NEW YORK (CNNMoney.com) - It's been a long, dark journey toward recovery for insurance broker Marsh & McLennan, and the light at the end of tunnel remains elusive.

Capping a tumultuous year tarnished by reputational damage, an $850 million legal settlement and a company-wide reorganization, Marsh & McLennan (down $1.72 to $29.50, Research) posted disappointing fourth-quarter earnings early Tuesday, sending the stock down as much as 6.8 percent.

The insurance giant reported fourth-quarter net income of $35 million, or 6 cents per share. That was significantly higher than the $680 million, or $1.29 a share loss the company reported last year due to the settlement of the lawsuit by New York Attorney General Eliot Spitzer that accused the company of rigging bids and steering business to insurers that paid hidden fees.

But excluding restructuring charges, stock-option expensing and other items, fourth-quarter income was below Wall Street expectations, coming in at $154 million, or 28 cents a share; the Thomson First Call analysts' consensus was 31 cents. Marsh earned $139 million, or 26 cents a share, in the comparable period of 2004.

"Overall, it was a disappointing quarter with results below expectations in every major business," said Mark Lane, research analyst at William Blair & Co.

Speaking on the company's earnings call with analysts, CEO Michael Cherkasky attempted to diffuse some of the disappointment on Wall Street by pointing to expected improvement in margins in 2006 and 2007, as well as early signs in January of better client retention.

"2006 will be an improving year for Marsh, but it will still be a transition year," he said. "While we're not where we want to be, we're headed in the right direction."

Cherkasky said he expected higher revenue and higher margins in 2006 and even more growth in 2007. But William Blair's Lane was skeptical.

"Saying that 2006 is better than 2005 isn't a very bold prediction," he said. "They need to grow their business and effectively manage costs."

Analysts are also looking for more concrete signs that the company is attracting new business and holding on to the clients it currently has.

In the aftermath of Spitzer's investigation into the company, Marsh & McLennan suffered a mass exodus of clients and employees as the once-respected insurance company -- which reigned supreme in market share before the scandal -- became the poster child for corporate misconduct . Aggressive competitors were quick to smell opportunity in Marsh's struggles, and companies such as Aon (Research) and Willis (Research) promptly began to steer away business and workers from the company.

Last quarter, Cherkasky told analysts Marsh was seeing improvement in attracting new clients given a steady flow of request for proposals (RFP) -- the process by which a client goes to market to get its business. He said he was optimistic about 2006.

During the fourth-quarter call, Cherkasky said the company's client retention improved significantly in the fourth quarter, but that Marsh still hadn't seen any real increase in new business development. He said that early interest from new clients in January, however, made the company "cautiously optimistic" about its prospects in 2006.

Meyer Shields, vice president of equity research at Stifel Nicolaus & Co., said Wall Street is looking for more clarity on how the company plans to attract and keep clients.

"There's nothing specific on how they're communicating their value to clients," he said.

Shields added that it was likely competitors such as Aon and the relatively new firm Integro, which is made up primarily of former Marsh employees, will chip away at the company's business over the next few years.

Cherkasky, however, remained upbeat about the prospects for profit in every business unit in 2006, with the exception of its investment-management division Putnam. The unit has struggled in recent years due to weak investment returns and regulatory issues concerning market timing. Cherkasky said Putnam's assets under management will continue to decline in 2006, but should show some improvement in 2007 and 2008.

And Cherkasky dismissed ongoing speculation that the company may sell the troubled unit.

"We're keeping Putnam," he said. "It's a great brand name company that's been wounded."

He said shareholders "deserve to profit from the recovery" in the unit and he said once the business turns around, it will have substantial value.

Analysts, however, wouldn't be surprised if Cherkasky were to change his tune down the road.

"They'll say that they'll keep it until they don't keep it," William Blair's Lane said. "MMC is a public company. and if they get a good offer, they have a fiduciary responsibility to look at it."

Stifel Nicolaus' Shields added that while there is some merit to the thought that Putnam's recovery will benefit shareholders, if another company is willing to pay now in advance of that recover, it would make sense for Marsh to consider selling.

In the meantime, however, with Marsh and McLennan's dreary earnings reports and vague predictions of growth in 2006 and 2007, analysts advise investors to maintain caution.

"Historically, its brand name gave it an advantage," Shields said. "Given the reputational damage to its brand name and the resurgence of Aon.. it's difficult to see how they'll regain that edge."

None of the analysts quoted in the story own shares of Marsh & McLennan and their firms don't have investment banking relationships with the company.

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