NEW YORK--Marsh & McLennan Cos. Inc.'s top executive said MMC plans to divest some of the underperforming assets of Kroll Inc. and lay off more than 450 employees in efforts to restore profitability at the company.

In a conference call with analysts last week, MMC executives alluded to the possibility of further layoffs in the future.

"I didn't take the job to be a caretaker or oversee incremental improvement and results," said Brian Duperreault, who became president and chief executive officer of MMC in January. "There's a lot of work we've got to do, but the journey's begun."

Word of the layoffs and planned divestitures came as MMC reported a first-quarter 2008 loss of $210.0 million compared with a $268.0 million profit in the first quarter of 2007. During the quarter, MMC recorded a noncash impairment charge of $425 million on Kroll's goodwill, which led to the loss. Total MMC revenues increased 8.4% to $3.05 billion (see box, page 31).

Analysts say MMC is moving in the right direction in cutting expenses, but they note more needs to be done to improve margins following the loss of hundreds of millions of dollars in annual contingent commissions that Marsh Inc. gave up as part of its $850 million fraud and bid-rigging settlement with New York authorities in 2005.

"Brian Duperreault has some big challenges in front of him driving revenue growth in Marsh in a soft market and also cutting expenses at the same time," said Mark Lane, a principal and research analyst with William Blair & Co. in Chicago. "I would say it's almost impossible to do in the near term."

One of his first goals, Mr. Duperreault has said, is to fix the underperforming parts of MMC, including MMC's security consulting unit Kroll. MMC paid about $1.9 billion to acquire Kroll in July 2004, just a few months before then-New York Attorney General Eliot Spitzer filed fraud and bid-rigging charges against the company.

While the plan had been to combine Kroll with other MMC operations, that integration never occurred and certain Kroll operations have been underperforming ever since, Mr. Duperreault said during last week's analyst call.

Despite some shareholders clamoring for MMC to spin off Kroll, Mr. Duperreault made it clear he intends to retain certain parts of the unit.

Earlier this month, Mr. Duperreault rebuffed an inquiry from London-based buyout firm B.C. Partners Ltd. to begin negotiations for the buyout of Kroll, a person familiar with the deal confirmed.

Last week, Mr. Duperreault said MMC plans to keep most of Kroll's litigation support and data recovery, background screening, and risk mitigation and response units, which reported $220 million in first-quarter revenues--a 14% rise over the same period in 2007.

Mr. Duperreault said he will, however, divest Kroll's Factual Data Corp., which provides services to mortgage lenders, and Kroll's government services business, which were deemed not to be a strategic fit for MMC.

In the first quarter, MMC separated Kroll's corporate advisory and restructuring unit into a separate operating unit within MMC's risk consulting and technology segment.

That reorganization triggered MMC to record a noncash goodwill impairment charge of $425 million. The write-down reflects a reduction of Kroll's value on MMC's balance sheet and specifically relates to the underperforming operations that MMC plans to divest as well as its corporate advisory and restructuring unit, Mr. Duperreault noted.

Analysts say MMC is taking the right approach with Kroll.

"A lot of Kroll doesn't really make sense within the Marsh umbrella," said Meyer Shields, an analyst with Stifel, Nicolaus & Co. Inc. in Baltimore. "Not every service that can be termed 'consulting' is necessarily going to be synergistic or consistent with the products they want to offer. That on top of the fact that some of those services are doing pretty poorly" are reasons a divestiture would make sense.

Mr. Lane said MMC's plan to keep some Kroll assets and divest others is "the right approach, because I do believe there's a lot of synergy between certain (Kroll) consulting services and the brokerage business."

At the same time Mr. Duperreault said MMC would divest certain Kroll assets, he said he also is taking steps to address the underperformance at MMC's reinsurance brokerage unit Guy Carpenter & Co. L.L.C., which posted a 6.5% drop in first-quarter revenues to $273.0 million.

Executives blamed the decline on the soft pricing environment, higher retentions and a drop in new business.

In an effort to maintain profitability within the unit, MMC said it will lay off more than 300 Guy Carpenter employees--representing more than 10% of its workforce. MMC expects the workforce reduction to cost $30 million and save the company $40 million annually.

"Guy Carpenter has more of a U.S. emphasis, and that lack of diversity is hurting them disproportionately," Mr. Lane said. "They need to reduce their head count in order to right-size the business.... It's really their only option. There's nothing strategically they can do right now to accelerate revenue growth. The market challenge is too great."

In addition to the layoffs at Guy Carpenter, MMC executives said that 150 positions within Marsh were eliminated in the first quarter and they expect more layoffs in the future.

"No, we do not feel comfortable yet with our levels," Mr. Duperreault said when asked by an analyst whether the 150 layoffs within Marsh were adequate. "There's more work to be done. Our margins are not near where they need to be, not even close," he said.

Mr. Lane, for one, agrees that the company needs to "cut deeper."

"The real question is, is there room for another formal and major restructuring? Because in my view, that's the only way they're going to be able to get their margins up in a reasonable time," he said. "Whether morale can survive that remains to be seen, but that's what's necessary."

Cliff Gallant, an analyst with Keefe, Bruyette & Woods Inc. in New York, said he's hearing that "morale is pretty good right now" at Marsh. "People are feeling good that the leadership knows what they're doing."

While layoffs are always difficult for an organization, "I think people want to work at a place where they feel like they're with a winning team and ultimately you need good management to get you there," Mr. Gallant said.