S&P: Without Contingent Commissions, Some Insurance Brokers Still Cope

August 16, 2005

With the outlooks on Aon Corp. and Willis Group Holdings Ltd. — two of the world’s largest insurance brokers — having recently been revised to stable from negative, the industry is beginning to recover from the cloud it has been under since last fall, according to an article published by Standard & Poor’s Ratings Services.

The article, which is titled “Some Insurance Brokers Manage To Prosper Without Contingent Commissions,” says that Aon and Willis are showing how the industry might regain its footing in the wake of the legal woes and investigations that have kept it off balance since New York State Attorney General Eliot Spitzer began probing the industry in spring 2004. His probes, and those of others, centered on the practice of contingent commissions, and, more seriously, allegations of bid rigging, especially at the industry leader, Marsh & McLennan Cos.

With settlements that ended the collection of contingent commissions at the largest insurance brokers — where they had accounted for a significant share of revenues — some companies in the industry have begun to revamp the way they do business. “The more successful ones, like Aon and Willis, have looked to reduce leverage, cut costs, and seek out other sources or revenue,” said Standard & Poor’s credit analyst Steven Ader. “We’ve had enough time to assess how well companies are doing in the new environment.”

The smaller brokers will have more uncertain prospects because they still collect contingent commissions and it is unclear how they will adjust if that practice comes to a halt, as it has for the largest brokers. More difficult still, is the situation at Marsh, where Standard & Poor’s believes that accusations of bid rigging have had a serious negative impact on its business.

The report is available to subscribers of RatingsDirect, Standard & Poor’s Web-based credit research and analysis system, at www.ratingsdirect.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (212) 438-9823 or sending an e-mail to research_request@standardandpoors.com.

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