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Acquisitions remain the key ingredient to improved results for the largest U.S.-based publicly held brokers.

Deal making among brokers in 1996 not only boosted revenues and earnings but also resulted in the disappearance of several household names.

The six largest brokers surveyed reported revenue increases in 1996, while four reported a rise in profits.

Aon Group Inc. reported a 14.1% drop in pre-tax profits for 1996, but excluding $75.3 million in special charges they were up 21.4% over the prior year.

Hilb, Rogal & Hamilton Co. reported a slight 4% decline in profits, which it attributed to the difficult operating environment.

Absent from the rankings of the world's largest U.S.-based publicly held brokers is Alexander & Alexander Services Inc., which Aon acquired in December (BI, Dec. 23, 1996).

A&A, formerly the world's fourth-largest broker, is one of several brokers that are missing from the ranks of the world's largest brokers.

London-based Bain Hogg Group P.L.C., the world's 11th-largest broker last year, also is gone following Aon's acquisition of the company in October (BI, Oct. 23, 1996). And French broker Compagnie Europeenne de Courtage d'Assurances et de Reassurances, or CECAR, formerly the world's 20th-largest broker, has been bought by Marsh & McLennan Cos. Inc. (BI, Feb. 3).

The future of two other brokers also is in the air.

Anthem Insurance Cos. Inc. earlier this month announced it is exploring the sale of its Acordia Inc. subsidiary's property/casualty brokerage business. Acordia ranked as the world's seventh-largest broker based on 1995 revenues. More than half of its $661 million in 1996 revenues are attributable to property/casualty brokerage (see related story).

In addition, M&M confirmed last month it was in talks with The St. Paul Cos. Inc. to buy its London broker subsidiary Minet Group, the world's ninth-largest broker.

Brokerage executives say acquisitions are necessary to keep afloat in the competitive soft pricing environment.

"Clients are looking for more efficiencies and more resources," noted Patrick G. Ryan, chairman and chief executive officer of Aon Group. "They don't want to pay for redundant costs in the system."

These redundancies occur when there are too many branch offices and back room offices, he said. Brokers are put under economic pressure in this environment, which results in an inability to deliver resources clients want.

"The reason A&A decided to sell is, by themselves, they couldn't grow," Mr. Ryan said. A&A is a "large microcosm of what's driving consolidation" in the industry, he said.

"With the soft market and heavy competition, we'd probably be flat if it were not for acquisitions," noted Robert H. Hilb, chairman and CEO of Hilb, Rogal & Hamilton. The Glen Allen, Va.-based broker acquired 15 independent agencies in 1996, which contributed to a 7% rise in revenues.

HRH was not alone on the acquisition trail: Arthur J. Gallagher & Co. made seven acquisitions in 1996, Acordia made nine, and Poe & Brown Inc. completed four.

"Consolidation will continue," predicts J. Michael Bischoff, vp-corporate development for M&M, which joined the acquisition frenzy last month when it bought CECAR for $200 million.

"The pace, timing and which firms will be involved is hard to anticipate," he said. However, "it has been clear for years that consolidation needed to occur in the insurance sector."

Individual results of the largest U.S.-based publicly held brokers follow:

Marsh & McLennan

Solid growth from almost every segment at the world's largest broker is responsible for its 10% growth in total revenues in 1996 to $4.16 billion. Profits also were up, increasing 14% to $459.3 million.

Revenues at Putnam Investment Inc., its Boston-based investment management company, grew 44% over the year to $1.1 billion, while consulting revenues, including those from William M. Mercer Inc., grew 10% to $1.2 billion.

Revenues from insurance services, which includes insurance brokerage, reinsurance brokerage and program management business, however, was down 3% over the year to $1.9 billion.

Excluding its second-quarter 1996 sale of The Frizzell Group Ltd., a U.K.-based insurance program management company, revenues would have been up about 2% for the year, Mr. Bischoff said.

Insurance brokerage business had "a very strong year" with a 5% to 6% increase in revenues, he said. Revenues from reinsurance brokerage business, on the other hand, were down 12% for the year to $258.5 million.

Such trends as higher retentions, price reductions in catastrophic risks and consolidation of insurers hurt reinsurance brokerage results. Mr. Bischoff said while these trends will continue through 1997, they will not affect the business as severely.

The reinsurance segment "is looking forward to improved profits and results in '97," he said.

M&M took a $59.4 million pretax fourth-quarter charge related to finding new London quarters. The charge also will go toward some systems integration and process improvements in its insurance services segment, Mr. Bischoff said. The charge offsets a $40 million one-time tax credit M&M received in the quarter.

In January, M&M bought CECAR for $200 million. The combination of CECAR and M&M's existing French broker, Faugere & Jutheau S.A., will make it the largest broker in France.

CECAR is "a superb company," Mr. Bischoff said. The two French brokers have "tremendous complimentary activity. While they don't need to be put together, our intent is to integrate them in '97."

As to its negotiations with St. Paul to buy Minet, Mr. Bischoff said, "We're still looking at it, but the deal has not been done."

Aon Group

Growth from international operations plus a hefty dose of acquisitions bumped Aon Group's revenues up 16% to $2 billion in 1996. Pre-tax profits, however, were down 14% to $182 million. The decline is attributed to $75.3 million in charges Aon took in the second quarter relating to an early-retirement program and in the fourth quarter relating to the integration of Bain Hogg.

Aon additionally expects to take a $100 million charge in the first quarter relating to the integration of A&A, Mr. Ryan said. Revenues from A&A's operations also will be included in Aon's first-quarter results.

Revenues from Bain Hogg were included in the fourth quarter of 1996. Revenues were up 30.8% to $583.6 million in the quarter as a result.

Mr. Ryan said the integration of Bain Hogg and A&A into Aon is "going quite well."

He anticipates all decisions relating to "people issues" to be made by the first half of the year. The actual physical integration of the companies will come after that.

In addition to acquisitions, Aon experienced good "organic growth," Mr. Ryan said.

"Growth came from international business and consulting did well," he noted. "Reinsurance continues to be under pressure, and U.S. retail did fine. The lift principally came from international business."

Consulting revenues were up 9.3% to $273.8 million, while insurance and other services were up 17.1% to $1.7 billion.

"It was a good year. We're happy," Mr. Ryan said.


The Indianapolis-based broker posted the largest revenue and profit increases among the six largest U.S.-based publicly held brokers.

Revenues increased 19% to $661 million, while profits grew 27% to $29.9 million.

Keith A. Maib, executive vp and chief financial officer for Acordia, said top line growth can be attributed to Acordia's strategic relationship with its parent company, Anthem Insurance, and to acquisitions.

Revenues from Acordia's health-related operations increased 20% over 1995 primarily due to Anthem's merger with Cincinnati-based Community Mutual Insurance Co. Overall, about $326 million of Acordia's 1996 revenues came from Anthem.

Also during the fourth quarter, Acordia sold its wholesale life operation in Salt Lake City. Together with the third-quarter sale of its Tyler, Texas-based third-party administration unit, Acordia reported a $2.8 million gain for the year.

Total expenses, however, grew 19% over the year to $573 million.

In December, Frank C. Witthun was named CEO of Acordia, succeeding L. Ben Lytle, who continues as chairman of Acordia and chairman and CEO of Anthem.

Despite questions on the future of Acordia and Anthem, Mr. Maib said business will continue as usual.

"We are highly focused on margin expansion in '97," Mr. Maib said, adding that acquisitions will continue to be "fundamental to our strategy."

Arthur J. Gallagher

Executives at the Itasca, Ill.-based broker are pleased with its year-end 4% growth in revenues to $456.7 million.

"It continues to be a very tough pricing environment," said Michael J. Cloherty, executive vp at Gallagher.

"The good news is 96% of our clients stayed," he said. "But we don't make as much revenues as we used to."

While results are good, "we're not going to sit on our hands," he noted. Part of the broker's strategy is acquisition growth. "We're always looking for good acquisition candidates," he said.

In 1996, Gallagher acquired seven companies, including Alliance Insurance Group, a property/casualty broker in Phoenix, and R.W. Stephens & Co. Inc., a Pasadena, Calif.-based benefits company the broker acquired in the fourth quarter.

Gallagher also is continuing to focus on expense controls and making its business processes more efficient, Mr. Cloherty said. "There's not much more you can do."

In 1996, total expenses were up 3% to $387.3 million.

Further expense reductions and efficiencies will result from the broker's continued "redesign" efforts, he said.

At the end of the third quarter, Gallagher announced it was reviewing all aspects of the broker's costs and related expenses due to a shortfall in expected commission and fee growth in the fourth quarter.

Revenues were up a scant 2% to $119.5 million, and profits tumbled 12% to $11.3 million during the fourth quarter.

Gallagher continues to review and redesign "operations that are having profitability difficulties," he said.

Mr. Cloherty did not elaborate about the restructuring, except to say he estimates it to be complete by the first half of 1997 and that efforts so far have resulted in more "efficiency to its delivery system."

Hilb, Rogal & Hamilton

HRH's merger and acquisition strategy played a key role in its 7% rise in revenues for the year to $158.2 million.

Profits, however, were down 4% for the year to $11.4 million.

Mr. Hilb said while the company was "deeply concerned" about a profit decline, a difference of a few hundred thousand dollars "wasn't significant."

"It was a tough damn year," he noted. "The competitive nature of the business has not changed."

In December, HRH completed the sale of substantially all of the operating assets of its Voorhees, N.J., office to Wharton/Lyon & Lyon.

Continuing with its acquisition strategy-it acquired 15 independent agencies in 1996-HRH already has completed two acquisitions in 1997.

HRH's Birmingham, Ala., office acquired substantially all of the operating assets of Lynam Insurance Agency Inc., also in Birmingham, and acquired substantially all of the operating assets of S.H. Gow & Co. Inc., which has offices in Buffalo, Rochester and Syracuse, N.Y.

Terms of the deals were not disclosed.

"We're going to be all right," said Mr. Hilb, who announced he is retiring as CEO of the broker at the end of May. He expects 1997 results to be an improvement over 1996, a year he describes as a "reasonably acceptable."

Andrew L. Rogal, president and chief operating officer, will succeed Mr. Hilb, who will remain chairman of the company.

Poe & Brown

An equal portion of internal growth and acquisitions fueled a 12% rise in revenues at the Daytona Beach, Fla.-based broker in 1996 to $118.7 million. Net income also grew last year, increasing 11% to $16.5 million.

Excluding a 1995 favorable tax reserve adjustment, profits were up 15%, which meets the broker's goal, said J. Hyatt Brown, chairman and CEO.

New business growth in Poe & Brown's retail brokerage segment-which represented $75 million of its revenues-was up 25% over 1995, he said.

The broker additionally made four acquisitions in 1996.

However, the rate of lost business stayed constant over the year and expenses were up 10% to $91.6 million, which partially offset the growth.

"We feel good about our prospects" in 1997, Mr. Brown said. The broker's goal is to increase its earnings per share by 15% in 1997. "We're pretty optimistic."