Marsh & McLennan posts profit, misses view, Lincoln in red, downgraded

Marsh & McLennan Cos. said today it returned to profitability in the first quarter, bouncing back from a loss a year ago when it absorbed a big write-down. But the latest results fell short of Wall Street expectations. The New York-based insurance broker and consulting firm said it earned $176 million, or 33 cents per share, during the quarter ended March 31. It lost $210 million, or 40 cents per share, during the first quarter in 2008. The year-ago loss was primarily the result of a $425 million asset impairment charge on the company's corporate security business, Kroll. Adjusted earnings, which excludes restructuring and other special charges such as the asset impairment charge, totaled 40 cents per share in the latest quarter versus adjusted earnings of 45 cents per share a year ago. Analysts polled by Thomson Reuters, on average, forecast a profit of 43 cents per share during the quarter. Analysts estimates typically do not include special charges. Marsh & McLennan said its total revenue during the first quarter fell 13 percent to $2.63 billion from $3.04 billion during the first quarter in 2008. That was also short of analysts' forecasts of revenue of $2.95 billion. Revenue declined across each of the firm's three types of businesses: risk and insurance services, consulting and risk consulting and technology. Risk and insurance services revenue fell 8 percent to $1.37 billion during the quarter. However, adjusted operating income in the division rose 30 percent to $343 million because of expense controls and improved profitability at its units, Guy Carpenter and Marsh. Consulting revenue, which includes Mercer and Oliver Wyman, tumbled 16 percent to $1.08 billion. Adjusted operating income in the consulting operations fell by more than half to $74 million, in part because of adverse foreign currency translation. Revenue from the risk consulting and technology businesses, which includes Kroll, fell 27 percent to $187 million. The revenue decline was due primarily to the divestiture of corporate advisory and restructuring operations in the fourth quarter. The reduction in business in the division led to a 25 percent drop in adjusted operating income to $12 million. Marsh & McLennan also reported a $15 million loss due to write-downs on the value within its private equity fund investments. Lincoln National Corp. ended the first quarter in the red, citing a $600 million charge on the impairment of goodwill in its annuity business. The insurer reported a loss of $579 million, or $2.27 a share, for the quarter, down from a profit of $289 million, or $1.10 a diluted share, a year earlier. Although income from operations was in the black during the first quarter, bringing in $171 million, it was still down from a year earlier, when operations earned $322 million. Individual annuities brought in $74 million in income during the first quarter, down from $118 million a year earlier. That decline reflected a $16.3 billion deterioration on average variable annuity account balances, compared with the previous year. Life insurance income also fell to $142 million, compared with $157 million a year earlier. Total gross realized losses on investments in Lincoln’s general account came to $247 million. Philadelphia-based Lincoln also addressed its capital and liquidity positions. Just last month, the insurer paid off $500 million in maturing senior debt using internal cash sources at the holding-company level. Another upcoming debt maturity of $250 million isn’t due until next March. Lincoln said that along with cash flow from its operating companies and access to the commercial-paper market, it also has $1 billion of internal borrowing capacity and a $1 billion bank line of credit that will mature in two years. But that wasn’t enough to ward off a ratings outlook revision to negative from stable by Standard & Poor’s of New York. The negative outlook stems from the company’s weakened capital levels at its insurance operations in the U.S., S&P credit analyst Jeff Watson said in a statement. Although the company was able to pay off its short-term debt maturities, Lincoln has relied more on its insurance operations to cover those debts because of the limited amount of credit available in the capital markets, he said. This internal funding has raised liquidity available at the holding-company level but at the expense of the operating company’s capital adequacy, Mr. Watson said. Calls to Lincoln seeking comment about the ratings revision weren’t immediately returned.