HRH Acquisition Helps Boost Willis’ Revenues by 19% in Q2

Willis Group Holdings Limited (NYSE: WSH) reported the company’s total second quarter revenues were up by 19 percent, an increase due primarily to the HRH acquisition.

Total reported revenues for the quarter ended June 30, 2009 were $784 million compared with $661 million for the same period last year, an increase of 19 percent, the company said.

Willis reported net income from continuing operations for the quarter ended June 30, 2009 was $87 million compared with $39 million in the same period a year ago. Reported net income for the second quarters of 2009 and 2008 was affected by the acquisition of Hilb Rogal & Hobbs Company (HRH) and second quarter 2008 expense review charges for severance and other costs totaling $62 million pre-tax.

Organic growth in commissions and fees was 1 percent in the second quarter of 2009 compared with the second quarter of 2008. Willis says this growth reflected net new business won of 4 percent offset by a negative 3 percent impact from declining premium rates and other market factors. “Continued strong client retention levels and momentum from Shaping our Future growth initiatives, such as Global Placement and Client Profitability, also contributed to organic growth in commissions and fees,” according to the broker.

The North America segment of Willis reported an 8 percent decline in organic commissions and fees compared with the second quarter of 2008, reflecting soft insurance market conditions, as well as increased weakness in the U.S. economy, which has especially impacted the U.S. Construction and Employee Benefits practices. The operating margin in North America expanded 660 basis points to 22.3 percent in the second quarter of 2009 compared to the second quarter of 2008 as a result of HRH integration synergies, expense management, and $9 million of the U.S. pension curtailment gain.

The International business segment contributed 5 percent organic growth in commissions and fees in the second quarter of 2009 compared with the same period in 2008. “This growth came from strong net new business and continued traction from Shaping our Future growth initiatives which more than offset the soft rate environment and weakness in the UK and Ireland retail market,” Willis wrote in its financial release. Willis reported strong growth across many regions including Europe and Latin America. “Specifically there was double-digit growth in Denmark, Spain, Poland and Russia, and Venezuela and Argentina.”

The Global segment, which comprises Global Specialties, Faber & Dumas and Reinsurance, recorded 7 percent organic growth in commissions and fees in the second quarter of 2009 compared with the second quarter of 2008. “There was double-digit growth in reinsurance driven by International and North America reinsurance while Global Specialties’ growth was slightly negative due to the effects of global economic weakness, specifically in energy and financial and executive risks,” Willis said.

Reported operating margin was 21.0 percent for the quarter ended June 30, 2009 compared with 11.6 percent for the same period last year. Adjusted operating margin reflected good underlying business performance, HRH integration synergies, diligent cost management and favorable foreign currency movements, tempered by lower investment income, higher amortization and higher pension expense.

Salaries and benefits were $443 million, or 56.5 percent of total revenues, in the second quarter of 2009 compared with $428 million, or 64.8 percent, in the second quarter of 2008.

“We continue to see excellent results from our International and Global segments, and this is bolstering our overall performance in the face of difficult economic conditions, particularly in the U.S., UK and Ireland,” said Joe Plumeri, chairman and CEO, Willis Group Holdings. “The HRH integration continues to go better than expected, with synergies tracking ahead of schedule. We continue to run our company with discipline and foresight, implementing strict cost controls, right sizing for the current environment, and investing in areas that will drive current and future growth.”

Six Months 2009 Financial Results

Reported net income from continuing operations for the six months ended June 30, 2009 was $279 million compared with $205 million in the same period a year ago. Reported net income for the first six months of 2009 and 2008 was affected by certain items, including the acquisition of HRH and first half 2008 expense review charges for severance and other costs totaling $95 million pre-tax.

Total reported revenues for the six months ended June 30, 2009 were $1,714 million compared with $1,456 million for the same period last year, an increase of 18 percent. The increase was primarily due to the HRH acquisition, while the effect of foreign currency translation decreased reported revenues by 8 percent.

Organic growth in commissions and fees was 2 percent in the first half of 2009 compared with the comparable period of 2008. This growth reflected net new business won of 4 percent offset by a negative 2 percent impact from declining premium rates and other market factors.

Reported operating margin was 25.6 percent for the six months ended June 30, 2009 compared with 20.7 percent for the same period last year. Excluding certain items, adjusted operating margin was 25.8 percent for the first half of 2009 compared with 27.3 percent a year ago.

Discontinued Operations

Income from discontinued operations, net of tax, was $nil in the second quarter of 2009 and $1 million for the six months ended June 30, 2009. In April 2009, Willis Group Holdings Limited disposed of Bliss & Glennon, its US-based wholesale insurance operation, for net proceeds of $38 million. No net gain or loss was recognized relating to this transaction.

Stanford Financial Group

Willis and one of its subsidiaries have been sued in federal courts in Texas and Florida by plaintiff lawyers acting on behalf of Mexican and South American investors in Stanford Financial Group. A Willis employee has also been named in the Texas suit and Willis has separately received a demand letter from a Texas law firm, in advance of commencing litigation. The matters relate to the collapse of Stanford, for which Willis acted as broker of record for certain lines of insurance. The complaints generally allege that Willis aided Stanford’s efforts to sell certificates of deposit by issuing to Stanford certain letters regarding the insurance policies that Willis placed for the firm. The plaintiffs are collectively seeking damages in excess of $1 billion.

Willis said that it will defend itself vigorously in these lawsuits. The Company does not believe that any Willis employee knew that Stanford was engaged in fraudulent activity, and it is undertaking a full investigation of the facts so it can address this matter as expeditiously as possible.

Source: Willis Group Holdings Limited,
www.willis.com