Hess says WTW committed to specialisation strategy as shares down 4% despite earnings beat

By David Bull

Feb 4 - (The Insurer) - WTW CEO Carl Hess has said that the firm remains committed to the specialisation strategy in its corporate risk and broking (CRB) business, and will look to roll it out into new geographies after recent management changes.

Hess was speaking on WTW’s earnings call Tuesday morning as investors sent WTW’s share price down around 4 percent despite the firm reporting an earnings beat for the fourth quarter. Hess acknowledged 2024 as a “landmark year” and an outlook of mid-single digit organic growth and continued margin expansion in its broader risk and broking (R&B) unit which also includes insurance consulting and technology (ICT).

WTW generated adjusted earnings per share of $8.13 in Q4 2024, ahead of Wall Street consensus of $8.03.

As previously reported, Michael Chang – who had spearheaded WTW’s specialisation strategy in North America – left in December last year after more than two years as head of North America R&B.

He has been replaced by Donnelly, who arrives from Marsh, where he was most recently president of Marsh Specialty and Global Placement. The move reunites him with Lucy Clarke, who officially joined WTW last summer as president of R&B globally.

On the intermediary’s call with analysts, Hess said WTW’s specialisation strategy “continues to generate strong results”.

“We’re focused on deepening our expertise and expanding our existing specialty lines into new geographies while building the talent and tools to support new specialised lines,” he commented.

Under Chang’s leadership, WTW’s CRB North America business established 12 independently staffed industry vertical divisions each with their own P&L, and brought on a wave of senior executives.

His departure and the arrival of Donnelly had led to some market speculation that WTW could shift from the specialisation strategy.

Hess was asked on the earnings call to confirm whether specialisation would remain a prominent part of the firm’s plan, and what that would mean for geographical expansion and net hiring.

He commented: “We are really pleased with the results we've been generating over the last few years from our specialisation strategy. It has been a key driver of growth for R&B. We continue to see strong [growth] in our specialty businesses and that outpaces our overall CRB average growth rate.”

He added that the strategy of vertical specialisation sets the firm apart from others in the industry.

Hess noted that as part of the strategy, WTW has local specialties in each of its regions, such as industry verticals in real estate and hospitality in North America, or commercial auto in Europe.

“So we are basically expanding the specialty strategy… North America, which is our largest geography, was the natural place to start this. But [we are] building on our strong heritage in our global line-of-business centres in the UK,” he added.

He described Donnelly as a “highly respected” leader and added: “His leadership will help us drive growth and accelerate our specialty strategy in the region, and we’re looking forward to welcoming him in during the second quarter.”

In opening remarks on the call, Hess highlighted group-wide organic growth in the fourth quarter of 5 percent along with 190 basis points of improvement to an adjusted operating margin of 36.6 percent.

Organic growth in R&B was higher at 7 percent, although that compared unfavourably with the prior-year period when the division grew by 12 percent on an underlying basis.

CRB grew organically by 6 percent, down from 12 percent in Q4 2023.

In R&B, the operating margin improved from 32.9 percent to 33.5 percent, with the 60 bps improvement down to operating leverage driven by organic revenue growth and disciplined expense management, said WTW.

WTW CFO Andrew Krasner said that excluding book of business activity and interest income, CRB revenue grew 8 percent.

“Robust new business activity across a wide range of lines drove growth in Great Britain and western Europe ,which delivered double-digit growth as a whole and in a number of countries in the region, with particular strength in facultative, construction, natural resources, financial solutions, FINEX, marine and aerospace.

“North America's growth was supported by strong client retention and new business growth. Our international region had strong organic growth across the board with notable double-digit increases in Latin America, Central Europe and Asia as well as many of our specialty lines,” he commented.

Hess earlier reiterated the firm’s target for mid-single-digit organic growth, continued annual adjusted operating margin expansion, annual adjusted EPS growth and ongoing growth in free cash flow and free cash flow margin.

And Krasner said that WTW is set to allocate $1.5bn of share repurchases in 2025, subject to market conditions and potential allocation to organic and inorganic investment opportunities.

Wells Fargo analyst Elyse Greenspan questioned why the buyback projection wasn’t higher, given the proceeds from the Tranzact sale and earnout following the divestment of Willis Re.

Hess commented that shareholder returns are a central component of the firm’s capital allocation strategy.

“You could expect us to remain aggressive and opportunistic, as we believe our stock remains undervalued in the marketplace. We are not just holding ourselves to a specific target for the next few years as we do expect to deploy capital towards M&A and other organic opportunities,” he said.