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1: Marsh & McLennan Cos. Inc.


1166 Ave. of the Americas,

New York, N.Y. 10036;

212-345-6000; fax: 212-345-3833;

2000 1999

Premium volume $39.2 billion $33.4 billion

Gross revenues $10.18 billion $9.18 billion

Brokerage revenues $6.92 billion $6.47 billion*

Brokerage: retail 40% 42%

Wholesale 2% 2%

Reinsurance 5% 5%

Services 21% 21%

Other 32% 30%

Employees 50,500 47,000*

Rev./employee $136,931 $137,723

Employee benefits 16% 17%

Offices 410 410*

*Restated. All percentage breakdowns of revenues are BI estimates.

While big acquisitions have fueled much of Marsh & McLennan Cos. Inc.'s growth in recent years, the world's largest broker is now looking to its consolidated operations to generate growth on their own.

The double-digit jumps in revenue that followed Marsh's takeover of Sedgwick Group P.L.C. in 1998 and Johnson & Higgins in 1997 have subsided to more modest single-digit gains in the last two years.

The integrated operations are starting to pick up the pace, though, Marsh officials say. While the broker's organic revenue growth, excluding the effects of acquisitions, hovered in the mid-single digits during the 1990s, the last year has seen that growth rate climb to 9%, according to John T. Sinnott, chairman and chief executive officer of Marsh Inc., the company's brokerage unit.

Mr. Sinnott cites Europe and Japan as regions likely to produce big gains in 2001. In Europe-where Sedgwick strengthened Marsh's already considerable network of offices-corporations are increasingly financing their operations by issuing equity rather than debt, creating a variety of new exposures, including directors and officers liability and other corporate governance risks, he said.

Marsh has also picked up several large Japanese clients as that country has reduced regulatory barriers to the entry of international brokers.

In the United States, Marsh-a longtime leader in large commercial account business-is aiming to expand its small and mid-sized commercial client base, again with a boost from the former Sedgwick and J&H operations. Earlier this year, for example, Marsh and Chubb Corp. introduced a new program to provide up to $5 million in limits covering small and medium-sized businesses' e-commerce liability risks.

Rising property/casualty insurance rates also won't hurt Marsh's top line growth, though the impact will be blunted by several factors, Marsh executives say. For one thing, about 70% of Marsh's U.S. clients, excluding small accounts, pay fees rather than commissions, meaning that Marsh won't see its compensation rise at the same pace as clients' premiums, said Roger E. Egan, president and CEO of North American operations."There's pressure on corporate earnings today, so there is some pressure to keep fees down," Mr. Egan said.

In addition, client premiums aren't rising as fast as insurance rates because clients are taking steps to cut their costs, Mr. Sinnott added. Many clients, for example, are shifting from guaranteed cost insurance programs, which were relatively cheap during the soft market, to variable cost programs, he noted.

Still, Marsh expects revenue growth to quicken, a trend that began last year. In 2000, Marsh's brokerage revenues hit $6.92 billion, an 6.8% gain from restated 1999 brokerage revenues, and an improvement on the 3.8% growth in the previous year before restatement. Marsh restated its 1999 brokerage revenues to reflect the inclusion of brokerage operations that were inadvertently excluded from 1999 revenues a year ago.

Total gross revenues, to which BI adds Marsh's interest income, last year were $10.18 billion, a 10.9% gain from 1999.

Marsh broadly breaks its revenues into three main categories:

* Risk and insurance services, which account for $4.78 billion, or 47.1% of total gross revenues. This includes retail insurance brokerage business of Marsh Inc., reinsurance brokerage business of Guy Carpenter & Co. Inc., wholesale brokerage provided by various subsidiaries, and the association program business of its Seabury & Smith unit.

* Investment management services provided by Putnam Investments Inc., which brought in about $3.24 billion, or 31.9%, of the total.

* Consulting, which accounts for $2.14 billion, or 21% of total revenues. This includes William M. Mercer Cos. L.L.C. and Mercer Management Consulting Inc., among the world's largest employee benefits and management consulting firms; National Economic Research Associates Inc., an economic consultant; and Lippincott & Margulies, a corporate identity and brand management consultant.

In the first quarter of this year, Marsh's revenues actually fell 2.7% to $2.60 billion from 2000's first quarter, largely because of a drop in Putnam's revenue. Insurance and consulting revenues rose 5% to $1.90 billion compared with the prior year's quarter.

Following the integration of Sedgwick and J&H, Marsh has taken advantage of the ability to cherrypick former competitors' best ideas, Mr. Sinnott noted. For example, Marsh has adopted J&H's risk management information system, dubbed Stars, which Mr. Sinnott called the industry's best. Marsh has also followed Sedgwick's model for expanding its presence in the U.S. small commercial insurance market.

"The real benefit was taking the best practices and best skills," he said.

At year-end, Marsh had 50,500 employees in 410 offices around the world. Its largest acquisition in 2000 was Delta Consulting Group, an organizational design consultant, which is now part of the Mercer group.

The company is probably finished making large acquisitions, though Mr. Sinnott didn't rule out takeovers in the handful of geographic regions where it is still not represented or in areas of specialty expertise.

One area Marsh might consider, for example, is India, where the government is loosening regulations that have barred foreign brokers and divided the market among four state insurance companies, he said.

Marsh may also move to fill strategic niches, he added. Marsh last year hired a team of executives to launch a new consulting unit offering claims valuation services for complex business interruption losses. "It's a risk service area we were not in," Mr. Sinnott observed.

Marsh is looking for ways to expand its business from its existing base. A large part of this effort involves developing new products, services and strategies for dealing with new client risks.

In Europe, for example, this would include dealing with corporate governance risks, such as D&O liability, as public ownership of companies becomes more common, Marsh officials say. Accelerating merger activity in Europe will also create demand for Marsh's merger risk consulting services, they say.

New exposures are also arising in the United States, bringing new products with them. One example is a tax opinion guaranty, which covers companies against the risk that erroneous tax advice creates unexpected tax liabilities.

New strategies for dealing with existing risk will also fuel growth, Marsh officials say, pointing to MMC Enterprise Risk, a unit that offers consulting services and products addressing companies' strategic, financial and operating risks.

The unit's initial work was diagnostic, assessing companies' risks for a fee, Mr. Sinnott said. The market for insurance products covering those risks has been developing quickly, though, and enterprise risk is increasingly generating brokerage revenue as well, he added.

"As a percentage of total revenue, it's small, but it's coming from a position of virtual zero," Mr. Sinnott said.