Arthur J. Gallagher (AJG) kicked off the fourth-quarter earnings report season for insurance brokers by saying that its net profit dropped 18 percent, primarily due to increased expenses. But the Itasca, Ill.-based insurance-brokerage firm says earnings are on the rise.

AJG said its 2011 fourth-quarter net income dropped $10 million to $45 million. Revenues increased by 26 percent, or $119 million, to $577 million.

For the year, net income was off 5 percent, or $8 million, to $159 million. Revenues rose 15 percent, or $286 million, to $2.13 billion.

Chairman, President and CEO J. Patrick Gallagher Jr. said during a Feb. 3 conference call with financial analysts that the firm's organic growth grew substantially and that, during 2011, AJG added $277 million of annualized revenues. Contingent and supplemental commissions came in for the year at over $94 million.

Fourth-quarter organic growth in the brokerage segment came in at 5 percent, compared to flat in 2010. Revenues increased 22 percent, or $75 million, to $412 million. Full-year organic growth in this segment stood at 3 percent, compared to -2 percent the year before. Revenues rose 18 percent, or $231 million, to $1.55 billion.

In the risk-management services segment, the Gallagher Basset subsidiary, organic growth stood at 13 percent, compared to zero in 2010. Revenues rose 13 percent, or $17 million, to $146 million. For full-year 2011, organic growth stood at 9 percent, compared to -3 percent in 2010. Revenues increased 19 percent, or $87 million, to $549 million.

Gallagher cautioned that while insurance rates are beginning to strengthen, neither clients nor the economy “can take a big spike” in premium increases.

Concerning continued acquisition activity, Gallagher believes there are only five active insurance-broker acquirers and that there is a huge supply of interested parties. The passing of an aging baby-boomer generation without knowledgable successors will lead to agencies putting themselves up for sale, he added.

Meanwhile, Chicago-based insurance broker Aon Corp. reported its 2011 fourth-quarter net income increased 20 percent as pricing in the insurance marketplace showed signs of stabilization.

The firm reported increases in both the insurance-brokerage and human-resource segments, with strong retention rates among clients on the insurance side. President/CEO Greg Case added that results were also helped by strong capital management.

Aon said its 2011 fourth-quarter net income was $277 million, up $46 million from 2010. Revenues rose 3 percent, or $85 million, to $2.99 billion.

For the year, net income was up 39 percent from 2010, or $273 million, to $979 million. Revenues rose 33 percent, or $2.76 billion, to $11.3 billion.

The firm reported organic-growth increases in both brokerage and human resources in the quarter, with overall corporate increases of 3 percent for the quarter and 2 percent for the year.

During a conference call with financial analysts, Case said the brokerage segment had a more than 90 percent retention rate in 2011 and won $280 million in new business across retail brokerage.

The economic struggles in Europe were reflected in the organic-growth numbers, where the international segment came in at 1 percent aided by strong growth in Asia—but that was not enough to offset issues with the European economy. In contrast, the Americas stood at 3 percent organic growth.

Special Reports /

Aon Fourth-Quarter Net Income Up 20%; AJG Emphasizes Organic Growth

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