Insurance brokerage Aon Corp., faced by fierce competition and falling rates, said Wednesday it will cut 2,700 jobs as part of a restructuring plan that will eventually save it about $240 million a year.
The elimination of about 6 percent of its work force was announced as Aon reported third-quarter net earnings of $204 million, up 92 percent from a year earlier. But the industry has been struggling to cope with three straight years of sinking insurance rates, and Aon’s biggest competitor, Marsh & McLennan, also is restructuring and laying off employees.
Aon, which will record related pretax charges of about $360 million for the restructuring, said it needed to slash expenses.
The job cuts will be mostly in back-office operations, with about 1,100 expected to be “off-shored or outsourced,” Aon said. It will include consolidation of its human resources, finance and information technology divisions.
Aon will also combine European operations on a country-by-country basis.
“This restructuring plan has a similar approach to that of our 2005 restructuring plan, which has had very positive results,” Greg Case, Aon’s president and chief executive, said in a statement. “We are continuing efforts to simplify our complex organization, and eliminate expense that does not contribute directly to our ability to efficiently deliver value-added products and services to our clients.”
The restructuring will likely lead to savings between $50 million and $70 million in 2008, $175 million and $200 million in 2009, and $240 million in annualized savings by 2010, the company said.
It said it already was on track to realize annual savings of about $280 million by next year from its previous, three-year restructuring.
Aon provides insurance and risk management, consulting, and insurance underwriting worldwide through its subsidiaries and now has about 43,000 employees.
Analyst Chad Hersh of Celent, a Boston-based financial research and consulting firm, said Aon appears to be benefiting from Marsh’s problems as it continues its turnaround.
“What’s impressive is that despite a softening insurance market, Aon not only improved their profitability by cutting costs but also managed to grow their top line revenue organically,” he said in an e-mail. “The only bad news here is that the improvements will need to keep coming if Aon is to keep posting these kinds of numbers in what’s expected to be a softer market for at least the next few quarters.”
Aon’s third-quarter earnings amounted to 64 cents per share, compared with $106 million, or 32 cents per share, for the same period in 2006. Aon said net income from continuing operations was 59 cents per share, matching the consensus estimate of analysts polled by Thomson Financial.
Revenue rose 11 percent to $2.41 billion from $2.17 billion, well above the $2.26 billion that analysts expected. Organic growth alone, which doesn’t count recent acquisitions and divestitures and currency fluctuations, increased 6 percent from a year earlier.
Risk and insurance brokerage services provided the bulk of quarterly revenue. The division’s revenue increased to $1.44 billion, from $1.34 billion during the same quarter last year. Within the division, revenue in the U.K. increased 15 percent to $207 million. The rest of Europe, the Middle East and Africa provided $275 million in revenue, a 14 percent increase from the year-ago quarter.
Risk and insurance brokerage services in the Americas totaled $582 million, a 3 percent gain from the prior year. The majority of that growth came through the retail channel.
Pretax income for the division, Aon’s largest, increased 24 percent to $236 million, from $190 million during the third quarter last year.
Consulting pretax income more than doubled to $38 million, while insurance underwriting income swung to a profit of $63 million.
For the first nine months, net income was $657 million, or $2.05 per share, up from $497 million, or $1.46 per share. Revenue increased to $7.28 billion from $6.54 billion.
Shares of Aon were unchanged in extended-hours trading after closing up 10 cents at $45.32.