Insurance broker Arthur J. Gallagher & Co. reported net income dropped 7 percent in the third quarter compared to last year despite a 7 percent increase in revenues.
The Itasca, Ill.-based broker reported net earnings for the period decreased less than $4 million, going from $54.4 million, or 57 cents a share in 2004, to $50.5 million, or 52 cents a share. Revenues increased $26.4 million, from $363.5 million to $389.9 million.
For the nine months, net earnings decreased 80 percent, or $111.1 million, down from $139.4 million, or $1.48 a share, to $28.3 million this year, or 30 cents a share. Revenues grew 4 percent in the period, or $44.2 million, up from more than $1.06 billion to under $1.11 billion.
The nine-months result includes an $84.2 million charge for litigation matters.
Executives said the company's results are impacted by the loss in contingent commissions, reflected in a 7 percent net income decrease in brokerage and risk management services.
Gallagher has given up such fees in the wake of investigators' finding that some brokers accepted them as a form of kickback for rigging bids with insurers.
The loss of the contingent commissions was part of a $27 million settlement with Illinois' attorney general and the state's insurance department. The agreement settled allegations of steering clients to insurers in exchange for lucrative amounts of contingent commissions. Gallagher has said that it is sustaining large legal costs related to other state inquiries into the same matter.
J. Patrick Gallagher Jr., the firm's president and chief executive officer, said the requests for information appear to be slowing down, and he was hopeful that the settlement would lead to an eventual end to the inquiries.
On Sept. 30, Mr. Gallagher said the firm mailed out 83,000 letters offering $27 million in refunds to clients, which was the settlement arrangement. He said clients have until Dec. 31 to respond, and 1,400 clients have already replied. This is an indication of clients opting into the agreement, said a company official.
Mr. Gallagher said the underlying fundamentals of the company are strong and "there is great future" ahead. He added that the company is controlling spending and has recorded $1 million "in termination" costs.
On the issue of the insurance market in general, he said the firm is telling clients that the "slide in rates is over" and "we expect, at the very least, that even plain vanilla Midwest stuff should be flat."
"The reinsurance market cannot recoup its losses by increasing property prices alone," Mr. Gallagher noted of the losses from the hurricanes this season that would affect the industry.
To recoup their losses the reinsurance sector appears to be recapitalizing, he noted. The sector will also increase premiums, Mr. Gallagher predicted.
"With the magnitude of these events [the hurricane losses] we believe rates will have to rise across the entire industry," he said.
Want to continue reading?
Become a Free PropertyCasualty360 Digital Reader
Your access to unlimited PropertyCasualty360 content isn’t changing.
Once you are an ALM digital member, you’ll receive:
- Breaking insurance news and analysis, on-site and via our newsletters and custom alerts
- Weekly Insurance Speak podcast featuring exclusive interviews with industry leaders
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical converage of the employee benefits and financial advisory markets on our other ALM sites, BenefitsPRO and ThinkAdvisor
Already have an account? Sign In Now
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
