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Friary Court, Crutched Friars,

London EC3N 2NP, England

44-171-560-3000 fax: 44-171-560-3502

1997 1996

Premium volume $2.87 billion $2.53 billion

Gross revenues $252,628,268 $225,268,560

Brokerage revenues $252,628,268 $225,268,560

Brokerage: Retail 61% 63%

Wholesale 21% 23%

Reinsurance 12% 12%

Personal 6% 2%

Employees 2,509 2,571

Rev./employee $100,689 $87,619

Offices 98 93

Converted at applicable exchange rates. Fiscal year ends March 31. 1996 figures are a pro forma combination of Lowndes Lambert and Fenchurch.

Executives of Lambert Fenchurch Group P.L.C. have their sights set on new growth opportunities, having completed the integration of the two firms that gave it the scale to compete among the world's largest brokerages.

"We have always been restless to grow the business," said David Margrett, chief executive officer of the London-based broker.

"We enjoy it, we think it is exciting, and we think we are capable of growing it still further," he said. "That has been the driving force in everything we have done."

Lambert Fenchurch was born in February 1997, through the merger of Lowndes Lambert Group Holdings P.L.C. and Fenchurch P.L.C.

While much of the last year was occupied with combining the two groups and reorganizing its business structure, Lambert Fenchurch has not stood still -- making three small acquisitions, entering into joint ventures and winning new business.

The company is now looking for its next set of opportunities, though Mr. Margrett is adamant that a so-called megamerger is not the only way for brokers to succeed in the current competitive market.

"We enjoy being what we are -- running our own shop -- and while we would like to be running a bigger shop, not if it is at the expense of our freedom," he said.

"If we don't do a huge merger, it won't break my heart. We will just continue to do other things that move the business forward," the CEO said.

And Lambert Fenchurch's business is moving forward. In its first full year as a merged entity, Lambert Fen-church posted total brokerage revenues of L153.9 million for the year ended March 31, 1998, an increase of 8.2% over pro forma combined figures for the previous year. Lambert Fenchurch's revenues are generated entirely by brokerage and related services.

Converted to dollars using average exchange rates, Lambert Fenchurch's revenues totaled $252.6 million, up 12.1% from the previous year and ranking it as the world's eighth-largest broker.

Coupled with a 35% increase in profits to L19.7 million ($32.3 million) before taxes and exceptional items, business has been good for Lambert Fenchurch, executives say.

The exceptional items included L2.6 million ($4.3 million) in unbudgeted expenses associated with integrating the companies, and L2.4 million ($3.9 million) set aside to cover anticipated costs resulting from the U.K. Financial Services Authority's investigation of improper U.K. pension sales.

While Mr. Margrett is pleased with how the merged entity is performing, he said he is never totally satisfied with the status quo. "I'm never happy with any of the businesses," he said. "I want more out of all of them."

To fuel further growth, Lambert Fenchurch is retaining more cash within the business. Despite the increase in earnings, Lambert Fen-church's board recently announced a final dividend of 2.75 pence (4.5 cents) per share, which is 50% lower compared with the previous year's dividend.

Mr. Margrett said the additional cash not distributed to shareholders will be used to initiate or capitalize on new business opportunities, whether they be acquisitions, new products or new business ventures.

More opportunities are likely to be identified by the broker now that the integration process of Lowndes Lambert and Fenchurch is complete.

"Inevitably, there are distractions while that (the merger) is going on," Mr. Margrett said. "All our senior executives are involved in the insurance broking business and have their own clients. They have had their eye taken off the ball a little bit. It hasn't impacted on the performance, but we think there is more to come through in the coming 12 months."

Several of the broker's competitors, having digested mergers of their own, are also likely to be more focused, making the brokerage business even more competitive, Mr. Margrett predicted.

"Others (competitors) have had more change to deal with and have probably been a little bit more distracted than we have, so we expect them to fight through more strongly in the coming year too," he said.

While the integration process created inevitable distractions, the overall response from Lambert Fenchurch clients has been very positive, said Mr. Margrett, who was previously chief executive of Lowndes Lambert.

"The pleasing thing for us is whenever you put two businesses together there is always an assumption that something is going to fall out of the equation, but the retention has been far better than we expected," he said.

Mr. Margrett said the star performer in Lambert Fenchurch during the past year has been its U.K. Group, which had the greatest amount of integration to contend with and accounts for approximately one-third of the group's revenues.

The U.K. Group is responsible for all general commercial lines business, both in London and throughout the broker's network of branches. It also comprises U.K. non-marine, professional liability risks, captive management services, financial services and personal lines business.

During 1997, the group "blended" 37 U.K. offices into one. As a result, 294 jobs were lost, though 94 new staff members were also hired.

"We have welded together a very coherent team and have had some striking new business wins," Mr. Margrett said.

One of the U.K. Group's major new accounts in the past year was satellite television broadcaster British Sky Broadcasting, a division of News Corp. Lambert Fenchurch won the account, a multiline insurance program excluding satellite coverage, against seven other brokers.

The BSkyB account was attracted to the services that the merged Lambert Fenchurch group could offer, according to Michael A. Barnfield, chairman of the U.K. Group.

Mr. Barnfield said that the group's size allows team members with various areas of expertise to work closely together. "Our size and the environment we are creating also fosters an entrepreneurial and creative spirit on the broking side."

One emerging area of expertise for Lambert Fenchurch's U.K. Group is placing coverage for new corporate ventures, or management buyouts. The company was recently named the preferred broker by the British Venture Capital Assn.

Mr. Margrett said providing brokerage services to management buyouts is a high-pressure area. "You have a company that didn't exist before that needs very swiftly to have insurance coverage in place," he said.

Lambert Fenchurch is focusing on more than just placing insurance for the new entities. "We go through the due diligence stage with them and help advise them on issues they should be looking for," said Mr. Margrett. "Rather than just saying yes, we can insure it, we actually help them avoid certain things."

Lambert Fenchurch recently announced a major restructuring designed to improve the efficiency of its services for international clients in London. Although Lambert Fen-church's London market businesses are strong performers, particularly in aviation and wholesale construction accounts, Mr. Margrett said the company recognized the need to eliminate some duplication among three of its five divisions.

As a result, Lambert Fenchurch created a new International Group, which will handle business coming into the London market and oversee three of its formerly distinct business groups:

* Specialities, which included North American business, fine arts and entertainment, oil and energy, special risks and aviation.

* Marine, which included marine hull, protection and indemnity, cargo and political risks.

* International, which included international wholesale, reinsurance brokerage and construction accounts.

Michael J. Caley is chairman of the new International Group. The broker's remaining two divisions -- the U.K. Group and the Overseas Group, which comprises non-U.K. operations and partners -- are unaffected by the change.

Mr. Margrett said the restructuring will maintain the identity and profile of its various international businesses, but it is effectively a "shunting together' of management and back-office support so that business flows more freely into the company.

"We will still maintain specific areas of expertise, but we recognized that there was quite a lot of duplication in either back office support and some of the technical claims functions," he explained.

Mr. Margrett would not rule out additional changes to Lambert Fen-church's structure in the future. "I don't think we are ever going to be in this industry free from a certain number of redundancies and restructuring," he said.

"We don't sit still," he explained. "Everything we do is aimed at transacting more efficiently and effectively the business we have."

Lambert Fenchurch has also not been sitting still on the acquisition front, acquiring three new businesses in recent months, and now looking out for more opportunities.

What, and where, those opportunities are remains to be seen, according to Mr. Margrett. "While we are keen to expand in a number of areas, which ones we do is a function of opportunity and price relative to other opportunities and prices," he said.

In May, Lambert Fenchurch completed its acquisition of Swedish marine broker Delta Insurance Services A.B., based in Stockholm. The Delta purchase is not reflected in the broker's results for fiscal 1997/98.

Mr. Margrett said Delta is one of Sweden's leading marine brokers and is likely to increase the volume of marine business placed by Lambert Fen-church. "It also provides us with our own direct access to the Scandinavian marine and energy market," he said.

Delta, which has been renamed Delta Lambert A.B., will also be used as a platform for Lambert Fenchurch to expand into the non-marine market in Sweden, said Mr. Margrett.

In February, Lambert Fenchurch's New Zealand subsidiary, Lowndes Lambert NZ Ltd., acquired independent retail broker Westrays New Zealand Ltd. Mr. Margrett said Westrays is a small operation, but it will give Lambert more local presence in the New Zealand market.

In November, Lambert Fenchurch acquired New York-based employee benefit consultant Michael Kooper Enterprises Inc. The goal of that purchase was to create cross-selling opportunities for Lambert Fenchurch's fledgling U.S. brokerage operation, Lambert Fenchurch US Holdings Inc., according to Mr. Margrett. The Dallas-based U.S. holding company has retail brokerage branches in Dallas and Gulfport, Miss.

Another U.S. venture is Dallas-based managing general agent and wholesale broker New Century Global Inc., in which Lambert Fenchurch holds a 40% stake. New Century is a partnership with New York-based Reliance National Insurance Co. and Chatsworth, Calif.-based MTS Insurance Services. The surplus lines venture offers property/casualty coverage nationwide; it has offices in Dallas; Houston; McGaheys-ville, Va.; Chats-worth, Calif.; and New York.

Mr. Margrett said Lambert Fen-church's U.S. operations as a whole are growing steadily, though he was non-committal on further expansion in the market. "The U.S. is a market we want exposure to, and it is obviously a very big market," he said. "But it has to compete for our investment against other opportunities elsewhere in the world."

Lambert Fenchurch is eager to promote greater sharing of business ideas throughout its international operations. The group has held several overseas conferences during the last year to promote the international exchange of new business and product ideas, said Mr. Barnfield, whose U.K. Group is driving the initiative.

"One of the things as a group we are doing is recognizing the potential that exists for the retail operations around the world to talk to each other more, to discuss and intermingle their retail ideas," he said.

William Wilks, finance director, said Lambert Fenchurch is focused on developing in-house, intranet usage, including global facilities and policy wordings interchange. The company eventually plans to develop electronic placement services for clients.

During the past year, there have been several changes among the broker's executives. Two members of the board -- Brian Blackshields, formerly head of the oil and energy division, and John Champness, who was head of the marine hull division -- have retired. Two more board members -- Barry Blacker, formerly a co-chairman of the overseas division, and Sir Robert Clark, chairman of Lowndes Lambert since 1995 and chairman of Lambert Fenchurch since its inception -- are retiring at the broker's annual general meeting on July 28. Current board member Bernard Myers will become chairman.

Lambert Fenchurch stock was trading at 102.5 pence ($1.67) per share as of July 10. For the 12 months ending March 31, the stock traded at a high of 137.5 pence ($2.25) per share and a low of 107.5 pence ($1.76) per share.