WILLIS TOWERS WATSON PLC (WTW) FY 2024 MD&A

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion includes forward-looking statements. See ‘Disclaimer Regarding Forward-looking Statements’ for certain cautionary information regarding forward-looking statements and Part I, Item 1A Risk Factors for a list of factors that could cause actual results to differ materially from those predicted in those statements.

This discussion includes references to non-GAAP financial measures as defined in the rules of the SEC. We present such non-GAAP financial measures, specifically, adjusted, constant currency and organic non-GAAP financial measures, 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 under U.S. GAAP, and these provide a measure against which our businesses may be assessed in the future.

Our methods of calculating these measures may differ from those used by other companies and therefore comparability may be limited. These financial measures should be viewed in addition to, not in lieu of, the consolidated financial statements for the year ended December 31, 2024.

See ‘Non-GAAP Financial Measures’ below for further discussion of our adjusted, constant currency and organic non-GAAP financial measures.

Executive Overview

Market Conditions

Typically, our business benefits from regulatory change, political risk or economic uncertainty. Insurance broking generally tracks the economy, but demand for both insurance broking and consulting services usually remains steady during times of uncertainty. We have some businesses, such as our health and benefits and administration businesses, which can be counter cyclical during the early period of a significant economic change.

Within our insurance and brokerage business, due to the cyclical nature of the insurance market and the impact of other market conditions on insurance premiums, commission revenue 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 revenue and can have a material adverse impact on our revenue and operating margin. A ‘hard’ or ‘firming’ market, during which premium rates rise, generally has a favorable impact on our revenue and operating margin. Rates, however, vary by geography, industry and client segment. As a result, and due to the global and diverse nature of our business, we view rates in the aggregate. Overall, we are currently seeing a stabilizing to softening market.

Market conditions in the broking industry in which we operate are generally defined by factors such as the strength of the economies in the various geographic regions in which we serve around the world, insurance rate movements, and insurance and reinsurance buying patterns of our clients.

The markets for our consulting, technology and solutions, and marketplace services are affected by economic, regulatory and legislative changes, technological developments, and increased competition from established and new competitors. We believe that the primary factors in selecting a human resources or risk management consulting company include reputation, the ability to provide measurable increases to shareholder value and return on investment, global scale, quality of service and the ability to tailor services to clients’ unique needs. In that regard, we are focused on developing and implementing technology, data and analytic solutions for both internal operations and for maintaining industry standards and meeting client preferences. We have made such investments from time to time and may decide, based on perceived business needs, to make investments in the future that may be different from past practice or what we currently anticipate.

With regard to the market for exchanges, we believe that clients base their decisions on a variety of factors that include the ability of the provider to deliver measurable cost savings for clients, a strong reputation for efficient execution and an innovative service delivery model and platform. Part of the employer-sponsored insurance market has matured and become more fragmented while other segments remain in the entry phase. As these market segments continue to evolve, we may experience growth in intervals, with periods of accelerated expansion balanced by periods of modest growth. In recent years, growth in the market for exchanges has slowed, and this trend may continue.

Risks and Uncertainties of the Economic Environment

U.S. and global markets are continuing to experience volatility and disruption as a result of the ongoing Russia-Ukraine and Middle East conflicts. Although the length and impact of these situations are highly unpredictable, the conflicts have contributed to negative impacts on and volatility of the global economy and capital markets, resulting in significant inflation and fluctuating interest rates in

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many of the markets in which we operate, and could continue to lead to further market disruptions. This impacts not only the cost of and access to liquidity, but also other costs to run and invest in our business.

Other global economic events, such as accommodative monetary and fiscal policy, supply chain disruptions and geopolitical tensions beyond the aforementioned ongoing wars, contributed to significant inflation across the globe. In particular, inflation in the United States, Europe and other geographies has risen to levels not experienced in recent decades, and while this has eased somewhat in the last year, we are seeing its impact on various aspects of our business. Moreover, U.S. and global economic conditions have created market uncertainty and volatility. Such general economic conditions, including inflation, stagflation, political volatility, costs of labor, cost of capital, interest rates, bank stability, credit availability and tax rates, affect our cost of doing business, including our operating and general and administrative expenses, and we have no control or limited ability to control such factors. These general economic conditions impact revenue, including revenue from customers as well as income from funds we hold on behalf of customers and pension-related income.

If our costs grow significantly in excess of our ability to raise revenue, whether as a result of the foregoing global economic factors or otherwise, our margins and results of operations may be materially and adversely impacted and we may not be able to achieve our strategic and financial objectives.

See Part I, Item 1A Risk Factors in this Annual Report on Form 10-K for a discussion of risks that may affect, among other things, our growth relative to expectation and our ability to achieve our objectives.

Transformation Program

In the fourth quarter of 2024, the Company concluded a three-year ‘Transformation program’ designed to enhance operations, optimize technology and align its real estate footprint to its new ways of working. The program incurred cumulative costs of $1.115 billion and capital expenditures of $130 million, resulting in a total investment of $1.245 billion. Although the Transformation program concluded in 2024, we expect additional cash outflows in 2025 from the settlement of accrued costs.

The main categories of charges were in the following four areas:

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Real estate rationalization — includes costs to align the real estate footprint to our new ways of working (hybrid work) and includes breakage fees and the impairment of right-of-use assets and other related leasehold assets.

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Technology modernization — these charges are incurred in moving to common platforms and technologies, including migrating certain platforms and applications to the cloud. This category includes the impairment of technology assets that are duplicative or no longer revenue-producing, as well as costs for technology investments that do not qualify for capitalization.

•
Process optimization — these costs are incurred in the right-shoring strategy and automation of our operations, which includes optimizing resource deployment and appropriate colleague alignment. These costs include process and organizational design costs, severance and separation-related costs and temporary retention costs.

•
Other — other costs not included above including fees for professional services, other contract terminations not related to the above categories and supplier migration costs.

Certain costs under the Transformation program are accounted for under ASC 420, Exit or Disposal Cost Obligation, and are included as restructuring costs in the consolidated statements of comprehensive income. For the years ended December 31, 2024, 2023 and 2022, restructuring charges under our Transformation program totaled $61 million, $68 million and $99 million, respectively. Other costs incurred under the Transformation program are included in transaction and transformation and were $378 million, $347 million and $136 million for the years ended December 31, 2024, 2023 and 2022, respectively.

From the actions taken during 2024, we have identified an additional $136 million of annualized run-rate savings due to newly-realized opportunities and incremental sources of value. Since the inception of the program to its conclusion, we have identified $473 million of cumulative annualized run-rate savings, which overall were primarily attributable to process optimization. We began to recognize the benefits from the program during 2022.

For a discussion of material risks associated with the Transformation program, please see Part I, Item 1A Risk Factors under the heading ‘We may not be able to fully realize the anticipated benefits of our strategy or our expected product, service and transaction pipelines’ and other Risk Factors in this Annual Report on Form 10-K.

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For management’s discussion of our results of operations for the year ended December 31, 2023 in comparison with the year ended December 31, 2022, please see our Annual Report on Form 10-K filed with the SEC on February 22, 2024.

Financial Statement Overview

The tables below set forth our summarized consolidated statements of comprehensive income and data as a percentage of revenue for the periods indicated.

Consolidated Statements of Comprehensive Income

($ in millions, except per share data)

(i)
For the year ended December 31, 2024, Impairment and Other (loss)/income, net include goodwill-related impairment expense and loss on disposal, respectively, associated with the sale of our TRANZACT business (see Note 3 — Acquisitions and Divestitures within Item 8 of this Annual Report on Form 10-K).

Consolidated Revenue

We derive the majority of our revenue from commissions from our brokerage services and fees for consulting and administration services. No single client represented a significant concentration of our consolidated revenue for any of our three most recent fiscal years.

The following table details our top five markets based on percentage of consolidated revenue (in U.S. dollars) from the countries where work was performed for the year ended December 31, 2024. These figures do not represent the currency of the related revenue, which is presented in the next table.

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The table below details the approximate percentage of our revenue and expenses from continuing operations by transactional currency for the year ended December 31, 2024.

(i)
These percentages exclude certain expenses for significant items which will not be settled in cash, or which we believe to be items that are not core to our current or future operations. These items include amortization of intangible assets and transaction and transformation.

The following table sets forth the total revenue for the years ended December 31, 2024 and 2023 and the components of the change in total revenue for the year ended December 31, 2024, as compared to the prior year. The components of the revenue change may not add due to rounding.

(i)
Interest income did not contribute to organic change for the year ended December 31, 2024.

Revenue for the year ended December 31, 2024 was $9.9 billion, compared to $9.5 billion for the year ended December 31, 2023, an increase of $447 million, or 5%, on an as-reported basis. Adjusting for the impact of foreign currency and acquisitions and disposals, our organic revenue growth was 5% for the year ended December 31, 2024. The increases in both as-reported and organic revenue were driven by strong performances in both segments.

Our revenue can be materially impacted by changes in currency conversions, which can fluctuate significantly over the course of a calendar year. For the year ended December 31, 2024, currency translation decreased our consolidated revenue by $19 million. The primary currency driving this change was the Argentine Peso.

Definitions of Constant Currency Change and Organic Change are included in the section entitled ‘Non-GAAP Financial Measures’ elsewhere within this Form 10-K.

Segment Revenue and Segment Operating Income

Segment revenue excludes amounts that were directly incurred on behalf of our clients and reimbursed by them (reimbursed expenses); however, these amounts are included in consolidated revenue, as required by applicable accounting standards and SEC rules. Segment operating income excludes certain costs, including (i) amortization of intangibles; (ii) restructuring costs; and (iii) certain transaction and transformation expenses, and includes certain expense amounts which may be determined on both a direct and allocated basis. See Note 5 – Segment Information within Item 8 of this Annual Report on Form 10-K for more information about how our segment revenue and segment operating income is calculated and a reconciliation to our GAAP results.

The Company experiences seasonal fluctuations in its revenue. Revenue is typically higher during the Company’s first and fourth quarters due primarily to the timing of broking-related activities.

For all tables presented below, the components of the revenue change may not add due to rounding.

Health, Wealth & Career

The Health, Wealth & Career (‘HWC’) segment provides an array of advice, broking, solutions and technology for employee benefit plans, institutional investors, compensation and career programs, and the employee experience overall.

HWC is the larger of the two segments of the Company, generating approximately 59% of our segment revenue for the year ended December 31, 2024. Addressing four key areas, Health, Wealth, Career and Benefits Delivery & Outsourcing, the segment is focused on addressing our clients’ people and risk needs to help them succeed in a global marketplace.

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The following table sets forth HWC segment revenue for the years ended December 31, 2024 and 2023, and the components of the change in revenue for the year ended December 31, 2024 from the year ended December 31, 2023.

HWC segment revenue for the years ended December 31, 2024 and 2023 was $5.8 billion and $5.6 billion, respectively. Organic revenue growth in Health was achieved across all regions with the continued expansion of our Global Benefits Management client portfolio being a meaningful driver. Our Wealth businesses generated organic revenue growth from our Investments-related solutions and higher levels of Retirement work. Career had organic revenue growth from increased survey sales, product revenue and advisory project work. Benefits Delivery & Outsourcing revenue was materially flat, as growth in Outsourcing from regulatory-driven project work and new-client wins was largely offset by decreased revenue in TRANZACT.

HWC segment operating income for the years ended December 31, 2024 and 2023 was $1.7 billion and $1.6 billion, respectively. HWC segment operating income increased due primarily to transformation savings as well as operating leverage driven by organic revenue growth and disciplined expense management.

Risk & Broking (‘R&B’)

The Risk & Broking (‘R&B’) segment provides a broad range of risk advice, insurance brokerage and consulting services to clients worldwide ranging from small businesses to multinational corporations.

R&B generated approximately 41% of our segment revenue for the year ended December 31, 2024. The segment comprises two primary businesses - Corporate Risk & Broking and Insurance Consulting and Technology.

The following table sets forth R&B segment revenue for the years ended December 31, 2024 and 2023, and the components of the change in revenue for the year ended December 31, 2024 from the year ended December 31, 2023.

R&B segment revenue for the years ended December 31, 2024 and 2023 was $4.0 billion and $3.7 billion, respectively. Corporate Risk & Broking had organic revenue growth primarily driven by higher levels of new business activity and strong client retention and renewal increases across all geographies. Insurance Consulting and Technology organic revenue growth was driven by strong software sales in Technology, which was partially offset by a decline in demand for discretionary services.

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R&B segment operating income for the years ended December 31, 2024 and 2023 was $958 million and $813 million, respectively. R&B segment operating income increased due primarily to operating leverage driven by organic revenue growth and disciplined expense management, as well as transformation savings.

Costs of Providing Services

Total costs of providing services for the year ended December 31, 2024 were $9.3 billion, compared to $8.1 billion for the year ended December 31, 2023, an increase of $1.2 billion, or 15%. This increase resulted from the impairment expense associated with the sale of our TRANZACT business in the current year (see Note 3 — Acquisitions and Divestitures within Item 8 of this Annual Report on Form 10-K). See the following discussion for further details.

Salaries and Benefits

Salaries and benefits for the year ended December 31, 2024 were $5.5 billion, compared to $5.3 billion for the year ended December 31, 2023, an increase of $158 million, or 3%. The increase in the current year is primarily due to higher salary expense, driven by increased colleague headcount and cost-of-living compensation adjustments, and higher incentive and benefit costs for the year.

Salaries and benefits, as a percentage of revenue, represented 55% and 56% for the years ended December 31, 2024 and 2023, respectively.

Other Operating Expenses

Other operating expenses include occupancy, legal, marketing, licenses, royalties, supplies, technology, printing and telephone costs, as well as insurance, including premiums on excess insurance and losses on professional liability claims, travel by colleagues, publications, professional subscriptions and development, recruitment, other professional fees and irrecoverable value-added and sales taxes. Additionally, other operating expenses included costs historically allocated to our Willis Re business which are partially offset by fees under a cost reimbursement Transition Services Agreement (‘TSA’; see Note 3 — Acquisitions and Divestitures within Item 8 of this Annual Report on Form 10-K) with Arthur J. Gallagher & Co. (‘Gallagher’).

Other operating expenses for both years ended December 31, 2024 and 2023 were $1.8 billion, an increase of $18 million, or 1%. The increase was primarily due to higher non-income-related tax expense and higher travel and entertainment costs, partially offset by lower occupancy costs, primarily attributable to our Transformation program, and lower professional service expenses for the current year as compared to the prior year.

Impairment

Impairment for the year ended December 31, 2024 was $1.0 billion. Impairment is attributable to the goodwill impairment associated with our Benefits, Delivery and Administration (‘BDA’) reporting unit related to the sale of our TRANZACT business (see Note 3 — Acquisitions and Divestitures within Item 8 of this Annual Report on Form 10-K).

Depreciation

Depreciation represents the expense incurred over the useful lives of our tangible fixed assets and internally-developed software. Depreciation for the year ended December 31, 2024 was $230 million, compared to $242 million for the year ended December 31, 2023, a decrease of $12 million, or 5%. The year-over-year decrease was primarily due to a lower depreciable base of assets resulting from disposals associated with our Transformation program and a lower dollar value of assets placed in service during the past few years.

Amortization

Amortization represents the amortization of acquired intangible assets, including acquired internally-developed software. Amortization for the year ended December 31, 2024 was $226 million, compared to $263 million for the year ended December 31, 2023, a decrease of $37 million, or 14%. Our intangible amortization is generally more heavily weighted to the initial years of the useful lives of the related intangibles, and therefore amortization related to intangible assets will continue to decrease over time.

Restructuring Costs

Restructuring costs for the years ended December 31, 2024 and 2023 were $61 million and $68 million, respectively. Restructuring costs in both the current year and prior year primarily related to the real estate rationalization component of the Transformation program commenced by the Company during the fourth quarter of 2021 and completed as of December 31, 2024 (see Transformation Program within this section and Note 6 — Restructuring Costs within Item 8 of this Annual Report on Form 10-K).

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Transaction and Transformation

Transaction and transformation costs for the year ended December 31, 2024 were $409 million, compared to $386 million for the year ended December 31, 2023, an increase of $23 million. Transaction and transformation costs for the current year were higher primarily due to increased lease termination and compensation costs related to our Transformation program (see ‘Transformation Program’ elsewhere within this Item 7) incurred in the current year as compared to the prior year.

Income from Operations

Income from operations for the year ended December 31, 2024 was $627 million, compared to $1.4 billion for the year ended December 31, 2023, a decrease of $738 million. This decrease resulted from the impairment expense associated with the sale of our TRANZACT business (see Note 3 — Acquisitions and Divestitures within Item 8 of this Annual Report on Form 10-K), higher salary expense and increased incentive and benefit costs in the current year, partially offset by higher revenue in the current year.

Interest Expense

Interest expense for the years ended December 31, 2024 and 2023 was $263 million and $235 million, respectively. Interest expense, which is attributable primarily to our senior notes, increased by $28 million for the year ended December 31, 2024, which was primarily the result of a greater level of indebtedness in the current year and the higher interest rate-bearing senior notes issued by the Company during the last two years.

Other (Loss)/Income, Net

Other (loss)/income, net includes gains and losses on disposals of operations, pension credits or expenses that are not attributable to service expense, interest in earnings of associates, foreign exchange gains and losses and other miscellaneous non-operating income and costs.

Other (loss)/income, net for the year ended December 31, 2024 was a loss of $260 million, compared to income of $149 million for the year ended December 31, 2023, a decrease of $409 million. This decrease was mostly due to the net loss on disposal in the current year, which is primarily attributable to the sale of our TRANZACT business (see Note 3 — Acquisitions and Divestitures within Item 8 of this Annual Report on Form 10-K), partially offset by the recognition of a $750 million earnout related to the 2021 divestiture of our Willis Re business which is expected to be received during the first half of 2025 (see Note 3 — Acquisitions and Divestitures within Item 8 of this Annual Report on Form 10-K).

Provision for Income Taxes

Provision for income taxes for the year ended December 31, 2024 was $192 million, compared to $215 million for the year ended December 31, 2023. The effective tax rates for the years ended December 31, 2024 and 2023 were 184.7% and 16.8%, respectively. These effective tax rates are calculated using extended values from our consolidated statements of comprehensive income and are therefore more precise tax rates than can be calculated from rounded values. The current-year effective tax rate includes a $137 million tax benefit recognized on the sale of our TRANZACT business, partially offset with a $55 million provision for tax expense on the accrual for the Willis Re earnout and a $34 million provision for changes in uncertain tax positions. The prior-year effective tax rate includes a $20 million tax benefit related to changes in state apportionment and a $10 million deferred tax benefit related to the remeasurement of deferred tax assets and liabilities associated with the enactment of the Bermuda corporate income tax law.

In December 2022, E.U. member states formally adopted the E.U.’s Pillar Two Directive, which introduces a global corporate minimum tax of 15% for certain large multinational companies. For the rules to take effect, in 2023 many E.U. countries enacted the necessary legislation to implement Pillar Two, effective January 1, 2024. Ireland, in particular, enacted Pillar Two legislation by signing Finance (No. 2) Bill 2023 into law in December 2023. Other countries and territories have indicated they will introduce Pillar Two legislation beginning in 2025. The Pillar Two minimum tax is treated as a period cost beginning in 2024 and does not have a material impact on the Company's financial results of operations for the current period. The Company continues to monitor evolving tax legislation as well as additional guidance to enacted legislation in the jurisdictions in which we operate.

Net (Loss)/Income Attributable to WTW

Net loss attributable to WTW for the year ended December 31, 2024 was $98 million, compared to income of $1.1 billion for the year ended December 31, 2023, a decrease of $1.2 billion. This decrease primarily resulted from the loss on disposal and impairment expense associated with the sale of our TRANZACT business (see Note 3 — Acquisitions and Divestitures within Item 8 of this Annual Report on Form 10-K), higher salary expense and increased incentive and benefit costs in the current year, partially offset by the recognition of a $750 million earnout related to the 2021 divestiture of our Willis Re business which is expected to be received during the first half of 2025 (see Note 3 — Acquisitions and Divestitures within Item 8 of this Annual Report on Form 10-K), and higher revenue in the current year.

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Liquidity and Capital Resources

Executive Summary

Our principal sources of liquidity are funds generated by operating activities, available cash and cash equivalents and amounts available under our revolving credit facility and any new debt offerings. These sources of liquidity will fund our short-term and long-term obligations at December 31, 2024. Our most significant long-term obligations include mandatory debt and related interest, operating leases and pension obligations and contributions to our qualified pension plans.

There has been significant volatility in financial markets, including occasional declines in equity markets, inflation and changes in interest rates and reduced liquidity on a global basis and we expect this volatility could continue, all of which may impact our access to liquidity.

Based on our current balance sheet and cash flows, current market conditions and information available to us at this time, we believe that WTW has access to sufficient liquidity to meet our cash needs for the next twelve months. Including our cash generated from operations, our liquidity also includes all of the borrowing capacity available to draw against our $1.5 billion revolving credit facility and the receipt of the $750 million earnout related to the 2021 divestiture of Willis Re, which is expected to be collected during the first half of 2025. The use of these funds includes investments in the business for growth, scheduled debt repayments, share repurchases and dividend payments. During the fourth quarter of 2024, we re-entered the reinsurance broking space by making an initial investment in a reinsurance joint venture with Bain Capital. We hold a minority ownership interest in the joint venture and have an option to acquire a controlling interest in the future. Given the initial funding needs of a start-up venture, we expect that the investment will be a headwind for earnings until such time as the joint venture generates sufficient revenue to be profitable.

During the year ended December 31, 2024, we completed an offering of $750 million aggregate principal amount of 5.900% senior notes due 2054 and used the net proceeds to repay in full the $650 million aggregate principal amount and related accrued interest of the 3.600% senior notes that were due in 2024. The Company used the remaining net proceeds for general corporate purposes. Additionally, during the year ended December 31, 2024, we repurchased $901 million of shares, with remaining authorization to repurchase an additional $1.4 billion as of December 31, 2024.

We consider many factors, including market and economic conditions, applicable legal requirements and other business considerations, when considering whether to repurchase shares. Our share repurchase program (as further described below under ‘Share Repurchase Program’) has no termination date and may be suspended or discontinued at any time.

Events that could change the historical cash flow dynamics discussed above include significant changes in operating results, the receipt of significant earnout payments related to past divestitures, potential future acquisitions or divestitures, material changes in geographic sources of cash, unexpected adverse impacts from litigation or tax or regulatory matters, or future pension funding during periods of severe downturn in the capital markets.

Distributable Profits

We are required under Irish law to have available ‘distributable profits’ to make share repurchases or pay dividends to shareholders. Distributable profits are created through the earnings of the Irish parent company and, among other methods, through intercompany dividends or a reduction in share capital approved by the High Court of Ireland. Distributable profits are not linked to a U.S. GAAP reported amount (e.g. retained earnings). At WTW's Annual General Meeting on June 8, 2022, its shareholders voted in favor of a proposed capital reduction. In accordance with Part 3 of the Irish Companies Act 2014 the Parent Company submitted an application to the High Court of Ireland to reduce its share premium account. On July 19, 2022, the High Court of Ireland approved a reduction of the share premium account of the Parent Company of approximately $9.5 billion, with the resulting balance being treated as realized profits of the Parent Company. The High Court of Ireland's order was registered with the Irish Companies Registration Office and became effective on July 21, 2022. We believe that we will have sufficient distributable profits for the foreseeable future.

Tax considerations

The Company recognizes deferred tax balances related to the undistributed earnings of subsidiaries when it expects that it will recover those undistributed earnings in a taxable manner, such as through receipt of dividends or sale of the investments. We continue to have certain subsidiaries whose earnings have not been deemed permanently reinvested, for which we have been accruing estimates of the tax effects of such repatriation. Excluding these certain subsidiaries, we continue to assert that the historical cumulative earnings for the remainder of our subsidiaries have been reinvested indefinitely and therefore do not provide deferred taxes on these amounts. If future events, including material changes in estimates of cash, working capital, long-term investment requirements or additional legislation, necessitate that these earnings be distributed, an additional provision for income and foreign withholding taxes, net of

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credits, may be necessary. Other potential sources of cash may be through the settlement of intercompany loans or return of capital distributions in a tax-efficient manner.

Cash and Cash Equivalents

Our cash and cash equivalents at December 31, 2024 and 2023 totaled $1.9 billion and $1.4 billion, respectively. The increase of $466 million in cash from December 31, 2023 to December 31, 2024 was due primarily to $1.5 billion of cash inflows from operating activities and proceeds of $619 million, primarily from the sale of TRANZACT, partially offset by $901 million of share repurchases, $354 million of dividend payments, $245 million of capital expenditures and capitalized software additions and net cash paid for acquisitions of $107 million.

Additionally, we had all of the borrowing capacity available to draw against our $1.5 billion revolving credit facility at December 31, 2024.

Included within cash and cash equivalents at December 31, 2024 and 2023 are amounts held for regulatory capital adequacy requirements, including $104 million and $105 million, respectively, within our regulated U.K. entities.

Summarized Consolidated Cash Flows

The following table presents the summarized consolidated cash flow information for the years ended:

(i)
The amounts of the cash, cash equivalents and restricted cash, their respective classification on the consolidated balance sheets, as well as their respective portions of the increase or decrease in cash, cash equivalents and restricted cash for each of the periods presented, have been included in Note 21 — Supplemental Disclosures of Cash Flow Information within Item 8 of this Annual Report on Form 10-K.

Cash Flows From Operating Activities

Cash flows from operating activities were $1.5 billion for 2024, compared to $1.3 billion for 2023. The $1.5 billion net cash from operating activities for 2024 included a net loss of $88 million and $1.9 billion of favorable non-cash adjustments, partially offset by unfavorable changes in operating assets and liabilities of $326 million. The $1.9 billion of favorable non-cash adjustments primarily includes impairment, depreciation, amortization and non-cash lease expense. This increase in cash flows from operations as compared to the prior year was primarily driven by operating margin expansion, partially offset by increased cash outflows related to transformation and discretionary compensation payments in the current year as compared to the prior year.

Cash flows from operating activities of $1.3 billion for 2023 included net income of $1.1 billion and $652 million of favorable non-cash adjustments, partially offset by unfavorable changes in operating assets and liabilities of $371 million. The $652 million of favorable non-cash adjustments primarily includes depreciation, amortization and non-cash lease expense.

Cash Flows From/(Used In) Investing Activities

Cash flows from investing activities for the year ended December 31, 2024 were $250 million compared to cash flows used in investing activities of $1.1 billion for the year ended December 31, 2023. The cash flows from investing activities in the current year consisted of proceeds of $619 million primarily from the sale of TRANZACT, partially offset by capital expenditures and capitalized software additions of $245 million and net cash paid for acquisitions of $107 million.

Cash flows used in investing activities of $1.1 billion for the year ended December 31, 2023 consisted primarily of cash and fiduciary funds of $922 million associated with the transfer to Gallagher under a side letter agreement to the Willis Re sale agreement (see Note

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3 — Acquisitions and Divestitures within Item 8 of this Annual Report on Form 10-K for more information) and $242 million of capital expenditures and capitalized software additions.

Cash Flows Used In Financing Activities

Cash flows used in financing activities for the year ended December 31, 2024 were $459 million. The significant financing activities included share repurchases of $901 million and dividend payments of $354 million, partially offset by net proceeds from fiduciary funds held for clients of $785 million and $82 million of net proceeds from the issuance of debt.

Cash flows used in financing activities for the year ended December 31, 2023 were $1.2 billion. The significant financing activities included share repurchases of $1.0 billion, dividend payments of $352 million and net payments from fiduciary funds held for clients of $234 million, partially offset by $487 million of net proceeds from the issuance of debt.

Indebtedness

Total debt, total equity, and the capitalization ratio at December 31, 2024 and December 31, 2023 were as follows:

The capitalization ratio increased from December 31, 2023 due primarily to $901 million of share repurchases during the year ended December 31, 2024 and the earnings loss in the current year attributable to the recognition of impairment expense and loss on disposal associated with the sale of our TRANZACT business (see Note 3 — Acquisitions and Divestitures within Item 8 of this Annual Report on Form 10-K).

At December 31, 2024, the Company does not have any mandatory debt repayments over the next twelve months. For more information regarding our current and long-term debt, please see ‘Supplemental Guarantor Financial Information’ elsewhere within this Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations.

At December 31, 2024 and 2023, we were in compliance with all financial covenants.

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 also hold funds for clients of our benefits account businesses, some of which are invested in open-ended mutual funds as directed by the participant. These fiduciary funds are included in fiduciary assets on our consolidated balance sheets. We present the equal and corresponding fiduciary liabilities related to these fiduciary funds representing amounts or claims due to our clients or premiums due on their behalf to insurers on our consolidated balance sheets.

Fiduciary funds are generally required to be kept in 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 certain of these fiduciary funds in accordance with industry custom and practice and, in some cases, as supported by agreements with insureds.

At December 31, 2024 and 2023, we had fiduciary funds of $3.4 billion and $2.6 billion, respectively.

Share Repurchase Program

The Company is authorized to repurchase shares, by way of redemption or otherwise, and will consider whether to do so from time to time, based on many factors, including market conditions. There are no expiration dates for our repurchase plans or programs.

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On May 25, 2022, the board of directors approved a $1.0 billion increase to the existing share repurchase program. Additionally, on September 20, 2023, the board of directors approved a $1.0 billion increase to the existing share repurchase program, and on November 20, 2024, approved a $1.0 billion increase to the existing share repurchase program. These increases brought the total approved authorization, since April 20, 2016, to $10.2 billion. See Part II, Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities in this Annual Report on Form 10-K for further information regarding the Company’s share repurchase program.

At December 31, 2024, approximately $1.4 billion remained on the current repurchase authority. The maximum number of shares that could be repurchased based on the closing price of our ordinary shares on December 31, 2024 of $313.24 was 4,602,709.

The following table presents specified information about the Company’s repurchases of ordinary shares for the year ended December 31, 2024:

Dividends

Total cash dividends of $354 million were paid during the year ended December 31, 2024. In February 2025, the board of directors approved a quarterly cash dividend of $0.92 per share ($3.68 per share annualized rate), which will be paid on or around April 15, 2025 to shareholders of record as of March 31, 2025.

Capital Commitments

The Company’s capital expenditures for fixed assets, capitalized software and software for internal use were $245 million for the year ended December 31, 2024. Capital expenditures for fixed assets, capitalized software and software for internal use are expected to be in the range of $225 million to $250 million for the year ended December 31, 2025. We expect cash from operations to adequately provide for these cash needs.

Supplemental Guarantor Financial Information

As of December 31, 2024, WTW has issued the following debt securities (the ‘notes’):

a)
Willis North America Inc. (‘Willis North America’) has approximately $4.5 billion senior notes outstanding, of which $1.0 billion were issued on September 10, 2018, $1.0 billion were issued on September 10, 2019, $275 million were issued on May 29, 2020, $750 million were issued on May 19, 2022, $750 million were issued on May 17, 2023 and $750 million were issued on March 5, 2024; and

b)
Trinity Acquisition plc has approximately $825 million senior notes outstanding, of which $275 million were issued on August 15, 2013 and $550 million were issued on March 22, 2016, and a $1.5 billion revolving credit facility, on which no balance was outstanding at December 31, 2024.

The following table presents a summary of the entities that issue each note and those wholly-owned subsidiaries of the Company that guarantee each respective note on a joint and several basis as of December 31, 2024. These subsidiaries are all consolidated by Willis Towers Watson plc (the ‘parent company’) and together with the parent company comprise the ‘Obligor group’. On December 16, 2024, TA I Limited, Willis Towers Watson UK Holdings Limited and Willis Netherlands Holdings B.V. ceased to be guarantors of our notes and are no longer part of the Obligor group, following the transfer of their respective properties and assets to other existing guarantors within the Obligor group. Further, Willis Towers Watson UK Holdings Limited was released from its guarantees under our credit agreement. TA I Limited and Willis Netherlands Holdings B.V. will be released from their guarantees under our credit agreement in 2025.

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The notes issued by Willis North America and Trinity Acquisition plc:

•
rank equally with all of the issuer’s existing and future unsubordinated and unsecured debt;

•
rank equally with the issuer’s guarantee of all of the existing senior debt of the Company and the other guarantors, including any debt under the Revolving Credit Facility;

•
are senior in right of payment to all of the issuer’s future subordinated debt; and

•
are effectively subordinated to all of the issuer’s secured debt to the extent of the value of the assets securing such debt.

All other subsidiaries of the parent company are non-guarantor subsidiaries (‘the non-guarantor subsidiaries’).

Each member of the Obligor group has only a stockholder’s claim on the assets of the non-guarantor subsidiaries. This stockholder’s claim is junior to the claims that creditors have against those non-guarantor subsidiaries. Holders of the notes will only be creditors of the Obligor group and not creditors of the non-guarantor subsidiaries. As a result, all of the existing and future liabilities of the non-guarantor subsidiaries, including any claims of trade creditors and preferred stockholders, will be structurally senior to the notes. As of and for the periods ended December 31, 2024 and 2023, the non-guarantor subsidiaries represented substantially all of the total assets and accounted for substantially all of the total revenue of the Company prior to consolidating adjustments. The non-guarantor subsidiaries have other liabilities, including contingent liabilities that may be significant. Each indenture does not contain any limitations on the amount of additional debt that the Obligor group and the non-guarantor subsidiaries may incur. The amounts of this debt could be substantial, and this debt may be debt of the non-guarantor subsidiaries, in which case this debt would be effectively senior in right of payment to the notes.

The notes are obligations exclusively of the Obligor group. Substantially all of the Obligor group’s operations are conducted through its non-guarantor subsidiaries. Therefore, the Obligor group’s ability to service its debt, including the notes, is dependent upon the net cash flows of its non-guarantor subsidiaries and their ability to distribute those net cash flows as dividends, loans or other payments to the Obligor group. Certain laws restrict the ability of these non-guarantor subsidiaries to pay dividends and make loans and advances to the Obligor group. In addition, such non-guarantor subsidiaries may enter into contractual arrangements that limit their ability to pay dividends and make loans and advances to the Obligor group.

Intercompany balances and transactions between members of the Obligor group have been eliminated. All intercompany balances and transactions between the Obligor group and the non-guarantor subsidiaries have been presented in the disclosures below on a net presentation basis, rather than a gross basis, as this better reflects the nature of the intercompany positions and presents the funding or funded position that is to be received or owed. The intercompany balances and transactions between the Obligor group and non-guarantor subsidiaries, presented below, relate to a number of items including loan funding for acquisitions and other purposes, transfers of surplus cash between subsidiary companies, funding provided for working capital purposes, settlement of expense accounts, transactions related to share-based payment arrangements and share issuances, intercompany royalty and related arrangements, intercompany dividends and intercompany interest. At December 31, 2024 and 2023, the intercompany balances of the Obligor group with non-guarantor subsidiaries were net receivables of $1.0 billion and $3.4 billion, respectively, and net payables of $15.1 billion and $14.0 billion, respectively.

No balances or transactions of non-guarantor subsidiaries are presented in the disclosures other than the intercompany items noted above.

Presented below is certain summarized financial information for the Obligor group.

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(i)
Includes intercompany expense, net of the Obligor group from non-guarantor subsidiaries of $296 million for the year ended December 31, 2024.

Non-GAAP Financial Measures

In order to assist readers of our consolidated financial statements in understanding the core operating results that WTW’s management uses to evaluate the business and for financial planning purposes, we present the following non-GAAP measures and their most directly comparable U.S. GAAP measure:

The Company believes that these measures are relevant and provide pertinent information widely used by analysts, investors and other interested parties in our industry to provide a baseline for evaluating and comparing our operating performance, and in the case of free cash flow, our liquidity results.

Within the measures referred to as ‘adjusted’, we adjust for significant items which will not be settled in cash, or which we believe to be items that are not core to our current or future operations. These items include the following:

•
Restructuring costs and transaction and transformation – Management believes it is appropriate to adjust for restructuring costs and transaction and transformation when they relate to a specific significant program with a defined set of activities and costs that are not expected to continue beyond a defined period of time, or significant acquisition-related transaction expenses. We believe the adjustment is necessary to present how the Company is performing, both now and in the future when the incurrence of these costs will have concluded.

•
Impairment – Adjustment to remove the non-cash goodwill impairment associated with our BDA reporting unit related to the sale of our TRANZACT business.

•
Provisions for specified litigation matters – We will include provisions for litigation matters which we believe are not representative of our core business operations. Among other things, we determine this by reference to the amount of the loss (net of insurance and other recovery receivables) and by reference to whether the matter relates to an unusual and complex scenario that is not expected to be repeated as part of our ongoing, ordinary business. These amounts are presented net of insurance and other recovery receivables. See the footnotes to the reconciliation tables below for more specificity on the litigation matter excluded from adjusted results.

•
Gains and losses on disposals of operations – Adjustment to remove the gains or losses resulting from disposed operations that have not been classified as discontinued operations.

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•
Pension settlement – Adjustment to remove significant pension settlements to better present how the Company is performing.

•
Tax effect of significant adjustments – Relates to the incremental tax expense or benefit resulting from significant or unusual events including significant statutory tax rate changes enacted in material jurisdictions in which we operate, internal reorganizations of ownership of certain businesses that reduced the investment held by our U.S.-controlled subsidiaries and the recovery of certain refunds or payment of taxes related to businesses in which we no longer participate.

These non-GAAP measures are not defined in the same manner by all companies and may not be comparable to other similarly titled measures of other companies. Non-GAAP measures should be considered in addition to, and not as a substitute for, the information contained within our consolidated financial statements.

Constant Currency Change and Organic Change

We evaluate our revenue on an as reported (U.S. GAAP), constant currency and organic basis. We believe presenting constant currency and organic information provides valuable supplemental information regarding our comparable results, consistent with how we evaluate our performance internally.

•
Constant Currency Change - Represents the year-over-year change in revenue excluding the impact of foreign currency fluctuations. To calculate this impact, the prior year local currency results are first translated using the current year monthly average exchange rates. The change is calculated by comparing the prior year revenue, translated at the current year monthly average exchange rates, to the current year as reported revenue, for the same period. We believe constant currency measures provide useful information to investors because they provide transparency to performance by excluding the effects that foreign currency exchange rate fluctuations have on period-over-period comparability given volatility in foreign currency exchange markets.

•
Organic Change - Excludes the impact of fluctuations in foreign currency exchange rates as described above and the period-over-period impact of acquisitions and divestitures on current-year revenue. We believe that excluding transaction-related items from our U.S. GAAP financial measures provides useful supplemental information to our investors, and it is important in illustrating what our core operating results would have been had we not included these transaction-related items, since the nature, size and number of these transaction-related items can vary from period to period.

The constant currency and organic change results, and a reconciliation from the reported results for consolidated revenue, are included in the ‘Consolidated Revenue’ section within this Form 10-K. These measures are also reported by segment in the ‘Segment Revenue and Segment Operating Income’ section within this Form 10-K.

A reconciliation of the as-reported change to the constant currency and organic change for the year ended December 31, 2024 from the year ended December 31, 2023 is as follows. The components of revenue change may not add due to rounding.

(i)
Interest income did not contribute to organic change for the year ended December 31, 2024.

For the year ended December 31, 2024, our as-reported and our organic revenue increased by 5%. These increases were driven by strong performances in both segments.

Adjusted Operating Income/Margin

We consider adjusted operating income/margin to be important financial measures, which are used internally to evaluate and assess our core operations and to benchmark our operating results against our competitors.

Adjusted operating income is defined as income from operations adjusted for impairment, amortization, restructuring costs, transaction and transformation and non-recurring items that, in management’s judgment, significantly affect the period-over-period assessment of operating results. Adjusted operating income margin is calculated by dividing adjusted operating income by revenue.

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Reconciliations of income from operations to adjusted operating income for the years ended December 31, 2024 and 2023 are as follows:

(i)
Represents a provision related to litigation arising out of a structured insurance program originally placed for a client over 15 years ago. The program is of a type and complexity that was highly bespoke to the client and for that reason is unlikely to be exactly replicated elsewhere. We believe excluding this matter from adjusted results makes results more comparable from period to period and more representative of our core business operations.

Adjusted operating income increased for the year ended December 31, 2024 to $2.4 billion, from $2.1 billion for the year ended December 31, 2023. This increase resulted primarily from higher revenue, and increased margin expansion as a result of benefits recognized from our Transformation program, in the current year, partially offset by higher salary expense and increased incentive and benefit costs in the current year as compared to the prior year.

Adjusted EBITDA/Margin

We consider adjusted EBITDA/margin to be important financial measures, which are used internally to evaluate and assess our core operations, to benchmark our operating results against our competitors and to evaluate and measure our performance-based compensation plans.

Adjusted EBITDA is defined as net (loss)/income adjusted for provision for income taxes, interest expense, impairment, depreciation and amortization, restructuring costs, transaction and transformation, gains and losses on disposals of operations and non-recurring items that, in management’s judgment, significantly affect the period-over-period assessment of operating results. Adjusted EBITDA margin is calculated by dividing adjusted EBITDA by revenue.

Reconciliations of net (loss)/income to adjusted EBITDA for the years ended December 31, 2024 and 2023 are as follows:

(i)
Represents a provision related to litigation arising out of a structured insurance program originally placed for a client over 15 years ago. The program is of a type and complexity that was highly bespoke to the client and for that reason is unlikely to be exactly replicated elsewhere. We believe excluding this matter from adjusted results makes results more comparable from period to period and more representative of our core business operations.

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Adjusted EBITDA for the year ended December 31, 2024 was $2.7 billion, compared to $2.4 billion for the year ended December 31, 2023, an increase of $278 million. This increase resulted primarily from higher revenue, and increased margin expansion as a result of benefits recognized from our Transformation program, in the current year, partially offset by higher salary expense and increased incentive and benefit costs in the current year as compared to the prior year.

Adjusted Net Income and Adjusted Diluted Earnings Per Share

Adjusted net income is defined as net (loss)/income attributable to WTW adjusted for impairment, amortization, restructuring costs, transaction and transformation, gains and losses on disposals of operations and non-recurring items that, in management’s judgment, significantly affect the period-over-period assessment of operating results and the related tax effect of those adjustments and the tax effects of significant adjustments. This measure is used solely for the purpose of calculating adjusted diluted earnings per share.

Adjusted diluted earnings per share is defined as adjusted net income divided by the weighted-average number of ordinary shares, diluted. Adjusted diluted earnings per share is used to internally evaluate and assess our core operations and to benchmark our operating results against our competitors. When there is a net loss attributable to WTW for the period, basic and diluted shares and earnings per share are the same values.

Reconciliations of net (loss)/income attributable to WTW to adjusted diluted earnings per share for the years ended December 31, 2024 and 2023 are as follows:

(i)
Represents a provision related to litigation arising out of a structured insurance program originally placed for a client over 15 years ago. The program is of a type and complexity that was highly bespoke to the client and for that reason is unlikely to be exactly replicated elsewhere. We believe excluding this matter from adjusted results makes results more comparable from period to period and more representative of our core business operations.

(ii)
The tax effect was calculated using an effective tax rate for each item.

(iii)
Per share values and totals may differ due to rounding.

Our adjusted diluted earnings per share increased for the year ended December 31, 2024 as compared to the year ended December 31, 2023 primarily from higher revenue, and increased margin expansion as a result of benefits recognized from our Transformation program, in the current year, partially offset by higher salary expense and increased incentive and benefit costs in the current year as compared to the prior year.

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Adjusted Income Before Taxes and Adjusted Income Taxes/Tax Rate

Adjusted income before taxes is defined as income from operations before income taxes adjusted for impairment, amortization, restructuring costs, transaction and transformation, gains and losses on disposals of operations and non-recurring items that, in management’s judgment, significantly affect the period-over-period assessment of operating results. Adjusted income before taxes is used solely for the purpose of calculating the adjusted income tax rate.

Adjusted income taxes/tax rate is defined as the provision for income taxes adjusted for taxes on certain items of impairment, amortization, restructuring costs, transaction and transformation, gains and losses on disposals of operations, the tax effects of significant adjustments and non-recurring items that, in management’s judgment, significantly affect the period-over-period assessment of operating results, divided by adjusted income before taxes. Adjusted income taxes is used solely for the purpose of calculating the adjusted income tax rate.

Management believes that the adjusted income tax rate presents a rate that is more closely aligned to the rate that we would incur if not for the reduction of pre-tax income for the adjusted items and the tax effects of internal reorganizations, which are not core to our current and future operations.

Reconciliations of income from continuing operations before income taxes to adjusted income before taxes and provision for income taxes to adjusted income taxes for the years ended December 31, 2024 and 2023 are as follows:

(i)
Represents a provision related to litigation arising out of a structured insurance program originally placed for a client over 15 years ago. The program is of a type and complexity that was highly bespoke to the client and for that reason is unlikely to be exactly replicated elsewhere. We believe excluding this matter from adjusted results makes results more comparable from period to period and more representative of our core business operations.

(ii)
The tax effect was calculated using an effective tax rate for each item.

Our U.S. GAAP tax rates were 184.7% and 16.8% for the years ended December 31, 2024 and 2023, respectively. The current-year effective tax rate includes a $137 million tax benefit recognized on the sale of our TRANZACT business, partially offset with a $55 million provision for tax expense on the accrual for the Willis Re earnout and a $34 million provision for changes in uncertain tax positions.

Our adjusted income tax rates were 21.5% and 20.9% for the years ended December 31, 2024 and 2023, respectively. The prior-year effective tax rate includes a $20 million tax benefit related to changes in state apportionment and a $10 million deferred tax benefit related to the remeasurement of deferred tax assets and liabilities associated with the enactment of the Bermuda corporate income tax law.

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Free Cash Flow/Margin

Free cash flow is defined as cash flows from operating activities less cash used to purchase fixed assets and software for internal use. Free cash flow is a liquidity measure and is not meant to represent residual cash flow available for discretionary expenditures. Free cash flow margin, which we include on an annual basis as seasonal fluctuations in our revenue render it not meaningful during interim periods, is calculated by dividing free cash flow by revenue.

Management believes that free cash flow and free cash flow margin present the core operating performance and cash generating capabilities of our business operations.

Reconciliations of cash flows from operating activities to free cash flow for the years ended December 31, 2024 and 2023 are as follows:

The increase in free cash flow during the current year was primarily driven by operating margin expansion, partially offset by increased cash outflows related to transformation and discretionary compensation payments in the current year as compared to the prior year.

Critical Accounting Estimates

These consolidated financial statements conform to U.S. GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Our estimates, judgments and assumptions are continually evaluated based on available information and experience. Because of the use of estimates inherent in the financial reporting process, actual results could differ from those estimates. The areas that we believe include critical accounting estimates are revenue recognition, costs to fulfill under our broking contracts, valuation of billed and unbilled receivables from clients, income taxes, commitments, contingencies and accrued liabilities, pension assumptions, and goodwill and intangible assets. The critical accounting estimates discussed below involve making difficult, subjective or complex accounting estimates that could have a material effect on our financial condition and results of operations. These critical accounting estimates require us to make assumptions about matters that are highly uncertain at the time of the estimate or assumption. Different estimates that we could have used, or changes in estimates that are reasonably likely to occur, may have a material effect on our results of operations and financial condition.

Revenue Recognition

We use significant estimates related to revenue recognition most commonly during our estimation of the transaction prices or where we recognize revenue over time on a proportional performance basis. A brief description of these policies and estimates is included below:

Estimation of transaction prices — This process occurs most frequently in certain broking transactions. In situations in which our fees are not fixed but are variable, we must estimate the likely commission per policy, taking into account the likelihood of cancellation before the end of the policy. For Medicare broking and Affinity arrangements, the commissions to which we will be entitled can vary based on the underlying individual insurance policies that are placed. For Medicare broking in particular, we base the estimates of transaction prices on supportable evidence from an analysis of past transactions, and only include amounts that are probable of being received or not refunded (referred to as applying ‘constraint’ under ASC 606, Revenue From Contracts With Customers). Prior to the sale of TRANZACT, we had direct-to-consumer Medicare broking arrangements. The estimate of the total renewal commissions received over the lifetime of the policy required significant judgment, and varied based on product type, estimated commission rates, the expected lives of the respective policies and other factors. The Company applied an actuarial model to account for these uncertainties, which was updated periodically based on actual experience. Each of these processes resulted in us estimating a transaction price that could have been significantly lower than the ultimate amount of commissions we would have collected. The transaction price was then adjusted over time as we received confirmation of our remuneration through receipt of commissions, or as other information became available.

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Proportional performance basis over time recognition — Where we recognize revenue on a proportional performance basis, primarily in our consulting and outsourced administration arrangements, the amount we recognize is affected by a number of factors that can change the estimated amount of work required to complete the project, such as the staffing on the engagement and/or the level of client participation. Our periodic engagement evaluations require us to make judgments and estimates regarding the overall profitability and stages of project completion that, in turn, affect how we recognize revenue. We recognize a loss on an engagement when estimated revenue to be received for that engagement is less than the total estimated costs associated with the engagement.

Costs to Fulfill —Broking Contracts

For our broking business, the Company must estimate the fulfillment costs incurred during the pre-placement of the broking contracts. These judgments include the following:

•
which activities in the pre-placement process should be eligible for capitalization;

•
the amount of time and effort expended on those pre-placement activities;

•
the amount of payroll and related costs eligible for capitalization; and,

•
the monthly or quarterly timing of underlying insurance and reinsurance policy inception dates.

Valuation of Billed and Unbilled Receivables from Clients

We maintain allowances for doubtful accounts to reflect estimated losses resulting from a client’s failure to pay for the services after the services have been rendered, which are recorded in other operating expenses. We also maintain allowances related to our unbilled receivables for such items as expected realization or client disputes, the related provision for which is recorded as a reduction to revenue. Our allowance policy is based in part on the aging of the billed and unbilled client receivables and has been developed based on our write-off history. However, facts and circumstances, such as the average length of time the receivables are past due, general market conditions at the time we perform the work, current economic trends and our clients’ ability to pay, may cause fluctuations in our valuation of billed and unbilled receivables.

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 carryforwards. Deferred tax assets and liabilities are measured using enacted tax 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 for continuing operations in the consolidated statement of comprehensive income in the period in which the change is enacted. 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 amounts considered realizable in future periods, which is assessed at each balance sheet date. In making such determinations, 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 operating results. We place more reliance on evidence that is objectively verifiable.

Commitments, Contingencies and Accrued Liabilities

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 and the provision of consulting services 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. In certain cases, where a range of loss exists, we accrue the minimum amount in the range if no amount within the range is a better estimate than any other amount.

See Note 15 — Commitments and Contingencies in Item 8 within this Annual Report on Form 10-K.

Pension Assumptions

We maintain defined benefit pension plans for employees in several countries, with the most significant defined benefit plans offered in the U.S. and U.K. Our disclosures in Note 13 — Retirement Benefits contain additional information about our other less significant but material retirement plans. Within our critical accounting policy discussion, we have excluded analysis for plans outside of those noted in the description below, as any variance of recorded information based on management’s estimates would be immaterial.

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Descriptions of our U.S. and U.K. plans, which comprise 88% of our projected benefit obligations and 89% of our plan assets, are below:

United States

Legacy Willis – This plan was frozen in 2009. Approximately 550 WTW employees in the United States have a frozen accrued benefit under this plan.

WTW Plan – Substantially all U.S. employees are eligible to participate in this plan. Benefits are provided under a stable value pension plan design. The original stable value design came into effect on January 1, 2012. Plan participants prior to July 1, 2017 earn benefits without having to make employee contributions, and all newly-eligible employees after that date are required to contribute 2% of pay on an after-tax basis to participate in the plan. Effective January 1, 2024, stable value benefits are earned under the same contributory formula for all eligible colleagues. To participate, participants are required to contribute 2% of eligible earnings (base salary only) on an after-tax basis.

United Kingdom

Legacy Willis – This plan covers approximately 400 WTW employees in the U.K. The plan is now closed to new entrants. New employees in the U.K. are offered the opportunity to join a defined contribution plan.

Legacy Towers Watson – Benefit accruals earned under the Legacy Watson Wyatt defined benefit plan (predominantly pension benefits) ceased on February 28, 2015, although benefits earned prior to January 1, 2008 retain a link to salary until the employee leaves the Company. Benefit accruals earned under the legacy Towers Perrin defined benefit plan (predominantly lump sum benefits) were frozen on March 31, 2008. All participants now accrue defined contribution benefits.

The determination of the Company’s obligations and annual expense under the plans is based on a number of assumptions that, given the longevity of the plans, are long-term in focus. A change in one or a combination of these assumptions could have a material impact on our projected benefit obligation. However, certain of these changes, such as changes in the discount rates and other actuarial assumptions, are not recognized immediately in net income, but are instead recorded in other comprehensive income. The accumulated gains and losses not yet recognized in net income are amortized into net income as a component of the net periodic benefit cost/(income) over the average remaining service period or average remaining life expectancy, as appropriate, of the plan’s participants to the extent that the net gains or losses as of the beginning of the year exceed 10% of the greater of the market-related value of plan assets or the projected benefit obligation.

WTW considers several factors prior to the start of each fiscal year when determining the appropriate annual assumptions, including economic forecasts, relevant benchmarks, historical trends, portfolio composition and peer company comparisons. These assumptions, used to determine our pension liabilities and pension expense, are reviewed annually by senior management and changed when appropriate. A discount rate will be changed annually if underlying rates have moved, whereas an 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. To calculate the discount rate, we use the granular approach to determining service cost and interest cost. The expected rate of return assumptions for all plans are supported by an analysis of the weighted-average yield expected to be achieved with the anticipated makeup of investments. We have allowed for actual and known inflation in preparing our estimates. Other material assumptions include rates of participant mortality, and the expected long-term rates of compensation and pension increases.

Funding is based on actuarially determined contributions and is limited to amounts that are currently deductible for tax purposes, or as agreed to with the plan trustees for the U.K. plans. Since funding calculations are based on different measurements than those used for accounting purposes, pension contributions are not equal to net periodic benefit cost.

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We recorded a combined $1 million net periodic benefit income for our U.S. and U.K. plans for the year ended December 31, 2024. For the U.S. and U.K. plans, the following table presents our estimated net periodic benefit income for 2025 and the impact to both plans of a 0.25% increase and decrease to both the expected return on assets (‘EROA’) and the discount rate assumptions; and the projected benefit obligations as of December 31, 2024 and the impact of a 0.25% increase and decrease to the discount rates:

Economic factors and conditions often affect multiple assumptions simultaneously, and the effects of changes in key assumptions are not necessarily linear.

Goodwill and Intangible Assets — Impairment Review

In applying the acquisition method of accounting for business combinations, amounts assigned to identifiable assets and liabilities acquired were based on estimated fair values as of the date of acquisition, with the remainder recorded as goodwill. Intangible assets are initially valued at fair value using generally accepted valuation methods appropriate for the type of intangible asset. Intangible assets with definite lives are amortized over their estimated useful lives and are reviewed for impairment if indicators of impairment arise. Intangible assets with indefinite lives are tested for impairment annually as of October 1, and whenever indicators of impairment arise. The fair value of the intangible assets is compared with their carrying value and an impairment loss would be recognized for the amount by which the carrying amount exceeds the fair value. Goodwill is tested for impairment annually as of October 1, and whenever indicators of impairment arise.

Goodwill is tested at the reporting unit level, and the Company had seven reporting units as of October 1, 2024. As discussed in Note 3 — Acquisitions and Divestitures within Item 8 of this Annual Report on Form 10-K, in connection with the sale of TRANZACT, completed on December 31, 2024, the Company recorded a $1.0 billion non-cash goodwill impairment charge on the BDA reporting unit. The BDA reporting unit goodwill after impairment is approximately $1.2 billion. After reflecting the sale of TRANZACT, the fair value of the remaining reporting unit is estimated to be significantly in excess of its carrying value. The impairment test for the remaining six reporting units resulted in estimated fair values that were significantly in excess of their carrying values.

The Company continuously monitors and evaluates relevant events and circumstances that could unfavorably impact the significant assumptions noted above, including changes to the regulatory environment, general industry, market and macro-economic conditions and recent market valuations from transactions of comparable companies. It is possible that future changes in such circumstances, or in the inputs or assumptions used in estimating the fair value of the reporting unit, could require the Company to record a non-cash impairment charge.

To perform the test, we used valuation techniques to estimate the fair value of a reporting unit that are under the income and/or market approaches of valuation methods:

•
Discounted cash flow method — Under the discounted cash flow method, an income approach, the business enterprise value is determined by discounting to present value the terminal value which is calculated using debt-free after-tax cash flows for a finite period of years. Key estimates in this approach were internal financial projection estimates prepared by management, assessment of business risk, and expected rates of return on capital.

•
Guideline public company method — The guideline public company method, a market approach, develops valuation multiples by comparing our reporting units to similar publicly traded companies. Key estimates and determination of valuation multiples rely on the selection of similar companies, obtaining forecast revenue and EBITDA estimates for the similar companies and selection of valuation multiples as they apply to the reporting unit characteristics.

•
Guideline transaction method — Under the guideline transactions method, a market approach, actual transaction prices and operating data from companies deemed reasonably similar to the reporting units are used to develop valuation multiples as an indication of how much a knowledgeable investor in the marketplace would be willing to pay for the business units.

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