01—Abstract
Summary
Summary of the 10-K filed March 31, 1997. Cited figures are marked; the original filing is the authoritative source.
Marsh & McLennan Companies (MRSH) filed its 10-K for fiscal 1996 on March 31, 1997, describing itself as a professional services holding company spanning three segments: insurance services (insurance and reinsurance brokerage through Marsh & McLennan, Incorporated and Guy Carpenter), investment management (Putnam Investments), and consulting (Mercer Consulting Group, including William M.
Mercer, Mercer Management Consulting and NERA). As of year-end 1996 the company employed about 27,000 people, and it reported roughly 72.7 million shares outstanding with a non-affiliate market value of about $8.45 billiona as of February 28, 1997. Putnam's assets under management reached $173.4 billion at December 31, 1996, up from $125.7 billion a year earlier, with about 62% in equities and 38% in fixed income.
Most financial detail is incorporated by reference from the 1996 Annual Report, so the filing body itself offers limited numerical performance data. The most significant event disclosed is the March 27, 1997 completion of the acquisition of Johnson & Higgins, a privately held insurance services and employee benefits consulting firm with 1996 revenues of about $1.2 billionb, under an agreement signed March 12, 1997. The filing notes that its figures do not yet reflect this transaction.
Other notable activity includes the January 1997 acquisition of CECAR SA, which made the company the largest insurance broker in France, and the 1996 sale of The Frizzell Group, which produced a $142.5 millionc reduction in goodwill. Goodwill write-offs of $17 million were also recorded, and total net intangibles fell to $545.3 million from $729.7 million.
For investors, the key considerations are the scale of the Johnson & Higgins integration, the sensitivity of brokerage revenue to insurance premium rate cycles and catastrophe losses, and the exposure of Putnam's fee revenue to market performance and to potential loss of distribution through proprietary dealer funds. Legal risks are primarily errors-and-omissions claims, including disputes over Lloyd's run-off reinsurance placements and Executive Life annuity advice, which management believes will not have a material adverse effect.
02—Key points
Key Highlights
- Johnson & Higgins acquisition closed March 27, 1997, adding a business with roughly $1.2 billion in 1996 revenue in risk management and benefits consulting
- Putnam Investments' assets under management rose about 38% to $173.4 billion at year-end 1996, with mutual fund assets of $133.8 billion
- Three segments: insurance services (brokerage and reinsurance intermediary), investment management (Putnam), and consulting (Mercer)
- CECAR SA acquisition in January 1997 made the company the largest insurance broker in France
- Frizzell Group sale in 1996 drove a $142.5 million decline in goodwill, and goodwill write-offs of $17 million were recorded
- Approximately 27,000 employees worldwide at December 31, 1996, with about 13,250 in insurance services, 4,200 in investment management and 9,250 in consulting
- Management believes pending claims, including Lloyd's run-off and Executive Life matters, will not have a material adverse effect on results or financial position
03—Questions
Frequently Asked Questions
What was the significance of the Johnson & Higgins acquisition?
Johnson & Higgins, a privately held insurance services and employee benefits consulting firm established in 1845, became a subsidiary of Marsh & McLennan on March 27, 1997, under an agreement dated March 12, 1997. Its 1996 revenues were about $1.2 billion. The 10-K's financial information does not reflect the transaction, so the combined company's future results will differ materially from the figures in this report.
How large is Putnam's business and what drives its revenue?
Putnam managed $173.4 billion in assets at December 31, 1996, up from $125.7 billion in 1995, with 62% in equities and 38% in fixed income. Revenue comes mainly from management fees that are based on assets under management. Those assets move with bond and stock prices, investment performance, and fund flows. Putnam also earns fees from its 401(k) and fund administration business, and it depends on Rule 12b-1 distribution plans that must be renewed annually.
What are the main risks to the insurance brokerage business?
Insurance services revenue depends largely on property and casualty premium rates, available insurance capacity, and the amount of risk clients retain. Natural catastrophes, changes in insurance markets, and client consolidation or lost business can all reduce revenue. Interest earned on fiduciary funds held for clients is also affected by interest rates. Revenue is uneven across quarters because of policy renewal timing, while expenses are steady.
Does the company face significant litigation exposure?
The company faces ordinary-course claims alleging errors and omissions in insurance placement and in investment and consulting advice, some seeking punitive damages. Specific disputes involve run-off reinsurance placements in the Lloyd's market and advice on guaranteed investment contracts and annuities from Executive Life Insurance Company. Management believes that available insurance coverage and advice from counsel mean these matters will not have a material adverse effect on consolidated results or financial position.
04—Continue