Marsh Sees Growth in 2009 Boosted by Acquisitions

By | February 12, 2009

Marsh & McLennan Cos Inc , the No. 2 global insurance broker, reported better-than-expected fourth-quarter earnings, helped by lower costs, and forecast higher profits in 2009, sending its shares up 16 percent.

The company said the 2008 restructuring at Marsh Inc., its flagship insurance brokerage unit, was on track to generate annual savings of $200 million, and it plans further spending cuts in its consulting units.

Fourth-quarter net income fell 6 percent to $80 million, but earnings excluding discontinued operations rose to 37 cents a share from 24 cents a year earlier, topping analysts’ average forecast by 5 cents, according to Reuters Estimates.

The New York-based company, which competes with Aon Corp. in helping companies find commercial insurance coverage, said revenue fell 9 percent to $2.7 billion, below the average estimate of $2.98 billion.

Revenue at Marsh Inc. fell 5 percent to $1.1 billion, but rose 1 percent in North America, a region that accounts for more than half its revenue.

JP Morgan analyst Matthew Heimermann, in an investor note, said margin growth was better than expected within the brokerage units, offsetting “modestly weaker than expected” revenue growth across the company’s businesses.

Like Aon, Marsh & McLennan has been restructuring to boost savings after an industrywide probe in 2005 led big brokerages to drop lucrative commissions they had received from insurers they sent business to.

The company, which was the biggest insurance broker before slipping behind Aon last year, cut about 1,900 jobs in 2008 and outsourced another 700. It plans more cuts in 2009.

In total, expenses declined 7 percent in the fourth quarter to $2.56 billion. Chief Executive Brian Duperreault told Reuters the company could follow Aon’s cue and limit some pension benefits, but he said no such decision had been made.

Duperreault, who joined Marsh & McLennan about a year ago with the goal of reviving the flagging broker, said he saw “restoring MMC to a preeminent position as a multiyear process.”

Insurance rates have been falling in recent years, costing brokers who are largely compensated by commissions. Although there are signs that prices will rise in the coming year, Duperreault said economic factors could limit the ultimate benefit.

Despite such conditions, the company expects to grow profits in 2009. Duperreault told Reuters that acquisitions could help boost growth for its brokerage business.

“Marsh can actually make acquisitions now,” he said. The unit could not have done so a year ago when it was hampered by a feeble financial state, he said.

Marsh Inc. and reinsurance brokerage Guy Carpenter posted fourth-quarter operating income of $189 million excluding one-time items, more than double the total of a year earlier.

Duperreault said Marsh Inc. will pursue U.S. deals, especially for a new division that serves the needs of small businesses, and is also looking at opportunities abroad for both Marsh and Guy Carpenter.

“Valuations are much better,” he said. Acquisitions will likely be small but could have a big impact collectively, he added.

(Editing by John Wallace)