The 2010 Outlook

The U.S. economy is clearly still challenged. Based on proprietary AlixPartners research, it appears we are entering a 'new normal' for the economy—one where there will be a fundamental shift downward in consumer spending from past levels. This shift, coupled with the following probable factors, may well cause the U.S. to experience an 'L-shaped' recovery: continued corporate de-leveraging, reducing investment in expansion; reduced capital availability, constraining even those who want to spend; phased asset recovery and unclear workout timelines; increased government regulation; and, highly leveraged governments as a larger part of the economy.

From a global perspective, we're seeing that Asian countries are beginning to rebound, while Europe seems to be in between the U.S. and Asia. We think it is important to note that the U.S. is the largest importer in the world, and will have moderate consumer spending. This could well have a dampening effect on economies that ship to the U.S.

In the U.S., we see the restructuring market as quite active, but the cases will shift from large companies to middle-market companies. Commercial real estate, in particular, is one area where there may be market opportunities based on significant real estate industry challenges. Overall, we think operational challenges will continue throughout 2010, and throughout the world.

The market conditions we faced in 2009 were the most challenging our business has faced in a long time, perhaps the most challenging in my 25 years in the consulting business. Our clients faced a highly uncertain future, especially at the beginning of the year, and were cutting back on all expenses—including management consulting. So, even though the need for consulting was higher than ever, the demand for consulting was weaker as many clients were waiting to get more clarity before committing to consulting work. All things considered, I think Oliver Wyman got through 2009 remarkably well, and we are emerging from the recession in an even stronger position.

Economic conditions in both the U.S. and globally have been improving over the last six months, but I think it's too early to say that all of our problems are behind us. There's still a lot of uncertainty out there, and the recovery is fragile. So, while my baseline expectation is that we'll see a slow but steady recovery in 2010, I see more than normal variation around that expectation—and we are building both upside and downside contingency plans.

Government will be a bigger buyer of consulting services in 2010. [And], the global financial services sector is undergoing a significant transformation, which will likely be further accelerated by regulatory developments in many jurisdictions. In 2009, our business volumes steadily improved as the year progressed, and we see this continuing. If the global economy stays on its current recovery path, I'm confident we are in a good position to generate healthy growth in both 2010 and 2011.

The economic environment in 2009 was the most challenging I've seen during 0my working lifetime. The resilience and professionalism shown by our consultants during this period of time makes me feel proud and privileged to be a part of Milliman. In direct response to the needs of our clients, 2009 was our busiest year ever. I believe the U.S. economy, while improving, remains fragile. People are worried about losing their jobs. Companies face uncertain revenue streams. Consequently, large purchases and capital expenditures are being deferred. Credit remains tight. All involved are being very careful with respect to committing resources. The global economy, while less dependent on the U.S., will not recover without the U.S. also moving forward.