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Willis Group Holdings plc (WSH - Analyst Report) reported third-quarter 2013 adjusted net income of 19 cents per share, missing the Zacks Consensus Estimate of 20 cents by a penny. The results also lagged 13.6% from the prior-year quarter number.

Including the impact of fees related to debt extinguishment of 1 cent per share and loss on debt extinguishment of 33 cents per share, the company reported net loss of 15 cents per share compared to net income of 15 cents per share earned in the year-ago quarter.

Increase in expenses dragged the bottom line, accounting for the company’s soft performance.

Operational Updates

Willis Group’s total revenues in the quarter were $795 million, up 5.4% year over year due to higher commissions and fees. Results exceeded the Zacks Consensus Estimate of $788 million.

Total commissions and fees reported by Willis Group were $791 million, up 5.6% year over year. The growth was driven by solid contributions from all the three segments. Unfavorable foreign currency translations were partially offset.

Willis Group’s investment income of $4 million was flat with the year-ago quarter level.

Total expenses at Willis Group shot up nearly 5.3% year over year to $720, reflecting higher salaries and benefits (up 7.8% year over year).

In the quarter under review, adjusted operating income of Willis Group was $76 million, down 7.3% year over year. Adjusted operating margin declined 130 basis points (bps) to 9.6%. The downfall was attributable to higher salary and benefits. However, higher commissions and fees limited the downfall.

Quarterly Segment Update

Global: Both reported and organic growth in commissions and fees was 6.4% in the quarter.

The improvement was driven by better results at Willis Re and Specialty Reinsurance which reported growth in high single digits and mid teens respectively. Specialty Reinsurance in turn grew due to new business.

Operating margin was 14.3%, deteriorating 780 bps year over year.

North America: Commissions and fees grew 3.9% on an organic basis and 4.1% on a reported basis.

The improvement came on the back of better performances across most of Willis North America's geographic regions.

Operating margin was 17.3% in the reported quarter, expanding 60 bps year over year.

International: Commissions and fees increased 7.8% on an organic basis and 7.0% on a reported basis. Results were driven by low double-digit increase in Eastern Europe, high-double digit increase in Asia, low double-digit increase in Australasia and mid-teens increase in Latin America. These were however, partially mitigated by mid-single digit decline in the U.K.

Operating margin of negative 4.2% in the quarter improved 30 bps year over year.

Dividend Update

The board of directors of Willis Group approved quarterly cash dividend of 28 cents per share. Willis Group will pay the dividend on Jan 15, 2014 to shareholders of record as on Dec 31, 2013. The annualized dividend comes to $1.12 per share.

Financial Position

Willis Group exited the quarter with cash and cash equivalents of $623 million, up 24.6% from the 2012-end level.

Total long term debt decreased nearly 1% to $2.31 billion as on Sep 30, 2013 from $2.34 billion as on Dec 31, 2012.

Recently, Willis Group completed an amendment and extension of its existing senior unsecured credit facility. The $300 million 5-year term loan is now scheduled to mature in Jul 2018. The $500 million revolving credit facility was increased to $800 million. This term loan is also scheduled to mature in Jul 2018.

Performance of Other Insurance Brokers

Brown & Brown Inc. (BRO - Snapshot Report) reported operating net income of 40 cents per share for the third quarter of 2013, which missed the Zacks Consensus Estimate by a penny but improved 14.7% over the year-ago quarter.

Validus Holdings Ltd. (VR - Snapshot Report) reported its third-quarter 2013 adjusted net operating income of $1.50 per share, significantly surpassing the Zacks Consensus Estimate of $1.29 per share. The results however, fell 13.8% year over year.

eHealth Inc. (EHTH - Snapshot Report) reported third-quarter 2013 net income of 1 cent per share, missing the Zacks Consensus Estimate by a penny. Results were in line with the year-ago quarter.

Zacks Rank

Willis Group presently holds a Zacks Rank #3 (Hold).

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