Top Brokerages Report Mixed Results

During a conference call with analysts, Greg Case, Aon's president and chief executive officer, said general economic woes caused decreases in insured values, while soft commercial insurance market conditions also contributed to the overall decline. He said the trends extended to a couple of sectors–primarily construction.

The firm was also hit with "unfavorable timing of renewals" that impacted Aon's performance by a point to a point-and-a-half of growth, said Mr. Case. Aon also experienced a 48 percent decline in investment income, down from $25 million last year to $13 million this quarter.

However, Mr. Case said Aon continues to earn a high retention rate–in the 90 percent range–and recorded new business captured of $200 million. Mr. Case said he expects headwinds to "begin to stabilize" in the coming months as economic activity regains momentum.

MMC SOARS

Meanwhile, Marsh & McLennan Companies reported first-quarter net income rose 41 percent over the same period last year, as its business segments controlled costs and benefited from economic improvement.

The New York-based firm–parent company of insurance broker Marsh and reinsurance broker Guy Carpenter–reported net income rose $72 million to $248 million, an increase of 12 cents a share to 45 cents. Revenues rose 7 percent, up $186 million to $2.8 billion.

During a conference call with investment analysts, MMC President and CEO Brian Duperreault said the company was pleased with its performance and found the first-quarter results "very encouraging."

"Our performance is all the more impressive in light of the substantial challenges presented by the global recession," said Mr. Duperreault.

Despite signs of economic improvement, he said "economic weakness affects our operating segments."

Sagging commercial insurance rates, in their seventh year of decline, also undermined earnings, he said, adding that there was no sign of those market conditions changing anytime soon.

He credited segment managers with successfully navigating a difficult market environment to help produce the results.

At Marsh, capturing new business, high retention rates and controlling expenses resulted in an 8 percent increase in revenues–up $90 million to $1.17 billion. Revenues at Guy Carpenter rose 12 percent, up $34 million to $315 million.

Organic growth came in flat at Marsh, while Guy Carpenter recorded 1 percent organic growth. Organic growth at the Risk and Insurance segment as a whole was flat.

MMC's consulting segment–which includes Mercer and Oliver Wyman Group–saw revenues increase 7 percent, up $72 million to $1.16 billion. Organic growth was 1 percent.

Risk consulting and technology, which consists primarily of Kroll, saw revenue down 3 percent to $162 million compared to the same period last year.

Mr. Duperreault said that as Marsh improves, it is turning more of its attention to growth. He noted that the broker has made seven acquisitions in the past six months–the largest being HSBC Insurance brokers, a deal that closed in April, which he called a strong fit for the firm.

The merger, he said, strengthens Marsh's presence in the United Kingdom, Hong Kong, Singapore, China and the Middle East, adding $200 million in annualized revenue to the firm.

Five of the seven acquisitions were for Marsh & McLennan Agencies. Mr. Duperreault said the acquisition strategy for that segment involves acquiring a total of 10 "hub" agencies around the United States.

Guy Carpenter reported revenue growth despite poor economic conditions. Like Marsh, the reinsurance broker was able to capture new business and had high retention rates and a disciplined approach to expense management, Mr. Duperreault said.

Underscoring the performance of its brokerage arm, Marsh Chair and CEO Daniel S. Glaser said new business in Canada and the United States was up 14 percent, while international was up 2 percent, for a total increase of 7 percent–or $221 million of new business in the quarter.

"We are certainly winning in the marketplace," according to Mr. Glaser.

In the area of broker compensation disclosure, Mr. Glaser said the firm is committed to transparency, and while compensation arrangements are not the same throughout the world, he repeated that the firm will not accept contingent commissions on core, U.S. business.

Mr. Glaser explained that the reason Marsh has decided to do this is because of clients who indicated they preferred that the broker did not accept contingent commissions on their business. He added that Marsh is confident the firm can "be fairly compensated in that segment."

WILLIS GAINS

Willis Group Holdings reported first-quarter net income rose 6 percent over last year as the company captured new business and continued to control costs.

"Economic conditions remain challenging in a number of countries in which we operate, on top of that…the rate environment is still very soft. But against this background we delivered, and that's what we are excited about," said Willis Chair and CEO Joe Plumeri during a conference call with investment analysts.

Willis reported first-quarter net income rose $11 million to $204 million compared to the same period last year, increasing earnings per share by four cents to $1.20.

Revenues rose 5 percent, up $42 million to $972 million on the strength of a 5 percent growth in commissions and fees of $48 million to $963 million.

The company reported organic growth of 3 percent, with all business segments contributing positively.

North America, which saw a decline of 5 percent for the first quarter last year, reported 1 percent growth this year.

Mr. Plumeri said organic growth was achieved on the strength of "strong, new business with high client retention and producer retention."

In response to questions about whether the conversion of contingent commissions from its acquisition of Hilb, Rogal & Hobbs affected the organic growth numbers for North America, Mr. Plumeri said the transition of those commissions takes place over the course of a year and not a single quarter.

Mr. Plumeri said the change is not done on a dollar-for-dollar basis and is not reflected in the organic growth numbers.

Willis does not accept contingent commissions because it feels they create a conflict of interest, and Hilb and Rogal is now adopting the stance of the parent company.

Willis–which acquired HRH in 2008–has a three-year window to convert the broker's contingent commissions to up-front, supplemental commissions. HRH has $8 million of contingent commissions left to convert out of $20 million that it had during the first quarter of last year.

Willis has steadfastly refused to accept contingent commissions on its brokerage business, and in late April launched a campaign to educate risk managers on the inherent conflict of interests that the broker says they produce. (See http://tinyurl.com/34ufcvy for details.)

Despite the recession, Mr. Plumeri said there were signs of some improvement in the firm's construction and employee benefits business. Construction moved from double-digit negative growth to single-digit declines, while employee benefits was flat for the first quarter, which he said was impressive in the face of continued layoffs.