Filed Under:Risk, Captives

AJG Net Profit Falls; Organic Growth Strong

NU Online News Service, Feb. 1, 3:27 p.m. EST

Arthur J. Gallagher kicked-off the fourth-quarter earnings report season for insurance brokers saying that its net profit dropped 18 percent, primarily due to increased expenses.

But theItasca, Ill.-based insurance-brokerage firm says there is strong evidence that earnings are on the rise.

AJG says 2011 fourth-quarter net income dropped $10 million to $45 million. Revenues increased by 26 percent or $119 million to $577 million.

For the year, net income was off 5 percent or $8 million to $159 million. Revenues rose 15 percent or $286 million to $2.13 billion.

J. Patrick Gallagher Jr., chairman, president and chief executive officer, was enthusiastic in his praise of the firm’s performance during a conference call with financial analysts today.

He noted organic growth grew substantially and that, during the year, the firm acquired a record $277 million in additional revenue. Contingent and supplemental commissions came in for the year at over $94 million, which he called “outstanding work from our field-management team.”

“Business was especially strong through the year, but especially in the fourth quarter,” said Gallagher.

Fourth-quarter organic growth in the brokerage segment came in at 5 percent, compared to flat in 2010. Revenues increased 22 percent, or $75 million, to $412 million. Full-year organic growth in this segment stood at 3 percent, compared to negative 2 percent the year before. Revenues rose 18 percent, or $231 million, to $1.55 billion.

In the risk-management services segment, the Gallagher Basset subsidiary, organic growth stood at 13 percent, compared to zero in 2010. Revenues rose 13 percent, or $17 million, to $146 million. For full year 2011, organic growth stood at 9 percent, compared to negative-3 percent in 2010. Revenues increased 19 percent, or $87 million, to $549 million.

Gallagher says the economy is showing signs of improvement, which is translating into more demand for insurance and risk services. The turnaround is being led in theMidwestwith “improvement in a number of geographies.” He says with the combination of an improved economy and flat rates “I will maintain organic growth.”

However, he cautions that while insurance rates are beginning to strengthen, he does not feel clients or the economy “can take a big spike” in premium increases. He notes that in the past when there have been large spikes in prices, customers bought less coverage.

Concerning continued acquisition activity, Gallagher says he believes there only five active insurance broker acquirers and there is a huge supply of interested parties. The combination of an aging baby boomer generation and need for greater expertise a smaller agency lacks will drive agencies to put themselves up for sale, he said.

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