Little evidence of market hardening from broker numbers

The New York-based global broker’s numbers were generally consistent with those published recently by international rivals Aon, Willis and JLT, all of which reported flat or slightly higher revenues and improved or slightly reduced profits in a tough operating environment. There is little to suggest from the numbers or statements from the big broker CEOs that a market hardening is finally underway or even around the corner. Rather, the broker results and comments seem to suggest that the flat market is here to stay for some time, despite what the big insurers and reinsurers predict in their quarterly announcements [see related analysis]. MMC reported that its consolidated revenue in the third quarter of 2010 rose 7% to $2.5bn from the third quarter of 2009, or 4% on an underlying basis, a measure of the change in revenue before the impact of acquisitions and dispositions, using consistent currency exchange rates.hideFor the nine months, MMC's consolidated revenue was $7.8bn, an increase of 7%, or 2% on an underlying basis. For the third quarter of 2010, total net profit was $168m, or $.30 per share, compared with $221m, or $.41 per share, in the prior year. For the nine months MMC’s total net profit was $652m, or $1.18 per share, compared with $204m, or $.38 per share, in the prior year. Brian Duperreault, MMC President and CEO, said: "We are pleased with the progress our company has made, not only in the third quarter but throughout the year. In the quarter, all four of our operating companies produced strong underlying revenue growth, the first time this has occurred since 2007.” "The Risk and Insurance Services segment grew revenue in an environment of continued soft market conditions in the property and casualty marketplace. Marsh produced strong new business globally, with revenue growth across all geographic regions,” continued Mr Duperreault. "Looking ahead, our plan is to produce long-term growth in revenue and earnings, maintain low capital requirements, generate high levels of cash, and reduce the company's risk profile," he said. The Risk and Insurance Services segment revenue in the third quarter of 2010 was $1.3bn, an increase of 8% from the third quarter of 2009. Excluding fiduciary interest income, underlying revenue in Risk and Insurance Services increased 3%, reported MMC. For the nine months, segment revenue was $4.3bn, an increase of 9% from the prior year period, or 1% on an underlying basis. Marsh’s revenue in the third quarter of 2010 rose 9% to $1.1bn, or 3% on an underlying basis. Underlying revenue growth in the United States and Canada was 3% in the third quarter of 2010, international operations rose 2% that reflected growth of 4% in Latin America, 3% in Asia Pacific, and 1% in EMEA. The group said that the ‘positive momentum’ from new business generation continued in the third quarter. Guy Carpenter's third quarter 2010 revenue from reinsurance business rose 4% to $233m, or 3% on an underlying basis driven by ‘strong new business generation’, said MMC. Earlier this week London-based international broker Jardine Lloyd Thompson Group (JLT) confirmed recent announcements from its main rivals that the insurance market remains soft and the outlook ‘challenging’ for the brokers. JLT published a brief interim management statement for the third quarter in which it said that its overall trading performance is in line with expectations despite ‘continued challenging trading conditions’. It said that organic growth across the group is ‘encouraging’ and that it remains ‘on track’ to make financial progress for the year as a whole, despite the soft market conditions. “Our Risk and Insurance business is performing well although the insurance rating environment remains soft in most classes, with the exception of offshore energy where shortage of capacity is restricting opportunities,” stated the group. The group highlighted further moves to further expand its presence in mainland Europe. In July, it entered into an exclusive trading agreement with three of Europe's leading independent insurance brokers, SIACI Saint Honoré in France, GrECo Group in Italy and Ecclesia Gruppe in Germany. JLT also entered into an agreement to acquire a 20% shareholding in GrECo for a cash payment of €17.6m, together with the transfer to GrECo of JLT's Polish operations (valued at €650,000). This transaction was completed on 13 October. Two weeks ago Willis announced a small growth in commissions and fees compared with the third quarter of 2009 despite the continued soft market and flat outlook. Willis reported net profit from continuing operations for the first nine months of $64m compared with $78m for the same period last year. Total reported revenues for the quarter were $733m compared with $725m for the same period last year. Total commissions and fees rose 1% to $723m from the third quarter of this year. Investment income was $10m in the third quarter of 2010, unchanged from the third quarter of 2009. “Our global diversity and cooperation across businesses continued to deliver results, as each segment recorded positive organic growth in commissions and fees in the face of continued soft rate and economic conditions in a number of the regions in which we operate.” said Joe Plumeri, Chairman and Chief Executive Officer, Willis Group Holdings. Willis reported that organic growth in commissions and fees was 4% higher in the third quarter of this year compared with the third quarter of 2009. It stated that net new business growth of 6% reflected ‘strong’ new business generation of 13% and ‘steady’ client retention. “Partially offsetting net new business growth was a 2% negative impact from declining premium rates and other market factors,” stated the broker. The international business segment reported a 2% fall in commissions and fees compared with the third quarter of 2009, mainly because of unfavourable foreign currency movements. Organic growth in commissions and fees was 6% in the third quarter of 2010, with positive contributions across all regions, including continued double-digit performance in Latin America, Asia and Eastern Europe, said the broker. Willis said that continental Europe and the UK and Ireland retail market recorded positive single digit organic growth. The operating margin was 9.6% in the third quarter of 2010 compared with 13.4% last year. “Margin expansion from strong organic growth was offset by continued support of growth and unfavourable foreign currency movements,” stated the broker. Organic growth in commissions and fees was 4% in the first nine months of 2010 compared with the same period of 2009. This growth reflected net new business gained of 6%, partially offset by a negative 2% impact from declining premium rates and other market factors, said Willis. Reported net profit from continuing operations for the first nine months of this year was $357m compared with $357m for the same period last year. Total reported revenues for the nine months were $2.5bn compared with $2.4bn for the same period last year, an increase of 3%. Total commissions and fees were $2.5bn, also up 3%. Investment income was $29m for the first nine months of 2010, down 17% from $35m because of lower interest rates. Aon reported flat revenues during the quarter as it also struggled to grow its business in the flat market but the Chicago-based broker did report a decent increase in net profit. Total quarterly revenue was $1.8bn with organic revenue similar to the prior year quarter, it said. Brokerage revenue was $1.5bn that included a decline in organic revenue of 1%. Consulting revenue was $321m that included an increase in organic revenue of 4%. Aon reported net profit of $144m compared to $120m for the same quarter last year. "Our third quarter results reflect solid operational performance against a challenging global economy. We delivered four percent organic revenue growth and a 150 basis point increase in margin in our consulting segment and continued to improve the run-rate of organic revenue in our retail brokerage business," said Greg Case, President and Chief Executive Officer. "Our GRIP platform, Aon Broking initiatives and benefits related to the restructuring programmes are expected to deliver long-term growth and significant margin improvement in our brokerage segment. We also are excited about the recently completed merger of Hewitt with Aon Consulting," continued Mr Case. Aon’s Risk and Insurance Brokerage Services total revenue was similar to the prior year quarter at $1.5bn because of a 2% increase from acquisitions, primarily Allied North America. This was offset by a 1% unfavourable impact from foreign currency translation and a 1% organic decline in commissions and fees. The broker said that retail organic revenue was similar to the prior year quarter. The Americas organic revenue increased 1% because of strong growth in Latin America and benefits related to the Global Risk Insight Platform (GRIP). This was partially offset by continued weakness in construction and the impact of soft pricing on the renewal book portfolio in US retail, said Aon. UK organic revenue fell 8% primarily because of weak economic conditions and soft pricing, said the broker. EMEA organic revenue increased 4% because of ‘modest’ growth in continental Europe and strong growth in emerging markets. Asia Pacific organic revenue increased 2% reflecting strong growth in New Zealand and China, partially offset by weak economic conditions in Thailand. Reinsurance organic revenue decreased 4% mainly because of soft pricing in global treaty placements, said the group.

Little evidence of market hardening from broker numbers

Want to read this article?

Read Next

Swerma hands out graduate awards

Swedish navy issues Russia shadow fleet warning

Ransomware attack affects Swedish alcohol sales

Eeckman wins Swerma risk manager award

Risk managers discuss impact of Nato membership

Swerma hands out graduate awards

Swedish navy issues Russia shadow fleet warning

Ransomware attack affects Swedish alcohol sales

Eeckman wins Swerma risk manager award

Risk managers discuss impact of Nato membership

Want to read this article?

Read Next

Swerma hands out graduate awards

Swedish navy issues Russia shadow fleet warning

Ransomware attack affects Swedish alcohol sales

Eeckman wins Swerma risk manager award

Risk managers discuss impact of Nato membership

Related Articles