BUSINESS INSURANCE 2009 Marsh Broker Profile

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BUSINESS INSURANCE 2009 Marsh Broker Profile Powered By Docstoc
					                                                              As seen the week of:
                                                             July 20, 2009

Ranked by 2008 brokerage revenues

                                     Posted with permission of Business Insurance. Copyright Crain Communications Inc 2009
                         #1-26565749 Managed by The YGS Group, 717.505.9701. For more information visit
July 20, 2009 Business Insurance                                                                                        SPOTLIGHT

                                                 Compared with 2007, “we’re in a much         the restructuring is complete, further lay-
 TOP BROKERS                                  better position,” said Mr. Glaser, a former     offs are expected.
                                              London-based American International                Another key initiative of Marsh’s trans-
                                              Group Inc. executive. “We’re better or-         formation in 2008 was the creation of a
                                              ganized. We’re better financially. We’re        centralized placement process in the

     1                  Brian Duperreault,
                                              better strategically. Our colleague
                                              turnover is far, far lower. Our client reten-
                                              tion is high, and our hit ratio on (request
                                              for proposals) is better.”
                                                                                              United States.
                                                                                                 The placement hubs, which are located
                                                                                              in larger cities across the U.S. and are seg-
                                                                                              mented by line of business, help stream-
                                                 “Dan and Marsh are really the story of       line the placement process and eliminate
 MARSH & McLENNAN COS. INC.                   the last 12 months or so,” said Brian           redundancies, Mr. Glaser said. The hub
 2008 GROSS                                   Duperreault, who came out of retirement         system places risks individually rather
 REVENUES                                     in January 2008 to become president and         than in aggregate, which led to abuses in
 $11,635,000,000         3.2%                 CEO of MMC, instantly boosting morale           the past.
 2008 BROKERAGE                               within the lagging company.                        A key component of its placement
 REVENUES                                        Fixing Marsh, which had yet to recov-        strategy is its technology platform called
 $11,516,000,000         3.8%                 er fully from its 2004 fraud and bid-rig-       Marsh Market Connect, which allows
                                              ging suit and resulting $850 million set-       Marsh to more efficiently interact with
                                              tlement with former New York Attorney           insurers within the placement hubs. On
                                              General Eliot Spitzer, was one of his first     the system, for example, insurers can set

A    fter little more than 18 months at the
     helm, the top leaders of Marsh &
McLennan Cos. Inc. and retail brokerage
                                              key priorities.
                                                 “It’s a complete 180” for Marsh, said
                                              Keith Walsh, an analyst with Citigroup
                                                                                              their preferences or risk appetite based on
                                                                                              such criteria as geography, industry or
                                                                                              class of business against Marsh’s upcom-
subsidiary Marsh Inc. have done what          Research in New York. “Brian Duper-             ing renewing business.
their predecessors could not—improve          reault is fantastic, but Dan Glaser is the
profitability at the world’s largest insur-   key, in my view, at the company. In the
                                                                                                                        Daniel S. Glaser
ance brokerage.                               five quarters he’s been there, there have                                 has cut expenses,
   Since being tapped to become Marsh’s       been five consecutive quarters of margin                                  simplified the busi-
chairman and chief executive officer in       expansion. Obviously, the first four of                                   ness, and focused
                                                                                                                        the brokerage’s ef-
December 2007, Daniel S. Glaser has cut       those are going against a weak ’07, but                                   forts on delivering
expenses, simplified the business, and fo-    in the first quarter of ’09, it’s probably                                the right products
cused the brokerage’s efforts on delivering   the best quarter they’ve had in at least                                  and services to its
the right products and services to its        five years—pre-Spitzer even. It’s just re-
clients.                                      markable.”
   Those efforts paid off in 2008 as             Adjusted operating margins, which
MMC’s risk and insurance services seg-        measure operating efficiency, for MMC’s
ment, which comprises Marsh and rein-         risk and insurance services segment was
surance brokerage unit Guy Carpenter &        25% in the first quarter of 2009 vs. 17.6%
Co., posted a 34.5% increase in operat-       in the same period of 2008.                        As a result of the hub system, clients re-
ing income to $460 million. The seg-             MMC’s brokerage margin expansion             ceive better terms and conditions and
ment’s adjusted operating margin im-          has been “a phenomenal success,” said           more contract certainty, while underwrit-
proved to 13.3% from just 8.6% for the        Meyer Shields, an analyst with Stifel,          ers see better bind-to-quote ratios and
year prior.                                   Nicolaus & Co. in Baltimore. “It’s really       more document standardization, Mr.
   Overall, brokerage revenues rose 3.8%      just a matter of having management that         Glaser said, noting that 80% of Marsh’s
to $11.52 billion, making MMC the             understands what services insurance             U.S. premiums flowed through the hubs
largest brokerage worldwide in the 2009       clients need, getting paid for those, and       in the first quarter of 2009.
Business Insurance ranking.                   not providing stuff they don’t need. It’s          He also said due to Marsh’s more effi-
   However, MMC overall reported a $73        not complicated, but it was sorely lacking      cient placement strategy, more than 30
million loss for 2008 due to impairment       under the previous management team.”            insurers have agreed to pay Marsh en-
charges related to restructuring at risk         Much of 2008 at Marsh was focused on         hanced commissions and about 70% of
consulting unit Kroll Inc.                    reducing expenses. The brokerage elimi-         its client base has consented to the com-
   With the foundation now in place, ex-      nated 2,200 positions—700 of which              missions.
ecutives say Marsh is poised to grow and      were outsourced—and eliminated an ad-              Unlike contingent commissions, which
acquisitions will play a key role in that     ditional 300 positions in the first quarter     are based on volume and profitability and
effort.                                       of this year. Mr. Glaser said while most of     which Marsh is prohibited from taking
SPOTLIGHT                                                                                                 Business Insurance July 20, 2009

from insurers, enhanced commissions are           “Dave has a very rich pipeline of oppor-    are not following suit.
based on the value Marsh creates for insur-    tunities,” Mr. Glaser said. “Obviously,          In addition to Marsh, Guy Carpenter
ers, though how those commissions are          there needs to be a cultural fit and the       also has shown signs of recovery since
calculated vary by insurer, Mr. Glaser said.   valuation has to be right. But he is getting   new management was installed last year.
               New focus                       a lot of access to a lot of interesting com-   The reinsurance broker’s revenues rose
                                               panies.”                                       7% in the first quarter of 2009 and in
   In addition to enhanced commissions,           At the end of 2008, MMC filed a shelf       April it completed the acquisition of rival
Marsh also is looking to its recently          registration with the U.S. Securities and      John B. Collins Associates Inc.
launched Marsh & McLennan Agency               Exchange Commission to issue up to               Overall, Mr. Duperreault said he feels
LLC, which will focus on companies na-         $500 million in stock to fund potential        “much more encouraged today” about
tionwide that generally have less than         acquisitions. That, coupled with roughly       MMC than a year ago. “There’s a lot more
$100 million in revenue, for future            $1.7 billion in cash, gives the firm more      we’ve got to do…but we’re encouraged to
growth.                                        than $2 billion to spend.                      see where we’ve come in a year.”
   The broker, which has an inconsistent          Mr. Glaser said most, but not all, of the     Weathering the difficult economy is
record in the smaller account space, an-       capital will go toward building Marsh &        MMC’s biggest challenge today, Mr.
nounced the formation of the stand-            McLennan Agency. “I’m very open to             Duperreault said, noting that Mercer
alone agency in late 2008. Then in Janu-       global opportunities,” he said.                L.L.C. and Oliver Wyman Group are
ary, it hired veteran agency leader David         An initiative Marsh began earlier this      “feeling the brunt” of the economic
S. Eslick, who most recently was CEO of        year was a new service agreement limit-        downturn.
USI Holdings Corp., to be its chairman.        ing its professional liability to $10 mil-       MMC’s stock closed July 10 at $18.65
   Acquisitions will play a big part in the    lion, should mistakes be made in insur-        per share, down from its 52-week high of
agency’s growth and it is in the process of    ance arrangements.                             $35 and closer to its 52-week low of
finding the right agency platform to give         Marsh says hundreds of clients have ac-     $17.23.
it the foundation it needs.                    cepted the cap, but other large brokerages                             —By Sally Roberts
Ranked by 2008 brokerage revenues generated by U.S. based clients*

                                      Posted with permission of Business Insurance. Copyright Crain Communications Inc 2009
                          #1-26565749 Managed by The YGS Group, 717.505.9701. For more information visit

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