Marsh & McLennan Posts Loss on Third Kroll Writedown (Update1)

By Andrew Frye
Bloomberg News
August 4, 2009

Aug. 5 (Bloomberg) -- Marsh & McLennan Cos., the second- biggest insurance broker, posted a loss for the period ended June 30 as it wrote down the value of a unit that provides corporate security and consulting for the third time since 2008.

The second-quarter net loss was $193 million, or 37 cents a share, compared with net income of $65 million, or 12 cents, in the year-earlier period, the New York-based company said today in a statement. Operating profit was 33 cents a share, matching the average estimate of 13 analysts surveyed by Bloomberg.

Chief Executive Officer Brian Duperreault braced the company for the recession by cutting more than 2,000 jobs since he was hired a year and a half ago. He's reorganizing and selling part of the Kroll security business, the least profitable of the company's subsidiaries, to focus on insurance sales. Revenue is under pressure as companies cut back, curbing demand for insurance coverage that Marsh & McLennan arranges.

The broker is "managing through the worst effects of the economic recession," Duperreault said in the statement.

Marsh & McLennan wrote down the value of its Kroll unit by $315 million in the quarter as the broker sold part of the operation. That brings total goodwill impairment charges tied to Kroll to $855 million since Duperreault became CEO. Results from the prior-year quarter were lowered by a $115 million of those expenses.

Marsh & McLennan has slipped 11 percent in New York Stock Exchange composite trading this year, better than the 13 percent decline of Aon Corp., the biggest insurance broker. No. 3 Willis Group Holdings Inc. has advanced about 2.9 percent over the same period.

Brokerage Revenue

Revenue at the Marsh Inc. brokerage fell 6.8 percent to $1.1 billion due to changes in foreign exchange rates. Excluding currency fluctuations, revenue was unchanged, Marsh & McLennan said. The brokerage's revenue in the U.S. and Canada slipped about 1 percent to $572 million and, excluding currency fluctuations, was unchanged the company said.

Kroll's revenue dropped about 28 percent to $161 million. Revenue at the division that comprises the Mercer and Oliver Wyman consulting firms decreased 17 percent to $1.14 billion, or a 9 percent drop on a constant-currency basis, Marsh & McLennan said.

U.S. property and casualty insurers posted the biggest sales decline in half a century, slipping 1.4 percent last year, as corporations and individuals scaled back purchases. Brokers make commissions by matching buyers and sellers of coverage.

Broker compensation from clients is further squeezed as carriers cut insurance prices to win market share. U.S. commercial rates dropped 4.9 percent in the three months ended June 30 and have fallen in every quarter since 2004, the Council of Insurance Agents and Brokers said in a July 22 statement.

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