HRH Reports 4Q, Year-End Results

February 23, 2005

Hilb Rogal & Hobbs Company reported total revenues for the fourth quarter of 2004 were $159.9 million, compared with $142.7 million a year ago, representing a 12 percent increase. However, net income declined 21 percent for the quarter to $15.3 million compared with $19.4 million a year ago.

For the entire year, total revenues rose 9.9 percent to $619.6 million from $563.6 million a year ago. Net income for the year was $81.4 million compared with $75 million in 2003, representing an increase of 8.6 percent overall.

The company also reported that commissions and fees rose 11.2 percent to $156.0 million during the quarter, compared with $140.2 million during the same period of 2003, primarily reflecting acquisitions and net new business.

“As we previously announced, operating net income for the fourth quarter was lower than analysts’ original expectations because of higher legal, compliance and claim expenses and continued investment in our major accounts initiative,” said Martin L. “Mell” Vaughan III, chairman and chief executive officer. “Our legal, compliance and claims expenses in the fourth quarter were $3.9 million higher than a year ago. As previously disclosed, these expenditures related to protection of restrictive covenants in employment contracts, an unusual claim situation, various regulatory inquiries and other proceedings in the wake of a civil lawsuit against Marsh & McLennan Companies by the New York attorney general, and compliance with Section 404 of the Sarbanes-Oxley Act.”

Organic growth was 1 percent for the fourth quarter and 1.8 percent for the year.

In 2004, HRH recognized $42.4 million in contingent and override commissions, compared with $40.8 million for 2003. Of the 2004 total, 81 percent was from industry standard contingency agreements, which are generally influenced by underlying claims experience and maintained at the local office level. The remainder was from volume-based national override agreements. Effective for business written on or after Jan. 1, 2005, these national override agreements, which were paid quarterly when earned, reverted into industry standard contingency agreements, which will be paid and recorded annually beginning in early 2006.

In the fourth quarter of 2004, HRH acquired three insurance agencies with aggregate annual revenues of approximately $23 million. These agencies add to HRH’s rapidly developing excess and surplus and managing general underwriter lines and its Midwest presence. For the full year 2004, HRH acquired nine insurance agencies representing aggregate revenues of approximately $81 million. In December 2004, HRH increased the capacity of its credit facility to $425 million from $290 million. The increased facility enhances HRH’s ability to fund future acquisitions and repurchase shares.

To date, HRH has received requests for information regarding business practices from 10 state departments of insurance, and has received subpoenas from four state attorneys general. Additional requests and subpoenas may be received in the future, HRH says the company intends to cooperate with all of them. In addition, HRH has been named as a defendant in three purported class action suits related to past business practices.

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