Willis Group Holdings reports second quarter net income dropped 3 percent despite strong earnings growth in all segments of the company.

The firm says salary increases and the negative impact of foreign exchange rates led to the decline.

For the quarter, Willis reports net income of $107 million, down $3 million from the same period last year. Revenues increased 6 percent to $890 million. Net income over the first six months was down 3.5 percent over last year, to $330 million, while revenues were up 5 percent to $1.94 billion.

Commission and fees rose close to 6 percent in the quarter to $885 million with organic growth of more than 6 percent. Organic growth was strongest in the firm's Global segment at more than 10 percent and weakest in International, which grew by less than 3 percent.

During a conference call with financial analysts, CEO Dominic Casserley, expressing overall satisfaction with the results, says much of the growth the firm experienced was new business won from competitors. He says the slower growth in International was principally due to slow economic growth in the United Kingdom and much of Western Europe.

Willis Group Chief Financial Officer, Michael K. Neborak, told analysts that the salary increase—resulting in more than 8 percent increase in expenses—was the result of approximately 450 new hires since July of last year; bonuses, and annual salary increases. The new hires were all client facing positions.

Other factors affecting earnings were unfavorable foreign currency movement of $7 million and approximately $7 million of one-time value added tax related charges.

Earlier this year, the firm said it would eliminate 200 full-time positions in a cost savings and reorganizational move that would save $20 million to $25 million in the second quarter of this year and provide annualized savings of $25 million to $30 million.

Discussing insurance rates in North America, President and CEO of Willis North America, Todd Jones, says overall, rates are trending flat to modestly down. The continued direction in rates—especially property—will be affected by the outcome of this year's Atlantic Hurricane season. The only exception to the trend is workers' compensation where Willis' has said it expects rates to rise 2.5 to 10 percent this year.

Driving rate declines are the combination of excess capital, underwriting performance of books of business and lack of catastrophes so far this year, says Jones. The declines, he adds, are largely dependent upon product and geography.

Special Reports /

Willis Q2 Net Income Down on Salaries, Foreign Exchange Rates

Related Stories

Recommended For You