MMC Reports 4Q Net Income Down 6%

Marsh & McLennan reported net income dropped 6 percent in the fourth quarter, as the firm eliminated close to 3,000 positions in its insurance and consulting segments and continued to cut expenses through the year.

Brian Duperreault, president and chief executive officer of the New York-based services firm, called the results "strong" despite the loss which was affected by the adverse effects of foreign exchange rates, soft market pressures from insurance and the overall adverse economic climate.

He said Marsh turned in "an impressive performance" with economic growth and an improved retention rate. The main driver of the insurance broker's performance was expense reduction.

"It is a fantastic start to a multiyear process," he said during a conference call with analysts, adding that the coming year will see the firm grow in 2009 by improving its operations, acquisitions and expanding new business through its small and midsize business unit, Marsh & McLennan Agencies.

MMC's reinsurance broker Guy Carpenter also saw expense savings and remained profitable despite the soft market.

Mr. Duperreault repeated his public observations that market rates will harden, and said it is already happening in reinsurance, but that the upswing will be dampened by the current economic crisis which has seen a fall-off in business, leading to what he calls "the invisible hard market."

For the fourth quarter, MMC reported net income dropped $5 million to $80 million, or 15 cents share, from the prior year's $85 million, or 16 cents a share. Revenues were off 9 percent, or $253 million, dropping to $2.66 billion.

For the year, MMC reported a net loss of $73 million, or loss per share of 14 cents, compared to the prior year's net income of $2.48 billion. Revenues rose 4 percent, or $410 million for the year, rising from $11.18 billion to $11.59 billion. Last year's results included $1.9 billion gain on the sale of Putnam Investments.

Marsh reported organic growth of 3 percent for the fourth quarter despite a drop in revenues of 5 percent from $1.17 billion to $1.11 billion. For the year, organic growth stood at 2 percent, on revenue increase of 4 percent, going from $4.37 billion to $4.52 billion.

Guy Carpenter saw its organic growth fall 2 percent; reporting revenues dropped 6 percent from $156 million to $146 million in the fourth quarter. For the year, organic growth dropped 7 percent on a drop in revenue of 6 percent, going from $854 million to $803 million.

The overall insurance segment reported 1 percent organic growth with revenues decreasing 6 percent, going from $1.36 billion to $1.28 billion. For the year, organic growth was flat on a 1 percent increase in revenue from $5.4 billion to $5.47 billion.

In 2008, MMC eliminated close to 3,000 positions, with 2,200 at Marsh alone, 700 of which were outsourced. Another 400 positions were eliminated in its consulting service Mercer, with other expense controls at Mercer and its other consulting business, Oliver Wyman.

Vanessa A. Wittman said the company saw gains in its investment portfolio in the fourth quarter of $9 million due to mark to market gains, rising to $19 million. However, it is anticipated that the first quarter of 2009 will see an investment loss of $20 million due to reporting lags.

Daniel S. Glaser, chairman and CEO of Marsh, said while the firm has been successful in its expense reductions it is now time to grow the business and the foundations have been laid to do that. He said the firm is now beginning to see the fruits of negotiations with carriers for enhanced commissions based on the added value Marsh gives them.

"This is going to be a multiyear process," said Mr. Glaser.

Peter Zaffino, president and CEO of Guy Carpenter, said the firm has made significant changes for 2009 with repositioning of some segments to focus on growth beyond rate. He said the firm lost some U.S. business last year, but is now repositioned, and "you will not see that type of experience in 2009."