Brokers Show Strong Gains In 2Q

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Insurance brokers reported solid gains for the first half of2003 and forecast continued solid earnings for the rest of theyear.

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“We still believe it's a great time to be a broker,” said JoePlumeri, chairman and chief executive officer at Willis Group,delivering a typical comment during an earnings conference inJuly.

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In general, broker executives like Mr. Plumeri said that ratesare no longer growing as they did a year or a year-and-a-halfago.

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“Those were unusual spikes,” Mr. Plumeri said. “Rates are nowmoderating, but we would categorize [the market] as being on thehard side.”

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Willis Group Holdings Ltd. reversed a net loss of $7 million oneyear ago and posted a second-quarter profit of $80 million,attributing the result to higher premium rates. The U.K.-basedbroker's total revenue for the 2003 second quarter also improved,to $492 million from $411 million one year ago.

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Mr. Plumeri also said that non-U.S. insurers still have somecatching up to do. “From our global vantage, some markets havelagged the United States in rate increases and have further to goto reach appropriate rate levels,” he observed. “Many clientscontinue to see rate increases, especially for casualty lines.”

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Meanwhile, Marsh & McLennan Companies Inc., the parentcompany of global insurance broker Marsh Inc., postedsecond-quarter net income of $365 million–8.6 percent higher than$336 million in profit it reported a year ago.

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The company attributed this improvement to higher revenues, ledby its Marsh risk and insurance services unit which posteddouble-digit revenue growth.

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The company said its consolidated revenue jumped to $2.87billion in the second quarter, from $2.61 billion one year ago.Marsh & McLennan achieved this improvement, the company said,despite the declining revenue at its Putnam Investments unit. Theinvestment management unit saw its revenue fall to $495 millionfrom $581 million one year ago.

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But the risk and insurance services at its Marsh Inc. unitrevenue rose 17 percent to $1.68 billion from $1.44 billionreported in 2002 second quarter.

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Commenting on the strong performance of risk and insuranceservices, Marsh & McLennan chairman Jeffrey Greenberg said,“Marsh was the biggest contributor to our growth in the quarter,once again generating strong revenues and increasedprofitability.”

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Chicago-based Aon showed much improvement in its second quarterfor 2003 after reporting no income for the second quarter of2002.

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Net income in the second quarter of 2003 stood at $146 million.Revenues rose 15 percent, or $316 million, to $2.44 billion from$2.12 billion for the period.

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For the six months, net income increased $138 million, or 87percent, going to $297 million from $159 million. Revenuesincreased $616 million, or 15 percent, from $4.2 billion to $4.83billion.

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However, the firm reported an 8 percent decline in itsunderwriting that it said was due to a “back-to-basics strategy” inits accident and life and health underwriting.

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During an analysts conference call, Patrick G. Ryan, chairmanand chief executive officer of Aon, said the firm needed to improveits margins. Aon also reported a $9 million World Trade Centerrelated charge for lease space and $34 million benefit pension costincrease that affected earnings. The firms claims service segmentwas also off by $19 million.

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Arthur J. Gallagher, based in Itasca, Ill., said profit rose 5percent, or $1.7 million for the second quarter, going to $36.2million from $34.5 million for the three months ending June 30,2002. Revenues rose 12 percent, or $32.2 million, going to $299million.

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For the six months ending June 30, the broker reported a 30percent drop in net profit, which fell to $48.1 million from $68.2million for the first half of 2002.

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The firm took a charge of $19.3 million in the first quarter toexit investments in venture capital, development stage enterprisesand turnarounds. The firm said it no longer planned to makeinvestments in these enterprises.

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The firms brokerage segment lead net income improvements in thequarter, increasing by $8 million, or 39 percent, to $28.6 million.Risk management net income rose 28 percent to $7.7 million.Financial services net income reported a loss of $100,000 comparedto a gain of $7.9 million in 2002 for the three-month period.

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Overall, first-half revenues rose 9 percent for the period, or$47.5 million, going to $553.3 million from $505.8 million.

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Revenues for the brokerage and risk management segmentsincreased 17 percent, or $40.1 million, rising to $281.1 millionthis quarter. Financial services declined 31 percent going from$25.8 million in 2002 to $17.9 million.

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Explaining the financial services segment decline, the companynoted that a $9.3 million non-recurring investment gain wasrecorded in the second quarter of 2002.

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During a conference call in late July, J. Patrick Gallagher, thefirms president and chief executive officer, said he was “bullish”about the firms third- and fourth-quarter performance.

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He also said that the insurance industry is seeing somemoderation in rate increases, “but strong underwriting with upwardpressures remains the rule.”

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Also reporting improved earnings for the quarter were Daytona,Fla.-based Brown & Brown; Richmond, Va.-based Hilb, Rogal &Hamilton Co.; Chicago-based Hub International Ltd.; and U.S.I.Holdings headquartered in Briarcliff Manor, N.Y.

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Brown & Brown reported that net income in the second quarterof 2003 rose $6.5 million to $28 million from $21.4 million insecond-quarter 2002. Revenues rose $23 million during the period,to $137.9 million.

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For the first six months of 2003, net income increased 41percent to $58.5 million and revenue rose 25 percent to $282.6million.

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Hilb, Rogal & Hamilton reported that second-quarter netincome rose $6.7 millionrising to $19.1 million from $12.5 millionfor the second quarter of 2002. Revenues increased $43.8 million to$139.5 million during this period.

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For the six months, revenues rose 44 percent, or $86 million, to$281.5 million. Net income rose 18 percent, or $5.5 million, to$37.2 million.

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The firm attributed its results to a combination of growth fromacquisitions, new business and continued premium rate growth in theinsurance industry.

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Martin L. Vaughan III, the firms chairman and chief executiveofficer, reaffirmed the brokers full-year guidance for growth forthis year at between 9 and 11 percent. Mr. Vaughan said growthwould occur despite the moderation in price increases the insuranceindustry is seeing. He added that no one “expected increases tocontinue this year at last years levels.”

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The firm is looking to continue to grow especially in the areaof its excess and surplus lines business, he said, adding that thefirm is looking to grow this side of the business throughacquisitions and/or creation of new offices.

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U.S.I. Holdings reported net income for the second quarter of$7.6 million, a $13 million jump from the loss of $5.6 million thatthe firm reported in second-quarter 2002. Revenues increased 8percent for the period, or $6 million, rising to $86 million from$80 million.

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For the first six months, net income rose $37 million, turning aloss of $24.7 million in 2002 to a $12.5 million profit in 2003.Revenues increased 7 percent, or $11.3 million, to $169million.

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The firm recently moved its headquarters from San Francisco toNew York. David L. Eslick, chairman, president and chief executiveofficer of the firm, said the move made sense because 75 percent ofthe firms business is east of Mississippi.

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At Hub International, for the second quarter, net income was$10.6 million, compared to $11.5 million for second-quarter 2002.According to Hubs July 31 earnings announcement, factorscontributing to the 8 percent decline included revenue and expensetiming shifts, as well as the fact that a one-time gain wasreported from the sales of two agencies in 2002.

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Revenues in the quarter rose 29 percent to $74.2 million.

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(Additional reporting by Michael Ha.)


Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, September 1, 2003.Copyright 2003 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.


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