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The consolidation trend in the insurance brokerage industry is playing out differently among the largest U.S.-based publicly held brokers.

Some are digesting recent acquisitions, others are hungry to make a deal while another is in limbo awaiting its fate.

All six of the largest U.S.-based publicly held insurance brokers' revenues, however, benefited from acquisitions during the first quarter of 1997.

Aon Group Inc. reported the largest revenue gain, with an acquisition-fueled 81.6% boost, while Acordia Inc. reported the smallest gain, up 0.7% .

Those two brokers were the only companies that did not report profit increases. Acordia reported 8.5% lower profits, while Aon reported a $36.4 million loss for the first quarter.

Acquisitions continued during the first three months of 1997, highlighted by Marsh & McLennan Cos. Inc.'s $1.8 billion acquisition of Johnson & Higgins (BI, March 17).

Aon Group followed suit in April with its agreement to buy Minet Group from The St. Paul Cos. Inc. (BI, April 22).

The Minet deal came while Aon was still digesting the recent acquisitions of Alexander & Alexander Services Inc. and Bain Hogg Group P.L.C., a process that Patrick G. Ryan, Aon chairman and CEO, said is going smoothly.

Executives at the new J&H Marsh & McLennan Inc., similarly digesting recent deals, would not comment on the integration or first-quarter results. The broker entered into "a period of silence" after filing a shelf-registration statement with the Securities and Exchange Commission for the offering of up to 3.4 million shares of its common stock. Under the agreement, M&M will pay $334.3 million in cash and $670.6 million in M&M stock to J&H shareholders, including its roughly 40 active directors and managing principals (BI, March 31).

While consolidation has sealed many brokers' fates in the last six months, one broker's future is still up in the air.

Anthem Insurance Cos. Inc. announced in early February that it was exploring the sale of subsidiary Acordia Inc.'s property/casualty brokerage business.

Acordia has declined to comment on rumors that it is in talks with several banks. In discussing first-quarter results, Keith Maib, executive vp and chief financial officer of the Indianapolis-based broker, would only say that the "process announced in February is continuing."

One broker that is a bit more open about is future is Hilb, Rogal & Hamilton Inc., which is bullish about becoming the mid-market industry leader.

Glen Allen, Va.-based HRH, which for the past 10 years has followed an aggressive growth-by-acquisition strategy where an acquisition candidate's revenue stream was a primary focus, is changing its direction, explained Andrew L. Rogal. Mr. Rogal officially takes over as CEO this week, succeeding Robert H. Hilb, who remains chairman of the company.

"We're not in the pooling business" anymore, he said. "We're not interested in using our shares for acquisitions."

Instead, the 15-year-old broker is focusing on improving internal operations and acquiring agencies that are a strategic fit, not just revenue enhancers, Mr. Rogal said.

"We're very excited about our prospects," he continued. HRH has the opportunity "to become the premiere mid-market intermediary in the industry."

But that involves quality, professionalism and, to some degree, size, he said. While the broker focuses on the first two, the latter will come in the future.

"At some point in time, we intend, whether in a series of moves or in one big move, to ratchet up our size considerably," he said. "When that time comes, we will move on those opportunities from a position of strength."

"The company right now feels very aggressive and very hungry," Mr. Rogal said. "We're done playing defense."

For other brokers, the recent spate of mega mergers has had little effect.

"The only vibrations we see is just a lot of resumes in the mail," said Hyatt Brown, chairman and CEO of Daytona Beach, Fla.-based Poe & Brown Inc.

Michael J. Cloherty, executive vp of Arthur J. Gallagher & Co., said with the rash of industry consolidation, the Itasca, Ill.-based broker is one of the few large independent brokers left in the industry. "We see great opportunities because of that independence."

Individual broker results follow:

J&H Marsh & McLennan

Revenues at the world's largest broker increased 12.8% in the first quarter to $1.2 billion. Net income rose 14.9% to $164.4 million.

That percentage is certain to rise when M&M adds in J&H's revenues in the second quarter of 1997. While first-quarter figures do not reflect the J&H purchase, they do take into account M&M's January acquisition of French broker Cie. Europeenne de Courtage d'Assurances et de Reassurances, or CECAR.

As usual, The Putnam Cos., M&M's Boston-based investment management subsidiary, led the way with a 42.9% rise in revenues to $340.6 million during the first quarter. Consulting revenues, including those from unit William M. Mercer Inc., rose 10.3% to $305.4 million. Insurance services, which include retail brokerage revenues, were up just 1.3% during the first three months to $562.7 million.

Aon Group

Revenues at the Chicago-based broker catapulted 81.6% in the first three months to $880.7 million.

However a $145 million charge taken in the first quarter to cover costs associated with the integration of Alexander & Alexander Services Inc. resulted in a $36.4 million pretax loss. Excluding the special charge, pretax profits rose 27.5% to $108.6 million.

Mr. Ryan said internal growth was roughly 3% during the first quarter for which he is "relatively pleased."

"It's a very competitive market," he said. "Reinsurance brokerage continues to be the most competitive area of brokerage services."

Excluding revenues from acquisitions, Aon reported a "very slight decline" in reinsurance brokerage revenues, he said.

In addition to the Minet acquisition, which was expected to close over the weekend, Aon remains busy integrating the operations of A&A and Bain Hogg Group P.L.C.

"All the people are coming together well," he said. And "as an organization, morale is quite high."


Revenues edged up only slightly during the first three months of 1997, increasing 0.7% to $165.8 million. Profits, however, dropped 8.5% to $6.7 million.

"We're certainly pleased" with the first-quarter results, Mr. Maib said. There is always "concern when a business is in transition to make sure you keep your eye focused on the ball," he said.

"We're very happy that there's been no impact on the business as a result of our Feb. 6 announcement," he said, referring to Anthem's announcement that it wants to sell the property/casualty operations of Acordia.

Mr. Maib said Acordia's revenues remained flat over the first quarter as lower health-related revenues were offset by higher retail brokerage revenues.

Revenues from its health-related business were down due to the loss of business from Anthem U.S., which represents Anthem's core business outside of Indiana, Ohio and Kentucky, Mr. Maib said. Acordia was the exclusive wholesale distribution arm for Anthem U.S.'s products, but that exclusive arrangement ended Dec. 31.

Acordia's retail brokerage business "showed good internal growth," he said, declining to disclose any percentages or figures.

Mr. Maib attributed the broker's profit decline to higher interest and amortization expenses.

During the first quarter, Acordia did acquire three property/casualty operations; Bush, Cotton, Thompson & Scott Inc., in Seattle; Charles R. Dorsey Inc., in West Palm Beach, Fla.; and Simms & Rose Insurance Agency Inc., in Coconut Grove, Fla.

Arthur J. Gallagher

Revenues at the Itasca, Ill.-based broker increased 3.1% to $111.5 million during the quarter. Net income was up 8.2% to $9.2 million.

"We're pleased considering the marketplace," said Mr. Cloherty. "It's still extremely competitive."

During the first quarter, Gallagher acquired two benefit companies, entered into a joint venture and formed a new division.

The acquisitions of Byerly & Co. of Denver and Arnold & Co. of Troy, Mich., will add about $6 million in annualized revenue to the broker's Gallagher Benefit Services division, Mr. Cloherty said.

The broker also entered into a joint venture with the Wyatt Group, a Brisbane, Australia-based third-party administrator to form a new company there that will provide loss adjusting, claims management, risk control consulting and marine and aviation surveying for the Australian marketplace. The new company is named Wyatt Gallagher Bassett (BI, April 14).

And in March, Gallagher announced the formation of AJG Financial Services Inc., a new division which will provide investment services to existing and new clients.

Hilb, Rogal & Hamilton

During the first quarter, revenues increased 11.2% to $47.9 million, while profits rose 4.7% to $5.4 million.

"The first quarter speaks for itself. It's the best quarter we've ever had," Mr. Rogal said. "We clearly exceeded our expectations."

He attributes the success to the company's year-old strategy of focusing on improving the company's internal operations.

"We have a distribution system of high quality that is very deep in people," Mr. Rogal said. "What it lacks, however, is discipline."

In the past year, the broker has reorganized the company into regional business units under leadership that "looks forward and not to the past," he said.

HRH is now in the process of integrating best practices within its operations.

"The company has come unfrozen," Mr. Rogal said. "There is enormous momentum within the company, enormous enthusiasm."

Poe & Brown

Revenues at the Daytona Beach, Fla.-based broker increased 10.6% in the first quarter of 1997 to $34.0 million. Net income also was up, increasing 17.5% to $5.2 million.

"It was a very strong quarter," Mr. Brown said. However, "we're still running behind our goal" for internal growth, he added. Non-acquisition growth grew at a 5.7% pace during the first three months, a little shy of the broker's 7.5% goal.

"Hopefully by mid-year or late this year we'll be running at 7.5% internal growth," according to Mr. Brown.

During the first quarter, Poe & Brown acquired two agencies; Dade Underwriters Insurance Agency Inc. in Aventura, Fla., and Willits Insurance Agency Inc. in Fort Lauderdale, Fla.