Sedgwick says merger would be considered

Survival for insurers: Soft markets and link-ups are likely to increase competition

Sedgwick, the world's third-largest insurance broker, yesterday denied recent speculation that it was ready to merge with rival Willis Corroon, but said further industry consolidation was inevitable.

Sax Riley, chief executive, said the group would consider a merger if the strategy of a potential partner matched their own plans. "We continue to believe there is room for three or four global players .... It could be construed that there are six people [in the market] at the moment."

The cake had got smaller and the margins thinner, Mr Riley said, but Sedgwick would be able to maintain its independent existence. The key to the future would be having control of their own distribution network and owning a large commodity brokerage business. "We can survive on our own... because we are well down the way, on our own strategy and we are using our own network," he added.

The comments came as Sedgwick warned that insurance rates had continued to tumble in most parts of the world. Mr Riley said the company would take a view on rates for the rest of the year in November, although they "remained confident of the final outcome for the full year".

The tough trading conditions pegged Sedgwick's pre-tax profits to pounds 64.1m in the half-year to June, a 2 per cent rise on the comparable period. Earnings per share rose 6.8 per cent to 7.8p, out of which an interim dividend of 3.75p is being paid, including a foreign income dividend enhancement of 0.75p.

The figures were below market expectations and the shares fell 5p to 125p yesterday. Robin Savage at brokers Credit Lyonnais Laing said there was disappointment that earnings growth was not coming through from top line growth. "If you look at the US revenues, these are flat, while flat UK revenues were made up for by growth in Europe and the Far East."

Willis Corroon has declared that it is ready to positively reorganise itself to grow in soft markets, but there has been no such clear message from Sedgwick, Mr Savage said.

Sedgwick's brokerage and fee income rose from pounds 451m to pounds 467m in the half- year, a 1 per cent rise in constant currency terms, while expenses were cut by 1 per cent on the same basis. Sedgwick Noble Lowndes, the employee benefits and financial services operations, saw underlying trading profits rise 12 per cent to pounds 7.4m. But the increase would have been cut to 2 per cent if a pounds 700,000 benefit on the sale of a US third party administration company is stripped out.

Mr Riley said he was more confident about the UK part of the business than he had been for a very long time. The aim was to raise the proportion of group income from consultancy and other fees to 50 per cent of the total from the current 35 per cent.