WORLD'S 10 LARGEST BROKERS: JARDINE LLOYD THOMPSON GROUP P.L.C. (6)Posted On: Jul. 20, 1997 12:00 AM CST
Jardine Lloyd Thompson Group P.L.C.
Jardine House, 6 Crutched Friars, London EC3N 2HT; 44-171-528- 4444;
Premium volume $3.12 billion $2.88 billion
Gross revenues $379,860,000 $359,784,000
Brokerage: Retail 47% 68%
Wholesale 27% 13%
Reinsurance 17% 12%
Investment income 9% 7%
Employees 3,500 3,076
Rev./Employee $108,531 $116,965
Offices 66 71
Converted at applicable exchange rates.
**1996 revenues are JLT estimate of pro forma combined JIB Group P.L.C. and Lloyd Thompson Group P.L.C.; all other 1996 figures BI estimate.
1995 figures are for JIB only.
Not only did Feb. 6 herald the new Chinese Year of the Ox, but it also saw a marriage of London-based insurance brokers.
Having announced their intention to merge in December, in February JIB Group P.L.C. and Lloyd Thompson Group P.L.C. officially tied the knot.
Facing growing competition, the two brokers had been talking about a merger since late 1993. But it took JIB's 1995 disposal of its North American retail business to Alexander & Alexander Services Inc. and the successful conclusion of Lloyd's of London's reconstruction and renewal plan last September to put the talks into high gear.
The merger also gave JLT new status as an independent broker. Previously, JIB had been 61% owned by Bermuda-based Jardine Matheson Holdings Ltd. With the merger, that shareholding dropped to a 34% stake in the new company, though Jardine Matheson still is the largest minority shareholder.
Ken Carter, former chief executive of Lloyd Thompson, is now chief executive of JLT, while John Barton, formerly chief executive of JIB, is chairman of the new company.
Lloyd Thompson started looking at London brokers in 1993 for a potential merger partner. Mr. Carter said its search alighted on JIB because of its relatively small presence in the London market, its international operations, specialty business and large revenues.
"Lloyd Thompson by comparison was much smaller; it had revenues of 45 million pounds($70.2 million), and it was highly profitable-it made 20 million pounds ($31.2 million) in profit on that figure-but was essentially one operation all in London," he said.
The merger faced two major stumbling blocks, though. First, JIB perceived Lloyd Thompson as very dependent on the Lloyd's market, which then was going through its darkest hours. Second, Lloyd Thompson believed JIB's U.S. retail business would clash with Lloyd Thompson's own U.S. wholesale portfolio, "which remains important to JLT today," said Mr. Carter.
Once those problems were solved by the sale of JIB's retail business and improvement at Lloyd's, "the decks were therefore clear to relook at the logic of that merger." Although both brokerages had "flirted" with other potential partners in the meantime, Mr. Carter said the circumstances were compelling to proceed with the merger.
"What we saw was we would create a company that would aspire to be a world-class independent broker that would focus on businesses where it could be a market leader or among the top three operating anywhere it chose to in the world," he said.
In particular, Lloyd Thompson had identified Asia, Australia and Latin America as locations it wanted to get involved in, and the first two were fulfilled by JIB's network of offices in 14 countries. As for Latin America, JLT has established partnerships with operations in Argentina, Brazil and Chile.
"We've won business utilizing the Jardine network and the Lloyd Thompson London broking skills," said Mr. Carter. In particular, JLT has picked up two major corporate accounts from Asia. JLT also could win business from clients that want to use more than one broker and find that mergers have put all their business with one company.
At the same time, JLT has no aspirations to become a global broker in the same mold as giants J&H Marsh & McLennan or Aon Corp.
Instead, Mr. Carter wants the new company to continue focusing on specialty areas where it can be among the market leaders. These areas include: energy; construction; financial services; transportation, including shipping, aviation and cargo; major commercial accounts; affinity business; municipalities; and wholesale business.
Pooling the results of the two brokers on a pro forma basis, JLT estimated it generated 1996 gross revenues of 243.5 million pounds and gross profits of 46.5 million pounds ($72.5 million). JLT has not published any financial information related to the merged entity beyond the pro forma gross revenues and gross profits.
Converted to U.S. dollars using average exchange rates, JLT's 1996 gross revenues are an estimated $379.9 million, earning it the position of the world's sixth-largest broker, up from the No. 10 spot JIB reached last year alone with $359.8 million in gross revenue.
The merger overshadowed other developments in the two organizations last year. For JIB, 1996 was much quieter than 1995, when it shed its U.S. retail operations and restructured its retail business in the United Kingdom.
Among developments in 1996, JIB sold 51% of its Bermuda-based captive management company, Jardine Pinehurst Managing Co. Ltd., to Charles Taylor Group Ltd., a U.K. insurance management company, and upped its 27.5% shareholding in Jardine Aboitiz Insurance Brokers Inc., a Philippines retail broker, to 51% as part of its strategy to increase business from the Asia-Pacific region, traditionally a strong market for JIB.
Last year, JIB also increased its stake in French broker Societe Intercontinentale d'Assurances pour le Commerce et l'Industrie S.A., or SIACI, to 36.75% from 27%.
JIB's gross revenues for 1996 fell 6.1% to 214 million pounds from 228 million pounds (to $333.8 million from $359.8 million). Gross revenues for continuing operations, though, increased 8% to 193.6 million pounds from 178.9 million pounds (to $302 million from $282.3 million) in 1995.
JIB reported an even larger increase in pretax profits last year, up 29% to 27.5 million pounds ($42.9 million), despite fierce competition in the brokerage sector. Those figures, however, are before exceptional items: In 1995, exceptional charges for JIB's U.K. restructuring and its contribution to the Lloyd's R&R plan resulted in an overall loss of 49.6 million pounds ($78.6 million). The sale of JIB's U.S. retail operations accounted for 32 million pounds in income ($50.5 million) in 1995.
As a result of the sale, JIB saw a 37% drop in revenues from U.S. offices to 43.7 million pounds ($68.2 million) in 1996. JIB's business in the United States includes personal lines, reinsurance, wholesale, marine and affinity programs.
Asia-Pacific, an area with which JIB has had long association through Jardine Matheson, produced increased revenues, up 15% to 49.2 million pounds ($76.8 million).
U.K. operations produced revenues of 89.2 million pounds($139.2 million), up nearly 5% from the prior year. Although U.K. business saw lower expenses due to the restructuring in 1995, competition kept revenue growth low.
Lloyd Thompson's last full fiscal year also showed strong results. Gross revenues for the year ended June 30, 1996, came in at 55.8 million pounds ($86.4 million), up almost 9% from the previous year. But 16.2 million pounds ($25.1 million) worth of exceptional items hit earnings, cutting pretax profits by 74% to 5.3 million pounds ($8.2 million) in fiscal 1995.
Among the exceptional items was a 4 million pounds ($6.2 million) charge related to Lloyd's R&R plan. In addition, subsidiary Lloyd Thompson Ltd. found itself facing a 10 million pounds ($15.5 million) errors and omissions claim from a group of insurance companies. JLT declined to specify the source of the claim because it was part of a confidential settlement. Lloyd Thompson settled the claim in 1996 for 4.6 million pounds ($7.1 million), plus a contribution from its professional indemnity insurers. Lloyd Thompson also wrote off 7.6 million pounds ($11.8 million) of surplus property holdings.
During 1996, Lloyd Thompson saw an increase in the operations of Traveltest Ltd., a broker specializing in protection and indemnity business, of which Lloyd Thompson holds 76% of voting shares.
Lloyd Thompson also entered into a joint venture with a Turkish broker to develop marine business from Turkey.
Combined, the business of Lloyd Thompson and JIB overlaps in few areas. Although both companies had similar specialty areas, they often focused on different geographical locations for their business, and as a consequence, the number of jobs cut was relatively low. However, JLT did lose a team of nine non-marine international reinsurance brokers to London brokerage Steel Burrill Jones Group P.L.C. earlier this year.
JLT sees opportunities to expand its business by taking on executives and brokering teams looking for new homes in the wake of the recent megamergers in the brokerage industry, which still are causing fallout in the London market.
As for making additional acquisitions, "it would be wrong to say we are on the acquisition trail, but there are a lot of companies obviously considering their future," said Mr. Carter. "We look at every opportunity on its merits."
One possible weakness in JLT's international operations is its European presence. Its relationship with French broker SIACI, which in turn has a small shareholding in JLT and is its only European partner, is a possible blueprint for JLT's expansion in Europe.
"I think the philosophy of partnering as opposed to totally owning in Europe is a way that we would choose to go forward if those opportunities arose," Mr. Carter explained, though he added that JLT is not looking to extend its network of partners.
Mr. Carter added there is little interest in JLT joining the UNISON network, both from JLT's point of view and that of the international network, which likely will want a U.S. retail broker to replace Johnson & Higgins. JLT does not intend to return to U.S. retail business, Mr. Carter noted.
Although JLT primarily targets large commercial clients, these are not the only organizations on the broker's list.
"Important clients can range from the company that pays 5,000 pounds ($8,460) premium in one type of business to the client that pays 5 million pounds or 20 million pounds ($8.5 million or $33.8 million) in another type of business," said Mr. Carter.
Affinity business is one area in which JIB was particularly strong. JLT has a joint venture called BMAS with the British Medical Assn. that provides a variety of insurance policies to doctors in the United Kingdom.
JLT has not lost any clients as a result of the merger, though some have disappeared "in the way that you traditionally have turnover of business," said Mr. Carter. But client retention levels, which were high before Lloyd Thompson and JIB merged, have continued in the same way for the merged company.
JLT also is coping well despite the soft commercial insurance environment. While brokers' commissions are falling, more business is being processed, maintaining JLT's revenue stream.
Mr. Carter could not state the proportion of JLT's revenue coming from commissions rather than fees, though he noted that is a greater issue for predominantly retail brokers. Since the merger, JLT has derived an estimated 47% of revenues from commercial retail brokerage.
However, certain clients prefer paying fees, and "it doesn't worry us how we are remunerated as long as we receive the remuneration that we think we are entitled to for the services we give," he said.
JLT is consolidating its London employees, and the next step, which it aims to complete before the end of November, is to move most of the estimated 3,500 combined staff members into Jardine House, JLT's headquarters.
"That will re-create one of the characteristics I believe in Lloyd Thompson was very important in its success, in we had all the people who were working together in one building seeing each other all the time, continually communicating," said Mr. Carter. A small portion of JLT's staff will work in offices separate from the headquarters, which is not large enough for everyone.
In the meantime, he sees the London market as having a very strong position following its recent problems. Corporate investment in Lloyd's, consolidation in the market and the presence of numerous international insurers and reinsurers indicate the market has recovered.
But that's not to say the future doesn't hold challenges for a London-based broker.
Mr. Carter sees no signs that the market is going to harden, at least not before the end of 1998.
Also, the strength of the British pound against the dollar is causing concern to all brokerages in London with a large U.S. income, he said. The Jardine-Lloyd Thompson merger makes the unit stronger than either would have been on its own, Mr. Carter said.