Segment Analysis: Risk Management and Insurance Deliver Revenue Growth for Brokers

Firming prices in the fourth quarter help brokers' risk management units deliver solid single-digit growth.

By CYRIL TUOHY, managing editor of Risk & Insurance®

The risk management segments of the four global retail insurance brokers delivered strong operating results in 2011, helped by fourth-quarter price increases, particularly in workers' compensation and commercial property lines.

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"It's clear from the data that the market continued its upward momentum in the fourth quarter," said Ken A. Crerar, president and CEO of the Washington, D.C.-based Council of Insurance Agents and Brokers, which represents the largest brokers in the country.

On average, small, medium and large account pricing increased 2.8 percent in the fourth quarter compared with the year-ago period, the Council said in January, citing results of its Commercial Property/Casualty Market Index Survey.

Results from the risk management segments from the four global brokers seem to bear out the trend.

At New York-based Marsh & McLennan Cos Inc., risk and insurance services, which comprise reinsurance brokerage Guy Carpenter & Co., fourth-quarter revenue was $1.56 billion, up 6 percent from the year-ago quarter, the company reported.

Fourth quarter revenue grew 9 percent in Asia Pacific, 8 percent in Latin America, 4 percent in the Europe-Middle East region, and 2 percent in the United States/Canada region, the company said.

Full-year 2011 revenue was $6.25 billion, a 9 percent increase over 2010, the company said..

MMC President and CEO Brian Duperreault, said growth last year was "broad-based," with the company's risk and insurance services and consulting segments generating double-digit growth in adjusted operating income.

The improvement in property/casualty pricing is expected to benefit brokers in 2012, according to Barclays Capital analyst Jay Gelb, in a Feb. 14 report to investors.

Chicago-based Aon Corp.'s Risk Solutions unit, which includes retail and reinsurance brokerage lines, and risk management services, reported fourth-quarter 2011 revenue of $1.81 billion, up 3 percent from the year-ago quarter, the company said.

Risk Solutions' fourth-quarter 3 percent increase came as a result of insurance portfolio renewals in Latin America and the U.S., and as a result of the growth in new accounts in Canada and Latin America, the company said.

International organic revenue increased 1 percent due to growth in Asia and emerging markets, but was offset by renewals in Europe, by the company said.

Fourth-quarter reinsurance organic revenue increased 4 percent due to growth in capital market transactions and in advisory business, and modest growth in global placements, Aon also said.

Risk Solutions reported full-year 2011 revenue of $6.76 billion, up 6 percent from the year-earlier period. Aon Corp. reported full-year 2011 revenue of $11.26 billion, up 33 percent from 2010, due to big revenue gains booked from Lincolnshire, Ill.-based benefits consultant Hewitt Associates, which Aon bought in 2010.

CIAB survey findings were backed by statements from Patrick J. Gallagher Jr., president and CEO of Itasca, Ill.-based Arthur J. Gallagher & Co., the world's fourth-largest broker. Gallagher said he "continued to see evidence of market firming."

Adjusted fourth-quarter revenues ? the vast majority earned from fees for services ? for AJG's risk management segment were $145 million, up 13 percent from the year-ago quarter, AJG reported. The increase was driven by a 12.6 percent increase in fees charged to services related to natural catastrophes abroad, according to company reports.

The company's risk management segment also reported adjusted full-year 2011 fees of $512 million, up more than 9 percent from 2010, the company said.

Retail commissions, fees, supplemental and contingent commissions earned by the company's brokerage segment in 2011 were $1.55 billion, up 17.5 percent from the year-ago period, the company also reported. "We finished 2011 with strong momentum," Gallagher said, in a statement.

London-headquartered global broker Willis Group Holdings PLC, which does not break out risk management revenues separately, reported fourth-quarter commissions and fees dipped to $816 million, down 1 percent from the year-ago quarter, the company said.

Willis reported revenue of $825 million, also down 1 percent from the year-ago period, the company reported.

Full-year 2011 commissions and fees of $3.42 billion were up 2 percent from 2010, as modest growth was offset by flat premium rates and small declines in exposure levels, the company also said.

February 21, 2012

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