S&P Puts Willis on CreditWatch-Negative

October 22, 2004

Standard & Poor’s Ratings Services announced that it has placed its “BBB-” counterparty credit rating on Willis Group Holdings Inc. on CreditWatch with negative implications.

The decision follows “recent developments in an ongoing investigation by the office of the New York State Attorney General into the payment of contingent commissions, which has led to the decision by various insurance companies and insurance brokers to suspend or end certain compensation agreements,” said S&P.

The rating agency described the practice as motivating “an insurance broker to place its clients’ business with the insurer that pays the highest contingent commissions rather than with the insurer that offers the best coverage for the price, allegedly violating the brokers’ fiduciary responsibility to its clients.”

S&P placed Willis on “CreditWatch negative to reflect the ongoing uncertainties represented by the continued New York State Attorney General Investigation, for which Willis is a subpoenaed party, as well as the concerns about of private litigation,” noted S&P credit analyst Donovan Fraser.

S&P also recounted the actions taken as a result of the probe, specifically its effect on Marsh (see related articles) which has said “it would immediately suspend its practice of market services agreements (MSA’s) with insurance carriers.” Willis has said it will also “end its practice of accepting contingency commission payments (equivalent to MSA’s) from insurers.”

S&P said it, “estimates that although the elimination of such payments is expected to affect earnings in at least the near to intermediate term, the ratings on Willis have historically been tempered by the company’s lack of earnings diversification and lack of a significant track record of consistent earnings through various underwriting cycles. As such, the potential reduction in the company’s recent robust earnings is not, in Standard & Poor’s opinion, in and of itself sufficient cause to warrant a downgrade at this time.”

The rating agency warned, however, that “if the New York State Attorney General or other legal entity files a legal charge, there would likely be a negative rating action by Standard & Poor’s.”

Fraser indicated that S&P “will be meeting with the company in the near future to assess the potential effect of these developments on Willis’ competitive position, prospective operating performance, and debt-servicing capacity.”

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