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Willis Towers Watson chiefs share optimistic outlook

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Created through a merger of equals, Willis Towers Watson P.L.C. should be well-placed to offer seamless services to commercial buyers looking both property/casualty and benefits products and services, its senior executives say.

But the combined entity created out of the recently completed merger of Willis Group Holdings P.L.C. and Towers Watson & Co. will first have to successfully weave both companies' operations, now that the deal is completed.

Observers say prospects for the merged company should be bright as it gains scale in a competitive market.

John Haley, who headed human resources and benefits consultant Towers Watson & Co., and Dominic Casserley, who was CEO of insurance and reinsurance brokerage Willis Group Holdings P.L.C. before the merger closed last week, are optimistic.

“When we look at some of the big companies in this space, they tend to be broking operations that have acquired smaller human resources and consulting operation,” said Mr. Haley, CEO of Willis Towers Watson. “We don't think they've been able to bring together the two operations to work together seamlessly for clients, and the opportunity for us to do that — even though we have enormous things to focus on in the short run — that long-run opportunity is perhaps the most compelling.”

Willis Towers Watson's larger rivals, Marsh & McLennan Cos. Inc. and Aon P.L.C., have substantial benefits consulting operations, which grew in part through acquisitions. Marsh acquired William M. Mercer Ltd. decades ago, and Aon bought Hewitt Associates Inc. in 2010. Neither firm could be reached for comment for this article.

Both Willis and Towers Watson “were heading toward $4 billion in revenues each and were adequately sized,” but the larger entity should have brighter prospects, said Mr. Casserley, president and deputy CEO of the new company.

Willis Towers Watson has said it expects to generate $4.7 billion in incremental value for shareholders over the next three years, including $375 million to $675 million in incremental revenue as well as $100 million to $125 million in annual merger-related cost savings and about $75 million in annual tax savings.

With 39,000 employees in more than 120 countries, the new company, based in London, had pro forma 2014 revenue of $7.30 billion and net income of $398 million, according to a filing with the U.S. Securities and Exchange Commission.

“A lot of our clients are global,” Mr. Casserley said. “They expect global service and excellence around the world, and you have to be of a certain scale to be able to afford the training, the hiring and the deployment of technology into hundreds of markets.”

“We're going to be spending our first year-and-a-half focused on making the merger work,” said Mr. Haley. “What drives me the most is thinking about five years out. Five years out we have the opportunity to create a firm that is well-positioned to bring together assets from both sides and to create new solutions for clients.”

Willis Towers Watson plans to move further into the large-account space, challenging chief rivals Marsh & McLennan and Aon. “We expect to increase our penetration in the large-company property and casualty market, in the U.S. in particular,” said Mr. Haley.

“Marsh and Aon had a lot more market share within the U.S. on the Fortune 100 and 500,” said Julie Herman, New York-based associate director of insurance rating at Standard & Poor's Corp.

“Being a bigger company gives us the opportunity to do some additional merger and acquisition activity that we might not have on our own,” Mr. Haley said.

Borrowing costs could be marginally lower for the new entity because of its enhanced credit profile and resources.

Analysts agree that the prospects for Willis Towers Watson are promising.

“There is not a lot of overlap with the two businesses, and they both traditionally generated pretty good margins,” said James Auden, managing director of insurance at Fitch Ratings Inc., Chicago.

Insurance brokerage and employee benefits, particularly in the private health care exchange area, are both growth areas, said Cliff Gallant, managing director at Nomura Securities International Inc. in San Francisco.

“The merger with Towers Watson will improve Willis' credit metrics because of the lower debt at Towers Watson,” said Bruce Ballentine, vice president and senior credit officer at Moody's Investors Service Inc. in New York, in a research report. “The business mix of Willis Towers Watson will also be more like those of Marsh & McLennan and Aon, with a good balance of (property/casualty) and employee benefits products and services.”

Still, Mr. Haley said the two companies were not looking to create a competitive clone: “We were looking to create something different from what we saw out there.”