Amid Scrutiny, Aon Tops Earnings Estimates

May 23, 2005

CHICAGO–Aon Corp. saw its shares leap 15 percent after the world’s second-largest insurance brokerage reported quarterly profits that far exceeded Wall Street’s expectations.

Shares in the company, which have lagged since Aon’s broker practices were first called into question by investigators last fall, rose $3.18 to close at $24.45 on the New York Stock Exchange. It was their highest point in two months, although still down about 15 percent from last October.

The rally came after Aon announced an 18 percent increase in first-quarter profits in results disclosed after the close of trading Tuesday.

New president and CEO Gregory Case acknowledged that revenues were lower than anticipated due to a difficult revenue environment in the insurance brokerage and human resources consulting industries. But he said he was encouraged by the improved results, which were attributable in part to lower expenses.

“Generally I would say pricing continues to decline, although at a slightly lower rate,” he told analysts on a conference call Wednesday. “Brokerage commission rates, while moving up, are not back to where we expect them to be. But despite this, my colleagues at Aon are doing a terrific job of managing costs, and those efforts led to our improved performance this quarter.”

The company said net income for the January-March period was $200 million, or 59 cents a share, up from $170 million, or 51 cents a share, a year earlier. Analysts surveyed by Thomson First Call had projected earnings of 46 cents a share. Revenue fell 2 percent, to $2.51 billion, down from $2.56 billion a year ago and lower than analysts’ expectations of $2.54 billion.

Case took over April 4 in the middle of regulatory actions. The low-profile outsider was hired to replace Patrick Ryan, who announced Sept. 30 he intended to step down after more than 40 years as head of Aon and its predecessor. Ryan remains executive board chairman. In March, Aon agreed to pay $190 million to settle an investigation by attorneys general in New York, Illinois and Connecticut into its insurance-broker practices. Ryan issued an apology as part of the settlement.

Authorities concluded that Aon had steered clients’ insurance premiums to insurers who agreed to use Aon’s separate reinsurance brokerage to obtain insurance for themselves.

The company attributed some of the revenue decline to the loss of incentive fees, also known as contingent commissions or placement service agreements. The contingent commissions are fees paid above and beyond standard commissions and the company announced in October it would end the practice. The agreements wound down at the end of the year but there was carry-over revenue into the first quarter, Aon spokesman Al Orendorff said.

Aon said it collected $12 million in contingent commissions in the quarter, down from $35 million in the same period of 2004.

Copyright 2005 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

South Bend Employers Sue Company Over Unpaid Health Claims
SOUTH BEND, Ind.–Some of the South Bend area’s largest employers have filed lawsuits against a company hired to process health insurance claims for their employees.

The employers allege that they paid millions to Healthcare Resources Group, but the company never sent that cash along to health care providers. As a result, some providers have come after patients for their money, several of the plaintiffs argue in court documents.

A message seeking comment was left Wednesday by The Associated Press at the office of Terry A. Grant, president and chief executive officer for HRG. He declined to comment to the South Bend Triune on Tuesday.

The employers–including AM General, St. Joseph County’s government, the city government of South Bend, Memorial Health Systems, Quality Dining and 1st Source Bank –are self-insured, meaning they finance payment of their own claims, but they contract their processing out to a third-party administrator.

AM General’s lawsuit claims it paid the firm more than $3 million for worker claims that have yet to be paid. An HRG employee last week told Gary Wuslich, the automaker’s vice president of human resources, that the funds were “missing,” Wuslich stated in an affidavit filed with AM General’s lawsuit.

The city of South Bend filed a lawsuit Tuesday alleging that $971,000 it paid HRG for employee health care claims from March 29 to May 4 have not been sent to care providers. St. Joseph County’s lawsuit, also filed Tuesday, says it is missing more than $625,000 it paid HRG. Memorial Health Systems has filed suit to recover more than $252,000.

Most of the employers say they have terminated their contracts with HRG and are searching for new administrators. The Indiana secretary of state’s office April 14 ordered the company “administratively dissolved,” meaning state law prohibits it from conducting any business except “that needed to wind up any business and liquidate affairs,” office spokesman Joseph Feeney-Ruiz said.

The action resulted from HRG’s failure to file its biennial “entity report,” a form that simply lists a company’s address and officers.

Copyright 2005 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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