The sale of KLS in the first quarter of 2010 and Kroll in August of 2010. Both businesses have been reclassified as discontinued operations for all periods presented. The sale of Kroll Government Services (“KGS”) in the second quarter of 2009. The loss on the disposal and the results of KGS operations are included in discontinued operations.
The impact of acquisitions in the Risk and Insurance Services segment. In the first quarter of 2010, Marsh acquired Haake Companies, Inc., one of the largest insurance broking firms in the Midwest region and Thomas Rutherfoord, Inc., one of the largest insurance broking firms in the Southeast and mid-Atlantic regions of the U.S. In the second quarter of 2010, Marsh acquired HSBC Insurance Brokers Ltd. (“HIBL”), an international provider of risk intermediary and risk advisory services and the Bostonian Group Insurance Agency, Inc. and Bostonian Solutions, Inc. (collectively the “Bostonian Group”), one of the largest regional insurance brokerages in New England. In the fourth quarter of 2010 Marsh acquired Strategic Benefits Solutions, Inc. (“SBS”), a Georgia-based benefits brokerage and consulting firm and Trion Group, Inc. (“Trion”), an insurance consultant and broker in the United States that was the largest privately held employee benefits specialist in the nation. In September 2009, Marsh acquired International Advisory Services, Ltd., the largest independent manager of captives and third-party insurance companies in Bermuda. In December 2009, Marsh acquired the NIA Group, LLC, one of the largest independent insurance agencies in the Northeast and the 34th largest agency in the U.S. In April 2009, Guy Carpenter completed the acquisition of John B. Collins Associates, Inc., previously the fifth-largest reinsurance intermediary in the U.S. and seventh-largest in the world. In October 2009, Guy Carpenter completed the acquisition of London-based specialty reinsurance broker Rattner Mackenzie Limited from HCC Insurance Holdings, Inc. See Note 4 to the Consolidated Financial Statements.
Corporate and other results were $162 million of expense in 2010 compared to net expense of $423 million in 2009. In 2010, Corporate and other expenses include restructuring and other noteworthy charges of $13 million, partly offset by $10 million of payments received by the Company related to CARG. In 2009, Corporate expenses include a net charge of $230 million related to settlements of the class action lawsuits described above and $33 million of restructuring and other noteworthy charges. Excluding these items, Corporate and other expenses decreased $1 million in 2010 compared with 2009.
Expenses in the Risk and Insurance Services segment increased 7% in 2010 compared with 2009, reflecting a 6% increase from acquisitions and a 1% increase due to the impact of foreign currency translation. Expenses on an underlying basis were flat, as higher pension related expenses, travel and entertainment, and outsourcing costs were offset by a $77 million decrease in restructuring and related charges.
due to the introduction of new products and services, broad trends in employee demographics, including levels of employment, the effect of government policies and regulations, and fluctuations in interest and foreign exchange rates. Revenues from the provision of investment management services and retirement trust and administrative services, which are expected to increase over time, are significantly affected by securities market performance.
The lower tax rate generally attributed to the Company’s foreign operations reflects income taxed at rates lower than the 35% U.S. federal tax rate, net of the U.S. tax impact of repatriation of foreign earnings. The reduced effective tax rate primarily reflects lower corporate tax rates that prevail outside of the U.S., enhanced by planning that further reduces the impact of taxes worldwide. Under current U.S. tax law, the Company anticipates its non-U.S. operations will continue to incur taxes at rates under 35%, although the percentage impact on the tax rate is expected to moderate as increases in U.S. pretax income change the geographic mix of income.
The Company holds investments in public and private companies, as well as in certain private equity funds managed by Stone Point Capital. Publicly traded investments of $23 million are classified as available for sale. Non-publicly traded investments of $39 million are accounted for using the cost method and $168 million are accounted for using the equity method. The investments that are classified as available for sale or that are not publicly traded are subject to risk of changes in market value, which if determined to be other than temporary, could result in realized impairment losses. The Company periodically reviews the carrying value of such investments to determine if any valuation adjustments are appropriate under the applicable accounting pronouncements.
In the first quarter of 2010, Marsh acquired Haake Companies, Inc., an insurance broking firm in the Midwest region and Thomas Rutherfoord, Inc., an insurance broking firm in the Southeast and mid-Atlantic regions of the U.S. In the second quarter of 2010, Marsh acquired HSBC Insurance Brokers Ltd., an international provider of risk intermediary and risk advisory services and the Bostonian Group Insurance Agency, Inc. and Bostonian Solutions, Inc. (collectively the “Bostonian Group”), a regional insurance brokerage in New England. In the fourth quarter of 2010 Marsh acquired Trion, a U.S. private benefits specialist and SBS, a Georgia-based benefits brokerage and consulting firm. In January 2011, Marsh acquired RJF Agencies, an independent insurance agency in the upper Midwest.
Fiduciary Assets and Liabilities: In its capacity as an insurance broker or agent, the Company collects premiums from insureds and, after deducting its commissions, remits the premiums to the respective insurance underwriters. The Company also collects claims or refunds from underwriters on behalf of insureds.
Income Taxes: The Company’s tax rate reflects its income, statutory tax rates and tax planning in the various jurisdictions in which it operates. Significant judgment is required in determining the annual tax rate and in evaluating uncertain tax positions and company ability to realize deferred tax assets.
Reclassifications: Certain reclassifications have been made to prior year amounts to conform with current year presentation, in particular with regard to separate disclosure of income taxes receivable on the consolidated balance sheets.
In September 2009, Marsh completed the acquisition of International Advisory Services Ltd. (IAS), an independent manager of captive and third-party insurance companies in Bermuda. The acquisition strengthens Marsh’s position as a global leader in managing captive insurance companies and its rank as Bermuda’s largest captive management organization.
On August 3, 2010, the Company completed the sale of Kroll to Altegrity for cash proceeds of $1.13 billion. Kroll’s assets and liabilities are reported in discontinued operations at December 31, 2009. The pre-tax gain of $25 million, the tax benefit related to the disposal, Kroll’s results through August 3, 2010, and Kroll’s operating results in 2009 and 2008 are included in discontinued operations in the accompanying consolidated statements of income.
The Company expects to fund approximately $300 million to its non-U.S. pension plans in 2011. Funding requirements for non-U.S. plans vary by country. Contribution rates are determined by the local actuaries based on local funding practices and requirements. Funding amounts may be influenced by future asset performance, the level of discount rates and other variables impacting the assets and/or liabilities of the plan. In addition, amounts funded in the future, to the extent not due under regulatory requirements, may be affected by alternative uses of the Company’s cash flows, including dividends, investments and share repurchases.
Numerous other private party lawsuits based on similar allegations to those made in the NYAG complaint were commenced against the Company, one or more of its subsidiaries, and their current and former directors and officers. Most of these matters have been resolved. Eight actions instituted by individual policyholders against the Company, Marsh and certain Marsh subsidiaries remain pending in federal and state courts.