Willis to cut 500 staff after profits plunge 60%
WILLIS is to cut 500 of its 14,500 staff after reporting a 60% plunge in operating profit and a 3% fall in revenues in the first quarter of 2005, writes Stuart Collins.
The mainly London-based broker reported operating profits of $94m in the first quarter, down from $234m in the same period last year. The staff reduction was in direct response to falling revenues following the cessation of contingent commissions. The first-quarter operating profit was hit by a combination of severance costs relating to the 500 job cuts and settlements with regulators over an industry-wide investigation into contingent commissions.
The first quarter includes the $59m cost of the already-announced settlement with the attorneys-general of New York and Minnesota and the New York insurance supervisor over the allegations of bid-rigging.
The company has now said that it has increased its provision for claims by an additional $20m following the completion of an end-of-quarter review.
Willis also said that it had identified approximately 500 positions to be "eliminated" at a cost of $28m.
The job cuts are in direct response to an ongoing review of its cost base and changing business model against the background of regulatory investigations and the end of contingent commissions.
First-quarter revenue reduced by 3% because Willis stopped accepting contingent fees in a bid to head-off industry criticism over the practice of taking undisclosed payments from insurers. As a result, commissions and fees were barely up from $648m in the first quarter of 2004 to $651m this year. Contingent commissions registered $3m in the quarter, compared with $21m in last year's first quarter.
Organic revenue growth excluding volume and profit-based contingent commissions and other market remuneration was 2% in the first quarter, 4% of which is for new business and a negative 2% impact from declining insurance premium rates and other market factors.
Joe Plumeri, chairman and chief executive at Willis, said that "the resulting changes we are embracing in our business model define this transitional period in the new world of insurance.
"We are pleased with the revenue growth this quarter, in spite of the continued decline in insurance premium rates across most lines and challenging market conditions," he addded, noting that the firm "welcomed many new clients".
During the first quarter, Willis completed four acquisitions with annual revenues of $14m. In April the broker completed the sale of its wholesale broking unit, Stewart Smith, which had total reported revenues of $77m in 2004.
Published on April 29, 2005
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