Aon Revenue Up 40% in Q4 on Hewitt Merger

By | February 4, 2011

Growth-oriented insurance broker Aon Corp. saw revenues shoot up 40 percent to $2.9 billion in the fourth quarter, largely driven by its acquisition of Hewitt Associates.

For the quarter, Aon saw a 41 percent increase in commissions and fees resulting from acquisitions, primarily Hewitt, net of dispositions, and a two percent increase in organic revenue, partially offset by a one percent decrease from foreign currency translation.

Aon closed on the merger with Hewitt Associates on Oct. 1, 2010.

Total operating expenses increased 36 percent or $655 million to $2.5 billion. Aon said this was due primarily to the inclusion of operating expenses related to the merger with Hewitt, partially offset by benefits related to the restructuring programs and an estimated $28 million favorable impact from foreign currency translation.

Net income increased 17 percent to $231 million, compared to $198 million for the prior year quarter.

Restructuring expenses were $57 million in the fourth quarter compared to $175 million in the prior year quarter. In the fourth quarter, the company incurred $52 million of costs under the Aon Hewitt restructuring program and $5 million of total costs under the Aon Benfield and 2007 restructuring programs. The total expected cost of the Aon Hewitt restructuring plan is $325 million. The company has completed all restructuring activities and incurred 100% of the total costs for the 2007 program and has incurred approximately 88% of the total costs necessary to deliver the remaining savings under the Aon Benfield program.

Restructuring savings in the fourth quarter related to the 2007 restructuring program are estimated at $128 million compared to $108 million in the prior year quarter. Of the estimated restructuring savings in the fourth quarter, $107 million were related to the Risk Solutions segment primarily from workforce reductions. Before any potential reinvestment of savings, the 2007 restructuring program is expected to deliver cumulative cost savings of $536 million in 2011.

Restructuring savings in the fourth quarter related to the Aon Benfield restructuring program are estimated at $27 million compared to $17 million in the prior year quarter. Before any potential reinvestment of savings, the Benfield restructuring program is expected to deliver cumulative cost savings of $122 million in 2011.

Restructuring savings in the fourth quarter related to the Aon Hewitt restructuring program are estimated at $4 million. The Aon Hewitt merger is expected to deliver cumulative cost savings of $355 million in 2013, including $280 million related to the restructuring program and $75 million in areas such as information technology, procurement and public company costs.

Risk and Insurance Q4

Total revenue for the quarter at Aon’s Risk Solutions unit (formerly know as Risk and Insurance Brokerage Services) increased four percent to $1.8 billion compared to the prior year quarter due to three percent organic growth in commissions and fees and a two percent increase from acquisitions, primarily Allied North America. Risk Solutions operating margin was 21.2 percent and the operating margin, excluding certain items, increased 70 basis points to a record 21.9 percent, according to the company.

Retail organic revenue increased four percent, the highest rate of organic revenue growth since the second quarter of 2007. By geographic region in retail, the Americas organic revenue increased three percent due to strong growth in Latin America and modest growth in U.S. retail. U.K. organic revenue increased six percent due primarily to strong new business growth and growth in the Affinity business.

2010 Full Year

Total revenue for 2010 increased 12 percent to $8.5 billion due to a 12 percent increase in commissions and fees resulting from acquisitions, primarily Hewitt, net of dispositions and a one percent favorable impact from foreign currency translation, partially offset by a $49 million decline in revenue from certain insurance investment funds and a $19 million or 26 percent decline in investment income.

Risk Solutions total revenue increased two percent to $6.4 billion and HR Solutions total revenue increased 67 percent to $2.1 billion.

Net income for 2010 decreased five percent to $706 million compared to $747 million for the prior year.

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