By CYRIL TUOHY, managing editor of Risk & Insurance
Third-quarter earnings for the major insurance brokers were in line with analysts' expectations of mid-single-digit organic growth in commissions and fees, a roundup of the latest earnings releases reveals.
Brokerage executives said they see some firming of rates in U.S. workers' compensation lines and rate hardening in property-catastrophe programs, but pricing in casualty lines remains soft.
Asia Pacific and Latin American markets helped offset lower commission and fee income from North America. Here is an earnings roundup delivered by the major brokers.
Marsh & McLennan Inc.
Marsh & McLennan Cos. Inc. reported a third-quarter profit of $130 million, a 23 percent decrease from the year-ago period due to a $72 million charge related to the early retirement of debt, the company said. Earnings per share dropped 6 cents to 24 cents a share, the company said.
Third-quarter revenues rose 11 percent to $2.8 billion, the New York-based company said, and income from continuing operations rose $5 million to $133 million.
Third-quarter numbers reflect "our ongoing strong performance," Brian Duperreault, president and CEO of Marsh & McLennan, said in a statement. "All of our businesses continued to generate revenue growth and double-digit growth in profitability."
Marsh & McLennan is the parent company of insurance broker Marsh, the benefits consultant Mercer and the analytics consultant Oliver Wyman.
Revenue from the risk and insurance segment, Marsh and reinsurer Guy Carpenter & Co., increased 11 percent to $1.47 billion, the company said, with the biggest percentage gains coming from the Asia Pacific and Latin America regions.
Revenue from the consulting segment, Mercer and Oliver Wyman Group, also rose 11 percent to $1.33 billion.
"Mercer's underlying revenue growth has continued for more than a year, driven by strong results in its consulting and investment businesses," Duperreault said. "Oliver Wyman's strong underlying revenue growth was broad-based across industry sectors."
Aon Corp., the Chicago-based insurance broker and benefits consulting giant, reported third-quarter net income of $198 million, an increase of 38 percent from the year-ago period, the company said.
Earnings per share rose 8 cents over the year-ago period to $0.59 cents a share, the company said. Third-quarter revenue rose 52 percent to $2.7 billion compared with the year-ago period.
Total revenue from Aon's risk solutions segment, which includes its retail brokerage and reinsurance business, rose 9 percent to $1.6 billion, the company said. Organic revenue growth, however, was just 3 percent.
Revenue from the company's human resources solutions segment jumped 246 percent to $1.1 billion, due mostly to the purchase of Hewitt Associates last year. Organic revenue from the segment shrunk by 2 percent, the company said.
Aon Hewitt-related expenses also increased to $1.0 billion, an increase of 288 percent, much of it for compensation and benefits. Other expenses included charges related to restructuring and integration of Hewitt into the Aon fold, which cut into the company's margins.
President and CEO Greg Case said in a statement that despite "challenging" global macroeconomic conditions, Aon's risk segment had performed particularly well in the quarter. Aon also was beginning to see some savings from the integration of Hewitt, he said, and that Aon would benefit from those savings even more in the future.
Willis Group Holdings Inc.
Third-quarter net income dropped 6.2 percent to $60 million from the year-ago quarter due to $15 million in expenses related to an operational review of the company and the severance costs associated with the elimination of about 200 positions, Willis Group Holdings reported.
Earnings per share decreased 3 cents to 34 cents a share, the company said.
Third-quarter revenues increased 4 percent to $762 million compared with the year-ago period. Organic revenue growth in commissions and fees grew 2 percent, dragged down by an underperforming mortgage services insurance product in the North American market, the company said.
The underperforming Loan Protector product, in addition to a $20 million increase in the amortization of cash retention payments, sliced into the company's operating margins. Adjusted operating margin was 13.8 percent, a decrease from 14.5 percent in the year-ago period, the company said.
Offsetting declines in the North America segment was the international segment where growth in Latin America and Eastern Europe generated $203 million in commissions and fees, up 11 percent over the year-ago quarter. Organic growth in the segment was 5 percent.
The company's global segment, which includes reinsurance, specialty, London markets and the capital markets, reported commission and fee income of $236 million, an increase of 12 percent compared with the year-ago quarter. Organic growth in the segment was 9 percent, the company said.
Arthur J. Gallagher & Co.
Itasca, Il.-based Arthur J. Gallagher & Co., the nation's fourth-largest broker, reported third-quarter net income of $49.2 million, an increase of 14 percent over the year-ago period.
Earnings per share rose 2 cents to 43 cents a share. Third-quarter revenues rose to $562 million, a 22 percent increase, the company said.
"Our third quarter showed excellent progress," J. Patrick Gallagher Jr., chairman, president and CEO, said in a statement. "We are seeing organic growth in all of our operations."
Organic commissions and fees from the brokerage segment rose 2.2 percent to $332.9 million, the company reported. Organic commissions and fees from the risk management segment rose 12.9 percent to $127.4 million, the company said.
The company's total organic growth from the brokerage and risk management segments, commissions, fees and supplemental commissions was up 5.2 percent in the quarter.
"I think that's excellent work by our team," Gallagher said, in a conference call with analysts. "I think it just shows that our sales and client service culture is alive and well."
International sales in Australia and in Great Britain, where Gallagher bought the insurance broker and employee benefits consultancy Health Lambert in May, were strong, he also said.
Gallagher was preparing to make more U.S.-based acquisitions in the fourth quarter, he said.
Brown & Brown
Despite a $2.6 million expense in connection with a 17-year-old legal claim, Brown & Brown Inc. reported third-quarter net income of $44.1 million, a decrease from $44.2 million in the year-ago period, the company said.
Third-quarter earnings per share dipped 1 cent to 30 cents a share, the superregional Florida-based broker said. Total revenue for the third quarter increased 5.2 percent to $260.4 million, the company said.
"We continue to swim upstream against a very difficult economy," J. Powell Brown, president and CEO of Brown & Brown, said in a statement. "We are pleased that our services, national programs and wholesale brokerage divisions achieved positive internal revenue growth for the third quarter."
Revenue growth from the company's services segment increased 39.6 percent to $16.4 million. Organic or internal growth in that segment was 2.6 percent. National programs generated $38.6 million, an increased of 2.9 percent, the company said. Organic growth for that segment was 1.1 percent.
November 3, 2011
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