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Camille Izlar/ MEDILL

Sales from Marsh & McLennan units in risk and insurance services and consulting.


Marsh & McLennan reports increased profits

by Camille Izlar
Nov 06, 2012


Insurance broker Marsh & McLennan Cos. Inc. reported stronger than expected earnings for the third quarter. With their CEO retiring and potential changes in U.S. insurance laws, Marsh executives have made preparations for the shifting health care environment.

Marsh provides consulting services in insurance, healthcare and risk management for employers worldwide. In the quarter ended Sept. 30, Marsh reported a profit of $241 million, or 43 cents per diluted share, up 85 percent from $130 million, or 23 cents per diluted share, in the year-ago period. Last year, the company repaid a large amount of debt, which depressed earnings in the short-term.

Analysts surveyed by Reuters had expected Marsh to earn 38 cents per share on an adjusted basis. Excluding one-time items, March earned 39 cents. Marsh has fared well during the recession by making acquisitions and diversifying its products. A stable interest rate environment also helped the company.

“Each of our operating companies continued to generate growth in underlying revenue, which, combined with ongoing expense discipline, produced across-the-board improvement in operating margins and profitability," CEO Brian Duperreault said. Sales rose 1.4 percent to $2.84 billion from $2.80 billion last year.

In a conference call with analysts, Duperreault acknowledged that one of Marsh’s consulting firms, Oliver Wyman, has experienced difficulty because of the European economic crisis. But analyst Paul Newsome of Sandler O’Neill and Partners LP said that the company would have no trouble shifting around those services to other locations.

“There was a lot to like about this quarter but people are concerned about the organic growth slowing,” Newsome said.

Some of the concern comes from the uncertainty in the health-care sector. Insurance brokers have been putting together exchanges in preparation for the planned changes in the U.S. health care system from the implementation of Obamacare. Marsh already has begun offering an exchange, American Health Advantage, and will develop several options for clients. Newsome noted that Marsh works primarily with corporations. He expects that health care changes won’t necessarily affect that part of the business but will increase Marsh’s participation in health-care exchange programs aimed at the uninsured.

“Nobody knows quite how these exchanges are supposed to work or if corporations will start cutting insurance,” said Newsome. Overall, analysts agree that Marsh is in a strong position to face the uncertainties ahead.

“While we view macroeconomic conditions in Europe and the United States cautiously, we believe the momentum the company has shown over the last few quarters should continue to carry over into 2013,” said William Blair analyst Adam Klauber.

In the first nine months, Marsh earned grew 24 percent to $917 million, or $1.66 per share, from $737 million, or $1.30 per share. Revenue increased 3.6 percent to $8.92 billion from $8.61 billion in the year-ago period.

Marsh shares rose 69 cents to close Tuesday at $34.94.