By DAN REYNOLDS, senior editor of Risk & Insurance
Ireland as a domicile may have tax advantages for Willis Group Holdings, but its hard-pressed economy isn't doing the brokerage's operations any favors, according to Willis CEO and Chairman Joe Plumeri.
The insurance broker announced in September that it planned to redomesticate to Ireland from Bermuda, in part to take advantage of Ireland's tax treaties with the U.S. and European Union countries. Willis is also the primary insurance broker in Ireland, counting on it for steady business in employee benefits and construction.
But Ireland's unemployment rate is currently north of 12 percent, which is hurting that very business.
In a conference call with analysts on Tuesday, Oct. 27, Plumeri bemoaned a horrible economy in Ireland as a weight on Willis' international results, which in general were a bright spot in the company's third-quarter earnings.
"Ireland is the real problem. As you know, the Irish economy is terrible. We are the largest broker in Ireland, and so you are talking about a very big impact that Ireland has on our international business," said Plumeri when pressed for details about Willis' international operations from JP Morgan's insurance analyst Matthew Heinemann.
Willis reported on Tuesday that it saw organic growth in the third quarter in its international and global sectors of 4 percent and 3 percent, respectively. North America was down 3 percent, the company reported.
Plumeri said that 25 percent of Willis's international business is in Ireland and the United Kingdom, both of which have been suffering economically. Otherwise, Willis' international operations would have done even better, he said.
"If you strip that away, what you are talking about here is still very good growth in International.It's 7 percent, 7 percent in this kind of environment in a soft environment ... I think is an outstanding achievement for all of our countries. Spain, Italy, Denmark, Asian business--all across the board are still continuing to do very, very, well," Plumeri said.
"Ireland and U.K. is a drag especially given the fact that Ireland's biggest businesses are EB (employee benefits) and construction, so that is what you get. But I wouldn't read into it that international is getting weaker, I would read into it that Ireland is getting worse," said Plumeri.
Overall, Willis reported net income from continuing operations of $78 million in the third quarter, a big jump from its net income of $36 million in the third quarter of 2008.
On a full-year basis, Willis reported net income of $409 million in 2007, $303 million in 2008 and is projected by Citigroup insurance analyst Keith Walsh to report an estimated $424 million for full-year 2009.
Plumeri said the company has reached "the beginning of the end" of its efforts to integrate the operations of Hilb, Rogal & Hobbs, the North American brokerage, which it acquired about a year ago in an effort to double its North American business. Looking forward, Plumeri said the company is now positioned to be more aggressive in pursuing new talent and business.
"I've said all along that when you do a merger an acquisition of this magnitude, it is hard. You guys know that this is very difficult to do," Plumeri told analysts.
In a report to investors, Citigroup's Walsh wrote that he was positively surprised by Willis' overall organic growth of 2 percent in the third quarter, but that he doubted that the company would be able to grow margin "meaningfully" in 2010.
Willis reported an operating margin of 21.4 percent for the third quarter of 2009. Plumeri told analysts on Tuesday that, if market conditions didn't change drastically, Willis might be able to achieve an operating margin of 25 percent in 2010.
He said if the long-awaited hard market arrives, that margin could be much, much better.
"We expect that on an ongoing basis, we should clearly be in the 25 percent-plus range in margins," Plumeri said.
October 29, 2009
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