JLT '05 Net Income Sees 13% Drop

Jardine Lloyd Thompson Group plc reported net income dropped 13 percent for the year primarily due to adjustments for currency exchange rates and the loss of contingent commissions in the United States.

Reporting its preliminary results for the year ending 2005, London-based insurance broker JLT reported net income fell ?7.9 million ($13.7 million at current valuation) for the year, going from ?59 million ($102.5 million) to ?51.2 million ($89 million).

Revenues for the year, including fees and commissions and investment income combined, rose 4 percent, or ?18.2 million ($32 million), from ?482 million ($836 million) to ?500 million ($868 million).

JLT did not report quarterly earnings.

During a Web broadcast meeting with analysts, Ken Carter, JLT chairman, said 80 percent of the decrease was the result of two factors--currency valuation and the loss of placement service agreements (PSA), or volume-based contingent commission fees.

Currency losses accounted for ?9.3 million ($16 million) in income loss and PSA's accounted for ?6.4 million ($11 million), he said.

Fee competition among brokers for clients and fierce battles over remunerations to keep valued employees "combined to make a challenging environment," he commented.

Expanding JLT's business profile in the United States and South America also contributed to expenses.

Mr. Carter said the company has registered a positive impact from New York Attorney General Eliot Spitzer's investigation, which tied big U.S. brokers to bid-rigging and price-fixing in exchange for hidden volume-based fees from insurers.

He said the "Spitzer effect" has resulted in JLT picking up 200 new clients amounting to ?14 million ($24 million) in new business for the firm.

Dominic Burke, group chief executive officer, said the "group overall performance was not satisfactory;" however, the group's underlying business remains strong.

"We are the only alternative broker able to provide services to those who are not happy with the three top brokers," he said, referring to Marsh, Aon and Willis. All three have dropped contingency fees.

He said there is enormous competition among brokers to cut fees in order to retain business, which adds to the business strains. To combat this, JLT plans to outsource information technology functions and realign some of its business segments. JLT's business will see modest improvement in the first half of 2006, he added.

Mr. Carter said the U.S. specialty business is growing faster than initially thought, and that growth is expected to continue.