Posted on 31 Jul 2009
Chief Executive Officer Joe Plumeri of Willis Group Holdings Ltd. said that even if New York authorities were to follow Illinois' lead and eliminate the ban on the world's largest brokers' accepting contingent commissions that it will not participate.
Itasca, Ill.-based Arthur J. Gallagher & Co. revealed Tuesday that it reached an agreement with the Illinois attorney general and Illinois Department of Insurance to amend its 2005 compensation agreement, and that it will again accept contingents effective Oct. 1.
Like its larger rivals that reached similar settlements with New York and other state authorities, Gallagher agreed in 2005 to give up contingents and pay millions in client restitution to settle client steering concerns raised by Illinois authorities.
In a analyst conference call Thursday, Plumeri said he has not heard from the New York attorney general’s office about the issue and even if New York authorities were to sunset the broker’s settlement, Willis will not collect the incentive payments from insurers.
“That doesn’t mean I don’t expect to be paid…like others,” Mr. Plumeri said. If an insurance company pays a competitor a certain amount in contingents, “I expect to be paid the same amount,” just not in the form of a fee that is contingent on profits or volume, he said, adding that such contingents pose an inherent conflict of interest with clients.
Mr. Plumeri noted in the call that the brokerage has converted 90% of Hilb Rogal & Hobbs Co.’s “legacy” contingents into upfront commissions and expects to complete the conversion by the end of the year.
Willis’ 2008 acquisition of HRH pushed revenues up 17.7% in the first six months of 2009 to $1.71 billion, Willis said. Net income also rose, a 35.2% increase to $292.0 million.
While Willis attributed most of its top-line growth to acquiring HRH, it reported 2% organic growth in commissions and fees for the six-month period, primarily from growth in its global and international business units, it said. Organic growth for Willis’ North American segment declined 7% in the first half of 2009, which Willis attributed to the soft market and the recession affecting clients’ buying habits.
Willis also addressed federal lawsuits that have been filed against the brokerage on behalf of Mexican and South American investors in Stanford Financial Group. Stanford CEO Allen Stanford was indicted in June for his role in an international $8 billion Ponzi scheme, similar to one conducted by Bernard Madoff. The complaints generally allege that Willis, which was Stanford’s broker on a number of insurance lines, aided the firm’s efforts to sell certificates of deposit by issuing to Stanford letters regarding the insurance policies that Willis placed for the firm. The plaintiffs collectively seek damages in excess of $1 billion.
Willis said it will defend itself “vigorously” and that it “does not believe that any Willis employee knew that Stanford was engaged in fraudulent activity, and it is undertaking a full investigation of the facts so it can address this matter as expeditiously as possible.”