Lambert Fenchurch Group P.L.C.

Friary Court, Crutched Friars,

London EC3N 2NP, England;

44-171-560-3000;

fax: 44-171-560-3502

1996* 1995

Premium volume $2.53 billion $2.11 billion

Gross revenues $225,268,560 $161,437,374

Brokerage: Retail 61% 70%

Wholesale 22% 14%

Reinsurance 12% 11%

Personal 2% 2%

Investment income 3% 3%

Employees 2,571 1,792

Rev./Employee $87,599 $90,088

Offices 93 60

Converted at applicable exchange rates. Fiscal year ends March 31.

* Includes 12 months of Fenchurch P.L.C. on a pro forma basis; 1995 reflects Lowndes Lambert only.

Executives of Lambert Fenchurch Group P.L.C. see no reason that significant growth should end with the gains from the February merger of Lowndes Lambert Group Holdings P.L.C. and Fenchurch P.L.C. that created the broker.

"We've always said that we'd like our business to carry on growing and that we believe we could be running something substantially larger," said David Margrett, chief executive of Lambert Fenchurch, who was chief executive of Lowndes Lambert. In fact, he'd like to see the broker's business double within three years. "I don't feel that the day of the medium-sized, international independent is gone. There are certainly a number of opportunities out there that we're very excited about," he said.

Nor does he believe that the merger and acquisition activity among global insurance brokers over the past nine months means that all of the best merger possibilities have been exhausted.

"At least some of the things that perhaps we might want to buy, or might want to enter into-it's a lot easier to do now given that the consolidation has already started to take place," Mr. Margrett said.

For Lambert Fenchurch to double in size, he sees both organic growth and acquisitions. Acquisitions mean not only buying other companies but also attracting new people.

Without providing specifics on such opportunities, he said: "We've never been shy of looking at bigger acquisitions and mergers, as long as we can bring to it what we think we're best at. I wouldn't rule anything out."

The merger of Lowndes Lambert and Fenchurch produces a broker with combined gross revenues of 142.2 million pounds for fiscal 1996. That compares with 103.1 million pounds posted by Lowndes Lambert for fiscal 1995 and 36.2 million pounds that Fenchurch posted for the year ended Sept. 30, 1995.

Converted to U.S. dollars using average exchange rates, Lambert Fenchurch had $225.3 million in 1996 gross revenues, making it the world's No. 10 broker, up from Lowndes Lambert's position of 16th a year ago.

"One of the nicest things about the Fenchurch deal really is that it was a merger of very similar cultures-both independent firms, both the products of MBOs, both committed to being independent and both committed to looking after their clients," said Mr. Margrett. He said any other mergers or acquisitions must fit Lambert Fenchurch's philosophy of a direct relationship with the insurance buyer.

Five months into the merger, confidence about achieving the benefits initially envisioned remains strong.

Mr. Margrett said that Lambert Fenchurch is on target for meeting a 5 million pounds ($8.5 million) reduction in expenses by March 31, 1998, a goal it set at the time of the merger.

Other anticipated benefits are materializing. The combination creates a larger independent broker, with a broad spread of commercial retail, wholesale and reinsurance business. Its size also means Lambert Fenchurch is better able to recruit and retain high-quality personnel.

The merger also gives Lambert Fenchurch's overseas offices greater access to London underwriters.

Last month, Lambert Fenchurch published its fiscal 1996 results. Including Fenchurch's contribution for the six weeks it was a part of the group before the close of the fiscal year, Lambert Fenchurch's total revenues rose 3.8% to 103.4 million pounds ($163.8 million) from a restated 99.6 million ($156 million) for 1995.

Pretax profits dropped 87.9% to 1.7 million pounds ($2.7 million) as a result of 12.9 million pounds ($20.4 million) in non-recurring charges. The extraordinary expenses consisted mainly of 11.1 million pounds ($17.6 million) of merger-related charges and a 1.4 million pounds ($2.2 million) contribution to Lloyd's of London's reorganization costs.

Mr. Margrett is "very pleased" with what Lambert Fenchurch calculates as a nearly 11% increase in revenues from organic growth, excluding the Fenchurch addition. That is especially pleasing, he said, given the competition in the industry and when compared with other brokers' growth.

The improvement also was achieved despite adverse consequences from the strength of the pound against other currencies. Lambert Fenchurch estimates exchange rate losses created a 3.8 million pounds ($6 million) reduction in revenues.

Lambert Fenchurch saw strong organic growth in all of its U.K. businesses and continuing containment of costs, Mr. Margrett said.

Brokerage revenues from Lambert Fenchurch's three main U.K. brokering divisions-marine, non-marine and international-together increased 22.6% to 74.3 million pounds ($117.7 million) last year.

The international group, which includes wholesale brokering, construction and reinsurance business underwritten in the London market, had a record year on its construction account after winning a number of new projects. This unit has been particularly successful in winning the brokerage business for the construction of power projects in England, Turkey and Taiwan, a spokesman said.

A protection and indemnity reinsurance unit performed especially well, partly offsetting the downturn in non-marine reinsurance business, after the recruitment of a P&I team.

U.K. professional indemnity business continued to suffer from extra capacity and strong competition. Revenues for Lambert Fenchurch's U.K. professional risks division were down 8.8% to 4.1 million pounds ($6.5 million).

Restructuring since the merger of what Lambert Fenchurch calls its U.K. Group-which incorporates commercial and personal lines, financial services, captive management, risk management and professional indemnity operations-is "by and large complete in management terms," said Mr. Margrett.

A Specialties Group was created shortly after the merger to give a higher profile to several of Lambert Fenchurch's niche sectors: oil and energy, aviation, North American non-marine, fine arts and kidnap and ransom insurance.

The number of U.K. branch offices is being reduced to 21 from 31, mainly through the merger of branches where both Lambert and Fenchurch had offices, resulting in the loss of about 200 jobs, or almost 8% of Lambert Fenchurch's global workforce.

However, Mr. Margrett said he expects a "net hire" because of development opportunities and the need to handle and service new business.

Outside the United Kingdom, Lambert Fenchurch's brokerage revenues from Europe, Asia Pacific and the Americas dipped 5.5% to 29.1 million pounds ($46.1 million), due mainly to the competitive rating environment and the strength of the pound against currencies in those markets.

However, Mr. Margrett said Lambert Fenchurch "did very well in the U.S.," where its retail operations performed "very strongly." Lambert Fenchurch has retail operations in Texas, Louisiana, Mississippi, California and New York City.

North American brokerage contributed 15.6% of overseas brokerage last year, compared with 12.9% in 1995.

"For a grass-roots start-up, the results have been very good for us," said Richard Kerr, chief executive of the Dallas-based U.S. holding company, Lowndes Lambert U.S. Holdings Inc., soon to change its name to Lambert Fenchurch U.S. Holdings Inc.

"I feel like the luckiest man alive because of the fallout from the mega-mergers," he added, referring to the high-quality brokers wanting to change jobs and potential clients wanting to deal with a smaller broker.

In addition, four acquisitions of brokerages are expected within the next 90 days. "It will give us a real presence in the Midwest and West Coast, as well as in New York City," he said, declining to be more specific.

The group's U.S. unit became involved in two new ventures this year. In January it entered a joint venture with Hibbs-Hallmark & Co. of Tyler, Texas, setting up a third-party claims administrator, Platinum Safety & Claims Services L.L.C., to serve companies that self-insure or have high deductibles. With clients already including those among the Fortune 1,000 companies, it "has grown far better than we expected," Mr. Margrett said.

Platinum handles mainly workers compensation, general liability and auto claims. Mr. Kerr noted that this unit will make several acquisitions in the Northeast and on the West Coast, and "will be totally integrated nationwide in the next 12 months."

In March, Lambert Fenchurch also partnered with New York-based Reliance National Insurance Co. and MTS Insurance Services, a wholesale broker based in Chatsworth, Calif., to form New Century Global Inc., a Dallas-based managing general agent and wholesale broker. New Century offers property and casualty insurance products nationwide, with an exclusive relationship with Reliance on certain programs and similar relationships with many other insurers. Lambert Fenchurch has a 40% stake in the venture, into which it has merged its Houston-based oil and gas broker, Ambrit International Insurance Inc., and its armored car industry broker, Lambert Green Inc. in McGaheysville, Va.

Mr. Margrett believes this is "probably the most exciting" of Lambert Fenchurch's ventures. "I'm very excited about the potential there. It's done extremely well for us," he added.

Mr. Kerr said, "New Century is on a very rapid growth pace" and probably will open five to seven new offices in the next 12 months. Target cities for these offices are New York, Dallas, Atlanta, Los Angeles and Chicago. New Century's $9.5 million capitalization reflects those growth plans.

In April, Lambert Fenchurch expanded operations in continental Europe through a joint venture with Hamburg, Germany-based broker Pantaenius GmbH & Co., in which it also acquired a 40% stake.

Elsewhere, Lambert Fenchurch has offices in France, Spain, Greece, Norway, Finland, the Republic of Croatia, Belgium, Luxembourg, Estonia, Russia and Switzerland.

Looking at current and future prospects, Mr. Margrett foresees no immediate change in the soft market. However, he said the broker's results show there are opportunities for it to continue to increase its market share.

Consolidation "will give rise to a number of opportunities that only an independent of our size can grasp," he said. "It gives us opportunities to attract clients who don't necessarily want to be told that they're 15th in line to the biggest account in a particular office and who want to have senior-level contact," he said.

In the United States, Lambert Fenchurch is getting numerous inquiries from potential clients who want to re-evaluate their relationships with Aon Group Inc. and J&H Marsh & McLennan Inc. in view of their acquisitions, he said. As a result, Lambert Fenchurch sent to the United States what Mr. Margrett calls a "hit squad" of experts to explain the full package of services it can offer. This team, which began its road trip in late June, has been received with "a lot of enthusiasm," though it's too early to determine whether it will generate business, said William Wilks, finance director. The effort was aimed as much at meeting with producing brokers in the United States as with potential clients, he said.

Mr. Kerr added that the fallout of the large broker mergers has been so good for Lambert Fenchurch that "I hope there's another megamerger." He cites three main benefits: Many clients believe they will get more personal service from a smaller broker; employees at the mega-brokers cannot really exercise their entrepreneurial flair and so want to move; and "there are lots of regional brokers who feel they need to affiliate with someone, and Lambert Fenchurch is one of the only international brokers with which they can affiliate that does not already have an established infrastructure all over the world."

Even consolidation in the insurance and reinsurance markets offers opportunities, Mr. Margrett said, as underwriters with whom Lambert Fenchurch has had long-term relationships move up the corporate ladder or represent bigger companies.

Mr. Margrett noted that he expects Lambert Fenchurch to join the World Insurance Network, which became active this month.

Meanwhile, Lambert Fenchurch is seeking shareholder approval for a Long Term Incentive Plan aimed primarily at directors and executives to encourage growth. These key individuals will be offered the opportunity to accumulate stock in the company. Shares would be held in escrow for three years, and if both the brokerage and the employee meet certain performance targets, half of the shares are released to the employee at the end of the fourth year and half at the end of the fifth year. It is a proposal both to reward and to bind high-performance individuals to the company.