Marsh Boosts Profits in 3rd Quarter; Says Restructuring for 2006 on Target

Marsh & McLennan Companies, Inc. today reported that net income for the third quarter was $65 million, or $.12 per share, an increase from $21 million, or $.04 per share, in the third quarter of 2004

Consolidated revenues for the quarter decreased 2 percent to $2.9 billion.

For the nine months of 2005, consolidated revenues were unchanged at $9.2 billion and net income was $365 million, or $.67 per share, compared with $856 million, or $1.60 per share, in the 2004 period.

Excluding certain legal and restructuring costs, earnings per share in the third quarter of 2005 was $.35, a decline of 17 percent from $.42 in the same period of 2004. Excluding the same items, earnings per share for the nine months of 2005 was $1.30, compared with $2.11 in 2004.

“MMC continued in the quarter to make progress and take the steps which will make it a better and more profitable company next year,” said Michael G. Cherkasky, president and chief executive officer of MMC.

“Cost savings from the restructuring programs are being realized as anticipated, and we expect to see improved earnings performance beginning next year. Marsh continues successfully, but slowly, to restore its business from the effects of the events of last fall. Marsh launched its pricing initiative, and we are optimistic about its impact for 2006,” Chekasky commented in a statement.

Risk and Insurance Services
Risk and insurance services revenues declined 6 percent to $1.4 billion in the third quarter. The percentage decline is an improvement from the first half of the year, primarily due to market services revenues having less of an effect on a year-over-year basis. Third quarter revenues were affected by declining commercial insurance premium rates, a trend that has continued throughout the year. Although it is too early to assess the total effect of recent hurricanes on insurance marketplace conditions, insurance premium rates in U.S. property catastrophe and certain specialty lines appear to be strengthening.

Marsh’s risk management and insurance broking revenues declined 11 percent in the third quarter to $885 million. The percentage decline in revenues and operating income in North American operations improved, compared with the first two quarters of 2005. Weaker revenues in Europe in the third quarter reflected the sale of a small affinity business in France and delays due to restructuring efforts and the implementation of compliance protocols. Strong new business gains in Latin America and Asia Pacific led to growth in client revenues in those regions.

Guy Carpenter’s revenues in the third quarter were $207 million, compared with $209 million last year, as new business nearly offset premium rate declines in the reinsurance markets and higher risk retentions by clients. These marketplace conditions have been evident throughout the year.

Related insurance services revenues rose 8 percent in the third quarter to $285 million, driven by particular strength in the claims management business.

The 2004 restructuring program has been fully implemented, resulting in annualized cost savings totaling $400 million, of which $300 million has been realized through the third quarter. The 2005 restructuring program should be completed in early 2006 and result in $375 million of annualized savings in risk and insurance services, $30 million of which was realized in the second quarter and $60 million in the third quarter of this year.

MMC’s net debt position declined by over $400 million in the third quarter to $3.8 billion from $4.2 billion as the company generated strong cash flow in the quarter. MMC took financing actions in the quarter to enhance liquidity by significantly extending debt maturities and to secure favorable long-term fixed interest rates.

As previously reported, Marsh sold Crump Group, Inc., its U.S.-based wholesale broking operation, in October. The gain on the sale will be reflected in the fourth quarter.

The MMC Victims Relief Fund came to the aid of colleagues who lived in the areas devastated by Hurricane Katrina and who are in need of financial assistance to meet emergency needs. To date, contributions to the fund total $1.2 million, including the company’s donation and match of employee contributions, as well as additional money raised by employees in fundraisers held by many MMC offices around the world.

Topics Profit Loss