WILLIS CORROON GROUP P.L.C.Posted On: Jul. 19, 1998 12:00 AM CST
10 Trinity Square, London EC3P 3AX, England;
44-171-488-8111; fax: 44-171-488-8223
Premium volume $13.1 billion $10.92 billion
Gross revenues $1.14 billion $1.14 billion
Brokerage revenues* $1.13 billion $1.13 billion
Brokerage: Retail 57% 52%
Wholesale 14% 14%
Reinsurance 20% 21%
Personal 4% 5%
Services 5% 8%
Employees 9,367 9,116
Rev./employee $121,010 $124,068
Offices 131 128
Converted at applicable exchange rates.
* Excludes discontinued underwriting operations.
Willis Corroon Group P.L.C. dismisses speculation that it will be taken over by or merge with another major broker and instead focuses on growth by making its own acquisitions and joint ventures.
Amid continued overcapacity in global insurance markets and other factors driving down premiums, London-based Willis Corroon also is striving to expand by getting back to its core business of insurance services.
"Continuing consolidation in the insurance industry created opportunities for us to develop our distribution platform significantly in a way that would have been difficult otherwise," said Executive Chairman John Reeve. For example, the breakup of the UNISON network caused by the merger of Johnson & Higgins and Marsh & McLennan Cos. Inc. has enabled Willis to form alliances with former UNISON members and pick up business from former clients of the network.
The downward spiral in rates, a situation Mr. Reeve doesn't foresee changing "for some time to come," is influencing Willis' business strategy, which includes becoming one of the top three brokers in its major markets in Europe and North America.
For Willis, this means using the organization's expertise to offer both consulting and risk transfer services, Mr. Reeve said. Willis' focus is changing from acting as a traditional insurance broker to becoming a "true knowledge-based organization," he said. Consequently, more of the broker's revenues in the future will stem from fees rather than commissions.
Willis' strategy will continue to be dominated by its wish to remain independent, Mr. Reeve said. "I believe there is increasing evidence that clients are looking for that choice" among brokers, he said.
Willis' corporate gross revenues declined by 5.1%, to L694 million. When converted to U.S. dollars using average exchange rates, corporate revenues remained virtually unchanged at $1.14 billion.
Brokerage-related revenues, which account for substantially all of Willis' business, declined 4.6% to L692 million. Again, due to exchange rate fluctuations, Willis' brokerage revenues in dollars remained unchanged at $1.13 billion. Excluded from brokerage revenues is a small amount of business from underwriting operations that the broker is running off.
Pretax profits were up 4.3% in 1997 to L95.5 million, compared with L91.6 million in 1996. Converted into dollars, Willis' profits rose 9.4%, to $156.4 million from $142.9 million.
First-quarter results were not encouraging for Willis. Revenues were down only a fraction to L182.2 million ($301 million). Pretax profits fell 5.6% to L43.1 million ($26.1 million).
Although Willis' restructuring reduced both the number of employees and branch offices in 1996, last year saw an increase in those numbers as the broker acquired operations in several countries.
At the same time, it closed part of its U.S. wholesale business earlier this year, taking a L30 million (about $49 million) charge in its second-quarter results.
As part of its strategy to become one of the top three brokers in its major markets, Willis at the end of last year completed the acquisition of an approximately one-third voting stake in French broker Gras Savoye & Cie. in an arrangement that will allow Willis to raise its stake over time. Willis has said it plans to own a majority stake within about 11 years (BI, July 28, 1997).
The start of 1998 saw Willis finalize another investment in a European broker, when it bought a 30% stake in Jaspers Wuppesahl Industrie Assekuranz, the third-largest broker in Germany. Jaspers Wuppesahl was a product of the merger of two brokers, Jaspers Industrie Assekuranz GmbH & Co. KG and C Wuppesahl & Co. Assekuranzmakler, which had a combined brokerage revenue of 105.6 million deutsche marks ($60.7 million) in 1997. Willis had owned 20% of C Wuppesahl since 1992, and paid 40 million deutsche marks ($23 million) to raise its holding to almost one-third of the merged broker. Again, Willis has reached an arrangement with Jaspers Wuppesahl to increase its shareholding over time, owning 44% by the end of this year, and plans to become the majority shareholder by 2012 at the latest.
Adding Jaspers Wuppesahl to its portfolio also gives Willis a springboard to spread into Central Europe. The deal "puts us in a strong position to develop in the Federal Republic (of Germany) and selected parts of Eastern Europe," said Mr. Reeve. Jaspers Wuppesahl already has offices in Austria and Switzerland, but countries such as the Czech Republic, Slovakia and Hungary also are catching the broker's eye. In addition, its relationship with Gras Savoye means the combined operations now represent the largest broker in Poland, Mr. Reeve said.
Currently, Gras Savoye and Willis are considering merging their Iberian operations to reach such a position in Spain as well as Portugal.
European expansion is continuing apace, with last month's announcement that Willis has agreed to buy 50% of Italian broker Gruppo Ital Brokers, a group including Ital Brokers S.p.A. and Interconsult Wise S.r.l. with revenues of about 66 billion lire ($36.8 million). This deal will form the third-largest brokerage in Italy.
Earlier this month, Willis announced it is purchasing 30% of Denmark's largest broker and employee benefits consultant, Assurandorgruppen. Assurandorgruppen will be merged with Willis Corroon A/S to form Willis Corroon Assurandorgruppen, with combined revenues of 100 million Danish kroner ($48.8 million), and again Willis has the option of upping its stake over time.
"We are very close to our objective of achieving top-three positions in all the key European economies," said Mr. Reeve.
Continuing insurance industry consolidation and local deregulation are creating opportunities for Willis in Latin America, one of the broker's priority areas. In addition, South American brokers are being affected by their clients' growing international operations; they "realize they need access to a global network to meet their clients' demands," said Mr. Reeve.
As a consequence, Willis increased its stake in Brazilian broker York Willis Corroon Corretores de Seguros S.A. to 100% last July; it previously had owned 30% (BI, July 21, 1997).
Willis is building up its reinsurance operations across Latin America and is in talks with local brokers about acquisitions.
"Liberalizing insurance markets and regulations are allowing us to do much more than in the past. . . .Opportunities are arising very near term." He anticipates "considerable developments" in a number of areas in Latin America over the next year.
Economic problems in Asia-Pacific have made the region less attractive than it had been, though Mr. Reeve does see some opportunities in setting up joint ventures with local brokers.
In December, it set up Willis Corroon Tower (Private) Ltd. as a joint venture in India with Tower Insurance & Reinsurance Services (Private) Ltd. Willis holds the majority ownership in the joint venture, which specializes in reinsurance brokering and insurance and risk management consulting. The Indian government has indicated that it expects to reform insurance regulation and liberalize the industry.
Willis is studying China "with great interest," Mr. Reeve said. Last year, the broker opened up a second representative office there, based in Shanghai.
In Japan, Willis says it was the first non-Japanese broker to become licensed to transact domestic business there.
Willis "still continues to selectively invest in U.S. market business," said Mr. Reeve, acquiring businesses and personnel to build up critical mass "steadily in the background in an unglamorous way."
Kenneth Pinkston, chairman of Willis Corroon Corp. and group executive director of Willis Corroon Group P.L.C., characterized 1997 as "a very competitive year in the retail marketplace" in the United States.
Although the broker had been "substantially very successful" in acquiring new business, premium rating levels were significantly down on 1996, "leading to an adverse impact on results." However, it proved an "investment year" in terms of taking on new individuals and teams, moves he said will start showing results this year.
Willis Corroon Americas, the North American retail business, reported a slight increase in revenue, to L242 million ($396.4 million). It bought several new units to add to its operations during the year.
It also reorganized its operations over the year into seven regions in an effort to focus local offices on developing new business. The regions are Central, Great Plains, Pacific Coast, Southeast, Atlantic, Southwest, Northeast and Canada.
As a direct result, Willis Corroon Americas started on its commercial brokerage growth initiative, aiming to "bring more discipline to sales and sales management to all offices," said Mr. Pinkston. In particular, it focuses on cross-selling employee benefit products to property/casualty clients. Mr. Pinkston said the broker is beginning to see "very positive impacts."
U.S. wholesale business did not perform as well, recording a 14% decline in revenues. In particular, professional liability specialist Professional Liability Underwriting Managers Inc. saw its premiums decline to a point where it "wrote just a fraction of the business than it had a few years ago," said Mr. Pinkston. This was primarily because of its reliance on its commercial relationship with the failed Home Insurance Co. as its principal market. The recent closure of PLUM will have a L30 million ($49 million) non-cash impact on Willis. Mr. Pinkston said, however, that it will have "basically the same impact (Willis) would have felt if it had continued to operate for the year." Shareholders' equity will not be affected by the closure, he said.
According to Mr. Reeve, the shutdown of PLUM is an example of Willis' continual assessment of its operations. Some operations will be discontinued "where it makes sense."
The decline in U.S. wholesale business is being battled with the development of new programs and products, said Mr. Pinkston.
For example, at the end of last year, Willis Faber North America Inc. issued a Climatic Activity Protection, a derivative-based product protecting clients from temperature variations that affect their revenues.
U.K. retail business proved more successful for Willis in 1997, with a 12% rise in brokerage and fees recorded by Willis Corroon Ltd. During the year, it restructured the U.K. operation into three divisions:
* Willis Corroon Corporate Division, which provides risk transfer and risk management services to large clients requiring traditional insurance and risk management services.
* Willis Risk Solutions, aimed at large corporate and professional clients with complex risk profiles.
* Willis Corroon Commercial, providing services for small commercial and personal lines accounts.
In a process that began in February, Willis Corroon Commercial is setting up a franchise venture with independent regional U.K. brokers to better access small commercial property/casualty business.
Willis is putting state-of-the-art electronic trading systems into the brokers' offices, though the brokers will remain independent. They will have access to Willis' "aggregate buying power," as well as risk management, premium financing and marketing services.
Mr. Reeve foresees "a huge proportion of business" potentially being targeted by the initiative, due to go live in the third quarter of this year with between 30 or 40 brokers and a selected panel of insurers.
"We hope we can bring efficiencies of scale," said Mr. Reeve, who expects to see whether the plan will be successful -- and possibly extended -- in early 1999.
Willis Risk Solutions, an internal unit specializing in risk transfer and risk management consulting, is "beginning to have good new business development," said Mr. Reeve.
Mr. Pinkston said Willis Risk Solutions "will bring the services an account may need wherever it is headquartered," but the client still will benefit from the local services and office, as well as the worldwide capabilities of the broker.
Willis Corroon Corporate Division aims to meet the precise needs of the clients, said Mr. Reeve. For example, a highly price-driven client will have very different requirements from one looking more toward loss reduction techniques, and the division "aims to tailor its offering to the needs of the clients," he explained.
"We have always put clients first," said Mr. Reeve.
Restructuring this year also has resulted in the launch of Willis Faber Re as the broker's worldwide reinsurance arm, under the chairmanship of John Pelly. At the time of the launch in April, Mr. Pelly said: "We believe the message from our clients is clear. They want sophisticated analysis, quality advice, innovative solutions and the ability to transfer risk to quality worldwide markets at competitive prices," adding that the new operation will include personnel with varied skills, such as actuaries, financial analysts, hazard research engineers and capital market specialists.
More attention is being paid to alternative risk transfer strategies, said Mr. Reeve, and there have been some "interesting" transactions in terms of their structures and coverages, but the simplicity and cheapness of conventional reinsurance continues to make it a highly attractive option.
Last year, the global reinsurance unit upped its brokerage and fee revenue by 7% to L68.7 million ($112.5 million) and launched Willis Corroon Catastrophe Management Ltd., a unit managing investment funds in new instruments tied to property/casualty and reinsurance risks.
Global specialties notched up substantial new business during 1997, resulting in a 6% lift in its revenues. Willis Corroon Aerospace reported an 11% increase in revenues to L42 million ($68.8 million) and was strengthened with new recruits on the space side during the year. Global Broking Services, providing specialist and risk management services for large, complex or unusual risks, saw a similar rise, with revenues up 10% to L48 million ($78.6 million), while the International Property & Casualty division recorded a "very successful year" and set up two new divisions in London -- Global Financial Risks and Fine Art, Jewelry & Specie.
During the year, Willis sold its Lloyd's agency, Willis Faber & Dumas (Agencies) Ltd., to its management. "That was another instance where we came to the view that the Lloyd's agency business would have to be changed very substantially for the future," said Mr. Reeve, and the conclusion was it was not a direction the broker wished to pursue.
On the management side, at the beginning of this year, Max Taylor, formerly Willis' group executive director, left to become chairman of Lloyd's of London, and Willis redistributed his responsibilities among several senior executives.
Willis Corroon stock on the London Stock Exchange closed at 177 pence ($2.89) July 10. Its 52-week high at that point was 181 pence ($2.96), and its low was 116 pence ($1.90).
On the New York Stock Exchange, Willis Corroon Corp. stock -- where one share equals five London Stock Exchange shares -- closed at $14.25 July 10, with a 52-week high during that period of $15.19 and a 52-week low of $9.75.