Marsh & McLennan Ousts Business Unit CEO; Stock Falls
Marsh & McLennan said Friday that Brian Storms, CEO of the insurance broker's main operating subsidiary Marsh Inc., had been ousted. His departure, effective immediately, follows a 21 percent decline in Marsh & McLennan's stock price since May because of its financial underperformance.
"We now need a different set of leadership and operational skills to complete the successful transformation of Marsh," Marsh & McLennan CEO Michael Cherkasky said in a statement.
Cherkasky, who took over at the world's largest insurance brokerage in 2004, said he would act as Marsh Inc. CEO on an interim basis. Storms was hired to run it about two years ago.
"Cherkasky is responding to calls to action about the financial performance," Marsh & McLennan spokeswoman Christine Walton said, adding a search for Storms' successor had begun.
Marsh & McLennan said Cherkasky was not available for further comment. Storms could not be reached for comment.
In August, Marsh & McLennan posted second-quarter earnings below forecasts and warned of more weakness at its brokerage, which earns money finding insurance for commercial clients.
But Cherkasky vowed in an interview at the time that the company would see improvement by the fourth quarter, targeting 14 to 16 percent earnings-per-share growth in 2008 and 2009.
Analysts said that was a high hurdle given the weakness in business insurance rates, and particularly weak margins in Marsh's larger accounts.
Second-quarter revenue rose 7 percent to $2.82 billion, largely due to 16 percent growth from consulting. Revenue grew only 2 percent in the brokerage, and operating profit in the unit fell 11 percent as hiring and advertising expenses rose.
Such woes did not seem to spread wider. Aon Corp., Marsh's closest rival, said its second-quarter earnings rose to $240 million, and its brokerage made its best return since 2003. Number-three Willis Group Holdings reported 4 percent organic growth in broker commissions and fees.
Goldman Sachs on Sept. 4 restarted coverage of Marsh & McLennan with a "sell" rating, citing the possibility of further earnings disappointments.
Goldman gave a 12-month stock price target of $25, implying a price-earnings multiple in line with competitors, since Marsh no longer deserves its traditional premium, Goldman said.
The stock closed Friday at $26.18. It is down 59 percent in the past seven years, and 21 percent since May alone.
Marsh has been under pressure since 2004, when New York's then-Attorney General Eliot Spitzer sued the insurance broker and its parent for taking "contingent commissions."
Contingent commissions are paid by insurers for steering business their way, even though brokers are supposed to be representing the companies that buy insurance through them.
Marsh recently reached a pact with New York's new attorney general and insurance commissioner Andrew Cuomo to allow it to take some fees from insurance companies.
Cherkasky said in an earlier interview that the revenue from the agreement "could be material to earnings," and replace some of the fees it was not allowed to take after a 2005 settlement with the New York Attorney General's office.
A shake-up that followed the 2004 lawsuit -- begun by Cherkasky and continued when Storms was hired in late 2005 -- led to a slew of terminations and prompted many brokers to flee to rivals such as Aon, Willis and privately held Integro Ltd.
Sources at Marsh & McLennan said the Storms termination had nothing to do with the recent departure and rehiring of a broker who, according to media reports, received up to $11 million to return. Message boards were full of complaints about the incident and articles on it appeared in the trade press.