Marsh & McLennan operating results beat estimates

NEW YORK (Reuters) - Marsh & McLennan Cos Inc (MMC.N), the largest global insurance brokerage, turned in on Wednesday second-quarter results that indicate the company may be on the verge of coming back from a prolonged period of weak profitability.

Higher risk and insurance earnings drove overall adjusted second-quarter income higher, beating Wall Street expectations. Net profit fell, largely because of a $115 million goodwill charge.

Shares rose to their highest level in more than a year, as investors digested strong results from the company's main operating business.

"The margin improvement within insurance services was the most obvious piece of good news for MMC in some time and suggests that restructuring efforts are gaining some traction," said Merrill Lynch analyst Jay Cohen, in a research note.

Marsh Inc, the company's main operating unit, posted an 8 percent increase in revenue, attributed to an increase in new business and to higher repeat business from existing clients.

Business at Marsh rose despite headwinds from "price competition in the global commercial property and casualty insurance marketplace," the company said.

However, Guy Carpenter, the company's reinsurance arm, saw business fall 6 percent to $204 million, as insurers retained more risk themselves.

Reinsurers sell back-up coverage to other insurers, spreading the risk of losses. But when insurance markets soften, as they have been over the past two years, carriers often tighten their belts by buying less of this coverage.

Altogether, Marsh & McLennan's risk and insurance services profitability, on an adjusted basis, was 14.6 percent higher, higher than some analysts had expected.

TURNING A CORNER

Marsh & McLennan, which competes against smaller rivals Aon Corp AOC.N and Willis Group Holdings Ltd (WSH.N), said adjusted income, excluding items, rose 17 percent to 41 cents a share, beating analysts' average forecast of 35 cents a share.

Net income fell 63 percent to $65 million after the goodwill charge from $177 million a year earlier.

Chief Executive Brian Duperreault, named to MMC's top job earlier this year, told Reuters the company's second-quarter improvement had a lot to do with the turnaround underway at Marsh Inc.

Duperreault, former chief executive of global insurer Ace Ltd (ACE.N), was brought onboard as investors grew disgruntled with MMC's declining profit record. In his first months in office he has identified parts of the business that are no longer a good fit and overseen cuts across the organization.

"There are decisions you have to make," said Duperreault in an interview, but added that employees are adapting. "Morale really revolves around a company being managed well," he said.

Cuts to date have reduced expenses at Marsh Inc by $45 million, on an annualized basis. The brokerage has eliminated more than 500 jobs so far this year, and will trim 900 more in the second half of the year to boost savings further, Duperreault said.

Marsh & McLennan is also close to selling off two divisions that fall within Kroll, its corporate security business.

Duperreault said he sees sales of Kroll's mortgage screening and government services division within the year.

Kroll's revenue rose 20 percent to $240 million during the period. Consulting revenue from units Mercer and Oliver Wyman also rose in the quarter.

Marsh & McLennan shares rose to their highest level in more than a year, trading up more than 5.6 percent at $31.00 before easing back to $30.51 in afternoon trading.

(Editing by John Wallace and Gerald E. McCormick)