AOC Aon Corp.

CHICAGO, Nov. 10 /PRNewswire-FirstCall/ -- The overall pension deficit among major U.S. companies in the Fortune 100 is expected to increase significantly by year-end, from $78 billion in December 2004 to an estimated $129 billion by December 2005 -- an increase of 65% -- unless company contributions are increased or market conditions improve by the year-end. This is according to analysis(1) from Aon Consulting, a leading global human capital consulting firm. (Logo: http://www.newscom.com/cgi-bin/prnh/20041215/CGW049LOGO ) However, while the overall deficit among the Fortune 100 is set to rise, the overall deficit held by 200 of the largest companies in the U.K. at the end of 2005 is expected to remain relatively unchanged from 2004 levels at just under 70bn pounds Sterling, based on market conditions as of October 31, 2005. According to Aon Consulting, likely factors contributing to the increase in overall pension fund deficit levels among the Fortune 100 during 2005 include: -- A 9 basis point drop in the discount rate, increasing the liabilities by about 1.5%. -- Investment returns much lower than expected on stocks and bonds through October. -- Lower levels of contributions during 2005 from companies -- however, it is anticipated that contributions will increase over expectations during 2005 as companies decide to contribute more to reduce or eliminate any additional minimum liability under FAS 87 at the end of 2005. Companies predicted at the start of the year that they would only have to pay cash contributions of $20 billion(2). Last year they made cash contributions of around $35 billion. Commenting on the likely rise in the U.S. pension plan deficit, Brad Klinck, senior vice president with Aon Consulting in the U.S., said: "It is clear that U.S. deficit levels have been highly susceptible to change in recent months -- ranging from 79% to 91% funded from December 04 to October 05. We expect this volatility to continue for the rest of this year. The potential increase in U.S. pension plan underfunding shown by our analysis is largely the result of low interest rates, low investment performance, and lower corporate funding of pension plans. The lower corporate funding is, in many cases, being caused by government policies and the concern that potential changes to the U.S. funding rules may effectively penalize plan sponsors that contribute this year. "With regard to interest rates, we could well see a rise in rates over the remainder of the year. With a combination of interest rates rising by 35 basis points in the remaining two months and assets returning their expected gains, the unfunded at year end will remain roughly unchanged from the end of last year." In the U.K., discount rates have also fallen, thereby increasing the liabilities by almost 10%. However, this 10% increase in liabilities has been offset by a slightly higher than 10% increase in pension plan assets. In fact 2005 has been a surprisingly stable period for FRS17 deficits overall; Aon estimates that the total deficit has remained in the range 69bn pounds Sterling to 58bn pounds Sterling, reaching its lower level at the end of July, but then increasing over the last few months as a result of falling index- linked gilt yields. Andrew Claringbold, from Aon Consulting in the U.K., said: "While pension scheme funding levels have remained fairly stable in the U.K. this year, the experience in the U.S. shows that small movements in markets (particularly bond markets) can cause significant movements in funding levels. In the U.K., the funding level is particularly sensitive to index-linked gilts and the corporate bond yield spread over gilts. If either index-linked gilt yields or the corporate bond yield spread rose by only 0.5%, then the FRS17 deficit would fall by over a half." With reference to the recent consultation document issued by the Pensions Regulator in which it set out its proposed approach to funding, Andrew Claringbold added "Cash contributions to U.K. pension funds have increased significantly over recent years. Based on the companies in our survey, cash contributions increased from around 8bn pounds Sterling in 2003 to an estimated amount of 13bn pounds Sterling in 2005. If companies pay cash contributions in line with the suggested targets and amortization periods suggested by the Regulator, then based on current funding levels, we estimate that cash contributions will have to increase further to 15bn pounds Sterling each year." For further information, please contact: U.S. Joe Micucci 312-381-4786 U.K. Bridget Agnew/Lucy Bennett Nessa Kearney Financial Dynamics Aon Press Office T: 020 7269 7219/7185 Tel: 020 7882 0067 Notes to editors: 1. The research is divided into two parts: a. The U.K. research looks at the disclosure of pension information of 200 of the largest U.K. companies -- including all U.K. FTSE 100 companies with DB plans; a significant proportion of companies from the FTSE 250 with DB plans, and; the remaining number of companies were listed with the NAPF, as having pension fund assets in excess of 100m. b. The U.S. research looks at disclosure of pension information of 80 Fortune 100 companies sponsoring defined benefit pension plans for which information was available in company annual reports. The Aon Consulting research compares pension information data for U.S. companies (using FAS87 accounting rules) with similar data for U.K. companies (using FRS17 accounting rules). Assets are measured on a market value basis in both countries. While FAS 87 allows the use of a "smoothed" asset value for purposes of calculating the annual pension expense, we used market value in all calculations. Liabilities are measured using the projected unit credit method with a discount rate based on current high- quality corporate bonds in both countries. Therefore, in theory, the liabilities are comparable between the countries. 2. Aon based its U.S. projections on the assumption that companies would only have to pay cash contributions of $20 billion. About Aon Aon Corporation (NYSE:AOC) ( http://www.aon.com/ ) 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. Aon Consulting is among the top global human resources consulting firms, with 2004 revenues of $1.247 billion and 7,000 professionals in 120 offices throughout the world. Aon Consulting delivers integrated consulting solutions to help clients with employee benefits, human resources outsourcing, compensation, communication and management consulting. 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, our ability to implement restructuring initiatives and other initiatives intended to yield cost savings, our ability to implement the stock repurchase program, 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 investigations brought by state attorneys general, state insurance regulators, federal prosecutors, and federal regulators, 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. Charts are available by calling contact or http://www.aon.com/ . http://www.newscom.com/cgi-bin/prnh/20041215/CGW049LOGO http://photoarchive.ap.org/ DATASOURCE: Aon Corporation CONTACT: U.S., Joe Micucci, +1-312-381-4786, or , or U.K., Financial Dynamics, Bridget Agnew, or Lucy Bennett, +1-020-7269-7219 or 7185, or Aon Press Office, Nessa Kearney, +1-020-7882-0067, all of Aon Corporation Web site: http://www.aon.com/

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