AOC Aon Corp.

- Revenue increased 11% to $2.4 billion with organic revenue growth of 6% CHICAGO, Oct. 31 /PRNewswire-FirstCall/ -- Aon Corporation (NYSE:AOC) today reported results for the third quarter ended September 30, 2007. Net income increased 92% to $204 million or $0.64 per share, compared to $106 million or $0.32 per share for the prior year quarter. Net income from continuing operations increased 109% to $188 million or $0.59 per share, compared to $90 million or $0.27 per share for the prior year quarter. Certain items that impacted third quarter results and comparisons with the prior year quarter are detailed in the reconciliations of non-GAAP measures on pages 13 and 14 of this press release. Net income from continuing operations per share, excluding certain items, increased 67% to $0.70 compared to $0.42 for the prior year quarter. "Our results continue to demonstrate significant progress as organic growth was six percent, adjusted operating margin increased 370 basis points with significant improvement in our Brokerage and Consulting segments, and adjusted earnings per share increased 67 percent," said Greg Case, president and chief executive officer, Aon Corporation. "Despite soft market conditions, we are making investments that further enable us to best serve our clients, we are managing expenses as we announced a new restructuring program expected to deliver $240 million of annualized savings by 2010, and we repurchased $100 million of stock during the quarter. All these actions support our continued commitment to delivering distinctive client value, operational excellence and long-term shareholder value creation." THIRD QUARTER FINANCIAL SUMMARY Total revenue increased 11% to $2.4 billion with organic revenue growth of 6%. Total expenses increased 3% or $66 million to $2.1 billion including a $70 million unfavorable impact from foreign currency translation. Pension expense related to the Company's major defined benefit pension plans declined to $14 million in the third quarter compared to $63 million in the prior year quarter. The company currently anticipates that pension expense will be approximately $85 million in 2007. The decrease in pension expense from the prior year primarily reflects previously highlighted changes to both the U.S. and U.K. defined benefit pension plans. Restructuring expense was $17 million in the third quarter compared to $29 million for the prior year quarter. An analysis of restructuring related expenses by segment and type for the 2005 and recently announced 2007 restructuring programs is detailed on page 15 of this release. Restructuring savings realized in the third quarter are estimated at $63 million compared to $35 million in the prior year quarter. Of the estimated restructuring savings in the third quarter, $51 million were related to the Brokerage segment, primarily for workforce reduction. The 2005 restructuring program is anticipated to result in cost savings of approximately $235 million in 2007 and $280 million of annualized savings by 2008, consistent with previous estimates. The 2007 restructuring program, before any potential reinvestment of savings, is expected to result in cost savings of approximately $50-70 million in 2008, $175-200 million in 2009 and $240 million of annualized savings by 2010. Foreign currency translation increased net income by $0.01 per share compared to the prior year quarter. Effective tax rate on continuing operations was 39.7% for the third quarter compared to 35.3% for the prior year quarter. The effective tax rate for the third quarter was impacted primarily by a $22 million non-cash adjustment related to the revaluation of deferred tax assets in the Company's U.K. operations resulting from reductions in the statutory tax rate. Compared to an underlying effective tax rate on operations of 33.5%, this non-recurring tax adjustment unfavorably impacted net income from continuing operations by $0.07 per share as highlighted on page 13 of this release. The company anticipates a recurring effective tax rate on continuing operations of 33.5% for 2007. Diluted average shares outstanding declined to 321 million for the third quarter compared to 340 million in the prior year quarter due primarily to the Company's share repurchase program. During the third quarter, the Company repurchased an additional 2.3 million shares of common stock for $100 million at an average price of $43.03 per share. As of September 30, 2007, the company had approximately $200 million of remaining authorization under the existing $2 billion share repurchase program. Discontinued Operations after-tax income was $16 million or $0.05 per share in both the third quarter 2007 and 2006. After-tax income for the third quarter 2007 reflects tax-related adjustments from the sale of Aon Warranty Group (AWG) in November 2006 and the results of operations for AWG and Construction Program Group (CPG) in the prior year quarter. THIRD QUARTER SEGMENT REVIEW Certain noteworthy items impacted revenue, pretax income and pretax margins in the third quarter of 2007 and 2006. The third quarter segment reviews provided below include supplemental information related to adjusted pretax income and pretax margin which is described in detail on the "Reconciliation of Non-GAAP Measures -- Segments" on page 14 of this press release. RISK AND INSURANCE BROKERAGE SERVICES (millions) Third Quarter Ended Less: ------------------- Less: Acquisitions, Less: Organic Sept 30, Sept 30, % Currency Divestitures, All Revenue Revenue 2007 2006 Change Impact Transfers Other Growth ------- ------- ------ -------- ------------ ------- ------- Americas $582 $567 3 % 1 % - % (1)% 3 % U.K. 207 180 15 4 1 5 5 EMEA 275 242 14 7 (2) 6 3 Asia Pacific 123 114 8 9 (3) (1) 3 Reinsurance 250 238 5 3 2 - - -------- ------- ------- ------- ------------ ------- ------- Total $1,437 $1,341 7 % 4 % - % - % 3 % ======== ======= ======= ======= ============ ======= ======= Risk and Insurance Brokerage Services revenue increased 7% compared to the prior year quarter with organic revenue growth of 3%. Americas organic revenue increased 3% primarily reflecting growth in U.S. Retail. U.K. organic revenue increased 5% due primarily to new business and an improved retention rate. EMEA organic revenue increased 3% with modest growth in continental Europe and strong growth in emerging markets. Asia Pacific organic revenue increased 3% reflecting strong growth in most Asian markets, partially offset by continued weakness in Australia. Reinsurance organic revenue was unchanged due primarily to growth in new business including global facultative placements offset by soft market conditions. Third Quarter Ended ------------------------- Sept 30, Sept 30, % (millions) 2007 2006 Change -------- -------- ------ Revenue $1,437 $1,341 7 % Expenses Compensation and benefits 842 814 3 Other expenses 359 337 7 ------- ------- ------ Total expenses 1,201 1,151 4 ------- ------- ------ Pretax income $236 $190 24 % ======= ======= ====== Pretax margin 16.4 % 14.2 % Pretax income - adjusted $252 $181 39 % Pretax margin - adjusted 17.5 % 13.5 % Compensation and benefits increased $28 million or 3% compared to the prior year quarter due primarily to a $38 million unfavorable impact from foreign currency translation. Other expenses increased $22 million or 7% compared to the prior year quarter. Other expenses for the prior year quarter included a $30 million gain on sale of a building in Spain. Excluding the $30 million benefit in the prior year quarter, other expenses for the third quarter 2007 declined $8 million or 2% due primarily to lower restructuring costs and benefits related to the 2005 restructuring program, partially offset by a $12 million unfavorable impact from foreign currency translation. Third quarter pretax income was $236 million. Adjusting for certain items detailed on page 14 of this press release, pretax income increased 39% to $252 million and pretax margin increased 400 basis points to 17.5% versus the prior year quarter. CONSULTING (millions) Third Quarter Ended Less: ------------------- Less: Acquisitions, Less: Organic Sept 30, Sept 30, % Currency Divestitures, All Revenue Revenue 2007 2006 Change Impact Transfers Other Growth -------- ------- ------ -------- ------------ ----- ------- Services $270 $234 15 % 4 % 3 % - % 8 % Outsourcing 55 67 (18) 3 (1) - (20) -------- ------- ------ -------- ------------ ----- ------- Total $325 $301 8 % 4 % 2 % - % 2 % ======== ======= ====== ======== ============ ===== ======= Consulting revenue increased 8% to $325 million compared to the prior year quarter with organic revenue of 2%. Organic revenue in Consulting Services increased 8% due to growth in most major practice groups and geographies. Organic revenue in Outsourcing decreased 20% due primarily to the previously announced termination of an outsourcing contract. Third Quarter Ended --------------------- Sept 30, Sept 30, % (millions) 2007 2006 Change --------- --------- -------- Revenue $325 $301 8 % Expenses Compensation and benefits 209 198 6 Other expenses 78 85 (8) -------- -------- -------- Total expenses 287 283 1 -------- -------- -------- Pretax income $38 $18 111 % ======== ======== ======== Pretax margin 11.7 % 6.0 % Pretax income - adjusted $39 $23 70 % Pretax margin - adjusted 12.0 % 7.6 % Total expenses increased $4 million or 1% versus the prior year quarter due primarily to a $9 million unfavorable impact from foreign currency translation, partially offset by benefits related to the 2005 restructuring program and other operational improvements. Third quarter pretax income increased 111% to $38 million and the pretax margin increased 570 basis points to 11.7% versus the prior year quarter. Adjusting for certain items detailed on page 14, pretax income increased 70% to $39 million and the pretax margin increased 440 basis points to 12.0%. INSURANCE UNDERWRITING (millions) Third Quarter Ended Less: ------------------- Less: Acquisitions, Less: Organic Sept 30, Sept 30, % Currency Divestitures, All Revenue Revenue 2007 2006 Change Impact Transfers Other Growth ------- ------- ------ -------- ------------ ------- ------- Accident & Health and Life $625 $511 22 % 3 % - % (2)% 21% Property & Casualty 2 8 (75) N/A N/A N/A N/A -------- ------- ------- ------- ------------ ------- ------- Total $627 $519 21 % 3 % - % (1)% 19% ======== ======= ======= ======= ============ ======= ======= Insurance Underwriting revenue increased 21% to $627 million compared to $519 million in the prior year quarter. Accident & Health and Life (A&H and L) organic revenue, which is based on written premiums and fees, increased 21% attributable to strong growth of the Medicare Advantage product provided by the Sterling Life Insurance subsidiary (Sterling). All remaining Property & Casualty (P&C) business was placed into run-off in the fourth quarter 2006. As organic growth calculations are based on written premium, organic growth comparisons in P&C are not meaningful. Third Quarter Ended ------------------------ Sept 30, Sept 30, % (millions) 2007 2006 Change --------- --------- -------- Revenue $627 $519 21 % Expenses Benefits to policyholders 366 349 5 Compensation and benefits 99 94 5 Other expenses 99 103 (4) --------- --------- -------- Total expenses 564 546 3 --------- --------- -------- Pretax income $63 $(27) N/A% ========= ========= ======== Pretax margin 10.0 % (5.2)% Pretax income - adjusted $63 $54 17 % Pretax margin - adjusted 10.0 % 10.4 % Benefits to policyholders increased 5% to $366 million versus the prior year quarter. The prior year quarter included an unfavorable impact of $81 million related to the strengthening of P&C reserves. Excluding the $81 million P&C reserve strengthening, benefits to policyholders expense for the third quarter 2007 increased 37% to $366 million due primarily to strong growth in Sterling. Compensation and benefits increased 5% to $99 million versus the prior year quarter due primarily to strong growth in Sterling. Other expenses decreased 4% to $99 million versus the prior year quarter due primarily to lower marketing costs in Sterling. Third quarter pretax income increased to $63 million and the pretax margin was 10.0%. Adjusting for certain items detailed on page 14, pretax income increased 17% to $63 million and the pretax margin was 10.0%. During the third quarter, the Company announced that it was considering strategic options for the Accident & Health and Life segment, including Combined Insurance Companies of America (CICA) and its subsidiaries. UNALLOCATED INCOME AND EXPENSE Unallocated investment income increased to $26 million in the third quarter compared to $19 million in the prior year quarter due primarily to dividends received from holdings in certain private equity investments. Unallocated expenses of $18 million in the third quarter included a $6 million foreign exchange gain on an investment. Unallocated expenses were $27 million in the prior year quarter. Interest expense was $33 million in the third quarter compared to $34 million in the prior year quarter. Conference Call and Webcast Details The Company will host a conference call on Thursday, November 1, 2007 at 10:00 a.m. central time. Interested parties can listen to the conference call via a live audio webcast at http://www.aon.com/. About Aon Aon Corporation (NYSE:AOC) is the leading global provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting, and specialty insurance underwriting. Through its 43,000 professionals worldwide, Aon readily delivers distinctive client value via innovative and effective risk management and workforce productivity solutions. Our industry-leading global resources, technical expertise and industry knowledge are delivered locally through more than 500 offices in more than 120 countries. Aon was ranked by A.M. Best as the number one global insurance brokerage in 2007 based on brokerage revenues, and voted best insurance intermediary, best reinsurance intermediary, and best employee benefits consulting firm in 2007 by the readers of Business Insurance. For more information on Aon, log onto http://www.aon.com/. Safe Harbor Statement 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 successfully execute strategic options for our Combined Insurance subsidiary, the impact of current, pending and future regulatory and legislative actions that affect our ability to market and sell, and be reimbursed at current levels for, our Sterling subsidiary's Medicare Advantage health plans, 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, ERISA class actions, the impact of the analysis of practices relating to stock options, 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 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 may not make identical adjustments. This press release also includes supplemental information related to several measures -- income per share, expenses, and margins -- that exclude the effects of the restructuring charges and certain other noteworthy items that impacted revenue and pretax income in the comparable periods. Management believes that these measures are important to make meaningful period-to-period comparisons and that this supplemental information is helpful to investors. The measures that exclude the effects of the restructuring charges and certain other items do not affect net income or any other GAAP reported amounts. They 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 performance, although they may not make identical adjustments. Investor Contact: Media Contact: Scott Malchow David Prosperi Vice President, Investor Relations Vice President, Public Relations 312-381-3983 312-381-2485 tables follow >>>>>>>>>>>>>>>>> Aon Corporation Consolidated Summary of Operations Third Quarter Ended Nine Months Ended --------------------------- ----------------------------- Sept. 30, Sept. 30, Percent Sept. 30, Sept. 30, Percent (millions except 2007 2006 Change 2007 2006 Change per share data) -------- --------- ------- ---------- --------- ------ Revenue Commissions and fees $1,702 $1,589 7% $5,218 $4,852 8% Premiums and other 589 487 21 1,701 1,423 20 Investment income 116 92 26 357 266 34 -------- --------- ------- ---------- --------- ------ Total revenue 2,407 2,168 11 7,276 6,541 11 -------- --------- ------- ---------- --------- ------ Expenses Compensation and benefits 1,156 1,116 4 3,515 3,344 5 Other general expenses 490 474 3 1,477 1,394 6 Benefits to policyholders 366 349 5 1,044 864 21 Depreciation and amortization 50 56 (11) 149 166 (10) Interest expense 33 34 (3) 102 99 3 Provision for New York and other state settlements - - - 1 2 (50) -------- --------- ------- ---------- --------- ------- Total expenses 2,095 2,029 3 6,288 5,869 7 -------- --------- ------- ---------- --------- ------- Income from continuing operations before provision for income tax 312 139 124 988 672 47 Provision for income tax (2) 124 49 153 350 234 50 -------- --------- ------- ---------- --------- ------- Income from continuing operations 188 90 109 638 438 46 Discontinued operations Income from discontinued operations (1) 24 N/A 4 92 (96) Provision for income tax (3) (17) 8 N/A (15) 34 N/A -------- --------- ------- ---------- --------- ------- Income from discontinued operations 16 16 - 19 58 (67) -------- --------- ------- ---------- --------- ------- Income before accounting change 204 106 92 657 496 32 Cumulative effect of change in accounting principle, net of tax (1) - - - - 1 (100) -------- --------- ------- ---------- --------- ------- Net income $204 $106 92% $657 $497 32% ======== ========= ======= ========== ========= ======= Basic net income per share: Continuing operations $0.64 $0.29 121% $2.16 $1.37 58% Discontinued operations 0.05 0.05 - 0.06 0.18 (67) Cumulative effect of change in accounting principle - - - - - - -------- --------- ------- ---------- --------- ------- Net income $0.69 $0.34 103% $2.22 $1.55 43% ======== ========= ======= ========== ========= ======= Diluted net income per share: Continuing operations $0.59 $0.27 119% $1.99 $1.29 54% Discontinued operations 0.05 0.05 - 0.06 0.17 (65) Cumulative effect of change in accounting principle - - - - - - -------- --------- ------- ---------- --------- ------- Net income $0.64 $0.32 100% $2.05 $1.46 40% ======== ========= ======= ========== ========= ======= Diluted average common and common equivalent shares outstanding 321.5 340.1 322.6 345.0 ======== ========= ========== ========= (1) Adoption of FASB Statement No. 123R, "Share-Based Payments," effective January 1, 2006. (2) Tax rate from continuing operations is 39.7% and 35.3% for the third quarters ended September 30, 2007 and 2006, respectively, and 35.4% and 34.8% for the nine months ended September 30, 2007 and 2006, respectively. (3) Tax rate from discontinued operations is not meaningful and 33.3% for the third quarters ended September 30, 2007 and 2006, respectively, and not meaningful and 37.0% for the nine months ended September 30, 2007 and 2006, respectively. Aon Corporation Revenue from Continuing Operations Third Quarter Ended ---------------------------------------------------------- Less: Acquis- itions, Less: Divest- Less: Organic Curr- itures All Revenue Sept. 30, Sept. 30, Percent ency & Other Growth (millions) 2007 2006 Change Impact Transfers (1) (2) -------- -------- -------- ------ ------- ----- ----- Revenue Risk and insurance brokerage services: Americas $582 $567 3% 1% -% (1)% 3% United Kingdom 207 180 15 4 1 5 5 Europe, Middle East & Africa 275 242 14 7 (2) 6 3 Asia Pacific 123 114 8 9 (3) (1) 3 Reinsurance brokerage and related services 250 238 5 3 2 - - -------- -------- -------- ------ ------- ----- ----- Total risk and insurance brokerage services 1,437 1,341 7 4 - - 3 -------- -------- -------- ------ ------- ----- ----- Consulting: Consulting services 270 234 15 4 3 - 8 Outsourcing 55 67 (18) 3 (1) - (20) -------- -------- -------- ------ ------- ----- ----- Total consulting 325 301 8 4 2 - 2 -------- -------- -------- ------ ------- ----- ----- Insurance underwriting: Accident & health and life 625 511 22 3 - (2) 21 Property & casualty 2 8 (75) N/A N/A N/A N/A -------- -------- -------- ------ ------- ----- ----- Total insurance underwriting 627 519 21 3 - (1) 19 -------- -------- -------- ------ ------- ----- ----- Unallocated revenue 26 19 37 N/A N/A N/A N/A Intersegment revenues (8) (12) N/A N/A N/A N/A N/A -------- -------- -------- ------ ------- ----- ----- Total $2,407 $2,168 11% 3% -% 2% 6% ======== ======== ======== ====== ======= ===== ===== (1) Includes the impact of investment income, reimbursable expenses, adjustment between written and earned premium and fees in insurance underwriting only, and unusual items. (2) Organic revenue growth excludes the impact of foreign exchange, acquisitions, divestitures, transfers and items described in (1). Written premiums and fees are the basis for organic revenue growth within the Insurance Underwriting segment. Aon Corporation Revenue from Continuing Operations Nine Months Ended --------------------------------------------------------------- Organic Revenue Less: Growth Acqui- Ex- sitions cluding Divest- Contin- Less: itures Less: Organic gent Curr- & All Revenue Com- Sept. 30 Sept. 30 Percent ency Trans- Other Growth miss- (millions) 2007 2006 Change Impact fers (1) (2) ions ------- ------- -------- ------- ----- ------ ----- ------ Revenue Risk and insurance brokerage services: Americas $1,719 $1,665 3% 1% -% (3)% 5% 6% United Kingdom 581 526 10 5 3 2 - 1 Europe, Middle East & Africa 1,016 886 15 7 - 5 3 3 Asia Pacific 361 331 9 8 (3) (1) 5 5 Reinsurance brokerage and related services 731 698 5 3 1 - 1 1 ------- ------- -------- ------- ----- ------ ----- ------ Total risk and insurance brokerage services 4,408 4,106 7 4 1 (2) 4 4 ------- ------- -------- ------- ----- ------ ----- ------ Consulting: Consulting services 803 709 13 4 2 1 6 6 Outsourcing 176 209 (16) 3 - (1) (18) (18) ------- ------- -------- ------- ----- ------ ----- ------ Total consulting 979 918 7 3 2 1 1 1 ------- ------- -------- ------- ----- ------ ----- ------ Insurance underwriting: Accident & health and life 1,809 1,491 21 2 - 1 18 18 Property & casualty 2 28 (93) N/A N/A N/A N/A N/A ------- ------- -------- ------- ----- ------ ----- ------ Total insurance under- writing 1,811 1,519 19 2 - - 17 17 ------- ------- -------- ------- ----- ------ ----- ------ Unallocated revenue 102 34 200 N/A N/A N/A N/A N/A Intersegment revenues (24) (36) N/A N/A N/A N/A N/A N/A ------- ------- -------- ------- ----- ------ ----- ------ Total $7,276 $6,541 11% 3% -% 2% 6% 6% ======= ======= ======== ======= ===== ====== ===== ====== (1) Includes the impact of investment income, reimbursable expenses, adjustment between written and earned premium and fees in insurance underwriting only, and unusual items. (2) Organic revenue growth excludes the impact of foreign exchange, acquisitions, divestitures, transfers and items described in (1). Written premiums and fees are the basis for organic revenue growth within the Insurance Underwriting segment. Aon Corporation - Segments Risk and Insurance Brokerage Services - Continuing Operations Third Quarter Ended Nine Months Ended ---------------------------- --------------------------- Sept. 30, Sept. 30, Percent Sept. 30, Sept. 30, Percent (millions) 2007 2006 Change 2007 2006 Change --------- ---------- ------- -------- -------- -------- Revenue Operating and other revenue $1,381 $1,294 7% $4,254 $3,954 8% Investment income 56 47 19 154 152 1 --------- ---------- ------- -------- -------- -------- Total revenue 1,437 1,341 7 4,408 4,106 7 --------- ---------- ------- -------- -------- -------- Expenses Compensation and benefits 842 814 3 2,566 2,435 5 Other expenses 359 337 7 1,086 1,026 6 --------- ---------- ------- -------- -------- -------- Total expenses 1,201 1,151 4 3,652 3,461 6 --------- ---------- ------- -------- -------- -------- Income before provision for income tax $236 $190 24% $756 $645 17% ========= ========== ======= ======== ======== ======== Pretax margin - income before provision for income tax 16.4% 14.2% 17.2% 15.7% Consulting - Continuing Operations Third Quarter Ended Nine Months Ended ---------------------------- --------------------------- Sept. 30, Sept. 30, Percent Sept. 30, Sept. 30, Percent (millions) 2007 2006 Change 2007 2006 Change --------- --------- ------- -------- -------- --------- Revenue Operating and other revenue $324 $300 8% $971 $914 6% Investment income 1 1 - 8 4 100 --------- --------- ------- -------- -------- --------- Total revenue 325 301 8 979 918 7 --------- --------- ------- -------- -------- --------- Expenses Compensation and benefits 209 198 6 604 594 2 Other expenses 78 85 (8) 246 253 (3) --------- --------- ------- -------- -------- --------- Total expenses 287 283 1 850 847 - --------- --------- ------- -------- -------- -------- Income before provision for income tax $38 $18 111% $129 $71 82% ========= ========= ======= ======== ======== ========= Pretax margin - income before provision for income tax 11.7% 6.0% 13.2% 7.7% Aon Corporation - Segments Insurance Underwriting - Continuing Operations Third Quarter Ended Nine Months Ended ----------------------------- --------------------------- Sept. 30, Sept. 30, Percent Sept. 30, Sept. 30, Percent (millions) 2007 2006 Change 2007 2006 Change ---------- ---------- ------- -------- --------- -------- Revenue Premiums and other $594 $494 20% $1,718 $1,443 19% Investment income 33 25 32 93 76 22 ---------- ---------- ------- -------- --------- -------- Total revenue 627 519 21 1,811 1,519 19 ---------- ---------- ------- -------- --------- -------- Expenses Benefits to policyholders 366 349 5 1,044 864 21 Compensation and benefits 99 94 5 301 286 5 Other expenses 99 103 (4) 277 268 3 ---------- ---------- ------- -------- --------- -------- Total expenses 564 546 3 1,622 1,418 14 ---------- ---------- ------- -------- --------- -------- Income before provision for income tax $63 $(27) N/A% $189 $101 87% ========== ========== ======= ======== ========= ======== Pretax margin - income before provision for income tax 10.0% -5.2% 10.4% 6.6% Reconciliation of operating segment income before provision for income tax to income from continuing operations before provision for income tax: Third Quarter Ended Nine Months Ended ---------------------------- --------------------------- Sept. 30, Sept. 30, Percent Sept. 30, Sept. 30, Percent (millions) 2007 2006 Change 2007 2006 Change ---------- ---------- ------- -------- --------- -------- Operating segment income Risk and insurance brokerage services $236 $190 24% $756 $645 17% Consulting 38 18 111 129 71 82 Insurance underwriting 63 (27) N/A 189 101 87 ---------- ---------- ------- -------- --------- -------- Operating segment income before provision for income tax 337 181 86 1,074 817 31 Unallocated investment income 26 19 37 102 34 200 Unallocated expenses (18) (27) (33) (86) (80) 8 Interest expense (33) (34) (3) (102) (99) 3 ---------- ---------- ------- -------- --------- -------- Income from continuing operations before provision for income tax $312 $139 124% $988 $672 47% ========== ========== ======= ======== ========= ======== Aon Corporation Reconciliation of the Impact of Non-GAAP Measures on Diluted Earnings Per Share Third Quarter and Nine Months Ended September 30, 2007 and 2006 Third Quarter Ended Nine Months Ended ---------------------------- --------------------------- Sept. 30, Sept. 30, Percent Sept. 30, Sept. 30, Percent 2007 2006 Change 2007 2006 Change ---------- ---------- ------- -------- --------- -------- Diluted earnings per share from continuing operations - as reported $0.59 $0.27 119% $1.99 $1.29 54% After tax earnings per share adjustments: Restructuring charges 0.04 0.06 0.11 0.15 Gain on sale of businesses - - (0.06) - Tax impact on sale of business - - 0.01 - Reinsurance litigation - - 0.04 - Nonrecurring tax adjustments 0.07 - 0.05 - Property & Casualty reserve adjustments - 0.15 - 0.15 Endurance warrants - - - 0.03 Gain on Cambridge preferred stock investment - - - (0.07) Gain on sale of building in Spain - (0.06) - (0.06) Contingent commissions - - - (0.03) ---------- ---------- -------- --------- Total after tax earnings per share adjustments 0.11 0.15 0.15 0.17 ---------- ---------- -------- --------- Diluted earnings per share from continuing operations - as adjusted $0.70 $0.42 67% $2.14 $1.46 47% ========== ========== ======== ========= Diluted average common and common equivalent shares outstanding (millions) 321.5 340.1 322.6 345.0 ========== ========== ======== ========= Aon Corporation Reconciliation of Non-GAAP Measures - Segments Third Quarter and Nine Months Ended September 30, 2007 and 2006 (1) Third Quarter Ended September 30, 2007 ------------------------------------------- Unallo- cated- Risk In- and Insu- come Insurance rance & Brokerage Under- Ex- (millions) Services Consulting writing pense Total ----------- ----------- ------ ----- ------ Revenue as reported $1,437 $325 $627 $18 $2,407 Income (loss) from continuing operations before provision for income tax - as reported $236 $38 $63 $(25) $312 Restructuring charges 16 1 - - 17 Gain on sale of businesses - - - - - Reinsurance litigation - - - - - ----------- ----------- ------ ----- ------ Income (loss) from continuing operations before provision for income tax - as adjusted $252 $39 $63 $(25) $329 =========== =========== ====== ===== ====== Income from continuing operations before provision for income tax - margins as adjusted 17.5% 12.0% 10.0% N/A 13.7% =========== =========== ====== ===== ====== Nine Months Ended September 30, 2007 ------------------------------------------- Unallo- cated- Risk In- and Insu- come Insurance rance & Brokerage Under- Ex- (millions) Services Consulting writing pense Total ---------- ----------- ------ ----- ------- Revenue as reported $4,408 $979 $1,811 $78 $7,276 Income (loss) from continuing operations before provision for income tax - as reported $756 $129 $189 $(86) $988 Restructuring charges 44 7 2 - 53 Gain on sale of businesses (30) - - - (30) Reinsurance litigation 21 - - - 21 ---------- ----------- ------ ----- ------- Income (loss) from continuing operations before provision for income tax - as adjusted $791 $136 $191 $(86) $1,032 ========== =========== ====== ===== ======= Income from continuing operations before provision for income tax - margins as adjusted 17.9% 13.9% 10.5% N/A 14.2% ========== =========== ====== ===== ======= Third Quarter Ended September 30, 2006 -------------------------------------- Unallo- cated- Risk In- and Insu- come Insurance rance & Brokerage Under- Ex- (millions) Services Consulting writing pense Total ---------- ----------- ------ ----- ------- Revenue as reported $1,341 $301 $519 $7 $2,168 Gain on Cambridge preferred stock investment - - - - - Contingent commissions (2) - - - (2) Endurance warrants - - - - - ---------- ----------- ------ ----- ------- Revenue as adjusted $1,339 $301 $519 $7 $2,166 ========== =========== ====== ===== ======= Income (loss) from continuing operations before provision for income tax - as reported $190 $18 $(27) $(42) $139 Restructuring charges 23 5 - 1 29 Gain on sale of Cambridge preferred stock investment - - - - - Gain on sale of building in Spain (30) - - - (30) Contingent commissions (2) - - - (2) Property & Casualty reserve adjustments - - 81 - 81 Endurance warrants - - - - - ---------- ----------- ------ ----- ------- Income (loss) from continuing operations before provision for income tax - as adjusted $181 $23 $54 $(41) $217 ========== =========== ====== ===== ======= Income from continuing operations before provision for income tax - margins as adjusted 13.5% 7.6% 10.4% N/A 10.0% ========== =========== ====== ===== ======= Nine Months Ended September 30, 2006 ------------------------------------ Unallo- cated- Risk In- and Insu- come Insurance rance & Brokerage Under- Ex- (millions) Services Consulting writing pense Total ---------- ----------- ------ ----- ------- Revenue as reported $4,106 $918 $1,519 $(2) $6,541 Gain on Cambridge preferred stock investment (35) - - - (35) Contingent commissions (15) - - - (15) Endurance warrants - - - 17 17 ---------- ----------- ------ ----- ------- Revenue as adjusted $4,056 $918 $1,519 $15 $6,508 ========== =========== ====== ===== ======= Income (loss) from continuing operations before provision for income tax - as reported $645 $71 $101 $(145) $672 Restructuring charges 66 13 - 2 81 Gain on sale of Cambridge preferred stock investment (35) - - - (35) Gain on sale of building in Spain (30) - - - (30) Contingent commissions (15) - - - (15) Property & Casualty reserve adjustments - - 81 - 81 Endurance warrants - - - 17 17 ---------- ----------- ------ ----- ------- Income (loss) from continuing operations before provision for income tax - as adjusted $631 $84 $182 $(126) $771 ========== =========== ====== ===== ======= Income from continuing operations before provision for income tax - margins as adjusted 15.6% 9.2% 12.0% N/A 11.8% ========== =========== ====== ===== ======= (1) Certain noteworthy items impacted revenue and pretax income in 2007 and 2006, which are described in this schedule. The pretax income (loss) amounts and related margins shown in the captions "Income (loss) from continuing operations before provision for income tax - as adjusted" are non-GAAP measures. Aon Corporation 2007 Restructuring Plan By Type: Actual Estimated ------------|----------- Third | Quarter | (millions) 2007 | Total ------------|----------- Workforce reduction (Compensation and benefits) $10 | $228 Lease consolidation (Other general expenses) 4 | 80 Asset impairments (Depreciation and amortization) 2 | 36 Other costs associated with restructuring | (Other general expenses) 1 | 16 ------------|----------- Total restructuring and related expenses $17 | $360 ============|=========== By Segment: Actual Estimated ------------|----------- Third | Quarter | (millions) 2007 | Total ------------|----------- Risk and Insurance Brokerage Services $16 | $335 Consulting 1 | 25 ------------|----------- Total restructuring and related expenses $17 | $360 ============|=========== 2005 Restructuring Plan By Type: Actual Estimated ------------------------------------------------------- Full Full Six Third Total | Year Year Months Quarter incurred| (millions) 2005 2006 2007 2007 to Date |Total ----------------------------------------------|-------- Workforce reduction | (Compensation | and benefits) $116 $116 $18 $- $250 |$250 Lease consolidation | (Other general | expenses) 20 27 11 - 58 | 62 Asset impairments | (Depreciation and | amortization) 17 12 3 - 32 | 32 Other costs | associated with | restructuring | (Other general | expenses) 5 12 4 - 21 | 21 ------------------------------------------------------- Total restructuring and related expenses $158 $167 $36 $- $361 |$365 ======================================================= By Segment: Actual Estimated ------------------------------------------------------- Full Full Six Third Total | Year Year Months Quarter incurred| (millions) 2005 2006 2007 2007 to Date |Total ------------------------------------------------------- Risk and | Insurance | Brokerage | Services $143 $136 $28 $- $307 | $311 Consulting 8 20 6 - 34 | 34 Insurance | Underwriting 3 8 2 - 13 | 13 Unallocated | Income and | Expense 4 3 - - 7 | 7 ------------------------------------------------------- Total restructuring | and related | expenses $158 $167 $36 $- $361 | $365 ======================================================= Aon Corporation Preliminary Condensed Consolidated Statements of Financial Position As of ------------------------------- (billions) Sept. 30, 2007 Dec. 31, 2006 ---------------- -------------- (Unaudited) ASSETS ------ Investments Fixed maturities at fair value $3.0 $2.8 Short-term investments 4.1 4.3 Other investments 0.4 0.5 ---------------- -------------- Total investments 7.5 7.6 Cash 0.3 0.3 Receivables 8.3 9.0 Deferred Policy Acquisition Costs 0.6 0.5 Goodwill 4.9 4.5 Other Intangible Assets 0.2 0.2 Property and Equipment, net 0.5 0.5 Other Assets 1.5 1.7 ---------------- -------------- TOTAL ASSETS $23.8 $24.3 ================ ============== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Insurance Premiums Payable $9.5 $9.7 Policy Liabilities Future policy benefits 1.9 1.8 Policy and contract claims 0.6 0.6 Unearned and advance premiums and other 0.4 0.4 ---------------- -------------- Total Policy Liabilities 2.9 2.8 General Liabilities General expenses 1.5 1.9 Notes payable and short-term borrowings 2.0 2.3 Pension, post-employment and post-retirement liabilities 1.4 1.5 Other liabilities 0.9 0.9 ---------------- -------------- TOTAL LIABILITIES 18.2 19.1 Stockholders' Equity 5.6 5.2 ---------------- -------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $23.8 $24.3 ================ ============== DATASOURCE: Aon Corporation Contact: Investor Contact, Scott Malchow, Vice President, Investor Relations, +1-312-381-3983, or Media Contact, David Prosperi, Vice President, Public Relations, +1-312-381-2485, both of Aon Corporation Web site: http://www.aon.com/

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