Global insurance broker, Willis Group Holdings Limited, reported that net income in the quarter ended March 31, 2005 was $72 million, or $0.43 per diluted share, compared with $148 million, or $0.87 per diluted share, a year ago, a $76 million decrease. Willis attributed the decline to “regulatory settlements and related expenses, severance costs and other provisions.” It also noted that total reported revenues rose 1 percent to $669 million for first quarter 2005.
In a separate bulletin Willis announced that the Board of Directors has approved a $300 million stock buy back plan. “The buyback is an open-ended plan to purchase, from time to time in the open market or through negotiated trades with persons who are not affiliates of the Company, shares of the Company’s common stock,” said the bulletin. “This authorization replaces the Company’s previously announced buy back plan of $500 million.”
Willis’ report gave the following details concerning the “significant developments” that affected its first quarter financial results:
— On April 8, 2005, Willis announced agreements with the New York Attorney General, New York Department of Insurance and the Minnesota Attorney General to resolve issues raised by the industry-wide investigation into contingent commissions. The Company agreed to establish reimbursement funds totaling $51 million, and also recorded $9 million in legal and administrative expenses in relation to the settlements ($36 million, or $0.21 per diluted share, after tax).
— The Company continues to review its expense base in light of an evolving business model for insurance brokerage; as of March 31, 2005, approximately 500 positions were identified and are being eliminated. Severance costs and related expenses were recorded in the amount of $28 million ($19 million, or $0.11 per diluted share, after tax).
— Based on the quarter-end review of current legal proceedings, the Company increased its provision for claims by an additional $20 million ($14 million, or $0.08 per diluted share, after tax).
— Total volume and profit-based contingent commissions relating to 2004 arrangements outside the United States totaled $3 million in the quarter ended March 31, 2005 compared with $21 million a year ago. These fees were abolished in 2004 and will continue to run off. The decline in volume and profit-based contingent commissions reduced organic revenue growth by 3 percent. Other market remuneration declined to $3 million in the quarter compared with $22 million for first quarter 2004. We continue to work with the insurance markets to restructure the existing relationships and anticipate recovering a portion of these fees over time. The decline in other market remuneration reduced organic revenue growth by 3 percent.
“We have confronted and put behind us a number of issues during the first quarter. The resulting changes we are embracing in our business model define this transitional period in the new world of insurance,” stated Chairman and CEO Joe Plumeri. “We are challenging our own conventions and assumptions in order to reinforce our business around the world and are confident we will emerge with a stronger more resilient model for long-term success.”
He also noted: “We are pleased with the revenue growth this quarter, in spite of the continued decline in insurance premium rates across most lines and challenging market conditions.” In an oblique reference to the number of personnel Willis has hired from its competitors, notably Marsh Inc., Plumeri stated: “Our recruiting efforts continue to yield success as we add recognized professionals to the Willis team, and together have welcomed many new clients.”
Willis has scheduled a conference call to discuss first quarter 2005 results for today, April 28, 2005, at 8:00 a.m. Eastern Standard Time. To participate in the live teleconference, please dial (888) 324-6989 (U.S.) or (210) 839-8500 (International) with a pass code of “Willis.” The live audio web cast (which will be listen-only) may be accessed at www.willis.com. This call will be available by replay starting at approximately 10:00 a.m., Eastern Daylight Time, and ending May 12, 2005.
To access the audio replay, please dial (800) 294-3086 (US), or (402) 220-9766
The full earnings report and the conference call may be obtained on the Willis Website at www.willis.com.