NU Online News Service, Aug. 2, 3:33 p.m. EDT

Willis Group Holdings' financial results will begin to strengthen in the second half of this year as the firm distances itself from an internal accounting fraud scandal and resolves integration issues related to the acquisition of Hib, Rogal & Hobbs, says Chairman and Chief Executive Officer Joe Plumeri.

“You've obviously seen some of the other brokers' reports and earnings already,” said Plumeri during a conference call. “The positive trends that they've talked are very encouraging for the industry as a whole…but as you saw our release last night, and compare it with those who have already reported, it is fair to wonder why Willis isn't in its historical position at the head of the pack.”

He noted that while the company reports organic growth of 2 percent, there are a number of issues that continue to “course through the system,” primarily related to the HRH acquisition, which is dragging down North America's results.

“This quarter marks an end to all of those things that have to be flushed through,” says Plumeri.

HRH was acquired in 2008, right as the financial crisis hit. Part of HRH's business was Loan Protector, a specialty business that works with financial institutions to confirm their loans are properly insured and interests are adequately protected. Plumeri said Loan Protector hurt earnings by 1 cent per share compared to last year, but he added, “This is the last quarter of the lopsided comparisons. Loan Protector is over.”

Additionally, Willis has said that several HRH producers left the firm, taking business with them after their non-compete agreements expired.

Compounding the HRH issues, Willis had to write down $28 million in fraudulent overstatements in commissions and fees from a Chicago office in its Employee Benefit group during the period spanning 2005 to 2011.

Willis' employee-benefits business also saw earnings pressure as healthcare companies reduced commissions.

Contrary to Willis' general practice, management decided to begin accepting contingent commissions on this business, which is expected to replace the loss of revenue from the drop in sales commissions.

In Europe, the economic crisis continues to adversely affect business and, Plumeri said, the firm put up subpar numbers for the United Kingdom and Australia.

“Those international numbers, we believe, are an anomaly, and not indicative of any trend,” Plumeri said.

“Despite our growth, we didn't come in as high as we wanted to this quarter,” he added.

For the second quarter, net income increased 24 percent, or $21 million, to $110 million. Revenues were down 2 percent, or $19 million, to $842 million.

Expenses were reduced by 1 percent, or $5 million, in the quarter to $500 million.

In the first six months of this year, Willis says net income rose $211 million to $342 million. Revenues were off less than 1 percent, or $13 million, to $1.86 billion.

Special Reports /

Fraud & HRH Acquisition Weigh Down Willis Earnings

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