Gallagher Sets Settlement Fund
The head of Arthur J. Gallagher & Company said while the insurance broker has reserved $35 million for settlement and litigation costs related to improper contingent fee activity, the firm has no idea when a settlement will be reached.
Discussing its first-quarter results, the Itasca, Ill.-based broker said it was putting aside $35 million based on a formula it believes was used by authorities to reach settlements after investigating three large brokerages–Marsh, Aon and Willis.
Gallagher, the fourth-largest broker, stopped taking contingent commissions at the beginning of the year but is still receiving fees it had contracted for in 2004, totaling $20.7 million in the first quarter.
J. Patrick Gallagher Jr., president and chief executive officer, said the firm is subject to 22 state inquiries from either state attorneys general or departments of insurance, 12 class-action suits, and one shareholder suit. "In the end, we don't know what the cost of litigation will be or when it will be resolved," he said during the investors' conference call.
Mr. Gallagher would not elaborate on any of the investigations, noting that he did not want to say anything that could affect any negotiations. "If we can find a way to put this behind us, we will do so," he added.
Gallagher also announced it would take an additional charge of $131 million to settle litigation between its synthetic fuel unit and Headwaters Inc., a provider of technology to the energy industry. Gallagher said the charges resulted in a net loss for the quarter of $74 million, compared to a gain of $39 million during the same period in 2004. Revenues rose 5 percent, to $349 million.
Mr. Gallagher said many of the company's accounts are seeing decreases of 10 percent or more, and as far as the firm is concerned, buyers and sellers are firmly entrenched in a soft market. "We are clearly running up a down escalator," he said.
On the positive side, customers are increasing their insurance coverages, and insurers are raising their commissions, which they cut during the hard market.
"We are clearly running up a down escalator."
J. Patrick Gallagher Jr., president and CEO, noting that many accounts are seeing double-digit rate cuts in a softening market.
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