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Brokers that have taken part in the consolidation frenzy over the past year are reaping the benefits, while acquisition rumors continue to swirl around the industry.

Four out of five of the world's largest publicly held brokers surveyed by Business Insurance reported revenue and profit gains in U.S. dollars for the first nine months of 1997, compared with the same period in 1996. Chicago-based Aon Group Inc. led the way with an acquisition-fueled 95.3% increase in revenues to $2.8 billion. Willis Corroon Group P.L.C. was the only firm to report lower revenues and profits: Revenues dropped 6.1% to $835.9 million, and profits fell 25.1% to $65.1 million.

For the first time, BI is profiling the quarterly results of the publicly held among the world's Top 10 brokers. Previously, the quarterly rankings comprised only the largest U.S.-based publicly held brokers.

Results from Indianapolis-based Acordia Inc., London-based C.E. Heath P.L.C. and Neuilly-sur-Seine, France-based Gras Savoye S.A. are not included because they are privately held firms.

Jardine Lloyd Thompson Group P.L.C., as well as other publicly held U.K. brokers, are required only to report year-end results.

Johannesburg, South Africa-based Forbes Group Ltd., which jumped into the Top 10 earlier this year after it acquired London broker Nelson Hurst P.L.C., reports its earnings on a fiscal year ending March 31. It reported six-month results earlier this month (see sidebar).

Willis Corroon's lackluster results have prompted continued speculation about its future.

Earlier this month, a London daily newspaper reported that Aon Group had signaled a bid for Willis Corroon or Sedgwick Group P.L.C. and that Marsh & McLennan Cos. Inc. was likely to counter such a bid. It further speculated that the most likely merger was an Aon/Willis combination.

At the time, Patrick G. Ryan, chairman and chief executive officer of Aon Group, said he was "shocked" by the reports and described them as "unfounded."

Rumors have surfaced for years that Aon was going to acquire Willis or Sedgwick, or that Sedgwick and Willis were going to merge, or that M&M was going to acquire Sedgwick, he said. "People seem to have nothing to do but to dream of the future."

At the moment, Mr. Ryan said Aon is not looking to make another major acquisition but will continue to acquire smaller "boutique" companies.

But the garrulous London market continues its speculation, the latest being that Willis will team up with Jardine Lloyd Thompson Group P.L.C., and that investment bank Goldman Sachs is aiming to merge with Aon. Spokesmen for both Willis and Aon said it was not company policy to comment on market rumors.

Sedgwick has "made no secret of the fact we would like to be larger. . .if we can find the right partner which meets strategic needs," said Rob White-Cooper, chief executive of Sedgwick. This could take the form of a joint venture, merger or acquisition, as long as it is "in accordance with our strategy," he said.

For Willis Corroon, the ongoing speculation has had a downside.

"There is no question that it does unsettle people and can make it hard to recruit people," said Tom Colraine, group finance director at Willis Corroon, though he added the broker has recruited several individuals and teams as a result of fallout from the megamergers. He said clients can feel unsettled as well with all the rumors, though Willis also has picked up new clients that chose to leave the combined J&H Marsh & McLennan Inc.

Despite all the rumors, the third quarter was relatively quiet in terms of acquisitions.

During the third quarter, M&M agreed to acquire Danish broker Bonnor & Co. A/S and Mexican broker Brockman & Schuh Group for undisclosed sums. Earlier this month, it announced it would acquire Swedish broker AB Max Matthiessen. The three brokers were former partners of J&H in the UNISON network.

Sedgwick announced a joint venture with Milan, Italy-based Gruppo Nikols to expand its southern European and Latin American business.

Overall, soft market conditions continue to concern the publicly held brokers.

"The industry conditions are tough, there is no question about it, and there is no sign that it is going to get any easier," said Willis' Mr. Colraine. There has been a "pretty benign loss environment," combined with a lot of capacity, he said, adding that conditions won't improve any time soon.

The market is "quite tough" and property/casualty rating levels are weak, said Mr. White-Cooper of Sedgwick. "There is a lot of capital and capacity in the market."

While hikes in reinsurance brokerage revenues are generally down due to the soft market, many brokers received a boost from consulting units.

M&M's revenues from its consulting practices, for example, grew 15.8% to $999 million in the first nine months. Even excluding revenues from the acquisition of A. Foster Higgins & Co. Inc., consulting revenues were up 12%, noted J. Michael Bischoff, vp-corporate development for M&M. He attributes the growth to strong economic activity and to a strengthening of the broker's individual practice groups.

In addition to M&M, Sedgwick's employee benefit consulting operations, Sedgwick Noble Lowndes, recorded "double-digit profit growth," taking currency fluctuations into account, said Sedgwick Chairman Sax Riley. He added that Sedgwick will continue to grow its proportion of fee-based revenue, as well as its consulting operations.

Individual profiles of the world's largest publicly held brokers follow:

Marsh & McLennan

Gross revenue for the first nine months of 1997 increased 33% to $4.13 billion, and net income improved by 24.5% to $449.4 million at the world's largest brokerage.

Results received a nice boost from the addition of Compagnie Europeenne de Courtage d'Assurances & de Reassurances and Johnson & Higgins, which M&M acquired in January and March, respectively.

Excluding the acquisitions, revenues during the nine-month period grew about 15%, most of which is attributable to growth at M&M's Boston-based investment management company, The Putnam Co., according to the broker's 10-Q report. Putnam's revenues increased 41.6% during the first nine months to nearly $1.1 billion.

Revenues from its insurance brokerage business, derived from J&H Marsh & McLennan, increased 53% for the first nine months to $1.5 billion, according to the 10-Q. Excluding its acquisitions, though, growth in brokerage was limited to just 3%.

Reinsurance brokerage revenues, derived from M&M's Guy Carpenter & Co. Inc. operation, grew 10.6% in the first nine months. Without acquisitions, reinsurance brokerage revenue fell 6%, according to the 10-Q.

"Consulting has had a very strong year," Mr. Bischoff said. New business development in its retirement, global compensation, general management and health care practices were the catalysts behind this growth.

Aon Group

Revenues at the Chicago-based brokerage catapulted 95.3% for the first nine months of 1997 to $2.77 billion, reflecting several acquisitions made in the fourth quarter of 1996 and first two quarters of 1997. Pretax profits also gained over the prior year period, increasing 21.7% to $213.9 million during the nine months.

In addition to Alexander & Alexander Services Inc., third-quarter results include, for the first time, Aon's acquisition of Minet Group, completed during the second quarter, and Sodarcan Inc., completed in the third quarter. Revenues from Jauch & Huebener KGaA, an acquisition completed earlier this month, will be included in Aon's fourth-quarter results.

While acquisitions account for the vast majority of Aon's growth in 1997, organic revenue growth grew 3% to 4% in the first nine months, according to Aon's 10-Q report.

The quarterly report points out that the brokerage segment "continues to be impacted by a soft property/casualty market, particularly in the reinsurance brokerage business."

Aon does not specifically break out reinsurance revenues. Mr. Ryan, however, said that Aon's reinsurance segment "did pretty well" in the third quarter.

Sedgwick Group

The strengthening of the British pound against the U.S. dollar held down nine-month revenue gains for Sedgwick Group P.L.C.

Gross revenues for the first nine months were 709.1 pounds million, down 2% from the same period of 1996. Brokerage and fee-income alone showed a similar decline, but in fact increased 15% at constant exchange rates, according to Sedgwick. Overall, exchange rate fluctuations accounted for a 9.2 pounds million reduction in profits at the London-based broker.

Converted to U.S. dollars at applicable exchange rates, Sedgwick's nine-month gross revenues totaled $1.15 billion, up 1.3%.

The broker's profits for the first three-quarters of 1997 rose 6.5% to 57.4 million pounds. In dollars, profits were up 10.1% to $92.9 million.

"In the property/casualty business, markets worldwide are very weak and we're encouraged by what we've been able to achieve, particularly in North America," said Mr. White-Cooper.

Sedgwick has been restructuring its operations. In September, Sedgwick Reinsurance Brokers Ltd. opened a new French office, Sedgwick Re Paris, while the Sedgwick Asia Pacific and Sedgwick Europe Services reinsurance operations were merged to form Sedgwick Re Asia Pacific, based in Sydney, Australia, and Singapore.

Willis Corroon Group

Willis Corroon generated 516 million pounds in gross revenues for the first nine months of the year, down 9% from the year earlier. Profits declined further, decreasing 27.6% to 40.2 million pounds.

Converted to U.S. dollars at applicable exchange rates, revenues fell 6.1% to $835.1 million and profits fell 25.1% to $65.1 million.

But stripping out businesses sold and acquired, the revenue from its Lloyd's members agency business and exchange rate fluctuations, Willis Corroon generated a 1% increase in brokerage and fee revenue during the nine-month period compared with the same period last year.

The members agency profit commission contribution to revenues declined by 10 million pounds to 4.5 million pounds ($7.3 million), explained Tom Colraine, group finance director. The agency was sold to its management before the quarter's end.

Exchange rate fluctuations reduced Willis' third-quarter profits by 8.5 million pounds ($13.8 million), a large proportion of that because of dollar revenues.

"The revenues in North American operations were reasonably flat at constant rates but expenses have gone up," said Mr. Colraine. This was partly because Willis took the opportunities offered by mergers elsewhere in the brokerage industry to acquire new individuals and teams and also because business costs such as travel had increased.

Arthur J. Gallagher & Co.

Revenues increased a modest 5.1% to $358.5 million at the Itasca, Ill.-based broker during the first nine months of 1997. Profits turned in even larger gains, jumping 22.2% to $40.6 million during the period.

Revenues received a boost from "strong new business" obtained during the third quarter at the broker's third-party administration unit, Gallagher Bassett Services Inc., noted Michael J. Cloherty, Gallagher's executive vp.

More companies are moving back to purchasing unbundled services, which helped Gallagher Bassett "land a number of new high-profile accounts," he said.

Also during the quarter, Gallagher hired a team of individuals and formed a new wholesale/specialty lines brokerage called Risk Placement Services Inc. The new wholesaler will work with Gallagher as well as other brokers and has offices in Itasca, Chicago and Atlanta.

Mr. Cloherty said Gallagher's Bermuda-based rent-a-captive operation, ARTEX, is up and running. The broker is in the process of marketing and presenting the unit to Gallagher clients.

During the third quarter, Gallagher reported a one-time pre-tax gain of $3.6 million from the sale of two books of business. Mr. Cloherty would not discuss details of the sale except to say the business was general insurance and was "geographically undesirable."