Aon CEO : Too Early to Know How High Rates Will Rise Due to Hurricanes

By | November 6, 2005

The chief executive of Aon Corp., the world’s second-largest insurance brokerage, said Friday it’s still too early to predict how much U.S. insurance rates might rise because of the hurricanes that devastated the Gulf Coast and southern Florida.

Aon President and CEO Greg Case acknowledged on a conference call that some rates, not necessarily all, will go up because of the storms that hit starting in late August.

“Immediately following the storms, industry observers began to focus on the potential for significant price increases in the primary and reinsurance markets as well as on possible changes in the reinsurance buying patterns,” Case said. “It’s too early to say whether we’re going to see rate increases across the board or only in specific lines that affect the regions.”

Despite widespread assumptions that insurance prices will move higher, he said Chicago-based Aon will provide specifics only when concrete information is available. He alluded to expected increases when questioned by analysts, however, saying “speculation is much more north than south about the pricing.”

Aon and other reinsurers sell backup insurance to other insurance companies, spreading risk so that enormous losses from natural catastrophes can be covered.

Investors have driven up the stock of Aon, the No. 2 brokerage to Marsh & McLennan Cos., because of the storms.

Shares in Aon jumped $1.57, or 4.6 percent, to $35.90 Friday on the New York Stock Exchange, their highest closing price since 2002. They have climbed 23 percent since Aug. 29, the day Katrina struck the Gulf Coast.

Case’s comments came a day after Aon reported third-quarter net profits of $121 million, after the payment of preferred dividends, that were flat with a year earlier. Excluding charges taken to fund its restructuring, operating earnings rose 7 percent.

The CEO said the third-quarter results reflect strength in the company’s U.S. retail brokerage business and its insurance underwriting unit.

Aon disclosed in the report, released after the market closed Thursday, that it is eliminating 1,400 jobs as part of the restructuring, including a planned 750 layoffs in Britain that were announced last month.

The company estimates total restructuring charges through 2007 of approximately $250 million, producing annual cost savings of $150 million by 2008 through layoffs, lease consolidation and other steps. Case said Aon should realize savings of at least $75 million next year from the changes.

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