Results of Operations

On June 8, 2008, HRH and Willis Group Holdings Limited (Willis) announced a definitive agreement providing for the merger of HRH and a wholly-owned subsidiary of Willis. Under the terms of the agreement, if the merger is completed, all of the outstanding shares of HRH common stock will be converted into the right to receive cash, Willis common stock or a combination of cash and stock. The transaction, which is expected to close in the fourth quarter of 2008, is subject to customary closing conditions, including HRH shareholder approval. For further information, see "Note B-Proposed Merger with Hermes Acquisition Corp." of Notes to Consolidated Financial Statements.

Three Months Ended June 30, 2008

Net income for the second quarter 2008 reflected a non-cash $18.4 million intangible asset impairment charge related to HRH Reinsurance Brokers Limited, a London-based reinsurance subsidiary, as a result of the departure of certain key producers prior to the HRH/Willis merger announcement who were responsible for a significant portion of the operation's revenue. Subsequent to the end of the second quarter, the Company entered into a revenue sharing agreement with Willis to retain the subsidiary's clients. For further information, see "Note K-Impairment of Intangible Assets" of Notes to Consolidated Financial Statements.

Net income for the three months ended June 30, 2008 was $1.1 million, or $0.03 per share, compared with $22.2 million, or $0.60 per share, for the comparable period last year. The Company incurred approximately $0.5 million in costs related to its planned merger with Willis Group Holdings Limited, net of tax, in the 2008 second quarter. In addition, gains on the sale of assets, net of tax, were $68 thousand and $(4) thousand for the three months ended June 30, 2008 and 2007, respectively. Independent of these items, the quarter-to-quarter decrease of $20.7 million, or $0.56 per share, in net income primarily resulted from continued declines in property and casualty premium rates, an intangible asset impairment charge related to HRH Reinsurance Brokers Limited, the dilutive impact from the 2007 acquisition of Banc of America Corporate Insurance Agency, LLC, and increased professional claims and fees.

Commissions and Fees

Total commissions and fees increased $11.8 million, or 6.0%, to $207.6 million
for the three months ended June 30, 2008 from $195.8 million for the comparable
period last year. This change reflects an $8.2 million, or 4.4%, increase in
core commissions and fees and an increase in contingent commissions of $3.6
million, or 42.3%. These changes are outlined below by segment:



                                               Three Months Ended June 30,
          (in thousands)                       2008        2007      % Change
          Domestic Retail                   $  166,781   $ 156,068        6.9 %
          Excess and Surplus                    10,087      10,136       (0.5 )
          International                         14,053      15,666      (10.3 )
          All Other                              4,685       5,521      (15.1 )

          Total core commissions and fees      195,606     187,391        4.4
          Domestic Retail                       11,695       7,940       47.3
          Excess and Surplus                       338         263       28.5
          International                             -           -          -
          All Other                                 -          253     (100.0 )

          Total contingent commissions          12,033       8,456       42.3

          Total commissions and fees        $  207,639   $ 195,847        6.0 %

Contingent commissions increased $3.6 million, or 42.3%. The increase is primarily due to increased contingent commissions received at agencies acquired in 2007, partially offset by the Domestic Retail shift from contingent commissions to supplemental commissions from certain carriers.

Operating Expenses and Other Results

Expenses for the quarter increased $35.4 million, or 21.7%. Compensation and employee benefits increased $6.7 million primarily due to the impact of acquisitions of insurance agencies partially offset by the divestitures of certain agencies in 2007. Other operating expenses increased $5.5 million mainly due to acquisitions of insurance agencies and increased professional and claims fees. The increase in professional and claims fees is primarily due to increased legal costs.

Depreciation expense was relatively unchanged between the quarters. Amortization of intangibles increased approximately $2.9 million due to intangible assets acquired in 2008 and 2007. Interest expense increased $1.0 million due to increased average borrowings primarily used to assist with the funding of the Company's acquisition program.

As mentioned earlier, the Company recorded an $18.4 million intangible asset impairment charge related to HRH Reinsurance Brokers Limited in the 2008 second quarter.

The effective tax rate for the Company was 90.9% and 40.4% for the three months ended June 30, 2008 and 2007, respectively. The increase in the tax rate is primarily due to the intangible asset impairment charge being non-deductible for tax purposes.

Six Months Ended June 30, 2008

Net income for the six months ended June 30, 2008 was $16.6 million, or $0.46 per share, compared with $47.4 million, or $1.29 per share, for the comparable period last year. The Company incurred approximately $0.5 million in costs related to its planned merger with Willis Group Holdings Limited, net of tax, in the 2008 second quarter. Non-operating gains, net of tax, were $0.3 million and $1.4 million for the six months ended June 30, 2008 and 2007, respectively. Independent of these items, the year-to-year decrease of $29.3 million, or $0.79 per share, in net income primarily resulted from the net income factors noted for the 2008 second quarter as well as the timing related to the shift from contingent commissions to supplemental commissions and increased costs related to the employee medical program.

Commissions and Fees

Total commissions and fees increased $22.9 million, or 5.9%, to $410.9 million
for the six months ended June 30, 2008 from $388.0 million for the comparable
period last year. This change reflects a $28.3 million, or 8.2%, increase in
core commissions and fees and a decrease in contingent commissions of $5.4
million, or 12.9%. These changes are outlined below by segment:



                                               Six Months Ended June 30,
          (in thousands)                      2008        2007      % Change
          Domestic Retail                   $ 320,518   $ 289,952       10.5 %
          Excess and Surplus                   18,487      18,054        2.4
          International                        25,631      27,242       (5.9 )
          All Other                            10,096      11,212      (10.0 )

          Total core commissions and fees     374,732     346,460        8.2
          Domestic Retail                      33,338      38,813      (14.1 )
          Excess and Surplus                    2,612       2,327       12.2
          International                            -           -          -
          All Other                               246         435      (43.4 )

          Total contingent commissions         36,196      41,575      (12.9 )

          Total commissions and fees        $ 410,928   $ 388,035        5.9 %

Approximately $37.6 million of the increase in core commissions and fees for Domestic Retail were derived from acquisitions of new insurance agencies and accounts in 2008 and 2007. This increase was partially offset by the reduction of core commissions and fees of approximately $3.0 million from the sale of certain agencies and accounts in 2007. Excluding the effect of acquisitions and dispositions, the change in core commissions and fees for Domestic Retail was $(4.1) million, or (1.4)%. This decrease principally reflects continued declines in commercial property and casualty premium rates, partially offset by new business and supplemental commissions. The 2.4% increase in Excess and Surplus core commissions and fees can be attributed to an acquisition in 2007. Excluding the effect of this acquisition, the change in core commissions and fees for Excess and Surplus was $(0.9) million or (5.2)%. This decrease reflects the same factors noted for the 2008 second quarter. Core commissions and fees for International decreased $1.6 million. This decrease is attributable to the same factors noted for the 2008 second quarter.

Contingent commissions decreased $5.4 million, or 12.9%. The change in contingent commissions is primarily attributed to the Domestic Retail shift from contingent to supplemental commissions from certain carriers.

Operating Expenses and Other Results

Expenses for the first six months increased $59.6 million, or 18.6%. Compensation and employee benefits increased $21.0 million primarily due to the impact of acquisitions of insurance agencies partially offset by the divestitures of certain agencies in 2007. Other operating expenses increased $11.1 million mainly due to acquisitions of insurance agencies and increased professional and claims fees. The increase in professional and claims fees is primarily due to increased legal costs related to the protection of restrictive covenants in employment matters.

Depreciation expense was relatively comparable to the prior year period. Amortization of intangibles increased $5.4 million due to intangible assets acquired in 2008 and 2007. Interest expense increased $2.6 million due to increased average borrowings primarily used to assist with the funding of the Company's acquisition program.

The effective tax rate for the Company was 56.0% and 39.4% for the six months ended June 30, 2008 and 2007, respectively. The increase in the tax rate is primarily due to the intangible asset impairment charge being non-deductible for tax purposes.

Other

For the three months ended June 30, 2008, net income as a percentage of revenues decreased significantly from the three months ended March 31, 2008. This decrease was principally due to the intangible asset impairment charge. Excluding the intangible asset impairment charge, net income as a percentage of revenues did not vary significantly. Commission income was slightly higher during the second quarter due to new business production, timing of policy renewals and acquisitions partially offset by lower 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, 2008 should not be considered indicative of the results that may be expected for the entire year ending December 31, 2008.

Liquidity and Capital Resources

Net cash provided by operations was $29.8 million and $65.5 million for the six months ended June 30, 2008 and 2007, 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. Because the timing of such transactions varies, net cash flows from operations may vary substantially from period-to-period.

The Company has historically generated sufficient funds internally to finance capital expenditures. Cash expenditures for the acquisition of property and equipment were $5.6 million and $4.4 million for the six months ended June 30, 2008 and 2007, respectively. Cash outlays related to the purchase of insurance agencies amounted to $14.3 million and $64.9 million for the six months ended June 30, 2008 and 2007, respectively. Cash outlays for such insurance agency acquisitions have been funded through operations and long-term borrowings. In addition, a portion of the purchase price in such acquisitions may be paid through Common Stock and/or deferred cash and Common Stock payments. Cash proceeds from the sales of certain offices, insurance accounts and other assets totaled $0.6 million and $14.9 million for the six months ended June 30, 2008 and 2007, respectively. The Company did not have any material capital expenditure commitments as of June 30, 2008.

Financing activities provided (utilized) cash of $(27.8) million and $40.5 million in the six months ended June 30, 2008 and 2007, respectively, as the Company repurchased Common Stock, borrowed funds, received funds on stock option exercises, and made dividend and debt payments. Under the terms of the merger agreement with Willis, the Company may not pay a quarterly dividend greater than $0.14 per share without the prior written consent of Willis. The Company repurchased 656,218 shares of its Common Stock on the open market for $20.3 million during the six months ended June 30, 2008. For the six months ended June 30, 2007, no shares of the Company's Common Stock were repurchased on the open market. Due to the proposed merger between the Company and Willis, the Company is restricted from repurchasing Common Stock on the open market.

As of June 30, 2008, the Company had, under its Note Purchase Agreement with the Prudential Insurance Company of America, (i) outstanding notes of $100.0 million which will mature on August 27, 2017 and (ii) $100.0 million available under an uncommitted shelf facility.

The Company had a current ratio (current assets to current liabilities) of 1.17 to 1.00 as of June 30, 2008. Shareholders' equity of $681.1 million at June 30, 2008, is decreased from $683.2 million at December 31, 2007. The debt to equity ratio at June 30, 2008 of 0.60 to 1.00 remains unchanged from the ratio at December 31, 2007 of 0.60 to 1.00.

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.

Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement No. 157, "Fair Value Measurements" (Statement 157). Statement 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. In February 2008, the FASB issued FSP 157-2, "Effective Date of FASB Statement No. 157-2," which delayed the effective date of the statement for certain nonfinancial assets and liabilities to fiscal years beginning after November 15, 2008. Effective January 1, 2008, the Company adopted Statement 157 for its financial assets and liabilities. The adoption of Statement 157 for financial assets and liabilities did not have a material impact on the Company's financial position or results of operations. The Company continues to evaluate the application of Statement 157 for nonfinancial assets and liabilities but does not believe that it will significantly impact the Company's financial position and results of operations. For further information, see "Note G-Fair Value Measurements" of Notes to Consolidated Financial Statements.

In December 2007, the FASB issued Statement No. 141 (revised 2007), "Business Combinations" (Statement 141R). Statement 141R requires that an acquirer
(i) recognize, with certain exceptions, 100% of the fair value of the assets and liabilities acquired; (ii) include contingent consideration arrangements in the purchase price consideration at their acquisition date fair values; and
(iii) expense all acquisition-related transaction costs as incurred. Statement 141R is effective for fiscal years beginning after December 15, 2008. Adoption is prospective and early adoption is not permitted. The Company is evaluating the potential impact that the adoption of Statement 141R will have on its financial position and results of operations.

In March 2008, the FASB issued Statement No. 161, "Disclosures About Derivative Instruments and Hedging Activities" (Statement 161). Statement 161 changes the disclosure requirements for derivative instruments and hedging activities by requiring entities to provide enhanced disclosures about (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedged items are accounted for under FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" and its related interpretations and (iii) how derivative instruments and related hedged items affect an entity's financial position, performance and cash flows. Statement 161 is effective for fiscal years beginning after November 15, 2008.

Industry Regulatory Matters

On August 31, 2005, the Company entered into an agreement with the Attorney General of the State of Connecticut (the Attorney General) and the Insurance Commissioner of the State of Connecticut (the Commissioner) to resolve all issues related to investigations conducted by the Attorney General and the Commissioner into certain insurance brokerage and insurance agency practices (the Investigations) and to settle an action commenced on August 31, 2005 by the Attorney General in the Connecticut Superior Court alleging violations of the Connecticut Unfair Trade Practices Act and the Connecticut Unfair Insurance Practices Act. In the agreement, the Company agreed to take certain actions including establishing a $30.0 million national fund for distribution to certain clients, enhancing disclosure practices for agency and broker clients, and to not accept

Contingent Commissions

As a result of the industry and regulatory developments, controversy continues to surround the longstanding insurance industry practice of contingent and override commissions paid to agents and brokers by underwriters. Prior to the agreement with the Attorney General and the Commissioner, the Company had 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.

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 a purported class action brought against a number of brokers in the insurance industry. For information on industry and other litigation, see "Note J-Commitments and Contingencies" of Notes to Consolidated Financial Statements.

Forward-Looking Statements

Forward-looking statements in Form 10-Q or other filings by the Company with the Securities and Exchange Commission, in the Company's news releases or other public or shareholder communications, or in oral statements made with the approval of an authorized Company executive officer, include the words or phrases "would be," "will allow," "expects to," "will continue," "is anticipated," "estimate," "project" or similar expressions and are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.

While forward-looking statements are provided to assist in the understanding of the Company's anticipated future financial performance, the Company cautions readers not to place undue reliance on any forward-looking statements, which speak only as of the date made. Forward-looking statements are subject to significant risks and uncertainties, many of which are beyond the Company's control. Although the Company believes that the assumptions underlying its forward-looking statements are reasonable, any of the assumptions could prove to be inaccurate. Actual results may differ materially from those contained in or implied by such forward-looking statements for a variety of reasons. Risk factors and uncertainties that might cause such a difference include, but are not limited to, the following: the Company's commission revenues are based on premiums set by insurers and any decreases in these premium rates could result in revenue decreases for the Company; 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; the Company's growth has been enhanced through acquisitions, but the Company may not be able to successfully identify and attract suitable acquisition candidates and complete acquisitions; 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; the Company's success in the future depends, in part, on the Company's ability to attract and retain quality producers; the

The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.