S&P’s Revises Aon Corp. Outlook to Negative

August 9, 2002

Standard & Poor’s has revised its outlook on Aon Corp. to negative from stable following the company’s second-quarter 2002 earnings announcement.

“This rating action reflects the margin deterioration in Aon’s insurance brokerage and consulting practices, which reported lower-than-expected earnings, partly because of higher-than-expected expense levels and continued execution problems associated with the implementation of its business-transformation plan,” Standard & Poor’s credit analyst Matthew Coyle, said. Standard & Poor’s believes the time and effort that management has spent implementing its business-transformation plan has cost the organization more than it had set out to achieve, at least in the short term, with many of Aon’s competitors capitalizing on the operational disruption it has caused inside and outside the organization.

The rating action was also based on the current SEC review and the capitalization of the insurance operations of Aon subsidiary Combined Specialty Insurance Co. These issues could have an adverse effect on Aon’s prospective financial capacity. Aon’s ability to materially improve the profitability of its insurance brokerage and consulting practices in the second half of 2002, reduce financial leverage, and complete its SEC review without any material developments will determine the impact on the rating.

The single-‘A’ financial strength ratings on Combined Insurance Co. of America and Combined Life Insurance Co. of N.Y. will remain on CreditWatch with negative implications. Management has said it would not raise equity capital as previously announced but would explore strategic alternatives relating to the sale or spin off of all or part of its underwriting operations. As stated in earlier press releases, Standard & Poor’s believes Aon’s insurance operations are under capitalized for the ratings. Unless management addresses this issue adequately and in a timely manner, the ratings could be lowered significantly.

Standard & Poor’s will be meeting with management over the next few weeks to discuss in detail how these alternatives could potentially affect the ratings on both Aon and the interactively rated entities within Combined Specialty.

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