Marsh Exec Sees Short Soft Market

Marsh Exec Sees Short Soft Market

By Mark E. Ruquet

NU Online News Service, July 28, 4:20 p.m. EDT?Marsh's president said he thinks indicators point to a short-term soft market as the industry begins to go through another cycle turn.[@@]

The observation came during Marsh & McLennan's first quarterly conference call, where the professional services firm, which consists of the insurance brokerage firm Marsh, consulting firm Mercer and financial investment firm Putnam, reported a 7 percent increase in net income for the second quarter and more than 3 percent increase in net income for the six months compared to 2003.

MMC's chairman and chief executive officer, Jeffrey W. Greenberg, said the company had a good quarter despite the softening insurance market and poorer-than-wished-for performance at Putnam.

Both Marsh and Mercer "more than offset the weakness at Putnam." He said the brokerage firm's performance was based on the portfolio of services it provides, its extensive geographic locations, the depth of clients and expense control.

Roger Egan, president and chief operating officer for Marsh, said that the current soft market cycle varies by geography, but it is most pronounced in North America, where the hard market began. This market turn, however, appears different from the last one of the late 1980's for a number of reasons, he said.

"You can't predict exactly where the market is going, but you can observe a number of factors," he said, suggesting that this downturn would not be as prolonged as the 1990s.

Interest rates still remain low and investments still remain weak, which means there will not be "a quick move to cash flow underwriting," which was the case in the late 1990s, he explained. Markets remain under-reserved and carriers are still moving to strengthen those reserves. Reinsurance is not leading the softening; instead, it is the primary market that is making the move "ahead of reinsurance prices."

"All of that tells us this is a different situation than in the late 1990s, and the duration of this market will be seen, but may not be as prolonged as it was in the 90s," said Mr. Egan.

Both Mr. Egan and Mr. Greenberg said the pace of decline is most significant in the first year and then tails off as time passes. The pace of decline, added Mr. Greenberg, is greater now than in the 90s, which might contribute to a shorter soft market than the previous one.

In the second quarter, MMC reported net income of $389 million, or 73 cents a share, compared to $365, or 66 cents a share, in the same period of 2003?an increase of $24 million.

Revenues rose 6 percent in the quarter, or $171 million, going from $2.87 billion to $3.04 billion.

For the six months, net income increased $27 million, from $808 million, or $1.47 a share, to $835 million, or $1.56 a share. Revenues increased 9 percent, or $529 million, going from $5.72 billion to $6.25 billion.

For the three months, revenues at Marsh rose 8 percent, from $1.68 billion to $1.82 billion. For the six months, revenues rose 10 percent, from $3.45 billion to $3.8 billion.

Mercer saw its revenues increase 12 percent in the quarter, going from $690 million to $773 million. For the six months, revenues have gone up 15 percent, from $1.3 billion to $1.53 billion.

Putnam revenues declined 10 percent in the quarter over last year, going from $495 million in 2003 to $446 million. In the six months, the investment firm posted a decline of 3 percent, going from $940 million to $907 million.

The investment firm was hit with charges of insider trading last year and is in the process of recovering from its loss of business, Mr. Greenberg noted.