The four major insurance brokers appear to be recovering from the shock of losing contingent commissions as they reported growing revenues and strong net income, but continued growth will be a challenge in the softening market, analysts say.

The biggest brokerage–New York-based Marsh & McLennan Companies–saw revenue increase 3 percent, or $343 million, to $11.9 billion for 2006. Net income soared over 145 percent, or $586 million, to $990 million, while net income per share in 2006 increased from 74 cents to $1.76.

For the fourth quarter, net income increased $191 million to $226 million. Revenues rose 9 percent, or $252 million, to $3.06 billion.

By segments, risk and insurance services–which include Marsh and Guy Carpenter–saw revenues increase in the fourth quarter by $57 million to $1.4 billion. However, for the year, MMC reported this segment’s revenues down $129 million, to $5.5 billion.

“In 2005 it was clear that we had a challenging year, but we predicted better in 2006 and we think we have done it,” said Michael Cherkasky, MMC’s president and chief executive officer.

Not everyone, however, was as enthusiastic about MMC’s performance.

In an analyst’s note, David Small, with Bear Stearns, said he was lowering the 2007 earnings per share estimate for MMC to $1.65 based on concerns that Marsh will not be able to duplicate its performance in 2007. He also worried that the company will not be able to maintain the high retention rates it has enjoyed in the past.

During a conference call, MMC executives said that Marsh’s growth in the fourth quarter was due to some one-time new business that dramatically increased its revenues, and management admitted that it did not expect the broker to duplicate that performance. However, they said Marsh would continue to perform well.

Deutsche Bank Securities also lowered its earnings per share estimate by five cents to $1.80, but added, “[MMC] appears to have turned a corner from defense to offense, and should be positioned for steady improvement in 2007.”

The second-largest broker, Chicago-based Aon, reported flat net income in the fourth quarter of 2006 at $224 million. However, earnings per share improved by three cents to 68 cents, helped by a lower tax rate and restructuring. Revenues increased 7 percent, or $166 million, to $2.41 billion.

For the year, net income was down 2 percent, or $16 million, to $721 million, or $2.13 a share, while revenues increased by 5 percent, or $458 million, to $9 billion. Organic growth was up 5 percent, with brokerage growing 2 percent.

Greg Case, president and CEO of Aon, said the company’s restructuring and streamlining of operations was paying off.

“Our story remains a story of continuing to build off of a strong foundation,” he said, citing “steady progress in organic growth, profit growth and margin expansion, but clearly nowhere near where we want to be in those areas.”

London-headquartered Willis reported fourth-quarter net income nearly tripled from $55 million (35 cents a share) in the fourth quarter to $148 million (94 cents a share). Revenues increased 10 percent, or $59 million, to $621 million. For the year, net income rose nearly 60 percent, from $281 million ($1.72 a share) to $449 million ($2.84 a share). Revenues were up 7 percent, or $161 million, to $2.43 billion.

Despite the effects of the soft market, organic growth in commissions and fees increased 7 percent for the quarter and 8 percent for the year.

Willis CEO Joe Plumeri said the soft market would continue to bring challenges, but that the firm has been able to increase business as it concentrates on its client focus philosophy and expands into new markets, including middle-market accounts.

Over at Arthur J. Gallagher, fourth-quarter net income more than tripled, rising from $7.5 million (eight cents a share) to nearly $25 million (25 cents a share). Revenues were up 10 percent, or $39 million, to $415 million.

For the year, the Itasca, Ill.-based broker reported net income last year more than quadrupling from $31 million (32 cents a share) to $129 million ($1.31 a share). Revenues were up $50 million, or 3 percent, to $1.53 billion.

“I am very happy with the brokerage results in 2006,” said J. Patrick Gallagher Jr., the brokerage’s chairman, president and CEO. “We came through a tough year. We did a great job.”

Mr. Gallagher touted the firm’s success with embracing transparency, saying, “Our clients like it”–knowing what fees and commissions the broker takes up front. He credited the firm’s overall sales culture with its continued success.

When asked about new commission formulas to replace contingency schemes discredited in probes by former New York Attorney General Eliot Spitzer and others, Mr. Gallagher responded that insurers have begun to pay higher commissions to offset the loss of contingents, and that eventually more insurers would move in that direction.

“I’m not sure what model they will develop,” he said, “but I see major changes in the next few years.”

The comments prompted an angry response from Alan Smith Jr., president and CEO of the Western Insurance Agents Association, who called Mr. Gallagher’s comments “self-serving.”

He said insurers being forced to stop paying contingents to all producers as part of settlements of bid-rigging allegations was not good news for average agents, who depend on profit-sharing contingents to survive. He challenged Mr. Gallagher to give up his bonus, since he is asking agents to give up theirs.

Mr. Gallagher did not return a request for comment. However, one company source explained that Mr. Gallagher’s comments are not aimed at independent agents but at brokerage firms similar to Gallagher.