By CYRIL TUOHY, managing editor of Risk & Insurance®
Despite the continuing decline in commercial property/casualty prices, five of the seven largest commercial insurance brokers reported higher net income in the second quarter compared with the year-ago period, earnings reports show.
New York-based Marsh & McLennan Cos. returned to profitability and reported net income of $236 million, up $429 million from losses of $193 million posted in the year-ago period. Revenues rose 6 percent to $2.6 billion for the quarter.
MMC, parent company of Marsh, was on its way to once more becoming a "world-class growth company," said Brian Duperreault, president and CEO of MMC, in a conference call with analysts.
Aon Corp., MMC's Chicago-based archrival, posted second-quarter net income of $153 million, up $4 million from the year ago period as revenues rose 1 percent to $1.9 billion, the company reported. Aon CEO Greg Case, in a statement, called the results "solid progress."
The world's No. 3 broker, London-headquartered Willis Group Holdings, posted net income of $89 million, up $2 million over the year-ago period, as the company kept a lid on expenses. Revenues inched up 2 percent to $799 million in the period.
"This result was in the face of a continued soft insurance market and challenging economic conditions," Joe Plumeri, chairman and CEO, said in a statement.
Itasca, Ill.-based Arthur J. Gallagher & Co., the No. 4 broker as measured by 2009 sales, reported net income of $44 million, up by just $200,000 compared with the year-ago period. Revenues increased 1 percent to $460 million.
AJG President, Chairman and CEO J. Patrick Gallagher Jr. echoed the statements made by his Willis counterpart and said his company is going through "one of the most difficult economic environments in Gallagher's history."
Brown & Brown, based in Daytona Beach and Tampa, Fla., reported net income of $41.18 million, up slightly from $40.66 million in the year-ago period. Revenues dropped 1 percent to $243.6 million.
Marsh, Aon, Willis, AJG and Brown & Brown make up the nation's five biggest stand-alone publicly traded commercial insurance brokers as measured by 2009 revenue.
Brokerage executives, in conference calls and public statements, said the property/casualty economic environment remains difficult. Duperreault in his conference call with analysts, said competition among brokers "remains intense."
Prices as a whole in the property/casualty sector have been declining for more than two years, and buyers are demanding that their brokers return to the negotiating table with either better prices or more favorable terms and conditions. With the exception of offshore energy risks, property/casualty prices show no sign of hardening anytime soon.
On average, renewal rates for property/casualty rates dropped by about 6 percent in the second quarter from the first quarter, according to the Commercial Property/Casualty Market Index Survey released in July by the Council of Insurance Agents & Brokers.
"New carriers continue to enter the marketplace, further driving down rates," said Council President Ken A. Crerar. "The capacity seems endless at this point."
The first-quarter decline followed on the heels of a 5 percent decrease from the quarter before that, according to the CIAB.
In addition to falling prices, insured volumes have dropped as companies have fewer assets to protect, and as the remaining assets under their control aren't worth as much as they were five years ago.
"Exposure units and insurance premium rates remain 'soft' with no significant changes anticipated in the foreseeable future," said J. Powell Brown, president and CEO of Brown & Brown.
August 16, 2010
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