Fitch Revises Aon’s Outlook to Stable

December 7, 2005

Fitch Ratings has revised Aon Corporation’s (Aon) Rating Outlook to Stable from Negative. Additionally, Fitch affirms Aon’s ‘BBB+’ long-term issuer rating and related senior debt ratings, as well as the ‘F2’ commercial paper rating. See all ratings listed below.

Fitch has also affirmed the ‘A-‘ insurer financial strength rating of Aon’s lead accident and health operating company, Combined Insurance Company of America (CICA). The Rating Outlook on CICA has been revised to Positive from Negative.

Fitch believes Aon’s year-to-date financial results are supportive of the current ratings, despite the permanent loss of contingent commission revenue and a softening rate environment, albeit somewhat moderated by 2005 hurricane losses.

The revised Stable Outlook reflects Aon’s progress in developing a new business model that is less reliant on contingent commission income, the company’s improved financial flexibility and positive financial trends, and a lack of any additional broker market turmoil. Over the past year, Aon has proven its ability to retain clients and grow new business while improving profitability. Cash flow remains strong with earnings-based interest coverage of over 11 times(x).

Aon has reduced its financial leverage by repaying debt and has no debt maturing until 2007. Additionally, Aon recently refinanced its bank credit facilities and removed guarantees and strict covenants and extended the maturity date for five years. Fitch views these changes as positive steps towards ensuring Aon’s future profitability.

Fitch believes that since Aon’s settlement with the New York Attorney General in March 2005, the company has executed its stated strategic plans as projected. Aon hired a new CEO, announced a three-year restructuring plan projected to bring $150 million in annualized cost savings, sold its claims and wholesale brokerage businesses, divested its stake in Endurance Specialty Holdings, Ltd., and is now exploring strategic alternatives for its property and casualty, warranty businesses. Fitch views Aon’s focus on its core businesses positively because it should enable the company to reduce expenses and also increase organic profitable growth.

Although it will still take time to assess the full impact of recent investigations in the insurance brokerage industry and related continued increased scrutiny, Fitch believes Aon has the ability to generate financial results consistent with the rating category and its peers.

Source: Fitch Ratings

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