Willis Corroon drop adds to insurer woes

WILLIS CORROON, the Anglo-American insurance broker, yesterday announced the second piece of bad news in the sector this week with a 22 per cent fall in pre-tax profit to pounds 54.1m in the first half.

The worse than expected results overshadowed the benefits of a promise from Willis that it would not follow its rival Sedgwick by cutting its dividend this year.

The shares fell 16p to 170p as analysts said this may simply increase the financial pressure to cut next year.

Willis blamed its poor results, which were particularly bad in the second quarter, on the 'worst US insurance market for many years', reduced demand as a result of the recession and adverse foreign exchange movements. Interest income was also lower as rates fell.

Roger Elliott, executive chairman, said that as a result of conditions in world insurance and financial markets and the cost of long-term investments, 1992 profits will be below those of 1991.

Willis said that it was maintaining the dividend despite difficult trading because part of the profit drop had been due to the cost of an expansion under way since the merger that formed the group in 1990. 'We have been spending to make returns. A lot of the operations that have started have not yet generated profits,' a spokesman said.

The brokers reported zero underlying growth in revenue and a 3 per cent growth in expenses. Simon Willis, insurance analyst at County NatWest, said: 'They cannot afford a further squeeze like that for long.' He also expected pressure to cut the dividend in 1993, and saw more downside than upside in the share price.

County NatWest slashed its forecast of 1992 profits from pounds 92m to pounds 60m, and for 1993 from pounds 95m to pounds 61m, mainly because of the poor revenue trends. At those levels, the maintained dividend would not be covered this year.

In the second quarter the group made only pounds 12m, compared with pounds 25m a year ago, though the company said part of the fall was due to timing differences between the two half-years.

Willis Corroon has been reducing costs, with about 500 jobs lost over the 18 months to June. It has spent pounds 32m on insurance brokers in continental Europe and Canada, improved its network in Eastern Europe, South America and the Far East and improved its marine, energy, aerospace and financial risk businesses.

The company is modernising its London head office, taking advantage of low building costs during the recession.

Mr Elliott said a one-company, one-culture spirit was being instilled throughout the group. A great deal had been accomplished since the merger, 'which has been correct for the medium and long-term future of the company'. The worldwide network was now in place.