Carl Hess
Chief Executive Officer at Willis Towers Watson Public
Good morning, everyone, and thank you for joining us for WTW's fourth quarter 2021 earnings call. Joining me today is Andrew Krasner, our Chief Financial Officer. I'm pleased to be here today for my first earnings call as WTW's CEO. I have officially been on the job for about six weeks and it is truly an honor to lead this Company. WTW looks very different than it did over 30 years ago when I first joined the Company and it's been an extraordinary journey, one defined by continuous innovation and change. As we move forward as an independent Company, we recognized the need to grow, simplify and transform. Our recently refreshed brand and new magic stock ticker WTW are our key signals of this new era.
Our new brand evolves our identity to both reflect our rich history and also inspire our future. We may have a new brand, a new ticker and a new leadership team to set us on a bolder path, but certain things will never change, our client-focused teamwork, integrity, respect and excellence. These are our values, they are in our DNA and at the core of everything we do. WTW leadership and colleagues are excited about this bold new approach and we hope you are too. I'm pleased to report that we continue to see progress in our independent path forward.
As we mentioned back in October, we executed on our incentive plans, which provide both short-term and long-term retention benefits and these have been well received. We've also seen significant measurable improvements in colleague engagement. Meanwhile, the pace at which we've been attracting new talent to fuel our path forward has been truly impressive. We hired more people in the second half of 2021 than we hired during the entire year in 2020, and the elevated attrition levels we saw in '21 are behind us. We also made some early progress in our transformation program, which Andrew will expand upon later in the call.
Last, but not least, we've been steadfast in applying financial discipline as illustrated by our full-year margin, a year-over-year margin improvement. As prudent stewards of our financial assets, we plan to continue our emphasis on returning capital to shareholders through share repurchases, which we believe provide the highest return opportunity. We're encouraged by the progress we're making on our strategic initiatives. While we have hard work ahead of us in 2022, we're kicking things off with renewed energy and conviction. Our talented colleagues will strive to meet and exceed the expectations of the clients and individuals we are privileged to serve.
In the current environment, our clients are striving to create continuity and clarity in an environment of ongoing disruption. Future-focused leaders acknowledge that risk has become a mainstream element of business decisions and will remain so. Today, the frequency and complexity of threats continue to increase due to factors including geopolitics, economic volatility, population, health, climate change, supply chain, talent and technology. To combat threats and create opportunity, organizations must connect current and future risks, act on environmental, social and governance and sustainability commitments, and build organizational resilience. The time to act is now.
WTW's unique perspective connects solutions, strengthens organizations and helps clients better prepare for and thrive in an uncertain future. For example, WTW designed the world's first parametric insurance solution for Belize's sovereign debt restructuring. This unique transaction includes targeted insurance protection to cover Belize's loan servicing obligation in the event of certain natural catastrophes, such as hurricanes. Hurricanes can create large scale devastation and disruption to economic activity, thereby halting development. The custom solution allows Belize to focus scarce financial resources on recovery rather than debt servicing and reflects WTW's commitment to using our expertise to shape and fortify resilience in the communities we serve.
Before we discuss our fourth quarter results, I want to take a moment to directly address our talented and valued colleagues. We have an exciting future ahead filled with opportunity and I'm delighted you're here to be part of it. Thank you for your hard work and dedication and most of all, thank you for your commitment. I'm truly appreciative of your efforts to drive our vision to be the best Company in the business and achieve our full potential as One WTW. I'm proud of the Company we've built and I'm excited to be leading us through the next phase of our journey.
So now let's turn to our financial results. Please note that all metrics referenced are on a continuing operations basis except where stated otherwise. As a reminder, we substantially completed the sale of Willis Re on December 1, 2021. We recorded a gain of $2.3 billion in connection with the disposal of Willis Re. That gain is included in many of our GAAP profitability measures, which we'll point out as we move through the commentary. Overall, our results aligned with our expectations, but to be crystal clear, they do not reflect the near and long-term potential of this Company to drive organic growth and margin expansion.
As mentioned earlier, our hiring levels are among the highest in recent history and we're confident that the peak of colleague departures is behind us. For the full-year, we posted 6% organic revenue growth and our adjusted operating margin was 19.9%. While the results reflect the expected delayed impact of disruptions experienced earlier in 2021, the underlying strength of our business and our early progress on executing our strategy gives me confidence that we remain on track to deliver strong shareholder value over the longer-term.
Reported revenue for the fourth quarter was $2.7 billion, up 1% as compared to the prior year fourth quarter, up 2% on a constant currency basis and up 4% on an organic basis. Income from operations was $690 million or 25.5% of revenue for the fourth quarter as compared to $579 million or 21.7% of revenue in the prior year fourth quarter. Adjusted operating income was $868 [Phonetic] million or 32% -- 32.1% [Phonetic] of revenue for the quarter, up 170 [Phonetic] basis points from $812 million or 30.4% of revenue in the same period last year. For the quarter, diluted earnings per share, which include discontinued operations were $19.19 as compared to $3.66 in the fourth quarter of prior year. Adjusted diluted earnings per share were $5.67 for the fourth quarter, reflecting an increase of 9% when compared to $5.19 in the prior year.
Now let's take a look at each of our segments in more detail to provide clear comparability with prior periods. All commentary result -- regarding the results of our segments will be on an organic basis, unless specifically stated otherwise. Segment margins are calculated using segment revenue and exclude unallocated corporate costs, such as amortization of intangibles, certain transaction and integration expenses resulting from mergers and acquisitions, as well as other items, which we consider to be non-core to our operating results. The segment results include discretionary compensation.
The Human Capital & Benefits or HCB segment revenue was up 3% on an organic basis and constant currency basis compared to the fourth quarter of the prior year. For the full-year of 2021, HCB revenue grew 3% organically. Technology and Administration Solutions revenue grew 11% in the fourth quarter, primarily due to increased project work in Great Britain and Western Europe. Our Health and Benefits revenue increased 6% for the quarter. The increase reflects robust demand in H&B consulting and a gain recorded in the connection with a one-off book-of-business settlement offset by slower growth in brokerage. The settlement relates to an isolated incident of senior staff departures earlier in 2021.
Talent and Rewards revenue increased 3% in the quarter following growth of 17% in Q3 and 22% in Q2. Throughout the year, this growth has represented a rebound from the 2020 slowdown in discretionary projects plus increasing market demand, particularly for products like compensation benchmarking surveys. The lower growth in Q4 relative to the prior two quarters reflects the typical seasonality of compensation survey sales, which peaked in Q2 and Q3, as well as some capacity constraints for advisory services. With expectations for continued strong demand in product and advisory services and having ramped up hiring in the fourth quarter, we are well positioned.
Retirement revenue was down 1% compared to the prior year fourth quarter with increased funding and Guaranteed Minimum Pension equalization work in Great Britain offset by declines in North America due to a reduction in work in Canada to implement regulatory changes and lower demand for bulk lump sum projects. HCB's operating margin was 31.2% for the fourth quarter compared to 31.3% in the prior year fourth quarter. On a full-year basis, HCB's operating margin improved to 27.0% from 26.0% in the prior year.
Year-over-year, excluding the impact of currency and gains from book-of-business settlements, HCB's margin declined by 150 basis points for the fourth quarter, but increased by 90 basis points for the full-year. The fourth quarter margin declined as a result of higher expense growth driven by hiring to meet expected strong market demand as we build capacity for robust revenue growth. The full-year margin increase reflects continued sustainable expense reduction efforts. Historically, HCB has had industry-leading margins and we believe that trend will continue. HCB's overall market tailwinds to continue to drive organic growth momentum for HCB. Both our near-term and long-term outlook on the segment remain positive, and our expectations for revenue growth are unchanged from what we communicated at Investor Day mid single-digit growth.
Now let's look at Corporate Risk & Broking or CRB, which had a revenue increase of 1% on an organic and constant currency basis as compared to the prior year fourth quarter. For the full-year of 2021, HC -- CRB revenue grew 5% organically. Our hiring levels are the highest in recent history and colleague departure levels have decreased. North America's revenue was up by 4% in the fourth quarter, including gains recorded in connection with book-of-business sales and settlements. The book sales and settlements relate to producer departures occurring earlier in 2021.
International's revenue increased 10% compared to prior year, there was strong performance in M&A in Asia and Australasia and natural resources in Eastern Europe. Latin America also contributed to international's revenue growth with new business wins in Brazil and Central America. Great Britain's revenue declined 5% as a result of lost business and timing. The decline reflects the delayed impact of disruption from earlier in 2021. Revenue for Western Europe was down 5% due to the departure of senior staff prior to the deal termination, which continue to pressure the business in certain geographies. Although earlier departures have hindered our growth for several quarters, we are seeing some positive momentum. New client wins include one of the largest commercial and retail banks in the region.
CRB's operating margin was 31.2% for the fourth quarter compared to 32.3% in the prior year fourth quarter. On a full-year basis, CRB's operating margin improved to 23.0% from 21.2% in the prior year. Excluding the impact of currency and the benefit of book and business sales and settlements, the margin declined 240 basis points for the fourth quarter, but increased by 80 basis points for the full-year. The fourth quarter decline was mostly due to investments to support future growth. The full-year margin expansion reflects the continuation of effective cost management.
CRB's organic growth trailed industry expected averages for the last three quarters of '21 primarily as a result of elevated colleague departures and reduced hiring during the period when the business combination was pending. Two trends that we believe are now behind us. Currently, we expect to see lower growth in the first half of 2022 compared to the second half of 2022 as the gap versus industry expected averages narrows. While events in previous quarters have challenged us and temporary headwinds from those events remain, our outlook for CRB remains positive with mid single-digit revenue growth over the longer-term.
Turning to Investment, Risk & Reinsurance or IRR, revenue for the fourth quarter was $199 million, an increase of 32% on an organic basis and a decrease of 2% on a constant currency basis as compared to the prior year fourth quarter. IRR revenue includes a gain from a book-of-business settlement which relates to reinsurance assets that did not transfer in connection with the sale of Willis Re. IRR excludes all other revenue associated with the reinsurance line of business, which has been reported as discontinued operations. It also excludes revenue from Max Matthiessen, which was sold in September of 2020 and Miller, WTW's wholesale broking subsidiary sold in March of 2021. These sales account for the wide disparity between organic and constant currency.
The Insurance Consulting and Technology or ICT business, where revenue was up 5%, led the segment's growth with increased demand for advisory work alongside technology sales. Our Investment businesses grew revenue by 11% from new business growth in delegated assets under management and to a lesser extent, increased performance fees. IRR's operating margin was 25.3% for the fourth quarter compared to 12.5% in the prior year fourth quarter. On a full-year basis, IRR's operating margin improved to 19.5% from 14.5% in the prior year. Excluding the impact of currency and the benefit of book-of-business settlement, the margin declined 240 basis points for the quarter, but increased by 220 basis points for the full-year.
The fourth quarter decline was primarily caused by the headwind created from divestitures. The prior year fourth quarter margin includes the contribution of the now divested Miller subsidiary, while the current year fourth quarter margin does not, which distorts comparability. Miller subsidiary was sold in March of 2021. The full-year margin expansion was the result of careful cost management efforts combined with strong top-line growth from the two businesses that remained in IRR, ICT and Investments.
Turning to the Benefits Delivery & Administration segment or BDA, revenue increased by 5% on an organic and constant currency basis from the prior year fourth quarter. The growth in revenue was largely driven by Individual Marketplace due to a favorable shift in the revenue timing for our B2B Medicare Exchange business along with continued strength in our direct-to-consumer business. The Benefits Outsourcing business also contributed significantly to BDA's revenue growth with increased project work driven by temporary federal policy changes expecting group healthcare plans. BDA's operating margin was 49.2% in the fourth quarter and 22.4% for the full-year having declined year-over-year by 110 basis points and 150 basis points respectively.
The year-over-year margin decline for both the fourth quarter and the full-year was the result of increased investing in resources for the 2022 annual enrollment period coupled with headwinds on lead conversions. The BDA segment has posted 10% organic growth for two consecutive years and we continue to feel positive about the momentum of this segment. Overall, our financial results for 2021 are in line with our expectations, reflecting the complexity of navigating a significant strategic shift along with some bright spots, highlighting our commitment to profitable growth. I'm pleased we effectively managed our cost and delivered margin expansion and adjusted EPS growth despite top-line growth pressures.
In closing, I want to reiterate my gratitude to our colleagues and also thank our clients and shareholders for their support. I believe the Company is well positioned to capitalize on the opportunities that lie ahead. I look forward to reinvigorating growth and to successfully executing our transformation plans. I'm confident the best is yet to come as we boldly look to lead and shape our industry going forward.
And with that, I'll turn the call over to Andrew.
