The Willis Group Holdings Ltd. insurance brokerage firm reported second quarter net income down 50 percent, thanks to the soft market and higher expenses associated with personnel cutbacks, although organic growth grew 3 percent overall on the strength of international business.
The London-based firm's second quarter net income dropped in half in the quarter–from $78 million last year to $39 million now, with earnings per share falling from 54-cents to 27-cents.
Revenues, however, grew 6 percent ($35 million) to $661 million.
For the first half of the year, net income dropped 17 percent ($42 million) to $205 million. Earnings per share fell 22-cents to $1.43. Revenues increased 7 percent, up $91 million to $1.46 billion.
Chairman and Chief Executive Officer Joe Plumeri said during a conference call that the company is pleased with this quarter's results, underscoring the 3 percent organic growth for both the quarter and first half.
The quarter reflects an increase in new business of 5 percent and a retention rate of 91 percent, he said. The company expects organic growth to remain positive through to the end of the year, noted Mr. Plumeri.
Leading the organic growth was international business, which rose by 10 percent. Mr. Plumeri said the business showed especially strong growth in Spain, Denmark, Latin America and Asia despite rate declines of up to 15 percent.
The soft market prompted a 1 percent decline in organic growth for the North America region, Willis said.
Mr. Plumeri also blamed the drop in business on the distraction caused by the firm's announced acquisition of Hilb, Rogal & Hobbs Company. Executives spent three weeks visiting HRH business units discussing the future with employees and developing integration strategy, he said.
He added that the deal remains on track for completion during the fourth quarter of this year. Revenue and retention rates have improved, but premium declines of as much as 16 percent affected earnings.
The soft market also had a negative impact on global business, which comprises specialty and reinsurance, with zero percent organic growth. Mr. Plumeri said the soft market pressures were primarily on reinsurance, with up to 10 percent rate declines and high retention levels among carriers.
Second quarter expenses rose 20 percent, or $96 million, to $584 million, compared to the same period last year, while for the six months expenses rose 17 percent ($165 million) to $1.15 billion.
The expenses reflected the elimination of 350 positions over the first six months of this year. That resulted in pre-tax charges of $62 million in the second quarter and $95 million through the first six months for contract buyouts, severance and other costs.
Regarding the acquisition of Richmond, Va.-based HRH, the $2.1 billion deal includes the assumption of approximately $400 million in HRH existing debt, Willis said.
Mr. Plumeri said the brokerage is confident it can replace $50 million in contingent commissions that HRH currently earns. Willis does not accept contingent commissions as part of a 2005 settlement worked out with the New York State Attorney General, after such fees were linked to kickbacks involved in a price-fixing scandal.
Willis also announced that it would pay a quarterly dividend of 26-cents a share on Oct. 13 to shareholders of record as of Sept. 30.
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