Aon Corporation

Aon First Quarter Net Income Increases 18% to US$200 Million; Earnings Per Share Increases 16% to US$0.59

    Chicago (ots/PRNewswire) - Aon Corporation (NYSE: AOC) today reported first quarter 2005 net income  of US$200 million or US$0.59 per share, increasing 18% and 16%, respectively,  from the first quarter of 2004. Income from continuing operations was US$200 million or US$0.59 per share compared to US$192 million or US$0.58 per share  a year ago.

    Gregory C. Case, Aon's President and CEO, stated, "I am encouraged that Aon achieved improved results in the first quarter despite a difficult revenue environment in the insurance brokerage and human resources consulting industries and despite our decision to eliminate contingent commissions last year. During the quarter, we continued our efforts to keep costs under control and to develop new sources of revenue. We are committed to increasing profitability by developing growth opportunities and effectively managing expenses."

    First Quarter Segment Review

    Risk and Insurance Brokerage Services first quarter revenue declined 4% to US$1.4 billion, with organic revenue declining 5%. Excluding contingent commissions, organic revenue in the current quarter declined 3%. Contingent commission revenue was US$12 million in the first quarter of 2005, reflecting amounts related to arrangements terminated as of October 1, 2004. Contingent commission revenue was US$35 million in the first quarter of 2004. Investment income increased US$13 million in the quarter.

    Organic revenue in Brokerage-Americas declined 9%, primarily driven by the elimination of contingent commissions and the impact of declining property and casualty pricing. Excluding the impact of contingent commissions, Brokerage-Americas organic revenue declined 5%. Brokerage-International reported a 1% decline in organic revenue, and  Reinsurance organic revenue declined 4%.

    First quarter 2005 pretax income and margin comparisons were favorably influenced by a 5% reduction in expenses largely reflecting the exit of the claims services business, changes to incentive compensation programs, and continued emphasis on cost control, in particular, reductions in staff. Pretax income was US$243 million, unchanged from the prior year, and the pretax margin improved to 17.4% from 16.6% a year ago.

    Consulting revenue rose 3% to US$309 million during the quarter. Organic revenue declined 1%, reflecting the loss of contingent commissions and a decline in outsourcing revenue. Excluding contingent commissions, organic revenue growth was nil in the current quarter. Contingent commission revenue was negligible in the first quarter of 2005 compared to US$4 million in the first quarter of 2004. Organic revenue growth in consulting services was 2%, while outsourcing revenues declined 11%, primarily reflecting the loss of a large client.

    Pretax income was US$26 million, unchanged from the prior year, and the pretax margin was 8.4% versus 8.6% in 2004.

    Insurance Underwriting revenue increased 1% to US$789 million, with segment organic revenue declining 3% during the quarter. Reported revenue in the quarter included a US$12 million increase due to reinsurance program changes for a specialty accident and health (A&H) line. These changes had no impact on organic revenue growth or pretax income. In addition, strong growth in the sales of a supplemental health product was partially offset by planned reductions in certain programs and the run-off of non-core businesses. The decline in warranty, credit and property and casualty revenue principally reflected the loss of an account within the European credit line of business that had minimal impact on pretax income.

    Pretax income rose 28% to US$68 million from US$53 million last year. The pretax margin improved to 8.6% from 6.8% for 2004, reflecting improved profitability in both underwriting subsegments and higher investment income.

    Corporate and Other segment revenue was US$29 million compared to US$36  million in 2004. First quarter 2005 results included a pretax gain of US$16 million related to the quarterly revaluation of Endurance warrants compared to a US$4 million gain in the prior year. First quarter 2004 results included an US$11 million pretax gain on the sale of Endurance common stock and Endurance equity earnings of US$16 million.

    The pretax loss in the quarter was US$24 million compared with a loss of US$22 million a year ago.

    Foreign Exchange Impact

    First quarter 2005 earnings per share were positively affected by US$0.02 related to foreign currency translation gains. In addition, first quarter 2005 and 2004 earnings per share included US$0.02 and US$0.03, respectively, of currency hedging gains.

    Financial Condition

    Total debt and preferred stock increased US$76 million to US$2.1 billion at March 31, 2005 from March 31, 2004. Total debt and preferred stock as a percentage of total capital was reduced to 29% from 31% over the same period. Stockholders' equity was US$5.1 billion, unchanged from year-end 2004. Compared to December 31, 2004, total debt and preferred stock decreased US$30 million.

    Approximately 94% of Aon's investment portfolio at quarter end was in short-term and fixed maturities, with 97% of the fixed income securities rated investment grade.

    The Company will host an audio webcast on Wednesday, May 4 at 10:00 a.m. central time that can be accessed at .

    Aon Corporation ( ) is a leading provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting, and specialty insurance underwriting. There are 47,000 employees working in Aon's 500 offices in more than 120 countries. Backed by broad resources, industry knowledge and technical expertise, Aon professionals help a wide range of clients develop effective risk management and workforce productivity solutions.

    This press release contains certain statements related to future results, or states our intentions, beliefs and expectations or predictions for the future which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from either historical or anticipated results depending on a variety of factors. Potential factors that could impact results include: general economic conditions in different countries in which we do business around the world, changes in global equity and fixed income markets that could affect the return on invested assets, fluctuations in exchange and interest rates that could influence revenue and expense, rating agency actions that could affect our ability to borrow funds, funding of our various pension plans, changes in the competitive environment, changes in commercial property and casualty markets and commercial premium rates that could impact revenues, changes in revenues and earnings due to the elimination of contingent commissions, other uncertainties surrounding a new compensation model, the impact of regulatory investigations brought by state attorneys general and state insurance regulators related to our compensation arrangements with underwriters and related issues, the impact of class actions and individual lawsuits including client class actions, securities class actions, derivative actions, and ERISA class actions, the cost of resolution of other contingent liabilities and loss contingencies, and the difference in ultimate paid claims in our underwriting companies from actuarial estimates. Further information concerning the Company and its business, including factors that potentially could materially affect the Company's financial results, is contained in the Company's filings with the Securities and Exchange Commission.

    This press release includes supplemental information related to organic revenue growth, a measure that management believes is important to evaluate changes in revenue from existing operations. We also believe that this supplemental information is helpful to investors. Organic revenue growth excludes from reported revenues the impact of foreign exchange, acquisitions, divestitures, transfers between business units, investment income, reimbursable expenses, unusual items, and for the underwriting segment only, an adjustment between written and earned premium. A reconciliation is provided in the attached schedules. The supplemental organic revenue growth information does not affect net income or any other GAAP reported amounts. It should be viewed in addition to, not in lieu of, the Company's Consolidated Summary of Operations. Industry peers provide similar supplemental information regarding their revenue performance, although they do not make identical adjustments.

@@start.t1@@        Investor Contact:        Craig Streem
                                          Corporate Vice President, Investor Relations
        Media Contact:            Al Orendorff
                                          Director, Public Relations

    Web site:

ots Originaltext: Aon Corporation
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Investor Contact: Craig Streem, Corporate Vice President, Investor
Relations +1-312-381-3983, Media Contact: Al Orendorff, Director,
Public Relations +1-312-381-3153

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