Arthur J. Gallagher (AJG) kicked off the fourth-quarter earningsreport season for insurance brokers by saying that its net profitdropped 18 percent, primarily due to increased expenses. But theItasca, Ill.-based insurance-brokerage firm says earnings are onthe rise.

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

For the year, net income was off5 percent, or $8 million, to $159 million. Revenues rose 15percent, or $286 million, to $2.13 billion.

Chairman, President and CEO J. Patrick Gallagher Jr. said duringa Feb. 3 conference call with financial analysts that the firm'sorganic growth grew substantially and that, during 2011, AJG added$277 million of annualized revenues. Contingent and supplementalcommissions came in for the year at over $94 million.

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

In the risk-management services segment, the Gallagher Bassetsubsidiary, organic growth stood at 13 percent, compared to zero in2010. Revenues rose 13 percent, or $17 million, to $146 million.For full-year 2011, organic growth stood at 9 percent, compared to-3 percent in 2010. Revenues increased 19 percent, or $87 million,to $549 million.

Gallagher cautioned that while insurance rates are beginning tostrengthen, neither clients nor the economy “can take a big spike”in premium increases.

Concerning continued acquisition activity, Gallagher believesthere are only five active insurance-broker acquirers and thatthere is a huge supply of interested parties. The passing of anaging baby-boomer generation without knowledgable successors willlead to agencies putting themselves up for sale, he added.

Meanwhile, Chicago-based insurance broker Aon Corp. reported its2011 fourth-quarter net income increased 20 percent as pricing inthe insurance marketplace showed signs of stabilization.

The firm reported increases in both the insurance-brokerage andhuman-resource segments, with strong retention rates among clientson the insurance side. President/CEO Greg Case added that resultswere also helped by strong capital management.

Aon said its 2011 fourth-quarter net income was $277 million, up$46 million from 2010. Revenues rose 3 percent, or $85 million, to$2.99 billion.

For the year, net income was up 39 percent from 2010, or $273million, to $979 million. Revenues rose 33 percent, or $2.76billion, to $11.3 billion.

The firm reported organic-growth increases in both brokerage andhuman resources in the quarter, with overall corporate increases of3 percent for the quarter and 2 percent for the year.

During a conference call with financial analysts, Case said thebrokerage segment had a more than 90 percent retention rate in 2011and won $280 million in new business across retail brokerage.

The economic struggles in Europe were reflected in theorganic-growth numbers, where the international segment came in at1 percent aided by strong growth in Asia—but that was not enough tooffset issues with the European economy. In contrast, the Americasstood at 3 percent organic growth.