Hilb Rogal & Hobbs Company reported 2006 fourth-quarter net income rose 10 percent thanks to increased new business, acquisitions and reduction in expenses.
The Richmond, Va.-based insurance broker reported net income rose $1.9 million, from $19.5 million to $21.4 million. Earnings per share rose from 54 cents to 59 cents. Revenues in the quarter rose 7 percent, or $11.5 million, from $164 million to $175.5 million.
Net income for the year rose 55 percent, or $31 million, from $56 million to $87 million. Earnings per share rose from $1.55 to $2.39. Revenues rose 5 percent, or $37 million, from $674 million to $711 million.
The dramatic increase in net income for the year was the result of one-time charges in 2005 for a regulatory settlement in Connecticut and a severance charge for the company's president and chief operating officer amounting to $44 million. Without the charges, net income would have dropped 13 percent for the year.
David Small, an analyst with Bear Stearns, wrote that HRH's results were a "solid end to a bumpy year."
"Overall, the quarter looked solid. In particular, the company was able to control expenses, something that had been an issue throughout 2005 and 2006," he noted. "Management had indicated previously that expense control would be a focus and it appears to have paid off in the quarter."
During an analyst's conference call today, Martin L. "Mell" Vaughan III, chairman and CEO, said the firm's organic growth of more than 4 percent was the result of the generation of new business.
On the issue of acquisitions, Timothy J. Korman, executive vice president for finance and administration, said the firm closed 2006 with four transactions totaling $35 million in revenue and began 2007 with four transactions amounting to $52 million in revenue.
He said competition has heated up in the merger and acquisition area, but plenty of opportunities remain.
Mr. Vaughan said that with the acquisition of London-based broker Glencairn Group Limited, there will be an "aggressive" search for opportunities in London. He said Glencairn has offices in Moscow, Australia and South Africa, and while acquisitions elsewhere would not be a focus, "if something makes sense we'll take advantage of it."
When asked about plans by St. Paul Travelers and Chubb to replace contingent commissions with supplemental commissions, Mr. Vaughan said the firm will be able to deal with the new compensation package, which he believes would equal or exceed what it currently receives.
However, he called the number of companies moving to such a plan "miniscule." He said a lot more companies would have to change their compensation system before it would "have a real or lasting impact on our company."
HRH will deal with the issue as it develops, he added.
"I don't know how others will go," he said. "Our largest company we transact with is [American International Group], and we have never gotten contingents from them."
He added, "We are comfortable with the way things are unfolding."
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