Willis saw net income more than double in the first quarter, as the brokerage left the previous year's headaches over settlement and regulatory expenses behind and began what its chief executive called a new chapter in its transformation.
Willis Group Holdings Ltd. reported net income increased 109 percent–from $67 million (41 cents a share) to $140 million (88 cents a share)–despite revenues increasing less than 1 percent to $671 million.
Expenses for 2005 were impacted by regulatory settlements–primarily an agreement with New York Attorney General Eliot Spitzer over allegations of steering insurance contracts to carriers in return for volume-based contingent commissions. Willis gave up the controversial bonus fees in the wake of conflict-of-interest questions.
"After coming out of a transition year in 2005, we were very happy–not ecstatic, but happy [with our results]," said Joe Plumeri, chairman and chief executive officer for Willis, speaking from New York during an analyst's conference call. "We believe it will get better."
Brian Meredith, an analyst for Bank of America, said in a note that Willis' results were 3 cents more per share than he predicted, but a penny less than the market's consensus. He noted that a change in accounting for recording incentive compensation had the effect of spreading out the results more evenly throughout the year.
Without that change, he added, Bank of America believes the reported results would have been lower.
Willis reported that organic growth increased 6 percent, with reported commissions and fees of $652 million.
Mr. Plumeri said all segments of Willis performed well, but cited capacity issues on the reinsurance side of the business.
"U.S. property-cat, retro and energy–there is a lot of scarcity in capacity, and subsequent price increases have clients reviewing pricing in these areas and restructuring programs accordingly," resulting in increased retentions, he explained.
The situation appears to be getting worse, he went on to say, as capacity shrinks in the face of rating agency pressures, new models which alter the risk profile, and lack of a strong retrocessional market. Major renewals in the United States are trying to get into the market early to secure whatever capacity is available, he observed.
Despite the challenge of soft market conditions, Mr. Plumeri said Willis' employees have done an excellent job and "things are going very, very well across the board."
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