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MMC Reports Second Quarter Results

08/02/05

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NEW YORK, NEW YORK, August 2, 2005 - Marsh & McLennan Companies, Inc. (MMC) today reported financial results for the second quarter and six months ended June 30, 2005. Consolidated revenues for the quarter increased 2 percent to $3.1 billion. Net income was $166 million, or $.31 per share, compared with $389 million, or $.73 per share, in last year's second quarter. For the six months of 2005, consolidated revenues rose 1 percent to $6.3 billion. Net income was $300 million, or $.56 per share, compared with $835 million, or $1.56 per share, last year. Current year results include charges for restructuring, employee retention, and incremental regulatory and compliance expenses. Excluding noteworthy items, earnings per share would have been $.43 and $.95, respectively, for the second quarter and six months of 2005, compared with $.73 and $1.69, respectively, for the same periods of 2004.

Michael G. Cherkasky, president and chief executive officer of MMC, said: "Although much of our focus has been on the restructuring and turnaround at Marsh, we have made significant strides across all of MMC's businesses to position the company for long-term profitable growth. A number of our businesses had very strong results this quarter, such as Kroll, Mercer Management Consulting, and Mercer Oliver Wyman. Within Mercer Human Resource Consulting, there is increased demand for bundled solutions in retirement and benefits outsourcing, and the early response by U.S. clients to the launch of Mercer Global Investments products has been excellent. At Putnam, investment performance continues to improve, mutual fund redemptions are stable, and sales initiatives in both retail and institutional channels are showing promise. At Marsh, we are proud of the tremendous job our colleagues are doing in a very complex operating environment. We are working on all fronts to bring our costs in line with revenues and implement business reforms that we believe are setting the new standard in the industry for transparency and compliance as we continue to deliver world-class risk management advice and services to clients."

Risk and Insurance Services

Risk and insurance services revenues declined 11 percent in the second quarter to $1.5 billion. Underlying revenues, which exclude acquisitions, dispositions, and foreign exchange, declined 13 percent. During the quarter, the insurance marketplace saw continued reductions in commercial premium rates. These conditions are expected to continue through the end of this year.

Marsh's risk management and insurance broking revenues of $1 billion in the second quarter were 18 percent lower compared with last year. Excluding the effect of market services revenues, underlying revenues declined 8 percent, an improvement of 3 percentage points from the first quarter of 2005.

Guy Carpenter's revenues declined 9 percent in the second quarter to $192 million, or 11 percent on an underlying basis. The effects of higher risk retention by clients and lower premium rates in the reinsurance marketplace were offset partially by new business. These conditions are likely to continue through the remainder of the year.

Related insurance services revenues rose 23 percent in the second quarter to $303 million, an increase of 17 percent on an underlying basis. Performance was excellent in all businesses for both the quarter and the first half of the year, with particularly strong growth reported by claims management, which increased revenues 30 percent in the quarter.

Risk Consulting and Technology

Kroll reported revenues of $267 million in the second quarter, with double-digit revenue growth over prior-year pre-acquisition levels. The technology services group achieved strong performance in legal technologies, background screening, and mortgage-related service offerings. The corporate advisory and restructuring practice, which is part of Kroll's consulting services group, also recorded double-digit revenue growth.

Consulting

Consulting revenues increased 6 percent in the second quarter to $963 million, or 3 percent on an underlying basis. Mercer is now managing the combined operations of Marsh's U.S. employee benefits business and Mercer's health and benefits business. Segment financial information for the first quarter of this year and each quarter of 2004 has been adjusted to reflect the combined results, as shown in the attached supplemental schedule on page 14.

Mercer Human Resource Consulting's revenues increased slightly in the quarter to $687 million. Revenue trends for Mercer's retirement, HR services, and human capital businesses improved in the second quarter of 2005 compared with the first quarter.

Mercer's specialty consulting businesses reported continued strong performance. Revenues increased 22 percent to $229 million, or 19 percent on an underlying basis, reflecting particularly strong growth at Mercer Management Consulting, Mercer Oliver Wyman, and NERA Economic Consulting.

Investment Management

Putnam's revenues in the second quarter declined 13 percent to $377 million. Average assets under management during the second quarter were $196 billion, compared with $216 billion in the second quarter of 2004. Mutual fund net redemptions in the second quarter tracked this year's first quarter. Institutional net redemptions were significantly lower in the second quarter-the best results in two years. Total assets under management on June 30, 2005 were $195 billion, comprising $132 billion of mutual fund assets and $63 billion of institutional assets.

Other Items

The restructuring announced at the end of 2004 has been completed, with annualized cost savings totaling $400 million. About two-thirds of the savings relate to risk and insurance services. As previously disclosed, the anticipated cost to implement the 2005 restructuring is $370 million. This restructuring, which affects primarily risk and insurance services, should be completed by early next year and is expected to yield $375 million in annual savings, of which $30 million was realized in the second quarter.

MMC shareholders approved in May the offering to permit employees to exchange certain deeply underwater stock options for new options covering fewer shares. Effective July 1, employees exchanged 42 million stock options, or over 90 percent of eligible grants, for 16 million new stock options in a value-for-value exchange, thereby retiring almost 26 million stock options.

MMC's consolidated effective tax rate of 30.7 percent in the second quarter reflects the favorable resolution of audit issues and the impact of charges for restructuring, employee retention, and incremental regulatory and compliance expenses deducted at higher rates than the ongoing effective rate of 35 percent.

Conference Call

A conference call to discuss second quarter 2005 results will be held today at 10:00 a.m. Eastern Daylight Time. To participate in the live teleconference, please dial (800) 818-5264 or (913) 981-4910 (international). The access code for both numbers is 4774218. The live audio webcast (which will be listen-only) may be accessed at www.mmc.com. A replay of the webcast will be available beginning approximately two hours after the event. A continuous telephone replay will be available beginning at 1:00 p.m. Eastern Daylight Time, August 2 and continuing until midnight Eastern Daylight Time, August 8. To listen to the replay, please dial (888) 203-1112 or (719) 457-0820 (international). The access code for both numbers is 4774218.

MMC is a global professional services firm with annual revenues exceeding $12 billion. It is the parent company of Marsh, the world's leading risk and insurance services firm; Guy Carpenter, the world's leading risk and reinsurance specialist; Kroll, the world's leading risk consulting company; Putnam Investments, one of the largest investment management companies in the United States; and Mercer, a major global provider of consulting services. Approximately 60,000 employees provide analysis, advice, and transactional capabilities to clients in over 100 countries. Its stock (ticker symbol: MMC) is listed on the New York, Chicago, Pacific, and London stock exchanges. MMC's website address is www.mmc.com.

This press release contains statements relating to future results, which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such statements may include, without limitation, discussions concerning the matters raised in the complaint filed by the New York Attorney General's Office stating a claim for, among other things, fraud and violations of New York State antitrust and securities laws, the complaint filed by the Connecticut Attorney General and numerous other investigations being conducted by other state attorneys general and state superintendents or commissioners of insurance, elimination of market services agreements ("MSA"), the new business model of Marsh Inc., the adverse consequences arising from market-timing issues at Putnam, including fines and restitution, revenues, expenses, earnings and cash flow, capital structure, existing credit facilities, and access to public capital markets including commercial paper markets, pension funding, market and industry conditions, premium rates, financial markets, interest rates, foreign exchange rates, claims, lawsuits and other contingencies, and matters relating to MMC's operations and income taxes.

Such forward-looking statements are based on management's expectations concerning current and future events impacting MMC. Forward-looking statements by their very nature involve risks and uncertainties. Factors that may cause actual results to differ materially from those contemplated by forward-looking statements that we make include:

  • the impact of litigation and regulatory proceedings brought by the New York Attorney General's Office, the Connecticut Attorney General's office and other federal and state regulators and law enforcement authorities concerning insurance and reinsurance brokerage operations;

  • the impact of class actions, derivative actions and individual suits brought by policyholders and shareholders (including MMC employees) asserting various claims, including claims under U.S. securities laws, ERISA, RICO, unfair business practices and other common law or statutory claims;

  • loss of producers or key managers;

  • inability to negotiate satisfactory compensation arrangements with insurance carriers or clients;

  • inability to reduce expenses to the extent necessary to achieve desired levels of profitability;

  • inability to collect previously accrued MSA revenue;

  • changes in competitive conditions;

  • changes in the availability of and the market conditions and the premiums insurance carriers charge for insurance products;

  • mergers between client organizations;

  • insurance or reinsurance company insolvencies;

  • the impact of litigation and other regulatory matters stemming from market-timing issues at Putnam;

  • changes in worldwide and national equity and fixed income markets;

  • actual and relative investment performance of the Putnam mutual funds;

  • the level of sales and redemptions of Putnam mutual fund shares;

  • Putnam's ability to maintain investment management and administrative fees at current levels;

  • the ability of MMC to successfully access the public capital markets to meet long term financing needs;

  • the continued strength of MMC's relationships with its employees and clients;

  • the ability to successfully integrate acquired businesses and realize expected synergies;

  • changes in general worldwide and national economic conditions;

  • the impact of terrorist attacks;

  • changes in the value of investments made in individual companies and investment funds;

  • fluctuations in foreign currencies;

  • actions of regulators and law enforcement authorities;

  • changes in interest rates or the inability to access financial markets;

  • adverse developments relating to claims, lawsuits and contingencies;

  • prospective and retrospective changes in the tax or accounting treatment of MMC's operations; and

  • the impact of other legislation and regulation in the jurisdictions in which MMC operates.

Forward-looking statements speak only as of the date on which they are made, and MMC undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of unanticipated events.

MMC is committed to providing timely and materially accurate information to the investing public, consistent with our legal and regulatory obligations. To that end, MMC and its operating companies use their websites to convey meaningful information about their businesses, including the anticipated release of quarterly financial results and the posting of updates of assets under management at Putnam. Monthly updates of total assets under management at Putnam will be posted to the MMC website the first business day following the end of each month. Putnam posts mutual fund and performance data to its website regularly. Assets for most Putnam retail mutual funds are posted approximately two weeks after each month-end. Mutual fund net asset value (NAV) is posted daily. Historical performance and Lipper rankings are also provided. Investors can link to MMC and its operating company websites through www.mmc.com.