Insurance Broker Marsh Revenues Fell 7% in Q2 But Profit Rose

August 5, 2009

Marsh & McLennan Companies Inc. posted a second quarter net loss of $193 million, attributable to the declining value of its security consulting business and private equity investments. Last year for the same quarter it had a $65 million profit.

Overall MMC revenue fell 13 percent to $2.6 billion, while expenses were down for the quarter by 7 percent.

The company’s main insurance brokerage, Marsh, felt the effects of lower property/casualty premiums and lowered demand worldwide for commercial insurance due to the ongoing recession. Marsh saw a decline of 7 percent in revenues.

The 7 percent quarterly revenue decline brought Marsh’s revenue in the second quarter to $1.1 billion. Revenue for international operations was flat overall, with modest growth in Asia Pacific and 9 percent growth in Latin America.

However, control over expenses resulted in a profitable quarter for the insurance business. The insurance and reinsurance business together posted a 31 percent profit increase.

That profit was helped substantially by the performance at its reinsurance arm, Guy Carpenter, where revenue was up 16 percent, thanks to higher reinsurance prices.

Total revenue for the company’s Risk and Insurance Services segment – Marsh and Guy Carpenter– in the second quarter was $1.3 billion, a decline of 5 percent from the second quarter of 2008. Operating income in the second quarter increased 63 percent to $245 million from $150 million last year. For the first six months of 2009, this segment’s revenue was $2.7 billion, a decline of 7 percent from the prior year period.

Guy Carpenter’s revenue rose to $227 million in the second quarter of 2009. An increase in new business along with continuing cost discipline led to significant improvement in Guy Carpenter’s profitability. Increased rates were evident in U.S. property catastrophe reinsurance in the second quarter, while rates in casualty reinsurance were stable to down. In the second quarter, Guy Carpenter completed the acquisition of John B. Collins Associates.

CEO Brian Duperreault said MMC “performed well” in the quarter and termed the insurance and reinsurance results “excellent.”

“Marsh continued its excellent performance, achieving increased profitability through expense discipline. Guy Carpenter produced double-digit underlying revenue growth, reflecting strong new business, with increased profitability resulting from its continuing focus on expenses,” he said.

The operating margin for Risk and Insurance Services increased to 18.2 percent from 10.6 percent, and adjusted operating margin increased to 20.2 percent from 14.6 percent a year ago.

For the six months ended June 30, 2009, MMC’s net loss was $17 million, compared to a net loss of $145 million last year.

Revenue for MMC’s consulting and arms, Mercer and Oliver Wyman, fell 13 percent or 17 percent to $1.1 billion for the quarter, while security expert Kroll’s revenue declined 29 percent.

MMC completed the sale of its U.S. government security clearance screening business, Kroll Government Services, in the second quarter of 2009.

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