Marsh & McLennan Cos. Notes Strong Q4 and Year-End Numbers

January 28, 2004

Marsh & McLennan Companies, Inc. (MMC) reported financial results for the quarter and year ended Dec. 31, 2003.

Consolidated revenues in the fourth quarter increased 15 percent to $3 billion. Net income grew 21 percent to $378 million, and earnings per share increased 23 percent to $.70. For the year, consolidated revenues rose 11 percent to $11.6 billion. Net income grew 13 percent to $1.5 billion, and earnings per share increased 15 percent to $2.82.

Jeffrey Greenberg, chairman, commented: “MMC’s strong results in 2003 were driven by the excellent performance of our largest business, risk and insurance services. Marsh’s double-digit growth, adding $1 billion in revenues, was broadly based across client segments, geographic regions, and risk specialties. Marsh continues to extend its geographic reach, expertise, and service offerings through a combination of internal growth and acquisitions. An improving economy, free trade, globalization, and social change make risks larger and more complex, creating greater need for Marsh’s services in regions around the world.

“Mercer grew revenues in spite of a difficult consulting operating environment. We successfully integrated Oliver Wyman with Mercer Management Consulting, adding important capabilities to our risk and strategy consulting services. We also made several other acquisitions to broaden our global retirement and benefits consulting business. As economies around the world continue to revive, a number of Mercer’s practices are showing improved growth, and we see continued demand worldwide for Mercer’s retirement and benefits services. The recently completed acquisition of Synhrgy HR Technologies brings Mercer a new platform for employee benefits outsourcing in the United States.

“Late in the year, Putnam faced a major issue as a result of the discovery of inappropriate market timing by a number of investment professionals who have now left the firm. This activity had largely occurred several years earlier in certain Putnam mutual funds. Market timing was also found in a small number of shareholders’ 401(k) accounts. We acted decisively, installing new leadership, instituting new policies and procedures to strengthen compliance, and pledging restitution to the shareholders of the Putnam funds. We continue to invest in Putnam to strengthen its business. With MMC’s support, Putnam’s new leadership team, headed by chief executive Ed Haldeman, is working to restore the confidence of its investors, distribution partners, and employees. Putnam is committed to delivering consistent, dependable, and superior investment performance, is providing greater fund disclosure, and is reducing shareholder costs. Investment management is a growing business around the world, and we believe Putnam will be an important source of long-term growth for MMC.

“Marsh, Mercer, and Putnam operate in the large, growing global markets for risk, benefits, and retirement services. Using our financial strength, we continue to build our capabilities in each of our businesses through internal growth and acquisitions. We have confidence in the company’s prospects for continued growth,” Greenberg concluded.

Risk and insurance services revenues in the fourth quarter rose 13 percent to $1.8 billion, and operating income increased 10 percent to $400 million. Underlying revenues, which exclude the effects of foreign exchange, acquisitions, and dispositions, grew 10 percent. For the year, revenues rose 16 percent to $6.9 billion, a 13 percent increase on an underlying basis. Operating income increased 18 percent to $1.8 billion.

For the year, risk management and insurance broking, which is approximately 75 percent of this sector’s revenues, grew 13 percent on an underlying basis. Reinsurance broking and services’ underlying revenues increased 21 percent, and related insurance services grew 5 percent.

Mercer’s revenues in the fourth quarter increased 17 percent to $705 million, and operating income rose 12 percent to $85 million. Underlying revenues grew 2 percent. For the year, revenues rose 15 percent to $2.7 billion, a 3 percent increase on an underlying basis. Operating income increased 11 percent to $363 million. All of Mercer’s practices reported underlying revenue growth in 2003. Mercer’s largest practice, retirement services, increased revenues modestly. Health and group benefits revenues rose 4 percent. Mercer’s businesses in management and organizational change consulting grew revenues 3 percent. Economic consulting reported a 12 percent increase in revenues.

Putnam’s revenues in the fourth quarter grew 18 percent, and operating income rose to $139 million. Average assets under management in the fourth quarter increased to $259 billion from $249 billion in 2002. The year-over-year revenue comparison was affected by such items as the growth in assets under management, a contractual payment from Putnam’s Italian joint venture partner, increased underwriting and distribution fees, and the effect of a $20 million investment write-down included in the fourth quarter of 2002. Putnam’s 2003 fourth quarter operating income includes net costs of $24 million related to estimated potential restitution to the Putnam funds and compliance, legal, and communications expenses. Putnam’s partial settlement with the Securities and Exchange Commission includes civil penalties yet to be determined, and therefore, no provision has been made. For the year, Putnam’s revenues declined 8 percent to $2 billion, and operating income declined 10 percent to $503 million.

Putnam’s total assets under management on Dec. 31, 2003 were $240 billion, compared with $251 billion at year-end 2002. Mutual fund assets were $163 billion on Dec. 31, 2003, and institutional assets were $77 billion, compared with $164 billion and $87 billion, respectively, at year-end 2002. Net redemptions in the fourth quarter were $54 billion, but the pace of redemptions slowed significantly in January. Putnam’s total assets under management on Jan. 26, 2004 were $241 billion.

Cash flow from MMC’s operations continued to be strong throughout 2003. The company repurchased 26.1 million shares of common stock for approximately $1.2 billion and paid $631 million in dividends to shareholders, representing the 41st consecutive year that annual dividends paid to shareholders have increased. MMC also made discretionary contributions to its pension plans of $300 million in the fourth quarter. Throughout the year, the company provided for a tax rate of 34 percent. The change in the geographic mix of MMC’s businesses and tax planning with respect to international operations led to a decrease in the year’s tax rate to 33 percent, a rate that is expected to continue. Debt levels of $3.4 billion are unchanged for the year. Over the past two years, MMC has extended the maturity of almost half of its debt, increasing its financial flexibility and locking in historically attractive borrowing costs.

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