HRH Sees Net Income Drop 95% On $18M Charge

Hilb, Rogal & Hobbs Co. reported second-quarter net income dropped 95 percent on a more than $18 million impairment charge related to legal expenses and other factors.

The Richmond, Va.-based insurance brokerage firm reported second-quarter net income compared to last year fell $21 million, or 60 cents a share, to more than $1 million. Revenues increased 5 percent, or $11 million, in the period to $211 million.

For the six months, net income dropped 65 percent, or $31 million, to $17 million. Earnings per share were off 83 cents to 46 cents a share. Revenues for the period rose 5 percent, or $19 million, to $417 million.

The impairment charge relates to the departure of certain key producers from HRH Reinsurance Brokers Ltd., a London-based reinsurance subsidiary, who were responsible for a significant portion of that unit's revenue.

Subsequently, HRH has entered into a co-brokering agreement with Willis and believes most of that business will be retained. However, said Michael Dinkins, the firm's chief financial officer, the firm decided it would be appropriate to take the impairment charge at this time.

Martin L. Vaughan III, chairman and chief executive officer, said the results may have been affected by the distraction caused from the announced agreement that Willis Group Holdings will acquire HRH.

"The combination of the two companies is compelling, [as are] the gains in market strength in many primary markets in the U.S.," said Mr. Vaughan. "Together our competitiveness and ability to serve clients in North America is significantly enhanced and be unparalleled."

He said the company incurred $2.6 million in legal expense over defense and settlement of noncompete and anti-piracy claims. One case resulted in a settlement of $9.8 million that occurred in July.

"We will continue to vigorously defend our rights under our noncompete and nonpiracy agreements," said Mr. Vaughan.

F. Michael Crowley, president and chief operating officer, said the underperformance of six offices acquired in the Banc of America Corporate Insurance Agency deal accounted for a negative 3.6 percent organic rate. He said the problems at those offices are being corrected.

Operations were also affected by soft market pressures, but retentions remain steady and the company continues to attract new business, said Mr. Crowley. Overall organic growth for the six months of 2008 stands at negative 2.2 percent, the firm said.