10-K 1 u11467e10vk.htm FORM 10-K e10vk
Table of Contents

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
FORM 10-K
 
     
(Mark One)    
þ
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2011
or
     
o
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission file number: 001-16503
 
 
 
WILLIS GROUP HOLDINGS PUBLIC
LIMITED COMPANY
(Exact name of Registrant as specified in its charter)
 
     
Ireland
(Jurisdiction of
incorporation or organization)
  98-0352587
(I.R.S. Employer
Identification No.)
 
c/o Willis Group Limited
51 Lime Street, London EC3M 7DQ, England
(Address of principal executive offices)
 
(011) 44-20-3124-6000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
 
     
Title of each Class
Ordinary Shares, nominal value $0.000115 per share
  Name of each exchange on which registered
New York Stock Exchange
 
Securities registered pursuant to Section 12(g) of the Act:
None
 
 
 
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes þ     No o
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o     No þ
 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o
 
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).  Yes þ     No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definite proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definition of ‘large accelerated filer’, ‘accelerated filer’ and ‘smaller reporting company’ in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer þ Accelerated filer o Non-accelerated filer o Smaller reporting company o
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o     No þ
 
As of February 17, 2012, the aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $5,813,892,215.
 
As of February 17, 2012, there were outstanding 174,139,971 ordinary shares, nominal value $0.000115 per share, of the Registrant.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Portions of Willis Group Holdings Public Limited Company’s Proxy Statement for its 2012 Annual Meeting of Shareholders are incorporated by reference into Part I and Part III of this Form 10-K.
 
 


Table of Contents

Certain Definitions
 
The following definitions apply throughout this annual report unless the context requires otherwise:
 
     
     
‘We’, ‘Us’, ‘Company’, ‘Group’, ‘Willis’ or ‘Our’
  Willis Group Holdings and its subsidiaries.
     
‘Willis Group Holdings’ or ‘Willis Group Holdings plc’
  Willis Group Holdings Public Limited Company, a company organized under the laws of Ireland.
     
‘Willis-Bermuda’
  Willis Group Holdings Limited, a company organized under the laws of Bermuda.
     
‘shares’
  The ordinary shares of Willis Group Holdings Public Limited Company, nominal value $0.000115 per share.
     
‘HRH’
  Hilb Rogal & Hobbs Company.

2


 

 
 
Table Of Contents
 
 
         
        Page
 
Forward-Looking Statements   4
PART I        
    6
    14
    23
    24
    24
    24
PART II    
    25
    28
    29
    62
    67
    152
    152
    154
PART III    
    155
    157
    157
    157
    157
PART IV    
    158
Signatures   163
 EX-10.14
 EX-10.45
 EX-10.46
 EX-21.1
 EX-23.1
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT


3


Table of Contents

 
Willis Group Holdings plc
 
 
FORWARD-LOOKING STATEMENTS
 
We have included in this document ‘forward-looking statements’ within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934, which are intended to be covered by the safe harbors created by those laws. These forward-looking statements include information about possible or assumed future results of our operations. All statements, other than statements of historical facts that address activities, events or developments that we expect or anticipate may occur in the future, including such things as our outlook, future capital expenditures, growth in commissions and fees, business strategies, competitive strengths, goals, the benefits of new initiatives, growth of our business and operations, plans and references to future successes, are forward-looking statements. Also, when we use the words such as ‘anticipate’, ‘believe’, ‘estimate’, ‘expect’, ‘intend’, ‘plan’, ‘probably’, or similar expressions, we are making forward-looking statements.
 
There are important uncertainties, events and factors that could cause our actual results or performance to differ materially from those in the forward-looking statements contained in this document, including the following:
 
•   the impact of any regional, national or global political, economic, business, competitive, market, environmental or regulatory conditions on our global business operations;
 
•   the impact of current financial market conditions on our results of operations and financial condition, including as a result of those associated with the current Eurozone sovereign debt crisis any insolvencies of or other difficulties experienced by our clients, insurance companies or financial institutions;
 
•   our ability to implement and realize anticipated benefits of the 2011 Operational Review or any revenue generating initiatives;
 
•   the volatility or declines in insurance markets and premiums on which our commissions are based, but which we do not control;
 
•   our ability to continue to manage our significant indebtedness;
 
•   our ability to compete effectively in our industry, including the impact of our refusal to accept contingent commissions from carriers in the non-Employee Benefit areas of our retail brokerage business;
 
•   material changes in commercial property and casualty markets generally or the availability of insurance products or changes in premiums resulting from a catastrophic event, such as a hurricane, or otherwise;
 
•   our ability to retain key employees and clients and attract new business;
 
•   the timing and ability to carry out share repurchases and redemptions;
 
•   the timing or ability to carry out refinancing or take other steps to manage our capital and the limitations in our long-term debt agreements that may restrict our ability to take these actions;
 
•   any fluctuations in exchange and interest rates that could affect expenses and revenue;
 
•   the potential costs and difficulties in complying with a wide variety of foreign laws and regulations and any related changes, given the global scope of our operations;
 
•   rating agency actions that could inhibit our ability to borrow funds or the pricing thereof;
 
•   a significant decline in the value of investments that fund our pension plans or changes in our pension plan liabilities or funding obligations;
 
•   our ability to achieve the expected strategic benefits of transactions;
 
•   the impairment of the goodwill of one of our reporting units, in which case we may be required to record significant charges to earnings;
 
•   our ability to receive dividends or other distributions in needed amounts from our subsidiaries;
 
•   changes in the tax or accounting treatment of our operations;
 
•   any potential impact from the US healthcare reform legislation;
 
•   our involvements in and the results of any regulatory investigations, legal proceedings and other contingencies;


4


Table of Contents

 
About Willis
 
 
•   underwriting, advisory or reputational risks associated with non-core operations as well as the potential significant impact our non-core operations (including our Loan Protector operations) can have on our financial results;
 
•   our exposure to potential liabilities arising from errors and omissions and other potential claims against us; and
 
•   the interruption or loss of our information processing systems or failure to maintain secure information systems.
 
The foregoing list of factors is not exhaustive and new factors may emerge from time to time that could also affect actual performance and results.
 
Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of these assumptions, and therefore also the forward-looking statements based on these assumptions, could themselves prove to be inaccurate. In light of the significant uncertainties inherent in the forward-looking statements included in this document, our inclusion of this information is not a representation or guarantee by us that our objectives and plans will be achieved.
 
Our forward-looking statements speak only as of the date made and we will not update these forward-looking statements unless the securities laws require us to do so. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this document may not occur, and we caution you against unduly relying on these forward-looking statements.


5


Table of Contents

 
Willis Group Holdings plc
 
PART I
 
Item 1 — Business
 
History and Development of the Company
 
Willis Group Holdings is the ultimate holding company for the Group. We trace our history to 1828 and are one of the largest insurance brokers in the world.
 
Willis Group Holdings was incorporated in Ireland on September 24, 2009 to facilitate the change of the place of incorporation of the parent company of the Group from Bermuda to Ireland (the ‘Redomicile’). At December 31, 2009, the common shares of Willis-Bermuda were canceled, the Willis-Bermuda common shareholders received, on a one-for-one basis, new ordinary shares of Willis Group Holdings, and Willis Group Holdings became the ultimate parent company for the Group.
 
For administrative convenience, we utilize the offices of a subsidiary company as our principal executive offices. The address is:
 
Willis Group Holdings Public Limited Company
c/o Willis Group Limited
The Willis Building
51 Lime Street
London EC3M 7DQ
England
Tel: +44 203 124 6000
 
For several years, we have focused on our core retail and specialist broking operations. In 2008, we acquired HRH, at the time the eighth largest insurance and risk management intermediary in the United States. The acquisition almost doubled our North America revenues and created critical mass in key markets including California, Florida, Texas, Illinois, New York, Boston, New Jersey and Philadelphia. In addition, we have made a number of smaller acquisitions around the world and increased our ownership in several of our associates and existing subsidiaries, which were not wholly-owned, where doing so strengthened our retail network and our specialty businesses.
 
Available Information
 
The Company files annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (the ‘SEC’). You may read and copy any documents we file at the SEC’s Public Reference Room at 100 F Street, NE Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for information on the Public Reference Room. The SEC maintains a website that contains annual, quarterly and current reports, proxy statements and other information that issuers (including Willis Group Holdings) file electronically with the SEC. The SEC’s website is www.sec.gov.
 
The Company makes available, free of charge through our website, www.willis.com, our annual report on Form 10-K, our quarterly reports on Form 10-Q, our proxy statement, current reports on Form 8-K and Forms 3, 4, and 5 filed on behalf of directors and executive officers, as well as any amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934 (the ‘Exchange Act’) as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. Unless specifically incorporated by reference, information on our website is not a part of this Form 10-K.
 
The Company’s Corporate Governance Guidelines, Audit Committee Charter, Risk Committee Charter, Compensation Committee Charter and Corporate Governance and Nominating Committee Charter are available on our website, www.willis.com, in the Investor Relations-Corporate Governance section, or upon request. Requests for copies of these documents should be directed in writing to the Company Secretary c/o Office of General Counsel, Willis Group Holdings Public Limited Company, One World Financial Center, 200 Liberty Street, New York, NY 10281.


6


Table of Contents

 
About Willis
 
General
 
We provide a broad range of insurance brokerage, reinsurance and risk management consulting services to our clients worldwide. We have significant market positions in the United States, in the United Kingdom and, directly and through our associates, in many other countries. We are a recognized leader in providing specialized risk management advisory and other services on a global basis to clients in various industries including aerospace, marine, construction and energy.
 
In our capacity as an advisor and insurance broker, we act as an intermediary between our clients and insurance carriers by advising our clients on their risk management requirements, helping clients determine the best means of managing risk, and negotiating and placing insurance with insurance carriers through our global distribution network.
 
We assist clients in the assessment of their risks, advise on the best ways of transferring suitable risk to the global insurance and reinsurance markets and then execute the transactions at the most appropriate available price, terms and conditions for our clients. Our global distribution network enables us to place the risk in the most appropriate insurance or reinsurance market worldwide.
 
We also offer clients a broad range of services to help them to identify and control their risks. These services range from strategic risk consulting (including providing actuarial analyses), to a variety of due diligence services, to the provision of practical on-site risk control services (such as health and safety or property loss control consulting) as well as analytical and advisory services (such as hazard modeling and reinsurance optimization studies). We assist clients in planning how to manage incidents or crises when they occur. These services include contingency planning, security audits and product tampering plans. We are not an insurance company and therefore we do not underwrite insurable risks for our own account.
 
We and our associates serve a diverse base of clients including major multinational and middle-market companies in a variety of industries, as well as public institutions and individual clients. Many of our client relationships span decades. We have approximately 20,000 employees around the world (including approximately 3,300 at our associate companies) and a network of in excess of 400 offices in nearly 120 countries.
 
We believe we are one of only a few insurance brokers in the world possessing the global operating presence, broad product expertise and extensive distribution network necessary to meet effectively the global risk management needs of many of our clients.
 
Business Strategy
 
Our aim is to be the insurance broker and risk adviser of choice globally.
 
Our business model is aligned to the needs of each client segment:
 
•   Insurer — platform-neutral capital management and advisory services;
 
•   Large Accounts — delivering Willis’s global capabilities through client advocacy;
 
•   Mid-Market — mass-customization through our Sales 2.0 model;
 
•   Commercial — providing product and services to networks of retail brokers; and
 
•   Personal — focused on affinity models and High Net Worth segments.
 
Our business model has three elements:
 
•   Organic growth;
 
•   Recruitment of teams and individuals; and
 
•   Strategic acquisitions.


7


Table of Contents

 
Willis Group Holdings plc
 
 
To meet the needs of our clients, we realigned our business model in 2011 to further grow the company and position us to deliver the Willis Cause:
 
•   we thoroughly understand our clients’ needs and their industries;
 
•   we develop client solutions with the best markets, price and terms;
 
•   we relentlessly deliver quality client service; and
 
•   we get claims paid quickly
 
...With Integrity
 
Our Business
 
Insurance and reinsurance is a global business, and its participants are affected by global trends in capacity and pricing. Accordingly, we operate as one global business which ensures all clients’ interests are handled efficiently and comprehensively, whatever their initial point of contact. We organize our business into three segments: North America and International, which together comprise our principal retail operations, and Global. In 2011 and 2010, approximately 50 percent of our total revenue was generated from within the US, with no other country contributing in excess of 20 percent. For information regarding revenues, operating income and total assets per segment, see Note 27 of the Consolidated Financial Statements contained herein.
 
Global
 
Our Global business provides specialist brokerage and consulting services to clients worldwide for the risks arising from specific industrial and commercial activities. In these operations, we have extensive specialized experience handling diverse lines of coverage, including complex insurance programs, and acting as an intermediary between retail brokers and insurers. We increasingly provide consulting services on risk management with the objective of assisting clients to reduce the overall cost of risk. Our Global business serves clients in over 150 countries, primarily from offices in the United Kingdom, although we also serve clients from offices in the United States, Continental Europe and Asia.
 
The Global business is divided into:
 
•   Global Specialties;
 
•   Willis Re;
 
•   Willis Faber & Dumas (formerly London Market Wholesale); and
 
•   Willis Capital Markets & Advisory.
 
Global Specialties
 
Global Specialties has strong global positions in Aerospace, Energy, Marine, Construction, Financial and Executive Risks as well as Financial Solutions.
 
•   Aerospace
We are highly experienced in the provision of insurance and reinsurance brokerage and risk management services to Aerospace clients worldwide, including aircraft manufacturers, air cargo handlers and shippers, airport managers and other general aviation companies. Advisory services provided by Aerospace include claims recovery, contract and leasing risk management, safety services and market information. Aerospace’s clients include approximately one third of the world’s airlines. The specialist Inspace division is also prominent in supplying the space industry through providing insurance and risk management services to approximately 30 companies.


8


Table of Contents

 
About Willis
 
 
•   Energy
Our Energy practice provides insurance brokerage services including property damage, offshore construction, liability and control of well and pollution insurance to the energy industry. Our Energy practice clients are worldwide. We are highly experienced in providing insurance brokerage for all aspects of the energy industry including exploration and production, refining and marketing, offshore construction and pipelines.
 
•   Marine
Our Marine unit provides marine insurance and reinsurance brokerage services, including hull, cargo and general marine liabilities. Marine’s clients include ship owners, ship builders, logistics operators, port authorities, traders and shippers, other insurance intermediaries and insurance companies. Marine insurance brokerage is our oldest line of business dating back to our establishment in 1828.
 
•   Construction
Our Construction practice provides risk management advice and brokerage services for a wide range of UK and international construction activities. The clients of the Construction practice include contractors, project owners, project managers, project financiers, professional consultants and insurers. We are a broker for a number of the leading global construction firms.
 
•   Financial and Executive Risks
Our Financial and Executive Risks unit specializes in broking directors’ and officers’ insurance as well as professional indemnity insurance for corporations and professional firms.
 
•   Financial Solutions
Financial Solutions is a global business unit which incorporates our political risk unit, as well as structured finance and credit teams. It also places structured crime and specialist liability insurance for clients across the broad spectrum of financial institutions as well as specializing in strategic risk assessment and transactional risk transfer solutions.
 
Willis Re
 
We are one of the world’s largest intermediaries for reinsurance and have a significant market share in all of the world’s major markets. Our clients are both insurance and reinsurance companies.
 
We operate this business on a global basis and provide a complete range of transactional capabilities, including, in conjunction with Willis Capital Markets & Advisory, a wide variety of capital markets based products. Our services are underpinned by leading modeling, financial analysis and risk management advice. We bolster and enhance all of these services with the cutting edge knowledge derived from our Willis Research Network, the insurance industry’s largest partnership with global academic research.
 
Willis Faber & Dumas
 
This business unit was created on January 1, 2011 and amalgamates Faber & Dumas and Global Markets International. Prior to January 1, 2012, this unit was known as London Market Wholesale.
 
•   Faber & Dumas
Faber & Dumas, our wholesale brokerage division, comprises London-based operation, Glencairn, together with our Fine Art, Jewelry and Specie, Special Contingency Risk and Hughes-Gibb units.
 
  •   Glencairn principally provides property, energy, casualty and personal accident insurance to independent wholesaler brokers worldwide who wish to access the London, European and Bermudan markets.
 
  •   The Fine Art, Jewelry and Specie unit provides specialist risk management and insurance services to fine art, diamond and jewelry businesses and operators of armored cars. Coverage is also obtained for vault and bullion risks.
 
  •   The Special Contingency Risks unit specializes in producing packages to protect corporations, groups and individuals against special contingencies such as kidnap and ransom, extortion, detention and political repatriation.
 
  •   The Hughes-Gibb unit principally services the insurance and reinsurance needs of the horse racing and horse breeding industry and is successfully diversifying its portfolio into Agriculture/Crop sector.


9


Table of Contents

 
Willis Group Holdings plc
 
 
•   Global Markets International
Global Markets International works closely with other Global business units to further develop access for our retail clients to global markets, and provide structuring and placing skills in the relevant areas of property, casualty, terrorism, accident & health, facultative and captives.
 
Willis Capital Markets & Advisory
 
Willis Capital Markets & Advisory, with offices in New York and London, provides advice to companies involved in the insurance and reinsurance industry on a broad array of mergers and acquisition transactions as well as capital markets products, including acting as underwriter or agent for primary issuances, operating a secondary insurance-linked securities trading desk and engaging in general capital markets and strategic advisory work.
 
Retail operations
 
Our North America and International retail operations provide services to small, medium and large corporate clients, accessing Global’s specialist expertise when required.
 
North America
 
Our North America business provides risk management, insurance brokerage, related risk services, and employee benefits brokerage and consulting to a wide array of industry and client segments in the United States, Canada and Mexico. With around 120 locations, organized into seven geographical regions including Canada and Mexico, Willis North America locally delivers our global and national resources and specialist expertise through this retail distribution network.
 
In addition to being organized geographically and by specialty, our North America business focuses on four client segments: global, large national/middle-market, small commercial, and private client, with service, marketing and sales platform support for each segment.
 
•   Construction
The largest industry practice group in North America is Construction, which specializes in providing risk management, insurance brokerage, and surety bonding services to the construction industry. Willis Construction provided these services to around 25 percent of the Engineering News Record Top 400 contractors (a listing of the largest 400 North American contractors based on revenue). In addition, this practice group has expertise in owner-controlled insurance programs for large projects and insurance for national homebuilders.
 
•   Employee Benefits
Willis Employee Benefits, fully integrated into the North America platform, is our largest product-based practice group and provides health, welfare and human resources consulting, and brokerage services to all of our commercial client segments. This practice group’s value lies in helping clients control employee benefit plan costs, reducing the amount of time human resources professionals spend administering their companies’ benefit plans and educating and training employees on benefit plan issues.
 
•   Executive Risks
Another industry-leading North America practice group is Willis Executive Risks, a national team of technical professionals who specialize in meeting the directors and officers, employment practices, fiduciary liability insurance risk management, and claims advocacy needs of public and private corporations and organizations. This practice group also has expertise in professional liability, especially internet risks.
 
•   CAPPPS
The Captive, Actuarial, Programs, Pooling, Personal Lines and Strategic Outcomes (CAPPPS) group has a network of actuaries, certified public accountants, financial analysts and pooled insurance program experts who assist clients in developing and implementing alternative risk management solutions. The program business is a leader in providing national insurance programs to niche industries including ski resorts, auto dealers, recycling, environmental, and specialty workers’ compensation. Through our Loan Protector business, a specialty business acquired as part of the


10


Table of Contents

 
About Willis
 
HRH business, this group also works with financial institutions to confirm their loans are properly insured and their interests are adequately protected.
 
•   Other industry practice groups
Other industry practice groups include Healthcare, serving the professional liability and other insurance and risk management needs of private and not-for-profit health systems, hospitals and physicians groups; Financial Institutions, serving the needs of large banks, insurers and other financial services firms; and Mergers & Acquisitions, providing due diligence, and risk management and insurance brokerage services to private equity and merchant banking firms and their portfolio companies.
 
International
 
Our International business comprises our operations in Eastern and Western Europe, the United Kingdom and Ireland, Asia-Pacific, Russia, the Middle East, South Africa and Latin America.
 
Our offices provide services to businesses locally in over 120 countries around the world, making use of skills, industry knowledge and expertise available elsewhere in the Group.
 
The services provided are focused according to the characteristics of each market and vary across offices, but generally include direct risk management and insurance brokerage, specialist and reinsurance brokerage and employee benefits consulting.
 
As part of our on-going strategy, we continue to look for opportunities to strengthen our International market share through acquisitions and strategic investments. A list of significant subsidiaries is included in Exhibit 21.1 to this document.
 
We have also invested in associate companies; our significant associates at December 31, 2011 were GS & Cie Groupe (‘Gras Savoye’), a French organization (30 percent holding) and Al-Futtaim Willis Co. LLC, organized under the laws of Dubai (49 percent holding). In connection with many of our investments we retain the right to increase our ownership over time, typically to a majority or 100 percent ownership position. In addition, in certain instances our co-shareholders have a right, typically based on some price formula of revenues or earnings, to put some or all of their shares to us. On December 17, 2009 as part of a reorganization of the share capital of Gras Savoye our interest in that company reduced from 48 percent to 31 percent. In 2011 our ownership reduced further to 30 percent following issuance of additional share capital as part of an employee share incentive scheme. In addition, we have the option to acquire a 100 percent interest in the capital of Gras Savoye in 2015. For further information on the Gras Savoye capital reorganization see ‘Item 8—Financial Statements and Supplementary Data — Note 14 — Investments in Associates’.
 
We believe the combined total revenues of our International subsidiaries and associates provide an indication of the spread and capability of our International network. The team generated over 30 percent of the Group’s total consolidated commissions and fees in 2011.
 
Customers
 
Our clients operate on a global and local scale in a multitude of businesses and industries throughout the world and generally range in size from major multinational corporations to middle-market companies. Further, many of our client relationships span decades, for instance our relationship with The Tokio Marine and Fire Insurance Company Limited dates back over 100 years. No one client accounted for more than 10 percent of revenues for fiscal year 2011. Additionally, we place insurance with approximately 5,000 insurance carriers, none of which individually accounted for more than 10 percent of the total premiums we placed on behalf of our clients in 2011.
 
Competition
 
We face competition in all fields in which we operate based on global capability, product breadth, innovation, quality of service and price. According to the Directory of Agents and Brokers published by Business Insurance in July 2011, the 140 largest commercial insurance brokers globally reported brokerage revenues totaling $42 billion in 2010, of which


11


Table of Contents

 
Willis Group Holdings plc
 
Marsh & McLennan Companies Inc. had approximately 25 percent, Aon Corporation had approximately 25 percent and Willis had approximately 8 percent.
 
We compete with Marsh & McLennan and Aon, the two other providers of global risk management services, as well as with numerous specialist, regional and local firms. Competition for business is intense in all of our business lines and in every insurance market, and the other two providers of global risk management services have substantially greater market share than we do. Competition on premium rates has also exacerbated the pressures caused by a continuing reduction in demand in some classes of business. For example, rather than purchase additional insurance through brokers, many insureds have been retaining a greater proportion of their risk portfolios than previously. Industrial and commercial companies increasingly rely upon their own subsidiary insurance companies, known as captive insurance companies, self-insurance pools, risk retention groups, mutual insurance companies and other mechanisms for funding their risks, rather than buy insurance. Additional competitive pressures arise from the entry of new market participants, such as banks, accounting firms and insurance carriers themselves, offering risk management or transfer services.
 
In 2005, we, along with Marsh & McLennan and Aon, agreed with New York State and other regulators through an Assurance of Discontinuance, to implement certain business reforms which included codification of our October 2004 voluntary termination of contingent commission arrangements with insurers. Most other special, regional, and local insurance brokers, however, continued to accept contingent compensation and did not disclose the compensation received in connection with providing policy placement services to its customers. In February 2010, we entered into an Amended and Restated Assurance of Discontinuance with the Attorney General of the State of New York and the Amended and Restated Stipulation with the Superintendent of Insurance of the State of New York which ended many of the requirements previously imposed upon us. The new agreement no longer limited the type of compensation we could receive and simplified our compensation disclosure requirements.
 
Following the introduction of health care reform legislation in 2010, some major health insurance carriers in North America began to change their compensation practices in particular lines of business in certain locations. In response to market pressures those changes caused, we announced in July 2011 that in order to remain competitive, we would begin accepting standard compensation based on volume, but would continue to resist traditional contingent commissions and bonus payments because, while legal, we believe these forms of compensation create conflicts with our clients. After several months of review under changing market conditions, we have concluded that we cannot be fully competitive on Employee Benefits business if we continue to refuse these legal forms of compensation. Consequently, we will begin to accept all forms of compensation from Employee Benefits providers effective April 1, 2012. While accepting contingent compensation is legal, and while we will only accept them in full compliance with all applicable laws and regulations and consistent with ethical business practices, in the past it has been the subject of regulatory action and civil litigation and we cannot predict whether our position will cause regulatory or other scrutiny.
 
We will continue to refuse to accept contingent commissions from carriers in the non-Employee Benefit areas of our retail brokerage business unless similar external factors such as legislative change make our position untenable. However, we do not believe such a change is likely. To our knowledge, we are the only insurance broker that takes this stance. We seek to increase revenue through higher commissions and fees that we disclose to our clients, and to generate profitable revenue growth by focusing on the provision of value-added risk advisory services beyond traditional brokerage activities. Although we continue to believe in the success of our strategy, we cannot be certain that such steps will help us to continue to generate profitable organic commissions and fees growth. If we are unable to compete effectively against our competitors who are accepting or may accept contingent commissions, we may suffer lower revenue, reduced operating margins, and loss of market share which could materially and adversely affect our business.
 
Regulation
 
Our business activities are subject to legal requirements and governmental and quasi-governmental regulatory supervision in virtually all countries in which we operate. Also, such regulations may require individual or company licensing to conduct our business activities. While these requirements may vary from location to location they are generally designed to protect our clients by establishing minimum standards of conduct and practice, particularly regarding the provision of advice and product information as well as financial criteria. Our three most significant regulatory regions are described below:


12


Table of Contents

 
About Willis
 
United States
 
Our activities in connection with insurance brokerage services within the United States are subject to regulation and supervision by state authorities. Although the scope of regulation and form of supervision may vary from jurisdiction to jurisdiction, insurance laws in the United States are often complex and generally grant broad discretion to supervisory authorities in adopting regulations and supervising regulated activities. That supervision generally includes the licensing of insurance brokers and agents and the regulation of the handling and investment of client funds held in a fiduciary capacity. Our continuing ability to provide insurance brokerage in the jurisdictions in which we currently operate is dependent upon our compliance with the rules and regulations promulgated from time to time by the regulatory authorities in each of these jurisdictions.
 
European Union
 
The European Union Insurance Mediation Directive introduced rules to enable insurance and reinsurance intermediaries to operate and provide services within each member state of the EU on a basis consistent with the EU single market and customer protection aims. Each EU member state in which we operate is required to ensure that the insurance and reinsurance intermediaries resident in their country are registered with a statutory body in that country and that each intermediary meets professional requirements in relation to their competence, good repute, professional indemnity cover and financial capacity.
 
United Kingdom
 
In the United Kingdom, the statutory body is the Financial Services Authority (‘FSA’). The FSA has prescribed the methods by which our insurance and reinsurance operations are to conduct business, and has a wide range of rule-making, investigatory and enforcement powers aimed at meeting its overall aim of promoting efficient, orderly and fair markets and helping retail consumers achieve a fair deal. The FSA conducts monitoring visits to assess our compliance with regulatory requirements.
 
Certain of our activities are governed by other regulatory bodies, such as investment and securities licensing authorities. In the United States, our Willis Capital Markets & Advisory business operates through our wholly-owned subsidiary Willis Securities, Inc., a US-registered broker-dealer and investment advisor, member FINRA/SIPC, primarily in connection with investment banking-related services and advising on alternative risk financing transactions. Willis Capital Markets provides advice on securities or investments in the EU through our wholly-owned subsidiary Willis Capital Markets & Advisory Limited, which is authorized and regulated by the FSA.
 
Our failure, or that of our employees, to satisfy the regulators that we comply with their requirements or the legal requirements governing our activities, can result in disciplinary action, fines, reputational damage and financial harm.
 
All companies carrying on similar activities in a given jurisdiction are subject to regulations which are not dissimilar to the requirements for our operations in the United States and United Kingdom. We do not consider that these regulatory requirements adversely affect our competitive position.
 
See Part I, Item 1A-Risk Factors ‘Legal and Regulatory Risks’ for discussion of how actions by regulatory authorities or changes in legislation and regulation in the jurisdictions in which we operate may have an adverse effect on our business.
 
Employees
 
As of December 31, 2011 we had approximately 17,000 employees worldwide of whom approximately 3,400 were employed in the United Kingdom and 6,200 in the United States, with the balance being employed across the rest of the world. In addition, our associates had approximately 3,300 employees, all of whom were located outside the United Kingdom and the United States.


13


Table of Contents

 
Willis Group Holdings plc
 
 
Item 1A—Risk Factors
 
Risks Relating to our Business and the Insurance Industry
 
This section describes material risks affecting the Group’s business. These risks could materially affect the Group’s business, its revenues, operating income, net income, net assets, liquidity and capital resources and ability to achieve its financial targets and, accordingly should be read in conjunction with any forward-looking statements in this Annual Report on Form 10-K.
 
Competitive Risks
 
Worldwide economic conditions, including those associated with the current Eurozone sovereign debt crisis, could have an adverse effect on our business, prospects, operating results, financial condition and cash flows.
 
Our business and operating results are materially affected by worldwide economic conditions. Current global economic conditions, including those associated with the current Eurozone sovereign debt crisis, coupled with declining customer and business confidence, increasing energy prices, and other challenges, may have a significant negative impact on the buying behavior of some of our clients as their businesses suffer from these conditions. For example, our employee benefits practice may be adversely affected as businesses continue to downsize during this period of economic turmoil and our construction business may be adversely affected by the lack of new construction. Our North American and UK and Irish retail operations have been particularly impacted by the weakened economic climate and continued soft market from 2009 through 2011 with no material improvement in rates across most sectors. The global economic downturn is negatively affecting some of the international economies that have supported the strong growth in our International operations.
 
A growing number of insolvencies associated with an economic downturn could adversely affect our brokerage business through the loss of clients or by hampering our ability to place insurance and reinsurance business. While it is difficult to predict consequences of any further deterioration in global economic conditions on our business, any significant reduction or delay by our clients in purchasing insurance or making payment of premiums could have a material adverse impact on our financial condition and results of operations. In addition, the potential for a significant insurer to fail, be downgraded or withdraw from writing certain lines of insurance coverages that we offer our clients could negatively impact overall capacity in the industry, which could then reduce the placement of certain lines and types of insurance and reduce our revenues and profitability. The potential for an insurer to fail or be downgraded could also result in errors and omissions claims by clients.
 
The credit and economic conditions within certain European Union countries, in particular, Greece, Ireland, Italy, Portugal and Spain, have continued to deteriorate and have contributed to the instability in the global credit and financial markets. While the outcome of these events cannot be predicted, it is possible that such events could have a negative effect on the global economy as a whole, and our business, operating results and financial condition. If the European debt crisis continues or further deteriorates, there will likely be a negative effect on our European business (which constitutes approximately 40 percent of our business in terms of revenue), as well as the businesses of our European clients. If the euro dissolved entirely, the legal and contractual consequences for holders of euro-denominated obligations would be determined by laws in effect at such time. A significant devaluation of the euro would cause the value of our financial assets that are denominated in Euros to be significantly reduced. Any of these conditions could ultimately harm our overall business, prospects, operating results, financial condition and cash flows.
 
In light of the current global economic uncertainty, we strive to vigorously manage our cost base in order to fund further growth initiatives. While we completed an operational review and commenced certain revenue generating initiatives in 2011 (such as Sales 2.0, WillPlace and Global Solutions), we cannot be certain whether we will be able to realize benefits from these initiatives or any new initiatives that we may implement.


14


Table of Contents

 
Risk factors
 
We do not control the premiums on which our commissions are based, and volatility or declines in premiums may seriously undermine our profitability.
 
We derive most of our revenues from commissions and fees for brokerage and consulting services. We do not determine insurance premiums on which our commissions are generally based. Premiums are cyclical in nature and may vary widely based on market conditions. For a three-year period in early 2000s, we benefitted from a ‘hard’ market with premium rates stable or increasing. Since that time, we saw a rapid transition from a hard market to a ‘soft’ market, with premium rates falling in most markets which impacted our commission revenues and operating margin. In 2009, the stabilization of rates in the reinsurance market and some specialty markets was offset by the continuing soft market in other sectors and the adverse impact of the weakened economic environment across the globe. Our North American and UK and Irish retail operations have been particularly impacted by the weakened economic climate and continued soft market from 2009 through 2011 with no material improvement in rates across most sectors. This resulted in declines in 2009 revenues in these operations with a modest improvement in 2010 followed by declines in 2011, particularly amongst our smaller clients who have been especially vulnerable to the economic downturn.
 
In addition, as traditional risk-bearing insurance carriers continue to outsource the production of premium revenue to non-affiliated agents or brokers such as ourselves, those insurance carriers may seek to reduce further their expenses by reducing the commission rates payable to those insurance agents or brokers. The reduction of these commission rates, along with general volatility and/or declines in premiums, may significantly undermine our profitability.
 
Competition in our industry is intense, and if we are unable to compete effectively, we may suffer lower revenue, reduced operating margins and lose market share which could materially and adversely affect our business.
 
We face competition in all fields in which we operate, based on global capability, product breadth, innovation, quality of service and price. We compete with Marsh & McLennan and Aon, the two other providers of global risk management services, as well as with numerous specialist, regional and local firms. Competition for business is intense in all of our business lines and in every insurance market, and the other two providers of global risk management services have substantially greater market share than we do. Competition on premium rates has also exacerbated the pressures caused by a continuing reduction in demand in some classes of business. For example, rather than purchase additional insurance through brokers, many insureds have been retaining a greater proportion of their risk portfolios than previously. Industrial and commercial companies increasingly rely upon their own subsidiary insurance companies, known as captive insurance companies, self-insurance pools, risk retention groups, mutual insurance companies and other mechanisms for funding their risks, rather than buy insurance. Additional competitive pressures arise from the entry of new market participants, such as banks, accounting firms and insurance carriers themselves, offering risk management or transfer services.
 
In 2005, we, along with Marsh & McLennan and Aon, agreed with New York State and other regulators through an Assurance of Discontinuance, to implement certain business reforms which included codification of our October 2004 voluntary termination of contingent commission arrangements with insurers. Most other special, regional, and local insurance brokers, however, continued to accept contingent compensation and did not disclose the compensation received in connection with providing policy placement services to its customers. In February 2010, we entered into an Amended and Restated Assurance of Discontinuance with the Attorney General of the State of New York and the Amended and Restated Stipulation with the Superintendent of Insurance of the State of New York which ended many of the requirements previously imposed upon us. The new agreement no longer limited the type of compensation we could receive and simplified our compensation disclosure requirements.
 
Following the introduction of health care reform legislation in 2010, some major health insurance carriers in North America began to change their compensation practices in particular lines of business in certain locations. In response to market pressures those changes caused, we announced in July 2011 that in order to remain competitive, we would begin accepting standard compensation based on volume, but would continue to resist traditional contingent commissions and bonus payments because, while legal, we believe these forms of compensation create conflicts with our clients. After several months of review under changing market conditions, we have concluded that we cannot be fully competitive on Employee Benefits business if we continue to refuse these legal forms of compensation. Consequently, we will begin to accept all forms of compensation from Employee Benefits providers effective April 1, 2012. While accepting contingent compensation is legal, and while we will only accept them in full compliance with all applicable laws and regulations and


15


Table of Contents

 
Willis Group Holdings plc
 
consistent with ethical business practices, in the past it has been the subject of regulatory action and civil litigation and we cannot predict whether our position will cause regulatory or other scrutiny.
 
We will continue to refuse to accept contingent commissions from carriers in the non-Employee Benefit areas of our retail brokerage business unless similar external factors such as legislative change make our position untenable. However, we do not believe such a change is likely. To our knowledge, we are the only insurance broker that takes this stance. We seek to increase revenue through higher commissions and fees that we disclose to our clients, and to generate profitable revenue growth by focusing on the provision of value-added risk advisory services beyond traditional brokerage activities. Although we continue to believe in the success of our strategy, we cannot be certain that such steps will help us to continue to generate profitable organic revenue growth. If we are unable to compete effectively against our competitors who are accepting or may accept contingent commissions, we may suffer lower revenue, reduced operating margins, and loss of market share which could materially and adversely affect our business.
 
Dependence on Key Personnel — The loss of our Chairman and Chief Executive Officer or a number of our senior management or a significant number of our brokers could significantly impede our financial plans, growth, marketing and other objectives.
 
The loss of our Chairman and Chief Executive Officer, a number of our senior management or a significant number of our brokers could significantly impede our financial plans, growth, marketing and other objectives. Our success depends to a substantial extent not only on the ability and experience of our Chairman and Chief Executive Officer, Joseph J. Plumeri and other members of our senior management, but also on the individual brokers and teams that service our clients and maintain client relationships. The insurance and reinsurance brokerage industry has in the past experienced intense competition for the services of leading individual brokers and brokerage teams, and we have lost key individuals and teams to competitors. We believe that our future success will depend in part on our ability to attract and retain additional highly skilled and qualified personnel and to expand, train and manage our employee base. We may not continue to be successful in doing so because the competition for qualified personnel in our industry is intense.
 
Legal and Regulatory Risks
 
Our compliance systems and controls cannot guarantee that we are in compliance with all applicable federal and state or foreign laws and regulations, and actions by regulatory authorities or changes in applicable laws and regulations in the jurisdictions in which we operate may have an adverse effect on our business.
 
Our activities are subject to extensive regulation under the laws of the United States, the United Kingdom and the European Union and its member states, and the other jurisdictions in which we operate. Indeed, over the last few years, there has been a general increase in focus and developments in these laws and regulations. Compliance with laws and regulations that are applicable to our operations is complex and may increase our cost of doing business. These laws and regulations include insurance industry regulations, economic and trade sanctions and laws against financial crimes such as money laundering, bribery or other corruption, such as the U.S. Foreign Corrupt Practices Act. In most jurisdictions, governmental and regulatory authorities have the ability to interpret and amend these laws and regulations and impose penalties for non-compliance, including sanctions, civil remedies, fines, injunctions, revocation of licenses or approvals, suspension of individuals, limitations on business activities or redress to clients.
 
Given the increased interest expressed by US and UK regulators in the effectiveness of compliance controls relating to financial crime in our market sector in particular, we began a voluntary internal review of our policies and controls five years ago. This review includes analysis and advice from external experts on best practices, review of public regulatory decisions, and discussions with government regulators in the US and UK. In addition, the UK FSA conducted an investigation of Willis Limited’s, our UK brokerage subsidiary, compliance systems and controls between 2005 and 2009. On July 21, 2011, we and the FSA announced a settlement under which the FSA concluded its investigation by assessing a £7 million ($11 million) fine on Willis Limited for lapses in its implementation and documentation of its controls to counter the risks of improper payments being made to non-FSA authorized overseas third parties engaged to help win business, particularly in high risk jurisdictions.


16


Table of Contents

 
Risk factors
 
As a result of the FSA settlement, we are conducting a further internal review of all payments made between 2005 and 2009. We also continue to fully cooperate with our US regulators, however we are unable to predict at this time when our discussions with them will be concluded. We do not believe that this further internal review or our discussions with the US regulators will result in any material fines or sanctions, but there can be no assurance that any resolution will not have an adverse impact on our ability to conduct our business in certain jurisdictions. While we believe that our current systems and controls are adequate and in accordance with all applicable laws and regulations, we cannot assure that such systems and controls will prevent any violations of applicable laws and regulations.
 
Our business, results of operations, financial condition or liquidity may be materially adversely affected by actual and potential claims, lawsuits, investigations and proceedings.
 
We are subject to various actual and potential claims, lawsuits, investigations and other proceedings relating principally to alleged errors and omissions in connection with the placement of insurance and reinsurance in the ordinary course of business. Because we often assist our clients with matters, including the placement of insurance coverage and the handling of related claims, involving substantial amounts of money, errors and omissions claims against us may arise which allege our potential liability for all or part of the amounts in question.
 
Claimants can seek large damage awards and these claims can involve potentially significant defense costs. Such claims, lawsuits and other proceedings could, for example, include allegations of damages for our employees or sub-agents improperly failing to place coverage or notify claims on behalf of clients, to provide insurance carriers with complete and accurate information relating to the risks being insured or to appropriately apply funds that we hold for our clients on a fiduciary basis. Errors and omissions claims, lawsuits and other proceedings arising in the ordinary course of business are covered in part by professional indemnity or other appropriate insurance. The terms of this insurance vary by policy year and self-insured risks have increased significantly in recent years. In respect of self-insured risks, we have established provisions against these items which we believe to be adequate in the light of current information and legal advice, and we adjust such provisions from time to time according to developments. Our business, results of operations, financial condition and liquidity may be adversely affected if in the future our insurance coverage proves to be inadequate or unavailable or there is an increase in liabilities for which we self-insure. Our ability to obtain professional indemnity insurance in the amounts and with the deductibles we desire in the future may be adversely impacted by general developments in the market for such insurance or our own claims experience.
 
We are also subject to actual and potential claims, lawsuits, investigations and proceedings outside of errors and omissions claims. An example of material claims for which we are subject that are outside of the error and omissions claims context relate to those arising out of the collapse of The Stanford Financial Group, for which we acted as brokers of record on certain lines of insurance.
 
The ultimate outcome of these matters cannot be ascertained and liabilities in indeterminate amounts may be imposed on us. It is thus possible that future results of operations or cash flows for any particular quarterly or annual period could be materially affected by an unfavorable resolution of these matters. In addition, these matters continue to divert management and personnel resources away from operating our business. Even if we do not experience significant monetary costs, there may also be adverse publicity associated with these matters that could result in reputational harm to the insurance brokerage industry in general or to us in particular that may adversely affect our business, client or employee relationships.
 
Interruption to or loss of our information processing capabilities or failure to effectively maintain and upgrade our information processing systems or data security breaches could cause material financial loss, loss of human resources, regulatory actions, reputational harm or legal liability.
 
Our business depends significantly on effective information systems. Our capacity to service our clients relies on effective storage, retrieval, processing and management of information. Our information systems also rely on the commitment of significant resources to maintain and enhance existing systems and to develop new systems in order to keep pace with continuing changes in information processing technology or evolving industry and regulatory standards.


17


Table of Contents

 
Willis Group Holdings plc
 
Computer viruses, hackers and other external hazards could expose our data systems to security breaches. These increased risks, and expanding regulatory requirements regarding data security, could expose us to data loss, monetary and reputational damages and significant increases in compliance costs.
 
If the information we rely on to run our business were found to be inaccurate or unreliable or if we fail to maintain effective and efficient systems (including through a telecommunications failure, failure to replace or update redundant or obsolete computer applications or software systems or if we experience other disruptions), this could result in material financial loss, regulatory action, reputational harm or legal liability.
 
Our inability to successfully recover should we experience a disaster or other significant disruption to business continuity could have a material adverse effect on our operations.
 
Our ability to conduct business may be adversely affected, even in the short-term, by a disruption in the infrastructure that supports our business and the communities where we are located. This may include a disruption caused by restricted physical site access, terrorist activities, disease pandemics, or outages to electrical, communications or other services used by our company, our employees or third parties with whom we conduct business. Although we have certain disaster recovery procedures in place and insurance to protect against such contingencies, such procedures may not be effective and any insurance or recovery procedures may not continue to be available at reasonable prices and may not address all such losses or compensate us for the possible loss of clients occurring during any period that we are unable to provide services. Our inability to successfully recover should we experience a disaster or other significant disruption to business continuity could have a material adverse effect on our operations.
 
Improper disclosure of personal data could result in legal liability or harm our reputation.
 
One of our significant responsibilities is to maintain the security and privacy of our clients’ confidential and proprietary information and the personal data of their employees. We maintain policies, procedures and technological safeguards designed to protect the security and privacy of this information in our database. However, we cannot entirely eliminate the risk of improper access to or disclosure of personally identifiable information. Our technology may fail to adequately secure the private information we maintain in our databases and protect it from theft, computer viruses, hackers or inadvertent loss. In such circumstances, we may be held liable to our clients, which could result in legal liability or impairment to our reputation resulting in increased costs or loss of revenue. Further database privacy, identity theft, and related computer and internet issues are matters of growing public concern and are subject to frequently changing rules and regulations. Our failure to adhere to or successfully implement processes in response to changing regulatory requirements in this area could result in legal liability or impairment to our reputation in the marketplace.
 
Financial Risks
 
Our outstanding debt could adversely affect our cash flows and financial flexibility.
 
We had total consolidated debt outstanding of approximately $2.4 billion as of December 31, 2011 and our 2011 interest expense was $156 million. Although management believes that our cash flows will be sufficient to service this debt, there may be circumstances in which required payments of principal and/or interest on this debt could adversely affect our cash flows and this level of indebtedness may:
 
•   require us to dedicate a significant portion of our cash flow from operations to payments on our debt, thereby reducing the availability of cash flow to fund capital expenditures, to pursue other acquisitions or investments in new technologies, to pay dividends and for general corporate purposes;
 
•   increase our vulnerability to general adverse economic conditions, including if we borrow at variable interest rates, which makes us vulnerable to increases in interest rates generally;
 
•   limit our flexibility in planning for, or reacting to, changes or challenges relating to our business and industry; and


18


Table of Contents

 
Risk factors
 
 
•   put us at a competitive disadvantage against competitors who have less indebtedness or are in a more favorable position to access additional capital resources.
 
The terms of our current financings also include certain limitations. For example, the agreements relating to the debt arrangements and credit facilities contain numerous operating and financial covenants, including requirements to maintain minimum ratios of consolidated EBITDA to consolidated cash interest expense and maximum levels of consolidated funded indebtedness in relation to consolidated EBITDA, in each case subject to certain adjustments.
 
A failure to comply with the restrictions under our credit facilities and outstanding notes could result in a default under the financing obligations or could require us to obtain waivers from our lenders for failure to comply with these restrictions. The occurrence of a default that remains uncured or the inability to secure a necessary consent or waiver could cause our obligations with respect to our debt to be accelerated and have a material adverse effect on our business, financial condition or results of operations.
 
Our pension liabilities may increase which could require us to make additional cash contributions to our pension plans reducing the cash available for other uses.
 
We have two principal defined benefit plans: one in the United Kingdom and the other in the United States, and in addition, we have several smaller defined benefit pension plans in certain other countries in which we operate. Cash contributions of approximately $142 million will be required in 2012 for these pension plans, although we may elect to contribute more. Total cash contributions to these defined benefit pension plans in 2011 were $135 million. Future estimates are based on certain assumptions, including discount rates, interest rates, mortality, fair value of assets and expected return on plan assets.
 
In early 2012 we provisionally agreed a revised funding strategy with the UK plan’s trustee. Whilst the proposed new funding strategy has not been definitively agreed at the date of this report, we expect this to occur by the end of March 2012, and we expect the cash contributions to the scheme in 2012 to be approximately equal to those in 2011.
 
We have taken actions to manage our pension liabilities, including closing our UK and US plans to new participants and restricting final pensionable salaries. Future benefit accruals in the US pension plan were also stopped, or frozen, on May 15, 2009. Nevertheless, the determination of pension expense and pension funding is based on a variety of rules and regulations. Changes in these rules and regulations could impact the calculation of pension plan liabilities and the valuation of pension plan assets. They may also result in higher pension costs, additional financial statement disclosure, and accelerate and increase the need to fully fund our pension plans through increased cash contributions. Further, a significant decline in the value of investments that fund our pension plan, if not offset or mitigated by a decline in our liabilities, may significantly alter the values and actuarial assumptions used to calculate our future pension expense and we could be required to fund our plan with significant additional amounts of cash. In addition to the critical assumptions described above, our plans use certain assumptions about the life expectancy of plan participants and surviving spouses. Periodic revision of those assumptions can materially change the present value of future benefits and therefore the funded status of the plans and the resulting periodic pension expense. Changes in our pension benefit obligations, the related net periodic costs or credits, and the required level of future cash contributions, may occur in the future due to any variance of actual results from our assumptions and changes in the number of participating employees. The need to make additional cash contributions may reduce the Company’s financial flexibility and increase liquidity risk by reducing the cash available to meet our other obligations, including the payment obligations under our credit facilities and other long-term debt, or other needs of our business.
 
We could incur substantial losses, including with respect to our own cash and fiduciary cash held on behalf of insurance companies and clients, if one of the financial institutions we use in our operations failed.
 
The deterioration of the global credit and financial markets has created challenging conditions for financial institutions, including depositories. As the fallout from the credit crisis persists, the financial strength of these institutions may continue to decline. We maintain significant cash balances at various US depository institutions that are significantly in excess of the US Federal Deposit Insurance Corporation insurance limits. We also maintain significant cash balances in


19


Table of Contents

 
Willis Group Holdings plc
 
foreign financial institutions. A significant portion of this fiduciary cash is held on behalf of insurance companies or clients. If one or more of the institutions in which we maintain significant cash balances were to fail, our ability to access these funds might be temporarily or permanently limited, and we could face a material liquidity problem and potentially material financial losses. We could also be liable to claims made by the insurance companies or our clients regarding the fiduciary cash held on their behalf.
 
A downgrade to our corporate credit rating and the credit ratings of our outstanding debt may adversely affect our borrowing costs and financial flexibility.
 
A downgrade in our corporate credit rating or the credit ratings of our debt would increase our borrowing costs including those under our credit facilities, and reduce our financial flexibility. In addition, certain downgrades would trigger a step-up in interest rates under the indentures for our 6.2% senior notes due 2017 and our 7.0% senior notes due 2019, which would increase our interest expense. If we need to raise capital in the future, any credit rating downgrade could negatively affect our financing costs or access to financing sources. This may in turn impact the assumptions when performing our goodwill impairment testing which may reduce the excess of fair value over carrying value of the reporting units.
 
We face certain risks associated with the acquisition or disposition of businesses or reorganization of existing investments.
 
In pursuing our corporate strategy, we may acquire or dispose of or exit businesses or reorganize existing investments. The success of this strategy is dependent upon our ability to identify appropriate opportunities, negotiate transactions on favorable terms and ultimately complete such transactions. Once we complete acquisitions or reorganizations there can be no assurance that we will realize the anticipated benefits of any transaction, including revenue growth, operational efficiencies or expected synergies. For example, if we fail to recognize some or all of the strategic benefits and synergies expected from a transaction, goodwill and intangible assets may be impaired in future periods. In addition, we may not be able to integrate acquisitions successfully into our existing business, and we could incur or assume unknown or unanticipated liabilities or contingencies, which may impact our results of operations. If we dispose of or otherwise exit certain businesses, there can be no assurance that we will not incur certain disposition related charges, or that we will be able to reduce overheads related to the divested assets. We also own an interest in a number of associates, such as Gras Savoye, where we do not exercise management control and we are therefore unable to direct or manage the business to realize the anticipated benefits that we can achieve through full integration.
 
We are a holding company and, therefore, may not be able to receive dividends or other distributions in needed amounts from our subsidiaries.
 
Willis Group Holdings is organized as a holding company that conducts no business of its own. We are dependent upon dividends and other payments from our operating subsidiaries to meet our obligations for paying principal and interest on outstanding debt obligations, for paying dividends to shareholders and for corporate expenses. Legal and regulatory restrictions, foreign exchange controls, as well as operating requirements of our subsidiaries, may limit our ability to obtain cash from these subsidiaries. In the event our operating subsidiaries are unable to pay dividends and make other payments to Willis Group Holdings, we may not be able to service debt, pay obligations or pay dividends on ordinary shares.
 
If our goodwill becomes impaired, we may be required to record significant charges to earnings.
 
We have a substantial amount of goodwill on our balance sheet as a result of acquisitions we have completed. We review goodwill for impairment annually or whenever events or circumstances indicate impairment may have occurred.
 
Application of the impairment test requires judgment, including the identification of reporting units, assignment of assets, liabilities and goodwill to reporting units and determination of fair value of each reporting unit. A significant deterioration


20


Table of Contents

 
Risk factors
 
in a key estimate or assumption or a less significant deterioration to a combination of assumptions or the sale of a part of a reporting unit could result in an impairment charge in the future, which could have a significant adverse impact on our reported earnings.
 
Our annual goodwill impairment analysis is performed each year at October 1. At October 1, 2011 our analysis showed the estimated fair value of each reporting unit was in excess of the carrying value, and therefore did not result in an impairment charge (2010: $nil, 2009: $nil). The fair values of the Global and International reporting units were significantly in excess of their carrying values. The fair value of the North American unit exceeded its carrying value by approximately 14 percent.
 
In the fourth quarter of 2011 our North America segment continued to be hampered by declining Loan Protector business results, the effect of the soft economy in the U.S. and declining retention rates primarily related to M&A activity and lost legacy HRH business. Consequently, the annual impairment test described above included additional sensitivity analysis, over and above that we would usually perform, in relation to our North America segment’s goodwill impairment review. This additional analysis included reductions to assumed rates of revenue growth, increases to assumed rates of expense growth and flexing the assumed weighted average cost of capital. Although our testing concluded there is no impairment, the analysis indicated that in respect of the North America segment, in the event of either a significant deterioration in a key estimate or assumption or a less significant deterioration to a combination of assumptions or the sale of part of the reporting unit there could be an impairment to the carrying value in future periods.
 
For further information on our testing for goodwill impairment, see ‘Critical Accounting Estimates’ under Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
International Risks
 
Our significant non-US operations, particularly our London market operations, expose us to exchange rate fluctuations and various risks that could impact our business.
 
A significant portion of our operations is conducted outside the United States. Accordingly, we are subject to legal, economic and market risks associated with operating in foreign countries, including devaluations and fluctuations in currency exchange rates; imposition of limitations on conversion of foreign currencies into pounds sterling or dollars or remittance of dividends and other payments by foreign subsidiaries; hyperinflation in certain foreign countries; imposition or increase of investment and other restrictions by foreign governments; and the requirement of complying with a wide variety of foreign laws.
 
We report our operating results and financial condition in US dollars. Our US operations earn revenue and incur expenses primarily in US dollars. In our London market operations, however, we earn revenue in a number of different currencies, but expenses are almost entirely incurred in pounds sterling. Outside the United States and our London market operations, we predominantly generate revenue and expenses in the local currency. The table gives an approximate analysis of revenues and expenses by currency in 2011.
 
                                 
    US
  Pounds
      Other
    Dollars   Sterling   Euros   currencies
 
Revenues
    58%       9%       14%       19%  
Expenses
    51%       23%       10%       16%  
 
Because of devaluations and fluctuations in currency exchange rates or the imposition of limitations on conversion of foreign currencies into US dollars, we are subject to currency translation exposure on the profits of our operations, in addition to economic exposure. Furthermore, the mismatch between pounds sterling revenues and expenses, together with any net sterling balance sheet position we hold in our US dollar denominated London market operations, creates an exchange exposure.
 
For example, as the pound sterling strengthens, the US dollars required to be translated into pounds sterling to cover the net sterling expenses increase, which then causes our results to be negatively impacted. However, any net sterling asset we


21


Table of Contents

 
Willis Group Holdings plc
 
are holding will be more valuable when translated into US dollars. Given these facts, the strength of the pound sterling relative to the US dollar has in the past had a material negative impact on our reported results. This risk could have a material adverse effect on our business financial condition, cash flow and results of operations in the future.
 
Where possible, we hedge part of our operating exposure to exchange rate movements, but such mitigating attempts may not be successful.
 
In conducting our businesses around the world, we are subject to political, economic, legal, market, nationalization, operational and other risks that are inherent in operating in many countries.
 
In conducting our businesses and maintaining and supporting our global operations, we are subject to political, economic, legal, market, nationalization, operational and other risks. Our businesses and operations continue to expand into new regions throughout the world, including emerging markets. The possible effects of economic and financial disruptions throughout the world could have an adverse impact on our businesses. These risks include:
 
•   the general economic and political conditions in foreign countries, for example, the potential dissolution of the euro and the 2010 devaluation of the Venezuelan Bolivar;
 
•   the imposition of controls or limitations on the conversion of foreign currencies or remittance of dividends and other payments by foreign subsidiaries;
 
•   imposition of withholding and other taxes on remittances and other payments from subsidiaries;
 
•   imposition or increase of investment and other restrictions by foreign governments;
 
•   difficulties in controlling operations and monitoring employees in geographically dispersed and culturally diverse locations; and
 
•   the potential costs and difficulties in complying, or monitoring compliance, with a wide variety of foreign laws (some of which may conflict with US or other sources of law), laws and regulations applicable to US business operations abroad, including rules relating to trade sanctions administered by the US Office of Foreign Assets Control, the EU, the UK and the UN, and the requirements of the US Foreign Corrupt Practices Act as well as other anti-bribery and corruption rules and requirements in the countries in which we operate.
 
Legislative and regulatory action could materially and adversely affect us and our effective tax rate may increase.
 
There is uncertainty regarding the tax policies of the jurisdictions where we operate (which include the potential legislative actions described below), and our effective tax rate may increase and any such increase may be material. Additionally, the tax laws of Ireland and other jurisdictions could change in the future, and such changes could cause a material change in our effective tax rate. For example, legislative action may be taken by the US Congress which, if ultimately enacted, could override tax treaties upon which we rely or could broaden the circumstances under which we would be considered a US resident, each of which could materially and adversely affect our effective tax rate and cash tax position. We cannot predict the outcome of any specific legislative proposals. However, if proposals were enacted that had the effect of limiting our ability to take advantage of tax treaties between Ireland and other jurisdictions (including the US), we could be subjected to increased taxation. In addition, any future amendments to the current income tax treaties between Ireland and other jurisdictions could subject us to increased taxation.
 
Irish law differs from the laws in effect in the United States and may afford less protection to holders of our securities.
 
It may not be possible to enforce court judgments obtained in the United States against us in Ireland based on the civil liability provisions of the US federal or state securities laws. In addition, there is some uncertainty as to whether the courts of Ireland would recognize or enforce judgments of US courts obtained against us or our directors or officers based on the civil liabilities provisions of the US federal or state securities laws or hear actions against us or those persons based on those laws. We have been advised that the United States currently does not have a treaty with Ireland providing


22


Table of Contents

 
Risk factors
 
for the reciprocal recognition and enforcement of judgments in civil and commercial matters. Therefore, a final judgment for the payment of money rendered by any US federal or state court based on civil liability, whether or not based solely on US federal or state securities laws, would not be directly enforceable in Ireland. While not directly enforceable, it is possible for a final judgment for the payment of money rendered by any US federal or state court based on civil liability to be enforced in Ireland through common law rules. However, this process is subject to numerous established principles and would involve the commencement of a new set of proceedings in Ireland to enforce the judgment.
 
As an Irish company, Willis Group Holdings is governed by the Irish Companies Acts, which differ in some material respects from laws generally applicable to US corporations and shareholders, including, among others, differences relating to interested director and officer transactions and shareholder lawsuits. Likewise, the duties of directors and officers of an Irish company generally are owed to the company only. Shareholders of Irish companies generally do not have a personal right of action against directors or officers of the company and may exercise such rights of action on behalf of the Company only in limited circumstances. Accordingly, holders of Willis Group Holdings securities may have more difficulty protecting their interests than would holders of securities of a corporation incorporated in a jurisdiction of the United States.
 
Our non-core operations pose certain underwriting, advisory or reputational risks and can have, such as our Loan Protector business, a significant adverse impact on our financial results.
 
We provide a broad range of brokerage, reinsurance and risk management consulting services to our clients worldwide. We also engage in certain non-core operations. For example, our Willis Capital Markets & Advisory business provides advice to insurance and reinsurance companies on a broad array of mergers and acquisition transactions as well as capital markets products, including acting as underwriter or agent for primary issuances, operating a secondary insurance-linked securities trading desk and engaging in general capital markets and strategic advisory work. These operations may pose certain underwriting, advisory or reputational risks to our core business.
 
In addition, these non-core operations, although not material to the Group as a whole may, in any period, have a material effect on our results of operations. For example, our Willis Capital Markets & Advisory business is transaction-based which can cause results to differ from period-to-period. In addition, our financial results in 2011 were adversely impacted by the significant deterioration of the financial results of our Loan Protector business driven by the loss of clients through attrition and M&A activity, industry-wide commission pressures and a slowdown in foreclosures.
 
Item 1B — Unresolved Staff Comments
 
The Company had no unresolved comments from the SEC’s staff.


23


Table of Contents

 
Willis Group Holdings plc
 
 
Item 2 — Properties
 
We own and lease a number of properties for use as offices throughout the world and believe that our properties are generally suitable and adequate for the purposes for which they are used. The principal properties are located in the United Kingdom and the United States. Willis maintains over 4.2 million square feet of space worldwide.
 
London
 
In London we occupy a prime site comprising 491,000 square feet spread over a 28 story tower and adjoining 10 story building. We have a 25-year lease on this property which expires June 2032 and we sub-let the 10-story adjoining building. In September 2011 approximately 17,500 square feet of the 28 story tower was sublet to a third party, a further 52,000 square feet is being marketed.
 
North America
 
In North America, outside of New York and Chicago, we lease approximately 1.9 million square feet over 120 locations.
 
New York
 
In New York, we occupy 205,000 square feet of office space at One World Financial Center under a 20 year lease, expiring September 2026.
 
Chicago
 
In Chicago, we occupy 140,000 square feet at the Willis Tower (formerly the Sears Tower), under a lease expiring February 2025.
 
Nashville
 
In 2010 we renegotiated our lease and began a major restack of our operations facility in Nashville. The first stage was completed in December 2010 and the remainder was completed in May 2011. We reduced our square footage from 327,000 square feet to 160,000 square feet eliminating sublet space.
 
Rest of World
 
Outside of North America and London we lease approximately 1.5 million square feet of office space in over 150 locations. Two of our properties in Ipswich, United Kingdom have liens on the land and buildings in connection with a revolving credit facility.
 
Item 3 — Legal Proceedings
 
Information regarding claims, lawsuits and other proceedings is set forth in Note 21 ‘Commitments and Contingencies’ to the Consolidated Financial Statements appearing under Part II, Item 8 of this report and incorporated herein by reference.
 
Item 4 — Mine Safety Disclosures
 
Not applicable.


24


Table of Contents

 
Share data and dividends
 
 
Part II
 
Item 5 — Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
Share data
 
Our shares have been traded on the New York Stock Exchange (‘NYSE’) under the symbol ‘WSH’ since June 11, 2001. The high and low sale prices of our shares, as reported by the NYSE, are set forth below for the periods indicated.
 
                 
    Price Range
 
    of Shares  
    High     Low  
 
2010:
               
First Quarter
  $ 32.14     $ 26.07  
Second Quarter
  $ 34.98     $ 28.94  
Third Quarter
  $ 32.29     $ 28.91  
Fourth Quarter
  $ 34.71     $ 30.55  
2011:
               
First Quarter
  $ 40.36     $ 34.37  
Second Quarter
  $ 42.42     $ 39.06  
Third Quarter
  $ 42.21     $ 33.11  
Fourth Quarter
  $ 40.70     $ 33.04  
2012:
               
Through February 17, 2012
  $ 39.85     $ 33.81  
 
On February 17, 2012, the last reported sale price of our shares as reported by the NYSE was $34.10 per share. As of February 17, 2012 there were approximately 1,716 shareholders on record of our shares.
 
Dividends
 
We normally pay dividends on a quarterly basis to shareholders of record on March 31, June 30, September 30 and December 31. The dividend payment dates and amounts are as follows:
 
         
Payment Date   $ Per Share
 
January 15, 2010
    $0.260  
April 16, 2010
    $0.260  
July 16, 2010
    $0.260  
October 15, 2010
    $0.260  
January 14, 2011
    $0.260  
April 15, 2011
    $0.260  
July 15, 2011
    $0.260  
October 14, 2011
    $0.260  
January 13, 2012
    $0.260  
 
There are no governmental laws, decrees or regulations in Ireland which will restrict the remittance of dividends or other payments to non-resident holders of the Company’s shares.
 
In circumstances where one of Ireland’s many exemptions from dividend withholding tax (‘DWT’) does not apply, dividends paid by the Company will be subject to Irish DWT (currently 20 percent). Residents of the US should be exempted from Irish DWT provided relevant documentation supporting the exemption has been put in place. While the US-Ireland Double Tax Treaty contains provisions reducing the rate of Irish DWT in prescribed circumstances, it should generally be unnecessary for US residents to rely on the provisions of this treaty due to the wide scope of exemptions from DWT available under Irish domestic law. Irish income tax may also arise in respect of dividends paid by the


25


Table of Contents

 
Willis Group Holdings plc
 
Company. However, US residents entitled to an exemption from Irish DWT generally have no Irish income tax liability on dividends. An exception to this position applies where a shareholder holds shares in the Company through a branch or agency in Ireland through which a trade is carried on.
 
With respect to non-corporate US shareholders, certain dividends received before January 1, 2011 from a qualified foreign corporation may be subject to reduced rates of taxation. A foreign corporation is treated as a qualified foreign corporation with respect to dividends received from that corporation on shares that are readily tradable on an established securities market in the United States, such as our shares. Non-corporate US shareholders that do not meet a minimum holding period requirement for our shares during which they are not protected from the risk of loss or that elect to treat the dividend income as ‘investment income’ pursuant to section 163(d)(4) of the Code will not be eligible for the reduced rates of taxation regardless of our status as a qualified foreign corporation. In addition, the rate reduction will not apply to dividends if the recipient of a dividend is obligated to make related payments with respect to positions in substantially similar or related property. This disallowance applies even if the minimum holding period has been met. US shareholders should consult their own tax advisors regarding the application of these rules given their particular circumstances.
 
Total Shareholder Return
 
The following graph demonstrates a five-year comparison of cumulative total returns for the Company, the S&P 500 and a peer group comprised of the Company, Aon Corporation, Arthur J. Gallagher & Co., Brown & Brown Inc., and Marsh & McLennan Companies, Inc. The comparison charts the performance of $100 invested in the Company, the S&P 500 and the peer group on December 31, 2006, assuming full dividend reinvestment.
 
 
Unregistered Sales of Equity Securities and Use of Proceeds
 
During the quarter ended December 31, 2011, no shares were issued by the Company without registration under the Securities Act of 1933, as amended.


26


Table of Contents

 
Share data and dividends
 
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
 
The Company is authorized to repurchase or redeem shares under a variety of methods and will consider whether to do so from time to time, based on many factors, including market conditions. There remains approximately $922 million under the current authorization. The Company did not repurchase or redeem any shares in 2011 or 2010. In February 2012, the Company announced that in 2012 it intends to buyback up to $100 million of shares through open market or privately negotiated transactions, from time to time, depending on market conditions. As at February 23, 2012 the Company acquired 75,000 shares at a total price of approximately $3 million.
 
The information under ‘Securities Authorized for Issuance Under Equity Compensation Plans’ under Part III, Item 12 ‘Security Ownership of Certain Beneficial Owner and Management and Related Stockholder Matters’ is incorporated herein by reference.


27


Table of Contents

 
Willis Group Holdings plc
 
Item 6 — Selected Financial Data
 
Selected Historical Consolidated Financial Data
 
The selected consolidated financial data presented below should be read in conjunction with the audited consolidated financial statements of the Company and the related notes and Item 7 — ‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’ included elsewhere in this report.
 
The selected historical consolidated financial data presented below as of and for each of the five years ended December 31, 2011 have been derived from the audited consolidated financial statements of the Company, which have been prepared in accordance with accounting principles generally accepted in the United States of America (‘US GAAP’).
 
                                         
    Year ended December 31,  
    2011     2010     2009     2008(i)     2007  
    (millions, except per share data)  
 
Statement of Operations Data
                                       
Total revenues
  $ 3,447     $ 3,332     $ 3,253     $ 2,827     $ 2,578  
Operating income
    566       753       690       503       620  
Income from continuing operations before income taxes and interest in earnings of associates
    239       587       516       398       554  
Income from continuing operations
    203       470       455       323       426  
Discontinued operations, net of tax
    1             4       1        
Net income attributable to Willis Group Holdings
  $ 204     $ 455     $ 438     $ 303     $ 409  
                                         
Earnings per share on continuing operations — basic
  $ 1.17     $ 2.68     $ 2.58     $ 2.04     $ 2.82  
Earnings per share on continuing operations — diluted
  $ 1.15     $ 2.66     $ 2.57     $ 2.04     $ 2.78  
                                         
Average number of shares outstanding
                                       
 — basic
    173       170       168       148       145  
 — diluted
    176       171       169       148       147  
                                         
                                         
Balance Sheet Data (as of year end)
                                       
Goodwill
  $ 3,295     $ 3,294     $ 3,277     $ 3,275     $ 1,648  
Other intangible assets, net
    420       492       572       682       78  
Total assets(ii)
    15,728       15,850       15,625       16,402       12,969  
Net assets
    2,517       2,608       2,229       1,895       1,395  
Total long-term debt
    2,354       2,157       2,165       1,865       1,250  
Shares and additional paid-in capital
    1,073       985       918       886       41  
Total stockholders’ equity
    2,486       2,577       2,180       1,845       1,347  
                                         
Other Financial Data
                                       
Capital expenditures (excluding capital leases)
  $ 111     $ 83     $ 96     $ 94     $ 185  
Cash dividends declared per share
  $ 1.04     $ 1.04     $ 1.04     $ 1.04     $ 1.00  
 
 
(i) On October 1, 2008, we completed the acquisition of HRH, at the time the eighth largest insurance and risk management intermediary in the United States. The acquisition has significantly enhanced our North America revenues and the combined operations have critical mass in key markets across the US. We recognized goodwill and other intangible assets on the HRH acquisition of approximately $1.6 billion and $651 million, respectively.
 
(ii) The Company collects premiums from insureds and, after deducting its commissions, remits the premiums to the respective insurers; the Company also collects claims or refunds from insurers which it then remits to insureds. Uncollected premiums from insureds and uncollected claims or refunds from insurers (‘fiduciary receivables’) are recorded as fiduciary assets on the Company’s consolidated balance sheet. Unremitted insurance premiums, claims or refunds (‘fiduciary funds’) are also recorded within fiduciary assets.


28


Table of Contents

 
Business discussion
 
Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
This discussion includes forward-looking statements, including under the headings ‘Executive Summary’, ‘Liquidity and Capital Resources’, ‘Critical Accounting Estimates’ and ‘Contractual Obligations’. Please see ‘Forward-Looking Statements’ for certain cautionary information regarding forward-looking statements and a list of factors that could cause actual results to differ materially from those predicted in the forward-looking statements.
 
EXECUTIVE SUMMARY
 
Business Overview
 
We provide a broad range of insurance broking, risk management and consulting services to our clients worldwide and organize our business into three segments: Global, North America and International.
 
Our Global business provides specialist brokerage and consulting services to clients worldwide arising from specific industries and activities including Aerospace; Energy; Marine; Construction; Financial and Executive Risks; Fine Art, Jewelry and Specie; Special Contingency Risks; and Reinsurance.
 
North America and International comprise our retail operations and provide services to small, medium and large corporations and the employee benefits practice, our largest product-based practice group, provides health, welfare and human resources consulting and brokerage services.
 
In our capacity as advisor and insurance broker, we act as an intermediary between our clients and insurance carriers by advising our clients on their risk management requirements, helping clients determine the best means of managing risk, and negotiating and placing insurance with insurance carriers through our global distribution network.
 
We derive most of our revenues from commissions and fees for brokerage and consulting services and do not determine the insurance premiums on which our commissions are generally based. Commission levels generally follow the same trend as premium levels as they are derived from a percentage of the premiums paid by the insureds. Fluctuations in these premiums charged by the insurance carriers can therefore have a direct and potentially material impact on our results of operations.
 
Due to the cyclical nature of the insurance market and the impact of other market conditions on insurance premiums, commission revenues may vary widely between accounting periods. A period of low or declining premium rates, generally known as a ‘soft’ or ‘softening’ market, generally leads to downward pressure on commission revenues and can have a material adverse impact on our commission revenues and operating margin. A ‘hard’ or ‘firming’ market, during which premium rates rise, generally has a favorable impact on our commission revenues and operating margin.
 
Market Conditions
 
The years 2005 through 2010 were almost universally viewed as soft market years across most of our product offerings and our commission revenues and operating margins throughout that period were negatively impacted, although in 2009 the market experienced modest stabilization in the reinsurance market and certain specialty markets.
 
Our North America and UK and Irish retail operations were particularly impacted by the weakened economic climate and continued soft market throughout 2009 and 2010 with no material improvement in rates across most sectors in these geographic regions. This resulted in declines in revenues in these operations, particularly amongst our smaller clients who have been especially vulnerable to the economic downturn.
 
In 2011, we saw some modest increases in catastrophe-exposed property insurance and reinsurance pricing levels driven by significant 2011 catastrophe losses including the Japanese earthquake and tsunami, the New Zealand earthquake, the


29


Table of Contents

 
Willis Group Holdings plc
 
mid-west US tornadoes and Thailand floods. However, in general, we continued to be negatively impacted by the soft insurance market and challenging economic conditions across other sectors and most geographic regions.
 
We believe that, in the absence of a significant catastrophe loss or capital impairment in the industry, a universal turn in market rates is not likely to occur. However, more recently we have not seen the same reduction in rates globally that were faced in early 2011 and during 2010 and 2009. There have been recent signs that the unprofitability of certain business lines such as property catastrophe and workers compensation is slowly firming rates in those lines. Additionally, there has been some evidence of firming or hardening in certain sectors of the reinsurance market in early 2012.
 
Financial Performance
 
General
 
This discussion includes references to non-GAAP financial measures as defined in Regulation G of the rules of the Securities and Exchange Commission (‘SEC’). We present such non-GAAP financial measures, specifically, organic growth in commissions and fees, adjusted operating margin, adjusted operating income, adjusted net income from continuing operations and adjusted earnings per diluted share from continuing operations, as we believe such information is of interest to the investment community because it provides additional meaningful methods of evaluating certain aspects of the Company’s operating performance from period to period on a basis that may not be otherwise apparent on a GAAP basis. Organic growth in commissions and fees excludes the impact of acquisitions and disposals, year over year movements in foreign exchange, legacy contingent commissions assumed as part of the HRH acquisition, and investment and other income from growth in revenues and commissions and fees. Adjusted operating margin, adjusted net income from continuing operations and adjusted earnings per diluted share from continuing operations are calculated by excluding the impact of certain specified items from net income from continuing operations, the most directly comparable GAAP measure. These financial measures should be viewed in addition to, not in lieu of, the consolidated financial statements for the year ended December 31, 2011.
 
Consolidated Financial Performance
 
2011 compared to 2010
 
Despite difficult market conditions, total revenues in 2011 of $3,447 million increased by $115 million, or 3%, compared to 2010. This included organic growth in commissions and fees of 2% driven by our International and Global operations. Our North America operations reported a revenue decline of 4%, including a 4% decline in organic commissions and fees reflecting lower revenues generated by Loan Protector, a specialty business acquired as part of the HRH business, and the continued adverse impact of difficult economic conditions in the US.
 
Total expenses in 2011 of $2,881 million increased $302 million compared to 2010, primarily due to incremental expense relating to the 2011 Operational Review (discussed later in this section), a $22 million write-off of an uncollectible accounts receivable balance relating to periods prior to January 1, 2011, also discussed later in this section, continued investment to support future growth, increased incentives amortization relating to our cash retention awards, reinstatement of salary reviews for all associates in March 2011 and 401(k) matching contributions for our US associates from January 2011, unfavorable foreign currency translation and an $11 million UK FSA regulatory settlement. These increases were partially offset by cost savings arising from implementation of the 2011 Operational Review, reduced pension expense of $24 million and the year-on-year $8 million benefit from the release of funds and reserves related to potential legal liabilities.
 
Net income attributable to Willis shareholders from continuing operations was $203 million or $1.15 per diluted share in 2011 compared to $455 million or $2.66 per diluted share in 2010. The $252 million reduction in net income compared to 2010 primarily reflects the increase in total expenses described above and the $131 million post-tax cost relating to the make-whole amounts on the repurchase and redemption of $500 million of our senior debt and the write-off of related unamortized debt issuance costs, partly offset by revenue growth achieved during the year. Net income was also adversely impacted by an $11 million reduction in interest in earnings of associates, net of tax, mainly due to declining performance in our principal associate, Gras Savoye.


30


Table of Contents

 
Business discussion
 
2010 compared to 2009
 
Total revenues in 2010 of $3,332 million increased by $79 million, or 2%, compared to 2009, reflecting organic growth in commissions and fees of 4% being partly offset by a 1% adverse impact from foreign currency translation and decreased investment and other income. Total expenses in 2010 of $2,579 million, were $16 million higher compared to 2009. Salaries and benefits expense increased by $46 million, primarily due to a $60 million increase in incentive expense, partly offset by reduced severance costs and favorable foreign currency translation. Other operating expenses declined by $26 million, driven by reduced losses on our forward hedging program and a reduction in the amortization of intangible assets of $18 million due to a lower amortization charge for HRH-related intangibles.
 
Net income attributable to Willis shareholders from continuing operations was $455 million or $2.66 per diluted share in 2010 compared to $434 million or $2.57 per diluted share in 2009. The $21 million increase in net income compared to 2009 primarily reflects the revenue growth described above, partly offset by the $16 million increase in total expenses, an increase in the effective tax rate from 18% in 2009 to 24% in 2010 and a $10 million reduction in interest in earnings of associates, net of tax following the December 2009 reduction from 49% to 31% in our ownership interest in Gras Savoye.
 
Adjusted Operating Income, Adjusted Net Income from Continuing Operations and Adjusted Earnings per Diluted Share from Continuing Operations
 
Adjusted operating income, adjusted net income from continuing operations and adjusted earnings per diluted share from continuing operations are calculated by excluding the impact of certain items from operating income and net income from continuing operations respectively, the most directly comparable GAAP measures. We believe that excluding these items, as applicable, from operating income and net income from continuing operations provides a more complete and consistent comparative analysis of our results of operations. We use these and other measures to establish Group performance targets and evaluate the performance of our operations. The Company also uses both adjusted earnings per diluted share from continuing operations and adjusted operating margin measures to form the basis of establishing and assessing components of compensation. As set out in the tables below, adjusted operating margin at 22.5% in 2011, was down 50 basis points compared to 2010, while adjusted net income from continuing operations at $482 million was $12 million higher than in 2010 and adjusted earnings per diluted share from continuing operations was $2.74 in 2011, compared to $2.75 in 2010.
 
A reconciliation of adjusted operating income to reported operating income, the most directly comparable GAAP measure, is as follows (in millions, except percentages):
 
                         
    Year Ended December 31,  
    2011     2010     2009  
 
Operating Income, GAAP basis
  $ 566     $ 753     $ 690  
Excluding:
                       
Net (gain)/loss on disposal of operations
    (4 )     2       (13 )
2011 Operational Review(a)
    180              
FSA regulatory settlement(b)
    11              
Venezuela currency devaluation(c)
          12        
Write-off of uncollectible accounts receivable balance(d)
    22              
HRH integration costs
                18  
Accelerated amortization of intangible assets
                7  
Costs associated with the redomicile of the Company’s parent company
                6  
                         
Adjusted Operating Income
  $ 775     $ 767     $ 708  
                         
Operating Margin, GAAP basis, or Operating Income as a percentage of Total Revenues
    16.4 %     22.6 %     21.2 %
                         
Adjusted Operating Margin, or Adjusted Operating Income as a percentage of Total Revenues
    22.5 %     23.0 %     21.8 %
                         
 
 
(a) Charge relating to the 2011 operational review, including $98 million of severance costs related to the elimination of approximately 1,200 positions for the full year 2011.
 
(b) Regulatory settlement with the UK Financial Services Authority (FSA).


31


Table of Contents

 
Willis Group Holdings plc
 
 
(c) With effect from January 1, 2010 the Venezuelan economy was designated as hyper-inflationary. The Venezuelan government also devalued the Bolivar Fuerte in January 2010. As a result of these actions, the Company recorded a one-time charge in other operating expenses to reflect the re-measurement of its net assets denominated in Venezuelan Bolivar Fuerte.
 
(d) Write-off of uncollectible accounts receivable balance relating to periods prior to January 1, 2011, see ‘Correction of commissions and fees overstatement relating to 2011 and prior periods’, below.
 
A reconciliation of adjusted net income from continuing operations and adjusted earnings per diluted share from continuing operations to reported net income from continuing operations and reported earnings per diluted share from continuing operations, the most directly comparable GAAP measures, is as follows (in millions, except per share data):
 
                                                 
    Year Ended
    Per diluted share
 
    December 31,     Year Ended December 31,  
    2011     2010     2009     2011     2010     2009  
 
Net Income from Continuing Operations, GAAP basis
  $ 203     $ 455     $ 434     $ 1.15     $ 2.66     $ 2.57  
Excluding:
                                               
Net (gain) loss on disposal of operations, net of tax ($nil), ($(1)), ($2)
    (4 )     3       (11 )     (0.02 )     0.02       (0.06 )
2011 Operational Review, net of tax ($52), ($nil), ($nil)(a)
    128                   0.73              
FSA regulatory settlement, net of tax ($nil), ($nil), ($nil)(b)
    11                   0.06              
HRH integration costs, net of tax ($nil), ($nil), ($(5))
                13                   0.08  
Costs associated with the redomicile of the Company’s parent company, net of tax ($nil), ($nil), ($nil)
                6                   0.03  
Accelerated amortization of intangible assets, net of tax ($nil), ($nil), ($(3))
                4                   0.02  
Premium on early redemption of 2010 bonds, net of tax ($nil), ($nil), ($(1))
                4                   0.02  
Make-whole amounts on repurchase and redemption of Senior Notes and write-off of unamortized debt issuance costs, net of tax ($50), ($nil), ($nil)
    131                   0.74              
Write-off of uncollectible accounts receivable balance, net of tax ($9), ($nil), ($nil)(c)
    13                   0.08              
Venezuela currency devaluation, net of tax ($nil), ($nil), ($nil)(d)
          12                   0.07        
                                                 
Adjusted Net Income from Continuing Operations
  $ 482     $ 470     $ 450     $ 2.74     $ 2.75     $ 2.66  
                                                 
Average diluted shares outstanding, GAAP basis
    176       171       169                          
                                                 
 
 
(a) Charge relating to the 2011 Operational Review, including $98 million pre-tax of severance costs related to the elimination of approximately 1,200 positions for the full year 2011.
 
(b) Regulatory settlement with the UK Financial Services Authority (FSA).
 
(c) Write-off of uncollectible accounts receivable balance relating to periods prior to January 1, 2011, see ‘Correction of commissions and fees overstatement relating to 2011 and prior periods’, below.
 
(d) With effect from January 1, 2010 the Venezuelan economy was designated as hyper-inflationary. The Venezuelan government also devalued the Bolivar Fuerte in January 2010. As a result of these actions the Company recorded a one-time charge in other operating expenses to reflect the re-measurement of its net assets denominated in Venezuelan Bolivar Fuerte.
 
2011 Operational review
 
In order to fund the higher anticipated salaries and benefits expense and continued investment for the future, we implemented a review of all our businesses in 2011 to better align our resources with our growth strategies. In connection with this review, we incurred pre-tax charges of $180 million in 2011 including:
 
•  $98 million of severance costs (including $9 million relating to the waiver of retention awards) relating to approximately 1,200 positions which have been, or are in the process of being, eliminated;
 
•  $37 million of other salaries and benefits expense to buy out previously existing incentive schemes and other contractual arrangements that no longer align with the Group’s overall remuneration strategy; and
 
•  $45 million of other operating expenses, including: property and systems rationalization costs; related accelerated systems depreciation of $5 million; and re-negotiation of sourcing contracts.


32


Table of Contents

 
Business discussion
 
 
The full year cost of the 2011 Operational Review at $180 million represents an increase of $20 million from our third quarter 2011 estimate. This is the result of the identification of additional opportunities to achieve efficiencies.
 
In 2011 we realized total cost savings attributable to the 2011 Operational Review of approximately $80 million. We now expect to achieve annualized savings of approximately $135 million beginning in 2012, an increase from our previous estimate of $115 million to $125 million, and represents incremental savings in 2012 compared to 2011 of approximately $55 million.
 
The statements under ‘2011 Operational Review’ constitute forward-looking statements. Please see ‘Forward-Looking Statements’ for certain cautionary information regarding forward-looking statements and a list of factors that could cause actual results to differ materially from those predicted in the forward-looking statements.
 
Make-whole on repurchase and redemption of senior notes and write-off of unamortized debt issuance costs
 
We issued $800 million of new debt in March 2011, comprised of $300 million 4.125% senior notes due 2016 and $500 million 5.750% senior notes due 2021. Net proceeds of approximately $787 million were used in part to repurchase and redeem $500 million 12.875% senior notes due 2016 and make related make-whole payments totaling $158 million. In addition to the make-whole payment we also wrote off unamortized debt issuance costs of $13 million.
 
Correction of commissions and fees overstatement relating to 2011 and prior periods
 
In the first quarter of 2012, we identified through our internal financial control process an uncollectible accounts receivable balance of approximately $28 million in a stand-alone business unit that appears to be due to fraudulent overstatements of Commissions and Fees from the years 2005 to 2011. This matter was brought to management’s attention after we had announced our fourth quarter and annual earnings on February 14, 2012.
 
The Company is conducting an internal investigation into this matter with the assistance of our professional advisors. Based on the results of the investigation to date, we believe that the overstatements resulted from the conduct of a few associates within or dealing with our Employee Benefits group who colluded to misapply certain current cash receipts to older outstanding accounts receivable balances. We have concluded that the overstatements we uncovered did not materially affect our previously-issued financial statements for any of the prior periods.
 
For the year ended December 31, 2011, we have corrected the misstatement of Commissions and Fees from prior periods by recognizing a $22 million charge to Other Operating Expenses to write off the uncollectible receivable at January 1, 2011, and by reversing the $6 million balance of Commissions and Fees which had been recorded during 2011. We have also reversed $2 million of Salaries and Benefits representing an over-accrual of production bonuses relating to the overstated revenue. As a result of correcting these misstatements, our financial statements for 2011 differ in certain immaterial respects, including a net $0.01 reduction in adjusted earnings per diluted share, from the unaudited financial statements included in our press release issued on February 14, 2012.
 
The associates in question, who have been placed on administrative leave pending completion of the investigation, have not been members of Willis executive management or played a significant role in internal control over financial reporting. Based on the results of our investigation to date, we do not believe that any client or carrier funds were misappropriated or that any other business units were affected.
 
We have taken steps to enhance our internal controls in relation to the business unit in question, including enhanced procedures over handling of cash receipts, increased segregation of duties between the operating unit and the accounting and settlement function, and additional central sign off on revenue recognition.


33


Table of Contents

 
Willis Group Holdings plc
 
Cash retention awards
 
We started making cash retention awards in 2005 to a small number of employees. With the success of the program, we expanded it over time to include more staff and we believe it is a contributing factor to the reduction in employee turnover we have seen in recent years.
 
Salaries and benefits do not reflect the unamortized portion of annual cash retention awards made to employees. Employees must repay a proportionate amount of these cash retention awards if they voluntarily leave our employ (other than in the event of retirement or permanent disability) within a certain time period, currently three years. We make cash payments to our employees in the year we grant these retention awards and recognize these payments ratably over the period they are subject to repayment, beginning in the quarter in which the award is made.
 
During 2011, we made $210 million of cash retention award payments compared with $196 million in 2010 and $148 million in 2009. Salaries and benefits in 2011 include $185 million of amortization of cash retention award payments made on or before December 31, 2011, compared with $119 million in 2010 and $88 million in 2009. As of December 31, 2011, December 31, 2010 and December 31, 2009, we included $196 million, $173 million and $98 million, respectively, within other current assets and other non-current assets on the balance sheet, which represented the unamortized portion of cash retention award payments made on or before those dates.
 
Pension Expense
 
We recorded a net pension charge on our UK and US defined benefit pension plans in 2011 of $6 million, and $nil respectively, compared with $28 million and $1 million respectively in 2010 and $25 million and $7 million respectively in 2009. On our international defined benefit pension plans, we recorded a net pension charge of $5 million in 2011, compared with $6 million in 2010 and $10 million in 2009.
 
The UK plan charge was $22 million lower compared to 2010 as the benefits of higher asset returns, lower amortization of prior period losses and a lower service cost reflecting certain changes to plan benefits were partly offset by an increased interest cost. The UK pension charge was $3 million higher in 2010 compared to 2009 as the benefit from higher asset returns was more than offset by a higher service cost, higher amortization of prior period losses and higher interest cost.
 
The US pension charge was $1 million lower in 2011 compared with 2010 reflecting an increased asset return from a higher asset base partly offset by a reduction in amortization of prior period losses. The US pension charge was $6 million lower in 2010 compared to 2009 reflecting an increased asset return, a reduction in the amortization of prior period losses and the first full year’s benefit from closing the scheme to future accrual in May 2009, partly offset by the non-recurrence of a $12 million curtailment gain in 2009.
 
See ‘Contractual Obligations’ below for further information on our obligations relating to our pension plans.
 
Acquisitions and Disposals
 
During first quarter 2011, we acquired a 23% interest in a South African brokerage at a total cost of $2 million. During third quarter 2011, we acquired a 100% interest in a Polish brokerage, Brokerskie Centrum Ubezpieczeniowe, at a total cost of $2 million. In the fourth quarter 2011, we acquired 100% of Broking Italia, a Rome-based employee benefits broker at a total cost of $12 million.
 
During 2010, we acquired an additional 39% of our Chinese operations at a total cost of approximately $17 million, bringing our ownership to 90% and an additional 15% of our Colombian operations at a total cost of approximately $7 million, bringing our ownership to 80% at December 31, 2010.
 
On December 31, 2011, we disposed of Global Special Risks, LLC, Faber & Dumas Canada Ltd and the trade and assets of Maclean, Oddy & Associates, Inc. We have recorded within Discontinued Operations, net income of $1 million in 2011


34


Table of Contents

 
Business discussion
 
associated with these entities, comprising a net loss for the year of $1 million offset by the benefit of a $2 million net gain on disposal.
 
Business Strategy
 
Our aim is to be the insurance broker and risk adviser of choice globally.
 
Our business model is aligned to the needs of each client segment:
 
•   Insurer — platform-neutral capital management and advisory services;
 
•   Large Accounts — delivering Willis’s global capabilities through client advocacy;
 
•   Mid-Market — mass-customization through our Sales 2.0 model;
 
•   Commercial — providing products and services to networks of retail brokers; and
 
•   Personal — focused on affinity models and High Net Worth segments.
 
Our business model has three elements:
 
•   Organic growth;
 
•   Recruitment of teams and individuals; and
 
•   Strategic acquisitions.
 
To meet the needs of our clients, we realigned our business model in 2011 to further grow the company and position us to deliver the Willis Cause:
 
•   we thoroughly understand our clients’ needs and their industries;
 
•   we develop client solutions with the best markets, price and terms;
 
•   we relentlessly deliver quality client service; and
 
•   we get claims paid quickly
 
...With Integrity


35


Table of Contents

 
Willis Group Holdings plc
 
REVIEW OF CONSOLIDATED RESULTS
 
The following table is a summary of our revenues, operating income, operating margin, net income from continuing operations and diluted earnings per share from continuing operations (in millions, except per share data and percentages):
 
                         
    Year Ended December 31,  
    2011     2010     2009  
 
REVENUES
                       
Commissions and fees
  $      3,414     $      3,293     $      3,200  
Investment income
    31       38       50  
Other income
    2       1       3  
                         
Total revenues
    3,447       3,332       3,253  
                         
EXPENSES
                       
Salaries and benefits
    (2,087 )     (1,868 )     (1,822 )
Other operating expenses
    (656 )     (564 )     (590 )
Depreciation expense
    (74 )     (63 )     (64 )
Amortization of intangible assets
    (68 )     (82 )     (100 )
Net gain (loss) on disposal of operations
    4       (2 )     13  
                         
Total expenses
    (2,881 )     (2,579 )     (2,563 )
                         
OPERATING INCOME
    566       753       690  
Make-whole on repurchase and redemption of senior notes and write-off of unamortized debt issuance costs
    (171 )            
Interest expense
    (156 )     (166 )     (174 )
                         
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES
    239       587       516  
Income taxes
    (32 )     (140 )     (94 )
                         
INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES
    207       447       422  
Interest in earnings of associates, net of tax
    12       23       33  
                         
INCOME FROM CONTINUING OPERATIONS
    219       470       455  
Discontinued operations, net of tax
    1             4  
                         
NET INCOME
    220       470       459  
Less: net income attributable to noncontrolling interests
    (16 )     (15 )     (21 )
                         
NET INCOME ATTRIBUTABLE TO WILLIS GROUP HOLDINGS
  $ 204     $ 455     $ 438  
                         
Salaries and benefits as a percentage of total revenues
    61 %     56 %     56 %
Other operating expenses as a percentage of total revenues
    19 %     17 %     18 %
Operating margin (operating income as a percentage of total revenues)
    16 %     23 %     21 %
Diluted earnings per share from continuing operations
  $ 1.15     $ 2.66     $ 2.57  
Average diluted number of shares outstanding
    176       171       169  


36


Table of Contents

 
Business discussion
 
Consolidated Results for 2011 compared to 2010
 
Revenues
 
                                                         
                            Change attributable to:        
                      Foreign
    Acquisitions
          Organic
 
                      currency
    and
    Contingent
    commissions and
 
Year ended December 31,   2011     2010     % Change     translation     disposals     Commissions(b)     fees growth(a)  
    (millions)                                
 
Global(c)
  $ 1,073     $ 987       9 %     2 %     %     %     7 %
North America(d)
    1,314       1,369       (4 )%     %     %     %     (4 )%
International
    1,027       937       10 %     5 %     %     %     5 %
                                                         
Commissions and fees
  $ 3,414     $ 3,293       4 %     2 %     %     %     2 %
                                                         
Investment income
    31       38       (18 )%                                
Other income
    2       1       100 %                                
                                                         
Total revenues
  $ 3,447     $ 3,332       3 %                                
                                                         
 
 
(a) Organic commissions and fees growth excludes: (i) the impact of foreign currency translation; (ii) the first twelve months of net commission and fee revenues generated from acquisitions; (iii) the net commission and fee revenues related to operations disposed of in each period presented; (iv) in North America, legacy contingent commissions assumed as part of the HRH acquisition that had not been converted into higher standard commission; and (v) investment income and other income from reported revenues.
 
(b) Included in North America reported commissions and fees were legacy HRH contingent commissions of $5 million in 2011 compared with $11 million in 2010.
 
(c) Reported commissions and fees and organic commissions and fees growth for Global for 2011 included a 2011 favorable impact from a change in accounting methodology in a Global Specialty business of $6 million.
 
(d) Reported commissions and fees included a favorable impact from a change in accounting methodology in a specialty business in North America of $7 million in the year ended December 31, 2010.
 
Our methods of calculating these measures may differ from those used by other companies and therefore comparability may be limited.
 
Revenue increased by $115 million, or 3%, in 2011 compared to 2010. Commissions and fees increased by $121 million or 4%, including organic growth in commissions and fees of 2%, which comprised 4% net new business growth driven by solid new business generation and higher retention of existing clients, and a 2% negative impact from renewal fluctuations and other market factors.
 
There was a net 2% year-over-year benefit to revenue growth from foreign currency translation driven by the weakening of the US dollar against a number of currencies in which we earn our revenues.
 
The 2% growth in organic commissions and fees comprised net growth in our operating segments:
 
•   Global achieved 7% growth, including growth in our Reinsurance, Global Specialties and Willis Faber and Dumas (formerly London Market Wholesale) businesses, together with a $6 million 2011 benefit from a change in accounting within a Global Specialty business to conform to current Group accounting policy;
 
•   International achieved 5% organic growth driven primarily by our Latin America and Eastern Europe regions; and
 
•   North America reported a 4% decline in organic commissions and fees, primarily driven by the revenue decline in Loan Protector (a small specialty business acquired as part of the HRH business that works with financial institutions to confirm their loans are properly insured and interests are adequately protected). Excluding Loan Protector, the North America segment recorded a 2% decline in organic commissions and fees as the benefit of new business generation was more than offset by a 1% decline in client retention levels, the continued negative impact of the soft market and ongoing weakened economic conditions in the US.
 
Investment income in 2011 at $31 million was $7 million lower than in 2010, as low interest rates across the globe, in particular in the UK and US, together with the roll-off of our interest rate hedge program continued to impact our investment income.


37


Table of Contents

 
Willis Group Holdings plc
 
Organic commissions and fees growth by segment is discussed further in ‘Operating Results — Segment Information’, below.
 
Salaries and Benefits
 
Salaries and benefits increased $219 million, or 12% in 2011, compared with 2010, primarily reflecting additional expense in 2011 of $135 million associated with our 2011 Operational Review, a $66 million increase from the amortization of cash retention awards and the year-on-year net adverse impact from foreign currency translation, driven primarily by the movement of the US dollar against the Pound sterling (in which our London Market based operations incur the majority of their expenses). Furthermore, we incurred an additional $10 million expense relating to the reinstatement of our 401(k) match plan for our North America employees from January 2011 and incremental expense following reinstatement of annual salary reviews for all employees from April 2011. These increases were partly offset by cost savings arising from implementation of the 2011 Operational Review, reduced payments of non-retentive incentives and a $24 million decrease in pension expense driven by a higher return on assets and lower amortization of prior period gains and losses.
 
Other Expenses
 
Other operating expenses were $92 million, or 16%, higher in 2011 compared with 2010, primarily reflecting $40 million of additional expense associated with the 2011 Operational Review, a $22 million write-off of an uncollectible accounts receivable balance relating to periods prior to January 1, 2011, and discussed earlier in this section, the $11 million second quarter UK FSA regulatory settlement and increased expense in support of revenue growth initiatives. These were partly offset by cost savings arising from implementation of the 2011 Operational Review, the year-over-year favorable comparison due to the $12 million 2010 charge relating to the devaluation of the Venezuelan currency, the $8 million year-over-year benefit from the release of funds and reserves related to potential legal liabilities and positive year-over-year foreign currency translation, driven primarily by gains in 2011 on our forward rate hedging program, compared to losses in 2010.
 
Depreciation expense was $74 million in 2011, compared with $63 million in 2010. The increase primarily reflects accelerated depreciation expense of $5 million in 2011 relating to systems rationalization in connection with the 2011 Operational Review and depreciation of newly capitalized systems project costs in 2011.
 
Amortization of intangible assets was $68 million in 2011, a reduction of $14 million compared to 2010. The decrease primarily reflects the year-over-year benefit of the 2010 amortization of the HRH non-compete agreement acquired in 2008, which was fully amortized in 2010.
 
Make-whole on repurchase and redemption of senior notes and write-off of unamortized debt issuance costs
 
As described above, we issued $800 million of new debt in March 2011 and net proceeds of approximately $787 million were used to repurchase and redeem $500 million of 12.875% senior notes due 2016 and make related make-whole payments totaling $158 million. In addition to the make-whole payment we also wrote off unamortized debt issuance costs of $13 million.
 
Interest Expense
 
Interest expense was $156 million in 2011, a reduction of $10 million compared to 2010. The decrease in interest expense primarily reflects the lower coupon payable on our new debt issued in March 2011, the period-over-period decrease in the outstanding balance on our 5-year term loan facility and net gains recognized on our forward rate hedging program. These benefits were partially offset by the $10 million fourth quarter expense relating to the write-off of debt issuance costs following the refinancing of our bank facility.


38


Table of Contents

 
Business discussion
 
Income Taxes
 
The effective tax rate on ordinary income for 2011 was 24%, compared with 26% for 2010, with the reduction driven primarily by the benefit from the higher tax rates at which costs associated with the 2011 Operational Review are relieved and a different geographic mix of business. The effective tax rate on ordinary income is calculated before the impact of certain discrete items. The significant discrete items occurring in 2011 are:
 
•   tax related to the make-whole payment on repurchase and redemption of senior notes and write-off of unamortized debt issuance costs which are relieved at a higher rate than the underlying rate;
 
•   the net impact of gains and losses on disposals recorded in continuing operations;
 
•   tax related to the write-off of an uncollectible accounts receivable balance which is relieved at a higher rate than the underlying rate;
 
•   the impact of the UK FSA regulatory settlement expense for which no tax relief is available;
 
•   the impact of the change in rate of UK corporate income tax being applied to the Company’s opening temporary differences; and
 
•   adjustments made in respect of tax on profits of prior periods to bring in line the Company’s tax provisions to filed tax positions.
 
Including the impact of discrete items, the effective tax rate was 13% in 2011 compared to 24% in 2010.
 
Interest in Earnings of Associates, net of Tax
 
We own an interest in a number of associates, such as Gras Savoye, where we do not exercise management control and we are therefore unable to direct or manage the business to realize the anticipated benefits that we can achieve through full integration. Interest in earnings of associates, net of tax, was $12 million in 2011, compared with $23 million in 2010. The decline was mainly driven by a reduction in net income reported by our principal associate, Gras Savoye, following recent refinancing actions taken by the company, ongoing restructuring activity and the negative impact on their results from adverse economic conditions in France and other parts of Europe.
 
Discontinued Operations, net of Tax
 
Net income from discontinued operations in 2011 relates to our fourth quarter disposal of Global Special Risks, LLC, Faber & Dumas Canada Ltd and the trade and assets of Maclean, Oddy & Associates, Inc. We recorded net income from discontinued operations of $1 million in 2011, comprising a net loss for the year of $1 million offset by the benefit of a $2 million net gain on disposal.


39


Table of Contents

 
Willis Group Holdings plc
 
Consolidated Results for 2010 compared to 2009
 
Revenues
 
                                                         
                            Change attributable to:        
                      Foreign
    Acquisitions
          Organic
 
                      currency
    and
    Contingent
    commissions and
 
Year ended December 31   2010     2009     % Change     translation     disposals     Commissions(b)     fees growth(a)  
    (millions)                                
 
Global
  $ 987     $ 921       7 %     %     %     %     7 %
North America(c)
    1,369       1,381       (1 )%     %     %     (1 )%     %
International
    937       898       4 %     (2 )%     1 %     %     5 %
                                                         
Commissions and fees
  $ 3,293     $ 3,200       3 %     (1 )%     %     %     4 %
                                                         
Investment income
    38       50       (24 )%                                
Other income
    1       3       (67 )%                                
                                                         
Total revenues
  $ 3,332     $ 3,253       2 %                                
                                                         
 
 
(a) Organic commissions and fees growth excludes: (i) the impact of foreign currency translation; (ii) the first twelve months of net commission and fee revenues generated from acquisitions; (iii) the net commission and fee revenues related to operations disposed of in each period presented; (iv) in North America, legacy contingent commissions assumed as part of the HRH acquisition and that had not been converted into higher standard commission; and (v) investment income and other income from reported revenues.
 
(b) Included in North America reported commissions and fees were legacy HRH contingent commissions of $11 million in 2010, compared with $27 million in 2009.
 
(c) Reported commissions and fees included a favorable impact from a change in accounting methodology in a specialty business in North America of $7 million in the year ended December 31, 2010.
 
Our methods of calculating these measures may differ from those used by other companies and therefore comparability may be limited.
 
Revenue increased $79 million, or 2%, in 2010 compared to 2009, reflecting organic growth in commissions and fees of 4%, offset by a 1% adverse impact from foreign currency translation and decreased investment and other income. Our Global segment achieved 7% organic growth in commission and fees and the International segment achieved 5% growth. North America organic commissions and fees growth was flat with the positive benefit from strong growth in our specialty businesses, driven by good business growth, together with a $7 million increase in commissions and fees from a change in accounting in an acquired specialty business to conform to current Group accounting policy, 3% growth in our employee benefits practice, good net new business generation and improved client retention, offset by the impact of the continued soft market and ongoing weakened economic conditions.
 
Investment income was $12 million lower in 2010 compared to 2009 with the impact of lower interest rates across the globe, particularly on our Euro-denominated deposits, partially mitigated by our forward hedging program.
 
Organic commissions and fees growth by segment is discussed further in ‘Operating Results — Segment Information’ below.
 
Salaries and Benefits
 
Salaries and benefits increased by $46 million, or 3% in 2010 compared to 2009, primarily due to a $60 million increase in incentive expenses, comprising a $31 million increase in the amortization of cash retention awards and a $29 million increase in the accrual for non-retentive incentive compensation due to increased headcount and improved performance across many regions. The increase in incentive expense was partially offset by reduced severance costs in 2010 and favorable foreign currency translation, primarily the year-on-year strengthening of the US dollar against the Pound Sterling.


40


Table of Contents

 
Business discussion
 
Other Expenses
 
Other operating expenses declined by $26 million in 2010 compared to 2009 as the benefit from $25 million of lower losses on our forward hedging program, the release of a $7 million previously established legal reserve and continued disciplined management of discretionary expenses were partially offset by a $12 million first quarter 2010 charge relating to the devaluation of the Venezuelan currency and expense increases in support of revenue growth initiatives.
 
Amortization of intangible assets declined by $18 million in 2010 compared to 2009 due to the declining charge for the HRH customer relationship intangible and the year-on-year benefit from a $7 million accelerated amortization in 2009 relating to the HRH brand name.
 
Net gain (loss) on disposal of operations declined by $15 million in 2010 compared to 2009 primarily due to the recording in 2009 of a $10 million gain on sale following the part-disposal of the Group’s holding in Gras Savoye.
 
Interest Expense
 
Interest expense in 2010 was $8 million lower than in 2009, as interest expense savings arising from the reduction in average term loan and revolving credit facility balances was partly offset by the effect of the higher coupon payable on the $500 million 12.875% senior unsecured notes issued in March 2009.
 
Income Taxes
 
The effective tax rate was 24% for 2010 compared to 18% in 2009 as a $22 million benefit in 2010 from prior year tax adjustments was more than offset by the adverse impact from the $12 million charge relating to the devaluation of the Venezuelan currency for which no tax credits are available and positive impacts on the 2009 effective tax rate from a $27 million release relating to a 2009 change in tax law and an $11 million release relating to uncertain tax positions due to the closure of the statute of limitations on assessments for previously unrecognized tax benefits. Excluding these items, the effective tax rate of 26% on ordinary income for 2010 was broadly in line with 2009.
 
Interest in Earnings of Associates, net of Tax
 
Interest in earnings of associates, net of tax, in 2010 of $23 million was $10 million lower than in 2009, primarily due to the reduction from 49% to 31% in our ownership interest in Gras Savoye, as part of the reorganization of their capital structure in December 2009. Interest receivable on the vendor financing we provided as part of the capital reorganization is recorded under this caption.
 
LIQUIDITY AND CAPITAL RESOURCES
 
Debt
 
Total debt, total equity and the capitalization ratio at December 31, 2011 and 2010 were as follows (in millions, except percentages):
 
                 
    December 31, 2011     December 31, 2010  
 
Long-term debt
  $      2,354     $      2,157  
Short-term debt and current portion of long-term debt
  $ 15     $ 110  
                 
Total debt
  $ 2,369     $ 2,267  
                 
Total equity
  $ 2,517     $ 2,608  
                 
Capitalization ratio
    48 %     47 %
                 


41


Table of Contents

 
Willis Group Holdings plc
 
In March 2011 we issued $800 million of new debt, comprised of $300 million 4.125% senior notes due 2016 and $500 million 5.750% senior notes due 2021. We received net proceeds, after underwriting discounts and expenses of approximately $787 million, which were used largely in part to repurchase and redeem $500 million 12.875% senior notes due 2016 and make related make-whole payments totaling $158 million, which represented a slight discount to the make-whole redemption amount provided in the indenture governing this debt. In addition to the make-whole payments of $158 million, we also wrote off unamortized debt issuance costs of $13 million.
 
In December 2011 we refinanced our bank facility, comprising a new 5-year $300 million term loan and a new 5-year $500 million revolving credit facility. The $300 million term loan repaid the majority of the $328 million balance outstanding on our $700 million 5-year term loan facility and the $500 million revolving credit facility replaces our existing $300 million and $200 million revolving credit facilities. Unamortized debt issuance costs of $10 million relating to these facilities were written off in December 2011 following completion of the refinancing. In 2011, we made $83 million of mandatory repayments against the 5-year term loan before repaying the $328 million balance in December 2011.
 
These refinancing actions have lengthened our debt maturity profile. At December 31, 2011, we have $nil outstanding under both the $500 million and the existing $20 million facility compared with December 31, 2010 when we had $90 million outstanding under our $300 million facility and $nil outstanding under our $200 million and $20 million facilities. At December 31, 2011 the only scheduled debt repayments falling due over the next 12 months are scheduled repayments on our new $300 million 5-year term loan totaling $11 million and repayment of the $4 million 6% loan notes due 2012.
 
Liquidity
 
Our principal sources of liquidity are cash from operations and $520 million available under our revolving credit facilities, of which the $20 million UK facility is solely for use by our main regulated UK entity in certain exceptional circumstances. At December 31, 2011 we had $436 million of cash and cash equivalents, of which approximately $100 million is available for general corporate purposes.
 
As of December 31, 2011, our short-term liquidity requirements consisted of $125 million payment of interest on debt, $11 million of mandatory repayments under our 5-year term loan, a $4 million mandatory repayment of our 6.000% loan notes due 2012, $1 million of revolving credit facility commitment fees, capital expenditure and working capital requirements. In addition, our estimated pension contributions for 2012 are $142 million. Our long-term liquidity requirements consist of the principal amount of outstanding notes and borrowings under our 5-year term loan facility.
 
Based on current market conditions and information available to us at this time, we believe that we have sufficient liquidity to meet our cash needs for at least the next 12 months.
 
Pensions
 
UK plan
 
In early 2012 we provisionally agreed a revised funding strategy with the UK plan’s trustee. Whilst the proposed new funding strategy has not been definitively agreed at the date of this report, we expect this to occur by the end of March 2012, and we expect the cash contributions to the scheme in 2012 to be approximately equal to those in 2011, of $92 million.
 
US plan
 
We will make cash contributions of approximately $40 million to the US plan in 2012, compared to contributions of $30 million in 2011. We also intend to make lump sum payments to specific classes of US plan members in settlement of


42


Table of Contents

 
Business discussion
 
their pension obligations. Such payments will only be made in limited tranches. Whilst such payments will have a positive impact on the overall liabilities of the US plan they may require us to provide additional funding to the plan.
 
Summary consolidated cash flow information (in millions):
 
                         
    Year Ended December 31,  
    2011     2010     2009  
 
Cash provided by operating activities
                       
Net cash provided by continuing operating activities
  $      441     $      491     $      421  
Net cash used in discontinued operations
    (2 )     (2 )     (2 )
                         
Total net cash provided by operating activities
    439       489       419  
Cash flows from investing activities
                       
Total net cash (used in) provided by continuing investing activities
    (101 )     (94 )     102  
                         
Increase in cash and cash equivalents from operating and investing activities
    338       395       521  
Cash flows from financing activities
                       
Total net cash used in continuing financing activities
    (214 )     (293 )     (516 )
                         
Increase in cash and cash equivalents
    124       102       5  
Effect of exchange rate changes on cash and cash equivalents
    (4 )     (7 )     11  
Cash and cash equivalents, beginning of year
    316       221       205  
                         
Cash and cash equivalents, end of year
  $ 436     $ 316     $ 221  
                         
 
This summary consolidated cash flow should be viewed in addition to, not in lieu of, the Company’s consolidated financial statements.
 
Consolidated Cash Flow for 2011 compared to 2010
 
Operating Activities
 
Total net cash provided by continuing operating activities was $439 million in 2011, compared with $489 million in 2010. The decrease of $50 million primarily reflects the $57 million year-on-year increase in accounts receivable, reflecting increased revenue but also slower collections in the US due to current economic conditions; cash outflows of approximately $120 million relating to the 2011 Operational Review; and the $24 million year-on-year increase in payments for cash retention awards. These were partly offset by realized cash savings resulting from the 2011 Operational Review and other working capital movements.
 
Investing Activities
 
Total net cash used in continuing investing activities was $101 million in 2011 compared to $94 million in 2010. The $101 million net outflow was mainly due to capital spend including fit-out of our Nashville office and IT project investments.
 
Financing Activities
 
Total net cash used in continuing financing activities was $214 million in 2011 compared to $293 million in 2010. We issued $800 million of new debt in March 2011 and net proceeds of approximately $787 million were used to repurchase and redeem $500 million of 12.875% senior notes due 2016. As part of this debt refinancing we made a $158 million make-whole payment on the redemption of our 12.875% senior notes due 2016. Other significant financing activities in 2011 include refinancing our bank facility in December 2011, dividend payments of $180 million and receipt of $60 million from the issue of shares.


43


Table of Contents

 
Willis Group Holdings plc
 
Consolidated Cash Flow for 2010 compared to 2009
 
Operating Activities
 
Total net cash provided by continuing operating activities was $489 million in 2010 compared with $419 million in 2009. The $70 million increase compared with 2009 primarily reflected the benefits of a $142 million increase in net income from continuing operations before non-cash items offset by a $48 million increase in pension scheme contributions, a $48 million increase in cash retention award payments, the timing of cash collections and other working capital movements.
 
Investing Activities
 
Total net cash outflow from continuing investing activities was $94 million in 2010 compared with a net cash inflow of $102 million in 2009. The 2010 outflow was primarily due to capital spend and $21 million of payments for acquisitions of subsidiaries, mainly in respect of prior year acquisitions. In 2009, capital spend of $96 million was offset by net receipts of $113 million from changes in our ownership interest in Gras Savoye, $42 million net proceeds from sale of discontinued operations, mainly attributable to the second quarter 2009 disposal of Bliss & Glennon and $21 million proceeds from the sale of short-term investments.
 
Financing Activities
 
Net cash used in continuing financing activities was $293 million in 2010 compared with $516 million in 2009. The net decrease in cash used in financing activities of $223 million was mainly attributable to a $90 million drawdown against the revolving credit facilities in 2010 and debt refinancing actions in 2009 that resulted in $102 million higher debt repayments net of debt issuance in that year.
 
Own funds
 
As of December 31, 2011, we had cash and cash equivalents of $436 million, compared with $316 million at December 31, 2010 and $520 million remained available to draw under our revolving credit facilities, compared with $430 million at December 31, 2010.
 
Fiduciary funds
 
As an intermediary, we hold funds generally in a fiduciary capacity for the account of third parties, typically as the result of premiums received from clients that are in transit to insurers and claims due to clients that are in transit from insurers. We report premiums, which are held on account of, or due from, clients as assets with a corresponding liability due to the insurers. Claims held by, or due to, us which are due to clients are also shown as both assets and liabilities. Fiduciary funds are generally required to be kept in certain regulated bank accounts subject to guidelines which emphasize capital preservation and liquidity; such funds are not available to service the Company’s debt or for other corporate purposes. Notwithstanding the legal relationships with clients and insurers, the Company is entitled to retain investment income earned on fiduciary funds in accordance with industry custom and practice and, in some cases, as supported by agreements with insureds.
 
Share redemptions or repurchases
 
The Company is authorized to repurchase or redeem shares under a variety of methods and will consider whether to do so from time to time, based on many factors, including market conditions. There remains approximately $922 million under the current authorization. The Company did not repurchase or redeem any shares in 2011 or 2010. In February 2012, the Company announced that in 2012 it intends to buyback up to $100 million of shares through open market or privately


44


Table of Contents

 
Business discussion
 
negotiated transactions, from time to time, depending on market conditions. As at February 23, 2012 the Company acquired 75,000 shares at a total price of approximately $3 million.
 
Dividends
 
Cash dividends paid in 2011 were $180 million compared with $176 million in 2010 and $174 million in 2009, with the year-on-year increases due to increases in share count over each year.
 
In February 2012, we declared a quarterly cash dividend of $0.27 per share, an annual rate of $1.08 per share, an increase of 3.8% over the prior 12 month period.
 
REVIEW OF SEGMENTAL RESULTS
 
We organize our business into three segments: Global, North America and International. Our Global business provides specialist brokerage and consulting services to clients worldwide for risks arising from specific industries and activities. North America and International comprise our retail operations and provide services to small, medium and major corporations.
 
The following table is a summary of our operating results by segment for the three years ended December 31, 2011 (in millions except percentages):
 
                                                                         
    2011     2010     2009  
          Operating
    Operating
          Operating
    Operating
          Operating
    Operating
 
    Revenues     Income     Margin     Revenues     Income     Margin     Revenues     Income     Margin  
 
Global(a)
  $ 1,082     $ 352       33 %   $ 996     $ 320       32 %   $ 938     $ 311       33 %
                                                                         
North America (b)(c)
    1,323       271       20 %     1,385       320       23 %     1,399       328       23 %
International
    1,042       221       21 %     951       226       24 %     916       216       24 %
                                                                         
Total Retail
    2,365       492       21 %     2,336       546       23 %     2,315       544       23 %
Corporate & Other
          (278 )     n/a             (113 )     n/a             (165 )     n/a  
                                                                         
Total Consolidated
  $ 3,447     $ 566       16 %   $ 3,332     $ 753       23 %   $ 3,253     $ 690       21 %
                                                                         
 
 
(a) Reported commissions and fees include a 2011 benefit of $6 million from a change in accounting within a Global Specialty business to conform to current Group accounting policy.
 
(b) Included in North America reported commissions and fees were legacy HRH contingent commissions of $5 million in 2011, $11 million in 2010 and $27 million in 2009.
 
(c) Reported commissions and fees included a favorable impact from a change in accounting methodology in a specialty business in North America of $7 million in the year ended December 31, 2010.
 
Global
 
Our Global operations comprise Global Specialties, Reinsurance, Willis Faber & Dumas (formerly London Market Wholesale), and as of 2010, Willis Capital Markets & Advisory (WCMA). From January 1, 2011, Willis Faber & Dumas also includes our Global Markets International unit. We have retrospectively adjusted our segmental information disclosures within this discussion to reflect this change to our reporting structure.


45


Table of Contents

 
Willis Group Holdings plc
 
The following table sets out revenues, operating income, organic commissions and fees growth and operating margin for the three years ended December 31, 2011 (in millions, except percentages):
 
                         
    2011     2010     2009  
 
Commissions and fees(a)
  $      1,073     $      987     $      921  
Investment income
    9       9       17  
                         
Total revenues
  $ 1,082     $ 996     $ 938  
                         
Operating income
  $ 352     $ 320     $ 311  
Revenue growth
    9 %     6 %     2 %
Organic commissions and fees growth
    7 %     7 %     4 %
Operating margin
    33 %     32 %     33 %
 
 
(a) Reported commissions and fees include a $6 million first quarter 2011 benefit from a change in accounting within a Global Specialty business to conform to current Group accounting policy.
 
2011 compared to 2010
 
Revenues
 
Commissions and fees of $1,073 million were $86 million, or 9%, higher in 2011 compared with 2010, reflecting organic commissions and fees growth of 7% and a net benefit from foreign currency translation of 2%. Organic growth included the benefit of net new business generation despite the adverse impact of the continued difficult economic environment and soft market in many of the specialty classes.
 
Organic growth included positive growth across Reinsurance, Global Specialties, Willis Faber & Dumas and WCMA businesses, together with a $6 million first quarter 2011 benefit from a change in accounting within a Global Specialty business to conform to current Group accounting policy.
 
Organic growth in Reinsurance in 2011 was led by growth in North America and Asia-Pacific, and included the benefit of new business growth and a profitability initiative that may or may not recur. Overall Reinsurance showed stable pricing with modest increases in some lines and geographies, particularly those affected by catastrophe losses.
 
Organic growth in Global Specialties was led by strong contributions from Marine, Energy, Financial Solutions and Aerospace, reflecting good new business, high retention levels, targeted hiring of producer talent and connectivity between the retail network and specialty businesses. However, the operating environment remains challenging across most Global Specialty businesses with depressed world trade and transit volumes, industry consolidation and pressure on financing of construction projects still evident.
 
Willis Faber & Dumas reported positive organic commissions and fees growth in 2011 and our WCMA business was marginally positive compared to 2010.
 
The 2% net benefit to revenue growth from foreign currency translation in 2011 primarily reflected the period-over-period positive impact of the weakening of the US dollar against both the Euro and Pound sterling, in which we earn a significant portion of Global revenues.
 
Productivity in Global, measured in terms of revenue per FTE employee, increased to $386,000 for 2011 compared with $366,000 for 2010.
 
Client retention levels improved to 91% for 2011, compared with 90% for 2010.


46


Table of Contents

 
Business discussion
 
Operating margin
 
Operating margin was 33% in 2011 compared to 32% in 2010 as the benefit of 7% organic commissions and fees growth discussed above and an $18 million decrease in pension expense was offset by a net negative impact from foreign currency movements, an $8 million increase in incentive expense, including amortization of cash retention award payments and the impact of costs associated with continued support of current and future growth.
 
Operating margin is impacted by foreign exchange movements as the London market operations earn revenues in US dollars, Pounds sterling and Euros and primarily incur expenses in Pounds sterling. In addition, they are exposed to exchange risk on certain Pound sterling-denominated balances.
 
The period-over-period net negative impact from foreign currency movements in 2011 primarily reflected the increased US dollar value of our Pound sterling expense base as a result of the weakening of the US dollar versus the Pound sterling and the net negative impact of translation of non-USD assets and liabilities into US dollar in our London market operations. These factors were partially offset by the US dollar weakening against the Pound sterling and the Euro, increasing the US dollar value of our Pound and Euro denominated revenues.
 
2010 compared to 2009
 
Revenues
 
Commissions and fees were $66 million, or 7%, higher in 2010 compared with 2009 which was driven by 7% organic commissions and fees growth.
 
Our Reinsurance and Global Specialties businesses reported mid-single digit organic growth in 2010, driven by net new business generation despite the adverse impact of the difficult rate environment and soft market in many of the specialty classes.
 
Reinsurance reported strong new business growth in 2010 and client retention levels remained high. Organic growth in Global Specialties was led by strong contributions from Financial and Executive Risks, Construction and Energy, reflecting strong new business, improved retention, targeted hiring of producer talent and improved cooperation across the retail and specialty businesses.
 
Our WCMA business contributed to organic growth in 2010, substantially due to a $9 million fee on a single capital markets transaction in the second quarter.
 
Within Willis Faber & Dumas, revenues in Faber & Dumas were slightly lower than 2009, mainly reflecting the soft wholesale market, together with continued pressure on the most economically sensitive lines such as bloodstock, jewelry and fine arts.
 
Productivity in Global, measured in terms of revenue per FTE employee, increased to $366,000 for 2010 compared with $352,000 for 2009.
 
Client retention levels remained high at 90% for 2010, in line with 2009.
 
Operating margin
 
Operating margin was 32% in 2010 compared with 33% in 2009. This decrease primarily reflected the adverse impact of foreign currency translation, as the positive effect on our Pound sterling expense base from the strengthening US dollar, was more than offset by the adverse impact of foreign currency movements on sterling-denominated balances.


47


Table of Contents

 
Willis Group Holdings plc
 
Excluding the impact of this foreign currency translation, Global’s operating margin remained flat as the benefits of good organic commissions and fees growth and disciplined cost control were offset by the impact of costs associated with continued support of current and future growth.
 
North America
 
Our North America business provides risk management, insurance brokerage, related risk services and employee benefits brokerage and consulting to a wide array of industry and client segments in the United States, Canada and as of January 1, 2011, Mexico retail. We have retrospectively adjusted our segmental information disclosures within this discussion to reflect the allocation of Mexico retail operations to our North America segment.
 
The following table sets out revenues, operating income, organic commissions and fees growth and operating margin for the three years ended December 31, 2011 (in millions, except percentages):
 
                         
    2011     2010     2009  
 
Commissions and fees(a)(b)
  $      1,314     $      1,369     $      1,381  
Investment income
    7       15       15  
Other income
    2       1       3  
                         
Total revenues
  $ 1,323     $ 1,385     $ 1,399  
                         
Operating income
  $ 271     $ 320     $ 328  
Revenue growth
    (4 )%     (1 )%     49 %
Organic commissions and fees growth
    (4 )%     0 %     (4 )%
Operating margin
    20 %     23 %     23 %
 
 
(a) Included in North America reported commissions and fees were legacy HRH contingent commissions of $5 million in 2011, compared with $11 million in 2010 and $27 million in 2009.
 
(b) Reported commissions and fees included a favorable impact from a change in accounting methodology in a specialty business in North America of $7 million in the year ended December 31, 2010.
 
2011 compared to 2010
 
Revenues
 
Commissions and fees of $1,314 million were $55 million, or 4%, lower in 2011 compared with 2010 of which $6 million was attributable to the decrease in legacy contingent commissions assumed as part of the HRH acquisition from $11 million in 2010 to $5 million in 2011.
 
Organic commissions and fees growth declined 4% in 2011 compared with 2010, as the benefits of new business generation and growth in some regions were more than offset by declining Loan Protector revenues and the impact of the soft market conditions and weakened economy across most sectors.
 
The decline in the financial performance of our Loan Protector business had a 2% negative impact on North America organic growth in commissions and fees and for the full year 2011 negatively impacted the segment’s revenue by $27 million. The Loan Protector decline was driven by the loss of clients through attrition and M&A activity, industry-wide commission pressures and a slowdown in foreclosures in the US in 2011.
 
Following the introduction of health care reform legislation in 2010, some major health insurance carriers in North America began to change their compensation practices in particular lines of business in certain locations. In response to market pressures those changes caused, we announced in July 2011 that in order to remain competitive, we would begin accepting standard compensation based on volume, but would continue to resist traditional contingent commissions and bonus payments because, while legal, we believe these forms of compensation create conflicts with our clients. After


48


Table of Contents

 
Business discussion
 
several months of review under changing market conditions, we have concluded that we cannot be fully competitive on Employee Benefits business if we continue to refuse these legal forms of compensation. Consequently, we will begin to accept all forms of compensation from Employee Benefits providers effective April 1, 2012 in North America.
 
Despite the decline in revenues, productivity in North America, measured in terms of revenue per FTE employee, increased to $235,000 for 2011 compared with $234,000 for 2010.
 
Client retention levels were 91% in 2011 compared to 92% in 2010.
 
Operating margin
 
Operating margin in North America was 20% in 2011 compared with 23% in 2010, reflecting the adverse impact from the 4% decline in organic commissions and fees growth discussed above, a period-over-period increase in 401(k) match expense of $10 million following its reinstatement in January 2011 and a $7 million increase in incentive expense, including amortization of cash retention award payments. These were partly offset by a $5 million decrease in stock-based compensation expense and the benefit of cost reductions driven by the 2011 Operational Review and continued focus on expense management.
 
2010 compared to 2009
 
Revenues
 
Commissions and fees of $1,369 million were $12 million, or 1%, lower for 2010 compared with 2009. Excluding the $16 million decrease in legacy contingency commissions assumed as part of the HRH acquisition, there was a modest increase in commissions and fees.
 
Organic commissions and fees growth was flat for 2010. We experienced strong performance in our specialty businesses, driven by good business growth together with a $7 million increase in commissions and fees from a change in accounting of an acquired specialty business in North America to conform to Group accounting policy. Our employee benefits practice recorded 3% growth despite the soft labor market and we achieved good net new business generation, with improved client retention. This was offset by a negative 2% impact from rate declines and other market factors and a further decline in our Construction business and smaller declines elsewhere reflecting continued soft market conditions and the weak US economy.
 
Despite the small decline in revenues, productivity in North America, measured in terms of revenue per FTE employee, increased to $234,000 for 2010 compared with $223,000 for 2009.
 
Client retention levels increased to 92% for 2010, compared with 91% for 2009.
 
Operating margin
 
Operating margin in North America was 23% in both 2010 and 2009, as the benefits of continued disciplined cost control and underlying lower pension expense in 2010 were offset by a $16 million reduction in legacy HRH contingent commissions, increased incentive expense, including the impact of increased amortization of cash retention award payments and the non-recurrence of a $9 million benefit in 2009 from the curtailment of the US pension plan relating to our North America retail employees.
 
International
 
Our International business comprises our retail operations in Eastern and Western Europe, the United Kingdom and Ireland, Asia-Pacific, Russia, the Middle East, South Africa and Latin America. The services provided are focused


49


Table of Contents

 
Willis Group Holdings plc
 
according to the characteristics of each market and vary across offices, but generally include direct risk management and insurance brokerage and employee benefits consulting.
 
The following table sets out revenues, operating income, organic commissions and fees growth and operating margin for the three years ended December 31, 2011(in millions, except percentages):
 
                         
    2011     2010     2009  
 
Commissions and fees
  $      1,027     $      937     $      898  
Investment income
    15       14       18  
                         
Total revenues
  $ 1,042     $ 951     $ 916  
                         
Operating income
    221       226       216  
Revenue growth
    10 %     4 %     (4 )%
Organic commissions and fees growth
    5 %     5 %     5 %
Operating margin
    21 %     24 %     24 %
 
2011 compared to 2010
 
Revenues
 
Commissions and fees of $1,027 million were $90 million, or 10%, higher in 2011 compared with 2010, comprising 5% organic growth and a net 5% positive impact from foreign currency translation. Organic growth included net new business growth of 7%, partly offset by the negative impact from rates and other market factors.
 
There were strong contributions to 2011 organic commissions and fees growth from most regions, including double-digit growth in our Latin America and Eastern Europe regions, together with single-digit growth in Asia and Western Europe. In particular, there was strong growth in Brazil, Chile, Argentina, Russia and China.
 
The single-digit organic commissions and fees growth in our large retail operation in Continental Europe was primarily driven by strong growth in Italy, Spain and Germany, despite the ongoing challenging economic conditions in this region, offset by lower commissions and fees in Denmark and the Netherlands.
 
Organic commissions and fees growth in our UK and Ireland retail operations, declined 2% in 2011, compared with the same period 2010, driven by the economic pressures that continue to affect both the UK and Ireland.
 
A significant part of International’s revenues are earned in currencies other than the US dollar, most notably the Euro, Pound sterling and Australian dollar. The net 5% benefit from foreign currency translation in 2011 primarily reflected the weakening of the US dollar against these and other currencies in which we earn International revenues.
 
Productivity in our International business, measured in terms of revenue per FTE employee, increased to $160,000 for 2011 compared with $150,000 for 2010.
 
Client retention levels increased to 94% for 2011, compared with 93% for 2010.
 
Operating margin
 
Operating margin in International was 21% in 2011, compared with 24% in 2010, with the decrease primarily reflecting a $17 million increase in incentive expenses including amortization of cash retention award payments, the impact of the reinstated annual salary review for all employees from April 2011 and increased spending on initiatives to drive future growth, including investment hires. These increases were partly offset by the benefit from organic commissions and fees growth and favorable foreign currency movements as discussed above and reduced pension expense.


50


Table of Contents

 
Business discussion
 
2010 compared to 2009
 
Revenues
 
Commissions and fees of $937 million were $39 million, or 4%, higher for 2010 compared with 2009, as the benefits of 5% organic commissions and fees growth and 1% from the net effect of acquisitions and disposals were partly offset by a 2% adverse impact from foreign currency translation. Organic growth included net new business growth of 8% and there was a negative 3% impact from rates and other market factors.
 
There were strong contributions to organic commissions and fees growth from most regions, led by growth in Latin America, Asia-Pacific and Western Europe. There was further positive growth in our Eastern Europe operations, driven by a strong contribution from Russia. Organic commissions and fees growth was also positive in our UK and Irish retail operations, driven by new business growth in the UK. Our employee benefits practice, which represents approximately 10% of International commissions and fees, performed well in 2010 with growth in the mid single digits.
 
A significant part of International’s revenues are earned in currencies other than the US dollar. The US dollar strengthened against a number of these currencies in 2010 compared with 2009, most notably the Euro, Venezuelan Bolivar Fuerte, Danish Kroner and Pound Sterling. The adverse impact of this strengthening was partly offset by the weakening of the US dollar against the Australian dollar. The net impact of these movements was a 2% reduction in 2010 revenues compared to 2009.
 
Productivity in our International business, measured in terms of revenue per FTE employee, increased to $150,000 for 2010 compared with $147,000 for 2009.
 
Client retention levels remained high at 93% for 2010.
 
Operating margin
 
Operating margin in International was 24% in both 2010 and 2009. Benefits from 5% organic commissions and fees growth and continued focus on disciplined expense management were offset by the adverse impact from foreign currency translation due to the strengthening of the US dollar against the Euro and other currencies in which we earn a significant portion of our operating income, increased incentive expenses, including amortization of cash retention award payments, a reduction in investment income, driven by lower interest rates particularly in the Eurozone, and spending on initiatives to drive future growth.
 
Corporate & Other
 
The Company evaluates the performance of its operating segments based on organic commissions and fees growth and operating income. For internal reporting and segmental reporting, items for which segmental management are not held responsible for are held within ‘Corporate & Other’.


51


Table of Contents

 
Willis Group Holdings plc
 
Corporate & Other comprises the following (in millions):
 
                         
    2011     2010     2009  
 
Amortization of intangible assets
  $      (68 )   $      (82 )   $      (100 )
Foreign exchange hedging
    5       (16 )     (42 )
Foreign exchange gain (loss) on the UK pension plan asset
          3       (6 )
HRH integration costs
                (18 )
Net gain (loss) on disposal of operations
    4       (2 )     13  
2011 Operational Review
    (180 )            
UK FSA Regulatory settlement
    (11 )            
Venezuela currency devaluation
          (12 )      
Write-off of uncollectible accounts receivable balance in North America
    (22 )            
Redomicile of parent company costs
                (6 )
Other(a)
    (6 )     (4 )     (6 )
                         
Total corporate and other
  $ (278 )   $ (113 )   $ (165 )
                         
 
 
(a) Other includes $12 million in 2011 from the release of funds and reserves related to potential legal liabilities (2010: $7 million, 2009: $nil).
 
CRITICAL ACCOUNTING ESTIMATES
 
Our accounting policies are described in Note 2 to the Consolidated Financial Statements. Management considers that the following accounting estimates or assumptions are the most important to the presentation of our financial condition or operating performance. Management has discussed its critical accounting estimates and associated disclosures with our Audit Committee.
 
Pension expense
 
We maintain defined benefit pension plans for employees in the US and UK. Both these plans are now closed to new entrants and, with effect from May 15, 2009 we closed our US defined benefit plan to future accrual. New entrants in the UK are offered the opportunity to join a defined contribution plan and in the United States are offered the opportunity to join a 401(k) plan. We also have smaller defined benefit schemes in Ireland, Germany, Norway and the Netherlands. These international schemes have combined total assets of $128 million and a combined net liability for pension benefits of $3 million as of December 31, 2011. Elsewhere, pension benefits are typically provided through defined contribution plans.
 
We recorded a net pension charge on our UK and US defined benefit pension plans in 2011 of $6 million, and $nil respectively, compared with $28 million and $1 million respectively in 2010. On our international defined benefit pension plans, we recorded a net pension charge of $5 million in 2011, compared with $6 million in 2010.
 
Based on December 31, 2011 assumptions, we expect the net pension charge in 2012 to decrease by $11 million for the UK plan, increase by $3 million for the US plan and increase a net $1 million for the international plans.
 
We make a number of assumptions when determining our pension liabilities and pension expense which are reviewed annually by senior management and changed where appropriate. The discount rate will be changed annually if underlying rates have moved whereas the expected long-term return on assets will be changed less frequently as longer term trends in asset returns emerge or long term target asset allocations are revised. Other material assumptions include rates of participant mortality, the expected long-term rate of compensation and pension increases and rates of employee termination. Our approach to determining appropriate assumptions for our UK and US pension plans is set out below.


52


Table of Contents

 
Business discussion
 
UK plan
 
                                 
          Impact of a
             
    As disclosed
    0.50 percentage
    Impact of a
       
    using
    point increase
    0.50 percentage
    One year
 
    December 31,
    in the expected
    point increase
    increase in
 
    2011
    rate of return
    in the discount
    mortality
 
    assumptions     on assets(a)     rate(a)     assumption(b)  
    (millions)  
 
Estimated 2012 (income)/ expense
  $ (5 )   $ (12 )   $ (19 )   $ 7  
Projected benefit obligation at December 31, 2011
    2,217       n/a       (194 )     44  
 
 
(a) With all other assumptions held constant.
 
(b) Assumes all plan participants are one year younger.
 
Discount rate
 
During 2011, we moved from an index based approach to determining the discount rate to a duration based approach which more closely matches the actual timings of expected cash flows to the applicable discount rate. The selected rate used to discount UK plan liabilities was 4.80% compared with 5.45% at December 31, 2010 with the decrease reflecting a reduction in UK long-term bond rates in 2011. Under the old approach, the discount rate at the end of 2011 would have been 4.65%. We estimate the impact of this change was to:
 
•   increase the 2011 funded status by approximately $54 million; and
 
•   reduce the 2012 estimated pension expense by approximately $5 million.
 
The lower discount rate generated an actuarial loss of approximately $240 million at December 31, 2011.
 
Expected and actual asset returns
 
Expected long-term rates of return on plan assets are developed from the expected future returns of the various asset classes using the target asset allocations. The expected long-term rate of return used for determining the net UK pension expense in 2011 was 7.50% (2010: 7.75%), equivalent to an expected return in 2011 of $161 million (2010: $141 million). The decrease in the expected long-term rate of return followed a change in the underlying target asset mix.
 
The expected and actual returns on UK plan assets for the three years ended December 31, 2011 were as follows:
 
                 
          Actual
 
    Expected
    return
 
    return on
    on plan
 
    plan assets     assets  
    (millions)  
 
2011
  $      161     $      269  
2010
    141       245  
2009
    127       234  
 
Mortality
 
During 2011, we amended the mortality assumptions to more closely align them to those used in the most recent funding valuation. The mortality assumption is now the 90 / 105% PNA00 table for males / females (2010: 100% PNA00 table without an age adjustment).
 
This change gave rise to an approximate $85 million increase in the 2011 projected benefit obligation compared to using the 2010 mortality assumptions.


53


Table of Contents

 
Willis Group Holdings plc
 
As an indication of the longevity assumed, our calculations assume that a UK male retiree aged 65 at December 31, 2011 would have a life expectancy of 24 years.
 
US plan
 
                                 
          Impact of a
             
          0.50 percentage
    Impact of a
       
    As disclosed
    point increase
    0.50 percentage
    One year
 
    using
    in the expected
    point increase
    increase in
 
    December 31, 2011
    rate of return
    in the discount
    mortality
 
    assumptions(a)     on assets(b)     rate(b)     assumption(b)(c)  
    (millions)  
 
Estimated 2012 expense / (income)
  $      2     $      (3 )   $      (1 )   $      2  
Projected benefit obligation at December 31, 2011
    897       n/a       (58 )     25  
 
 
(a) Except for expected rate of return updated to 7.25%.
 
(b) With all other assumptions held constant.
 
(c) Assumes all plan participants are one year younger.
 
Discount rate
 
The rate used to discount US plan liabilities at December 31, 2010 was 5.58%, determined based on expected plan cash flows discounted using a corporate bond yield curve. Since the end of 2010, AA corporate bond spot yields have fallen and spreads of long term AA bonds over gilts have widened. Consequently, the discount rate at December 31, 2011 was 4.63%, a reduction of 95 basis points from 2010 year end. The impact of the lower discount rate in 2011 increased the projected benefit obligation by approximately $100 million.
 
Expected and actual asset returns
 
The expected long-term rate of return used for determining the net US pension scheme expense in 2011 was 7.50%, a reduction of 0.25% from 2010. Effective January 1, 2012, the expected long-term rate of return was further decreased to 7.25%, following a change in the underlying target asset mix.
 
The expected and actual returns on US plan assets for the three years ended December 31, 2011 were as follows:
 
                 
          Actual
 
    Expected
    return
 
    return on
    on plan
 
    plan assets     assets  
    (millions)  
 
2011
  $      44     $      34  
2010
    42       70  
2009
    36       86  
 
Mortality
 
The mortality assumption at December 31, 2011 is the RP-2000 Mortality Table (blended for annuitants and non-annuitants), projected by Scale AA to 2019 for annuitants and 2027 for non-annuitants (December 31, 2010: projected to 2011 by Scale AA). This change more closely aligns assumptions made for accounting purposes to those for funding purposes. The impact of the change in mortality assumptions increased the projected benefit obligation at December 31, 2011 by approximately $27 million.


54


Table of Contents

 
Business discussion
 
As an indication of the longevity assumed, our calculations assume that a US male retiree aged 65 at December 31, 2011, would have a life expectancy of 19 years.
 
Intangible assets
 
Intangible assets represent the excess of cost over the value of net tangible assets of businesses acquired. We classify our intangible assets into three categories;
 
•   Goodwill;
 
•   ‘Customer and Marketing Related’ which includes client lists, client relationships, trade names and non-compete agreements; and
 
•   ‘Contract-based, Technology and Other’ which includes all other purchased intangible assets.
 
Client relationships acquired on the HRH acquisition are amortized over twenty years in line with the pattern in which the economic benefits of the client relationships are expected to be consumed. Over 80% of the client relationships intangible will have been amortized after 10 years. Non-compete agreements acquired in connection with the HRH acquisition were amortized over two years on a straight line basis. Intangible assets acquired in connection with other acquisitions are amortized over their estimated useful lives on a straight line basis. Goodwill is not subject to amortization.
 
To determine the allocation of intangible assets between goodwill and other intangible assets and the estimated useful lives in respect of the HRH acquisition we considered a report produced by a qualified independent appraiser. The calculation of the allocation is subject to a number of estimates and assumptions. We base our allocation on assumptions we believe to be reasonable. However, changes in these estimates and assumptions could affect the allocation between goodwill and other intangible assets.
 
Goodwill impairment review
 
We review goodwill for impairment annually or whenever events or circumstances indicate impairment may have occurred.
 
The goodwill impairment test is a two step analysis. Step One requires the fair value of each reporting unit to be compared to its book value. If the fair value of a reporting unit is determined to be greater than the carrying value of the reporting unit, goodwill is not to be impaired and no further testing is necessary. If the fair value of a reporting unit is less than the carrying value, we perform Step Two. Step Two requires the implied fair value of reporting unit goodwill to be compared with the carrying amount of that goodwill. Determining the implied fair value of goodwill requires a valuation of the reporting unit’s tangible and intangible assets and liabilities in a manner similar to the allocation of the purchase price in a business combination. Any excess of the value of a reporting unit over the amounts assigned to its assets and liabilities is referred to as the implied fair value of goodwill. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.
 
Application of the impairment test requires judgment, including the identification of reporting units, assignment of assets, liabilities and goodwill to reporting units and determination of fair value of each reporting unit.
 
Determination of reporting units
 
We have determined our reporting units to be consistent with our operating segments: North America; International and Global. Goodwill is allocated to these reporting units based on the original purchase price allocation for acquisitions within the reporting units.


55


Table of Contents

 
Willis Group Holdings plc
 
Fair value of reporting units
 
The fair value of each reporting unit is estimated using a discounted cash flow methodology and, in aggregate, validated against our market capitalization.
 
Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions include estimations of future cash flows which are dependent on internal forecasts, long-term rate of growth for our business and determination of our weighted average cost of capital.
 
We base our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Therefore changes in these estimates and assumptions could materially affect the determination of fair value and result in goodwill impairment.
 
In addition, we make certain judgments and assumptions in allocating shared assets and liabilities to determine the carrying values for each of our reporting units.
 
Annual goodwill impairment analysis
 
Our annual goodwill impairment analysis is performed each year at October 1. At October 1, 2011 our analysis showed the estimated fair value of each reporting unit was in excess of the carrying value, and therefore did not result in an impairment charge (2010: $nil, 2009: $nil). The fair values of the Global and International reporting units were significantly in excess of their carrying values. The fair value of the North American unit exceeded its carrying value by approximately 14%.
 
In the fourth quarter of 2011 our North America segment continued to be hampered by declining Loan Protector business results, the effect of the soft economy in the U.S. and declining retention rates primarily related to M&A activity and lost legacy HRH business. Consequently, the annual impairment test described above included additional sensitivity analysis, over and above that we would usually perform, in relation to our North America segment’s goodwill impairment review. This additional analysis included reductions to assumed rates of revenue growth, increases to assumed rates of expense growth and flexing the assumed weighted average cost of capital. Although our testing concluded there is no impairment, the analysis indicated that in respect of the North America segment, in the event of either a significant deterioration in a key estimate or assumption or a less significant deterioration to a combination of assumptions or the sale of part of the reporting unit there could be an impairment to the carrying value in future periods.
 
Income taxes
 
We recognize deferred tax assets and liabilities for the estimated future tax consequences of events attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases and operating and capital loss and tax credit carry-forwards. We estimate deferred tax assets and liabilities and assess the need for any valuation allowances using tax rates in effect for the year in which the differences are expected to be recovered or settled taking into account our business plans and tax planning strategies.
 
At December 31, 2011, we had gross deferred tax assets of $432 million (2010: $294 million) against which a valuation allowance of $102 million (2010: $87 million) had been recognized. To the extent that:
 
•   the actual future taxable income in the periods during which the temporary differences are expected to reverse differs from current projections;
 
•   assumed prudent and feasible tax planning strategies fail to materialize;
 
•   new tax planning strategies are developed; or
 
•   material changes occur in actual tax rates or loss carry-forward time limits,


56


Table of Contents

 
Business discussion
 
 
we may adjust the deferred tax asset considered realizable in future periods. Such adjustments could result in a significant increase or decrease in the effective tax rate and have a material impact on our net income.
 
Positions taken in our tax returns may be subject to challenge by the taxing authorities upon examination. We recognize the benefit of uncertain tax positions in the financial statements when it is more likely than not that the position will be sustained on examination by the tax authorities. The benefit recognized is the largest amount of tax benefit that has a greater than 50% likelihood of being realized on settlement with the tax authority, assuming full knowledge of the position and all relevant facts. The Company adjusts its recognition of these uncertain tax benefits in the period in which new information is available impacting either the recognition or measurement of its uncertain tax positions. In 2011, there was a net increase in uncertain tax positions of $3 million compared to a net decrease of $4 million in 2010. The Company recognizes interest relating to unrecognized tax benefits and penalties within income taxes. Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheet.
 
Commitments, contingencies and accrued liabilities
 
We purchase professional indemnity insurance for errors and omissions claims. The terms of this insurance vary by policy year and self-insured risks have increased significantly over recent years. We have established provisions against various actual and potential claims, lawsuits and other proceedings relating principally to alleged errors and omissions in connection with the placement of insurance and reinsurance in the ordinary course of business. Such provisions cover claims that have been reported but not paid and also claims that have been incurred but not reported. These provisions are established based on actuarial estimates together with individual case reviews and are believed to be adequate in the light of current information and legal advice.
 
CONTRACTUAL OBLIGATIONS
 
The Company’s contractual obligations as at December 31, 2011 are presented below:
 
                                         
    Payments due by  
Obligations   Total     2012     2013-2014     2015-2016     After 2016  
    (millions)  
 
5-year term loan facility expires 2016
  $      300     $      11     $      30     $      259     $      —  
Interest on term loan
    28       6       12       10        
Revolving $500 million credit facility commitment fees
    6       1       3       2        
6.000% loan notes due 2012
    4       4                    
5.625% senior notes due 2015
    350                   350        
Fair value adjustments on 5.625% senior notes due 2015
    20                   20        
4.125% senior notes due 2016
    300                   300        
6.200% senior notes due 2017
    600                         600  
7.000% senior notes due 2019
    300                         300  
5.750% senior notes due 2021
    500                         500  
Interest on senior notes
    744       119       238       200       187  
                                         
Total debt and related interest
    3,152       141       283       1,141       1,587  
Operating leases(a)
    1,307       146       203       151       807  
Pensions
    386       91       181       114        
Other contractual obligations(b)
    164       72       13       37       42  
                                         
Total contractual obligations
  $ 5,009     $ 450     $ 680     $ 1,443     $      2,436  
                                         
 
 
(a) Presented gross of sublease income.
 
(b) Other contractual obligations include capital lease commitments, put option obligations and investment fund capital call obligations, the timing of which are included at the earliest point they may fall due.


57


Table of Contents

 
Willis Group Holdings plc
 
 
Debt obligations and facilities
 
The Company’s debt and related interest obligations at December 31, 2011 are shown in the above table.
 
In March 2011 we issued $800 million of new debt, comprised of $300 million of 4.125% senior notes due 2016 and $500 million of 5.750% senior notes due 2021. We received net proceeds, after underwriting discounts and expenses of approximately $787 million, which were used, to repurchase and redeem $500 million of 12.875% senior notes due 2016 and make related make-whole payments totaling $158 million, which represented a slight discount to the make-whole redemption amount provided in the indenture governing this debt. In addition to the make-whole payments of $158 million, we also wrote off unamortized debt issuance costs of $13 million.
 
In December 2011 we refinanced our bank facility, comprising a new 5-year $300 million term loan and a new 5-year $500 million revolving credit facility. The $300 million term loan repaid the majority of the $328 million balance outstanding on our $700 million 5-year term loan facility and the $500 million revolving facility replaces our existing $300 million and our $200 million revolving credit facilities. Unamortized debt issuance costs of $10 million relating to these facilities were written off in December 2011 following completion of the refinancing.
 
Conditions to borrowing under the banking facility include the accuracy and completeness in all material respects of all representations and warranties in the loan documentation and that no default under the banking facility then existed or would result from such borrowing or the application of the proceeds thereof. Voluntary prepayments are permitted without penalty or premium (subject to minimum amounts) and mandatory prepayments are required in certain circumstances.
 
We are subject to various affirmative and negative covenants and reporting obligations under the banking facility. These include, among others, limitations on subsidiary indebtedness, liens, sale and leaseback transactions, certain investments, fundamental changes, assets sales and restricted payments, and maintenance of certain financial covenants. Events of default under the banking facility include non-payment of amounts due to the lenders, violation of covenants, incorrect representations, defaults under other material indebtedness, judgments and specified insolvency-related events, certain ERISA events and invalidity of loan documents, subject to, in certain instances, specified thresholds, cure periods and exceptions.
 
At December 31, 2011 the only mandatory debt repayments falling due over the next 12 months are scheduled repayments on our new $300 million 5-year term loan totaling $11 million and repayment of the $4 million 6% loan notes due 2012.
 
Operating leases
 
The Company leases certain land, buildings and equipment under various operating lease arrangements. Original non-cancellable lease terms typically are between 10 and 20 years and may contain escalation clauses, along with options that permit early withdrawal. The total amount of the minimum rent is expensed on a straight-line basis over the term of the lease.
 
As of December 31, 2011, the aggregate future minimum rental commitments under all non-cancellable operating lease agreements are as follows:
 
                         
    Gross rental
    Rentals from
    Net rental
 
    commitments     subleases     commitments  
    (millions)  
 
2012
  $ 146     $ (14 )   $ 132  
2013
    109       (14 )     95  
2014
    94       (13 )     81  
2015
    79       (12 )     67  
2016
    72       (11 )     61  
Thereafter
    807       (32 )     775  
                         
Total
  $      1,307     $      (96 )   $      1,211  
                         


58


Table of Contents

 
Business discussion
 
The Company leases its main London building under a 25-year operating lease, which expires in 2032. The Company’s contractual obligations in relation to this commitment included in the table above total $715 million (2010: $744 million). Annual rentals are $30 million per year and the Company has subleased approximately 29% of the premises under leases up to 15 years. The amounts receivable from subleases, included in the table above, total $82 million (2010: $87 million; 2009: $100 million).
 
Rent expense amounted to $127 million for the year ended December 31, 2011 (2010: $131 million; 2009: $154 million). The Company’s rental income from subleases was $18 million for the year ended December 31, 2011 (2010: $22 million; 2009: $21 million).
 
Pensions
 
Contractual obligations for our pension plans reflect the contributions we expect to make over the next five years into our US, UK and international plans. These contributions are based on current funding positions and may increase or decrease dependent on the future performance of the plans.
 
UK plan
 
We made total cash contributions to our UK defined benefit pension plan of $92 million in 2011 (including amounts in respect of the salary sacrifice contribution) compared with $88 million in 2010 and $49 million in 2009.
 
In the UK we are required to agree to a funding strategy for our UK defined benefit plan with the plan’s trustees. In February 2009, we agreed to make full year contributions to the UK plan of approximately $39 million for 2009 through 2011, excluding amounts in respect of the salary sacrifice scheme. In addition, if certain funding targets were not met at the beginning of any of those years, a further contribution of approximately $39 million was required for that year. The additional funding requirement was triggered in both 2010 and 2011.
 
The amounts included as contractual obligations in the table above reflect those payable under the current funding strategy which expires in March 2015, including amounts in respect of the salary sacrifice arrangements. Negotiations between the Company and the plan trustees on a revised funding strategy are continuing as set out in the ‘Liquidity and Capital Resources’ section.
 
US plan
 
We made total cash contributions to our US defined benefit pension plan of $30 million in 2011, compared with $30 million in 2010 and $27 million in 2009.
 
We expect to make contributions of approximately $40 million in 2012 through 2016 under US pension legislation based on our December 31, 2011 balance sheet position.
 
International plans
 
We made total cash contributions to our international defined benefit pension plans of $13 million in 2011, compared with $12 million in 2010 and $6 million in 2009.
 
In 2012, we expect to contribute approximately $12 million to our international plans.
 
Based on the current UK funding strategy and as shown in the table above, the total contracted contributions for all plans are currently estimated to be approximately $91 million in 2012, excluding amounts of approximately $12 million in respect of the salary sacrifice scheme. However, a revised UK funding strategy, and hence 2012 contribution, is expected


59


Table of Contents

 
Willis Group Holdings plc
 
to be finalized shortly and the final 2012 contribution for all plans is expected to be approximately $142 million, including salary sacrifice which compares to an equivalent 2011 total contribution of $135 million.
 
Guarantees
 
Guarantees issued by certain of Willis Group Holdings’ subsidiaries with respect to the senior notes and revolving credit facilities are discussed in Note 21 — Commitments and Contingencies — in these consolidated financial statements.
 
Certain of Willis Group Holdings’ subsidiaries have given the landlords of some leasehold properties occupied by the Company in the UK and the US guarantees in respect of the performance of the lease obligations of the subsidiary holding the lease. The operating lease obligations subject to such guarantees amounted to $828 million and $855 million at December 31, 2011 and 2010, respectively.
 
In addition, the Company has given guarantees to bankers and other third parties relating principally to letters of credit amounting to $3 million and $11 million at December 31, 2011 and 2010, respectively. Willis Group Holdings also guarantees certain of its UK and Irish subsidiaries’ obligations to fund the UK and Irish defined benefit plans.
 
Other Contractual Obligations
 
For certain subsidiaries and associates, the Company has the right to purchase shares (a call option) from co-shareholders at various dates in the future. In addition, the co-shareholders of certain subsidiaries and associates have the right to sell (a put option) their shares to the Company at various dates in the future. Generally, the exercise price of such put options and call options is formula-based (using revenues and earnings) and is designed to reflect fair value.
 
At December 31, 2011 the Company owned 50.1% of Gras Savoye Re., a company we consolidate in our financial statements. In January 2012 the co-shareholders of Gras Savoye exercised a put option for the Company to acquire the remaining 49.9% of Gras Savoye Re. for approximately $30 million and we anticipate concluding this transaction in March 2012.
 
Based on current projections of profitability and exchange rates, and assuming the put options are exercised, the potential amount payable from these options, including Gras Savoye Re., is not expected to exceed $72 million (2010: $40 million).
 
In July 2010, the Company made a capital commitment of $25 million to Trident V Parallel Fund, LP, an investment fund managed by Stone Point Capital. This replaced a capital commitment of $25 million that had been made to Trident V, LP in December 2009. As at December 31, 2011 there have been approximately $6 million of capital contributions.
 
In May 2011, the Company made a capital commitment of $10 million to Dowling Capital Partners I, LP. As at December 31, 2011 there had been no capital contributions.
 
Other contractual obligations at December 31, 2011 also include the capital lease on the Company’s Nashville property of $63 million, payable from 2012 onwards.
 
NEW ACCOUNTING STANDARDS
 
In May 2011, the Financial Accounting Standards Board (‘FASB’) issued new guidance to provide a consistent definition of fair value and ensure that fair value measurements and disclosure requirements are similar between US GAAP and International Financial Reporting Standards (‘IFRS’). The guidance changes certain fair value measurement principles and enhances the disclosure requirements for fair value measurements.
 
In June 2011, the FASB issued new guidance to revise the manner in which entities present comprehensive income in their financial statements, requiring that the components of comprehensive income be presented in either a single


60


Table of Contents

 
Business discussion
 
continuous statement of comprehensive income or in two separate but consecutive statements. The amendments do not change the items that must be reported in other comprehensive income (OCI) or when an item of OCI must be reclassified to net income.
 
In September 2011, the FASB also issued guidance to allow an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it should calculate the fair value of a reporting unit. All of the above accounting changes become effective for the Company from first quarter 2012.
 
Further details of the changes are described in Note 2 to the Condensed Consolidated Financial Statements.
 
Other than the changes described above, there were no new accounting standards issued during 2011 that would impact on the Company’s reporting.
 
OFF BALANCE SHEET TRANSACTIONS
 
Apart from commitments, guarantees and contingencies, as disclosed in Note 21 to the Consolidated Financial Statements, the Company has no off-balance sheet arrangements that have, or are reasonably likely to have, a material effect on the Company’s financial condition, results of operations or liquidity.


61


Table of Contents

 
Willis Group Holdings plc
 
Item 7A — Quantitative and Qualitative Disclosures about Market Risk
 
Financial Risk Management
 
We are exposed to market risk from changes in foreign currency exchange rates and interest rates. In order to manage the risk arising from these exposures, we enter into a variety of interest rate and foreign currency derivatives. We do not hold financial or derivative instruments for trading purposes.
 
A discussion of our accounting policies for financial and derivative instruments is included in Note 2 — Basis of Presentation and Significant Accounting Policies of Notes to the Consolidated Financial Statements, and further disclosure is provided in Note 25 — Derivative Financial Instruments and Hedging Activities.
 
Foreign Exchange Risk Management
 
Because of the large number of countries and currencies we operate in, movements in currency exchange rates may affect our results.
 
We report our operating results and financial condition in US dollars. Our US operations earn revenue and incur expenses primarily in US dollars. Outside the United States, we predominantly generate revenues and expenses in the local currency with the exception of our London market operations which earns revenues in several currencies but incurs expenses predominantly in pounds sterling.
 
The table below gives an approximate analysis of revenues and expenses by currency in 2011.
 
                                 
    US
  Pounds
      Other
    Dollars   Sterling   Euros   currencies
 
Revenues
    58%       9%       14%       19%  
Expenses
    51%       23%       10%       16%  
 
Our principal exposures to foreign exchange risk arise from:
 
•   our London market operations; and
 
•   translation.
 
London market operations
 
In our London market operations, we earn revenue in a number of different currencies, principally US dollars, pounds sterling, Euros and Japanese yen, but incur expenses almost entirely in pounds sterling.
 
We hedge this risk as follows:
 
•   to the extent that forecast pound sterling expenses exceed pound sterling revenues, we limit our exposure to this exchange rate risk by the use of forward contracts matched to specific, clearly identified cash outflows arising in the ordinary course of business; and
 
•   to the extent our London market operations earn significant revenues in Euros and Japanese yen, we limit our exposure to changes in the exchange rate between the US dollar and these currencies by the use of forward contracts matched to a percentage of forecast cash inflows in specific currencies and periods.


62


Table of Contents

 
Market risk
 
In addition, we are also exposed to foreign exchange risk on any net sterling asset or liability position in our London market operations.
 
However, where the foreign exchange risk relates to any sterling pension assets benefit or liability for pensions benefit, we do not hedge the risk. Consequently, if our London market operations have a significant pension asset or liability, we may be exposed to accounting gains and losses if the US dollar and pounds sterling exchange rate changes. We do, however, hedge the pounds sterling contributions into the pension plan.
 
Translation risk
 
Outside our US and London market operations, we predominantly earn revenues and incur expenses in the local currency. When we translate the results and net assets of these operations into US dollars for reporting purposes, movements in exchange rates will affect reported results and net assets. For example, if the US dollar strengthens against the euro, the reported results of our Eurozone operations in US dollar terms will be lower.
 
We do not hedge translation risk.
 
The table below provides information about our foreign currency forward exchange contracts, which are sensitive to exchange rate risk. The table summarizes the US dollar equivalent amounts of each currency bought and sold forward and the weighted average contractual exchange rates. All forward exchange contracts mature within three years.
 
                                                 
    Settlement date before December 31,  
    2012     2013     2014  
          Average
          Average
          Average
 
    Contract
    contractual
    Contract
    contractual
    Contract
    contractual
 
December 31, 2011   amount     exchange rate     amount     exchange rate     amount     exchange rate  
    (millions)           (millions)           (millions)        
 
Foreign currency sold
                                               
US dollars sold for sterling
  $ 156     $ 1.55=£1     $ 63     $ 1.57=£1     $ 16     $ 1.62=£1  
Euro sold for US dollars
    86     1=$1.39       43     1=$1.39              
Japanese yen sold for US dollars
    26     ¥ 85.93=$ 1       18     ¥ 81.96=$ 1       6     ¥ 78.33=$ 1  
                                                 
Total
  $ 268             $ 124             $ 22          
                                                 
Fair Value(i)
  $ 2             $ (1 )           $ (1 )        
 
                                                 
    Settlement date before December 31,  
    2011     2012     2013  
          Average
          Average
          Average
 
    Contract
    contractual
    Contract
    contractual
    Contract
    contractual
 
December 31, 2010   amount     exchange rate     amount     exchange rate     amount     exchange rate  
    (millions)           (millions)           (millions)        
 
Foreign currency sold
                                               
US dollars sold for sterling
  $ 209     $ 1.53=£1     $ 91     $ 1.51=£1     $ 15     $ 1.49=£1  
Euro sold for US dollars
    86     1=$1.40       61     1=$1.39       10     1=$1.38  
Japanese yen sold for US dollars
    26     ¥ 91.69=$ 1       23     ¥ 86.38=$ 1       15     ¥ 82.38=$ 1  
                                                 
Total
  $ 321             $ 175             $ 40          
                                                 
Fair Value(i)
  $ 3             $ 3             $          
 
 
(i) Represents the difference between the contract amount and the cash flow in US dollars which would have been receivable had the foreign currency forward exchange contracts been entered into on December 31, 2011 or 2010 at the forward exchange rates prevailing at that date.


63


Table of Contents

 
Willis Group Holdings plc
 
 
Income earned within foreign subsidiaries outside of the UK is generally offset by expenses in the same local currency but the Company does have exposure to foreign exchange movements on the net income of these entities. The Company does not hedge net income earned within foreign subsidiaries outside of the UK.
 
Interest rate risk management
 
Our operations are financed principally by $2,050 million fixed rate senior notes issued by the Group and $300 million under a new 5-year term loan facility. Of the fixed rate senior notes, $350 million are due 2015, $300 million are due 2016, $600 million are due 2017, $300 million are due 2019, and $500 million are due 2021. The 5-year term loan facility is repayable in quarterly installments and a final repayment of $225 million is due in the forth quarter of 2016. As of December 31, 2011 we had access to $520 million under revolving credit facilities and no drawings had been made under those facilities. The interest rate applicable to the bank borrowing is variable according to the period of each individual drawdown.
 
We are also subject to market risk from exposure to changes in interest rates based on our investing activities where our primary interest rate risk arises from changes in short-term interest rates in both US dollars and pounds sterling.
 
As a result of our operating activities, we receive cash for premiums and claims which we deposit in short-term investments denominated in US dollars and other currencies. We earn interest on these funds, which is included in our consolidated financial statements as investment income. These funds are regulated in terms of access and the instruments in which it may be invested, most of which are short-term in maturity. In order to manage interest rate risk arising from these financial assets, we enter into interest rate swaps to receive a fixed rate of interest and pay a variable rate of interest in the various currencies related to the short-term investments. The use of interest rate contracts essentially converts groups of short-term variable rate investments to fixed rates. However, in the fourth quarter of 2011, we stopped renewing hedged positions on their maturity given the current flat yield curve environment.
 
During the year ended December 31, 2010, the Company entered into a series of interest rate swaps for a total notional amount of $350 million to receive a fixed rate and pay a variable rate on a semi-annual basis, with a maturity date of July 15, 2015. The Company has designated and accounts for these instruments as fair value hedges against its $350 million 5.625% senior notes due 2015. The fair values of the interest rate swaps are included within other assets or other liabilities and the fair value of the hedged element of the senior notes is included within the principal amount of the debt.
 
The table below provides information about our derivative instruments and other financial instruments that are sensitive to changes in interest rates. For interest rate swaps, the table presents notional principal amounts and average interest rates analyzed by expected maturity dates. Notional principal amounts are used to calculate the contractual payments to be exchanged under the contracts. The duration of interest rate swaps varies between one and five years, with re-fixing periods of three to six months. Average fixed and variable rates are, respectively, the weighted-average actual and market rates for the interest hedges in place. Market rates are the rates prevailing at December 31, 2011 or 2010, as appropriate.
 


64


Table of Contents

 
Market risk
 
                                                                 
    Expected to mature before December 31,           Fair
December 31, 2011   2012   2013   2014   2015   2016   Thereafter   Total   Value(i)
    ($ millions, except percentages)
 
Fixed rate debt
                                                               
Principal ($)
    4                       350       300       1,400       2,054       2,214  
Fixed rate payable
    6.00 %                     5.625 %     4.125 %     6.18 %     5.92 %        
Floating rate debt
                                                               
Principal ($)
    11       15       15       17       242               300       300  
Variable rate payable
    2.05 %     2.10 %     2.25 %     2.83 %     3.4 %             3.29 %        
Interest rate swaps
                                                               
Variable to Fixed
                                                               
Principal ($)
    40       225       305       170                       740       11  
Fixed rate receivable
    1.84 %     2.31 %     1.95 %     2.24 %                     2.20 %        
Variable rate payable
    0.55 %     0.60 %     0.81 %     1.33 %                     0.88 %        
Principal (£)
    74       49       56       62                       241       3  
Fixed rate receivable
    4.06 %     2.30 %     2.59 %     2.66 %                     3.00 %        
Variable rate payable
    1.27 %     1.15 %     1.30 %     1.65 %                     1.35 %        
Principal (€)
    29       44       44       26                       143       1  
Fixed rate receivable
    1.93 %     1.93 %     2.67 %     2.80 %                     2.31 %        
Variable rate payable
    1.29 %     0.98 %     1.25 %     2.10 %                     1.33 %        
Fixed to Variable
                                                               
Principal (€)
                            350                       350       26  
Fixed rate payable
                            2.71 %                     2.71 %        
Variable rate receivable
                            0.44 %                     0.44 %        
 
                                                                 
    Expected to mature before December 31,           Fair
December 31, 2010   2011   2012   2013   2014   2015   Thereafter   Total   Value(i)
    ($ millions, except percentages)
 
Fixed rate debt
                                                               
Principal ($)
            4                       350       1,400       1,754       2,059  
Fixed rate payable
            6.00 %                     5.63 %     8.56 %     8.14 %        
Floating rate debt
                                                               
Principal ($)
    110       109       282                               501       501  
Variable rate payable
    2.70 %     3.05 %     3.53 %                             3.36 %        
Interest rate swaps
                                                               
Variable to Fixed
                                                               
Principal ($)
    240       40       225       220                       725       11  
Fixed rate receivable
    4.14 %     1.84 %     2.31 %     1.81 %                     2.44 %        
Variable rate payable
    0.65 %     0.78 %     1.07 %     2.51 %                     1.33 %        
Principal (£)
    56       74       50       49                       229       3  
Fixed rate receivable
    5.77 %     4.18 %     2.28 %     2.44 %                     3.16 %        
Variable rate payable
    0.93 %     1.52 %     1.81 %     2.86 %                     1.88 %        
Principal (€)
    53       31       46       25                       155       1  
Fixed rate receivable
    4.19 %     1.99 %     1.86 %     2.12 %                     2.18 %        
Variable rate payable
    1.30 %     1.60 %     1.74 %     2.39 %                     1.81 %        
Fixed to Variable
                                                               
Principal (€)
                                    350               350       14  
Fixed rate payable
                                    2.71 %             2.71 %        
Variable rate receivable
                                    2.04 %             2.04 %        
 
 
(i) Represents the net present value of the expected cash flows discounted at current market rates of interest or quoted market rates as appropriate.

65


Table of Contents

 
Willis Group Holdings plc
 
 
Liquidity Risk
 
Our objective is to ensure we have the ability to generate sufficient cash either from internal or external sources, in a timely and cost-effective manner, to meet our commitments as they fall due. Our management of liquidity risk is embedded within our overall risk management framework. Scenario analysis is continually undertaken to ensure that our resources can meet our liquidity requirements. These resources are supplemented by access to $520 million under two revolving credit facilities. We undertake short-term foreign exchange swaps for liquidity purposes.
 
See ‘Liquidity’ section under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.


66


 


Table of Contents

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Stockholders of Willis Group Holdings Public Limited Company
Dublin, Ireland
 
We have audited the accompanying consolidated balance sheets of Willis Group Holdings Public Limited Company and subsidiaries (the ‘Company’) as of December 31, 2011 and 2010, and the related consolidated statements of operations, changes in equity and comprehensive income, and cash flows for each of the three years in the period ended December 31, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Willis Group Holdings Public Limited Company and subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.
 
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2011, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 29, 2012 expressed an unqualified opinion on the Company’s internal control over financial reporting.
 
/s/ Deloitte LLP
London, United Kingdom
February 29, 2012


68


Table of Contents

 
Financial statements
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
                                 
          Years ended December 31,  
    Note     2011     2010     2009  
          (millions, except per share data)  
 
REVENUES
                               
Commissions and fees
          $ 3,414     $ 3,293     $ 3,200  
Investment income
            31       38       50  
Other income
            2       1       3  
                                 
Total revenues
            3,447       3,332       3,253  
                                 
EXPENSES
                               
Salaries and benefits
    3       (2,087 )     (1,868 )     (1,822 )
Other operating expenses
            (656 )     (564 )     (590 )
Depreciation expense
    11       (74 )     (63 )     (64 )
Amortization of intangible assets
    13       (68 )     (82 )     (100 )
Net gain (loss) on disposal of operations
    6       4       (2 )     13  
                                 
Total expenses
            (2,881 )     (2,579 )     (2,563 )
                                 
OPERATING INCOME
            566       753       690  
Make-whole on repurchase and redemption of senior notes and write-off of unamortized debt issuance costs
            (171 )            
Interest expense
    19       (156 )     (166 )     (174 )
                                 
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES
            239       587       516  
Income taxes
    7       (32 )     (140 )     (94 )
                                 
INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES
            207       447       422  
Interest in earnings of associates, net of tax
    14       12       23       33  
                                 
INCOME FROM CONTINUING OPERATIONS
            219       470       455  
Discontinued operations, net of tax
    8       1             4  
                                 
NET INCOME
            220       470       459  
Less: net income attributable to noncontrolling interests
            (16 )     (15 )     (21 )
                                 
NET INCOME ATTRIBUTABLE TO WILLIS GROUP HOLDINGS
          $ 204     $ 455     $ 438  
                                 
AMOUNTS ATTRIBUTABLE TO WILLIS GROUP HOLDINGS SHAREHOLDERS
                               
Income from continuing operations, net of tax
          $ 203     $ 455     $ 434  
Income from discontinued operations, net of tax
            1             4  
                                 
NET INCOME ATTRIBUTABLE TO WILLIS GROUP HOLDINGS
          $ 204     $ 455     $ 438  
                                 
EARNINGS PER SHARE — BASIC AND DILUTED
    9                          
BASIC EARNINGS PER SHARE
                               
 — Continuing operations
          $ 1.17     $ 2.68     $ 2.58  
                                 
DILUTED EARNINGS PER SHARE
                               
 — Continuing operations
          $ 1.15     $ 2.66     $ 2.57  
                                 
CASH DIVIDENDS DECLARED PER SHARE
          $ 1.04     $ 1.04     $ 1.04  
                                 
 
The accompanying notes are an integral part of these consolidated financial statements


69


Table of Contents

 
Willis Group Holdings plc
 
CONSOLIDATED BALANCE SHEETS
 
                         
          December 31,  
    Note     2011     2010  
          (millions, except share data)  
 
ASSETS
                       
CURRENT ASSETS
                       
Cash and cash equivalents
          $ 436     $ 316  
Accounts receivable, net
            910       839  
Fiduciary assets
    10       9,338       9,569  
Deferred tax assets
    7       44       36  
Other current assets
    15       259       340  
                         
Total current assets
            10,987       11,100  
                         
NON-CURRENT ASSETS
                       
Fixed assets, net
    11       406       381  
Goodwill
    12       3,295       3,294  
Other intangible assets, net
    13       420       492  
Investments in associates
    14       170       161  
Deferred tax assets
    7       22       7  
Pension benefits asset
    18       145       182  
Other non-current assets
    15       283       233  
                         
Total non-current assets
            4,741       4,750  
                         
TOTAL ASSETS
          $ 15,728     $ 15,850  
                         
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
                       
Fiduciary liabilities
          $ 9,338     $ 9,569  
Deferred revenue and accrued expenses
            320       298  
Income taxes payable
            15       57  
Short-term debt and current portion of long-term debt
    19       15       110  
Deferred tax liabilities
    7       26       9  
Other current liabilities
    16       282       266  
                         
Total current liabilities
            9,996       10,309  
                         
NON-CURRENT LIABILITIES
                       
Long-term debt
    19       2,354       2,157  
Liability for pension benefits
    18       270       167  
Deferred tax liabilities
    7       32       83  
Provisions for liabilities
    20       196       179  
Other non-current liabilities
    16       363       347  
                         
Total non-current liabilities
            3,215       2,933  
                         
Total liabilities
            13,211       13,242  
                         
 
(Continued on next page)


70


Table of Contents

 
Financial statements
 
CONSOLIDATED BALANCE SHEETS (Continued)
 
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

                         
          December 31,  
    Note     2011     2010  
          (millions, except share data)  
 
COMMITMENTS AND CONTINGENCIES
    21                  
EQUITY
                       
Ordinary shares, $0.000115 nominal value; Authorized: 4,000,000,000; Issued 173,829,693 shares in 2011 and 170,883,865 shares in 2010
                   
Ordinary shares, €1 nominal value; Authorized: 40,000; Issued 40,000 shares in 2011 and 2010
                   
Preference shares, $0.000115 nominal value; Authorized: 1,000,000,000; Issued nil shares in 2011 and 2010
                   
Additional paid-in capital
            1,073       985  
Retained earnings
            2,160       2,136  
Accumulated other comprehensive loss, net of tax
    22       (744 )     (541 )
Treasury shares, at cost, 46,408 shares in 2011 and 2010, and 40,000 shares, €1 nominal value, in 2011 and 2010
            (3 )     (3 )
                         
Total Willis Group Holdings stockholders’ equity
            2,486       2,577  
Noncontrolling interests
            31       31  
                         
Total equity
            2,517       2,608  
                         
TOTAL LIABILITIES AND EQUITY
          $ 15,728     $ 15,850  
                         
 
The accompanying notes are an integral part of these consolidated financial statements.


71


Table of Contents

 
Willis Group Holdings plc
 
 
                                 
          Years ended December 31,  
    Note     2011     2010     2009  
          (millions)  
 
CASH FLOWS FROM OPERATING ACTIVITIES
                               
Net income
          $ 220     $ 470     $ 459  
Adjustments to reconcile net income to total net cash provided by operating activities:
                               
Income from discontinued operations
            (1 )           (4 )
Net (gain) loss on disposal of operations, fixed and intangible assets
            (6 )     3       (14 )
Depreciation expense
            74       63       64  
Amortization of intangible assets
            68       82       100  
Provision for doubtful accounts
            4             (1 )
Provision (benefit) for deferred income taxes
            17       77       (21 )
Excess tax benefits from share-based payment arrangements
            (5 )     (2 )     (1 )
Share-based compensation
    4       41       47       39  
Make-whole on repurchase and redemption of senior notes and write-off of unamortized debt issuance costs
            171              
Undistributed earnings of associates
            (5 )     (18 )     (21 )
Non-cash Venezuela currency devaluation
                  12        
Effect of exchange rate changes on net income
            14       6       (4 )
Changes in operating assets and liabilities, net of effects from purchase of subsidiaries:
                               
Accounts receivable, net
            (92 )     (35 )     77  
Fiduciary assets
            162       78       776  
Fiduciary liabilities
            (162 )     (78 )     (776 )
Other assets
            (43 )     (230 )     (103 )
Other liabilities
            (32 )     61       (193 )
Movement on provisions
            16       (45 )     44  
                                 
Net cash provided by continuing operating activities
            441       491       421  
Net cash used in discontinued operating activities
            (2 )     (2 )     (2 )
                                 
Total net cash provided by operating activities
            439       489       419  
                                 
CASH FLOWS FROM INVESTING ACTIVITIES
                               
Proceeds on disposal of fixed and intangible assets
            13       10       20  
Purchases of fixed assets
            (111 )     (83 )     (96 )
Acquisitions of subsidiaries, net of cash acquired
            (10 )     (21 )      
Acquisition of investments in associates
            (2 )     (1 )     (42 )
Investment in Trident V Parallel Fund, LP
            (5 )     (1 )      
Proceeds from reorganization of investments in associates
    6                   155  
Proceeds from sale of continuing operations, net of cash disposed
                  2       4  
Proceeds from sale of discontinued operations, net of cash disposed
            14             40  
Proceeds on sale of short-term investments
                        21  
                                 
Total net cash (used in) provided by continuing investing activities
            (101 )     (94 )     102  
                                 
 
(Continued on next page)


72


Table of Contents

 
Financial statements
 
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
 
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 
                                 
          Years ended December 31,  
    Note     2011     2010     2009  
          (millions)  
 
INCREASE IN CASH AND CASH EQUIVALENTS FROM OPERATING AND INVESTING ACTIVITIES
          $ 338     $ 395     $ 521  
CASH FLOWS FROM FINANCING ACTIVITIES
                               
(Repayment on) proceeds from draw down of revolving credit facility
    19       (90 )     90        
Repayments of debt
    19       (911 )     (209 )     (1,089 )
Senior notes issued
            794             800  
Debt issuance costs
            (12 )           (22 )
Proceeds from issue of term loan
            300              
Make-whole on repurchase and redemption of senior notes
            (158 )            
Proceeds from issue of shares
            60       36       18  
Excess tax benefits from share-based payment arrangements
            5       2       1  
Dividends paid
            (180 )     (176 )     (174 )
Acquisition of noncontrolling interests
            (9 )     (10 )     (33 )
Dividends paid to noncontrolling interests
            (13 )     (26 )     (17 )
                                 
Total net cash used in continuing financing activities
            (214 )     (293 )     (516 )
                                 
INCREASE IN CASH AND CASH EQUIVALENTS
            124       102       5  
Effect of exchange rate changes on cash and cash equivalents
            (4 )     (7 )     11  
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
            316       221       205  
                                 
CASH AND CASH EQUIVALENTS, END OF YEAR
          $ 436     $ 316     $ 221  
                                 
 
The accompanying notes are an integral part of these consolidated financial statements.


73


Table of Contents

 
Willis Group Holdings plc
 
 
 
                                 
          December 31,  
    Note     2011     2010     2009  
          (millions, except share data)  
 
SHARES OUTSTANDING (thousands)
                               
Balance, beginning of year
            170,884       168,661       166,758  
Shares issued
                  14       486  
Exercise of stock options and release of non-vested shares
            2,946       2,209       1,417  
                                 
Balance, end of year
            173,830       170,884       168,661  
                                 
ADDITIONAL PAID-IN CAPITAL
                               
Balance, beginning of year
          $ 985     $ 918     $ 886  
Issue of shares under employee stock compensation plans and related tax benefits
            49       37       18  
Issue of shares for acquisitions
                  1       12  
Share-based compensation
            39       47       39  
Acquisition of noncontrolling interests
                  (18 )     (33 )
Repurchase of out of the money options
                        (4 )
                                 
Balance, end of year
            1,073       985       918  
                                 
RETAINED EARNINGS
                               
Balance, beginning of year
            2,136       1,859       1,593  
Net income attributable to Willis Group Holdings(a)
            204       455       438  
Dividends
            (180 )     (178 )     (172 )
                                 
Balance, end of year
            2,160       2,136       1,859  
                                 
ACCUMULATED OTHER COMPREHENSIVE LOSS, NET OF TAX
                               
Balance, beginning of year
            (541 )     (594 )     (630 )
Foreign currency translation adjustment(b)
            (28 )     (6 )     27  
Unrealized holding gain (loss)(c)
                  2       (1 )
Pension funding adjustment(d)
            (172 )     51       (33 )
Net (loss) gain on derivative instruments(e)
            (3 )     6       43  
                                 
Balance, end of year
    22       (744 )     (541 )     (594 )
                                 
TREASURY SHARES
                               
Balance, beginning of year
            (3 )     (3 )     (4 )
Shares reissued under stock compensation plans
                        1  
                                 
Balance, end of year
            (3 )     (3 )     (3 )
                                 
TOTAL WILLIS GROUP HOLDINGS SHAREHOLDERS’ EQUITY
          $ 2,486     $ 2,577     $ 2,180  
                                 
 
(Continued on next page)


74


Table of Contents

 
Financial statements
 
 
AND COMPREHENSIVE INCOME (Continued)
 
                                 
          December 31,  
    Note     2011     2010     2009  
          (millions, except share data)  
 
NONCONTROLLING INTERESTS
                               
Balance, beginning of year
          $ 31     $ 49     $ 50  
Net income
            16       15       21  
Dividends
            (15 )     (26 )     (17 )
Purchase of subsidiary shares from noncontrolling interests, net
                  (5 )     (10 )
Additional noncontrolling interests
                        5  
Foreign currency translation
            (1 )     (2 )      
                                 
Balance, end of year
            31       31       49  
                                 
TOTAL EQUITY
          $ 2,517     $ 2,608     $ 2,229  
                                 
TOTAL COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO WILLIS GROUP HOLDINGS(a+b+c+d+e)
          $ 1     $ 508     $ 474  
                                 
 
The accompanying notes are an integral part of these consolidated financial statements


75


Table of Contents

 
1.   NATURE OF OPERATIONS
 
Willis provides a broad range of insurance and reinsurance broking and risk management consulting services to its clients worldwide, both directly and indirectly through its associates. The Company provides both specialized risk management advisory and consulting services on a global basis to clients engaged in specific industrial and commercial activities, and services to small, medium and large corporations through its retail operations.
 
In its capacity as an advisor and insurance broker, the Company acts as an intermediary between clients and insurance carriers by advising clients on risk management requirements, helping clients determine the best means of managing risk, and negotiating and placing insurance risk with insurance carriers through the Company’s global distribution network.
 
2.  BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Redomicile to Ireland
 
On September 24, 2009, Willis Group Holdings was incorporated in Ireland, in order to effectuate the change of the place of incorporation of the parent company of the Group. Willis Group Holdings operated as a wholly-owned subsidiary of Willis-Bermuda until December 31, 2009, when the outstanding common shares of Willis-Bermuda were canceled and Willis Group Holdings issued ordinary shares with substantially the same rights and preferences on a one-for-one basis to the holders of the Willis-Bermuda common shares that were canceled. Upon completion of this transaction, Willis Group Holdings replaced Willis-Bermuda as the ultimate parent company and Willis-Bermuda became a wholly-owned subsidiary of Willis Group Holdings. On July 29, 2010 Willis-Bermuda was liquidated.
 
This transaction was accounted for as a merger between entities under common control; accordingly, the historical financial statements of Willis-Bermuda for periods prior to this transaction are considered to be the historical financial statements of Willis Group Holdings. No changes in capital structure, assets or liabilities resulted from this transaction, other than Willis Group Holdings providing a guarantee of amounts due under certain borrowing arrangements of one of its subsidiaries as described in Note 29.
 
Recent Accounting Pronouncements
 
Fair Value Measurement and Disclosure
 
In May 2011, the Financial Accounting Standards Board (‘FASB’) issued Accounting Standards Update (‘ASU’) No. 2011-04, Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The new guidance was issued to provide a consistent definition of fair value and ensure that fair value measurements and disclosure requirements are similar between US GAAP and International Financial Reporting Standards (‘IFRS’). The guidance changes certain fair value measurement principles and enhances the disclosure requirements for fair value measurements.
 
This guidance is effective for interim and annual periods beginning after December 15, 2011 and is applied prospectively.
 
Other Comprehensive Income
 
In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income to revise the manner in which entities present comprehensive income in their financial statements. These changes require that components of comprehensive income be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendments do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income.
 
This guidance is effective for interim and annual periods beginning after December 15, 2011 and is applied retrospectively.


76


Table of Contents

 
Notes to the financial statements
 
2.   BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
ASU No. 2011-05 also requires entities to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. In December 2011, the FASB issued ASU No. 2011-12 in order to defer those changes in ASU No. 2011-05 that relate to the presentation of reclassification adjustments.
 
Goodwill impairment testing
 
In September 2011, the FASB issued ASU No. 2011-08, Intangibles — Goodwill and Other: Testing Goodwill for Impairment. The new guidance was issued to reduce complexity and costs by allowing an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it should calculate the fair value of a reporting unit.
 
This guidance is effective for interim and annual goodwill impairment tests performed for fiscal years beginning after December 15, 2011.
 
The adoption of this guidance is not expected to have a material impact on the financial statements.
 
Significant Accounting Policies
 
These consolidated financial statements conform to accounting principles generally accepted in the United States of America (‘US GAAP’). Presented below are summaries of significant accounting policies followed in the preparation of the consolidated financial statements.
 
Certain reclassifications have been made to prior year amounts to conform to the current year presentation.
 
Principles of Consolidation
 
The accompanying consolidated financial statements include the accounts of Willis Group Holdings and its subsidiaries, which are controlled through the ownership of a majority voting interest. Intercompany balances and transactions have been eliminated on consolidation.
 
Foreign Currency Translation
 
Transactions in currencies other than the functional currency of the entity are recorded at the rates of exchange prevailing at the date of the transaction. Monetary assets and liabilities in currencies other than the functional currency are translated at the rates of exchange prevailing at the balance sheet date and the related transaction gains and losses are reported in the statements of operations. Certain intercompany loans are determined to be of a long-term investment nature. The Company records transaction gains and losses from remeasuring such loans as a component of other comprehensive income.
 
Upon consolidation, the results of operations of subsidiaries and associates whose functional currency is other than the US dollar are translated into US dollars at the average exchange rate and assets and liabilities are translated at year-end exchange rates. Translation adjustments are presented as a separate component of other comprehensive income in the financial statements and are included in net income only upon sale or liquidation of the underlying foreign subsidiary or associated company.


77


Table of Contents

 
Willis Group Holdings plc
 
2.   BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 
Use of Estimates
 
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the dates of the financial statements and the reported amounts of revenues and expenses during the year. In the preparation of these consolidated financial statements, estimates and assumptions have been made by management concerning: the valuation of intangible assets and goodwill (including those acquired through business combinations); the selection of useful lives of fixed and intangible assets; impairment testing; provisions necessary for accounts receivable, commitments and contingencies and accrued liabilities; long-term asset returns, discount rates and mortality rates in order to estimate pension liabilities and pension expense; income tax valuation allowances; and other similar evaluations. Actual results could differ from the estimates underlying these consolidated financial statements.
 
Cash and Cash Equivalents
 
Cash and cash equivalents primarily consist of time deposits with original maturities of three months or less.
 
Fiduciary Assets and Fiduciary Liabilities
 
In its capacity as an insurance agent or broker, the Company collects premiums from insureds and, after deducting its commissions, remits the premiums to the respective insurers; the Company also collects claims or refunds from insurers which it then remits to insureds.
 
Fiduciary Receivables
 
Fiduciary receivables represent uncollected premiums from insureds and uncollected claims or refunds from insurers.
 
Fiduciary Funds
 
Fiduciary funds represent unremitted premiums received from insureds and unremitted claims or refunds received from insurers. Fiduciary funds are generally required to be kept in certain regulated bank accounts subject to guidelines which emphasize capital preservation and liquidity. Such funds are not available to service the Company’s debt or for other corporate purposes. Notwithstanding the legal relationships with insureds and insurers, the Company is entitled to retain investment income earned on fiduciary funds in accordance with industry custom and practice and, in some cases, as supported by agreements with insureds.
 
In certain instances, the Company advances premiums, refunds or claims to insurance underwriters or insureds prior to collection. Such advances are made from fiduciary funds and are reflected in the accompanying consolidated balance sheets as fiduciary assets.
 
Fiduciary Liabilities
 
The obligations to remit these funds to insurers or insureds are recorded as fiduciary liabilities on the Company’s consolidated balance sheets. The period for which the Company holds such funds is dependent upon the date the insured remits the payment of the premium to the Company and the date the Company is required to forward such payment to the insurer. Balances arising from insurance brokerage transactions are reported as separate assets or liabilities unless such balances are due to or from the same party and a right of offset exists, in which case the balances are recorded net.


78


Table of Contents

 
Notes to the financial statements
 
2.   BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 
Accounts Receivable
 
Accounts receivable are stated at estimated net realizable values. Allowances are recorded, when necessary, in an amount considered by management to be sufficient to meet probable future losses related to uncollectible accounts.
 
Fixed Assets
 
Fixed assets are stated at cost less accumulated depreciation. Expenditures for improvements are capitalized; repairs and maintenance are charged to expenses as incurred. Depreciation is computed using the straight-line method based on the estimated useful lives of assets.
 
Depreciation on buildings and long leaseholds is calculated over the lesser of 50 years or the lease term. Depreciation on leasehold improvements is calculated over the lesser of the useful life of the assets or the remaining lease term. Depreciation on furniture and equipment is calculated based on a range of 3 to 10 years. Freehold land is not depreciated.
 
Recoverability of Fixed Assets
 
Long-lived assets are tested for recoverability whenever events or changes in circumstance indicate that their carrying amounts may not be recoverable. An impairment loss is recognized if the carrying amount of a long-lived asset is not recoverable and exceeds its fair value. Recoverability is determined based on the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group. Long-lived assets and certain identifiable intangible assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.
 
Operating Leases
 
Rentals payable on operating leases are charged straight line to expenses over the lease term as the rentals become payable.
 
Goodwill and Other Intangible Assets
 
Goodwill represents the excess of the cost of businesses acquired over the fair market value of identifiable net assets at the dates of acquisition. The Company reviews goodwill for impairment annually and whenever facts or circumstances indicate that the carrying amounts may not be recoverable. In testing for impairment, the fair value of each reporting unit is compared with its carrying value, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, the amount of an impairment loss, if any, is calculated by comparing the implied fair value of reporting unit goodwill with the carrying amount of that goodwill.
 
Acquired intangible assets are amortized over the following periods:
 
             
        Expected
    Amortization basis   life (years)
 
Acquired intangible assets
  Straight line     10  
Acquired HRH customer relationships
  In line with underlying cashflows     20  
Acquired HRH non-compete agreements
  Straight line     2  
Acquired HRH trade names
  Straight line     4  
 
Amortizable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable.


79


Table of Contents

 
Willis Group Holdings plc
 
2.   BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 
Investments in Associates
 
Investments are accounted for using the equity method of accounting if the Company has the ability to exercise significant influence, but not control, over the investee. Significant influence is generally deemed to exist if the Company has an equity ownership in the voting stock of the investee between 20 and 50 percent, although other factors, such as representation on the Board of Directors and the impact of commercial arrangements, are considered in determining whether the equity method of accounting is appropriate. Under the equity method of accounting the investment is carried at cost of acquisition, plus the Company’s equity in undistributed net income since acquisition, less any dividends received since acquisition.
 
The Company periodically reviews its investments in associates for which fair value is less than cost to determine if the decline in value is other than temporary. If the decline in value is judged to be other than temporary, the cost basis of the investment is written down to fair value. The amount of any write-down is included in the statements of operations as a realized loss.
 
All other equity investments where the Company does not have the ability to exercise significant influence are accounted for by the cost method. Such investments are not publicly traded.
 
Derivative Financial Instruments
 
The Company uses derivative financial instruments for other than trading purposes to alter the risk profile of an existing underlying exposure. Interest rate swaps are used to manage interest risk exposures. Forward foreign currency exchange contracts are used to manage currency exposures arising from future income and expenses. The fair values of derivative contracts are recorded in other assets and other liabilities. The effective portions of changes in the fair value of derivatives that qualify for hedge accounting as cash flow hedges are recorded in other comprehensive income. Amounts are reclassified from other comprehensive income into earnings when the hedged exposure affects earnings. If the derivative is designated as and qualifies as an effective fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are both recognized in earnings. The amount of hedge ineffectiveness recognised in earnings is based on the extent to which an offset between the fair value of the derivative and hedged item is not achieved. Changes in fair value of derivatives that do not qualify for hedge accounting, together with any hedge ineffectiveness on those that do qualify, are recorded in other operating expenses or interest expense as appropriate.
 
Income Taxes
 
The Company recognizes deferred tax assets and liabilities for the estimated future tax consequences of events attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating and capital loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted rates in effect for the year in which the differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of changes in tax rates is recognized in the statement of operations in the period in which the enactment date changes. Deferred tax assets are reduced through the establishment of a valuation allowance at such time as, based on available evidence, it is more likely than not that the deferred tax assets will not be realized. The Company adjusts valuation allowances to measure deferred tax assets at the amount considered realizable in future periods if the Company’s facts and assumptions change. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations.
 
Positions taken in the Company’s tax returns may be subject to challenge by the taxing authorities upon examination. The Company recognizes the benefit of uncertain tax positions in the financial statements when it is more likely than not that the position will be sustained on examination by the tax authorities upon lapse of the relevant statute of limitations, or when positions are effectively settled. The benefit recognized is the largest amount of tax benefit that is greater than 50 percent likely to be realized on settlement with the tax authority, assuming full knowledge of the position and all


80


Table of Contents

 
Notes to the financial statements
 
2.   BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
relevant facts. The Company adjusts its recognition of these uncertain tax benefits in the period in which new information is available impacting either the recognition or measurement of its uncertain tax positions. These differences will be reflected as increases or decreases to income tax expense in the period in which they are determined.
 
Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. Management is not aware of any such changes that would have a material effect on the Company’s results of operations, cash flows or financial position.
 
The Company recognizes interest and penalties relating to unrecognized tax benefits within income taxes.
 
Provisions for Liabilities
 
The Company is subject to various actual and potential claims, lawsuits and other proceedings. The Company records liabilities for such contingencies including legal costs when it is probable that a liability has been incurred before the balance sheet date and the amount can be reasonably estimated. To the extent such losses can be recovered under the Company’s insurance programs, estimated recoveries are recorded when losses for insured events are recognized and the recoveries are likely to be realized. Significant management judgment is required to estimate the amounts of such contingent liabilities and the related insurance recoveries. The Company analyzes its litigation exposure based on available information, including consultation with outside counsel handling the defense of these matters, to assess its potential liability. Contingent liabilities are not discounted.
 
Pensions
 
The Company has two principal defined benefit pension plans which cover approximately half of employees in the United States and United Kingdom. Both these plans are now closed to new entrants. New entrants in the United Kingdom are offered the opportunity to join a defined contribution plan and in the United States are offered the opportunity to join a 401(k) plan. In addition, there are smaller plans in certain other countries in which the Company operates. Elsewhere, pension benefits are typically provided through defined contribution plans.
 
Defined benefit plans
 
The net periodic cost of the Company’s defined benefit plans are measured on an actuarial basis using the projected unit credit method and several actuarial assumptions the most significant of which are the discount rate and the expected long-term rate of return on plan assets. Other material assumptions include rates of participant mortality, the expected long-term rate of compensation and pension increases and rates of employee termination. Gains and losses occur when actual experience differs from actuarial assumptions. If such gains or losses exceed ten percent of the greater of plan assets or plan liabilities the Company amortizes those gains or losses over the average remaining service period of the employees.
 
In accordance with US GAAP the Company records on the balance sheet the funded status of its pension plans based on the projected benefit obligation.
 
Defined contribution plans
 
Contributions to the Company’s defined contribution plans are recognized as they fall due. Differences between contributions payable in the year and contributions actually paid are shown as either other assets or other liabilities in the consolidated balance sheets.


81


Table of Contents

 
Willis Group Holdings plc
 
2.   BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 
Share-Based Compensation
 
The Company accounts for share-based compensation as follows:
 
•   the cost resulting from all equity awards is recognized in the financial statements at fair value estimated at the grant date;
 
•   the fair value is recognized (generally as compensation cost) over the requisite service period for all awards that vest; and
 
•   compensation cost is not recognized for awards that do not vest because service or performance conditions are not satisfied.
 
Revenue Recognition
 
Revenue includes insurance commissions, fees for services rendered, certain commissions receivable from insurance carriers, investment income and other income.
 
Brokerage income and fees negotiated in lieu of brokerage are recognized at the later of policy inception date or when the policy placement is complete. Commissions on additional premiums and adjustments are recognized when approved by or agreed between the parties and collectability is reasonably assured.
 
Fees for risk management and other services are recognized as the services are provided. Consideration for negotiated fee arrangements for an agreed period covering multiple insurance placements, the provision of risk management and/or other services are allocated to all deliverables on the basis of their relative selling prices. The Company establishes contract cancellation reserves where appropriate: at December 31, 2011, 2010 and 2009, such amounts were not material.
 
Investment income is recognized as earned.
 
Other income comprises gains on disposal of intangible assets, which primarily arise on the disposal of books of business. Although the Company is not in the business of selling intangible assets, from time to time the Company will dispose of a book of business (a customer list) or other intangible assets that do not produce adequate margins or fit with the Company’s strategy.
 
3.   EMPLOYEES
 
The average number of persons, including Executive Directors, employed by the Company is as follows:
 
                         
    Years ended December 31,  
    2011     2010     2009  
 
Global
    4,042       3,931       3,815  
                         
North America
    6,479       6,710       7,116  
International
    6,634       6,460       6,202  
                         
Total Retail
    13,113       13,170       13,318  
                         
Total average number of employees for the year
    17,155       17,101       17,133  
                         


82


Table of Contents

 
Notes to the financial statements
 
3.   EMPLOYEES (Continued)
 
 
Salaries and benefits expense comprises the following:
 
                         
    Years ended December 31,  
    2011     2010     2009  
    (millions)  
 
Salaries and other compensation awards including amortization of cash retention awards of $185 million, $119 million and $88 million (see below)
  $ 1,776     $ 1,618     $ 1,570  
Share-based compensation
    41       47       39  
Severance costs
    89       15       24  
Social security costs
    130       119       117  
Retirement benefits — defined benefit plan expense
    11       35       42  
Retirement benefits — defined contribution plan expense
    40       34       30  
                         
Total salaries and benefits expense
  $ 2,087     $ 1,868     $ 1,822  
                         
 
Severance Costs
 
As part of the Company’s 2011 Operational Review, the Company incurred severance costs of $89 million in the year ended December 31, 2011. These costs relate to approximately 1,200 positions that have been eliminated.
 
$81 million of these severance costs for these employees were recognized pursuant to a one-time benefit arrangement, with the remaining $8 million recognized pursuant to the terms of employees’ existing benefit arrangements or employee arrangements. All of these costs have been recognized within salaries and benefits.
 
In addition to the severance incurred as part of the 2011 Operational Review, an additional charge of $9 million in the year ended December 31, 2011 was recognized within salaries and benefits relating to the write-off of retention awards held on the balance sheet for the approximately 1,200 positions that have been eliminated.
 
The Company’s severance liability under the 2011 Operational Review was:
 
         
    December 31,
 
    2011  
    (millions)  
 
Balance at January 1, 2011
  $  
Severance costs accrued
    89  
Cash payments
    (64 )
Foreign exchange
    (1 )
         
Balance at December 31, 2011
  $ 24  
         
 
The Company evaluates the performance of its operating segments based on organic commissions and fees growth and operating income. For internal reporting and segmental reporting, segmental management are not held accountable for certain items deemed to be centrally-controlled costs and initiatives, which includes the 2011 Operational Review. See Note 27 — Segment Information for an analysis of centrally-controlled costs and initiatives, including the 2011 Operational Review costs, disclosed within ‘Corporate and Other’.
 
Severance costs also arise in the normal course of business and these charges amounted to a nominal amount in the year ended December 31, 2011 (2010: $15 million; 2009: $24 million). These relate to approximately 100 positions (2010: 550 positions; 2009: 450 positions) that have been, or are in the process of being, eliminated.


83


Table of Contents

 
Willis Group Holdings plc
 
3.   EMPLOYEES (Continued)
 
Cash Retention Awards
 
As part of the Company’s incentive compensation, the Company makes annual cash retention awards to its employees. Employees must repay a proportionate amount of these awards if they voluntarily leave the Company’s employ (other than in the event of retirement or permanent disability) before a certain time period, currently up to three years. The Company makes cash payments to its employees in the year it grants these retention awards and recognizes these payments ratably over the period they are subject to repayment, beginning in the quarter in which the award is made. The unamortized portion of cash retention awards is recorded within other current assets and other non-current assets.
 
The following table sets out the amount of cash retention awards made and the related amortization of those awards for the years ended December 31, 2011, 2010 and 2009:
 
                         
    Years ended December 31,  
    2011     2010     2009  
    (millions)  
 
Cash retention awards made
  $ 210     $ 196     $ 148  
Amortization of cash retention awards included in salaries and benefits
    185       119       88  
 
Unamortized cash retention awards totaled $196 million as of December 31, 2011 (2010: $173 million; 2009: $98 million).
 
4.   SHARE-BASED COMPENSATION
 
On December 31, 2011, the Company had a number of open share-based compensation plans, which provide for the grant of time-based options and performance-based options, restricted stock units and various other share-based grants to employees. All of the Company’s share-based compensation plans under which any options, restricted stock units or other share-based grants are outstanding as at December 31, 2011 are described below. The compensation cost that has been recognized for those plans for the year ended December 31, 2011 was $41 million (2010: $47 million; 2009: $39 million). The total income tax benefit recognized in the statement of operations for share-based compensation arrangements for the year ended December 31, 2011 was $11 million (2010: $14 million; 2009: $12 million).
 
2008 Share Purchase and Option Plan
 
This plan, which was established on April 23, 2008, provides for the granting of time and performance-based options, restricted stock units and various other share-based grants at fair market value to employees of the Company. There are 8,000,000 shares available for grant under this plan. Options are exercisable on a variety of dates, including from the third, fourth or fifth anniversary of grant. Unless terminated sooner by the Board of Directors, the 2008 Plan will expire 10 years after the date of its adoption. That termination will not affect the validity of any grant outstanding at that date.
 
2001 Share Purchase and Option Plan
 
This plan, which was established on May 3, 2001, provides for the granting of time-based options, restricted stock units and various other share-based grants at fair market value to employees of the Company. The Board of Directors has adopted several sub-plans under the 2001 plan to provide employee sharesave schemes in the UK, Ireland and internationally. The 2001 Plan (and all sub-plans) expired on May 3, 2011 and no further grants will be made under the plan. Options are exercisable on a variety of dates, including from the first, second, third, sixth or eighth anniversary of grant, although for certain options the exercisable date may accelerate depending on the achievement of certain performance goals.
 


84


Table of Contents

 
Notes to the financial statements
 
4.   SHARE-BASED COMPENSATION (Continued)
 
HRH Option Plans
 
Options granted under the Hilb Rogal and Hamilton Company 2000 Stock Incentive Plan (‘HRH 2000 Plan’) and the Hilb Rogal & Hobbs Company 2007 Stock Incentive Plan (the ‘HRH 2007 Plan’) were converted into options to acquire shares of Willis Group Holdings. No further grants are to be made under the HRH 2000 Plan. Willis is authorized to grant equity awards under the HRH 2007 Plan until 2017 to employees who were formerly employed by HRH and to new employees who have joined Willis or one of its subsidiaries since October 1, 2008, the date that the acquisition of HRH was completed.
 
Employee Stock Purchase Plans
 
The Company has adopted the Willis Group Holdings 2001 North America Employee Share Purchase Plan, which expired on May 31, 2011 and the Willis Group Holdings 2010 North America Employee Stock Purchase Plan. They provide certain eligible employees to the Company’s subsidiaries in the US and Canada the ability to contribute payroll deductions to the purchase of Willis Shares at the end of each offering period.
 
Option Valuation Assumptions
 
The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model that uses the assumptions noted in the following table. Expected volatility is based on historical volatility of the Company’s stock. With effect from January 1, 2006, the Company uses the simplified method set out in Accounting Standard Codification (‘ASC’) 718-10-S99 to derive the expected term of options granted. The risk-free rate for periods within the expected life of the option is based on the US Treasury yield curve in effect at the time of grant.
 
                         
    Years ended December 31,
    2011   2010   2009
 
Expected volatility
    31.4 %     30.4 %     32.4 %
Expected dividends
    2.5 %     3.4 %     3.9 %
Expected life (years)
    6       5       5  
Risk-free interest rate
    2.2 %     2.2 %     3.0 %


85


Table of Contents

 
Willis Group Holdings plc
 
4.   SHARE-BASED COMPENSATION (Continued)
 
 
A summary of option activity under the plans at December 31, 2011, and changes during the year then ended is presented below:
 
                                 
                Weighted
       
          Weighted
    Average
       
          Average
    Remaining
    Aggregate
 
          Exercise
    Contractual
    Intrinsic
 
(Options in thousands)   Options     Price(i)     Term     Value  
                      (millions)  
 
Time-based stock options
                               
Balance, beginning of year
    11,449     $ 32.73                  
Granted
    140     $ 30.30                  
Exercised
    (1,769 )   $ 29.44                  
Forfeited
    (521 )   $ 32.46                  
Expired
    (125 )   $ 32.17                  
                                 
Balance, end of year
    9,174     $ 33.35       3 years     $ 50  
                                 
Options vested or expected to vest at December 31, 2011
    8,896     $ 33.51       3 years     $ 49  
Options exercisable at December 31, 2011
    7,702     $ 34.07       3 years     $ 38  
                                 
Performance-based stock options
                               
Balance, beginning of year
    9,449     $ 32.14                  
Granted
    1,523     $ 41.40                  
Exercised
    (96 )   $ 29.61                  
Forfeited
    (3,593 )   $ 36.23                  
                                 
Balance, end of year
    7,283     $ 32.09       6 years     $ 49  
                                 
Options vested or expected to vest at December 31, 2011
    6,227     $ 32.30       6 years     $ 44  
Options exercisable at December 31, 2011
    1,879     $ 32.80       5 years     $ 11  
 
 
(i) Certain options are exercisable in pounds sterling and are converted to dollars using the exchange rate at December 31, 2011.
 
The weighted average grant-date fair value of time-based options granted during the year ended December 31, 2011 was $9.49 (2010: $5.25; 2009: $5.87). The total intrinsic value of options exercised during the year ended December 31, 2011 was $17 million (2010: $8 million; 2009: $3 million). At December 31, 2011 there was $7 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements under time-based stock option plans; that cost is expected to be recognized over a weighted average period of 2 years.
 
The weighted average grant-date fair value of performance-based options granted during the year ended December 31, 2011 was $10.26 (2010: $7.11; 2009: $5.89). The total intrinsic value of options exercised during the year ended December 31, 2011 was $1 million (2010: $nil; 2009: $1 million). At December 31, 2011 there was $26 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements under performance-based stock option plans; that cost is expected to be recognized over a weighted-average period of 3 years.


86


Table of Contents

 
Notes to the financial statements
 
4.   SHARE-BASED COMPENSATION (Continued)
 
A summary of restricted stock unit activity under the Plans at December 31, 2011, and changes during the year then ended is presented below:
 
                 
          Weighted
 
          Average
 
          Grant Date
 
(Units awarded in thousands)   Shares     Fair Value  
 
Nonvested shares (restricted stock units)
               
Balance, beginning of year
    1,798     $ 28.82  
Granted
    346     $ 40.77  
Vested
    (918 )   $ 29.31  
Forfeited
    (34 )   $ 27.18  
                 
Balance, end of year
    1,192     $ 31.96  
                 
 
The total number of restricted stock units vested during the year ended December 31, 2011 was 918,480 shares at an average share price of $39.52 (2010: 744,633 shares at an average share price of $32.17). At December 31, 2011 there was $17 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements under the plan; that cost is expected to be recognized over a weighted average period of 2 years.
 
Cash received from option exercises under all share-based payment arrangements for the year ended December 31, 2011 was $60 million (2010: $37 million; 2009: $19 million). The actual tax benefit realized for the tax deductions from option exercises of the share-based payment arrangements totaled $18 million for the year ended December 31, 2011 (2010: $10 million; 2009: $5 million).
 
5.   AUDITORS’ REMUNERATION
 
An analysis of auditors’ remuneration is as follows:
 
                         
    Years ended December 31,  
    2011     2010     2009  
    (millions)  
 
Audit of group consolidated financial statements
  $ 4     $ 4     $ 3  
Other assurance services
    3       3       3  
Other non-audit services
    1       1        
                         
Total auditors’ remuneration
  $ 8     $ 8     $ 6  
                         
 
 
6.   NET GAIN (LOSS) ON DISPOSAL OF OPERATIONS
 
 
A gain on disposal of $4 million is recorded in the consolidated statements of operations for the year ended December 31, 2011 following conclusion of the accounting for the Gras Savoye December 2009 leveraged transaction — see Note 14 — Investments in Associates.
 
Total proceeds from the disposal of operations for 2010 were $4 million, comprising $2 million relating to 2010 disposals of operations and $2 million of deferred proceeds relating to prior year. A loss on disposal of $2 million is recorded in the consolidated statements of operations for the year ended December 31, 2010.
 
Total proceeds from the disposal of operations for 2009 were $315 million, including $281 million for 18 percent of the Group’s 49 percent interest in Gras Savoye and $39 million for 100 percent of Bliss & Glennon. A gain on disposal of


87


Table of Contents

 
Willis Group Holdings plc
 
6.   NET GAIN (LOSS) ON DISPOSAL OF OPERATIONS (Continued)
 
$13 million is recorded in the statement of consolidated operations for the year ended December 31, 2009, of which $10 million relates to Gras Savoye as shown below.
 
On December 17, 2009, the Company completed a leveraged transaction with the original family shareholders of Gras Savoye and Astorg Partners, a private equity fund, to reorganize the capital of Gras Savoye (‘December 2009 leveraged transaction’), its principal investment in associates. The Company, the family shareholders and Astorg owned equal stakes of 31 percent in Gras Savoye and had equal representation of one third of the voting rights on its board. The remaining shareholding was held by a large pool of Gras Savoye managers and minority shareholders. The Company’s interest was reduced from 31 percent to 30 percent in 2011 following issuance of additional share capital as part of an employee share incentive scheme.
 
As a result of the December 2009 leveraged transaction the Company recognized a gain of $10 million in the consolidated statement of operations from the reduction of its interest in Gras Savoye from 49 percent to 31 percent.
 
The Company received total proceeds of $281 million, comprising cash and interest bearing vendor loans and convertible bonds issued by Gras Savoye. An analysis of the proceeds and the calculation of the gain is as follows:
 
         
    (millions)  
 
Proceeds:
       
Cash
  $ 155  
Vendor Loans
    47  
Convertible Bonds
    79  
         
Net proceeds
    281  
Less net assets disposed of
    (97 )
Less interest in new liabilities of Gras Savoye
    (174 )
         
Gain on disposal
  $ 10  
         
 
 
7.   INCOME TAXES
 
An analysis of income from continuing operations before income taxes and interest in earnings of associates by location of the taxing jurisdiction is as follows:
 
                         
    Years ended December 31,  
    2011     2010     2009  
    (millions)  
 
Ireland
  $ (39 )   $ 3     $ (2 )
US
    (25 )     84       2  
UK
    (58 )     183       204  
Other jurisdictions
    361       317       312  
                         
Income from continuing operations before income taxes and interest in earnings of associates
  $ 239     $ 587     $ 516  
                         


88


Table of Contents

 
Notes to the financial statements
 
7.   INCOME TAXES (Continued)
 
 
The provision for income taxes by location of the taxing jurisdiction consisted of the following:
 
                         
    Years ended December 31,  
    2011     2010     2009  
    (millions)  
 
Current income taxes:
                       
Irish corporation tax
  $     $ 1     $  
US federal tax
          (30 )     40  
US state and local taxes
    1             17  
UK corporation tax
    (33 )     54       17  
Other jurisdictions
    42       41       52  
                         
Total current taxes
    10       66       126  
                         
Non-current taxes:
                       
US federal tax
    5       (3 )     (9 )
US state and local taxes
          (3 )     (2 )
UK corporation tax
    (4 )            
Other jurisdictions
    4       3        
                         
Total non-current taxes
    5       (3 )     (11 )
                         
Deferred taxes:
                       
US federal tax
    (6 )     57       (24 )
US state and local taxes
    1       9       (3 )
UK corporation tax
    20       3       1  
Other jurisdictions
    2       8       5  
                         
Total deferred taxes
    17       77       (21 )
                         
Total income taxes
  $ 32     $ 140     $ 94  
                         


89


Table of Contents

 
Willis Group Holdings plc
 
7.   INCOME TAXES (Continued)
 
 
The reconciliation between US federal income taxes at the statutory rate and the Company’s provision for income taxes on continuing operations is as follows:
 
                         
    Years ended December 31,  
    2011     2010     2009  
    (millions, except percentages)  
 
Income from continuing operations before income taxes and interest in earnings of associates
  $ 239     $ 587     $ 516  
                         
US federal statutory income tax rate
    35 %     35 %     35 %
                         
Income tax expense at US federal tax rate
    84       205       181  
Adjustments to derive effective rate:
                       
Non-deductible expenditure
    15       7       4  
Movement in provision for non-current taxes
    3       (3 )     (11 )
Release of provision for unremitted earnings
                (27 )
Impact of change in tax rate on deferred tax balances
    (3 )     (4 )      
Adjustment in respect of prior periods
    (13 )     (22 )     (6 )
Non-deductible Venezuelan foreign exchange loss
          4        
Non-taxable profit on disposal of Gras Savoye
          1       (3 )
Effect of foreign exchange and other differences
    1       11       2  
Changes in valuation allowances applied to deferred tax assets
    5              
Net tax effect of intra-group items
    (31 )     (26 )      
Tax differentials of foreign earnings:
                       
UK earnings
    6       (13 )     (13 )
Other jurisdictions and US state taxes
    (35 )     (20 )     (33 )
                         
Provision for income taxes
  $ 32     $ 140     $ 94  
                         
 
The net tax effect of intra-group items principally relates to transactions, the pre-tax effect of which has been eliminated in arriving at the Company’s consolidated income from continuing operations before income taxes. The prior-year comparative analysis is restated to separately disclose these items, which were previously included as part of the effect of foreign exchange and other differences.


90


Table of Contents

 
Notes to the financial statements
 
7.   INCOME TAXES (Continued)
 
 
The significant components of deferred income tax assets and liabilities and their balance sheet classifications are as follows:
 
                 
    December 31,  
    2011     2010  
    (millions)  
 
Deferred tax assets:
               
Accrued expenses not currently deductible
  $ 116     $ 34  
US state net operating losses
    56       47  
US federal net operating losses
    23        
UK net operating losses
    1       2  
Other net operating losses
    7       3  
UK capital losses
    45       49  
Accrued retirement benefits
    105       62  
Deferred compensation
    45       46  
Stock options
    34       51  
                 
Gross deferred tax assets
    432       294  
Less: valuation allowance
    (102 )     (87 )
                 
Net deferred tax assets
  $ 330     $ 207  
                 
Deferred tax liabilities:
               
Cost of intangible assets, net of related amortization
  $ 149     $ 155  
Cost of tangible assets, net of related amortization
    42       25  
Prepaid retirement benefits
    36       50  
Accrued revenue not currently taxable
    26       7  
Cash retention award
    63       10  
Tax-leasing transactions
    2       3  
Financial derivative transactions
    4       6  
Other
           
                 
Deferred tax liabilities
    322       256  
                 
Net deferred tax asset (liability)
  $ 8     $ (49 )
                 
 
                 
    December 31,  
    2011     2010  
    (millions)  
 
Balance sheet classifications:
               
Current:
               
Deferred tax assets
  $ 44     $ 36  
Deferred tax liabilities
    (26 )     (9 )
                 
Net current deferred tax assets
    18       27  
                 
Non-current:
               
Deferred tax assets
    22       7  
Deferred tax liabilities
    (32 )     (83 )
                 
Net non-current deferred tax liabilities
    (10 )     (76 )
                 
Net deferred tax asset (liability)
  $ 8     $ (49 )
                 


91


Table of Contents

 
Willis Group Holdings plc
 
7.   INCOME TAXES (Continued)
 
 
At December 31, 2011 the Company had valuation allowances of $102 million (2010: $87 million) to reduce its deferred tax assets to estimated realizable value. The valuation allowances at December 31, 2011 relate to the deferred tax assets arising from UK capital loss carryforwards ($45 million) and other net operating losses ($6 million), which have no expiration date and to the deferred tax assets arising from US State net operating losses ($51 million). US State net operating losses will expire by 2030. Capital loss carryforwards can only be offset against future UK capital gains.
 
                                         
          Additions/
                   
          (releases)
                Balance
 
    Balance at
    charged to
          Foreign
    at
 
    beginning
    costs and
    Deductions/Other
    exchange
    end of
 
Description   of year     expenses     movements     differences     year  
    (millions)  
 
Year ended December 31, 2011
                                       
Deferred tax valuation allowance
    87             15             102  
                                         
Year ended December 31, 2010
                                       
Deferred tax valuation allowance
    92             (4 )     (1 )     87  
                                         
Year ended December 31, 2009
                                       
Deferred tax valuation allowance
    85             2       5       92  
                                         
 
At December 31, 2011 the Company had deferred tax assets of $330 million (2010: $207 million), net of the valuation allowance. Management believes, based upon the level of historical taxable income and projections for future taxable income, it is more likely than not that the Company will realize the benefits of these deductible differences, net of the valuation allowance. However, the amount of the deferred tax asset considered realizable could be adjusted in the future if estimates of taxable income are revised.
 
The Company recognizes deferred tax balances related to the undistributed earnings of subsidiaries when the Company expects that it will recover those undistributed earnings in a taxable manner, such as through receipt of dividends or sale of the investments. The Company does not, however, provide for income taxes on the unremitted earnings of certain other subsidiaries where, in management’s opinion, such earnings have been indefinitely reinvested in those operations, or will be remitted either in a tax free liquidation or as dividends with taxes substantially offset by foreign tax credits. It is not practical to determine the amount of unrecognized deferred tax liabilities for temporary differences related to these investments.
 
Unrecognized tax benefits
 
Total unrecognized tax benefits as at December 31, 2011, totaled $16 million. During the next 12 months it is reasonably possible that the Company will recognize approximately $1 million of tax benefits related to the release of provisions no longer required due to either settlement through negotiation or closure of the statute of limitations on assessment.
 
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
 
                         
    2011     2010     2009  
    (millions)  
 
Balance at January 1
  $ 13     $ 17     $ 33  
Reductions due to a lapse of the applicable statute of limitation
          (7 )     (11 )
Adjustment to assessment of acquired HRH balances
                (8 )
Other movements
    3       3       3  
                         
Balance at December 31
  $ 16     $ 13     $ 17  
                         


92


Table of Contents

 
Notes to the financial statements
 
7.   INCOME TAXES (Continued)
 
 
All of the unrecognized tax benefits at December 31, 2011 would, if recognized, favorably affect the effective tax rate in future periods.
 
The Company files tax returns in the various tax jurisdictions in which it operates. The 2007 US tax year closed in 2011 upon the expiration of the statute of limitations on assessment. US tax returns have been filed timely. The Company has received notice that the IRS will be examining the 2009 tax return. The Company has not extended the federal statute of limitations for assessment in the US.
 
All UK tax returns have been filed timely and are in the normal process of being reviewed, with HM Revenue & Customs making enquiries to obtain additional information. There are no material ongoing enquiries in relation to filed UK returns. In other jurisdictions the Company is no longer subject to examinations prior to 2002.
 
8.   DISCONTINUED OPERATIONS
 
On December 31, 2011, the Company disposed of Global Special Risks, LLC, Faber & Dumas Canada Ltd and the trade and assets of Maclean, Oddy & Associates, Inc.. Gross proceeds were $15 million.
 
The net assets at December 31, 2011 were $11 million, of which $9 million related to identifiable intangible assets and goodwill. In addition, there were costs and income taxes relating to the transaction of $2 million. The gain (net of tax) on this disposal was $2 million.
 
Amounts of revenue and pre-tax income reported in discontinued operations include the following:
 
                         
    Years ended December 31,  
    2011     2010     2009  
    (millions)  
 
Revenues
  $ 8     $ 7     $ 19  
                         
Income before income taxes
    (1 )           6  
Income taxes
                (2 )
                         
Income from discontinued operations
  $ (1 )   $     $ 4  
Gain on disposal of discontinued operations, net of tax
    2              
                         
Discontinued operations, net of tax
  $ 1     $     $ 4  
                         
 
Net assets and liabilities of discontinued operations consist of the following:
 
         
    At
 
    December 31,
 
    2011  
    (millions)  
 
Cash and cash equivalents
  $ 1  
Fiduciary assets
    17  
Goodwill
    3  
Other intangible assets, net
    6  
Other current assets
    2  
         
Total assets
    29  
         
Fiduciary liabilities
    (17 )
Other current liabilities
    (1 )
         
Total liabilities
    (18 )
         
Net assets of discontinued operations
  $ 11  
         


93


Table of Contents

 
Willis Group Holdings plc
 
9.   EARNINGS PER SHARE
 
Basic and diluted earnings per share are calculated by dividing net income attributable to Willis Group Holdings by the average number of shares outstanding during each period. The computation of diluted earnings per share reflects the potential dilution that could occur if dilutive securities and other contracts to issue shares were exercised or converted into shares or resulted in the issue of shares that then shared in the net income of the Company.
 
For the year ended December 31, 2011, time-based and performance-based options to purchase 9.2 million and 7.3 million (2010: 11.5 million and 9.4 million; 2009: 13.4 million and 8.9 million) shares, respectively, and 1.2 million restricted stock units (2010: 1.8 million; 2009: 2.2 million), were outstanding.
 
Basic and diluted earnings per share are as follows:
 
                         
    Years ended December 31,  
    2011     2010     2009  
    (millions, except per share data)  
 
Net income attributable to Willis Group Holdings
  $ 204     $ 455     $ 438  
                         
Basic average number of shares outstanding
    173       170       168  
Dilutive effect of potentially issuable shares
    3       1       1  
                         
Diluted average number of shares outstanding
    176       171       169  
                         
Basic earnings per share:
                       
Continuing operations
  $ 1.17     $ 2.68     $ 2.58  
Discontinued operations
    0.01             0.03  
                         
Net income attributable to Willis Group Holdings shareholders
  $ 1.18     $ 2.68     $ 2.61  
                         
Dilutive effect of potentially issuable shares
    (0.02 )     (0.02 )     (0.02 )
                         
Diluted earnings per share:
                       
Continuing operations
  $ 1.15     $ 2.66     $ 2.57  
Discontinued operations
    0.01             0.02  
                         
Net income attributable to Willis Group Holdings shareholders
  $ 1.16     $ 2.66     $ 2.59  
                         
 
Options to purchase 4.1 million shares for the year ended December 31, 2011 were not included in the computation of the dilutive effect of stock options because the effect was antidilutive (2010: 13.9 million shares; 2009: 16.1 million shares).
 
10.   FIDUCIARY ASSETS
 
The Company collects premiums from insureds and, after deducting its commissions, remits the premiums to the respective insurers; the Company also collects claims or refunds from insurers which it then remits to insureds. Uncollected premiums from insureds and uncollected claims or refunds from insurers (‘fiduciary receivables’) are recorded as fiduciary assets on the Company’s consolidated balance sheet. Unremitted insurance premiums, claims or refunds (‘fiduciary funds’) are also recorded within fiduciary assets.
 
Fiduciary assets therefore comprise both receivables and funds held in a fiduciary capacity.
 
Fiduciary funds, consisting primarily of time deposits with original maturities of less than or equal to three months, were $1,688 million as of December 31, 2011 (2010: $1,764 million). Accrued interest on funds is recorded as other assets.


94


Table of Contents

 
Notes to the financial statements
 
11.   FIXED ASSETS, NET
 
An analysis of fixed asset activity for the years ended December 31, 2011 and 2010 are as follows:
 
                                 
    Land and
    Leasehold
    Furniture and
       
    buildings(i)     improvements     equipment     Total  
    (millions)  
 
Cost: at January 1, 2010
  $ 51     $ 184     $ 473     $ 708  
Additions
    24       13       69       106  
Disposals
          (4 )     (45 )     (49 )
Foreign exchange
    (2 )     (1 )     (9 )     (12 )
                                 
Cost: at December 31, 2010
    73       192       488       753  
Additions
          24       87       111  
Disposals
          (13 )     (52 )     (65 )
Foreign exchange
          7       (14 )     (7 )
                                 
Cost: at December 31, 2011
  $ 73     $ 210     $ 509     $ 792  
                                 
                                 
Depreciation: at January 1, 2010
  $ (24 )   $ (46 )   $ (286 )   $ (356 )
Depreciation expense provided(ii)
    (2 )     (12 )     (49 )     (63 )
Disposals
          2       39       41  
Foreign exchange
    1             5       6  
                                 
Depreciation: at December 31, 2010
    (25 )     (56 )     (291 )     (372 )
Depreciation expense provided(ii)
    (3 )     (15 )     (58 )     (76 )
Disposals
          13       45       58  
Foreign exchange
          (3 )     7       4  
                                 
Depreciation: at December 31, 2011
  $ (28 )   $ (61 )   $ (297 )   $ (386 )
                                 
Net book value:
                               
At December 31, 2010
  $ 48     $ 136     $ 197     $ 381  
                                 
At December 31, 2011
  $ 45     $ 149     $ 212     $ 406  
                                 
 
 
(i) Included within land and buildings are assets held under capital leases. At December 31, 2011, cost and accumulated depreciation were $23 million and $2 million respectively (2010: $23 million and $1 million, respectively; 2009 $nil and $nil, respectively). Depreciation in the year ended December 31, 2011 was $1 million (2010: $1 million; 2009: $nil).
 
(ii) The depreciation charge for the year ended December 31, 2011 includes an element that is disclosed in salaries and benefits, separate to the depreciation charge line, of $2 million (2010: $nil).
 
12.   GOODWILL
 
Goodwill represents the excess of the cost of businesses acquired over the fair market value of identifiable net assets at the dates of acquisition. Goodwill is not amortized but is subject to impairment testing annually and whenever facts or circumstances indicate that the carrying amounts may not be recoverable.
 
The Company’s annual goodwill impairment test for 2011 has not resulted in an impairment charge (2010: $nil; 2009: $nil).
 
When a business entity is sold, goodwill is allocated to the disposed entity based on the fair value of that entity compared to the fair value of the reporting unit in which it is included.


95


Table of Contents

 
Willis Group Holdings plc
 
12.   GOODWILL (Continued)
 
The changes in the carrying amount of goodwill by operating segment for the years ended December 31, 2011 and 2010 are as follows:
 
                                 
          North
             
    Global     America     International     Total  
    (millions)  
 
Balance at January 1, 2010
  $ 1,065     $ 1,780     $ 432     $ 3,277  
Purchase price allocation adjustments
          6             6  
Other movements(i)
          (3 )           (3 )
Foreign exchange
    (2 )           16       14  
                                 
Balance at December 31, 2010
  $ 1,063     $ 1,783     $ 448     $ 3,294  
Purchase price allocation adjustments
                2       2  
Goodwill acquired during the period
                10       10  
Goodwill disposed of during the year
          (3 )           (3 )
Other movements (i) (ii)
    60       2       (61 )     1  
Foreign exchange
    (1 )           (8 )     (9 )
                                 
Balance at December 31, 2011
  $ 1,122     $ 1,782     $ 391     $ 3,295  
                                 
 
 
(i) North America — $(1) million (2010: $3 million) tax benefit arising on the exercise of fully vested HRH stock options which were issued as part of the acquisition of HRH in 2008.
 
(ii) Effective January 1, 2011, the Company changed its internal reporting structure: Global Markets International, previously reported within the International segment, is now reported in the Global segment; and Mexico Retail, which was previously reported within the International segment, is now reported in the North America segment. As a result of these changes, goodwill of $60 million has been reallocated from the International segment into the Global segment for Global Markets International, and $1 million has been reallocated from the International segment into the North America segment for Mexico Retail. Goodwill has been reallocated between segments using the relative fair value allocation approach.
 
13.   OTHER INTANGIBLE ASSETS, NET
 
Other intangible assets are classified into the following categories:
 
•   ‘Customer and Marketing Related’, including
 
  •   client relationships,
 
  •   client lists,
 
  •   non-compete agreements,
 
  •   trade names; and
 
•   ‘Contract based, Technology and Other’ includes all other purchased intangible assets.


96


Table of Contents

 
Notes to the financial statements
 
13.   OTHER INTANGIBLE ASSETS, NET (Continued)
 
 
The major classes of amortizable intangible assets are as follows:
 
                                                 
    December 31, 2011     December 31, 2010  
    Gross carrying
    Accumulated
          Gross carrying
    Accumulated
       
    amount     amortization     Net carrying amount     amount     amortization     Net carrying amount  
    (millions)  
 
Customer and Marketing Related:
                                               
Client Relationships
  $ 686     $ (269 )   $ 417     $ 695     $ (207 )   $ 488  
Client Lists
    8       (7 )     1       9       (7 )     2  
Non-compete Agreements
    36       (36 )           36       (36 )      
Trade Names
    11       (10 )     1       11       (10 )     1  
                                                 
Total Customer and Marketing Related
    741       (322 )     419       751       (260 )     491  
                                                 
Contract based, Technology and Other
    4       (3 )     1       4       (3 )     1  
                                                 
Total amortizable intangible assets
  $ 745     $ (325 )   $ 420     $ 755     $ (263 )   $ 492  
                                                 
 
The aggregate amortization of intangible assets for the year ended December 31, 2011 was $68 million (2010: $82 million; 2009: $100 million). The estimated aggregate amortization of intangible assets for each of the next five years ended December 31 is as follows:
 
         
    (millions)  
 
2012
  $ 61  
2013
    53  
2014
    45  
2015
    38  
2016
    33  
Thereafter
    190  
         
Total
  $  420  
         
 
14.   INVESTMENTS IN ASSOCIATES
 
The Company holds a number of investments which it accounts for using the equity method. The Company’s approximate interest in the outstanding stock of the more significant associates is as follows:
 
                         
        December 31,
    Country   2011   2010
 
Al-Futtaim Willis Co. L.L.C. 
    Dubai       49%       49%  
GS & Cie Groupe
    France       30%       31%  
 
The Company’s principal investment as of December 31, 2011 and 2010 is GS & Cie Groupe (‘Gras Savoye’), France’s leading insurance broker.
 
The Company’s original investment in Gras Savoye was made in 1997, when it acquired a 33 percent ownership interest. Between 1997 and December 2009 this interest was increased by a series of incremental investments to 49 percent.
 
On December 17, 2009, the Company completed a leveraged transaction with the original family shareholders of Gras Savoye and Astorg Partners, a private equity fund, to reorganize the capital of Gras Savoye (‘December 2009 leveraged


97


Table of Contents

 
Willis Group Holdings plc
 
14.   INVESTMENTS IN ASSOCIATES (Continued)
 
transaction’). The Company, the original family shareholders and Astorg now own equal stakes of 30 percent in Gras Savoye and have equal representation of one third of the voting rights on its board. The remaining shareholding is held by a large pool of Gras Savoye managers and minority shareholders.
 
A put option that was in place prior to the December 2009 leveraged transaction, and which could have increased the Company’s interest to 90 percent, has been canceled and the Company now has a new call option to purchase 100 percent of the capital of Gras Savoye. If the Company does not waive the new call option before April 30, 2014, then it must exercise the new call option in 2015 or the other shareholders may initiate procedures to sell Gras Savoye. Except with the unanimous consent of the supervisory board and other customary exceptions, the parties are prohibited from transferring any shares of Gras Savoye until 2015. At the end of this period, shareholders are entitled to pre-emptive and tag-along rights.
 
As a result of the December 2009 leveraged transaction the Company recognized a gain of $10 million in the consolidated statement of operations for the year ended December 31, 2009 from the reduction of its interest in Gras Savoye from 49 percent to 31 percent. The Company received total proceeds of $281 million, comprising cash and interest bearing vendor loans and convertible bonds issued by Gras Savoye. See Note 6 — Net Gain (Loss) on Disposal of Operations for an analysis of the proceeds and the calculation of the gain.
 
In 2011 the Company’s ownership of Gras Savoye reduced from 31 percent to 30 percent following issuance of additional share capital as part of an employee share incentive scheme.
 
The carrying amount of the Gras Savoye investment as of December 31, 2011 includes goodwill of $82 million (2010: $88 million) and interest bearing vendor loans and convertible bonds issued by Gras Savoye of $43 million and $85 million respectively (2010: $44 million and $78 million, respectively).
 
A gain of $4 million was recorded in 2011 following conclusion of the accounting for the December 2009 leveraged transaction.
 
As of December 31, 2011 and 2010, the Company’s other investments in associates, individually and in the aggregate, were not material to the Company’s operations.
 
Unaudited condensed financial information for associates, in the aggregate, as of and for the three years ended December 31, 2011, is presented below. For convenience purposes: (i) balance sheet data has been translated to US dollars at the relevant year-end exchange rate, and (ii) condensed statements of operations data has been translated to US dollars at the relevant average exchange rate.
 
                         
    2011   2010   2009
    (millions)
 
Condensed statements of operations data(i):
                       
Total revenues
  $ 527     $ 510     $ 534  
Income before income taxes
    5       61       96  
Net income
    (2 )     43       64  
Condensed balance sheets data(i):
                       
Total assets
    1,882       2,043       2,204  
Total liabilities
    (1,736 )     (1,825 )     (1,767 )
Stockholders’ equity
    (146 )     (218 )     (437 )
 
 
(i) Disclosure is based on the Company’s best estimate of the results of its associates and is subject to change upon receipt of their financial statements for 2011.
 
For the year ended December 31, 2011, the Company recognized $4 million (2010: $5 million; 2009: $12 million) in respect of dividends received from associates.


98


Table of Contents

 
Notes to the financial statements
 
15.   OTHER ASSETS
 
An analysis of other assets is as follows:
 
                 
    December 31,  
    2011     2010  
    (millions)  
 
Other current assets
               
Unamortized cash retention awards
  $ 120     $ 125  
Prepayments and accrued income
    45       73  
Income taxes receivable
    30       69  
Derivatives
    14       17  
Debt issuance costs
    3       8  
Other receivables
    47       48  
                 
Total other current assets
  $ 259     $ 340  
                 
Other non-current assets
               
Unamortized cash retention awards
  $ 76     $ 48  
Deferred compensation plan assets
    89       114  
Derivatives
    38       30  
Debt issuance costs
    15       27  
Other receivables
    65       14  
                 
Total other non-current assets
  $ 283     $ 233  
                 
Total other assets
  $ 542     $ 573  
                 


99


Table of Contents

 
Willis Group Holdings plc
 
16.   OTHER LIABILITIES
 
An analysis of other liabilities is as follows:
 
                 
    December 31,  
    2011     2010  
    (millions)  
 
Other current liabilities
               
Accounts payable
  $ 59     $ 39  
Accrued dividends payable
    46       46  
Other taxes payable
    45       41  
Accrued interest payable
    37       21  
Derivatives
    7       6  
Other payables
    88       113  
                 
Total other current liabilities
  $ 282     $ 266  
                 
Other non-current liabilities
               
Incentives from lessors
  $ 165     $ 150  
Deferred compensation plan liability
    106       120  
Capital lease obligation
    26       23  
Other taxes payable
    5        
Other payables
    61       54  
                 
Total other non-current liabilities
  $ 363     $ 347  
                 
Total other liabilities
  $ 645     $ 613  
                 
 
17.   ALLOWANCE FOR DOUBTFUL ACCOUNTS
 
Accounts receivable are stated at estimated net realizable values. The allowances shown below as at the end of each period, are recorded as the amounts considered by management to be sufficient to meet probable future losses related to uncollectible accounts.
 
                                         
          Additions/
                   
          (releases)
                   
    Balance at
    charged to
    Deductions
    Foreign
    Balance at
 
    beginning
    costs and
    / Other
    exchange
    end
 
Description   of year     expenses     movements     differences     of year  
    (millions)  
 
Year ended December 31, 2011
                                       
Allowance for doubtful accounts
  $ 12     $ 4     $ (3 )   $     $ 13  
Year ended December 31, 2010
                                       
Allowance for doubtful accounts
  $ 16     $     $ (4 )   $     $ 12  
Year ended December 31, 2009
                                       
Allowance for doubtful accounts
  $ 20     $ (1 )   $ (4 )   $ 1     $ 16  
 
18.   PENSION PLANS
 
 
The Company maintains two principal defined benefit pension plans that cover the majority of our employees in the United States and United Kingdom. Both of these plans are now closed to new entrants. New entrants in the United Kingdom are offered the opportunity to join a defined contribution plan and in the United States are offered the opportunity to join a 401(k) plan. In addition to the Company’s UK and US defined benefit pension plans, the Company


100


Table of Contents

 
Notes to the financial statements
 
18.   PENSION PLANS (Continued)
 
has several smaller defined benefit pension plans in certain other countries in which it operates. Elsewhere, pension benefits are typically provided through defined contribution plans. It is the Company’s policy to fund pension costs as required by applicable laws and regulations.
 
Effective May 15, 2009, the Company closed the US defined benefit plan to future accrual. Consequently, a curtailment gain of $12 million was recognized during the year ended December 31, 2009.
 
At December 31, 2011, the Company recorded, on the Consolidated Balance Sheets:
 
•   a pension benefit asset of $145 million (2010: $182 million) representing:
 
  •   $136 million (2010: $179 million) in respect of the UK defined benefit pension plan; and
 
  •   $9 million (2010: $3 million) in respect of the international defined benefit pension plans.
 
•   a total liability for pension benefits of $270 million (2010: $167 million) representing:
 
  •   $258 million (2010: $154 million) in respect of the US defined benefit pension plan; and
 
  •   $12 million (2010: $13 million) in respect of the international defined benefit pension plans.
 
UK and US defined benefit plans
 
The following schedules provide information concerning the Company’s UK and US defined benefit pension plans as of and for the years ended December 31:
 
                                 
    UK Pension Benefits     US Pension Benefits  
    2011     2010     2011     2010  
    (millions)  
 
Change in benefit obligation:
                               
Benefit obligation, beginning of year
  $ 1,906     $ 1,811     $ 756     $ 686  
Service cost
    36       37              
Interest cost
    106       100       41       40  
Employee contributions
    2       2              
Actuarial loss
    272       84       127       57  
Benefits paid
    (72 )     (72 )     (29 )     (27 )
Foreign currency changes
    (23 )     (56 )            
Plan amendments
    (10 )                  
                                 
Benefit obligations, end of year
    2,217       1,906       895       756  
                                 
Change in plan assets:
                               
Fair value of plan assets, beginning of year
    2,085       1,880       602       529  
Actual return on plan assets
    269       245       34       70  
Employee contributions
    2       2              
Employer contributions
    92       88       30       30  
Benefits paid
    (72 )     (72 )     (29 )     (27 )
Foreign currency changes
    (23 )     (58 )            
                                 
Fair value of plan assets, end of year
    2,353       2,085       637       602  
                                 
Funded status at end of year
  $ 136     $ 179     $ (258 )   $ (154 )
                                 
Components on the Consolidated Balance Sheets:
                               
Pension benefits asset
  $ 136     $ 179     $     $  
Liability for pension benefits
                (258 )     (154 )


101


Table of Contents

 
Willis Group Holdings plc
 
18.   PENSION PLANS (Continued)
 
 
Amounts recognized in accumulated other comprehensive loss consist of:
 
                                 
    UK Pension Benefits   US Pension Benefits
    2011   2010   2011   2010
        (millions)    
 
Net actuarial loss
  $ 698     $ 571     $ 303     $ 169  
Prior service gain
    (35 )     (30 )            
 
The accumulated benefit obligations for the Company’s UK and US defined benefit pension plans were $2,217 million and $895 million, respectively (2010: $1,906 million and $756 million, respectively).
 
The components of the net periodic benefit cost and other amounts recognized in other comprehensive loss for the UK and US defined benefit plans are as follows:
 
                                                 
    Years ended December 31,  
    UK Pension Benefits     US Pension Benefits  
    2011     2010     2009     2011     2010     2009  
                (millions)              
 
Components of net periodic benefit cost:
                                               
Service cost
  $ 36     $ 37     $ 28     $     $     $ 7  
Interest cost
    106       100       96       41       40       40  
Expected return on plan assets
    (161 )     (141 )     (127 )     (44 )     (42 )     (36 )
Amortization of unrecognized prior service gain
    (5 )     (5 )     (5 )                  
Amortization of unrecognized actuarial loss
    30       37       33       3       3       8  
Curtailment gain
                                  (12 )
                                                 
Net periodic benefit cost (income)
  $ 6     $ 28     $ 25     $     $ 1     $ 7  
                                                 
Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss):
                                               
Net actuarial (gain) loss
  $ 164     $ (20 )   $ 102     $ 137     $ 29     $ (31 )
Amortization of unrecognized actuarial loss(i)
    (30 )     (37 )     (33 )     (3 )     (3 )     (12 )
Prior service gain
    (10 )                              
Amortization of unrecognized prior service gain
    5       5       5                    
Curtailment gain
                                  12  
                                                 
Total recognized in other comprehensive (loss) income
  $ 129     $ (52 )   $ 74     $ 134     $ 26     $ (31 )
                                                 
Total recognized in net periodic benefit cost and other comprehensive income
  $ 135     $ (24 )   $ 99     $ 134     $ 27     $ (24 )
                                                 
 
 
(i) 2009 US Pension Benefits figure includes $4 million due to curtailment.
 
The estimated net loss and prior service cost for the UK and US defined benefit plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year are:
 
                 
    UK Pension
  US Pension
    Benefits   Benefits
    (millions)
 
Estimated net loss
  $ 40     $ 8  
Prior service gain
    6        


102


Table of Contents

 
Notes to the financial statements
 
18.   PENSION PLANS (Continued)
 
 
The following schedule provides other information concerning the Company’s UK and US defined benefit pension plans:
 
                                 
    Years ended December 31,  
    UK Pension Benefits     US Pension Benefits  
    2011     2010     2011     2010  
 
Weighted-average assumptions to determine benefit obligations:
                               
Discount rate
    4.8 %     5.5 %     4.6 %     5.6 %
Rate of compensation increase
    2.1 %     2.6 %     N/A       N/A  
                                 
Weighted-average assumptions to determine net periodic benefit cost:
                               
Discount rate
    5.5 %     5.8 %     5.6 %     6.1 %
Expected return on plan assets
    7.5 %     7.8 %     7.5 %     8.0 %
Rate of compensation increase
    2.6 %     2.5 %     N/A       N/A  
                                 
 
The expected return on plan assets was determined on the basis of the weighted-average of the expected future returns of the various asset classes, using the target allocations shown below. The expected returns on UK plan assets are: UK and foreign equities 8.80 percent, debt securities 4.52 percent and real estate 6.48 percent. The expected returns on US plan assets are: US and foreign equities 9.25 percent and debt securities 5.25 percent.
 
The Company’s pension plan asset allocations based on fair values were as follows:
 
                                 
    Years ended December 31,  
    UK Pension Benefits     US Pension Benefits  
Asset Category   2011     2010     2011     2010  
 
Equity securities
    42 %     51 %     43 %     54 %
Debt securities
    35 %     24 %     56 %     45 %
Hedge funds
    18 %     20 %     %     %
Real estate
    4 %     4 %     %     %
Cash
    1 %     1 %     1 %     1 %
                                 
Total
    100 %     100 %     100 %     100 %
                                 
 
In the UK the pension trustees in consultation with the Company maintain a diversified asset portfolio and this together with contributions made by the Company is expected to meet the pension scheme’s liabilities as they become due. The UK plan’s assets are divided into 12 separate portfolios according to asset class and managed by 11 investment managers. The broad target allocations are UK and foreign equities (51 percent), debt securities (22 percent), hedge funds (22 percent) and real estate (5 percent). In the US the Company’s investment policy is to maintain a diversified asset portfolio, which together with contributions made by the Company is expected to meet the pension scheme’s liabilities as they become due. The US plan’s assets are currently invested in 11 funds representing most standard equity and debt security classes. The broad target allocations are US and foreign equities (55 percent) and debt securities (45 percent).
 
Fair Value Hierarchy
 
The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value:
 
•   Level 1: refers to fair values determined based on quoted market prices in active markets for identical assets;
 
•   Level 2: refers to fair values estimated using observable market based inputs or unobservable inputs that are corroborated by market data; and
 
•   Level 3: includes fair values estimated using unobservable inputs that are not corroborated by market data.


103


Table of Contents

 
Willis Group Holdings plc
 
18.   PENSION PLANS (Continued)
 
 
The following tables present, at December 31, 2011 and 2010, for each of the fair value hierarchy levels, the Company’s UK pension plan assets that are measured at fair value on a recurring basis.
 
                                 
    UK Pension Plan  
December 31, 2011   Level 1     Level 2     Level 3     Total  
          (millions)        
 
Equity securities:
                               
US equities
  $ 422     $ 93     $     $ 515  
UK equities
    278       41             319  
Other equities
    15       137             152  
Fixed income securities:
                               
US Government bonds
                       
UK Government bonds
    599                   599  
Other Government bonds
    1                   1  
UK corporate bonds
    63                   63  
Other corporate bonds
    23                   23  
Derivatives
          158             158  
Real estate
                86       86  
Cash
    28                   28  
Other investments:
                               
Hedge funds
                414       414  
Other
          (7 )     2       (5 )
                                 
Total
  $ 1,429     $ 422     $ 502     $ 2,353  
                                 
 
                                 
    UK Pension Plan  
December 31, 2010   Level 1     Level 2     Level 3     Total  
          (millions)        
 
Equity securities:
                               
US equities
  $ 421     $ 90     $     $ 511  
UK equities
    303       97             400  
Other equities
          149             149  
Fixed income securities:
                               
US Government bonds
    49                   49  
UK Government bonds
    348                   348  
Other Government bonds
    17                   17  
UK corporate bonds
    57                   57  
Other corporate bonds
    14                   14  
Derivatives
          22             22  
Real estate
                83       83  
Cash
    31                   31  
Other investments:
                               
Hedge funds
                415       415  
Other
          (13 )     2       (11 )
                                 
Total
  $ 1,240     $ 345     $ 500     $ 2,085  
                                 
 
The UK plan’s real estate investment comprises UK property and infrastructure investments which are valued by the fund manager taking into account cost, independent appraisals and market based comparable data. The UK plan’s hedge fund


104


Table of Contents

 
Notes to the financial statements
 
18.   PENSION PLANS (Continued)
 
investments are primarily invested in various ‘fund of funds’ and are valued based on net asset values calculated by the fund and are not publicly available. Liquidity is typically monthly and is subject to liquidity of the underlying funds.
 
The following tables present, at December 31, 2011 and 2010, for each of the fair value hierarchy levels, the Company’s US pension plan assets that are measured at fair value on a recurring basis.
 
                                 
    US Pension Plan  
December 31, 2011   Level 1     Level 2     Level 3     Total  
          (millions)        
 
Equity securities:
                               
US equities
  $ 172     $     $     $ 172  
Non US equities
    106                   106  
Fixed income securities:
                               
US Government bonds
          55             55  
US corporate bonds
          252             252  
Non US Government bonds
    48                   48  
Cash
          4             4  
Other investments:
                               
Other
                       
                                 
Total
  $ 326     $ 311     $     $ 637  
                                 
 
                                 
    US Pension Plan  
December 31, 2010   Level 1     Level 2     Level 3     Total  
          (millions)        
 
Equity securities:
                               
US equities
  $ 201     $     $     $ 201  
Non US equities
    127                   127  
Fixed income securities:
                               
US Government bonds
    112                   112  
US corporate bonds
    111                   111  
Non US Government bonds
    47                   47  
Cash
          5             5  
Other investments:
                               
Other
          (1 )           (1 )
                                 
Total
  $ 598     $ 4     $     $ 602  
                                 
 
Equity securities comprise:
 
•   common stock and preferred stock which are valued using quoted market prices; and
 
•   pooled investment vehicles which are valued at their net asset values as calculated by the investment manager and typically have daily or weekly liquidity.
 
Fixed income securities comprise US, UK and other Government Treasury Bills, loan stock, index linked loan stock and UK and other corporate bonds which are typically valued using quoted market prices.
 
As a result of the inherent limitations related to the valuations of the Level 3 investments, due to the unobservable inputs of the underlying funds, the estimated fair value may differ significantly from the values that would have been used had a market for those investments existed.


105


Table of Contents

 
Willis Group Holdings plc
 
18.   PENSION PLANS (Continued)
 
The following table summarizes the changes in the UK pension plan’s Level 3 assets for the years ended December 31, 2011 and 2010:
 
         
    UK Pension
 
    Plan  
    Level 3  
    (millions)  
 
Balance at January 1, 2010
  $ 328  
Purchases, sales, issuances and settlements, net
    156  
Unrealized gains relating to instruments still held at end of year
    22  
Foreign exchange
    (6 )
         
Balance at December 31, 2010
  $ 500  
Purchases, sales, issuances and settlements, net
    2  
Unrealized gains relating to instruments still held at end of year
    5  
Foreign exchange
    (5 )
         
Balance at December 31, 2011
  $ 502  
         
 
In 2012, the Company expects to make contributions to the UK plan approximately equal to those made in 2011 of $92 million, of which approximately $12 million is in respect of salary sacrifice contributions, and $40 million to the US plan.
 
The following benefit payments, which reflect expected future service, as appropriate, are estimated to be paid by the UK and US defined benefit pension plans:
 
                 
    UK Pension
    US Pension
 
Expected future benefit payments   Benefits     Benefits  
    (millions)  
 
2012
  $ 73     $ 33  
2013
    76       36  
2014
    78       39  
2015
    81       42  
2016
    82       44  
2017-2021
    450       256  
 
Willis North America has a 401(k) plan covering all eligible employees of Willis North America and its subsidiaries. The plan allows participants to make pre-tax contributions which the Company, at its discretion may match. During 2009, the Company had decided not to make any matching contributions other than for former HRH employees whose contributions were matched up to 75 percent under the terms of the acquisition. In January 2011, 401(k) matching was reinstated for our US associates. All investment assets of the plan are held in a trust account administered by independent trustees. The Company’s 401(k) matching contributions for 2011 were $10 million (2010: $nil; 2009: $5 million).


106


Table of Contents

 
Notes to the financial statements
 
18.   PENSION PLANS (Continued)
 
International defined benefit pension plans
 
In addition to the Company’s UK and US defined benefit pension plans, the Company has several smaller defined benefit pension plans in certain other countries in which it operates.
 
A $3 million net pension benefit liability (2010: $10 million) has been recognized in respect of these schemes.
 
The following schedules provide information concerning the Company’s international defined benefit pension plans:
 
                 
    International Pension
 
    Benefits  
    2011     2010  
    (millions)  
 
Change in benefit obligation:
               
Benefit obligation, beginning of year
  $ 135     $ 150  
Service cost
    4       4  
Interest cost
    7       7  
Actuarial (gain) loss
    (4 )     (4 )
Benefits paid
    (6 )     (15 )
Curtailment
    (1 )     1  
Foreign currency changes
    (4 )     (8 )
                 
Benefit obligations, end of year
    131       135  
                 
Change in plan assets:
               
Fair value of plan assets, beginning of year
    125       120  
Actual return on plan assets
    1       15  
Employer contributions
    13       12  
Benefits paid
    (6 )     (15 )
Foreign currency changes
    (5 )     (7 )
                 
Fair value of plan assets, end of year
    128       125  
                 
Funded status at end of year
  $ (3 )   $ (10 )
                 
Components on the Consolidated Balance Sheets:
               
Pension benefits asset
  $ 9     $ 3  
Liability for pension benefits
  $ (12 )   $ (13 )
 
Amounts recognized in accumulated other comprehensive loss consist of a net actuarial loss of $10 million (2010: $10 million).
 
The accumulated benefit obligation for the Company’s international defined benefit pension plans was $128 million (2010: $131 million).


107


Table of Contents

 
Willis Group Holdings plc
 
18.   PENSION PLANS (Continued)
 
The components of the net periodic benefit cost and other amounts recognized in other comprehensive loss for the international defined benefit plans are as follows:
 
                         
    International Pension Benefits  
    2011     2010     2009  
    (millions)  
 
Components of net periodic benefit cost:
                       
Service cost
  $ 4     $ 4     $ 6  
Interest cost
    7       7       8  
Expected return on plan assets
    (6 )     (6 )     (6 )
Amortization of unrecognized actuarial loss
    1             2  
Curtailment (gain) loss
    (1 )     1        
Other
                 
                         
Net periodic benefit cost
  $ 5     $ 6     $ 10  
                         
Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss):
                       
Amortization of unrecognized actuarial loss
  $ (1 )   $     $ (2 )
Net actuarial gain
    2       (13 )     (2 )
                         
Total recognized in other comprehensive loss
    1       (13 )     (4 )
                         
Total recognized in net periodic benefit cost and other comprehensive (loss) income
  $ 6     $ (7 )   $ 6  
                         
 
The estimated net loss for the international defined benefit plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year is $3 million.
 
The following schedule provides other information concerning the Company’s international defined benefit pension plans:
 
                 
    International
 
    Pension Benefits  
    2011     2010  
 
Weighted-average assumptions to determine benefit obligations:
               
Discount rate
    3.30% – 5.30%       4.00% – 5.10%  
Rate of compensation increase
    2.50% – 3.00%       2.50% – 3.00%  
Weighted-average assumptions to determine net periodic benefit cost:
               
Discount rate
    4.00% – 5.10%       5.00% – 5.30%  
Expected return on plan assets
    4.80% – 5.73%       4.60% – 6.31%  
Rate of compensation increase
    2.50% – 3.00%       2.00% – 3.00%  
 
The determination of the expected long-term rate of return on the international plan assets is dependent upon the specific circumstances of each individual plan. The assessment may include analyzing historical investment performance, investment community forecasts and current market conditions to develop expected returns for each asset class used by the plans.


108


Table of Contents

 
Notes to the financial statements
 
18.   PENSION PLANS (Continued)
 
The Company’s international pension plan asset allocations at December 31, 2011 based on fair values were as follows:
 
                 
    International
 
    Pension Benefits  
Asset Category   2011     2010  
 
Equity securities
    35 %     44 %
Debt securities
    58 %     42 %
Real estate
    4 %     4 %
Other
    3 %     10 %
                 
Total
    100 %     100 %
                 
 
The investment policies for the international plans vary by jurisdiction but are typically established by the local pension plan trustees, where applicable, and seek to maintain the plans’ ability to meet liabilities of the plans as they fall due and to comply with local minimum funding requirements.
 
Fair Value Hierarchy
 
The following tables present, at December 31, 2011 and 2010, for each of the fair value hierarchy levels, the Company’s international pension plan assets that are measured at fair value on a recurring basis.
 
                                 
    International Pension Plans  
December 31, 2011   Level 1     Level 2     Level 3     Total  
          (millions)        
 
Equity securities:
                               
US equities
  $ 20     $     $     $ 20  
UK equities
    4                   4  
Overseas equities
    18             1       19  
Unit linked funds
                       
Fixed income securities:
                               
Other Government bonds
    48       1             49  
Real estate
                5       5  
Cash
    4                   4  
Other investments:
                               
Derivative instruments
          22             22  
Other investments
                5       5  
                                 
Total
  $ 94     $ 23     $ 11     $ 128  
                                 
 


109


Table of Contents

 
Willis Group Holdings plc
 
18.   PENSION PLANS (Continued)
 
                                 
    International Pension Plans  
December 31, 2010   Level 1     Level 2     Level 3     Total  
          (millions)        
 
Equity securities:
                               
US equities
  $ 21     $     $     $ 21  
UK equities
    4                   4  
Overseas equities
    20                   20  
Unit linked funds
    7                   7  
Fixed income securities:
                               
Other Government bonds
    29       2             31  
Real estate
                5       5  
Cash
    11                   11  
Other investments:
                               
Derivative instruments
          21             21  
Other investments
                5       5  
                                 
Total
  $ 92     $ 23     $ 10     $ 125  
                                 
 
Equity securities comprise:
 
•   common stock which are valued using quoted market prices; and
 
•   unit linked funds which are valued at their net asset values as calculated by the investment manager and typically have daily liquidity.
 
Fixed income securities comprise overseas Government loan stock which is typically valued using quoted market prices. Real estate investment comprises overseas property and infrastructure investments which are valued by the fund manager taking into account cost, independent appraisals and market based comparable data. Derivative instruments are valued using an income approach typically using swap curves as an input.
 
Assets classified as Level 3 investments did not materially change during the year ended December 31, 2011.
 
In 2012, the Company expects to contribute $12 million to the international plans.
 
The following benefit payments, which reflect expected future service, as appropriate, are estimated to be paid by the international defined benefit pension plans:
 
         
    International
 
    Pension
 
Expected future benefit payments   Benefits  
    (millions)  
 
2012
  $ 3  
2013
    4  
2014
    4  
2015
    4  
2016
    4  
2017-2021
    23  

110


Table of Contents

 
Notes to the financial statements
 
19.   DEBT
 
Short-term debt and current portion of the long-term debt consists of the following:
 
                 
    December 31,  
    2011     2010  
    (millions)  
 
Current portion of 5-year term loan facility expires 2016
  $ 11     $  
Current portion of 5-year term loan facility repaid 2011
          110  
6.000% loan notes due 2012
    4        
                 
    $ 15     $ 110  
                 
 
Long-term debt consists of the following:
 
                 
    December 31,  
    2011     2010  
    (millions)  
 
5-year term loan facility expires 2016
  $ 289     $  
5-year term loan facility repaid 2011
          301  
Revolving $300 million credit facility
          90  
6.000% loan notes due 2012
          4  
5.625% senior notes due 2015
    350       350  
Fair value adjustment on 5.625% senior notes due 2015
    20       12  
12.875% senior notes due 2016
          500  
4.125% senior notes due 2016
    299        
6.200% senior notes due 2017
    600       600  
7.000% senior notes due 2019
    300       300  
5.750% senior notes due 2021
    496        
                 
    $ 2,354     $ 2,157  
                 
 
Until December 22, 2010, all direct obligations under the 5.625%, 6.200% and 7.000% senior notes were guaranteed by Willis Group Holdings, Willis Netherlands B.V., Willis Investment UK Holdings Limited, TA I Limited, TA II Limited, TA III Limited, Trinity Acquisition plc, TA IV Limited and Willis Group Limited.
 
On that date and in connection with a group reorganization, TA II Limited, TA III Limited and TA IV Limited transferred their obligations as guarantors to the other Guarantor Companies. TA II Limited, TA III Limited and TA IV Limited entered member’s voluntary liquidation on December 31, 2010.
 
Debt issuance
 
In December 2011 we refinanced our bank facility, comprising a 5-year $300 million term loan and a 5-year $500 million revolving credit facility. The $300 million term loan replaces the $328 million balance on our $700 million 5-year term loan facility and the $500 million revolving facility replaces our $300 million and our $200 million revolving credit facilities. Unamortized debt issuance costs of $10 million relating to these facilities were written off in December 2011 following completion of the refinancing. In 2011, we made $83 million of mandatory repayments against the 5-year term loan before repaying the $328 million balance in December 2011.
 
The 5-year term loan facility expiring 2016 bears interest at LIBOR plus 1.50% and is repayable in quarterly installments and a final repayment of $225 million is due in the fourth quarter of 2016. Drawings under the new revolving $500 million credit facility bear interest at LIBOR plus 1.50% and the facility expires on December 16, 2016. As of


111


Table of Contents

 
Willis Group Holdings plc
 
19.   DEBT (Continued)
 
December 31, 2011 $nil was outstanding under the revolving credit facility. These margins apply while the Company’s debt rating remains BBB-/Baa3.
 
The agreements relating to our 5-year term loan facility expiring 2016 and the revolving $500 million credit facility contain requirements to maintain maximum levels of consolidated funded indebtedness in relation to consolidated EBITDA and minimum level of consolidated EBITDA to consolidated cash interest expense, subject to certain adjustments. In addition, the agreements relating to our credit facilities and senior notes include, in the aggregate covenants relating to the delivery of financial statements, reports and notices, limitations on liens, limitations on sales and other disposals of assets, limitations on indebtedness and other liabilities, limitations on sale and leaseback transactions, limitations on mergers and other fundamental changes, maintenance of property, maintenance of insurance, nature of business, compliance with applicable laws, maintenance of corporate existence and rights, payment of taxes and access to information and properties. At December 31, 2011, the Company was in compliance with all covenants.
 
In March 2011, the Company issued $300 million of 4.125% senior notes due 2016 and $500 million of 5.750% senior notes due 2021. The effective interest rates of these senior notes are 4.240% and 5.871% respectively, which include the impact of the discount upon issuance. The proceeds were used to repurchase and redeem $500 million of 12.875% senior notes due 2016 including a make-whole payment (representing a slight discount to the contractual make-whole amount) of $158 million. Following the repurchase the Company wrote off $13 million of unamortized debt issuance costs.
 
During the year ended December 31, 2010, the Company entered into a series of interest rate swaps for a total notional amount of $350 million to receive a fixed rate and pay a variable rate on a semi-annual basis, with a maturity date of July 15, 2015. The Company has designated and accounts for these instruments as fair value hedges against its $350 million 5.625% senior notes due 2015. The fair values of the interest rate swaps are included within other assets or other liabilities and the fair value of the hedged element of the senior notes is included within long-term debt.
 
On June 22, 2010, a further revolving facility of $20 million was put in place which bears interest at LIBOR plus 1.700% until 2012 and LIBOR plus 1.850% thereafter. The facility expires on December 22, 2012. As at December 31, 2011 no drawings had been made on the facility. This facility is solely for the use of our main UK regulated entity and would be available in certain exceptional circumstances. The facility is secured against the freehold of the UK regulated entity’s freehold property in Ipswich.
 
Lines of credit
 
The Company also has available $3 million (2010: $2 million) in lines of credit, of which $nil was drawn as of December 31, 2011 (2010: $nil).


112


Table of Contents

 
Notes to the financial statements
 
19.   DEBT (Continued)
 
Analysis of interest expense
 
The following table shows an analysis of the interest expense for the years ended December 31:
 
                         
    Year ended December 31,  
    2011     2010     2009  
    (millions)  
 
5-year term loan facility repaid 2011
  $ 14     $ 17     $ 26  
Revolving $300 million credit facility
    4       3       3  
5.625% senior notes due 2015
    12       14       20  
12.875% senior notes due 2016
    15       67       55  
4.125% senior notes due 2016
    10              
6.200% senior notes due 2017
    38       38       38  
7.000% senior notes due 2019
    21       21       5  
5.125% senior notes due 2010
          3       16  
5.750% senior notes due 2021
    23              
Interim credit facility
                7  
Other(i)
    19       3       4  
                         
Total interest expense
  $ 156     $ 166     $ 174  
                         
 
 
(i) Other includes $10 million relating to the write off of unamortized debt issuance fees.
 
20.   PROVISIONS FOR LIABILITIES
 
An analysis of movements on provisions for liabilities is as follows:
 
                         
    Claims,
             
    lawsuits and
             
    other
    Other
       
    proceedings(i)     provisions(ii)     Total  
          (millions)        
 
Balance at January 1, 2010
  $ 178     $ 48     $ 226  
Net provisions made during the year
    19       (7 )     12  
Utilised in the year
    (50 )     (7 )     (57 )
Foreign currency translation adjustment
    (2 )           (2 )
                         
Balance at December 31, 2010
  $ 145     $ 34     $ 179  
Net provisions made during the year
    45       11       56  
Utilised in the year
    (31 )     (7 )     (38 )
Foreign currency translation adjustment
    (1 )           (1 )
                         
Balance at December 31, 2011
  $ 158     $ 38     $ 196  
                         
 
 
(i) The claims, lawsuits and other proceedings provision includes E&O cases which represents management’s assessment of liabilities that may arise from asserted and unasserted claims for alleged errors and omissions that arise in the ordinary course of the Group’s business. Where some of the potential liability is recoverable under the Group’s external insurance arrangements, the full assessment of the liability is included in the provision with the associated insurance recovery shown separately as an asset. Insurance recoveries recognised at December 31, 2011 amounted to $6 million (2010: $15 million).
.
 
(ii) The ‘Other’ category includes amounts relating to vacant property provisions of $20 million (2010: $14 million).


113


Table of Contents

 
Willis Group Holdings plc
 
21.   COMMITMENTS AND CONTINGENCIES
 
The Company’s contractual obligations as at December 31, 2011 are presented below:
 
                                         
                Payments due by
             
Obligations   Total     2012     2013-2014     2015-2016     After 2016  
    (millions)  
 
5-year term loan facility expires 2016
  $ 300     $ 11     $ 30     $ 259     $  
Interest on term loan
    28       6       12       10        
Revolving $500 million credit facility commitment fees
    6       1       3       2        
6.000% loan notes due 2012
    4       4                    
5.625% senior notes due 2015
    350                   350        
Fair value adjustments on 5.625% senior notes due 2015
    20                   20        
4.125% senior notes due 2016
    300                   300        
6.200% senior notes due 2017
    600                         600  
7.000% senior notes due 2019
    300                         300  
5.750% senior notes due 2021
    500                         500  
Interest on senior notes
    744       119       238       200       187  
                                         
Total debt and related interest
    3,152       141       283       1,141       1,587  
Operating leases(i)
    1,307       146       203       151       807  
Pensions
    386       91       181       114        
Other contractual obligations(ii)
    164       72       13       37       42  
                                         
Total contractual obligations
  $ 5,009     $ 450     $ 680     $ 1,443     $ 2,436  
                                         
 
 
(i) Presented gross of sublease income.
.
 
(ii) Other contractual obligations include capital lease commitments, put option obligations and investment fund capital call obligations, the timing of which are included at the earliest point they may fall due.
 
Debt obligations and facilities
 
The Company’s debt and related interest obligations at December 31, 2011 are shown in the above table.
 
During 2011, the Company entered into a new revolving credit facility agreement under which $500 million is available. As at December 31, 2011 $nil was outstanding under the revolving credit facility.
 
This facility is in addition to the remaining availability of $20 million under the Company’s previously existing $20 million revolving credit facility.
 
The only mandatory repayments of debt over the next 12 months are the scheduled repayment of $11 million current portion of the Company’s 5-year term loan and the final payment of the 6.000% loan notes. We also have the right, at our option, to prepay indebtedness under the credit facility without further penalty and to redeem the senior notes at our option by paying a ‘make whole’ premium as provided under the applicable debt instrument.
 
Operating leases
 
The Company leases certain land, buildings and equipment under various operating lease arrangements. Original non-cancellable lease terms typically are between 10 and 20 years and may contain escalation clauses, along with options that


114


Table of Contents

 
Notes to the financial statements
 
21.   COMMITMENTS AND CONTINGENCIES (Continued)
 
permit early withdrawal. The total amount of the minimum rent is expensed on a straight-line basis over the term of the lease.
 
As of December 31, 2011, the aggregate future minimum rental commitments under all non-cancellable operating lease agreements are as follows:
 
                         
    Gross rental
    Rentals from
    Net rental
 
    commitments     subleases     commitments  
          (millions)        
 
2012
  $ 146     $ (14 )   $ 132  
2013
    109       (14 )     95  
2014
    94       (13 )     81  
2015
    79       (12 )     67  
2016
    72       (11 )     61  
Thereafter
    807       (32 )     775  
                         
Total
  $ 1,307     $ (96 )   $ 1,211  
                         
 
The Company leases its main London building under a 25-year operating lease, which expires in 2032. The Company’s contractual obligations in relation to this commitment included in the table above total $715 million (2010: $744 million). Annual rentals are $30 million (2010: $31 million) per year and the Company has subleased approximately 29 percent (2010: 25 percent) of the premises under leases up to 15 years. The amounts receivable from subleases, included in the table above, total $82 million (2010: $87 million; 2009: $100 million).
 
Rent expense amounted to $127 million for the year ended December 31, 2011 (2010: $131 million; 2009: $154 million). The Company’s rental income from subleases was $18 million for the year ended December 31, 2011 (2010: $22 million; 2009: $21 million).
 
Pensions
 
Contractual obligations for our pension plans reflect the contributions we expect to make over the next five years into our US and UK plans. These contributions are based on current funding positions and may increase or decrease dependent on the future performance of the two plans.
 
In the UK, we are required to agree a funding strategy for our UK defined benefit plan with the plan’s trustees. In February 2009, we agreed to make full year contributions to the UK plan of $39 million for 2009 through 2012, excluding amounts in respect of the salary sacrifice scheme. In addition, if certain funding targets were not met at the beginning of any of the following years, 2010 through 2012, a further contribution of $39 million would be required for that year. In 2010, the additional funding requirement was triggered and we expect to make a similar additional contribution in 2011. A similar, additional contribution may also be required for 2012, depending on actual performance against funding targets at the beginning of 2012.
 
Based on the current UK funding strategy and as shown in the table above, the total contracted contributions for all plans are currently estimated to be approximately $91 million in 2012, excluding amounts of approximately $12 million in respect of the salary sacrifice scheme. However, a revised UK funding strategy, and hence 2012 contribution, is expected to be finalized shortly and the final 2012 contribution for all plans is expected to be approximately $142 million, including salary sacrifice.
 
Guarantees
 
Guarantees issued by certain of Willis Group Holdings’ subsidiaries with respect to the senior notes and revolving credit facilities are discussed in Note 19 — Debt in these consolidated financial statements.


115


Table of Contents

 
Willis Group Holdings plc
 
21.   COMMITMENTS AND CONTINGENCIES (Continued)
 
Certain of Willis Group Holdings’ subsidiaries have given the landlords of some leasehold properties occupied by the Company in the United Kingdom and the United States guarantees in respect of the performance of the lease obligations of the subsidiary holding the lease. The operating lease obligations subject to such guarantees amounted to $828 million and $855 million at December 31, 2011 and 2010, respectively.
 
In addition, the Company has given guarantees to bankers and other third parties relating principally to letters of credit amounting to $7 million and $11 million at December 31, 2011 and 2010, respectively. Willis Group Holdings also guarantees certain of its UK and Irish subsidiaries’ obligations to fund the UK and Irish defined benefit plans.
 
Other contractual obligations
 
For certain subsidiaries and associates, the Company has the right to purchase shares (a call option) from co-shareholders at various dates in the future. In addition, the co-shareholders of certain subsidiaries and associates have the right to sell their shares (a put option) to the Company at various dates in the future. Generally, the exercise price of such put options and call options is formula-based (using revenues and earnings) and is designed to reflect fair value. Based on current projections of profitability and exchange rates and assuming the put options are exercised, the potential amount payable from these options is not expected to exceed $72 million (2010: $40 million).
 
In July 2010, the Company made a capital commitment of $25 million to Trident V Parallel Fund, LP, an investment fund managed by Stone Point Capital. This replaced a capital commitment of $25 million that had been made to Trident V, LP in December 2009. As at December 31, 2011 there have been approximately $6 million of capital contributions.
 
In May 2011, the Company made a capital commitment of $10 million to Dowling Capital Partners I, LP. As at December 31, 2011 there had been no capital contributions.
 
Other contractual obligations at December 31, 2011 also include the capital lease on the Company’s Nashville property of $63 million, payable from 2012 onwards.
 
Claims, Lawsuits and Other Proceedings
 
In the ordinary course of business, the Company is subject to various actual and potential claims, lawsuits, and other proceedings relating principally to alleged errors and omissions in connection with the placement of insurance and reinsurance. Similar to other corporations, the Company is also subject to a variety of other claims, including those relating to the Company’s employment practices. Some of the claims, lawsuits and other proceedings seek damages in amounts which could, if assessed, be significant.
 
Errors and omissions claims, lawsuits, and other proceedings arising in the ordinary course of business are covered in part by professional indemnity or other appropriate insurance. The terms of this insurance vary by policy year and self-insured risks have increased significantly in recent years. Regarding self-insured risks, the Company has established provisions which are believed to be adequate in the light of current information and legal advice, and the Company adjusts such provisions from time to time according to developments.
 
On the basis of current information, the Company does not expect that the actual claims, lawsuits and other proceedings, to which the Company is subject, or potential claims, lawsuits, and other proceedings relating to matters of which it is aware, will ultimately have a material adverse effect on the Company’s financial condition, results of operations or liquidity. Nonetheless, given the large or indeterminate amounts sought in certain of these actions, and the inherent unpredictability of litigation and disputes with insurance companies, it is possible that an adverse outcome in certain matters could, from time to time, have a material adverse effect on the Company’s results of operations or cash flows in particular quarterly or annual periods.


116


Table of Contents

 
Notes to the financial statements
 
21.   COMMITMENTS AND CONTINGENCIES (Continued)
 
The material actual or potential claims, lawsuits and other proceedings, of which the Company is currently aware, are:
 
Assurance of Discontinuance
 
In connection with the investigation launched by the New York State Attorney General in April 2004 concerning, among other things, contingent commissions paid by insurers to insurance brokers, in April 2005, the Company entered into an Assurance of Discontinuance (‘Original AOD’) with the New York State Attorney General and the Superintendent of the New York Insurance Department and paid $50 million to eligible clients. As part of the Original AOD, the Company also agreed not to accept contingent compensation and to disclose to customers any compensation the Company will receive in connection with providing policy placement services to the customer. The Company also resolved similar investigations launched by the Minnesota Attorney General, the Florida Attorney General, the Florida Department of Financial Services, and the Florida Office of Insurance Regulation for amounts that were not material to the Company.
 
Similarly, in August 2005, HRH entered into an agreement with the Attorney General of the State of Connecticut and the Insurance Commissioner of the State of Connecticut to resolve all issues related to their investigations into certain insurance brokerage and insurance agency practices and to settle a lawsuit brought in August 2005 by the Connecticut Attorney General alleging violations of the Connecticut Unfair Trade Practices Act and the Connecticut Unfair Insurance Practices Act. As part of this settlement, HRH agreed to take certain actions including establishing a $30 million national fund for distribution to certain clients; enhancing disclosure practices for agency and broker clients; and declining to accept contingent compensation on brokerage business.
 
On February 16, 2010, the Company entered into the Amended and Restated Assurance of Discontinuance with the Attorney General of the State of New York and the Amended and Restated Stipulation with the Superintendent of Insurance of the State of New York (the ‘Amended and Restated AOD’) on behalf of itself and its named subsidiaries. The Amended and Restated AOD was effective February 11, 2010 and supersedes and replaces the Original AOD.
 
The Amended and Restated AOD specifically recognizes that the Company has substantially met its obligations under the Original AOD and ends many of the requirements previously imposed. It relieves the Company of a number of technical compliance obligations that have imposed significant administrative and financial burdens on its operations. The Amended and Restated AOD no longer limits the types of compensation the Company can receive and has lowered the compensation disclosure requirements. The Amended and Restated AOD requires the Company, among other things to: (i) in New York, and each of the other 49 states of the United States, the District of Columbia and U.S. territories, provide compensation disclosure that will, at a minimum, comply with the terms of the applicable regulations, as may be amended from time to time, or the provisions of the AOD that existed prior to the adoption of the Amended and Restated AOD; and (ii) maintain its compliance programs and continue to provide appropriate training to relevant employees in business ethics, professional obligations, conflicts of interest, and antitrust and trade practices compliance.
 
European Commission Sector Inquiry
 
In 2006, the European Commission issued questionnaires pursuant to its Sector Inquiry or, in respect of Norway, the European Free Trade Association Surveillance Authority, related to insurance business practices, including compensation arrangements for brokers, to at least 150 European brokers including our operations in nine European countries. The Company filed responses to the European Commission and the European Free Trade Association Surveillance Authority questionnaires. The European Commission reported on September 25, 2007, expressing concerns over potential conflicts of interest in the industry relating to remuneration and binding authorities and also over the nature of the coinsurance market.
 
The Company cooperated with both the European Free Trade Association Surveillance Authority and the European Commission to resolve issues raised in its final report regarding coinsurance as required of the industry by the European Commission. The European Commission has appointed Ernst & Young to conduct a review of the coinsurance market and


117


Table of Contents

 
Willis Group Holdings plc
 
21.   COMMITMENTS AND CONTINGENCIES (Continued)
 
we anticipate that, along with our competitors and insurers, our European subsidiaries will receive further questionnaires on this matter this year.
 
Contingent Compensation Class Action
 
Since August 2004, the Company and HRH (along with various other brokers and insurers) have been named as defendants in purported class actions in various courts across the United States. All of these actions have been consolidated into a single action in the US District Court for the District of New Jersey (‘MDL’). These actions allege that the brokers breached their duties to their clients by entering into contingent compensation agreements with either no disclosure or limited disclosure to clients and participated in other improper activities. Plaintiffs seek monetary damages, including punitive damages, and certain equitable relief. In May 2011, the majority of defendants, including the Company and HRH, entered into a written settlement agreement with plaintiffs. On June 28, 2011, the Judge entered an Order granting preliminary approval to the settlement agreement. Notice of the settlement was sent to all members of the class and each member was given the opportunity to opt out of the settlement and pursue its own individual claim against any defendant. A total of 84 members of the class have opted out of the settlement. A Fairness Hearing to decide if the settlement should be given final approval took place on September 14, 2011, but the Judge has not yet issued his decision on approval of the settlement. The amount of the proposed settlement to be paid by the Company and HRH is immaterial and was previously reserved.
 
Additional actions could be brought in the future by individual policyholders. The Company disputes the allegations in all of these suits and has been and intends to continue to defend itself vigorously against these actions. The outcomes of these lawsuits, however, including any losses or other payments that may occur as a result, cannot be predicted at this time.
 
Gender Discrimination Class Action
 
In December 2006, a purported class action was filed against the Company in the United States District Court, Southern District of New York, alleging that the Company discriminated against female officers and officer equivalent employees on the basis of their gender and seeking injunctive relief, monetary damages and attorneys’ fees and costs. In January 2011, the Company reached a settlement with plaintiffs that resolves all individual and class claims. The amount of this settlement is not material. The Court has given preliminary approval to the settlement. Notice of that settlement has been provided to the class members and the Court held a Fairness Hearing on December 12, 2011 to decide if final approval should be given to the settlement. On December 19, 2011, the Court granted final approval of the settlement, and the settlement payments are being distributed to class members.
 
World Trade Center
 
The Company acted as the insurance broker, but not as an underwriter, for the placement of both property and casualty insurance for a number of entities which were directly impacted by the September 11, 2001 destruction of the World Trade Center complex, including Silverstein Properties LLC, which acquired a 99-year leasehold interest in the twin towers and related facilities from the Port Authority of New York and New Jersey in July 2001. Although the World Trade Center complex insurance was bound at or before the July 2001 closing of the leasehold acquisition, consistent with standard industry practice, the final policy wording for the placements was still in the process of being finalized when the twin towers and other buildings in the complex were destroyed on September 11, 2001. There have been a number of lawsuits in the United States between the insured parties and the insurers for several placements. Other disputes may arise in respect of insurance placed by us which could affect the Company including claims by one or more of the insureds that the Company made culpable errors or omissions in connection with our brokerage activities. However, the Company does not believe that our role as broker will lead to liabilities which in the aggregate would have a material adverse effect on our results of operations, financial condition or liquidity.


118


Table of Contents

 
Notes to the financial statements
 
21.   COMMITMENTS AND CONTINGENCIES (Continued)
 
Stanford Financial Group Litigation
 
The Company has been named as a defendant in six similar lawsuits relating to the collapse of The Stanford Financial Group (‘Stanford’), for which Willis of Colorado, Inc. acted as broker of record on certain lines of insurance. The complaints in these actions generally allege that the defendants actively and materially aided Stanford’s alleged fraud by providing Stanford with certain letters regarding coverage that they knew would be used to help retain or attract actual or prospective Stanford client investors. The complaints further allege that these letters, which contain statements about Stanford and the insurance policies that the defendants placed for Stanford, contained untruths and omitted material facts and were drafted in this manner to help Stanford promote and sell its allegedly fraudulent certificates of deposit.
 
The six actions are as follows:
 
•   Troice, et al. v. Willis of Colorado, Inc., et al., C.A. No. 3:09-CV-01274-N, was filed on July 2, 2009 in the U.S. District Court for the Northern District of Texas against Willis Group Holdings plc, Willis of Colorado, Inc. and a Willis associate, among others. On April 1, 2011, plaintiffs filed the operative Third Amended Class Action Complaint individually and on behalf of a putative, worldwide class of Stanford investors, adding Willis Limited as a defendant and alleging claims under Texas statutory and common law and seeking damages in excess of $1 billion, punitive damages and costs. On May 2, 2011, the defendants filed motions to dismiss the Third Amended Class Action Complaint, arguing, inter alia, that the plaintiffs’ claims are precluded by the Securities Litigation Uniform Standards Act of 1998 (‘SLUSA’).
 
•   Ranni v. Willis of Colorado, Inc., et al., C.A. No. 09-22085, was filed on July 17, 2009 against Willis Group Holdings plc and Willis of Colorado, Inc. in the U.S. District Court for the Southern District of Florida. The complaint was filed on behalf of a putative class of Venezuelan and other South American Stanford investors and alleges claims under Section 10(b) of the Securities Exchange Act of 1934 (and Rule 10b-5 thereunder) and Florida statutory and common law and seeks damages in an amount to be determined at trial. On October 6, 2009, Ranni was transferred, for consolidation or coordination with other Stanford-related actions (including Troice), to the Northern District of Texas by the U.S. Judicial Panel on Multidistrict Litigation (the ‘JPML’). The defendants have not yet responded to the complaint in Ranni.
 
•   Canabal, et al. v. Willis of Colorado, Inc., et al., C.A. No. 3:09-CV-01474-D, was filed on August 6, 2009 against Willis Group Holdings plc, Willis of Colorado, Inc. and the same Willis associate named as a defendant in Troice, among others, also in the Northern District of Texas. The complaint was filed individually and on behalf of a putative class of Venezuelan Stanford investors, alleged claims under Texas statutory and common law and sought damages in excess of $1 billion, punitive damages, attorneys’ fees and costs. On December 18, 2009, the parties in Troice and Canabal stipulated to the consolidation of those actions (under the Troice civil action number), and, on December 31, 2009, the plaintiffs in Canabal filed a notice of dismissal, dismissing the action without prejudice.
 
•   Rupert, et al. v. Winter, et al., Case No. 2009C115137, was filed on September 14, 2009 on behalf of 97 Stanford investors against Willis Group Holdings plc, Willis of Colorado, Inc. and the same Willis associate, among others, in Texas state court (Bexar County). The complaint alleges claims under the Securities Act of 1933, Texas and Colorado statutory law and Texas common law and seeks special, consequential and treble damages of more than $300 million, attorneys’ fees and costs. On October 20, 2009, certain defendants, including Willis of Colorado, Inc., (i) removed Rupert to the U.S. District Court for the Western District of Texas, (ii) notified the JPML of the pendency of this related action and (iii) moved to stay the action pending a determination by the JPML as to whether it should be transferred to the Northern District of Texas for consolidation or coordination with the other Stanford-related actions. On April 1, 2010, the JPML issued a final transfer order for the transfer of Rupert to the Northern District of Texas. On January 24, 2012, the Court remanded Rupert to Texas State Court (Bexar County), but stayed these cases until further order of the court. The defendants have not yet responded to the complaint in Rupert.
 
•   Casanova, et al. v. Willis of Colorado, Inc., et al., C.A. No. 3:10-CV-01862-O, was filed on September 16, 2010 on behalf of seven Stanford investors against Willis Group Holdings plc, Willis Limited, Willis of Colorado, Inc. and the same Willis associate, among others, also in the Northern District of Texas. The complaint alleges claims under Texas statutory and common law and seeks actual damages in excess of $5 million, punitive damages, attorneys’ fees and costs. The defendants have not yet responded to the complaint in Casanova.


119


Table of Contents

 
Willis Group Holdings plc
 
21.   COMMITMENTS AND CONTINGENCIES (Continued)
 
 
•   Rishmague, et ano. v. Winter, et al., Case No. 2011CI02585, was filed on March 11, 2011 on behalf of two Stanford investors, individually and as representatives of certain trusts, against Willis Group Holdings plc, Willis of Colorado, Inc., Willis of Texas, Inc. and the same Willis associate, among others, in Texas state court (Bexar County). The complaint alleges claims under Texas and Colorado statutory law and Texas common law and seeks special, consequential and treble damages of more than $37 million and attorneys’ fees and costs. On April 11, 2011, certain defendants, including Willis of Colorado, Inc., (i) removed Rishmague to the Western District of Texas, (ii) notified the JPML of the pendency of this related action and (iii) moved to stay the action pending a determination by the JPML as to whether it should be transferred to the Northern District of Texas for consolidation or coordination with the other Stanford-related actions. On August 8, 2011, the JPML issued a final transfer order for the transfer of Rishmague to the Northern District of Texas, where it is currently pending. The defendants have not yet responded to the complaint in Rishmague.
 
On May 10, 2011, the court presiding over the Stanford-related actions in the Northern District of Texas entered an order providing that it would consider the applicability of SLUSA to the Stanford-related actions based on the decision in a separate Stanford action not involving a Willis entity, Roland v. Green, Civil Action No. 3:10-CV-0224-N. On August 31, 2011, the court issued its decision in Roland, dismissing that action with prejudice under SLUSA
 
On October 27, 2011, the court in Troice entered an order (i) dismissing with prejudice those claims asserted in the Third Amended Class Action Complaint on a class basis on the grounds set forth in the Roland decision discussed above and (ii) dismissing without prejudice those claims asserted the Third Amended Class Action Complaint on an individual basis. Also on October 27, 2011, the court entered a final judgment in the action.
 
On October 28, 2011, the plaintiffs in Troice filed a notice of appeal to the U.S. Court of Appeals for the Fifth Circuit. Subsequently, Troice, Roland and a third action captioned Troice, et al. v. Proskauer Rose LLP, Civil Action No. 3:09-CV-01600-N, which also was dismissed on the grounds set forth in the Roland decision discussed above and on appeal to the U.S. Court of Appeals for the Fifth Circuit, were consolidated for purposes of briefing and oral argument. The appeals have been fully briefed and the Fifth Circuit heard oral argument on February 7, 2012. A ruling is expected sometime this year.
 
Additional actions could be brought in the future by other investors in certificates of deposit issued by Stanford and its affiliates. The Company disputes these allegations and intends to defend itself vigorously against these actions. The outcomes of these actions, however, including any losses or other payments that may occur as a result, cannot be predicted at this time.
 
Regulatory Investigation
 
Given the increased interest expressed by US and UK regulators in the effectiveness of compliance controls relating to financial crime in our market sector in particular, we began a voluntary internal review of our policies and controls four years ago. This review includes analysis and advice from external experts on best practices, review of public regulatory decisions, and discussions with government regulators in the US and UK. In addition, during 2010 and 2011 the UK Financial Services Authority (the ‘FSA’) conducted an investigation of Willis Limited’s, our UK brokerage subsidiary, compliance systems and controls between 2005 and 2009. On July 21, 2011, we and the FSA announced a settlement under which the FSA concluded its investigation by assessing a £7 million ($11 million) fine on Willis Limited for lapses in its implementation and documentation of its controls to counter the risks of improper payments being made to non-FSA authorized overseas third parties engaged to help win business, particularly in high risk jurisdictions.
 
As a result of the FSA settlement, we are conducting a further internal review of all payments made between 2005 and 2009. We also continue to fully cooperate with our US regulators, however we are unable to predict at this time when our discussions with them will be concluded. We do not believe that this further internal review or our discussions with the US regulators will result in any material fines or sanctions, but there can be no assurance that any resolution will not have an adverse impact on our ability to conduct our business in certain jurisdictions. While we believe that our current


120


Table of Contents

 
Notes to the financial statements
 
21.   COMMITMENTS AND CONTINGENCIES (Continued)
 
systems and controls are adequate and in accordance with all applicable laws and regulations, we cannot assure that such systems and controls will prevent any violations of applicable laws and regulations.
 
22.   ACCUMULATED OTHER COMPREHENSIVE LOSS, NET OF TAX
 
The components of comprehensive income (loss) are as follows:
 
                         
    Years ended December 31,  
    2011     2010     2009  
    (millions)  
 
Net income
  $ 220     $ 470     $ 459  
Other comprehensive income (loss), net of tax:
                       
Foreign currency translation adjustment (net of tax of $nil in 2011, 2010 and 2009)
    (29 )     (8 )     27  
Unrealized holding gain (loss) (net of tax of $nil in 2011, 2010 and 2009)
          2       (1 )
Pension funding adjustment (net of tax of $84 million in 2011, $(12) million in 2010 and $6 million in 2009)
    (172 )     51       (33 )
Net (loss) gain on derivative instruments (net of tax of $2 million in 2011, $(3) million in 2010 and $(16) million in 2009)
    (3 )     6       43  
                         
Other comprehensive (loss) income (net of tax of $86 million in 2011, $(15) million in 2010 and $(10) million in 2009)
    (204 )     51       36  
                         
Comprehensive income
    16       521       495  
Noncontrolling interests
    (15 )     (13 )     (21 )
                         
Comprehensive income attributable to Willis Group Holdings
  $ 1     $ 508     $ 474  
                         
 
The components of accumulated other comprehensive loss, net of tax, are as follows:
 
                         
    December 31,  
    2011     2010     2009  
    (millions)  
 
Net foreign currency translation adjustment
  $ (80 )   $ (52 )   $ (46 )
Net unrealized holding loss
                (2 )
Pension funding adjustment
    (675 )     (503 )     (554 )
Net unrealized gain on derivative instruments
    11       14       8  
                         
Accumulated other comprehensive loss, attributable to Willis Group Holdings, net of tax
  $ (744 )   $ (541 )   $ (594 )
                         


121


Table of Contents

 
Willis Group Holdings plc
 
23.   EQUITY AND NONCONTROLLING INTEREST
 
The components of equity and noncontrolling interests are as follows:
 
                                                                         
    December 31, 2011     December 31, 2010     December 31, 2009  
    Willis
                Willis
                Willis
             
    Group
                Group
                Group
             
    Holdings’
    Noncontrolling
    Total
    Holdings’
    Noncontrolling
    Total
    Holdings’
    Noncontrolling
    Total
 
    stockholders     interests     equity     stockholders     interests     equity     stockholders     interests     equity  
 
Balance at January 1,
  $ 2,577     $ 31     $ 2,608     $ 2,180     $ 49     $ 2,229     $ 1,845     $ 50     $ 1,895  
Comprehensive income:
                                                                       
Net income
    204       16       220       455       15       470       438       21       459  
Other comprehensive income, net of tax
    (203 )     (1 )     (204 )     53       (2 )     51       36             36  
                                                                         
Comprehensive income
    1       15       16       508       13       521       474       21       495  
Dividends
    (180 )     (15 )     (195 )     (178 )     (26 )     (204 )     (172 )     (17 )     (189 )
Additional paid-in capital
    88             88       67             67       32             32  
Shares reissued under stock compensation plans
                                        1             1  
Purchase of subsidiary shares from noncontrolling interests
                            (5 )     (5 )           (10 )     (10 )
Additional noncontrolling interests
                                              5       5  
                                                                         
Balance at December 31,
  $ 2,486     $    31     $ 2,517     $ 2,577     $    31     $ 2,608     $ 2,180     $    49     $ 2,229  
                                                                         
 
The effects on equity of changes in Willis Group Holdings, ownership interest in its subsidiaries are as follows:
 
                         
    Years ended December 31,  
    2011     2010     2009  
          (millions)        
 
Net income attributable to Willis Group Holdings
  $ 204     $ 455     $ 438  
Transfers from noncontrolling interest:
                       
Decrease in Willis Group Holdings’ paid-in capital for purchase of noncontrolling interest
          (19 )     (23 )
Increase in Willis Group Holdings’ paid-in capital for sale of noncontrolling interest
                1  
                         
Net transfers from noncontrolling interest
          (19 )     (22 )
                         
Change from net income attributable to Willis Group Holdings and transfers from noncontrolling interests
  $ 204     $ 436     $ 416  
                         


122


Table of Contents

 
Notes to the financial statements
 
24.   SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 
Supplemental disclosures regarding cash flow information and non-cash flow investing and financing activities are as follows:
 
                         
    Years Ended December 31,  
    2011     2010     2009  
    (millions)  
 
Supplemental disclosures of cash flow information:
                       
Cash payments for income taxes, net
  $ 15     $ 99     $ 80  
Cash payments for interest
    128       163       179  
                         
Supplemental disclosures of non-cash flow investing and financing activities:
                       
Write-off of unamortized debt issuance costs
  $ (23 )   $     $  
Assets acquired under capital leases
          23        
Non cash proceeds from reorganization of investments in associates (Note 6)
                126  
Issue of stock on acquisitions of subsidiaries
                1  
Issue of loan notes on acquisitions of noncontrolling interests
                13  
Issue of stock on acquisitions of noncontrolling interests
                11  
Deferred payments on acquisitions of subsidiaries
    3             1  
Deferred payments on acquisitions of noncontrolling interests
    8       13       1  
                         
Acquisitions:
                       
Fair value of assets acquired
  $ 6     $ 12     $ 28  
Less:
                       
Liabilities assumed
    (3 )     (18 )     (55 )
Cash acquired
    (3 )           (12 )
                         
Net liabilities assumed, net of cash acquired
  $     $ (6 )   $ (39 )
                         
 
25.   DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
 
Fair value of derivative financial instruments
 
In addition to the note below, see Note 26 for information about the fair value hierarchy of derivatives.
 
Primary risks managed by derivative financial instruments
 
The main risks managed by derivative financial instruments are interest rate risk and foreign currency risk. The Company’s board of directors reviews and approves policies for managing each of these risks as summarized below.
 
The Company enters into derivative transactions (principally interest rate swaps and forward foreign currency contracts) in order to manage interest rate and foreign currency risks arising from the Company’s operations and its sources of finance. The Company does not hold financial or derivative instruments for trading purposes.
 
Interest Rate Risk — Investment Income
 
As a result of the Company’s operating activities, the Company receives cash for premiums and claims which it deposits in short-term investments denominated in US dollars and other currencies. The Company earns interest on these funds, which is included in the Company’s financial statements as investment income. These funds are regulated in terms of


123


Table of Contents

 
Willis Group Holdings plc
 
25.   DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)
 
access and the instruments in which they may be invested, most of which are short-term in maturity. In order to manage interest rate risk arising from these financial assets, the Company enters into interest rate swaps to receive a fixed rate of interest and pay a variable rate of interest fixed in the various currencies related to the short-term investments. The use of interest rate contracts essentially converts groups of short-term variable rate investments to fixed rates.
 
The fair value of these contracts is recorded in other assets and other liabilities. For contracts that qualify as cash flow hedges for accounting purposes, the effective portions of changes in fair value are recorded as a component of other comprehensive income.
 
At December 31, 2011 and 2010, the Company had the following derivative financial instruments that were designated as cash flow hedges of interest rate risk:
 
                                     
        December 31,  
                    Weighted Average
 
        Notional
    Termination
    Interest Rates  
        Amount(i)     Dates     Receive     Pay  
        (millions)           %     %  
 
2011
                                   
US dollar
  Receive fixed-pay variable   $ 740       2012-2015       2.20       0.88  
Pounds sterling
  Receive fixed-pay variable     241       2012-2015       3.00       1.35  
Euro
  Receive fixed-pay variable     143       2012-2015       2.31       1.33  
2010
                                   
US dollar
  Receive fixed-pay variable   $ 725       2011-2014       2.44       1.33  
Pounds sterling
  Receive fixed-pay variable     229       2011-2014       3.16       1.88  
Euro
  Receive fixed-pay variable     155       2011-2014       2.18       1.81  
 
 
(i) Notional amounts represent US dollar equivalents translated at the spot rate as of December 31.
 
Interest Rate Risk — Interest Expense
 
The Company’s operations are financed principally by $2,050 million fixed rate senior notes and $300 million under a 5-year term loan facility.
 
During the year ended December 31, 2010, the Company entered into a series of interest rate swaps for a total notional amount of $350 million to receive a fixed rate and pay a variable rate on a semi-annual basis, with a maturity date of July 15, 2015. At the year end the weighted average fixed rate was 2.71% and variable rate was 0.44%. The Company has designated and accounts for these instruments as fair value hedges against its $350 million 5.625% senior notes due 2015. The fair values of the interest rate swaps are included within other assets or other liabilities and the fair value of the hedged element of the senior notes is included within long-term debt.
 
The Company also has access to $520 million under two revolving credit facilities; as of December 31, 2011 $nil was drawn on these facilities. The 5-year term loan facility bears interest at LIBOR plus 1.50%. Drawings under the revolving $500 million credit facility bear interest at LIBOR plus 1.50%. These margins apply while the Company’s debt rating remains BBB-/Baa3. Should the Company’s debt rating change, then the margin will change in accordance with the credit facilities agreements.
 
At December 31, 2011 and 2010, the Company’s interest rate swaps were all designated as hedging instruments.


124


Table of Contents

 
Notes to the financial statements
 
25.   DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)
 
Foreign Currency Risk
 
The Company’s primary foreign exchange risks arise:
 
•   from changes in the exchange rate between US dollars and pounds sterling as its London market operations earn the majority of their revenues in US dollars and incur expenses predominantly in pounds sterling, and may also hold a significant net sterling asset or liability position on the balance sheet. In addition, the London market operations earn significant revenues in Euros and Japanese yen; and
 
•   from the translation into US dollars of the net income and net assets of its foreign subsidiaries, excluding the London market operations which are US dollar denominated.
 
The foreign exchange risks in its London market operations are hedged as follows:
 
•   to the extent that forecast pound sterling expenses exceed pound sterling revenues, the Company limits its exposure to this exchange rate risk by the use of forward contracts matched to specific, clearly identified cash outflows arising in the ordinary course of business; and
 
•   to the extent the UK operations earn significant revenues in Euros and Japanese yen, the Company limits its exposure to changes in the exchange rate between the US dollar and these currencies by the use of forward contracts matched to a percentage of forecast cash inflows in specific currencies and periods.
 
The Company does not hedge net income earned within foreign subsidiaries outside of the UK.
 
The fair value of foreign currency contracts is recorded in other assets and other liabilities. For contracts that qualify as accounting hedges, changes in fair value resulting from movements in the spot exchange rate are recorded as a component of other comprehensive income whilst changes resulting from a movement in the time value are recorded in interest expense. For contracts that do not qualify for hedge accounting, the total change in fair value is recorded in interest expense. Amounts held in comprehensive income are reclassified into earnings when the hedged exposure affects earnings.
 
At December 31, 2011 and 2010, the Company’s foreign currency contracts were all designated as hedging instruments except for those relating to short-term cash flows in its London market operations.
 
The table below summarizes by major currency the contractual amounts of the Company’s forward contracts to exchange foreign currencies for pounds sterling in the case of US dollars and US dollars for Euro and Japanese yen. Foreign currency notional amounts are reported in US dollars translated at contracted exchange rates.
 
                 
    December 31,  
    Sell
    Sell
 
    2011(i)     2010  
    (millions)  
 
US dollar
  $ 235     $ 315  
Euro
    129       157  
Japanese yen
    50       64  
 
 
(i) Forward exchange contracts range in maturity from 2012 to 2014.
 
In addition to forward exchange contracts we undertake short-term foreign exchange swaps for liquidity purposes, these are not designated as hedges and do not qualify for hedge accounting. Both the fair value and the year to date gain/loss at December 31, 2011 and 2010 were immaterial.


125


Table of Contents

 
Willis Group Holdings plc
 
25.   DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)
 
Derivative financial instruments
 
The table below presents the fair value of the Company’s derivative financial instruments and their balance sheet classification at December 31:
 
                     
        Fair value  
    Balance sheet
  December 31,
    December 31,
 
Derivative financial instruments designated as hedging instruments:   classification   2011     2010  
        (millions)  
 
Assets:
                   
Interest rate swaps (cash flow hedges)
  Other assets   $ 15     $ 17  
Interest rate swaps (fair value hedges)
  Other assets     26       14  
Forward exchange contracts
  Other assets     11       16  
                     
Total derivatives designated as hedging instruments
      $ 52     $ 47  
                     
Liabilities:
                   
Interest rate swaps (cash flow hedges)
  Other liabilities   $     $ 2  
Forward exchange contracts
  Other liabilities     11       10  
                     
Total derivatives designated as hedging instruments
      $ 11     $ 12  
                     
 
Cash Flow Hedges
 
The table below presents the effects of derivative financial instruments in cash flow hedging relationships on the consolidated statements of operations and the consolidated statements of equity for years ended December 31, 2011 and 2010:
 
                                 
                        Amount of
 
                        gain (loss)
 
              Amount of
        recognized
 
              gain (loss)
        in income
 
    Amount of
        reclassified
        on derivative
 
    gain (loss)
        from
        (ineffective
 
    recognized
        accumulated
    Location of gain (loss)
  hedges and
 
    in OCI(i)
    Location of gain (loss)
  OCI(i) into
    recognized in income
  ineffective
 
    on derivative
    reclassified from
  income
    on derivative (ineffective
  element of
 
Derivatives in cash flow
  (effective
    accumulated OCI(i) into
  (effective
    hedges and ineffective
  effective
 
hedging relationships   element)     income (effective element)   element)     element of effective hedges)   hedges)  
    (millions)         (millions)         (millions)  
 
Year ended December 31, 2011
                               
Interest rate swaps
  $ 13     Investment income   $ (14 )   Other operating expenses   $  
Forward exchange contracts
    3     Other operating expenses     (7 )   Interest expense     (2 )
                                 
Total
  $ 16         $ (21 )       $ (2 )
                                 
Year ended December 31, 2010
                               
Interest rate swaps
  $ 15     Investment income   $ (26 )   Other operating expenses   $  
Forward exchange contracts
        Other operating expenses     20     Interest expense      
                                 
Total
  $ 15         $ (6 )       $  
                                 
Year ended December 31, 2009
                               
Interest rate swaps
  $ 16     Investment income   $ (27 )   Other operating expenses   $ (1 )
Forward exchange contracts
    25     Other operating expenses     45     Interest expense      
                                 
Total
  $ 41         $ 18         $ (1 )
                                 
 
 
Amounts above shown gross of tax.
 
(i) OCI means other comprehensive income.


126


Table of Contents

 
Notes to the financial statements
 
25.   DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)
 
 
For interest rate swaps all components of each derivative’s gain or loss were included in the assessment of hedge effectiveness. For foreign exchange contracts only the changes in fair value resulting from movements in the spot exchange rate are included in this assessment. In instances where the timing of expected cash flows can be matched exactly to the maturity of the foreign exchange contract, then changes in fair value attributable to movement in the forward points are also included.
 
At December 31, 2011 the Company estimates there will be $2 million of net derivative gains reclassified from accumulated comprehensive income into earnings within the next twelve months.
 
Fair Value Hedges
 
The table below presents the effects of derivative financial instruments in fair value hedging relationships on the consolidated statements of operations for the year ended December 31, 2011 and 2010. The Company did not have any derivative financial instruments in fair value hedging relationships during 2009.
 
                             
              Loss
    Ineffectiveness
 
        Gain
    recognized
    recognized in
 
    Hedged item in fair value
  recognized
    for hedged
    interest
 
Derivatives in fair value hedging relationships   hedging relationship   for derivative     item     expense  
        (millions)  
 
Year ended December 31, 2011
                           
Interest rate swaps
  5.625% senior notes due 2015   $ 7     $ (8 )   $ 1  
                             
Year ended December 31, 2010
                           
Interest rate swaps
  5.625% senior notes due 2015   $ 14     $ (12 )   $ (2 )
                             
 
All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.


127


Table of Contents

 
Willis Group Holdings plc
 
26.   FAIR VALUE MEASUREMENTS
 
The Company’s principal financial instruments, other than derivatives, comprise the fixed rate senior notes, the 5-year term loan, a revolving credit facility, fiduciary assets and liabilities, and cash deposits.
 
The following table presents, for each of the fair-value hierarchy levels, the Company’s assets and liabilities that are measured at fair value on a recurring basis:
 
                                 
    December 31, 2011  
    Quoted
                   
    prices in
                   
    active
                   
    markets
    Significant
    Significant
       
    for
    other
    other
       
    identical
    observable
    unobservable
       
    assets     inputs     inputs        
    Level 1     Level 2     Level 3     Total  
          (millions)        
 
Assets at fair value:
                               
Cash and cash equivalents
  $ 436     $     $     $ 436  
Fiduciary funds (included within Fiduciary assets)
    1,688                   1,688  
Derivative financial instruments
          52             52  
                                 
Total assets
  $ 2,124     $ 52     $     $ 2,176  
                                 
Liabilities at fair value:
                               
Derivative financial instruments
  $     $ 11     $     $ 11  
Changes in fair value of hedged debt(i)
          20             20  
                                 
Total liabilities
  $     $ 31     $     $ 31  
                                 
 
 
(i) Changes in the fair value of the underlying hedged debt instrument since inception of the hedging relationship are included in long-term debt.
 
                                 
    December 31, 2010  
    Quoted
                   
    prices in
                   
    active
                   
    markets
    Significant
    Significant
       
    for
    other
    other
       
    identical
    observable
    unobservable
       
    assets     inputs     inputs        
    Level 1     Level 2     Level 3     Total  
          (millions)        
 
Assets at fair value:
                               
Cash and cash equivalents
  $ 316     $     $     $ 316  
Fiduciary funds (included within Fiduciary assets)
    1,764                   1,764  
Derivative financial instruments
          47             47  
                                 
Total assets
  $ 2,080     $ 47     $     $ 2,127  
                                 
Liabilities at fair value:
                               
Derivative financial instruments
  $     $ 12     $     $ 12  
Changes in fair value of hedged debt(i)
          12             12  
                                 
Total liabilities
  $     $ 24     $     $ 24  
                                 
 
 
(i) Changes in the fair value of the underlying hedged debt instrument since inception of the hedging relationship are included in long-term debt.


128


Table of Contents

 
Notes to the financial statements
 
26.   FAIR VALUE MEASUREMENTS (Continued)
 
 
The estimated fair value of the Company’s financial instruments held or issued to finance the Company’s operations is summarized below. Certain estimates and judgments were required to develop the fair value amounts. The fair value amounts shown below are not necessarily indicative of the amounts that the Company would realize upon disposition nor do they indicate the Company’s intent or ability to dispose of the financial instrument.
 
                                 
    December 31,  
    2011     2010  
    Carrying
    Fair
    Carrying
    Fair
 
    amount     value     amount     value  
          (millions)        
 
Assets:
                               
Cash and cash equivalents
  $ 436     $ 436     $ 316     $ 316  
Fiduciary funds (included within Fiduciary assets)
    1,688       1,688       1,764       1,764  
Derivative financial instruments
    52       52       47       47  
Liabilities:
                               
Short-term debt
  $ 15     $ 15     $ 110     $ 110  
Long-term debt
    2,354       2,499       2,157       2,450  
Derivative financial instruments
    11       11       12       12  
 
The following methods and assumptions were used by the Company in estimating its fair value disclosure for financial instruments:
 
Cash and cash equivalents—The estimated fair value of these financial instruments approximates their carrying values due to their short maturities.
 
Fiduciary funds—Fair values are based on quoted market values.
 
Long-term debt excluding the fair value hedge—Fair values are based on quoted market values.
 
Derivative financial instruments—Market values have been used to determine the fair value of interest rate swaps and forward foreign exchange contracts based on estimated amounts the Company would receive or have to pay to terminate the agreements, taking into account the current interest rate environment or current foreign currency forward rates.
 
27.   SEGMENT INFORMATION
 
During the periods presented, the Company operated through three segments: Global, North America and International. Global provides specialist brokerage and consulting services to clients worldwide for specific industrial and commercial activities and is organized by specialism. North America and International predominantly comprise our retail operations which provide services to small, medium and large corporations, accessing Global’s specialist expertise when required.
 
The Company evaluates the performance of its operating segments based on organic commissions and fees growth and operating income. For internal reporting and segmental reporting, the following items for which segmental management are not held accountable are excluded from segmental expenses:
 
  (i)    costs of the holding company;
 
  (ii)   foreign exchange loss from the devaluation of the Venezuelan currency;
 
  (iii)   foreign exchange hedging activities, foreign exchange movements on the UK pension plan asset and foreign exchange gains and losses from currency purchases and sales;


129


Table of Contents

 
Willis Group Holdings plc
 
27.   SEGMENT INFORMATION (Continued)
 
 
  (iv)   amortization of intangible assets;
 
  (v)    gains and losses on the disposal of operations;
 
  (vi)   significant legal and regulatory settlements which are managed centrally; and
 
  (vii)   costs associated with the 2011 Operational Review.
 
The accounting policies of the operating segments are consistent with those described in Note 2 — Basis of Presentation and Significant Accounting Policies. There are no inter-segment revenues, with segments operating on a revenue-sharing basis equivalent to that used when sharing business with other third-party brokers.
 
Selected information regarding the Company’s operating segments is as follows:
 
                                                         
                                        Interest in
 
                            Depreciation
          earnings of
 
    Commissions
    Investment
    Other
    Total
    and
    Operating
    associates,
 
    and fees     income     income     revenues     amortization     income     net of tax  
                      (millions)                    
 
Year ended December 31, 2011
                                                       
Global
  $ 1,073     $ 9     $     $ 1,082     $ 23     $ 352     $  
North America
    1,314       7       2       1,323       28       271        
International
    1,027       15             1,042       18       221       12  
                                                         
Total Retail
    2,341       22       2       2,365       46       492       12  
                                                         
Total Operating Segments
    3,414       31       2       3,447       69       844       12  
Corporate and Other(i)
                            73       (278)        
                                                         
Total Consolidated
  $ 3,414     $ 31     $ 2     $ 3,447     $ 142     $ 566     $ 12  
                                                         
Year ended December 31, 2010
                                                       
Global
  $ 987     $ 9     $     $ 996     $ 18     $ 320     $  
North America
    1,369       15       1       1,385       23       320        
International
    937       14             951       22       226       23  
                                                         
Total Retail
    2,306       29       1       2,336       45       546       23  
                                                         
Total Operating Segments
    3,293       38       1       3,332       63       866       23  
Corporate and Other(i)
                            82       (113)        
                                                         
Total Consolidated
  $ 3,293     $ 38     $ 1     $ 3,332     $ 145     $ 753     $ 23  
                                                         
Year ended December 31, 2009
                                                       
Global
  $ 921     $ 17     $     $ 938     $ 15     $ 311     $  
North America
    1,381       15       3       1,399       23       328        
International
    898       18             916       26       216       33  
                                                         
Total Retail
    2,279       33       3       2,315       49       544       33  
                                                         
Total Operating Segments
    3,200       50       3       3,253       64       855       33  
Corporate and Other(i)
                            100       (165)        
                                                         
Total Consolidated
  $ 3,200     $ 50     $ 3     $ 3,253     $ 164     $ 690     $ 33  
                                                         
 
 
(i) See the following table for an analysis of the ‘Corporate and other’ line.
 


130


Table of Contents

 
Notes to the financial statements
 
27.   SEGMENT INFORMATION (Continued)
 
                         
    Years ended December 31,  
    2011     2010     2009  
    (millions)  
 
Amortization of intangible assets
  $ (68 )   $ (82 )   $ (100 )
Foreign exchange hedging
    5       (16 )     (42 )
Foreign exchange gain (loss) on the UK pension plan asset
          3       (6 )
HRH integration costs
                (18 )
Net gain (loss) on disposal of operations
    4       (2 )     13  
2011 Operational Review
    (180 )            
FSA regulatory settlement
    (11 )            
Venezuela currency devaluation
          (12 )      
Write-off of uncollectible accounts receivable balance in North America
    (22 )            
Redomicile of parent company costs
                (6 )
Other(a)
    (6 )     (4 )     (6 )
                         
Total Corporate and Other
  $ (278 )   $ (113 )   $ (165 )
                         
 
 
(a) Other includes $12 million (2010: $7 million, 2009: $nil) from the release of funds and reserves related to potential legal liabilities.
 
The following table reconciles total consolidated operating income, as disclosed in the operating segment tables above, to consolidated income from continuing operations before income taxes and interest in earnings of associates.
 
                         
    Years ended December 31,  
    2011     2010     2009  
    (millions)  
 
Total consolidated operating income
  $ 566     $ 753     $ 690  
Make-whole on repurchase and redemption of senior notes and write-off of unamortized debt issuance costs
    (171 )            
Interest expense
    (156 )     (166 )     (174 )
                         
Income from continuing operations before income taxes and interest in earnings of associates
  $ 239     $ 587     $ 516  
                         
 
The Company does not currently provide asset information by reportable segment as it does not routinely evaluate the total asset position by segment, and as such, no segmental analysis of assets has been disclosed. Segments are evaluated on organic commissions and fees growth and operating margin.
 
Operating segment revenue by product is as follows:
 
                                                                                                 
    Years ended December 31,  
    2011     2010     2009     2011     2010     2009     2011     2010     2009     2011     2010     2009  
    Global     North America     International     Total  
    (millions)  
 
Commissions and fees:
                                                                                               
Retail insurance services
  $     $     $     $ 1,314     $ 1,369     $ 1,381     $ 1,027     $ 937     $ 898     $ 2,341     $ 2,306     $ 2,279  
Specialty insurance services
    1,073       987       921                                           1,073       987       921  
                                                                                                 
Total commissions and fees
    1,073       987       921       1,314       1,369       1,381       1,027       937       898       3,414       3,293       3,200  
Investment income
    9       9       17       7       15       15       15       14       18       31       38       50  
Other income
                      2       1       3                         2       1       3  
                                                                                                 
Total Revenues
  $ 1,082     $ 996     $ 938     $ 1,323     $ 1,385     $ 1,399     $ 1,042     $ 951     $ 916     $ 3,447     $ 3,332     $ 3,253  
                                                                                                 
 
None of the Company’s customers represented more than 10 percent of the Company’s consolidated commissions and fees for the years ended December 31, 2011, 2010 and 2009.

131


Table of Contents

 
Willis Group Holdings plc
 
27.   SEGMENT INFORMATION (Continued)
 
Information regarding the Company’s geographic locations is as follows:
 
                         
    Years Ended December 31,  
    2011     2010     2009  
    (millions)  
 
Commissions and fees(i)
                       
UK
  $ 963     $ 902     $ 859  
US
    1,461       1,503       1,508  
Other(ii)
    990       888       833  
                         
Total
  $ 3,414     $ 3,293     $ 3,200  
                         
 
                 
    December 31,  
    2011     2010  
    (millions)  
 
Fixed assets
               
UK
  $ 171     $ 163  
US
    194       178  
Other(ii)
    41       40  
                 
Total
  $ 406     $ 381  
                 
 
 
(i) Commissions and fees are attributed to countries based upon the location of the subsidiary generating the revenue.
.
 
(ii) Other than in the United Kingdom and the United States, the Company does not conduct business in any country in which its commissions and fees and/or fixed assets exceed 10 percent of consolidated commissions and fees and/or fixed assets, respectively.
 
28.   SUBSIDIARY UNDERTAKINGS
 
The Company has investments in the following subsidiary undertakings which principally affect the net income or net assets of the Group.
 
A full list of the Group’s subsidiary undertakings is included within the Company’s annual return.
 
                 
    Country of
         
Subsidiary name   registration   Class of share   Percentage ownership  
 
Holding companies
               
TAI Limited
  England and Wales   Ordinary shares     100 %
Trinity Acquisition plc
  England and Wales   Ordinary shares     100 %
Willis Faber Limited
  England and Wales   Ordinary shares     100 %
Willis Group Limited
  England and Wales   Ordinary shares     100 %
Willis Investment UK Holdings Limited
  England and Wales   Ordinary shares     100 %
Willis Netherlands Holdings B.V
  Netherlands   Ordinary shares     100 %
Willis Europe B.V
  England and Wales   Ordinary shares     100 %
Insurance broking companies
               
Willis HRH, Inc. 
  USA   Common shares     100 %
Willis Limited
  England and Wales   Ordinary shares     100 %
Willis North America, Inc. 
  USA   Common shares     100 %
Willis Re, Inc. 
  USA   Common shares     100 %


132


Table of Contents

 
Notes to the financial statements
 
29.   FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES
 
Willis North America Inc. (‘Willis North America’) has $350 million senior notes outstanding that were issued on July 1, 2005. Willis North America issued a further $600 million of senior notes on March 28, 2007 and another $300 million on September 29, 2009.
 
Until December 22, 2010, all direct obligations under the senior notes were jointly and severally, irrevocably and fully and unconditionally guaranteed by Willis Group Holdings, Willis Netherlands Holdings B.V., Willis Investment UK Holdings Limited, TA I Limited, TA II Limited, Trinity Acquisition plc, TA III Limited, TA IV Limited and Willis Group Limited. On that date and in connection with an internal group reorganization, TA II Limited, TA III Limited and TA IV Limited transferred their obligations as guarantors to the other guarantor companies. TA II Limited, TA III Limited and TA IV Limited entered voluntary liquidation on December 31, 2010. The assets of these companies were distributed to the other guarantor companies described below (‘Other Guarantors’), either directly or indirectly, as a final distribution paid prior to their entering voluntary liquidation. As such, these transactions did not have a material impact on the guarantees of the senior notes and did not require the consent of the noteholders under the applicable indentures.
 
The debt securities that were issued by Willis North America and guaranteed by the entities described above, and for which the disclosures set forth below relate and are required under applicable SEC rules, were issued under a ‘shelf’ registration statement on Form S-3, including our current June 2009 registration statement (the ‘Willis Shelf’).
 
Presented below is condensed consolidating financial information for:
 
  (i)    Willis Group Holdings, which is a guarantor, on a parent company only basis;
 
  (ii)   the Other Guarantors, which are all 100 percent directly or indirectly owned subsidiaries of the parent and are all direct or indirect parents of the issuer;
 
  (iii)   the Issuer, Willis North America;
 
  (iv)   Other, which are the non-guarantor subsidiaries, on a combined basis;
 
  (v)    Consolidating adjustments; and
 
  (vi)   the Consolidated Company.
 
The equity method has been used for investments in subsidiaries in the condensed consolidating balance sheets for the year ended December 31, 2011 of Willis Group Holdings, the Other Guarantors and the Issuer. Investments in subsidiaries in the condensed consolidating balance sheet for Other, represents the cost of investment in subsidiaries recorded in the parent companies of the non-guarantor subsidiaries.
 
The entities included in the Other Guarantors column for the year ended December 31, 2011 are Willis Netherlands Holdings B.V., Willis Investment UK Holdings Limited, Trinity Acquisition plc, TA I Limited and Willis Group Limited.


133


Table of Contents

 
Willis Group Holdings plc
 
29.   FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
 
 
Condensed Consolidating Statement of Operations
 
                                                 
    Year ended December 31, 2011  
    Willis
                               
    Group
    The Other
    The
          Consolidating
       
    Holdings     Guarantors     Issuer     Other     adjustments     Consolidated  
                (millions)              
 
                                                 
REVENUES
                                               
Commissions and fees
  $     $     $     $ 3,414     $     $ 3,414  
Investment income
          11       2       29       (11 )     31  
Other income
                      24       (22 )     2  
                                                 
Total revenues
          11       2       3,467       (33 )     3,447  
                                                 
EXPENSES
                                               
Salaries and benefits
    (3 )           (69 )     (2,015 )           (2,087 )
Other operating expenses
    (17 )     32       (98 )     (571 )     (2 )     (656 )
Depreciation expense
                (14 )     (60 )           (74 )
Amortization of intangible assets
                      (74 )     6       (68 )
Net gain on disposal of operations
                      7       (3 )     4  
                                                 
Total expenses
    (20 )     32       (181 )     (2,713 )     1       (2,881 )
                                                 
OPERATING (LOSS) INCOME
    (20 )     43       (179 )     754       (32 )     566  
Investment income from Group undertakings
    35       406       341       (157 )     (625 )      
Make-whole on repurchase and redemption of senior notes and write-off of unamortized debt issuance costs
          (171 )                       (171 )
Interest expense
    (34 )     (251 )     (159 )     (332 )     620       (156 )
                                                 
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES
    (19 )     27       3       265       (37 )     239  
Income taxes
          56       27       (117 )     2       (32 )
                                                 
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES
    (19 )     83       30       148       (35 )     207  
Interest in earnings of associates, net of tax
                      4       8       12  
                                                 
(LOSS) INCOME FROM CONTINUING OPERATIONS
    (19 )     83       30       152       (27 )     219  
Discontinued operations, net of tax
                      1             1  
                                                 
NET (LOSS) INCOME
    (19 )     83       30       153       (27 )     220  
Less: Net income attributable to noncontrolling interests
                      (16 )           (16 )
EQUITY ACCOUNT FOR SUBSIDIARIES
    223       91       (66 )           (248 )      
                                                 
NET INCOME ATTRIBUTABLE TO WILLIS GROUP HOLDINGS
  $ 204     $ 174     $ (36 )   $ 137     $ (275 )   $ 204  
                                                 


134


Table of Contents

 
Notes to the financial statements
 
29.   FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
 
 
Condensed Consolidating Statement of Operations
 
                                                 
    Year Ended December 31, 2010  
    Willis
                               
    Group
    The Other
    The
          Consolidating
       
    Holdings     Guarantors     Issuer     Other     adjustments     Consolidated  
                (millions)              
 
REVENUES
                                               
Commissions and fees
  $     $     $     $ 3,293     $     $ 3,293  
Investment income
          10       2       36       (10 )     38  
Other income
                      1             1  
                                                 
Total revenues
          10       2       3,330       (10 )     3,332  
                                                 
EXPENSES
                                               
Salaries and benefits
                (65 )     (1,818 )     15       (1,868 )
Other operating expenses
    335       (10 )     (45 )     (825 )     (19 )     (564 )
Depreciation expense
                (9 )     (54 )           (63 )
Amortization of intangible assets
                      (82 )           (82 )
Net (loss) gain on disposal of operations
    (347 )                 350       (5 )     (2 )
                                                 
Total expenses
    (12 )     (10 )     (119 )     (2,429 )     (9 )     (2,579 )
                                                 
OPERATING (LOSS) INCOME
    (12 )           (117 )     901       (19 )     753  
Investment income from Group undertakings
          1,683       356       952       (2,991 )      
Interest expense
          (423 )     (157 )     (374 )     788       (166 )
                                                 
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES
    (12 )     1,260       82       1,479       (2,222 )     587  
Income taxes
          16       29       (186 )     1       (140 )
                                                 
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES
    (12 )     1,276       111       1,293       (2,221 )     447  
Interest in earnings of associates, net of tax
                      16       7       23  
                                                 
(LOSS) INCOME FROM CONTINUING OPERATIONS
    (12 )     1,276       111       1,309       (2,214 )     470  
                                                 
NET (LOSS) INCOME
    (12 )     1,276       111       1,309       (2,214 )     470  
Less: Net income attributable to noncontrolling interests
                      (15 )           (15 )
EQUITY ACCOUNT FOR SUBSIDIARIES
    467       (823 )     (76 )           432        
                                                 
NET INCOME ATTRIBUTABLE TO WILLIS GROUP HOLDINGS
  $ 455     $ 453     $ 35     $ 1,294     $ (1,782 )   $ 455  
                                                 


135


Table of Contents

 
Willis Group Holdings plc
 
29.   FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
 
 
Condensed Consolidating Statement of Operations
 
                                                 
    Year ended December 31, 2009  
    Willis
                               
    Group
    The Other
    The
          Consolidating
       
    Holdings     Guarantors     Issuer     Other     adjustments     Consolidated  
                (millions)              
 
REVENUES
                                               
Commissions and fees
  $     $     $     $ 3,200     $     $ 3,200  
Investment income
                4       46             50  
Other income
                      3             3  
                                                 
Total revenues
                4       3,249             3,253  
                                                 
EXPENSES
                                               
Salaries and benefits
                (28 )     (1,803 )     9       (1,822 )
Other operating expenses
          57       (34 )     (617 )     4       (590 )
Depreciation expense
                (8 )     (56 )           (64 )
Amortization of intangible assets
                      (100 )           (100 )
Net gain on disposal of operations
                      13             13  
                                                 
Total expenses
          57       (70 )     (2,563 )     13       (2,563 )
                                                 
OPERATING INCOME (LOSS)
          57       (66 )     686       13       690  
Investment income from Group undertakings
          917       492       504       (1,913 )      
Interest expense
          (415 )     (173 )     (346 )     760       (174 )
                                                 
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES
          559       253       844       (1,140 )     516  
Income taxes
          (5 )     20       (110 )     1       (94 )
                                                 
INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES
          554       273       734       (1,139 )     422  
Interest in earnings of associates, net of tax
                      33             33  
                                                 
INCOME FROM CONTINUING OPERATIONS
          554       273       767       (1,139 )     455  
Discontinued operations, net of tax
                      4             4  
                                                 
NET INCOME
          554       273       771       (1,139 )     459  
Less: Net income attributable to noncontrolling interests
                      (4 )     (17 )     (21 )
EQUITY ACCOUNT FOR SUBSIDIARIES
    438       (156 )     (30 )           (252 )      
                                                 
NET INCOME ATTRIBUTABLE TO WILLIS GROUP HOLDINGS
  $ 438     $ 398     $ 243     $ 767     $ (1,408 )   $ 438  
                                                 


136


Table of Contents

 
Notes to the financial statements
 
29.   FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
 
 
Condensed Consolidating Balance Sheet
 
                                                 
    As at December 31, 2011  
    Willis
                               
    Group
    The Other
    The
          Consolidating
       
    Holdings     Guarantors     Issuer     Other     adjustments     Consolidated  
                (millions)              
 
ASSETS                                                
CURRENT ASSETS
                                               
Cash and cash equivalents
  $     $     $ 163     $ 273     $     $ 436  
Accounts receivable, net
    2             3       877       28       910  
Fiduciary assets
                      9,941       (603 )     9,338  
Deferred tax assets
          1             43             44  
Other current assets
    1       52       21       271       (86 )     259  
                                                 
Total current assets
    3       53       187       11,405       (661 )     10,987  
                                                 
Investments in subsidiaries
    (1,023 )     3,778       1,482       3,848       (8,085 )      
Amounts owed by (to) Group undertakings
    4,354       (4,716 )     476       (114 )            
NON-CURRENT ASSETS
                                               
Fixed assets, net
          4       59       345       (2 )     406  
Goodwill
                      1,704       1,591       3,295  
Other intangible assets, net
                      435       (15 )     420  
Investments in associates
                      (45 )     215       170  
Deferred tax assets
                      22             22  
Pension benefits asset
                      145             145  
Other non-current assets
    5       170       43       192       (127 )     283  
                                                 
Total non-current assets
    5       174       102       2,798       1,662       4,741  
                                                 
TOTAL ASSETS
  $ 3,339     $ (711 )   $ 2,247     $ 17,937     $ (7,084 )   $ 15,728  
                                                 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
                                               
Fiduciary liabilities
  $     $     $     $ 9,941     $ (603 )   $ 9,338  
Deferred revenue and accrued expenses
    2                   318             320  
Income taxes payable
          40             30       (55 )     15  
Short-term debt and current portion of long-term debt
          11             4             15  
Deferred tax liabilities
                1       25             26  
Other current liabilities
    56       11       57       185       (27 )     282  
                                                 
Total current liabilities
    58       62       58       10,503       (685 )     9,996  
                                                 
NON-CURRENT LIABILITIES
                                               
Long-term debt
    795       289       1,270                   2,354  
Liabilities for pension benefits
                      270             270  
Deferred tax liabilities
          5       35       (9 )     1       32  
Provisions for liabilities
                      198       (2 )     196  
Other non-current liabilities
          9       9       345             363  
                                                 
Total non-current liabilities
    795       303       1,314       804       (1 )     3,215  
                                                 
TOTAL LIABILITIES
  $ 853     $ 365     $ 1,372     $ 11,307     $ (686 )   $ 13,211  
                                                 
EQUITY
                                               
Total Willis Group Holdings stockholders’ equity
    2,486       (1,076 )     875       6,599       (6,398 )     2,486  
Noncontrolling interests
                      31             31  
                                                 
Total equity
    2,486       (1,076 )     875       6,630       (6,398 )     2,517  
                                                 
TOTAL LIABILITIES AND EQUITY
  $ 3,339     $ (711 )   $ 2,247     $ 17,937     $ (7,084 )   $ 15,728  
                                                 


137


Table of Contents

 
Willis Group Holdings plc
 
29.   FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
 
 
Condensed Consolidating Balance Sheet
 
                                                 
    As at December 31, 2010  
    Willis
                               
    Group
    The Other
    The
          Consolidating
       
    Holdings     Guarantors     Issuer     Other     adjustments     Consolidated  
                (millions)              
 
ASSETS
CURRENT ASSETS
                                               
Cash and cash equivalents
  $     $     $ 76     $ 240     $     $ 316  
Accounts receivable, net
    2                   809       28       839  
Fiduciary assets
                      10,167       (598 )     9,569  
Deferred tax assets
                1       35             36  
Other current assets
          23       57       293       (33 )     340  
                                                 
Total current assets
    2       23       134       11,544       (603 )     11,100  
                                                 
Investments in subsidiaries
    (1,039 )     3,814       1,455       3,855       (8,085 )      
Amounts owed by (to) Group undertakings
    3,659       (4,590 )     1,002       (71 )            
NON-CURRENT ASSETS
                                               
Fixed assets, net
                52       330       (1 )     381  
Goodwill
                      1,696       1,598       3,294  
Other intangible assets, net
                      492             492  
Investments in associates
                      (51 )     212       161  
Deferred tax assets
                      7             7  
Pension benefits asset
                      182             182  
Other non-current assets
          166       41       149       (123 )     233  
                                                 
Total non-current assets
          166       93       2,805       1,686       4,750  
                                                 
TOTAL ASSETS
  $ 2,622     $ (587 )   $ 2,684     $ 18,133     $ (7,002 )   $ 15,850  
                                                 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
                                               
Fiduciary liabilities
  $     $     $     $ 10,167     $ (598 )   $ 9,569  
Deferred revenue and accrued expenses
    1                   297             298  
Income taxes payable
                      69       (12 )     57  
Short-term debt and current portion of long-term debt
                110                   110  
Deferred tax liabilities
          3       1       5             9  
Other current liabilities
    44       15       38       189       (20 )     266  
                                                 
Total current liabilities
    45       18       149       10,727       (630 )     10,309  
                                                 
NON-CURRENT LIABILITIES
                                               
Long-term debt
          500       1,653       4             2,157  
Liabilities for pension benefits
                      167             167  
Deferred tax liabilities
          3       26       54             83  
Provisions for liabilities
                      183       (4 )     179  
Other non-current liabilities
          10       16       321             347  
                                                 
Total non-current liabilities
          513       1,695       729       (4 )     2,933  
                                                 
TOTAL LIABILITIES
  $ 45     $ 531     $ 1,844     $ 11,456     $ (634 )   $ 13,242  
                                                 
EQUITY
                                               
Total Willis Group Holdings stockholders’ equity
    2,577       (1,118 )     840       6,646       (6,368 )     2,577  
Noncontrolling interests
                      31             31  
                                                 
Total equity
    2,577       (1,118 )     840       6,677       (6,368 )     2,608  
                                                 
TOTAL LIABILITIES AND EQUITY
  $ 2,622     $ (587 )   $ 2,684     $ 18,133     $ (7,002 )   $ 15,850  
                                                 


138


Table of Contents

 
Notes to the financial statements
 
29.   FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
 
 
Condensed Consolidating Statement of Cash Flows
 
                                                 
    Year ended December 31, 2011  
    Willis
                               
    Group
    The Other
    The
          Consolidating
       
    Holdings     Guarantors     Issuer     Other     adjustments     Consolidated  
                (millions)              
 
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
  $ (41 )   $ 184     $ 88     $ 1,269     $ (1,061 )   $ 439  
                                                 
CASH FLOWS FROM INVESTING ACTIVITIES
                                               
Proceeds on disposal of fixed and intangible assets
                      13             13  
Purchases of fixed assets
          (4 )     (21 )     (86 )           (111 )
Acquisitions of subsidiaries, net of cash acquired
                      (10 )           (10 )
Acquisitions of investments in associates
                      (2 )           (2 )
Investment in Trident V Parallel Fund, LP
                      (5 )           (5 )
Proceeds from sale of discontinued operations, net of cash disposed
                      14             14  
                                                 
Net cash used in investing activities
          (4 )     (21 )     (76 )           (101 )
                                                 
CASH FLOWS FROM FINANCING ACTIVITIES
                                               
Repayments on revolving credit facility
                (90 )                 (90 )
Senior notes issued
    794                               794  
Debt issuance costs
    (7 )     (5 )                       (12 )
Proceeds from issue term loan
          300                         300  
Repayments of debt
          (500 )     (411 )                 (911 )
Make-whole on repurchase and redemption of senior notes
          (158 )                       (158 )
Proceeds from issue of shares
    60                               60  
Excess tax benefits from share-based payment arrangement
                      5             5  
Amounts owed (to) by Group undertakings
    (626 )     187       521       (82 )            
Dividends paid
    (180 )                 (1,061 )     1,061       (180 )
Acquisition of noncontrolling interests
          (4 )           (5 )           (9 )
Dividends paid to noncontrolling interests
                      (13 )           (13 )
                                                 
Net cash provided by (used in) financing activities
    41       (180 )     20       (1,156 )     1,061       (214 )
                                                 
INCREASE IN CASH AND CASH EQUIVALENTS
                87       37             124  
Effect of exchange rate changes on cash and cash equivalents
                      (4 )           (4 )
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
                76       240             316  
                                                 
CASH AND CASH EQUIVALENTS, END OF YEAR
  $     $     $ 163     $ 273     $     $ 436  
                                                 


139


Table of Contents

 
Willis Group Holdings plc
 
29.   FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
 
 
Condensed Consolidating Statement of Cash Flows
 
                                                 
    Year Ended December 31, 2010  
    Willis
                               
    Group
    The Other
    The
          Consolidating
       
    Holdings     Guarantors     Issuer     Other     adjustments     Consolidated  
                (millions)              
 
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
  $ (9 )   $ 1,170     $ 83     $ 1,572     $ (2,327 )   $ 489  
                                                 
CASH FLOWS FROM INVESTING ACTIVITIES
                                               
Proceeds on disposal of fixed and intangible assets
                      10             10  
Additions to fixed assets
                (7 )     (76 )           (83 )
Acquisitions of subsidiaries, net of cash acquired
                      (21 )           (21 )
Acquisitions of investments in associates
                      (1 )           (1 )
Investment in Trident V Parallel Fund, LP
                      (1 )           (1 )
Proceeds from sale of continuing operations, net of cash disposed
                      2             2  
                                                 
Net cash used in investing activities
                (7 )     (87 )           (94 )
                                                 
CASH FLOWS FROM FINANCING ACTIVITIES
                                               
Proceeds from draw down of revolving credit facility
                90                   90  
Repayments of debt
                (200 )     (9 )           (209 )
Proceeds from issue of shares
    36                               36  
Excess tax benefits from share-based payment arrangement
                      2             2  
Amounts owed by (to) Group undertakings
    106       (317 )     6       205              
Dividends paid
    (133 )     (849 )           (1,521 )     2,327       (176 )
Acquisition of noncontrolling interests
          (4 )           (6 )           (10 )
Dividends paid to noncontrolling interests
                      (26 )           (26 )
                                                 
Net cash provided by (used in) financing activities
    9       (1,170 )     (104 )     (1,355 )     2,327       (293 )
                                                 
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
                (28 )     130             102  
Effect of exchange rate changes on cash and cash equivalents
                      (7 )           (7 )
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
                104       117             221  
                                                 
CASH AND CASH EQUIVALENTS, END OF YEAR
  $     $     $ 76     $ 240     $     $ 316  
                                                 


140


Table of Contents

 
Notes to the financial statements
 
29.   FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
 
 
Condensed Consolidating Statement of Cash Flows
 
                                                 
    Year Ended December 31, 2009  
    Willis
                               
    Group
    The Other
    The
          Consolidating
       
    Holdings     Guarantors     Issuer     Other     adjustments     Consolidated  
                (millions)              
 
NET CASH PROVIDED BY OPERATING ACTIVITIES
  $     $ 867     $ 390     $ 27     $ (865 )   $ 419  
                                                 
CASH FLOWS FROM INVESTING ACTIVITIES
                                               
Proceeds on disposal of fixed and intangible assets
                      20             20  
Additions to fixed assets
                (17 )     (79 )           (96 )
Acquisitions of investments in associates
                      (42 )           (42 )
Proceeds from reorganization of investments in associates
                      155             155  
Proceeds from sale of continuing operations, net of cash disposed
                      4             4  
Proceeds from sale of discontinued operations, net of cash disposed
                      40             40  
Proceeds on sale of short-term investments
                      21             21  
                                                 
Net cash (used in) provided by investing activities
                (17 )     119             102  
                                                 
CASH FLOWS FROM FINANCING ACTIVITIES
                                               
Repayments of debt
                (1,090 )     1             (1,089 )
Senior notes issued
          500       300                   800  
Debt issuance costs
          (18 )     (4 )                 (22 )
Proceeds from issue of shares
                      18             18  
Amounts owed by and to Group undertakings
          (646 )     525       121              
Excess tax benefits from share-based payment arrangements
                      1             1  
Dividends paid
          (703 )           (336 )     865       (174 )
Acquisition of noncontrolling interests
                      (33 )           (33 )
Dividends paid to noncontrolling interests
                      (17 )           (17 )
                                                 
Net cash used in financing activities
          (867 )     (269 )     (245 )     865       (516 )
                                                 
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                104       (99 )           5  
Effect of exchange rate changes on cash and cash equivalents
                      11             11  
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
                      205             205  
                                                 
CASH AND CASH EQUIVALENTS, END OF YEAR
  $     $     $ 104     $ 117     $     $ 221  
                                                 


141


Table of Contents

 
Willis Group Holdings plc
 
30.   FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES
 
The Company may offer debt securities, preferred stock, ordinary stock and other securities pursuant to the Willis Shelf. On March 17, 2011, the Company issued senior notes totaling $800 million under its existing registration statement. These debt securities are issued by Willis Group Holdings (‘Holdings Debt Securities’) and are guaranteed by certain of the Company’s subsidiaries. Therefore, the Company is providing the condensed consolidating financial information below. The following 100 percent directly or indirectly owned subsidiaries fully and unconditionally guarantee the Holdings Debt Securities on a joint and several basis: Willis Netherlands Holdings B.V., Willis Investment UK Holdings Limited, TA I Limited, Trinity Acquisition plc, Willis Group Limited and Willis North America (the ‘Guarantors’).
 
The guarantor structure described above differs from the guarantor structure associated with the senior notes issued by Willis North America (the ‘Willis North America Debt Securities’) (and for which condensed consolidating financial information is presented in Note 29) in that Willis Group Holdings is the Parent Issuer and Willis North America is a subsidiary guarantor.
 
Presented below is condensed consolidating financial information for:
 
  (i)    Willis Group Holdings, which is the Parent Issuer;
 
  (ii)   the Guarantors, which are all 100 percent directly or indirectly owned subsidiaries of the parent;
 
  (iii)   Other, which are the non-guarantor subsidiaries, on a combined basis;
 
  (iv)   Consolidating adjustments; and
 
  (v)    the Consolidated Company.
 
The equity method has been used for investments in subsidiaries in the condensed consolidating balance sheets for the year ended December 31, 2011 of Willis Group Holdings and the Guarantors. Investments in subsidiaries in the condensed consolidating balance sheet for Other, represents the cost of investment in subsidiaries recorded in the parent companies of the non-guarantor subsidiaries.
 
The entities included in the Guarantors column for the year ended December 31, 2011 are Willis Netherlands Holdings B.V., Willis Investment UK Holdings Limited, TA I Limited, Trinity Acquisition plc, Willis Group Limited and Willis North America.


142


Table of Contents

 
Notes to the financial statements
 
30.   FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
 
 
Condensed Consolidating Statement of Operations
 
                                         
    Year ended December 31, 2011  
    Willis
                         
    Group
                         
    Holdings —
                         
    the Parent
    The
          Consolidating
       
    Issuer     Guarantors     Other     adjustments     Consolidated  
    (millions)  
 
REVENUES
                                       
Commissions and fees
  $     $     $ 3,414     $     $ 3,414  
Investment income
          13       29       (11 )     31  
Other income
                24       (22 )     2  
                                         
Total revenues
          13       3,467       (33 )     3,447  
                                         
EXPENSES
                                       
Salaries and benefits
    (3 )     (69 )     (2,015 )           (2,087 )
Other operating expenses
    (17 )     (66 )     (571 )     (2 )     (656 )
Depreciation expense
          (14 )     (60 )           (74 )
Amortization of intangible assets
                (74 )     6       (68 )
Net gain on disposal of operations
                7       (3 )     4  
                                         
Total expenses
    (20 )     (149 )     (2,713 )     1       (2,881 )
                                         
OPERATING (LOSS) INCOME
    (20 )     (136 )     754       (32 )     566  
Investment income from Group undertakings
    35       747       (157 )     (625 )      
Make-whole on repurchase and redemption of senior notes and write-off of unamortized debt issuance costs
          (171 )                 (171 )
Interest expense
    (34 )     (410 )     (332 )     620       (156 )
                                         
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES
    (19 )     30       265       (37 )     239  
Income taxes
          83       (117 )     2       (32 )
                                         
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES
    (19 )     113       148       (35 )     207  
Interest in earnings of associates, net of tax
                4       8       12  
                                         
(LOSS) INCOME FROM CONTINUING OPERATIONS
    (19 )     113       152       (27 )     219  
Discontinued operations, net of tax
                1             1  
                                         
NET (LOSS) INCOME
    (19 )     113       153       (27 )     220  
Less: Net income attributable to noncontrolling interests
                (16 )           (16 )
EQUITY ACCOUNT FOR SUBSIDIARIES
    223       61             (284 )      
                                         
NET INCOME ATTRIBUTABLE TO WILLIS GROUP HOLDINGS
  $ 204     $ 174     $ 137     $ (311 )   $ 204  
                                         


143


Table of Contents

 
Willis Group Holdings plc
 
30.   FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
 
 
Condensed Consolidating Statement of Operations
 
                                         
    Year Ended December 31, 2010  
    Willis
                         
    Group
                         
    Holdings —
                         
    the Parent
    The
          Consolidating
       
    Issuer     Guarantors     Other     adjustments     Consolidated  
    (millions)  
 
REVENUES
                                       
Commissions and fees
  $     $     $ 3,293     $     $ 3,293  
Investment income
          12       36       (10 )     38  
Other income
                1             1  
                                         
Total revenues
          12       3,330       (10 )     3,332  
                                         
EXPENSES
                                       
Salaries and benefits
          (65 )     (1,818 )     15       (1,868 )
Other operating expenses
    335       (55 )     (825 )     (19 )     (564 )
Depreciation expense
          (9 )     (54 )           (63 )
Amortization of intangible assets
                (82 )           (82 )
Net (loss) gain on disposal of operations
    (347 )           350       (5 )     (2 )
                                         
Total expenses
    (12 )     (129 )     (2,429 )     (9 )     (2,579 )
                                         
OPERATING (LOSS) INCOME
    (12 )     (117 )     901       (19 )     753  
Investment income from Group undertakings
          2,039       952       (2,991 )      
Interest expense
          (580 )     (374 )     788       (166 )
                                         
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES
    (12 )     1,342       1,479       (2,222 )     587  
Income taxes
          45       (186 )     1       (140 )
                                         
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES
    (12 )     1,387       1,293       (2,221 )     447  
Interest in earnings of associates, net of tax
                16       7       23  
                                         
(LOSS) INCOME FROM CONTINUING OPERATIONS
    (12 )     1,387       1,309       (2,214 )     470  
                                         
NET (LOSS) INCOME
    (12 )     1,387       1,309       (2,214 )     470  
Less: Net income attributable to noncontrolling interests
                (15 )           (15 )
EQUITY ACCOUNT FOR SUBSIDIARIES
    467       (934 )           467        
                                         
NET INCOME ATTRIBUTABLE TO WILLIS GROUP HOLDINGS
  $ 455     $ 453     $ 1,294     $ (1,747 )   $ 455  
                                         


144


Table of Contents

 
Notes to the financial statements
 
30.   FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
 
 
Condensed Consolidating Statement of Operations
 
                                         
    Year Ended December 31, 2009  
    Willis
                         
    Group
                         
    Holdings —
                         
    the Parent
    The
          Consolidating
       
    Issuer     Guarantors     Other     adjustments     Consolidated  
    (millions)  
 
REVENUES
                                       
Commissions and fees
  $     $     $ 3,200     $     $ 3,200  
Investment income
          4       46             50  
Other income
                3             3  
                                         
Total revenues
          4       3,249             3,253  
                                         
EXPENSES
                                       
Salaries and benefits
          (28 )     (1,803 )     9       (1,822 )
Other operating expenses
          23       (617 )     4       (590 )
Depreciation expense
          (8 )     (56 )           (64 )
Amortization of intangible assets
                (100 )           (100 )
Net gain on disposal of operations
                13             13  
                                         
Total expenses
          (13 )     (2,563 )     13       (2,563 )
                                         
OPERATING (LOSS) INCOME
          (9 )     686       13       690  
Investment income from Group undertakings
          1,409       504       (1,913 )      
Interest expense
          (588 )     (346 )     760       (174 )
                                         
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES
          812       844       (1,140 )     516  
Income taxes
          15       (110 )     1       (94 )
                                         
INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES
          827       734       (1,139 )     422  
Interest in earnings of associates, net of tax
                33             33  
                                         
INCOME FROM CONTINUING OPERATIONS
          827       767       (1,139 )     455  
Discontinued operations, net of tax
                4             4  
                                         
NET INCOME
          827       771       (1,139 )     459  
Less: Net income attributable to noncontrolling interests
                (4 )     (17 )     (21 )
EQUITY ACCOUNT FOR SUBSIDIARIES
    438       (429 )           (9 )      
                                         
NET INCOME ATTRIBUTABLE TO WILLIS GROUP HOLDINGS
  $ 438     $ 398     $ 767     $ (1,165 )   $ 438  
                                         


145


Table of Contents

 
Willis Group Holdings plc
 
30.   FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
 
 
Condensed Consolidating Balance Sheet
 
                                         
    As at December 31, 2011  
    Willis
                         
    Group
                         
    Holdings —
                         
    the Parent
    The
          Consolidating
       
    Issuer     Guarantors     Other     adjustments     Consolidated  
    (millions)  
 
ASSETS
                                       
CURRENT ASSETS
                                       
Cash and cash equivalents
  $     $ 163     $ 273     $     $ 436  
Accounts receivable, net
    2       3       877       28       910  
Fiduciary assets
                9,941       (603 )     9,338  
Deferred tax assets
          1       43             44  
Other current assets
    1       73       271       (86 )     259  
                                         
Total current assets
    3       240       11,405       (661 )     10,987  
                                         
Investments in subsidiaries
    (1,023 )     4,385       3,848       (7,210 )      
Amounts owed by (to) Group undertakings
    4,354       (4,240 )     (114 )            
NON-CURRENT ASSETS
                                       
Fixed assets, net
          63       345       (2 )     406  
Goodwill
                1,704       1,591       3,295  
Other intangible assets, net
                435       (15 )     420  
Investments in associates
                (45 )     215       170  
Deferred tax assets
                22             22  
Pension benefits asset
                145             145  
Other non-current assets
    5       213       192       (127 )     283  
                                         
Total non-current assets
    5       276       2,798       1,662       4,741  
                                         
                                         
TOTAL ASSETS
  $ 3,339     $ 661     $ 17,937     $ (6,209 )   $ 15,728  
                                         
                                         
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                       
                                         
CURRENT LIABILITIES
                                       
Fiduciary liabilities
  $     $     $ 9,941     $ (603 )   $ 9,338  
Deferred revenue and accrued expenses
    2             318             320  
Income taxes payable
          40       30       (55 )     15  
Short-term debt and current portion on long-term debt
          11       4             15  
Deferred tax liabilities
          1       25             26  
Other current liabilities
    56       68       185       (27 )     282  
                                         
Total current liabilities
    58       120       10,503       (685 )     9,996  
                                         
                                         
NON-CURRENT LIABILITIES
                                       
Long-term debt
    795       1,559                   2,354  
Liabilities for pension benefits
                270             270  
Deferred tax liabilities
          40       (9 )     1       32  
Provisions for liabilities
                198       (2 )     196  
Other non-current liabilities
          18       345             363  
                                         
Total non-current liabilities
    795       1,617       804       (1 )     3,215  
                                         
TOTAL LIABILITIES
  $ 853     $ 1,737     $ 11,307     $ (686 )   $ 13,211  
                                         
EQUITY
                                       
Total Willis Group Holdings stockholders’ equity
    2,486       (1,076 )     6,599       (5,523 )     2,486  
Noncontrolling interests
                31             31  
                                         
Total equity
    2,486       (1,076 )     6,630       (5,523 )     2,517  
                                         
TOTAL LIABILITIES AND EQUITY
  $ 3,339     $ 661     $ 17,937     $ (6,209 )   $ 15,728  
                                         


146


Table of Contents

 
Notes to the financial statements
 
30.   FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
 
 
Condensed Consolidating Balance Sheet
 
                                         
    As at December 31, 2010  
    Willis
                         
    Group
                         
    Holdings —
                         
    the Parent
    The
          Consolidating
       
    Issuer     Guarantors     Other     adjustments     Consolidated  
    (millions)  
 
ASSETS
                                       
CURRENT ASSETS
                                       
Cash and cash equivalents
  $     $ 76     $ 240     $     $ 316  
Accounts receivable, net
    2             809       28       839  
Fiduciary assets
                10,167       (598 )     9,569  
Deferred tax assets
          1       35             36  
Other current assets
          80       293       (33 )     340  
                                         
Total current assets
    2       157       11,544       (603 )     11,100  
                                         
Investments in subsidiaries
    (1,039 )     4,429       3,855       (7,245 )      
Amounts owed by (to) Group undertakings
    3,659       (3,588 )     (71 )            
NON-CURRENT ASSETS
                                       
Fixed assets, net
          52       330       (1 )     381  
Goodwill
                1,696       1,598       3,294  
Other intangible assets, net
                492             492  
Investments in associates
                (51 )     212       161  
Deferred tax assets
                7             7  
Pension benefits asset
                182             182  
Other non-current assets
          207       149       (123 )     233  
                                         
Total non-current assets
          259       2,805       1,686       4,750  
                                         
TOTAL ASSETS
  $ 2,622     $ 1,257     $ 18,133     $ (6,162 )   $ 15,850  
                                         
                                         
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                       
                                         
CURRENT LIABILITIES
                                       
Fiduciary liabilities
  $     $     $ 10,167     $ (598 )   $ 9,569  
Deferred revenue and accrued expenses
    1             297             298  
Income taxes payable
                69       (12 )     57  
Short-term debt and current portion of long-term debt
          110                   110  
Deferred tax liabilities
          4       5             9  
Other current liabilities
    44       53       189       (20 )     266  
                                         
Total current liabilities
    45       167       10,727       (630 )     10,309  
                                         
                                         
NON-CURRENT LIABILITIES
                                       
Long-term debt
          2,153       4             2,157  
Liabilities for pension benefits
                167             167  
Deferred tax liabilities
          29       54             83  
Provisions for liabilities
                183       (4 )     179  
Other non-current liabilities
          26       321             347  
                                         
Total non-current liabilities
          2,208       729       (4 )     2,933  
                                         
TOTAL LIABILITIES
  $ 45     $ 2,375     $ 11,456     $ (634 )   $ 13,242  
                                         
EQUITY
                                       
Total Willis Group Holdings stockholders’ equity
    2,577       (1,118 )     6,646       (5,528 )     2,577  
Noncontrolling interests
                31             31  
                                         
Total equity
    2,577       (1,118 )     6,677       (5,528 )     2,608  
                                         
TOTAL LIABILITIES AND EQUITY
  $ 2,622     $ 1,257     $ 18,133     $ (6,162 )   $ 15,850  
                                         


147


Table of Contents

 
Willis Group Holdings plc
 
30.   FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
 
 
Condensed Consolidating Statement of Cash Flows
 
                                         
    Year Ended December 31, 2011  
    Willis
                         
    Group
                         
    Holdings —
                         
    the Parent
    The
          Consolidating
       
    Issuer     Guarantors     Other     adjustments     Consolidated  
    (millions)  
 
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
  $ (41 )   $ 272     $ 1,269     $ (1,061 )   $ 439  
                                         
CASH FLOWS FROM INVESTING ACTIVITIES
                                       
Proceeds on disposal of fixed and intangible assets
                13             13  
Purchases of fixed assets
          (25 )     (86 )           (111 )
Acquisitions of subsidiaries, net of cash acquired
                (10 )           (10 )
Acquisitions of investments in associates
                (2 )           (2 )
Investment in Trident V Parallel Fund, LP
                (5 )           (5 )
Proceeds from sale of discontinued operations, net of cash disposed
                14             14  
                                         
Net cash used in investing activities
          (25 )     (76 )           (101 )
                                         
CASH FLOWS FROM FINANCING ACTIVITIES
                                       
Repayments on revolving credit facility
          (90 )                 (90 )
Senior notes issued
    794                         794  
Debt issuance costs
    (7 )     (5 )                 (12 )
Proceeds from issue term loan
          300                   300  
Repayments of debt
          (911 )                 (911 )
Make-whole on repurchase and redemption of senior notes
          (158 )                 (158 )
Proceeds from issue of shares
    60                         60  
Excess tax benefits from share-based payment arrangement
                5             5  
Amounts owed (to) by Group undertakings
    (626 )     708       (82 )            
Dividends paid
    (180 )           (1,061 )     1,061       (180 )
Acquisition of noncontrolling interests
          (4 )     (5 )           (9 )
Dividends paid to noncontrolling interests
                (13 )           (13 )
                                         
Net cash provided by (used in) financing activities
    41       (160 )     (1,156 )     1,061       (214 )
                                         
INCREASE IN CASH AND CASH EQUIVALENTS
          87       37             124  
Effect of exchange rate changes on cash and cash equivalents
                (4 )           (4 )
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
          76       240             316  
                                         
CASH AND CASH EQUIVALENTS, END OF YEAR
  $     $ 163     $ 273     $     $ 436  
                                         


148


Table of Contents

 
Notes to the financial statements
 
30.   FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
 
 
Condensed Consolidating Statement of Cash Flows
 
                                         
    Year Ended December 31, 2010  
    Willis
                         
    Group
                         
    Holdings —
                         
    the Parent
    The
          Consolidating
       
    Issuer     Guarantors     Other     adjustments     Consolidated  
    (millions)  
 
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
  $ (9 )   $ 1,253     $ 1,572     $ (2,327 )   $ 489  
                                         
CASH FLOWS FROM INVESTING ACTIVITIES
                                       
Proceeds on disposal of fixed and intangible assets
                10             10  
Additions to fixed assets
          (7 )     (76 )           (83 )
Acquisitions of subsidiaries, net of cash acquired
                (21 )           (21 )
Acquisitions of investments in associates
                (1 )           (1 )
Investment in Trident V Parallel Fund, LP
                (1 )           (1 )
Proceeds from sale of continuing operations, net of cash disposed
                2             2  
                                         
Net cash used in investing activities
          (7 )     (87 )           (94 )
                                         
CASH FLOWS FROM FINANCING ACTIVITIES
                                       
Proceeds from draw down of revolving credit facility
          90                   90  
Repayments of debt
          (200 )     (9 )           (209 )
Proceeds from issue of shares
    36                         36  
Excess tax benefits from share-based payment arrangement
                2             2  
Amounts owed by (to) Group undertakings
    106       (311 )     205              
Dividends paid
    (133 )     (849 )     (1,521 )     2,327       (176 )
Acquisition of noncontrolling interests
          (4 )     (6 )           (10 )
Dividends paid to noncontrolling interests
                (26 )           (26 )
                                         
Net cash provided by (used in) financing activities
    9       (1,274 )     (1,355 )     2,327       (293 )
                                         
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
          (28 )     130             102  
Effect of exchange rate changes on cash and cash equivalents
                (7 )           (7 )
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
          104       117             221  
                                         
CASH AND CASH EQUIVALENTS, END OF YEAR
  $     $ 76     $ 240     $     $ 316  
                                         


149


Table of Contents

 
Willis Group Holdings plc
 
30.   FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
 
 
Condensed Consolidating Statement of Cash Flows
 
                                         
    Year Ended December 31, 2009  
    Willis
                         
    Group
                         
    Holdings —
                         
    the Parent
    The
          Consolidating
       
    Issuer     Guarantors     Other     adjustments     Consolidated  
    (millions)  
 
NET CASH PROVIDED BY OPERATING
ACTIVITIES
  $     $ 1,257     $ 27     $ (865 )   $ 419  
                                         
CASH FLOWS FROM INVESTING ACTIVITIES
                                       
Proceeds on disposal of fixed and intangible assets
                20             20  
Additions to fixed assets
          (17 )     (79 )           (96 )
Acquisitions of investments in associates
                (42 )           (42 )
Proceeds from reorganization of investments in associates
                155             155  
Proceeds from sale of continuing operations, net of cash disposed
                4             4  
Proceeds from sale of discontinued operations, net of cash disposed
                40             40  
Proceeds on sale of short-term investments
                21             21  
                                         
Net cash (used in) provided by investing activities
          (17 )     119             102  
                                         
CASH FLOWS FROM FINANCING ACTIVITIES
                                       
Repayments of debt
          (1,090 )     1             (1,089 )
Senior notes issued
          800                   800  
Debt issuance costs
          (22 )                 (22 )
Proceeds from issue of shares
                18             18  
Amounts owed by (to) Group undertakings
          (121 )     121              
Excess tax benefits from share-based payment arrangements
                1             1  
Dividends paid
          (703 )     (336 )     865       (174 )
Acquisition of noncontrolling interests
                (33 )           (33 )
Dividends paid to noncontrolling interests
                (17 )           (17 )
                                         
Net cash used in financing activities
          (1,136 )     (245 )     865       (516 )
                                         
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
          104       (99 )           5  
Effect of exchange rate changes on cash and cash equivalents
                11             11  
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
                205             205  
                                         
CASH AND CASH EQUIVALENTS, END OF YEAR
  $     $ 104     $ 117     $     $ 221  
                                         


150


Table of Contents

 
Notes to the financial statements
 
31.   QUARTERLY FINANCIAL DATA (UNAUDITED)
 
Quarterly financial data for 2011 and 2010 were as follows:
 
                                 
    Three Months Ended  
    March 31,     June 30,     September 30,     December 31,  
    (millions, except per share data)  
 
2011
                               
Total revenues
  $ 1,007     $ 861     $ 760     $ 819  
Total expenses
    (768 )     (705 )     (670 )     (738 )
Net income
    42       89       60       29  
Net income attributable to Willis Group Holdings
    34       85       60       25  
Earnings per share — continuing operations
                               
— Basic
  $ 0.20     $ 0.49     $ 0.35     $ 0.14  
— Diluted
  $ 0.20     $ 0.48     $ 0.34     $ 0.14  
Earnings per share — discontinued operations
                               
— Basic
  $     $     $     $  
— Diluted
  $     $     $     $  
                                 
2010
                               
Total revenues
  $ 971     $ 797     $ 731     $ 833  
Total expenses
    (669 )     (629 )     (625 )     (656 )
Net income
    211       91       65       103  
Net income attributable to Willis Group Holdings
    204       89       64       98  
Earnings per share — continuing operations
                               
— Basic
  $ 1.21     $ 0.52     $ 0.38     $ 0.57  
— Diluted
  $ 1.21     $ 0.51     $ 0.37     $ 0.57  
Earnings per share — discontinued operations
                               
— Basic
  $     $     $     $  
— Diluted
  $     $     $     $  


151


Table of Contents

 
Willis Group Holdings plc
 
Item 9 — Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
None.
 
Item 9A — Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
 
As of December 31, 2011, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chairman and Chief Executive Officer and the Group Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e). Based upon that evaluation, the Chief Executive Officer and the Group Chief Financial Officer concluded that, as of that date, the Company’s disclosure controls and procedures as defined in Rule 13a-15(e) are effective.
 
Management’s Report on Internal Control over Financial Reporting
 
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934.
 
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2011, based on the criteria related to internal control over financial reporting described in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2011.
 
Our independent registered public accountants, Deloitte LLP, who have audited and reported on our financial statements, have undertaken an assessment of the Company’s internal control over financial reporting. Deloitte’s report is presented below.
 
February 29, 2012.


152


Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Stockholders of Willis Group Holdings Public Limited Company, Dublin, Ireland
 
We have audited the internal control over financial reporting of Willis Group Holdings Public Limited Company and subsidiaries (the “Company”) as of December 31, 2011, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
 
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
 
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2011 of the Company and our report dated February 29, 2012 expressed an unqualified opinion on those financial statements.
 
/s/ Deloitte LLP
London, United Kingdom
February 29, 2012


153


Table of Contents

Wills Group Holdings plc
 
Changes in Internal Control over Financial Reporting
 
There has been no change in the Company’s internal controls over financial reporting during the three months ended December 31, 2011 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
Item 9B — Other Information
 
The information set forth in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Executive Summary — 2011 Operational Review” is incorporated herein by reference.


154


Table of Contents

Directors and Officers
 
PART III
 
Item 10—Directors, Executive Officers and Corporate Governance
 
Except for the information regarding executive officers (other than Joseph J. Plumeri) required by Item 401 of Regulation S-K which is set forth below, as of February 17, 2012, we incorporate the information required by this item by reference to the headings ‘Election of Directors’, ‘Corporate Governance’, ‘Section 16 Beneficial Ownership Reporting Compliance’ and ‘Ethical Code’ in our 2012 Proxy Statement.
 
Celia Brown — Ms. Brown, age 57, was appointed an executive officer on January 23, 2012. Ms. Brown joined the Willis Group in 2010 and serves as the Willis Group Human Resources Director. Prior to joining the Willis Group, Ms. Brown spent over 20 years at XL Group plc where she held a number of senior roles. Ms. Brown served from 2006 to 2009 as the Executive Vice President, Head of Global HR and Corporate Relations at XL Group plc. Following XL Group plc, Ms. Brown formed an independent management consultancy, providing human resources services to not-for-profit, corporate and individual clients.
 
Adam G. Ciongoli — Mr. Ciongoli, age 43, was appointed an executive officer and Group General Counsel on March 26, 2007. He was appointed Group Secretary on August 1, 2009. Prior to joining the Willis Group, he served as a counselor and law clerk to US Supreme Court Justice Samuel A. Alito, Jr. during the Justice’s first Term on the Court. Previously, Mr. Ciongoli was Senior Vice President and General Counsel for TimeWarner Europe, and the Counselor to United States Attorney General John Ashcroft. Mr. Ciongoli also serves as a special consultant to the New York City Police Department, and as an adjunct professor of law at Columbia University Law School.
 
Peter Hearn — Mr. Hearn, age 56, was appointed an executive officer on April 10, 2007. Mr. Hearn joined the Willis Group in January 1994 as a Senior Vice President to open and manage the Philadelphia office and was appointed Eastern Region Manager in October 1994 and Executive Vice President in 1997. In 2006, Mr. Hearn was appointed Chief Executive Officer of Willis Re and in 2011 he was appointed Chairman of Willis Re. Prior to joining Willis, Mr. Hearn served as Vice President and Principal of Towers Perrin Reinsurance. Mr. Hearn has 32 years of experience in the insurance brokerage industry.
 
Stephen Hearn — Mr. Hearn, age 45, was appointed an executive officer on January 1, 2012. Mr. Hearn joined the Willis Group in 2008 and was named Chairman and CEO of Willis Global in 2011. Since joining the Willis Group, Mr. Hearn has served as Chairman of Special Contingency Risk, Chairman of Willis Facultative and Chairman and CEO of Glencairn Limited. From 2009 until 2011 he led Faber & Dumas, Global Markets International and Willis Facultative. Prior to joining the Willis Group, Mr. Hearn served as Chairman and CEO of the Glencairn Group Limited and as President and CEO of Marsh Affinity Europe.
 
Victor P. Krauze — Mr. Krauze, age 52, was appointed an executive officer on December 3, 2010 and named Chairman and Chief Executive Officer of Willis North America. Previously, Mr. Krauze was President and Chief Operating Officer for Willis North America, a position in which he had served since 2009. Mr. Krauze has also served as President/CEO for Willis’ Minnesota operations, National Partner of the Great Lakes region and Regional Executive Officer (National Partner) of Willis’ Central Region. Prior to joining Willis in 1997, Mr. Krauze gained experience as a casualty marketing specialist with another major global broker where his early roles included Producer and Account Executive. Mr. Krauze has over 20 years of experience in the insurance industry.
 
Michael K. Neborak — Mr. Neborak, age 55, was appointed an executive officer and Group Chief Financial Officer on July 6, 2010. Mr. Neborak joined Willis from MSCI Inc., a NYSE listed company, where he was Chief Financial Officer. With more than 30 years of experience in finance and accounting, Mr. Neborak also held senior positions with Citigroup, including divisional CFO and co-head of Corporate Strategy & Business Development, from 2000 — 2006, and prior to that, in the investment banking group at Salomon Smith Barney from 1982 — 2000. He began his career as an accountant with Arthur Andersen & Co.


155


Table of Contents

Willis Group Holdings plc
 
Martin J. Sullivan — Mr. Sullivan, age 57, was appointed an executive officer on September 7, 2010. Mr. Sullivan joined Willis as Deputy Chairman, Willis Group Holdings plc, and Chairman and CEO of Willis Global Solutions, which oversees the brokerage and risk management advisory services for Willis’ multinational and global accounts. Mr. Sullivan previously served as President and Chief Executive Officer of American International Group, Inc. (“AIG”), from 2005-2008 and was Vice Chairman and Co-Chief Operating Officer from May 2002 until March 2005. He first joined AIG in the UK in 1971 and in the intervening years served in a number of positions of increasing responsibility, culminating in his election as Senior Vice President, Foreign General Insurance in 1996 and Executive Vice President, Foreign General Insurance in 1998. In 1996, he was appointed Chief Operating Officer of AIU in New York and named President in 1997.
 
Sarah J. Turvill — Ms. Turvill, age 58, was appointed an executive officer on July 1, 2001. Ms. Turvill joined the Willis Group in May 1978 and has held a number of senior management roles in our international business, particularly in Europe where she was Managing Director from 1995 to 2001. Ms. Turvill is currently Chief Executive Officer of Willis International, a position she has held since July 2001, and was additionally appointed Chairman in November 2006. She has 31 years of experience in the insurance brokerage industry, all of which have been with the Willis Group.
 
Timothy D. Wright — Mr. Wright, age 50, was appointed an executive officer and Group Chief Operating Officer on September 1, 2008. Prior to joining the Willis Group, he was a Partner of Bain & Company where he led their Financial Services practice in London. Mr. Wright was previously UK Managing Partner of Booz Allen & Hamilton and led their insurance work globally. He has more than 20 years of experience in the insurance and financial service industries internationally.


156


Table of Contents

Directors’ and auditors’ remuneration
 
Item 11 — Executive Compensation
 
The information under the heading ‘Executive Compensation’ in the 2012 Proxy Statement is incorporated herein by reference. Nothing in this report shall be construed to incorporate by reference the Board Compensation Committee Report on Executive Compensation which is contained in the 2012 Proxy Statement.
 
Item 12 — Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
The information under the heading ‘Security Ownership-Security Ownership of Certain Beneficial Owners and Management’ and ‘Securities Authorized for Issuance Under Equity Compensation Plans’ in the 2012 Proxy Statement is incorporated herein by reference.
 
Item 13 — Certain Relationships and Related Transactions, and Director Independence
 
The information under the heading ‘Corporate Governance’ in the 2012 Proxy Statement is incorporated herein by reference.
 
Item 14 — Principal Accounting Fees and Services
 
The information under the headings ‘Fees Paid to Independent Auditors’ in the 2012 Proxy Statement is incorporated herein by reference and as disclosed in Note 5 to the consolidated financial statements.


157


Table of Contents

 
Willis Group Holdings plc
 
 
PART IV
 
Item 15 — Exhibits, Financial Statement Schedules
 
The following documents are filed as a part of this report:
 
(1) Consolidated Financial Statements of the Company consisting of:
 
(a) Report of Independent Registered Public Accounting Firm.
 
(b) Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting.
 
(c) Consolidated Statements of Operations for each of the three years in the period ended December 31, 2011.
 
(d) Consolidated Balance Sheets as of December 31, 2011 and 2010.
 
(e) Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2011.
 
  (f)  Consolidated Statements of Changes in Equity and Comprehensive Income for each of the three years in the period ended December 31, 2011.
 
(g) Notes to the Consolidated Financial Statements.
 
All other schedules are omitted because they are not applicable, or not required, or because the required information is included in the Consolidated Financial Statements or the Notes thereto.
 
(2) Exhibits:
 
         
         
  2 .1   Scheme of Arrangement between Willis Group Holdings Limited and the Scheme Shareholders (incorporated by reference to Annex A to Willis Group Holdings Limited’s Definitive Proxy Statement on Schedule 14A filed on November 2, 2009 (SEC File No. 001-16503))
         
  3 .1   Memorandum and Articles of Association of Willis Group Holdings Public Limited Company (incorporated herein by reference to Exhibit No. 3.1 to the Company’s Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))
         
  3 .2   Certificate of Incorporation of Willis Group Holdings Public Limited Company (incorporated by reference to Exhibit No. 3.2 to the Company’s Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))
         
  4 .1   Senior Indenture dated as of July 1, 2005, and First Supplemental Indenture, dated as of July 1, 2005, among Willis North America Inc., as the Issuer, Willis Group Holdings Public Limited Company, TA I Limited, TA II Limited, TA III Limited, Trinity Acquisition plc, TA IV Limited and Willis Group Limited, as the Guarantors, and The Bank of New York (f/k/a JPMorgan Chase Bank, N.A.), as the Trustee, for the issuance of the 5.625% senior notes due 2015 (incorporated by reference to Exhibit 4.1 to Willis Group Holdings Limited’s Form 8-K filed on July 1, 2005 (SEC File No. 001-16503))
         
  4 .2   Second Supplemental Indenture dated as of March 28, 2007 among Willis North America Inc., as the Issuer, Willis Group Holdings Public Limited Company, TA I Limited, TA II Limited, TA III Limited, Trinity Acquisition plc, TA IV Limited and Willis Group Limited, as the Guarantors, and The Bank of New York, as the Trustee, to the Indenture dated as of July 1, 2005, for the issuance of the 6.200% senior notes due 2017 (incorporated by reference to Exhibit 4.1 to Willis Group Holdings Limited’s Form 8-K filed on March 30, 2007 (SEC File No. 001-16503))
         
  4 .3   Third Supplemental Indenture dated as of October 1, 2008 among Willis North America Inc., as the Issuer, Willis Group Holdings Limited, Willis Investment UK Holdings Limited, TA I Limited, TA II Limited, TA III Limited, Trinity Acquisition plc, TA IV Limited and Willis Group Limited, as the Guarantors, and The Bank of New York Mellon, as the Trustee, to the Indenture dated as of July 1, 2005 (incorporated by reference to Exhibit 4.1 to Willis Group Holdings Limited’s Form 10-Q filed on November 10, 2008 (SEC File No. 001-16503))


158


Table of Contents

 
Exhibits
 
(2) Exhibits (continued):
 
         
         
  4 .4   Fourth Supplemental Indenture dated as of September 29, 2009 among Willis North America Inc., as the Issuer, Willis Group Holdings Limited, Willis Investment UK Holdings Limited, TA I Limited, TA II Limited, TA III Limited, Trinity Acquisition plc, TA IV Limited and Willis Group Public Limited Company, as the Guarantors, and The Bank of New York, as the Trustee, to the Indenture dated as of July 1, 2005, for the issuance of the 7.000% senior notes due 2019 (incorporated by reference to Exhibit 4.1 to Willis Group Holdings Limited’s Form 8-K filed on September 29, 2009 (SEC File No. 001-16503))
         
  4 .5   Fifth Supplemental Indenture dated as of December 31, 2009 among Willis North America Inc., as the Issuer, Willis Group Holdings Public Limited Company, Willis Group Holdings Limited, Willis Netherlands Holdings B.V., Willis Investment UK Holdings Limited, TA I Limited, TA II Limited, TA III Limited, Trinity Acquisition plc, TA IV Limited and Willis Group Limited, as the Guarantors, and The Bank of New York Mellon, as the Trustee, to the Indenture dated as of July 1, 2005 (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))
         
  4 .6   Sixth Supplemental Indenture dated as of December 22, 2010 among Willis North America Inc., as the Issuer, Willis Group Holdings Public Limited Company, Willis Netherlands Holdings B.V., Willis Investment UK Holdings Limited, TA I Limited, TA II Limited, TA III Limited, Trinity Acquisition plc, TA IV Limited and Willis Group Limited, as the Guarantors, and The Bank of New York Mellon, as the Trustee, to the Indenture dated as of July 1, 2005 (incorporated by reference to Exhibit 4.1 to the Company’s Form 10-K filed on February 28, 2011 (SEC File No. 001-16503))
         
  4 .7   Indenture, dated as of March 17, 2011, among Willis Group Holdings Public Limited Company, as issuer, Willis Netherlands Holdings B.V., Willis Investment Holdings UK Limited, TA I Limited, Trinity Acquisition plc, Willis Group Limited and Willis North America Inc., as Guarantors, and The Bank of New York Mellon, as Trustee (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed on March 17, 2011 (SEC File No. 001-16503))
         
  4 .8   First Supplemental Indenture, dated as of March 17, 2011, among Willis Group Holdings Public Limited Company, as Issuer, Willis Netherlands Holdings B.V., Willis Investment Holdings UK Limited, TA I Limited, Trinity Acquisition plc, Willis Group Limited and Willis North America Inc., as guarantors, and The Bank of New York Mellon, as trustee (incorporated by reference to Exhibit 4.2 to the Company’s Form 8-K filed on March 17, 2011 (SEC File No. 001-16503))
         
  10 .1   Credit Agreement, dated as of December 16, 2011, among Trinity Acquisition plc, Willis Group Holdings Public Limited Company, the Lenders party thereto, Barclays Bank PLC, as Administrative Agent, Swing Line Lender and as an L/C Issuer (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on December 20, 2011 (SEC File No. 001-16503))
         
  10 .2   Guaranty Agreement, dated as of December 16, 2011, among Trinity Acquisition plc, Willis Group Holdings Public Limited Company, Barclays Bank PLC, as Administrative Agent (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on December 20, 2011 (SEC File No. 001-16503))
         
  10 .3   Deed Poll of Assumption dated as of December 31, 2009 between Willis Group Holdings Limited and Willis Group Holdings Public Limited Company (incorporated by reference to Exhibit 10.4 to the Company’s Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))†
         
  10 .4   Willis Group Senior Management Incentive Plan (incorporated by reference to Exhibit 10.7 to the Company’s Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))†
         
  10 .5   Willis Group Holdings 2010 North America Employee Share Purchase Plan (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed on April 27, 2010 (SEC File No. 001-16503))†
         
  10 .6   Willis Group Holdings 2001 Share Purchase and Option Plan (incorporated by reference to Exhibit 10.9 to the Company’s Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))†
         
  10 .7   Form of Performance-Based Option Agreement under the Willis Group Holdings 2001 Share Purchase and Option Plan (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q filed on May 10, 2010 (SEC File No. 001-16503))†
         
  10 .8   Form of Performance-Based Option Agreement — 2011 Long Term Incentive Program under the Willis Group Holdings 2001 Share Purchase and Option Plan (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on May 3, 2011 (SEC File No. 001-16503))†

159


Table of Contents

 
Willis Group Holdings plc
 
(2) Exhibits (continued):
 
         
         
  10 .9   Form of 2011 Long Term Incentive Program Agreement of Restrictive Covenants and Other Obligations (for US employees) (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on May 3, 2011 (SEC File No. 001-16503))†
         
  10 .10   Form of 2011 Long Term Incentive Program Agreement of Restrictive Covenants and Other Obligations (for UK employees) (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed on May 3, 2011 (SEC File No. 001-16503))†
         
  10 .11   Form of 2011 Long Term Incentive Program Cash Award Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on December 20, 2011 (SEC File No. 001-16503))†
         
  10 .12   Form of Time-Based Option Agreement under the Willis Group Holdings 2001 Share Purchase and Option Plan (incorporated by reference to Exhibit 10.16 the Company’s Form 10-K filed on February 28, 2011 (SEC File No. 001-16503))†
         
  10 .13   Form of Time-Based Restricted Share Unit Award Agreement under the Willis Group Holdings 2001 Share Purchase and Option Plan (for executive officers) (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q filed on August 9, 2011 (SEC File No. 001-16503))†
         
  10 .14   Form of Restricted Share Unit Award Agreement for Non-employee Directors under the Willis Group Holdings 2001 Share Purchase Option Plan*†
         
  10 .15   The Willis Group Holdings 2004 Bonus and Share Plan (incorporated by reference to Exhibit 10.12 to the Company’s Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))†
         
  10 .16   Rules of the Willis Group Holdings Sharesave Plan 2001 for the United Kingdom (incorporated by reference to Exhibit 10.13 to the Company’s Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))†
         
  10 .17   The Willis Group Holdings Irish Sharesave Plan (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on May 5, 2010 (SEC File No. 001-16503))†
         
  10 .18   The Willis Group Holdings International Sharesave Plan (incorporated by reference to Exhibit 10.15 to the Company’s Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))†
         
  10 .19   Willis Group Holdings 2008 Share Purchase and Option Plan (incorporated by reference to Exhibit 10.16 to the Company’s Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))†
         
  10 .20   Form of Performance-Based Restricted Share Units Award Agreement under the Willis Group Holdings 2008 Share Purchase and Option Plan (for executive officers) (incorporated by reference to Exhibit 10.4 to the Company’s Form 10-Q filed on August 9, 2011 (SEC File No. 001-16503))†
         
  10 .21   Form of Performance-Based Restricted Share Unit Award Agreement granted under the Willis Group Holdings 2008 Share Purchase and Option Plan, dated May 2, 2011, between Joseph J. Plumeri and Willis Group Holdings Public Limited Company (incorporated by reference to Exhibit 10.7 to the Company’s Form 10-Q filed on August 9, 2011 (SEC File No. 001-16503))†
         
  10 .22   Form of Performance-Based Option Award Agreement under the Willis Group Holdings 2008 Share Purchase and Option Plan (for executive officers) (incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q filed on August 9, 2011 (SEC File No. 001-16503))†
         
  10 .23   Hilb Rogal and Hamilton Company 2000 Share Incentive Plan (incorporated by reference to Exhibit 10.18 to the Company’s Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))†
         
  10 .24   Hilb Rogal & Hobbs Company 2007 Share Incentive Plan (incorporated by reference to Exhibit 10.19 to the Company’s Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))†
         
  10 .25   Form of Time-Based Restricted Share Unit Award Agreement granted under the Hilb Rogal & Hobbs Company 2007 Share Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on August 6, 2010 (SEC File No. 001-16503))†
         
  10 .26   Form of Performance-Based Restricted Share Unit Award Agreement granted under the Hilb Rogal & Hobbs Company 2007 Share Incentive Plan (incorporated by reference to Exhibit 10.6 to the Company’s Form 10-Q filed on August 9, 2011 (SEC File No. 001-16503))†


160


Table of Contents

 
Exhibits
 
(2) Exhibits (continued):
 
         
         
  10 .27   Form of Performance-Based Restricted Share Unit Award Agreement granted under the Hilb Rogal & Hobbs Company 2007 Share Incentive Plan, dated May 2, 2011, between Martin Sullivan and Willis Group Holdings Public Limited Company (incorporated by reference to Exhibit 10.8 to the Company’s Form 10-Q filed on August 9, 2011 (SEC File No. 001-16503))†
         
  10 .28   Form of Time-Based Option Agreement granted under the Hilb Rogal & Hobbs Company 2007 Share Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q filed on August 6, 2010 (SEC File No. 001-16503))†
         
  10 .29   Form of Performance-Based Option Agreement granted under the Hilb Rogal & Hobbs Company 2007 Share Incentive Plan (incorporated by reference to Exhibit 10.5 to the Company’s Form 10-Q filed on August 9, 2011 (SEC File No. 001-16503))†
         
  10 .30   Amended and Restated Willis US 2005 Deferred Compensation Plan (incorporated by reference to Exhibit 10.21 to the Company’s Form 8-K filed on November 20, 2009 (SEC File No. 001-16503))†
         
  10 .31   First Amendment to the Amended and Restated Willis U.S. 2005 Deferred Compensation Plan, effective June 1, 2011 (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on August 9, 2011 (SEC File No. 001-16503))†
         
  10 .32   Form of Deed of Indemnity of Willis Group Holdings Public Limited Company with directors and officers (incorporated by reference to Exhibit 10.20 to the Company’s Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))†
         
  10 .33   Form of Indemnification Agreement of Willis North America Inc. with directors and officers (incorporated by reference to Exhibit 10.21 to the Company’s Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))†
         
  10 .34   2010 Amended and Restated Employment Agreement, dated as of January 1, 2010, by and between Willis North America, Inc. and Joseph J. Plumeri (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on January 22, 2010 (SEC File No. 001-16503))†
         
  10 .35   Form of Employment Agreement dated March 13, 2007 between Willis Limited and Grahame J. Millwater (incorporated by reference to Exhibit No. 10.2 to Willis Group Holdings Limited’s Quarterly Report on Form 10-Q filed on May 10, 2007 (SEC File No. 001-16503))†
         
  10 .36   Comprise Agreement, dated as of 2012 by and among Willis Limited, Willis Group Holdings Public Limited Company and Grahame J. Millwater (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on December 21, 2011 (SEC File No. 001-16503))†
         
  10 .37   Second Compromise Agreement dated as of 2012 by and among Willis Limited, Willis Group Holdings Public Limited Company and Grahame J. Millwater (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on December 21, 2011 (SEC File No. 001-16503))†
         
  10 .38   Consultancy Agreement as of 2012 by and among Willis Limited and Grahame J. Millwater (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on December 21, 2011 ((SEC File No. 001-16503))†
         
  10 .39   Offer Letter dated June 22, 2010 and Form of Employment Agreement between Willis North America, Inc. and Michael K. Neborak (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on June 23, 2010 (SEC File No. 001-16503))†
         
  10 .40   Agreement of Restrictive Covenants and Other Obligations dated as of August 2, 2010 between the Company and Michael K. Neborak (incorporated by reference to Exhibit 4.1 to Willis Group Holdings Public Limited Company’s Form 10-K filed on February 28, 2011 (SEC File No. 001-16503))†
         
  10 .41   Form of Employment Agreement dated January 24, 1994, between Willis Faber North America, Inc. and Peter C. Hearn (incorporated by reference to Exhibit No. 10.28 to Willis Group Holdings Limited’s Annual Report on Form 10-K filed on February 27, 2008 (SEC File No. 001-16503))†
         
  10 .42   First Amendment to Employment Agreement, effective as of January 1, 2011, between Willis Re Inc. and Peter Hearn (incorporated by reference to Exhibit No. 10.1 to Willis Group Holdings Public Limited Company’s Form 8-K filed on June 10, 2011 (SEC File No. 001-16503))†
         
  10 .43   Agreement of Restrictive Covenants and Other Obligations dated as of May 6, 2008 between the Company and Peter C. Hearn (incorporated by reference to Exhibit 10.2 to Willis Group Holdings Limited’s Form 8-K filed on June 26, 2008 (SEC File No. 001-16503))†


161


Table of Contents

 
Willis Group Holdings plc
 
(2) Exhibits (continued):
 
         
         
  10 .44   Employment Agreement, dated September 7, 2010, between Willis North America, Inc. and Martin J. Sullivan (incorporated by reference to Exhibit 10.1 to the Form 10-Q filed November 5, 2010 (SEC File No. 001-16503))†
         
  10 .45   Second Restated Employment Agreement, effective as of December 3, 2010, between Willis North America Inc. and Victor Krauze*†
         
  10 .46   Form of Willis Retention Award Letter*†
         
  10 .47   Investment and Share Purchase Agreement dated as of November 18, 2009 by and among Willis Europe BV, Astorg Partners, Soleil, Alcee, the Lucas family shareholders, the Gras family shareholders, key managers of Gras Savoye & Cie and other minority shareholders of Gras Savoye (incorporated by reference to Exhibit 10.37 to the Company’s Form 10-K filed on March 1, 2010 (SEC File No. 001-16503))
         
  10 .48   Shareholders Agreement dated as of December 17, 2009 by and among Willis Europe BV, Astorg Partners, Soleil, Alcee, the Lucas family shareholders, the Gras family shareholders, key managers of Gras Savoye & Cie and other minority shareholders of Gras Savoye (incorporated by reference to Exhibit 10.38 to the Company’s Form 10-K filed on March 1, 2010 (SEC File No. 001-16503))
         
  10 .49   Amended and Restated Assurance of Discontinuance between the Attorney General of the State of New York and the Company on behalf of itself and its subsidiaries named therein and the Amended and Restated Stipulation between the Superintendent of Insurance of the State of New York and the Company on behalf of itself and the subsidiaries named therein, effective as of February 11, 2010 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 17, 2010 (SEC File No. 001-16503))
         
  21 .1   List of subsidiaries*
         
  23 .1   Consent of Deloitte LLP*
         
  31 .1   Certification Pursuant to Rule 13a-14(a)*
         
  31 .2   Certification Pursuant to Rule 13a-14(a)*
         
  32 .1   Certification Pursuant to 18 USC. Section 1350*
         
  32 .2   Certification Pursuant to 18 USC. Section 1350*
         
  101 . INS**   XBRL Instance Document
         
  101 . SCH**   XBRL Taxonomy Extension Schema Document
         
  101 .CAL**   XBRL Taxonomy Extension Calculation Linkbase Document
         
  101 .DEF**   XBRL Taxonomy Extension Definition Linkbase Document
         
  101 .LAB**   XBRL Taxonomy Extension Label Linkbase Document
         
  101 .PRE**   XBRL Taxonomy Extension Presentation Linkbase Document
 
 
Filed herewith.
 
†  Management contract or compensatory plan or arrangement.
 
** Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.


162


Table of Contents

 
SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
Willis Group Holdings PLC
(Registrant)
 
  By: 
/s/  Michael K. Neborak
Michael K. Neborak
Group Chief Financial Officer and
(Principal Financial and Accounting Officer)
 
Date: February 29, 2012
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated this 29th day of February 2012.
 
         
     
/s/  Joseph J. Plumeri


Joseph J. Plumeri
Chairman and Chief Executive Officer
(Principal Executive Officer)
 
    


William W. Bradley
Director
     
/s/  Joseph A. Califano, Jr.


Joseph A. Califano, Jr.
Director
 
    


Anna C. Catalano
Director
     
/s/  Sir Roy Gardner


Sir Roy Gardner
Director
 
/s/  The Rt. Hon. Sir Jeremy Hanley, KCMG


The Rt. Hon. Sir Jeremy Hanley, KCMG
Director
     
/s/  Robyn S. Kravit


Robyn S. Kravit
Director
 
/s/  Jeffrey B. Lane


Jeffrey B. Lane
Director
     
/s/  Wendy E. Lane


Wendy E. Lane
Director
 
/s/  James F. McCann


James F. McCann
Director
     
/s/  Douglas B. Roberts


Douglas B. Roberts
Director
 
/s/  Michael J. Somers


Michael J. Somers
Director


163