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Sedgwick Group P.L.C.

Sackville House, 143-149 Fenchurch St.,

London EC3M 6BN; England;

44-171-377-3456; fax: 44-171-377-3919. Internet:

1000 Ridgeway Loop Road, Memphis, Tenn. 38120; 901-761-1550;

fax: 901-684-3825.


1996 1995

Premium volume $11.13 billion $11.03 billion

Gross revenues $1.5 billion $1.47 billion

Brokerage: Retail 55% 55%

Wholesale 10% 10%

Reinsurance 7% 7%

Services 23% 22%

Investment income 5% 5%

Employees 15,392 15,128

Rev./Employee $97,328 $97,217

Offices 252 232

Converted at applicable exchange rates.

A week doesn't go by without another whisper that Sedgwick Group P.L.C. is about to merge or be sold to another broker.

Recently there was talk in the London and New York stock markets that Aon Group Inc. was interested in buying Sedgwick, despite having three other major brokers to absorb. Aon declined to comment, though it is still looking to make acquisitions.

Analysts believe that it's just a matter of time, though, before Sedgwick merges with one of its competitors, perhaps even with its London-based rival Willis Corroon Group P.L.C. Indeed, earlier this year Chicago-based investor David Herro-who led a shareholders' revolt against the Saatchi & Saatchi advertising agency board a few years ago-raised his stake in Sedgwick to 3.1%. That play gave rise to rumors that if management didn't force a deal between the two brokerages, then shareholders would (BI, April 14). But Mr. Herro, who upped his stake recently to 5.1%, said he has no plans to force the company's hand.

Even Sedgwick Chairman Sax Riley does not rule out any future mergers or acquisitions, though he acknowledges that it appears the first round of brokerage industry consolidation is complete.

Mr. Riley, formerly chief executive of Sedgwick, became group chairman earlier this year upon the retirement of Lord Fanshawe of Richmond. Rob White-Cooper, former vice chairman, succeeded Mr. Riley as chief executive and chairman of the executive management group.

Any mergers or acquisitions "would have to fit our strategy: to grow our consultancy business; to add distribution where we think it brings us the right answers," he said.

Sedgwick will not enter into any deal, Mr. Riley said in the broker's annual report, "unless we are convinced that it met our aim of increasing shareholder value in the longer term."

Mr. Riley doesn't rule out a merger some day with Willis, though Willis has maintained that it would prefer to remain independent (BI, April 21).

In spite of the big acquisitions made by its two larger competitors-Aon Group Inc. and Marsh & McLennan Cos. Inc.-in recent months, Sedgwick's position among the world's top brokers hasn't changed. The broker is still No. 3 in Business Insurance's 1997 ranking of the world's largest brokers, based on 1996 gross revenues.

Sedgwick's gross revenues grew 3.1% last year to 960.3 million pounds from 931.5 million pounds at year-end 1995. In dollar terms, revenues inched up to $1.5 billion in 1996 from $1.47 billion in 1995.

The group's revenues are less than half those of the world's second-largest broker, Aon, and less than one-third of Marsh & McLennan.

However, said Mr. Riley, "We don't necessarily want to be the biggest, but we want to be the highest-quality distributor of products and services. We have a single culture running right through our businesses worldwide, and we believe that being Europe-based makes us certainly an alternative player," Mr. Riley said.

Sedgwick last month decided for the first time to list its shares on the New York Stock Exchange. Sedgwick considers itself a global broker, and "the other two global broking houses are duly listed in both New York and London," said Mr. Riley. "I think that it's very important that our clients and our staff see that we're in the same mode as them."

Sedgwick also sought a listing because U.S. stock analysts are not familiar with the group. As a result, transatlantic acquisitions have proved "extremely difficult," said Mr. Riley. Hopefully, opportunities will improve once the investment community gets to know Sedgwick, he reasoned.

There hasn't been much interest yet in the NYSE stock. As of July 11, it closed at $10.81 per share, up only slightly from the $10.45 share price at which it was first listed on June 2.

"There's hardly any movement and hardly any purchase. But we've been told by our advisers that Rome was not built in a day," said Mr. Riley.

Sedgwick stock is primarily traded on the London Stock Exchange and closed at 124 pence ($2.10) per share on July 11, though it had traded as high as 144 pence ($2.44) during the previous 52 weeks.

In its presentation to U.S. investors, Sedgwick explains that it is "a powerful force well-positioned for long-term growth."

Sedgwick has shown analysts that, over the past five years, its commission and fee revenues have gained steadily to 914.9 million pounds last year ($1.43 billion), from 631.9 million pounds ($1.11 billion) in 1992.

A key factor in the growth during this five-year period has been Sedgwick's benefit consulting unit, Sedgwick Noble Lowndes Group, formed as a result of the 1993 acquisition of Noble Lowndes & Partners Ltd.

Operating profit also has steadily risen, reaching 100.3 million pounds last year ($156.5 million), up 11% from 90.3 million pounds ($142.5 million) in 1995, and 34.5% higher than 1992. Pretax profits increased 6% to 95.5 million pounds last year ($149 million) from 1995 profits, and were 68% higher than 1992 earnings.

On paper, Sedgwick's first-quarter 1997 results don't run true to this trend. Commission and fee revenue dropped 3.5% to 234.7 million pounds ($370.8 million) compared with the first quarter of 1996; while first-quarter investment income dropped 16% to 9.8 million pounds ($15.5 million). First-quarter pretax profits also dropped 4% to 43.5 million pounds ($68.7 million).

But Sedgwick's quarterly results were socked by a soaring British pound that has dampened income in other currencies, particularly European currencies, which Sedgwick doesn't hedge. At constant exchange rates, revenues increased 3% and pretax profit by 4%, the company claims.

Sedgwick's "strategy going forward" to achieve profitable revenue growth is to extract the maximum it can from "our so-called mature businesses, while at the same time laying a foundation for profitable growth in either developing countries or in new developing lines," said Mr. White-Cooper, Sedgwick's chief executive.

Sedgwick's main insurance and reinsurance services operations have seen healthy gains in new business. Overall, Sedgwick saw an 8% increase in revenue from new business to 191 million pounds ($298 million) last year, compared with 1995, according to Mr. White-Cooper.

Sedgwick Group's main operating units are:

Sedgwick Europe Risk Services Ltd., created last year by the merger of Sedgwick Europe and Sedgwick Payne and combines the group's European retail, wholesale and reinsurance businesses and its specialized global businesses.

SERS saw a 6.3% increase in new business in 1996. Overall, SERS's revenues increased 2% to 348.8 million pounds ($544.1 million) last year. The unit, headed by Richard Titley, chairman of the unit and a group vice chairman, accounts for 38% of Sedgwick Group's commission and fee revenues.

Sedgwick Global Reinsurance Services, a division that includes the broker's North American and U.K. reinsurance operations, also falls within the scope of SERS.

Although Sedgwick has enjoyed good growth in continental Europe, larger gains have been held back by competitive conditions in the London market, which are "quite difficult," said Mr. White-Cooper.

Including benefit consulting operations, about 466.5 million pounds ($727.7 million), or nearly 49%, of Sedgwick Group's gross revenues are generated from Europe.

Sedgwick North America retail, which includes U.S.-based retail brokerage subsidiary Sedgwick Inc., saw a 9.7% increase in new business last year. The unit's U.S. retail commission and fee revenues increased 3% last year to 290.1 million pounds ($452.5 million); while in Canada, commission and fee revenues increased 14% to 22.7 million pounds ($35.4 million), according to Sedgwick's annual report.

Altogether, North American retail accounts for 32% of the broker's commission and fee revenue.

Sedgwick Claims Management Services in the United States has been a particular success, according to Sedgwick executives, with revenues increasing 56% since 1992 to 77.3 million pounds ($120.6 million) last year. 1996 revenues were up 12.5% from 1995.

As part of a Sedgwick strategy to establish alliances and partnerships to increase revenue, Sedgwick North America and Bermuda-based mutual insurer Associated Electrical & Gas Insurance Services last year formed a claims administration facility specializing in U.S. utilities and energy-related industries. The new company, Aegis Claims Management Services, provides multiline claims administration, 24-hour claims reporting and medical cost-containment programs.

North America's soft commercial insurance market generally has put a damper on growth, cutting commissions as much as 20% to 30% in the past year, executives acknowledged.

"There's no question that property/casualty commissions from renewals are down," said Quill Healey, chairman and chief executive officer of Sedgwick Inc. in Memphis and vice chairman of Sedgwick Group.

The U.S. workers compensation market has seen significant reductions in rates and commissions, due to

legislative changes, added Mr. Healey. The once-$26 billion premium business in workers compensation now is $20 billion, he said.

"Commissions and everything connected with workers compensation is going through major change," he said.

However, Sedgwick has achieved its goal of generating 50% of its revenues in brokerage commissions and 50% in consulting fees in North America, which enhances the broker's results, said Mr. Healey.

"The new business that's coming through our risk consulting and claims management, and the major proportion of our revenue coming in on a fee basis, is helping us through the soft market," he said.

In all, North American retail, wholesale, reinsurance and employee benefit services generated 421.6 million pounds ($657.7 million), or 44% of Sedgwick Group's gross revenues last year.

Sedgwick Asia Pacific retail, which saw a 9.7% growth in new business in the past year. This unit, which accounts for 5% of total commission and fee revenues, grew 5% in revenues to 48.4 million pounds ($75.5 million) last year. Revenue was up 16% in Asia, but difficult markets held back revenue growth in Australasia to 1%.

About 7% of Sedgwick Group's gross revenues is generated in the Asia Pacific region in insurance, reinsurance and employee benefit services.

Sedgwick Noble Lowndes, which saw a 6.9% gain in new business last year. This unit's brokerage and fee revenues increased 2% to 208.5 million pounds ($325.3 million) last year, accounting for 23% of total commission and fee revenue.

SNL is the largest Europe-based employee benefit consultant and the world's sixth-largest, said Mr. Riley.

In the past month, Sedgwick and other pension sellers and providers have come under fire from the British government's Economic Secretary to the Treasury, Helen Liddell, for failing to compensate people who were encouraged to move to personal pensions from employer-provided pensions after being given incorrect advice that personal pensions would accrue more money. Ms. Liddell recently listed 24 companies she said had failed to settle these cases. Sedgwick was No. 4 on the list, having settled only 1% out of 6,731 claims; but some companies on the list have more than 50,000 claims against them.

"We've made it pretty clear right the way through both internally and externally of the extreme seriousness and commitment of the Sedgwick Group in resolving this issue as quickly as possible," said Mr. White-Cooper.

The delay in part has been because Sedgwick has had to inform its professional liability insurers and make sure they agree to indemnify Sedgwick for any claims it pays, he added.

The government wants the situation resolved as soon as possible.

"And we recognize this fully, and we've said right along that our commitment is there," said Mr. White-Cooper. Cases are being settled according to a time limit agreed to by regulators and will be completed by the end of next year, he said.

An element in Sedgwick's long-term growth strategy is further development of the group's global network.

Including offices in which it does not have majority ownership, Sedgwick has 279 offices in 71 countries employing more than 15,000 people. This includes 102 offices with 7,200 employees in Europe and Scandinavia; 101 offices with 6,300 employees in North America; and 32 offices employing 1,200 in the Asia Pacific region. Sedgwick also has 44 offices in Africa, Latin America, the West Indies and the Middle East.

Last year, Sedgwick established offices in Azerbaijan, Namibia, South Africa, the Slovak Republic, Ukraine and Vietnam. Sedgwick acquired Wiesbaden, Germany-based broker Kurt Hamm & Sohn Versicherungsmakler GmbH last year and Minet Group's operations in the Czech and Slovak Republics.

When it comes to generating business outside North America and the United Kingdom, "Sedgwick is up there with Marsh and Aon," said Mr. White-Cooper. About 26% of its revenues are generated from the "rest of the world," in line with the other two global brokers, Sedgwick claims.

Sedgwick foresees growth in employee benefits, including private pension and health care plans, in Europe as more governments continue to break up their expensive social security systems, said Mr. White-Cooper.

The expanding role of the broker in the single European insurance market also presents opportunities, he said, causing Sedgwick to set up joint ventures in various European countries where necessary. For example, Sedgwick this year has signed a letter of intent to set up a joint venture with one of Italy's largest brokers, Milan-based Gruppo Nikols. Sedgwick will own 49% of the as-yet unnamed venture and will control the board. This will make Sedgwick one of the largest brokers in Italy with 600 employees, and will give it a stake in Latin America, where Nikols owned subsidiaries.

Under Sedgwick's growth plan, it also will seek to attain half its revenues from brokerage services and half its revenues from consulting within the next three to five years, Mr. Riley said. Although it achieved this 50-50 level in the United States, worldwide Sedgwick continues to derive about 63% of revenues from brokerage commissions.

Sedgwick now has a wide range of consulting and outsourcing businesses, including employee benefit consultant Sedgwick Noble Lowndes; runoff consultants Reinsurance Solutions Ltd. and ReSolutions International Ltd.; The Risk Strategies Group, a U.K.-based joint venture with Price Waterhouse to provide risk management consulting; and Lloyd's of London underwriting agency Sedgwick Oakwood Lloyd's Underwriting Agents Ltd., which was created in May 1996 when Oakwood Underwriting Agencies Ltd. was acquired and merged with Sedgwick Underwriting Agents Ltd.

In the United States, it also owns alternative risk financing consultant Sedgwick Lane Financial L.L.C. in Chicago. "Although it's an immature business, it's picking up steam," Mr. Healey said of Sedgwick Lane.

Underwriting no longer is part of Sedgwick's plans. In November 1996, the group's River Thames Insurance Co. Ltd. ceased underwriting and was placed into runoff. This completed Sedgwick's exit from active underwriting, which began when its Americas Insurance Co. unit was put into runoff in 1995 and Mendip Insurance & Reinsurance Co. was sold in 1994.

When Americas was put into runoff, its net assets were 35 million pounds ($55.2 million). Since then, Sedgwick has released 12 million pounds ($20.3 million) in cash to reduce corporate debt and hopes in the next four years the remaining funds will be recovered, according to Sedgwick's annual report.

In February, Sedgwick bought the remaining 49.9% share of River Thames from Transamerica Corp. for 12 million pounds ($20.3 million) in cash plus 2 million pounds ($4 million) to be based on profitability over the next five years ending Dec. 31, 2001.

Sedgwick has explained to shareholders that with efficient management runoff by ReSolutions, the group expects to receive over time cash at least equivalent to the net assets of River Thames of 57 million pounds ($96.4 million).