##### Table of Contents

---



SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



FORM 10-Q



QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934



For the quarterly period ended June 30, 2005



Commission File Number 0-15981



HILB ROGAL & HOBBS COMPANY

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Virginia                                                       |  | 54-1194795                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|4951 Lake Brook Drive, Suite 500 Glen Allen, Virginia          |  | 23060                               
|(Address of principal executive offices)                       |  | (Zip Code)                          



(804) 747-6500

(Registrants telephone number, including area code)



Indicate by check mark whether the registrant:    (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.



Yes  x    No ̈



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).



Yes  x    No ̈



Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable
date.



|                           |  |                             
|-------------------------- |  | ----------------------------
|Class                      |  | Outstanding at July 29, 2005
|Common Stock, no par value |  | 35,671,966                  



---



---

##### Table of Contents

HILB ROGAL & HOBBS COMPANY

INDEX



|           |  |                                            |  |                                                                                                   |  |        
|---------- |  | ------------------------------------------ |  | ------------------------------------------------------------------------------------------------- |  | -------
|           |  |                                            |  |                                                                                                   |  | Page   
|Part I.    |  | FINANCIAL INFORMATION                      |  |                                                                                                  
|           |  |                                            | 
|           |  | Item 1.                                    |  | Financial Statements                                                                              |  |        
|           |  |                                            | 
|           |  |                                            |  | Statement of Consolidated Income for the three months and six months ended June 30, 2005 and 2004 |  | 2      
|           |  |                                            | 
|           |  |                                            |  | Consolidated Balance Sheet June 30, 2005 and December 31, 2004                                    |  | 3      
|           |  |                                            | 
|           |  |                                            |  | Statement of Consolidated Shareholders Equity for the six months ended June 30, 2005 and 2004    |  | 4      
|           |  |                                            | 
|           |  |                                            |  | Statement of Consolidated Cash Flows for the six months ended June 30, 2005 and 2004              |  | 5      
|           |  |                                           
|           |  | Notes to Consolidated Financial Statements |  | 6  10                                                                                           
|           |  |                                            | 
|           |  | Item 2.                                    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations             |  | 11  16
|           |  |                                            | 
|           |  | Item 3.                                    |  | Quantitative and Qualitative Disclosures About Market Risk                                        |  | 16     
|           |  |                                            | 
|           |  | Item 4.                                    |  | Controls and Procedures                                                                           |  | 16     
|           |  |                                           
|Part II.   |  | OTHER INFORMATION                          |  |                                                                                                  
|           |  |                                            | 
|           |  | Item 1.                                    |  | Legal Proceedings                                                                                 |  | 17     
|           |  |                                            | 
|           |  | Item 2.                                    |  | Unregistered Sales of Equity Securities and Use of Proceeds                                       |  | 17     
|           |  |                                            | 
|           |  | Item 4.                                    |  | Submission of Matters to a Vote of Security Holders                                               |  | 17     
|           |  |                                            | 
|           |  | Item 6.                                    |  | Exhibits                                                                                          |  | 18     
|           | 
|Signatures |  | 19                                        



1



---

##### Table of Contents

HILB ROGAL & HOBBS COMPANY AND SUBSIDIARIES



STATEMENT OF CONSOLIDATED INCOME

(UNAUDITED)



PART IFINANCIAL INFORMATION



|Item 1. | FINANCIAL STATEMENTS.
|------- | ---------------------



|                                         |  |                            |         |                          |   |         |  |      |         |  |   |        
|---------------------------------------- |  | -------------------------- | ------- | ------------------------ | - | ------- |  | ---- | ------- |  | - | -------
|                                         |  | Three Months EndedJune 30, |         | Six Months EndedJune 30,
|(in thousands, except per share amounts) |  | 2005                       |         | 2004                     |   | 2005    |  | 2004
|REVENUES                                 |  |                            |         |                          |   |         |  |      |         |  |   |        
|Commissions and fees                     |  | $                          | 158,432 |                          | $ | 145,674 |  | $    | 338,689 |  | $ | 302,070
|Investment income                        |  |                            | 1,515   |                          |   | 756     |  |      | 2,588   |  |   | 1,311  
|Other                                    |  |                            | 2,080   |                          |   | 1,325   |  |      | 4,095   |  |   | 2,601  
|                                         |  |                            |         |                          |   |         |  |      |         |  |   |        
|                                         |  |                            | 162,027 |                          |   | 147,755 |  |      | 345,372 |  |   | 305,982
|                                         |  |                            |         |                         
|OPERATING EXPENSES                       |  |                            |         |                          |   |         |  |      |         |  |   |        
|Compensation and employee benefits       |  |                            | 90,195  |                          |   | 79,145  |  |      | 183,855 |  |   | 162,870
|Other operating expenses                 |  |                            | 32,611  |                          |   | 26,411  |  |      | 65,530  |  |   | 51,977 
|Depreciation                             |  |                            | 2,090   |                          |   | 2,074   |  |      | 4,280   |  |   | 4,329  
|Amortization of intangibles              |  |                            | 4,717   |                          |   | 2,852   |  |      | 9,414   |  |   | 5,681  
|Interest expense                         |  |                            | 4,035   |                          |   | 2,385   |  |      | 7,797   |  |   | 4,914  
|Severance charge                         |  |                            | 1,303   |                          |   |        |  |      | 1,303   |  |   |       
|Integration costs                        |  |                            | 764     |                          |   | 636     |  |      | 764     |  |   | 1,627  
|                                         |  |                            |         |                          |   |         |  |      |         |  |   |        
|                                         |  |                            | 135,715 |                          |   | 113,503 |  |      | 272,943 |  |   | 231,398
|                                         |  |                            |         |                          |   |         |  |      |         |  |   |        
|INCOME BEFORE INCOME TAXES               |  |                            | 26,312  |                          |   | 34,252  |  |      | 72,429  |  |   | 74,584 
|                                         |  |                            |         |                         
|Income taxes                             |  |                            | 10,509  |                          |   | 13,748  |  |      | 28,904  |  |   | 29,846 
|                                         |  |                            |         |                          |   |         |  |      |         |  |   |        
|NET INCOME                               |  | $                          | 15,803  |                          | $ | 20,504  |  | $    | 43,525  |  | $ | 44,738 
|                                         |  |                            |         |                          |   |         |  |      |         |  |   |        
|Net Income Per Share:                    |  |                            |         |                          |   |         |  |      |         |  |   |        
|Basic                                    |  | $                          | 0.44    |                          | $ | 0.57    |  | $    | 1.22    |  | $ | 1.25   
|Assuming Dilution                        |  | $                          | 0.44    |                          | $ | 0.56    |  | $    | 1.20    |  | $ | 1.23   



See notes to
consolidated financial statements.



2



---

##### Table of Contents

HILB ROGAL & HOBBS COMPANY AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEET



|                                                                                                          |  |              |           |                  |   |           |  
|--------------------------------------------------------------------------------------------------------- |  | ------------ | --------- | ---------------- | - | --------- | -
|(in thousands)                                                                                            |  | June 30,2005 |           | December 31,2004 |  
|                                                                                                          |  | (UNAUDITED)  |           |                  |  
|ASSETS                                                                                                    |  |              |           |                  |   |           |  
|CURRENT ASSETS                                                                                            |  |              |           |                  |   |           |  
|Cash and cash equivalents, including $60,344 and $55,909, respectively, of restricted funds               |  | $            | 224,697   |                  | $ | 210,470   |  
|Receivables:                                                                                              |  |              |           |                  |   |           |  
|Premiums and commissions, less allowance for doubtful accounts of $4,814 and $4,630, respectively         |  |              | 232,433   |                  |   | 211,299   |  
|Other                                                                                                     |  |              | 26,414    |                  |   | 29,122    |  
|                                                                                                          |  |              |           |                  |   |           |  
|                                                                                                          |  |              | 258,847   |                  |   | 240,421   |  
|Prepaid expenses and other current assets                                                                 |  |              | 17,551    |                  |   | 24,586    |  
|                                                                                                          |  |              |           |                  |   |           |  
|TOTAL CURRENT ASSETS                                                                                      |  |              | 501,095   |                  |   | 475,477   |  
|                                                                                                          |  |             
|PROPERTY AND EQUIPMENT, NET                                                                               |  |              | 25,487    |                  |   | 24,024    |  
|GOODWILL                                                                                                  |  |              | 619,992   |                  |   | 608,427   |  
|OTHER INTANGIBLE ASSETS                                                                                   |  |              | 185,781   |                  |   | 181,289   |  
|Less accumulated amortization                                                                             |  |              | 41,011    |                  |   | 31,774    |  
|                                                                                                          |  |              |           |                  |   |           |  
|                                                                                                          |  |              | 764,762   |                  |   | 757,942   |  
|                                                                                                          |  |             
|OTHER ASSETS                                                                                              |  |              | 24,127    |                  |   | 20,556    |  
|                                                                                                          |  |              |           |                  |   |           |  
|                                                                                                          |  | $            | 1,315,471 |                  | $ | 1,277,999 |  
|                                                                                                          |  |              |           |                  |   |           |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                      |  |              |           |                  |   |           |  
|CURRENT LIABILITIES                                                                                       |  |              |           |                  |   |           |  
|Premiums payable to insurance companies                                                                   |  | $            | 346,446   |                  | $ | 315,130   |  
|Accounts payable                                                                                          |  |              | 13,764    |                  |   | 13,417    |  
|Accrued expenses                                                                                          |  |              | 32,883    |                  |   | 46,371    |  
|Premium deposits and credits due customers                                                                |  |              | 43,590    |                  |   | 48,287    |  
|Current portion of long-term debt                                                                         |  |              | 12,284    |                  |   | 16,248    |  
|                                                                                                          |  |              |           |                  |   |           |  
|TOTAL CURRENT LIABILITIES                                                                                 |  |              | 448,967   |                  |   | 439,453   |  
|LONG-TERM DEBT                                                                                            |  |              | 263,082   |                  |   | 265,384   |  
|                                                                                                          |  |             
|DEFERRED INCOME TAXES                                                                                     |  |              | 36,251    |                  |   | 34,113    |  
|                                                                                                          |  |             
|OTHER LONG-TERM LIABILITIES                                                                               |  |              | 35,585    |                  |   | 31,893    |  
|                                                                                                          |  |             
|SHAREHOLDERS EQUITY                                                                                      |  |              |           |                  |   |           |  
|Common Stock, no par value; authorized 100,000 shares; outstanding 35,671 and 35,886 shares, respectively |  |              | 223,037   |                  |   | 233,785   |  
|Retained earnings                                                                                         |  |              | 307,616   |                  |   | 271,978   |  
|Accumulated other comprehensive income (loss)                                                             |  |              |           |                  |   |           |  
|Unrealized loss on interest rate swaps, net of deferred tax benefit of $0 and $120, respectively          |  |              |          |                  |   | (181      | )
|Foreign currency translation adjustments                                                                  |  |              | 933       |                  |   | 1,574     |  
|                                                                                                          |  |              |           |                  |   |           |  
|                                                                                                          |  |              | 531,586   |                  |   | 507,156   |  
|                                                                                                          |  |              |           |                  |   |           |  
|                                                                                                          |  | $            | 1,315,471 |                  | $ | 1,277,999 |  
|                                                                                                          |  |              |           |                  |   |           |  



See notes to
consolidated financial statements.



3



---

##### Table of Contents

HILB ROGAL & HOBBS COMPANY AND SUBSIDIARIES



STATEMENT OF CONSOLIDATED SHAREHOLDERS EQUITY

(UNAUDITED)



|                                                  |  |             |         |   |                  |   |         |                                            |  |   |       |  
|------------------------------------------------- |  | ----------- | ------- | - | ---------------- | - | ------- | ------------------------------------------ |  | - | ----- | -
|(in thousands, except per share amounts)          |  | CommonStock |         |   | RetainedEarnings |   |         | AccumulatedOtherComprehensiveIncome (Loss) | 
|Balance at January 1, 2005                        |  | $           | 233,785 |   |                  | $ | 271,978 |                                            |  | $ | 1,393 |  
|Issuance of 398 shares of Common Stock            |  |             | 9,635   |   |                  |   |         |                                            |  |   |       |  
|Repurchase of 613 shares of Common Stock          |  |             | (21,848 | ) |                  |   |         |                                            |  |   |       |  
|Income tax benefit from exercise of stock options |  |             | 1,465   |   |                  |   |         |                                            |  |   |       |  
|Payment of dividends ($0.22 per share)            |  |             |         |   |                  |   | (7,887  | )                                          |  |   |       |  
|Derivative gain, net of tax                       |  |             |         |   |                  |   |         |                                            |  |   | 181   |  
|Foreign currency translation adjustments          |  |             |         |   |                  |   |         |                                            |  |   | (641  | )
|Net income                                        |  |             |         |   |                  |   | 43,525  |                                            |  |   |       |  
|                                                  |  |             |         |   |                  |   |         |                                            |  |   |       |  
|Balance at June 30, 2005                          |  | $           | 223,037 |   |                  | $ | 307,616 |                                            |  | $ | 933   |  
|                                                  |  |             |         |   |                  |   |         |                                            |  |   |       |  
|Balance at January 1, 2004                        |  | $           | 228,357 |   |                  | $ | 205,184 |                                            |  | $ | 726   |  
|Issuance of 698 shares of Common Stock            |  |             | 9,765   |   |                  |   |         |                                            |  |   |       |  
|Repurchase of 233 shares of Common Stock          |  |             | (8,331  | ) |                  |   |         |                                            |  |   |       |  
|Income tax benefit from exercise of stock options |  |             | 5,812   |   |                  |   |         |                                            |  |   |       |  
|Payment of dividends ($0.1975 per share)          |  |             |         |   |                  |   | (7,081  | )                                          |  |   |       |  
|Derivative gain, net of tax                       |  |             |         |   |                  |   |         |                                            |  |   | 502   |  
|Foreign currency translation adjustments          |  |             |         |   |                  |   |         |                                            |  |   | 34    |  
|Net income                                        |  |             |         |   |                  |   | 44,738  |                                            |  |   |       |  
|                                                  |  |             |         |   |                  |   |         |                                            |  |   |       |  
|Balance at June 30, 2004                          |  | $           | 235,603 |   |                  | $ | 242,841 |                                            |  | $ | 1,262 |  
|                                                  |  |             |         |   |                  |   |         |                                            |  |   |       |  



See notes to
consolidated financial statements.



4



---

##### Table of Contents

HILB ROGAL & HOBBS COMPANY AND SUBSIDIARIES



STATEMENT OF CONSOLIDATED CASH FLOWS

(UNAUDITED)



|                                                                                                                                                        |  |                           |         |   |      |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                                                                        |  | Six Months Ended June 30, |        
|(in thousands)                                                                                                                                          |  | 2005                      |         |   | 2004 |  
|OPERATING ACTIVITIES                                                                                                                                    |  |                           |         |   |      |   |         |  
|Net income                                                                                                                                              |  | $                         | 43,525  |   |      | $ | 44,738  |  
|Adjustments to reconcile net income to net cash provided by operating activities:                                                                       |  |                           |         |   |      |   |         |  
|Severance charge                                                                                                                                        |  |                           | 1,303   |   |      |   |        |  
|Integration costs                                                                                                                                       |  |                           | 764     |   |      |   | 1,627   |  
|Depreciation                                                                                                                                            |  |                           | 4,280   |   |      |   | 4,329   |  
|Amortization of intangibles                                                                                                                             |  |                           | 9,414   |   |      |   | 5,681   |  
|Provision for losses on receivables                                                                                                                     |  |                           | 598     |   |      |   | 543     |  
|Provision for deferred income taxes                                                                                                                     |  |                           | 2,044   |   |      |   | 950     |  
|Gain on sale of assets                                                                                                                                  |  |                           | (1,891  | ) |      |   | (475    | )
|Income tax benefit from exercise of stock options                                                                                                       |  |                           | 1,465   |   |      |   | 5,812   |  
|Changes in operating assets and liabilities net of effects from severance charge, integration costs and insurance agency acquisitions and
dispositions: |  |                           |         |   |      |   |         |  
|(Increase) decrease in receivables                                                                                                                      |  |                           | (16,263 | ) |      |   | 18,773  |  
|Decrease in prepaid expenses                                                                                                                            |  |                           | 7,041   |   |      |   | 947     |  
|Increase (decrease) in premiums payable to insurance companies                                                                                          |  |                           | 29,062  |   |      |   | (15,926 | )
|Increase (decrease) in premium deposits and credits due customers                                                                                       |  |                           | (4,696  | ) |      |   | 9,154   |  
|Decrease in accounts payable                                                                                                                            |  |                           | (568    | ) |      |   | (664    | )
|Decrease in accrued expenses                                                                                                                            |  |                           | (14,273 | ) |      |   | (8,913  | )
|Other operating activities                                                                                                                              |  |                           | (293    | ) |      |   | (730    | )
|                                                                                                                                                        |  |                           |         |   |      |   |         |  
|Net Cash Provided by Operating Activities                                                                                                               |  |                           | 61,512  |   |      |   | 65,846  |  
|                                                                                                                                                        |  |                          
|INVESTING ACTIVITIES                                                                                                                                    |  |                           |         |   |      |   |         |  
|Purchase of property and equipment                                                                                                                      |  |                           | (5,685  | ) |      |   | (5,053  | )
|Purchase of insurance agencies, net of cash acquired                                                                                                    |  |                           | (11,570 | ) |      |   | (12,935 | )
|Proceeds from sale of assets                                                                                                                            |  |                           | 3,802   |   |      |   | 3,335   |  
|Other investing activities                                                                                                                              |  |                           | 226     |   |      |   | (912    | )
|                                                                                                                                                        |  |                           |         |   |      |   |         |  
|Net Cash Used in Investing Activities                                                                                                                   |  |                           | (13,227 | ) |      |   | (15,565 | )
|                                                                                                                                                        |  |                          
|FINANCING ACTIVITIES                                                                                                                                    |  |                           |         |   |      |   |         |  
|Proceeds from long-term debt                                                                                                                            |  |                           |        |   |      |   | 10,000  |  
|Principal payments on long-term debt                                                                                                                    |  |                           | (6,613  | ) |      |   | (4,663  | )
|Debt issuance costs                                                                                                                                     |  |                           |        |   |      |   | (300    | )
|Repurchase of Common Stock                                                                                                                              |  |                           | (21,848 | ) |      |   | (8,331  | )
|Proceeds from issuance of Common Stock, net of tax payments for options exercised                                                                       |  |                           | 2,290   |   |      |   | (1,721  | )
|Dividends                                                                                                                                               |  |                           | (7,887  | ) |      |   | (7,081  | )
|                                                                                                                                                        |  |                           |         |   |      |   |         |  
|Net Cash Used in Financing Activities                                                                                                                   |  |                           | (34,058 | ) |      |   | (12,096 | )
|                                                                                                                                                        |  |                           |         |   |      |   |         |  
|Increase in cash and cash equivalents                                                                                                                   |  |                           | 14,227  |   |      |   | 38,185  |  
|Cash and cash equivalents at beginning of period                                                                                                        |  |                           | 210,470 |   |      |   | 126,464 |  
|                                                                                                                                                        |  |                           |         |   |      |   |         |  
|Cash and cash equivalents at End of Period                                                                                                              |  | $                         | 224,697 |   |      | $ | 164,649 |  
|                                                                                                                                                        |  |                           |         |   |      |   |         |  



See notes to
consolidated financial statements.



5



---

##### Table of Contents

HILB ROGAL & HOBBS COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2005

(UNAUDITED)



NOTE ABASIS OF PRESENTATION



The accompanying unaudited consolidated financial statements of Hilb Rogal & Hobbs Company (the Company) have been prepared in accordance with United
States generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by United
States generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating
results for the six-month period ended June 30, 2005, are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. For further information, refer to the consolidated financial statements and footnotes
thereto included in the Companys Form 10-K for the year ended December 31, 2004.



NOTE BACCOUNTING FOR STOCK-BASED COMPENSATION



The Company has three stock-based compensation plans. The Company continues to account for its stock options using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. No stock-based compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant.



Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (Statement 123), as amended by Statement of Financial Accounting Standards No. 148, establishes accounting and disclosure requirements using a fair value based method of accounting for stock
options.



In December 2004, the Financial Accounting Standards
Board issued Financial Accounting Standards Board Statement No. 123 (revised 2004), Share-Based Payment (Statement 123R). Statement 123R revises Statement 123. The revised standard requires all companies to recognize compensation costs
related to all share-based payments (including stock options) in their financial statements at fair value, thereby, upon adoption, eliminating the use of pro forma disclosures to report such amounts. In April 2005, the Securities and Exchange
Commission issued a rule to amend the effective date of Statement 123R. Statement 123R is effective for a public company that is not a small business issuer at the beginning of the first fiscal year beginning after June 15, 2005.



Statement 123R permits public companies to account for the adoption of this
revised standard using one of two methods: the modified-prospective method or the modified-retrospective method. The modified-prospective method requires a company to recognize compensation based upon fair value for only those share-based awards
granted with an effective date subsequent to the companys date of adoption and share-based awards issued in prior periods that remain unvested at the date of adoption. The modified-retrospective method allows a company to restate, based upon
pro forma amounts previously disclosed under the requirements of Statement 123, for either all prior periods presented or prior interim periods included in the year of adoption.



The Company intends to adopt Statement 123R no later than January 1, 2006, but has yet to determine which of the two methods
described above will be utilized. The Company continues to evaluate the impact of this proposed statement on its financial position and results of operations.



6



---

##### Table of Contents

HILB ROGAL & HOBBS COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

June 30, 2005

(UNAUDITED)



The following table illustrates the effect on net income and earnings per share if the Company had
applied the fair value recognition provisions of Statement 123 to stock-based compensation.



|                                                                                                                                   |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | ------ | - | ------------------------ | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                                                                                   |  | Three Months EndedJune 30, |        |   | Six Months EndedJune 30, |  
|(in thousands, except per share amounts)                                                                                           |  | 2005                       |        |   | 2004                     |   |        | 2005 |  |   | 2004   |  
|Net incomeas reported                                                                                                             |  | $                          | 15,803 |   |                          | $ | 20,504 |      |  | $ | 43,525 |   |  | $ | 44,738 |  
|Deduct: Total stock-based compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                            | (1,474 | ) |                          |   | (1,453 | )    |  |   | (2,705 | ) |  |   | (2,656 | )
|                                                                                                                                   |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Pro forma net income                                                                                                               |  | $                          | 14,329 |   |                          | $ | 19,051 |      |  | $ | 40,820 |   |  | $ | 42,082 |  
|                                                                                                                                   |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Net income per share:                                                                                                              |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Basicas reported                                                                                                                  |  | $                          | 0.44   |   |                          | $ | 0.57   |      |  | $ | 1.22   |   |  | $ | 1.25   |  
|Basicpro forma                                                                                                                    |  | $                          | 0.40   |   |                          | $ | 0.53   |      |  | $ | 1.14   |   |  | $ | 1.18   |  
|                                                                                                                                   |  |                            |        |  
|Assuming dilutionas reported                                                                                                      |  | $                          | 0.44   |   |                          | $ | 0.56   |      |  | $ | 1.20   |   |  | $ | 1.23   |  
|Assuming dilutionpro forma                                                                                                        |  | $                          | 0.40   |   |                          | $ | 0.52   |      |  | $ | 1.12   |   |  | $ | 1.15   |  



NOTE CINCOME TAXES



Deferred taxes result from temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Companys effective rate varies from the statutory rate primarily due to state income taxes.



NOTE DACQUISITIONS



During the first six months of 2005, the Company acquired certain assets and
liabilities of three insurance agencies. These acquisitions are not material to the consolidated financial statements individually or in aggregate.



NOTE ESALE OF ASSETS AND OTHER GAINS



During the six months ended June 30, 2005 and 2004, the Company sold certain insurance accounts and other assets resulting in gains of $1.9 million and
$0.5 million, respectively. These amounts are included in other revenues in the Statement of Consolidated Income. Taxes related to these gains were $0.8 million and $0.2 million for the six months ended June 30, 2005 and 2004, respectively.
Revenues, expenses and assets related to these dispositions were not material to the consolidated financial statements.



7



---

##### Table of Contents

HILB ROGAL & HOBBS COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

June 30, 2005

(UNAUDITED)



NOTE FNET INCOME PER SHARE



The following table sets forth the computation of basic and diluted net income per share:



|                                                                                       |  |                            |        |                          |   |        |  |      |        |  |   |       
|-------------------------------------------------------------------------------------- |  | -------------------------- | ------ | ------------------------ | - | ------ |  | ---- | ------ |  | - | ------
|                                                                                       |  | Three Months EndedJune 30, |        | Six Months EndedJune 30,
|(in thousands, except per share amounts)                                               |  | 2005                       |        | 2004                     |   | 2005   |  | 2004
|Numerator for basic and dilutive net income per share                                  |  |                            |        |                          |   |        |  |      |        |  |   |       
|Net Income                                                                             |  | $                          | 15,803 |                          | $ | 20,504 |  | $    | 43,525 |  | $ | 44,738
|                                                                                       |  |                            |        |                         
|Denominator                                                                            |  |                            |        |                          |   |        |  |      |        |  |   |       
|Weighted average shares                                                                |  |                            | 35,366 |                          |   | 35,677 |  |      | 35,519 |  |   | 35,507
|Effect of guaranteed future shares to be issued in connection with agency acquisitions |  |                            | 248    |                          |   | 244    |  |      | 278    |  |   | 247   
|                                                                                       |  |                            |        |                          |   |        |  |      |        |  |   |       
|Denominator for basic net income per share                                             |  |                            | 35,614 |                          |   | 35,921 |  |      | 35,797 |  |   | 35,754
|Effect of dilutive securities:                                                         |  |                            |        |                          |   |        |  |      |        |  |   |       
|Employee stock options                                                                 |  |                            | 293    |                          |   | 423    |  |      | 301    |  |   | 479   
|Employee non-vested stock                                                              |  |                            | 133    |                          |   | 116    |  |      | 135    |  |   | 119   
|Contingent stockacquisitions                                                          |  |                            | 98     |                          |   | 124    |  |      | 91     |  |   | 108   
|                                                                                       |  |                            |        |                          |   |        |  |      |        |  |   |       
|Dilutive potential common shares                                                       |  |                            | 524    |                          |   | 663    |  |      | 527    |  |   | 706   
|                                                                                       |  |                            |        |                          |   |        |  |      |        |  |   |       
|Denominator for diluted net income per shareadjusted weighted average shares          |  |                            | 36,138 |                          |   | 36,584 |  |      | 36,324 |  |   | 36,460
|                                                                                       |  |                            |        |                          |   |        |  |      |        |  |   |       
|Net Income Per Share:                                                                  |  |                            |        |                          |   |        |  |      |        |  |   |       
|Basic                                                                                  |  | $                          | 0.44   |                          | $ | 0.57   |  | $    | 1.22   |  | $ | 1.25  
|Assuming Dilution                                                                      |  | $                          | 0.44   |                          | $ | 0.56   |  | $    | 1.20   |  | $ | 1.23  



NOTE GSEVERANCE CHARGE



In May 2005, Robert B. Lockhart, the Companys
former President and Chief Operating Officer, resigned. In connection with Mr. Lockharts resignation, the Company recorded a severance charge of $1.3 million, and related income tax benefit of $0.5 million, representing estimated payments due
to Mr. Lockhart under the terms of his employment agreement.



NOTE
HINTEGRATION COSTS



The Company began the
integration of Hobbs Group, LLC (Hobbs) with the rest of the Company subsequent to June 30, 2003 with the completion of the Hobbs earn-out. The Company recognized integration costs of $0.8 million and $1.6 million and related income tax benefit of
$0.3 million and $0.6 million for the first six months of 2005 and 2004, respectively. These amounts represent costs such as severance and other employee-related costs, facility and lease termination costs, and branding expenses.



NOTE ICOMMITMENTS AND CONTINGENCIES



Industry Litigation



The Company has been named as a defendant in certain legal proceedings
against brokers and insurers relating to broker compensation arrangements and other business practices.



8



---

##### Table of Contents

HILB ROGAL & HOBBS COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

June 30, 2005

(UNAUDITED)



In August 2004, OptiCare Health Systems Inc. filed a putative class action suit in the U.S. District
Court for the Southern District of New York (Case No. 04-CV-06954) against a number of the countrys largest insurance brokers and several large commercial insurers. The Company was named as a defendant in the Opticare suit in November
2004. In December 2004, two other purported class action suits were filed in the U.S. District Court for the Northern District of Illinois, Eastern Division, by Stephen Lewis (Case No. 04-C-7847) and Diane Preuss (Case No. 04-C-7853),
respectively, against certain insurance brokers, including the Company, and several large commercial insurers. On February 17, 2005, the Judicial Panel on Multidistrict Litigation (the Panel) ordered that the Opticare suit, along with three
other purported antitrust class actions filed in New York, New Jersey and Pennsylvania against industry participants, be centralized and transferred to the U.S. District Court for the District of New Jersey. In addition, by Conditional Transfer
Order dated March 10, 2005, the Panel conditionally transferred the Lewis and Preuss cases to the U.S. District Court for the District of New Jersey. As a result of the Panels transfer orders, the Opticare, Lewis and Preuss cases are
proceeding on a consolidated basis with other purported class action suits styled as In re: Insurance Brokerage Antitrust Litigation (MDL 1663).



On August 1, 2005, the plaintiffs in MDL 1663 filed a First Consolidated Amended Commercial Class Action Complaint (the Commercial Complaint) in the
United States District Court for the District of New Jersey (Civil No. 04-5184) against the Company and certain other insurance brokers and insurers. In the Commercial Complaint, the named plaintiffs purport to represent a class consisting of
all persons who, between August 26, 1994 and the date on which class certification may occur, engaged the services of any one of the broker defendants or any of their subsidiaries or affiliates to obtain advice with respect to the procurement
or renewal of insurance and who entered into or renewed a contract of insurance with one of the insurer defendants. The plaintiffs allege in the Commercial Complaint, among other things, that the broker defendants engaged in improper steering of
clients to the insurer defendants for the purpose of obtaining undisclosed additional compensation in the form of contingent commissions from insurers; that the defendants were engaged in a bid-rigging scheme involving the submission of false and/or
inflated bids from insurers to clients; that the broker defendants improperly placed their clients insurance business with insurers through related wholesale entities where an intermediary was unnecessary for the purpose of generating
additional commissions from insurers; that the broker defendants entered into unlawful tying arrangements to obtain reinsurance business from the defendant insurers; and that the defendants created centralized internal departments for the purpose of
monitoring, facilitating and advancing the collection of contingent commissions, payments and other improper fees. The plaintiffs allege violations of federal and state antitrust laws, violations of the Racketeer Influenced and Corrupt Organizations
Act, 18 U.S.C. § 1962(c) and (d), fraudulent misrepresentation, breach of fiduciary duty, aiding and abetting breach of fiduciary duty and unjust enrichment. The plaintiff seeks monetary relief, including treble damages, injunctive and
declaratory relief, restitution, interest, attorneys fees and expenses, costs and other relief. The Company has not yet filed a responsive pleading in this case but believes it has substantial defenses to these claims and intends to defend
itself vigorously.



In addition, the plaintiffs in MDL 1663
also filed on August 1, 2005 a First Consolidated Amended Employee Benefits Class Action Complaint (the Employee Benefits Complaint) in the United States District Court for the District of New Jersey against the Company and certain other
insurance brokers and insurers. In the Employee Benefits Complaint (Civil Nos. 04-5184, et al.), the named plaintiffs purport to represent two separate classes consisting of ERISA and non-ERISA plan employees and employers, respectively, that have
acquired insurance products from the defendants in connection with an employee benefit plan between August 26, 1994 and the date on which class certification may occur. The plaintiffs allege in the Employee Benefits Complaint, among other
things, that the broker defendants secretly conspired with the insurer defendants to steer plaintiffs and members of the classes to the insurer defendants in exchange for undisclosed fees, including communication fees, enrollment fees, service fees,
finders fees and/or administrative fees, contingent commissions and other payments, including broker bonuses, trips and entertainment, from the insurer defendants; that the defendants



9



---

##### Table of Contents

HILB ROGAL & HOBBS COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

June 30, 2005

(UNAUDITED)



were engaged in a bid-rigging scheme involving the submission of false and/or inflated bids from insurers to clients; that the broker defendants improperly
placed their clients insurance business with insurers through related wholesale entities where an intermediary was unnecessary for the purpose of generating additional commissions from insurers; and that the defendants entered into unlawful
tying arrangements under which the broker defendants would place primary insurance contracts with insurers on the condition that the insurers use the broker defendants for placing their reinsurance coverage with reinsurance carriers. The plaintiffs
allege violations of federal and state antitrust laws, violations of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1962(c) and (d), fraudulent misrepresentation, breach of fiduciary duty, aiding and abetting breach of
fiduciary duty and unjust enrichment. The plaintiff seeks monetary relief, including treble and punitive damages, injunctive and declaratory relief, restitution, interest, attorneys fees and expenses, costs and other relief. The Company has
not yet filed a responsive pleading in this case but believes it has substantial defenses to these claims and intends to defend itself vigorously.



In May 2005, Bensley Construction, Inc. filed a putative class action suit in the Superior Court of the Commonwealth of Massachusetts (Case No.
ESCV2005-00277) against the Company and certain large commercial insurers and brokers. In the amended complaint, the plaintiff alleges, among other things, that the broker defendants entered into contingent commission agreements with the insurer
defendants without disclosing the existence and/or terms of the agreements to clients to whom the defendants owed a fiduciary duty and that certain of the defendants engaged in a bid-rigging and customer allocation scheme to maximize their revenues
under the contingent commission agreements. The plaintiff alleges breach of fiduciary duty, unjust enrichment, aiding and abetting breaches of fiduciary duty, breach of contract and breach of implied covenant of good faith and fair dealing. The
plaintiff seeks monetary damages for each member of the class in an amount not to exceed $74,999 per class member, costs and other relief. The defendants removed the case to federal court and filed a notice to transfer the case to the U.S. District
Court for the District of New Jersey pursuant to the Panel order referred to above. The Company believes it has substantial defenses to these claims and intends to defend itself vigorously.



Securities Class Action Suit



In June 2005, the Iron Workers Local 16 Pension Fund filed a putative class
action suit in the United States District Court for the Eastern District of Virginia (Case No. 1:05-CV-00735-GBL-TCB) against the Company and Andrew L. Rogal, Martin L. Vaughan, III, Timothy J. Korman, Carolyn Jones, Robert W. Blanton, Jr. and
Robert B. Lockhart. Each of the individual defendants is a current or former officer and/or director of the Company. In the complaint, the plaintiff alleges, among other things, that the defendants made false and misleading statements to the public
in the Companys filings with the Securities and Exchange Commission, press releases and other public statements between February 14, 2002 and May 26, 2005 by failing to disclose that the Companys contingent and override commissions were
designed to allow the Company to steer its flow of business to those insurance carriers that agreed to pay it such commissions; that the Companys business practices were in direct conflict of interest with its customers and were fraudulent and
illegal; and that the Companys financial results were materially inflated as a result of the recognition of improper commissions as revenues. The complaint further alleges that the individual defendants were able to and did control the content
of the Companys public statements as a result of their positions as officers and/or directors of the Company. The plaintiff alleges violations by each of the defendants of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder and violations by the individual defendants of Section 20(a) of the Securities Exchange Act of 1934. The plaintiff seeks monetary damages, interest, costs, legal fees and other relief. The Company has not been served with the
complaint. The Company believes it has substantial defenses to these claims and intends to defend itself vigorously.



10



---

##### Table of Contents

|Item 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|------- | --------------------------------------------------------------------------------------



In May 2005, Robert B. Lockhart, the Companys former President and Chief Operating Officer, resigned. The Company has
not announced any information regarding the appointment of a successor for Mr. Lockhart.



In April 2005, the Company announced that Carolyn Jones, the Companys Senior Vice President, Chief Financial Officer and Treasurer, will retire from her position. She will remain in her current position until
the appointment of her successor, and thereafter is expected to provide support, as needed, for a smooth transition. The Company has a search in progress to retain a Chief Financial Officer and Treasurer.



Results of Operations



Three Months Ended June 30, 2005



Net income for the three months ended June 30, 2005 was $15.8 million, or
$0.44 per share, compared with $20.5 million, or $0.56 per share, for the comparable period last year. Net income for the 2005 quarter included a severance charge, net of tax, of $0.8 million, or $0.02 per share, and integration costs, net of tax,
of $0.5 million, or $0.01 per share. Net income for the 2004 quarter included integration costs, net of tax, of $0.4 million, or $0.01 per share. The severance charge represents estimated payments due to the Companys former President and Chief
Operating Officer under the terms of his employment agreement. Integration costs relate to the continued integration of Hobbs. These represent costs such as severance and other employee-related costs, facility and lease termination costs, and
branding expenses. In addition, non-operating gains, net of tax, were $0.5 million, or $0.01 per share, for the 2005 quarter compared to non-operating gains, net of tax, of $47 thousand for the 2004 quarter.



Commissions and fees were $158.4 million, an increase of 8.8%, from
commissions and fees of $145.7 million during the comparable period of the prior year. Approximately $18.9 million of the commissions was derived from acquisitions of new insurance agencies in 2005 and 2004. This increase was offset by decreases of
approximately $2.2 million from the sale of certain offices and accounts in 2005 and 2004. Excluding the effect of acquisitions and divestitures, commissions and fees decreased 2.7%. This decrease principally reflects a declining premium rate
environment, decreased same-store contingent and override commissions including the elimination of override commissions, producer culling, and timing of renewals partially offset by new business production.



Expenses for the quarter increased $22.2 million, or 19.6%. The 2005 quarter
includes a severance charge of $1.3 million. Integration costs increased $0.1 million. Compensation and benefits and other operating expenses increased $11.1 million and $6.2 million, respectively. Compensation and benefits increased primarily due
to acquisitions of insurance agencies and continued investment in new sales and service talent. Other operating expenses increased mainly due to increased legal and claims expenditures and acquisitions. Legal and claims expenditures increased $3.4
million due primarily to various regulatory inquiries and the protection of restrictive covenants in employment contracts. The $3.4 million increase is net of $4.2 million in insurance recoveries on contested claims.



Depreciation expense was relatively comparable to the prior year.
Amortization of intangibles increased approximately $1.9 million due primarily to intangible assets acquired in 2005 and 2004 acquisitions. Interest expense increased $1.7 million as average borrowings and interest rates increased between the
quarters.



The Companys overall tax rates for the
quarters ended June 30, 2005 and 2004, respectively, were 39.9% and 40.1%.



Six Months Ended June 30, 2005



Net income for
the six months ended June 30, 2005 increased to $43.5 million, or $1.20 per share, from $44.7 million, or $1.23 per share, for the prior year period. Net income for the six-month period ended June 30,



11



---

##### Table of Contents

2005, included a severance charge, net of tax, of $0.8 million, or $0.02 per share, and integration costs, net of tax, of $0.5 million, or $0.01 per share.
Net income for the six months ended June 30, 2004 included integration costs, net of tax, of $1.0 million, or $0.03 per share. The severance charge and integration costs are consistent with those noted for the second quarter. In addition,
non-operating gains, net of tax, were $1.1 million, or $0.03 per share, and $0.3 million, or $0.01 per share, for the six months ended June 30, 2005 and 2004, respectively.



Commissions and fees for the first six months of 2005 increased 12.1% to $338.7 million from $302.1 million during the prior
year period. Acquisitions of new insurance agencies in 2005 and 2004 contributed commissions of approximately $45.1 million. This increase was offset by decreases of approximately $4.9 million from the sale of certain offices and accounts in 2005
and 2004. Excluding the effect of acquisitions and divestitures, commissions and fees decreased 1.2%. This decrease principally reflects the same factors noted for the quarter.



Expenses for the six months ended June 30, 2005 increased $41.5 million, or 18.0%, from the prior year period. For the 2005
six-month period, expenses include a severance charge of $1.3 million. Integration costs decreased $0.9 million from the six-month period of 2004. Other increases from the prior year were $21.0 million in compensation and benefits and $13.6 million
in other operating expenses. Compensation and benefits increased primarily due to acquisitions of insurance agencies and continued investment in new sales and service talent. Other operating expenses increased mainly due to increased legal,
compliance and claims expenses and acquisitions. Legal, compliance and claims expenditures increased $8.3 million due primarily to the same factors noted for the quarter as well as expenditures for compliance with Section 404 of the Sarbanes-Oxley
Act. The $8.3 million increase is net of $4.2 million in insurance recoveries on contested claims. As part of its response to regulatory inquiries and other proceedings related to industry business practices and compensation arrangements, the
Company expects to continue to incur additional legal and compliance costs in 2005.



Depreciation expense was comparable to the prior year. Amortization of intangibles increased approximately $3.7 million due primarily to intangible assets acquired in 2005 and 2004 acquisitions. Interest expense
increased $2.9 million as average borrowings and interest rates increased compared to the same period in the prior year.



The Companys overall tax rates for the six months ended June 30, 2005 and 2004, respectively, were 39.9% and 40.0%.



Other



For the three months ended June 30, 2005, net income as a percentage of revenues declined from the three months ended March
31, 2005. Commission income was higher during the three months ended March 31, 2005 due to the continued decline in premium rates, the elimination of override commissions, and higher contingent commissions, the majority of which are historically
received during the first quarter.



The timing of contingent
commissions, policy renewals and acquisitions may cause revenues, expenses and net income to vary significantly from quarter to quarter. As a result of the factors described above, operating results for the six months ended June 30, 2005 should not
be considered indicative of the results that may be expected for the entire year ending December 31, 2005.



Liquidity and Capital Resources



Net cash provided by operations totaled $61.5 million and $65.8 million for the six months ended June 30, 2005 and 2004, respectively, and is primarily dependent upon the timing of the collection of insurance premiums
from clients and payment of those premiums to the appropriate insurance underwriters.



12



---

##### Table of Contents

The Company has historically generated sufficient funds internally to finance capital expenditures. Cash
expenditures for the acquisition of property and equipment were $5.7 million and $5.1 million for the six months ended June 30, 2005 and 2004, respectively. The purchase of insurance agencies utilized cash of $11.6 million and $12.9 million in the
six months ended June 30, 2005 and 2004, respectively. Cash expenditures for such insurance agency acquisitions have been primarily funded through operations and long-term borrowings. In addition, a portion of the purchase price in such acquisitions
may be paid through the Companys Common Stock and/or deferred cash and Common Stock payments. The Company did not have any material capital expenditure commitments as of June 30, 2005.



Financing activities utilized cash of $34.1 million and $12.1 million in the
six months ended June 30, 2005 and 2004, respectively, as the Company repurchased Common Stock and made dividend and debt payments. The Company has annually increased its dividend rate and anticipates the continuance of its dividend policy. The
Company repurchased 612,800 shares of its Common Stock for $21.8 million during the six months ended June 30, 2005. The Company is currently authorized to purchase up to $50.0 million annually of its Common Stock subject to market conditions and
other factors.



As of June 30, 2005, the Company has a credit
agreement with outstanding term loans of $246.5 million which are due in various amounts through 2011, and no outstanding revolving credit facility borrowings with $174.7 million available under the revolving credit facility for future borrowings.
Borrowings bear interest at variable rates based on LIBOR plus a negotiated spread.



The Company had a current ratio (current assets to current liabilities) of 1.12 to 1.00 as of June 30, 2005. Shareholders equity of $531.6 million at June 30, 2005, improved from $507.2 million at December 31,
2004. The debt to equity ratio at June 30, 2005 of 0.49 to 1.00 is decreased from the ratio at December 31, 2004 of 0.52 to 1.00 due to net income and the issuance of Common Stock partially offset by share repurchases.



The Company believes that cash generated from operations, together with
proceeds from borrowings, will provide sufficient funds to meet the Companys short and long-term funding needs.



Market Risk



The Company has variable rate debt, maintains certain investments and utilizes derivative financial instruments (on a limited basis) which are subject to
market risk; however, the Company believes that exposure to market risk associated with these instruments is not material.



New Accounting Standards



In December 2004, the Financial Accounting Standards Board issued Financial Accounting Standards Board Statement No. 123 (revised 2004), Share-Based
Payment (Statement 123R). Statement 123R revises Statement 123. The revised standard requires all companies to recognize compensation costs related to all share-based payments (including stock options) in their financial statements at fair
value, thereby, upon adoption, eliminating the use of pro forma disclosures to report such amounts. In April 2005, the Securities and Exchange Commission issued a rule to amend the effective date of Statement 123R. Statement 123R is effective for a
public company that is not a small business issuer at the beginning of the first fiscal year beginning after June 15, 2005.



Statement 123R permits public companies to account for the adoption of this revised standard using one of two methods: the modified-prospective method or
the modified-retrospective method. The modified-prospective method requires a company to recognize compensation based upon fair value for only those share-based awards granted with an effective date subsequent to the companys date of adoption
and share-based awards issued in prior periods that remain unvested at the date of adoption. The modified-retrospective method allows a company to restate, based upon pro forma amounts previously disclosed under the requirements of Statement 123,
for either all prior periods presented or prior interim periods included in the year of adoption.



13



---

##### Table of Contents

The Company intends to adopt Statement 123R no later than January 1, 2006, but has yet to determine which
of the two methods described above will be utilized. The Company continues to evaluate the impact of this proposed statement on its financial position and results of operations.



Recent Industry Developments



On October 14, 2004, the Office of the Attorney General of the State of New York (NYAG) filed a lawsuit against Marsh & McLennan Companies, Inc. and
its subsidiary Marsh Inc. (collectively Marsh), the worlds largest insurance broker, alleging statutory and common law fraud, securities fraud, bid-rigging and other antitrust violations in the placement of insurance business. On March 4,
2005, the NYAG filed a lawsuit against Aon Corporation (Aon), the worlds second largest insurance broker, alleging fraudulent business practices, common law fraud and securities fraud in connection with the conduct of its placement of
insurance business. Marsh and Aon have each announced settlement agreements with the NYAG and certain state regulators. On April 8, 2005, Willis Group Holdings Limited, Willis North America Inc. and Willis of New York, Inc. (collectively Willis)
entered into an agreement with the NYAG and the New York state insurance regulator to resolve issues related to investigations of business practices conducted by the NYAG and the state regulator. On May 18, 2005, Arthur J. Gallagher & Co. and
its subsidiaries and affiliates, except for Gallagher Bassett Services, Inc., (collectively Gallagher), entered into an Assurance of Voluntary Compliance with the Attorney General of the State of Illinois and the Illinois state insurance regulator
to resolve issues related to investigations of business practices conducted by the Illinois regulators.



Under the terms of the agreements, Marsh, Aon, Willis and Gallagher are required to establish settlement funds in the amounts of $850 million, $190
million, $50 million and $27 million, respectively, to compensate certain policyholder clients who retained Marsh, Aon, Willis or Gallagher to place insurance between specified inception or renewal dates, where such policies resulted in Marsh, Aon,
Willis and Gallagher recording contingent or override commissions. The Marsh, Aon, Willis and Gallagher agreements also place restrictions on the future business practices of these companies. Marsh, Aon, Willis and Gallagher may no longer accept (i)
any contingent compensation for certain services in placing, renewing, consulting on or servicing any insurance policy and (ii) any compensation other than a specific fee to be paid by the client, a specific percentage commission on premiums to be
paid by the insurer set at the time of the purchase, renewal, placement or servicing of the policy, or both types of compensation. If Marsh, Aon or Willis receives any commission, it must disclose to the client that it intends to collect the
commission and obtain the clients written consent prior to the binding of the policy.



The Company has not received subpoenas from the attorneys general in New York or Illinois. However, other state attorneys general and insurance departments have been making inquiries into, among other things, the
industrys commission payment practices. In Connecticut, the Company has received subpoenas from the Office of the Attorney General of the State of Connecticut and from the United States Attorney for the District of Connecticut as part of their
investigation into the Companys business practices, including contingent commissions. The Company also has received subpoenas from the attorneys general in Florida, Massachusetts and North Carolina requesting information regarding the
Companys business practices. In addition, the Company has received requests for information from state insurance departments in twelve states, and the Company may receive additional subpoenas and/or requests for information in the future from
attorneys general and/or insurance departments of other states. The Company will evaluate, and intends to cooperate fully in connection with, all such subpoenas and requests.



A committee of the Companys Board of Directors has been authorized to perform an independent review of the
Companys business practices in the areas that were the subjects of the NYAGs allegations against Marsh. This committee has engaged outside legal counsel to assist it in the review.



14



---

##### Table of Contents

Contingent and Override Commissions



As a result of the industry and regulatory developments described above, controversy continues to surround the longstanding
insurance industry practice of contingent and override commissions paid to agents and brokers by underwriters. The Company has historically entered into contingent and override commission agreements with various underwriters. Contingent commissions
are commissions paid by underwriters based on profitability of the business, premium growth, total premium volume or some combination of these factors. Revenue from contingent commissions is heavily weighted in the first and second quarters.
Override commissions are typically volume-based commissions paid by underwriters in excess of the standard commission rates on specific classes of business.



For the six months ended June 30, 2005 and 2004, the Company recognized contingent and override commissions of $44.7 million and $35.1 million,
respectively. For the years ended December 31, 2004 and 2003, the Company recognized $42.4 million and $40.8 million, respectively, in contingent and override commissions. Of the 2005 six month amount, 93% was from standard contingency agreements
and 7% was from national override agreements. Of the 2004 annual amount, 81% was from standard contingency agreements and 19% was from national override agreements. The standard contingency agreements are maintained at the local office level. The
national override agreements are specially negotiated and volume-based. Effective for business written on or after January 1, 2005, these national override agreements, which were paid quarterly when earned, reverted into standard local contingency
arrangements with those underwriters, which will be paid and recorded, if at all, annually beginning in early 2006. There can be no assurance that the loss of override commissions resulting from the reversion to standard local contingency
arrangements will be offset by additional contingent commissions in future periods.



The departments of insurance of various states may adopt new regulations addressing contingent commission arrangements and disclosure of such arrangements with insureds. In addition, the National Association of
Insurance Commissioners has proposed model legislation to implement new disclosure requirements relating to agent and broker compensation arrangements. The Company intends to monitor agent and broker compensation practices and, as warranted by
market and regulatory developments, will review its compensation arrangements with underwriters. While it is not possible to predict the outcome of the governmental inquiries and investigations into the insurance industrys commission payment
practices or the responses by the market and regulators, any material decrease in the Companys contingent commissions is likely to have an adverse effect on its results of operations.



In addition to state regulatory inquiries, the Company has been named as a
defendant in four purported class action suits brought against a number of brokers in the insurance industry and one purported securities class action suit. For information on industry litigation, see Note ICommitments and
Contingencies of Notes to Consolidated Financial Statements.



Forward-Looking Statements



The Company
cautions readers that the foregoing discussion and analysis includes forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created by that Act.
These forward-looking statements are believed by the Company to be reasonable based upon managements current knowledge and assumptions about future events, but are subject to the uncertainties generally inherent in any such forward-looking
statement, including factors discussed above as well as other factors that may generally affect the Companys business, financial condition or operating results. Risk factors and uncertainties that might cause such a difference include, but are
not limited to, the following: the Companys commission revenues are highly dependent on premium rates charged by insurance underwriters, which are subject to fluctuation based on the prevailing economic conditions and competitive factors that
affect insurance underwriters; the level of contingent commissions is difficult to predict and any material decrease in the Companys collection of them is likely to have an adverse impact on operating results;



15



---

##### Table of Contents

the Company has eliminated override commissions effective for business written on or after January 1, 2005, and it is uncertain whether additional contingent
commissions payable to the Company will offset the loss of such revenues; the Companys growth has been enhanced through acquisitions, which may or may not be available on acceptable terms in the future and which, if consummated, may or may not
be advantageous to the Company; the Companys failure to integrate an acquired insurance agency efficiently may have an adverse effect on the Company; the general level of economic activity can have a substantial impact on revenues that is
difficult to predict; a strong economic period may not necessarily result in higher revenues if the volume of insurance business brought about by favorable economic conditions is offset by premium rates that have declined in response to increased
competitive conditions; if the Company is unable to respond in a timely and cost-effective manner to rapid technological change in the insurance intermediary industry, there may be a resulting adverse effect on business and operating results; the
business practices and broker compensation arrangements of the Company and the insurance intermediary industry are subject to uncertainty due to investigations by various governmental authorities and related private litigation; and quarterly and
annual variations in the Companys commissions and fees that result from the timing of policy renewals and the net effect of new and lost business production may have unexpected impacts on the Companys results of operations. For more
details on factors that could affect expectations, see the Companys Annual Report on Form 10-K for the year ended December 31, 2004 and other reports from time to time filed with or furnished to the Securities and Exchange Commission.



|Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
|------- | -----------------------------------------------------------



The Company believes that its exposure to market risk associated with transactions using variable rate debt, certain investments and derivative financial
instruments is not material.



|Item 4. | CONTROLS AND PROCEDURES.
|------- | ------------------------



The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company in the
reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods required by the Securities and Exchange Commission. As of the end of the period covered
by this report on Form 10-Q, the Companys management, including the Chief Executive Officer and the Chief Financial Officer, performed an evaluation of the effectiveness of the design and operation of the Companys disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended). Based on that evaluation, the Companys management, including the Chief Executive Officer and Chief Financial Officer,
concluded that the Companys disclosure controls and procedures were effective as of the end of such period. Management is also responsible for establishing and maintaining adequate internal control over the Companys financial reporting.
There have been no changes in the Companys internal control over financial reporting during the three months ended June 30, 2005, that have materially affected, or are reasonably likely to materially affect, the Companys internal control
over financial reporting.



16



---

##### Table of Contents

PART IIOTHER INFORMATION



|Item 1. | LEGAL PROCEEDINGS.
|------- | ------------------



The information on legal proceedings contained in Note I-Commitments and Contingencies of the Notes to Consolidated Financial Statements filed
in Item 1 of Part I of this Form 10-Q is incorporated by reference.



|Item 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
|------- | ------------------------------------------------------------



| | c) | The following table sets forth the details of purchases of Common Stock under the publicly announced share-repurchase program (the 2004 Program) that occurred in the second quarter
of 2005:
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|           |  |                                |  |                             |       |                                                                   |        |                                                                                 |   |           
|---------- |  | ------------------------------ |  | --------------------------- | ----- | ----------------------------------------------------------------- | ------ | ------------------------------------------------------------------------------- | - | ----------
|Period     |  | Total Number ofSharesPurchased |  | Average PricePaid per Share |       | Total Number ofSharesPurchased asPart of PubliclyAnnouncedProgram |        | MaximumApproximateDollar Value ofShares that MayYet BePurchasedUnder theProgram
|April 2005 |  | 60,000                         |  | $                           | 35.80 |                                                                   | 60,000 |                                                                                 | $ | 28,152,000



The 2004 Program was
announced by the Company on March 31, 2004 and provides for the Company to purchase up to $50 million of its Common Stock annually. The repurchases may be made on the open market or in negotiated transactions, with the timing and amount of the
transactions to be determined by the Companys management subject to market conditions and other factors.



Not included in the above table are purchases outside of the 2004 Program that were made on behalf of a trust maintained by the Company for the Executive
Voluntary Deferral Plan and the Outside Directors Deferral Plan. Total number of shares purchased during the quarter relating to the plans was 6,296, at an average price per share of $35.50.



|Item 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
|------- | ----------------------------------------------------



| | a) | The annual meeting of shareholders (the Meeting) of the Company was held on Tuesday, May 3, 2005.
| | -- | ---------------------------------------------------------------------------------------------------



| | c) | At the Meeting, the shareholders voted for the election of five (5) directors to serve for terms of three (3) years expiring on the date of the annual meeting in 2008 and until
their successors are elected. The results of the voting in these elections are set forth below.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                          |  |            |  |               |  |          
|------------------------- |  | ---------- |  | ------------- |  | ---------
|                          |  | Votes For  |  | VotesWithheld |  | Non-votes
|Theodore L. Chandler, Jr. |  | 32,071,446 |  | 742,658       |  | 3,206,420
|Norwood H. Davis, Jr.     |  | 31,221,718 |  | 1,592,386     |  | 3,206,420
|Timothy J. Korman         |  | 31,637,962 |  | 1,176,142     |  | 3,206,420
|Thomas H. OBrien         |  | 32,070,751 |  | 743,353       |  | 3,206,420
|Warren M. Thompson        |  | 32,503,321 |  | 310,783       |  | 3,206,420



In addition, the
shareholders voted for the ratification of the appointment of Ernst & Young LLP as independent auditors of the Companys 2005 financial statements. The results of the voting are set forth below.



|                                 |  |            |  |              |  |               |  |          
|-------------------------------- |  | ---------- |  | ------------ |  | ------------- |  | ---------
|                                 |  | Votes For  |  | VotesAgainst |  | VotesWithheld |  | Non-votes
|Appointment of Ernst & Young LLP |  | 32,767,864 |  | 20,529       |  | 25,711        |  | 3,206,420



No other matters were
voted upon at the Meeting or during the quarter for which this report is filed.



17



---

##### Table of Contents

|Item 6. | EXHIBITS.
|------- | ---------



| | a) | Exhibits
| | -- | --------





|            |  |                                                                                            
|----------- |  | -------------------------------------------------------------------------------------------
|Exhibit No. |  | Document                                                                                   
|31.1        |  | Certification Statement of Chief Executive Officer Pursuant to Rule 13a  14(a)/15d  14(a)
|            | 
|31.2        |  | Certification Statement of Chief Financial Officer Pursuant to Rule 13a  14(a)/15d  14(a)
|            | 
|32.1        |  | Certification Statement of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350      
|            | 
|32.2        |  | Certification Statement of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350      



18



---

##### Table of Contents

SIGNATURES



Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                    |  |  |  |                            |  |                               |  |                                                           
|------------------- |  |  |  | -------------------------- |  | ----------------------------- |  | ----------------------------------------------------------
|                    |  |  |  | Hilb Rogal & Hobbs Company
|                    |  |  |  | (Registrant)              
|                    |  |  | 
|Date August 3, 2005 |  |  |  | By:                        |  | /s/    MARTIN L. VAUGHAN,
III
|                    |  |  |  |                            |  |                               |  | Martin L. Vaughan, III                                    
|                    |  |  |  |                            |  |                               |  | Chairman and Chief Executive Officer                      
|                    |  |  |  |                            |  |                               |  | (Principal Executive Officer)                             
|                    |  |  | 
|Date August 3, 2005 |  |  |  | By:                        |  | /s/    CAROLYN JONES         
|                    |  |  |  |                            |  |                               |  | Carolyn Jones                                             
|                    |  |  |  |                            |  |                               |  | Senior Vice President,Chief Financial Officer andTreasurer
|                    |  |  |  |                            |  |                               |  | (Principal Financial Officer)                             
|                    |  |  | 
|Date August 3, 2005 |  |  |  | By:                        |  | /s/    ROBERT W. BLANTON,
JR.
|                    |  |  |  |                            |  |                               |  | Robert W. Blanton, Jr.                                    
|                    |  |  |  |                            |  |                               |  | Vice President and Controller                             
|                    |  |  |  |                            |  |                               |  | (Chief Accounting Officer)                                



19



---

##### Table of Contents

HILB ROGAL & HOBBS COMPANY



EXHIBIT INDEX



|            |  |                                                                                            
|----------- |  | -------------------------------------------------------------------------------------------
|Exhibit No. |  | Document                                                                                   
|31.1        |  | Certification Statement of Chief Executive Officer Pursuant to Rule 13a  14(a)/15d  14(a)
|            | 
|31.2        |  | Certification Statement of Chief Financial Officer Pursuant to Rule 13a  14(a)/15d  14(a)
|            | 
|32.1        |  | Certification Statement of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350      
|            | 
|32.2        |  | Certification Statement of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350