SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
_
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
_
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission File Number: 1-7933
Aon CORPORATION
(Exact Name of Registrant as Specified in its Charter)
_______________
DELAWARE
(State or Other Jurisdiction of 36-3051915
Incorporation or Organization) (I.R.S. Employer
123 NORTH WACKER DRIVE, Identification No.)
CHICAGO, ILLINOIS 60606
(Address of Principal Executive Offices) (Zip Code)
(312) 701-3000
(Telephone Number)
_______________
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
Common Stock, $1 par value New York Stock Exchange*
8% Cumulative Perpetual Preferred Stock New York Stock Exchange
6.875% Notes Due 1999 New York Stock Exchange
7.40% Notes Due 2002 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
*The Common Stock of the Registrant is also listed for trading on the Chicago
Stock Exchange and The International Stock Exchange London.
_______________
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES |X| NO |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements,
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
Aggregate market value of the voting stock held by non-affiliates of the
Registrant as of February 26, 1997 was $5,717,654,603.
Number of shares of $1.00 par value Common Stock outstanding as of February 26,
1997: 110,945,346.
Documents From Which Information Is Incorporated By Reference:
Annual Report to Stockholders of the Registrant for the Year 1996
(Parts I, II and IV) Notice of Annual Meeting of Holders of
Common Stock and Series C Cumulative Preferred
Stock and Proxy Statement for Annual
Meeting of Stockholders on April 18,
1997 of the Registrant (Part III)
<PAGE>
PART I
ITEM 1. BUSINESS.
The Registrant is a holding company comprised of two distinct segments:
insurance brokerage and consulting services and insurance underwriting.
Incorporated in 1979, it is the parent corporation of long-established and more
recently formed companies.
Aon Group, Inc., its subsidiaries and certain other indirect subsidiaries
of the Registrant ("Aon Group"): Aon Risk Services Companies, Inc.;Aon Holdings
bv; Aon Consulting Worldwide, Inc.; Aon Specialty Group, Inc.; Aon Re Worldwide,
Inc.; and Nicholson Jenner Leslie Group Limited provide reinsurance intermediary
services, benefits consulting and commercial insurance brokerage services. Aon
Group revenues grew significantly in fiscal 1997 and 1996, respectively, when
the Registrant acquired Alexander & Alexander Services Inc. in early 1997 and
Bain Hogg Group plc in October 1996.
Combined Insurance Company of America ("Combined Insurance") and Ryan
Insurance Group, Inc. engage in the marketing of life and accident and health
insurance products. Ryan Insurance Group, Inc.; Virginia Surety Company, Inc.;
and London General Insurance Company Limited offer extended warranty and
specialty insurance products.
In second quarter 1996, the Registrant and Combined Insurance sold two of
Combined Insurance's insurance subsidiaries, Union Fidelity Life Insurance
Company ("UFLIC") and The Life Insurance Company of Virginia ("LOV").
In second quarter 1996, Ryan Insurance Group, Inc. sold its North American
auto credit underwriting and distribution businesses, including the distribution
of auto extended warranty products.
The Registrant hereby incorporates by reference pages 6 through 15 of
the Annual Report to Stockholders of the Registrant for the Year 1996
("Annual Report").
Competition and Industry Position
(1) INSURANCE BROKERAGE AND CONSULTING SERVICES
Aon Group, Inc. ("Aon Group"); Aon Risk Services Companies, Inc. ("Aon Risk
Services Companies"); Alexander & Alexander Services Inc. ("A&A"); Aon Holdings
bv ("Aon Holdings"); Aon Specialty Group, Inc. ("Aon Specialty Group"); Aon
Consulting Worldwide, Inc. ("Aon Consulting"); Aon Re Worldwide,Inc. ("Aon Re");
Nicholson Jenner Leslie Group Limited ("Nicholson Jenner Leslie"); and Bain Hogg
Group plc ("Bain Hogg").
Aon Group,is the holding company for the Registrant's commercial brokerage
and consulting operation. Aon Group is the fastest growing global insurance
brokerage and consulting services firm in the world. The Aon Group companies
have more than 400 owned offices around the world in approximately 60 countries.
In 1996, Aon Group employed approximately 20,000 professionals and support
personnel to serve the diverse needs of clients.
Aon Risk Services Companies' (formerly Rollins Hudig Hall Co.), A&A's and
Bain Hogg's subsidiaries operate in a highly competitive industry and compete
with a large number of retail insurance brokerage and agency firms as well as
individual brokers and agents and direct writers of insurance coverage. Aon Risk
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<PAGE>
Services Companies' subsidiaries offer comprehensive services to clients
including insurance placement, specialized brokerage services, program
development and administration, premium financing services, risk management and
loss-control consulting. It has also developed certain specialist niche areas
such as marine, aviation, directors and officers liability, financial
institutions, construction, energy, media and entertainment.
Aon Holdings (formerly Rollins Hudig Hall Holdings bv) traces its
commercial broking roots to 1688 and is one of the premier brokers in
Continental Europe with approximately 3,500 employees and subsidiaries in more
than 30 countries.
Subsidiaries of Aon Risk Services Companies, Aon Holdings, A&A and Bain
Hogg operate through owned offices in North America and Europe, as well as in
South America, Africa, Australia and Asia. In 1996, Aon Holdings subsidiaries
opened offices in Australia, Germany, France, Portugal, The Netherlands, South
Africa, Singapore, New Zealand, Norway and Finland. The acquisitions of A&A and
Bain Hogg will significantly augment the Registrant's presence in Latin America,
Asia, Africa and Australia.
Aon Specialty Group addresses the highly specialized product development,
consulting and administrative needs of professional groups, service businesses,
governments, health-care providers and commercial organizations. It also
provides underwriting management skills, claims and risk management expertise,
and third-party administration services to insurance companies. Aon Specialty
Group operating subsidiaries market and broker both the primary and reinsurance
risks of these programs. For individuals and busineses, ASG provides affinity
products for professional liability, life and personal lines.
Subsidiaries of Aon Consulting (formerly Godwins International, Inc.) and
the European benefits operations of Aon Holdings serve the employee benefit
needs of clients around the world. Aon Consulting is one of the world's largest
integrated human resources consulting organizations. Focusing on the increasing
demand for outsourcing solutions, Aon Consulting targets emerging businesses,
IPO's, recent mergers or acquisitions and corporations that are reengineering
staff functions.
In the United States, the benefits environment continues to change as
companies look for ways to manage their benefits costs while increasing the
choices offered to their employees. Aon Consulting, with its expertise in all
areas of benefits and compensation, and its access to the Registrant's other
subsidiaries, is well-positioned to serve this market. Aon Consulting
subsidiaries offer services to clients including organizational analysis and HR
strategic planning, recruitment and selection, benefits design and management
training and development. Benefits issues in foreign countries are becoming more
complicated, and Aon Holdings and Aon Consulting anticipate increased demand for
their services in these markets.
Aon's reinsurance brokerage activities are organized under Aon Re. With the
acquisitions of A&A and Bain Hogg, Aon Re is a global leader in the reinsurance
and specialist brokerage industry. Aon Re serves the alternative market with
reinsurance placement, alternative risk services, captive management services
and catastrophe information forecasting.
Nicholson Jenner Leslie is a London-based Lloyd's broker that places
wholesale and reinsurance business in the London and international markets and
serves the needs of a wide range of clients around the world. A majority of
Nicholson Jenner Leslie's revenue is derived from sources unaffiliated with Aon.
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<PAGE>
(2) INSURANCE UNDERWRITING
Combined Insurance Company of America ("Combined Insurance"); Combined Life
Insurance Company of New York ("CLICNY");Virginia Surety Company, Inc. ("VSC");
London General Insurance Company Limited ("London General") and Aon Warranty
Group,Inc.("Aon Warranty").
In April 1996, the Registrant and Combined Insurance Combined Insurance
completed the sales of Combined Insurance's direct response life and health
subsidiary, Union Fidelity Life Insurance Company ("UFLIC"), and Combined
Insurance's capital accumulation insurance subsidiary, The Life Insurance
Company of Virginia ("LOV").
The Registrant's insurance underwriting subsidiaries are part of a highly
competitive industry that serves individual consumers in North America, Europe,
Latin America and the Pacific by providing accident and health coverage,
traditional life insurance and, extended warranties through global distribution
networks that are directly owned by the Registrant's subsidiaries.
The accident and health distribution network encompasses primarily the
agents of Combined Insurance. With more than five million policyholders,
Combined Insurance has more individual accident and health policies in force
than any other United States company. Combined Insurance, the Registrant's
principal accident and health insurer, has a direct sales force of several
thousand career agents calling on individuals to sell a broad spectrum of
accident and health products. It is one of the few companies with agents that
call on customers every six months to renew coverage and to sell additional
coverage. Combined Insurance offers a wide range of accident-only and
sickness-only insurance products, including short-term disability, cancer aid,
Medicare supplement and disability income coverage. Combined Insurance's
products are primarily fixed indemnity obligations, thereby not subject to
escalating medical costs. Combined Insurance offers a simplified accident and
sickness long-term disability policy. In addition, to its traditional business,
Combined Insurance is expanding its product distribution through payroll
deduction, worksite marketing programs.
Combined Insurance and its wholly-owned subsidiary CLICNY (which operates
exclusively in the State of New York) market whole life products through direct
sales career agents in the United States. Combined Insurance ranked among the
top 100 life insurance companies in the United States in terms of total life
premiums in 1995. Life insurance business is conducted by the Registrant's life
insurance subsidiaries in the United States, Canada, Ireland, Germany, and
New Zealand.
The Registrant's extended warranty and specialty insurance business,
conducted by subsidiaries VSC in North America and London General in Europe, is
composed primarily of extended warranty insurance products, professional
liability insurance coverages, workers' compensation and specialty financial
institution coverages. VSC and London General continue to be one of the world's
largest underwriters of consumer extended warranties. The automobile warranty
products are sold in the United States, Canada, the United Kingdom, Ireland,
France, The Netherlands, Belgium, Spain and Japan. Aon Warranty Group handles
the administration of certain extended warranty products on automobiles,
electronic goods, personal computers and appliances. It serves manufacturers,
distributors and retailers of major worldwide consumer product and financial
institutions, associations and affinity groups in North America and Europe.
In second quarter 1996, Aon completed the sale of its North American auto
credit underwriting and distribution operations, including the distribution of
auto extended warranties throughout North America. The extended warranty
products will continue to be underwritten by VSC.
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<PAGE>
(3) DISCONTINUED OPERATIONS
The Life Insurance Company of Virginia ("LOV") and Union Fidelity Life
Insurance Company ("UFLIC").
In April 1996, the Registrant and Combined Insurance completed the sales of
Combined Insurance's subsidiaries, LOV and UFLIC. The business written by LOV
primarily included capital accumulation products and some other life products.
UFLIC operated in the United States in the highly competitive direct response
life and health marketing segment of the industry.
LICENSING AND REGULATION
Insurance companies must comply with laws and regulations of the
jurisdictions in which they do business. These laws and regulations are designed
to ensure financial solvency of insurance companies and to require fair and
adequate service and treatment for policyholders. They are enforced by the
states in the United States, by industry self-regulating agencies in the United
Kingdom, and by various regulatory agencies in other countries through the
granting and revoking of licenses to do business, licensing of agents,
monitoring of trade practices, policy form approval, minimum loss ratio
requirements, limits on premium and commission rates, and minimum reserve and
capital requirements. Compliance is monitored by the state insurance departments
through periodic regulatory reporting procedures and periodic examinations. The
quarterly and annual financial reports to the regulators in the United States
utilize accounting principles which are different from the generally accepted
accounting principles used in stockholders' reports. The statutory accounting
principles, in keeping with the intent to assure the protection of
policyholders, are based, in general, on a liquidation concept while generally
accepted accounting principles are based on a going-concern concept.
The state insurance regulators are members of the National Association of
Insurance Commissioners ("NAIC"). This Association seeks to promote uniformity
of, and to enhance the state regulation of, insurance. Both the NAIC and the
individual states continue to focus on the solvency of insurance companies. This
focus is reflected in additional regulatory oversight by the states and emphasis
on the enactment or adoption of a series of NAIC model laws and regulations
designed to promote solvency. The increase in any solvency-related oversight by
the states is not expected to have any significant impact on the insurance
business of the Registrant.
Several years ago, the NAIC developed a formula for analyzing insurers
called risk-based capital ("RBC"). RBC is intended to establish "minimum"
capital threshold levels that vary with the size and mix of a company's
business. It is designed to identify companies with the capital levels that may
require regulatory attention. RBC does not have any significant impact on the
insurance business of the Registrant.
Insurance companies are generally not subject to any federal regulation of
their insurance business because of the existence of a federal law commonly
known as the McCarran-Ferguson Act. McCarran-Ferguson provides the insurance
industry with immunity from certain aspects of the federal anti-trust law and
exempts the business of insurance from federal regulation. In the past several
years there have been a number of recommendations that McCarran-Ferguson be
repealed entirely or modified to remove the industry's anti-trust exemption and
subject it to federal regulation. If McCarran-Ferguson were to be repealed or
modified, state regulation of the insurance business would continue. The result
could be an additional layer of federal regulation. The Registrant expects that
any repeal of anti-trust exemptions available to insurers under the
McCarran-Ferguson Act would not have a significant impact on its operations.
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<PAGE>
The state insurance holding company laws require prior notice to and
approval of the domestic state insurance department of intracorporate transfers
of assets within the holding company structure, including the payment of
dividends by insurance company subsidiaries. In addition, the premium
finance loans by Cananwill, Inc., an indirect wholly-owned subsidiary of the
Registrant, are subject to one or more of truth-in-lending and credit
regulations, insurance premium finance acts, retail installment sales acts and
other similar consumer protection legislation. Failure to comply with such laws
or regulations can result in the temporary suspension or permanent loss of
the right to engage in business in a particular jurisdiction as well as other
penalties.
Regulatory authorities in the states in which the operating subsidiaries of
Aon Group conduct business may require individual or company licensing to act as
brokers, agents, third party administrators, managing general agents,
reinsurance intermediaries or adjusters. Under the laws of most states,
regulatory authorities have relatively broad discretion with respect to
granting, renewing and revoking brokers' and agents' licenses to transact
business in the state. The manner of operating in particular states may vary
according to the licensing requirements of the particular state, which may
require, among other things, that a firm operate in the state through a local
corporation. In a few states, licenses are issued only to individual residents
or locally-owned business entities. In such cases, Aon Group subsidiaries have
arrangements with residents or business entities licensed to act in the state.
In 1996 the federal Health Care Insurance Portability and Accountability Act of
1996 was enacted. The Act requires the states to take action to implement the
requirements of the Act or to become subject to federal oversight. The
Registrant does not believe tht the state action required by the Act will
materially affect the business of the Registrant's subsidiaries. In addition,
federal laws mandating specific prectices by medical insurers have recently been
enacted from which, because of the nature of the business of the Registrant's
subsidiaries, the Registrant's subsidiaries are exempt. Numerous states have had
legislation introduced to reform the health care system and such legislation has
passed in several states. While it is impossible to forecast the precise nature
of future state health care changes, the Registrant does not expect a major
impact on its operations because of the supplemental nature of most of the
policies issued by its insurance subsidiaries and because the coverages are
primarily purchased to provide, on a fixed-indemnity basis, protection against
loss-of-time or disability benefits. If health care reform does not provide for
a significant role for insurance companies currently writing primary medical
coverage, the Registrant expects that some of those companies would increase
their participation in other segments of the insurance underwriting business,
perhaps heightening the competition with Combined Insurance. Combined Insurance
and its subsidiaries currently operate successfully in several foreign countries
which have national health plans in effect.
Clientele
No significant part of the Registrant's or its subsidiaries' business is
dependent upon a single client or on a few clients, the loss of any one of which
would have a material adverse effect on the Registrant.
Employees
The Registrant's subsidiaries had approximately 28,000 employees at the end
of 1996 of whom approximately three-fourths are salaried and hourly employees
and the remaining one-fourth are sales representatives who are generally
compensated wholly or primarily by commission.
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<PAGE>
ITEM 2. PROPERTIES.
The Registrant's subsidiaries own and occupy office buildings in eight
states and certain foreign countries, and lease office space elsewhere in the
United States and in various foreign cities. Loss of the use of any owned or
leased property, while potentially disruptive, would have no material impact on
the Registrant.
ITEM 3. LEGAL PROCEEDINGS.
The Registrant hereby incorporates by reference note 12 of the Notes to
Consolidated Financial Statements on page 40 of the Annual Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
Executive Officers of the Registrant
Executive officers of the Registrant are regularly elected by its Board of
Directors at the annual meeting of the Board which is held following each annual
meeting of the stockholders of the Registrant. The executive officers of the
Registrant were elected to their current positions on April 19, 1996 to serve
until the meeting of the Board following the annual meeting of stockholders on
April 18, 1997. Ages shown are as of December 31, 1996.
For information concerning certain executive officers of the Registrant,
see item 10 below. As of March 26, 1997, the following individuals are also
executive officers of the Registrant as defined in Rule 16a-1(f):
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<PAGE>
Has Continuously
Served as an
Officer
of Registrant or
Name, Age, and One or
Current Office More of its
or Principal Subsidiaries Business Experience
Position Since Past 5 years
- -------------- -------------------- ----------------
Harvey N. Medvin, 60 1972 Mr. Medvin became Vice President
Executive Vice President, and Chief Financial Officer of
Chief Financial Officer the Registrant in 1982 and was
and Treasurer elected to his current position
in 1987. He also serves as a
Director or Officer of certain
of the Registrant's
subsidiaries.
Daniel T. Cox, 50 1986 Mr. Cox was elected to his
Executive Vice President current position in 1991 and,
prior to their sale, had served
as Chairman and Chief Executive
Officer of LOV since 1988 and
of Union Fidelity since 1989.
Mr. Cox had headed the
Registrant's benefits consulting
operation since 1987. He also
serves as Director or Officer of
certain of the Registrant's
subsidiaries.
Michael A. Conway, 49 1990 Mr. Conway was Vice President of
Senior Vice President and Combined Insurance from 1980 to
Senior Investment Officer 1984. Following other
employment, Mr. Conway rejoined
the Registrant in 1990 as Senior
Vice President of Combined
Insurance and was elected to his
current position in 1991. He
also serves as Director or
Officer of certain of the
Registrant's subsidiaries.
Michael D. O'Halleran, 46 1987 Mr. O'Halleran was appointed
President and Chief Operating President and Chief Operating
Officer of Aon Group, Inc. Officer of Aon Group, Inc.in
1995. Prior thereto, since
joining the Registrant in
1987, he held a variety of
senior positions in the
Registrant's insurance and
reinsurance brokerage business.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
The Registrant's $1.00 par value common shares ("Common Shares") are traded
on the New York, Chicago and London stock exchanges. The Registrant hereby
incorporates by reference the "Dividends paid per share" and "Price range" data
on page 43 of the Annual Report.
The Registrant had approximately 12,900 holders of record of its Common
Shares as of February 26, 1997.
The Registrant hereby incorporates by reference note 8 of the Notes to
Consolidated Financial Statements on pages 34 and 35 of the Annual Report.
ITEM 6. SELECTED FINANCIAL DATA.
The Registrant hereby incorporates by reference the "Selected Financial
Data" table on page 42 of the Annual Report.
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The Registrant hereby incorporates by reference "Management's Analysis of
Operating Results and Financial Condition" on pages 17 through 23 of the Annual
Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Registrant hereby incorporates by reference the following statements,
notes and data from the Annual Report.
Page(s)
-------
Consolidated Financial Statements ........................... 24-28
Notes to Consolidated Financial Statements................... 29-40
Report of Ernst & Young LLP, Independent Auditors............ 41
Quarterly Financial Data .................................. 43
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
Not Applicable.
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<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Registrant hereby incorporates by reference the information on pages 3
and 7 of the Notice of Annual Meeting of Holders of Common Stock and Series C
Preferred Stock and Proxy Statement For Annual Meeting of the Stockholders on
April 18, 1997, of the Registrant ("Proxy Statement") concerning the following
Directors of the Registrant, each of whom also serves as an executive officer of
the Registrant as defined in Rule 16a-1(f): Patrick G. Ryan and Raymond I.
Skilling. Information concerning additional executive officers of the Registrant
is contained in Part I hereof, pursuant to General Instruction G(3) and
Instruction 3 to Item 401(b) of Regulation S-K.
ITEM 11. EXECUTIVE COMPENSATION.
The Registrant hereby incorporates by reference the information under the
headings "Executive Compensation," "Aggregated Option Exercises in Last Fiscal
Year and Fiscal Year-End Option Values," "Option Grants in 1996 Fiscal Year" and
"Pension Plan Table" on pages 12 through 15 of the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The Registrant hereby incorporates by reference the share ownership data
contained on pages 2, 8 and 9 of the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Registrant hereby incorporates by reference the information under the
heading "Transactions With Management" on page 20 of the Proxy Statement.
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<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) and (2). The Registrant has incorporated by reference from the Annual
Report (see Item 8) the following consolidated financial statements of the
Registrant and subsidiaries:
Annual
Report
Page(s)
-------
Consolidated Statements of Financial Position--
As of December 31, 1996 and 1995 24-25
Consolidated Statements of Income --
Years Ended December 31, 1996, 1995 and 1994 26
Consolidated Statements of Stockholders' Equity --
Years Ended December 31, 1996, 1995 and 1994 27
Consolidated Statements of Cash Flows -- Years
Ended December 31, 1996, 1995 and 1994 28
Notes to Consolidated Financial Statements 29-40
Report of Ernst & Young LLP, Independent Auditors 41
Financial statement schedules of the Registrant and consolidated subsidiaries
not included in the Annual Report but filed herewith:
Consolidated Financial Statement Schedules --
________________________________________________________________________________
Schedule
--------
Summary of Investments -- Other than Investments
in Related Parties I
Parent Company Condensed Financial Statements II
Supplementary Insurance Information III
Reinsurance IV
Valuation and Qualifying Accounts V
Schedule VI is omitted as it is immaterial
(a)(3). Exhibits
(a) Second Restated Certificate of Incorporation of the Registrant--
incorporated by reference to Exhibit 3(a) to the Registrant's Annual
Report to the Securities and Exchange Commission on Form 10-K for the
year ended December 31, 1991 (the "1991 Form 10-K").
(b) Certificate of Amendment of the Registrant's Second Restated
Certificate of Incorporation -- incorporated by reference to Exhibit
3 to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1994 (the "First Quarter 1994 Form 10-Q").
(c) Bylaws of the Registrant -- incorporated by reference to Exhibit (d) to
the Registrant's Annual Report to the Securities and Exchange
Commission on Form 10-K for the year ended December 31, 1982 (the "1982
Form 10-K").
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<PAGE>
(d) Indenture dated September 15, 1992 between the Registrant and
Continental Bank Corporation (now known as Bank of America Illinois),
as Trustee -- incorporated by reference to Exhibit 4(a) to the
Registrant's Current Report on Form 8-K dated September 23, 1992.
(e) Resolutions establishing terms of 6.875% Notes Due 1999 and 7.40% Notes
Due 2002 -- incorporated by reference to Exhibit 4(d) to the
Registrant's Annual Report to the Securities and Exchange Commission on
Form 10-K for the year ended December 31, 1992 (the "1992 Form 10-K").
(f) Resolutions establishing the terms of 6.70% Notes Due 2003 and 6.30%
Notes Due 2004 incorporated by reference to Exhibits 4(c) and 4(d) of
the Registrant's Annual Report to the Securities and Exchange
Commission on Form 10-K for the year ended December 31, 1993 (the "1993
Form 10-K").
(g) Certificate of Designation for the Registrant's 8% Cumulative Perpetual
Preferred Stock, $1.00 par value -- incorporated by reference to
Exhibit 4(a) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1992 (the "Third Quarter 1992 Form 10-Q").
(h) Certificate of Designation for the Registrant's Series C Cumulative
Preferred Stock --- incorporated by reference to Exhibit 4.1 to the
Registrant's Current Report on Form 8-K dated February 9, 1994.
(i) Registration Rights Agreement dated November 2, 1992 by and between the
Registrant and Frank B. Hall & Co. Inc. -- incorporated by reference to
Exhibit 4(c) to the Third Quarter 1992 Form 10-Q.
(j) Registration rights agreement by and among the Registrant and certain
affiliates of Ryan Insurance Group, Inc. (including Patrick G. Ryan
and Andrew J. McKenna) -- incorporated by reference to Exhibit (f) to
the 1982 Form 10-K.
(k) Deferred Compensation Agreement by and among the Registrant and
Registrant's directors who are not salaried employees of Registrant or
Registrant's affiliates -- incorporated by reference to Exhibit 10(i)
to the Registrant's Annual Report to the Securities and Exchange
Commission on Form 10-K for the year ended December 31, 1987 (the "1987
Form 10-K").
(l) Amendment and Waiver Agreement dated as of November 4, 1991 among the
Registrant and each of Patrick G. Ryan, Shirley Ryan, Ryan Enterprises
Corporation and Harvey N. Medvin -- incorporated by reference to
Exhibit 10(j) to the 1991 Form 10-K.
(m) Statement regarding Computation of Per Share Earnings.
(n) Statement regarding Computation of Ratio of Earnings to Fixed Charges.
(o) Statement regarding Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends.
(p) Aon Corporation 1994 Amended and Restated Outside Director Stock Award
Plan -- incorporated by reference to Exhibit 10(b) to the First Quarter
1994 Form 10-Q.
(q) Annual Report to Stockholders of the Registrant for the year ended
December 31, 1996 (for information, and not to be deemed filed, except
for those portions specifically incorporated by reference herein).
(r) List of subsidiaries of the Registrant.
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(s) Consent of Ernst & Young LLP to the incorporation by reference into
Aon's Annual Report on Form 10-K of its report included in the 1996
Annual Report to Stockholders and into Aon's Registration Statement
Nos. 33-27984, 33-42575, 33-57562, 33-59037 and 333-21237.
(t) Annual Report to the Securities and Exchange Commission on Form 11-K
for the Aon Savings Plan for the year ended December 31, 1996 -- to be
filed by amendment as provided in Rule 15d-21(b).
(u) Executive Compensation Plans and Arrangements:
(A) Aon Stock Option Plan -- incorporated by reference to Exhibit
10(a) to the Registrant's Annual Report to the Securities and
Exchange Commission on Form 10-K for the year ended December 31,
1990 (the "1990 Form 10-K").
(B) First Amendment to Aon Stock Option Plan -- incorporated by
reference to Exhibit 10(b) to Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1994 (the "Second
Quarter 1994 Form 10-Q").
(C) Second Amendment to Aon Stock Option Plan -- incorporated by
reference to Exhibit 10(c) to the Second Quarter 1994 Form 10-Q.
(D) 1994 Restatement of Aon Savings Plan-- incorporated by
reference to Exhibit 10(f) of the 1994 Form 10-K.
(E) 1994 Restatement of Aon Employee Stock Ownership Plan --
incorporated by reference to Exhibit 10(g) of the 1994 Form 10-K.
(F) Ryan Insurance Group, Inc. Stock Option Plan together with Stock
Option Assumption Agreement providing for amendment of the plan
-- incorporated by reference to Exhibit 4(b) to Registration
Statement No. 2-79114 on Form S-8.
(G) Aon Stock Award Plan, as amended -- incorporated by reference to
Exhibit 10(a) to the First Quarter 1994 Form 10-Q.
(H) First Amendment to the Aon Stock Award Plan -- incorporated by
reference to Exhibit 10(b) to the Second Quarter 1994 Form 10-Q.
(I) Second Amendment to Aon Stock Award Plan -- incorporated by
reference to Exhibit 10(d) to the Second Quarter 1994 Form 10-Q.
(J) 1994 Restatement of Aon Pension Plan-- incorporated by
reference to Exhibit 10(h) of the 1994 Form 10-K.
(K) Aon Corporation 1995 Senior Officer Incentive Compensation Plan
incorporated by reference to Exhibit 10(p) to the Registrant's
Annual Report to the Securities and Exchange Commission on Form
10-K for the year ended December 31, 1995 (the "1995 Form 10-K").
(L) Aon Deferred Compensation Plan and First Amendment to the Aon
Deferred Compensation Plan -- incorporated by reference to
Exhibit 10(q) of the 1995 Form 10-K.
(v) Asset Purchase Agreement dated July 24, 1992 between the Registrant
and Frank B. Hall & Co. Inc. -- incorporated by reference to Exhibit
10(c) to the Registrant's Quarterly Report on Form 10-Q for the period
ended June 30, 1992.
- 13 -
<PAGE>
(w) Stock Purchase Agreement by and among the Registrant, Combined
Insurance Company of America, Union Fidelity Life Insurance Company and
General Electric Capital Corporation dated as of November 11, 1995 --
incorporated by reference to Exhibit 10(s) of the 1995 Form 10-K.
(x) Stock Purchase Agreement by and among the Registrant; Combined
Insurance Company of America; The Life Insurance Company of Virginia;
Forth Financial Resources, Ltd.; Newco Properties, Inc.; and General
Electric Capital Corporation dated as of December 22, 1995 --
incorporated by reference to Exhibit 10(t) of the 1995 Form 10-K.
(y) Agreement and Plan of Merger among the Registrant; Subsidiary
Corporation, Inc. ("Purchaser"); and Alexander & Alexander Services
Inc. ("A&A") dated as of December 11, 1996 -- incorporated by reference
to Exhibit (c)(1) of the Registrant's Tender Offer Statement on
Schedule 14D-1 filed by the Registrant with the Securities and Exchange
Commission ("SEC") on December 16, 1996 (the "Schedule 14D-1")
(z) First Amendment to Agreement and Plan of Merger, dated as of January 7,
1997, among the Registrant, Purchaser and A&A -- incorporated by
reference to Exhibit (c)(3) to the Schedule 14D-1 filed by the
Registrant with the SEC on January 9, 1997.
(b) Reports on Form 8-K.
The Registrant filed no Current Reports on Form 8-K during the last quarter
of the Registrant's year ended December 31, 1996.
- 14 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 26th day of
March, 1997.
Aon Corporation
By /s/PATRICK G. RYAN
---------------------------------------
Patrick G. Ryan, Chairman, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/PATRICK G. RYAN Chairman, President, Chief March 26, 1997
- ---------------------------- Executive Officer and Director
Patrick G. Ryan (Principal Executive Officer)
/s/DANIEL T. CARROLL Director March 26, 1997
- ----------------------------
Daniel T. Carroll
/s/FRANKLIN A. COLE Director March 26, 1997
- ----------------------------
Franklin A. Cole
/s/EDGAR D. JANNOTTA Director March 26, 1997
- ----------------------------
Edgar D. Jannotta
/s/PERRY J. LEWIS Director March 26, 1997
- ----------------------------
Perry J. Lewis
/s/JOAN D. MANLEY Director March 26, 1997
- ----------------------------
Joan D. Manley
- 15 -
<PAGE>
/s/ANDREW J. MCKENNA Director March 26, 1997
- ----------------------------
Andrew J. McKenna
Director
- ----------------------------
Newton N. Minow
/s/PEER PEDERSEN Director March 26, 1997
- ----------------------------
Peer Pedersen
/s/DONALD S. PERKINS Director March 26, 1997
- ----------------------------
Donald S. Perkins
/s/JOHN W. ROGERS, JR. Director March 26, 1997
- ----------------------------
John W. Rogers, Jr.
/s/GEORGE A. SCHAEFER Director March 26, 1997
- ----------------------------
George A. Schaefer
/s/RAYMOND I. SKILLING Director March 26, 1997
- ----------------------------
Raymond I. Skilling
/s/FRED L. TURNER Director March 26, 1997
- ----------------------------
Fred L. Turner
/s/ARNOLD R. WEBER Director March 26, 1997
- ----------------------------
Arnold R. Weber
/s/HARVEY N. MEDVIN Executive Vice President, March 26, 1997
- ---------------------------- Chief Financial Officer
Harvey N. Medvin and Treasurer
(Principal Financial and
Accounting Officer)
- 16 -
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I
Aon Corporation and Subsidiaries
CONSOLIDATED SUMMARY OF INVESTMENTS - OTHER
THAN INVESTMENTS IN RELATED PARTIES
AS OF DECEMBER 31, 1996
Amount shown
in Statement
(millions) Amortized Fair of Financial
Cost Value Position
----------- ----------- -----------
Fixed Maturities - available for sale:
<S> <C> <C> <C>
US government and agencies ........................... $ 45.4 $ 47.1 $ 47.1
States and political subdivisions .................... 491.1 514.2 514.2
Debt securities of foreign governments
not classified as loans ......................... 948.2 989.9 989.9
Corporate securities ................................. 976.0 1,021.6 1,021.6
Public utilities ..................................... 79.7 81.0 81.0
Mortgage-backed securities ........................... 63.6 65.3 65.3
Other fixed maturities ............................... 110.6 107.0 107.0
----------- ----------- -----------
TOTAL FIXED MATURITIES........................... 2,714.6 2,826.1 2,826.1
----------- ----------- -----------
Equity securities - available for sale:
Common stocks:
Banks, trusts, and insurance companies ............... 201.7 255.7 255.7
Industrial, miscellaneous, and all other ............. 70.3 138.1 138.1
Nonredeemable preferred stocks ....................... 479.0 485.4 485.4
----------- ----------- -----------
TOTAL EQUITY SECURITIES ......................... 751.0 $ 879.2 879.2
----------- ----------- -----------
Mortgage loans on real estate ............................. 29.7* 29.0*
Real estate - net of depreciation ......................... 17.8 17.8
Policy loans .............................................. 58.2 58.2
Other long-term investments ............................... 141.4* 136.2*
Short-term investments .................................... 1,266.3 1,266.3
----------- -----------
TOTAL INVESTMENTS .......................... $ 4,979.0 $ 5,212.8
=========== ===========
<FN>
* Differences between amortized cost and amounts shown in Statements of
Financial Position for investments other than fixed maturity and equity
securities result from certain valuation allowances.
</FN>
</TABLE>
- 17 -
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
Aon Corporation
(Parent Company)
CONDENSED STATEMENTS OF FINANCIAL POSITION
As of December 31,
-------------------------
(millions) 1996 1995
----------- -----------
ASSETS
<S> <C> <C>
Investments in subsidiaries .......................................... $ 3,268.9 $ 3,617.2
Notes receivable - subsidiaries ...................................... 482.6 468.2
Cash and cash equivalents............................................. 216.9 2.1
Other assets ......................................................... 34.4 6.6
----------- -----------
Total Assets .................................................... $ 4,002.8 $ 4,094.1
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Short-term borrowings ................................................ $ 213.4 $ 352.7
6.3% long-term debt securities ....................................... 99.8 99.7
7.4% long-term debt securities ....................................... 99.9 99.8
6.875% long-term debt securities ..................................... 99.9 99.8
6.7% long-term debt securities ....................................... 149.7 149.7
Notes payable - subsidiaries ......................................... 351.4 457.0
Notes payable - other ................................................ -- 15.7
Debt guarantee of employee stock ownership plan ...................... 46.1 56.8
Accrued expenses and other liabilities ............................... 59.7 39.2
----------- -----------
Total Liabilities ............................................... 1,119.9 1,370.4
----------- -----------
Redeemable Preferred Stock ........................................... 50.0 50.0
STOCKHOLDERS' EQUITY
Preferred stock ...................................................... 5.5 8.1
Common stock ......................................................... 114.1 111.4
Paid-in additional capital ........................................... 475.4 431.8
Net unrealized investment gains of subsidiaries ...................... 153.1 123.1
Net foreign exchange gains of subsidiaries ........................... 1.0 1.8
Retained earnings .................................................... 2,356.8 2,212.1
Less treasury stock at cost .......................................... (121.5) (97.3)
Less deferred compensation ........................................... (151.5) (117.3)
----------- -----------
Total Stockholders' Equity ...................................... 2,832.9 2,673.7
----------- -----------
Total Liabilities and Stockholders' Equity ...................... $ 4,002.8 $ 4,094.1
=========== ===========
<FN>
See notes to condensed financial statements.
</FN>
</TABLE>
- 18 -
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
(Continued)
Aon Corporation
(Parent Company)
CONDENSED STATEMENTS OF INCOME
Years ended December 31
---------------------------------------
1996 1995 1994
----------- ----------- -----------
(millions)
REVENUE
<S> <C> <C> <C>
Dividends from subsidiaries .......................... $ 1,026.6 $ 199.3 $ 166.2
Other investment income .............................. 44.1 34.3 34.8
Realized investment losses ........................... (11.0) (4.1) --
----------- ----------- -----------
Total Revenue ................................... 1,059.7 229.5 201.0
EXPENSES
Operating and administrative ......................... 5.7 3.0 2.3
Interest - subsidiaries ............................... 20.6 20.0 12.2
Interest - other ...................................... 43.2 53.6 45.1
----------- ----------- -----------
Total Expenses (1)................................ 69.5 76.6 59.6
----------- ----------- -----------
INCOME BEFORE EQUITY IN UNDISTRIBUTED INCOME
OF SUBSIDIARIES ....................................... 990.2 152.9 141.4
Equity in undistributed income of subsidiaries ............. (655.0) 249.9 218.6
----------- ----------- -----------
NET INCOME ............................................ 335.2 402.8 360.0
=========== =========== ===========
<FN>
See notes to condensed financial statements.
(1) Interest expense - other allocated to discontinued operations was $5
million, $18 million and $14 million for the years ended December 31, 1996,
1995 and 1994, respectively.
</FN>
</TABLE>
- 19 -
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
(Continued)
Aon Corporation
(Parent Company)
CONDENSED STATEMENTS OF CASH FLOWS
Years ended December 31
---------------------------------------
1996 1995 1994
----------- ----------- -----------
(millions)
<S> <C> <C> <C>
Cash Flows From Operating Activities ...................... $ 1,016.9 $ 164.5 $ 164.1
Cash Flows From Investing Activities:
Investments in subsidiaries .......................... (319.3) (62.6) (31.3)
Notes receivables from subsidiaries .................. (10.8) 1.5 (15.5)
----------- ----------- -----------
Cash Used by Investing Activities ............... (330.1) (61.1) (46.8)
----------- ----------- -----------
Cash Flows From Financing Activities:
Treasury stock transactions - net .................... (40.1) (46.4) (15.4)
Issuance (repayment) of short-term borrowings - net .. (139.2) 108.8 75.3
Issuance of notes payable and long-term debt ......... -- 73.6 174.5
Repayment of notes payable and long-term debt ........ (105.6) -- (125.0)
Retirement of preferred stock ........................ (14.2) (75.4) (58.3)
Cash dividends to stockholders ....................... (172.9) (171.3) (162.3)
----------- ----------- -----------
Cash Used by Financing Activities ............... (472.0) (110.7) (111.2)
----------- ----------- -----------
Increase (Decrease) in Cash and Cash Equivalents .......... 214.8 (7.3) 6.1
Cash and Cash Equivalents at Beginning of Year ............ 2.1 9.4 3.3
----------- ----------- -----------
Cash and Cash Equivalents at end of Year .................. $ 216.9 $ 2.1 $ 9.4
=========== =========== ===========
<FN>
See notes to condensed financial statements.
</FN>
</TABLE>
- 20 -
<PAGE>
SCHEDULE II
(Continued)
Aon Corporation
(Parent Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. See notes to consolidated financial statements incorporated by reference
from the Annual Report.
2. Cash and cash equivalents on the condensed statements of financial position
include short-term investments.
3. Payments made as assessments by state guaranty funds to cover losses to
policyholders of insurance companies under regulatory supervision for the
years ended December 31, 1996, 1995 and 1994 were $1.4 million, $5 million
and $6.9 million, respectively. In addition, Aon's reserve for the
recognition of probable assessments for known industry insolvencies was $0
million and $7 million at December 31, 1996 and 1995, respectively.
4. Generally, the net assets of Aon's insurance subsidiaries available for
transfer to the parent company are limited to the amounts that the
insurance subsidiaries' statutory net assets exceed minimum statutory
capital requirements; however, payment of the amounts as dividends in
excess of $987 million may be subject to approval by regulatory
authorities.
5. Subsequent Event
On March 21, 1997, Aon's directors approved a three-for-two stock split,
payable on May 14, 1997 in the form of a stock dividend of one common share
for every two shares held, to stockholders of record as of the close of
business on May 1, 1997. Because the stock split was approved subsequent to
the distribution of Aon's 1996 Annual Report to Stockholders, references to
common stock and earnings per share data in the Annual Report to
Stockholders and in this Annual Report on Form 10-K have not been
retroactively adjusted. Retroactively adjusting such information to give
effect to the stock split for 1996, 1995 and 1994, respectively, would
result in net income per share of $1.91, $2.32 and $2.09 and dividends per
share of $0.95, $0.89 and $0.84.
- 21 -
<PAGE>
Aon Corporation
(Parent Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(6) Below is a reconciliation of the combined statutory stockholders' equity
and net income of Aon's insurance subsidiaries to the consolidated
stockholders' equity and net income on a basis in accordance with generally
accepted accounting principles (GAAP):
<TABLE>
<CAPTION>
(millions)
As of December 31, 1996 As of December 31, 1995
------------------------------------- -------------------------------------
Life/A&H P&C Combined Life/A&H P&C Combined
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Statutory Stockholders' Equity $ 611.7 $ 363.8 $ 975.5 $ 766.2 $ 296.6 $ 1,062.8
Insurance business related adjustments:
Deferred policy acquisition costs 488.8 110.0 598.8 1,177.9 83.6 1,261.5
Cost of insurance purchased -- -- -- 87.2 -- 87.2
Excess of cost over net assets purchased 2.6 -- 2.6 143.4 -- 143.4
Policy liabilities and reinsurance assets 112.1 -- 112.1 100.3 -- 100.3
Deferred income taxes (186.1) 24.3 (161.8) (301.8) 32.1 (269.7)
Investment valuation reserves 133.7 -- 133.7 176.3 -- 176.3
Non Admitted Assets 47.3 5.9 53.2 79.6 5.1 84.6
Unrealized capital gains (losses) (FAS 115) 76.8 34.8 111.6 74.8 40.2 115.0
------------------------------------- -------------------------------------
Subtotal $ 1,287.0 $ 538.8 1,825.7 $ 2,303.9 $ 457.6 2,761.4
======================== ========================
Investment in other operations and other 1,443.2 855.8
----------- -----------
Investments in subsidiaries 3,268.9 3,617.2
Elimination of parent company contributions (436.0) (943.5)
----------- -----------
Consolidated Stockholders' Equity $ 2,832.9 $ 2,673.7
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1996 As of December 31, 1995
------------------------------------- -------------------------------------
Life/A&H P&C Combined Life/A&H P&C Combined
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Statutory Net Income * $ 807.4 $ 70.7 $ 878.1 $ 196.7 $ 57.5 $ 254.2
Insurance business related adjustments:
Deferred policy acquisition costs 121.6 95.1 216.7 325.6 84.7 410.3
Amortization of deferred policy acquisition
costs (166.9) (68.7) (235.6) (240.3) (62.4) (302.7)
Amortization of cost of insurance purchased (2.0) -- (2.0) (10.4) -- (10.4)
Amortization of excess of cost over net
assets purchased (0.9) -- (0.9) (4.9) -- (4.9)
Policy liabilities and reinsurance assets 11.8 -- 11.8 -- -- (31.0)
Deferred income taxes (4.0) (9.2) (13.3) (24.9) -- (24.9)
Change in valuation reserves 4.1 -- 4.1 5.6 -- 5.6
Deferred capital losses 2.8 (3.5) (0.7) 34.3 5.9 40.2
Difference in realized gain on sale of
subsidiar net of tax (551.2) (551.2)
Realized (gain)/loss on transfer of
subsidiary -- -- -- 7.0 -- 7.0
------------------------------------- -------------------------------------
Subtotal $ 222.8 $ 84.4 307.1 $ 288.8 $ 85.7 343.4
======================== ========================
Investment in other operations and other 28.1 59.4
----------- -----------
Consolidated Net Income - GAAP Basis $ 335.2 $ 402.8
=========== ===========
<FN>
* net of intercompany dividends
</FN>
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1994
-------------------------------------
Life/A&H P&C Combined
----------- ----------- -----------
<S> <C> <C> <C>
Statutory Net Income * $ 271.9 $ 34.1 $ 306.0
Insurance business related adjustments:
Deferred policy acquisition costs 337.7 76.8 414.5
Amortization of deferred policy acquisition
costs (227.7) (48.5) (276.2)
Amortization of cost of insurance purchased (13.9) -- (13.9)
Amortization of excess of cost over net
assets purchased (4.8) -- (4.8)
Policy liabilities and reinsurance assets 19.2 -- 19.2
Deferred income taxes (64.7) (6.9) (71.6)
Change in valuation reserves 26.6 -- 26.6
Deferred capital losses -- -- --
Difference in realized gain on sale of
subsidiary net of tax
Realized (gain)/loss on transfer of
subsidiary (89.4) -- (89.4)
-------------------------------------
Subtotal $ 254.9 $ 55.5 310.4
========================
Investment in other operations and other 49.6
-----------
Consolidated Net Income - GAAP Basis $ 360.0
===========
<FN>
* net of intercompany dividends
</FN>
</TABLE>
- 22 -
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE III
Aon Corporation and Subsidiaries
SUPPLEMENTARY INSURANCE INFORMATION
Future Benefit, Amort-
policy Unearned claims, ization
benefits, premiums losses deferred
Deferred losses, and other Net Commis- and policy Other
policy claims policy- invest- sions settle- acqui- oper-
acquisition and loss holders Premium ment fees ment sition ating Premiums
costs(1) expenses funds revenue income(2) & other expenses costs(1) expenses written(3)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(millions)
Year ended
December 31, 1996
Insurance brokerage
and consulting
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
services ............... $ -- $ -- $ -- $ -- $ 83.5 $1,918.8 $ -- $ -- $1,820.2 $ --
Insurance underwriting ... 598.8 1,920.3 2,439.3 1,526.7 197.0 50.1 789.5 207.9 524.1 1,581.6
Corporate and
other .................. -- -- -- -- 103.5 8.6 -- -- 100.9 --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total ............... $ 598.8 $1,920.3 $2,439.3 $1,526.7 $ 384.0 $1,977.5 $ 789.5 $ 207.9 $2,445.2 $1,581.6
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Year ended
December 31, 1995 (4)
Insurance brokerage
and consulting
services ............... $ -- $ -- $ -- $ -- $ 75.7 $1,651.3 $ -- $ -- $1,515.1 $ --
Insurance underwriting ... 1,348.7 2,446.0 7,110.4 1,426.5 168.5 44.9 698.5 207.5 487.5 1,596.2
Corporate and
other .................. -- -- -- -- 85.2 13.6 -- -- 99.1 --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total ............... $1,348.7 $2,446.0 $7,110.4 $1,426.5 $ 329.4 $1,709.8 $ 698.5 $ 207.5 $2,101.7 $1,596.2
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Year ended
December 31, 1994 (4)
Insurance brokerage
and consulting
services ............... $ -- $ -- $ -- $ -- $ 47.7 $1,388.7 $ -- $ -- $1,279.0 $ --
Insurance underwriting ... 1,290.6 2,378.7 6,931.7 1,322.3 142.3 44.9 626.2 189.7 458.3 1,478.2
Corporate and
other .................. -- -- -- -- 67.1 28.2 -- -- 91.0 --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total ............... $1,290.6 $2,378.7 $6,931.7 $1,322.3 $ 257.1 $1,461.8 $ 626.2 $ 189.7 1,828.3 $1,478.2
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
<FN>
(1) Includes cost of insurance purchased.
(2) The above results reflect allocations of investment income and certain
expense elements considered reasonable under the circumstances.
(3) Net of reinsurance ceded.
(4) Reclassified to conform to the 1996 presentation.
</FN>
</TABLE>
- 23 -
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE IV
Aon Corporation and Subsidiaries
REINSURANCE
Year Ended December 31, 1996
-------------------------------------------------------------------
Percentage
Ceded to Assumed of amount
Gross other from other Net assumed to
(millions) amount companies companies amount net
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Life insurance in force (1) ............................... $ 10,996.7 $ 12,749.8 $ 10,304.1 $ 8,551.0 120.5%
=========== =========== =========== =========== ===========
Premiums and policy fees
Life Insurance .......................................... $ 206.5 $ 133.0 $ 87.7 $ 161.2 54.4%
A&H Insurance ........................................... 1,045.3 213.9 112.7 944.1 11.9
Specialty Property & Casualty (2) ....................... 490.3 160.8 91.9 421.4 21.8
----------- ----------- ----------- ----------- -----------
Total premiums and policy fees ............................ $ 1,742.1 $ 507.7 $ 292.3 $ 1,526.7 19.1%
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1995
-------------------------------------------------------------------
Percentage
Ceded to Assumed of amount
Gross other from other Net assumed to
(millions) amount companies companies amount net
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Life insurance in force (1) ............................... $ 80,176.6 $ 27,936.6 $ 991.4 $ 53,231.4 1.9%
=========== =========== =========== =========== ===========
Premiums and policy fees
Life Insurance .......................................... $ 251.9 $ 83.9 $ 4.0 $ 172.0 2.3%
A&H Insurance ........................................... 1,032.9 98.5 5.1 939.5 0.5
Specialty Property & Casualty (2) ....................... 375.0 133.9 73.9 315.0 23.5
----------- ----------- ----------- ----------- -----------
Total premiums and policy fees ............................ $ 1,659.8 $ 316.3 $ 83.0 $ 1,426.5 5.8%
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1994
-------------------------------------------------------------------
Percentage
Ceded to Assumed of amount
Gross other from other Net assumed to
(millions) amount companies companies amount net
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Life insurance in force (1) ............................... $ 74,047.9 $ 25,109.7 $ 1,173.9 $ 50,112.1 2.3%
=========== =========== =========== =========== ===========
Premiums and policy fees
Life Insurance .......................................... $ 245.0 $ 81.7 $ 5.1 $ 168.4 3.0%
A&H Insurance ........................................... 996.2 98.6 6.4 904.0 0.7
Specialty Property & Casualty (2) ....................... 309.9 139.1 79.1 249.9 31.7
----------- ----------- ----------- ----------- -----------
Total premiums and policy fees ... ........................ $ 1,551.1 $ 319.4 $ 90.6 $ 1,322.3 6.9%
=========== =========== =========== =========== ===========
<FN>
(1) Includes credit life insurance.
(2) Includes mechanical repair insurance sold through automobile dealers,
appliance warranty insurance and property liability insurance.
</FN>
</TABLE>
- 24 -
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE V
Aon CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1996, 1995 and 1994
(millions) Additions
----------------------
Charged/
Balance at Charged to (credited) Balance
beginning cost and to other Deductions at end
Description of year expenses accounts (1) of year
- ----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1996
- ----------------------------
Reserve for losses (2)
<S> <C> <C> <C> <C> <C>
(deducted from mortgage loans on real estate) $ 25.6 $ -- $ (24.9) $ -- $ 0.7
Reserve for losses
(deducted from other long-term investments) 5.2 -- -- -- 5.2
Allowance for doubtful accounts (4)
(deducted from insurance brokerage and consulting
services receivables) 47.4 9.5 13.4 (10.5) 59.9
Allowance for doubtful accounts (2)
(deducted from premiums and other) 3.9 2.1 (2.9) -- 3.1
Year Ended December 31, 1995
- ----------------------------
Reserve for losses (3)
(deducted from mortgage loans on real estate) $ 29.7 $ -- $ (4.1) $ -- $ 25.6
Reserve for losses (3)
(deducted from other long-term investments) 6.7 -- 1.0 (2.5) 5.2
Allowance for doubtful accounts
(deducted from insurance brokerage and consulting
services receivables) 45.2 6.0 -- (3.8) 47.4
Allowance for doubtful accounts
(deducted from premiums and other) 3.2 2.0 -- (1.3) 3.9
Year Ended December 31, 1994
- ----------------------------
Reserve for losses (3)
(deducted from mortgage loans on real estate) $ 42.0 $ -- $ (12.3) $ -- $ 29.7
Reserve for losses
(deducted from long-term bonds) 11.7 -- -- (11.7) --
Reserve for losses (3)
(deducted from other long-term investments) 9.3 -- (2.6) -- 6.7
Allowance for doubtful accounts (4)
(deducted from insurance brokerage and consulting
services receivables) 41.2 7.0 1.3 (4.3) 45.2
Allowance for doubtful accounts
(deducted from premiums and other) 3.1 1.4 -- (1.3) 3.2
<FN>
(1) Amounts deemed to be uncollectible.
(2) Amounts shown in additions credited to other accounts primarily represent
reduction due to sale of discontinued operations.
(3) Amounts shown in additions charged/(credited) to other accounts represent
realized investment (gains)/losses.
(4) Amounts shown in additions charged to other accounts represent reserves
related to acquired business.
</FN>
</TABLE>
- 25 -
<PAGE>
Cross Reference Sheet, Pursuant
to General Instruction G(4)
Item in Form 10-K Incorporated by Reference to
- ----------------- ----------------------------
Part I
Item 1. Business Annual Report to Stockholders of
the Registrant for the Year 1996
("Annual Report")pages 6 through
15.
Item 3. Legal Proceedings Annual Report page 40 (note 12 of
Notes to Consolidated Financial
Statements).
Part II
Item 5. Market for the Registrant's Annual Report pages 34 and 35
Common Stock and Related (note 8 of Notes to Consolidated
Security Holder Matters Financial Statements) and page 43
("Dividends paid per share" and
"Price range").
Item 6. Selected Financial Data Annual Report page 42.
Item 7. Management's Discussion and Annual Report pages 17 through
Analysis of Financial Condition 23.
and Results of Operations
Item 8. Financial Statements and Annual Report pages 24 through 41
Supplementary Data and 43.
Part III
Item 10. Directors and Executive Officers Notice of Annual Meeting of
of the Registrant Holders of Common Stock and
Series C Preferred Stock and
Proxy Statement For Annual
Meeting of Stockholders on April
18, 1997 of the Registrant
("Proxy Statement") pages 3 and
7.
Item 11. Executive Compensation Proxy Statement pages 12 through
15.
Item 12. Security Ownership of Certain Proxy Statement pages 2, 8 and 9.
Beneficial Owners and Management
Item 13. Certain Relationships and Proxy Statement page 20
Related Transactions ("Transactions With Management").
Part IV
Item 14. Exhibits, Financial Statement Annual Report pages 24 through
Schedules, and Reports on 41.
Form 8-K
- 26 -
<PAGE>
EXHIBIT INDEX
Exhibit Number Page Number of
Regulation Sequentially
S-K, Item 601 Numbered Copy
- ------------- -------------
(3) Articles of incorporation and bylaws:
(a) Second Restated Certificate of Incorporation of the Registrant
-- incorporated by reference to Exhibit 3(a) to the 1991 Form
10-K.
(b) Certificate of Amendment of the Registrant's Second Restated
Certificate of Incorporation -- incorporated by reference to
Exhibit 3 to the First Quarter 1994 Form 10-Q.
(c) Bylaws of the Registrant -- incorporated by reference to
Exhibit (d) to the 1982 Form 10-K.
(d) Certificate of Designation for the Registrant's 8% Cumulative
Perpetual Preferred Stock, $1.00 par value -- incorporated by
reference to Exhibit 4(a) to the Third Quarter 1992 Form 10-Q.
(e) Certificate of Designation for the Registrant's Series C
Cumulative Preferred Stock -- incorporated by reference to
Exhibit 4.1 to the Registrant's Current Report on Form 8-K
dated February 9, 1994.
(4) Instruments defining the rights of security holders, including
indentures:
(a) Indenture dated September 15, 1992 between the Registrant and
Continental Bank Corporation (now known as Bank of America
Illinois), as Trustee -- incorporated by reference to Exhibit
4(a) of the Registrant's Current Report on Form 8-K dated
September 23, 1992.
(b) Resolutions establishing terms of 6.875% Notes Due 1999 and
7.40% Notes Due 2002 -- incorporated by reference to Exhibit
4(d) to the 1992 Form 10-K.
(c) Resolutions establishing the terms of 6.70% Notes Due 2003
incorporated by reference to Exhibit 4(c) to the 1993 Form
10-K.
(d) Resolutions establishing the terms of 6.30% Notes Due 2004
incorporated by reference to Exhibit 4(d) to the 1993 Form
10-K.
(10) Material Contracts:
(a) Aon Stock Option Plan -- incorporated by reference to Exhibit
10(a) to the 1990 Form 10-K.
- 27 -
<PAGE>
EXHIBIT INDEX
Exhibit Number Page Number of
Regulation Sequentially
S-K, Item 601 Numbered Copy
- ------------- -------------
(b) First Amendment to Aon Stock Option Plan -- incorporated by
reference to the Exhibit 10(a) to the Second Quarter 1994 Form
10-Q.
(c) Second Amendment to Aon Stock Option Plan -- incorporated by
reference to Exhibit 10(c) to the Second Quarter 1994 Form
10-Q.
(d) Ryan Insurance Group, Inc. Stock Option Plan together with
Stock Option Assumption Agreement providing for amendment of
the plan -- incorporated by reference to Exhibit 4(b) to the
Registration Statement No. 2-79114 on Form S-8.
(e) Registration Rights Agreement by and among the Registrant and
certain affiliates of Ryan Insurance Group, Inc. (including
Patrick G. Ryan and Andrew J. McKenna) -- incorporated by
reference to Exhibit (f) to the 1982 Form 10-K.
(f) 1994 Restatement of Aon Savings Plan -- incorporated by
reference to Exhibit 10(f) to the 1994 Form 10-K.
(g) 1994 Restatement of Aon Employee Stock Ownership Plan --
incorporated by reference to Exhibit 10(g) to the 1994 Form
10-K.
(h) 1994 Restatement of Aon Pension Plan -- incorporated by
reference to Exhibit 10(h) to the 1994 Form 10-K.
(i) Deferred Compensation Agreement by and among Registrant and
Registrant's directors who are not salaried employees of
Registrant or Registrant's affiliates -- incorporated by
reference to Exhibit 10(i) to the 1987 Form 10-K.
(j) Aon Stock Award Plan, as amended -- incorporated by reference
to Exhibit 10(a) to the First Quarter 1994 Form 10-Q.
(k) Amendment and Waiver Agreement dated as of November 4, 1991
among the Registrant and each of Patrick G. Ryan, Shirley
Ryan, Ryan Enterprises Corporation and Harvey N. Medvin --
incorporated by reference to Exhibit 10(j) to the 1991 Form
10-K.
(l) Registration Rights Agreement dated November 2, 1992 by and
between the Registrant and Frank B. Hall & Co. Inc.
-- incorporated by reference to exhibit 4(c) to the Third
Quarter 1992 Form 10-Q.
(m) Aon Corporation 1994 Amended and Restated Outside Director
Stock Award Plan -- incorporated by reference to Exhibit 10(b)
to the First Quarter 1994 Form 10-Q.
(n) First Amendment to the Aon Stock Award Plan -- incorporated by
reference to Exhibit 10(b) to the Second Quarter 1994 Form
10-Q.
- 28 -
<PAGE>
EXHIBIT INDEX
Exhibit Number Page Number of
Regulation Sequentially
S-K, Item 601 Numbered Copy
- ------------- -------------
(o) Second Amendment to Aon Stock Award Plan -- incorporated by
reference to Exhibit 10(d) to the Second Quarter 1994 Form
10-Q.
(p) Aon Corporation 1995 Senior Officer Incentive Compensation
Plan -- incorporated by reference to Exhibit 10(p) to the 1995
Form 10-K.
(q) Aon Deferred Compensation Plan and First Amendment to the Aon
Deferred Compensation Plan -- incorporated by reference to
Exhibit 10(q) to the 1995 Form 10-K.
(r) Asset Purchase Agreement dated July 24, 1992 between the
Registrant and Frank B. Hall & Co. Inc. -- incorporated by
reference to Exhibit 10(c) to the Registrant's Quarterly
Report on Form 10-Q for the period ended June 30, 1992.
(s) Stock Purchase Agreement by and among the Registrant, Combined
Insurance Company of America, Union Fidelity Life Insurance
Company and General Electric Capital Corporation dated as of
November 11, 1995 -- incorporated by reference to Exhibit
10(s) of the 1995 Form 10-K.
(t) Stock Purchase Agreement by and among the Registrant; Combined
Insurance Company of America; The Life Insurance Company of
Virginia; Forth Financial Resources, Ltd.; Newco Properties,
Inc.; and General Electric Capital Corporation dated as of
December 22, 1995 -- incorporated by reference to Exhibit
10(t) to the 1995 Form 10-K.
(u) Agreement and Plan of Merger among the Registrant, Purchaser
and A&A dated as of December 11, 1996 -- incorporated by
reference to Exhibit (c)(1) to the Registrant's Schedule 14D-1
filed with the SEC on December 16, 1996.
(v) First Amendment to Agreement and Plan of Merger dated as of
January 7, 1997 among the Registrant, Purchaser and A&A --
incorporated by reference to Exhibit (c)(3) to Schedule 14D-1
filed by the Registrant with the SEC on January 9, 1997.
(w) Second Amendment to Aon Employee Stock Option Plan -
incorporated by reference to Exhibit 10(a) to the Second
Quarter 1996 Form 10-Q.
(x) Fifth Amendment to Aon Pension Plan - incorporated by
reference to Exhibit 10(b) to the Second Quarter 1996 Form
10-Q.
(y) Third Amendment to Aon Savings Plan - incorporated by
reference to Exhibit 10(c) to the Second Quarter 1996 Form
10-Q.
(z) Third Amendment ot Aon Pension Plan - incorporated by
reference to Exhibit 10(d) to Second Quarter 1996 Form 10-Q.
- 29 -
<PAGE>
EXHIBIT INDEX
Exhibit Number Page Number of
Regulation Sequentially
S-K, Item 601 Numbered Copy
- ------------- -------------
(a)(a) Share Purchase Agreement between the Registrant and Inchape
plc dated 15 October 1996(to be filed by amendment to this
form 10-K).
(11) Statement regarding Computation of Per Share Earnings.
(12) Statements regarding Computation of Ratios.
(a) Statement regarding Computation of Ratio of Earnings to Fixed
Charges.
(b) Statement regarding Computation of Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividends.
(13) Annual Report to Stockholders of the Registrant for the year ended
December 31, 1996 (for information, and not to be deemed filed, except
for those portions specifically incorporated by reference herein).
(21) List of subsidiaries of the Registrant.
(23) Consent of Ernst & Young LLP to the incorporation by reference into
Aon's Annual Report on Form 10-K of their report included in the 1996
Annual Report to Stockholders and into Aon's Registration Statement
Nos. 33-27984, 33-42575, 33-57562, 33-59037 and 333-21237.
(99) Annual Report to the Securities and Exchange Commission on Form 11-K
for the Aon Savings Plan for the year ended December 31, 1996 -- to be
filed by amendment as provided in Rule 15d-21(b).
- 30 -
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11
Aon Corporation and Subsidiaries
CONSOLIDATED NET INCOME PER SHARE COMPUTATION
(millions except per share data) Years Ended December 31
---------------------------------------
1996 1995 1994
----------- ----------- -----------
EARNINGS PER SHARE
<S> <C> <C> <C>
Net income ........................................... $ 335.2 $ 402.8 $ 360.0
Preferred stock dividends ............................ 18.8 24.7 26.8
----------- ----------- -----------
Net income less preferred stock dividends ....... $ 316.4 $ 378.1 $ 333.2
=========== =========== ===========
Average common shares issued ......................... 111.9 110.8 107.1
Net effect of treasury stock activity ................ (3.0) (2.8) (4.4)
Weighted average effect of Series B preferred stock .. -- -- 2.8
Net effect of dilutive stock compensation plans based
on the treasury stock method .................... 1.3 0.7 0.7
----------- ----------- -----------
Average common and common equivalent shares
outstanding ........................... 110.2 108.7 106.2
=========== =========== ===========
NET INCOME PER SHARE (1) (2)............................... $ 2.87 $ 3.48 $ 3.14
=========== =========== ===========
<FN>
(1) Primary and fully diluted net income per share are materially the same.
(2) See note 5 to condensed financial statements.
</FN>
</TABLE>
- 31 -
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 12(a)
Aon Corporation and Consolidated Subsidiaries
Combined With Unconsolidated Subsidiaries
Computation of Ratio of Earnings to Fixed Charges
Years Ended December 31,
--------------------------------------------------------------
(millions except ratios) 1996 1995 1994 1993 1992(1)
--------------------------------------------------------------
Income from continuing operations before
<S> <C> <C> <C> <C> <C>
provision for income tax $ 445.6 $ 458.0 $ 397.0 $ 331.6 $ 179.1
Add back fixed charges:
Interest on indebtedness 44.7 55.5 46.4 42.3 41.9
Interest on ESOP 4.3 5.3 5.9 6.5 6.9
Portion of rents representative of
interest factor 28.6 21.4 28.7 26.1 19.2
---------- ---------- ---------- ---------- ----------
Income as adjusted $ 523.2 $ 540.2 $ 478.0 $ 406.5 $ 247.1
---------- ---------- ---------- ---------- ----------
Fixed charges:
Interest on indebtedness $ 44.7 $ 55.5 $ 46.4 $ 42.3 $ 41.9
Interest on ESOP 4.3 5.3 5.9 6.5 6.9
Portion of rents representative of
interest factor 28.6 21.4 28.7 26.1 19.2
---------- ---------- ---------- ---------- ----------
Total fixed charges 77.6 82.2 81.0 74.9 68.0
========== ========== ========== ========== ==========
Ratio of earnings to fixed charges 6.7 6.6 5.9 5.4 3.6
========== ========== ========== ========== ==========
Ratio of earnings to fixed charges (2) 7.2 8.4 7.6 7.4 5.3
========== ========== ========== ========== ==========
<FN>
(1) Income from continuing operations before provision for income taxes
excludes the cumulative effect of changes in accounting principles.
(2) The calculation of this ratio of earnings to fixed charges reflects the
addition of the income from discontinued operations before the provision
for income tax component.
</FN>
</TABLE>
- 32 -
<PAGE>
<PAGE>
<TABLE>
EXHIBIT 12(b)
Aon Corporation and Consolidated Subsidiaries
Combined With Unconsolidated Subsidiaries
Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends
Years Ended December 31,
--------------------------------------------------------------
(millions except ratios) 1996 1995 1994 1993 1992(1)
--------------------------------------------------------------
Income from continuing operations before
<S> <C> <C> <C> <C> <C>
provision for income tax $ 445.6 $ 458.0 $ 397.0 $ 331.6 $ 179.1
Add back fixed charges:
Interest on indebtedness 44.7 55.5 46.4 42.3 41.9
Interest on ESOP 4.3 5.3 5.9 6.5 6.9
Portion of rents representative of
interest factor 28.6 21.4 28.7 26.1 19.2
---------- ---------- ---------- ---------- ----------
Income as adjusted $ 523.2 $ 540.2 $ 478.0 $ 406.5 $ 247.1
========== ========== ========== ========== ==========
Fixed charges and preferred stock dividends:
Interest on indebtedness $ 44.7 $ 55.5 $ 46.4 $ 42.3 $ 41.9
Preferred stock dividends 28.7 37.5 48.4 47.5 20.3
---------- ---------- ---------- ---------- ----------
Interest and dividends 73.4 93.0 94.8 89.8 62.2
Interest on ESOP 4.3 5.3 5.9 6.5 6.9
Portion of rents representative of
interest factor 28.6 21.4 28.7 26.1 19.2
---------- ---------- ---------- ---------- ----------
Total fixed charges and preferred
stock dividends $ 106.3 $ 119.7 $ 129.4 $ 122.4 $ 88.3
========== ========== ========== ========== ==========
Ratio of earnings to combined fixed
charges and preferred stock dividends 4.9 4.5 3.7 3.3 2.8
========== ========== ========== ========== ==========
Ratio of earnings to combined fixed
charges and preferred stock dividends (2) 5.2 5.8 4.8 4.5 4.1
========== ========== ========== ========== ==========
<FN>
(1) Income from continuing operations before provision for income taxes
excludes the cumulative effect of changes in accounting principles.
(2) This calculation of ratio of earnings to combined fixed charges and
preferred stock dividends reflects the addition of the income from
discontinued operations before the provision for income tax component.
</FN>
</TABLE>
- 33 -
<PAGE>
BROKERAGE AND CONSULTING
As the world's fastest-growing global insurance brokerage and consulting
services organization, Aon Group is combining its collective knowledge,
technological expertise and global distribution capabilities to provide clients
with cost-effective, value-added solutions.
In the rapidly changing, consolidating insurance industry, Aon pursues a sharply
focused strategy, concentrating more of its resources in insurance brokerage and
consulting. Consistent with our strategy, we acquired Bain Hogg Group plc last
October and, in early 1997, we completed the merger with Alexander & Alexander
Services Inc. These companies provide Aon with enhanced resources, access to
more insurance markets and a wider range of specialist capabilities. Together,
we provide our clients with creative insurance and consulting solutions through
local representation supported by a network of more than 400 owned offices in
some 60 countries.
- 6 -
<PAGE>
OPERATIONS REVIEW
Aon Group comprises four major operating units: Aon Risk Services, Aon Specialty
Group, Aon Re Worldwide and Aon Consulting Worldwide. Despite increasingly
competitive market conditions, Aon Group had good growth and earnings in 1996,
through its acquisition program and internal growth initiatives. The company
generated major new business and maintained high retention rates by focusing on
strategies to address all of our client segments (global accounts, middle market
and small commercial business). To counter the industry's pricing pressures, the
company is reducing operating costs through consolidation and elimination of
redundancies, and increasing efficiency while maintaining its high standard of
services. By focusing on specialized lines of business and our interdependent
strategy, the company has improved its ability to offer insurance solutions and
distribution on a global basis.
OPPORTUNITIES
Aon Group differentiates itself through a niche focus on industry
and product specializations, by its ability to attract and maintain top
professionals, and its unmatched worldwide distribution capabilities. Aon's
culture enables synergies to develop among insurance and reinsurance brokerage,
risk management and consulting services. Through our collective organizations,
Aon Group sees a number of attractive, long-term growth opportunities: enhancing
its insurance management services to commercial and industrial organizations and
insurance underwriting/distribution organizations; increasing its presence in
international markets and emerging markets; bringing capital markets expertise
and resources to our clients; and developing and implementing advanced
technology applications.
OUTLOOK
The intermediary role is no longer confined solely to obtaining coverage for
clients. Instead, our industry is consolidating into single-source providers of
insurance and reinsurance brokerage, consulting services and funding solutions
to access non-traditional insurance capital. To adapt to this change, a
brokerage and consulting organization must become integral to the process of
managing and transferring risk. As our diverse client base demands solutions to
increasingly complex risks, Aon Group provides a complete approach to risk
management, offering services beyond traditional risk-transfer to include access
to alternative markets. The company is well positioned to address the changing
needs of the insurance marketplace by offering value-added risk management
advice, innovative risk-transfer solutions, and thorough, reliable knowledge of
global markets and local customs.
- 7 -
<PAGE>
BROKERAGE AND CONSULTING
Services for Today and Tomorrow
Aon Group focuses on providing an expanding range of insurance and consulting
services, beyond brokerage, to meet the demands of our clients.Our mission is to
continue being the preeminent provider of risk management, insurance and
reinsurance brokerage and consulting services delivered through an extensive
worldwide network of local offices.
In cooperation with our clients, we are dedicated to developing innovative ideas
and solutions to address risk management issues. Through an interdependent
strategy, Aon's expert teams work to deliver seamless, consistent, high-quality
service to meet our clients' ever-changing needs. Our clients are large and
small, some are global and some are local. Directed by the goal of putting the
client first, Aon focuses its vast global resources through local offices and
account executives, thereby delivering the best of Aon to every client, anywhere
in the world.
- 8 -
<PAGE>
ENHANCED GLOBAL PRESENCE
Outside the United States, London is the international focal point of the
insurance and reinsurance marketplace. With the addition of Bain Hogg and
Alexander & Alexander, Aon is the leading specialist broker in London. Aon's
U.K.-based reinsurance and specialty brokerage companies, Nicholson Jenner
Leslie, Bain Hogg International and Alexander Howden, operate under the combined
name Aon Group Limited. As the preeminent London broker, Aon Group Limited
places reinsurance and specialty business into Lloyd's, the London market and
worldwide markets. The company is involved in key specialty areas, such as
aviation, energy, financial institutions, marine, and directors' and officers'
liability. The inclusion of Bain Hogg and Alexander Howden adds significant
depth to the company's resources, particularly in reinsurance, accident and
health, construction, energy, international property and professional indemnity.
In addition to an enhanced London market presence, the additions of Bain Hogg
and Alexander & Alexander significantly expand Aon's capabilities, depth and
geographic reach of its global insurance and consulting services. Overall, these
combinations solidify Aon's position as one of the premier insurance,
reinsurance and specialty brokers in the world. Aon is a market leader in the
following retail brokerage markets: the United States, the United Kingdom,
Australia, Asia, Canada, Mexico, The Netherlands and New Zealand. The
combinations also significantly strengthen Aon's brokerage presence in Africa,
France, Germany, Latin America and the Middle East. The consulting businesses of
Alexander & Alexander add further depth to Aon's integrated human resources
consulting operations and its global market position, particularly in the United
States, the United Kingdom, Australia and Canada.
As an example of our overall service and distribution capabilities, Aon offers
premium financing products to the commercial clients of Aon Group and other
independent organizations. Also, as part of Aon's services to the automotive
industry, our finance company acts principally as a servicer of finance
receivables and provides all the key elements to assist auto retailers in
establishing captive finance companies.
- 9 -
<PAGE>
BROKERAGE AND CONSULTING GEOGRAPHIC PRESENCE
Argentina Hong Kong Russia
Aruba Hungary Saipan
Australia India Singapore
Austria Indonesia Slovak Republic
Bahrain Ireland Solomon Islands
Belgium Italy South Africa
Bermuda Japan South Korea
Brazil Kenya Spain
Canada Lithuania Swaziland
Chile Luxembourg Sweden
China Malawi Switzerland
Colombia Malaysia Taiwan
Czech Republic Malta Thailand
Denmark Mexico Turkey
Estonia The Netherlands Uganda
Fiji The Netherlands Antilles United Arab Emirates
Finland New Zealand United Kingdom
France Nigeria United States
Germany Norway Venezuela
Greece Philippines Vietnam
Guam Poland Zimbabwe
Portugal
The two pie charts on the top of page 11 show the 1996 brokerage and consulting
services revenue and pretax income (before special charges) by geographic
segmentation. Revenue from United States, Europe, and rest of world represents
64%, 30%, and 6%, respectively, of the 1996 total brokerage and consulting
revenue. Pretax income from United States, Europe, and rest of world represents
64%, 30%, and 6%, respectively, of the 1996 total brokerage and consulting
pretax income.
Aon RISK SERVICES
OVERVIEW
Aon Risk Services (ARS) is Aon's global retail insurance brokerage and risk
management services company. The combination of ARS with the retail operations
of Alexander & Alexander and Bain Hogg, provides Aon with an enhanced retail
distribution network.
SERVICES
Through its worldwide distribution system, ARS provides complete risk services,
including insurance placement, specialized brokerage services, program
development and administration, premium financing services, risk management and
loss-control consulting. ARS focuses its efforts on industry specialties such as
aviation, construction, credit insurance, energy, entertainment, financial
institutions and marine, as well as specific product coverages that include
accident and health, directors' and officers' liability, international property,
workers' compensation, and errors and omissions coverages for major law firms
and other professional organizations.
MARKETS
ARS provides insurance management solutions to targeted markets in varying
industries. Aon's resources are delivered by local account executives to global
and diverse clients, encompassing large corporate, middle-market and small
commercial enterprises.
STRENGTHS
Market demand has shifted from "insurance buying" to financial and risk
management, where knowledge-based solutions are at a premium. Through its
proprietary Knowledge Network, ARS combines global knowledge and experience to
offer value-added solutions. As a non-hierarchical, highly responsive
organization, ARS adds greater value through its targeted focus, industry
experience, local expertise and interdependent network of company resources.
STRATEGIES
ARS will continue to create expert groups focused on developing specialty
product coverages, such as workers' compensation, disability and employee
services. ARS anticipates growing opportunities in offering services to support
banks and other financial institutions as they enter the insurance market. The
company is further expanding the global reach of several specialty practices
such as construction, energy and health care.
Aon SPECIALTY GROUP
OVERVIEW
Aon Specialty Group (ASG) delivers highly specialized insurance products and
services for professional groups, service businesses, governments, health-care
providers and commercial organizations. It also provides custom services in
managing general underwriting and wholesale brokerage for insurance
organizations.
SERVICES
For insurance companies, ASG provides underwriting management skills, claims and
risk management expertise, and third-party administration services. It serves
agents and brokers through a network of underwriting managers and wholesale
brokerage operations, providing access to markets for specialized business. For
individuals and businesses, it provides affinity products for professional
liability, life and personal lines. The Aon Healthcare Alliance unit brings a
fully integrated line of Aon services to health-care providers.
MARKETS
ASG is a source of alternative distribution for the products and services of
both Aon and the insurance markets it represents. Clients include insurance
companies, individual insurance agents and brokers, individual professionals and
businesses such as health care providers. Ongoing soft-market conditions will
make certain insurance products too costly for traditional distribution sources,
resulting in increased opportunities for Aon's alternative distribution methods.
STRENGTHS
ASG brings an innovative niche focus to the industry, concentrating on thorough
knowledge of clients' profession or industry. It excels at multiple-channel
distribution systems, state-of-the-art products for specific industries and
professionals, and cost-effective delivery of products and services. ASG is the
largest program administrator for professional liability, with strong emphasis
on accounting, law and health care.
STRATEGIES
ASG is creating a new program business devoted exclusively to national
associations. Using existing back-room capabilities, the new unit will focus on
the particular needs of associations and their members. Also, ASG has recently
established a network to provide an exchange of people, ideas and technology
that facilitates global affinity business growth.
Aon RE WORLDWIDE
OVERVIEW
Aon's reinsurance brokerage activities are organized under Aon Re Worldwide
(ARW). With the additional reinsurance business of Alexander & Alexander and
Bain Hogg, ARW is a global leader in the reinsurance and specialist brokerage
industry.
SERVICES
ARW provides clients with reinsurance placement, alternative risk services,
captive management services and catastrophe information forecasting. It offers
reinsurance expertise in niche industries, including aviation, marine and
energy, as well as in specialty lines such as professional liability, directors'
and officers' liability, errors and omissions, and excess and surplus lines. ARW
provides in-depth analysis of clients' exposures and alternative reinsurance
options, using sophisticated security and risk portfolio analysis.
MARKETS
ARW has a strong global presence in most of the major insurance markets. To
complement its market leadership in the United States and the United Kingdom,
ARW is strengthening its presence in many of the developing regions, such as
Latin America and the Pacific. Its primary clients are global, national and
regional insurance companies, reinsurance companies, Lloyd's syndicates,
affinity and risk retention groups.
STRENGTHS
ARW's approach is designed to provide the best global brokerage expertise,
market intelligence and analytical tools available so their clients can make
informed buying decisions. Through a combination of product line and
geographical expertise, including significant presence in the United States and
London, ARW provides clients with efficient and cost-effective means of
reinsuring their exposures.
STRATEGIES
ARW continues to make significant investments in its technological capabilities.
The company provides a unique combination of risk management knowledge, software
technology and engineering expertise to provide clients with advanced
catastrophic risk management services. Through the development of Aon Capital
Markets, ARW is drawing upon Aon's collective expertise and worldwide resources
to access non-traditional insurance capital from the global capital markets.
Aon CONSULTING WORLDWIDE
OVERVIEW
Aon Consulting Worldwide (ACW) is one of the world's largest consulting
organizations, offering fully integrated human resources consulting services.
Its innovative professionals specialize in linking people strategies to business
initiatives for improved performance. ACW's approach ensures that our clients
are effectively attracting, retaining and utilizing their people "assets."
SERVICES
ACW offers services in employee benefits, human resources, compensation and
change management. Specific services include organizational analysis and HR
strategic planning, job design and competency modeling, recruitment and
selection, compensation and reward systems, benefits design and management,
training and development, HR compliance and risk management,
individual and organizational change management.
MARKETS
ACW serves small, mid-size and large corporations by integrating its services
into all aspects of the client's human resources programs. Focusing on the
increasing demand for outsourcing solutions, ACW targets emerging businesses,
IPOs, recent mergers or acquisitions and corporations that are reengineering
staff functions. ACW is well-positioned to provide its services to a variety of
industries. For example, the company is the automotive industry's primary
provider of employee selection services such as screening, testing and hiring.
STRENGTHS
ACW offers companies an objective, global perspective that provides integrated
solutions and consistent administration, ensuring effective design and
implementation of client programs. To enhance efficiencies, ACW creatively uses
technology such as computerized testing systems and voice response systems.
STATEGIES
ACW is targeting a larger share of the global human resources management
marketplace. Rather than making large capital investments in "administration
centers," ACW creates consulting and administration programs tailored to
individual clients' needs. Opportunities also exist by providing services to
meet the growing demand for stock-based compensation programs and innovative
reward systems.
- 10 & 11 -
<PAGE>
INSURANCE UNDERWRITING
Aon's insurance underwriting businesses are focused on meeting the changing
needs of individuals throughout the world by offering distinctive products
distributed through directly owned and operated networks.
In today's unpredictable world, Aon's well-established insurance underwriting
companies provide their policyholders with security and confidence about the
future. These underwriting companies focus on markets in North America, Europe,
Latin America and the Pacific by providing a variety of consumer insurance
products, including accident and health coverage, traditional life insurance and
extended warranties. Since 1919, Combined Insurance Company of America has
maintained a leading position in the supplemental insurance market by providing
accident, health and life coverages directly to individual consumers. Aon's
specialty property/casualty underwriters, Virginia Surety and its U.K.
affiliate, London General Insurance, serve consumers with a variety of extended
warranty coverages.
- 12 -
<PAGE>
OPERATIONS REVIEW
In early 1996, Aon refined its insurance underwriting focus by completing the
sales of two of its insurance underwriting companies and its North American auto
credit insurance business. Aon's insurance underwriting business now consists of
Combined Insurance Company of America (CICA) and Virginia Surety Company
(VSC)/London General Insurance (LGI). These companies demonstrate strong market
positions in their primary niche businesses, superior capitalization and
liquidity, and generate significant cash flow.
For the year, CICA's operating performance reflected modest revenue growth while
maintaining strong margins, as it expanded into worksite marketing. VSC/LGI's
1996 results continued to produce strong global revenue and earnings growth by
gaining new accounts and enhanced distribution relationships through Aon
Warranty Group (AWG), one of the world's largest independent marketers and
administrators of consumer extended warranties. AWG's service revenues and
income are included in the insurance brokerage and consulting line of business.
OPPORTUNITIES
CICA is a foundation of Aon's insurance underwriting business through
a directly owned and managed global network of more than 7,500 exclusive sales
agents. Its key growth strategy is to apply its extensive sales expertise and
management techniques to a new worksite marketing program, capitalizing on
opportunities in this emerging distribution channel for insurance. CICA is
approaching this market on a direct basis, using dedicated account executives,
and by partnering with existing Aon Group brokers and consultants to offer a
broad range of voluntary benefits.
The operations of VSC/LGI and Aon Warranty Group anticipate attractive business
opportunities resulting from their link with the Aon Group companies. VSC/LGI's
growth will come from new products, such as home warranty programs, enhancements
in established consumer markets, and expansion in growing markets such as Asia,
the Pacific and South America.
OUTLOOK
CICA is a strong market leader in its primary niche business with the potential
to enhance premium growth through its worksite sales strategy. The company's
extensive distribution network of career sales people, who sell directly to
individuals and families, gives it a distinct competitive advantage. CICA's
focus on the supplemental marketplace enables it to expand premiums on a
profitable basis.
The extended warranty market is expected to continue growing as more expensive
and complex consumer goods are introduced worldwide. VSC/LGI has attractive
global growth prospects for additional warranty-related services which are
strengthened through synergies with Aon Group.
- 13 -
<PAGE>
Insurance Underwriting Geographic Presence
Australia
Belgium
Canada
France
Germany
Ireland
Japan
Mexico
The Netherlands
New Zealand
Spain
United Kingdom
United States
The pie charts on the top of page 15 show the 1996 revenue and pretax income
(before special charges) for total insurance underwriting and the revenue for
direct sales and extended warranty, specialty, and other by geographic
segmentation.
Total Insurance Underwriting Revenue
As shown on the pie chart on the top on the left side, revenue from United
States, Europe, and rest of world represents 73%, 17%, and 10%, respectively, of
the 1996 total insurance underwriting revenue.
As shown on the pie chart below the revenue chart on the left side, pretax
income from United States, Europe, and rest of world represents 71%, 15%, and
14%, respectively, of the 1996 total insurance underwriting pretax income.
Direct Sales Revenue
As shown in the pie chart on the top in the middle, revenue from United States,
Europe, and rest of world represents 69%, 15%, and 16%, respectively, of the
1996 total direct sales revenue.
Extended Warranty, Specialty and Other Revenue
As shown in the pie chart on the top on the right side, revenue from United
States, Europe, and rest of world represents 78%, 20%, and 2%, respectively, of
the 1996 total extended warranty, specialty and other revenue.
Combined Insurance Company of America
Overview
For more than 77 years, Combined Insurance Company of America (CICA) has been a
leading underwriter of supplemental accident, health and life insurance products
to individuals and small businesses. CICA's business is conducted primarily
through a direct sales division that distributes its products through a
7,500-strong sales force of career insurance agents.
Services
CICA insures more than five million individual policyholders worldwide. Major
product lines include disability income, supplemental accident and health and a
basic portfolio of life insurance products. CICA's products are primarily
indemnity-type, paying fixed benefits directly to the policyholder. The products
provide additional income that the policyholders can use to supplement their
existing medical coverage or maintain their lifestyle should an accident or
sickness cause them to become disabled or hospitalized. Life insurance
protection is offered through a basic portfolio of traditional whole life and
term life coverages.
Markets
CICA is a unique organization focused on providing basic insurance products to
customers not served by most insurers. Many of CICA's insureds are self-employed
or work for small firms with limited insurance plans. The company writes
supplemental insurance policies primarily in North America, as well as in
Europe, Australia and New Zealand. In addition to its traditional business, CICA
is expanding its product distribution through payroll deduction, worksite
marketing programs.
Strengths
CICA's strengths are due to a unique combination of factors. These factors
include: (i) a loyal policyholder base comprising more than five million
individuals worldwide; (ii) operations in major countries around the world;
(iii) a line of fixed indemnity products at affordable prices which is
attractive to the policyholder base in each country; (iv) utilization of
opportunities for add-on sales that are created by the marketing approaches; (v)
a broad spread of risk resulting directly from the distribution process; and
(vi) an effective and well-managed global network of more than 7,500 exclusive
sales agents. The combination of these factors results in stable cash flow and
earnings with the opportunity for continued growth.
Strategies
CICA is expanding the distribution of supplemental products to a worksite
marketing system. In this environment, CICA is taking advantage of the benefits
of payroll deduction as a premium collection method. In addition, the company's
traditional direct sales business is offering larger scale policies to
individuals, with the option of payment through convenient monthly electronic
funds transfer.
Virginia Surety/London General
Overview
Aon's specialty, property and casualty underwriting companies, Virginia Surety
Company in North America and London General Insurance Company in Europe
(VSC/LGI), are among the world's largest underwriters of consumer extended
warranties. Through Aon Warranty Group (AWG), the company offers worldwide
administrative services, compliance support, merchandising, direct marketing,
training and one of the largest service networks in the world.
Services
The company designs consumer extended warranty programs tailored to client
needs, including the development of contract terms, conditions and pricing. The
company provides extended warranty coverages for new and used autos, consumer
electronics and appliances, home warranty, and specialty insurance products for
cellular phones, credit card enhancements, travel, involuntary unemployment and
consumer product property insurance.
Markets
Extended warranty products are distributed through auto dealers, manufacturers,
distributors and retailers of major worldwide consumer product and financial
institutions, associations and affinity groups, who offer the warranties to the
end consumer.
Strengths
Leveraging its market experience with its extensive actuarial database of
extended warranty service contracts, the company monitors product profitability
and success. Extended warranty policies are supplemental products and not
catastrophic in nature. The company's knowledge, geographic reach, flexibility,
financial stability and commitment to the client and their consumers are
unparalleled in its markets.
Strategies
VSC/LGI will continue to thrive in established markets through expansion and
acquisitions while adapting existing programs in emerging markets. Through Aon
Warranty Group's interdependent initiatives with Aon Group, the company will
further increase its worldwide market presence.
- 14 & 15 -
<PAGE>
MANAGEMENT'S ANALYSIS OF OPERATING RESULTS AND FINANCIAL CONDITION
CONSOLIDATED
GENERAL
At the beginning of second quarter 1996, Aon sold two of its domestic insurance
underwriting subsidiaries, Union Fidelity Life Insurance Company (UFLIC) and The
Life Insurance Company of Virginia (LOV) (see note 3). The aftertax proceeds
from the sales were $1.2 billion. The sales resulted in a $21 million aftertax
gain on sale. Consequently, UFLIC and LOV results are classified in the
consolidated statements of income as discontinued operations. For purposes of
the following consolidated results discussions (1996 compared to 1995 and 1995
compared to 1994), comparisons against prior years' results are based on
continuing operations.
Also in second quarter 1996, Aon completed the sale of its North American auto
credit underwriting and distribution operations, including the distribution of
auto extended warranties throughout North America. The extended warranty
products will continue to be underwritten by Aon's subsidiary, Virginia Surety
Company, Inc. Results of the auto credit underwriting business written prior to
the sale are expected to continue to run off as planned.
In fourth quarter 1996, Aon acquired Bain Hogg Group plc (Bain Hogg), a leading
insurance broker in the United Kingdom and Asia, for approximately $260 million.
SPECIAL CHARGES
In second quarter 1996, Aon recorded a $30 million pretax charge ($19 million
after tax or $0.18 per share) related to a voluntary early retirement program
for all eligible employees of Aon's United States (U.S.) operating subsidiaries
and similar programs in parts of Europe. Approximately 450 employees, 60% of
whom were in the U.S., participated in the early retirement program. These
charges were reflected in commissions and general expenses in the consolidated
statements of income.
In fourth quarter 1996, Aon's management committed to a formal plan of
restructuring Aon's European brokerage operations and recorded pretax special
charges of $60 million ($40 million aftertax or $0.36 per share) primarily
relating to this activity. These charges were reflected in commissions and
general expenses in the consolidated statements of income. The restructuring
charges include $32 million relating to consolidating real estate space and data
processing facilities and equipment, primarily in Europe, in order to merge
Aon's existing operations with those of Bain Hogg. The restructuring charges
related to consolidating real estate space are expected to be paid out over
several years. Special charges for workforce reductions, involving approximately
300 positions, were $12 million. Terminations resulting from workforce
reductions are planned to take place within one year. Costs associated with
special assessments to be paid relating to the reconstruction of the Lloyd's of
London insurance market were $11 million. The remaining charges primarily
reflect Aon's exit from certain U.S. insurance underwriting markets. In fourth
quarter 1996, pretax special charges related to the restructuring of existing
operations were principally associated with the Bain Hogg acquisition.
REVENUE AND INCOME BEFORE INCOME TAX
CONSOLIDATED RESULTS FOR 1996 COMPARED TO 1995
Total revenues amounted to $3.9 billion, an increase of 12%. This increase was
primarily due to the growth in brokerage commissions and fees resulting from
business combination activity and internal growth. Brokerage commissions and
fees increased 16% to $1.9 billion.
Premiums earned of $1.5 billion increased 7% in 1996. Extended warranty premiums
earned increased $110 million or 40%, reflecting a higher volume of new business
in both the electronic and appliance lines and the auto extended warranty line.
The continued phase-out of certain specialty liability programs partially offset
this increase. There was also continued modest growth in direct sales business.
Net investment income of $384 million increased 17% for the year primarily
attributable to investment income associated with the proceeds from the sales of
UFLIC and LOV. The pretax investment portfolio yield declined resulting from the
investment of new cash flows in lower yielding investments. Investable funds to
continuing operations grew approximately $1 billion during 1996. This increase
was attributable to the use of the sales proceeds and brokerage cash flows, as
well as strong growth in extended warranty business. In addition, net investment
income from insurance brokerage and consulting operations increased to $83
million in 1996 from $76 million the prior year, primarily due to brokerage
acquisition activity.
Net realized investment gains were $8 million in 1996 compared to $13 million in
1995. Revenue excluding realized investment gains increased 12% or $428 million
when compared to 1995.
- 17 -
<PAGE>
Commissions and general expenses (excluding interest expense) increased 17% for
the year primarily due to growth in the brokerage businesses. Benefits to
policyholders increased 13% when compared to 1995, primarily due to a higher
volume of new extended warranty business. This increase was partially offset by
lower claims paid on auto credit business that has been in runoff since second
quarter 1996. It is anticipated that this business will continue to run off as
planned. Interest expense increased 8%. Amortization of intangibles, which
excludes deferred policy acquisition costs (DPAC), decreased $6 million or 7%,
reflecting fully amortized intangibles, particularly in the insurance and other
services brokerage business, and offset in part by continued growth in acquired
businesses.
Overall, benefit and expense margins for the insurance underwriting segment did
not suggest any significant shift in operating trends in 1996. Total benefits
and expenses increased 14% or $435 million over 1995. The increase reflects the
inclusion of pretax special charges of $90 million. Total benefits and expenses,
excluding the 1996 special charges, increased 12% over 1995.
Income before income tax decreased $12 million or 3% in 1996, primarily due to
the inclusion of special charges. Excluding special charges, income before
income tax increased 17% or $78 million, largely due to growth in the insurance
brokerage and consulting segment related to business combination activity, as
well as the earnings associated with the proceeds from the sale of discontinued
operations.
Fourth quarter revenue increased 20% to $1.1 billion when compared to 1995,
primarily reflecting brokerage business combination activity and internal
growth. Total benefits and expenses, excluding special charges, increased 18% to
$938 million for the quarter. Pretax income decreased $26 million or 27% to $71
million. The decrease in pretax earnings reflects special charges of $60 million
recorded in fourth quarter 1996. Excluding special charges, pretax earnings
increased 35% when compared to fourth quarter 1995.
CONSOLIDATED GEOGRAPHIC DATA
(millions) Years ended December 31 1996 1995 1994
- -------------------------------------------------------------------
Revenue:
United States $ 2,646 $ 2,449 $2,208
Europe 929 769 635
Rest of World 313 248 198
- -------------------------------------------------------------------
Total Revenue $ 3,888 $ 3,466 $3,041
- -------------------------------------------------------------------
Income Before Income Tax:
United States $ 357 $ 328 $ 279
Europe 110 81 78
Rest of World 69 49 40
- -------------------------------------------------------------------
Income before income tax
excluding special charges 536 458 397
Special charges* 90 -- --
- -------------------------------------------------------------------
Total Income Before Income Tax $ 446 $ 458 $ 397
===================================================================
Identifiable Assets
(continuing operations):
United States $ 8,825 $ 6,427 $6,086
Europe 3,921 2,921 2,343
Rest of World 977 679 494
- -------------------------------------------------------------------
Identifiable Assets at December 31 $13,723 $10,027 $8,923
===================================================================
*Of the $90 million special charges in 1996, $35 million were U.S. and $55
million were European.
U.S. revenues increased 8% in 1996 compared to 1995, primarily reflecting
internal growth and brokerage acquisition activity. U.S. pretax income before
special charges increased 9% over prior year, primarily on the strength of
acquisition activity and overall expense controls.
Total non-U.S. revenue increased 22% in 1996 to $1.2 billion reflecting the
improvement in brokerage revenue from acquisitions and internal growth. 1996
European revenue of $929 million rose 21%, while all other non-U.S. revenues
increased 26% when compared to prior year.
Non-U.S. pretax income before special charges increased 38% to $179 million.
Pretax income before special charges from European operations increased 36%
while all other non-U.S. pretax income before special charges rose 41% or $20
million in 1996.
- 18 -
<PAGE>
REVENUE AND INCOME BEFORE INCOME TAX
CONSOLIDATED RESULTS FOR 1995 COMPARED TO 1994
Total revenue amounted to $3.5 billion in 1995, an increase of 14%. Brokerage
commissions and fees increased 19% to $1.7 billion resulting from business
combination activity and internal growth. Premiums earned were $1.4 billion or
8% above 1994. A higher volume of new business in the extended warranty
electronic and appliance lines was partially offset by the continued phase-out
of certain specialty liability programs. Net investment income of $329 million
increased 28% for the year. Higher levels of short-term investments, primarily
due to brokerage acquisition activity and internal growth, contributed to the
increase.
Commissions and general expenses (excluding interest expense) increased 15% for
the year primarily reflecting brokerage growth. Benefits to policyholders
increased 12% when compared to 1994 primarily due to a higher volume of new
extended warranty business. Partially offsetting this increase were lower
benefits, related to the runoff of certain specialty programs. Interest expense
increased 14% reflecting higher levels of short-term borrowings for the year.
Total benefits and expenses increased 14% over 1994. Income before income tax
increased by 15% or $61 million due largely to growth in the insurance brokerage
and consulting businesses, and to a lesser extent, growth in the insurance
underwriting extended warranty business and the continued favorable phase-out of
certain specialty liability underwriting programs.
MAJOR LINES OF BUSINESS
GENERAL
In second quarter 1996, Aon reported an aftertax gain on sale of discontinued
operations of $21 million related to the sales of UFLIC and LOV. Aon also
reported pretax special charges of $90 million in 1996 related principally to
early retirement programs and consolidation of global brokerage operations,
particularly in Europe.
For purposes of the major lines of business discussion, comparisons against 1995
results exclude the discontinued operations and the special charges. A
discussion of discontinued operations performance follows the major lines of
business section.
INSURANCE BROKERAGE AND CONSULTING SERVICES
Beginning in 1996, Aon's retail brokerage and reinsurance and wholesale segments
were combined into one segment called "Insurance and other services." Also
included in this segment is revenue from financing services operations which
includes service fees received from the placement of insurance premiums and
retail auto financing receivables with unaffiliated parties; this was previously
reported in the corporate segment. All prior period data has been reclassified
to conform to the 1996 presentation.
In 1996, Aon invested approximately $370 million in business combinations in its
brokerage and consulting businesses. These business combinations were financed
primarily by internal funds and the issuance of common stock. The major 1996
acquisitions include: Bain Hogg-a leading insurance brokerage company in the
United Kingdom and Asia; Wesselhoeft Ahlers & Schues OHG-a retail brokerage and
consulting operation in Germany; and S. Mark Brockington & Associates, Inc.-a
U.S. retail operation specializing in providing insurance products to the
transportation industry.
INSURANCE BROKERAGE AND CONSULTING SERVICES
(millions) Years ended December 31 1996 1995 1994
- -------------------------------------------------------------------
Revenue:
Insurance and other services $1,728 $1,477 $1,220
Consulting 274 250 222
- -------------------------------------------------------------------
Total revenue* 2,002 1,727 1,442
- -------------------------------------------------------------------
Operating expenses 1,705 1,467 1,232
Amortization of intangibles 40 48 47
- -------------------------------------------------------------------
Total expenses 1,745 1,515 1,279
- -------------------------------------------------------------------
Income before income tax
excluding special charges 257 212 163
Special charges 75 -- --
- -------------------------------------------------------------------
Income before income tax $ 182 $ 212 $ 163
===================================================================
Identifiable assets at December 31 $5,025 $3,343 $3,009
===================================================================
*Includes net investment income, primarily relating to fiduciary funds, of $83
million, $76 million and $48 million in 1996, 1995 and 1994, respectively.
Total 1996 brokerage and consulting services revenue was $2 billion, up 16%.
Acquisitions accounted for approximately one-half of this revenue growth.
Excluding the impact of acquisitions, revenue and income before income tax
results demonstrated satisfactory growth given a very competitive environment.
Insurance and other services (retail, reinsurance and wholesale brokerage)
results were positively impacted by acquisitions, especially the inclusion of
Bain Hogg in fourth quarter 1996, and good internal growth, particularly in
non-U.S. operations. Insurance and other services retail brokerage results
continued to be influenced by highly competitive property and casualty pricing
in the U.S. market. Pretax income growth was slowed primarily due to market
pressures experienced in the reinsurance brokerage business.
- 19 -
<PAGE>
Included in insurance and other services revenue are financing service fees of
$35 million, an increase of 37% over 1995. In addition, Aon Warranty Group
provided warranty marketing and administrative services to the warranty
underwriting operations. This activity generated revenue of $21 million in 1996.
In the consulting line of business, 1996 revenue increased 10% to $274 million.
Expansion of the integrated human resources consulting programs contributed to
this improvement. Limiting the growth of consulting revenue and pretax income
was a decline in revenues in the automotive consulting operations. Measures were
taken to reduce costs in the automotive operations.
INSURANCE BROKERAGE AND CONSULTING SERVICES GEOGRAPHIC DATA
(millions) Years ended December 31 1996 1995 1994
- -------------------------------------------------------------------
Revenue:
United States $1,291 $1,202 $1,053
Europe 599 452 353
Rest of World 112 73 36
- -------------------------------------------------------------------
Total Revenue $2,002 $1,727 $1,442
- -------------------------------------------------------------------
Income Before Income Tax:
United States $ 165 $ 153 $ 118
Europe 76 56 47
Rest of World 16 3 (2)
- -------------------------------------------------------------------
Income before income tax
excluding special charges 257 212 163
Special charges 75 -- --
- -------------------------------------------------------------------
Total Income Before Income Tax $ 182 $ 212 $ 163
===================================================================
U.S. revenue of $1.3 billion in 1996 was up 7% over 1995 while non-U.S. revenue
increased 35%. Total pretax income was $257 million in 1996, up 21% from $212
million in 1995. U.S. pretax income was up 8% from 1995. Non-U.S. pretax income
rose 56%, partially influenced by the fourth quarter 1996 acquisition of Bain
Hogg.
INSURANCE UNDERWRITING
The insurance underwriting line of business provides a variety of direct sales
life and accident and health products, and extended warranty products to
individuals.
INSURANCE UNDERWRITING
(millions) Years ended December 31 1996 1995 1994
- -------------------------------------------------------------------
Revenue:
Direct sales $1,030 $1,014 $ 976
Extended warranty and specialty 514 386 316
Other 230 240 217
- -------------------------------------------------------------------
Total revenue 1,774 1,640 1,509
- -------------------------------------------------------------------
Benefits to policyholders 790 699 626
Operating expenses 512 488 458
Amortization of DPAC
and intangibles 208 207 190
- -------------------------------------------------------------------
Total benefits and expenses 1,510 1,394 1,274
- -------------------------------------------------------------------
Income before income tax
excluding special charges 264 246 235
Special charges 12 -- --
- -------------------------------------------------------------------
Income before income tax $ 252 $ 246 $ 235
===================================================================
Identifiable assets at December 31 $4,786 $3,736 $3,119
===================================================================
Revenue was $1.8 billion in 1996, up 8% from $1.6 billion in 1995. Direct sales
business grew modestly, with 1996 revenue up 2% to $1 billion as the company
continued to expand its product distribution through payroll deduction, worksite
marketing programs. In general, expense margins decreased while benefit levels
increased slightly, particularly in the extended warranty line. Direct sales
accident and health business maintained its pretax margin in part due to good
general expense controls and strong international health product sales. Certain
specialty liability programs and auto credit business continued to be run off
profitably. Pretax income was $264 million in 1996, up 7% from $246 million last
year.
INSURANCE UNDERWRITING GEOGRAPHIC DATA
(millions) Years ended December 31 1996 1995 1994
- -------------------------------------------------------------------
Revenue:
United States $1,287 $1,188 $1,105
Europe 307 290 252
Rest of World 180 162 152
- -------------------------------------------------------------------
Total Revenue $1,774 $1,640 $1,509
- -------------------------------------------------------------------
Income Before Income Tax:
United States $ 187 $ 180 $ 172
Europe 40 34 35
Rest of World 37 32 28
- -------------------------------------------------------------------
Income before income tax
excluding special charges 264 246 235
Special charges 12 -- --
- -------------------------------------------------------------------
Total Income Before Income Tax $ 252 $ 246 $ 235
===================================================================
- 20 -
<PAGE>
U.S. revenue of $1.3 billion was up 8% in 1996 while non-U.S. revenue of $487
million rose 8% principally due to improved premiums earned in the extended
warranty lines. Traditional life business in Europe and the Pacific continued to
run off as planned. In addition, there was a higher volume of new business in
the appliance and electronics extended warranty lines both domestically and
internationally. U.S. pretax income rose 4% in 1996. Non-U.S. pretax income
increased 17%, reflecting reduced expense levels pertaining to unit-linked
business, which was sold in late 1996 with no significant gain or loss.
CORPORATE AND OTHER
Revenue consists primarily of investment income on insurance underwriting
operations' capital and realized investment gains. Insurance company investment
income is allocated to the underwriting segment based on the invested assets
which underlie policyholder liabilities. Excess invested assets and related
investment income, which do not underlie these liabilities, are reported in this
segment. Expenses include interest and other financing expenses, goodwill
amortization associated with insurance brokerage and consulting acquisitions and
corporate administrative costs.
CORPORATE AND OTHER
(millions) Years ended December 31 1996 1995 1994
- -------------------------------------------------------------------
Revenue:
Investment income on
capital and other $ 104 $ 86 $ 71
Realized investment gains 8 13 19
- -------------------------------------------------------------------
Total revenue 112 99 90
- -------------------------------------------------------------------
Operating expenses 20 27 29
Interest expense 40 37 33
Amortization of intangibles 37 35 29
- -------------------------------------------------------------------
Total expenses 97 99 91
- -------------------------------------------------------------------
Income before income tax
excluding special charges 15 -- (1)
Special charges 3 -- --
- -------------------------------------------------------------------
Income before income tax $ 12 $ -- $ (1)
===================================================================
Identifiable assets at December 31 $3,912 $2,948 $2,795
===================================================================
Revenue increased 13% over 1995 to $112 million. Realized investment gains
declined $5 million in 1996 when compared to 1995. Excluding these gains from
both years, revenue increased 21%, benefiting from investment income associated
with a portion of the proceeds from the sales of UFLIC and LOV.
Pretax income increased $15 million in 1996 largely due to availability of the
sales proceeds. Partially offsetting this increase was a reduction in realized
investment gains. Excluding realized investment gains from both years, pretax
income increased $20 million over 1995. In addition, financing costs and certain
goodwill amortization related to acquisitions grew more slowly when compared to
the growth in revenue.
DISCONTINUED OPERATIONS
Discontinued operations are composed principally of capital accumulation
products and direct response insurance products. Substantially all of the
revenue and income before income tax, generated from discontinued operations,
was U.S. Aftertax income on these businesses has been segregated as "Income From
Discontinued Operations" in the consolidated statements of income. With the
completion of the sales of UFLIC and LOV on April 1, 1996, there were no
operating results from these discontinued operations going forward. In addition,
in second quarter 1996, a $21 million gain on sale of discontinued operations,
net of taxes, was recorded.
INCOME TAX AND NET INCOME
Net income for 1996 was $335 million or $2.87 per share compared to $403 million
or $3.48 per share in 1995. Net income for fourth quarter 1996 amounted to $46
million or $0.38 per share compared to $93 million or $0.80 per share for 1995.
Dividends on the 8%, 6.25% and redeemable preferred stock have been deducted
from net income to compute earnings per share.
Operating income from continuing operations before special charges and realized
investment gains, was $346 million or $2.97 per share in 1996 compared to $295
million or $2.49 per share in 1995. Aon's effective operating income tax rate on
continuing operations was 34.5% in 1996 and 33.7% in 1995, while realized
investment gains were taxed at a 36% rate for both years.
Average shares outstanding for 1996 increased 1% primarily due to the issuance
of common shares related to business combinations and the conversion of
preferred stock to common stock.
- 21 -
<PAGE>
LIQUIDITY
Consistent with financial statement presentation, the following cash flow and
financial position discussion reflects the completion of the sales of UFLIC and
LOV in April 1996. As a result of the sales, the consolidated statement of
financial position at December 31, 1996, and the related consolidated statements
of stockholders' equity and cash flows have been significantly impacted when
compared to year-end 1995 and year-end 1994.
Aon's operating subsidiaries anticipate there will be adequate liquidity to meet
their needs in the foreseeable future. Aon's liquidity needs are primarily for
servicing its debt and for the payment of dividends on stock issues. Dividends
from Aon's subsidiaries are the primary source for meeting these requirements.
There are certain regulatory restrictions relating to dividend capacity of
insurance subsidiaries that are discussed in note 8. Insurance subsidiaries'
statutory capital and surplus at year-end 1996 again exceeded the risk-based
capital target set by the National Association of Insurance Commissioners by a
satisfactory level. At December 31, 1996, Aon had short-term, back-up lines of
credit available of $335 million.
Aon measures capital accumulation product asset and liability durations to
determine its net exposure to changes in interest rates. Aon's exposure to
interest-sensitive products was substantially diminished following the sale of
LOV because their products were principally interest-sensitive and
investment-type.
Through the use of hedging programs utilizing derivative financial instruments
(derivatives) (see note 11), Aon improved its overall asset and liability
duration match and hedged fair values of its available for sale portfolio. In
administering its hedging programs, Aon performs analyses that have demonstrated
that Aon achieves a high degree of correlation. The businesses of Aon's
operating subsidiaries continue to provide substantial positive cash flow.
Brokerage cash flow has been used primarily for acquisition financing. Given
Aon's fixed maturity portfolio's average life of 6.8 years, access to lines of
credit, and an uninterrupted trend in Aon's positive cash flow, Aon expects
sufficient cash flow to meet both short-term and long-term cash needs.
Future cash flow to service debt and pay dividends was enhanced by the
completion of the sales of UFLIC and LOV in 1996. Sales proceeds generated
approximately $1.2 billion after taxes and other costs of sale. The aftertax
proceeds in excess of the carrying value of the companies sold generated a
statutory gain at CICA, the parent company of UFLIC and LOV. In April 1996, CICA
dividended $650 million of this gain to Aon. CICA reinvested the remaining
proceeds primarily in non-affiliated assets. After meeting its routine dividend
and debt servicing requirements, Aon used a majority of the remaining dividends
received throughout the year to both reduce short-term debt and invest in the
operational segments of its businesses.
In early 1997, Aon completed the merger with Alexander and Alexander Services
Inc. (A&A). The purchase price of approximately $1.2 billion was funded by the
issuance of commercial paper, internal funds, and the issuance of trust
preferred capital securities (capital securities) (see note 8). Aon's management
anticipates a commitment to a restructuring plan primarily related to its
brokerage operations in first quarter 1997 given the completion of the A&A
acquisition.
Cash provided by operating activities in 1996 decreased $255 million from 1995
to $355 million. This decrease primarily reflects the federal income tax
payments relating to the sales of UFLIC and LOV. The tax payments are included
as a reduction in operating activity whereas the sales proceeds are treated as
investment activity. The remaining decrease is partially attributable to the
reduced return on the proceeds from discontinued operations.
Cash provided by investing activities was $238 million in 1996, up $862 million
from 1995. This increase is primarily attributable to the sales of UFLIC and
LOV. Cash used for acquisition activity during 1996 was $342 million, primarily
reflecting the Bain Hogg acquisition.
Cash totaling $301 million was used in 1996 for financing activities. Aon
repurchased 1.3 million shares of its common stock at a total cost of $66
million. In 1996, Aon purchased and retired 553,000 shares of its 8% preferred
stock at a total cost of $14 million. The repurchase of capital stock was
primarily funded by a portion of the proceeds received from the sales of UFLIC
and LOV. The net cash provided from capital accumulation product deposits and
withdrawals was $71 million in 1996. Cash was used to pay dividends of $154
million on common stock, $11 million on the 8% preferred stock, $6 million on
6.25% preferred stock and $2 million on redeemable preferred stock.
Assets and liabilities held under special contracts, which relate primarily to
designated funds of group pension, variable life and annuity policyholders in
1996 and to discontinued operations in 1995, decreased $2.2 billion from 1995,
reflecting the sale of discontinued operations. The net investment income
generated from these assets is not included in the consolidated statements of
income.
Total assets decreased $6 billion to $13.7 billion, while invested assets at
December 31, 1996 decreased $5.4 billion from year-end levels, primarily due to
the sales of UFLIC and LOV.
- 22 -
<PAGE>
INVESTMENT OPERATIONS
Aon Corporation invests in broad asset categories related to its diversified
operations. Investments are managed with the objective of maximizing earnings
while matching asset and liability durations and considering regulatory
requirements.
Aon maintains well-capitalized operating companies. The financial strength of
these companies permits an overall diversified investment portfolio for
stability in volatile financial markets.
Investment characteristics mirror liability characteristics of the respective
operating units. Aon's insurance brokerage and consulting businesses invest
fiduciary funds in shorter term obligations. Investments underlying
interest-sensitive capital accumulation insurance products are primarily
intermediate-term obligations, while indemnity and other types of non-interest
sensitive insurance liabilities are primarily supported by intermediate and
longer-term instruments. Longer-term assets also include private equity
investments that are anticipated to generate returns in excess of those
available in the public capital markets.
With a carrying value of $3 billion, Aon's total fixed maturity portfolio is
invested primarily in investment grade holdings (97%) and has a market value
which is 104% of amortized cost.
At December 31, 1996 and 1995, Aon's fixed maturity portfolio included
mortgage-backed securities with an amortized cost of $64 million and $2 billion,
respectively. The amortized cost and fair value of Aon's mortgage-backed
securities are presented in note 4. Substantially all of the mortgage-backed
securities included in Aon's fixed maturities portfolio at December 31, 1995
related to discontinued operations. After the sales of UFLIC and LOV in 1996,
Aon's interest in and exposure to certain market risks associated with
mortgage-backed securities was minimal.
Aon maintained investment reserves related to mortgage loan losses on real
estate holdings and real estate ventures and limited partnerships. These
reserves are a product of Aon's continuing review of the characteristics and
risks of its investment portfolio and current environmental and economic
conditions. These reserves totaled $6 million at year-end 1996, down $25 million
from the year-end 1995 level of $31 million. Substantially all of the decrease
in reserves was related to the removal of assets and liabilities of discontinued
operations.
INVESTED ASSETS--CONTINUING OPERATIONS
(millions) 1996 1995
- ----------------------------------------------------------
Short-term investments:
Brokerage and consulting $ 874 $ 724
Insurance and other 392 191
Fixed maturities 2,826 2,325
Non-redeemable preferred stock 485 490
Common stocks and partnerships 489 322
Mortgages and real estate 88 63
Policy loans and other 59 69
- ----------------------------------------------------------
Total invested assets $5,213 $4,184
==========================================================
Investment Income
(millions) 1996 1995
- ----------------------------------------------------------
Short-term investments:
Brokerage and consulting $ 83 $ 76
Insurance and other 22 10
Fixed maturities 197 164
Non-redeemable preferred stock 45 33
Common stocks and partnerships 32 42
Mortgages and real estate 8 4
Policy loans and other 7 8
- ----------------------------------------------------------
Gross investment income 394 337
Investment expenses 10 8
- ----------------------------------------------------------
Net investment income $384 $329
==========================================================
CAPITAL RESOURCES
In early 1997, Aon completed the merger with A&A for a purchase price of
approximately $1.2 billion. This acquisition was financed by the issuance of
capital securities (see note 8), internal funds, and the issuance of commercial
paper.
In 1996, short-term borrowings decreased $139 million. This decrease was
primarily attributable to the use of sales proceeds to paydown commercial paper.
Credit agreements providing lines of credit for commercial paper contain no
restrictive covenants.
In November 1996, each outstanding share of Aon's 6.25% Cumulative Convertible
Exchangeable Preferred Stock (6.25% preferred stock) (see note 8) was converted
by the holders into 1.22 shares of common stock for a total of 2,606,000 shares.
Commencing on or after November 1, 1997, Aon has the option to redeem all or any
part of the 8% Cumulative Perpetual Preferred Stock (8% preferred stock) at a
redemption price of $25.00 per share plus accrued dividends. It is anticipated
that Aon will most likely exercise its option to redeem all of the remaining
outstanding shares. At December 31, 1996, 5,446,000 shares of 8% preferred stock
were outstanding.
Aon Corporation borrows funds from and lends funds to its various subsidiaries.
As of December 31, 1996, Aon Corporation held obligations to its subsidiaries of
approximately $350 million. Generally, these obligations have competitive
interest rates.
In 1996, stockholders' equity per common share increased to $24.31, up from
$22.77 in 1995. The principal factors influencing this increase were net income
which includes the aftertax gain on sale of discontinued operations of $21
million, and a $30 million increase in net unrealized investment gains.
Partially offsetting this increase was the repurchase of common stock for
treasury at a cost of $66 million, the increase in deferred compensation and
dividends.
- 23 -
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(millions) As of December 31 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
ASSETS
INVESTMENTS
<S> <C> <C>
Fixed maturities available for sale--at fair value $ 2,826.1 $ 7,687.1
Equity securities--at fair value 879.2 1,006.3
Mortgage loans on real estate
(net of reserve for losses: 1996--$1; 1995--$26) 29.0 632.0
Real estate
(net of accumulated depreciation: 1996--$8; 1995--$8) 17.8 36.5
Policy loans 58.2 226.3
Other long-term investments 136.2 112.6
Short-term investments 1,266.3 938.3
--------------------------
Total investments 5,212.8 10,639.1
- -------------------------------------------------------------------------------------------------------------------------
CASH 410.1 115.3
RECEIVABLES
Insurance brokerage and consulting services receivables 3,565.9 2,264.1
Premiums and other 989.3 580.2
Accrued investment income 69.2 152.4
--------------------------
Total receivables (net of allowance for doubtful accounts: 1996--$63; 1995--$51) 4,624.4 2,996.7
- -------------------------------------------------------------------------------------------------------------------------
DEFERRED POLICY ACQUISITION COSTS 598.8 1,261.5
COST OF INSURANCE AND RENEWAL RIGHTS PURCHASED
(net of accumulated amortization: 1996--$665; 1995--$625) 537.5 640.1
EXCESS OF COST OVER NET ASSETS PURCHASED
(net of accumulated amortization: 1996--$194; 1995--$157) 1,060.2 957.6
PROPERTY AND EQUIPMENT AT COST
(net of accumulated depreciation: 1996--$339; 1995--$307) 323.2 307.8
ASSETS HELD UNDER SPECIAL CONTRACTS 87.3 2,307.2
OTHER ASSETS 868.4 510.5
- -------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $13,722.7 $19,735.8
- -------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
- 24 -
<PAGE>
<TABLE>
<CAPTION>
(millions) As of December 31 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
POLICY LIABILITIES
<S> <C> <C>
Future policy benefits $ 1,079.4 $ 1,475.1
Policy and contract claims 840.9 970.9
Unearned and advance premiums 1,925.2 1,646.2
Other policyholder funds 514.1 5,464.2
--------------------------
Total policy liabilities 4,359.6 9,556.4
- -------------------------------------------------------------------------------------------------------------------------
INSURANCE PREMIUMS PAYABLE 4,143.7 2,722.8
GENERAL LIABILITIES
Commissions and general expenses 776.8 562.4
Accrued income taxes
Current 80.1 107.1
Deferred 16.5 225.5
Short-term borrowings 213.4 352.7
Notes payable 475.1 497.5
Debt guarantee of employee stock ownership plan 46.1 56.8
Liabilities held under special contracts 87.3 2,307.2
Other liabilities 641.2 623.7
--------------------------
TOTAL LIABILITIES 10,839.8 17,012.1
- -------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENT LIABILITIES
REDEEMABLE PREFERRED STOCK 50.0 50.0
STOCKHOLDERS' EQUITY
Preferred stock--$1 par value
Authorized--25 shares; issued
8% cumulative perpetual preferred stock 5.5 6.0
6.25% cumulative convertible exchangeable preferred stock -- 2.1
Common stock--$1 par value
Authorized--300 shares; issued 114.1 111.4
Paid-in additional capital 475.4 431.8
Net unrealized investment gains 153.1 123.1
Net foreign exchange gains 1.0 1.8
Retained earnings 2,356.8 2,212.1
Less treasury stock at cost (shares: 1996--3.2; 1995--3.1) (121.5) (97.3)
Less deferred compensation (151.5) (117.3)
--------------------------
TOTAL STOCKHOLDERS' EQUITY 2,832.9 2,673.7
- -------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $13,722.7 $19,735.8
=========================================================================================================================
</TABLE>
- 25 -
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
(millions except per share data) Years ended December 31 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
REVENUE
<S> <C> <C> <C>
Brokerage commissions and fees $1,918.8 $1,651.3 $1,388.7
Premiums earned 1,526.7 1,426.5 1,322.3
Net investment income (note 4) 384.0 329.4 257.1
Realized investment gains (note 4) 8.1 13.1 19.1
Other income 50.6 45.4 54.0
-----------------------------------------
Total revenue 3,888.2 3,465.7 3,041.2
- -------------------------------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Commissions and general expenses 2,328.6 1,982.3 1,719.2
Benefits to policyholders 789.5 698.5 626.2
Interest expense 40.1 37.3 32.7
Amortization of deferred policy acquisition costs 207.9 207.5 189.3
Amortization of intangible assets 76.5 82.1 76.8
-----------------------------------------
Total benefits and expenses 3,442.6 3,007.7 2,644.2
- -------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX 445.6 458.0 397.0
Provision for income tax (note 6) 153.8 154.3 128.5
-----------------------------------------
INCOME FROM CONTINUING OPERATIONS 291.8 303.7 268.5
DISCONTINUED OPERATIONS (note 3):
Income from discontinued operations, net of tax 22.4 99.1 91.5
Gain on sale of discontinued operations, net of tax 21.0 -- --
-----------------------------------------
NET INCOME $ 335.2 $ 402.8 $ 360.0
- -------------------------------------------------------------------------------------------------------------------------
Net income available for common stockholders $ 316.4 $ 378.1 $ 327.6
- -------------------------------------------------------------------------------------------------------------------------
PER SHARE
Income from continuing operations $ 2.48 $ 2.57 $ 2.28
Discontinued operations 0.39 0.91 0.86
-----------------------------------------
Net income $ 2.87 $ 3.48 $ 3.14
-----------------------------------------
Cash dividends paid on common stock $ 1.42 $ 1.34 $ 1.26
- -------------------------------------------------------------------------------------------------------------------------
AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 110.2 108.7 106.2
=========================================================================================================================
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
- 26 -
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(millions) Years ended December 31 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED STOCK Balance at January 1 $ 8.1 $ 11.1 $ 13.8
Retirement of preferred stock (0.5) (3.0) (1.3)
Conversion of preferred stock to common stock (2.1) -- (1.4)
-----------------------------------------
5.5 8.1 11.1
- -------------------------------------------------------------------------------------------------------------------------
COMMON STOCK Balance at January 1 111.4 110.6 70.0
Shares issued for business combinations 0.1 0.8 5.3
Effect of three-for-two stock split -- -- 35.3
Conversion of preferred stock to common stock 2.6 -- --
-----------------------------------------
114.1 111.4 110.6
- -------------------------------------------------------------------------------------------------------------------------
PAID-IN ADDITIONAL CAPITAL Balance at January 1 431.8 485.2 605.7
Stock awards 55.2 19.2 10.8
Adjustment for business combinations 2.2 (0.6) 1.9
Retirement and conversion of preferred stock (13.8) (72.0) (97.9)
Effect of three-for-two stock split -- -- (35.3)
-----------------------------------------
475.4 431.8 485.2
- -------------------------------------------------------------------------------------------------------------------------
NET UNREALIZED INVESTMENT GAINS (LOSSES) Balance at January 1 123.1 (142.8) 50.3
Effect of a change in accounting principles at January 1 -- -- 148.2
Net unrealized investment gains (losses) 30.0 265.9 (341.3)
-----------------------------------------
153.1 123.1 (142.8)
- -------------------------------------------------------------------------------------------------------------------------
NET FOREIGN EXCHANGE GAINS (LOSSES) Balance at January 1 1.8 (19.7) (61.0)
Net foreign exchange gains (losses) (0.8) 21.5 41.3
-----------------------------------------
1.0 1.8 (19.7)
- -------------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS Balance at January 1 2,212.1 1,998.1 1,784.9
Net income 335.2 402.8 360.0
Dividends to stockholders (171.8) (170.4) (162.0)
Loss on treasury stock reissued (16.0) (21.7) --
Adjustment for business combinations (2.4) 3.7 27.6
Retirement of preferred stock (0.3) (0.4) (12.4)
-----------------------------------------
2,356.8 2,212.1 1,998.1
- -------------------------------------------------------------------------------------------------------------------------
TREASURY STOCK Balance at January 1 (97.3) (72.9) (69.3)
Cost of shares acquired (66.1) (71.8) (26.6)
Shares reissued at average cost 41.9 47.4 73.0
Conversion of common stock to redeemable preferred stock -- -- (50.0)
-----------------------------------------
(121.5) (97.3) (72.9)
- -------------------------------------------------------------------------------------------------------------------------
DEFERRED COMPENSATION Balance at January 1 (117.3) (112.2) (106.6)
Issuance of stock awards (56.8) (21.2) (18.3)
Debt guarantee of employee stock ownership plan 10.7 8.7 7.0
Amortization of deferred compensation 11.9 7.4 5.7
-----------------------------------------
(151.5) (117.3) (112.2)
- -------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY AT DECEMBER 31 $2,832.9 $2,673.7 $2,257.4
=========================================================================================================================
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
- 27 -
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions) Years ended December 31 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 335.2 $ 402.8 $ 360.0
Adjustments to reconcile net income to cash
provided by operating activities
Policy liabilities 766.7 445.4 298.6
Deferred policy acquisition costs (213.1) (410.3) (414.5)
Amortization of deferred policy acquisition costs 235.6 302.7 276.2
Amortization of intangible assets 79.0 94.2 92.2
Other amortization and depreciation 65.0 63.7 57.3
Other operating assets and liabilities (887.7) (284.6) 31.8
Realized investment gains (5.1) (4.3) (5.8)
Gain on sale of discontinued operations (21.0) -- --
-----------------------------------------
CASH PROVIDED BY OPERATING ACTIVITIES 354.6 609.6 695.8
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale (purchase) of short-term investments--net (65.2) (126.9) 143.4
Sale or maturity of fixed maturities
Available for sale--Maturities 135.5 121.2 109.5
Calls and prepayments 204.5 249.5 312.2
Sales 979.7 2,425.8 883.9
Held to maturity -- Maturities -- 3.9 49.2
Calls and prepayments -- 142.0 727.6
Sales -- 3.0 --
Sale of equity investments 636.1 1,215.6 686.5
Sale or maturity of other investments 200.6 265.2 292.7
Purchase of fixed maturities
Available for sale (1,843.3) (3,222.1) (1,591.2)
Held to maturity -- -- (734.8)
Purchase of equity investments (661.3) (1,131.0) (805.1)
Purchase of other investments (302.1) (362.9) (336.5)
Acquisition of subsidiaries (342.2) (109.6) (22.0)
Disposition of subsidiaries 1,370.0 -- --
Property and equipment and other (74.8) (97.9) (76.9)
-----------------------------------------
CASH PROVIDED (USED) BY INVESTING ACTIVITIES 237.5 (624.2) (361.5)
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Treasury stock transactions--net (40.1) (46.4) (15.4)
Issuance (repayment) of short-term borrowings--net (139.2) 108.8 75.3
Issuance of long-term debt -- 20.1 99.7
Repayment of long-term debt (5.7) (12.5) (128.0)
Interest sensitive life, annuity and investment contracts
Deposits 508.1 1,287.5 1,557.5
Withdrawals (437.4) (1,487.6) (1,362.4)
Retirement of preferred stock (14.2) (75.4) (58.3)
Cash dividends to stockholders (172.9) (171.3) (162.3)
-----------------------------------------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES (301.4) (376.8) 6.1
- -------------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 4.1 (2.1) 4.6
INCREASE (DECREASE) IN CASH 294.8 (393.5) 345.0
CASH AT BEGINNING OF YEAR 115.3 508.8 163.8
-----------------------------------------
CASH AT END OF YEAR $ 410.1 $ 115.3 $ 508.8
- -------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
- 28 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES AND PRACTICES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles and include the
accounts of Aon Corporation and its operating subsidiaries (Aon). These
statements include informed estimates and assumptions that affect the amounts
reported. Actual results could differ from the amounts reported. All material
intercompany accounts and transactions have been eliminated.
BROKERAGE COMMISSIONS AND FEES
In general, commission income is recognized at the later of
the billing or effective date of the related insurance policies. Contingent
commissions, certain life insurance commissions and commissions on premiums
billed directly by insurance companies are generally recognized as income when
received. Commissions on premium adjustments, including policy cancellations,
are recognized as they occur. Fees for claim administration services, benefit
consulting, reinsurance services and other services are recognized when the
services are rendered.
RECOGNITION OF PREMIUM REVENUE
In general, for accident and health, extended warranty and credit products,
premiums collected are reported as earned in proportion to insurance protection
provided over the period covered by the policies. For life products other than
credit, premiums are recognized as revenue when due.
REINSURANCE
Reinsurance premiums, commissions and expense reimbursements on reinsured
business are accounted for on a basis consistent with those used in accounting
for the original policies issued and the terms of the reinsurance contracts.
Premiums and benefits ceded to other companies have been reported as a reduction
of premium revenue and benefits. Expense reimbursements received in connection
with reinsurance ceded have been accounted for as a reduction of the related
policy acquisition costs or, to the extent such reimbursements exceed the
related acquisition costs, as other revenue. All reinsurance receivables and
prepaid reinsurance premium amounts are reported as assets.
SPECIAL CHARGES
In second quarter 1996, Aon recorded a $30 million pretax charge related to a
voluntary early retirement program for all eligible employees of Aon's United
States (U.S.) operating subsidiaries and similar programs in parts of Europe.
Approximately 450 employees, 60% of whom were in the U.S., participated in the
early retirement program.
In fourth quarter 1996, Aon recorded pretax special charges of $60 million
primarily related to management's commitment to a formal plan of restructuring
Aon's European brokerage operations. The restructuring charges include $32
million relating to consolidating real estate space and data processing
facilities and equipment, primarily in Europe, in order to merge Aon's existing
operations with those of Bain Hogg Group plc (Bain Hogg). The restructuring
charges related to consolidating real estate space are expected to be paid out
over several years. Special charges of $12 million for workforce reductions are
planned to take place within one year and involve approximately 300 positions.
Costs associated with special assessments to be paid relating to the
reconstruction of the Lloyd's of London insurance market were $11 million. The
remaining charges primarily reflect Aon's exit from certain U.S. insurance
underwriting markets.
These charges were reflected in commissions and general expenses in the
consolidated statements of income.
INCOME TAX
Deferred income tax has been provided for the effects of temporary differences
between financial reporting and tax bases of assets and liabilities and has been
measured using the enacted marginal tax rates and laws that are currently in
effect.
EARNINGS PER SHARE
Earnings per share are computed based on the weighted average number of common
and common equivalent shares outstanding during the respective period. Common
shares outstanding include 3,013,000 shares, 3,267,000 shares and 3,386,000
shares held by the employee stock ownership plan in 1996, 1995 and 1994,
respectively. Common equivalent shares include dilutive stock awards and stock
options and, prior to 1995, Series B conversion preferred stock. The 8%
cumulative perpetual preferred stock (8% preferred stock), the 6.25% cumulative
convertible exchangeable preferred stock (6.25% preferred stock) and the
redeemable preferred stock are not considered common equivalent shares.
Accordingly, the dividends on the 8%, 6.25% and redeemable preferred stock have
been deducted from net income to compute earnings per share. There is no
material difference between primary and fully diluted per share amounts. Income
available for common stockholders is net of dividends on all preferred stock.
INVESTMENTS
Fixed maturities are available for sale and are carried at fair value. The
amortized cost of fixed maturities is adjusted for amortization of premiums to
the first call date and the accretion of discounts to maturity that are included
in net investment income. Included in fixed maturities are investments in
collateralized mortgage obligations whose amortized cost is determined using the
interest method including anticipated prepayments. Prepayment assumptions are
obtained from dealer surveys. The retrospective adjustment method is used to
adjust for prepayment activity. Equity securities are valued at fair value.
Unrealized gains and temporary unrealized losses on fixed maturities available
for sale and equity securities are excluded from income and are recorded
directly to stockholders' equity, net of related deferred income taxes. Mortgage
loans are carried at amortized cost, net of reserves. Real estate is carried
generally at cost less accumulated depreciation. Policy loans are carried at
unpaid principal balance. Other long-term investments are carried generally at
cost. Realized investment gains or losses are computed using specific costs of
securities sold.
- 29 -
<PAGE>
Investments that have declines in fair value below cost, which are judged to be
other than temporary, are written down to estimated fair values. Additionally,
reserves for mortgage loan losses are based on discounted cash flows using the
loan's initial effective interest rate. Reserves for certain other long-term
investments are established based on an evaluation of the respective investment
portfolio and current economic conditions. Writedowns and changes in reserves
are included in realized investment gains and losses in the statements of
income. In general, Aon ceases to accrue investment income where interest or
dividend payments are in arrears.
Accounting policies relating to derivative financial instruments are discussed
in note 11.
DEFERRED POLICY ACQUISITION COSTS
Costs of acquiring new and renewal insurance underwriting business, principally
the excess of new commissions over renewal commissions, underwriting and sales
expenses that vary with and are primarily related to the production of new
business, are deferred. For long-duration life and health products, amortization
of deferred policy acquisition costs is related to and based on the expected
premium revenues of the policies. In general, such amortization is adjusted to
reflect current withdrawal experience. Expected premium revenues are estimated
by using the same assumptions used in estimating future policy benefits. For
extended warranty and short-duration health insurance, costs of acquiring and
renewing business, which are deferred, are amortized as the related premium is
earned.
OTHER INTANGIBLE ASSETS
In general, the excess of cost over net assets purchased relating to business
acquisitions is being amortized into income over periods not exceeding forty
years using the straight-line method. The cost of insurance and renewal rights
purchased of certain subsidiaries is being amortized over a range of 4 to 25
years.
PROPERTY AND EQUIPMENT
Property and equipment are generally depreciated using the straight-line method
over their estimated useful lives.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate fair values for
financial instruments. The carrying amounts in the consolidated statements of
financial position for cash and cash equivalents, including short-term
investments, approximate their fair value. Fair value for fixed maturity and
equity securities is based on quoted market prices or, if they are not actively
traded, on estimated values obtained from independent pricing services. However,
the fair value for fixed maturity and equity securities relating to the
discontinued operations were based on the underlying purchase agreements at
December 31, 1995. The fair value for mortgage loans and policy loans is
estimated using discounted cash flow analyses, using interest rates currently
being offered for similar loans to borrowers with similar credit ratings. Fair
value of derivatives is based on quoted prices for exchange-traded instruments
or the cost to terminate or offset with other contracts.
In general, other long-term investments are comprised of real estate joint
ventures and limited partnerships. It was not practicable to estimate the fair
value of other long-term investments because of the inability to estimate fair
value without incurring excessive costs. In addition, the determination of the
fair value of investment commitments was deemed impractical due to the inability
to estimate future cash flows.
Fair value for liabilities for investment-type contracts is estimated using
discounted cash flow calculations based on interest rates currently being
offered for similar contracts with maturities consistent with those remaining
for the contracts being valued. The fair value for notes payable is based on
quoted market prices for the publicly traded portion and on estimates using
discounted cash flow analyses based on current borrowing rates for similar types
of borrowing arrangements for the non-publicly traded portion.
ASSETS AND LIABILITIES HELD UNDER SPECIAL CONTRACTS
Assets held under special contracts principally represent designated funds of
group pension, variable life, annuity and unit-linked policyholders. These
assets are offset by liabilities that represent such policyholders' equity in
those assets. The net investment income generated from these assets is not
included in the consolidated statements of income.
FUTURE POLICY BENEFITS, UNEARNED PREMIUMS AND POLICY AND CONTRACT CLAIMS
Future policy benefit liabilities on non-universal life-type and accident and
health products have been provided on the net level premium method. The
liabilities are calculated based on assumptions as to investment yield,
mortality, morbidity and withdrawal rates that were determined at the date of
issue and provide for possible adverse deviations. Interest assumptions are
graded and range from 7.0% to 5.0% at December 31, 1996. Withdrawal assumptions
are based principally on insurance subsidiaries' experience and vary by plan,
year of issue and duration. Policyholder liabilities on universal life-type and
investment products are generally based on policy account values.
Unearned premiums generally are calculated using the pro rata method based on
gross premiums. However, in the case of extended warranty and credit products,
the unearned premiums are calculated such that the premiums are earned over the
period of risk in a reasonable relationship to anticipated claims.
Policy and contract claim liabilities represent estimates for reported claims,
as well as provisions for losses incurred, but not yet reported. These claim
liabilities are based on historical experience and are estimates of the ultimate
amount to be paid when the claims are settled. Changes in the estimated
liability are reflected in income as the estimates are revised.
FOREIGN CURRENCY TRANSLATION
In general, foreign revenues and expenses are translated at average exchange
rates. Foreign assets and liabilities are translated at year-end exchange rates.
Net foreign exchange gains and losses on translation are generally reported in
stockholders' equity, net of deferred income tax of $1 million at December 31,
1996 and 1995.
ACCOUNTING CHANGES
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 123 "Accounting for Stock-
- 30 -
<PAGE>
Based Compensation." As allowed by Statement No. 123, Aon has chosen to continue
to account for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and related Interpretations. Accordingly, compensation
cost for stock options and awards is measured as the excess, if any, of the
quoted market price of Aon's stock at the grant date over the amount an employee
must pay to acquire the stock. Aon has adopted the disclosure requirements of
Statement No. 123. See note 10.
In 1996, Aon adopted FASB Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Implementation
of this Statement did not have a material effect on Aon's financial statements.
In 1996, the FASB issued Statement No. 125 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." This
Statement provides accounting and reporting standards for sales, securitization
and servicing of receivables and other financial assets and extinguishments of
liabilities. The provisions of this Statement are to be applied to transactions
occurring after December 31, 1996. Aon anticipates adopting this Statement in
its 1997 financial statements as required. Implementation of this Statement is
not expected to have a material effect on Aon's financial statements.
Aon adopted FASB Statement No. 115, "Accounting for Certain Investments in Debt
and Equity Securities" in 1994. On November 15, 1995, the FASB issued a Special
Report, "A Guide to Implementation of Statement 115 on Accounting for Certain
Investments in Debt and Equity Securities." In accordance with provisions in
that Special Report, Aon reclassified $2.9 billion of held to maturity
securities, substantially all of which related to discontinued operations, to
available for sale.
2. BUSINESS COMBINATIONS
PURCHASE METHOD
In October 1996, Aon acquired Bain Hogg for approximately $260 million. This
acquisition was financed by internal funds. The 1996 statement of income
included the operations of Bain Hogg since the date of acquisition. The purchase
price allocation will be finalized during 1997. Aon's 1996 revenues would have
been approximately $260 million greater had the acquisition occurred on January
1, 1996.
In addition, during 1996, 1995 and 1994, subsidiaries of Aon acquired certain
insurance brokerage and consulting services operations that were financed
primarily by internal funds and the reissuance of common stock from treasury.
Pursuant to a 1994 purchase agreement with one of the brokerage operations, Aon
is contingently liable through 1999 to issue up to 239,000 additional shares of
common stock based on a formula relating to future earnings of that operation.
The aggregate cost of these acquisitions, excluding Bain Hogg, was $86 million,
$110 million and $22 million in 1996, 1995 and 1994, respectively. The pro forma
results of these operations, as if the acquisitions had occurred as of the
beginning of the year, have an immaterial effect on Aon's consolidated revenue
and net income.
In accordance with a 1992 purchase agreement, securities with a value of $125
million are being held in escrow. The escrowed securities will be released on a
pre-determined schedule between 1997 and 2007.
POOLING OF INTERESTS METHOD
In 1996, 1995 and 1994, Aon issued 546,000 shares, 1,404,000 shares and
5,546,000 shares of common stock, respectively, for mergers with insurance
brokerage and consulting organizations. In connection with several of the
mergers, 700,000 shares are being held in escrow at December 31, 1996, pending
the resolution of contingencies. Aon's prior period financial statements have
not been restated for the mergers because the effect of the above mergers was
not material.
1997 ACQUISITION
In early 1997, Aon completed its acquisition of Alexander & Alexander Services
Inc. (A&A) for a purchase price of approximately $1.2 billion. The acquisition
was financed primarily by the issuance of trust preferred capital securities
(see note 8), issuance of commercial paper and internal funds. Aon will account
for this acquisition as a purchase, and the application of purchase accounting
in 1997 will result in a significant increase in intangible assets.
Based on 1995 total insurance services and other revenue, A&A ranked as the
world's fourth largest insurance brokerage company.
3. DISCONTINUED OPERATIONS
In April 1996, Aon completed the sales of its domestic direct response life and
health subsidiary, Union Fidelity Life Insurance Company (UFLIC) and its capital
accumulation life insurance subsidiary, The Life Insurance Company of Virginia
(LOV) to General Electric Capital Corporation and received aftertax sales
proceeds of approximately $1.2 billion. The gain on sale of discontinued
operations was $21 million, net of taxes.
For 1996, 1995 and 1994, the discontinued operations had revenues of $293
million, $1,145 million and $1,116 million, respectively. The revenues and
corresponding benefits and expenses were reported on a net basis in the
consolidated statements of income and were net of taxes of $12 million, $53
million and $49 million in 1996, 1995 and 1994, respectively. Income from
discontinued operations that was earned subsequent to the commitment to the plan
to dispose was $22 million and $15 million, net of taxes, in 1996 and 1995,
respectively.
Included in discontinued operations is pretax interest expense of $5 million,
$18 million and $14 million in 1996, 1995 and 1994, respectively. The allocation
of interest expense was based on the ratio of discontinued net assets to total
consolidated equity and debt.
- 31 -
<PAGE>
The assets and liabilities after reinvestment of net sales proceeds of
discontinued operations included in the consolidated statement of financial
position at December 31, 1995 were as follows:
(millions)
- ------------------------------------------------------------------
Investments $5,470
Deferred policy acquisition costs 630
Intangible assets 150
Assets held under special contracts 2,020
Receivables and other assets 260
- ------------------------------------------------------------------
Total Assets $8,530
==================================================================
Policy liabilities $6,170
Liabilities held under special contracts 2,020
General and other liabilities 340
- ------------------------------------------------------------------
Total Liabilities $8,530
==================================================================
4. INVESTMENTS
The components of net investment income are as follows:
(millions) Years ended December 31 1996 1995 1994
- -------------------------------------------------------------------
Fixed maturities $197 $164 $132
Equity securities 61 59 56
Short-term investments 105 86 58
Other 31 28 19
- -------------------------------------------------------------------
Gross investment income 394 337 265
Investment expenses 10 8 8
- -------------------------------------------------------------------
Net investment income $384 $329 $257
===================================================================
Realized gains (losses) on investments are as follows:
(millions) Years ended December 31 1996 1995 1994
- -------------------------------------------------------------------
Fixed maturities available for sale:
Gross gains $13 $ 8 $ 12
Gross losses (9) (3) (4)
Equity securities 12 12 31
Other (8) (4) (20)
- -------------------------------------------------------------------
Total before tax 8 13 19
Less applicable tax 3 5 7
- -------------------------------------------------------------------
Total net realized investment gains $ 5 $ 8 $ 12
===================================================================
The components of net unrealized gains (losses) are as follows:
(millions) Years ended December 31 1996 1995 1994
- -------------------------------------------------------------------
Fixed maturities $112 $115 $(158)
Equity securities 128 78 (50)
Deferred tax credit (charge) (87) (70) 35
Deferred policy acquisition costs -- -- 30
- -------------------------------------------------------------------
Net unrealized investment gains (losses) $153 $123 $(143)
===================================================================
The changes in net unrealized investment gains (losses) are as follows:
(millions) Years ended December 31 1996 1995 1994
- -------------------------------------------------------------------
Fixed maturities:
Available for sale $ (3) $273 $(403)
Held to maturity -- 234 (351)
Equity securities 50 128 (131)
- -------------------------------------------------------------------
Total $47 $635 $(885)
===================================================================
The cumulative effect of the adoption of Statement No. 115 on January 1, 1994,
increased stockholders' equity by $148 million (net of adjustments to deferred
policy acquisition costs of $14 million and deferred income taxes of $83
million) to reflect the net unrealized fixed maturities holding gains on
securities previously carried at amortized cost; there was no effect on net
income as a result of the adoption.
The amortized cost and fair value of investments in available for sale fixed
maturities and equity securities are as follows:
As of December 31, 1996
Gross Gross
Amortized Unrealized Unrealized Fair
(millions) Cost Gains Losses Value
- ------------------------------------------------------------------------------
U.S. government
and agencies $ 45 $ 2 $ -- $ 47
States and political
subdivisions 491 24 (1) 514
Foreign governments 948 44 (2) 990
Corporate securities 1,056 54 (7) 1,103
Mortgage-backed
securities 64 1 -- 65
Other fixed maturities 110 -- (3) 107
- ------------------------------------------------------------------------------
Total fixed maturities 2,714 125 (13) 2,826
Total equity securities 751 142 (14) 879
- ------------------------------------------------------------------------------
Total $3,465 $267 $(27) $3,705
==============================================================================
As of December 31, 1995
Gross Gross
Amortized Unrealized Unrealized Fair
(millions) Cost Gains Losses Value
- ------------------------------------------------------------------------------
U.S. government
and agencies $ 151 $ 4 $ -- $ 155
States and political
subdivisions 444 31 -- 475
Foreign governments 798 34 -- 832
Corporate securities 4,046 57 (11) 4,092
Mortgage-backed
securities 2,033 2 -- 2,035
Other fixed maturities 100 1 (3) 98
- ------------------------------------------------------------------------------
Total fixed maturities 7,572 129 (14) 7,687
Total equity securities 928 120 (42) 1,006
- ------------------------------------------------------------------------------
Total $8,500 $249 $(56) $8,693
==============================================================================
The amortized cost and fair value of fixed maturities, by contractual maturity,
as of December 31, 1996 is shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Amortized Fair
(millions) Cost Value
- -----------------------------------------------------------------
Due in one year or less $ 109 $ 111
Due after one year through five years 712 742
Due after five years through ten years 1,119 1,175
Due after ten years 710 733
Mortgage-backed securities 64 65
- -----------------------------------------------------------------
Total available for sale $2,714 $2,826
=================================================================
- 32 -
<PAGE>
Securities on deposit for regulatory authorities as required by law amounted to
$308 million at December 31, 1996 and $320 million at December 31, 1995. As
required by the by-laws of Lloyd's brokers, assets subject to floating charges
for the benefit of insurance creditors amounted to $853 million and $566 million
at December 31, 1996 and 1995, respectively. Aon maintains premium trust bank
accounts for premiums collected from insureds but not yet remitted to insurance
companies of $580 million and $495 million at December 31, 1996 and 1995,
respectively.
At December 31, 1996 and 1995, respectively, Aon had $42 million and $72 million
of non-income producing investments.
5. DEBT AND LEASE COMMITMENTS
Notes Payable
The following is a summary of notes payable:
(millions) As of December 31 1996 1995
- -----------------------------------------------------------------
6.3% debt securities, due January 2004 $100 $100
6.7% debt securities, due June 2003 150 150
6.875% debt securities, due October 1999 100 100
7.4% debt securities, due October 2002 100 100
Notes payable, due in varying installments,
with interest at 6% to 8% 25 48
- -----------------------------------------------------------------
Total notes payable $475 $498
=================================================================
Interest is payable semiannually on all debt securities. In addition, the debt
securities are not redeemable by Aon prior to maturity and contain no sinking
fund provisions. Maturities of notes payable are $4 million, $14 million, $104
million and $1 million in 1997, 1998, 1999 and 2000, respectively. In addition,
Aon has credit agreements providing lines of credit for commercial paper. The
available commercial paper back-up lines of credit totaled $335 million at
December 31, 1996.
Information related to notes payable and short-term borrowings is as follows:
Years ended December 31 1996 1995 1994
- ----------------------------------------------------------
Interest paid (millions) $45 $54 $44
Weighted average interest rates--
short-term borrowings 5.3% 5.9% 4.5%
==========================================================
Guaranteed Debt
Aon's employee stock ownership plan (ESOP) has entered into loan agreements to
purchase Aon common stock. The loans are unconditionally guaranteed by Aon and
therefore the unpaid balance of the loans is reflected as debt in the
accompanying statements of financial position. An equivalent amount,
representing deferred compensation, is recorded as a deduction from
stockholders' equity. The ESOP paid $15 million, $14 million and $13 million in
1996, 1995 and 1994, respectively, in loan principal and interest from
contributions made by Aon to the ESOP as well as dividend proceeds of common
stock held by the ESOP. The loans have an interest rate of 8.35% and serially
mature through 1999. Interest expense incurred by the ESOP related to these
loans amounted to $4 million, $5 million and $6 million in 1996, 1995 and 1994,
respectively. Future contributions, as determined by Aon's Board of Directors,
plus dividends earned on shares held by the ESOP will be used to service the
loans.
The ESOP allocated 396,000 shares in 1996. The remaining unallocated
shares at December 31, 1996 will be released for allocation annually through
early 1999.
The following table details the shares held in the ESOP:
(thousands) As of December 31 1996 1995
- ------------------------------------------------------------------
Allocated 1,623 1,481
Committed to be released 428 396
Unallocated 962 1,390
- ------------------------------------------------------------------
Total 3,013 3,267
==================================================================
Lease Commitments
Aon has noncancelable operating leases for certain office space,equipment and
automobiles. Future minimum rental payments required under operating leases that
have initial or remaining noncancelable lease terms in excess of one year at
December 31, 1996 are:
(millions) Minimum Lease Payments
- ---------------------------------------------------------
1997 $ 134
1998 125
1999 118
2000 105
2001 93
Later years 485
- ---------------------------------------------------------
Total minimum payments required $1,060
- ---------------------------------------------------------
Rental expenses for all operating leases for the years ended December 31, 1996,
1995 and 1994, amounted to $114 million, $103 million and $93 million,
respectively.
6. INCOME TAX
Aon and its principal domestic subsidiaries are included in a consolidated
life-nonlife federal income tax return. Aon's foreign subsidiaries file various
income tax returns in their foreign jurisdictions. A reconciliation of the
income tax provisions based on the U.S. statutory corporate tax rate to the
provisions reflected in the consolidated financial statements is as follows:
Years ended December 31 1996 1995 1994
- ----------------------------------------------------------
Statutory tax rate 35.0% 35.0% 35.0%
Tax-exempt investment income (3.7) (3.8) (4.0)
State income taxes 3.5 2.8 2.3
Other--net (0.3) (0.3) (0.9)
- ----------------------------------------------------------
Effective tax rate 34.5% 33.7% 32.4%
- ----------------------------------------------------------
- 33 -
<PAGE>
The provision for income tax is made up of the following components:
(millions) Years ended December 31 1996 1995 1994
- -------------------------------------------------------------------
Current:
Federal $115 $111 $ 59
Foreign 55 45 62
State 25 20 14
- -------------------------------------------------------------------
Total current $195 $176 $135
- -------------------------------------------------------------------
Deferred (credit):
Federal $ (9) $ (17) $ 3
Foreign (31) (4) 1
State (1) (1) (10)
- -------------------------------------------------------------------
Total deferred (41) (22) (6)
- -------------------------------------------------------------------
Provision for income tax $154 $154 $129
===================================================================
Significant components of Aon's deferred tax liabilities and assets are as
follows:
(millions) As of December 31 1996 1995
- ------------------------------------------------------------------
Deferred tax liabilities:
Policy acquisition costs $ 65 $298
Unrealized investment gains 87 70
Other--net 99 197
- ------------------------------------------------------------------
Total deferred tax liabilities 251 565
- ------------------------------------------------------------------
Deferred tax assets:
Insurance reserve amounts 140 217
Other--net 94 122
- ------------------------------------------------------------------
Total deferred tax assets 234 339
- ------------------------------------------------------------------
Net deferred tax liabilities $ 17 $226
==================================================================
Prior to 1984, the life insurance companies were required to accumulate certain
untaxed amounts in a memorandum "policyholders' surplus account." Under the Tax
Reform Act of 1984, the "policyholders' surplus account" balances were "capped"
at December 31, 1983 and the balances will be taxed only to the extent
distributed to stockholders or when they exceed certain prescribed limits. As of
December 31, 1996, the combined "policyholders' surplus account" of Aon's life
insurance subsidiaries approximates $363 million. Aon's life insurance
subsidiaries do not intend to make any taxable distributions or exceed the
prescribed limits in the foreseeable future; therefore, no income tax provision
has been made. However, if such taxes were assessed, the amount of tax payable
would be $127 million.
The amount of income taxes paid in 1996, 1995 and
1994 was $387 million, $256 million and $167 million, respectively.
7. REINSURANCE AND CLAIM RESERVES
Aon's insurance subsidiaries are involved in both the cession and assumption of
reinsurance with other companies. Aon's reinsurance consists primarily of
short-duration contracts that are entered into with numerous automobile
dealerships and insurers. Aon's insurance subsidiaries would remain liable to
the extent that the reinsuring companies were unable to meet their obligations.
A summary of reinsurance activity is as follows:
(millions) Years ended December 31 1996 1995 1994
- -------------------------------------------------------------------
Ceded premiums earned $508 $316 $319
Ceded premiums written 667 369 340
Assumed premiums earned 292 83 91
Assumed premiums written 276 101 99
Ceded benefits to policyholders 220 153 170
===================================================================
Activity in the liability for policy contract claims is summarized as follows:
(millions) Years ended December 31 1996 1995 1994
- -------------------------------------------------------------------
Liabilities at beginning of year $ 715 $ 681 $ 686
Incurred losses:
Continuing operations--current year 830 726 596
Continuing operations--prior year (92) (71) (59)
Discontinued operations 90 361 386
- -------------------------------------------------------------------
Total 828 1,016 923
- -------------------------------------------------------------------
Payment of claims:
Current year (552) (651) (582)
Prior years (283) (331) (346)
- -------------------------------------------------------------------
Total (835) (982) (928)
- -------------------------------------------------------------------
Liability for business sold (173) -- --
Liabilities at end of year
(net of reinsurance recoverables:
1996--$306, 1995--$256,
1994--$263) $ 535 $ 715 $ 681
===================================================================
8. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Redeemable Preferred Stock
In 1994, Aon issued 1,000,000 shares of redeemable preferred stock to a former
officer in exchange for 1,500,000 shares of Aon common stock. Dividends are
cumulative at an annual rate of $2.55 per share. The shares of redeemable
preferred stock will be redeemable at the option of Aon or the holders, in whole
or in part, at $50.00 per share no sooner than February 9, 1999.
8% Cumulative Perpetual Preferred Stock
At December 31, 1996, 5,446,000 shares of cumulative 8% perpetual preferred
stock are outstanding. In 1996 and 1995, 553,000 shares and 3,001,000 shares
were purchased and retired at a total cost of $14 million and $75 million,
respectively. Dividends are cumulative at the annual rate of $2.00 per share. At
its option, Aon may redeem all or any part of the stock at any time on or after
November 1, 1997 at a redemption price of $25.00 per share plus all accrued and
unpaid dividends. The holders of the stock have limited voting rights.
6.25% Cumulative Convertible Exchangeable Preferred Stock
At December 31, 1995, 2,136,000 shares of 6.25% cumulative convertible
exchangeable preferred stock were outstanding. Dividends were cumulative at the
annual rate of $3.125 per share. In November 1996, each share of 6.25% preferred
stock was converted by the holders into 1.22 shares of common stock for a total
of 2,606,000 common shares.
- 34 -
<PAGE>
Series B Conversion Preferred Stock
At December 1, 1994, 1,439,000 shares of Series B conversion preferred stock
were outstanding and each share of stock was automatically converted, pursuant
to the stock's terms, into one and one half shares of common stock issued from
treasury. Dividends were cumulative at an annualized rate of $3.04 per share.
Aon repurchased 1,210,000 shares of its outstanding stock for $58 million in
1994. These shares were canceled and retired.
Common Stock
Aon repurchased 1,287,000, 1,979,000 and 844,000 shares in 1996, 1995 and 1994,
respectively, of its common stock, primarily to provide shares for stock
compensation plans and the conversion of preferred stock.
Dividends
A summary of dividends incurred is as follows:
(millions) Years ended December 31 1996 1995 1994
- -------------------------------------------------------------------
Redeemable preferred stock $ 2 $ 2 $ 2
8% cumulative perpetual
preferred stock 11 16 18
6.25% cumulative convertible
exchangeable preferred stock 5 7 7
Series B conversion preferred stock -- -- 6
Common stock 154 145 129
- -------------------------------------------------------------------
Total dividends incurred $172 $170 $162
- -------------------------------------------------------------------
Subsequent Event
In January 1997, Aon created Aon Capital A, a statutory business trust created
for the purpose of issuing mandatorily redeemable preferred capital securities
(capital securities). Aon Capital A issued $800 million of 8.205% capital
securities in January 1997. The proceeds from the issuance of the capital
securities were used to finance a portion of the acquisition of A&A. The capital
securities are subject to mandatory redemption on January 1, 2027 or, are
redeemable in whole, but not in part, at the option of Aon upon the occurrence
of certain events. Interest is payable semi-annually on the capital securities.
Statutory Capital and Surplus
Generally, the capital and surplus of Aon's insurance subsidiaries available for
transfer to the parent company are limited to the amounts that the insurance
subsidiaries' statutory capital and surplus exceed minimum statutory capital
requirements; however, payments of the amounts as dividends may be subject to
approval by regulatory authorities. See note 6 for possible tax effects of
distributions made out of untaxed earnings.
Net statutory income of the insurance subsidiaries (including LOV and UFLIC
through 1995 and the statutory gain on the sale of LOV and UFLIC in 1996),
is summarized as follows:
(millions)Years ended December 31 1996 1995 1994
- -------------------------------------------------------------
Life insurance $807 $197 $272
Property casualty 71 58 34
=============================================================
Statutory capital and surplus of the insurance subsidiaries (including LOV and
UFLIC at December 31, 1995) is summarized as follows:
(millions) As of December 31 1996 1995
- -------------------------------------------------------------
Life insurance $612 $766
Property casualty 364 296
=============================================================
9. EMPLOYEE BENEFITS
Savings and Profit Sharing Plans
Certain of Aon's subsidiaries maintain a contributory savings plan for the
benefit of United States salaried and commissioned employees and a contributory
profit sharing plan for the benefit of Canadian salaried employees and
commissioned agents. The company contribution for the savings plan is based on a
match of 100% of employee contributions up to a maximum of 3% of eligible
compensation. Provisions made for these plans were $14 million, $14 million and
$13 million in 1996, 1995 and 1994, respectively.
Employee Stock Ownership Plan
Certain of Aon's subsidiaries maintain a leveraged ESOP for the benefit of the
United States salaried and certain commissioned employees. Shares are allocated
to eligible employees over a period of ten years through 1998. Contributions to
the ESOP amounted to $12 million, $11 million and $9 million in 1996, 1995 and
1994, respectively.
Domestic Pension Plan
Certain of Aon's subsidiaries maintain a non-contributory defined benefit
pension plan providing retirement benefits for salaried employees and certain
commissioned employees in the United States based on years of service and
salary. Aon's funding policy is to contribute amounts to the plan sufficient to
meet the minimum funding requirements set forth in the Employee Retirement
Income Security Act of 1974, plus such additional amounts as Aon determines to
be appropriate from time to time.
A summary of the components of net periodic pension cost for the defined benefit
plans in 1996, 1995 and 1994 is as follows:
(millions)Years ended December 31 1996 1995 1994
- -------------------------------------------------------------
Defined benefit plan:
Service cost-benefit earned $ 21 $ 17 $ 21
Interest cost on projected
benefit obligation 21 19 17
Actual return on plan assets (51) (66) (3)
Net amortization and deferral 29 44 (18)
- -------------------------------------------------------------
Net periodic pension cost $ 20 $ 14 $ 17
=============================================================
The weighted average assumptions used in accounting for the defined benefit plan
were:
Years ended December 31 1996 1995 1994
- ---------------------------------------------------------------
Assumed discount rate 7.8% 7.5% 8.5%
Rate of compensation increase 5.0% 5.0% 5.0%
Expected long-term rate of
return on plan assets 9.0% 9.0% 9.0%
===============================================================
- 35 -
<PAGE>
In April 1996, Aon established a limited time early retirement incentive program
that provided benefits through the defined benefit plan. The additional cost of
termination benefits applicable for 1996, resulting from the program, was $19
million. Also in 1996, Aon completed the sales of LOV and UFLIC which resulted
in a curtailment gain of $8 million, which is included in the gain on sale of
discontinued operations. As a result of the sales of these units, affected
employees became fully vested in their accrued benefits in the defined benefit
plan. During 1994, the Aon Pension Plan was amended to reduce the maximum amount
of compensation that can be considered under the plan as required by law and to
provide increases in benefits to current pensioners. Net periodic pension cost
for 1994 decreased $2 million as a result of these amendments.
The following table sets forth the funded status and amounts recognized in the
consolidated statements of financial position for Aon's U.S. defined benefit
pension plan.
(millions) As of December 31 1996 1995
- -------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefit obligation $255 $218
Accumulated benefit obligation 261 224
- -------------------------------------------------------------
Projected benefit obligation 305 286
Plan assets at fair value 317 282
- -------------------------------------------------------------
Plan assets greater than (less than)
projected benefit obligation 12 (4)
Unrecognized net gain (63) (26)
Unrecognized prior service cost 1 2
- -------------------------------------------------------------
Pension cost included in other liabilities $ (50) $ (28)
=============================================================
Plan assets include marketable equity securities, deposit administration
insurance contracts and corporate and government debt securities including
securities issued by Aon totaling $35 million and $28 million in 1996 and 1995,
respectively. In addition, $186 million of plan assets were held under a special
contract with a subsidiary of Aon in 1995.
FOREIGN PENSION PLANS
Certain of Aon's foreign subsidiaries maintain contributory and non-contributory
defined benefit pension plans for employees outside of the United States that
provide retirement benefits based on service and salary. Material plans are
maintained in the United Kingdom and The Netherlands. The funding policy for
these plans is to contribute the amounts required by the plan provisions or
applicable regulations, although additional amounts may be contributed from time
to time.
A summary of the components of net periodic pension cost for the material
defined benefit plans, grouped by country, is as follows:
(millions) Years ended December 31 1996 1995 1994
- ------------------------------------------------------------------------
United Kingdom:
Service cost-benefit earned $ 11 $ 11 $ 8
Interest cost on projected
benefit obligation 17 15 10
Actual loss (return) on plan assets (28) (29) 6
Net amortization and deferral 6 11 (20)
- ------------------------------------------------------------------------
Net periodic pension cost $ 6 $ 8 $ 4
========================================================================
The Netherlands:
Service cost-benefit earned $ 4 $ 4 $ 2
Interest cost on projected
benefit obligation 9 9 8
Actual return on plan assets (11) (11) (9)
Net amortization and deferral -- -- 1
- ------------------------------------------------------------------------
Net periodic pension cost $ 2 $ 2 $ 2
========================================================================
The weighted average assumptions used in accounting for these defined benefit
plans were:
Years ended December 31 1996 1995 1994
- ---------------------------------------------------------------
United Kingdom:
Assumed discount rate 8.0% 9.0% 9.0%
Rate of compensation increase 5.5% 7.0% 7.0%
Expected long-term rate of
return on plan assets 10.0% 10.0% 10.0%
- ---------------------------------------------------------------
The Netherlands:
Assumed discount rate 7.0% 7.0% 7.0%
Rate of compensation increase 4.0% 4.0% 4.0%
Expected long-term rate of
return on plan assets 7.0% 7.0% 7.0%
===============================================================
The following tables set forth the funded status and the amounts recognized in
the 1996 and 1995 consolidated statements of financial position for Aon's
foreign defined benefit pension plans.
United Kingdom:
(millions) As of December 31 1996 1995
- -------------------------------------------------------------
Projected benefit obligation $617 $192
Plan assets at fair value 680 212
- -------------------------------------------------------------
Plan assets in excess of projected
benefit obligation 63 20
Unrecognized net loss 6 4
Unrecognized prior service cost 1 1
Unrecognized net transition obligation 1 1
- -------------------------------------------------------------
Prepaid pension cost included in other assets $ 71 $ 26
=============================================================
The Netherlands:
(millions) As of December 31 1996 1995
- -------------------------------------------------------------
Projected benefit obligation $136 $140
Plan assets at fair value 165 168
- -------------------------------------------------------------
Plan assets in excess of projected
benefit obligation 29 28
Unrecognized net loss 18 19
- -------------------------------------------------------------
Prepaid pension cost included in other assets $ 47 $ 47
=============================================================
- 36 -
<PAGE>
The funded status and the amounts recognized in the consolidated statements of
financial position increased in 1996 as compared to 1995 primarily due to the
acquisition of Bain Hogg.
Postretirement Benefits Other Than Pensions
Aon sponsors defined benefit postretirement health and welfare plans that cover
both salaried and nonsalaried employees in the U.S., as well as certain other
salaried employees in Canada. In the U.S., one plan provides medical benefits,
prior to and subsequent to Medicare eligibility and the other provides life
insurance benefits. In Canada, the plans provide both extended health care
benefits and life insurance benefits. The postretirement health care plans are
contributory, with retiree contributions adjusted annually; the life insurance
plans are noncontributory. The employer's liability for future plan cost
increase is limited in any year to 5% per annum. All plans are funded on a
pay-as-you go basis.
In 1996, Aon completed the sales of LOV and UFLIC resulting
in a curtailment gain of $5 million which was included in the gain on sale of
discontinued operations.
The following table sets forth the plans' combined funded status:
As of December 31 1996 1995
(millions) Medical Life Medical Life
- ---------------------------------------------------------------------------
Accumulated
postretirement
benefit obligation:
Retirees $17 $ 7 $15 $ 8
Fully eligible active
plan participants 5 2 8 4
Other active plan
participants 7 2 9 2
- ---------------------------------------------------------------------------
29 11 32 14
Unrecognized prior service 16 5 22 6
Unrecognized net gain 20 7 20 5
- ---------------------------------------------------------------------------
Accrued postretirement
benefit liability $65 $23 $74 $25
===========================================================================
Net periodic postretirement benefit cost includes the following components:
(millions) Years ended December 31 1996 1995 1994
- -------------------------------------------------------------------
Service cost $ 1 $ 1 $ 1
Interest cost 3 3 4
Amortization of prior service (7) (7) (6)
- -------------------------------------------------------------------
Net periodic postretirement
benefit credit $(3) $(3) $(1)
===================================================================
For measurement purposes in 1996, 1995 and 1994, a 9.5%, 10.5% and 11.5%,
respectively, annual rate of increase in the per capita cost of covered health
care benefits (trend rate) adjusted for actual current year cost experience was
assumed, decreasing gradually to 6% in year 2000 and remaining the same
thereafter. However, with the employer funding increase cap limited to 5% per
year, net employer trend rates are effectively limited to 5% per year in the
future.
Increasing the assumed health care cost trend rates by one percentage point
would result in no change in the accumulated postretirement benefit obligation
(APBO) as of December 31, 1996 because of the 5% cap on future employer funding
increases.
Assumptions used in determining the APBO are summarized below:
As of December 31 1996 1995 1994
- ---------------------------------------------------------------------------
Weighted-average discount rate 7.8% 7.5% 8.5%
Weighted-average rate of
compensation increase 5.0% 5.0% 5.0%
===========================================================================
10. STOCK COMPENSATION PLANS
Stock Award Plan
In 1994, Aon's stockholders approved an amendment to the Aon Stock Award Plan
that increased the aggregate number of common stock that Aon could award to
5,025,000 shares. Generally, the award plan requires the employees to complete
three continuous years of service before the award begins to vest in increments
until the completion of a ten-year period of continuous employment. In general,
most awarded shares are issued as they become vested. With certain limited
exceptions, any break in continuous employment will cause forfeiture of all
unvested awards. The compensation cost associated with each award is deferred
and amortized over the period of continuous employment using the straight line
method.
Aon common stock awards outstanding consist of the following:
(thousands) Years ended December 31 1996 1995 1994
- -----------------------------------------------------------------------
Shares outstanding
at beginning of year 2,609 2,169 1,672
Granted 1,195 709 726
Vested and exercised (265) (216) (214)
Canceled (66) (53) (15)
- -----------------------------------------------------------------------
Shares outstanding
at end of year 3,473 2,609 2,169
=======================================================================
Stock Option Plan
Under a nonqualified stock option plan, options to purchase common stock were
granted to certain officers and employees of Aon and its subsidiaries at 100% of
market value on the date of grant. Generally, the option plan requires employees
to complete three continuous years of service before the options begin to vest
in increments until the completion of a seven-year period of continuous
employment.
Aon adopted the disclosure-only option under Statement No. 123,
"Accounting for Stock-Based Compensation," as of December 31, 1996. If the
accounting provisions of the new Statement had been adopted as of the beginning
of 1996, the effect on both the 1996 and 1995 net income and net income per
share would have been immaterial. Further, based on the current and anticipated
use of stock options, it is not anticipated that the impact of Statement No.
123's accounting provisions would be material in future periods.
- 37 -
<PAGE>
A summary of Aon's stock option activity and related information consists of the
following:
<TABLE>
<CAPTION>
Years ended December 31 1996 1995 1994
- --------------------------------------------------------------------------------------
Weighted
Average
Exercise Price Price
(shares in thousands) Shares Price Shares Range Shares Range
- --------------------------------------------------------------------------------------
Beginning
<S> <C> <C> <C> <C> <C> <C>
outstanding 3,475 $32 3,346 $14-36 2,699 $14-36
Granted
(at fair value) 1,023 52 1,086 32-38 1,134 31-36
Exercised (488) 26 (747) 14-29 (353) 14-26
Canceled (493) 35 (210) 17-36 (134) 14-36
- --------------------------------------------------------------------------------------
Ending
outstanding 3,517 39 3,475 20-38 3,346 14-36
- --------------------------------------------------------------------------------------
Exercisable at
end of year 310 29 425 20-35 648 14-32
- --------------------------------------------------------------------------------------
Options available
for grant 863 1,450 2,326
- --------------------------------------------------------------------------------------
</TABLE>
A summary of options outstanding and options exercisable at December 31, 1996 is
as follows:
<TABLE>
<CAPTION>
(shares in thousands) Options Outstanding Options Exercisable
- ---------------------------------------------------------------------------------------
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise As of Contractual Exercise As of Exercise
Prices 12/31/96 Life(Years) Price 12/31/96 Price
- ---------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$24.50-$33.44 692 2.7 $28.94 235 $26.44
33.96- 33.96 802 4.2 33.96 -- --
34.25- 35.75 746 5.1 35.65 14 34.46
35.83- 48.88 310 3.7 36.77 61 36.00
51.50- 60.25 967 6.3 52.13 -- --
- ---------------------------------------------------------------------------------------
$24.50-$60.25 3,517 4.6 $38.56 310 $28.68
- ---------------------------------------------------------------------------------------
</TABLE>
11. FINANCIAL INSTRUMENTS
Financial Risk Management
Aon is exposed to market risk from changes in interest rates and foreign
currency exchange rates. To manage the volatility related to these exposures,
Aon enters into various derivative transactions that have the effect of reducing
these risks by creating offsetting market exposures. If Aon did not use
derivative contracts, its exposure and market risk would be higher.
Derivative transactions are governed by a uniform set of policies and procedures
covering areas such as authorization, counterparty exposure and hedging
practices. Positions are monitored using techniques such as market value and
sensitivity analyses.
In addition to creating market risks that offset the underlying business
exposures, certain derivatives also give rise to credit risks due to possible
non-performance by counterparties. The credit risk is generally limited to the
fair value of those contracts that are favorable to Aon. Aon has limited its
credit risk by restricting investments in derivative contracts to a diverse
group of highly rated major financial institutions and by using exchange-traded
instruments. Aon closely monitors the creditworthiness of and exposure to its
counterparties and considers its credit risk to be minimal. At December 31, 1996
and 1995, Aon placed securities in escrow amounting to $13 million and $1
million, respectively, relating to these derivative contracts.
Interest Rate Risk Management
Aon uses interest rate derivative contracts to manage the interest rate risk
associated with assets and liabilities underlying its underwriting businesses.
Interest rate derivatives are also utilized to manage the company's funding and
other corporate risks.
Interest rate swap agreements have been used primarily to manage asset and
liability durations. Exchange-traded Eurodollar futures, used in conjunction
with basis rate swaps, are used to manage asset liability durations related to
various other crediting arrangements emanating from other insurance businesses.
As of December 31, 1996 and 1995, these swap agreements had the net effect of
shortening asset durations. Variable rates received on interest rate and basis
rate swap agreements correlate with crediting rates paid on outstanding
liabilities. The net effect of swap payments is settled periodically and
reported in income. There is no settlement of underlying notional amounts.
Exchange-traded treasury futures and options are used primarily as a hedge
against the value of Aon's available for sale fixed maturity and equity
investments. Aon sells futures as well as writes call options and limits its
risk on these written options to a spread by purchasing call options.
Exchange-traded futures and options are valued and settled daily. The premium
that Aon pays for purchased options and receives for written options represents
the cost basis of the option until it expires or is closed.
Aon also enters into interest rate swap agreements, sells exchange-traded
interest rate futures and purchases interest rate caps to limit its interest
expense on short-term borrowings. The premium that Aon pays for interest rate
caps represents the cost basis of the position until it expires or is closed.
Aon performs frequent analyses to measure the degree of correlation associated
with its derivative programs. Aon assesses the adequacy of the correlation
analyses results in determining whether the derivatives qualify for hedge
accounting. The premium that Aon pays or receives for options (including
interest rate caps and floors) represents the cost basis of the option until it
expires or is closed. Realized gains and losses on derivatives that qualify as
hedges are deferred and reported as an adjustment of the cost basis of the
hedged item. Deferred gains and losses are amortized into income over the
remaining life of the hedged item. Outstanding derivatives that are hedges of
items carried at fair value are reflected in the financial statements at fair
value with changes in the derivative fair value reported as unrealized gains and
losses directly in stockholders' equity.
In January 1997, Aon issued $800 million of 8.205% capital securities (see note
8). To hedge its exposure to rising long-term interest rates associated with the
anticipated debt issue, Aon entered into various exchange-traded derivative
contracts including treasury futures and options. The hedge was in place from
December 1996 until January 1997.
Foreign Exchange Risk Management
Aon uses foreign currency futures, options and forward contracts to hedge
against the effects of foreign currency fluctuations on the translation of the
financial statements of Aon's
- 38 -
<PAGE>
foreign operations. Generally, realized and unrealized gains and losses on those
derivatives are recorded directly to stockholders' equity, as a component of net
unrealized foreign exchange gains and losses.
Certain of Aon's foreign brokerage subsidiaries receive revenues in currencies
that differ from the currency in which their operating expenses are denominated.
To reduce the variability of cash flows from these operations, foreign forward
exchange contracts having settlement dates that are primarily less than one year
are used. Related gains or losses on these contracts are reflected as an
adjustment to the expense component on the statement of income when the
currencies are exchanged to settle expense commitments. Contracts entered into
require no up-front premium and settle at the expiration of the related
contract.
Notional and Other Data
The following are the notional amounts of Aon's outstanding derivatives grouped
by the types of risks being managed:
(millions) As of December 31 1996 1995
- --------------------------------------------------------------------------
Interest rate and asset/liability duration management
Net Eurodollar futures $1,741 $820
Treasury futures 220 --
Call options 72 --
Interest rate swaps--pay fixed 90 260
Interest rate swaps--receive fixed 85 10
Basis rate swaps--pay and receive variable 90 70
Interest rate management for anticipated transactions
Treasury futures 100 --
Call options 250 --
Put options 500 --
Interest rate caps 22 72
Foreign currency management--forwards 157 62
==========================================================================
During each of the years, 1996, 1995 and 1994, Aon amortized $3 million of net
deferred gains relating to derivatives into income. Realized losses related to
anticipated transactions were immaterial for the years ended December 31, 1996
and 1995.
The interest rates on Aon's outstanding swaps at December 31 are
presented below:
Receive Pay Pay Receive
Fixed Variable Fixed Variable
- ----------------------------------------------------------------------
1996 5.8-6.8% 5.6% 6.0-9.7% 5.6-6.0%
1995 -- -- 7.9-8.3% 5.4%
======================================================================
As of December 31, 1996, the swaps have maturities ranging from May 1997 to
December 2026. Aon receives variable rates based on the one month commercial
paper and the six month London Interbank Offer Rate (LIBOR) rate. Aon pays
variable rates based on the three- and six-month LIBOR rates. Basis rate swaps
mature in December 2000 and require payments based on the three month LIBOR
index and provide for receipts based on the two-year treasury rate. Eurodollar
futures, with maturities ranging from March 1997 to June 2001, effectively
convert the variable rate basis swap payments to fixed payments. Other
outstanding contracts generally have lives that are 90 days or less.
Other Financial Instruments
Aon has certain investment commitments to provide capital and fixed-rate loans
as well as certain forward contract purchase commitments. The investment
commitments, which would be collateralized by related properties of the
underlying investments, involve varying elements of credit and market risk.
Investment commitments outstanding at December 31, 1996 and 1995 totaled $154
million and $196 million, respectively.
Subsidiaries of Aon have entered into agreements with financial institutions,
whereby the subsidiaries sold certain receivables, with limited recourse.
Agreements provide for sales of receivables on a continuing basis through
September 1997. As of December 31, 1996 and 1995, the maximum commitment
contained in these agreements was $1,155 million and $752 million, respectively.
Accounts receivable sold in 1996, 1995 and 1994 amounted to $1,726 million,
$1,253 million and $1,095 million, respectively. Outstanding receivables of
$1,077 million and $687 million, remained to be collected at December 31, 1996
and 1995, respectively. Aon's credit risk relates to amounts that may be due
under recourse provisions that could exceed recorded estimates. At December 31,
1996 and 1995, this exposure was approximately $42 million.
Fair Value of Financial Instruments
Accounting standards require the disclosure of fair values for certain financial
instruments. The fair value disclosures are not intended to encompass the
majority of policy liabilities, various other non-financial instruments or other
intangible assets related to Aon's business. Accordingly, care should be
exercised in deriving conclusions about Aon's business or financial condition
based on the fair value disclosures. The carrying value and fair value of
certain of Aon's financial instruments are as follows:
As of December 31 1996 1995
- -------------------------------------------------------------
Carrying Fair Carrying Fair
(millions) Value Value Value Value
- -------------------------------------------------------------
Assets:
Fixed maturities and
equity securities
(note 4) $3,705 $3,705 $8,693 $8,693
Mortgage loans on
real estate 29 29 632 684
Policy loans 58 57 226 223
Cash, receivables,
short-term and
other long-term
investments 6,437 6,437 4,163 4,163
Derivatives* -- 10 1 1
Liabilities:
Investment type
insurance contracts $ 507 $ 509 $3,666 $3,711
Short-term borrowings,
premium payables
and commissions
and general expenses 5,134 5,134 3,638 3,638
Notes payable 475 478 498 513
Derivatives -- -- -- 24
=============================================================
*Derivatives with a carrying value of $21 million and a fair value of $21
million are included in other asset categories at December 31, 1996.
- 39 -
<PAGE>
12. LITIGATION
Aon and its subsidiaries are subject to numerous claims and lawsuits that arise
in the ordinary course of business. Some of these cases are being litigated in
jurisdictions which have judicial precedents and evidentiary rules which are
generally believed to favor individual plaintiffs against corporate defendants.
The damages that may be claimed in these and other jurisdictions are
substantial, including in many instances claims for punitive or extraordinary
damages. Accruals for these lawsuits have been provided to the extent that
losses are deemed probable and are estimable. Although the ultimate outcome of
these suits cannot be ascertained and liabilities in indeterminate amounts may
be imposed on Aon or its subsidiaries, on the basis of present information,
availability of insurance coverages and advice received from counsel, it is the
opinion of management that the disposition or ultimate determination of such
claims and lawsuits will not have a material adverse effect on the consolidated
financial position of Aon.
13. SEGMENT INFORMATION
Aon Corporation is a multinational holding company. Its businesses serve
consumers and commercial operations in North America, South America, Europe,
Africa, Asia and Australia. Aon's continuing operations are concentrated into
two core businesses. Insurance brokerage and consulting services provide
services for commercial, industrial and insurance company clients. Insurance
underwriting provides life, accident and health insurance and extended warranty
products for individual consumers, delivered through controlled distribution
channels. Certain reclassifications of prior period segment information have
been made to conform to the current period presentation. The segment information
located in the tables on pages 18 through 21 is incorporated herein by
reference.
- 40 -
<PAGE>
REPORTS BY INDEPENDENT AUDITORS AND MANAGEMENT
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
BOARD OF DIRECTORS AND STOCKHOLDERS
Aon CORPORATION
We have audited the accompanying consolidated statements of financial position
of Aon Corporation as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Aon Corporation at
December 31, 1996 and 1995, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.
As discussed in note 4, the Company changed its method of accounting for certain
investments in 1994.
/s/ Ernst & Young LLP
Chicago, Illinois
February 11, 1997
REPORT BY MANAGEMENT
The management of Aon Corporation is responsible for the integrity and
objectivity of the financial statements and other financial information in the
annual report. The statements have been prepared in conformity with generally
accepted accounting principles. These statements include informed estimates and
judgments for those transactions not yet complete or for which the ultimate
effects cannot be measured precisely. Financial information elsewhere in this
report is consistent with that in the financial statements. The consolidated
financial statements have been audited by our independent auditors. Their role
is to render an independent professional opinion on Aon's financial statements.
Management maintains a system of internal control designed to meet its
responsibilities for reliable financial statements. The system is designed to
provide reasonable assurance, at appropriate costs, that assets are safeguarded
and that transactions are properly recorded and executed in accordance with
management's authorization. Judgments are required to assess and balance the
relative costs and expected benefits of those controls. It is management's
opinion that its system of internal control, as of December 31, 1996, was
effective in providing reasonable assurance that its financial statements were
free of material misstatement. In addition, management supports and maintains a
professional staff of internal auditors who coordinate audit coverage with the
independent auditors and conduct an extensive program of financial and
operational audits.
The Board of Directors selects an Audit Committee from among its members. No
member of the Audit Committee is an employee of Aon. The Audit Committee is
responsible to the Board for reviewing the accounting and auditing procedures
and financial practices of Aon and for recommending appointment of the
independent auditors. The Audit Committee meets periodically with management,
internal auditors and independent auditors to review the work of each and
satisfy itself that those parties are properly discharging their
responsibilities. Both the independent auditors and the internal auditors have
free access to the Committee, without the presence of management, to discuss the
adequacy of internal control and to review the quality of financial reporting.
- 41 -
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
(millions except common stock and per share data) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA
<S> <C> <C> <C> <C> <C>
Brokerage commissions and fees $ 1,919 $ 1,651 $ 1,389 $ 1,190 $ 714
Premiums earned 1,527 1,427 1,322 1,278 1,275
Net investment income 384 329 257 227 223
Realized investment gains 8 13 19 30 24
Other income 50 46 54 46 42
Total revenue 3,888 3,466 3,041 2,771 2,278
- ------------------------------------------------------------------------------------------------------------
Income from continuing operations $ 292 $ 304 $ 269 $ 228 $ 134
Discontinued operations 43 99 91 96 72
Net income 335 403 360 324 127
Operating income from continuing operations* 346 295 256 214 171
- ------------------------------------------------------------------------------------------------------------
PER SHARE DATA
Income from continuing operations $ 2.48 $ 2.57 $ 2.28 $ 1.91 $ 1.24
Discontinued operations 0.39 0.91 0.86 0.90 0.69
Net income 2.87 3.48 3.14 2.81 1.17
Operating income from continuing operations* 2.97 2.49 2.16 1.79 1.60
- ------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
ASSETS
Investments $ 5,213 $10,639 $ 9,783 $ 9,652 $ 9,088
Brokerage receivables 3,566 2,264 1,882 1,615 1,524
Other 4,944 6,833 6,257 5,012 3,678
-------------------------------------------------------
Total assets $13,723 $19,736 $17,922 $16,279 $14,290
- ------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Policy liabilities $ 4,360 $ 9,556 $ 9,310 $ 8,776 $ 7,759
Insurance premiums payable 4,144 2,723 2,409 1,948 1,866
Notes payable 521 554 561 594 556
General liabilities 1,815 4,179 3,335 2,673 2,005
-------------------------------------------------------
Total liabilities 10,840 17,012 15,615 13,991 12,186
Redeemable preferred stock 50 50 50 -- --
Stockholders' equity 2,833 2,674 2,257 2,288 2,104
-------------------------------------------------------
Total liabilities and stockholders' equity $13,723 $19,736 $17,922 $16,279 $14,290
- ------------------------------------------------------------------------------------------------------------
COMMON STOCK DATA
Dividends paid per share $ 1.42 $ 1.34 $ 1.26 $ 1.18 $ 1.11
Stockholders' equity per share 24.31 22.77 18.30 18.95 17.48
Price range 643/4-471/2 507/8-313/8 353/4-291/4 39-307/8 36-261/8
Market price at year-end 62.125 49.875 32.000 32.250 36.000
Common stockholders 13,030 13,520 14,163 14,615 14,746
Shares outstanding (in millions) 110.9 108.3 107.7 101.6 100.0
- ------------------------------------------------------------------------------------------------------------
<FN>
*Operating income from continuing operations excludes aftertax realized
investment gains, 1996 special charges of $59 million, a retroactive tax charge
in 1993 of $5 million, the 1992 cumulative effect of changes in accounting
principles of $80 million, and 1992 special charges of $54 million.
</FN>
</TABLE>
- 42 -
<PAGE>
<TABLE>
<CAPTION>
QUARTERLY FINANCIAL DATA
(millions except common stock and per share data) 1Q 2Q 3Q 4Q 1996
- ------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA
<S> <C> <C> <C> <C> <C>
Brokerage commissions and fees $468.0 $445.5 $454.5 $ 550.8 $1,918.8
Premiums earned 378.0 381.3 382.1 385.3 1,526.7
Net investment income 84.7 92.6 92.4 114.3 384.0
Realized investment gains -- -- 3.1 5.0 8.1
Other income 11.4 13.0 12.2 14.0 50.6
-----------------------------------------------------------
Total revenue 942.1 932.4 944.3 1,069.4 3,888.2
-----------------------------------------------------------
Income from continuing operations 96.5 65.3 83.8 46.2 291.8
Discontinued operations 22.4 21.0 -- -- 43.4
Net income 118.9 86.3 83.8 46.2 335.2
Operating income from continuing operations* 96.5 84.8 81.8 82.5 345.6
- ------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
Income from continuing operations $ 0.84 $ 0.55 $ 0.72 $ 0.38 $ 2.48
Discontinued operations 0.20 0.19 -- -- 0.39
Net income 1.04 0.74 0.72 0.38 2.87
Operating income from continuing operations* 0.84 0.73 0.70 0.71 2.97
- ------------------------------------------------------------------------------------------------------------------
COMMON STOCK DATA
Dividends paid per share $ 0.34 $ 0.36 $ 0.36 $ 0.36 $ 1.42
Stockholders' equity per share 22.76 23.15 23.29 24.31 24.31
Price range 553/8-483/4 557/8-497/8 541/2-471/2 643/4-54 643/4-471/2
Average dividend yield 2.6% 2.7% 2.8% 2.4% 2.5%
Shares outstanding (in millions) 108.5 107.9 108.3 110.9 110.9
Average monthly trading volume (in millions) 3.0 4.7 2.3 3.6 3.4
==================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
(millions except common stock and per share data) 1Q 2Q 3Q 4Q 1995
- ------------------------------------------------------------------------------------------------------------------
Income Statement Data
<S> <C> <C> <C> <C> <C>
Brokerage commissions and fees $424.6 $400.2 $400.9 $ 425.6 $1,651.3
Premiums earned 335.7 364.7 358.1 368.0 1,426.5
Net investment income 80.9 77.5 86.6 84.4 329.4
Realized investment gains 1.1 (0.6) 8.8 3.8 13.1
Other income 10.9 10.1 11.3 13.1 45.4
-----------------------------------------------------------
Total revenue 853.2 851.9 865.7 894.9 3,465.7
-----------------------------------------------------------
Income from continuing operations 90.5 71.7 77.0 64.5 303.7
Discontinued operations 20.7 27.0 23.0 28.4 99.1
Net income 111.2 98.7 100.0 92.9 402.8
Operating income from continuing operations* 89.8 72.0 71.4 62.0 295.2
- ------------------------------------------------------------------------------------------------------------------
Per Share Data
Income from continuing operations $ 0.77 $ 0.60 $ 0.66 $ 0.54 $ 2.57
Discontinued operations 0.19 0.25 0.21 0.26 0.91
Net income 0.96 0.85 0.87 0.80 3.48
Operating income from continuing operations* 0.76 0.60 0.61 0.52 2.49
- ------------------------------------------------------------------------------------------------------------------
Common Stock Data
Dividends paid per share $ 0.32 $ 0.34 $ 0.34 $ 0.34 $ 1.34
Stockholders' equity per share 19.79 21.63 21.89 22.77 22.77
Price range 371/2-313/8 38-355/8 413/4-361/4 507/8-401/2 507/8-313/8
Average dividend yield 3.7% 3.7% 3.4% 3.0% 3.3%
Shares outstanding (in millions) 108.0 107.1 108.0 108.3 108.3
Average monthly trading volume (in millions) 1.4 1.8 2.1 3.1 2.1
==================================================================================================================
*Operating income from continuing operations excludes aftertax realized
investment gains of $5 million and $8 million in 1996 and 1995, respectively,
and special charges of $19 million and $40 million in second quarter 1996 and
fourth quarter 1996, respectively.
</TABLE>
- 43 -
Aon Corporation Subsidiaries
As of December 31, 1996
Corporate Name Jurisdiction
- --------------------------------------------- --------------
A. J. Norcott & Company (Holdings) Limited United Kingdom
A. J. Norcott & Partners (Northern) Limited United Kingdom
A. J. Norcott & Partners (Scotland) Limited United Kingdom
A. J. Norcott & Partners Limited United Kingdom
A. J. Norcott Benefit Consultants Limited United Kingdom
A.H. Laseur B.V. Netherlands
AAA Auto Club South Finance, L.P. Illinois
AAA Missouri Automotive Financial Services Illinois
AOPA Insurance Agency, Inc. Maryland
AOPA Insurance Agency, Inc. Texas
APM Services Limited Hong Kong
APS International Limited United Kingdom
APS Life & Pensions Limited United Kingdom
APS Overseas Investments Limited United Kingdom
ARM COVERAGE INC. New York
ARS Holdings, Inc. Illinois
ARS Holdings, Inc. Louisiana
Acedale Co. Ltd. Hong Kong
Adams & Porter Financial Services, Inc. Texas
Adams & Porter Services, Inc. Texas
Advantage Plus Insurance Services, Inc. Illinois
Adviser 151 Limited United Kingdom
Affinity Insurance Services, Inc. Pennsylvania
Agencia Interoceanica de Subscripcion y
Administracion S. A. Mexico
Agostini Insurance Brokers Ltd. Trinidad
Agricola Training Limited United Kingdom
Agricola Underwriting Limited United Kingdom
Agricola Underwriting Management Limited New Zealand
Agricola Underwriting Management Pty Ltd. Australia
Agricultural Risk Management Chile Chile
Agricultural Risk Management North America, Inc. Kansas
Agricultural Risk Management Pacific Limited New Zealand
Agricultural Risk Management Pty. Australia
Agricultural Risk Management, Limited United Kingdom
Airscope Insurance Services Limited United Kingdom
Alpenbeck Limited United Kingdom
American Associates, Inc. Texas
American Insurance Brokers, Ltd. Indiana
American National General Agencies, Inc. Colorado
Anchor Reinsurance Company, Ltd. Bermuda
Anchor Underwriting Managers, Ltd. Bermuda
Anscor Insurance Brokers Inc. Philippines
Aon Advisors (U.K.) Limited United Kingdom
Aon Advisors, Inc. Virginia
Aon Antillen nv Netherland Antilles
Aon Aruba nv Netherland Antilles
Aon Automotive Group, Inc. Illinois
Aon Aviation, Inc. Illinois
Aon Belgium nv Belgium
Aon Broker Services, Inc. Illinois
Aon Capital A Delaware
Aon Capital Corporation Delaware
Aon Capital Management, Inc. Delaware
Aon Capital Markets, Inc. Delaware
Aon Captive Management, Ltd. U.S. Virgin Islands
Aon Captive Services (Nederland) bv Netherlands
Aon Captive Services Antillen nv Netherland Antilles
Aon Construction Services International Limited United Kingdom
Aon Consulting & Insurance Services California
Aon Consulting Denmark A/S Denmark
Aon Consulting Hong Kong Ltd. Hong Kong
Aon Consulting Limited United Kingdom
Aon Consulting Nederland cv Netherlands
Aon Consulting Pty Limited Australia
Aon Consulting Thailand Ltd. Thailand
Aon Consulting Worldwide, Inc. Delaware
Aon Consulting, Inc. Florida
Aon Consulting, Inc. Massachusetts
Aon Consulting, Inc. Michigan
Aon Consulting, Inc. Minnesota
Aon Consulting, Inc. New York
Aon Consulting, Inc. Ohio
Aon Consulting, Inc. Pennsylvania
Aon Consulting, Inc. Texas
Aon Consulting, Inc. Agency Texas
Aon Consulting, Limited Les Consultants Aon, Limitee Quebec
Aon Denmark A/S Denmark
Aon Direct Group Small Company Life and Health Agents Illinois
Aon Direct Group, Inc. California
Aon Eesti AS Estland
Aon Employee Benefits of Ohio, Inc. Ohio
Aon Entertainment Risk Services Limited United Kingdom
Aon Entertainment, Ltd. New York
Aon Financial Institutions Services, Inc. Illinois
Aon Financial Services Group of Colorado, Inc. Colorado
Aon Financial Services Group of New York, Inc. New York
Aon Financial Services Group, Inc. California
Aon Financial Services Group, Inc. Illinois
Aon Financial Services Group, Inc. Pennsylvania
Aon Financial Services Group, Inc. Texas
Aon Finland OY Finland
Aon France S.A. France
Aon GGI Acquisition Corporation, Inc. Texas
Aon General Agency, Inc. Texas
Aon Groep Nederland bv Netherlands
Aon Group, Inc. Delaware
Aon Hamond & Regine, Inc. New York
Aon Hazard Limited United Kingdom
Aon Healthcare Risk, Inc. Florida
Aon Holdings (Scandinavia) A/S Denmark
Aon Holdings Antillen nv Netherland Antilles
Aon Holdings Asia Ltd. Hong Kong
Aon Holdings Australia Ltd. Australia
Aon Holdings Deutschland GmbH Germany
Aon Holdings Limited United Kingdom
Aon Holdings New Zealand Pty. Ltd. New Zealand
Aon Holdings bv Netherlands
Aon Hudig Groningen bv Netherlands
Aon Hudig Hengelo bv Netherlands
Aon Hudig Nijmegen bv Netherlands
Aon Hudig Noordwijk bv Netherlands
Aon Hudig Tilburg bv Netherlands
Aon Hudig Venlo bv Netherlands
Aon Hudig cv Netherlands
Aon Iberia, Correduria de Seguros, S.A. Spain
Aon India Limited United Kingdom
Aon Insurance Management Services - Virgin Islands, Inc. U.S. Virgin Islands
Aon Insurance Management Services, Inc. Delaware
Aon Insurance Management of Texas, Inc. Texas
Aon Insurance Services California
Aon Insurance Services, Inc. Pennsylvania
Aon Intermediaries (Bermuda) Ltd. Bermuda
Aon International Panama Ltd. S.A. Panama
Aon International bv Netherlands
Aon Investment Consulting Inc. Florida
Aon Investment Holdings, Inc. Delaware
Aon Italia SpA Italy
Aon Life Agency of Texas, Inc. Texas
Aon Lumley South Africa (Pty) Ltd. South Africa
Aon Magyarorszag Alkusz Kft. Hungary
Aon Managed Care, Inc. California
Aon Management Hong Kong Ltd. Hong Kong
Aon Management Institute, Inc. Connecticut
Aon Medical Consultants, Inc. Delaware
Aon Nominees Limited United Kingdom
Aon Norway A/S Norway
Aon Overseas Holdings Limited United Kingdom
Aon Partnership Limited United Kingdom
Aon Polska sp.z.o.o. Poland
Aon Portugal, Corretores de Seguros, S.A. Portugal
Aon Properties Limited United Kingdom
Aon Pyramid International Limited United Kingdom
Aon Re (Bermuda) Ltd. Bermuda
Aon Re (Thailand) Ltd. Thailand
Aon Re Accident & Health Limited United Kingdom
Aon Re Asia Ltd. Singapore
Aon Re Aviation Limited United Kingdom
Aon Re China Ltd. Hong Kong
Aon Re Inc. Illinois
Aon Re International Limited United Kingdom
Aon Re Latinoamericana, S.A. Mexico
Aon Re Limited United Kingdom
Aon Re Netherlands cv Netherlands
Aon Re Non-Marine Limited United Kingdom
Aon Re North American Limited United Kingdom
Aon Re Panama, S.A. Panama
Aon Re Special Risks Limited United Kingdom
Aon Re UK Limited United Kingdom
Aon Re Worldwide Limited United Kingdom
Aon Re Worldwide, Inc. Delaware
Aon Risk Consultants (Bermuda ) Ltd. Bermuda
Aon Risk Consultants (Europe) Limited United Kingdom
Aon Risk Consultants, Inc. Illinois
Aon Risk Management Services Italia srl. Italy
Aon Risk Management Services Scandinavia A/S Denmark
Aon Risk Resources Limited United Kingdom
Aon Risk Resources, Inc. Delaware
Aon Risk Services (Antilles) nv Netherland Antilles
Aon Risk Services (B.C.) Inc. British Columbia
Aon Risk Services (Barbados) Ltd. Barbados
Aon Risk Services (Bermuda) Ltd. Bermuda
Aon Risk Services (Cayman) Ltd. Cayman Islands
Aon Risk Services (Europe) S.A. Luxembourg
Aon Risk Services (Holdings) of Latin America, Inc. Delaware
Aon Risk Services (Holdings) of the Americas, Inc. Illinois
Aon Risk Services (Nederland) BV Netherlands
Aon Risk Services (Nederland) bv Netherlands
Aon Risk Services (Vermont) Inc. Vermont
Aon Risk Services Australia Ltd. Australia
Aon Risk Services Canada Inc. Canada
Aon Risk Services Companies, Inc. Delaware
Aon Risk Services France S.A. France
Aon Risk Services Holdings UK Limited United Kingdom
Aon Risk Services Hong Kong Ltd. Hong Kong
Aon Risk Services Inc. Ontario
Aon Risk Services International (Holdings) Inc. Delaware
Aon Risk Services Japan Ltd. Japan
Aon Risk Services Korea Ltd. Korea
Aon Risk Services Limited United Kingdom
Aon Risk Services New Zealand Pty. Ltd. New Zealand
Aon Risk Services Thailand Ltd. Thailand
Aon Risk Services UK Limited United Kingdom
Aon Risk Services of Missouri, Inc. Missouri
Aon Risk Services of Texas, Inc. Texas
Aon Risk Services, Inc. Delaware
Aon Risk Services, Inc. U.S.A. New York
Aon Risk Services, Inc. of Alabama Alabama
Aon Risk Services, Inc. of Arizona Arizona
Aon Risk Services, Inc. of Arkansas Arkansas
Aon Risk Services, Inc. of Central California
Insurance Services California
Aon Risk Services, Inc. of Colorado Colorado
Aon Risk Services, Inc. of Connecticut Connecticut
Aon Risk Services, Inc. of Florida Florida
Aon Risk Services, Inc. of Georgia Georgia
Aon Risk Services, Inc. of Hawaii Hawaii
Aon Risk Services, Inc. of Idaho Idaho
Aon Risk Services, Inc. of Illinois Illinois
Aon Risk Services, Inc. of Indiana Indiana
Aon Risk Services, Inc. of Kansas Kansas
Aon Risk Services, Inc. of Kentucky Kentucky
Aon Risk Services, Inc. of Louisiana Louisiana
Aon Risk Services, Inc. of Massachusetts Massachusetts
Aon Risk Services, Inc. of Michigan Michigan
Aon Risk Services, Inc. of Minnesota Minnesota
Aon Risk Services, Inc. of Montana Montana
Aon Risk Services, Inc. of Nebraska Nebraska
Aon Risk Services, Inc. of Nevada Nevada
Aon Risk Services, Inc. of New Jersey New Jersey
Aon Risk Services, Inc. of New York New York
Aon Risk Services, Inc. of Northern
California Insurance Services California
Aon Risk Services, Inc. of Ohio Ohio
Aon Risk Services, Inc. of Oklahoma Oklahoma
Aon Risk Services, Inc. of Oregon Oregon
Aon Risk Services, Inc. of Pennsylvania Pennsylvania
Aon Risk Services, Inc. of Rhode Island Rhode Island
Aon Risk Services, Inc. of Southern
California Insurance Services California
Aon Risk Services, Inc. of Tennessee Tennessee
Aon Risk Services, Inc. of Utah Utah
Aon Risk Services, Inc. of Virginia Virginia
Aon Risk Services, Inc. of Washington Washington
Aon Risk Services, Inc. of Washington, D.C. District of Columbia
Aon Risk Services, Inc. of Wisconsin Wisconsin
Aon Risk Services, Inc. of Wyoming Wyoming
Aon Risk Services, Inc. of the Carolinas North Carolina
Aon Risk Strategies, Inc. Delaware
Aon Risk Technologies, Inc. Delaware
Aon Securities Corporation New York
Aon Select, Inc. Pennsylvania
Aon Service Corporation Illinois
Aon Sigorta Brokerlik ve Musavirlik AS Turkey
Aon South Africa (Pty) Ltd. South Africa
Aon Special Risks, Inc. Illinois
Aon Specialty Denmark A/S Denmark
Aon Specialty Group of Tennessee, Inc. Tennessee
Aon Specialty Group, Inc. Delaware
Aon Specialty Limited United Kingdom
Aon Superannuation Pty Limited Australia
Aon Surety & Guarantee Limited United Kingdom
Aon Sweden AB Sweden
Aon Technical Insurance Services, Inc. Illinois
Aon Technology Brokers, Inc. California
Aon Telecom, Inc. Illinois
Aon Texas Acquisition Corporation Texas
Aon UK Limited United Kingdom
Aon Vietnam Vietnam
Aon Warranty Group, Inc. Illinois
Aon Warranty Services, Inc. Illinois
Aon makelaars in assurantien bv Netherlands
Aon/Albert G. Ruben Company (New York) Inc. New York
Aon/Albert G. Ruben Insurance Services, Inc. California
Artscope Insurance Services Limited United Kingdom
Artscope International Insurance Services Agency GmbH Germany
Artscope International Insurance Services Limited United Kingdom
Artscope International Kunstversicherungsmakler GmbH Germany
Ascom Nijmegen B.V. Netherlands
Asia Area Underwriters Ltd. Hong Kong
Associated Brokers International Zimbabwe
Assuco Holdings Ltd. Guernsey
Assurantie Groep Langeveldt c.v. Netherlands
Atkins Kroll Insurance Inc. Guam
Attorneys' Advantage Insurance Agency, Inc. Illinois
Austpac Insurance Brokers Pty. Ltd. Australia
Auto Conduit Corporation, The Delaware
Automotive Development Centers, Inc. Illinois
Automotive Warranty Services of Florida, Inc. Florida
Automotive Warranty Services, Inc. Delaware
Ayala-Bain Insurance Company Philippines
B.L. Carnie Hogg Robinson Ltd. United Kingdom
B.V. Assurantiekantoor Langeveldt-Schroder Netherlands
BEC Insurance Services Ltd. United Kingdom
BH No. 1 Ltd. United Kingdom
BRIC, Inc. North Carolina
Bain Clarkson (HK) Ltd. Hong Kong
Bain Clarkson Limited United Kingdom
Bain Clarkson Members Underwriting Agency Ltd. United Kingdom
Bain Clarkson R.B. Ltd. United Kingdom
Bain Clarkson Sweden A.B. Sweden
Bain Clarkson Underwriting Management Ltd. United Kingdom
Bain Dawes (London) Ltd. United Kingdom
Bain Dawes Services Ltd. United Kingdom
Bain Hogg (Americas) Inc. Florida
Bain Hogg (Fiji) LTd. Fiji
Bain Hogg (Vanuatu) Ltd. Vanuatu
Bain Hogg Australia (Holdings) Ltd. Australia
Bain Hogg Australia (Investments) Pty Ltd. Australia
Bain Hogg Australia Ltd. Australia
Bain Hogg Chile S.A. Corredoros de Reasguro Chile
Bain Hogg Colombiana Ltd. Colombia
Bain Hogg Group PLC United Kingdom
Bain Hogg Hellas Ltd. United Kingdom
Bain Hogg Holdings Limited United Kingdom
Bain Hogg Insurance Management (Guernsey) Ltd. Guernsey
Bain Hogg Insurance Management (Isle of Man) Ltd. Isle of Man
Bain Hogg Intermediaro de Reaseguro SA de CV Mexico
Bain Hogg International Holdings Ltd. United Kingdom
Bain Hogg International Ltd. Taiwan
Bain Hogg International Ltd. United Kingdom
Bain Hogg Ltd. United Kingdom
Bain Hogg Malawi Ltd. Malawi
Bain Hogg Management Ltd. United Kingdom
Bain Hogg New Zealand Ltd. New Zealand
Bain Hogg Pensions Pty Ltd. Australia
Bain Hogg Robinson Inc. Delaware
Bain Hogg Robinson Pty Ltd. Australia
Bain Hogg Russian Insurance Brokers Ltd. Russia
Bain Hogg Solomon Islands Ltd. Solomon Islands
Bain Hogg Trustees Ltd. United Kingdom
Bain Hogg Uganda Ltd. Uganda
Bain Insurance Brokers Kenya Ltd. Kenya
Bankers Insurance Service Corp. Illinois
Baoviet Inchcape Insurance Brokers Ltd. Vietnam
BenefitsMedia, Inc. Tennessee
Berkely Agency Ltd. New York
Berkely Coverage Corporation New York
Berkely-ARM, Inc. New York
BerkelyCare, LTD. New York
Black Portch & Swain (Financial Services) Ltd. United Kingdom
Black Portch & Swain Ltd. United Kingdom
Blom & Van der Aa BV Netherlands
Blom & Van der Aa Holding BV Netherlands
Boels Begault Holdings S.A. Belgium
Brennan Group, Inc., The Delaware
British Continental and Overseas Agencies (BCOA) SA France
Broadgate Holdings Ltd. United Kingdom
Bruno Sforni S.p.A. Italy
Bruns Ten Brink & Co. b.v. Netherlands
Bruns Ten Brink Groep b.v. Netherlands
Bruns Ten Brink Herverzekeringen b.v. Netherlands
Bryson Associates Incorporated Pennsylvania
Bureau d'Assurances Pirrotte GmbH Luxembourg
Bureau d'Assurances Pirrotte GmbH & Co. KG Luxembourg
Burlington Insurance Services Ltd. United Kingdom
C.I.C. Realty, Inc. Illinois
C.V. 'T Huys Ter Merwe Netherlands
CCC Agency, Inc. of Illinois Illinois
CECAR - Compagnie Europeene de Courtage
d'Assurances et de Reassurances SAe France
CECAR Deutschland GmbH Germany
CECAR Inchcape Asia Ltd. Hong Kong
CECAR Portugal Portugal
CIA Deutschland Kreditversicherungsmakler
und Beratungs GmbH Germany
CIA Italia S.R.L. Italy
CIA Link Ltd. United Kingdom
CIA Supplier Finance Ltd. United Kingdom
CIC - Hilldale, Inc. Illinois
CIC - Wells, Inc. Illinois
CIC - Westmont, Inc. Illinois
CICA - Court, Inc. Illinois
CICA Realty Corporation Illinois
CICA Seguros de Mexico SA de CV Mexico
CICA Superannuation Nominees Pty. Ltd. Australia
CJP, Inc. Delaware
CRiON nv Belgium
California Group Services California
Camperdown 100 Limited United Kingdom
Camperdown 101 Limited United Kingdom
Cananwill Corporation Delaware
Cananwill, Inc. California
Cananwill, Inc. Pennsylvania
Carstens & Schues GmbH Germany
Carstens & Schues Poland Ltd. Poland
Catz & Lips B.V. Netherlands
Centris Services Limited United Kingdom
Chemical & Oil Insurance Brokers (Pty) Ltd. South Africa
Christopher Paul Insurance Services Ltd. United Kingdom
Cinema Completions International, Inc. Delaware
Citadel Insurance Company Texas
Claims Control Ltd. New Zealand
Clarkson Bain Japan Ltd. United Kingdom
Clarkson LMS Ltd. United Kingdom
Clarkson Puckle Group, Ltd. Unknown
Clarkson Puckle Holdings Ltd. United Kingdom
Clarkson Puckle Ibex Ltd. United Kingdom
Clarkson Puckle Ltd. United Kingdom
Clarkson Puckle Marine Holdings Ltd. United Kingdom
Clarkson Puckle Overseas Holdings Ltd. United Kingdom
Cogrup Correduria de Seguros, S.A. Spain
Cogrup, S.L. Spain
Cole Booth Potter of New Jersey, Inc. New Jersey
Cole Booth Potter, Inc. Pennsylvania
Columbia Automotive Services, Inc. Illinois
Combined Administrative Services Corp. Illinois
Combined Insurance Company of America Illinois
Combined Insurance Company of Ireland Limited Ireland
Combined Insurance Company of New Zealand Limited New Zealand
Combined Life Assurance Company Limited United Kingdom
Combined Life Assurance Company of Europe Limited Ireland
Combined Life Insurance Company of Australia Limited Australia
Combined Life Insurance Company of New York New York
Commercial Credit Corporation United Kingdom
Commercial and Political Risk Consultants Ltd. United Kingdom
Commercial and Political Risk Services Ltd. United Kingdom
CompLogic, Inc. Rhode Island
Consumer Program Administrators, Inc. Illinois
Contract & Investment Recoveries Ltd. United Kingdom
Correteje de Reaseguros Bain Hogg Venezolana C.A. Venezuela
Coughlan General Insurances Limited Ireland
Credit & Political Insurance Services Ltd. United Kingdom
Credit & Political Risks Reinsurance Consultants Ltd. United Kingdom
Credit Indemnity & Financial Services Ltd. United Kingdom
Credit Insurance Associates Inc. California
Credit Insurance Research Unit Ltd. United Kingdom
Credit International Associates Inc. New York
Crotty MacRedmond Insurance Limited Ireland
Customer Loyalty Institute Michigan
D. Hudig & Co. b.v. Netherlands
DUO A/S Norway
Dealer Development Services, Ltd. United Kingdom
Deanborne Limited United Kingdom
Dobson Park L. G. Limited Guernsey
Document Risk Management Limited United Kingdom
Dominion Mutual Insurance Brokers Ltd. Canada
Don Flower Aviation Underwriters, Inc. Kansas
Downes & Burke (Special Risks) Ltd. United Kingdom
Dreadnaught Insurance Company Limited Bermuda
DuPage Care Administrators, Inc. Illinois
Duoband Enterprises Ltd. United Kingdom
E. Lillie & Co. Limited United Kingdom
ENTAB Insurance Services Ltd. United Kingdom
ERAS (International) Ltd. United Kingdom
Eastaf Holdings Ltd. United Kingdom
Edgar Ward Ltd. United Kingdom
Edward Lumley & Sons (Underwriting Agencies) Ltd. United Kingdom
Elektrorisk Beheer bv Netherlands
Elm Lane Limited United Kingdom
Employee Benefit Communications, Inc. Florida
Entertainment Managers Insurance Services, Inc. California
Entertainment Managers Insurance Services, Inc. Ontario
Equiscope Insurance Services Limited United Kingdom
Ernest A. Notcutt & Co. Ltd. United Kingdom
Ernest A. Notcutt (Overseas) Ltd. United Kingdom
Ernest Notcutt Insurance Services Ltd. United Kingdom
Europa Services Ltd. Malta
ExcelNet (Guernsey) Ltd. Guernsey
ExcelNet Ltd. United Kingdom
Excess Underwriters Agency, Inc. New York
Expatriate Consultancy Limited, The United Kingdom
Fabels-Versteeg b.v. Netherlands
Far East Agency Korea
Finance Associates, Inc. Texas
Financial Solutions Insurance Services of California, Inc. California
Financial Solutions Insurance Services, Inc. Illinois
France Fenwick Limited United Kingdom
Frank B. Hall & Co. Holdings (N.Z.) Limited New Zealand
Frank B. Hall (Reinsurance) France S.A. France
Frank B. Hall (Underwriting Managers) Ltd. Bermuda
Frank B. Hall Insurance Brokers (S) Pte. Ltd. Singapore
Frank B. Hall Ireland Ltd. Ireland
Frank B. Hall Management Services Pty. Ltd. Australia
Frank B. Hall Re (Latin America) Inc. Panama
Friis & Company, Inc. California
G.E.F. Insurance Ltd. U.S. Virgin Islands
GBV Gesellschaft Fur Betriebliche Beratung
und verwaltung GmbH Germany
Garantie Europeene de Publication S.A. France
Gardner Mountain Financial Services Ltd. United Kingdom
Gardner Mountain Management Services Ltd. United Kingdom
Gardner Mountain Trustees Ltd. United Kingdom
Gateway Alternatives, L.L.C. Delaware
Gateway Insurance Company, Ltd. Bermuda
Gilman Swire Willis Ltd. Hong Kong
Go Pro Agency, Inc. of San Antonio Texas
Go Pro Life Agency, Inc. of San Antonio Texas
Go Pro Underwriting Managers of Virginia, Inc. Virginia
Go Pro Underwriting Managers, Inc. Texas
Godwins (Overseas) Limited United Kingdom
Godwins (Trustees) Limited United Kingdom
Godwins Acquisition Co. North Carolina
Godwins Group Limited United Kingdom
Godwins Limited United Kingdom
Godwins Securities, Inc. Washington
Gotuaco del Rosario & Associates, Inc. Philippines
Greville Baylis Parry & Associates Ltd. United Kingdom
Greyfriars Marketing Services Pty Ltd. Australia
Growth Enterprises Ltd. Bahamas
H.A.R.B. Ltd. United Kingdom
H.L. Puckle (Underwriting) Ltd. United Kingdom
H.Z. Financial, L.P. Illinois
HHL (Taiwan) Ltd. Taiwan
HHL Reinsurance Brokers Inc. Philippines
HHL Reinsurance Brokers Pte. Ltd. Singapore
HHL Reinsurance Services Sdn. Bhd. Malaysia
HLS Hudig-Langeveldt Stanner GmbH Germany
HRGM 1989 Ltd. United Kingdom
HRGM Cargo Ltd. United Kingdom
HRGM Ltd. United Kingdom
HRGM Management Services Ltd. United Kingdom
HRGM Marine Ltd. United Kingdom
Hadenmead Ltd. United Kingdom
Hall & Company (Overseas) Ltd. United Kingdom
Hall & Company (UK) Ltd. United Kingdom
Hansa Hoken GmbH Versicherungsmakler Germany
Hanseatische Assekuranz Kontor GmbH Germany
Hanseatische Assekuranz Vermittlungs AG Germany
Harbour Pacific Holdings Pty., Ltd. Australia
Harbour Pacific Underwriting Management Pty Limited Australia
Havag Hudig-Langeveldt GmbH Germany
Heath Hudig Langeveldt Pte Ltd. Singapore
Heath Hudig Langeveldt Sdn. Bhd. Malaysia
Heinz Hahn GmbH Germany
Heli Agency Korea
Hellenic Bain Hogg S.A. Greece
Highplain Limited United Kingdom
Hobbs & Partners Ltd. United Kingdom
Hodgson McCreery & Company Limited United Kingdom
Hogg Automotive Insurance Services Ltd. United Kingdom
Hogg Group Overseas Ltd. United Kingdom
Hogg Group plc United Kingdom
Hogg Robinson & Gardner Mountain (Insurance) Ltd. United Kingdom
Hogg Robinson (Nigeria) Unlimited Nigeria
Hogg Robinson (Scotland) Ltd. Scotland
Hogg Robinson Holdings (Pty) Ltd. South Africa
Hogg Robinson Illinois Inc. Illinois
Hogg Robinson Insurance Brokers Inc. California
Hogg Robinson Investment Holdings (Pty) Ltd. South Africa
Hogg Robinson North America Inc. Delaware
Hogg Robinson Services (Kenya) Ltd. Kenya
Hudig-Langeveldt Berlin GmbH Germany
Hudig-Langeveldt Coens N.V. Belgium
Hudig-Langeveldt Janson Elffers B.V. Netherlands
Hudig-Langeveldt Kyoritsu Ltd. Japan
Hudig-Langeveldt Makelaardij in Assurantien bv Netherlands
Hudig-Langeveldt Merwestad bv Netherlands
Hudig-Langeveldt Mibrag Versicherungs Vermittlungs GmbH Germany
Hudig-Langeveldt Pensioenbureau B.V. Netherlands
Hudig-Langeveldt Reinsurance B.V. Netherlands
Hudig-Langeveldt Saat B.V. Netherlands
Hudig-Langeveldt Schreinemacher V.O.F. Netherlands
Hudig-Langeveldt Schroder Versicherungsvermittlung GmbH Germany
Huntington T. Block Insurance Agency, Inc. District of Columbia
Huntington T. Block Insurance Agency, Inc. Ohio
IRISC (London) Limited United Kingdom
IRISC L.L.C. Delaware
IRISC Limited United Kingdom
IRISC Specialty, Inc. Delaware
IRISC, Inc. New Jersey
ITA Insurance, Inc. Utah
Ibex Managers Ltd. Kenya
Impact Forecasting, L.L.C. Illinois
Inchcape Continental Insurance Holdings
(Eastern Europe) Ltd. Cyprus
Inchcape Continental Insurance Holdings BV Netherlands
Inchcape H.R. (Asia) Ltd. Hong Kong
Inchcape Insurance Agencies (HK) LTd. Hong Kong
Inchcape Insurance Agencies Pte Ltd. Singapore
Inchcape Insurance Brokers (HK) Ltd. Hong Kong
Inchcape Insurance Brokers (M) Sdn Bhd Malaysia
Inchcape Insurance Brokers (Thailand ) Ltd. Thailand
Inchcape Insurance Brokers Pte Ltd. Singapore
Inchcape Insurance Holdings (HK) Ltd. Hong Kong
Inchcape Insurances (Macau) Ltd. Macau
Independent Dealer Services, Inc. Missouri
Inmobiliaria Ramos Rosada, S.A. de C.V. Mexico
Insurance Brokers Service, Inc. Illinois
Insurance Holdings Africa Ltd. Kenya
Insurance Underwriters Agency, Inc. Arizona
Insurmark Agency Corporation Ohio
Interbroke Ltd. Switzerland
Interims Limited United Kingdom
International Industrial Insurances Limited Ireland
International Insurance Brokers Ltd. Jamaica
International Shipowners Mutual Insurance
Association Limited Bermuda
Interocean (Italia) S.p.A. Italy
Interocean Reinsurance Company, S.A. Panama
Investment Facility Company Four One Two (Pty) Ltd. South Africa
Investment Insurance International (Managers) Ltd. United Kingdom
ItalCECAR S.p.A. Italy
J.C.J. Van Dalen Beheer B.V. Netherlands
J.H. Blades & Co. (Agency), Inc. Texas
J.H. Blades & Co., Inc. Texas
J.H. Blades Insurance Services California
J.H. Blades, Inc. Oklahoma
J.H. Lea & Company, Inc. Illinois
J.S. Johnson & Co. Bahamas
JFS (Sudamerica) SA Uruguay
JFS Fenchurch Limited United Kingdom
JFS Greig Fester Limited United Kingdom
James S. Kemper & Co. International Ltd. Bermuda
Jenner Fenton Slade (Special Risks) Limited United Kingdom
Jenner Fenton Slade Group Limited United Kingdom
Jenner Fenton Slade Limited United Kingdom
Jenner Fenton Slade Political Risks Limited United Kingdom
Jenner Fenton Slade Reinsurance Brokers Limited United Kingdom
Jenner Fenton Slade Surety and Specie Limited United Kingdom
John Scott Insurance Brokers Limited United Kingdom
Jonny Pape GmbH Germany
Joseph U. Moore, Inc. Florida
Jover Prevision Correduria de Seguros Spain
K & K Insurance Group of Florida, Inc. Florida
K & K Insurance Group, Inc. Indiana
K & K Insurance Specialties, Inc. Indiana
K & K Specialties, Inc. Indiana
K & K of Nevada, Inc. Nevada
Karl Alt & Co. GmbH Germany
Keeling & Company California
Key-Royal Automotive Company, Inc. Alabama
Kininmonth Limited Ireland
Kroller Holdings B.V. Netherlands
L & G LMX Limited United Kingdom
L & G Seascope Insurance Holdings Limited United Kingdom
Langeveldt Groep B.V. Netherlands
Langeveldt de Vos b.v. Netherlands
Laurila, Kauriala & Grig Ltd. Russia
Laverack & Haines, Inc. New York
Lescorp Limited United Kingdom
Leslie & Godwin (C.I.) Limited Guernsey
Leslie & Godwin (Reinsurance) Copenhagen A/S Denmark
Leslie & Godwin (Scotland) Limited Scotland
Leslie & Godwin (U.K.) Limited United Kingdom
Leslie & Godwin (WFG) Limited United Kingdom
Leslie & Godwin AXL Limited United Kingdom
Leslie & Godwin Aviation Holdings Limited United Kingdom
Leslie & Godwin Aviation Limited United Kingdom
Leslie & Godwin Aviation Reinsurance Services Limited United Kingdom
Leslie & Godwin Financial Risks Limited United Kingdom
Leslie & Godwin GmbH Germany
Leslie & Godwin Group Limited United Kingdom
Leslie & Godwin Insurance Brokers Ltd. Ontario
Leslie & Godwin Insurance Brokers, Inc. New York
Leslie & Godwin International Limited United Kingdom
Leslie & Godwin Investments Limited United Kingdom
Leslie & Godwin Limited United Kingdom
Leslie & Godwin Marine Holdings Limited United Kingdom
Leslie & Godwin Non-Marine Limited United Kingdom
Leslie & Godwin Overseas Reinsurance Holdings Limited United Kingdom
Leslie & Godwin Reinsurance Holdings Limited United Kingdom
Lloyd Paulista Corretores de Seguros e Reaseguros S.A. Brazil
London General Holdings Limited United Kingdom
London General Insurance Company Limited United Kingdom
Loss Management Group Ltd. United Kingdom
Lowndes Lambert Insurance Limited Ireland
Lumley Employee Benefits (Pty) Ltd. South Africa
Lumley Insurance Brokers (Pty) Ltd. South Africa
Lumley JFS Limited United Kingdom
Lumley Municipal & General Insurance Brokers
(Natal) (Pty) Ltd. South Africa
Lumley Municipal & General Insurance Brokers
(Orange Free State) (Pty)Ltd. South Africa
Lumley Municipal & General Insurance Brokers (Pty) Ltd. South Africa
Lumley Municipal & General Insurance Brokers
(Transvaal) (Pty) Ltd. South Africa
Lumley Petro-Energy Insurance Brokers (Pty) Ltd. South Africa
Lynn & Schaller Insurance Brokers, Inc. California
M.I.B. Holdings Co. Ltd. Malta
MAB Insurance Services Ltd. United Kingdom
MC Brokers Co. Ltd. Thailand
MacDonagh & Boland (International) Limited Ireland
MacDonagh & Boland Group Limited Ireland
MacDonagh Boland Beech Hill Limited Ireland
MacDonagh Boland Crotty MacRedmond Limited Ireland
MacDonagh Boland Cullen Duggan Limited Ireland
MacDonagh Boland Foley Woollam Limited Ireland
Macey Clifton Walters Limited United Kingdom
Macey Williams Insurance Services Limited United Kingdom
Macey Williams Limited United Kingdom
Madison Intermediaries Pty. Limited Australia
Madison Reinsurance Holdings, Inc. Illinois
Mahamy Company plc (Rollins Hudig Hall Iran) Iran
Maritime Underwriters, Ltd. Bermuda
Marketing and Training Resources, Inc. Illinois
Martec Australia Pty Limited Australia
Martec Finance Pty Limited Australia
Martin Boyer Company, Inc. Illinois
Mayflower National Life Insurance Company Indiana
Media/Professional Insurance Agency Limited United Kingdom
Media/Professional Insurance Agency, Inc. Missouri
Mediterranean Insurance Brokers Ltd. Malta
Mediterranean Insurance Training Centre Malta
Minahan Reinsurance Management Limited United Kingdom
Morency, Weible & Sapa, Inc. Illinois
Motorists Service Corporation Delaware
Motorplan Limited United Kingdom
Muirfield Underwriters, Ltd. Delaware
NB Life Agents, Inc. New York
NSU Benefit Corporation Indiana
National Care Provider Insurance, Inc. California
National Product Care Company Illinois
National Sports Underwriters, Inc. Indiana
Nicholson Chamberlain Colls Australia Limited Australia
Nicholson Chamberlain Colls Group Limited United Kingdom
Nicholson Chamberlain Colls Marine Limited United Kingdom
Nicholson Jenner Leslie Group Limited United Kingdom
Nicholson Leslie (North America) Limited United Kingdom
Nicholson Leslie Accident & Health Limited United Kingdom
Nicholson Leslie Agencies Limited United Kingdom
Nicholson Leslie Asia Pte Ltd Singapore
Nicholson Leslie Australia Holdings Limited Australia
Nicholson Leslie Aviation Limited United Kingdom
Nicholson Leslie Aviation Reinsurance Brokers United Kingdom
Nicholson Leslie BankAssure Limited United Kingdom
Nicholson Leslie Bankscope Insurance Services Limited United Kingdom
Nicholson Leslie Bankscope Marine Insurance Consultants United Kingdom
Nicholson Leslie Energy Resources Limited United Kingdom
Nicholson Leslie Financial Institutions Limited United Kingdom
Nicholson Leslie International (Reinsurance Brokers)
Limited United Kingdom
Nicholson Leslie International Limited United Kingdom
Nicholson Leslie Investments Limited United Kingdom
Nicholson Leslie Italia S.P.A. Italy
Nicholson Leslie Limited United Kingdom
Nicholson Leslie Management Services Limited United Kingdom
Nicholson Leslie Marine Limited United Kingdom
Nicholson Leslie Nederland Reinsurance brokers cv Netherlands
Nicholson Leslie Non-Marine Reinsurance Brokers Limited United Kingdom
Nicholson Leslie North American Reinsurance Brokers,
Limited United Kingdom
Nicholson Leslie Property Limited United Kingdom
Nicholson Leslie Special Risks Limited United Kingdom
Nicholson Leslie Special Risks Limited United Kingdom
Nicholson Stewart-Brown Limited United Kingdom
North Derbyshire Finance Company Limited, The United Kingdom
Nova Reinsurance Brokers, Inc. Illinois
OUM & Associates of California, A Corporation California
OUM & Associates of New York, A Corporation New York
OUM & Associates of Ohio, A Corporation Ohio
OUM & Associates, A Corporation Washington
OUM Risk Consultants, Inc. Washington
OWA Hoken (UK) Limited United Kingdom
OWA Insurance Services (France) SA France
OWA Insurance Services Austria Gesellschaft mbH Austria
OWA Insurance Services Austria GmbH & Co. KG Austria
OWA Insurance Services GmbH Germany
Oak Brook Holding, Inc. Delaware
Oak Brook Life Insurance Company Arizona
Ohrinsoo Agency Korea
Olandis Insurance Agency, Inc. Illinois
Olarescu & B. I. Davis Asesores y Corredores
de Seguros S.A. Peru
Old RHH North, Inc. California
P M R Re, Inc. New York
P.I. Consultants Ltd. Hong Kong
PLCM Group, Inc. Florida
PLCM Group, Inc. Illinois
PLCM Group, Inc. Pennsylvania
PT RNJ Ratna Nusa Jaya Indonesia
Pacific Wholesale Insurance Brokers Pty Limited Australia
Pandimar Consultants, Inc. New York
Paribas Assurantien B.V. Netherlands
Parker Risk Management (Barbados) Ltd. Barbados
Parker Risk Management (Bermuda) Ltd. Bermuda
Parker Risk Management (Cayman) Ltd. Cayman Islands
Parker Risk Management (Guernsey) Ltd. Guernsey
Parker Risk Management (S) Pte Ltd Singapore
Parker Risk Management, Inc. Colorado
Pat Ryan & Associates, B.V. Netherlands
Paul J.F. Schultz oHG Germany
Pernas HHL Insurance Brokers Sdn Bhd Malaysia
Pernas HHL Reinsurance Brokers Sdn. Bhd. Malaysia
Pinerich Ltd. Northern Ireland
Poland Puckle Insurance Brokers Ltd. United Kingdom
Preferred Risk Strategies, A Corporation Washington
Premier Auto Finance, Inc. Delaware
Premier Auto Finance, L.P. Illinois
Product Care, Inc. Illinois
Production Life Insurance Company Arizona
Professional Sports Insurance Co. Ltd. Bermuda
Progressive Ideal Sdn Bhd. Malaysia
Property Owners Database Limited United Kingdom
Provider Services, Ltd. Bermuda
Pyramid Services, Inc. Connecticut
R.E.I. (NSW) Insurance Brokers Pty. Ltd. Australia
R.E.I.A. Insurance Brokers Pty. Ltd. Australia
R.G. Reis (Management Services) Ltd. United Kingdom
R.G. Reis Life Consultants Ltd. United Kingdom
R.G. Reis Pension Fund Trustees Ltd. United Kingdom
RAMRO y Asociados, S.C. Mexico
RBH Acquisition Co. Delaware
RBH General Agencies (Canada) Inc. Quebec
RHH Empreendimentos e Servicos Ltda. Brazil
RHH Surety & Guarantee Limited United Kingdom
RIP Services Limited Guernsey
Resource Insurance Services, Inc. Indiana
Revasa S.p.A. Italy
Risk Management Consultants Ltd. United Kingdom
Rockford Holding, Inc. Delaware
Rockford Life Insurance Company Arizona
Rollins Heath (Japan) Ltd. Japan
Rollins Heath Korea Co. Ltd. Korea
Rollins Hudig Hall & Co. (N.S.W.) Pty. Ltd. Australia
Rollins Hudig Hall (Hong Kong) Ltd. Hong Kong
Rollins Hudig Hall (Nederland) Limited United Kingdom
Rollins Hudig Hall (Scandinavia) A/S Norway
Rollins Hudig Hall (Singapore) Pte Ltd Singapore
Rollins Hudig Hall Associates B.V. Netherlands
Rollins Hudig Hall Ceska Republika spol. s.r.o. Czech Republic
Rollins Hudig Hall Finance bv Netherlands
Rollins Hudig Hall Insurance Brokers ZAO Russia
Rollins Hudig Hall Mexico Agente De Seguros Y
De Fianzas, S.A. De C.V. Mexico
Rollins Hudig Hall Middle East United Arab Emirates
Rollins Hudig Hall Netherlands b.v. Netherlands
Rollins Hudig Hall Services Limited United Kingdom
Rollins Hudig Hall Slovensko spol.s r.o. Slovak Republic
Rollins Hudig Hall Sweden AB Sweden
Rollins Hudig Hall Versicherungsmakler Gesellschaft m.b.H. Austria
Rollins Hudig Hall do Brazil Corretora de Seguros Ltda. Brazil
Rollins Hudig Hall of Alaska, Inc. Alaska
Rollins Technical Services Co. Illinois
Ropeco Pty Ltd. Australia
Rostron Hancock Ltd. United Kingdom
Roundwise Limited United Kingdom
Ryan Insurance Group France S.A.R.L. France
Ryan Insurance Group, Inc. Delaware
Ryan Warranty Services Canada, Inc. Canada
Ryan Warranty Services Quebec, Inc. Ontario
Ryan/CSI, Inc. Illinois
S. Mark Brockinton & Associates of Texas, Inc. Texas
S. Mark Brockinton & Associates, Inc. Arkansas
SIS Services of New York, Inc. New York
SLE Worldwide Australia Pty Limited Australia
SLE Worldwide Canada Brokers, Ltd. Ontario
SLE Worldwide Limited United Kingdom
SLE Worldwide Mexico, Agente de Seguros, S.A. de C.V. Mexico
SLE Worldwide, Inc. Delaware
Saat Van Marwijk Beheer B.V. Netherlands
Saat Van Marwijk Noordwijk B.V. Netherlands
Sang Woon Agency Korea
Santos da Cunha, Abreu & Associados, Lda. Portugal
Saxonbeech Ltd. United Kingdom
Scarborough & Company, Inc. Delaware
Scarborough Insurance Agency of Massachusetts, Inc. Massachusetts
Seascope Cargo Insurance Services Limited United Kingdom
Seascope Insurance Holdings Limited United Kingdom
Seascope Insurance Services Limited United Kingdom
Seascope Marine Insurance Services Limited United Kingdom
Seascope Marine Limited United Kingdom
Seascope Reinsurance Services Limited United Kingdom
Select Direct Limited Scotland
Self-Insurers Service, Inc. Delaware
Service Protection, Inc. Illinois
Service Saver, Incorporated Florida
ServicePlan of Florida, Inc. Florida
ServicePlan of Ohio, Inc. Ohio
ServicePlan, Inc. Illinois
Services De Risques Aon Inc. Canada
Servicios Y Garantias Ryan S.L. Spain
Sherwood Insurance Services California
Shoreline Insurance Agency, Inc. Rhode Island
Simco Insurance Brokers Pte Singapore
Singer Group, Inc., The Texas
Singer Plan, Inc. Delaware
Square One, Inc. Texas
Steetley Leslie & Godwin Limited Guernsey
Steeves Lumley Ltd. Australia
Sterling Life Insurance Company Arizona
Stichting Employee Fund Aon Netherlands
Stichting Werknemerscertificaten HLG Netherlands
Strong Management Services Pty. Ltd. Australia
Structured Compensation Ltd. United Kingdom
Subsidiary Corporation, Inc. Maryland
Sumner & McMillan United Kingdom
Sumner & McMillan (Ireland) Ireland
Superannuation Fund (CICNZ) Limited New Zealand
Surety & Guarantee Consultants Limited United Kingdom
Surveyors Claims Services Ltd. United Kingdom
Swaziland Corporate Risk Management (Pty) Ltd. Swaziland
Swaziland Employee Benefit Consultants (Pty) Ltd. Swaziland
Swaziland Reinsurance Brokers (Pty) Ltd. Swaziland
TREV Properties Corporation Delaware
TTF Insurance Services Ltd. United Kingdom
Tabma-Hall Insurance Services Pty. Limited Australia
Tethercrest Ltd. United Kingdom
Texecur Versicherungs Vermittlungs GmbH Germany
The Auto Leasing Corporation Delaware
The Credit Insurance Association France SA France
The Credit Insurance Association Ltd. United Kingdom
U.S. Rating Bureau, Inc. Delaware
Underwriters Marine Services Limited United Kingdom
Underwriters Marine Services of Texas, Inc. Texas
Underwriters Marine Services, Inc. Louisiana
United Car & Van Rental Ltd. United Kingdom
VOL Mortgage Corporation Delaware
VOL Properties Corporation Delaware
Varity Risk Management Services Ltd. United Kingdom
Verum-HLG B.V. Netherlands
Vesselforward Ltd. United Kingdom
Virginia Surety Company, Inc. Illinois
WACUS Kreditversicherungsmakler GmbH Austria
WACUS Magyarorszag Hitelbitzositasi Tanacsado
es Kozvetito Kit Hungary
WAS Betriebsfuhrungs-GmbH Germany
Wacus/Hudig-Langeveldt GmbH Germany
Wacus/Hudig-Langeveldt Kreditversicherungsmakler
und Beratungs GmbH & Co. Germany
Wacus/Hudig-Langeveldt, Kreditversicherungsmakler
und Beratungs Germany
Wesselhoeft Ahlers & Schues oHG Germany
Wexford Underwriting Managers, Inc. Delaware
Whitehouse Moorman Holdings Ltd. United Kingdom
Wilfredo Armstrong S.A. Argentina
Willis Corroon (PVT) Ltd. Zimbabwe
Worldwide Insurance Network Limited United Kingdom
Worldwide Integrated Services Company Texas
XB-Lumley Insurance Brokers (Pty) Ltd. South Africa
nv Insurance Louis Delhaize (en abrege INSURDEL) Belgium
Exhibit 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Aon Corporation of our report dated February 11, 1997, included in the 1996
Annual Report to Stockholders of Aon Corporation.
Our audits also included the financial statement schedules of Aon Corporation
listed in Item 14(a). These schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, with respect to which the date is February 11, 1997 (except for
Note 5 to Schedule II, as to which the date is March 21, 1997), the financial
statement schedules referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein. As discussed in Note 4 to the consolidated
financial statements in the 1996 Annual Report to Stockholders of Aon
Corporation, the Company changed its method of accounting for certain
investments in 1994.
We also consent to the incorporation by reference in the Registration Statements
pertaining to the employer's stock option and savings plans (Form S-8 Nos.
33-27984, 33-42575 and 33-59037), the right to offer preferred stock (Form S-3
No. 33-57562) of Aon Corporation and the offer to exchange Capital Securities
(Form S-4 No. 333-21237) of Aon Capital A of our report dated February 11, 1997,
with respect to the consolidated financial statements incorporated herein by
reference, and our report, included in the preceding paragraph with respect to
the financial statement schedules included in this Annual Report (Form 10-K) of
Aon Corporation.
ERNST & YOUNG LLP
Chicago, Illinois
March 24, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from
Condensed Consolidated Statements of Financial Position and Condensed
Consolidated Statements of Income and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 2,826
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 879
<MORTGAGE> 29
<REAL-ESTATE> 18
<TOTAL-INVEST> 5,213
<CASH> 410
<RECOVER-REINSURE> 35
<DEFERRED-ACQUISITION> 599
<TOTAL-ASSETS> 13,723
<POLICY-LOSSES> 1,080
<UNEARNED-PREMIUMS> 1,925
<POLICY-OTHER> 841
<POLICY-HOLDER-FUNDS> 514
<NOTES-PAYABLE> 735 <F1>
50
6 <F3>
<COMMON> 114 <F2>
<OTHER-SE> 2,713
<TOTAL-LIABILITY-AND-EQUITY> 13,723
1,527
<INVESTMENT-INCOME> 384
<INVESTMENT-GAINS> 8
<OTHER-INCOME> 1,969 <F4>
<BENEFITS> 790
<UNDERWRITING-AMORTIZATION> 208
<UNDERWRITING-OTHER> 2,445
<INCOME-PRETAX> 446
<INCOME-TAX> 154
<INCOME-CONTINUING> 292
<DISCONTINUED> 43
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 335
<EPS-PRIMARY> 2.87
<EPS-DILUTED> 2.87
<RESERVE-OPEN> 715
<PROVISION-CURRENT> 920 <F5>
<PROVISION-PRIOR> (92)<F5>
<PAYMENTS-CURRENT> 725 <F6>
<PAYMENTS-PRIOR> 283
<RESERVE-CLOSE> 535
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1> Includes short-term borrowings and debt guarantee of ESOP.
<F2> Common stock at par value.
<F3> Preferred stock at par value.
<F4> Includes brokerage commissions and fees and other income.
<F5> Includes discontinued operations.
<F6> Includes liability for business sold of $173 million.
</FN>
</TABLE>
