Soft Market & Charges Affect HRH 3Q

Pressures on earnings from the soft market and more than $12 million in charges for regulatory matters and an errors and omissions claim produced marginal third-quarter earnings for insurance broker Hilb, Rogal & Hobbs.

The Richmond, Va.-based broker reported net income increased 3 percent, but its operating net income in the quarter fell 14 percent. Management indicated it still has a big focus on acquisitions.

The net income figures involve charges and write-offs net of taxes. Net operating income came in at $16 million, a reduction of $2.6 million over the same period last year.

For the third quarter, net income rose to $19.6 million, a gain of less than 3 percent, or $558,000, compared with the same period last year. Earnings per share were flat at 53 cents a share for the quarter. Revenues increased 13 percent, or $22 million, to $196 million.

Comparing the first nine months to last year, net income rose 2 percent, or $1.4 million, to $67 million. Earnings per share were flat at $1.81 for the nine months. Revenues rose 11 percent, or $58 million, to $594 million.

During an analyst's conference call today Martin L. "Mell" Vaughan III said the firm's 0.6 percent organic growth rate was directly tied to the soft market. However, earnings were helped by the writing of significant new business in the quarter, offsetting the organic growth losses from soft market pricing.

To better its earnings, HRH plans to work at improving underperforming offices with a special team of executives to review office performance and develop a strategy for improvements. There will also be more focus placed on information technology costs and upgrades in efficiency.

The firm said it plans to address sales leadership to determine where improvements can be made.

Mr. Vaughan said the acquisition pipeline remains large, with many attractive candidates. For the first half of the year, the firm made six deals with annualized revenue of $65 million. During the third quarter there were three deals worth $20 million.

HRH has yet to close on its announced deal to purchase Banc of America's insurance division, which will bring an additional $66 million in revenue to the firm and more than 300 people.

HRH said the all-cash deal will involve tapping into $100 million of its lending authority, but executives would not reveal the final price of the acquisition.

Commenting on HRH's results, David Small of Bear Stearns said in an analyst's note that the firm missed the analyst's earning per share estimate of 55 cents, and consensus estimate of 56 cents. The results were primarily caused by a failure to control expenses, something he said is an on and off problem for the firm.