Marsh & McLennan posts 1Q loss as Kroll business loses value
NEW YORK—Marsh & McLennan lost money in the first quarter as the insurance broker's corporate security business suffered a fundamental deterioration in value, the company said Wednesday.
Marsh & McLennan lost $210 million, or 40 cents per share, in the first quarter. In the first quarter last year, Marsh & McLennan earned $268 million, or 49 cents per share.
The company attributed the loss mainly to a $425 million "asset impairment" charge incurred by Marsh's corporate security firm, Kroll.
Marsh is examining whether to sell off pieces of Kroll, which the company bought for $1.9 billion in 2004. Certain of Kroll's business lines do not fit with Marsh, the company said, and would be worth more as separate companies.
In completing its assessment, the company determined Kroll is now worth less than it was when Marsh bought it, warranting a goodwill impairment charge.
Core profit, excluding the Kroll charge and other unusual costs, was 46 cents per share in the first quarter. Analysts polled by Thomson Financial forecast profit of 45 cents per share.
Revenue climbed 8 percent to $3.05 billion from $2.81 billion. Analysts expected revenue of $2.92 billion.
The company's insurance brokerage business, Marsh, reported 7 percent growth in revenue to $1.2 billion, fueled by 44 percent growth in the Asia Pacific region. Marsh said it achieved revenue growth "in an environment of significant price competition in the global commercial property and casualty insurance marketplace."
Marsh charges commissions for matching insurers with clients who need insurance. Insurers, padded with cash after two years without a major catastrophe, are competing for clients by slashing prices. With premium rates tumbling around the industry, insurers are reluctant to pay brokers fatter commissions.
An industry group, the Council of Insurance Agents & Brokers, reported insurance premiums declined an average of 13.5 percent in the first quarter. Insurance commissions are typically assessed as a percentage of premium.
"Marketplace conditions continue to be very difficult," Marsh & McLennan's chief financial officer, Matt Bartley, said in a conference call.
The company's reinsurance brokerage business -- which brokers a type of insurance covering losses on other insurers' policies -- slipped 6 percent to $273 million.
Bartley said demand for reinsurance has dwindled for the same reason insurers are slashing premiums: The insurance industry has been very profitable the past two years. With insurers amassing mountains of cash, they feel comfortable stomaching risk.
Citi Investment Research analyst Keith F. Walsh wrote in a client note that the key to a recovery at Marsh & McLennan is a rebound in profit margins. But with premium rates declining and demand for reinsurance waning, any meaningful improvement will be difficult, he said.
The bright spot was Marsh & McLennan's consulting business, Mercer, which reported 15 percent revenue growth to $1.3 billion. The unit collected higher fees for consulting, outsourcing and investment management.
Chief Executive Brian Duperreault said in a statement the company has improved at retaining clients. Duperreault was hired from Ace Ltd. earlier this year, after former CEO Michael Cherkasky stepped down, to help stem an exodus of clients to competitors like Aon Corp.
Duperreault is tasked with reviving a business that has never recovered from an investigation by former New York Attorney General Eliot Spitzer. The investigation resulted in an $850 million fine and blotted out a source of revenue that contributed half of Marsh & McLennan's profit.
Marsh's stock fell from $45 to about $25 after the settlement, and has been mostly flat since. The stock added 18 cents to close at $27.76 Wednesday.
