USI also spent close to $4 million on compliance issues and investigations related to the insurance industry contingency fee scandal.

Speaking during an analysts conference call today, David L. Eslick, chairman, president and chief executive officer for the Briarcliff Manor, N.Y., insurance broker, said a softening insurance market and regulatory compliance issues had affected the company's earnings.

However, he said, as USI announced in December, it has taken a number of steps to shore-up future earnings and become more efficient, which included the layoff of one percent of its workforce. In that announcement, the company lowered its earning guidance for 2004 from $1.02 to $1.07 a share, from 96 cents to 98 cents a share.

"We feel very confident in the cost savings that will be realized in 2005 from these activities," Mr. Eslick said. "We feel very confident that our sales and marketing initiatives, along with our business strategy around revenue diversity and cross selling, will be very evident in 2005," he added.

Mr. Eslick said USI's strategy will become more evident as the economic environment improves and the firm can take advantage of the situation.

For the fourth quarter, net income dropped from more than $18 million or 38 cents a share, to a loss of $7.5 million, or a loss of 15 cents a share. Revenues increased 17 percent, or $16.3 million, going from $97 million to $113 million, largely on acquisitions.

For the year, net income was down 77 percent, or more than $27 million, going from $36 million, or 77 cents a share, to $8.3 million, or 17 cents a share. Revenues increased 18 percent, or less than $62 million, going from $345.5 million to $407.2 million.

Some improvements the firm said it is seeing are increased retention rates, which have improved from 87 percent in the first quarter to close to 91 percent in the fourth quarter.

The company is also recording growth in its business segments, especially specialized benefits services, which grew 18 percent due to increased demand for worksite marketing and enrollment services.

On the sale of three of the firm's operations, the firm said one was sold, a second is near completion and a third has a number of promising bids.

During the call, USI revealed that the firm has not finalized the separation payment for Thomas E. O'Neil, senior vice president and chief operating officer, whose resignation was announced last week. The package is expected to cost USI about $1.5 million.