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By CYRIL TUOHY, managing editor of Risk & Insurance®

While some publicly traded commercial insurance brokerage firms struggled to hold the line against the continuing soft economy and lower insured values, others touted their aggressive cost-control measures, all of which made for a mixed earnings snapshot in the first quarter.

"Overall, we are pleased with how all of our businesses performed this quarter," said Brian Duperreault, president and CEO of MMC. MMC's retail brokerage and reinsurance units, along with its consulting division, Oliver Wyman, were responsible for much of the increase, a company statement said.

Dublin, Ireland-based Willis Group Holdings, the world's No. 3 broker, also reported higher profits in the first quarter. The company reported net income of $204 million in the period ending March 31, up 5.6 percent $193 million in the year-ago period.

Joseph Plumeri, chairman and CEO of Willis, said in a statement that soft rates and persisting economic pressure facing companies around the world made for a "challenging environment," requiring a "continued focus on cost control."

MIDDLE MARKET MORE SO

Dean Evans, analyst with Keefe, Bruyette & Woods in New York, said that the economy was affecting brokers serving middle-market clients more deeply than the big brokers serving Fortune 1,000 companies.

When a small professional services company hands out pink slips to four out of 10 people, for example, that amounts to 40 percent of the company's payroll, Evans explained. Large firms layoff employees as well, of course, but not to the same degree in percentage terms.

As a result, commercial insurance brokers with smaller clients are in turn similarly affected.

"Shrinking insurable exposure units continue to impact our results," said J. Powell Brown, president and CEO of Brown & Brown Inc., in a statement.

Brown & Brown, based in Tampa and Daytona Beach, Fla., reported net income of $44.12 million in the quarter ending March 31, down 8.1 percent from $48.01 million in the year-ago period.

Commission and fee revenues also suffered in the first quarter. Brown & Brown reported $218.43 million in commissions and fees in the first quarter, down 6.5 percent from the $233.70 million in the year-ago period.

"Brown & Brown is under pressure because of their business mix," Evans said, noting the brokerage's geographical base in the economically hard-hit state of Florida.

With margins "in the 33 percent range," Evans added, Brown & Brown is already operating very efficiently and as a result doesn't have anywhere to cut.

Another other major broker with significant exposure to the middle market is Itasca, Ill.-based Arthur J. Gallagher & Co. Inc., which reported net earnings of $29.2 million in the first quarter, up slightly from $26.4 million in the year-ago period, the company reported.

Revenue from Gallagher's core brokerage operations, however, dipped to $262.40 million in the first quarter, down 2.8 percent $269.90 million in the year-ago period.

Evans also said that Gallagher's lower margins--in the 20 percent range--have meant the company was able to trim payrolls and cut other expenses.

"Our team did an excellent job of pursuing supplemental commissions and continued to hold the expense line, both of which helped offset declining organic revenues," said Chairman, President and CEO J. Patrick Gallagher Jr., in a statement.

AON

At Chicago-based Aon Corp., first-quarter net income from continuing operations declined 23 percent to $178 million, from $230 million in the year-ago period, due in part to a $76 million restructuring charge.

The company reported revenues of $1.58 billion from retail commissions, fees and investments in the first quarter, up 3 percent from $1.54 billion in the year-ago quarter.

"Despite difficult economic and soft market conditions and a 48 percent decline in investment income ... we held total operating margins constant and increased earnings per share from continuing operations 11 percent," said Greg Case, president and chief executive officer, in a statement.

May 14, 2010

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