Brokers Fueled By Hard Market Gains
Fueled by a hardening insurance market that sent premium volume–and commission income–soaring, three of the country's major insurance brokerages reported positive third-quarter profits, with Arthur J. Gallagher being the only exception due to investment writedowns.
The other big brokerage news of the quarter was Aon's announcement that it has decided to keep its insurance company affiliate and instead concentrate on getting rid of $1 billion in debt.
Patrick G. Ryan, chairman and chief executive officer, announced that the firm would not go ahead with either a spin-off or sale of its carrier–Combined Specialty. Instead, Mr. Ryan said, Aon would raise $1 billion in capital–$500-to-$600 million in equity and equity-linked securities to pay down debt, and $400-to-$500 million of debt extended maturity on existing debt.
The week following its Oct. 31 third-quarter release, Aon issued $250 million in 3.5 percent convertible bonds and 32 million shares in common stock to raise $550 million.
For the third quarter, Chicago-based Aon reported net income of $128 million, up 80 percent compared to $71 million for the same period in 2001. Net income per share rose 77 percent, going from 26 cents in 2001 to 46 cents this quarter. Revenues increased 18 percent, or $334 million, rising from $1.9 billion in 2001 to $2.25 billion this quarter.
For the first nine months, net income soared 140 percent, or $168 million, from $120 million in 2001 to $288 million. Net income per share rose 134 percent, going from 44 cents to $1.03. Revenues were up 14 percent, from $5.64 billion in 2001 to $6.46 billion this year.
In other brokerage results, Marsh & McLennan Companies, based in New York City–the parent company of insurance broker Marsh–reported a third-quarter net income gain of 78 percent, soaring to $299 million, compared to $168 million for the same period of 2001. For the first nine months of the year, the corporation reported that net income jumped by nearly one-third to $1.1 billion for 2002, compared to $830 million for 2001.
Income per share nearly doubled for the third quarter, up from 29 cents a share for 2001 to 55 cents a share in 2002. For the first nine months, MMC reported net income per share at $1.88, compared to $1.44 in 2001.
Revenues for the third quarter totaled $2.55 billion, compared to $2.4 billion for the third quarter of 2001–an increase of 6 percent. For the nine months of 2002, MMC reported a 3 percent increase in revenues of $7.8 billion for 2002 compared to $7.6 billion for the same period of 2001.
In the third quarter, revenues at Marsh increased 17 percent to $1.43 billion, compared to $1.22 billion for 2001. Operating income rose 39 percent, going from $240 million for the third quarter of 2001 to $334 million for 2002.
For the first nine months of the year at Marsh, revenues rose 14 percent, from $3.8 billion in 2001 to $4.34 billion for 2002. Operating income over the same period rose 29 percent, going from $874 million in 2001 to $1.13 billion in 2002.
MMC said in a statement that the "comparisons are affected by the unusual circumstances of Sept. 11."
London-headquartered Willis reported that its third-quarter net income rose $112 million, going from a loss of $81 million for the third quarter of 2001 to a gain of $31 million for 2002. Covering the first nine months, income rose $117 million, from a $25 million loss for 2001 to a gain of $92 million.
Net income per share in the third quarter rose 74 cents, going from a loss of 55 cents in 2001 to a gain of 19 cents in 2002. For the first nine months, per share results rose 76 cents, going from a loss of 19 cents to a gain of 57 cents per share this year.
Revenues for Willis increased 20 percent for the third quarter as well as the first nine months, the brokerage reported. Revenues rose $65 million in the third quarter, going from $325 million in 2001 to $390 million in 2002. For the first nine months, revenues increased $215 million, rising from $1.04 billion in 2001 to $1.25 billion in 2002.
Itasca, Ill.-based Arthur J. Gallagher reported that it saw third-quarter net income drop 44 percent compared to the same period last year due to $28.9 million in investment write-downs.
Net income in the third quarter dropped to $23.3 million from $41.9 million for the same period in 2001. This was despite an increase in revenues of 29 percent, from $229.6 million in the third quarter of 2001 to $297 million for 2002. Earnings per share dropped 88 percent from 47 cents to 25 cents.
For the first nine months, Gallagher said income fell 1 percent from 2001, to $91.4 million in 2002. Revenues rose 25 percent, going from $649.8 million to $809.1 million for 2002. Earnings per share dropped 3 cents to $1.
In a conference call, J. Patrick Gallagher Jr., president and chief executive officer, along with other executives, explained that the $28.9 million write-down was largely due to investment declines in equities and securities.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, November 18, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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