Soft Market Softens Willis' Earnings
By Mark E. Ruquet
NU Online News Service, Oct. 29, 12:40 p.m. EDT?Willis Group Holdings saw its net income for the quarter drop 24 percent, but its chief executive said he is confident the ongoing probe of the insurance brokerage industry will benefit the firm in the future.[@@]
London-headquartered Willis reported its third-quarter net income fell $24 million compared to last year, going from $99 million, or 59 cents a share in 2003, to $75 million, or 45 cents a share. Revenues rose $38 million, or 8 percent, going from $452 million to $490 million.
For the nine months, net income was up less than 8 percent, or $23 million, going from $296 million, or $1.75 a share, to $319 million, or $1.89 a share. Revenues are up 12.5 percent, from less than $1.5 billion to less than $1.7 billion.
The firm also announced a quarterly cash dividend of 18.75 cents to be paid on Jan. 14, 2005 to shareholders of record as of Dec. 31.
The decrease in net income for the quarter can be traced to a one-time tax benefit of $3 million the firm received in the third quarter of 2003. The firm paid $31 million in third-quarter 2004.
Joe Plumeri, chairman and chief executive officer, said during an investor's conference call that the firm's earnings are being hurt by a continued softening in the insurance marketplace that sees a general premium pricing decrease of between 10 and 20 percent, affecting commissions.
He said Willis would continue to do what it has done in the past to increase revenue and reduce expenses to improve earnings. The company is also improving its earnings through 8 acquisitions made this year, which account for $130 million in revenue.
The firm, he noted, is practicing a "balanced offense" by not relying on any single revenue stream to improve its earnings goals. He said the firm is working to keep commission rates steady.
The third quarter was not one of the best for Willis, said Mr. Plumeri, noting that there was an inordinate amount of business that did not come in the third quarter but which the firm expects to see in the fourth.
Mr. Plumeri added that the probe of the insurance brokerage industry can turn into an opportunity for Willis as potential clients begin to look to brokers for their service. One selling point he said he would make to these potential clients is that reforms other brokers are instituting are already in place at Willis, and have been for the last three years.
If Willis can pick up one percent of the business from other brokers, he said, the firm's earnings would increase by $220 million.
"This is our time," said Mr. Plumeri. "What we have put in place has come to roost."
Last week, Willis announced a series of actions that included a client's bill of rights and a hotline number for clients to call should they have a complaint.
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