By mark E. Ruquet

Willis Group Holdings will eliminate 500 positions throughoutthe company as it readjusts to the new realities of living withoutcontingent commissions, reporting a 51 percent drop infirst-quarter net income.

Joe Plumeri, chairman and chief executive officer of theLondon-based brokerage, said Willis would eliminate “nonperforming,producer-type positions.” The action amounts to 4 percent ofWillis' work force and will cost the firm $28 million in severance.He said the move will save $50 million by the end of 2005.

The move comes as Willis begins to realize the full effects ofthe elimination of contingency fees. Willis reported $3 million incontingent commissions in the quarter compared to a total of $21million the year before. The 2005 contingent commission paymentscame from business outside of the United States.

The broker eliminated all contingent commissions in Octoberafter New York Attorney General Eliot Spitzer announced a suitagainst Marsh & McLennan Companies over contingency feeabuses.

For the first quarter, net income plummeted by more than half to$72 million, while revenues only increased 1 percent to $669million. The first-quarter report included a charge of $51 millionfor a policyholder reimbursement fund set up to settle theinvestigations by Mr. Spitzer and Minnesota Attorney General MikeHatch. The firm also recorded $9 million in legal andadministrative fees and increased its provision for claims by $20million.

Mr. Plumeri said Willis is going through a“metamorphosis…breaking from the old and introducing the new.” Hesaid first-quarter results contained the “shedding of all the badthings and none of the good we will see going forward. This is amodel [that will be] much more enduring going forward.”

Mr. Plumeri indicated he was disappointed insurers have not cometo terms with Willis over the payment of fees for services thebroker provides to them but was optimistic it would be resolvedeventually. The firm collected $3 million in service fees fromcarriers. He said this figure should increase over the course ofthe year. In 2004, the broker collected $22 million in the firstquarter for such services.

The CEO also expanded on the comments he made in Philadelphia atthe Risk and Insurance Management Society's annual conference,where he called for a ban on all forms of contingency payments. Hisremarks sparked an angry rebuke from the National Association ofProfessional Insurance Agents, which called his suggestionshypocritical.

Mr. Plumeri noted the posting of a white paper on the Willis Website, titled: “The Leadership Moment.” In the paper, Willis callson all brokers, both retail and wholesale, to embrace “fulldisclosure and unconditional transparency.” The full text of theWillis white paper is available at www.willis.com/Extras/RIMSNews.aspx.

Flag: By The Numbers

Results Reflect New Realities

The first-quarter earnings report for Willis was affected by thesoft market and the purging of contingency fees. Here are some keynumbers:

o 51%–Drop in first-quarter net income.

o 500–Number of employees to be eliminated, representing 4percent of the broker's work force.

o $28 Million–Severance costs associated with downsizing.

o $50 Million–Anticipated savings from restructuring.