Richmond, Va.-based insurance broker Hilb, Rogal & Hobbs Company reported first its quarter net income dropped 38 percent, blaming the drop on the declining price cycle.
The broker reported net income dropped $9.7 million or 27 cents a share to $15.5 million, or 42-cents a share. Revenues increased four percent, or $8.6 million, to $206.8 million.
HRH said it was able to nudge out an organic growth rate of 1.1 percent despite the soft market challenge.
The company also reported that its earnings results were impacted by a change in contingent commission payments to supplemental commissions, increased professional and claims fees, the impact of acquisition costs and increases related to employee medical program.
HRH said the impact of these four factors reduced operating profit margin by 5.1 percentage points in the quarter.
David Small, an analyst with Bear Stearns, said HRH came in 16-cents below his firm's estimates and 22-cents below the street estimates. He said the results were "disappointing."
During an analyst's conference call yesterday, Martin L. "Mell" Vaughan III, chairman and chief executive officer, said the firm was not pleased with the results and pointed to a recent market survey from the Council of Insurance Agents & Brokers that said commercial insurance rate reductions now stand at an average 13.5 percent. He said these type of rate declines have "a dramatic" impact on the firm's business.
"This is the toughest market I've seen in my 40 years," he told analysts, adding "We are trying like the devil to grow some earnings."
Commenting on acquisition activity, Mr. Vaughan said HRH has seen a number of good acquisition candidates take themselves off the market due to the soft market cycle. The pipeline is not as robust as the firm saw last year and is down to historic levels, he said.
Mr. Vaughan said those candidates that removed themselves did so because they either feared their earn-outs from revenues the business would generate would be diminished in a soft market or the competition of acquisition candidates diminished their value.
F. Michael Crowley, president of HRH, said the firm's litigation costs increased because one office "was raided" by a competitor and it is engaged in defending its non-compete agreement. He did not reveal what office was affected or how many employees were involved.
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