Richmond, Va.-based insurance broker Hilb Rogal & Hobbs Company reported third-quarter net income more than tripled over the same period last year, but the performance did not meet the company's expectations, the chief executive said.
In the third quarter net income increased more than 300 percent, or $26 million, from a loss of $7 million, or 19 cents a share, to $19 million, or 53 cents a share. Revenues were up 5 percent, or $9 million, from $164 million to $173 million.
During the third quarter last year, HRH posted a $26.3 million charge related to its regulatory settlement with the Connecticut attorney general over accusations of steering accounts to insurers paying profitable, volume-based contingent commissions.
While the major brokers–Marsh, Aon, Willis and Arthur J. Gallagher–gave up all contingent commissions, HRH negotiated a settlement where it gave up volume-based contingents, but did not have to give up contingent commissions based on account profitability.
For the nine months, net income rose 79 percent, or $29 million, from $37 million, $1.01 a share, to $66 million, or $1.81 a share. Revenues were up 5 percent, or $25 million, from $510 million to $535 million.
"Even though our results didn't meet our expectations, beneath the surface, we did have improved operating performance in a tough market setting," said Martin L. Vaughan III, chairman and chief executive officer, during an analyst's conference call today.
Despite the soft market, the brokerage reported steady organic growth between 3 and 5 percent, and Mr. Vaughan said retentions have improved.
"Our core operating performance has actually improved in the quarter," he said.
HRH said that so far this year, it has completed four acquisitions with annualized revenues of more than $35 million.
F. Michael Crowley, HRH president, said based on discussions with carriers during the recent meeting of the Council of Insurance Agents and Brokers, the market will continue its slide through 2007, but dramatic downturns are not expected.
On the regulatory front, Mr. Vaughan said the firm has received a total of 16 subpoenas related to contingency fee investigations and recently received two more subpoenas from the New York and Illinois attorneys general.
He said the firm is cooperating with the inquiries.
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