Aon Hit With Q4 Benfield Merger Costs But Broker Commissions Grow Slightly

February 6, 2009

Aon Corp., the largest global insurance brokerage by assets, reported that net income fell 95 percent in the fourth quarter as it incurred costs related to restructuring and its merger with Benfield Group.

Net income was $10 million for the fourth quarter compared with $207 million a year earlier, primarily due to an expected $116 million after-tax loss on the disposition of the remaining property/ casualty insurance businesses that are now included in discontinued operations, an increase in restructuring-related costs, and costs related to the Benfield merger.

Net income from continuing operations decreased 35 percent to $123 million compared to $188 million for the prior year quarter.

Risk and insurance brokerage revenue, which is about 80 percent of total income, was three percent lower, and consulting revenue fell by about eight percent. But brokerage fees and commissions grew by two percent.

During the year, Aon completed its merger with reinsurance intermediary Benfield Group.

“In the fourth quarter, we achieved solid results despite a soft market and very challenging economic environment,” said Greg Case, president and chief executive officer.

“We begin 2009 in a position of strength, with a core product portfolio that is now aligned around risk advice and human capital solutions,” he said.

FOURTH QUARTER SUMMARY
Total revenue decreased 4% to $1.9 billion due to an 8% decline from foreign currency translation, a 2% increase from acquisitions net of dispositions and organic revenue growth in commissions and fees of 2%.

Total expenses increased 1% or $16 million to $1.8 billion, including a $155 million favorable impact from foreign currency translation, partially offset by a $53 million increase in restructuring costs, $46 million of Benfield transaction costs and $42 million of other Benfield expenses.

The fourth quarter includes the operating results of Benfield since the close of the merger on November 28, and reflects $38 million of revenue and $42 million of expenses. Restructuring expense was $87 million in the fourth quarter compared to $34 million in the prior year quarter.

Subsequent to the fourth quarter, the company agreed to dispose of its property and casualty insurance operations. The after-tax loss in the quarter is primarily due to an expected $116 million loss on disposal of these operations. Discontinued operations also include the results of Automobile Insurance Specialists (AIS), and for the prior year quarter, include the results of AIS, Combined Insurance Company of America and Sterling Life Insurance.

Risk and Insurance Brokerage Services total revenue decreased 3% to $1.6 billion compared to the prior year quarter due to an 8% unfavorable impact from foreign currency translation and a 14% decline in investment income, partially offset by a 4% increase from acquisitions net of dispositions and 2% organic revenue growth in commissions and fees.

Consulting total revenue decreased 8% to $342 million compared to the prior year quarter due to a 9% unfavorable impact from foreign currency translation, a 2% decrease from acquisitions net of dispositions, partially offset by 3% organic revenue growth in commissions and fees.

2008 FULL YEAR
Total revenue for 2008 increased 4% to $7.6 billion with organic revenue growth of 2%.

Net income for 2008 increased 71% to $1.5 billion compared to $864 million for the prior year. Net income from continuing operations decreased 6% to $621 million compared to $662 million for the prior year.

Risk and Insurance Brokerage Services total revenue increased 5% to $6.2 billion with organic revenue growth in commissions and fees of 2%.

Consulting total revenue was similar to the prior year with organic revenue growth in commissions and fees of 3%.

Source: Aon Corp.
www.aon.com

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