Marsh, Aon rival planned, report says

[HenryTo]

Further bad news for MMC. If anyone has prior doubts that MMC's current business model does not work, then this will put the final nail in the coffin. It is over, folks. And Putnam will also eventually go away as well as the mutual fund industry continues to give away to hedge funds on one end of the spectrum and to index funds on the other hand of the spectrum.

This is what a secular bear market will do to a company.
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Marsh, Aon rival planned, report says
By Alistair Barr, MarketWatch
Last Update: 4:43 PM ET April 15, 2005


SAN FRANCISCO (MarketWatch) -- A new insurance broker is being formed that could become a potent rival of industry leaders Marsh & McLennan and Aon Corp., according to a report in the Wall Street Journal Friday.

Robert Clements, a former president of Marsh (MMC: news, chart, profile) , the world's largest insurance broker, is behind the new venture, which is code-named "Integro" (Latin for fresh start), the newspaper reported. See full story at WSJ.com.

Peter Garvey, who resigned as co-president of Marsh last month, will head the new firm. Roger Egan, another top Marsh executive who was ousted late last year, will also be part of the business, the paper added.

The new broker will arrange insurance for the largest companies - competing directly with Marsh and Aon (AOC: news, chart, profile) .

Marsh shares fell 83 cents, or 2.9 percent, to $28.14 on Friday, while Aon dropped 71 cents, or 3.2 percent, to $21.42.

The move comes at a time when the insurance broking industry is trying to recover from scandal. Together, Marsh and Aon paid more than $1 billion earlier this year to settle charges by New York Attorney General Eliot Spitzer that they steered business to favored insurers which paid them the most contingent commissions. Marsh was also accused of bid rigging.

"It's going to be a success because the timing is perfect," Andy Barile, an independent insurance consultant based in Rancho Santa Fe, Calif., said. "The industry is crying out for an independent, privately owned broker that focuses only on clients."

The new firm is looking to raise about $300 million from investors in a private placement and aims to open in May, the Wall Street Journal said.

Being a private firm, rather than a public company, will help the new venture because it won't be under as much pressure from shareholders to constantly boost earnings by charging clients more money, Barile said.

The business will also be less tainted by the recent scandals, he added.

Marsh & McLennan and Aon have new chief executives with limited hands-on experience of insurance broking, Barile also noted.

Marsh & McLennan CEO Michael Cherkasky has a legal background and used to run security consulting firm Kroll.

Aon's new CEO, Gregory Case, used to head the global insurance practice of consultant McKinsey & Company.

While they're learning the ropes, experienced brokers such as Garvey and Egan may be able to poach clients, Barile said.

Clements has a history of starting insurance businesses at opportune times.

He masterminded the creation of Bermuda-based Ace. Ltd. (ACE: news, chart, profile) in the early 1980's, just when companies were looking for new insurers to underwrite directors and officers risks.

Garvey declined to comment when contacted Friday by phone.


Alistair Barr is a reporter for MarketWatch in San Francisco.