MMC Releases 2Q Results; Net Income Up 7%

July 29, 2004

Marsh & McLennan Companies Inc. (MMC) reported its second quarter consolidated revenues increased 6 percent to $3.0 billion. Net income rose 7 percent to $389 million, and earnings per share increased 11 percent to $.73 from $0.66 in last year’s second quarter.

In its earning statement, MMC stated that for the six months of 2004, consolidated revenues rose 9 percent to $6.2 billion from $5.7 billion. Net income grew to $835 million from $808 million, and earnings per share increased to $1.56 from $1.47.

Jeffrey W. Greenberg, chairman and chief executive officer, said: “MMC had a good quarter. Strength in Marsh and Mercer more than offset weakness at Putnam. Marsh showed earnings growth in a softening insurance pricing environment based on its breadth of services, geographies and client segments and because of expense control. Mercer earned over $100 million for the first time in its history and grew earnings at the highest rate since 2000.

“Putnam’s business is not where we want it to be. However, we see some signs that are encouraging. Redemptions occurred at a decreasing rate. Investment performance is improving with competitive results across all fixed income products, in selected equity mutual funds, and in several institutional classes such as structured products. And Putnam has increased its marketing efforts to improve sales of these investment products. It has reduced its costs, streamlined its management, and made a number of key promotions and new hires in the investment division.

“The second quarter was especially active for MMC. The acquisition of Kroll, which we completed earlier this month, adds significantly to our expanding risk services offerings. Integration is going smoothly, and both organizations are enthusiastic about our combined capabilities and the value we can bring to clients to manage their total cost of risk

“We took a number of steps to align the human resources practices and services of our operating companies under a single management organization to take advantage of our professional strength and client relationships. At the beginning of the year, we acquired Synhrgy HR Technologies, which adds particular expertise in health care and defined benefits administration outsourcing. In June, we formed Mercer HR Outsourcing by combining the defined contributions administration business of Putnam with Mercer’s human resources outsourcing operations. We also brought together Mercer’s health care and group benefits and Marsh’s employee benefits practices to serve clients better. Mercer’s global consulting capabilities, supported by the creation of Mercer HR Outsourcing and our ability to offer a full range of services in retirement and benefits, will be an important source of future growth for MMC.”

Risk and insurance services revenues in the second quarter rose 8 percent to $1.8 billion, and operating income rose 13 percent to $455 million from $403 million. Marsh continued to achieve strong earnings growth and margin improvement in a quarter that saw declines in commercial insurance rates. Excluding the effect of exchange rates, underlying revenue growth was 5 percent. Risk management and insurance broking revenues grew 3 percent, reinsurance broking and services 4 percent, and related insurance services 13 percent. Marsh’s business outside of the United States as well as in the middle market segment and in risk consulting contributed significantly. In addition, efficiencies and expense control resulted in margin expansion of one percentage point in the quarter.

The third Trident investment fund sponsored by MMC Capital has completed fundraising with over $1 billion in capital commitments to make investments in the insurance and financial services sectors where MMC has specialized knowledge. Mercer’s revenues in the second quarter increased 12 percent to $773 million from $690 million, and operating income rose 14 percent to $113 million from $99 million.

Revenue growth was particularly strong in its human resources practices in Europe and Asia and in management and economic consulting. Mercer’s operating results also reflect excellent expense management. Underlying revenue growth was 5 percent, with acquisitions contributing an additional 3 percent and exchange rates contributing 4 percent.

Retirement services revenues were flat on an underlying basis. Management and organizational change consulting revenues increased 15 percent, economic consulting 14 percent, and health care and group benefits consulting 7 percent.

Putnam’s revenues in the second quarter declined 10 percent to $446 million, and operating income declined 24 percent to $95 million. Average assets under management during the second quarter were $216 billion. Total assets under management on June 30, 2004 were $213 billion, comprising $148 billion of mutual fund assets and $65 billion of institutional assets.

There were a number of notable items affecting Putnam’s results in the quarter. The gain on the sale of Putnam’s interest in its Italian joint venture partner and related securities contributed $38 million to revenues and is reflected in investment income. As previously disclosed, the settlement with Putnam’s former chief executive officer resulted in a credit of $25 million. The positive impact of these items was offset by $27 million of severance and $34 million of additional costs, such as legal, audit, and communications expenses, relating to regulatory issues and repositioning Putnam.

MMC repurchased 4 million shares of its common stock in the quarter for $180 million, bringing its total repurchases for the year to 11 million shares for $510 million. The company paid $325 million in dividends to shareholders year to date and increased its quarterly dividend 10 percent to $0.34, effective in the third quarter.

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