Aon Revenues Up 15% Over Year Ago

August 7, 2003

Chicago-based brokerage Aon Corp. reported that its net income for the second quarter was $146 million or 46 cents per share compared with breakeven results in the year ago period. Six months results increased to $298 million or 94 cents per share from $160 million or 57 cents per share in 2002.

Excluding an expected $9 million 2 cents per share) unusual World Trade Center charge initially noted in first quarter 2003, net income per share was 48 cents for the second quarter. Six months net income per share, excluding unusual WTC charges (9 cents per share) was $1.03.

Consolidated revenues grew 15 percent for the second quarter and six months to $2.4 billion and $4.8 billion, respectively, versus the year ago periods. Continued demand for Aon’s services and products and improved investment income drove the increases. Foreign exchange translations accounted for 5 percent of the growth for both the quarter and first half.

Risk and Insurance Brokerage Services second quarter revenue grew 17 percent to $1.4 billion. Organic revenue growth for the total segment was 11 percent. Within the segment, organic revenue growth was 14 percent for the Americas (up from 13 percent in first quarter 2003), 10 percent for International, 13 percent for Reinsurance and 2 percent for Claims Services.

Pretax income increased 22 percent to $175 million from $144 million in second quarter 2002. Pretax margins improved to 12.3 percent from 11.9 percent. Excluding a previously reported $6 million special credit, pretax income in second quarter 2002 was $138 million and the pretax margin was 11.4 percent. As expected, defined benefit pension costs increased by approximately $28 million year-to-year in the segment. Claims services second quarter pretax income declined approximately $19 million from the prior year. Investment income was $8 million lower in the second quarter compared with a year ago, and second quarter 2002 results included $7 million of transition costs related to the business transformation.

Reinsurance operations, particularly in the U.S., had excellent results and U.S. retail brokerage and managing underwriting improved significantly from a year ago, driven by higher retention rates and new business development. International brokerage continued to have solid results. In claims services, actions have been and are being taken to improve the financial performance of this business.

Consulting revenue rose 19 percent to $294 million, or 9 percent on an organic basis. Human resource outsourcing was the principal growth area with 26 percent organic revenue growth. Non-outsourcing business grew 5 percent on an organic basis, mostly due to slower hiring and less discretionary spending by clients in response to challenging economic conditions.

Pretax income was $21 million compared with $23 million one year ago, and the pretax margin was 7.1 percent versus 9.3 percent. An increasing mix of lower margin outsourcing business factored into the comparisons; however, the profitability of these multi-year contracts is expected to improve in future periods.

Insurance Underwriting revenue was $692 million compared with $750 million in second quarter 2002. The decline in reported revenues was primarily the result of the “back-to-basics” strategy within A&H underwriting that was announced in fourth quarter 2002. Additionally, investment income decreased $11 million, primarily from the runoff of guaranteed investment contracts.

Organic revenue growth, based on written premiums, was 8 percent, driven by credit and select property and casualty premiums.
Pretax income was $64 million compared with $2 million in second quarter 2002. Pretax margins grew to 9.2 percent from 0.3 percent.

Excluding a previously reported $3 million special charge in second quarter 2002, pretax income was $5 million and the pretax margin was 0.7 percent. The “back-to-basics” focus in accident and health underwriting significantly improved the benefits payout ratio, which contributed to the margin increase.

Second quarter 2002 results included a $15 million pretax non-claim litigation reserve and a $36 million pretax expense related to the termination of NPS, an independent managing general agent.

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