HRH Net Income Rose 14%

By Mark E. Ruquet

NU Online News Service, April 28, 1:10 p.m. EDT?Hilb Rogal & Hobbs Company brokerage (HRH) reported net income increased by more than 14 percent in the first quarter, but the results were hurt by increases in legal costs, compliance activity, claims expenses and lower prices.[@@]

The Richmond, Va.-based company said net income rose $3.5 million in first-quarter 2005, going from $24 million, or 67 cents a share, to $28 million, or 76 cents a share. Revenues increased 16 percent, or $25 million, going from $158 million to $183 million.

Martin L. “Mell” Vaughan III, chairman and chief executive officer, said premium rates are falling precipitously in the property area, in some cases exceeding survey estimates put out recently by the Council of Insurance Agents & Brokers.

In its most recent first-quarter survey of brokers, CIAB found rates dropped an average of 10 percent. Mr. Vaughan said some high profile property risks that the firm represents saw decreases as much as 20-to-40 percent.

“We are marketing heavily for our customers to get the best price we can, and sometimes that results in our income declining,” said Mr. Vaughan. “This [market climate] offers more potential for folks like us who are aggressive in marketing business…but there is a danger it could stunt our growth.”

Robert B. Lockhart, president and chief operating officer, said organic growth was off in the quarter, and the combination of production from newly hired producers and results from employee benefits accounts would not be felt until later in the year.

He noted that business retentions were off 4 percent at the firm, dropping from 88 percent to 84 percent in the quarter.

The firm reported income of more than $37 million in the quarter from controversial contingent commission fees, compared to less than $28 million for the same period in 2004. The contingents were primarily in the form of profit sharing agreements with carriers, HRH said.

Mr. Lockhart said the company has nothing new to add concerning investigations into contingent commissions from insurers. Probes of other brokers have tied acceptance of the commissions to price-fixing and improper steering of customers to carriers who paid those incentive fees.

The combination of legal, compliance and claims expenses for HRH in the first quarter was $4.9 million higher than in the same period of 2004. A spokeswoman for the firm said HRH did not release the total expenditure, but the increase was primarily from the ongoing contingent fee investigations.

HRH has said it was not subpoenaed by New York Attorney General Eliot Spitzer but has received subpoenas, or requests for information, from attorneys general in Connecticut, Florida, Massachusetts and North Carolina. It also received requests for information from insurance departments in 10 states.