Arthur J. Gallagher said its fourth-quarter net income increased200 percent--proving the firm has adapted to life withoutcontingent commissions.

J. Patrick Gallagher Jr., the firm's chairman, president andchief executive officer, said the numbers mean the company is aheadof those who will eventually deal with a new compensation model inthe future.

"We embraced transparency the past year, and our clients likeit," said Mr. Gallagher during an analyst's conference call heldtoday.

He added that the brokerage has moved to a new business modeland said, "Our results reflect our loss of contingent revenue,except when we do an acquisition. We have settled a federal classaction suit, and most of our competitors have yet to face theseissues."

The class action filed in U.S. District Court in Newark, N.J.,which was settled for $37 million, alleged the company improperlyaccepted hidden contingent fees from insurers to steercustomers.

In response to a question about contingent commissions, Mr.Gallagher said the recent decision by Chubb and St. Paul Travelersto abandon contingent commission payments and adopt a differentcommission payment system was "very good news."

He predicted that more insurers would move in that direction. Hesaid through Gallagher's own negotiations with carriers overincreased commission payments to offset the loss of contingents, itis evident the insurers realize they need to support theirdistribution system and not plow the benefits of lost contingentpayments back into the carrier.

"I'm not sure what model they will develop," he said, "but I seemajor changes in the next few years or so."

For the fourth quarter of last year, the Itasca, Ill.-basedinsurance broker reported net income increased more than $17million, from $7.5 million, or 8 cents a share in 2005, to nearly$25 million, or 25 cents a share. Revenues were up 10 percent, or$39 million, from $376 million to $415 million.

For the year, net income increased by $98 million, from $31million, or 32 cents a share in 2005, to $129 million, or $1.31 ashare. Revenues were up $50 million, or 3 percent, from $1.48billion to $1.53 billion.

"I am very happy with the brokerage results in 2006. We camethrough a tough year; we did a great job," said Mr. Gallagher. "Ourculture, though, which I feel is our real differentiator, is very,very strong."

He said part of that cultural differentiator is the acceptanceof transparency concerning charges and the discontinuance ofcontingent commissions. The change in selling strategy has beenaccepted and embraced by both the sales representatives andcustomers, he continued, becoming a sales advantage and helping toincrease retentions.

The changes resulted in 6 percent organic growth for the firm, afourth-quarter increase in commissions of $20 million to $223million and an increase for the year of $65 million to $850million.

Mr. Gallagher credited the entire company for the firm'sperformance.

On the issue of its $37 million settlement amount, Mr. Gallaghersaid the cost of not settling was felt to be prohibitive.

He said attorneys' fees to defend the case would have rangedfrom $20-to-$50 million a year and required "tens of thousands ofman hours in the defense."

"The litigation could have taken three to four years, and whoknows whether we would have won," he said.

"It is not certain if this class will be certified. It is notcertain if the class will win, but we wanted the certainty of thissettlement," Mr. Gallagher pointed out, adding that the settlementis still subject to court approval.