Marsh & McLennan Puts Troubles Behind as It Prepares to Grow

Marsh & McLennan was once the largest insurance broker in the world, until a series of scandals and management shakeups relegated it to the investor doghouse and downshifted it into second place behind Aon Corp.

But under CEO Brian Duperreault, who came on board in January 2008 after serving many years as a top executive at Ace Limited, Marsh wants to return to its former glory and regain its title the old fashioned way: through acquisitions.

Insurance brokers work for companies that need insurance, negotiating rates and plans with insurers such as American International Group, Hartford Financial and Travelers. But sometimes they also work for the insurers themselves; taking commissions in return for the business they bring the insurer.

And that’s how Marsh got into trouble with then New York Attorney General Eliot Spitzer, who in 2005 hit the company with an $850 million fine, essentially stopping it and fellow brokers Aon and Willis Group from accepting those commissions.

The huge fine and the loss of an equal amount of yearly revenue from insurers, not to mention the bad publicity and the investor lawsuits, tore a huge hole in Marsh. The two chief executives prior to Duperreault were both fired.

But the recent news from Marsh is good. The insurer reported income of $221 million for the third quarter, compared with a loss the prior year. And Duperreault has said that he is ready to announce acquisitions that will be “relatively small” individually, but “mighty” collectively, before year-end.

The recession “actually helps us,” he told Bloomberg, because “more companies may be willing to join us.”

The Marsh CEO apparently meant it. On November 12 he announced that the company was buying a Houston-based broker for an undisclosed sum. A day later Duperreault turned the page on one of Marsh’s bad memories. He paid more than $400 million to settle a lawsuit by investors who said they’d lost money because Marsh hadn’t disclosed its illegal practices back in 2004, when Spitzer discovered the bid rigging that led to the massive fine the following year.

The criminal aspect of the Marsh case is also winding down. With a mixed record of two convictions and three acquittals, current New York Attorney General Andrew Cuomo reportedly plans to drop charges against the last two Marsh executives accused by Spitzer in the 2004 scandal.

While the criminal cases have been separate from the company, the outcome will help Duperreault breathe a sigh of relief - as he goes gunning for Aon.