MMC Reports Kroll Sale Led To $193M Quarterly Loss

Marsh & McLennan Companies reported a second-quarter net loss of $193 million after a $315 million charge related to the sale of one of its businesses.

The charge for goodwill was taken for the sale of Kroll Government Services, which was completed during the second quarter.

MMC reported a net loss of $193 million, or net loss per share of 37 cents compared to net income of $65 million, or 12 cents a share for the same period last year. Revenues were down 13 percent, or $404 million, to $2.63 billion.

For the six months, the New York-based parent company of insurance broker Marsh and reinsurance broker Guy Carpenter reported a net loss of $17 million, or net loss per share of 3 cents compared to prior net loss of $145 million, or 28 cents a share. Revenues dropped 14 percent, or $819 million, to $5.24 billion.

Examining adjusted operating income, which excludes the impact of noteworthy items--namely the goodwill impairment--MMC reported income of $339 million for the second quarter compared to $358 million for the same period last year.

During a conference call with analysts, Brian Duperreault, president and chief executive officer of MMC, said, "Overall, we had a great quarter in light of the difficult economic environment."

He said the company continues to show profitability as it streamlines operations and watches costs.

This effort was especially noticed at Marsh, which reported flat organic growth for the period, "which we consider a reasonable outcome in this environment," Mr. Duperreault said.

Revenues at Marsh dropped 7 percent, or $80 million, to $1.1 billion in the quarter and dropped 8 percent, or $200 million, to $2.18 billion for the first six months of the year.

Mr. Duperreault credited Marsh Chairman and CEO Daniel S. Glaser and his team with better organization of the broker's management, control of costs and bringing in new business to the firm.

Guy Carpenter reported revenue increase of 16 percent (11 percent organic growth), or $31 million, to $227 million in the quarter. For the six months revenues increased 11 percent (10 percent organic growth), or $48 million, to $508 million.

In its other segments, revenues from consulting dropped 17 percent and revenues for risk consulting and technology (Kroll) were down 40 percent.

Answering a question about contingent commissions, Mr. Glaser said Marsh has pushed to eliminate the two-tier system of compensation that exists, where the three major brokers--Marsh, Aon and Willis--are banned from taking them and others are not. He said the ban should be ended at some point to level the playing field.

Responding to criticism from the Risk and Insurance Management Society that contingents lead to conflicts of interest, Mr. Glaser said all forms of commission have the potential for conflict of interest.

"The issue of contingent compensation is a bit of a red herring," said Mr. Glaser. "The real issue is carrier revenue streams, transparency and disclosure practices, internal systems, and controls that are designed to manage conflicts of interest."

He noted that while RIMS opposes contingents, "I think they would be vehemently against the notion of a contingent commission that is not coupled with full and transparent disclosure."

On the acquisition front, and the development of Marsh & McLennan Agencies which aims to develop mid- to small-size account business, Mr. Glaser said that while no acquisitions have taken place to date, there is a lot of interest among small agencies to be acquired. He said there is no intention to eventually fold it into the brokerage.

"I have no trouble running two businesses," he remarked.