MANAGING RISK IN A GLOBAL CONTEXT

Managing Risk in a Global Context



Managing Risk in a Global Context

Question 1: Marsh & McLennan Companies (MMC) Risk Contingencies

Marsh & McLennan Companies (NYSE: MMC) is a global professional services holdings company, providing a diversified set of businesses in risk, strategy and human capital. Through its Marsh unit, MMC mainly helps broker insurance deals between insurance companies and their clients, negotiating for the best deal between both sides. The rest of MMC's business lines deal with various types of consulting and risk management services, whereby they provide advice and strategies to help companies achieve certain goals, and receive a fee in doing so. Over the last few years the company has been greatly affected by the stigma of a high-profile legal case regarding bid-rigging, and serious competition from other competitors which has cut into MMC's market share. MMC generates most of its revenue from Marsh through serving as a middle-man between its clients and insurance providers.

Net income for MMC over the past four years has been very variable, as the landscape of the insurance industry has been remodeled due to significant regulatory changes in addition to last year's sale of asset-management company Putnam Investments. This in addition to turnover in senior management has caused the returns for shareholders to be quite volatile. Rumors of the company selling off more of its component parts have sparked interest amongst investors when it comes to future prospects for the company.

MMC's risk consulting and technology segment runs under Kroll and its subsidiaries. Kroll focuses on risk consulting in addition to advisory, restructuring and security services for corporations. Kroll also delivers technology-based security products for various firms. Kroll is unique in the business structure of MMC in that in down economies, the firm may provide advisory and assistance when it comes to restructuring or bond defaults. Further, while the restructuring business involves more typical financial advisory for example that an investment banker might provide, the security services business is a wholly different business in that Kroll provides security operations and management for executives, architectural security services, crisis and kidnap response as well as general intelligence and protective services.

The risk and insurance services segment includes MMC's flagship insurance brokerage company Marsh, risk and reinsurance specialist Guy Carpenter, in addition to MMC's Risk Capital Holdings which owns investments in both private equity funds and financial services and insurance firms.

Marsh is composed of brokers, agents and consultants for various insurance players (such as underwriters and insureds) in the areas of risk management, brokering and insurance program management. Marsh's agents develop relationships with various clients and provide risk analysis when it comes to operations and assets, both in traditional areas such as property coverage and liability exposure and less plain-vanilla risk regarding financial, strategic and planning exposures dealing with employment practices, environmental issues, political risk, etc. These services are of course in addition to the traditional broking that Marsh does in trying to bring together clients and ...