HUB Calls For Industry Fee Confab

By Mark E. Ruquet

NU Online News Service, Oct. 29, 11:15 a.m. EDT?Hub International Limited's chief executive said that an industry solution needs to be found for the compensation controversy brokers find themselves in, and a conference of all interested parties would be the best way to find it.[@@]

Martin Hughes, the Chicago-based insurance brokerage firm's chairman and chief executive officer, made the suggestion during Hub's investor conference call to announce the firm's third-quarter earnings.

"I think there has to be an alternative solution to [contingent fees]," he told analysts. "I think in today's environment people want things to be as transparent as possible. We think it calls for an industry wide solution--one that includes regulators, our customers, insurance companies and our peers."

Mr. Hughes said he has attempted to engage in some conversation on this point, but no one wants to discuss it at the moment, adding that people "are waiting for the dust to settle."

Before a conference can take place, regulations would have to be reviewed to ensure there are no violations of antitrust laws, he said.

One of Hub's subsidiaries, Kaye Insurance Associates, Inc., its New York Hub, received a subpoena from New York Attorney General Eliot Spitzer's office in his investigation of contingency fee commissions.

Recently, Mr. Spitzer filed a suit against Marsh alleging price fixing and manipulation of insurance contracts in return for profitable contingency fee commissions. The scandal forced the chairman and chief executive officer of Marsh & McLennan, Jeffrey Greenburg, to resign days ago.

In response to the scandal, Hub said it has created an internal task force and engaged an outside counsel to make an internal conduct review. It has also established a toll free hotline for clients to call.

Mr. Hughes noted that contingency fees are a profitable portion of its earnings. Unlike the major brokers, whose fee arrangements relied on Placement Service Agreements or Market Services Agreements tied to volume commitments, the bulk of Hub's contingency fees are tied to profit sharing agreements. He added that "very little" of Hub's contingent fees are tied to volume arrangements.

Five major brokers?Marsh, Aon, Willis, Arthur J. Gallagher, and Jardine Lloyd Thompson?said they would no longer be involved with contingency fees.

For the third quarter, Hub's revenues increased 47 percent, or $30 million, going from $65 million in 2003 to $95 million. Net income was off 83 percent, or less than $6 million, going from less than $7 million, or 22 cents a share, to more than $1 million, or 4 cents a share.

Hub said the decline in net income came from the compensation agreement made with 70 executives of Talbot Financial, acquired from Safeco Corp. earlier this year for $90 million. The firm recorded $6.9 million of non-cash stock-based compensation, which it said is not tax deductible.

Hub estimated the compensation pay-out would affect the firm through 2007, for a total of $48 million.

For the nine months, Hub's revenues increased 23 percent, or less than $49 million, going from $208 million in 2003 to $257 million. Net income dropped 13 percent, or $3.5 million, going from $26 million, or 81 cents a share, to more than $22 million, or 68 cents a share.

The firm also announced it would pay a quarterly dividend of 5 cents a share, payable on Dec. 31 to shareholders of record as of Dec. 15.

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