Global services firm Marsh & McLennan Companies, Inc. (MMC), parent company of giant insurance broker Marsh, reported that its fourth quarter 2006 consolidated net income was $226 million, an increase of more than 500 percent from the $35 million in fourth quarter of 2005, and earnings per share grew to $.40 from $.06.
Marsh & McLennan, which recently sold its Putnam investment management subsidiary for $3.9 billion, also said revenues in the fourth quarter were $3.1 billion, an increase of 9 percent from 2005.
MMC said its revenue growth was its strongest in three years.
Also, revenues from new business at insurance broker Marsh were the highest they have been since the first half of 2004.
Full-year consolidated MMC revenues were $11.9 billion, an increase of 3 percent from $11.6 billion in 2005. Consolidated net income was $990 million, or $1.76 per share, compared with $404 million, or $.74 per share, in 2005.
Results from discontinued operations, net of tax, were $172 million, or $.31 per share, resulting primarily from MMC’s sale of its investment in Sedgwick Claims Management in early 2006. Results from discontinued operations in 2005 were $37 million, or $.07 per share. Income from continuing operations was $818 million, or $1.45 per share, compared with $367 million, or $.67 per share, in 2005.
A number of noteworthy items affected financial results, including restructuring costs and credits and legal and regulatory costs primarily related to market service agreements, the company reported.
In the fourth quarter of 2006, noteworthy items were a credit of $5 million, including the realized gain of $74 million on the sale of five floors in MMC’s corporate headquarters, while noteworthy items in 2005 reduced earnings per share from continuing operations by $.18. For the full year, noteworthy items reduced earnings per share by
$.19 in 2006, compared with $.76 in 2005.
“MMC had another good quarter, reporting its strongest revenue growth in three years,” said Michael G. Cherkasky, president and chief executive officer of MMC. “The progress we saw at Marsh in the first nine months of 2006 continued in the fourth quarter, including improved revenue trends and increased profitability. Revenues from new business at Marsh were the highest they have been since the first half of 2004. In light of this, we are encouraged about Marsh’s prospects in 2007.”
Cherkasky said its Guy Carpenter unit “rose to the challenges of a complex reinsurance marketplace, producing increased revenues driven by double-digit growth in new business” and he praised security subsidiary Kroll’s increased revenues in the quarter, which were driven by solid results in its technology business.
In the quarter, Mercer Human Resource Consulting “improved margins and produced strong revenue growth,” while Mercer Specialty Consulting “continued its exceptional performance, reporting double-digit revenue growth.”
Putnam’s net flows were neutral in the quarter, achieving a long-standing goal.
“The announced sale of Putnam will enhance our financial flexibility and allow us to concentrate on our market-leading risk and human capital businesses. We have reignited MMC’s engines of growth, and we look forward to the future with confidence,” Cherkasky concluded.
Risk and Insurance Services
Risk and insurance services revenues in the fourth quarter increased 4 percent to $1.4 billion, or 5 percent on an underlying basis. Operating income more than doubled to $127 million, compared with $62 million in the fourth quarter of 2005, reflecting gains from private equity investments, operating efficiencies, cost discipline, and restructuring efforts.
Marsh’s underlying revenues grew 3 percent, excluding the impact of market service revenues, the second consecutive quarter of revenue growth by this measure and the largest in over two years. Strong new business growth across all geographies drove Marsh’s performance. For the full year, new business increased a robust 10 percent, with accelerating growth as the year progressed, including 9 percent growth in the Americas. As reported, Marsh’s revenues declined 1 percent to $1.1 billion in the fourth quarter.
Guy Carpenter’s revenues increased 9 percent in the fourth quarter to $171 million, or 8 percent on an underlying basis, driven by 13 percent growth in new business. These results were achieved despite a reinsurance marketplace where increases in U.S. property catastrophe rates were mitigated by reduced reinsurance capacity and higher client risk retentions, and where rates in most other lines of business were stable to down globally.
Risk Capital Holdings generated revenues of $74 million in the fourth quarter, compared with $27 million in the same period of 2005. This increase was entirely due to mark-to-market gains in private equity investments. Full-year revenues were $193 million, compared with $189 million in 2005.
Risk Consulting and Technology
Kroll’s revenues increased 12 percent in the fourth quarter to $241 million, or 4 percent on an underlying basis. Kroll’s technology enabled solutions business produced 17 percent growth in revenues, including double-digit growth in background screening and technology services. Kroll’s profitability in the quarter increased significantly, due to revenue growth, expense control, and the early termination of a licensing agreement. Results reflect the sale of Kroll’s international security business, which has been included in MMC’s discontinued operations.
Revenues for consulting increased 15 percent to $1.1 billion in the fourth quarter, or 10 percent on an underlying basis. Operating income grew 24 percent. Full-year revenues increased 11 percent to $4.2 billion, or 9 percent on an underlying basis.
Mercer Human Resource Consulting increased revenues 12 percent to $769 million in the fourth quarter, or 8 percent on an underlying basis. This strong growth was driven by the retirement and investment business and the talent business. Full-year revenues increased 8 percent to $3 billion, or 7 percent on an underlying basis.
Mercer Specialty Consulting’s revenues grew 23 percent to $341 million in the fourth quarter, or 15 percent on an underlying basis. Full-year revenues increased 19 percent to $1.2 billion, or 16 percent on an underlying basis. Each of the Mercer Specialty companies contributed to this exceptional performance, led by Mercer Oliver Wyman, which increased underlying revenues 22 percent.
Putnam’s revenues of $359 million were flat, compared with the fourth quarter last year. Ending assets on December 31, 2006 were $192 billion, comprising $124 billion in mutual fund assets and $68 billion in institutional assets. Average assets under management were $189 billion, compared with $188 billion in the fourth quarter of 2005. Operating income increased on a year-over-year basis, due to lower expenses. With the announced sale of Putnam on February 1, Putnam will be classified as a discontinued operation in 2007.
MMC’s net debt position, which is total debt less cash and cash equivalents, was $2.9 billion at year-end 2006, a decrease of $520 million in the fourth quarter and $640 million in the year, driven by strong operating cash flows.
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