Aon Q1 Revenue Drops 3%; Commissions, Fees Up 1%

May 1, 2009

Aon’s first quarter revenue fell 3 percent to $1.9 billion due to a 10 percent decline from foreign currency translation and a 44 percent decline in investment income, the company report.

The decline in revenue was partially offset by a 7 percent increase from acquisitions, primarily Benfield, net of dispositions and organic revenue growth in commissions and fees of 1 percent.

Net income increased 28 percent to $280 million, compared to $218 million for the prior year quarter. Net income attributable to Aon stockholders from continuing operations increased 30 percent to $230 million, compared to $177 million for the prior year quarter.

“Our first quarter results reflect continued progress in the face of soft market conditions and a very challenging economic environment. Organic revenue was one percent, adjusted pretax margin in brokerage increased 100 basis points and adjusted earnings per share from continuing operations increased nine percent,” said Greg Case, president and CEO, Aon Corp.

“Despite these challenges, we continue to strengthen the underlying foundation of Aon and invest heavily in the fundamental client-serving capabilities of our firm through the merger with Benfield and the introduction of both ‘Client Promise’ and our Global Risk Insight Platform in Brokerage,” Case said. “Additionally, the 2007 and Aon Benfield restructuring programs are on-track and just beginning to deliver cost savings while our balance sheet provides significant financial flexibility to effectively allocate capital and deliver long-term shareholder value.”

Risk and Insurance Results

Risk and Insurance Brokerage Services total revenue decreased 1 percent to $1.6 billion compared to the prior year quarter due to a 10 percent unfavorable impact from foreign currency translation on commissions and fees and a 41 percent decline in investment income, partially offset by a 9 percent increase from acquisitions, primarily Benfield, net of dispositions and 1 percent organic revenue growth.

Americas organic revenue increased 2 percent reflecting strong growth in Latin America and solid growth in Canada and in Aon’s Affinity business. U.K. organic revenue decreased 5 percent due primarily to soft market conditions and lower new business. EMEA organic revenue was unchanged as strong growth in emerging markets was offset by weak economic conditions in continental Europe. Asia Pacific organic revenue decreased 2 percent reflecting the impact of economic weakness in Asia and the impact from exiting certain businesses in Japan. Reinsurance organic revenue increased 1 percent due primarily to growth in global treaty placements.

Compensation and benefits for the first quarter decreased $103 million from the prior year quarter including a $103 million favorable impact from foreign currency translation, a $58 million pension curtailment gain and $31 million of cost savings related to the restructuring programs, primarily offset by the inclusion of operating expense from the recent Benfield merger and a $7 million increase in pension expense.

Consulting total revenue decreased 10 percent to $309 million compared to the prior year quarter. Organic revenue in Consulting Services increased 2 percent reflecting growth in health and benefits consulting, partially offset by a decline in human capital consulting, including a significant decline in compensation consulting. Organic revenue in Outsourcing declined 4 percent as a previously announced outsourcing contract winds down, partially offset by modest growth in benefits outsourcing.

Aon reported that total operating expenses decreased 9 percent to $1.5 billion, including a $176 million favorable impact from foreign currency translation and an $83 million gain related to the U.S. pension curtailment, partially offset by the inclusion of operating expenses from the recent Benfield merger and a $13 million increase in pension expense.

Restructuring Expense, Savings

Restructuring expense was $43 million in the first quarter compared to $60 million in the prior year quarter.

Restructuring savings in the first quarter related to the 2007 restructuring program are estimated at $41 million compared to no material savings in the prior year quarter. Of the estimated restructuring savings in the first quarter, $36 million were related to the brokerage segment primarily for workforce reduction. The 2007 restructuring program is currently expected to deliver cumulative run-rate cost savings of approximately $240-265 million in 2009 and $370 million in 2010, the company said.

Restructuring savings in the first quarter related to the Aon Benfield restructuring program are estimated at $4 million. Before any potential reinvestment of savings, the Benfield restructuring program is currently expected to deliver cumulative cost savings of $33-41 million in 2009, $84-94 million in 2010 and $122 million in 2011.

Source: Aon Corp.

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