“We continued to deliver on our plan in the second quarter, recording much of the remaining charge associated with our 2011 operational review and focusing on the implementation of growth initiatives,” said Joe Plumeri, Chairman and Chief Executive Officer, Willis Group Holdings. “The strength of our diversified global business was again shown by our solid 3 percent organic growth in commissions and fees even with continued global economic pressures and little change in the overall rate environment. Delivering on our plan, adjusted operating margin grew modestly to 21.6 percent and adjusted earnings per diluted share grew 13 percent to $0.61.”
Second Quarter 2011 Financial Results
Reported net income for the quarter ended June 30, 2011 was $85 million, or $0.48 per diluted share, compared with $89 million, or $0.52 per diluted share, in the same period a year ago. Reported net income for the second quarter of 2011 was negatively impacted by an $18 million charge related to the 2011 operational review and an $11 million charge related to the previously announced FSA regulatory settlement, as detailed in note 7 of the supplemental financial information.
Adjusted net income per diluted share, which excludes the impact of items detailed in note 7 of the supplemental financial information, was $0.61 in the second quarter of 2011, an increase of 13 percent compared with $0.54 in the second quarter of 2010. Foreign currency movements increased earnings per diluted share by $0.01 compared with the second quarter of 2010.
Total reported revenues for the quarter ended June 30, 2011 were $863 million compared with $799 million for the same period last year, an increase of 8 percent. Total commissions and fees were $854 million, an increase of 8 percent from $789 million in the second quarter of 2010. Foreign currency movements increased reported commissions and fees by 5 percent compared with the year ago period. Investment income was $8 million in the second quarter of 2011, compared with $10 million in the second quarter of 2010.
Organic growth in commissions and fees was 3 percent in the second quarter of 2011 compared with the second quarter of 2010. Organic growth reflected net new business growth of 4 percent driven by higher existing client retention and solid new business generation. Partially offsetting net new business growth was a 1 percent negative impact from declining premium rates and other market factors.
North America Segment
The North America segment reported a 1 percent decline in commissions and fees compared with the second quarter of 2010. Organic growth in commissions and fees was flat in the second quarter of 2011 compared with the second quarter of 2010 which included a $2.9 million benefit from a one-time accounting adjustment related to the HRH acquisition within the specialty businesses. North America delivered low double-digit new business generation and solid client retention. The segment continues to face headwinds from ongoing softness in the insurance rate environment and a lack of sustained improvement in the US economy. Operating margin was 18.6 percent compared to 20.4 percent in the second quarter of 2010, primarily due to flat organic growth in commissions and fees.
International Segment
The International business segment reported 21 percent growth in commissions and fees compared with the same period in 2010, including a 15 percent favorable impact from foreign currency movements. Organic growth in commissions and fees was 6 percent, including double-digit expansion in Latin America and Eastern Europe, while Asia grew high single-digits. Continental Europe, and the UK and Ireland retail market each grew in the low single-digits. Operating margin was 21.5 percent compared with 19.1 percent in the second quarter of 2010. The increase in operating margin was driven by strong growth in organic commissions and fees, together with favorable foreign currency movements, partially offset by higher incentive compensation.
Global Segment
The Global segment, which comprises the Reinsurance, Global Specialties, London Markets Wholesale, and Willis Capital Markets & Advisory business units, reported 9 percent growth in commissions and fees and 3 percent organic growth in commissions and fees in the second quarter of 2011 compared with the second quarter of 2010. Reinsurance and Global Specialties were the drivers of growth in the quarter, partially offset by Willis Capital Markets & Advisory. Reinsurance grew high single digits, with particular strength in North America. Global Specialties’ expansion in the quarter was driven by Aerospace, Financial and Executive Risk, Marine, and Energy. Willis Capital Markets & Advisory had a positive quarter although organic growth in the unit was down significantly from the second quarter of 2010 as that quarter included revenue from a single large capital markets transaction. Operating margin was 32.5 percent in the second quarter of 2011 compared with 34.7 percent in the year ago quarter. The impact of unfavorable foreign currency movements were partially offset by organic growth in commissions and fees and lower pension expense.
“I am proud of the work done by all of our associates to deliver another quarter of solid financial results. With the challenges from the external environment remaining largely the same, especially the lack of improvement in global economic conditions, our efforts will remain focused on achieving planned cost savings from our 2011 operational review and implementing our revenue initiatives to drive future growth,” said Mr. Plumeri.