Marsh: First Quarter Shows Continued Bottom Line Improvement

May 4, 2006

In its first quarter 2006 financial report, Marsh & McLennan Companies, Inc., parent company of insurance broker Marsh, cited a slight (1%) decline in consolidated revenues to $3 billion, while posting a rise in net income to $416 million, or $.75 per share, compared to $134 million, or $.25 per share, in 2005.

“Overall, MMC’s bottom-line performance continues to improve,” declared Michael G. Cherkasky, president and chief executive officer of MMC.

Results from discontinued operations, net of tax, were $178 million, or $.32 per share, primarily from MMC’s sale of its investment in Sedgwick Claims Management Services in January 2006. Income from continuing operations was $238 million, or $.43 per share, compared with $129 million, or $.24 per share, in the first quarter of 2005.

The firm said that a number of noteworthy items affected first quarter results in both 2006 and 2005. First quarter 2006 noteworthy items include restructuring, legal and regulatory costs related to market service agreements, and other expenses totaling $63 million. Stock option expense, which is now included in the operating results of each segment, was $40 million. These noteworthy items and stock option expense reduced first quarter 2006 earnings per share from continuing operations by $.11. In the first quarter of 2005, similar noteworthy items reduced earnings per share from continuing operations by $.27.

CEO Cherkasky said that for the last 18 months, questions in the marketplace have been whether and when Marsh would recover. Positive signs of recovery in Marsh began in the fourth quarter of 2005 and that trend is continuing, he added.

“In the first quarter, with increasing momentum, we saw revenue improvement with a significant increase in operating income. We are also seeing an increase in our new business opportunities, a high win rate in competitive situations, a return of previously lost business, and an increase in retained business. All of this points to better performance for Marsh in the future,” Cherkasky said.

Risk and Insurance Services
Risk and insurance services operating income increased markedly in the quarter as savings from the 2005 restructuring program were realized. Revenues declined 7 percent to $1.5 billion, or 2 percent on an underlying basis, in the first quarter.

Marsh’s revenues declined to $1.1 billion, or 2 percent on an underlying basis, largely due to resigning from unprofitable accounts. Client retention improved.

In the United States, new business increased to its highest level since the beginning of last year. Marsh achieved these results in an insurance marketplace that had continued declines in commercial insurance pricing, particularly in Europe, Cherkasky noted.

Guy Carpenter’s first quarter revenues were $281 million, an increase of 2 percent on an underlying basis. Carpenter achieved double-digit growth in new business compared with last year. Higher risk retention by clients offset the effect of the meaningful increase in U.S. property catastrophe premium rates in the first quarter.

Risk Capital Holdings’ revenues of $46 million reflected unrealized mark-to-market gains on private equity investments. In the first quarter of 2005, revenues were $63 million.

Risk Consulting and Technology
Kroll increased revenues 4 percent to $243 million in the first quarter, or 6 percent on an underlying basis.

Consulting
Mercer’s total revenues increased 8 percent to $1 billion in the first quarter, or 10 percent on an underlying basis. Mercer Human Resource Consulting reported $739 million in revenues in the quarter, an increase of 6 percent, or 8 percent on an underlying basis, with double-digit growth in retirement, its largest business, and human capital. Specialty consulting continued to produce excellent results, with revenues increasing 14 percent to $262 million, or 17 percent on an underlying basis.

Investment Management
Putnam’s revenues declined 13 percent to $345 million in the first quarter. Average assets under management were $190 billion, compared with $204 billion in the first quarter of 2005. Ending assets on March 31, 2006 were $189 billion, unchanged from year-end 2005, comprising $126 billion of mutual fund assets and $63 billion of institutional assets. Putnam reduced expenses in the quarter.

Conference Call
Marsh held a conference call to discuss first quarter 2006 results on May 3. The audio webcast (listen-only) may be accessed at www.mmc.com.

Source: MMC’s at www.mmc.com.

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