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HAMBURG, Germany-After a difficult year in which it managed to grow revenues in spite of the soft market, broker Jauch & Huebener KGaA faces a new challenge in finding a new international brokerage partner.

Replacing its former UNISON network partner Johnson & Higgins is the most pressing need for Jauch & Huebener at the moment.

While that effort is ongoing, the Hamburg-based broker also continues to reorganize its operations and shift its emphasis to providing risk management services to better serve clients and attract new business.

Jauch & Huebener Partner Christian Dahms declined to name his options for a new partner, but said the broker has narrowed the field to specific brokers with a strong presence in North America, South America and Asia.

Originally set to be named in June, Mr. Dahms said now it could be September before a decision is made. Reaching agreement with all parties, including shareholders, is taking longer than expected, he said.

The leading German broker lost such a partner when Marsh & McLennan Cos. Inc. bought Johnson & Higgins in March for $1.8 billion, taking J&H out of UNISON (BI, March 17).

In recent weeks, there was a rumor that Jauch & Huebener perhaps would merge with French broker Gras Savoye S.A., which also is a UNISON partner. But Gras Savoye earlier this month announced a link with Willis Corroon Group P.L.C., which has agreed to acquire a 33% voting stake in the French broker.

Mr. Dahms hinted that the broker may consider forging an alliance that would limit its own independence.

"There will always be independent brokers. . .for local business. . .but those who want to do international business must join the top four networks or create a fifth," he said.

For now, Jauch & Huebener will continue to conduct international business through UNISON, with the network's remaining minority partners. It also will maintain offices or share operations with Johnson & Higgins in Austria, Hungary, the Czech Republic, Slovakia and Russia. Johnson & Higgins has not yet abandoned its role as a partner in these locations.

Whatever its choice as a partner, Jauch & Huebener is in a stronger position to negotiate this year than last, when a sluggish economy and a soft market combined to squelch revenue growth.

Forced to realign its focus from its core industrial clients, such as steel large chemical companies, it sought new business in the upper-middle and upper market sectors and found it.

"We expanded business at every level, gaining market share from everywhere: other brokers and insurance agents. We had better arguments, better service and possibly better prices," Mr. Dahms said.

The broker boosted 1996 revenues 2.6% to 318 million deutsche marks from 310 million deutsche marks in 1995. That was improved from a 1.3% drop in revenues in 1995 (BI, July 22, 1996).

However, when converted to U.S. dollars, Jauch & Huebener's 1996 gross revenues dropped 2.3% to $211.5 million.

Although ranked as the world's 13th largest broker a year ago based on its 1995 gross revenues, the company narrowly missed making the Business Insurance's 1997 ranking of the world's 10 largest brokers, in spite of significant consolidation higher in the ranks (BI, July 21).

The 1996 turnaround in revenues was the year's highlight, according to Mr. Dahms, who admits the task was formidable. "Not only were our clients more cost-conscious, there's a predatory price war going on that's been fueled by overcapacity on the reinsurance side," he said.

In some sectors of the German market, especially property insurance, rates nose-dived, with insurers offering companies with good industrial risks 50% to 80% lower rates. Insurers outside Germany managed to lure away 20 to 30 top risks from the German insurance market with better rates for highly protected risks.

As a result, leading German commercial insurers, such as Gerling A.G. and Allianz Holding A.G., developed defensive strategies to compete for the best risks with low prices and discounts for high loss prevention standards.

Mr. Dahms estimated Jauch & Huebener's revenues would have been 10% to 20% higher if not for the drop in property rates for German risks, but the broker also profited from the market shift. "This kind of underwriting gave us access to individual markets of the most diverse kind; not just one bunched solution," he says, referring to the method in the past of setting standard rates regardless of the difference in risk.

Demand from companies for risk assessment advice in order to improve their loss prevention also brought new business, he said.

While property rates fell, casualty rates went up, said Mr. Dahms. One factor was German environmental liability insurance. German law extends corporate liability for environment impairment further than other countries.

Jauch & Huebener clients are typically large German industrial companies. But since 1990 the brokerage has been extending its reach to attract clients from a broader base.

Jauch & Huebener plans to set up a holding company under which self-managed units will be responsible for reinsurance, retail and employee benefits.

Mr. Dahms said Jauch & Huebener would soon implement measures that would organize the broker's business by size, including large clients, middle-market clients and smaller clients-those with less than 50 million deutsche marks ($27.8 million) in revenue.

He confirmed Jauch & Huebener is working with insurers to develop basic all-risk policies and other products for small commercial clients to help it boost business in that sector.

Today, of its approximately 8,000 clients, about 10% are reinsurance, and 5% to 6% are employee benefit clients. The rest are mostly commercial retail clients.

One difficult area for revenue growth last year for the broker was reinsurance. As a result, Jauch & Huebener is looking to new markets, particularly in South America and the Far East, for insurance clients.

Mr. Dahms said the fall in reinsurance rates over the last few years continues and is due to soon reach "rock bottom." Last year, rates fell 25% below 1995 levels, which attributed to fewer catastrophe losses and, hence, overcapacity.

The brokerage also is aiming to boost reinsurance brokerage business with new computer technology. High-tech solutions for primary insurer clients include software that models various reinsurance scenarios for clients.

Mr. Dahms acknowledged the broker has had troubles over the last five years building up the electronic systems it needs. But it now has ready-made software in place for data processing and communications. Internet plans are just now taking shape. A World Wide Web site is near completion and will provide information for clients and potential customers.

Like other brokerage executives, Mr. Dahms said Jauch & Huebener's strategy is to move away from the classic role of insurance broker and increasingly become a full-service risk adviser to its commercial clients.

As a sign of consulting's importance for the company, Jauch & Huebener transferred all of its risk management activities to its risk management services unit in April.

That unit, J&H Risk Management Consultants GmbH, provides property and environmental loss control services, risk assessment and risk management consulting, quality management consulting and claims handling.

Jauch & Huebener also expects to increase captive insurance company management, claims administration and risk management consulting for self-insured clients.

To improve profits, which Mr. Dahms will not disclose, the broker continues to cut costs and hopes will reduce overhead by 3% to 5% in two years. Last year, the broker kept down its material costs, reduced its domestic staff and increased its foreign staff. It also closed its Dresden office. Overall, Jauch & Huebener now has about 1,400 employees, unchanged from year-end 1996.

Jauch & Huebener currently has 20 subsidiaries-ranging from retail brokerage and personal lines units to risk management consulting, claims administration services and personnel-related administration services, including retirement plans.

It plans to reduce that number after restructuring. It did not open offices last year and does not plan to open any this year.