Aon Witnesses Q2 Jump

Aon Corporation has reported second quarter and six months 2005 results.

Second quarter 2005 net income and the related per share amount increased 10% to $191 million or $0.57 per share from the second quarter of 2004. Net income from continuing operations increased to $193 million or $0.58 per share from $180 million or $0.54 per share a year ago.

Six months 2005 net income of $391 million or $1.16 per share increased 14% and 13%, respectively, from the prior period. Net income from continuing operations and the related per share amounts for six months increased to $393 million or $1.17 from $372 million or $1.12, respectively.

Greg Case, Aon’s president and CEO, said, “Our second quarter results show ongoing improvement, and we are pleased with our performance despite the continued decline in insurance premium rates and our decision to terminate contingent commission arrangements. Excluding the effect of contingent commissions, organic revenue increased in both the Risk & Insurance Brokerage Services and Consulting segments. We were encouraged by the progress of U.S. retail brokerage, employee benefits consulting, and insurance underwriting. Second quarter results also benefited from continued tight management of our cost base, which is a central component of our program to improve Aon’s profitability.”

Case added, “While we are clearly making progress, our aspirations are very high. We are committed to achieving optimal performance and generating attractive returns irrespective of market influences. To ensure that we deliver continuous improvements, we are reviewing the revenue potential and cost structure of each of our businesses. Although these efforts are not yet complete, we anticipate adopting restructuring initiatives that will lead us to record a pretax charge ranging from $200 million to $300 million, beginning in the third quarter. We also anticipate that these initiatives will lead to annualized cost-savings ranging from $100 million to $150 million.”

Risk and Insurance Brokerage Services second quarter revenue declined 3% to $1.4 billion, with organic revenue declining 2%. Excluding the loss of contingent commissions, organic revenue in the current quarter rose 1%. Contingent commission revenue was $4 million in the second quarter of 2005, reflecting amounts collected during the quarter relating to arrangements terminated as of October 1, 2004.

By comparison, contingent commission revenue was $43 million in the second quarter of 2004. Investment income increased $12 million in the quarter compared to the prior year, primarily reflecting higher short-term interest rates.

Organic revenue in Brokerage-Americas declined 2%, primarily driven by the loss of contingent commissions and the impact of declining property and casualty pricing. Excluding the impact of contingent commissions, Brokerage- Americas organic revenue grew 3%. Brokerage-International and Reinsurance organic revenues declined 1% and 6%, respectively.

Second quarter 2005 pretax income and margin comparisons were favorably influenced by improved retention in U.S. retail, a 4% reduction in expenses largely reflecting the exit of the claims services business, changes to incentive compensation programs, and continued emphasis on cost control. Pretax income increased 8% to $231 million, and the pretax margin improved to 16.5% from 14.9% a year ago.

Six months pretax income increased 4% to $474 million and the pretax margin improved 130 basis points to 17.0% from 15.7%.

Consulting revenue rose 3% to $315 million during the quarter. Organic revenue declined 1%, reflecting the loss of contingent commissions and a decline in outsourcing revenue.

Excluding the loss of contingent commissions, organic revenue rose 3% in the current quarter reflecting growth in U.K. and U.S. employee benefits. Contingent commission revenue was $1 million in the second quarter of 2005 compared with $11 million in the second quarter of 2004. Organic revenue growth in consulting services was 2%, while outsourcing revenues declined 7%, primarily reflecting lost business.

Pretax income rose 4% to $29 million, and the pretax margin was 9.2% for both 2005 and 2004.

Six months pretax income increased 2% to $55 million and the pretax margin was 8.8% versus 8.9% in 2004.

Insurance Underwriting revenue increased 1% to $816 million, while organic revenue declined 2% during the quarter. 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 organic revenue principally reflected returned premiums on a Japanese program and the earlier loss of an account within the European credit insurance business, with minimal impact on pretax income.

Pretax income rose 14% to $83 million. The pretax margin improved to 10.2% from 9.1% for 2004, reflecting improved profitability in both underwriting subsegments and higher investment income.

Six months pretax income increased 20% to $151 million and the pretax margin improved to 9.4% from 7.9% in 2004.

The pretax loss in the Corporate and Other segment was $51 million compared with a loss of $32 million a year ago, principally driven by equity earnings on Endurance common stock of $18 million in 2004.

The pretax loss for six months was $75 million compared to a pretax loss of $54 million a year ago.