AJG Reports 4Q Profit Up 72%

NU Online News Service, Feb. 3, 3:03 p.m. EST

Arthur J. Gallagher & Co. reported fourth-quarter net income grew 72 percent on the strength of cost-cutting, integration of new business and stepped-up sales activity.

The Itasca, Ill.-based insurance broker reported fourth-quarter net income rose $12 million to less than $17 million, translating into earnings per share of 16 cents, an increase of 11 cents over the same period in 2008. Revenues rose 6 percent, or $23 million, to $435 million.

For all of 2009, net income rose 66 percent, or $51 million, to $129 million, an increase of 46 cents a share to $1.28. Revenues were up 5 percent, or $84 million, to $1.73 billion.

Organic growth for the brokerage segment stood at negative 1 percent, an improvement from negative 4 percent for the same period in 2008. For the year, organic growth stood at negative 3 percent compared to negative 1 percent for the previous year.

For the risk management segment, organic growth came in at negative 4 percent in the quarter compared to 2 percent in 2008. For the year, it stood at negative 1 percent compared to 5 percent for the previous year.

J. Patrick Gallagher Jr., chairman, president and chief executive officer for the firm, credited the company's good performance to a reduction of workforce and operating costs, plus the integration of Liberty-Wausau business that brought in 250 new employees.

A total of 15 acquisitions, including completion of the Liberty-Wausau deal in 2009, amounted to total annualized revenue of $98.5 million, the company said.

AJG eliminated 4 percent of its workforce in January of 2009 and 2010. Approximately 400 positions in its middle- and back-office workforce were eliminated for an estimated savings of $34 million annually.

The company also resumed taking contingent commissions in October, but most of that benefit will not be seen until 2011. However, acquired agencies that were supposed to give up their contingents will continue to receive them.

During a conference call with investment analysts today, reflecting on the economy and its improvement in 2010, Mr. Gallagher said he believes 2010 will be another tough year for the firm as premium prices remain in their soft market state and the economy makes a slow recovery.

As the economy improves, and businesses ramp up their business, insurance and risk management services will not see an uptick in business for at least a year, he predicted, noting that insurance lags behind as the economic situation improves.

"I'm really pleased with the progress the team made in 2009," Mr. Gallagher said. "I am worried that 2010 will be another test, but, as I said, as I look out over the longer horizon, I'm really excited about our opportunities."