US Insurance Brokers Overweight
Analyst(s): Daniel Farrell / Caroline Steers Dan.Farrell@fpk.com 212-857-6144
Second Quarter 2009 Earnings Preview
• Second quarter fundamentals remain challenged, but longer-term upside potential is meaningful. The
insurance brokers in the second quarter will likely continue to remain challenged by difficult macro
fundamentals including economic weakness (impacting insurance buying and exposures) and lower interest
rates. Additionally, while pricing is improving in certain property lines, casualty pricing was still generally flat to
down in 2Q. These headwinds should be partly offset by ongoing expense reduction efforts and balance sheet
flexibility for most companies to finance capital management and/or acquisitions. Valuations are currently near
historical lows, which should help limit near-term downside risk through 2Q. While near-term fundamentals are
challenging, earnings visibility in 2010 looks more promising, as macro factors likely will not be as much of a
headwind relative to 2009. Given the current attractive valuations and potential solid earnings growth in 2010,
we continue to rate the group Overweight and believe 1-2 year upside is very compelling. Our top pick into
the quarter is Aon (AOC-$38.26-Outperform).
• We are forecasting a 3% average decline in EPS for the group in 2Q. Our estimates for the quarter are
essentially in line with Consensus forecasts. We are $0.01 above consensus for MMC, WSH and AOC, and
$0.01 below consensus for Brown & Brown (BRO-$19.42-In Line) and Arthur J Gallagher (AJG-$21.77-In Line).
For the full years 2009 and 2010 we are estimating 6% and 17% average EPS growth. This compares to
Consensus, which implies 8% and 15% growth for the same time periods. Our 2011 estimates initiated in this
report imply 11% average growth.
• Organic growth will likely be flat to modestly negative for the group. In the second quarter we are
forecasting average organic growth of -1% versus flat organic in the previous quarter. The larger brokers (AOC,
MMC, and WSH) will likely post flat to modestly positive organic given global diversification and exposure to
reinsurance brokerage. We estimate the small brokers (BRO and AJG) will show low to mid-single-digit
declines in organic revenue.
• Our estimates assume modest margin improvement driven by expense initiatives. In the second quarter
we are assuming average margin of 24.2% versus 23.5% in the year-ago period. We are estimating margin
improvement for AOC, Marsh & McLennan (MMC-$19.71-In Line) and Willis Group (WSH-$26.33-In Line) in the
quarter.
• Valuations remain attractive. The insurance broker group is down 11% on average YTD. This compares to
the S&P 500, which is up 3%, and the broader P&C universe, which is down 8% on average. The group is
trading at an average forward 4 Qtr EV to EBITDA multiple of 7.1x, near historical ten-year valuation lows.

TABLE OF CONTENTS
TABLE OF CONTENTS...............................................................................................2
Earnings Forecasts ......................................................................................................3
Revenue Trends...........................................................................................................5
Margin Trends..............................................................................................................8
Balance Sheet..............................................................................................................9
Performance & Valuation ...........................................................................................11
Company Previews and Earnings Models..................................................................16
Aon Corp ...............................................................................................................18
Arthur J. Gallagher ...............................................................................................22
Brown & Brown.....................................................................................................26
Marsh & McLennan...............................................................................................28
Willis Group ..........................................................................................................32