Willis Sees Cost Of Recruitment Benefit In The Future

The chief executive of Willis Group Holdings Ltd. defended the company's spending on recruitment and retention, which led to a 35 percent decrease in net income in the third quarter, missing analysts' earning estimates by five cents a share.

Joe Plumeri, the insurance brokerage firm's chairman and chief executive officer, speaking to analysts today during a conference call, said the company's strategy is to grow the firm through sales. The only way to do this, he noted, is to invest in people capable of achieving growth.

"We plan to grow revenue through aggressive expansion of our sales force," Mr. Plumeri said. "We spend money purposely with growth [in mind] for the future."

"Decisions made today will mean a stronger, more profitable Willis in the future," he said.

To this end, he said the firm has recruited new talent and paid incentives to keep others at the firm in what he called a "very competitive" hiring environment. He admitted, however, that Willis has lost some of its executives to "new and old competitors."

In the third quarter, expenses for salaries and benefits increased 13 percent, or $37 million, from $276 million to $313 million. Net income dropped $26 million, going from $75 million, or 45 cents a share in 2004, to $49 million, or 30 cents a share. Analyst's consensus estimate was 35 cents a share. Revenues were off $3 million, or less than 1 percent, going from $490 million to $487 million.

For the nine months, net income was down 25 percent, or $79 million, going from $319 million, or $1.89 a share, to $240 million, or $1.45 a share. Revenues were up 1 percent, or $18 million, from $1.69 billion to $1.7 billion.

Mr. Plumeri pointed out that besides expenses for recruitment and retention, the firm is spending money to improve its technology and incurred legal costs related to the contingency fee scandal and other matters.

This third quarter was the first to substantially show the impact of the loss of contingent commissions--abandoned earlier this year as part of a settlement with Attorney General Eliot Spitzer--and the loss of revenue with the sale of its wholesale division, Stewart Smith.

In a separate announcement today, Willis said it is expanding the responsibilities of several of its executives and appointing a new chief financial officer.

Patrick Regan was named chief financial officer. He will report to Thomas Colraine, vice chairman, co-chief operating officer and CFO. Mr. Colraine will retain the title of CFO until the end of this year.

Mr. Regan came from Royal & Sun Alliance, where he was group financial controller for the past two years.

Mr. Colraine will oversee mergers and acquisitions, investor relations, risk management, global operations, information technology, real estate and human resources. He will also retain oversight of the company's financial group.

Richard Bucknall, vice chairman and co-chief operating officer, will continue to lead the global business unit. In addition, he will be responsible for enhancing and increasing "the global efficiencies of Willis' business processes," the broker said.

Gregory A. Arms was named executive vice president and chairman of Willis' global employee benefits practice.

Willis also announced it would pay a quarterly cash dividend on the company's common stock of 21.5 cents a share payable Jan. 16, 2006 to shareholders of record as of Dec. 31.