Hilb, Rogal & Hobbs Company reported fourth-quarter net income rose 27 percent despite a challenging year in which it abandoned volume-based contingent commissions and agreed to set up a $30 million injured client reimbursement fund.

Martin L. "Mell" Vaughan III, chairman and chief executive officer for the Richmond, Va.-based insurance brokerage firm, said the results were "not as robust as we had planned."

For the fourth quarter of 2005, net income increased $4.2 million, going from $15.3 million, or 42 cents a share, to $19.5 million, or 54 cents a share. Revenues increased 3 percent, or $4 million, going from $160 million to $164 million.

For the year, net income declined 31 percent, or $25.2 million, going from $81.4 million, or $2.23 a share in 2004, to $56.2 million, or $1.55 a share. Revenues for the year were up 9 percent, or $54 million, going from $620 million to $674 million.

The firm reported a charge of more than $42 million for the year covering the agreement with Connecticut Attorney General Richard Blumenthal to settle allegations of steering insurance contracts to carriers to optimize the commission payments, and other legal and administrative costs related to the settlement and ongoing class action suits.

As a result of the agreement, HRH abandoned taking volume-based contingent commissions, but retained contingent commissions based on profitability. The loss of volume-based contingents amounts to 5 percent of the firm's revenues, said Mr. Vaughn, and it is still too early to tell how it will make up that difference.

HRH also added 120 positions to the firm, taking advantage of a strong labor pool available because of "higher than normal talent turnover" throughout the industry, said Mr. Vaughn.

He called this a once in a lifetime opportunity to bring people into the firm who are expected to help generate long-term growth for HRH.

As far as premium pricing is concerned, Mr. Vaughn said the market is seeing some signs of improvement. While catastrophe property is seeing dramatic increases, some casualty pricing saw decreases of only 5 percent, compared with 10 percent earlier in the year, which he said he hopes is a sign of improvement.

"We would be very happy if we can get back to zero [premium decreases]," commented Mr. Vaughn.

Earlier this month, HRH declared a quarterly dividend of 11.5 cents per share, payable on March 31 to shareholders of record as of March 15.

Special Reports /

HRH Sees 4Q Profit Rise 27% Despite Challenges

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