Loss making primary broking division fails to hit target for second successive year
Benfield Group has won a £9.5m settlement pay-out from Aon after several members of its facultative solutions team defected to the rival broker.
The UK-based reinsurance broker began legal proceedings against Aon and certain former members of its facultative solutions team in October 2006.
This followed the resignation of 20 employees, including the high-profile departure of the leader of the division Elliot Richardson, who left the company to take over Aon Re Global's cedant facultative reinsurance operations.
Benfield claimed the mass resignations had an adverse impact on the trading profit for the international division in 2006. It expected trading profits to be approximately £10m below the level previously anticipated.
The broker has since begun to rebuild its global facultative team with several appointments, including the former senior vice president of Guy Carpenter, Michael Lazarus.
Under the amicable settlement, Benfield will receive payments over time totalling £9.525m which includes all costs.
Michael O'Halleran, chairman and chief executive of Aon Re Global, said: "We are pleased to have reached a mutually acceptable accord on this matter."
Meanwhile, Benfield's corporate risk division, its primary broking arm, has failed to hit targets for a second successive year. It produced a trading loss for the year of £17.2m, compared to a £9.6m loss in 2005.
The broker admitted that revenue generation was slower than expected and, as a result, it failed to achieve the original break-even objective for 2006. This was despite a 59.6% increase in revenue to £11.4m.
But net costs rose by nearly 70% to £35.4m on the back of increased investment infrastructure, such as staff costs.
Benfield said: "The transfer of marine, energy and power business from other brokers is taking longer than expected, but there were significant new business wins."
The broker added that the division's performance "fell significantly short of the result we had anticipated at the outset, and this had an adverse impact on the overall group trading result". But it "remained committed" to the division's long-term development.
The group's pre-tax profit fell to £53m from £53.8m in the previous year, with reinsurance broking revenue rising by 12.9% to £299.4m.