Insurance brokerage giant Arthur J. Gallagher & Co. rode the hard market wave to a 29 percent increase in fourth-quarter net operating earnings of $40.8 million, or 44 cents per share, and the companys says the tide will stay high in 2003. The earnings were up from $31.7 million, or 35 cents per share, in the fourth quarter of 2001, the company said yesterday.
Gallagher, based in Itasca, Ill., reported that total operating revenues rose 23 percent to $311.6 million in the fourth quarter of 2002 compared with $254.1 million in the same quarter of 2001. For the year ending Dec. 31, 2002, total operating revenues grew 24 percent to $1.1 billion from $903.9 million in 2001.
Gallagher CEO J. Patrick Gallagher Jr. attributed the company’s fourth-quarter and full-year operating revenue growth in part to property/casualty rate increases. Rates in the P/C market were extremely solid throughout 2002 and the company said it sees a hard market through 2003. Other factors, Gallagher said, were acquisitions and high account-retention levels.
Net operating earnings represent GAAP net earnings before the after-tax effect of non-recurring investment income, gains and losses, net of related incentive compensation and other expenses. GAAP net earnings grew 16 percent to $38.3 million, or 42 cents per share, in the fourth quarter of 2002 from $33.1 million, or 36 cents per share, in 2001.
Fourth-quarter 2002 GAAP net earnings reflect $2.5 million, or 2 cents per share, of net after-tax non-recurring investment losses, relating primarily to the company’s investment in Asset Alliance Corporation, that were discussed in Gallagher’s third-quarter 2002 Form 10-Q filing. In the fourth quarter of 2001, the company had 1 cent per share of non-recurring investment gains, net of incentive compensation and income tax expenses.
Net operating earnings rose 21 percent for the year to $140.1 million, or $1.53 per share, from $115.5 million, or $1.28 per share, in 2001. GAAP net earnings were up 4 percent for the year to $129.7 million, or $1.41 per share, from $125.3 million, or $1.39 per share, in 2001.
GAAP net earnings in 2002 were impacted by several factors, most notable of which were the $10.4 million, or 12 cents per share, of net after-tax one-time investment losses and a reduction in tax credits generated by the Gallagher’s alternative energy and qualified affordable housing investments.
GAAP net earnings per share in 2001 included net one-time investment gains of 11 cents per share. Following the two sales of limited partnership interests completed late in 2001, Gallagher’s GAAP tax rate, as anticipated, increased to 30 percent for 2002 from 12 percent for 2001.
Fourth-quarter operating cash earnings per share rose 28 percent in 2002 to 50 cents from 39 cents in 2001. Full-year 2002 operating cash earnings per share were up 21 percent to $1.74, versus $1.44 in 2001. Operating cash earnings represent net operating earnings before the after- tax effect of depreciation and amortization expenses.
Commission revenues grew by 14 percent in the fourth quarter and 17 percent for the year before accounting for the impact of 2002 and 2001 acquisitions marked down as purchases. Fee revenues grew by 18 percent and 18 percent for the same periods.
But while company commissions and fees have grown, employee salaries and benefits have remained flat, only rising to 54.3 percent of commissions and fees in the fourth quarter, compared to 54.2 percent in the third quarter. Gallagher said the company won’t be hiring anytime soon.
Topics Profit Loss A.J. Gallagher
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