Willis Doubles 2Q Net Income On HRH Acquisition

NU Online News Service, July 30, 1:28 p.m. EDT

Willis Group Holdings reported net second quarter income rose 123 percent over the same period last year primarily on last year's acquisition of Hilb, Rogal & Hobbs, but organic growth grew only 1 percent as the soft market and recession took a toll.

Net income for the second quarter rose $48 million compared to the same period last year, to $87 million. Earnings per share increased from 27-cents last year to 52-cents. Revenues increased 19 percent, or $123 million, to $784 million.

For the six months, net income increased 37 percent, or $75 million, to $280 million. Earnings per share rose from $1.43 to $1.67. Revenues increased by 18 percent, or $258 million, to $1.7 billion.

However, organic growth in commissions and fees for Willis rose 1 percent while acquisitions and disposals (primarily the impact of HRH), accounted for 26 percent of the growth in the quarter.

For the six months, organic growth stands at 2 percent and acquisitions and disposals accounted for 25 percent.

Joe Plumeri, chairman and chief executive officer of Willis, said during a conference call with analysts that the integration of HRH is ahead of schedule and 90 percent of contingent commissions the firm received were converted to supplemental, upfront commissions. He said he expects the rest of the contingents to be converted by the end of the year.

Willis has not taken contingent commissions since 2005 in an agreement with New York State after an investigation found they played a role in a bid rigging scheme involving some major insurers.

Continued cost cutting and focus on efficiency at both HRH and Willis continues to improve the firm's performance, he said, and he expects Willis to be well positioned to take advantage of both market and economic improvements when they come. He added that retention rates remained above 90 percent from the HRH business.

"When some of these headaches abate a bit, we will see improvement," said Mr. Plumeri.

However, the markets remain soft across the board, except for improvements in the reinsurance brokerage end of the business, he noted.

By business segments, organic growth in global brokerage in the quarter increased 7 percent and international rose 5 percent, while North America showed a loss of 8 percent. For the six months, organic growth for the global segment rose 6 percent and international was up 5 percent. North America organic growth came in at negative 7 percent.

Discussing Willis' interest in the major French brokerage firm Gras Savoye, Mr. Plumeri said Willis intends to keep an interest in the company as it continues to build itself into a more efficient organization.

Willis is in negotiations to sell a portion of Gras Savoye, but no agreement has been reached, said Mr. Plumeri. After it has achieved that goal, within the next two to three years, the firm will take a controlling interest in Gras Savoye. He said the intent is to allow private equity money build the business, saving Willis the cost of doing it.

Mr. Plumeri was dismissive of a recent suit filed in Miami federal court accusing his firm of being complicit in the alleged Allen Stanford organization Ponzi scheme. Mr. Plumeri said the litigation represented a group of disappointed investors looking for someone with deep pockets to sue.

The lawsuit involves the company because Willis sent a letter to a bank saying it had placed insurance for the Stanford institution (see NU Online, July 22, Stanford Investors Sue Willis Group Over Alleged 'Ponzi'),

"As a company, we will obviously defend ourselves vigorously," said Mr. Plumeri. "We do not believe that any Willis employee knew that Stanford was engaged in fraudulent activity and we are undertaking a full investigation of the facts so we can address matter as expeditiously as possible."