JLT 2005 Profits Down 20%

March 8, 2006

Jardine Lloyd Thompson Group plc. has reported a 20 percent drop in pretax profits in its preliminary earnings report. The U.K.’s largest insurance broker said that profit “before tax, exceptional items and impairment charges” for 2005 totaled £76.8 million ($133.5 million), compared to £96.2 million ($167.3 million) in 2004.

Other Financial highlights included the following:
— Fees and commissions (Turnover) £484.4 million [$842.5 million]; 2004: £468.1 million [$814.1 million]
— Diluted earnings per share 23.8 pence (41.4 U.S. cents); 2004: 27.5 pence [47.8 U.S. cents]
— Diluted earnings per share (before exceptional items and impairment charges) 24.8 pence [43.1 U.S. cents; 2004: 31.6 pence [$55 U.S. cents]

In its “Operational Summary” JLT noted the following:
— Fees and commissions increased by 3 percent to £484.4 million [$842.47 million]
— Negative impact of currency transactions on profit before tax of £9.3 million [$16.17 million].
— PSA income reduced to £4.9 million [$8.5 million; 2004: £11.3 million [$19.65 million].
— UK Employee Benefits turnover increase of 19 percent with an increased margin of 16 percent.
— Risk & Insurance turnover increase of 4 percent with a margin of 19 percent at constant rates of exchange
JLT also said that a review of its operations is under way.

Chairman Ken Carter commented: “We said last year that we believed 2005 would be a challenging year and so it proved to be. In our Risk & Insurance operation many businesses performed well but the continued competitive market, downward pressure on fees and currency effects all had a negative impact on our results. Our UK Employee Benefits business had another good year with strong turnover growth and a further improvement in margins.
Whilst benefits will flow from areas of expansion and improved efficiencies, we anticipate that these will be largely offset in 2006 by external factors such as highly competitive insurance markets and continuing pressure on fees. At this early stage in the year we do not anticipate any more than a modest overall improvement in the Group’s trading performance for 2006 from that reported for 2005 as a whole.”

He also noted that the challenges in 2005 had been expected “on many fronts and that is how it proved to be. At £76.8 million [$133.5 million] our 2005 profit before tax was £19.4 million [$33.74 million] lower than 2004. Of this reduction, around 80 percent was accounted for by two factors; firstly, the impact of currency transactions, the effect of which was to reduce profits before tax by £9.3 million [$13.17 million] and, secondly, reduced earnings from Market or Placement Service Agreements (PSAs) of £6.4 million [$11.13 million]. Competitive insurance market conditions prevailed throughout 2005 and this further impacted the results in our insurance broking businesses.”

The U.S. proved to be a bright spot for JLT in 2005. The earnings bulletin noted that its “Specialty business experienced strong growth with a 61 percent increase in turnover to £17.3 million [$30 million] and an improvement in trading margin loss from 21 percent to 15 percent.”

However JLT said its U.S. “Life, Accident & Health business turnover fell by 11 percent to £12.1 million [$21 million], due almost entirely to the loss of all PSA income, which in 2004 accounted for £1.2 million [$2.08 million]. The trading margin was 38 percent, down from 47 percent in 2004.”

JLT’s Latin American business was also encouraging. The company said, “the businesses acquired in late 2004 have been included in our results on a full-year basis for the first time. Turnover for the region was £17.0 million [$29.5 million] with a trading margin of 18 percent. Our businesses in Mexico and Peru performed well. The overall results of the region were negatively impacted by lower than anticipated earnings from our Colombian operation but this was largely offset by greater than expected flow of business to our London operations.”

In the section of the report that gave an overview of the insurance market JLT said: “Our assessment of the market cycle in 2004 was that 2005 would continue to be very competitive and this proved to be correct. The hurricanes in August, September and October had a significant impact on the cost of insurance in certain specific areas. However, based on our experience to date, the impact of the hurricanes has only been on those areas of business directly at risk such as Energy and Property catastrophe risks. At present, there still remains sufficient capacity; we believe much of the fresh capital raised in Bermuda and London towards the end of 2005 largely missed the opportunity to participate in the 1st January 2006 renewal season.

“Meanwhile, the vast majority of business remains unaffected by the impact of the hurricanes and most markets therefore remain just as competitive as before the hurricane season with continuing downward pressure on pricing. Absent unforeseen events, it is our opinion that this will remain the position for the foreseeable future.

“As a result of the changes brought about by the Spitzer enquiry and market conditions generally, competition between brokers to retain and grow market share is very competitive, leading to intense pressure on fees. JLT will continue to seek remuneration for its services on a scale that properly reflects its professional contribution and service to clients.”

To obtain the full report go to the Company’s Website at : http://www.jltgroup.com.

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