believe that we are on track if slightly ahead of our original restructuring plans. So we said we would deliver $229 million to $242 million of savings in 2011.

And we delivered $42 million in Q1, $58 million in Q2, $63 million in Q3. So $163 million year-to-date.

So we believe we're well on track to doing that. And we did have the $355 million of total savings.

Really fast forward those savings to really sort of set the business up and really focus on growth. So I think we do believe that we will continue to improve performance and we're very focused on it, given the disappointing results in this quarter.

Okay. And then last question for Greg, just in my words, I guess, second deal, I guess, done here with probably less than optimal results.

I know it's early days but so far -- and we seem to be tracking below the glide path implied when this deal was announced. And I want to know what specifically is the management team doing to get us back on that glide path?

And then in conjunction with that, why don't we get the operating heads of this business on the call? I think you're the only broker out there that doesn't do that.

So if you can address those things.

Well, Keith, in stepping back, as we thought about Aon Hewitt, we're now a year into this. We could not be more pleased with the underlying basics of what we pulled together.

The underlying client-serving capability is literally the best in the world. The client reaction has been incredibly positive.

Our new client wins are doing exceptionally well as we look at what the growth of the business over time. The integration has gone incredibly well.

And, Keith, from our standpoint could not have gone better. Not only in the synergy capture, but also how the teams come together.

So we would say the underlying client-serving capability is exactly what we expected. The performance on the Outsourcing side and the Consulting side at the core level exactly are better than we expected.

And in the end, we've got economic headwinds that are substantial. And as I said, no excuse.

We've got to deliver against those headwinds and we will do that. And we've got the investments in place to make that happen.

And we are as confident as ever about Aon Hewitt and the prospects for this business in the future. So from our standpoint, we couldn't be more pleased.

There is a lot of -- a lot have happened over the period of building the business, we're in the process of doing that and we're quite excited about the future in terms of what we're trying to do. And in terms of colleagues on the phone, you can imagine our colleagues have a great deal of input into this call in terms of what we do over time.

And so in many respects, what you're hearing through Christa and I are very much reflected in the management team's approach and the view on the business.

I appreciate that. But it's important to hear from the people actually on the ground running the business day-to-day especially for a piece of the business that has become such as an important part of your company.

So just more of a suggestion. But thanks for your time.

Well, I appreciate that, Keith. We'll take it into consideration and I want to make sure we answer any and all question you got in terms of what we're doing day-to-day.

Also following up on Hewitt, it seem like sequentially, the expenses in Hewitt, even excluding the restructuring were up over 5%, 6%. I guess, what was driving that?

Yes, talking to the foreign currency impact there as well, Adam, which we can sort of breakout. But we don't see sort of abnormal expense growth.

What you see in the sort of the margin impact is a significant impact from intangibles. So intangibles had a 550 basis point impact on HR Solutions margin in the quarter.

We do see expansion, as I said, from restructuring. The restructuring and other additional savings flowing through.

And then really, the sort of the 3 things I noted in my script that impact margins of about $42 million in the quarter were an organic revenue impact to about $22 million, onetime items of about $10 million and the investment at Aon Hewitt Navigators of about $10 million.

Okay. And, Greg, if you could give us sort of an outlook on the P&C rate environment going to 2012?

Obviously, there's been a lot of noise about moderate bottoming and even some improvement. I guess, how would you characterize the market?

Yes. I would say from our standpoint and, again, we look at this very analytically in terms of sort of what we see happening with the market over time.

We would go back and essentially say, it is tightening. But we certainly haven't seen the turn.

We were down roughly -- when we look at our GRIP platform overall, and this is literally the placements we make around the world, we were down roughly 5% in Q4 2010, about 4% in Q1, 3% in Q2. What we saw in this quarter was about down 2%.

So exactly as described, we are down but at a lesser and lesser rate, which is tighter than it's been in quite some time. And then on the reinsurance side, we're seeing essentially, getting closer to flat as well.

But certainly there remains a supply and demand imbalance on capital. And from that standpoint, we're flat to down slightly there.

So that's how we see the rate outlook modifying a bit. But we would still say that it's slightly negative to flat.

I have a question, the first question would be on the Risk Solutions margins. On the last call, we discussed, I'm looking at them on a year-over-year basis or calendar-year basis, do you still feel like you'll be able to grow those margins in 2011 relative to 2010?

Yes, so as we look at year-to-date margins, excluding the Paris lease and macro factors effect, we think we're about flat year-to-date, and we do believe that we will grow our margins in Q4.

Okay. So in doing that calculation, really, we're excluding the onetime items of the first half...

Right. Yes.

And then can you maybe elaborate a little bit on the life insurance plans, what they are? Will they have any impact going forward assuming that the markets stays flat where it is today?

I mean, there obviously life insurance plans that the company owns that have a mark-to-market impact, assuming the market doesn't change, then the mark-to-market would not change.

Right. But, I guess, I was a little bit surprised to see that the company owns them.

As what part of the operations does it own them?

I mean, it was 11% -- sorry, $11 million in the quarter and it hasn't had a material impact previously, and we don't expect it will going forward.

Okay. Is it part of the investment portfolio?

Yes. I mean, it was a set of insurance policies taken out quite some time ago, almost 10 years ago.

And then sort of, they're flowing through.

Okay. And then I know you spoke a little bit about the reinsurance platform and the headwinds there or still facing it.

Now that we do see better growth with some of your major competitors, when do you think that the spread between you and the competitors will start declining?

Well, we feel good about progress on the individual [ph] front. Again, if you step back and think about our reinsurance platform, we wouldn't trade it for any in the world.

As we brought Benfield into the fold, we -- and back to the kind of the idea of the deal model and sort of our original thesis behind bringing the firms together. We are absolutely on track on how we brought them together, and absolutely on track in building that business.

And as we watched it evolve over the last, think about the last 4 quarters, and think about net new business versus lost business, it essentially has gotten better each of the last 4 quarters. So negative in 2010, negative in 2011, slightly positive in the first quarter in '11, positive in the second, third quarter of '11.

So the last 4 quarters, the trend's gotten better and better each quarter. And it really reflects the underlying value that we bring to clients.

When we line up our analytics and we help them understand how we can improve their return on invested capital for our insurance carriers and our clients here, we win new business, and that's what we've done. Some of the discrepancy, as you think about the size of our business versus some of the other competitors out there, as there were adjustments in the first 18 to 24 months, they made big differences for other competitors.

And for us, they were just literally part of bringing the 2 firms together, but now we are on a very strong track. The treaty business is growing, and it grew this quarter as well and feel very good about the trajectory of Aon Benfield.

A couple of questions here for you. First, I wonder if you could elaborate a little bit on the impact of pricing at Aon Hewitt, and exactly kind of what's going on?

Is that price decreases you're taking to try to retain the business? Could you talk about that a little bit and what the impact on margins is?

Absolutely. So first of all, in terms of Aon Hewitt, we obviously do have pricing impact in the benefits business in particular that's been very stable, Brian, for the last full 12 months, so every quarter.

And it's been exactly in line or actually slightly better than what we have originally modeled in our deal model. And that's being sort of offset by better win-losses.

So we are winning more than we're losing, and that win-loss ratio is improving year-over-year. So we feel good about the underlying health of that business.

But I just want to understand, so prices are going down, right?

And they have been for quite some time and it's been at a very steady rate.

Okay, great. And then the second question, Greg, wonder if you could talk a little bit about GRIP?

Maybe take up rate we've seen so far, success with respect to commission leakage and that kind of stuff?

Happy to do that, Brian. If you step back, we said, GRIP is really part of our overall Aon Brokering strategy, and if you think about sort of the way that's going to impact our business.

We have -- we think about sort of winning new clients, we're doing more with those existing clients and increasing the yield per dollar of premium placed. GRIP is really part of the overall Aon brokering strategy that helps us do that.

When we put GRIP in place almost 3 years ago now, what we're really looking forward is trying to really understand our insurance -- our placements is better than anyone in the world could possibly do, and GRIP has allowed us to do that. In addition, it allows us to help our insurance carriers think about how they can improve their placement, whether -- how they target their placement, how they accomplish that, and we've been able to do that.

We've got 20-plus partner markets who are part of this platform, who are finding it very, very effective and helping them actually identify how they grow their business and build their business, and it's been very effective. And as we said, it would be proven in 2011, we think we've more than done that and really scaled up in '12 and '13, and we are fully on track for that.

One clarification, as far as the savings go from the Aon Hewitt restructuring, I think you said on the call it was $63 million. But in the press release, I see a number of $37 million.

What's the difference?

Yes. So, Jay, we said originally that the $355 million of savings that we would achieve in 2013 would be comprised of $280 million in restructuring savings and about $75 million in additional savings.

And so what you see in every quarter of this year is a restructuring savings number of $37 million in Q3 specifically, plus additional savings of $26 million, which gets you to a total of $63 million. And that's been happening this entire year, Jay.

So in Q1, our total savings number was $42 million, of which $24 million was restructuring. In Q2, our total savings number was $58 million, of which $34 million was restructuring.

And so that same pattern is flowing through.

And I guess, based on your view of the full year savings, we should expect to see a number north of $100 million in the fourth quarter of savings?

No. We said we would be achieving total savings for calendar year 2011 in the $229 million to $242 million range.

So you can see if we add Q1 plus Q2 plus Q3, we add to $163 million year-to-date.

Got it, okay. That's helpful.

And then the -- it's a small number, but you mentioned a $10 million write-off at HR Solutions. What does that relate to?

Right. So there are 2 different -- there 2 $10 million of onetime items.

And $4 million of it, Greg mentioned in his script around a onetime adjustment to revenue and there's a $6 million onetime expense item, which adds to the $10 million impact in onetime items related to PCI in the quarter.

Okay. And I guess, one broader question, just quickly on HR.

The HR Outsourcing business which is, I guess, a source of margin pressure historically for Hewitt. Can you give us a sense of what's happening there, that part of the plan was to improve those margins over time?

Yes. In the HR BPO business, we are extremely pleased with the progress of that business.

When Hewitt standalone reported, they had previously reported that business was a negative margin business. And on track to be a mid-teens margin business by 2015.

We believe we are well on track with that plan.

Do you make -- you have positive margin on that business now?

Yes.

Just one question on, related to HR benefits. So if you x savings and amortization, what is the benefit margin in the quarter and how should we be thinking about that?

Yes. So we don't breakout specific benefit margins, Michael.

But what I can do is say, if you look at Aon Consulting in Q3 2010, that number was $55 million. If you look at Hewitt in Q3 2010, that number was $110 million.

So you start off with a starting point to Q3 2010 of $165 million. You subtract intangible amortization increase of $61 million, you get a starting point to Q3 2011 of $104 million.

We obviously produced results of $125 million and the difference between those 2 numbers is, synergy savings is $63 million, which would get you at the sort of out of the $63 million to the $104 million to $167 million. And that difference between $167 million and $125 million reported of $42 million is made up of 3 items: The impact of organic revenue of minus $22 million; the onetime items I described of minus $10 million; and the investment in Aon Hewitt Navigators of $10 million.

Okay. I'm just -- when I look at it and if I x those things out, it looks like for the last few quarters, it's been trending downward.

So I'm just trying to understand, I mean, is the expectation, however you calculate it, the expectation that the number, that margin number for the third quarter, that's kind of where you expect margins to be at, that's you're kind of baseline and you're hoping to improve from there? Or I'm just trying to understand because it just seems like it's moving, just moving in one direction.

Yes. We don't think they're moving downwards.

I mean, the intangible margin impact in the quarter, it's 550 basis points. So it's quite substantial.

Obviously, axe intangibles, the HR Solutions margin will be 16.7%. It's a very strong margin.

Okay. And then just one question.

I wanted to understand back in the Risk business. See, you had a couple of relatively prominent acquisitions, international acquisitions, but the acquisition growth was negative in the quarter on the international side.

So I'm just trying to reconcile those 2 points.

Yes. They're pretty small acquisitions, Michael.

So I mean, they're not really going to have a material impact in the quarter. Year-to-date, we've done about 5 acquisitions worth a little over $100 million.

They're pretty small.

We're going to continue to look at tuck-in opportunities over the course of any given year. We've continue to do that, and we'll add content and capability where it make sense for us.

Got it. And just last one on the pension contributions, any guidance on pension contribution expectation for year end, given rates?

So obviously, we have a year-end measurement date. So it's difficult to predict, but we would expect pension contributions to be up modestly for 2012.

And then down every year after that to be fully funded on a GAAP basis by 2015.

I think we're beating this one to death. But when we look at the HR Solutions business, the combination of year-over-year increased amortization expense and I guess, underlying cost increases, what should we expect that to be sort of in the fourth quarter?

For the fourth quarter? As we think about margin for the fourth quarter, what we would say is if you took that sort of $42 million and you kind of rolled it forward to Q4, that would have less impact in terms of negative organic, but we expect that it would be sort of modestly declining in Q4, and that we expect our investment in Aon Hewitt Navigators to continue.

Okay. That's helpful.

When we think about the pensions being, based on what we know now, flat on year-over-year basis, is that dollar or percentage?

I'm sorry, Meyer, can you repeat that question?

Right. You mentioned earlier in your comments that your expectation because of the de-risking you've done in the pension plans is that will be flat on a year-over-year basis.

Is that as a percentage of revenue or dollars?

That's in terms of pension expense. That's absolutely right, Meyer.

But basically because of the de-risking we've done and the fact that we've closed the plans to new entrants and frozen the benefits, so we expect pension expense year-over-year to be flat.

Okay. And that's in terms of absolute dollars?

Absolutely correct.

Okay. And last question if I can.

With regard to the capital markets transaction, I understand that they're lumpy. Is there any help you can give us in terms of trying to understand, let's say, the fourth quarter of 2010 divergence from a normalized run rate in terms of margins?

Again, Meyer, just trying -- you're not coming through very strongly. So your question is around margin for Aon Benfield or...

We did have significantly a higher capital markets transaction quarter in Q4 2010.

Got it. Sorry.

So absolutely right. And as we said before, this is just both on the fact side and the capital markets side, they just tend to be a lumpy businesses.

For example, our capital markets pipeline right now is exceptionally strong. We feel very good about it.

But it depends on literally when the deals hit. If they hit in Q4, we're going to see some positive movement.

If they don't hit and they defer to Q1. Then obviously, that has a bit of a variable impact.

And all we're really trying to do is just highlight that for you in the context of the capital markets business, the fact business. That's just different from a patterning standpoint than what the treaty business is.

No, I completely understand that. I think it's great that you're calling it out.

I'm just trying to get a sense of what the margins would be if the fourth quarter of 2011 is and I'll put this in quote "normal" instead of above average like last year.

Our sense -- again, as we said before, if you go back and look at the overall Risk Solutions margin and how it's improving as Christa described, we see fundamental year-over-year improvement in the context of that. By the way, this is just part of our march toward 25%.

We are making clear progress on that as we said in the last first and the second quarter. It's the same program.

The same program we've had in place for the last number of years. It's exactly the same program that's literally given us roughly 100 basis point improvement every year for the last 5 years and that's the program here.

And by the way, up or down from the standpoint of capital markets, that's not going to deter the progress on the march to 25%.

A couple of questions. Hopefully these are quick.

But just -- I wanted to get -- just follow up on the compensation expenses and HR Solutions. I have -- if I adjust out FX, about a 2% growth in the numbers.

And I'm just -- and that's adjusting for restructuring as well. So I'm just -- when you talk about the savings that you're seeing being in line, that number just feels a bit higher.

So I'm just wondering, the investments that you're talking about for Navigators, as well as you mentioned I think Asia in the script, are those mostly people? Are those other things?

Yes. But first of all, the investments we're making are mostly people that's right.

But also your observation that base compensation expense is growing by 2% is roughly right. We have an inflationary push on our expense base of roughly 2%.

And so as you think about the forces acting on the HR Solutions margin, you have synergy growth offset by intangible amortization. And for 2012, both numbers roughly match each other.

And therefore, to expand margins year-over-year, you really need to have organic revenue growth sort of 2%, equal the inflationary expense-based push.

Well, I guess, I was getting 2% underlying adjusting out restructuring before adding in -- net of the savings, there was a 2% increase. And so that's where I'm struggling as I just relative to kind of the reinvestment expenses you mentioned for Navigators, it doesn't -- it feels like there's more push there than there should be.

No. I think there may be other onetime things going on, Matthew, because that's not how we see the numbers.

We do observe that there's an inflationary expense-based pushes I described, plus the investment in Navigators, and that is essentially the force that's acting on the margin other than the onetime item I described or the 2 items that impact PCI this quarter.

Okay maybe I'll follow up offline just to make sure my math is right. The second question would be just, can you talk about maybe what the pipeline looks like in HR Solutions from a revenue perspective versus what you're booking?

And I just be curious, obviously, we had a deviation this quarter. But just wondering what the forward-looking like relative to the reported?

Yes. We want to highlight it, so you think about the deviation this quarter and again, something we've got to manage irrespective of economic conditions.

But the deviation this quarter really was in -- primarily around areas of discretionary spend, things that you can actually push off, clients can actually make decisions to defer. But the core business back to kind of what we do in the core business around Outsource and the core business of what we do around Consulting has been very strong.

So there's been no fall off on that. On the Outsourcing side, as I've said before, the win rates were as strong this quarter as they've ever been against competitors, and we feel very good about that the underlying intrinsics of the business now are progressing.

And then this is now on top of the investments we've made. We've made a very explicit decision to invest behind Navigators and do it in a significantly way, because we think the opportunity is really almost unprecedented, given what's happening in healthcare in the world today.

So we see the basic platform for growth is very strong. The investments we're making on top of it.

We realize we've got margin paying in the context of doing that, but we feel like building the business for the long term. It puts us in a -- it's just another add to an already strong platform.

So we feel very, very good about that. And if you look at 2012 revenue, we see it getting back to flat to slightly up in terms of what we're trying to do here.

And again, I feel very good about the overall base business.

Just more specifically, I mean, does that imply the pipeline is actually growing?

It does. And in fact, we've got a projected trajectory on the pipeline over the last year and we're doing very, very, very well on that.

Okay. And then I guess, the other question is, I mean, I actually think the Hewitt acquisition made a lot of sense, especially when you look at -- even though we're getting some deviations to return on capital.

It still looks actually quite healthy. But I guess, what is a little bit concerning to me is the performance we're seeing is clearly a bit different than, at least to those of us in the outside are seeing, and there seems to be a gap between how we're perceiving the business and how you're talking about it.

And I think, I guess, what do you think you can do to maybe bridge that gap? Because I think whilst the response that you're giving to questions are helpful to keep this point in terms of talking to people on the ground and also just in terms of the underlying data we have available to track your business -- being we're gaining less data today than we did with Hewitt broke out their businesses.

Just what are some things you can do to maybe narrow that gap besides the passage of time?

No, I got -- and part of this, is be a little patient in the passage of time in the sense that if we come back, we have very specific set of fundamentals that we look at, and have looked at from the beginning around literally what's going to happen on the revenue side from a client development standpoint to your point around the pipeline and how's that's evolving. And really our fundamental client-serving capability.

Can we look at clients in the eye and say, we can help you in a way that no one else can, identify that value, describe that value and actually deliver that value. And we've seen that actually be the case.

And that's why the pipeline is in fact growing from a client development standpoint. And then on the cost side, can we take out and get the cost efficiencies that we had anticipated coming in and achieve that.

And the answer on both of those fronts have been in fact stronger than we anticipated. Against those headwinds around discretionary spend, we saw a significant drop-off and that really is the disconnect.

That's it. That is the disconnect.

And by the way, the disconnect has real leverage in the context of what we're doing. If you underline -- if the amortization is roughly the synergy and we have underlying expense growth roughly 2%, as Christa was describing, then we need growth to get the positive operating leverage.

To the extent we don't have that, we didn't have it this quarter, that's the impact you're seeing. But that literally is the -- that's the disconnect.

What you hear from a positive standpoint is our confidence that we will build the business and continue to drive it forward, it's not unlike a conversation, this is most exactly like the conversation we had about Risk 4 years ago, when the questions is around what are we doing on the Risk front, how we are actually building that business and what are we putting in place to accomplish that. And now 4 years later, I think we've got a Risk business that really has a really strong platform with great growth prospects in the context of what we're doing, and the investments we're making to prove the value in 2011 or actually it's being proven and now driven -- going to be driven out in 2012, 2013.

Now in Aon Hewitt, we've got a great team in place, great leadership team and tremendously strong platform, and we believe the healthcare issues in the world today and the pension issues in the world today are going to continue to go up and become more acute for our clients. So the enthusiasm you're hearing is very much around that set of intrinsics, which we think are quite strong.

And we understand the concerns of this quarter and we want to make sure you're clear we're going to address those concerns, but there should be no question around the underlying strength of this platform. It's just exceptionally strong.

I guess, maybe I would suggest then, maybe there is some metrics similar to when you were turning around Risk, whether they're reported in the press release or made on the call that are somehow consistent maybe to help put some numbers around things to give us a better sense of how you're progressing versus the metrics. Because I guess maybe one of the issues we're struggling with is, it kind of feels like the goalpost keep moving, but part of that is we don't really know in an absolute sense where the goalpost should be set.

Great input. And as we will always do, input from all of you to take that in and actually come back with some views and perspectives on how to make sure you know exactly how the tracking is going as we look at it.

So I appreciate the input.

Not a problem. And then, Christa, just a comment you made on the EPS change.

Does that mean you're going to be providing a supplemental EPS number to what we're seeing already? Or are you going to completely redefine how you're...

We're going to redefine adjusted EPS to exclude intangible amortization expense.

Could I make the suggestion? I think it would be helpful if you just provide a net addition.

Because I think one of the -- we're all savvy enough financially to actually look at cash flow and let that drive our valuation. But I actually think losing -- moving further away from GAAP and how some of the peers report might not be as helpful as you think it may.

I appreciate your input. Thanks very much.

I just want to say to everybody, thank you very much for joining the call today. We appreciate it and your interest in Aon, and look forward to our next discussion.

Thanks very much for joining today.