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Sackville House, 143-149 Fenchurch St., London EC3M 6BN, England;
44-171-377-3456; fax: 44-171-377-3199
1000 Ridgeway Loop Road, Memphis, Tenn. 38120;
901-761-1550; fax: 901-684-3825
Premium volume $10.87 billion $11.13 billion
Gross revenues $1.60 billion $1.50 billion
Brokerage revenues $1.55 billion $1.45 billion
Brokerage: Retail 54% 55%*
Wholesale 12% 13%*
Reinsurance 7% 7%
Services 24% 22%
Investment income 1% 1%
Other 2% 2%
Employees 15,985 15,392
Rev./Employee $96,938 $94,459
Offices 304 289*
* Restated. Converted at applicable exchange rates.
Having stood on the sidelines in the latest wave of broker megamergers, Sedgwick Group P.L.C. instead is seeking growth through smaller-scale acquisitions and the expansion of its fee-based consulting businesses.
Sedgwick has long been talked about as a potential merger candidate for the likes of Aon Corp. or London-based rival Willis Corroon Group P.L.C. But Chairman Sax Riley maintains that such a deal would have to enhance Sedgwick shareholder value and serve the broker's strategic goals of building its consulting operations and increasing distribution channels.
"We are open-minded about the situation," Mr. Riley observed. "If we find the right fit, if it fits our strategy, we will do it."
Sedgwick remains the world's third-largest broker, though its $1.55 billion in 1997 brokerage revenues leave it far behind the merged operations of Marsh & McLennan Cos. Inc. and Johnson & Higgins, as well as Aon and its several acquisitions.
Holding down a solid No. 3 spot doesn't seem to bother Sedgwick officials, who point to the company's status as the largest Europe-based broker, to the growth of commission and fee revenue despite soft market and foreign exchange pressures, and to the benefits Sedgwick could reap from the consolidation of competitors.
Sedgwick last year formed a joint venture with leading Italian broker Nikols Brichetto Group, made several other brokerage and consulting acquisitions and -- like many large brokers -- extended a push for middle-market business.
Overall, gross revenues expanded a modest 1.6% to L975 million from L960 million in 1996. Brokerage revenue also was up a similarly minuscule 1.5% to L946 million from L932 million, in the face of what Mr. Riley called "extremely difficult" market conditions and a strong British pound, which depressed results.
When converted to U.S. dollars using average exchange rates, Sedgwick's performance was substantially better. Gross revenues rose 6.6% to $1.60 billion from $1.50 billion in 1996. Brokerage revenues also increased 6.6% in 1997, reaching $1.55 billion from $1.45 billion in 1996.
Sedgwick generated about 40% of its worldwide gross revenues from brokerage and consulting fees in 1997, up from only about 37% a year ago and a step closer to the company's goal of a 50/50 split between fees and commissions by the year 2000. North American revenues already are 50/50.
"We believe that, because of the (soft insurance) market position -- and we don't see that changing -- we've got to try and drive more and more of our earnings away from the heart-attack country which we call the market," Mr. Riley observed.
"Business is focusing very much more on risk in its totality," added Sedgwick Chief Executive Rob White-Cooper. "Previously, they were interested in some insurable risks, but it's gone beyond that. Companies like ourselves have to respond by having an ability to provide our clients with a high level of advisory service."
Meanwhile, Sedgwick has actually seen some benefits from consolidation among its rivals, its officials contend.
"All big companies do have two brokers, and (when) those two have become one, they're looking for a second partner," Mr. White-Cooper noted. "We've benefited, as I'm sure one
or two other (brokers) have benefited, from that sort of situation."
"There are a number of clients that are figuring out that they would like to have a little wider choice than they've had," added Quill Healey, chairman and chief executive officer of Sedgwick Inc. in the United States and vice chairman of the parent. "I don't see that as a cascading waterfall that's going to happen overnight, but I think it's going to continue, and we're certainly seeing more opportunities than we've seen in the past."
Consolidation has also left Sedgwick the largest broker based outside the United States, a fact its executives tout as an advantage in competing for European business and the business of U.S. companies with large non-U.S. exposures. "There are a lot of European companies that do like to deal with European companies, just as I'm sure there are American companies that like to deal with Americans," Mr. White-Cooper added. "As the No. 3 player, we are in a position to differentiate ourselves from the other two."
Mergers also have helped Sedgwick pick up some defecting broker executives. "The consolidation has put some people in play that we've been able to have join our team and have bolstered our efforts in certain areas," said Ron Kutella, president of Sedgwick Inc.
Building a superior staff is among the toughest challenges facing brokers, Mr. White-Cooper added. "We may not be the biggest (broker), but we want to be the best, and we'll only be the best if we have the very best people working for us."
Sedgwick also is focusing on recruiting employees that have experience in specific industries rather than brokerage experience. That approach will enhance the reorganization of the brokerage operations around 17 industry groups that range from energy to pharmaceuticals to media, he said.
"Insurance is becoming an increasingly commoditized service or product," Mr. White-Cooper observed. "Being competitive is important, but you've got to have other add-ons, and in the case of Sedgwick, we have put a tremendous emphasis on quality."
In addition to attempts to build a superior staff, Sedgwick has emphasized information technology, not only to contain costs but also improve the speed and quality of its services.
The company has developed an intranet connecting about 12,000 Sedgwick employees worldwide and providing a variety of programs that allow them to share information. As a counterpart, Sedgwick also is developing an "extranet," which will connect clients to Sedgwick offices around the world, Mr. Healey said.
Sedgwick's worldwide operations are divided into several units:
* Sedgwick Ltd., formerly Sedgwick Europe Risk Services, comprising the group's European retail, U.S. wholesale and global reinsurance and specialist business.
The unit accounted for L353.0 million ($578.2 million), or 37.3%, of Sedgwick's L946.0 million in brokerage revenue, up from L348.8 million ($544.1 million) in 1996.
David Trezies, formerly CEO of Sedgwick Ltd., was named the unit's chairman as of June 1, replacing Richard Titley, who remains vice chairman of Sedgwick Group. Sedgwick has not appointed a CEO.
Sedgwick last August announced the formation of Nikols Sedgwick BV, its joint venture with Italy's Nikols Brichetto. Letizia Moratti, chairman of Nikols Brichetto, was named executive chairman of the joint venture company and has become a director of Sedgwick Group. The Moratti family owns 51% of the joint venture, though Sedgwick directors control Nikols Sedgwick's board. Sedgwick will consolidate 49% of the joint venture's revenues in its own gross revenues through Sedgwick Ltd.
Although Sedgwick has been reluctant to enter joint ventures in the past, "we would rather have half of No. 1 than 100% of No. 13 or 14," Mr. White-Cooper noted.
Nikols Brichetto has 600 employees in 41 offices in southern Europe and Latin America, and the joint venture merges the two brokers' operations in Italy, Spain, Portugal, Argentina, Brazil, Chile and Colombia.
Late last year, Sedgwick also acquired one of Brazil's largest brokers, Portominas Adminstracao e Corretagem de Seguros Ltda., and increased its stake in Andueza y Cia. Corredores de Seguros S.A. of Chile to 80% from 50%. Both companies now are part of Nikols Sedgwick.
Meanwhile, Sedgwick acquired the aviation reinsurance business of London broker Alwen Hough & Johnson Ltd. It also bought Dextra, a Norwegian retail broker, and merged it with Sedgwick's existing Norwegian unit.
Including benefit consulting operations, about L413.6 million ($677.5 million), or 42.4%, of Sedgwick Group's gross revenues are generated from clients based in the United Kingdom and continental Europe.
* North American retail operations, which accounted for L282.3 million ($462.4 million), or 29.8%, of Sedgwick's 1997 brokerage revenues, down from L290.1 million ($452.6 million) in 1996.
Along with its global clients, the North American unit continues to target middle-market accounts that have $100 million to $1 billion in sales, Sedgwick's so-called "Business America" segment, Mr. Healey said. "We think there's a huge opportunity there," he observed. "We believe our market share gives us a great deal of room for growth."
Sedgwick's share of small and middle-market business is about 2% of the market, Mr. Kutella estimated.
Last month, Sedgwick Inc., Employers Insurance of Wausau and Royal & SunAlliance Insurance Group unveiled a new facility devoted to writing property/casualty coverages for small and middle-market customers. The program will operate through a service center staffed by employees of Sedgwick and the two insurers and will handle placement, billing, claims and other services.
Other insurers may later join the facility, which aims not only to provide cost-effective products but also efficient production. The facility is an outgrowth of "Project Aldgate," a middle-market initiative Sedgwick began in the United Kingdom in 1996 and before that in Australia. The U.K. project's insurers include Royal & SunAlliance, Eagle Star P.L.C. and Assurances Generales de France.
The North American unit also continues to see its claims management
business as a high-growth area.
Property/casualty brokerage, meanwhile, will continue to expand, but it won't be "as spectacular growth" and will be stronger in some industries -- such as technology and retailing -- than in others, he said.
Overall, clients in the United States and Canada accounted for L438.2 million ($717.8 million), or 44.9%, of Sedgwick Group's gross revenues, including benefit consulting, wholesale and reinsurance clients.
* Asia Pacific retail, which produced L45.7 million ($74.9 million), or 4.8%, of Sedgwick's 1997 brokerage revenues, down from L48.4 million ($75.5 million) in 1996.
Sedgwick last year reported improved results for its operations in Australia, Indonesia, New Zealand, Singapore, Taiwan and Thailand, though it also noted the Asian economic crisis could stall further growth as building projects are delayed.
The crisis has so far had "absolutely no effect" on Sedgwick, though it will affect insurers and brokers heavily involved in large-scale construction project that have been canceled or postponed, Mr. White-Cooper said.
Sedgwick last year formed All Asia Sedgwick Insurance Brokers Corp., a joint venture with Philippines-based All Asia Capital & Trust Corp.
* Sedgwick Noble Lowndes, the world's seventh-largest benefit consultant. SNL last year accounted for L229.1 million ($375.3 million), or 24.2%, of Sedgwick's revenues, up from L280.5 million ($325.3 million).
Sedgwick last year acquired Brusselers Consultancy B.V. of the Netherlands and is merging it into SNL's existing Netherlands operation.
Along with these units, Sedgwick has several consulting and outsourcing businesses, including ReSolutions International Ltd., a London market runoff specialist; Risk Strategies Group, a U.K.-based risk management consulting venture with Price Waterhouse; and Lloyd's of London underwriting agency Sedgwick Oakwood Lloyd's Underwriting Agents.
Chicago-based Sedgwick Lane Financial L.L.C. also provides alternative risk financing advice. In May, Sedgwick Lane completed the private placement of an optionable note for Reliance National Insurance Co. that Reliance could use to replace traditional reinsurance capacity if the market hardens, Sedgwick said.
Sedgwick continues to run off its former underwriting units, River Thames Insurance Co. Ltd., which ceased writing in 1996, and Americas Insurance Co., which stopped writing the year before.
In January, Sedgwick sold two Netherlands MGA units for L11.2 million ($18.4 million) to a Commercial Union P.L.C. subsidiary.
While struggling to boost revenues -- particularly from fee-based consulting -- Sedgwick is working to contain expenses. In 1997, while gross revenues grew 1.6% to L975 million ($1.6 billion), expenses climbed only 1.1% to L869.4 million ($1.4 billion).
As a result, Sedgwick finished the year with net aftertax earnings of L70.4 million ($115.3 million), a 10.5% gain over 1996 profits.
For the first quarter, the company had total revenues of L242.9 million ($398.8 million), less than 1% below revenue levels in first-quarter 1997.
Mr. Riley noted, though, that a larger proportion of Sedgwick's revenues are being reported in the year's final quarter due to its growing reliance on fees and the fourth-quarter reporting by the Nikols Sedgwick joint venture.
First-quarter expenses, meanwhile, rose 5.7% to L212.8 million ($349.4 million) compared with 1996.
After an extraordinary profit of L9.4 million ($15.4 million) on the sale of its Netherlands MGA units, Sedgwick had earnings of L30.9 million ($50.7 million) at March 31, up 2.3% from 1996. Without the one-time gain, earnings would have been down 13.2% to L26.2 million ($43 million).
Sedgwick stock is traded primarily on the London Stock Exchange and closed at 143 pence ($2.34) per share on July 10, exactly in between its 52-week high at that point of 171 pence ($2.79) and low of 115 pence ($1.88).
Last June, Sedgwick also listed its shares on the New York Stock Exchange. As of July 10, individual shares -- the equivalent of five shares on the London exchange -- closed at $11.88, with a 52-week high of $14.44 and low of $9.38.